<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 3)
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of
the Commission Only
(as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CALIFORNIA JOCKEY CLUB, BAY MEADOWS OPERATING COMPANY AND
PATRIOT AMERICAN HOSPITALITY, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)Title of each class of securities to which transaction applies:
(2)Aggregate number of securities to which transaction applies:
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4)Proposed maximum aggregate value of transaction:
(5)Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1)Amount previously paid:
(2)Form, schedule or registration statement no.:
(3)Filing party:
(4)Date filed:
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234
June 2, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Patriot American Hospitality, Inc. ("Patriot") to be held at 11:00 a.m., local
time, on July 1, 1997, at the Holiday Inn Select, Dallas, Texas (the "Patriot
Special Meeting").
At the Patriot Special Meeting, you will be asked to approve the Agreement
and Plan of Merger, dated as of February 24, 1997, as amended and restated as
of May 28, 1997 (the "Merger Agreement"), by and among Patriot, Patriot
American Hospitality Partnership, L.P., California Jockey Club ("Cal Jockey")
and Bay Meadows Operating Company ("Bay Meadows"). Pursuant to the Merger
Agreement, Patriot will merge with and into Cal Jockey (the "Merger"), with
Cal Jockey being the surviving company. In connection with the Merger, Cal
Jockey's name will be changed to "Patriot American Hospitality, Inc." ("New
Patriot REIT") and Bay Meadows' name will be changed to "Patriot American
Hospitality Operating Company" ("New Patriot Operating Company"). As a result
of the Merger and the related transactions, you will be entitled to receive
for each share of Patriot common stock held by you at the effective time of
the Merger 0.51895 paired shares (the "Exchange Ratio") of common stock of New
Patriot REIT and New Patriot Operating Company (subject to certain REIT
qualification requirements); provided, that if the average closing price of a
share of Patriot common stock over the 20 trading days immediately preceding
the third trading day prior to the Patriot Special Meeting (the "Patriot
Average Trading Price") is less than $17.125, then each share of Patriot
common stock will be converted into the number of paired shares equal to the
Patriot Average Trading Price divided by $33.00. On May 28, 1997, the closing
price of Patriot common stock as reported on the New York Stock Exchange was
$21 1/2. The shares of New Patriot REIT and New Patriot Operating Company you
receive will be paired together and will be transferable only as a single
unit. Each outstanding paired share of Cal Jockey common stock and Bay Meadows
common stock will remain outstanding after the Merger and will automatically,
without any action on the part of the stockholders of Cal Jockey and Bay
Meadows, represent the same number of paired shares of New Patriot REIT common
stock and New Patriot Operating Company common stock. Assuming no options or
limited partner units are exchanged for shares of Patriot common stock prior
to the Merger, and assuming that the Exchange Ratio is not adjusted due to a
Patriot Average Trading Price below $17.125, the current stockholders of
Patriot would hold in the aggregate approximately 80% of the outstanding
paired shares of New Patriot REIT common stock and New Patriot Operating
Company common stock upon consummation of the Merger. Approval of the Merger
Agreement requires the affirmative vote of the holders of two-thirds of the
outstanding shares of Patriot common stock.
At the Patriot Special Meeting, you will also be asked to approve the
amendment and restatement of the Patriot American Hospitality, Inc. 1995
Incentive Plan (the "Patriot Incentive Plan Proposal"). Approval of the
Patriot Incentive Plan Proposal requires the affirmative vote of the holders
of at least a majority of the shares of Patriot Common Stock present in person
or by proxy and entitled to vote at the Patriot Special Meeting.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREIN ARE FAIR TO, AND IN THE BEST INTERESTS OF,
PATRIOT AND ITS STOCKHOLDERS. THE BOARD'S REASONS FOR THIS BELIEF ARE SET
FORTH IN "THE MERGER AND SUBSCRIPTION--REASONS FOR THE MERGER; RECOMMENDATION
OF THE BOARD OF DIRECTORS OF PATRIOT" IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. THE INVESTMENT BANKING FIRM OF PAINEWEBBER INCORPORATED
HAS ISSUED ITS OPINION TO THE BOARD OF DIRECTORS OF PATRIOT, A COPY OF WHICH
IS ATTACHED AS ANNEX F TO THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS,
THAT, AS OF THE DATE THEREOF AND SUBJECT TO THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
PAINEWEBBER INCORPORATED IN SUCH OPINION, THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF PATRIOT
<PAGE>
COMMON STOCK IN THE MERGER IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT OF
VIEW. THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED IN THE MERGER AGREEMENT. YOUR BOARD OF DIRECTORS BELIEVES THAT
THE PATRIOT INCENTIVE PLAN PROPOSAL IS IN THE BEST INTERESTS OF PATRIOT AND
ITS STOCKHOLDERS. THE PATRIOT BOARD OF DIRECTORS' REASONS FOR THIS BELIEF ARE
SET FORTH IN "PROPOSAL TO APPROVE AMENDMENT AND RESTATEMENT OF THE PATRIOT
INCENTIVE PLAN." THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED
THE PATRIOT INCENTIVE PLAN PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE PATRIOT INCENTIVE PLAN PROPOSAL.
As more fully described in the accompanying Joint Proxy
Statement/Prospectus, Patriot has entered into a merger agreement and a
related stock purchase agreement pursuant to which Wyndham Hotel Corporation
("Wyndham") will merge with and into New Patriot REIT with New Patriot REIT
being the surviving company. It is important to note that you are not being
asked to vote on the Wyndham transaction at this time. The Wyndham transaction
is subject to various conditions, including the consummation of the Merger and
approval of the Wyndham transaction by the stockholders of New Patriot REIT,
New Patriot Operating Company and Wyndham. Assuming the Merger is approved by
the stockholders of Cal Jockey, Bay Meadows and Patriot, it is currently
anticipated that proxy statements to approve the Wyndham transaction would be
mailed, and the stockholder meetings to approve the Wyndham transaction would
be held, in the fourth quarter of 1997. If the Wyndham transaction were
approved at that time, it is anticipated that the current stockholders of
Patriot would hold approximately 53.4% and the current stockholders of Cal
Jockey and Bay Meadows would hold in the aggregate approximately 13.4% of the
outstanding paired shares of New Patriot REIT common stock and New Patriot
Operating Company common stock following consummation of the Wyndham
transaction (assuming no Wyndham stockholders exercise their cash election
rights in the Wyndham transaction).
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Merger, the reasons for your Board of
Directors' recommendation of the Merger Agreement and the transactions
contemplated in the Merger Agreement and certain additional information,
including, without limitation, the information set forth under the heading
"Risk Factors," which describes, among other items, potential adverse effects
to Patriot stockholders as a result of the Merger. We urge you to carefully
consider all of the information in the Joint Proxy Statement/Prospectus. IT IS
IMPORTANT THAT YOUR SHARES OF PATRIOT COMMON STOCK BE REPRESENTED AT THE
PATRIOT SPECIAL MEETING, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD.
THEREFORE, PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR BLUE PROXY CARD AS SOON
AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE PATRIOT SPECIAL MEETING.
THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU
SUBSEQUENTLY CHOOSE TO ATTEND THE PATRIOT SPECIAL MEETING.
Sincerely,
/s/ Paul A. Nussbaum
Paul A. Nussbaum
Chairman of the Board and Chief
Executive Officer
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY, SUITE 1500
DALLAS, TEXAS 75234
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 1, 1997
----------------
To the Stockholders of Patriot American Hospitality, Inc.:
A Special Meeting of Stockholders of Patriot American Hospitality, Inc., a
Virginia corporation ("Patriot"), will be held at 11:00 a.m., local time, on
July 1, 1997, at the Holiday Inn Select, Dallas, Texas (the "Patriot Special
Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 24, 1997, as amended and restated as of May
28, 1997 (the "Merger Agreement"), by and among Patriot, Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership, California
Jockey Club, a Delaware corporation ("Cal Jockey"), and Bay Meadows
Operating Company, a Delaware corporation ("Bay Meadows"). Pursuant to the
Merger Agreement, Patriot will merge with and into Cal Jockey (the
"Merger"), with Cal Jockey being the surviving company. In connection with
the Merger, Cal Jockey's name will be changed to "Patriot American
Hospitality, Inc." ("New Patriot REIT") and Bay Meadows' name will be
changed to "Patriot American Hospitality Operating Company" ("New Patriot
Operating Company"). As a result of the Merger and the related
transactions, Patriot stockholders will be entitled to receive for each
share of Patriot common stock held by them at the effective time of the
Merger 0.51895 shares of common stock of New Patriot REIT and 0.51895
shares of common stock of New Patriot Operating Company (subject to certain
REIT qualification requirements) (the "Exchange Ratio"), which shares will
be paired and transferable only as a single unit. In the event, however,
that the average closing price of a share of Patriot common stock over the
20 trading days preceding the third trading day immediately prior to the
Patriot Special Meeting (the "Patriot Average Trading Price") is less than
$17.125, then each share of Patriot common stock will be converted into the
number of paired shares equal to the Patriot Average Trading Price divided
by $33.00. On May 28, 1997, the closing price of Patriot common stock as
reported on the New York Stock Exchange was $21 1/2. Upon consummation of
the Merger, assuming no options or limited partner units are exchanged for
shares of Patriot common stock prior to the Merger, and assuming that the
Exchange Ratio is not adjusted due to a Patriot Average Trading Price below
$17.125, the current stockholders of Patriot will hold in the aggregate
approximately 80% of the outstanding paired shares of New Patriot REIT
common stock and New Patriot Operating Company common stock. A copy of the
Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this Notice;
2. To consider and vote upon a proposal to approve the amendment and
restatement of the Patriot American Hospitality, Inc. 1995 Incentive Plan
(the "Patriot Incentive Plan"); and
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors of Patriot has fixed the close of business on May 16,
1997 as the record date for the determination of the holders of shares of
Patriot common stock entitled to notice of, and to vote at, the Patriot
Special Meeting. A list of such stockholders will be available for inspection
at the offices of Patriot at least ten days prior to the Patriot Special
Meeting. The Merger Agreement, the Patriot Incentive Plan and other related
matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the Annexes thereto, which form a part of this
Notice.
<PAGE>
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE PATRIOT SPECIAL
MEETING. TO ENSURE YOUR REPRESENTATION AT THE PATRIOT SPECIAL MEETING,
HOWEVER, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED BLUE
PROXY CARD AS PROMPTLY AS POSSIBLE. A POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR
THAT PURPOSE. ANY STOCKHOLDER ATTENDING THE PATRIOT SPECIAL MEETING MAY VOTE
IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors
of Patriot American Hospitality, Inc.
/s/ Rex E. Stewart
Rex E. Stewart
Secretary
June 2, 1997
- -------------------------------------------------------------------------------
IMPORTANT
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
2
<PAGE>
BAY MEADOWS OPERATING COMPANY
CALIFORNIA JOCKEY CLUB
AND
PATRIOT AMERICAN HOSPITALITY, INC.
JOINT PROXY STATEMENT
----------------
BAY MEADOWS OPERATING COMPANY
AND
CALIFORNIA JOCKEY CLUB
PROSPECTUS
On October 31, 1996, Patriot American Hospitality, Inc., a Virginia
corporation ("Patriot"), California Jockey Club, a Delaware corporation ("Cal
Jockey"), and Bay Meadows Operating Company, a Delaware corporation ("Bay
Meadows"), entered into a binding acquisition agreement (the "October 31, 1996
Agreement") pursuant to which the parties agreed, subject to stockholder
approval and other conditions, to engage in a business combination
transaction. The parties, together with Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership (the "Patriot Partnership"),
thereafter entered into an Agreement and Plan of Merger, dated as of February
24, 1997, as amended and restated as of May 28, 1997 (the "Merger Agreement"),
which by its terms supersedes the October 31, 1996 Agreement and more fully
details the transactions to be consummated by the parties. This Joint Proxy
Statement and Prospectus (the "Joint Proxy Statement/Prospectus") relates to
the Merger Agreement and the transactions contemplated therein (the "Related
Transactions").
. Pursuant to the Merger Agreement, Patriot will merge with and into Cal
Jockey (the "Merger"), with Cal Jockey being the surviving company. In
connection with the Merger, Cal Jockey's name will be changed to "Patriot
American Hospitality, Inc." ("New Patriot REIT") and Bay Meadows' name
will be changed to "Patriot American Hospitality Operating Company" ("New
Patriot Operating Company").
. Pursuant to the Merger Agreement, and subject to adjustment as described
below, Patriot stockholders will be entitled to receive for each share of
common stock, no par value per share, of Patriot ("Patriot Common Stock")
held by them at the effective time of the Merger, 0.51895 shares of
common stock, par value $.01 per share, of New Patriot REIT ("New Patriot
REIT Common Stock") and 0.51895 shares of common stock, par value $.01
per share, of New Patriot Operating Company ("New Patriot Operating
Company Common Stock") (subject to certain REIT qualification
requirements), which shares will be paired and transferable only as a
single unit. In the event, however, that the average closing price of a
share of Patriot common stock as reported on the New York Stock Exchange
(the "NYSE") over the 20 trading days immediately preceding the third
trading day prior to the special meetings of the stockholders of Patriot,
Cal Jockey and Bay Meadows described below (the "Patriot Average Trading
Price") is less than $17.125, then Patriot stockholders will be entitled
to receive for each share of Patriot Common Stock held by them at the
effective time of the Merger, the number of paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock equal to
the Patriot Average Trading Price divided by $33.00. On May 28, 1997, the
closing price of Patriot Common Stock on the NYSE was $21 1/2. Based on
the closing price of the Paired Shares (as defined below) of $41 1/2 on
May 28, 1997 on the American Stock Exchange (the "AMEX"), the market
value of 0.51895 paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock would be $21.54. Unless otherwise
provided, the information in this Joint Proxy Statement/Prospectus
assumes that the Patriot Average Trading Price will be $17.125 or
greater.
<PAGE>
. In addition, each outstanding Paired Share of common stock, par value
$.01 per share, of Cal Jockey ("Cal Jockey Common Stock") and common
stock, par value $.01 per share, of Bay Meadows ("Bay Meadows Common
Stock") will remain outstanding after the Merger and will, without any
action on the part of the stockholders of Cal Jockey and Bay Meadows,
represent the same number of paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Upon consummation
of the Merger, assuming no options or limited partner units are exchanged
for shares of Patriot Common Stock prior to the Merger, and assuming that
the Exchange Ratio is not adjusted due to a Patriot Average Trading Price
below $17.125, the current stockholders of Cal Jockey and Bay Meadows
will hold in the aggregate approximately 20%, and the current Patriot
stockholders will hold approximately 80%, of the outstanding paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock.
. In connection with the Merger, Bay Meadows will form an operating
partnership (the "New Patriot Operating Partnership") into which Bay
Meadows will contribute certain of its assets in exchange for limited
partnership units ("OP Units") of the New Patriot Operating Partnership,
and Cal Jockey will contribute certain of its assets to the Patriot
Partnership in exchange for OP Units of the Patriot Partnership. Upon
completion of the Merger and the Related Transactions, substantially all
of the operations of New Patriot REIT and New Patriot Operating Company
will be conducted through their respective operating partnerships.
. As more fully described in this Joint Proxy Statement/Prospectus, Patriot
has entered into a merger agreement and a related stock purchase
agreement pursuant to which Wyndham Hotel Corporation ("Wyndham") will
merge with and into New Patriot REIT with New Patriot REIT being the
surviving company. The Merger Agreement does not relate to, and this
Joint Proxy Statement/Prospectus does not seek approval of, the Wyndham
transaction at this time. The Wyndham transaction is subject to various
conditions, including the consummation of the Merger and approval of the
Wyndham transaction by the stockholders of New Patriot REIT, New Patriot
Operating Company and Wyndham. Assuming the Merger is approved by the
stockholders of Cal Jockey, Bay Meadows and Patriot, it is currently
anticipated that proxy statements to approve the Wyndham transaction
would be mailed, and the stockholder meetings to approve the Wyndham
transaction would be held, in the fourth quarter of 1997. If the Wyndham
transaction is approved and consummated, it is anticipated that the
current stockholders of Patriot would hold approximately 53.4% and the
current stockholders of Cal Jockey and Bay Meadows would hold in the
aggregate approximately 13.4% of the outstanding paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
following consummation of the Wyndham transaction (assuming no Wyndham
stockholders exercise their cash election rights in the Wyndham
transaction).
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Cal
Jockey and Bay Meadows with respect to the issuance of up to approximately
30,500,000 paired shares of Cal Jockey Common Stock and Bay Meadows Common
Stock, which shares are paired and trade together as a single unit (the
"Paired Shares"), to be issued to stockholders of Patriot in connection with
the transactions contemplated by the Merger Agreement and issuable to holders
of OP Units of the New Patriot Operating Partnership and the Patriot
Partnership upon redemption of their OP Units. On a pro forma basis, the
30,500,000 Paired Shares which may be issued pursuant to this Joint Proxy
Statement/Prospectus would represent 84.1% of the total issued and outstanding
Paired Shares, of which approximately 63.3% would be issued to the current
stockholders of Patriot and approximately 20.8% would be issuable upon the
exchange of OP Units of the Patriot Partnership or the exercise of options to
purchase shares of Patriot Common Stock. The Paired Shares are traded as a
single unit on the AMEX under the symbol "CJ". As a condition to consummating
the transactions contemplated by the Merger Agreement, the Paired Shares will
be authorized for trading on the NYSE under the symbol "PAH" immediately
following the Merger.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Bay Meadows Common Stock in connection with the solicitation of proxies by
the Board of Directors of Bay Meadows for use at a special meeting of
stockholders of Bay Meadows to be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 9:00 a.m., Pacific time, and at any and all adjournments or
postponements thereof (the "Bay Meadows Special Meeting").
(ii)
<PAGE>
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Cal Jockey Common Stock in connection with the solicitation of proxies by
the Board of Directors of Cal Jockey for use at a special meeting of
stockholders of Cal Jockey to be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 10:15 a.m., Pacific time, and at any and all adjournments or
postponements thereof (the "Cal Jockey Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of Patriot Common Stock in connection with the solicitation of proxies by the
Board of Directors of Patriot for use at a special meeting of stockholders of
Patriot to be held at the Holiday Inn Select, Dallas, Texas, on July 1, 1997,
at 11:00 a.m., local time, and at any and all adjournments or postponements
thereof (the "Patriot Special Meeting").
Consummation of the Merger is subject to various conditions (which must be
satisfied or waived), including: (i) approval of a proposal to adopt the
Merger Agreement and the Related Transactions, by the holders of two-thirds of
the outstanding shares of Patriot Common Stock at the Patriot Special Meeting,
by the holders of a majority of the outstanding shares of Cal Jockey Common
Stock at the Cal Jockey Special Meeting and by the holders of a majority of
the outstanding shares of Bay Meadows Common Stock at the Bay Meadows Special
Meeting; (ii) approval of a proposal to amend and restate the Certificate of
Incorporation of Cal Jockey and the Bylaws of Cal Jockey by the holders of a
majority of the outstanding shares of Cal Jockey Common Stock at the Cal
Jockey Special Meeting; and (iii) approval of a proposal to amend and restate
the Certificate of Incorporation of Bay Meadows and the Bylaws of Bay Meadows
by the holders of a majority of the outstanding shares of Bay Meadows Common
Stock. Although each of the aforementioned proposals will be voted on
separately, BECAUSE EACH OF THE PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF
THE PROPOSALS ARE NOT ADOPTED, THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE
THE MERGER OR ANY OF THE RELATED TRANSACTIONS.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
"RISK FACTORS" ON PAGE 42.
Any Patriot, Cal Jockey or Bay Meadows stockholder who would like
information with respect to the Exchange Ratio may call Patriot's proxy
solicitor, McKenzie Partners, Inc., at 1-800-322-2885. McKenzie Partners, Inc.
will provide to any requesting stockholder an estimate of the Exchange Ratio
as of any date prior to the final determination of the Exchange Ratio.
McKenzie Partners, Inc. also will provide instructions on how to submit
proxies in a timely manner, including for any stockholder who wishes to wait
until the Exchange Ratio is finally determined. In addition, any Patriot, Cal
Jockey or Bay Meadows stockholder who wishes to change their vote relating to
any proposal may do so by transmitting such request via facsimile to McKenzie
Partners, Inc. at (212) 929-0308.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Cal Jockey has been provided by Cal Jockey. All information
contained in this Joint Proxy Statement/Prospectus with respect to Bay Meadows
has been provided by Bay Meadows. All information contained in this Joint
Proxy Statement/Prospectus with respect to Patriot has been provided by
Patriot.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Cal Jockey, Bay Meadows and Patriot
on or about June 2, 1997. A stockholder who has given a proxy may revoke it at
any time prior to its exercise.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is May 30, 1997.
(iii)
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION
Cal Jockey, Bay Meadows and Patriot are each subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith file reports, proxy and
information statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information filed by Cal Jockey, Bay Meadows and Patriot can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and may be available at the following Regional Offices of the
Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Cal Jockey, Bay Meadows and Patriot are also required
to file electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering Analysis and Retrieval (EDGAR) system.
The Commission maintains a world wide web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. In
addition, reports, proxy and information statements and other information
concerning Cal Jockey and Bay Meadows can be inspected at the offices of the
AMEX, 86 Trinity Place, New York, New York 10006-1881, on which the Paired
Shares are currently listed. In addition, reports, proxy and information
statements and other information concerning Patriot can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005, on which the
Patriot Common Stock is listed.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which
this Joint Proxy Statement/Prospectus is a part, and which Cal Jockey and Bay
Meadows has filed with the Commission under the Securities Act of 1933, as
amended. Reference is made to such Registration Statement for further
information with respect to Cal Jockey, Bay Meadows and the Paired Shares
offered hereby. Statements contained herein or incorporated herein by
reference concerning the provisions of documents are summaries of such
documents and accurately describe the material provisions of each such
referenced document. Each statement is qualified in its entirety by reference
to the copy of the applicable document if filed with the Commission or
attached as an annex hereto.
(iv)
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Joint Proxy Statement/Prospectus:
Cal Jockey and Bay Meadows
1. Annual Report on Form 10-K (Nos. 001-09319, 001-09320) for the fiscal
year ended December 31, 1996;
2. Current Report on Form 8-K dated February 24, 1997 (Nos. 001-09319, 001-
09320 filed March 3, 1997) reporting the execution of the Merger Agreement;
3. The description of the Paired Shares of Cal Jockey Common Stock and Bay
Meadows Common Stock contained or incorporated by reference in Cal Jockey's
and Bay Meadows' Registration Statement on Form 8-A (Nos. 001-09319, 001-
09320) including any amendments thereto;
4. Quarterly Report on Form 10-Q (Nos. 001-9319, 001-9320) for the fiscal
quarter ended March 31, 1997; and
5. Quarterly Report on Form 10-Q/A (Nos. 001-9319, 001-9320) for the fiscal
quarter ended March 31, 1997 (filed May 16, 1997).
Patriot
1. Annual Report on Form 10-K (No. 001-13898) for the fiscal year ended
December 31, 1996;
2. Current Reports on Form 8-K dated (i) April 2, 1996, as amended (No. 001-
13898 filed April 17, 1996 and June 14, 1996) reporting the acquisition of
certain assets, (ii) December 5, 1996 (No. 001-13898 filed December 5, 1996)
reporting the acquisition of certain assets, (iii) January 16, 1997, as
amended (No. 001-13898 filed January 31, 1997, February 21, 1997, April 8,
1997, April 9, 1997 and May 19, 1997), reporting the consummation of the
acquisition of Carefree Resorts Corporation and Resorts Limited Partnership
and certain other assets, (iv) February 24, 1997 (No. 001-13898 filed March 3,
1997) reporting the execution of the Merger Agreement and (v) April 14, 1997,
as amended (No. 001-13898 filed April 17, 1997 and April 18, 1997), reporting
the execution of a merger agreement between Patriot and Wyndham and the
related stock purchase agreement and the execution of agreements with
partnerships affiliated with members of the Trammell Crow family providing for
the acquisition by New Patriot REIT of 11 full-service Wyndham-branded hotels;
3. The description of the Patriot Common Stock contained or incorporated by
reference in Patriot's Registration Statement on Form 8-A (No. 001-13898)
including any amendments thereto; and
4. Quarterly Report on Form 10-Q (No. 001-13898) as of and for the fiscal
quarter ended March 31, 1997.
Wyndham Hotel Corporation
1. Annual Report on Form 10-K (No. 001-11723) as of and for the period ended
December 31, 1996; and
2. Current Report on Form 8-K dated April 23, 1997 (No. 001-11723 filed
April 23, 1997) reporting the execution of a merger agreement between Patriot
and Wyndham.
3. Quarterly Report on Form 10-Q (No. 001-11723) for the fiscal quarter
ended March 31, 1997.
In addition, all reports and other documents filed by each of Cal Jockey,
Bay Meadows and Patriot pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date hereof and prior to the Cal Jockey Special
Meeting, the Bay Meadows Special Meeting and the Patriot Special Meeting shall
be deemed to be
(v)
<PAGE>
incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, or in
any other subsequently filed document that also is incorporated or deemed to
be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS JOINT PROXY STATEMENT/ PROSPECTUS IS DELIVERED TO, IN THE CASE OF
DOCUMENTS RELATING TO CAL JOCKEY, 2600 SOUTH DELAWARE STREET, P.O. BOX 1117,
SAN MATEO, CALIFORNIA 94403, ATTENTION: MAE DE VOL (TELEPHONE NO. (415) 573-
4514), OR, IN THE CASE OF DOCUMENTS RELATING TO BAY MEADOWS, 2600 SOUTH
DELAWARE STREET, P.O. BOX 5050, SAN MATEO, CALIFORNIA 94402, ATTENTION: MIKE
ZIEGLER (TELEPHONE NO. (415) 573-4512), OR, IN THE CASE OF DOCUMENTS RELATING
TO PATRIOT, 3030 LBJ FREEWAY, SUITE 1500, DALLAS, TEXAS 75234, ATTENTION:
SHAREHOLDER RELATIONS (TELEPHONE NO. (972) 888-8000). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 24, 1997.
(vi)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
The Companies........................................................... 1
The Meetings of Stockholders............................................ 7
The Merger and Subscription............................................. 9
Risk Factors............................................................ 14
The Merger Agreement.................................................... 18
Comparison of Stockholder Rights........................................ 21
Interests of Certain Officers and Directors............................. 23
Summary Financial Information........................................... 25
Comparative Per Share Data.............................................. 39
Comparative Market Data................................................. 40
Distribution and Dividend Policy........................................ 41
RISK FACTORS.............................................................. 42
REIT Tax Risks.......................................................... 42
Failure to Manage Rapid Growth and Integrate Operations Following the
Merger................................................................. 44
Substantial Debt Obligations; No Limits on Indebtedness................. 45
Lack of Experience in Hotel Management Business......................... 45
Dilution to Earnings Caused by Acquisition of Cal Jockey and Bay Mead-
ows.................................................................... 45
Stock Price Fluctuations................................................ 46
Potential Conflicts of Interest Between New Patriot REIT and New Patriot
Operating Company...................................................... 46
Different Fairness Analyses of Cal Jockey and Bay Meadows by PaineWebber
and Montgomery......................................................... 46
Dependence on Lessees and Payments under the Participating Leases....... 47
Certain Conflicts of Interest Relating to Patriot....................... 47
Risk of Investment in Subsidiaries Controlled by Other Parties.......... 48
Benefits to Certain Directors and Officers of Cal Jockey and Bay Mead-
ows.................................................................... 48
Risks Relating to Proposed Wyndham Transactions......................... 49
Hotel Industry Risks.................................................... 49
Real Estate Investment Risks............................................ 51
Risks of Operating Hotels Under Franchise or Brand Affiliations......... 53
Potential Risks Related to Entitlements for Franklin Agreement and
Iacocca Agreement...................................................... 53
Horse Racing Industry Risks............................................. 54
Lack of Experience in the Horse Racing Business; Reliance on Bay Meadows
Management............................................................. 55
Comparison of Stockholder Rights........................................ 56
Possible Adverse Effects on Market Price of Common Stock of New Patriot
REIT and New Patriot Operating Company Arising from Shares Available
for Future Sale........................................................ 56
Substantial Expenses and Payments if Merger Fails to Occur.............. 57
Adverse Effect of Increase in Market Interest Rates on Price of Common
Stock of New Patriot REIT and New Patriot Operating Company............ 57
No Dissenters' Rights................................................... 57
THE COMPANIES............................................................. 58
Patriot................................................................. 58
Cal Jockey.............................................................. 59
Bay Meadows............................................................. 60
Surviving Companies..................................................... 61
DESCRIPTION OF THE PARTNERSHIP AGREEMENTS................................. 71
Patriot Partnership..................................................... 71
New Patriot Operating Partnership....................................... 74
</TABLE>
(vii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE MEETINGS OF STOCKHOLDERS.............................................. 75
Cal Jockey Special Meeting.............................................. 75
Bay Meadows Special Meeting............................................. 76
Patriot Special Meeting................................................. 77
THE MERGER AND SUBSCRIPTION............................................... 80
Terms of the Merger and Subscription.................................... 80
Background of the Merger................................................ 81
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Patriot...................................... 91
Opinion of Patriot's Financial Advisor.................................. 93
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Cal Jockey................................... 98
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Bay Meadows.................................. 101
Opinion of Financial Advisor for Cal Jockey and Bay Meadows............. 104
Interests of Certain Officers and Directors............................. 109
Accounting Treatment.................................................... 111
Regulatory Approval..................................................... 111
Certain Resale Restrictions............................................. 112
New York Stock Exchange Listing......................................... 112
Dissenters' Rights...................................................... 112
THE MERGER AGREEMENT...................................................... 113
General................................................................. 113
The Merger and Subscription............................................. 113
Effective Time of the Merger............................................ 114
Exchange of Patriot Stock Certificates.................................. 114
Conditions to the Merger................................................ 117
Representations and Warranties.......................................... 118
Certain Covenants....................................................... 118
Loan for Hudson Bay Termination Fee..................................... 120
Termination............................................................. 121
Termination Amount and Expenses......................................... 121
Indemnification......................................................... 122
Amendments.............................................................. 122
PROPOSALS TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE CAL JOCKEY AND
BAY MEADOWS CHARTERS AND BYLAWS.......................................... 123
Proposed Amendment and Restatement of Cal Jockey's and Bay Meadows'
Charters and Bylaws.................................................... 123
PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE PATRIOT INCENTIVE
PLAN..................................................................... 124
Reasons for the Patriot Incentive Plan Proposal......................... 124
Summary of the Patriot Incentive Plan................................... 125
Stockholders' Vote Required to Approve Proposal......................... 128
New Plan Benefits Table................................................. 128
Tax Aspects Under the U.S. Internal Revenue Code........................ 128
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 130
</TABLE>
(viii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Consequences of the Merger.......................................... 130
Pre-Merger Dividend..................................................... 132
Sale of Land by New Patriot REIT........................................ 132
REIT Qualification ..................................................... 133
Taxation of New Patriot Operating Company............................... 135
Effects of Compliance with REIT Requirements............................ 135
Tax Aspects of New Patriot REIT's Investment in the Patriot Partnership
and New Patriot Operating Company's Investment in the New Patriot
Operating Partnership.................................................. 135
PAH Ravinia, PAH WindWatch and PAH Boulders............................. 137
State and Local Taxation................................................ 137
Federal Income Taxation of Holders of Paired Shares..................... 137
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................... 140
MANAGEMENT OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY.......... 187
New Patriot REIT........................................................ 187
New Patriot Operating Company........................................... 189
Overlap of Management of New Patriot REIT and New Patriot Operating
Company................................................................ 190
DESCRIPTION OF CAPITAL STOCK.............................................. 191
Common Stock............................................................ 191
Preferred Stock......................................................... 191
Excess Stock............................................................ 192
The Pairing Agreement................................................... 192
Certain Provisions of the Restated Charters and Restated Bylaws......... 192
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 199
Comparison of Rights of Patriot Stockholders to Stockholders of New
Patriot REIT and New Patriot Operating Company......................... 199
Comparison of Rights of Stockholders of Cal Jockey and Bay Meadows to
Stockholders of New Patriot REIT and New Patriot Operating Company..... 207
STOCKHOLDERS' MEETINGS, LITIGATION AND DISAGREEMENTS...................... 211
OTHER MATTERS............................................................. 211
LEGAL MATTERS............................................................. 211
EXPERTS................................................................... 212
STOCKHOLDER PROPOSALS..................................................... 213
FINANCIAL STATEMENTS FOR CROW FAMILY HOTEL PARTNERSHIPS................... F-1
ANNEXES
</TABLE>
<TABLE>
<C> <S>
A. Agreement and Plan of Merger
B. Proposed Form of Amended and Restated Certificate of Incorporation of
New Patriot REIT
C. Proposed Form of Amended and Restated Bylaws of New Patriot REIT
D. Proposed Form of Amended and Restated Certificate of Incorporation of
New Patriot Operating Company
E. Proposed Form of Amended and Restated Bylaws of New Patriot Operating
Company
F. Opinion of Financial Advisor of Patriot: PaineWebber Incorporated
Opinion of Financial Advisor for Cal Jockey and Bay Meadows: Montgomery
G. Securities
</TABLE>
(ix)
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement and Prospectus (the "Joint Proxy
Statement/Prospectus") and the Annexes hereto relating to the Agreement and
Plan of Merger, dated as of February 24, 1997, as amended and restated as of
May 28, 1997 (the "Merger Agreement"), by and among Patriot American
Hospitality, Inc., a Virginia corporation ("Patriot"), Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership (the "Patriot
Partnership"), California Jockey Club, a Delaware corporation ("Cal Jockey"),
and Bay Meadows Operating Company, a Delaware corporation ("Bay Meadows"), and
the transactions contemplated therein (the "Related Transactions"). Pursuant to
the Merger Agreement, Patriot will merge with and into Cal Jockey (the
"Merger"), with Cal Jockey being the surviving company. In connection with the
Merger, Cal Jockey's name will be changed to "Patriot American Hospitality,
Inc." ("New Patriot REIT") and Bay Meadows' name will be changed to "Patriot
American Hospitality Operating Company" ("New Patriot Operating Company").
Unless the context indicates otherwise, all references to Patriot, Cal Jockey,
Bay Meadows, New Patriot REIT and New Patriot Operating Company include their
respective subsidiaries and affiliated partnerships. This summary does not
purport to contain all material information relating to the Merger Agreement or
the Related Transactions, including the Merger, and is qualified in its
entirety by the more detailed information and financial statements contained or
incorporated by reference in this Joint Proxy Statement/Prospectus.
STOCKHOLDERS OF PATRIOT, CAL JOCKEY AND BAY MEADOWS SHOULD READ CAREFULLY THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED HERETO IN THEIR
ENTIRETY.
THE COMPANIES
PATRIOT
Patriot is a self-administered real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"), which owned
interests in 56 hotels in 22 states, with an aggregate of 13,355 guest rooms as
of May 28, 1997. Patriot's hotels are diversified by franchise or brand
affiliation and serve primarily major U.S. business centers, including Atlanta,
Boston, Chicago, Cleveland, Dallas, Denver, Houston, Miami, San Francisco and
Seattle. In addition to hotels catering primarily to business travelers,
Patriot's portfolio includes world-class resort hotels, including The Boulders,
near Scottsdale, Arizona, The Lodge at Ventana Canyon in Tucson, Arizona, The
Peaks Resort & Spa in Telluride, Colorado, and Carmel Valley Ranch Resort in
Carmel, California (collectively, the "Carefree Resorts"), and prominent hotels
in major tourist destinations, including Fort Lauderdale, New Orleans, San
Antonio and San Diego. The hotels include 46 full service hotels, 5 resort
hotels, 4 limited service hotels and an executive conference center. Fifty-two
of the hotels are operated under franchise or brand affiliations with
nationally recognized hotel companies, including Marriott(R), Crowne Plaza(R),
Radisson(R), Hilton(R), Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R),
Wyndham(TM), Wyndham Garden(R), WestCoast(R), Doubletree(R), Embassy Suites(R),
Hampton Inn(R), Registry(R), Carefree(R) and Grand Heritage(R). For the twelve
months ended December 31, 1996, Patriot's hotel portfolio (excluding three
hotels undergoing substantial renovation and the Carefree Resorts) had an
average occupancy rate of 69.9% and an average daily room rate ("ADR") of
$84.94. For the twelve months ended December 31, 1996, the Carefree Resorts had
an average occupancy rate of 69.2% and an ADR of $258.98.
Patriot was formed as a Virginia corporation in April 1995 for the purpose of
acquiring equity interests in hotel properties. In October 1995, Patriot
completed an initial public offering (the "Initial Offering") of common stock,
no par value per share, of Patriot ("Patriot Common Stock") and commenced
operations. The Patriot Common Stock has traded on the New York Stock Exchange
(the "NYSE") since September 27, 1995. Through its wholly-owned subsidiaries,
PAH LP, Inc. ("PAH LP") and PAH GP, Inc. ("PAH GP"), Patriot held an
approximate 82.7% limited partnership interest and the sole 1% general partner
interest in the Patriot Partnership as of May 28, 1997. The Patriot Partnership
owns, directly or through subsidiaries, Patriot's interests in each of its
hotels. A diagram outlining the corporate structure of Patriot prior to the
Merger is set forth on page 62.
1
<PAGE>
Patriot has a line of credit (the "Line of Credit") from Paine Webber Real
Estate Securities, Inc. ("PaineWebber Real Estate") which matures in October
1998 and bears interest at a rate per annum equal to 30-day LIBOR plus 1.90%.
The maximum amount available under the Line of Credit was increased in January
1997 to $475 million. As of May 28, 1997, Patriot had $471.2 million
outstanding under the Line of Credit. As of such date, Patriot also had
outstanding approximately $64.0 million of other mortgage debt, resulting in
total outstanding indebtedness of approximately $535.2 million. The Line of
Credit is secured by 38 of Patriot's 56 hotels and Patriot has single asset
mortgage loans which encumber three additional hotels. Patriot has entered into
a commitment letter with PaineWebber Real Estate and The Chase Manhattan Bank
("Chase") regarding expanding and replacing the Line of Credit with a new
credit facility of up to $1.2 billion. In connection with entering into this
commitment letter, PaineWebber Real Estate also agreed to increase Patriot's
availability under the Line of Credit to $625 million. See "--Surviving
Companies." Patriot also may seek additional debt or equity financing prior to
the consummation of the Merger.
In March 1997, Patriot executed a 2-for-1 stock split in the form of a stock
dividend. Unless otherwise indicated, all references hereafter to the Exchange
Ratio (as defined below in "--The Merger and Subscription--Terms of the Merger
and Subscription"), outstanding shares of Patriot Common Stock, per share
amounts, market prices of Patriot Common Stock and options to purchase shares
of Patriot Common Stock give effect to the 2-for-1 stock split. The number of
outstanding limited partner units ("OP Units") of the Patriot Partnership did
not change in connection with the 2-for-1 stock split. The OP Unit conversion
factor, however, has been changed such that each OP Unit of the Patriot
Partnership subject to redemption will now be redeemed for cash equal to the
value of two shares of Patriot Common Stock (or, at Patriot's election, Patriot
may purchase each OP Unit of the Patriot Partnership offered for redemption for
two shares of Patriot Common Stock).
Patriot's principal executive office is located at 3030 LBJ Freeway, Suite
1500, Dallas, Texas 75234 and its telephone number is (972) 888-8000.
CAL JOCKEY
Cal Jockey operates as a REIT under the Code and is the owner of
approximately 175 acres of land in San Mateo, California on which the Bay
Meadows Racecourse (sometimes referred to herein as the "Racecourse") is
situated. The principal Racecourse facilities, which are leased to Bay Meadows,
include: (i) the main one-mile dirt horse race track with six furlongs and 1
1/4 mile chutes, inside of which is a seven furlong turf course; (ii) the
track's infield area, on which a nine hole par three golf course is situated;
(iii) a main structure which contains a grandstand, a clubhouse and a premier
seating and dining club (the "Turf Club"); (iv) a parking area; (v) a barn and
stable area situated on approximately 38 acres and presently containing
approximately 1,550 horse stalls (the "Stable Area"); and (vi) a 5/8 mile
training track oval situated on approximately 40 acres adjacent to the Stable
Area (the "Training Track Area"). Cal Jockey also owns approximately two acres
in close proximity to the Racecourse on which an indoor tennis club is located
(the "Tennis Club Parcel"). On May 31, 1995, Cal Jockey entered into an
Agreement of Purchase and Sale with Property Resources, Inc. ("Property
Resources"), a subsidiary of Franklin Resources, Inc. (as amended, the
"Franklin Agreement"), providing for the sale of 32 acres of the Stable Area
for approximately $21 million. In December 1995, Cal Jockey entered into an
Agreement of Purchase and Sale (as amended, the "Iacocca Agreement") with Lee
Iacocca & Associates, Inc. ("Iacocca") providing for the sale of the Training
Track Area for approximately $31 million. In the third amendment to the Iacocca
Agreement, effective June 28, 1996, Iacocca assigned its rights under the
Iacocca Agreement to Airdial Company, L.L.C., a California limited liability
company ("Airdial"), the members of which include some of the principals of
Iacocca. In July 1996, Cal Jockey entered into an Agreement of Purchase and
Sale with Public Storage, Inc. (the "Public Storage Agreement") to sell the
Tennis Club Parcel for approximately $2.2 million. While Cal Jockey currently
expects these transactions to close, there can be no assurance that any or all
of the transactions will be consummated. In November 1996, Cal Jockey entered
into a non-subordinated ground lease (the "Borders Lease") with Borders, Inc.
("Borders"). Effective January 10, 1997, Borders assigned its rights under the
Borders Lease to DCI-Page One, L.L.C. ("DCI"), which company
2
<PAGE>
will develop the property and sublease the land with its improvements back to
Borders. The Borders Lease covers 2.3 acres of land formerly used by Bay
Meadows as a parking lot and land adjacent to the parking lot. The San Mateo
Planning Commission voted to approve the development of a Borders bookstore on
the site on October 14, 1996. DCI has a building permit and commenced
construction in February 1997. The initial term of the Borders Lease is for 20
years with a fixed net annual rent of $278,500 for years 1 through 10, $362,050
for years 11 through 15 and $416,350 for years 16 through 20. The Borders Lease
has eight five-year renewal options with an annual Consumer Price Index
adjustment beginning in the fifth option term.
Since 1983, Cal Jockey's shares of common stock, par value $.01 per share
("Cal Jockey Common Stock"), have been paired and trade together with the
shares of common stock, par value $.01 per share ("Bay Meadows Common Stock"),
of Bay Meadows (the "Paired Shares") as a single unit on the American Stock
Exchange (the "AMEX") pursuant to a stock pairing arrangement. The terms of the
pairing arrangement are set forth in the Pairing Agreement, dated as of
February 17, 1983 and amended from time to time thereafter, by and between Cal
Jockey and Bay Meadows (the "Pairing Agreement"). A diagram outlining the
paired share structure of Cal Jockey and Bay Meadows is set forth on page 62.
Cal Jockey's principal executive office is located at 2600 South Delaware
Street, P.O. Box 1117, San Mateo, California 94403 and its telephone number is
(415) 573-4514.
BAY MEADOWS
Bay Meadows is a gaming and entertainment company engaged primarily in the
business of conducting and offering pari-mutuel wagering (meaning that
individuals wager against each other and not against the operator of the
facility) on Thoroughbred horse racing at the Racecourse. In addition to live
horse racing at the Racecourse, Bay Meadows simulcasts its live horse races to
as many as 31 sites in California and as many as 450 sites in the remainder of
the world. Additionally, Bay Meadows acts as an off-track wagering facility,
allowing patrons to wager on horse races at other tracks even when live horse
racing is not being conducted at the Racecourse, by accepting simulcasts of
horse races conducted throughout the United States, Canada, Mexico, Australia
and Hong Kong. Bay Meadows generates revenues from commissions on pari-mutuel
wagering, admissions, parking, program sales and the food and beverage
concessions at the Racecourse. As described above, shares of Bay Meadows Common
Stock are paired and trade together with the shares of Cal Jockey Common Stock
as a single unit on the AMEX pursuant to the Pairing Agreement. A diagram
outlining the paired share structure of Cal Jockey and Bay Meadows is set forth
on page 62.
Bay Meadows has a line of credit (the "Bay Meadows Line of Credit") from Bank
of America National Trust and Savings Association ("Bank of America") which
expires on February 1, 1998 and bears interest at a rate publicly announced by
the Bank of America from time to time as its reference rate. The maximum amount
available under the Bay Meadows Line of Credit is $2.5 million. The Bay Meadows
Line of Credit is guaranteed by Cal Jockey and secured by a $2.5 million time
deposit. As of May 28, 1997, Bay Meadows had no outstanding borrowings under
the Bay Meadows Line of Credit.
Bay Meadows' principal executive office is located at 2600 South Delaware
Street, P.O. Box 5050, San Mateo, California 94402 and its telephone number is
(415) 574-7223.
SURVIVING COMPANIES
Upon the Merger becoming effective, Patriot will merge with and into Cal
Jockey with Cal Jockey being the surviving company. By operation of the Merger
Agreement, the outstanding shares of Patriot Common Stock will be exchanged for
Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock. As a
result of the Merger, Cal Jockey will succeed to Patriot's partnership
interests in the Patriot Partnership and Cal Jockey shall thereafter contribute
certain of its assets to the Patriot Partnership. Concurrently with these
3
<PAGE>
transactions, Bay Meadows will form an operating partnership (the "New Patriot
Operating Partnership" and, collectively with the Patriot Partnership, the
"Operating Partnerships") which will issue OP Units of the New Patriot
Operating Partnership to the independent limited partners of the Patriot
Partnership and into which certain assets of Bay Meadows will be contributed.
Upon completion of these transactions, Cal Jockey and Bay Meadows will be the
surviving entities each with a limited partnership subsidiary that holds
substantially all of its assets or conducts substantially all of its operations
and the existing independent limited partners will hold an equal number of OP
Units in the Patriot Partnership and the New Patriot Operating Partnership. The
stockholders of Cal Jockey, Bay Meadows and Patriot will hold paired shares of
the surviving entities. In connection with the consummation of the
transactions, Cal Jockey will change its name to "Patriot American Hospitality,
Inc." and Bay Meadows will change its name to "Patriot American Hospitality
Operating Company." A diagram outlining the corporate structure of the
surviving companies and their limited partnership subsidiaries following the
Merger is set forth on page 63.
Following completion of the Merger and the Related Transactions, New Patriot
REIT and New Patriot Operating Company will continue the operations of Patriot,
Cal Jockey and Bay Meadows within the paired share ownership structure.
Immediately following the Merger, New Patriot REIT will own interests in 56
hotels in 22 states, with an aggregate of 13,355 guest rooms. Additionally,
Patriot has entered into contracts or letters of intent to purchase fourteen
hotels (the "Proposed Acquisitions"), aggregating 3,478 rooms for a combined
purchase price (excluding closing costs and other acquisition-related expenses)
of approximately $271.4 million. Patriot has also entered into an agreement to
acquire Grand Heritage Hotels, a hotel management and marketing company, and
other Grand Heritage subsidiaries including an investment in one hotel property
(the "Grand Heritage Acquisition"). The total acquisition price for the Grand
Heritage Acquisition is estimated to be approximately $25.25 million. The
purchase of each of the Proposed Acquisitions and the Grand Heritage
Acquisition is subject to satisfactory completion of various closing conditions
and no assurances can be given that Patriot, New Patriot REIT or New Patriot
Operating Company will acquire any or all of the Proposed Acquisitions or the
Grand Heritage Acquisition. Assuming all of the Proposed Acquisitions are
consummated, New Patriot REIT's hotel portfolio will include 70 hotels,
aggregating 16,833 rooms, representing a 300% increase in the size of New
Patriot REIT's room portfolio since Patriot's Initial Offering.
Following the Merger, New Patriot REIT expects to terminate its leases with a
limited liability company owned by certain executive officers of Patriot
relating to eight of its existing hotels, and nine hotels which are the subject
of Proposed Acquisitions and re-lease such hotels to New Patriot Operating
Company. See "--Interests of Certain Officers and Directors." The existing
hotels to be re-leased include the four Carefree Resorts acquired by Patriot in
January 1997 (The Boulders, The Lodge at Ventana Canyon, The Peaks Resort & Spa
and Carmel Valley Ranch Resort), the Radisson Hotel in Northbrook, Illinois,
the Luxeford Suites Hotel in Minneapolis, Minnesota, the Sheraton Park Place
Hotel in Minneapolis, Minnesota, and the Myrtle Beach Hilton Oceanfront Golf
Resort in Myrtle Beach, South Carolina, and the hotels to be re-leased which
are the subject of Proposed Acquisitions include the five Snavely Group hotels,
four of which are located in Cleveland, Ohio and one of which is in Akron,
Ohio, and four Doubletree Hotels which are located in Houston, Texas, Anaheim,
California, Overland Park, Kansas and St. Louis, Missouri. Following the
Merger, New Patriot REIT may also seek to restructure the two special purpose
entities which own the Crowne Plaza Ravinia Hotel in Atlanta and the Marriott
WindWatch Hotel on Long Island, New York so that these hotels may be leased to
New Patriot Operating Company. See "Risk Factors--Risk of Investment in
Subsidiaries Controlled by Other Parties." There are no binding agreements with
respect to leasing any such hotels to New Patriot Operating Company and thus no
assurances can be made that such hotels will be leased to New Patriot Operating
Company. See "Risk Factors--Certain Conflicts of Interest Relating to Patriot"
and "--Risk of Investment in Subsidiaries Controlled by Other Parties." With
respect to Patriot's remaining hotels, there are no agreements concerning when
or if such hotels will be leased to New Patriot Operating Company. Upon the
expiration of the lease relating to each of these hotels, New Patriot REIT
currently intends to evaluate the individual circumstances of such lease and
decide whether to continue to lease such hotel to an independent lessee or,
alternatively, to lease such hotel to New Patriot Operating Company.
4
<PAGE>
Patriot believes that market conditions remain favorable for the acquisition
of additional hotels and hotel portfolios and it is expected that New Patriot
REIT will continue Patriot's aggressive acquisition activities. Additionally,
New Patriot Operating Company intends to explore opportunities to acquire hotel
operators, owners of hotel franchises or brands and independent hotel
management companies. Patriot's management believes that the paired share
structure will enhance opportunities for New Patriot REIT and New Patriot
Operating Company to consummate such acquisitions. No assurances can be given,
however, that New Patriot REIT and New Patriot Operating Company will locate
attractive acquisition opportunities or that they will consummate such
acquisitions. See "Risk Factors--Hotel Industry Risks--Competition for Hotel
Acquisition Opportunities."
Patriot and PaineWebber Incorporated ("PaineWebber") have entered into an
agreement pursuant to which, following the closing of the Merger, an affiliate
of PaineWebber will purchase from New Patriot REIT substantially all of the
land which is currently owned by Cal Jockey, including the land subject to the
Franklin Agreement and the Iaccoca Agreement but excluding the land subject to
the Borders Lease, for a purchase price of $78.05 million in cash (the
"Proposed PaineWebber Land Sale"). In connection with the Proposed PaineWebber
Land Sale, New Patriot REIT would assign all of its rights and benefits under
existing leases, contracts, permits and entitlements relating to land owned by
Cal Jockey prior to its consummation of the Merger and the Related
Transactions, excluding the Borders Lease, to the PaineWebber affiliate. New
Patriot REIT would retain ownership of the improvements located on the land.
Simultaneously with the consummation of such purchase, the PaineWebber
affiliate and New Patriot REIT would enter into a ground lease covering that
portion of the land upon which the Racecourse is situated for a term of seven
years at an annual rental rate of $3 million for the first year of the lease,
$3.25 million for the second year, $3.5 million for the third year, $4 million
for the fourth and fifth years and $5 million for each remaining year during
the term of the lease. New Patriot REIT would then sublease the Racecourse land
and the related improvements to New Patriot Operating Company in order to
permit New Patriot Operating Company to continue horse racing operations at the
Racecourse through the term of New Patriot REIT's lease. The parties may have
the option to renew such leases upon their expiration under certain
circumstances. There can be no assurance that the Proposed PaineWebber Land
Sale will be consummated. See "The Companies--Surviving Companies."
In connection with the consummation of the Merger, all of the current
directors and officers of Cal Jockey and Bay Meadows will resign. Thereafter,
the current directors of Patriot will become the directors of New Patriot REIT
and the executive officers of New Patriot REIT will be Paul A. Nussbaum who
will become Chairman of the Board of Directors, Chief Executive Officer and
President, William W. Evans III who will serve in the Office of the Chairman,
and Rex E. Stewart who will become Chief Financial Officer and Treasurer. The
current executive officers of Patriot (including Messrs. Nussbaum and Stewart)
will become the executive officers of New Patriot Operating Company and,
together with the directors of New Patriot Operating Company, will manage the
business and affairs of New Patriot Operating Company. For information
concerning these persons, see "Management of New Patriot REIT and New Patriot
Operating Company--New Patriot Operating Company." After consummation of the
Merger, it is expected that the current officers and employees of Bay Meadows
will continue to manage the horse racing operations through a subsidiary of New
Patriot Operating Company. See "Risk Factors--Lack of Experience in the Horse
Racing Business; Reliance on Bay Meadows Management."
On April 14, 1997, Patriot entered into a merger agreement and a related
stock purchase agreement (collectively, the "Wyndham Merger Agreement")
pursuant to which Wyndham Hotel Corporation ("Wyndham") will merge with and
into New Patriot REIT with New Patriot REIT being the surviving company (the
"Wyndham Merger"). As a result of the Wyndham Merger, New Patriot REIT will
acquire all of the assets and liabilities of Wyndham, including, as of April 9,
1997, Wyndham's portfolio of 23 owned and leased hotels, with an aggregate of
4,877 rooms, Wyndham's 64 managed and franchised properties throughout North
America, management and franchise agreements that have been executed for 15
properties that are currently closed for renovation or construction or are in
the process of being converted to the Wyndham brand and the proprietary
5
<PAGE>
brand names Wyndham, Wyndham Garden and Wyndham Hotels & Resorts. Pursuant to
the Wyndham Merger Agreement, upon consummation of the Wyndham Merger, each
issued and outstanding share of common stock of Wyndham ("Wyndham Common
Stock") will be converted into the right to receive 0.712 paired shares (the
"Wyndham Exchange Ratio"). The Wyndham Exchange Ratio is subject to adjustment
in the event that the average of the closing prices of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock on the
twenty trading days preceding the fifth business day prior to the stockholder
meetings called to approve the Wyndham Merger (the "Average Trading Price") is
less than $42.13 per paired share. If the Average Trading Price is between
$40.21 and $42.13 per paired share, the Wyndham Exchange Ratio will be adjusted
so that each outstanding share of Wyndham Common Stock will be converted into
the right to receive a number of paired shares equal to $30.00 divided by the
Average Trading Price. If the Average Trading Price is less than $40.21 per
paired share, the Wyndham Exchange Ratio will be fixed at 0.746; however, in
such circumstances, Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. On May 28, 1997, the closing price
of the Paired Shares as reported on the AMEX was $41 1/2. In lieu of receiving
paired shares, Wyndham stockholders have the right to elect to receive cash in
an amount per share equal to the Wyndham Exchange Ratio (as it may be adjusted)
multiplied by the average closing price of the paired shares over the five
trading days immediately preceding the closing date of the Wyndham Merger. If
stockholders holding shares of Wyndham Common Stock with a value in excess of
$100 million elect to receive cash, such cash will be allocated on a pro rata
basis among such stockholders. In connection with the Wyndham Merger, New
Patriot REIT will assume Wyndham's existing indebtedness, which is
approximately $146 million as of May 28, 1997. In connection with the execution
of the Wyndham Merger Agreement, Patriot also entered into agreements with
partnerships affiliated with members of the Trammell Crow family providing for
the acquisition by New Patriot REIT of 11 full-service Wyndham-branded hotels
with 3,072 rooms, located throughout the United States, for approximately
$331.7 million in cash, plus approximately $14 million in additional
consideration if two hotels meet certain operational targets (the "Crow
Acquisition" and, collectively with the Wyndham Merger, the "Proposed Wyndham
Transactions"). The Wyndham Merger and the Crow Acquisition, which are expected
to be consummated concurrently, are subject to various conditions including,
without limitation, the consummation of the Merger and approval of the Proposed
Wyndham Transactions by the stockholders of New Patriot REIT, New Patriot
Operating Company and Wyndham. It is currently anticipated that the stockholder
meetings to approve the Proposed Wyndham Transactions will occur in the fourth
quarter of 1997. If the Proposed Wyndham Transactions are approved and
consummated, it is anticipated that the current stockholders of Patriot would
hold approximately 53.4% and the current stockholders of Cal Jockey and Bay
Meadows would hold in the aggregate approximately 13.4% of the outstanding
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock following consummation of the Proposed Wyndham Transactions
(assuming no Wyndham stockholders exercise their cash election rights in the
Wyndham Merger). The pro forma combined assets of New Patriot REIT and New
Patriot Operating Company at March 31, 1997 assuming consummation of the
Proposed Wyndham Transactions would be approximately $2.6 billion of which
approximately 8.2% would be attributable to Cal Jockey and Bay Meadows,
approximately 46.0% would be attributable to Patriot and approximately 45.8%
would be attributable to Wyndham and partnerships associated with members of
the Trammel Crow family. In addition, the pro forma combined revenues of New
Patriot REIT and New Patriot Operating Company for the year ended December 31,
1996 and the three months ended March 31, 1997 assuming consummation of the
Proposed Wyndham Transactions would be approximately $581 million and $173
million, respectively, of which approximately 9.0% and 12.0%, respectively,
would be attributable to Cal Jockey and Bay Meadows, approximately 35.3% and
33.5%, respectively, would be attributable to Patriot and approximately 55.7%
and 54.5%, respectively, would be attributable to Wyndham and partnerships
associated with members of the Trammel Crow family. The Unaudited Pro Forma
Financial Statements set forth in this Joint Proxy Statement/Prospectus show
the effects of the Proposed Wyndham Transactions on New Patriot REIT and New
Patriot Operating Company. See "Unaudited Pro Forma Combined Financial
Statements." Certain material risks with respect to the Proposed Wyndham
Transactions also are set forth under "Risk Factors--Risks Relating to Proposed
Wyndham Transactions."
6
<PAGE>
Patriot has entered into a commitment letter with PaineWebber Real Estate and
Chase regarding expanding and replacing the Line of Credit with a new credit
facility with availability of up to approximately $1.2 billion (the "New Credit
Facility"). This credit facility will consist of a $700 million unsecured
revolving line of credit and a term loan of $500 million. It is anticipated
that the term loan will be secured by specific assets and properties of Patriot
(following the Merger, the assets and properties of New Patriot REIT and New
Patriot Operating Company) that will be transferred to a special purpose
"bankruptcy remote" entity. The revolving line of credit will be used for the
acquisition of additional properties, business and other assets, for capital
expenditures and for general working capital purposes. The term loan will be
used to finance payments to be made in connection with the Proposed Wyndham
Transactions and the acquisition of certain other properties. While
negotiations concerning the New Credit Facility are ongoing, there can be no
assurance that such a credit facility will be obtained, or if obtained, when it
will become effective or available or what the specific terms of such credit
facility will be. See "The Companies--Surviving Companies--New Credit
Facility."
THE MEETINGS OF STOCKHOLDERS
CAL JOCKEY SPECIAL MEETING
The special meeting of stockholders of Cal Jockey will be held at the
Clubhouse of Bay Meadows Racecourse, 2600 South Delaware Street, San Mateo,
California, on July 1, 1997, at 10:15 a.m., Pacific time (including any and all
adjournments and postponements thereof, the "Cal Jockey Special Meeting"). At
the Cal Jockey Special Meeting, holders of shares of Cal Jockey Common Stock
will consider and vote upon (i) approval of a proposal (the "Merger Proposal")
to adopt the Merger Agreement and the Related Transactions, including, without
limitation, the Merger, the issuance of up to approximately 30,500,000 shares
of Cal Jockey Common Stock and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership in exchange for OP Units of the Patriot
Partnership; and (ii) approval of a proposal (the "Cal Jockey Charter and Bylaw
Amendment Proposal") to amend and restate the Certificate of Incorporation of
Cal Jockey (the "Cal Jockey Charter") and the Bylaws of Cal Jockey (the "Cal
Jockey Bylaws"). Each of the Merger Proposal and the Cal Jockey Charter and
Bylaw Amendment Proposal must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of Cal Jockey Common Stock.
Holders of Cal Jockey Common Stock are entitled to one vote per share. Only
holders of shares of Cal Jockey Common Stock at the closing of business on May
16, 1997 (the "Cal Jockey Record Date") will be entitled to notice of and to
vote at the Cal Jockey Special Meeting. As of the Cal Jockey Record Date,
directors and executive officers of Cal Jockey and their affiliates who own
162,022 shares (representing 2.8% of the outstanding shares) have indicated
that they intend to vote all of their shares of Cal Jockey Common Stock for
approval of the aforementioned proposals. See "The Meetings of Stockholders--
Cal Jockey Special Meeting."
THE BOARD OF DIRECTORS OF CAL JOCKEY HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF CAL JOCKEY VOTE FOR APPROVAL OF
THE MERGER PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL.
SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER," AND "--REASONS FOR
THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE BOARD OF
DIRECTORS OF CAL JOCKEY."
BAY MEADOWS SPECIAL MEETING
The special meeting of stockholders of Bay Meadows will be held at the
Clubhouse of Bay Meadows Racecourse, 2600 South Delaware Street, San Mateo,
California, on July 1, 1997, at 9:00 a.m., Pacific time (including any and all
adjournments and postponements thereof, the "Bay Meadows Special Meeting"). At
the Bay Meadows Special Meeting, holders of shares of Bay Meadows Common Stock
will consider and vote upon
7
<PAGE>
(i) approval of the Merger Proposal, including, without limitation, the
issuance of up to approximately 30,500,000 shares of Bay Meadows Common Stock
in connection with the Merger and the contribution of certain of the assets of
Bay Meadows to the New Patriot Operating Partnership in exchange for OP Units
of the New Patriot Operating Partnership; and (ii) approval of a proposal (the
"Bay Meadows Charter and Bylaw Amendment Proposal") to amend and restate the
Certificate of Incorporation of Bay Meadows (the "Bay Meadows Charter") and the
Bylaws of Bay Meadows (the "Bay Meadows Bylaws"). Each of the Merger Proposal
and the Bay Meadows Charter and Bylaw Amendment Proposal must be approved by
the affirmative vote of the holders of a majority of the outstanding shares of
Bay Meadows Common Stock. Holders of Bay Meadows Common Stock are entitled to
one vote per share. Only holders of shares of Bay Meadows Common Stock at the
closing of business on May 16, 1997 (the "Bay Meadows Record Date") will be
entitled to notice of and to vote at the Bay Meadows Special Meeting. As of the
Bay Meadows Record Date, directors and executive officers of Bay Meadows and
their affiliates who own 190,149 shares (representing 3.3% of the outstanding
shares) have indicated that they intend to vote all of their shares of Bay
Meadows Common Stock for approval of the aforementioned proposals. See "The
Meetings of Stockholders--Bay Meadows Special Meeting."
THE BOARD OF DIRECTORS OF BAY MEADOWS HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF BAY MEADOWS VOTE FOR APPROVAL
OF THE MERGER PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT
PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER," AND "--
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF BAY MEADOWS."
PATRIOT SPECIAL MEETING
The special meeting of stockholders of Patriot will be held at the Holiday
Inn Select, Dallas, Texas, on July 1, 1997, at 11:00 a.m., local time
(including any and all adjournments and postponements thereof, the "Patriot
Special Meeting" and, together with the Cal Jockey Special Meeting and the Bay
Meadows Special Meeting, the "Special Meetings"). At the Patriot Special
Meeting, holders of Patriot Common Stock will consider and vote upon (i)
approval of the Merger Proposal and (ii) approval of a proposal (the "Patriot
Incentive Plan Proposal") to amend and restate the Patriot American
Hospitality, Inc. 1995 Incentive Plan (the "Patriot Incentive Plan"). The
Merger Proposal must be approved by the affirmative vote of the holders of two-
thirds of the outstanding shares of Patriot Common Stock entitled to vote
thereon. The Patriot Incentive Plan Proposal must be approved by the
affirmative vote of the holders of a majority of the shares of Patriot Common
Stock present in person or by proxy and entitled to vote at the Patriot Special
Meeting. Holders of Patriot Common Stock are entitled to one vote per share.
Only holders of Patriot Common Stock at the close of business on May 16, 1997
(the "Patriot Record Date") will be entitled to notice of and to vote at the
Patriot Special Meeting. As of the Patriot Record Date, directors and executive
officers of Patriot and their affiliates who own 877,210 shares (representing
2.0% of the outstanding shares) have indicated that they intend to vote all of
their shares of Patriot Common Stock for approval of the aforementioned
proposals. See "The Meetings of Stockholders--Patriot Special Meeting."
THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE PATRIOT INCENTIVE PLAN PROPOSAL AND UNANIMOUSLY RECOMMENDS
THAT PATRIOT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER PROPOSAL AND THE
PATRIOT INCENTIVE PLAN PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER," "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PATRIOT," AND "PROPOSAL TO APPROVE
THE AMENDMENT AND RESTATEMENT OF THE PATRIOT INCENTIVE PLAN."
8
<PAGE>
CONDITIONAL NATURE OF THE PROPOSALS
The Merger Proposal, the Cal Jockey Charter and Bylaw Amendment Proposal and
the Bay Meadows Charter and Bylaw Amendment Proposal are sometimes referred to
herein collectively as the "Proposals." ALTHOUGH EACH OF THE PROPOSALS WILL BE
VOTED ON SEPARATELY AT THE CAL JOCKEY SPECIAL MEETING, THE BAY MEADOWS SPECIAL
MEETING AND THE PATRIOT SPECIAL MEETING, BECAUSE ADOPTION OF EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS IS NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE RELATED
TRANSACTIONS. HOWEVER, APPROVAL OF THE PATRIOT INCENTIVE PLAN PROPOSAL IS NOT A
CONDITION TO THE CONSUMMATION OF THE MERGER AND THE RELATED TRANSACTIONS. IN
THE EVENT THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL AND THE BAY
MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL ARE APPROVED BUT THE MERGER
PROPOSAL IS NOT APPROVED, THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL
AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL WILL NOT TAKE EFFECT.
THE MERGER AND SUBSCRIPTION
TERMS OF THE MERGER AND SUBSCRIPTION
On October 31, 1996, Patriot, Cal Jockey and Bay Meadows entered into a
binding acquisition agreement (the "October 31, 1996 Agreement") pursuant to
which the parties agreed to engage in a business combination transaction. The
parties, together with the Patriot Partnership, thereafter entered into the
Merger Agreement which by its terms supersedes the October 31, 1996 Agreement
and more fully details the transactions to be consummated by the parties. The
Board of Directors of each of Patriot, Cal Jockey and Bay Meadows has approved
the October 31, 1996 Agreement, the Merger Agreement and the Related
Transactions, including, without limitation, the Merger, the Subscription (as
hereinafter defined), the issuance of up to approximately 30,500,000 Paired
Shares of Cal Jockey Common Stock and Bay Meadows Common Stock, the
contribution of certain of the assets of Bay Meadows to the New Patriot
Operating Partnership and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership. Pursuant to the Merger Agreement, a copy of
which is attached hereto as Annex A, at the time the Merger becomes effective
(the "Effective Time"), Patriot will be merged with and into Cal Jockey, with
Cal Jockey being the surviving company in the Merger. In connection with the
Merger, Cal Jockey's name will be changed to "Patriot American Hospitality,
Inc." and Bay Meadows' name will be changed to "Patriot American Hospitality
Operating Company." Presently, shares of Cal Jockey Common Stock and shares of
Bay Meadows Common Stock are paired and are transferable only as a single unit
pursuant to the Pairing Agreement. The Pairing Agreement will continue after
the Merger and, accordingly, each share of common stock, par value $.01 per
share, of New Patriot REIT ("New Patriot REIT Common Stock") and each share of
common stock, par value $.01 per share, of New Patriot Operating Company ("New
Patriot Operating Company Common Stock") will also be paired and transferable
only as a single unit.
In the Merger, each outstanding Paired Share of Cal Jockey Common Stock and
Bay Meadows Common Stock will remain outstanding and will automatically,
without any action on the part of the stockholders of Cal Jockey and Bay
Meadows, represent the same number of paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock.
By operation of the Merger, each issued and outstanding share of Patriot
Common Stock will be converted into the right to receive 0.51895 shares of New
Patriot REIT Common Stock (the "Exchange Ratio"), subject to certain REIT
qualification requirements described below. In the event, however, that the
average closing price of a share of Patriot Common Stock as reported on the
NYSE over the 20 trading days immediately preceding the third trading day prior
to the Special Meetings (the "Patriot Average Trading Price") is less than
$17.125, then each share of Patriot Common Stock will be converted into the
number of paired shares equal to the Patriot
9
<PAGE>
Average Trading Price divided by $33.00. The Patriot Partnership will, in
connection with the Merger, subscribe (the "Subscription") for shares of Bay
Meadows Common Stock (which in connection with the Merger will become New
Patriot Operating Company Common Stock) (the "Subscribed Shares") in an amount
equal to the number of shares of New Patriot REIT Common Stock that will be
issued to Patriot stockholders in the Merger. Immediately prior to the Merger,
the Patriot Partnership will fund the Subscription and Patriot and the Patriot
Partnership will designate the Patriot stockholders as the recipients of the
Subscribed Shares, in compliance with the Pairing Agreement, on the basis of
0.51895 Subscribed Shares for each share of Patriot Common Stock outstanding at
the Effective Time, subject to certain REIT qualification requirements
described below and to any adjustment to the Exchange Ratio. The result of the
Merger and the Subscription will be that Patriot stockholders will have the
right to receive 0.51895 shares of New Patriot REIT Common Stock and 0.51895
shares of New Patriot Operating Company Common Stock, subject to certain REIT
qualification requirements described below and to any adjustment to the
Exchange Ratio, for each share of Patriot Common Stock held by them at the
Effective Time, which shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock will be paired and transferable only as a single
unit.
The Amended and Restated Certificates of Incorporation of New Patriot REIT
and New Patriot Operating Company (the "Restated Charters") will provide that
no person or entity may own, be deemed to own by virtue of certain attribution
rules of the Code or be deemed to beneficially own pursuant to the applicable
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), in excess of 9.8% (the "Ownership Limit") of the outstanding shares of
any class or series of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock or preferred stock of New Patriot REIT or New Patriot
Operating Company (collectively, the "Equity Stock"). If any holder of Patriot
Common Stock would receive in the Merger and the Subscription a number of
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock which would cause such holder or any other person or
entity to own, or be deemed to own, paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock in excess of the Ownership
Limit, then such holder shall acquire no right or interest in such number of
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock that would cause such holder or any other person or entity
to exceed the Ownership Limit, but such holder shall, in lieu of receiving
those paired shares which would cause the Ownership Limit to be exceeded (the
"Excess Paired Shares"), have the right to be paid by New Patriot REIT an
amount in cash for such Excess Paired Shares equal to the product of the Fair
Market Value (as hereinafter defined) per Excess Paired Share multiplied by the
number of such Excess Paired Shares. "Fair Market Value" shall be equal to the
greater of (i) the average closing price of the Paired Shares of Cal Jockey
Common Stock and Bay Meadows Common Stock on the AMEX on the four (4) trading
days immediately preceding the date the Merger is consummated, and (ii) the
average closing price of the shares of Patriot Common Stock on the NYSE on the
four (4) trading days immediately preceding the date the Merger is consummated
multiplied by the inverse of the Exchange Ratio, 1.92697 as of May 28, 1997.
Assuming the Merger had been consummated on May 28, 1997, the Fair Market Value
of an Excess Paired Share would have been $41.91 per Excess Paired Share.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS
Patriot
The Board of Directors of Patriot believes that the Merger and the Related
Transactions are fair to and in the best interests of Patriot and its
stockholders. THE PATRIOT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE RELATED TRANSACTIONS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF PATRIOT VOTE "FOR" THE MERGER PROPOSAL. The material factors
that the Patriot Board of Directors considered in reaching the foregoing
conclusions were its belief that: (i) the Merger will enable the stockholders
of Patriot to realize the value inherent in the paired share structure which
will allow Patriot in combination with its paired operating company to become a
fully integrated owner and operator of hotels; (ii) following the Merger, New
Patriot Operating Company will be able to lease and operate newly acquired
hotels as well as any of Patriot's existing hotels that are re-leased to New
Patriot Operating Company and thus stockholders will be able to retain the
economic benefit of not only the lease payments received by New Patriot REIT,
but also the operating profits of New Patriot Operating Company; (iii) with the
paired share
10
<PAGE>
structure, New Patriot Operating Company will be able to directly control
strategic business decisions with respect to the marketing and management of
hotels acquired after the Merger or existing hotels that are re-leased to New
Patriot Operating Company following the Merger; (iv) in structuring hotel
acquisitions, New Patriot REIT will have increased flexibility because of its
ability to acquire hotels and either lease them to New Patriot Operating
Company or, alternatively, lease them to independent lessees; (v) following the
Merger, the universe of Patriot's potential hotel acquisitions will
significantly increase because, in addition to hotels, it will be able to
acquire hotel operators, owners of hotel franchises or brands and independent
hotel management companies through New Patriot Operating Company; and (vi) the
Merger may have a favorable effect on the funds from operations ("FFO")
multiple at which Patriot Common Stock is traded and may thereby reduce
Patriot's cost of capital over time. In making its recommendation, the Board of
Directors of Patriot considered, among other things, the opinion, analyses and
presentations of PaineWebber, Patriot's financial advisor, including
PaineWebber's opinion to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the consideration to
be received by holders of Patriot Common Stock in the Merger was fair, from a
financial point of view, to holders of Patriot Common Stock. See "The Merger
and Subscription--Reasons for the Merger; Recommendation of the Board of
Directors of Patriot" and "--Opinion of Patriot's Financial Advisor."
Cal Jockey
The Board of Directors of Cal Jockey believes that the Merger and the Related
Transactions are fair to and in the best interests of Cal Jockey and its
stockholders. THE BOARD OF DIRECTORS OF CAL JOCKEY HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE RELATED TRANSACTIONS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF CAL JOCKEY VOTE "FOR" THE MERGER PROPOSAL. The material factors
that the Cal Jockey Board of Directors considered in reaching the foregoing
conclusions were: (i) the Cal Jockey stockholders would hold Paired Shares as
of the time of the Merger that had a market value, as of a date shortly before
the Merger, of not less than $33.00 per Paired Share, which represents a
substantial premium over historical market prices of the Paired Shares; (ii)
the Cal Jockey stockholders have the choice of selling their Paired Shares on
the AMEX or continuing to hold an equity interest in New Patriot REIT and New
Patriot Operating Company and thereby participating in any increase in value of
the Paired Shares and in any growth of New Patriot REIT and New Patriot
Operating Company; (iii) a combination with Patriot would allow Cal Jockey to
enjoy significant growth opportunities in the lodging industry; (iv) the
surviving company would enjoy increased market capitalization, increased
liquidity and greater financial strength; and (v) the Patriot transaction is
more economically favorable than transactions proposed by other parties,
including the proposed transaction with Hudson Bay Partners, L.P. ("Hudson
Bay"). In making its recommendation, the Board of Directors of Cal Jockey
considered among other things, the analyses and presentations of Montgomery
Securities ("Montgomery"), financial advisor for Cal Jockey and Bay Meadows,
including its written opinion, dated October 30, 1996, to the effect that, as
of the date of such opinion and based upon and subject to certain matters
stated therein, the consideration to be received by the stockholders of Cal
Jockey and Bay Meadows pursuant to the Merger and the Offer was fair from a
financial point of view to such stockholders. The Board of Directors of Cal
Jockey also considered the updating opinion of Montgomery, rendered orally to
the Board of Directors of Cal Jockey on May 28, 1997 (which Montgomery
subsequently updated by a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that the financial terms of the Merger and
the Subscription, taken as a whole, were fair from a financial point of view to
the stockholders of Cal Jockey and Bay Meadows, as of the date of such opinion.
See "The Merger and Subscription--Reasons for the Merger and the Related
Transactions; Recommendation of the Board of Directors of Cal Jockey" and "--
Opinion of the Financial Advisor for Cal Jockey and Bay Meadows."
Bay Meadows
The Board of Directors of Bay Meadows believes that the Merger and the
Related Transactions are fair to and in the best interests of Bay Meadows and
its stockholders. THE BOARD OF DIRECTORS OF BAY MEADOWS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS OF BAY MEADOWS
11
<PAGE>
VOTE "FOR" THE MERGER PROPOSAL. The material factors that the Board of
Directors of Bay Meadows considered in reaching the foregoing conclusions were:
(i) the Bay Meadow Meadows stockholders would hold Paired Shares as of the time
of the Merger that had a market value, as of a date shortly before the Merger,
of not less than $33.00 per Paired Share, which represents a substantial
premium over historical market prices of the Paired Shares; (ii) the Bay
Meadows stockholders have the choice of selling their Paired Shares on the AMEX
or continuing to hold an equity interest in New Patriot REIT and New Patriot
Operating Company and thereby participating in any increase in value of the
Paired Shares and in any growth of New Patriot REIT and New Patriot Operating
Company; (iii) a combination with Patriot would allow Bay Meadows to enjoy
significant growth opportunities in the lodging industry; (iv) the surviving
company would enjoy increased market capitalization, increased liquidity and
greater financial strength; and (v) the Patriot transaction is more
economically favorable than transactions proposed by other parties, including
the proposed transaction with Hudson Bay. In making its recommendation, the Bay
Meadows Board of Directors considered, among other things, the analyses and
presentations of Montgomery, financial advisor for Cal Jockey and Bay Meadows,
including its written opinion, dated October 30, 1996, to the effect that, as
of the date of such opinion and based upon and subject to certain matters
stated therein, the consideration to be received by the stockholders of Cal
Jockey and Bay Meadows pursuant to the Merger and the Offer was fair from a
financial point of view to such stockholders. The Board of Directors of Bay
Meadows also considered the updating opinion of Montgomery, rendered orally to
the Board of Directors of Bay Meadows on May 27, 1997 (which Montgomery
subsequently updated by a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that the financial terms of the Merger and
the Subscription, taken as a whole, were fair from a financial point of view to
the stockholders of Cal Jockey and Bay Meadows, as of the date of such opinion.
See "The Merger and Subscription--Reasons for the Merger and the Related
Transactions; Recommendation of the Board of Directors of Bay Meadows" and "--
Opinion of the Financial Advisor for Cal Jockey and Bay Meadows."
For a discussion of the circumstances surrounding the Merger and the reasons
for the recommendations of the Board of Directors of each of Patriot, Cal
Jockey and Bay Meadows, see "The Merger and Subscription-- Background of the
Merger," "--Reasons for the Merger and the Related Transactions; Recommendation
of the Board of Directors of Patriot," "--Reasons for the Merger and the
Related Transactions; Recommendation of the Board of Directors of Cal Jockey"
and "--Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Bay Meadows."
OPINIONS OF FINANCIAL ADVISORS
Patriot
PaineWebber has rendered its opinion to the Patriot Board of Directors to the
effect that, as of the date of such opinion, based on PaineWebber's review and
subject to certain limitations set forth therein, the consideration to be
received by holders of Patriot Common Stock in the Merger was fair, from a
financial point of view, to holders of Patriot Common Stock. A copy of the full
text of this written opinion of PaineWebber, which sets forth the assumptions
made, matters considered and limitations on the scope of its review, is
attached as Annex F to this Joint Proxy Statement/Prospectus, and should be
read in its entirety. See "The Merger and Subscription--Opinion of Patriot's
Financial Advisor."
Cal Jockey and Bay Meadows
Montgomery has delivered its written opinion, dated as of October 30, 1996,
to the Board of Directors of each of Cal Jockey and Bay Meadows to the effect
that, based upon the facts and circumstances set forth therein, the
consideration to be received by the stockholders of Cal Jockey and Bay Meadows
pursuant to the Merger and the Offer was fair from a financial point of view to
such stockholders. Montgomery also has rendered orally to the Board of
Directors of each of Cal Jockey and Bay Meadows, at meetings of those Boards of
Directors on May 28 and May 27, 1997, respectively, its updating opinions to
the effect that, as of those respective dates, the financial terms of the
Merger and the Subscription, taken as a whole, were fair to the stockholders of
Cal Jockey and Bay Meadows from a financial point of view. In addition,
Montgomery has delivered its written opinion, dated as of the date of this
Joint Proxy Statement/Prospectus, to the Board of Directors of each of Cal
Jockey
12
<PAGE>
and Bay Meadows to the effect that, based upon the facts and circumstances set
forth therein, the financial terms of the Merger and the Subscription, taken as
a whole, are fair from a financial point of view to the stockholders of Cal
Jockey and Bay Meadows, as of the date of such opinion. A copy of the full text
of the written opinion of Montgomery dated as of the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made, procedures
followed, matters considered and limits of its review, is attached as Annex G
to this Joint Proxy Statement/Prospectus, and should be read in its entirety.
See "The Merger and Subscription--Opinion of Financial Advisor for Cal Jockey
and Bay Meadows."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger and Subscription
Goodwin, Procter & Hoar LLP, counsel for Patriot, has delivered its opinion
to Patriot substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. Accordingly, no gain or loss
will be recognized by Patriot as a result of the Merger. In general,
stockholders of Patriot will recognize gain, but not loss, on the exchange of
shares of Patriot Common Stock for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock in an amount equal to the
lesser of (a) the fair market value of the New Patriot Operating Company Common
Stock received by the stockholder in exchange therefor or (b) the amount by
which the fair market value of the paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock received in the exchange
exceeds the stockholder's adjusted tax basis in the Patriot Common Stock
exchanged therefor. Stockholders of Patriot who receive cash in lieu of
fractional paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or cash for Excess Paired Shares may recognize
additional amounts of gain. No gain or loss will be recognized by Cal Jockey as
a result of the Merger. See "Certain Federal Income Tax Considerations--Tax
Consequences of the Merger."
REIT Qualification
If certain detailed conditions imposed by the REIT provisions of the Code are
met, entities such as Patriot and Cal Jockey that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations generally are not taxed at the corporate level on their "real
estate investment trust taxable income" that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., taxation at both the corporate and stockholder levels) that
generally results from the use of a corporate form. Prior to the consummation
of the Merger, Patriot and Cal Jockey each has operated in a manner intended to
allow it to qualify as a REIT. Following the Merger, New Patriot REIT intends
to operate in a manner so that New Patriot REIT will continue to qualify as a
REIT. If New Patriot REIT fails to qualify as a REIT in any taxable year, New
Patriot REIT will be subject to federal income taxation as if it were a
domestic corporation, and could be subject to potentially significant tax
liabilities which could reduce or eliminate cash available to distribute to
stockholders. Unless entitled to relief under certain Code provisions, New
Patriot REIT also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. Moreover,
New Patriot REIT's qualification following the Merger generally depends on Cal
Jockey's and Patriot's qualification as a REIT for periods prior to the Merger,
and in any event, the liabilities of New Patriot REIT following the Merger will
include Cal Jockey's or Patriot's liability for any unpaid taxes, including
taxes resulting if Cal Jockey or Patriot fails to qualify as a REIT, for any
period prior to the Merger.
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin Procter & Hoar llp has rendered an opinion regarding (i) Patriot's
qualification as a REIT for periods prior to the Merger, (ii) Cal Jockey's
qualification as a REIT for periods prior to the Merger and (iii) New Patriot
REIT's ability to qualify as a REIT following the Merger. The opinion of
Goodwin, Procter & Hoar llp has been filed as an exhibit to the Registration
Statement on Form S-4 (the "Registration Statement") of which this Joint Proxy
Statement/Prospectus is a part. This opinion is based on certain assumptions
and representations from Patriot and Cal Jockey regarding Patriot's, Cal
Jockey's and New Patriot REIT's compliance with the requirements for
13
<PAGE>
qualification as a REIT, and is not binding on the Internal Revenue Service
(the "IRS"). Accordingly, no assurance can be given that the IRS will not
challenge the status of Patriot or Cal Jockey as a REIT prior to the Merger or
the status of New Patriot REIT as a REIT following the Merger. See "Certain
Federal Income Tax Considerations--REIT Qualification."
Taxation of New Patriot Operating Company
Bay Meadows has not qualified as a REIT prior to the Merger. New Patriot
Operating Company will not qualify as a REIT after consummation of the Merger
and the Related Transactions and will be subject to federal income tax on its
taxable income at corporate rates.
ACCOUNTING TREATMENT
Cal Jockey will account for the Merger as a purchase in accordance with
Accounting Principles Board Opinion No. 16. See "The Merger and Subscription--
Accounting Treatment."
CERTAIN RESALE RESTRICTIONS
All paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock received by Patriot stockholders in the Merger and the
Subscription will be freely transferable as paired shares, except that paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act of 1933, as amended (the "Securities
Act")) of Patriot at the time of the Patriot Special Meeting may be resold by
them only in certain permitted circumstances. See "The Merger and
Subscription--Certain Resale Restrictions."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot, Cal Jockey and Bay Meadows
to consummate the Merger that, prior to the Effective Time, the parties obtain
the approval for the listing of the paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock outstanding as of the
Effective Time and issuable in the Merger and the Related Transactions on the
NYSE, subject to official notice of issuance. See "The Merger and
Subscription--New York Stock Exchange Listing" and "The Merger Agreement--
Conditions to the Merger."
DISSENTERS' RIGHTS
Under the Delaware General Corporation Law (the "DGCL") and the Virginia
Stock Corporation Act (the "VSCA"), stockholders of Cal Jockey, Bay Meadows and
Patriot are not entitled to dissenters' rights in connection with the Merger or
the Related Transactions. See "Risk Factors--No Dissenters' Rights," "The
Meetings of Stockholders" and "The Merger and Subscription--Interests of
Certain Officers and Directors."
RISK FACTORS
In considering whether to approve the Proposals, stockholders of Patriot, Cal
Jockey and Bay Meadows should consider, in addition to the other information in
this Joint Proxy Statement/Prospectus, the matters discussed under "Risk
Factors." Such matters include:
. Following the Merger, New Patriot REIT intends to operate in a manner so
that New Patriot REIT will qualify as a REIT. New Patriot REIT's
qualification as a REIT following the Merger generally depends on, among
other things, Cal Jockey's and Patriot's qualifications as REITs for periods
prior to the Merger. In connection with the mailing of the Joint Proxy
Statement/Prospectus, Goodwin, Procter & Hoar llp has rendered an opinion
regarding (i) Patriot's qualification as a REIT for periods prior to the
Merger, (ii) Cal Jockey's qualification as a REIT for periods prior to the
Merger and (iii) New Patriot REIT's ability to qualify as a
14
<PAGE>
REIT following the Merger. If New Patriot REIT fails to qualify as a REIT,
New Patriot REIT will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at corporate
rates. This treatment would reduce the net earnings of New Patriot REIT
available for distribution to stockholders because of the additional tax
liability to New Patriot REIT for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to stockholders had been made in anticipation of New Patriot
REIT qualifying as a REIT, New Patriot REIT might be required to borrow
funds or to liquidate investments to pay the applicable tax. The failure to
qualify as a REIT would also constitute a default under certain debt
obligations of New Patriot REIT including the Line of Credit and the New
Credit Facility. See "Risk Factors--REIT Tax Risks."
. Risks associated with Patriot's rapid growth since the Initial Offering
and its ability to manage its operations following the Merger and the
Related Transactions. Assuming all of the Proposed Acquisitions are
consummated, New Patriot REIT's hotel portfolio will include 70 hotels,
aggregating 16,833 rooms, representing a 300% increase in the size of New
Patriot REIT's room portfolio since Patriot's Initial Offering. In
connection with the Merger and the Related Transactions, New Patriot
Operating Company will be responsible for the horse racing operations of
Bay Meadows and the hotel management operations of certain of New Patriot
REIT's hotels. The integration of departments, systems and procedures of
Patriot with those being acquired in connection with the Merger and the
Related Transactions presents a significant management challenge, and the
failure to integrate such companies and properties into Patriot's
management and operating structures could have a material adverse effect on
the results of operations and financial condition of New Patriot REIT and
New Patriot Operating Company. See "Risk Factors--Failure to Manage Rapid
Growth and Integrate Operations Following the Merger."
. Possible adverse consequences to the stockholders of Cal Jockey and Bay
Meadows who remain stockholders of New Patriot REIT and New Patriot
Operating Company as a result of (i) the increase in the amount of pro
forma combined debt payable by New Patriot REIT and New Patriot Operating
Company to approximately $579.9 million as of March 31, 1997, as compared
to no indebtedness of Bay Meadows and Cal Jockey (excluding the $2,900,000
Loan (as defined below in "--The Merger Agreement--Loan for Hudson Bay
Termination Fee") payable to Patriot under certain circumstances) as of
March 31, 1997, and (ii) the increase in the pro forma ratio of combined
debt to total market capitalization of New Patriot REIT and New Patriot
Operating Company to 29.6% (based on the $41 1/2 closing price of the
Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock on
May 28, 1997). It also should be noted that (i) PaineWebber Real Estate has
agreed to increase Patriot's availability under the Line of Credit from
$475 million to $625 million (as of May 28, 1997, $471.2 million was
outstanding under the Line of Credit) and (ii) Patriot has entered into a
commitment letter with PaineWebber Real Estate and Chase concerning
replacing the Line of Credit with the New Credit Facility which will have
availability of up to $1.2 billion. See "Risk Factors--Substantial Debt
Obligations; No Limits on Indebtedness."
. Risks associated with Patriot's lack of experience in hotel management
operations. Following consummation of the Merger, New Patriot Operating
Company will manage certain newly acquired hotels as well as certain of
Patriot's existing hotels that are re-leased to New Patriot Operating
Company. Although certain executives of Patriot have hotel management
experience, since its inception, Patriot has neither operated nor managed
any hotels. See "Risk Factors--Lack of Experience in Hotel Management
Business."
. The acquisition price being paid by Patriot for Cal Jockey and Bay
Meadows has a dilutive effect on Patriot's net income per share on a pro
forma basis for 1996 and for the three months ended March 31, 1997 and may
have a dilutive effect on net income per share in future periods. The
Unaudited Pro Forma Combined Financial Statements contained herein
illustrate the effect of the Merger and the Related Transactions on the net
income per share. On a pro forma basis (post-Merger) for New Patriot REIT
and New Patriot Operating Company, net income per share is $1.29 for the
year ended December 31, 1996 and $0.40 for the three months ended March 31,
1997, as compared to $1.78 and $0.44 for the year ended December 31, 1996
and the three months ended March 31, 1997, respectively, on a pro forma
basis for
15
<PAGE>
Patriot (pre-Merger) (or $0.89 and $0.22, respectively, as adjusted for the
2-for-1 stock split). See "Unaudited Pro Forma Combined Financial
Statements." In addition, upon consummation of the Merger and the Related
Transactions, the current stockholders of Patriot will hold in the
aggregate approximately 80% of the outstanding paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock, assuming
no options or OP Units are exchanged for shares of Patriot Common Stock
prior to the Merger and assuming that the Exchange Ratio is not adjusted
due to a Patriot Average Trading price below $17.125. See "Risk Factors--
Dilution to Earnings Caused by Acquisition of Cal Jockey and Bay Meadows."
. If the Merger and the Related Transactions are not consummated, Cal Jockey
will be required to repay the $2,900,000 Loan made by Patriot relating to
Cal Jockey's payment of a termination fee to Hudson Bay. If the Merger
Agreement is terminated under certain circumstances, Cal Jockey and Bay
Meadows will also be required to pay Patriot a termination fee of
$5,000,000. The requirement to make such $7,900,000 payments could have the
effect of deterring other potential acquirors from making competing offers
for Cal Jockey and Bay Meadows, including certain offers that may be more
favorable to the stockholders of Cal Jockey and Bay Meadows. Additionally,
in the event the Merger and the Related Transactions are not consummated
and no other acquiror has agreed to make payments totaling $7,900,000, the
payments of such amounts could have a material adverse effect on the
results of operations and financial condition of Cal Jockey and Bay
Meadows. If the Merger Agreement is terminated under certain other
circumstances, Patriot will be required to pay to Cal Jockey $2,900,000
(which amount Patriot may offset against the principal amount due on the
$2,900,000 Loan) and reimburse Cal Jockey and Bay Meadows for their out-of-
pocket expenses up to an aggregate of $1,000,000. In the event Cal Jockey
and Bay Meadows stockholders approve the Merger Proposal but fail to
approve either the Cal Jockey Charter and Bylaw Amendment Proposal or the
Bay Meadows Charter and Bylaw Amendment Proposal and Patriot terminates the
Merger Agreement because of such failure, Patriot shall promptly pay to Cal
Jockey and Bay Meadows $5,000,000 or such lesser amount requested by Cal
Jockey and Bay Meadows. In addition, pursuant to the terms of the Wyndham
Merger Agreement, if the Merger is not consummated by September 1, 1997,
then either Patriot or Wyndham could terminate the Wyndham Merger Agreement
and Patriot would be required to pay Wyndham a $25 million termination fee.
See "The Merger Agreement--Termination Amount and Expenses."
. Risks associated with the potential conflicts of interest between New
Patriot REIT and New Patriot Operating Company. New Patriot REIT and New
Patriot Operating Company are separate corporate entities with separate
Boards of Directors. A majority of the directors of each of New Patriot
REIT and New Patriot Operating Company will not serve as directors or
officers of the other company. As a result, the interests of the Board of
Directors of each company may conflict and such conflicts may rise to
disputes between the companies like those which have been experienced by
Cal Jockey and Bay Meadows in the recent past. New Patriot REIT and New
Patriot Operating Company will have, immediately following the Merger, the
same Chief Executive Officer and Chief Financial Officer as well as two of
the same directors. Patriot believes this overlap in management will help
decrease the possibility of disagreements between the two companies. No
assurance can be given, however, that these individuals' interests as
officers and/or directors of one company will not conflict with their
interests as officers and/or directors of the other company or that their
actions as officers and/or directors of one company will not adversely
affect the interests of the other company. See "Risk Factors--Potential
Conflicts of Interest Between New Patriot REIT and New Patriot Operating
Company," "The Companies--Cal Jockey--Lease of Horse Racing Facility" and
"Stockholders' Meetings, Litigation and Disagreements." This overlap in
management will be reduced in connection with the consummation of the
Proposed Wyndham Transactions. See "The Companies--Surviving Companies--The
Proposed Wyndham Transactions."
. Risks associated with different fairness analyses of Cal Jockey and Bay
Meadows by PaineWebber and Montgomery. In connection with rendering its
fairness opinion, PaineWebber advised Patriot's Board of Directors that the
individual valuations of the assets and business of Cal Jockey and Bay
Meadows (including the paired share structure) produced a valuation range
per Paired Share of between $33.48 and $39.50. See "The Merger and
Subscription--Opinion of Patriot's Financial Advisor." In connection with
rendering its fairness opinion, Montgomery advised Cal Jockey's and Bay
Meadow's Boards of Directors that the analyses
16
<PAGE>
performed by Montgomery and described to the Cal Jockey and Bay Meadows
Boards of Directors indicated a potential implied equity value range per
Paired Share of between $15.00 and $18.50. See "The Merger and
Subscription--Opinion of Financial Advisor for Cal Jockey and Bay Meadows."
A significant reason for the two different ranges is that, in their
respective fairness analyses, Montgomery attempted to determine the value
of the paired share structure currently realized by Cal Jockey and Bay
Meadows, while PaineWebber attempted to determine the value of the paired
share structure that could be realized by Patriot. See "Risk Factors--
Different Fairness Analyses of Cal Jockey and Bay Meadows by PaineWebber
and Montgomery."
. Immediately following the Merger, New Patriot REIT's ability to make
distributions to stockholders will primarily depend upon the ability of the
independent lessees of certain of Patriot's hotels (the "Lessees") pursuant
to separate participating leases (the "Participating Leases") to make rent
payments under the Participating Leases which is dependent primarily on the
Lessees' ability to generate sufficient revenues from the hotels leased to
them by New Patriot REIT. The Merger and the Related Transactions could
have a negative effect on Patriot's relationships with existing Lessees who
could be concerned that operating control over leased hotels will be
transferred to New Patriot Operating Company following expiration of the
Participating Leases. Any failure or delay by Lessees in making lease
payments may adversely affect New Patriot REIT's ability to make
anticipated distributions to stockholders. See "Risk Factors--Dependence on
Lessees and Payments under the Participating Leases."
. Following the Merger, Patriot's ability to acquire additional hotels could
be negatively impacted by the paired share structure because hotel
management companies, franchisees and others who currently approach Patriot
with acquisition opportunities in hopes of establishing lessee
relationships may not do so in the future out of concern that Patriot will
rely on New Patriot Operating Company to manage the acquired properties.
Such persons may instead provide such acquisition opportunities to hotel
companies that will allow them to manage the property following the sale.
This could have a negative impact on New Patriot REIT's acquisition
activities in the future. See "Risk Factors--Hotel Industry Risks."
. Following the Merger, the primary businesses of New Patriot REIT and New
Patriot Operating Company will be that of buying, selling, leasing and
managing hotels which are subject to operating risks common to the hotel
industry. These risks include, among other things, (i) competition for
guests from other hotels, a number of which may have greater marketing and
financial resources and experience than New Patriot REIT, New Patriot
Operating 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 ability of Lessees and New Patriot Operating Company to generate
revenues and to make lease payments and therefore New Patriot REIT's
ability to make expected distributions to stockholders. See "Risk Factors--
Hotel Industry Risks."
. New Patriot REIT's investments will be subject to varying degrees of risk
generally incident to the ownership of real property, including economic
and other conditions that may adversely affect real estate investments and
the ability of the Lessees, hotel management entities (the "Operators") and
New Patriot Operating Company to make rent payments from the operation of
hotels, the relative illiquidity of real estate, increases in taxes caused
by increased assessed values or property tax rates, and potential
liabilities, including liabilities from known or future environmental
problems, all of which could have a material adverse effect on the results
of operations and financial condition of New Patriot REIT and New Patriot
Operating Company. See "Risk Factors--Real Estate Investment Risks."
. Risks associated with the Proposed Wyndham Transactions. These risks
include, among others, (i) the Proposed Wyndham Transactions have a
dilutive effect on net income per share on a pro forma basis for 1996 and
the three months ended March 31, 1997, and may have a dilutive effect on
net income per share in future periods; (ii) as a result of the Proposed
Wyndham Transactions, the pro forma combined indebtedness for New Patriot
REIT and New Patriot Operating Company will increase by $511.7 million from
$579.9 million to $1,091.6 million (assuming no Wyndham stockholders
exercise their cash election rights in the
17
<PAGE>
Proposed Wyndham Transactions); and (iii) the Proposed Wyndham Transactions
will result in New Patriot REIT and New Patriot Operating Company having
separate management teams including different Chief Executive Officers and
Chief Financial Officers, and this may increase the possibility of
disagreements arising between the two companies. See "Unaudited Pro Forma
Combined Financial Statements," "Risk Factors--Risks Relating to Proposed
Wyndham Transactions" and "Risk Factors--Potential Conflicts of Interest
Between New Patriot REIT and New Patriot Operating Company."
THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL and the VSCA, the Effective Time of the Merger
will occur upon the acceptance for recordation of the Certificate of Merger by
the Secretary of State of the State of Delaware and the issuance of a
Certificate of Merger by the State Corporation Commission of Virginia. Subject
to the fulfillment or waiver of the other conditions to the obligations of
Patriot, Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions, it is currently expected that the Merger will be consummated on
the date on which the stockholders of Patriot, Cal Jockey and Bay Meadows
approve the Proposals. See "The Merger Agreement--Effective Time of the
Merger."
EXCHANGE OF PATRIOT STOCK CERTIFICATES
Promptly after the Effective Time, a designated exchange agent (the
"Exchange Agent") will mail a Letter of Transmittal (as defined below in "The
Merger Agreement--Exchange of Patriot Stock Certificates") and instructions to
each holder of record of a certificate representing shares of Patriot Common
Stock (a "Certificate") as of the Effective Time for use in effecting the
surrender of the Certificate. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such Letter of Transmittal duly executed
and completed in accordance with the instructions thereto, the holder of such
Certificate will be entitled to receive in exchange therefor (i) a certificate
representing the number of whole shares of New Patriot REIT Common Stock to
which such holder shall be entitled issued back-to-back with a certificate
representing the number of whole shares of New Patriot Operating Company
Common Stock to which such holder shall be entitled and (ii) a check
representing the amount of cash in lieu of Excess Paired Shares, if any, or
fractional paired shares, if any, due such holder plus the amount of any
dividends or distributions, if any, as provided in the Merger Agreement, after
giving effect to any required withholding tax, and the Certificate so
surrendered will be canceled. PATRIOT STOCKHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL. See "The Merger
Agreement--Exchange of Patriot Stock Certificates."
CONDITIONS TO THE MERGER
The obligations of Cal Jockey and Bay Meadows to effect the Merger and the
Related Transactions are subject to the fulfillment or waiver of certain
conditions at or prior to the Effective Time including, among others, that:
(i) all waivers, consents, authorizations, orders, approvals and expiration of
waiting periods required under law, regulation or agreement to be obtained in
order to consummate the Merger and the Related Transactions shall have been
obtained except where the failure to obtain any such waiver, consent,
authorization, order or approval would not have a Patriot Material Adverse
Effect (as defined below in "The Merger Agreement--Conditions to the Merger"),
a Cal Jockey Material Adverse Effect (as defined below in "The Merger
Agreement--Conditions to the Merger"), or a Bay Meadows Material Adverse
Effect (as defined below in "The Merger Agreement--Conditions to the Merger"),
as the case may be; (ii) no injunction, restraining order or other order of
any federal or state court shall be in effect which prevents the consummation
of the Merger and the Related Transactions; (iii) approval of the Proposals by
the requisite vote of stockholders of each of Patriot, Cal Jockey and Bay
Meadows shall have been obtained; (iv) no statute, rule or regulation shall
have been enacted by any state or governmental agency that would prevent
consummation of the Merger; (v) the Registration Statement and exhibits
relating thereto, including any amendments, of which this Joint Proxy
18
<PAGE>
Statement/Prospectus is a part, shall have been declared effective by the
Securities and Exchange Commission (the "Commission") and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and no proceedings for that purpose shall have been
initiated or threatened by the Commission; (vi) Cal Jockey and Bay Meadows
shall have obtained approval for the listing of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
outstanding as of the Merger and issuable in the Merger on the NYSE, subject to
official notice of issuance; and (vii) no Patriot Material Adverse Effect shall
have occurred other than any developments that generally affect the industry in
which Patriot operates. See "The Merger Agreement--Conditions to the Merger."
The obligation of Patriot to effect the Merger and the Related Transactions
is subject to the fulfillment or waiver of certain conditions at or prior to
the Effective Time including, among others, that: (i) all waivers, consents,
authorizations, orders, approvals and expiration of waiting periods required
under law, regulation or agreement to be obtained in order to consummate the
Merger and the Related Transactions shall have been obtained except where the
failure to obtain any such waiver, consent, authorization, order or approval
would not have a Patriot Material Adverse Effect, a Cal Jockey Material Adverse
Effect, or a Bay Meadows Material Adverse Effect, as the case may be; (ii) no
injunction, restraining order or other order of any federal or state court
shall be in effect which prevents the consummation of the Merger and the
Related Transactions; (iii) no substantial change in the principal business,
principal assets or structure of Cal Jockey or Bay Meadows or in the
"grandfathered" status of the paired share structure of Cal Jockey or Bay
Meadows shall have occurred or be pending and no Cal Jockey Material Adverse
Effect or Bay Meadows Material Adverse Effect shall have occurred other than
any developments that generally affect the industry in which Cal Jockey or Bay
Meadows operate; (iv) approval of the Proposals by the requisite vote of
stockholders of each of Patriot, Cal Jockey and Bay Meadows shall have been
obtained; (v) no statute, rule or regulation shall have been enacted by any
state or governmental agency that would prevent consummation of the Merger;
(vi) the Registration Statement shall have been declared effective by the
Commission and no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and no proceedings for that
purpose shall have been initiated or threatened by the Commission; (vii) Cal
Jockey and Bay Meadows shall have obtained approval for the listing of the
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock outstanding as of the Effective Time of the Merger and
issuable in the Merger on the NYSE, subject to official notice of issuance;
(viii) Cal Jockey and Bay Meadows shall not be financially insolvent on a
combined balance sheet basis immediately prior to consummation of the Merger
and the Related Transactions; and (ix) each of the directors of Cal Jockey and
each of the directors of Bay Meadows shall have resigned as of the Effective
Time from their respective Boards of Directors and the persons designated by
Patriot shall be appointed the directors of each of New Patriot REIT and New
Patriot Operating Company. See "The Merger Agreement--Conditions to the
Merger."
Of the conditions described in the two preceding paragraphs, the following
conditions are not waivable by the parties: (i) no injunction, restraining
order or other order of any federal or state court preventing the consummation
of the Merger; (ii) approval of the Proposals by the requisite vote of the
stockholders of each of Patriot, Cal Jockey and Bay Meadows; (iii) no statute,
rule or regulation being enacted preventing the consummation of the Merger;
(iv) the Registration Statement being declared effective by the Commission and
no stop order or proceeding suspending the effectiveness thereof being issued;
and (v) obtaining approval for the listing of the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock on the NYSE.
LOAN FOR HUDSON BAY TERMINATION FEE
In connection with the transactions contemplated by the Merger Agreement, on
October 31, 1996, Patriot loaned to Cal Jockey $2,900,000 (the "$2,900,000
Loan"), which was used to pay the termination fee due to Hudson Bay under an
agreement, dated as of August 18, 1996, between Cal Jockey and Hudson Bay (the
"Hudson Bay Agreement"). Cal Jockey caused such amount to be paid to Hudson Bay
in accordance with the
19
<PAGE>
Hudson Bay Agreement. In accordance with the promissory note, as amended and
restated, governing the $2,900,000 Loan, the $2,900,000 Loan is payable on July
14, 1997 and accrues interest at a rate of 5% per annum. In the event of the
termination of the Merger Agreement for any reason, Cal Jockey has agreed to
immediately repay to Patriot the $2,900,000 Loan. See "The Merger Agreement--
Loan for Hudson Bay Termination Fee." In addition, in the event of termination
of the Merger Agreement for certain reasons, Patriot will be required to pay up
to $2,900,000 to Cal Jockey, which amount Patriot may offset against the
principal amount due on the $2,900,000 Loan. See "The Merger Agreement--
Termination Amount and Expenses."
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to the
Effective Time, in a number of circumstances including, among others: (i) such
time as the parties shall mutually agree; (ii) at the option of Bay Meadows and
Cal Jockey, acting jointly, but not individually, on or after July 14, 1997, if
by that date all of the conditions to Bay Meadows' and Cal Jockey's obligations
shall not have been satisfied or waived (see "The Merger Agreement--Conditions
to the Merger"); (iii) at the option of Patriot, on or after July 14, 1997, if
by that date all of the conditions to Patriot's obligations shall not have been
satisfied or waived (see "The Merger Agreement--Conditions to the Merger");
(iv) at the option of Patriot, if at any time prior to the Effective Time the
number of horse race days permitted to be held during 1997 at the premises
currently operated by Bay Meadows is less than 80; (v) at the option of Bay
Meadows or Cal Jockey if the Board of Directors of either determines in good
faith after receiving advice of its respective outside counsel that such action
is necessary in order for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law; (vi) at the option of Patriot, if
the Board of Directors of either of Bay Meadows or Cal Jockey or any committee
of either Board of Directors has (A) withdrawn or modified its approval or
recommendation of the Proposals, (B) failed to recommend that the stockholders
of Bay Meadows and Cal Jockey vote in favor of such transactions, (C) approved
or recommended any Acquisition Proposal (as defined below in "The Merger
Agreement--Certain Covenants") or (D) has resolved to do any of the foregoing;
or (vii) at the option of any of the parties to the Merger Agreement if the
stockholders of Patriot, Cal Jockey or Bay Meadows do not approve any of the
Proposals. See "The Merger Agreement--Termination."
TERMINATION AMOUNT AND EXPENSES
In the event the Merger Agreement is terminated (i) because of the failure to
obtain Cal Jockey or Bay Meadows stockholder approval of any of the Proposals
and during the 12-month period following such termination Cal Jockey or Bay
Meadows enters into a binding acquisition agreement with a third party or (ii)
at the option of Cal Jockey or Bay Meadows because either of their respective
Boards of Directors determines such action is necessary to comply with its
fiduciary duties to stockholders under applicable laws, then Cal Jockey or Bay
Meadows, as the case may be, shall pay to Patriot $5,000,000 in immediately
available funds (in addition to Cal Jockey's obligation to repay the $2,900,000
Loan). In addition, in the event the Merger Agreement is terminated by Patriot
because the Board of Directors or any committee of the Board of Directors of
either Cal Jockey or Bay Meadows (i) withdraws or modifies its approval or
recommendation of the Proposals, (ii) fails to recommend that the stockholders
of Cal Jockey and Bay Meadows vote in favor of the Proposals, (iii) approves or
recommends any Acquisition Proposal or (iv) resolves to do any of the
foregoing, Cal Jockey and Bay Meadows shall pay to Patriot $5,000,000 in
immediately available funds or with a note due within 90 days accruing interest
at 7% per annum (in addition to Cal Jockey's obligation to repay the $2,900,000
Loan).
In the event the Merger Agreement is terminated because of (i) a breach of
Patriot's representations and warranties that would have a Patriot Material
Adverse Effect, (ii) the failure by Patriot to comply with all covenants and
agreements set forth in the Merger Agreement or (iii) the failure to obtain Cal
Jockey, Bay Meadows or Patriot stockholder approval of any of the Proposals,
Patriot shall pay to Cal Jockey $2,900,000 or such lesser amount requested by
Cal Jockey (which amount Patriot may offset against the principal amount due on
the $2,900,000 Loan); provided that such amount shall be immediately repaid by
Cal Jockey to Patriot if
20
<PAGE>
during the 12-month period following any such termination on account of a
failure to obtain Cal Jockey or Bay Meadows stockholder approval of any of the
Proposals, Cal Jockey or Bay Meadows enters into a binding acquisition
agreement with a third party. In the event (a) the Patriot Board of Directors
withdraws or modifies its approvals or recommendation of the Merger Proposal or
(b) Patriot's stockholders fail to approve the Merger Proposal, Patriot shall
promptly reimburse Cal Jockey and Bay Meadows for their out-of-pocket costs and
expenses incurred in connection with the Merger Agreement and the Related
Transactions (in an amount requested by Cal Jockey and Bay Meadows up to
$1,000,000 in the aggregate). In the event Cal Jockey and Bay Meadows
stockholders approve the Merger Proposal but fail to approve either the Cal
Jockey Charter and Bylaw Amendment Proposal or the Bay Meadows Charter and
Bylaw Amendment Proposal and Patriot terminates the Merger Agreement because of
such failure, Patriot shall promptly pay to Cal Jockey and Bay Meadows
$5,000,000, or such lesser amount requested by Cal Jockey and Bay Meadows. In
addition, pursuant to the terms of the Wyndham Merger Agreement, if the Merger
is not consummated by September 1, 1997, then either Patriot or Wyndham could
terminate the Wyndham Merger Agreement and Patriot would be required to pay
Wyndham a $25 million termination fee.
Except as described above or otherwise provided in the Merger Agreement,
Patriot, Cal Jockey and Bay Meadows have agreed that all costs and expenses
incurred in connection with the Merger Agreement and the Related Transactions
shall be paid by the party incurring such expenses, except that (i) the filing
fee(s) in connection with the filing of the Registration Statement or the Joint
Proxy Statement/Prospectus with the Commission, (ii) the filing fee in
connection with the listing of the Paired Shares on the NYSE, if any, and (iii)
the expenses incurred for printing and mailing the Registration Statement and
the Joint Proxy Statement/Prospectus shall be shared equally by Patriot on the
one hand and Cal Jockey and Bay Meadows on the other hand. Patriot, Cal Jockey
and Bay Meadows have also agreed that all costs and expenses for professional
services rendered pursuant to the transactions contemplated by the Merger
Agreement including, but not limited to, investment banking and legal services,
will be paid by the party incurring such services. See "The Merger Agreement--
Termination Amount and Expenses."
COMPARISON OF STOCKHOLDER RIGHTS
The rights of the stockholders of Patriot are presently governed by the VSCA,
the Patriot Charter (as defined below) and the Patriot Bylaws (as defined
below) and the rights of the stockholders of Cal Jockey and Bay Meadows are
presently governed by the DGCL, the Cal Jockey Charter and Bay Meadows Charter
and the Cal Jockey Bylaws and Bay Meadows Bylaws. Under the terms of the Merger
Agreement, upon stockholder approval of the Proposals, the Cal Jockey Charter
and the Bay Meadows Charter will be amended and restated and will become the
Restated Charters of New Patriot REIT and New Patriot Operating Company and the
Cal Jockey Bylaws and the Bay Meadows Bylaws will be amended and restated and
will become the amended and restated bylaws of New Patriot REIT and New Patriot
Operating Company (collectively, the "Restated Bylaws"). At the Effective Time,
stockholders of Patriot, Cal Jockey and Bay Meadows will become stockholders of
New Patriot REIT and New Patriot Operating Company, each a Delaware
corporation, and their rights will be thereafter governed by the DGCL, the
Restated Charters and the Restated Bylaws. In considering the recommendation of
the Boards of Directors of Patriot, Cal Jockey and Bay Meadows to approve the
Proposals, stockholders of Patriot, Cal Jockey and Bay Meadows should be aware
that the rights of stockholders of New Patriot REIT and New Patriot Operating
Company under the Restated Charters and the Restated Bylaws would differ
significantly from the existing rights of the Patriot stockholders under the
Amended and Restated Articles of Incorporation of Patriot (the "Patriot
Charter") and the Bylaws of Patriot (the "Patriot Bylaws") as well as the
existing rights of the stockholders of Cal Jockey and Bay Meadows under the Cal
Jockey Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay
Meadows Bylaws. A summary of certain of the differences are set forth below.
Stockholders of Patriot, Cal Jockey and Bay Meadows should read carefully the
Restated Charters and the Restated Bylaws, copies of which are attached to this
Joint Proxy Statement/Prospectus as Annexes B and D and Annexes C and E,
respectively.
21
<PAGE>
Certain differences between the rights of stockholders of Patriot and the
rights of stockholders of New Patriot REIT and New Patriot Operating Company
include the following: (i) the Patriot Charter provides that all of its
directors are elected each year at the annual meeting of stockholders, whereas
the Restated Charters would provide for three classes of directors, with the
term of office of one class expiring each year; (ii) directors of Patriot may
be removed, with or without cause, by the vote of the holders of at least 75%
of the outstanding shares of capital stock entitled to vote at the election of
directors, whereas the directors of New Patriot REIT and New Patriot Operating
Company would be removable only for cause by the vote of at least 75% of the
outstanding shares of capital stock entitled to vote at the election of
directors; (iii) a special meeting of the Patriot stockholders shall be called
upon the written request of the holders of shares entitled to cast not less
than 25% of all the votes entitled to be cast at such meeting, whereas the
stockholders of New Patriot REIT and New Patriot Operating Company would not be
entitled to call a special meeting of stockholders; (iv) the Patriot Charter,
pursuant to an ownership limit provision, provides that no person or entity may
own, or be deemed to own by virtue of certain attribution rules of the Code, in
excess of 9.8% of the outstanding shares of any class or series of Patriot
capital stock, subject to a look-through ownership provision, which allows
certain entities to own up to 15% of the outstanding shares of any class or
series of Patriot's capital stock, whereas the Restated Charters would contain
an ownership limit provision whereby no individual or entity could own, or be
deemed to own by virtue of certain attribution rules of the Code or be deemed
to beneficially own pursuant to the applicable provisions of the Exchange Act,
in excess of 9.8% of the outstanding shares of any class or series of Equity
Stock of New Patriot REIT or New Patriot Operating Company, and would not
provide for such a look-through ownership provision; and (v) unlike the shares
of capital stock of Patriot, until such time as the limitation on transfer
provided for in the Pairing Agreement was terminated, no shares of New Patriot
REIT Common Stock, New Patriot Operating Company Common Stock or preferred
stock that would be convertible into shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock would be transferable or
transferred on the books of such company unless a simultaneous transfer was
made by the same transferor to the same transferee of an equal number of shares
of that same class or series of Equity Stock of the other company, and neither
New Patriot REIT nor New Patriot Operating Company would be able to issue
shares of New Patriot REIT Common Stock, New Patriot Operating Company Common
Stock or preferred stock that are convertible into shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock unless provision
had been made for the simultaneous issuance or transfer to the same person of
the same number of shares of that same class or series of Equity Stock of the
other company and for the pairing of such shares. See "Comparison of
Stockholder Rights."
Certain differences between the rights of stockholders of Cal Jockey and Bay
Meadows and the rights of stockholders of New Patriot REIT and New Patriot
Operating Company include the following: (i) the Cal Jockey Bylaws and the Bay
Meadows Bylaws provide that the directors of each of Cal Jockey and Bay Meadows
are elected each year at the annual meeting of stockholders pursuant to
cumulative voting if certain procedures are followed, whereas the Restated
Charters would provide for three classes of directors, with the term of office
of one class expiring each year, and would not provide for cumulative voting;
(ii) directors of Cal Jockey and Bay Meadows may be removed with or without
cause by the vote of the holders of a majority of the outstanding shares of
stock entitled to vote, whereas the directors of New Patriot REIT and New
Patriot Operating Company would be removable only for cause by the vote of at
least 75% of the outstanding shares of capital stock entitled to vote at the
election of directors; (iii) the Cal Jockey Bylaws and the Bay Meadows Bylaws
provide that any action required or permitted to be taken at a stockholder
meeting may be taken by written consent without a meeting if the holders of
outstanding stock having not less than the minimum number of votes necessary to
take such action at a meeting consent in writing, whereas the Restated Charters
would provide that stockholder action without a meeting requires the unanimous
written consent of all stockholders entitled to vote on such action; and (iv)
the Cal Jockey Bylaws and the Bay Meadows Bylaws, pursuant to an ownership
limit provision, provide that their respective Board of Directors have the
power to call for purchase from any stockholder such number of shares as is
sufficient to maintain or bring the ownership of shares into conformity with
the REIT requirements of the Code, whereas the Restated Charters would provide
for the transfer of stock in excess of the ownership limit provision into a
trust. See "Comparison of Stockholder Rights."
22
<PAGE>
Certain of the provisions described above could have a potential anti-
takeover effect on New Patriot REIT and New Patriot Operating Company. The
staggered board provision in the Restated Charters would prevent stockholders
from voting on the election of more than one class of directors at each annual
meeting and thus could have the effect of keeping the members of the Board of
Directors of New Patriot REIT and New Patriot Operating Company in control for
a longer period of time. The staggered board provision, the fact that directors
of New Patriot REIT and New Patriot Operating Company would be removable only
for cause, the fact that stockholders would not be permitted to call a special
meeting of stockholders and the fact that the written consent of all
stockholders entitled to vote on a matter would be required for stockholders to
take action on such a matter without a meeting could have the effect of making
it more difficult for a third party to acquire control of New Patriot REIT and
New Patriot Operating Company, including certain acquisitions that stockholders
may deem to be in their best interests. See "Comparison of Stockholder Rights."
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS
In considering the recommendation of the Boards of Directors of Patriot, Cal
Jockey and Bay Meadows to approve the Proposals, stockholders should be aware
that certain members of the management and the Board of Directors of these
companies have certain interests in, and will receive benefits as a consequence
of, the Merger and the Related Transactions that are separate from the
interests of, and benefits to, the stockholders of these companies generally.
On May 28, 1997, at the same meeting at which the Cal Jockey Board of
Directors approved the Merger Agreement, the Cal Jockey Board agreed to pay its
members, Kjell H. Qvale, James M. Harris, James P. Conn, David M. Gjerdrum and
Ronald J. Volkman and the sole employee of Cal Jockey, Ray Kuratek, the
aggregate sum of $600,000 to be allocated by the Cal Jockey Board of Directors
at a subsequent Board meeting. The Cal Jockey Board of Directors agreed to pay
such amount as compensation for services previously rendered to Cal Jockey by
such individuals, particularly in recognition of their significant
contributions to the Merger process. The compensation payments are conditioned
upon consummation of the Merger and the Related Transactions. The fact that Cal
Jockey has only one employee, combined with the complex structure of the Merger
and Related Transactions, has resulted in significant efforts and time
commitments from these individuals in connection with the Merger.
Bay Meadows has entered into individual severance agreements (the "Severance
Agreements") with six key members of management (the "Officers"), including
Eugene F. Barsotti, Jr., F. Jack Liebau and Frank Trigeiro. Each of the
Severance Agreements provides that, if following a change in control of Bay
Meadows, the Officer's employment is terminated prior to January 1, 1998 or
within 24 months following a change in control of Bay Meadows prior to January
1998, he or she will be entitled to receive (i) payments of full base salary,
and accrued vacation and personal holidays from the date of notice of
termination to the date of termination (not to be less than 30 days) at the
highest rate in effect during the 12 months immediately preceding notice of
termination, (ii) an amount equal to his or her annual base salary at the
highest rate in effect during the 12 months immediately preceding notice of
termination (or, with respect to Messrs. Liebau and Barsotti, two times such
amount) and (iii) an amount equal to the amount of any bonus or other incentive
compensation paid during the 12 months immediately preceding notice of
termination or calendar year 1996, whichever is higher (or, with respect to
Messrs. Liebau and Barsotti, two times such amount). As of May 28, 1997, the
payments that would be made to the Officers pursuant to clauses (ii) and (iii)
above would be $141,000, $695,000 and $120,000 for Messrs. Barsotti, Liebau and
Trigeiro, respectively. In addition to the payments that would be made to the
Officers pursuant to clauses (i) through (iii) above, each of the Officers
would be entitled to receive under his or her respective Severance Agreement
(a) continued contribution by Bay Meadows into any pension or retirement plan
in effect with regard to the Officer, as well as continued designation as an
employee for this purpose, until January 1, 1998 at the highest rate in effect
during the 12 months immediately preceding notice of termination or a lump sum
payment of the actuarial equivalent of such continued contribution, (b) the
right to purchase the
23
<PAGE>
Bay Meadows automobile assigned to him or her for book value, (c) payment of
all legal fees and expenses incurred as the result of termination and (d) two
years of continued coverage under Bay Meadows' health care and welfare benefit
plans. See "The Merger and Subscription--Interests of Certain Officers and
Directors."
As of May 28, 1997, Bay Meadows has granted to the Officers a total of
137,500 options to purchase Paired Shares, including 12,500, 95,000 and 7,500
to Messrs. Barsotti, Liebau and Trigeiro, respectively. A total of 126,668 of
the options granted to the Officers were vested as of May 28, 1997, including
11,667, 86,667 and 7,500 options of Messrs. Barsotti, Liebau and Trigeiro,
respectively. According to the terms of such options, all of the options listed
above which are not currently vested will become fully vested and immediately
exercisable in connection with the Merger and the Related Transactions. In the
event the Officers exercise all of the 137,500 options then, based on the $41
1/2 closing price of a Paired Share as quoted on the AMEX on May 28, 1997, the
aggregate value (net of the exercise price) for such options would be
$3,761,875, including $343,125, $2,623,750 and $200,625 for the options of
Messrs. Barsotti, Liebau and Trigeiro, respectively. If the Officers choose not
to exercise their options prior to the Merger and the Related Transactions,
they will, as a result, hold fully vested options to purchase 137,500 paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock. Presently there is a disagreement between Bay Meadows and Cal
Jockey concerning the total number of outstanding options to purchase Cal
Jockey Common Stock that have been granted to Bay Meadows in connection with
its issuance of options to purchase Paired Shares to the Officers and certain
employees of Bay Meadows. For a description of such disagreement, see
"Stockholders' Meetings, Litigation and Disagreements."
James P. Conn, currently a director of Cal Jockey, served as President and
Chief Executive Officer of Bay Meadows from March 1988 to November 1992. In
connection with such service, Mr. Conn holds a fully vested stock option for
20,000 Paired Shares. In the event Mr. Conn exercises such option then, based
on the $41 1/2 closing price of a Paired Share as quoted on the AMEX on May 28,
1997, the aggregate value (net of the exercise price) for such option would be
$585,000. If Mr. Conn chooses not to exercise his option prior to the Merger
and the Related Transactions, he will hold a fully vested option to purchase
20,000 paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock.
Certain executive officers of Patriot own all of the membership interests in
PAH RSI, LLC, a limited liability company ("PAH RSI Lessee"). PAH RSI Lessee
presently leases the Carefree Resorts and three additional hotels from Patriot
and is currently expected by the Effective Time to lease from Patriot nine
additional hotels which are the subject of Proposed Acquisitions. See "The
Companies--Surviving Companies--Operations of New Patriot REIT and New Patriot
Operating Company Following the Merger." PAH RSI Lessee also owns certain non-
leasable assets relating to the Carefree Resorts. Following consummation of the
Merger, New Patriot REIT expects to terminate such leases with PAH RSI Lessee
by paying the fair market value of the leasehold interests to PAH RSI Lessee or
otherwise seeking to have New Patriot Operating Company acquire such
leaseholds. In addition, New Patriot Operating Company expects to offer to
acquire the non-leasable assets from PAH RSI Lessee at the then fair market
value of such assets. Based on current market conditions, Patriot presently
believes that the fair market value of the leasehold interests and assets (net
of liabilities) currently held by PAH RSI Lessee is approximately $225,000. No
assurances can be made as to what the purchase price of the leasehold interests
and assets will be or as to whether the owners will sell the assets. See "Risk
Factors--Certain Conflicts of Interests Relating to Patriot."
24
<PAGE>
SUMMARY FINANCIAL INFORMATION
PATRIOT AMERICAN HOSPITALITY, INC.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth historical and pro forma financial information
for Patriot and the Lessees (which include CHC Lease Partners, NorthCoast
Hotels, L.L.C. ("NorthCoast Lessee"), DTR North Canton, Inc. ("Doubletree
Lessee"), Crow Hotel Lessee, Inc. ("Wyndham Lessee"), Metro Hotel Leasing
Corporation ("Metro Lease Partners"), Grand Heritage Leasing, L.L.C. ("Grand
Heritage Lessee") and PAH RSI Lessee, and should be read in conjunction with,
and are qualified in their entirety by, the historical financial statements and
notes thereto of Patriot, CHC Lease Partners, NorthCoast Lessee and PAH RSI
Lessee incorporated by reference into this Joint Proxy Statement/Prospectus and
the pro forma financial statements and notes thereto of Patriot located
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma operating
information is presented as if (i) the acquisition of 24 hotels in 1996, (ii)
the consummation of the Recent Acquisitions (as defined in "Introduction to Pro
Forma Financial Statements") and the acquisition of the Carefree Resorts, (iii)
the May 1996 private placement (the "Private Placement") of Patriot Common
Stock and Preferred OP Units (as defined in "Description of the Partnership
Agreements--Patriot Partnership--Distribution and Allocations"), (iv) the July
1996 public offering (the "Follow-On Offering") of Patriot Common Stock, (v)
the 2-for-1 stock split effected in the form of a stock dividend, and (vi) the
funding of the mortgage notes to affiliates of CHC Lease Partners had each
occurred on January 1, 1996. In addition, the pro forma balance sheet data of
Patriot is presented as if the funding of the mortgage notes to affiliates of
CHC Lease Partners had occurred on March 31, 1997. The summary pro forma
financial information excludes the Sheraton Park Place Hotel acquired by
Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort
acquired by Patriot in May 1997.
25
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- --------------------------
PERIOD
OCTOBER 2, 1995 YEAR YEAR
(INCEPTION OF ENDED THREE MONTHS ENDED THREE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED DECEMBER ENDED
DECEMBER 31, 1995 1996 MARCH 31, 1997 31, 1996 MARCH 31, 1997
------------------- ------------ -------------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Participating lease
revenue(2)............. $ 10,582 $ 75,893 $ 35,013 $130,570 $ 36,551
Income before minority
interests and
extraordinary item..... 7,064 44,813 13,780 47,973 12,168
Income before
extraordinary item..... 6,096 37,991 11,348 39,406 9,930
Net income applicable to
common shareholders.... $ 5,359 $ 37,991 $ 11,348 $ 39,406 $ 9,930
PER SHARE DATA(3):
Income before
extraordinary item..... $ 0.21 $ 1.06 $ 0.25 $ 0.89 $ 0.22
Extraordinary item, net
of minority interests.. (0.03) -- -- -- --
--------- --------- ---------- -------- ----------
Net income per common
share.................. $ 0.18 $ 1.06 $ 0.25 $ 0.89 $ 0.22
========= ========= ========== ======== ==========
Dividends per common
share.................. $ 0.24 $ 0.9825 $ 0.2625
========= ========= ==========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,350 35,938 44,552 44,378 44,919
========= ========= ========== ======== ==========
CASH FLOW DATA:
Cash provided by
operating
activities(4).......... $ 7,618 $ 61,196 $ 11,489 $ 88,860 $ 24,403
Cash used in investing
activities(5).......... (306,948) (419,685) (222,529) (19,006) (5,080)
Cash provided by (used
in) financing
activities(6).......... 304,099 360,324 210,707 (52,166) (13,938)
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- --------------
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1997 1997
------------------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel
properties and land
held for sale, at cost,
net.................... $265,759 $641,825 $ 947,722 $ 947,722
Total assets............ 324,224 760,931 1,081,898 1,195,048
Total debt.............. 9,500 214,339 466,712 579,862
Minority interest in
Patriot Partnership.... 41,522 68,562 127,262 127,262
Minority interest in
other partnerships..... -- 11,711 13,774 13,774
Shareholders' equity.... 261,778 437,039 440,616 440,616
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- --------------------------
PERIOD
OCTOBER 2, 1995 YEAR- YEAR
(INCEPTION OF ENDED THREE MONTHS ENDED THREE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED DECEMBER ENDED
DECEMBER 31, 1995 1996 MARCH 31, 1997 31, 1996 MARCH 31, 1997
------------------- ------------ -------------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from
operations(7).......... $9,798 $64,463 $22,923 $85,396 $21,728
Cash available for
distribution(8)........ 8,603 55,132 19,050 72,569 19,078
Weighted average number
of common shares and OP
units
outstanding(3)(9)...... 34,001 42,200 53,043 53,340 53,881
</TABLE>
(Notes on page 28)
26
<PAGE>
LESSEES
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------------------------------- ---------------------------
PERIOD
OCTOBER 2, 1995
(INCEPTION OF YEAR ENDED THREE MONTHS YEAR ENDED THREE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 MARCH 31, 1997 1996 MARCH 31, 1997
------------------- ------------ -------------- ------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Room revenue............ $21,508 $155,856 $67,481 $260,991 $69,862
Food and beverage
revenue................ 8,649 56,833 26,868 105,234 27,891
Conference center
revenue................ 576 2,354 748 2,354 748
Golf club revenue....... -- -- 6,867 22,135 7,789
Club membership......... -- -- 341 4,277 348
Shopping center
revenue................ -- -- 363 1,730 474
Spa revenue............. -- -- 806 2,575 917
Telephone and other..... 1,732 14,467 8,977 32,667 9,658
------- -------- ------- -------- -------
Total revenue........... 32,465 229,510 112,451 431,963 117,687
Hotel operating
expenses............... 20,801 150,037 71,346 302,249 77,211
Participating Lease
payments(2)............ 10,582 75,893 35,013 130,570 36,551
------- -------- ------- -------- -------
Income (loss) before
Lessee expenses........ 1,082 3,580 6,092 (856) 3,925
Lessee expenses(10)..... 573 4,588 2,573 10,765 2,747
------- -------- ------- -------- -------
Net income (loss)....... $ 509 $ (1,008) $ 3,519 $(11,621) $ 1,178
======= ======== ======= ======== =======
</TABLE>
(Notes on page 28)
27
<PAGE>
NOTES TO PATRIOT AND LESSEES SUMMARY FINANCIAL INFORMATION
(1) The pro forma information does not purport to represent what Patriot's
financial position or Patriot's or the Lessees' results of operations
actually would have been if the acquisition of the 32 Patriot hotels and
resorts acquired during 1996 and 1997 (excluding the Sheraton Park Place
Hotel acquired in April 1997 and the Myrtle Beach Hilton Oceanfront Golf
Resort acquired in May 1997), the Private Placement, the Follow-On
Offering, the 2-for-1 stock split in the form of a stock dividend and the
funding of the mortgage notes to certain affiliates of CHC Lease Partners
had in fact occurred on such date or at the beginning of the period
indicated, or to project Patriot's or the Lessees' results of operations
for any future periods.
(2) With respect to the pro forma information, participating lease payments
from the Lessees to Patriot are calculated on a pro forma basis by applying
the provisions of the Participating Leases to the historical revenue of the
hotels as if January 1, 1996 were the beginning of the lease year.
(3) On January 30, 1997, the Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend distributed on March
18, 1997 to stockholders of record on March 7, 1997. All references herein
to the number of shares, per share amounts, and market prices of Patriot
Common Stock and options to purchase Patriot Common Stock have been
restated to reflect the impact of such stock split.
(4) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
(including amortization of unearned stock compensation) less the non-cash
portion of Patriot's equity in earnings of unconsolidated subsidiaries. The
pro forma amounts do not include adjustments from changes in working
capital resulting from changes in current assets and current liabilities as
there is no historical data available as of both the beginning and end of
each period presented.
(5) On a pro forma basis, cash used in investing activities represents the
approximate 4.0% of hotel revenue which is required to be reserved under
the terms of the Participating Leases for capital improvements and the
replacement and refurbishment of furniture, fixtures and equipment ("F, F &
E").
(6) Pro forma cash used in financing activities represents estimated dividends
and distributions to be paid based on Patriot's historical dividend rate of
$0.9825 and $0.2625 per share for 1996 and the three months ended March 31,
1997, respectively, and an aggregate of 44,093 shares of Patriot Common
Stock and 3,819 OP Units (with a distribution rate equal to twice the
dividend rate), of the Patriot Partnership outstanding and approximately
$2.02 and $0.54 per OP Unit, respectively, on the 662 Preferred OP Units
outstanding.
(7) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Patriot has also made certain adjustments to
funds from operations for real estate related amortization expense. Funds
from operations should not be considered as an alternative to net income or
other measurements under generally accepted accounting principles as an
indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds from
operations does not reflect working capital changes, cash expenditures for
capital improvements or principal payments on indebtedness. Under the
Participating Leases, Patriot is obligated to establish a reserve for
capital improvements at its hotels (including the replacement or
refurbishment of F, F & E) and to pay real estate and personal property
taxes and casualty insurance. Management believes that funds from
operations is helpful to investors as a measure of the performance of an
equity REIT, because, along with cash flows from operating activities,
investing activities and financing activities, it provides investors with
an understanding of the ability of Patriot to incur and service debt and
make capital expenditures.
(8) Cash available for distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(9) The number of OP Units used in the calculation is based on the equivalent
number of shares of Patriot Common Stock after giving effect to the change
in the OP Unit conversion factor which coincides with the 2-for-1 stock
split.
(10) Historical Lessee expenses represent management fees paid to the Operators
and Lessee overhead expenses, net of dividend and interest income earned
by the Lessees. Pro forma Lessee net income excludes pro forma dividends
on approximately 300,000 OP Units of the Patriot Partnership, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
28
<PAGE>
CALIFORNIA JOCKEY CLUB AND BAY MEADOWS OPERATING COMPANY
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth historical financial information for Cal
Jockey and Bay Meadows, which should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Cal Jockey and Bay Meadows incorporated by reference into this Joint
Proxy Statement/Prospectus.
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
--------------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $48,985 $44,993 $51,575 $50,709 $53,932 $20,591
Net income (loss)...... 2,150(1) 1,153(1) 4,212 4,200 (761) 2,134
Net income (loss) per
share................. 0.37(1) 0.20(1) 0.73 0.73 (0.13) 0.37
Cash dividends per
share................. 0.60 0.30 0.60 0.65 0.40 --
Weighted average number
of common
shares outstanding.... 5,763 5,756 5,753 5,760 5,763 5,763
Balance Sheet Data:
Total assets........... $33,999 $32,414 $36,786 $37,935 $27,676 $34,346
Stockholders' equity... 22,554 21,981 22,718 23,107 21,465 23,708
</TABLE>
CALIFORNIA JOCKEY CLUB
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
--------------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $ 4,736 $ 3,984 $ 5,176 $ 5,241 $ 5,412 $ 1,774
Net income (loss)...... 2,854(1) 980(1) 3,620 3,723 (1,216) 1,019
Net income (loss) per
share................. 0.49(1) 0.17(1) 0.63 0.65 (0.21) 0.18
Cash dividends per
share................. 0.60 0.30 0.60 0.65 0.40 --
Weighted average number
of common
shares outstanding.... 5,773 5,758 5,753 5,760 5,763 5,763
Balance Sheet Data:
Total assets........... $23,950 $21,914 $22,129 $22,147 $23,374 $24,754
Stockholders' equity... 22,906 21,825 21,970 21,878 19,781 20,909
</TABLE>
(Note on page 30)
29
<PAGE>
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
CONSOLIDATED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
---------------------------------------- ENDED
1992 1993 1994 1995 1996 MARCH 31, 1997
------- ------- ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $48,537 $44,642 $51,187 $50,256 $53,472 $20,501
Net income (loss)...... (692) 173 592 477 455 1,115
Net income per share... (0.12) 0.03 0.10 0.08 0.08 0.19
Cash dividends per
share................. -- -- -- -- -- --
Weighted average number
of common
shares outstanding.... 5,753 5,753 5,753 5,760 5,763 5,763
Balance Sheet Data:
Total assets........... $11,263 $10,821 $16,648 $16,357 $ 6,634 $11,050
Stockholders' equity
(deficit)............. (17) 156 748 1,229 1,684 2,799
</TABLE>
- --------
(1) Includes a charge recorded as a result of a litigation settlement of $1,400
($.24 per share) in 1993 and $350 ($.06 per share) in 1992.
30
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for New
Patriot REIT and New Patriot Operating Company and should be read in
conjunction with, and are qualified in their entirety by, the historical
financial statements and notes thereto of Patriot, Cal Jockey and Bay Meadows
incorporated by reference into this Joint Proxy Statement/Prospectus. This
information should also be read in conjunction with the pro forma financial
statements and notes thereto located elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Merger and the Related Transactions, which include (i) the lease of the
Carefree Resorts and two hotels to New Patriot Operating Company; (ii) the sale
of substantially all of the Cal Jockey land to an affiliate of PaineWebber;
(iii) the leaseback of the land on which the Racecourse is situated from the
PaineWebber affiliate to New Patriot REIT; (iv) the sublease of the Racecourse
land and related improvements from New Patriot REIT to New Patriot Operating
Company; and (v) the leasing of certain land from New Patriot REIT to Borders
had occurred on January 1, 1996. The pro forma combined balance sheet data of
New Patriot REIT and New Patriot Operating Company is presented as if the
Merger and the Related Transactions, as described above, had occurred as of
March 31, 1997. The pro forma financial statements which are adjusted to
account for the Proposed Wyndham Transactions begin on page 35.
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................. $268,120 $ 82,882
Income before income tax provision and
minority interests........................... 43,823 15,200
Net income applicable to common shareholders.. $ 37,159 $ 11,847
PER SHARE DATA:
Net income per common share................... $ 1.29 $ 0.40
======== =========
Weighted average number of common shares and
common share equivalents outstanding......... 28,793 29,074
======== =========
CASH FLOW DATA:
Cash provided by operating activities(2)...... $ 89,903 $ 27,524
Cash used in investing activities(3).......... (21,084) (5,891)
Cash used in financing activities(4).......... (65,468) (17,492)
<CAPTION>
MARCH 31,
1997
------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Investment in hotel properties and land held
for sale, at cost, net....................... $ 947,722
Investment in racecourse facility and related
improvements, net............................ 24,265
Total assets.................................. 1,407,225
Total debt.................................... 579,862
Minority interest in Patriot Partnership and
Patriot Operating Partnership................ 127,262
Shareholders' equity.......................... 630,803
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OTHER DATA:
Funds from operations(5)...................... $ 86,376 $ 24,849
Cash available for distribution(6)............ 71,471 21,388
Weighted average number of common shares and
OP units outstanding......................... 33,444 33,725
</TABLE>
(Notes on page 34)
31
<PAGE>
NEW PATRIOT REIT
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $148,017 $40,980
Income before minority interests............ 47,323 12,188
Net income applicable to common
shareholders............................... $ 40,222 $10,293
PER SHARE DATA:
Net income per common share................. $ 1.40 $ 0.35
======== =======
Weighted average number of common shares and
common share equivalents outstanding....... 28,793 29,074
======== =======
</TABLE>
NEW PATRIOT OPERATING COMPANY
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $153,622 $53,324
Income (loss) before income tax provision
and minority interests..................... (3,500) 3,012
Net income (loss) applicable to common
shareholders............................... $ (3,063) $ 1,554
PER SHARE DATA:
Net income (loss) per common share.......... $ (0.11) $ 0.05
======== =======
Weighted average number of common shares and
common share equivalents outstanding....... 28,793 29,074
======== =======
</TABLE>
(Notes on page 34)
32
<PAGE>
COMBINED LESSEES
SUMMARY COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except PAH RSI Lessee)
and should be read in conjunction with, and are qualified in their entirety by,
the historical financial statements and notes thereto of Patriot, CHC Lease
Partners and NorthCoast Lessee incorporated by reference into this Joint Proxy
Statement/Prospectus. This information should also be read in conjunction with
the pro forma financial statement and notes thereto of the Combined Lessees
located elsewhere in this Joint Proxy Statement/Prospectus. The pro forma
operating information is presented as if the 46 Patriot hotels that Patriot
currently leases to the Lessees pursuant to Participating Leases had been
leased as of January 1, 1996. Additionally, the Combined Lessees' pro forma
financial data does not include the operations of the Sheraton Park Place Hotel
which was acquired by Patriot in April 1997 and the Myrtle Beach Hilton
Oceanfront Golf Resort which was acquired by Patriot in May 1997.
<TABLE>
<CAPTION>
PRO FORMA(7)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue................................. $222,051 $56,685
Food and beverage............................ 85,489 22,000
Conference center revenue.................... 2,354 748
Telephone and other hotel revenue............ 21,919 5,431
-------- -------
Total revenue................................ 331,813 84,864
Hotel operating expenses..................... 227,863 56,432
Participating Lease payments(8).............. 104,603 27,123
-------- -------
Income (loss) before Lessee expenses......... (653) 1,309
Lessee expenses(9)........................... 7,203 1,145
-------- -------
Net income (loss)............................ $ (7,856) $ 164
======== =======
</TABLE>
(Notes on page 34)
33
<PAGE>
NOTES TO NEW PATRIOT REIT, NEW PATRIOT OPERATING COMPANY AND COMBINED LESSEES
SUMMARY FINANCIAL INFORMATION
(1) The pro forma information does not purport to represent what New Patriot
REIT's and New Patriot Operating Company's combined financial position or
New Patriot REIT's, New Patriot Operating Company's or the Lessees' results
of operations actually would have been if the Merger and the Related
Transactions, including the lease of six hotel properties to New Patriot
Operating Company, the sale of substantially all of the Cal Jockey land to
an affiliate of PaineWebber, the leaseback of the land on which the
Racecourse is situated from the PaineWebber affiliate to New Patriot REIT,
the sublease of the Racecourse land and related improvements from New
Patriot REIT to New Patriot Operating Company, and the leasing of certain
land from New Patriot REIT to Borders had in fact occurred on such date or
at the beginning of the period presented, or to project the results of
operations of New Patriot REIT or New Patriot Operating Company for any
future periods.
Additionally, if the interest rate increases by 0.25%, the resulting pro
forma net income would be $36,244 and $11,590, or $1.26 and $0.40 per
common paired share for the year ended December 31, 1996 and the three
months ended March 31, 1997, respectively.
(2) Pro forma cash provided by operating activities represents income before
income allocable to minority interests, plus depreciation and amortization
(including amortization of unearned stock compensation) less the non-cash
portion of equity in earnings of unconsolidated subsidiaries. The pro forma
amounts do not include adjustments from changes in working capital
resulting from changes in current assets and current liabilities as there
is no historical data available as of both the beginning and end of each
period presented.
(3) Pro forma cash used in investing activities represents the approximate 4.0%
of the hotel and racecourse facility revenue which is required to be
reserved under the terms of the Participating Leases for capital
improvements and the replacement and refurbishment of F, F & E.
(4) Pro forma cash used in financing activities represents estimated dividends
and distributions to be paid based on Patriot's historical dividend rate of
$1.965 and $0.525 per share for 1996 and the three months ended March 31,
1997, respectively, and an aggregate of 28,646 paired shares, of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and 3,964 OP Units, of the Patriot Partnership and the Patriot Operating
Partnership outstanding and approximately $2.02 and $0.54, respectively,
per share on the 687 Preferred OP Units outstanding.
(5) In accordance with the resolution adopted by the Board of Governors of the
NAREIT, funds from operations represents net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains
or losses from debt restructuring or sales of property, plus depreciation
of real property, and after adjustments for unconsolidated partnerships,
joint ventures and corporations. Patriot has also made certain adjustments
to funds from operations for real estate related amortization expense.
Funds from operations should not be considered as an alternative to net
income or other measurements under generally accepted accounting principles
as an indicator of operating performance or to cash flows from operating,
investing or financing activities as a measure of liquidity. Funds from
operations does not reflect working capital changes, cash expenditures for
capital improvements or principal payments on indebtedness. Under the
Participating Leases, Patriot is obligated to establish a reserve for
capital improvements at its hotels (including the replacement or
refurbishment of F, F & E) and to pay real estate and personal property
taxes and casualty insurance (and as a result of the Merger, New Patriot
REIT and New Patriot Operating Company will be similarly obligated).
Management believes that funds from operations is helpful to investors as a
measure of the performance of an equity REIT, because, along with cash
flows from operating activities, investing activities and financing
activities, it provides investors with an understanding of the ability of
New Patriot REIT and New Patriot Operating Company to incur and service
debt and make capital expenditures.
(6) Cash available for distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(7) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Merger and
Related Transactions had in fact occurred at the beginning of the period
indicated, or to project the results of operations of the Lessees for any
future periods. The Lessees' pro forma financial data presented does not
include the operations of PAH RSI Lessee, which currently leases the four
Carefree Resorts, the Radisson Hotel in Northbrook, Illinois and the
Luxeford Suites Hotel. Additionally, the Lessees' pro forma financial data
does not include the operations of Sheraton Park Place Hotel which was
acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront
Golf Resort which was acquired by Patriot in May 1997. The pro forma
financial data assumes these hotel properties will be leased to, and the
assets of PAH RSI Lessee will be acquired by, New Patriot Operating Company
following the Merger and the Related Transactions.
(8) Participating lease payments from the Lessees to New Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease year.
(9) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned by
the Lessees. Pro forma Lessee net income excludes dividends on
approximately 300,000 OP Units of the Patriot Partnership, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
34
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for New
Patriot REIT and New Patriot Operating Company and should be read in
conjunction with, and are qualified in their entirety by, the historical
financial statements and notes thereto of Patriot, Cal Jockey, Bay Meadows and
Wyndham incorporated by reference into this Joint Proxy Statement/Prospectus
and by the combined historical financial statements of the Crow Family Hotel
Partnerships included elsewhere in this Joint Proxy Statement/Prospectus. This
information should also be read in conjunction with the pro forma financial
statements and notes thereto located elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if
the Proposed Wyndham Transactions and the Merger and the Related Transactions
(which include (i) the lease of the Carefree Resorts and two hotels to New
Patriot Operating Company; (ii) the sale of substantially all of the Cal Jockey
land to an affiliate of PaineWebber; (iii) the leaseback of the land on which
the Racecourse is situated from the PaineWebber affiliate to New Patriot REIT;
(iv) the sublease of the Racecourse land and related improvements from New
Patriot REIT to New Patriot Operating Company; and (v) the leasing of certain
land from New Patriot REIT to Borders) had occurred on January 1, 1996. The pro
forma combined balance sheet data of New Patriot REIT and New Patriot Operating
Company is presented as if the Proposed Wyndham Transactions and the Merger and
the Related Transactions, as described above, had occurred as of March 31,
1997. The following summary unaudited pro forma combined financial data does
not include financial data for the Sheraton Park Place Hotel acquired by
Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort
acquired by Patriot in May 1997.
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $580,974 $172,776
Income before income tax provision and
minority interests..................... 30,924 17,513
Net income applicable to common share-
holders................................ $ 25,259 $ 11,923
PER SHARE DATA:
Net income per common paired share...... $ 0.58 $ 0.27
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 43,721 44,214
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in hotel properties and land held for sale......... $1,606,995
Investment in Racecourse facility and related improvements.... 24,265
Total assets.................................................. 2,594,701
Total debt.................................................... 1,091,607
Minority interest in Patriot Partnership and Patriot Operating
Partnership.................................................. 127,262
Shareholders' equity.......................................... 1,221,706
</TABLE>
(Notes on page 38)
35
<PAGE>
NEW PATRIOT REIT
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $217,507 $62,523
Income before income tax provision and mi-
nority interests........................... 29,724 9,911
Net income applicable to common
shareholders............................... $ 26,154 $ 8,702
PER SHARE DATA:
Net income per common share................. $ 0.60 $ 0.20
======== =======
Weighted average number of common shares and
common share equivalents outstanding....... 43,721 44,214
======== =======
</TABLE>
NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................... $474,995 $145,783
Income (loss) before income tax provision
and minority interest...................... (1,373) 8,565
Net income (loss) applicable to common
shareholders............................... $ (895) $ 3,221
PER SHARE DATA:
Net income (loss) per common share.......... $ (0.02) $ 0.07
======== ========
Weighted average number of common shares and
common share equivalents outstanding....... 43,721 44,214
======== ========
</TABLE>
(Notes on page 38)
36
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
SUMMARY COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except PAH RSI Lessee
and Wyndham Lessee) and should be read in conjunction with, and are qualified
in their entirety by, the historical financial statements and notes thereto of
Patriot, CHC Lease Partners and NorthCoast Lessee incorporated by reference
into this Joint Proxy Statement/Prospectus. This information should also be
read in conjunction with the pro forma financial statement and notes thereto of
the Combined Lessees located elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma operating information is presented as if 44
Patriot hotels leased to the Lessees (excluding PAH RSI Lessee, Wyndham Lessee,
the Sheraton Park Place Hotel acquired by Patriot in April 1997 and the Myrtle
Beach Hilton Oceanfront Golf Resort acquired by Patriot in May 1997) pursuant
to Participating Leases had been leased as of January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA(2)
------------------------------
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, 1996 1997
----------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue................................... $205,823 $52,189
Food and beverage.............................. 77,110 19,663
Conference center revenue...................... 2,354 748
Telephone and other hotel revenue.............. 19,988 4,941
-------- -------
Total revenue.................................. 305,275 77,541
Hotel operating expenses....................... 210,771 52,071
Participating Lease payments(3)................ 95,584 24,558
-------- -------
Loss before Lessee expenses.................... (1,080) 912
Lessee expenses(4)............................. 6,178 852
-------- -------
Net loss....................................... $ (7,258) $ 60
======== =======
</TABLE>
(Notes on page 38)
37
<PAGE>
NOTES TO NEW PATRIOT REIT, NEW PATRIOT OPERATING COMPANY AND COMBINED LESSEES
SUMMARY FINANCIAL INFORMATION AS ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) The pro forma information does not purport to represent what New Patriot
REIT's and New Patriot Operating Company's combined financial position or
New Patriot REIT's, New Patriot Operating Company's or the Combined
Lessees' results of operations actually would have been if the Proposed
Wyndham Transactions and the Merger and the Related Transactions had in
fact occurred on such date or at the beginning of the period presented, or
to project the results of operations of New Patriot REIT, New Patriot
Operating Company or the Combined Lessees for any future periods.
The pro forma combined financial data assumes all outstanding Wyndham
Common Stock is exchanged for paired shares. If stockholders holding shares
of Wyndham Common Stock with an aggregate value of $100,000 elect to
receive cash, the resulting combined pro forma net income of New Patriot
REIT and New Patriot Operating Company would be $18,572 and $10,231 for the
year ended December 31, 1996 and the three months ended March 31, 1997,
respectively. The resulting pro forma net income per paired share would be
$0.45 and $0.24 for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively.
Additionally, if the interest rate increases by 0.25%, the resulting
combined pro forma net income of New Patriot REIT and New Patriot Operating
Company, assuming all outstanding Wyndham Common Stock is exchanged for
paired shares, would be $22,981 and $11,325, or $0.53 and $0.26 per common
paired share for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively. If stockholders holding shares of
Wyndham Common Stock with an aggregate value of $100,000 elect to receive
cash, the resulting pro forma net income would be $16,081 and $9,581, or
$0.39 and $0.23 per common paired share for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively.
(2) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Proposed
Wyndham Transactions and the Merger and the Related Transactions had in
fact occurred at the beginning of the period indicated, or to project the
results of operations of the Lessees for any future periods. The Lessees'
pro forma financial data presented does not include the operations of PAH
RSI Lessee, which currently leases the four Carefree Resorts, the Radisson
Hotel in Northbrook, Illinois and the Luxeford Suites Hotel, and Wyndham
Lessee, which currently leases the Wyndham Garden Hotel--Midtown and the
Wyndham Greenspoint Hotel. The pro forma financial data assumes six of the
hotels leased to PAH RSI Lessee (excluding the Sheraton Park Place Hotel
and the Myrtle Beach Hilton Oceanfront Golf Resort), will be leased to, and
the assets of PAH RSI Lessee will be acquired by, New Patriot Operating
Company following the Merger and the Related Transactions. The pro forma
financial data also assumes that the leases with Wyndham Lessee related to
the Wyndham Garden Hotel--Midtown and the Wyndham Greenspoint Hotel will be
terminated and New Patriot REIT will lease these hotel properties to New
Patriot Operating Company.
(3) Participating lease payments from the Lessees to New Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease years.
(4) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned by
the Lessees. Pro forma Lessee net income excludes dividends on
approximately 300,000 OP Units of the Patriot Partnership, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
38
<PAGE>
COMPARATIVE PER SHARE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the (combined) historical per share data,
unaudited pro forma per share data giving effect to the Merger using the
purchase method of accounting and the equivalent unaudited pro forma combined
per share amounts for each of Patriot, Cal Jockey and Bay Meadows. The pro
forma combined data are not necessarily indicative of actual financial position
or future operating results or that which would have occurred or will occur
upon consummation of the Merger.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto of Patriot incorporated
herein by reference, (ii) the consolidated financial statements and notes
thereto of Cal Jockey and Bay Meadows incorporated herein by reference and
(iii) the pro forma condensed combined financial statements, including the
notes thereto, which are contained in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996(1) MARCH 31, 1997 (UNAUDITED)
------------------------------------ ---------------------------------
PRO PATRIOT PRO PATRIOT
HISTORICAL FORMA(2) EQUIVALENT(3) HISTORICAL FORMA(2) EQUIVALENT(3)
---------- ----------- ------------- ---------- -------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss)
Patriot................ $ 1.06 $ 1.29 $ 0.25 $ 0.40
Cal Jockey/Bay Mead-
ows................... (0.13) $ 1.24 0.37 $ 0.39
Cash
Distributions/Dividends
Patriot................ $0.9825 N/A $0.2625 N/A
Cal Jockey/Bay Mead-
ows................... 0.40 N/A N/A
Book Value per Common
Share(4)
Patriot................ $ 10.02 $21.90 $ 9.99 $22.02
Cal Jockey/Bay Mead-
ows................... 3.72 $21.10 4.11 $21.22
</TABLE>
- --------
(1) On January 30, 1997, the Patriot Board of Directors declared a 2-for-1
stock split effected in the form of a stock dividend distributed on March
18, 1997 to stockholders of record on March 7, 1997. All references herein
to the number of shares, per share amounts and market prices of Patriot
Common Stock have been restated to reflect the impact of the recent stock
split.
(2) The pro forma combined per share data for Patriot and Cal Jockey/Bay
Meadows for the year ended December 31, 1996 and the three months ended
March 31, 1997 have been prepared as if the Patriot capital transactions
occurring between January 1, 1996 and March 31, 1997 and the Merger and the
Related Transactions had occurred on January 1, 1996, resulting in weighted
average shares outstanding of 28,793 and 29,074 for the year ended December
31, 1996 and the three months ended March 31, 1997, respectively. The pro
forma combined book value per share for Patriot and Cal Jockey/Bay Meadows
has been prepared assuming that, in the Merger, each share of Patriot
Common Stock is converted into 0.51895 Paired Shares of Cal Jockey Common
Stock and Bay Meadows Common Stock, resulting in total outstanding Paired
Shares of 28,646 at December 31, 1996 and March 31, 1997.
(3) The equivalent pro forma combined per share amounts of Cal Jockey/Bay
Meadows are calculated by multiplying pro forma Net Income per share of
Patriot Common Stock, pro forma Cash Distributions/ Dividends per share of
Patriot Common Stock and pro forma Book Value per share of Patriot Common
Stock by a relative value ratio of existing Paired Shares to Patriot shares
of 0.9635 to 1.
(4) Book value per common share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding.
39
<PAGE>
COMPARATIVE MARKET DATA
The Patriot Common Stock has traded on the NYSE (symbol "PAH") since
September 27, 1995. The Paired Shares of Cal Jockey Common Stock and Bay
Meadows Common Stock have traded on the AMEX (symbol "CJ") since November 14,
1986. The table below sets forth, for the calendar quarters indicated, the high
and low sales prices per share reported by the NYSE Composite Tape or on the
AMEX, as the case may be, and dividends paid for the Patriot Common Stock and
the Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock.
<TABLE>
<CAPTION>
PAIRED SHARES OF
CAL JOCKEY COMMON
STOCK AND BAY MEADOWS
PATRIOT COMMON STOCK(1) COMMON STOCK
-------------------------------- ----------------------------
PER SHARE PER SHARE
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS(2)
------- -------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
1995:
First Quarter.......... N/A (3) N/A (3) N/A $17 1/4 $13 3/4 N/A
Second Quarter......... N/A (3) N/A (3) N/A $16 3/4 $14 1/2 $0.25
Third Quarter.......... $12 7/8(4) $12 3/8 (4) N/A $16 1/2 $15 1/2 N/A
Fourth Quarter......... $12 7/8 $11 5/8 $ 0.24 $16 3/8 $14 $0.40
1996:
First Quarter.......... $14 1/2 $12 7/8 $ 0.24 $14 7/8 $13 3/4 N/A
Second Quarter......... $14 7/8 $13 1/4 $ 0.24 $18 1/4 $14 5/8 $0.40
Third Quarter.......... $16 7/8 $14 $ 0.24 $20 1/8 $16 N/A
Fourth Quarter......... $22 $16 1/4 $0.2625 $40 7/8 $19 3/4 $0.00
1997:
First Quarter ......... $26 3/8 $20 5/8 $0.2625 $49 1/2 $38 3/4 N/A
Second Quarter (through
May 28, 1997)......... $24 $20 1/8 -- $45 1/2 $38 1/4 --
</TABLE>
- --------
(1) The market prices and dividends for Patriot Common Stock have been restated
(rounded to the nearest 1/8th) to reflect the increase in the number of
shares of Patriot Common Stock outstanding as a result of the 2-for-1 stock
split effected in the form of a stock dividend distributed on March 18,
1997 to Patriot stockholders of record on March 7, 1997.
(2) No dividends were paid by Bay Meadows during such periods. All dividend
amounts shown were paid by Cal Jockey on the shares of Cal Jockey Common
Stock.
(3) Patriot Common Stock was not traded prior to September 27, 1995.
(4) For the period from September 27, 1995 through September 30, 1995.
The following table sets forth the last reported sales prices per share of
Patriot Common Stock and per Paired Share of Cal Jockey Common Stock and Bay
Meadows Common Stock (i) on October 30, 1996, the last trading day preceding
public announcement that Patriot, Cal Jockey and Bay Meadows entered into a
definitive agreement pursuant to which Patriot would acquire Cal Jockey and Bay
Meadows and (ii) on May 28, 1997.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT CAL JOCKEY COMMON STOCK
COMMON STOCK AND BAY MEADOWS COMMON STOCK
------------ ----------------------------
<S> <C> <C>
October 30, 1996...................... $17 1/8(1) $24 7/8
May 28, 1997.......................... $21 1/2 $41 1/2
</TABLE>
- --------
(1) The market price for Patriot Common Stock has been restated to reflect the
increase in the number of shares of Patriot Common Stock outstanding as a
result of the 2-for-1 stock split effected in the form of a stock dividend
distributed on March 18, 1997 to Patriot stockholders of record on March 7,
1997.
BECAUSE THE MARKET PRICE OF PATRIOT COMMON STOCK AND THE MARKET PRICE OF THE
PAIRED SHARES OF CAL JOCKEY COMMON STOCK AND BAY MEADOWS COMMON STOCK ARE
SUBJECT TO FLUCTUATION, STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE COMMON STOCK.
40
<PAGE>
DISTRIBUTION AND DIVIDEND POLICY
PATRIOT
Patriot paid a regular quarterly dividend (as adjusted for the 2-for-1 stock
split) of $0.24 per share of Patriot Common Stock for each of the first three
quarters of 1996 and a quarterly dividend of $0.2625 per share of Patriot
Common Stock for the fourth quarter of 1996 and the first quarter of 1997,
representing dividends of $0.9825 per share for the full year of 1996.
Patriot's current quarterly dividend of $0.2625 represents an annualized
dividend of $1.05 per share.
To maintain its qualification as a REIT prior to the consummation of the
Merger, Patriot will be required to distribute to its stockholders immediately
prior to the Merger any undistributed "real estate investment trust taxable
income" of Patriot for Patriot's short taxable year ending with the
consummation of the Merger. See "Certain Federal Income Tax Considerations--
Pre-Merger Dividend."
Distributions by Patriot to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits will be treated as a non-taxable reduction
of the stockholder's basis in its shares of Patriot Common Stock to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction of the stockholder's basis in its shares of Patriot Common Stock will
have the effect of deferring taxation until the sale of the stockholder's
shares. Patriot has determined that, for federal income tax purposes, none of
the $0.9825 and $0.2625 per share distributions paid for 1996 and for the first
quarter of 1997, respectively, represented a return of capital to the
stockholders. Given the dynamic nature of Patriot's acquisition strategy and
the extent to which any future acquisitions would alter this calculation, no
assurances can be given regarding what percent of future distributions will
constitute return of capital for federal income tax purposes.
Further distributions by New Patriot REIT will be at the discretion of its
Board of Directors and will depend on the actual cash flow of New Patriot REIT,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as
the Board of Directors deems relevant. However, New Patriot REIT currently
intends to maintain Patriot's quarterly distribution of $0.2625 per share.
CAL JOCKEY AND BAY MEADOWS
Historically, Cal Jockey has paid semiannual dividends based on management's
estimate of earnings for the entire calendar year. Cal Jockey paid a dividend
of $0.40 per share of Cal Jockey Common Stock in July 1996 and did not pay a
dividend in December 1996. Historically, Bay Meadows has not paid dividends.
Distributions by Cal Jockey to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally are taxable to
stockholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits are treated as a non-taxable reduction of
the stockholder's basis in its shares of Cal Jockey Common Stock to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction of the stockholder's basis in its shares of Cal Jockey Common Stock
will have the effect of deferring taxation until the sale of the stockholder's
shares. Cal Jockey has determined that, for federal income tax purposes, none
of the $0.33 per share dividend paid out of 1996 earnings represented a return
of capital to the stockholders (and the remaining $0.07 per share dividend paid
in 1996 related to 1995 earnings).
Immediately prior to the consummation of the Merger, Cal Jockey will pay a
dividend to the holders of Paired Shares equal to the aggregate of (i) $0.10
per Paired Share plus (ii) the amount per Paired Share equal to the Santa Anita
Net Proceeds (as defined below) divided by the number of Paired Shares
outstanding. Santa Anita Net Proceeds means the proceeds from the sale by Cal
Jockey of 100,000 paired shares of common stock of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company (the "Santa Anita Paired
Shares") less the original purchase price for the Santa Anita Paired Shares. In
1994, Cal Jockey purchased 100,000 Santa Anita Paired Shares at an average
purchase price of approximately $14.00 per Santa Anita Paired Share. The
closing price for a Santa Anita Paired Share on the NYSE on May 28, 1997 was
$29 accordingly, based on this closing price, the Santa Anita Net Proceeds
would be equal to approximately $1,500,000, or an additional $0.26 per Paired
Share (based on 5,763,257 outstanding Paired Shares as of May 28, 1997).
41
<PAGE>
RISK FACTORS
In considering whether to approve the Proposals, stockholders of Patriot,
Cal Jockey and Bay Meadows should consider, in addition to the other
information in this Joint Proxy Statement/Prospectus, the matters discussed in
this section.
This Joint Proxy Statement/Prospectus contains statements which constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Those statements appear in a number of places
in this Joint Proxy Statement/Prospectus and include statements regarding the
intent, belief or current expectations of Patriot, Cal Jockey and Bay Meadows
and their directors and officers with respect to (i) the declaration or
payments of distributions by New Patriot REIT and New Patriot Operating
Company, (ii) the consummation of the Merger and the Related Transactions,
(iii) the ownership, management and operation of hotels, (iv) potential
acquisitions or dispositions by the New Patriot REIT and New Patriot Operating
Company, including the Proposed Acquisitions, the Grand Heritage Acquisition,
the Proposed Wyndham Transactions and the Proposed PaineWebber Land Sale, (v)
the policies of New Patriot REIT and New Patriot Operating Company regarding
investments, acquisitions, dispositions, financings, conflicts of interest and
other matters, (vi) New Patriot REIT's qualification as a REIT under the Code,
(vii) risks associated with the hotel industry and real estate markets in
general, (viii) the availability of debt and equity financing, including the
New Credit Facility, (ix) interest rates, (x) general economic conditions and
(xi) trends affecting New Patriot REIT's or New Patriot Operating Company's
financial condition or results of operations. Stockholders are cautioned that
any such forward looking statements are not guarantees of future performance
and involve risks of uncertainties, and that actual results may differ
materially from those in the forward looking statements as a result of various
factors. The accompanying information contained in this Joint Proxy
Statement/Prospectus, including, without limitation, the information set forth
below and the information under the heading "The Companies--Surviving
Companies," identify important factors that could cause such differences.
REIT TAX RISKS
Dependence on Qualification as a REIT
New Patriot REIT will operate in a manner designed to permit it to qualify
as a REIT for federal income tax purposes, but no assurance can be given that
New Patriot REIT will be able to continue to operate in a manner so as to
qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations. The complexity of
these provisions is greater in the case of a REIT that owns hotels and leases
them to a corporation with which its stock is paired. Qualification as a REIT
also involves the determination of various factual matters and circumstances
not entirely within New Patriot REIT's control. In addition, New Patriot
REIT's ability to qualify as a REIT is dependent upon its continued exemption
from the anti-pairing rules of Section 269B(a)(3) of the Code. Section
269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying
as a REIT if its stock is paired with the stock of a corporation whose
activities are inconsistent with REIT status, such as New Patriot Operating
Company. The "grandfathering" rules governing Section 269B generally provide,
however, that Section 269B(a)(3) does not apply to a paired REIT if the REIT
and its paired operating company were paired on June 30, 1983. There are,
however, no judicial or administrative authorities interpreting this
"grandfathering" rule in the context of a merger or otherwise. Moreover, if
for any reason Cal Jockey failed to qualify as a REIT in 1983, the benefit of
the "grandfathering" rule would not be available to Cal Jockey or New Patriot
REIT, in which case neither Cal Jockey nor New Patriot REIT would qualify as a
REIT for any taxable year. In addition, no assurance can be given that new
legislation, new regulations, administrative interpretations or court
decisions will not change the tax laws with respect to qualification as a REIT
(including the "grandfathering" rules of Section 269B) or the federal income
tax consequences of such qualification.
If New Patriot REIT fails to qualify as a REIT, New Patriot REIT will be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at corporate rates. In addition, unless
42
<PAGE>
entitled to relief under certain statutory provisions and subject to the
discussion above regarding the impact if Cal Jockey failed to qualify as a
REIT in 1983, New Patriot REIT also will be disqualified from re-electing REIT
status for the four taxable years following the year during which
qualification is lost. Failure to qualify as a REIT would reduce the net
earnings of New Patriot REIT available for distribution to stockholders
because of the additional tax liability to New Patriot REIT for the year or
years involved. In addition, distributions would no longer be required to be
made. To the extent that distributions to stockholders would have been made in
anticipation of New Patriot REIT's qualifying as a REIT, New Patriot REIT
might be required to borrow funds or to liquidate certain of its investments
to pay the applicable tax. The failure to qualify as a REIT would also
constitute a default under certain debt obligations of New Patriot REIT.
Qualification of New Patriot REIT as a REIT for periods following the Merger
also generally depends on the REIT qualification of each of Cal Jockey and
Patriot for periods prior to the Merger. Moreover, if either of Cal Jockey or
Patriot has failed to qualify as a REIT in any year in which it elected to
qualify and consequently becomes liable to pay taxes as a regular non-REIT
corporation, the liabilities of New Patriot REIT will include any such tax
liability. Each of Cal Jockey and Patriot believes that it has operated and
will operate through the Merger in a manner that permits it to qualify as a
REIT under the Code for each taxable year since its formation. In connection
with the mailing of this Joint Proxy Statement/Prospectus, Goodwin, Procter &
Hoar llp has rendered an opinion regarding (i) Patriot's qualification as a
REIT for periods prior to the Merger, (ii) Cal Jockey's qualification as a
REIT for periods prior to the Merger and (iii) New Patriot REIT's
qualification as a REIT following the Merger.
Cal Jockey's acquisition of Patriot's general and limited partner interests
in the Patriot Partnership and Patriot's indirect interests in the subsidiary
partnerships of the Patriot Partnership involves special tax considerations
which may adversely impact New Patriot REIT's ability to qualify as a REIT
following the Merger. See "Certain Federal Income Tax Considerations--Tax
Aspects of New Patriot REIT's Investment in the Patriot Partnership and New
Patriot Operating Company's Investment in the New Patriot Operating
Partnership."
In order for New Patriot REIT to maintain its qualification as a REIT, not
more than 50% in value of its outstanding stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code). In
addition, rents paid by New Patriot Operating Company to New Patriot REIT will
not constitute qualifying income for purposes of the REIT income tests if any
person actually or constructively owns 10% or more of the outstanding paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock. See "Certain Federal Income Tax Considerations." For the purpose
of preserving New Patriot REIT's qualification as a REIT, the Restated
Charters will prohibit actual or constructive ownership of more than 9.8% of
each company's outstanding common stock by any person. The constructive
ownership rules are complex and may cause common stock owned, actually or
constructively, by a group of related or unrelated individuals and/or entities
to be deemed to be constructively owned by one individual or entity. As a
result, the acquisition of less than 9.8% of the outstanding paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
(or the acquisition of an interest in an entity which owns paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock)
by an individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 9.8% of the
outstanding paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock, and thus subject such common stock to the
Ownership Limit. Actual or constructive ownership of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock in
excess of the ownership limit would cause the violative transfer or ownership
to be void or cause such shares to be transferred to a charitable trust and
then sold to a person or entity who can own such shares without violating the
ownership limit. In addition, because the relevant constructive ownership
rules are broad and it is not possible to monitor continually direct and
indirect transfers of shares, no absolute assurance can be given that the
foregoing provisions will be effective to prevent a violation of the Ownership
Limit and the consequent failure of New Patriot REIT to qualify as a REIT.
43
<PAGE>
Potential Adverse Effect of Proposed PaineWebber Land Sale by New Patriot
REIT
In the event that any of the property proposed to be sold by New Patriot
REIT to PaineWebber constitutes property held "primarily for sale to customers
in the ordinary course of a trade or business" ("dealer property"), then New
Patriot REIT will not be able to defer its gain by structuring the sale as a
like-kind exchange and, unless the sale qualifies for a certain statutory safe
harbor, the gain from such sales would be subject to a 100% tax and would
constitute nonqualifying income that likely would disqualify New Patriot REIT
as a REIT. While Cal Jockey believes that the Stable Area and the Training
Track Area do not constitute dealer property, and Patriot believes that the
Proposed PaineWebber Land Sale will not constitute a sale of dealer property,
whether such sales constitute sales of dealer property are factual
determinations. Accordingly, the companies will not receive legal opinions
from their counsel on such determinations. In addition, the sales may not
qualify for the statutory safe harbor. As a result, the opinion rendered by
Goodwin, Procter & Hoar llp regarding New Patriot REIT's qualification as a
REIT for periods following the Merger necessarily relies on representations
from Patriot to the effect that the proposed PaineWebber Land Sale will not
constitute sales of dealer property. See "Certain Federal Income Tax
Consequences--Sale of Land by New Patriot REIT."
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, New Patriot REIT will be generally required
each year to distribute to its stockholders at least 95% of its taxable income
(excluding any net capital gain). In addition, New Patriot REIT will be
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.
New Patriot REIT intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise
tax. New Patriot REIT's income will consist primarily of its share of the
income of the Patriot Partnership, and New Patriot REIT's cash available for
distribution will consist primarily of its share of cash distributions from
the Patriot Partnership. Differences in timing between the recognition of
taxable income and the receipt of cash available for distribution and the
seasonality of the hotel industry could require New Patriot REIT to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax.
Distributions by New Patriot REIT and New Patriot Operating Company will be
determined by their respective Boards of Directors and depend on a number of
factors, including the amount of cash available for distribution, financial
condition, any decision by either Board of Directors to reinvest funds rather
than to distribute such funds, capital expenditures, the annual distribution
requirements under the REIT provisions of the Code (in the case of New Patriot
REIT) and such other factors as either Board of Directors deems relevant. For
federal income tax purposes, distributions paid to stockholders may consist of
ordinary income, capital gains (in the case of New Patriot REIT), nontaxable
return of capital, or a combination thereof. New Patriot REIT and New Patriot
Operating Company will provide stockholders with annual statements as to the
taxability of distributions.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER
Patriot is currently experiencing a period of rapid growth. Assuming all of
the Proposed Acquisitions are consummated, New Patriot REIT's hotel portfolio
will include 70 hotels, aggregating 16,833 rooms, representing a 300% increase
in the size of New Patriot REIT's room portfolio since Patriot's Initial
Offering. In connection with the Merger and the Related Transactions, New
Patriot Operating Company will be responsible for the horse racing operations
of Bay Meadows and the hotel management operations of certain of New Patriot
REIT's hotels. If the Proposed Wyndham Transactions are consummated, New
Patriot REIT will acquire an additional 34 owned and leased hotels with an
aggregate of 7,949 rooms as well as Wyndham's 64 managed and franchised
properties throughout North America and management and franchise agreements
that have been executed for 15 properties that are currently closed for
renovation or construction or are in the process of being converted to the
Wyndham brand. The integration of departments, systems and procedures of
Patriot with those being acquired in connection with the Merger and the
Related Transactions and the Proposed Wyndham Transactions presents a
significant
44
<PAGE>
management challenge, and the failure to integrate such companies and
properties into Patriot's management and operating structures could have a
material adverse effect on the results of operations and financial condition
of New Patriot REIT and New Patriot Operating Company.
SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS
Subsequent to the consummation of the Merger and the Related Transactions,
the amount of pro forma combined debt New Patriot REIT and New Patriot
Operating Company will assume is approximately $579.9 million as compared to
no indebtedness of Bay Meadows and Cal Jockey (excluding the $2,900,000 Loan
payable to Patriot under certain circumstances). The pro forma ratio of
combined debt to total market capitalization of New Patriot REIT and New
Patriot Operating Company assuming an aggregate indebtedness of approximately
$579.9 million will be approximately 29.6%. The calculation of the pro forma
ratio of combined debt to total market capitalization is based on a $41 1/2
closing price of the Paired Shares of Cal Jockey Common Stock and Bay Meadows
Common Stock on May 28, 1997. New Patriot REIT and New Patriot Operating
Company also may borrow additional amounts from the same or other lenders in
the future, or may issue corporate debt securities in public or private
offerings. In this regard, (i) PaineWebber Real Estate has agreed to increase
Patriot's availability under the Line of Credit from $475 million to $625
million (as of May 28, 1997, $471.2 million was outstanding under the Line of
Credit) and (ii) Patriot has entered into a commitment letter with PaineWebber
Real Estate and Chase concerning replacing the Line of Credit with the New
Credit Facility which will have availability of up to $1.2 billion. Neither
the Restated Charters nor the Restated Bylaws limit the amount of indebtedness
New Patriot REIT or New Patriot Operating Company may incur. See "The
Companies--Surviving Companies."
There can be no assurance that New Patriot REIT and New Patriot Operating
Company, following consummation of the Merger and the Proposed Acquisitions,
will be able to meet their debt service obligations and, to the extent that
they cannot, New Patriot REIT and New Patriot Operating Company risk the loss
of some or all of their assets, including their hotels, to foreclosure.
Adverse economic conditions could cause the terms on which borrowings become
available to be unfavorable. In such circumstances, if New Patriot REIT or New
Patriot Operating 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 properties at times which may not permit realization of
the maximum return on such investments.
The foregoing risks associated with debt obligations of New Patriot REIT and
New Patriot Operating Company may adversely affect the market price of the
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock following the Merger and may inhibit the ability of New
Patriot REIT and New Patriot Operating Company to raise capital in both the
public and private markets following the consummation of the Merger and the
Related Transactions.
LACK OF EXPERIENCE IN HOTEL MANAGEMENT BUSINESS
Following consummation of the Merger, New Patriot Operating Company will
manage certain newly acquired hotels as well as certain of Patriot's existing
hotels that will be re-leased to New Patriot Operating Company. Although
certain executives of Patriot have hotel management experience, neither New
Patriot Operating Company nor Bay Meadows has any prior experience in the
hotel management business. The future success of New Patriot Operating Company
and its ability to operate hotels as well as manage future growth depend in
large part on its ability to attract and retain key executive officers and
other highly qualified personnel, especially in the area of hotel operations.
There can be no assurance that New Patriot Operating Company will be able to
attract and retain qualified personnel and the inability to do so could have a
material adverse effect on the results of operations and financial condition
of New Patriot Operating Company and New Patriot REIT.
DILUTION TO EARNINGS CAUSED BY ACQUISITION OF CAL JOCKEY AND BAY MEADOWS
As a result of the amount being paid to acquire Cal Jockey and Bay Meadows,
the Merger has a dilutive effect on Patriot's net income per share on a pro
forma basis for 1996 and the three months ended March 31, 1997 and
45
<PAGE>
may have a dilutive effect on net income per share in future periods. The
Unaudited Pro Forma Combined Financial Statements contained herein illustrate
the effect of the Merger and the Related Transactions on the net income per
share for the year ended December 31, 1996 and the three months ended March
31, 1997. On a pro forma basis (post-Merger) for New Patriot REIT and New
Patriot Operating Company, net income per share is $1.29 for the year ended
December 31, 1996 and net income per share is $0.40 for the three months ended
March 31, 1997, as compared to $1.78 and $0.44 for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively, on a pro forma
basis for Patriot (pre-Merger) (or $0.89 and $0.22, respectively, as adjusted
for the 2-for-1 stock split). See "Unaudited Pro Forma Combined Financial
Statements." While Patriot's management and its Board of Directors believe the
benefits of the paired share structure will provide long term benefits to its
stockholders, no assurance can be given that such benefits will be realized.
In addition, upon consummation of the Merger and the Related Transactions, the
current stockholders of Patriot will hold in the aggregate approximately 80%
of the outstanding paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock, assuming no options or OP Units are
exchanged for shares of Patriot Common Stock prior to the Merger and assuming
that the Exchange Ratio is not adjusted due to a Patriot Average Trading price
below $17.125.
STOCK PRICE FLUCTUATIONS
The relative stock prices of shares of Patriot Common Stock and the Paired
Shares of Cal Jockey Common Stock and Bay Meadows Common Stock at the
Effective Time may vary significantly from the prices as of the date of
execution of the October 31, 1996 Agreement, the date hereof or the date on
which stockholders vote on the Proposals, due to changes in the business,
operations and prospects of Patriot, Cal Jockey or Bay Meadows, market
assessments of the likelihood that the Merger or the Proposed Wyndham
Transactions will be consummated and the timing thereof, general market and
economic conditions and other factors such as market perception of paired
share stocks, REIT stocks, hotel stocks and REIT hotel stocks generally. There
can be no assurance that the price of shares of Patriot Common Stock and/or
the Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock will
not decline between the date of this Joint Proxy Statement/Prospectus and the
Effective Time.
POTENTIAL CONFLICTS OF INTEREST BETWEEN NEW PATRIOT REIT AND NEW PATRIOT
OPERATING COMPANY
New Patriot REIT and New Patriot Operating Company are separate corporate
entities with separate Boards of Directors. A majority of the directors of
each of New Patriot REIT and New Patriot Operating Company will not serve as
directors or officers of the other company. In addition, New Patriot REIT and
New Patriot Operating Company generally will have different employees,
separate creditors and will be subject to different state law licensing and
regulatory requirements. As a result, the interests of the Board of Directors
of each company may conflict and such conflicts may possibly rise to disputes
between the companies like those which have been experienced by Cal Jockey and
Bay Meadows in the recent past. See "The Merger and Subscription--Background
of the Merger" and "Stockholders' Meetings, Litigation and Disagreements." No
assurance can be given that conflicts will not arise between the companies or
that such conflicts will not have a material adverse effect on the results of
operations and financial condition of New Patriot REIT and New Patriot
Operating Company. New Patriot REIT and New Patriot Operating Company will
have, immediately following the Merger, the same Chief Executive Officer and
Chief Financial Officer as well as two of the same directors. Patriot believes
this overlap in management will help decrease the possibility of disagreements
between the two companies. No assurance can be given, however, that these
individuals' interests as officers and/or directors of one company will not
conflict with their interests as officers and/or directors of the other
company or that their actions as officers and/or directors of one company will
not adversely affect the interests of the other company. This overlap in
management will be reduced in connection with the consummation of the Proposed
Wyndham Transactions. See "The Companies--Surviving Companies--The Proposed
Wyndham Transactions."
DIFFERENT FAIRNESS ANALYSES OF CAL JOCKEY AND BAY MEADOWS BY PAINEWEBBER AND
MONTGOMERY
In connection with rendering its fairness opinion, PaineWebber advised
Patriot's Board of Directors that the individual valuations of the assets and
business of Cal Jockey and Bay Meadows (including the paired share
46
<PAGE>
structure) produced a valuation range per Paired Share of between $33.48 and
$39.50. See "The Merger and Subscription--Opinion of Patriot's Financial
Advisor." In connection with rendering its fairness opinion, Montgomery
advised Cal Jockey's and Bay Meadows' Boards of Directors that the analyses
performed by Montgomery and described to the Cal Jockey and Bay Meadows Boards
of Directors indicated a potential implied equity value range per Paired Share
of between $15.00 and $18.50. See "The Merger and Subscription--Opinion of
Financial Advisor for Cal Jockey and Bay Meadows." A significant reason for
the two different ranges is that, in their respective fairness analyses,
Montgomery attempted to determine the value of the paired share structure
currently realized by Cal Jockey and Bay Meadows, while PaineWebber attempted
to determine the value of the paired share structure that could be realized by
Patriot.
DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
Following the Merger, New Patriot REIT's ability to make distributions to
stockholders will depend primarily 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 those Patriot hotels
which are leased to them). A failure or delay to make such payments may be
caused by reductions in revenue from such hotels or in the net operating
income of the Lessees or otherwise. In addition, the Merger and the Related
Transactions also could have a negative effect on New Patriot REIT's
relationship with its Lessees who could be concerned that, upon expiration of
the current lease term, operating control over leased hotels will be
transferred to New Patriot Operating Company. Any failure or delay by the
Lessees in making rent payments may adversely affect New Patriot REIT's
ability to make anticipated distributions to stockholders.
CERTAIN CONFLICTS OF INTEREST RELATING TO PATRIOT
Patriot has leased for one-year terms the Carefree Resorts, the Radisson
Hotel in Northbrook, Illinois, the Luxeford Suites Hotel in Minneapolis,
Minnesota, the Sheraton Park Place Hotel in Minneapolis, Minnesota, and the
Myrtle Beach Hilton Oceanfront Golf Resort in Myrtle Beach, South Carolina and
sold certain assets relating to the Carefree Resorts, including the
Carefree(R), Boulders(R) and certain other trademarks, to PAH RSI Lessee, a
limited liability company owned by certain executive officers of Patriot. It
is currently anticipated that, by the Effective Time, Patriot also will lease
to PAH RSI Lessee nine additional hotels which are the subject of Proposed
Acquisitions, including the five Snavely Group hotels, four of which are
located in Cleveland, Ohio and one of which is in Akron, Ohio, and four
Doubletree Hotels which are located in Houston, Texas, Anaheim, California,
Overland Park, Kansas and St. Louis, Missouri. The executive officers who own
PAH RSI Lessee also acquired substantially all of the economic interests in
Resort Services, Inc. ("RSI") which manages the Carefree Resorts pursuant to a
management contract with PAH RSI Lessee. Patriot has no direct or indirect
equity interest in PAH RSI Lessee or RSI. Following the Merger, in order for
New Patriot REIT to re-lease the hotels referred to above to New Patriot
Operating Company, New Patriot REIT will exercise its right to terminate the
one-year leases with PAH RSI Lessee by paying to PAH RSI Lessee the fair
market value of the leasehold interests or otherwise seek to have New Patriot
Operating Company acquire such leaseholds. In addition, New Patriot Operating
Company will offer to acquire the assets, including the inventory, trademarks
and right to receive certain royalty fees, of PAH RSI Lessee at the then fair
market value for such assets. Determination of the fair market value of such
amounts for the leasehold interests and assets of PAH RSI Lessee will be
negotiated with the owners of PAH RSI Lessee and the payment of any such
amounts will go to such owners personally. Based on current market conditions,
Patriot presently believes that the aggregate fair market value of the
leasehold interests and assets (net of liabilities) currently held by PAH RSI
Lessee is approximately $225,000. Patriot believes that the owners of PAH RSI
Lessee will cooperate with the sale of such assets; however, the owners are
not obligated to sell such assets and thus no assurances can be made as to
whether the owners will in fact agree to sell such assets following the Merger
or as to what the purchase price for the leasehold interests and assets will
be. Failure to acquire the trademarks, including the Carefree(R) and
Boulders(R) trademarks, could materially impair the value of the Carefree
Resorts and could have a material adverse effect on the results of operations
and financial condition of New Patriot Operating Company and New Patriot REIT.
Certain directors and officers of Patriot (who will continue as directors of
New Patriot REIT and officers of New Patriot REIT and/or New Patriot Operating
Company) or their affiliates may have had unrealized gain in
47
<PAGE>
their interests in certain of Patriot's hotels transferred to Patriot in
connection with the Initial Offering. The sale of such hotels by New Patriot
REIT may cause adverse tax consequences to such officers, directors or their
affiliates. Therefore, the interests of New Patriot REIT, such officers,
directors and their affiliates could be different in connection with the
disposition of such hotels.
Affiliates of the Lessees may acquire, develop or manage hotels that compete
with New Patriot REIT's hotels. Accordingly, the Lessees' decisions relating
to the operation of New Patriot REIT's hotels that are in competition with
other hotels owned or managed by them may not reflect the interests of New
Patriot REIT.
RISK OF INVESTMENT IN SUBSIDIARIES CONTROLLED BY OTHER PARTIES
The Crowne Plaza Ravinia Hotel, the Marriott WindWatch Hotel and certain
non-leaseable assets related to the Carefree Resorts are each owned through a
special purpose entity, specifically PAH Ravinia, Inc., PAH WindWatch, LLC and
PAH Boulders, Inc., respectively (the "Non-Controlled Subsidiaries"). The
equity securities of each of the Non-Controlled Subsidiaries are divided into
two classes: voting securities and nonvoting securities. The Patriot
Partnership owns all of the non-voting securities in each of the Non-
Controlled Subsidiaries. With respect to PAH Ravinia, Inc. ("PAH Ravinia") and
PAH WindWatch, LLC ("PAH WindWatch"), the Patriot Partnership also owns,
indirectly, 4% of the voting securities. Certain executive officers and/or
directors of Patriot own, directly or indirectly, all of the voting securities
of PAH Boulders, Inc. ("PAH Boulders") and the remaining 96% of the voting
securities of PAH Ravinia and PAH WindWatch. Although the ownership interests
of the Patriot Partnership represent an approximately 99% economic interest in
each of the Non-Controlled Subsidiaries, the Patriot Partnership is not able
to elect directors or managers. As a result, the voting securities holders of
the Non-Controlled Subsidiaries may implement business policy decisions that
would not have been implemented by New Patriot REIT and that are adverse to
the interests of New Patriot REIT or that lead to adverse financial results.
Additionally, following the Merger New Patriot REIT may seek to restructure
the Non-Controlled Subsidiaries so that the Crowne Plaza Ravinia Hotel and the
Marriott WindWatch Hotel may be leased to New Patriot Operating Company and
certain non-leaseable assets relating to the Carefree Resorts may be sold to
New Patriot Operating Company. To effect such restructurings and asset sales,
New Patriot REIT will be required to obtain the approval of those executive
officers of Patriot who have voting control over such Non-Controlled
Subsidiaries. No assurances can be made that the executive officers will
consent to such restructurings.
BENEFITS TO CERTAIN DIRECTORS AND OFFICERS OF CAL JOCKEY AND BAY MEADOWS
In considering the recommendation of the Board of Directors of Cal Jockey
and Bay Meadows to approve the Merger Agreement and the Related Transactions,
stockholders of Cal Jockey and Bay Meadows should be aware that certain
members of the management and the Board of Directors of Cal Jockey and Bay
Meadows and have certain interests in, and will receive benefits as a
consequence of, the Merger and the Related Transactions that are separate from
the interests of, and benefits to, stockholders of Cal Jockey and Bay Meadows
and generally, and which may result in conflicts of interest with respect to
their obligations to Cal Jockey and Bay Meadows in determining whether it
should consummate the Merger and the Related Transactions.
On May 28, 1997, at the same meeting at which the Cal Jockey Board of
Directors approved the Merger Agreement, the Cal Jockey Board agreed to pay
its members, Kjell H. Qvale, James M. Harris, James P. Conn, David M. Gjerdrum
and Ronald J. Volkman and the sole employee of Cal Jockey, Ray Kuratek the
aggregate sum of $600,000 to be allocated by the Cal Jockey Board of Directors
at a subsequent Board meeting. The Cal Jockey Board of Directors agreed to pay
such amount as compensation for services previously rendered to Cal Jockey by
such individuals, particularly in recognition of their significant
contributions to the Merger process. The compensation payments are conditioned
upon consummation of the Merger and the Related Transactions. The fact that
Cal Jockey has only one employee, combined with the complex structure of the
Merger and Related Transactions, has resulted in significant efforts and time
commitments from these individuals in connection with the Merger.
Bay Meadows has entered into Severance Agreements with six Officers that,
under certain circumstances, entitle each Officer to receive payments and
other benefits if the Officer's employment is terminated following a
48
<PAGE>
change in control of Bay Meadows. As of May 28, 1997, the aggregate amount of
the payments that would be made to the Officers under the Severance Agreements
would be $1,151,000. In addition, as of May 28, 1997, Bay Meadows has granted
to the Officers a total of 137,500 options to purchase Paired Shares of which
a total of 124,166 were vested. According to the terms of such options, all
options which are not currently vested will become fully vested and
immediately exercisable in connection with the Merger and the Related
Transactions. In the event the Officers exercise such options then, based on
the $41 1/2 closing price of a Paired Share as quoted on the AMEX as of the
close of business on May 28, 1997, the aggregate value (net of exercise
prices) for such options would be $3,761,875. If the Officers choose not to
exercise their options prior to the Merger and the Related Transactions, they
will, as a result, hold fully vested options to purchase 137,500 paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock. See "The Merger and Subscription--Interests of Certain Officers and
Directors." Presently there is a disagreement between Bay Meadows and Cal
Jockey concerning the total number of outstanding options to purchase Cal
Jockey Common Stock that have been granted to Bay Meadows in connection with
its issuance of options to purchase Paired Shares to the Officers and certain
employees of Bay Meadows. For a description of such disagreement, see
"Stockholders' Meetings, Litigation and Disagreements."
RISKS RELATING TO PROPOSED WYNDHAM TRANSACTIONS
There may be certain additional risks to stockholders of New Patriot REIT
and New Patriot Operating Company as a result of the Proposed Wyndham
Transactions. These risks include, among others:
(i) the aggregate acquisition price to be paid by New Patriot REIT and New
Patriot Operating Company in the Proposed Wyndham Transactions has a dilutive
effect on Patriot's net income per share on a pro forma basis for 1996 and the
three months ended March 31, 1997 and may have a dilutive effect on net income
per share in future periods. The Unaudited Pro Forma Combined Financial
Statements contained herein illustrate the effect of the Proposed Wyndham
Transactions on the net income per share. On a combined pro forma basis for
New Patriot REIT and New Patriot Operating Company, net income per share is
$0.58 for the year ended December 31, 1996 and $0.27 for the three months
ended March 31, 1997 (following consummation of the Proposed Wyndham
Transactions), as compared to $1.29 and $0.40 for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively, for New Patriot
REIT and New Patriot Operating Company (post-Merger), and $1.78 and $0.44 for
the year ended December 31, 1996 and the three months ended March 31, 1997,
respectively, on a pro forma basis for Patriot (pre-Merger) (or $0.89 and
$0.22, respectively, as adjusted for the 2-for-1 stock split). See "Unaudited
Pro Forma Combined Financial Statements." In addition, upon consummation of
the Proposed Wyndham Transactions, the current stockholders of Patriot and the
current stockholders of Cal Jockey and Bay Meadows will hold in the aggregate
approximately 53.4% and 13.4%, respectively, of the outstanding paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock, assuming no Wyndham stockholders exercise their cash election rights;
(ii) as a result of the Proposed Wyndham Transactions, the pro forma
combined indebtedness for New Patriot REIT and New Patriot Operating Company
will increase by $511.7 million from $579.9 million to $1,091.6 million
(assuming no Wyndham stockholders exercise their cash election rights in the
Proposed Wyndham Transactions). See "Unaudited Pro Forma Combined Financial
Statements"; and
(iii) following the Proposed Wyndham Transactions, New Patriot REIT and New
Patriot Operating Company will have separate management teams, including
different Chief Executive Officers and Chief Financial Officers. This could
increase the possibility of disagreements arising between the two companies.
See""-- Potential Conflicts of Interest Between New Patriot REIT and New
Patriot Operating Company."
HOTEL INDUSTRY RISKS
Operating Risks
Following the Merger, the primary businesses of New Patriot REIT and New
Patriot Operating Company will be that of buying, selling, leasing and
managing hotels which are subject to operating risks common to the
49
<PAGE>
hotel industry. These risks include, among other things, (i) competition for
guests from other hotels, a number of which may have greater marketing and
financial resources and experience than New Patriot REIT, New Patriot
Operating 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 ability of the Lessees and New Patriot Operating Company to generate
revenues and to make lease payments and therefore New Patriot REIT's ability
to make expected distributions to stockholders.
New Patriot REIT and New Patriot Operating Company are also subject to the
risk that in connection with the acquisition of hotels and hotel operation
companies it may not be possible to transfer certain operating licenses, such
as food and beverage licenses, to the Lessees, the Operators or New Patriot
Operating Company, or to obtain new licenses in a timely manner in the event
such licenses cannot be transferred. Although hotels can provide alcoholic
beverages under interim licenses or licenses obtained prior to the acquisition
of these hotels, there can be no assurance that these licenses will remain in
effect until New Patriot REIT or New Patriot Operating Company obtains new
licenses or that new licenses will be obtained. The failure to have alcoholic
beverages licenses or other operating licenses could adversely affect the
ability of the affected Lessees, Operators or New Patriot Operating Company to
generate revenues and make lease payments to New Patriot REIT.
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of F, F & E. Under the terms of the Participating Leases,
Patriot is obligated to establish a reserve to pay the cost of certain capital
expenditures at its hotels and pay for periodic replacement or refurbishment
of F, F & E. The F, F & E obligations of Patriot will be assumed by New
Patriot REIT in the Merger; however, if capital expenditures exceed New
Patriot REIT's expectations, the additional cost could have an adverse effect
on New Patriot REIT's cash available for distribution. In addition, New
Patriot REIT may acquire hotels where significant renovation is either
required or desirable. Renovation of hotels involves certain risks, including
the possibility of environmental problems, construction cost overruns and
delays, uncertainties as to market demand or deterioration in market demand
after commencement of renovation and the emergence of unanticipated
competition from other hotels.
Competition for Hotel Acquisition Opportunities
Following the Merger, New Patriot REIT and New Patriot Operating Company may
be competing for investment opportunities with entities that have
substantially greater financial resources than New Patriot REIT and New
Patriot Operating Company. These entities may generally be able to accept more
risk than New Patriot REIT and New Patriot Operating 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
New Patriot REIT and New Patriot Operating Company and increase the bargaining
power of property owners seeking to sell.
Additionally, Patriot's ability to acquire additional hotels could be
negatively impacted by the paired share structure because hotel management
companies, franchisees and others who currently approach Patriot with
acquisition opportunities in hopes of establishing lessee or management
relationships may not do so in the future out of concern that Patriot will
rely on New Patriot Operating Company to lease and/or manage the acquired
properties. Such persons may instead provide such acquisition opportunities to
hotel companies that will allow them to manage the property following the
sale. This could have a negative impact on New Patriot REIT's acquisition
activities in the future.
Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other
hotels in the second and third quarters of a calendar year. Seasonal
50
<PAGE>
variations in revenue at hotels may cause quarterly fluctuations in the
operating revenues of New Patriot Operating Company and the lease revenues of
New Patriot REIT.
REAL ESTATE INVESTMENT RISKS
General Risks
New Patriot REIT's investments will be subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
New Patriot REIT's real estate investments and New Patriot REIT's income and
ability to make distributions to its stockholders will be dependent upon the
ability of the Lessees, the Operators and New Patriot Operating Company to
operate Patriot's hotels in a manner sufficient to maintain or increase
revenues and to generate sufficient income in excess of operating expenses to
make rent payments under their leases with New Patriot REIT. Income from New
Patriot REIT's hotels may be adversely affected by changes in national
economic conditions, changes in local market conditions due to changes in
general or local economic conditions and neighborhood characteristics, changes
in interest rates and in the availability, cost and terms of mortgage funds,
the impact of present or future environmental legislation and compliance with
environmental laws, the ongoing need for capital improvements, particularly in
older structures, changes in real estate tax rates and other operating
expenses, adverse changes in governmental rules and fiscal policies, adverse
changes in zoning laws, civil unrest, acts of God, including earthquakes and
other natural disasters (which may result in uninsured losses), acts of war
and other factors which are beyond the control of New Patriot REIT and New
Patriot Operating Company.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of New Patriot
REIT to vary its portfolio in response to changes in economic and other
conditions will therefore be limited. If New Patriot REIT must sell an
investment, there can be no assurance that New Patriot REIT 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 New Patriot REIT's investment.
Property Taxes
Patriot's hotels and Cal Jockey's and Bay Meadows' racing facilities are
subject to real property taxes. The real property taxes on hotel properties as
well as the racing facilities in which New Patriot REIT invests may increase
or decrease as property tax rates change and as the value of the properties
are assessed or reassessed by taxing authorities. Additionally, as a result of
the Merger, certain of Patriot's properties may be subject to reappraisal or
reassessment. If property taxes increase as a result of such reappraisals or
reassessments, New Patriot REIT's ability to make expected distributions to
its stockholders could be adversely affected.
Consents of Ground Lessor Required for Sale of Certain Hotels
The Fairmount Hotel, the Holiday Inn Lenox, the Hyatt Newporter Hotel, the
WestCoast Long Beach Hotel and Marina and the Hyatt Regency, Lexington
currently owned by the Patriot Partnership are subject to ground leases with
third party lessors. In addition, New Patriot REIT 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 Patriot Partnership or any proposed
assignment of the Patriot Partnership's leasehold interest in the ground lease
may require the consent of third party lessors. As a result, New Patriot REIT
and the Patriot Partnership may not be able to sell, assign, transfer or
convey the Patriot 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 stockholders of New Patriot REIT.
Environmental Matters
The operating costs of New Patriot REIT and New Patriot Operating Company
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
51
<PAGE>
of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous or toxic substances,
or the failure to remediate such property properly, may adversely affect the
owner's ability to borrow by using such real property as collateral. Persons
who arrange for the transportation, disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether or not such
facility is or ever was owned or operated by such person. Certain
environmental laws and common law principles could be used to impose liability
for releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws may
also impose restrictions on the manner in which a property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership and operation of any of
Patriot's hotels, New Patriot REIT, New Patriot Operating Company, the Lessees
or the Operators may be potentially liable for any such costs. The cost of
defending against claims of liability or remediating contaminated property and
the cost of complying with environmental laws could materially adversely
affect New Patriot REIT's results of operations and financial condition. Phase
I environmental site assessments ("ESAs") have been conducted at all of
Patriot's hotels by qualified independent environmental engineers. The purpose
of Phase I ESAs is to identify potential sources of contamination for which
any of Patriot's hotels may be responsible and to assess the status of
environmental regulatory compliance. The ESAs have not revealed any
environmental liability or compliance concerns that Patriot believes would
have a material adverse effect on New Patriot REIT's business, assets, results
of operations or liquidity, nor is Patriot aware of any such liability or
concerns. Nevertheless, it is possible that these ESAs did not reveal all
environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which Patriot is
currently unaware. Patriot has not been notified by any governmental
authority, and has no other knowledge of, any material noncompliance,
liability or claim relating to hazardous or toxic substances or other
environmental substances in connection with any of its hotels.
Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. A determination that New Patriot REIT or
New Patriot Operating Company is not in compliance with the ADA could result
in the imposition of fines or an award of damages to private litigants. If New
Patriot REIT were required to make modifications to comply with the ADA, the
ability of New Patriot REIT and New Patriot Operating Company to make expected
distributions to their stockholders could be adversely affected.
Uninsured and Underinsured Losses
Each of Patriot's Participating Leases specifies comprehensive insurance to
be maintained on each of the applicable leased hotels, including liability,
fire and extended coverage. Patriot believes such specified coverage is of the
type and amount customarily obtained for or by an owner of hotels. Leases for
subsequently acquired hotels (including those leased to New Patriot Operating
Company) 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 Boards of Directors
and management of each of New Patriot REIT and New Patriot Operating Company
will use their discretion in determining amounts, coverage limits and
deductibility provisions of insurance, with a view to maintaining appropriate
insurance coverage on the investments of New Patriot REIT or New Patriot
Operating Company, as the case may be, at a reasonable cost and on suitable
terms. This may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of the lost investment of New Patriot REIT or New
Patriot Operating Company, as the case may be. 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 New Patriot REIT or New Patriot Operating
Company might not be adequate to restore its economic position with respect to
such property.
52
<PAGE>
Acquisition and Development Risks
New Patriot REIT and New Patriot Operating Company currently intend to
pursue acquisitions of additional hotels and hotel operating companies and,
under appropriate circumstances, may pursue development opportunities.
Acquisitions entail risks that such acquired hotels or hotel operating
companies will fail to perform in accordance with expectations and that
estimates of the cost of improvements necessary to market, acquire and operate
properties will prove inaccurate as well as general risks associated with any
new real estate or operating company acquisition. In addition, 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 New
Patriot REIT generally must distribute 95% of its ordinary taxable income in
order to maintain its qualification as a REIT may limit New Patriot REIT's
ability to rely upon lease income from its hotels or subsequently acquired
properties to finance acquisitions or new developments. As a result, if debt
or equity financing were not available on acceptable terms, further
acquisitions or development activities might be curtailed or New Patriot
REIT's cash available for distribution might be adversely affected.
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
As of May 28, 1997, 52 of Patriot's hotels were operated under franchise or
brand affiliations. In addition, hotels in which New Patriot REIT subsequently
invests may be operated pursuant to franchise or brand affiliations. The
continuation of the franchise licenses relating to the franchised hotels (the
"Franchise Licenses") is subject to specified operating standards and other
terms and conditions. The continued use of a brand is generally contingent
upon the continuation of the management agreement related to that hotel with
the branded Operator. Franchisors typically inspect licensed properties
periodically to confirm adherence to operating standards. Action on the part
of any of New Patriot REIT, New Patriot Operating Company, the Operating
Partnerships, 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 New Patriot REIT's 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, New Patriot REIT's Board of Directors may elect to allow
the Franchise License to lapse which could under certain circumstance result
in New Patriot REIT incurring significant costs for terminating such Franchise
License. In any case, if a franchise or brand affiliation is terminated, New
Patriot REIT 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.
POTENTIAL RISKS RELATED TO ENTITLEMENTS FOR FRANKLIN AGREEMENT AND IACOCCA
AGREEMENT
Pursuant to the Franklin Agreement and the Iacocca Agreement, Cal Jockey has
agreed to sell approximately 33 acres of the Stable Area and the entire
approximately 40 acre Training Track Area for purchase prices of approximately
$21 million and $31 million, respectively. In addition, Cal Jockey and the
buyers are responsible for a portion of various off-site improvements. See
"The Companies--Cal Jockey." As a condition to consummation of the land sale
transactions contemplated by the Franklin Agreement and the Iacocca Agreement,
Cal Jockey is required to secure certain planning, land use and zoning
entitlements from the City of San Mateo in connection with the development of
the subject properties (the "Entitlements"). Cal Jockey also is required to
obtain final certification of an Environmental Impact Report analyzing the
environmental effects (such as impacts on traffic flow, air quality and growth
inducement) of the contemplated developments (the "EIR"). On April 22, 1997,
the City of San Mateo City Council approved the Entitlements and certified the
EIR. Such approval and certification are subject to possible appeal by
citizens and neighborhood or other groups. If any such appeal is commenced,
significant delays in the development process could occur. Any such delay
could affect the obligations of Property
53
<PAGE>
Resources and Airdial to consummate the purchase of the Stable Area and the
Training Track Area. In addition, both the Franklin Agreement and the Iacocca
Agreement require as a condition to the buyers' obligations to consummate the
sale transactions, that Cal Jockey secure a development agreement vesting the
rights of Property Resources and Airdial to develop the property subject to
the conditions of approval. While a draft of such agreement has been submitted
to the City of San Mateo, city officials have not yet indicated whether the
City of San Mateo will agree to execute such a development agreement. A
failure of the City of San Mateo to agree to such a development agreement
could give rise to rights of termination of the Franklin Agreement and the
Iacocca Agreement by Property Resources and Airdial, respectively. The
Proposed PaineWebber Land Sale will not affect the land sale transactions
contemplated by the Franklin Agreement and the Iacocca Agreement. In
connection with the Proposed PaineWebber Land Sale, New Patriot REIT generally
will assign all of its rights and benefits under the Franklin Agreement and
the Iacocca Agreement to an affiliate of PaineWebber (e.g., the proceeds to be
received in connection with such transaction) and the PaineWebber affiliate
generally will assume all of New Patriot REIT's development obligations under
the Franklin Agreement and the Iacocca Agreement. Pursuant to the Proposed
PaineWebber Land Sale, New Patriot REIT will be responsible for certain of the
development costs which relate to using the land as a racing facility,
including the building of new stabling facilities. See "--Horse Racing
Industry Risks--Stable Area" and "The Companies--Surviving Companies--Proposed
PaineWebber Land Sale."
HORSE RACING INDUSTRY RISKS
Regulation of Gaming Operations
Bay Meadows' pari-mutuel wagering operations are contingent upon the
continued governmental acceptance of such operations as forms of legalized
gambling. As a form of gambling, pari-mutuel wagering is subject to extensive
licensing and regulatory control by the California Horse Racing Board (the
"CHRB") and other California authorities. These regulatory authorities have
broad powers with respect to the licensing of gaming operations, and may
revoke, suspend, condition or limit the gaming operations of Bay Meadows prior
to the Merger and the Related Transactions and New Patriot Operating Company
after the Merger and the Related Transactions. Any such change in regulations
may have a material adverse effect on New Patriot Operating Company's
financial condition and results of operations.
Bay Meadows has received a license from the CHRB for its 1997 horse racing
season under which it is authorized to hold a split Thoroughbred horse racing
meet at the Racecourse and to accept pari-mutuel wagers. This license must be
renewed on an annual basis and the CHRB has broad discretion to reject any
application for a license. Following the Merger and the Related Transactions,
New Patriot Operating Company or a company wholly-owned by it will be required
to file an amendment to Bay Meadow's CHRB application for its 1997 license
reflecting that New Patriot Operating Company or a company wholly-owned by it
will be conducting Bay Meadows' horse racing operations during the remainder
of its 1997 horse racing meet. In informal discussions, representatives of the
CHRB have indicated to Bay Meadows' management that the CHRB would not object
to such an amendment to Bay Meadows' application. No assurances can be given,
however, that the CHRB will not object to such an amendment when it is filed.
Failure to receive timely approval of such an amendment to its application
could have a material adverse effect on New Patriot Operating Company. In
addition, California law requires that each of the directors and certain
employees of New Patriot Operating Company must be licensed with the CHRB. No
assurances can be given that the CHRB will grant licenses to each of the
proposed directors and each of such employees of New Patriot Operating
Company. If a director or employee required to be licensed were denied a
license by the CHRB, New Patriot Operating Company would have to replace such
director or employee with a director or employee who was so licensed.
The CHRB also has the discretion to limit the number of days and dates on
which New Patriot Operating Company may conduct live horse racing. No
assurance can be given as to how many, or which, horse racing days the CHRB
will allocate to New Patriot Operating Company in the future, nor can there be
any assurance that an issued license will not be modified or revoked. Patriot
has the right to terminate the Merger Agreement if prior to the Effective Time
the number of horse racing days allocated to Bay Meadows for 1997 at the
Racecourse is less than 80 days.
54
<PAGE>
Stable Area
Bay Meadows' operations are conducted at the Racecourse, a single facility
in San Mateo, California. Cal Jockey has agreed to sell the Stable Area of the
Racecourse pursuant to the Franklin Agreement. See "The Companies--Cal
Jockey." The purchaser of the Stable Area has indicated its intention to tear
down the existing stables. Bay Meadows has publicly proposed a plan for the
construction of 900 on-site stalls replacing the stalls to be torn down and
Patriot has indicated its support for this plan. In addition, the City of San
Mateo has conceptually approved the stables plan as part of the Entitlements,
and also has made it a condition of development under the Entitlements that
there be a minimum of 900 stalls available to support live racing (including
any combination of existing and new stalls). The cost for the construction of
such stalls together with various other improvements is estimated to be
between approximately $11 million and $13 million. There can be no assurances
that Bay Meadows or New Patriot Operating Company will obtain in a timely
fashion the necessary final governmental approvals to construct such stalls.
As part of the Proposed PaineWebber Land Sale, Patriot has agreed to pay the
costs associated with the construction of these stalls. Any prolonged
suspension of operations at the facility due to failure to construct the
stalls in a timely fashion, destruction of or material damage to the facility
or for other reasons could have a material adverse effect on New Patriot
Operating Company's financial condition and results of operations. New Patriot
Operating Company intends to maintain property and business interruption
insurance to protect against such types of disruption, but there can be no
assurance that the proceeds of such insurance would be adequate to repair or
rebuild its facilities in such event or to compensate New Patriot Operating
Company for losses incurred during the period of any such disruption.
Dependence on Relationship with Owners and Trainers Associations
Bay Meadows' Thoroughbred horse racing operations requires it to maintain
good working relationships with the Thoroughbred Owners of California (the
"Owners Association"), the organization recognized by the CHRB as representing
owners of Thoroughbreds participating in horse racing meets at the Racecourse,
and the California Horsemen's Benevolent and Protective Association (the
"Trainers Association"), the organization recognized by the CHRB as
representing trainers. If New Patriot Operating Company is unable to continue
Bay Meadows' present relationships with the Owners Association or the Trainers
Association or find itself unable to attract a sufficient number of horses to
its live horse race meets, such events could have a material adverse effect on
New Patriot Operating Company's financial condition and results of operations.
Competition
Thoroughbred horse racing, and gaming generally, are competitive industries.
New Patriot Operating Company will compete in regional markets with other
horse race courses, off-track betting, state-run lotteries and Indian
reservation gaming. Many of these competitors have resources that exceed those
of New Patriot Operating Company. New Patriot Operating Company will also
compete locally with other sporting and entertainment businesses. Approval of
legislation legalizing casinos and other forms of gaming or expansion of
gaming at Indian reservations could increase competition for New Patriot
Operating Company in the future and could have a material adverse effect on
New Patriot Operating Company's financial condition and results of operations.
Also, New Patriot Operating Company may face increasing competition from
businesses accepting wagers by telephone and via the Internet.
Declines in On-Track Attendance
Many race tracks across the nation, including the Racecourse, are
experiencing declines in on-track attendance. There can be no assurance that
New Patriot Operating Company will not experience further declines in on-track
attendance, which declines could have a material adverse effect on its results
of operations.
LACK OF EXPERIENCE IN THE HORSE RACING BUSINESS; RELIANCE ON BAY MEADOWS
MANAGEMENT
Following the Merger and the Related Transactions, New Patriot Operating
Company will manage Bay Meadows' existing horse racing operations, an area in
which Patriot has no prior experience. Although New Patriot
55
<PAGE>
Operating Company expects to retain Bay Meadows' existing management and
personnel to continue to manage these horse racing operations, there can be no
assurance that New Patriot Operating Company will be able to retain said
existing management and personnel. Failure to retain such management and
personnel could have a material adverse effect on the results of operations
and financial condition of New Patriot Operating Company.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Patriot stockholders are currently governed by the VSCA, the
Patriot Charter and the Patriot Bylaws and the rights of the stockholders of
Cal Jockey and Bay Meadows currently are governed by the DGCL, the Cal Jockey
Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay Meadows
Bylaws. Under the terms of the Merger Agreement, upon stockholder approval of
the Proposals, the Cal Jockey Charter and the Bay Meadows Charter and the Cal
Jockey Bylaws and the Bay Meadows Bylaws will be amended and restated and will
become the Restated Charters and the Restated Bylaws of New Patriot REIT and
New Patriot Operating Company. At the Effective Time, stockholders of Patriot,
Cal Jockey and Bay Meadows will become stockholders of New Patriot REIT and
New Patriot Operating Company, each a Delaware corporation, and their rights
as stockholders of New Patriot REIT and New Patriot Operating Company will
thereafter be governed by the DGCL and the provisions of the Restated Charters
and the Restated Bylaws. In considering the recommendation of the Boards of
Directors of Patriot, Cal Jockey and Bay Meadows to approve the Proposals,
stockholders of Patriot, Cal Jockey and Bay Meadows should be aware that the
rights of stockholders of New Patriot REIT and New Patriot Operating Company
under the provisions of the Restated Charters and the Restated Bylaws will
differ significantly from the existing rights of the Patriot stockholders
under the Patriot Charter and Patriot Bylaws as well as the existing rights of
the stockholders of Cal Jockey and Bay Meadows under the Cal Jockey Charter,
the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay Meadows Bylaws.
Stockholders of Patriot, Cal Jockey and Bay Meadows should carefully read the
Restated Charters and the Restated Bylaws, which are attached to this Joint
Proxy Statement/Prospectus as Annexes B and D and Annexes C and E,
respectively.
Certain provisions of the Restated Charters and the Restated Bylaws could
have a potential anti-takeover effect on New Patriot REIT and New Patriot
Operating Company. The staggered board provision, the fact that directors of
New Patriot REIT and New Patriot Operating Company would be removable only for
cause, the fact that the Restated Charters and the Restated Bylaws would not
permit stockholders to call a special meeting of stockholders, the fact that
the Restated Charters would require the written consent of all stockholders
entitled to vote on a matter for stockholders to take action on such a matter
without a meeting, and the presence of advance-notice bylaw provisions with
respect to stockholder proposals and director nominations could have the
effect of making it more difficult for a third party to acquire control of New
Patriot REIT and New Patriot Operating Company, including certain acquisitions
that stockholders may deem to be in their best interests. See "Comparison of
Stockholder Rights."
POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF COMMON STOCK OF NEW PATRIOT REIT
AND NEW PATRIOT OPERATING COMPANY ARISING FROM SHARES AVAILABLE FOR FUTURE
SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the common stock of New Patriot REIT and New Patriot Operating
Company. Sales of substantial amounts of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock (including paired
shares issued in connection with outstanding stock options or the exchange or
sale of OP Units of the Operating Partnerships) or the perception that such
sales could occur, could adversely affect the prevailing market price for
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock. With the exception of the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock issued to
affiliates of Patriot in connection with the Merger, all of the paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock to be issued to Patriot stockholders in connection with the Merger and
Subscription (approximately 22,960,162 paired shares) will be freely
transferable. In addition, following the Merger options to purchase an
56
<PAGE>
aggregate of 2,972,425 paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock will be outstanding. These options will
be held by certain current and former officers, employees and directors of
Patriot, Cal Jockey and Bay Meadows pursuant to certain option plans. Also,
upon consummation of the Merger, in addition to the OP Units issued to New
Patriot REIT and New Patriot Operating Company, each of the Operating
Partnerships will have outstanding an aggregate of 4,486,530 OP Units (based
upon the outstanding OP Units of the Patriot Partnership of 4,322,700 as of
May 28, 1997). In general, each of these OP Units may be redeemed for cash or,
at the election of New Patriot REIT and New Patriot Operating Company, an
equal number of OP Units from each Operating Partnership may be exchanged for
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock.
SUBSTANTIAL EXPENSES AND PAYMENTS IF MERGER FAILS TO OCCUR
No assurance can be given that the Merger and the Related Transactions will
be consummated. If the Merger and the Related Transactions are not
consummated, Patriot, Cal Jockey and Bay Meadows will have incurred
substantial expenses in connection with the transactions and Cal Jockey shall
be required to repay the $2,900,000 Loan made by Patriot to enable Cal Jockey
to pay the termination fee owed to Hudson Bay. If the Merger Agreement is
terminated under certain circumstances and/or Cal Jockey and Bay Meadows enter
into an acquisition agreement with a third party under certain circumstances,
Cal Jockey and Bay Meadows shall also be required to pay to Patriot
$5,000,000. The requirement to make such $7,900,000 payments could have the
effect of deterring other potential acquirors from making competing offers for
Cal Jockey and Bay Meadows, including certain offers that may be more
favorable to the stockholders of Cal Jockey and Bay Meadows. Additionally, in
the event the Merger and the Related Transactions are not consummated and no
other acquiror has agreed to make such $7,900,000 payments, the payments of
such amounts could have a material adverse effect on the results of operations
and financial condition of Cal Jockey and Bay Meadows. If the Merger Agreement
is terminated in certain other circumstances, Patriot will be required to pay
Cal Jockey $2,900,000 (which amount Patriot may offset against the principal
amount due on the $2,900,000 Loan) and reimburse Cal Jockey and Bay Meadows
for their expenses up to an aggregate $1,000,000. In the event that the Cal
Jockey and Bay Meadows stockholders approve the Merger Proposal but fail to
approve either the Cal Jockey Charter and Bylaw Amendment Proposal or the Bay
Meadows Charter and Bylaw Amendment Proposal and Patriot terminates the Merger
Agreement because of such failure, Patriot shall pay in the aggregate up to
$5,000,000 to Cal Jockey and Bay Meadows. In addition, pursuant to the terms
of the Wyndham Merger Agreement, if the Merger is not consummated by September
1, 1997, then either Patriot or Wyndham could terminate the Wyndham Merger
Agreement and Patriot would be required to pay Wyndham a $25 million
termination fee. See "The Merger Agreement--Termination Amount and Expenses."
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICE OF COMMON STOCK
OF NEW PATRIOT REITAND NEW PATRIOT OPERATING COMPANY
One of the factors that may influence the price of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock in
public trading markets will be the annual yield from distributions by New
Patriot REIT and New Patriot Operating Company on the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock as
compared to yields on certain financial instruments. An increase in market
interest rates will result in higher yields on certain financial instruments,
which could adversely affect the market price of the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
NO DISSENTERS' RIGHTS
As provided under the DGCL and VSCA, stockholders of Cal Jockey, Bay Meadows
and Patriot do not have dissenters' rights in connection with the Merger and
the Related Transactions.
57
<PAGE>
THE COMPANIES
PATRIOT
Patriot is a self-administered REIT which owns interests in 56 hotels in 22
states, with an aggregate of 13,355 guest rooms as of May 28, 1997. Patriot's
hotels are diversified by franchise or brand affiliation and serve primarily
major U.S. business centers, including Atlanta, Boston, Chicago, Cleveland,
Dallas, Denver, Houston, Miami, San Francisco and Seattle. In addition to
hotels catering primarily to business travelers, Patriot's portfolio includes
world-class resort hotels, including The Boulders, near Scottsdale, Arizona,
The Lodge at Ventana Canyon in Tucson, Arizona, The Peaks Resort & Spa in
Telluride, Colorado, and Carmel Valley Ranch Resort in Carmel, California, as
well as prominent hotels in major tourist destinations, including Fort
Lauderdale, New Orleans, San Antonio and San Diego. Patriot's portfolio
includes 46 full service hotels, 5 resort hotels, 4 limited service hotels,
and an executive conference center. Fifty-two of the hotels are operated under
franchise or brand affiliations with nationally recognized hotel companies,
including Marriott(R), Crowne Plaza(R), Radisson(R), Hilton(R), Hyatt(R), Four
Points by Sheraton(R), Holiday Inn(R), Wyndham(TM), Wyndham Garden(R),
WestCoast(R), Doubletree(R), Embassy Suites(R), Hampton Inn(R), Registry(R),
Carefree(R), and Grand Heritage(R). Pursuant to its alliance with Doubletree
Hotels Corporation, Patriot owns six of its hotels through joint venture
arrangements with Doubletree Hotels Corporation, under which Patriot holds a
90% ownership interest with regard to four of such hotels and an 85% ownership
interest with regard to two of such hotels. For the twelve months ended
December 31, 1996, Patriot's hotel portfolio (excluding three hotels
undergoing substantial renovation and the Carefree Resorts) had an average
occupancy rate of 69.9% and an ADR of $84.94. For the twelve months ended
December 31, 1996, the Carefree Resorts had an average occupancy rate of 69.2%
and an ADR of $258.98.
Patriot was formed as a Virginia corporation in April 1995 for the purpose
of acquiring equity interests in hotel properties. In October 1995, Patriot
completed its Initial Offering and commenced operations. Through its wholly-
owned subsidiaries, PAH LP and PAH GP, Patriot held an approximate 82.7%
limited partnership interest and the sole 1% general partner interest in the
Patriot Partnership as of May 28, 1997. The Patriot Partnership owns, directly
or through subsidiaries, Patriot's interests in each of its hotels. A diagram
outlining the corporate structure of Patriot prior to the Merger is set forth
on page 62.
In connection with its Initial Offering, Patriot obtained the Line of Credit
for up to $165 million from PaineWebber Real Estate to fund the acquisition of
additional hotels and renovations and improvements to hotels and for general
working capital purposes. The Line of Credit matures in October 1998 and bears
interest at a rate per annum equal to 30-day LIBOR plus 1.90%. The maximum
amount available under the Line of Credit was increased in January 1997 to
$475 million. As of May 28, 1997, Patriot had approximately $471.2 million
outstanding under the Line of Credit. As of such date, Patriot also had
outstanding approximately $64.0 million of other mortgage loans, resulting in
total outstanding indebtedness of approximately $535.2 million. The Line of
Credit is secured by 38 of Patriot's 56 hotels and Patriot's remaining
indebtedness encumbers three additional hotels. No prepayment penalties are
required under the Line of Credit. Patriot has entered into a commitment
letter with PaineWebber Real Estate and Chase regarding expanding and
replacing the Line of Credit with the New Credit Facility with up to $1.2
billion in availability. In connection will entering into this commitment
letter, PaineWebber Real Estate agreed to increase Patriot's availability
under the Line of Credit to $625 million. See "--Surviving Companies." Patriot
also may seek additional debt or equity financing prior to the consummation of
the Merger.
On January 30, 1997, the Board of Directors of Patriot declared a 2-for-1
stock split effected in the form of a stock dividend distributed on March 18,
1997 to Patriot stockholders of record on March 7, 1997. Unless otherwise
indicated, all references hereafter to the Exchange Ratio, outstanding shares
of Patriot Common Stock, per share amounts, market prices of Patriot Common
Stock and options to purchase shares of Patriot Common Stock give effect to
the 2-for-1 stock split. The number of outstanding OP Units of the Patriot
Partnership did not change in connection with the 2-for-1 stock split. The OP
Unit conversion factor, however, has been changed such that each OP Unit of
the Patriot Partnership subject to redemption will now be redeemed for cash
equal to
58
<PAGE>
the value of two shares of Patriot Common Stock (or, at Patriot's election,
Patriot may purchase each OP Unit of the Patriot Partnership offered for
redemption for two shares of Patriot Common Stock).
Patriot's principal executive office is located at 3030 LBJ Freeway, Suite
1500, Dallas, Texas 75234 and its telephone number is (972) 888-8000.
CAL JOCKEY
Cal Jockey operates as a REIT and is the owner of the Racecourse. The
Racecourse abuts the 101 Freeway which is the main thoroughfare between the
cities of San Jose and San Francisco. The principal Racecourse facilities,
which are leased to Bay Meadows, include: (i) the main one-mile dirt horse
race track with six furlongs and 1 1/4 mile chutes, inside of which is a seven
furlong turf course; (ii) the track's infield area, on which is situated a
nine hole par three golf course; (iii) a main structure which contains a
grandstand, a clubhouse and the Turf Club; (iv) a parking area; (v) the Stable
Area situated on approximately 38 acres and presently containing approximately
1,550 horse stalls; and (vi) the Training Track Area situated on approximately
40 acres adjacent to the Stable Area. In addition, Cal Jockey owns the Tennis
Club Parcel and an approximately 1 1/2 acre parcel that abuts a street known
as El Camino Real and is separated from the 175 acre site by railroad tracks.
Since 1983, shares of Cal Jockey Common Stock have been paired and trade
together with shares of Bay Meadows Common Stock as a single unit on the AMEX
pursuant to the Pairing Agreement. A diagram outlining the paired share
structure of Cal Jockey and Bay Meadows is set forth on page 62.
Pending Sales and Negotiations
In May 1995 and December 1995 Cal Jockey entered into agreements to sell the
Stable Area and the Training Track Area, respectively.
The Franklin Agreement contemplates the sale of the Stable Area for a
purchase price of approximately $21 million to Property Resources. In
addition, Property Resources is obligated to fund 44% of the cost of various
off-site improvements required by the City of San Mateo and the State of
California in connection with the Entitlements. Assuming all other conditions
precedent are satisfied or waived, it is contemplated that the sale would
close in the second quarter of 1998.
The Iaccoca Agreement contemplates the sale of the Training Track Area to
Airdial for a purchase price of approximately $31 million. In addition,
Airdial is obligated to fund 53% of the off-site improvements required by the
City of San Mateo and the State of California in connection with the
Entitlements for the development of the property. Closing of the transaction
is subject to a number of conditions precedent including Cal Jockey obtaining
from the City of San Mateo the necessary Entitlements to proceed with
development plans, together with a development agreement with the City of San
Mateo. If the conditions are satisfied or waived, it is contemplated that the
sale would close in Fall 1998.
The Proposed PaineWebber Land Sale will not affect the land sale
transactions contemplated by the Franklin Agreement and the Iacocca Agreement.
In connection with the Proposed PaineWebber Land Sale, New Patriot REIT
generally will assign all of its rights and benefits under the Franklin
Agreement and the Iacocca Agreement to an affiliate of PaineWebber (e.g., the
proceeds to be received in connection with such transaction) and the
PaineWebber affiliate generally will assume all of New Patriot REIT's
development obligations under the Franklin Agreement and the Iacocca
Agreement. See "--Surviving Companies--Proposed PaineWebber Land Sale."
The Public Storage Agreement contemplates the sale of the Tennis Club Parcel
to Public Storage, Inc. for $2.2 million. Public Storage, Inc. intends to
convert the property into mini-storage units. The sale of the Tennis Club
Parcel is subject to the various contingencies including approval by the City
of San Mateo of a rezoning of the property and, therefore, no assurance can be
given that such sale will be consummated.
59
<PAGE>
In November 1996, Cal Jockey entered into the Borders Lease. Effective
January 10, 1997, Borders assigned its rights under the Borders Lease to DCI,
which company will develop the property and sublease the land with its
improvements back to Borders. The Borders Lease covers 2.3 acres of land
formerly used by Bay Meadows as a parking lot and land adjacent to the parking
lot. The San Mateo Planning Commission voted to approve the development of a
Borders bookstore on the site on October 14, 1996. DCI has a building permit
and commenced construction in February 1997. The initial term of the Borders
Lease is 20 years with a fixed net annual rent of $278,500 for years 1 through
10, $362,050 for years 11 through 15 and $416,350 for years 16 through 20. The
Borders Lease has eight five-year renewal options with an annual Consumer
Price Index adjustment beginning in the fifth option term.
Lease of Horse Racing Facility
Cal Jockey leased substantially all of its real property assets to Bay
Meadows under the terms of a Master Lease Agreement, which expired on March
31, 1996 (the "Master Lease Agreement"). Under the terms of the expired Master
Lease Agreement, the annual rental was agreed to be the greater of $3 million
or an aggregate amount equal to specified components of pari-mutuel handle,
the net commissions received for exported horse races and imported horse races
and certain sublease income. Prior to the expiration of the Master Lease
Agreement, Cal Jockey and Bay Meadows had discussions regarding the extension
of the Master Lease Agreement. Cal Jockey and Bay Meadows have conflicting
views concerning the status of the Master Lease Agreement's extension. Cal
Jockey believes that no lease exists and that Bay Meadows is a tenant at will.
Bay Meadows believes that a new master lease agreement has been entered into
for the period ending March 31, 1999. These conflicting views regarding the
status of the Master Lease Agreement are not expected to have any impact on
the Merger and the Related Transactions because, following the closing of the
Merger, New Patriot REIT and New Patriot Operating Company are expected to
enter into a new sublease arrangement in connection with the Proposed
PaineWebber Land Sale. See "--Surviving Companies--Proposed PaineWebber Land
Sale."
Cal Jockey's principal executive offices are located at 2600 South Delaware
Street, P.O. Box 1117, San Mateo, California, 94403.
BAY MEADOWS
Bay Meadows is a gaming and entertainment company engaged primarily in the
business of conducting and offering pari-mutuel wagering on Thoroughbred horse
racing at the Racecourse. Additionally, Bay Meadows generates revenue by
acting as an off-track wagering facility, allowing patrons to wager on horse
races at other tracks even when live horse racing is not being conducted at
the Racecourse, by accepting simulcasts of horse races conducted throughout
the United States, Canada, Mexico, Australia and Hong Kong. In addition to
live horse racing at the Racecourse, Bay Meadows receives fees from
simulcasting its live horse races to as many as 31 sites in California and 450
sites in the remainder of the world. Bay Meadows also generates revenues from
admissions, parking, program sales and the food and beverage concessions at
the Racecourse, the operation of a nine-hole golf course on the infield of the
Racecourse and the operation of an indoor tennis facility near the Racecourse.
Bay Meadows faces significant competition for the sports and entertainment
dollar in the San Francisco bay area (the "Bay Area") because of the numerous
professional and amateur sporting events and other entertainment attractions
located in the Bay Area. Bay Meadows' revenues are subject to seasonal
variations depending on the scheduling of its live race meet.
Horse racing is highly regulated in California and Bay Meadows faces an
increasing number of limitations on how it conducts its Thoroughbred horse
racing operations. The scheduling, length and conduct of meets and the
distribution of the pari-mutuel purse is determined by California law and the
CHRB. To conduct a Thoroughbred horse racing meet and to act as a satellite
facility, Bay Meadows is required to secure, on an annual basis, a license
from the CHRB. California law permits a racing association in the Northern
California
60
<PAGE>
Racing Zone (such as Bay Meadows) to conduct no more than 22 weeks of live
horse racing each year. Bay Meadows or its predecessor has been granted an
annual license each year since 1934. The CHRB has granted Bay Meadows 104
horse racing days for the calendar year 1997 horse racing season. However, no
assurance can be given that New Patriot Operating Company will continue to
receive this annual license. See "Risk Factors--Horse Racing Industry Risks--
Regulation of Gaming Operations."
Since the sales of the Stable Area and the Training Track Area were
announced, Bay Meadows and Cal Jockey have been investigating and considering
various alternative stabling arrangements. Bay Meadows has publicly proposed a
plan for the construction of 900 stalls on the property being retained by Cal
Jockey. Any approval by Cal Jockey of the plan is contingent on the results of
the economic, environmental and other feasibility studies. Patriot has also
indicated its support for such plan. Finally, Property Resources, the
purchaser of the Stable Area and a prior opponent of on-site stabling, has
indicated its support for such plan. Implementation of the plan is subject to
a number of conditions including the arrangement of financing acceptable to
Patriot and the receipt of the requisite governmental approvals. Failure to
receive approval of the plan could have a material adverse effect on Bay
Meadows' racing operations. See "Risk Factors--Horse Racing Industry Risks--
Stable Area." Bay Meadows operates a nine-hole golf course which would be
eliminated if new stables are constructed as planned.
As described above, shares of Bay Meadows Common Stock are paired and trade
together with the shares of Cal Jockey Common Stock as a single unit on the
AMEX pursuant to the Pairing Agreement. A diagram outlining the paired share
structure of Cal Jockey and Bay Meadows is set forth on page 62.
The Bay Meadows Line of Credit from Bank of America expires on February 1,
1998 and bears interest at a rate publicly announced by the Bank of America
from time to time as its reference rate. The maximum amount available under
the Bay Meadows Line of Credit is $2.5 million. The Bay Meadows Line of Credit
is guaranteed by Cal Jockey and secured by a $2.5 million time deposit. As of
May 28, 1997, Bay Meadows had no outstanding borrowings under the Bay Meadows
Line of Credit.
Bay Meadows' principal executive office is located at 2600 South Delaware
Street, P.O. Box 5050, San Mateo, California 94402 and its phone number is
(415) 574-7223.
SURVIVING COMPANIES
General
Pursuant to the Merger, at the Effective Time, Patriot will merge with and
into Cal Jockey with Cal Jockey being the surviving company. By operation of
the Merger Agreement and the Subscription, the outstanding shares of Patriot
Common Stock will be exchanged for Paired Shares of Cal Jockey Common Stock
and Bay Meadows Common Stock. As a result of the Merger, Cal Jockey will
succeed to Patriot's partnership interests in the Patriot Partnership and Cal
Jockey will thereafter contribute certain of its assets to the Patriot
Partnership. Concurrently with these transactions, Bay Meadows will form the
New Patriot Operating Partnership into which assets of Bay Meadows will be
contributed. Upon completion of these transactions, Cal Jockey and Bay Meadows
will be the surviving entities each with a limited partnership subsidiary that
holds substantially all of its assets or conducts substantially all of its
operations and the existing independent limited partners will hold an equal
number of partnership units in the Patriot Partnership and the New Patriot
Operating Partnership. The stockholders of Cal Jockey, Bay Meadows and Patriot
will hold paired shares of the surviving entities. In connection with the
Merger and the Related Transactions, Cal Jockey will change its name to
"Patriot American Hospitality, Inc." and Bay Meadows will change its name to
"Patriot American Hospitality Operating Company."
61
<PAGE>
Set forth below are the current corporate structures of Patriot, Cal Jockey
and Bay Meadows:
[A GRAPHIC DEPICTION OF THE CURRENT CORPORATE STRUCTURE OF
PATRIOT AND ITS SUBSIDIARIES APPEARS HERE]
[A GRAPHIC DEPICTION OF THE CURRENT CORPORATE STRUCTURE OF
CAL JOCKEY AND BAY MEADOWS APPEARS HERE]
62
<PAGE>
Set forth below is the anticipated corporate structure of the surviving
companies and their limited partnership subsidiaries immediately following the
Merger:
[A GRAPHIC DEPICTION OF THE ANTICIPATED CORPORATE STRUCTURE OF THE
SURVIVING COMPANIES AND THEIR LIMITED PARTNERSHIP SUBSIDIARIES
IMMEDIATELY FOLLOWING THE MERGER APPEARS HERE]
Operations of New Patriot REIT and New Patriot Operating Company Following
the Merger
Following completion of the Merger and the Related Transactions, New Patriot
REIT and New Patriot Operating Company will continue the operations of
Patriot, Cal Jockey and Bay Meadows within the paired share ownership
structure. New Patriot REIT will own interests in 56 hotels in 22 states, with
an aggregate of 13,355 guest rooms. Additionally, Patriot has announced that
it has entered into contracts or letters of intent to purchase the Proposed
Acquisitions, comprised of fourteen hotels with an aggregate of 3,478 rooms
for a combined purchase price (excluding closing costs and other acquisition-
related expenses) of approximately $271.4 million. Additionally, Patriot has
entered into an agreement to acquire Grand Heritage Hotels, a hotel management
and marketing company, and other Grand Heritage subsidiaries including an
investment in one hotel property. The total acquisition price for the Grand
Heritage Acquisition (including the hotel management and marketing company) is
estimated to be approximately $25.25 million. The purchase of each of the
Proposed Acquisitions and the Grand Heritage Acquisition is subject to
satisfactory completion of various closing conditions, and no assurances can
be given that Patriot, New Patriot REIT or New Patriot Operating Company will
acquire any or all of the Proposed Acquisitions or the Grand Heritage
Acquisition. Assuming all of the Proposed Acquisitions are consummated, New
Patriot REIT's hotel portfolio will include 70 hotels, aggregating 16,833
rooms, representing a 300% increase in the size of New Patriot REIT's room
portfolio from Patriot's Initial Offering.
63
<PAGE>
Following the Merger, New Patriot REIT expects to terminate its current
leases with PAH RSI Lessee, a limited liability company owned by certain
executive officers of Patriot, relating to eight of its existing hotels and
nine hotels which are the subject of Proposed Acquisitions, and re-lease such
hotels to New Patriot Operating Company. The existing hotels to be re-leased
include the four Carefree Resorts acquired by Patriot in January 1997
(including The Boulders, The Lodge at Ventana Canyon, The Peaks Resort & Spa
and Carmel Valley Ranch Resort), the Radisson Hotel in Northbrook, Illinois,
the Luxeford Suites Hotel in Minneapolis, Minnesota, the Sheraton Park Place
Hotel in Minneapolis, Minnesota, and the Myrtle Beach Hilton Oceanfront Golf
Resort in Myrtle Beach, South Carolina, and the hotels to be re-leased which
are the subject of Proposed Acquisitions include the five Snavely Group
hotels, four of which are located in Cleveland, Ohio and one of which is
located in Akron, Ohio, and four Doubletree Hotels which are located in
Houston, Texas, Anaheim, California, Overland Park, Kansas and St. Louis,
Missouri. To re-lease the hotels leased to PAH RSI Lessee following the
Merger, New Patriot REIT anticipates that it will exercise its termination
rights under its leases with PAH RSI Lessee or otherwise seek to have New
Patriot Operating Company acquire such leaseholds, and New Patriot Operating
Company will offer to acquire the assets of PAH RSI Lessee, including the
inventory, trademarks and right to receive certain royalty fees, at the then
fair market value for such assets. The owners of PAH RSI Lessee will not,
however, be obligated to sell such assets. See "Risk Factors--Certain
Conflicts of Interest Relating to Patriot."
Following the Merger, New Patriot REIT may seek to restructure the Non-
Controlled Subsidiaries so that the Crowne Plaza Ravinia Hotel and the
Marriott WindWatch Hotel may be leased to New Patriot Operating Company and
certain non-leaseable assets relating to the Carefree Resorts may be sold to
New Patriot Operating Company. To effect such restructurings and asset sales,
New Patriot REIT will be required to obtain, along with any other third party
consents that may be required, the approval of those executive officers of
Patriot who have voting control over such Non-Controlled Subsidiaries. See
"Risk Factors--Risk of Investment in Subsidiaries Controlled by Other
Parties."
In connection with the Wyndham Transactions, the leases of two hotels (the
Wyndham Garden Hotel-Midtown and Wyndham Greenspoint Hotel) which are
currently leased to Crow Hotel Lessee, Inc. are expected to be terminated, and
such hotels are expected to be leased to New Patriot Operating Company
following consummation of the Proposed Wyndham Transactions.
With respect to Patriot's remaining hotels, there are no agreements
concerning when or if such hotels will be leased to New Patriot Operating
Company. Upon the expiration of the lease relating to each of these hotels,
New Patriot REIT currently intends to evaluate the individual circumstances of
such lease and decide whether to continue to lease such hotel to a Lessee or,
alternatively, to lease such hotel to New Patriot Operating Company.
Patriot believes that market conditions remain favorable for the acquisition
of additional hotels and hotel portfolios and it is expected that New Patriot
REIT will continue Patriot's aggressive acquisition activities. Additionally,
New Patriot Operating Company intend to explore opportunities to acquire hotel
operators, owners of hotel franchises or brands and independent hotel
management companies. Patriot's management believes that the paired share
structure will enhance opportunities for New Patriot REIT and New Patriot
Operating Company to consummate such acquisitions. No assurances can be given,
however, that New Patriot REIT will locate attractive acquisition
opportunities or that they will consummate such acquisitions. See "Risk
Factors--Hotel Industry Risks--Competition for Hotel Acquisition
Opportunities."
Proposed PaineWebber Land Sale
Patriot and PaineWebber have entered into an agreement pursuant to which an
affiliate of PaineWebber will purchase from New Patriot REIT following the
closing of the Merger substantially all of the land which is currently owned
by Cal Jockey, including the land subject to the Franklin Agreement and the
Iaccoca Agreement (but excluding the land subject to the Borders Lease), for a
purchase price of $78.05 million in cash. New Patriot REIT would retain
ownership of the improvements located on the land. Simultaneously with the
consummation of such purchase, the PaineWebber affiliate and New Patriot REIT
would enter into a ground lease covering that portion of the land on which the
Racecourse is situated for a term of seven years at an annual rental rate of
$3
64
<PAGE>
million for the first year of the lease, $3.25 million for the second year,
$3.5 million for the third year, $4 million for the fourth and fifth years and
$5 million for each remaining year during the term of the lease. New Patriot
REIT would then sublease the Racecourse land and the related improvements to
New Patriot Operating Company in order to permit New Patriot Operating Company
to continue horseracing operations at the Racecourse through the term of New
Patriot REIT's lease. In connection with the Proposed PaineWebber Land Sale,
New Patriot REIT would assign all of its rights and benefits under existing
leases (excluding the Borders Lease), contracts (including, but not limited
to, the Franklin Agreement, the Iacocca Agreement and the Public Storage
Agreement), permits and entitlements relating to the land owned by Cal Jockey
to the PaineWebber affiliate, and the PaineWebber affiliate would assume all
of New Patriot REIT's development obligations, including, but not limited to,
all obligations for on and off-site improvements and all obligations under
existing leases and contracts. Under the ground lease, New Patriot REIT would
be responsible for certain of the development obligations which relate to the
leased land as a racing facility, including the building of new stabling
facilities, which are currently estimated to cost between approximately $11
million and $13 million. The parties may have the option to renew such leases
upon their expiration under certain circumstances. There can be no assurance
that the Proposed PaineWebber Land Sale will be consummated.
Executive Officers and Directors
In connection with the consummation of the Merger, all of the current
directors and officers of Cal Jockey and Bay Meadows will resign. Thereafter,
the current directors of Patriot will become the directors of New Patriot REIT
and the executive officers of New Patriot REIT will be Paul A. Nussbaum who
will become Chairman of the Board of Directors, Chief Executive Officer and
President, William W. Evans III who will serve in the Office of the Chairman,
and Rex E. Stewart who will become Chief Financial Officer and Treasurer. The
current executive officers of Patriot (including Messrs. Nussbaum and Stewart)
will become the executive officers of New Patriot Operating Company and,
together with the directors of New Patriot Operating Company, will manage the
business and affairs of New Patriot Operating Company. For information
concerning these persons, see "Management of New Patriot REIT and New Patriot
Operating Company--New Patriot Operating Company." After consummation of the
Merger, it is expected that the current officers and employees of Bay Meadows
will continue to manage the company's horse racing operations through a
subsidiary of New Patriot Operating Company.
The Proposed Wyndham Transactions
On April 14, 1997, Patriot entered into the Wyndham Merger Agreement
pursuant to which Wyndham will merge with and into New Patriot REIT with New
Patriot REIT being the surviving company. As a result of the Wyndham Merger,
New Patriot REIT will acquire all of the assets and liabilities of Wyndham,
including Wyndham's portfolio of 23 owned and leased hotels with an aggregate
of 4,877 rooms, Wyndham's 64 managed and franchised properties throughout
North America, management and franchise agreements that have been executed for
15 properties that are currently closed for renovation or construction or are
in the process of being converted to the Wyndham brand and the proprietary
brand names Wyndham, Wyndham Garden and Wyndham Hotels & Resorts. Pursuant to
the Wyndham Merger Agreement, upon consummation of the Wyndham Merger each
issued and outstanding share of Wyndham Common Stock will be converted into
the right to receive 0.712 paired shares of New Patriot REIT Common Stock and
New Patriot Operating Companies Common Stock. The Wyndham Exchange Ratio is
subject to adjustment in the event that the Average Trading Price is less than
$42.13 per paired share. If the Average Trading Price is between $40.21 and
$42.13 per paired share, the Wyndham Exchange Ratio will be adjusted so that
each outstanding share of Wyndham Common Stock will be converted into the
right to receive a number of paired shares equal to $30.00 divided by the
Average Trading Price. If the Average Trading Price is less than $40.21 per
paired share, the Wyndham Exchange Ratio will be fixed at 0.746; however, in
such circumstances, Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. On May 28, 1997, the closing price
of the Paired Shares as reported on the AMEX was $41 1/2. In lieu of receiving
paired shares, Wyndham stockholders have the right to elect to receive cash in
an amount per share equal to the Wyndham Exchange Ratio (as it may be
adjusted) multiplied by the average closing price of the paired shares over
the five trading days immediately preceding the closing of the Wyndham Merger.
If stockholders holding shares of Wyndham Common Stock with a value in excess
of $100 million elect to receive cash, such cash will be allocated on a pro
rata basis among such stockholders. In connection with the
65
<PAGE>
Wyndham Merger, New Patriot REIT also will assume Wyndham's existing
indebtedness which is approximately $146 million as of May 28, 1997.
In connection with the execution of the Wyndham Merger Agreement, Patriot
also entered into agreements with partnerships affiliated with members of the
Trammell Crow family providing for the acquisition by New Patriot REIT of 11
full-service Wyndham-branded hotels with 3,072 rooms, located throughout the
United States, for approximately $331.7 million in cash, plus approximately
$14 million in additional consideration, if two hotels meet certain
operational targets. The Wyndham Merger and the Crow Acquisition, which are
expected to be consummated concurrently, are subject to various conditions
including, without limitation, consummation of the Merger and approval of the
Proposed Wyndham Transactions by the stockholders of New Patriot REIT, New
Patriot Operating Company and Wyndham. It is currently anticipated that the
stockholder meetings to approve the Proposed Wyndham Transactions will occur
in the fourth quarter of 1997. If the Proposed Wyndham Transactions are
approved and consummated, it is anticipated that the current stockholders of
Patriot would hold approximately 53.4% and the current stockholders of Cal
Jockey and Bay Meadows would hold in the aggregate approximately 13.4% of the
outstanding shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock following consummation of the Proposed Wyndham
Transactions (assuming no Wyndham stockholders exercise their cash election
rights in the Wyndham Merger). The pro forma combined assets of New Patriot
REIT and New Patriot Operating Company at March 31, 1997 assuming consummation
of the Proposed Wyndham Transactions would be approximately $2.6 billion of
which approximately 8.2% would be attributable to Cal Jockey and Bay Meadows,
approximately 46.0% would be attributable to Patriot and approximately 45.8%
would be attributable to Wyndham and partnerships associated with members of
the Trammell Crow family. In addition, the pro forma combined revenues of New
Patriot REIT and New Patriot Operating Company for the year ended December 31,
1996 and the three months ended March 31, 1997 assuming consummation of the
Proposed Wyndham Transactions would be approximately $583 million and $173
million, respectively, of which approximately 9.0% and 12.0%, respectively,
would be attributable to Cal Jockey and Bay Meadows, approximately 35.3% and
33.5%, respectively, would be attributable to Patriot and approximately 55.7%
and 54.5%, respectively, would be attributable to Wyndham and partnerships
associated with members of the Trammell Crow family. The Unaudited Pro Forma
Financial Statements set forth in this Joint Proxy Statement/Prospectus show
the effects of the Proposed Wyndham Transactions on New Patriot REIT and New
Patriot Operating Company. See "Unaudited Pro Forma Combined Financial
Statements." Certain material risks with respect to the Proposed Wyndham
Transactions also are set forth under "Risk Factors--Risks Relating to
Proposed Wyndham Transactions."
In connection with the consummation of the Proposed Wyndham Transactions,
certain changes will be made with respect to the officers and members of the
Boards of Directors of New Patriot REIT and New Patriot Operating Company.
Paul A. Nussbaum will remain Chairman and Chief Executive Officer of New
Patriot REIT and William W. Evans III, who currently serves in Patriot's
Office of the Chairman, will become President of New Patriot REIT replacing
Thomas W. Lattin who will become Executive Vice President--Property Management
for New Patriot Operating Company. James D. Carreker, Wyndham's Chairman and
Chief Executive Officer, will serve as Chairman and Chief Executive Officer of
New Patriot Operating Company, Rex E. Stewart, who currently serves as
Patriot's Chief Financial Officer and who will serve as Chief Financial
Officer of New Patriot REIT and New Patriot Operating Company following the
Merger, will remain as Chief Financial Officer of New Patriot Operating
Company and Anne L. Raymond, currently the Chief Financial Officer of Wyndham,
will serve as Chief Financial Officer of New Patriot REIT. It is also
anticipated that the Boards of Directors of New Patriot REIT and New Patriot
Operating Company will be reconstituted in connection with the consummation of
the Proposed Wyndham Transactions so that each Board of Directors will consist
of 11 members, including (i) two designees of Wyndham and one designee of the
Trammell Crow family to the New Patriot REIT Board of Directors and (ii) three
designees of Wyndham and one designee of the Trammell Crow family to the New
Patriot Operating Company Board of Directors. It is currently anticipated that
Harlan R. Crow will serve as the Trammell Crow family's representative on the
New Patriot REIT Board of Directors. The remaining members for each Board of
Directors will be selected by New Patriot REIT and will include members of
Patriot's existing Board of Directors as well as additional persons to be
selected prior to the
66
<PAGE>
Wyndham Merger. Paul A. Nussbaum and James D. Carreker (who will be one of the
Wyndham designees) will serve as directors of both New Patriot REIT and New
Patriot Operating Company and a majority of the directors of each company will
not serve as directors of the other company.
Other Recent Developments
As described above, Patriot has entered into contracts or letters of intent
to purchase the properties comprising the Proposed Acquisitions for an
aggregate purchase price (excluding closing costs and other acquisition-
related expenses) of approximately $271.4 million. The consummation of each of
the Proposed Acquisitions is subject to satisfactory completion of a number of
contingencies including, among other things, the satisfactory completion of
Patriot's due diligence investigation of the transactions and the negotiation
of definitive acquisition agreements. No assurances can be given that Patriot,
New Patriot REIT or New Patriot Operating Company will acquire any or all of
the Proposed Acquisitions. The Proposed Acquisitions include:
. Union Station Hotel. The 124-room Union Station Hotel in Nashville,
Tennessee for a purchase price in cash and OP Units of the Patriot
Partnership of approximately $9.6 million.
. Doubletree Hotels. Four Doubletree Hotels in Houston, Texas, Anaheim,
California, St. Louis, Missouri and Overland Park, Kansas, with an
aggregate of 1,483 rooms, for an aggregate purchase price of approximately
$147.2 million in cash and OP Units of the Patriot Partnership. These
hotels will be acquired by a partnership owned 85% by Patriot and 15% by an
affiliate of Doubletree.
. Snavely Joint Venture. Four hotels to be purchased by Patriot through
joint ventures with the Snavely Group, a Cleveland developer, including the
Holiday Inn Westlake, the Radisson Beachwood and the Courtyard by Marriott
Beachwood, all of which are located in Cleveland, Ohio, and the Radisson
Hotel in Akron, Ohio, and one hotel, the Holiday Inn Beachwood in
Cleveland, Ohio, to be purchased by Patriot directly, with an aggregate of
878 rooms, for an aggregate purchase price of approximately $65.5 million
in cash.
. Holiday Inn and Ramada Inn. The Holiday Inn and the Ramada Inn at the
San Francisco International Airport with an aggregate of 547 rooms, for an
aggregate purchase price of approximately $36.5 million in cash, and a
leasehold interest, in the case of the Ramada Inn only, and the assumption
of indebtedness.
. Ambassador West Hotel. The 219-room Ambassador West Hotel in Chicago,
Illinois for a purchase price of approximately $15.75 million in cash.
. Park Shore Hotel. The 227-room Park Shore Hotel in Honolulu, Hawaii for
a purchase price of approximately $24 million in cash.
Additionally, Patriot has entered into an agreement to acquire Grand
Heritage Hotels, a hotel management and marketing company, and other Grand
Heritage subsidiaries including an investment in the Broadview Hotel in
Wichita, Kansas. The total acquisition price for the Grand Heritage
Acquisition (including the hotel management and marketing company) is
estimated to be approximately $25.25 million. The consummation of the Grand
Heritage Acquisition is subject to satisfactory completion of a number of
contingencies including, among other things, the satisfactory completion of
Patriot's due diligence investigation of the transactions, the consummation of
the Merger, the completion of the acquisition of, or financing for, the
Ambassador West Hotel, the Union Station Hotel, the Broadview Hotel and the
Holiday Inn Redmont Hotel and the negotiation of a definitive acquisition
agreement. No assurances can be given that Patriot, New Patriot or New Patriot
Operating Company will consummate the Grand Heritage Acquisitions.
Patriot has agreed in principle to loan an aggregate of $103 million to
partnerships affiliated with the members of CHC Lease Partners to enable such
partnerships to refinance existing indebtedness relating to four hotels, the
Sheraton Grand Hotel in Tampa, the Sheraton Gateway Hotel in Miami (also known
as the River House Hotel), the Grand Bay Hotel in Miami, and the Doubletree
Hotel in Glenview, Illinois. The loans would mature in two years, bear
interest at a rate per annum equal to 30-day LIBOR plus 2.75%, and would be
secured by first priority liens on the assets of the respective partnerships,
including first mortgages on the hotels. There can be no assurance as to
whether this agreement in principle to make such loans will lead to definitive
loan documents or on what terms said loans will be made.
67
<PAGE>
Set forth below is a property chart which contains certain information
concerning the hotels in which New Patriot REIT will hold interests following
the consummation of the Merger:
<TABLE>
<CAPTION>
NUMBER OF
GUEST YEAR BUILT/
OWNED HOTELS LOCATION ROOMS RENOVATED
------------ -------------------------- --------- -----------
<S> <C> <C> <C>
Full Service Hotels:
Bourbon Orleans Hotel.. New Orleans, LA 216 1800s/1995
Crowne Plaza Ravinia... Atlanta, GA 495 1986/1997
Del Mar Hilton......... Del Mar (San Diego), CA 245 1989
Doubletree Allen
Center................. Houston, TX 341 1978/1984
Doubletree Hotel....... Westminster (Denver), CO 180 1980/1992
Doubletree Hotel....... Tallahassee, FL 244 1977/*
Doubletree Hotel....... Tulsa, OK 417 1982
Embassy Suites......... Hunt Valley, MD 223 1985/1995
Fairmount Hotel........ San Antonio, TX 37 1906/1994
Four Points by
Sheraton............... Saginaw, MI 156 1984
Hilton Cleveland
South.................. Independence, OH 191 1980/1994
Hilton Inn Myrtle
Beach.................. Myrtle Beach, SC 385 1974
Holiday Inn............ Des Plaines (Chicago), IL 242 1969/*
Holiday Inn
Aristocrat............. Dallas, TX 172 1925/1994
Holiday Inn Crockett... San Antonio, TX 206 1909/1996
Holiday Inn Miami
Airport Lakes.......... Miami, FL 264 1975/*
Holiday Inn Northwest
Plaza.................. Austin, TX 193 1984/1994
Holiday Inn Northwest.. Houston, TX 193 1982/1994
Holiday Inn............ San Angelo, TX 148 1984/1994
Holiday Inn Lenox...... Atlanta, GA 297 1987/1995
Holiday Inn Select..... Farmers Branch (Dallas),TX 374 1979/1994
Holiday Inn............ Sebring, FL 148 1983/1995
Holiday Inn Redmont
Hotel.................. Birmingham, AL 112 1925/1991
Hyatt Newporter........ Newport Beach, CA 410 1962
Hyatt Regency.......... Lexington, KY 365 1977/1992
Luxeford Suites Hotel.. Minneapolis, MN 230 1986
Marriott Hotel......... Troy, MI 350 1990
Marriott WindWatch
Hotel.................. Long Island, NY 360 1989
The Mayfair Hotel...... St. Louis, MO 182 1925/1990
Radisson Suites Town &
Country................ Houston, TX 173 1986/1992
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
--------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
REVENUE PER
AVERAGE AVAILABLE
TOTAL AVERAGE DAILY RATE ROOM
OWNED HOTELS REVENUE OCCUPANCY (ADR) (REVPAR)
------------ ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
Full Service Hotels:
Bourbon Orleans Hotel.. $ 8,248 83.3% $ 120.17 $ 100.16
Crowne Plaza Ravinia... 24,230 71.0 119.74 85.05
Del Mar Hilton......... 8,204 69.8 84.50 58.99
Doubletree Allen
Center................. 13,207 66.6 91.82 61.13
Doubletree Hotel....... 5,566 73.4 73.99 54.28
Doubletree Hotel....... 3,816 59.4 47.73 28.37
Doubletree Hotel....... 10,699 68.7 63.03 43.29
Embassy Suites......... 6,358 71.8 84.07 60.38
Fairmount Hotel........ 2,838 77.6 144.71 112.32
Four Points by
Sheraton............... 3,980 70.5 62.95 44.38
Hilton Cleveland
South.................. 8,117 69.2 86.34 59.74
Hilton Inn Myrtle
Beach.................. 14,722 69.2 88.62 61.33
Holiday Inn............ 5,144 81.4 56.67 46.10
Holiday Inn
Aristocrat............. 4,881 69.7 88.10 61.45
Holiday Inn Crockett... 5,090 65.1 85.43 55.64
Holiday Inn Miami
Airport Lakes.......... 4,393 54.5 71.43 38.91
Holiday Inn Northwest
Plaza.................. 6,222 79.6 83.75 66.55
Holiday Inn Northwest.. 3,046 62.7 54.69 34.31
Holiday Inn............ 3,124 71.3 60.54 43.15
Holiday Inn Lenox...... 7,891 68.2 88.95 60.63
Holiday Inn Select..... 10,271 69.4 75.06 52.08
Holiday Inn............ 2,510 55.2 57.78 31.91
Holiday Inn Redmont
Hotel.................. 1,735 53.2 58.45 31.07
Hyatt Newporter........ 19,931 74.6 98.54 73.50
Hyatt Regency.......... 12,457 63.2 84.12 53.17
Luxeford Suites Hotel.. 6,084 68.7 77.31 53.12
Marriott Hotel......... 18,815 78.2 109.41 85.61
Marriott WindWatch
Hotel.................. 18,939 75.5 104.00 78.49
The Mayfair Hotel...... 4,318 57.7 89.53 51.64
Radisson Suites Town &
Country................ 4,422 70.1 83.08 58.27
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
-------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
REVENUE PER
NUMBER OF AVERAGE AVAILABLE
GUEST YEAR BUILT/ TOTAL AVERAGE DAILY RATE ROOM
OWNED HOTELS LOCATION ROOMS RENOVATED REVENUE OCCUPANCY (ADR) (REVPAR)
------------ ------------------- --------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Radisson Hotel &
Suites................ Dallas, TX 198 1986/1994 $ 5,278 72.4% $ 76.53 $ 55.43
Radisson Northbrook.... Northbrook, IL 313 1976/1994 6,783 67.6 67.87 45.89
Radisson New Orleans
Hotel................. New Orleans, LA 759 1924/1995 20,720 68.1 81.08 55.17
Radisson Overland
Park.................. Overland Park, KS 190 1974 4,507 67.0 67.62 45.29
Sheraton Park Place.... Minneapolis, MN 298 1981 10,868 76.0 69.20 52.59
Tremont House.......... Boston, MA 288 1925/* 10,318 75.2 102.36 76.96
The Tutwiler........... Birmingham, AL 147 1913/1986 4,084 67.8 101.43 68.77
WestCoast Valley River
Inn................... Eugene, OR 257 1973 9,963 67.9 88.76 60.24
WestCoast Wenatchee
Center Hotel.......... Wenatchee, WA 147 1988/1994 4,229 64.1 59.19 37.94
WestCoast Gateway...... Seattle, WA 145 1990 2,726 83.4 55.55 46.31
WestCoast Hotel &
Marina................ Long Beach, CA 192 1978/* 2,934 44.7 58.17 25.98
West Coast Pickwick
Hotel................. San Francisco, CA 189 1928/* 3,411 60.8 71.51 43.50
WestCoast Plaza Park
Suites................ Seattle, WA 193 1990 6,479 73.3 114.38 83.83
WestCoast Roosevelt
Hotel................. Seattle, WA 152 1929/1987 4,102 73.8 92.38 68.19
Wyndham Garden Hotel--
Midtown............... Atlanta, GA 191 1987/1994 7,475 72.8 93.67 68.20
Wyndham Greenspoint
Hotel................. Houston, TX 472 1985/1995 19,063 72.6 85.60 62.13
Limited Service Hotels:
Hampton Inn
Jacksonville Airport.. Jacksonville, FL 113 1985 2,165 85.9 58.53 50.26
Hampton Inn............ Rochester, NY 113 1986 2,202 76.9 67.13 51.64
Hampton Inn Cleveland
Airport............... North Olmsted, OH 113 1986 1,968 73.5 62.85 46.18
Hampton Inn............ Canton, OH 108 1985 1,535 68.5 54.19 37.14
Conference Center:
Peachtree Conference Peachtree City
Center................ (Atlanta), GA 250 1984/* 15,086 59.3 117.28 69.52
Resorts:
Carmel Valley Ranch+... Carmel, CA 100 1987 15,971 76.2 235.80 179.63
The Boulders+.......... Scottsdale, AZ 160 1985 54,390 78.7 333.14 262.33
The Lodge at Ventana
Canyon+............... Tucson, AZ 49 1985/1995 12,698 68.0 184.85 125.67
The Peaks Resort and
Spa+.................. Telluride, CO 177 1992/1993 19,774 57.6 221.26 127.36
The Registry Resort &
Spa................... Ft. Lauderdale, FL 492 1981/* 18,273 51.2 92.50 47.33
</TABLE>
- ------
* This hotel is currently undergoing renovations.
+ Each of these resorts is branded as a Carefree Resort.
69
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1996
-------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT ADR AND REVPAR)
REVENUE PER
NUMBER OF AVERAGE AVAILABLE
GUEST YEAR BUILT/ TOTAL AVERAGE DAILY RATE ROOM
PROPOSED ACQUISITIONS LOCATION ROOMS RENOVATED REVENUE OCCUPANCY (ADR) (REVPAR)
--------------------- ------------------- --------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Union Station.......... Nashville, TN 124 1986 $ 3,571 56.1% $ 94.44 $ 52.99
Park Shore Honolulu.... Honolulu, HI 227 1968 7,419 82.8 74.54 61.70
Holiday Inn............ San Francisco, CA 224 1964 7,636 87.3 72.95 63.72
Ramada................. San Francisco, CA 323 1962 7,419 82.8 74.54 61.70
Snavely Holiday Inn
Westlake............... Beachwood, OH 266 1980 8,052 75.0 72.01 54.04
Snavely Marriott
Courtyard.............. Beachwood, OH 113 1986 3,159 83.8 80.44 67.44
Snavely Radisson....... Beachwood, OH 196 1968 5,634 80.6 69.73 56.19
Snavely Holiday Inn.... Beachwood, OH 173 1974 2,809 73.7 80.96 59.68
Snavely Radisson....... Akron, OH 130 1989 2,982 68.8 72.79 50.11
Ambassador West........ Chicago, IL 219 1924 8,146 66.2 106.11 70.28
Doubletree--St. Louis.. Chesterfield, MO 223 1984 12,341 74.3 90.76 67.45
Doubletree--Post Oak... Houston, TX 449 1982 19,942 72.2 94.17 67.98
Doubletree--Anaheim.... Orange, CA 454 1984 13,473 70.3 69.54 48.88
Doubletree--Overland
Park................... Overland Park, KS 357 1982/1992 14,572 75.1 88.10 66.18
Broadview Hotel........ Wichita, KS 235 1922/1985 2,465 28.9 62.34 18.03
Wyndham Hotel
Corporation Hotels:
Wyndham Garden Hotel... Brookfield, WI 178 1990 4,605 65.9 75.18 49.52
Wyndham Garden Hotel... Charlotte, NC 173 1989 4,854 71.1 77.13 54.85
Wyndham Garden Hotel... Commerce, CA 201 1991 6,391 62.1 84.83 52.66
Wyndham Garden Hotel... Indianapolis, IN 171 1990 4,779 71.3 74.37 53.01
Wyndham Garden Hotel... Schaumburg, IL 188 1986 4,983 70.0 79.66 55.74
Wyndham Garden Hotel... Overland Park, KS 181 1972 3,663 72.6 52.53 38.12
Wyndham Garden
Vinings................ Atlanta, GA 159 1986 5,581 67.2 97.47 65.51
Toronto,
Wyndham Bristol Place.. Ontario, Canada 287 1974 10,480 70.2 76.15 53.42
Rose Hall Resort....... Montego Bay,Jamaica 489 1968 16,508 55.8 86.86 48.46
Market Center Dallas
Quality Inn............ Dallas, TX 230 1970 2,479 35.2 55.50 19.52
Crow Family Hotels++:
Wyndham Bel Age........ Los Angeles, CA 199 1984 14,818 77.3 140.17 108.29
Wyndham Franklin
Plaza.................. Philadelphia, PA 758 1979 33,368 74.0 96.28 71.28
Wyndham Milwaukee
Center................. Milwaukee, WI 221 1988 10,860 75.4 99.88 75.26
Wyndham Northwest
Chicago................ Chicago, IL 408 1983 23,252 67.8 102.85 69.74
Wyndham Hotel.......... Palm Springs, CA 410 1987 13,103 56.7 95.07 53.89
Wyndham Riverfront
Hotel.................. New Orleans, LA 202 1996 4,133 54.4 124.92 67.90
Wyndham Las Colinas.... Dallas, TX 168 1986 5,740 72.6 100.47 72.95
Wyndham Novi........... Detroit, MI 148 1988 4,308 75.9 74.83 56.77
Wyndham Garden Hotel... Pleasanton, CA 171 1985 4,659 73.5 82.62 60.71
Wyndham Wood Dale...... Chicago, IL 162 1986 5,282 71.4 86.76 61.97
</TABLE>
- ----
++ During 1996 the LaGuardia Airport Hotel was closed for renovation and as a
result the hotel reported no historical results of operations for 1996 and
therefore has been excluded from this chart.
70
<PAGE>
New Credit Facility
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase regarding expanding and replacing the Line of Credit with the New
Credit Facility which Patriot expects will have availability of up to
approximately $1.2 billion. The New Credit Facility will consist of a three-
year $700 million unsecured revolving line of credit and a 60-month $500
million term loan. It is anticipated that the term loan portion of the New
Credit Facility will be secured by specific assets and properties of Patriot
(and following the Merger, the assets and properties of New Patriot REIT and
New Patriot Operating Company) that will be transferred to a special purpose
"bankruptcy remote" entity. The revolving line of credit will be used for the
acquisition of additional properties, business and other assets, for capital
expenditures and for general working capital purposes. The term loan will be
used to finance payments to be made in connection with the Proposed Wyndham
Transactions and the acquisition of certain other properties. The interest
rates for the New Credit Facility are proposed to be as follows: (i) the
revolving line of credit will have an interest rate per annum ranging from
LIBOR plus 1.50% to 2.00% (depending on Patriot's leverage ratio) or the
customary alternate base rate announced from time to time (the "Alternate Base
Rate") plus 0.0% to 0.50% (depending on Patriot's leverage ratio), at the
election of the borrower, and (ii) the term loan will have an interest rate
per annum equal to LIBOR plus 1.75%. While negotiations concerning the New
Credit Facility are ongoing, there can be no assurance that such a credit
facility will be obtained, or if obtained, when it will become effective or
available or what the specific terms of such credit facility will be.
DESCRIPTION OF THE PARTNERSHIP AGREEMENTS
PATRIOT PARTNERSHIP
Patriot owned an approximate 83.7% interest in the Patriot Partnership as of
May 28, 1997. The Patriot Partnership owns, directly or through subsidiaries,
all of Patriot's interests in its hotels and leases all but two of such hotels
to the Lessees. Patriot holds its interest in the Patriot Partnership through
two wholly-owned subsidiaries, PAH GP and PAH LP. PAH GP is the sole general
partner of the Patriot Partnership and owns a 1.0% general partnership
interest in the Patriot Partnership. Through PAH GP, Patriot controls the
Patriot Partnership and its assets. PAH LP is one of the Patriot Partnership's
limited partners (the "Patriot Limited Partners") and owns an approximate
82.7% limited partnership interest in the Patriot Partnership. In their
capacity as such, the Patriot Limited Partners have no authority to transact
business for, or participate in the management, activities or decisions of,
the Patriot Partnership. To satisfy certain REIT requirements in connection
with the Merger, Patriot will liquidate PAH GP and PAH LP and New Patriot REIT
will form two new qualified REIT subsidiaries to hold Patriot's general
partnership interest and limited partnership interests in the Patriot
Partnership. The following is a summary of the material terms of the
partnership agreement of the Patriot Partnership (the "Patriot Partnership
Agreement").
Voting Rights
Under the Patriot Partnership Agreement, the Patriot Limited Partners do not
have voting rights relating to the operation and management of the Patriot
Partnership except in connection with certain amendments to the Patriot
Partnership Agreement. Amendments to the Patriot Partnership Agreement may be
made by the Patriot Partnership's general partner (the "Patriot General
Partner").
Transferability of Interests
PAH GP and PAH LP may not voluntarily withdraw from the Patriot Partnership
or transfer or assign their interests in the Patriot Partnership unless the
transaction in which such withdrawal or transfer occurs results in receipt of
Redemption Rights (as hereinafter defined) by the Patriot Limited Partners'
(other than PAH LP) immediately prior to such transaction, or unless the
successors to PAH GP and PAH LP contribute substantially all of their assets
to the Patriot Partnership in return for an interest in the Patriot
Partnership. Except in limited
71
<PAGE>
circumstances (including a merger involving Patriot), a person may not be
admitted as a substitute or successor general partner unless a majority-in-
interest of the Patriot Limited Partners (other than PAH LP) consent in
writing to the admission of such substitute or successor general partner,
which consent may be withheld at the sole discretion of such Patriot Limited
Partners.
Following the consummation of the Merger and the Related Transactions, the
Patriot Partnership Agreement will be amended to prohibit the transfer of OP
Units other than in certain specified transactions in order to enable the
Patriot Partnership to quality for a safe harbor from treatment as a "publicly
traded partnership." A person to whom an OP Unit has been assigned or
transferred shall not be admitted as a Patriot Limited Partner without the
written consent of the Patriot General Partner, which consent may be withheld
at the sole discretion of the Patriot General Partner.
Issuance of Additional Units
The Patriot Partnership is authorized to issue limited partnership units and
other partnership interests to its partners or to other persons for such
consideration and on such terms and conditions as the Patriot General Partner,
at its sole discretion, may deem appropriate.
Redemption Rights
Pursuant to the Patriot Partnership Agreement, the Patriot Limited Partners,
other than PAH LP, have redemption rights which, subject to certain
limitations, enable them to cause the Patriot Partnership to redeem each
Patriot OP Unit for cash equal to the value of two shares of Patriot Common
Stock or, at Patriot's election, Patriot may purchase each Patriot OP Unit
offered for redemption for two shares of Patriot Common Stock (the "Redemption
Rights").
Following the consummation of the Merger and the Related Transactions, the
Patriot Partnership Agreement will be amended to provide that for Patriot
Limited Partners to redeem their OP Units of the Patriot Partnership, they
must also redeem an equivalent number of OP Units of the New Patriot Operating
Partnership. In addition, to enable the Patriot Partnership to quality for a
safe harbor from treatment as a "publicly traded partnership," the existing
redemption rights of the Patriot Limited Partners will be limited.
Upon the redemption of each OP Unit of the Patriot Partnership and OP Unit
of the New Patriot Operating Partnership, the redeeming Patriot Limited
Partner shall receive cash equal to the value of a paired share of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock; provided
that New Patriot REIT and New Patriot Operating Company may elect to purchase
each tendered OP Unit of the Patriot Partnership and OP Unit of the New
Patriot Operating Partnership in exchange for a paired share of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock.
Management Liability and Indemnification
The Patriot Partnership Agreement generally provides that the Patriot
General Partner will incur no liability to the Patriot Partnership or any
Patriot Limited Partner for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the Patriot General
Partner acted in good faith. In addition, the Patriot General Partner is not
responsible for any misconduct or negligence on the part of its agents
provided the Patriot General Partner appointed such agents in good faith. The
Patriot Partnership Agreement also provides for indemnification of the Patriot
General Partner, PAH LP, Patriot, their respective directors and officers, and
such other persons as the Patriot 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 Patriot Partnership in
which such person may be involved.
72
<PAGE>
Amendment
The Patriot General Partner may amend the Patriot Partnership Agreement
without the consent of the Patriot Limited Partners, except to the extent that
certain amendments that would, among other things, adversely affect the rights
of any Patriot Limited Partner to receive distributions, alter the allocation
of profits or losses to the Patriot Limited Partners, affect the Redemption
Rights (except as permitted in connection with a merger or similar transaction
or to prevent the Patriot Partnership from being treated as a publicly traded
partnership) in a manner adverse to the Patriot Limited Partners, or impose on
the Patriot Limited Partners any obligation to make additional capital
contributions, require the consent of Patriot Limited Partners (other than PAH
LP) holding more than 50% of the interests of Patriot Limited Partners (other
than PAH LP). In connection with the consummation of the Merger, the Patriot
Partnership Agreement will be amended to, among other things, substitute the
Patriot General Partner, permit disproportionate like-kind distributions,
restrict the transfer of OP Units and modify the Redemption Rights in the
manner described above. Because none of these amendments fall within the
matters requiring approval of Patriot Limited Partners which are set forth in
the first sentence of this paragraph, the Patriot General Partner may adopt
such amendments without the approval or consent of the Patriot Limited
Partners.
Management Fees and Expenses
In addition to the administrative and operating costs and expenses incurred
by the Patriot Partnership, the Patriot Partnership will pay all
administrative costs and expenses of Patriot, PAH GP and PAH LP (the "Patriot
Expenses") and the Patriot Expenses will be treated as expenses of the Patriot
Partnership. Patriot Expenses generally will include (i) all expenses relating
to the formation and continuity of existence of Patriot, PAH GP and PAH LP,
(ii) all expenses relating to the public offering and registration of
securities by Patriot, (iii) all expenses associated with the preparation and
filing of any periodic reports by Patriot under federal, state or local laws
or regulations, (iv) all expenses associated with compliance by Patriot, PAH
GP and PAH LP with laws, rules and regulations promulgated by any regulatory
body and (v) all other operating or administrative costs of PAH GP incurred in
the ordinary course of its business on behalf of the Patriot Partnership.
Patriot Expenses, however, will not include any administrative and operating
costs and expenses incurred by Patriot that are attributable to hotel
properties or partnership interests in a subsidiary partnership that are owned
by Patriot directly.
Distributions and Allocations
The Patriot Partnership Agreement provides that the Patriot Partnership will
distribute cash from operations (including net sale or refinancing proceeds,
but excluding net proceeds from the sale of the Patriot Partnership's property
in connection with the liquidation of the Patriot Partnership) on a quarterly
(or, at the election of the Patriot General Partner, more frequently) basis,
in amounts determined by the Patriot General Partner in its sole discretion,
to the partners in accordance with their respective percentage interests in
the Patriot Partnership, subject to the terms of the preferred OP Units (the
"Preferred OP Units"). Upon liquidation of the Patriot Partnership, after
payment of, or adequate provision for, debts and obligations of the Patriot
Partnership, including any partner loans, any remaining assets of the Patriot
Partnership will be distributed to all partners with positive capital accounts
in accordance with their respective positive capital account balances. If the
General Partner has a negative balance in its capital account following a
liquidation of the Patriot Partnership, it will be obligated to contribute
cash to the Patriot Partnership equal to the negative balance in its capital
account.
Profit and loss of the Patriot Partnership for each fiscal year of the
Patriot Partnership generally will be allocated among the partners in
accordance with their respective interests in the Patriot Partnership. Taxable
income and loss will be allocated in the same manner, subject to compliance
with the provisions of Code sections 704(b) and 704(c) and Treasury
Regulations promulgated thereunder.
73
<PAGE>
Term
The Patriot Partnership will continue until December 31, 2050, or until
sooner dissolved upon (i) the bankruptcy, dissolution or withdrawal of the
Patriot General Partner (unless the Patriot Limited Partners elect to continue
the Patriot Partnership), (ii) the sale or other disposition of all or
substantially all of the assets of the Patriot Partnership, (iii) the
redemption of all limited partnership interests in the Patriot Partnership
(other than those held by PAH LP), or (iv) the election by the Patriot General
Partner.
Tax Matters
Pursuant to the Patriot Partnership Agreement, the Patriot General Partner
will be the tax matters partner of the Patriot Partnership and, as such, will
have authority to handle tax audits and to make tax elections under the Code
on behalf of the Patriot Partnership.
Preferred OP Units
As of May 28, 1997 the Patriot Partnership had issued 662,391 Preferred OP
Units. The Preferred OP Units pay distributions equal to 103% of the current
annual dividend paid on the outstanding Patriot Common Stock, subject to
increase or decrease by the dollar amount of any increase or decrease in the
dividend paid on the Patriot Common Stock. In addition, if, for any taxable
year of the Patriot Partnership ending on or before December 31, 1998, that
portion of the Preferred OP Units holder's distributive share of Patriot
Partnership taxable income which consists of "unrelated business taxable
income" as defined in section 512(a)(1) of the Code ("UBTI") exceeds 20% (any
such excess, the "Excess UBTI"), then the Preferred OP Unit holder will be
entitled to an additional distribution (the "UBTI Adjuster") from the Patriot
Partnership with respect to such taxable year equal to the product of (i) the
Excess UBTI multiplied by (ii) the federal tax rate applicable to the Excess
UBTI. Prior to the third anniversary of issuance, the Preferred OP Units
generally will not be convertible into Patriot Common Stock, except under
certain limited circumstances. On or after the third anniversary of issuance,
the holders may exchange one Preferred OP Unit for two shares of Patriot
Common Stock (after consummation of the Merger, one Preferred OP Unit may be
exchanged for one share of New Patriot REIT Common Stock and one share of New
Patriot Operating Company Common Stock), subject to adjustment and to an
ownership limitation of 4.9% of all outstanding Patriot Common Stock. After
the tenth anniversary of issuance, Patriot may exchange the Preferred OP Units
for shares of Patriot Common Stock. The foregoing exchange rights are in lieu
of the conversion rights in the Patriot Partnership Agreement, which are not
applicable to the Preferred OP Units, with the exception of the anti-dilution
provisions.
NEW PATRIOT OPERATING PARTNERSHIP
The partnership agreement of the New Patriot Operating Partnership will not
contain any terms which are materially different from the terms of the Patriot
Partnership Agreement, although preferred partnership units will not carry a
UBTI Adjuster.
74
<PAGE>
THE MEETINGS OF STOCKHOLDERS
CAL JOCKEY SPECIAL MEETING
The Cal Jockey Special Meeting will be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 10:15 a.m., Pacific time. At the Cal Jockey Special Meeting, holders
of shares of Cal Jockey Common Stock will consider and vote upon the Merger
Proposal and the Cal Jockey Charter and Bylaw Amendment Proposal. Each of the
Merger Proposal and the Cal Jockey Charter and Bylaw Amendment Proposal must
be approved by the holders of a majority of the outstanding shares of Cal
Jockey Common Stock. Holders of Cal Jockey Common Stock are entitled to one
vote per share. At the present time, it is not anticipated that any other
matters will be brought before the Cal Jockey Special Meeting for
consideration and vote by holders of shares of Cal Jockey Common Stock,
including, without limitation, any motion to adjourn such meeting. In the
event of any vote to adjourn the Cal Jockey Special Meeting in order to allow
Cal Jockey to solicit votes in favor of the Merger Proposal, proxies voting
AGAINST the Merger Proposal will be voted AGAINST the motion to adjourn the
Cal Jockey Special Meeting.
Cal Jockey has fixed the close of business on May 16, 1997 as the Cal Jockey
Record Date for determining holders entitled to notice of and to vote at the
Cal Jockey Special Meeting. Only holders of shares of Cal Jockey Common Stock
at the close of business on the Cal Jockey Record Date will be entitled to
notice of and to vote at the Cal Jockey Special Meeting. As of the Cal Jockey
Record Date, there were outstanding and entitled to vote 5,763,257 shares of
Cal Jockey Common Stock. As of the Cal Jockey Record Date, directors and
executive officers of Cal Jockey and their affiliates who own collectively
162,022 shares (representing 2.8% of the outstanding shares) have indicated
that they intend to vote all of their shares of Cal Jockey Common Stock to
approve the Merger Proposal and the Cal Jockey Charter and Bylaw Amendment
Proposal.
All shares of Cal Jockey Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF CAL JOCKEY COMMON STOCK WILL BE VOTED IN FAVOR
OF THE MERGER PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL. A stockholder who has given a proxy may revoke it at any time prior
to its exercise by giving written notice thereof to the Secretary of Cal
Jockey, by signing and returning a later-dated proxy or by voting in person at
the Cal Jockey Special Meeting; however, mere attendance at the Cal Jockey
Special Meeting will not in and of itself have the effect of revoking the
proxy.
Votes cast by proxy or in person at the Cal Jockey Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Cal Jockey Common Stock entitled to vote at the Cal
Jockey Special Meeting is necessary to constitute a quorum at the Cal Jockey
Special Meeting. Abstentions and broker non-votes will be treated as shares
that are present at the Cal Jockey Special Meeting for purposes of determining
whether a quorum exists. To be approved, the Merger Proposal and the Cal
Jockey Charter and Bylaw Amendment Proposal must receive the affirmative vote
of the holders of a majority of the issued and outstanding shares of Cal
Jockey Common Stock entitled to vote thereon. Abstentions and broker non-votes
will have the effect of votes against the approval of the Merger Proposal and
the Cal Jockey Charter and Bylaw Amendment Proposal.
Although each of the Proposals will be voted on and tabulated separately,
under the Merger Agreement it is a condition to the obligation of each of
Patriot, Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions that each of the Proposals be approved. BECAUSE EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE
RELATED TRANSACTIONS. IN THE EVENT THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL AND THE
75
<PAGE>
BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL ARE APPROVED BUT THE MERGER
PROPOSAL IS NOT APPROVED, THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL
AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL WILL NOT TAKE EFFECT.
Cal Jockey will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of shares
of Cal Jockey Common Stock held in their names. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees
of Cal Jockey, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications
with, stockholders or their representatives. D.F. King & Co., Inc. has been
engaged by Cal Jockey to act as proxy solicitors and will receive a fee of
$5,000 plus expenses. In addition, ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") has been engaged by Cal Jockey to mail proxies to the holders
of Cal Jockey Common Stock on the Cal Jockey Record Date and will receive a
fee of approximately $3,000.
THE BOARD OF DIRECTORS OF CAL JOCKEY HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF CAL JOCKEY VOTE FOR APPROVAL OF
THE MERGER PROPOSAL AND FOR THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER" AND "--
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF CAL JOCKEY."
BAY MEADOWS SPECIAL MEETING
The Bay Meadows Special Meeting will be held at the Clubhouse of Bay Meadows
Racecourse, 2600 South Delaware Street, San Mateo, California, on July 1,
1997, at 9:00 a.m., Pacific time. At the Bay Meadows Special Meeting, holders
of shares of Bay Meadows Common Stock will consider and vote upon the Merger
Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal. Each of the
Merger Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal must
be approved by the holders of a majority of the outstanding shares of Bay
Meadows Common Stock. Holders of Bay Meadows Common Stock are entitled to one
vote per share. At the present time, it is not anticipated that any other
matters will be brought before the Bay Meadows Special Meeting for
consideration and vote by holders of shares of Bay Meadows Common Stock
including without limitation any motion to adjourn such meeting. In the event
of any vote to adjourn the Bay Meadows Special Meeting in order to allow Bay
Meadows to solicit votes in favor of the Merger Proposal, proxies voting
AGAINST the Merger Proposal will be voted AGAINST the motion to adjourn the
Bay Meadows Special Meeting.
Bay Meadows has fixed the close of business on May 16, 1997 as the Bay
Meadows Record Date for determining holders entitled to notice of and to vote
at the Bay Meadows Special Meeting. Only holders of shares of Bay Meadows
Common Stock at the close of business on the Bay Meadows Record Date will be
entitled to notice of and to vote at the Bay Meadows Special Meeting. As of
the Bay Meadows Record Date, there were outstanding and entitled to vote
5,763,257 shares of Bay Meadows Common Stock. As of the Bay Meadows Record
Date, directors and executive officers of Bay Meadows and their affiliates who
own collectively 190,149 shares (representing 3.3% of the outstanding shares)
have indicated that they intend to vote all of their shares of Bay Meadows
Common Stock to approve the Merger Proposal and the Bay Meadows Charter and
Bylaw Amendment Proposal.
All shares of Bay Meadows Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF BAY MEADOWS COMMON STOCK WILL BE VOTED IN FAVOR
OF THE MERGER PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT
PROPOSAL. A stockholder who has given a proxy may revoke
76
<PAGE>
it at any time prior to its exercise by giving written notice thereof to the
Secretary of Bay Meadows, by signing and returning a later-dated proxy or by
voting in person at the Bay Meadows Special Meeting; however, mere attendance
at the Bay Meadows Special Meeting will not in and of itself have the effect
of revoking the proxy.
Votes cast by proxy or in person at the Bay Meadows Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Bay Meadows Common Stock entitled to vote at the Bay
Meadows Special Meeting is necessary to constitute a quorum at the Bay Meadows
Special Meeting. Abstentions and broker non-votes will be treated as shares
that are present at the Bay Meadows Special Meeting for purposes of
determining whether a quorum exists. To be approved, the Merger Proposal and
the Bay Meadows Charter and Bylaw Amendment Proposal must receive the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Bay Meadows Common Stock entitled to vote thereon. Abstentions and
broker non-votes will have the effect of votes against the approval of the
Merger Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal.
Although each of the Proposals will be voted on and tabulated separately,
under the Merger Agreement it is a condition to the obligation of each of
Patriot, Bay Meadows and Cal Jockey to consummate the Merger and the Related
Transactions that each of the Proposals be approved. BECAUSE EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE
RELATED TRANSACTIONS. IN THE EVENT THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT
PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL ARE APPROVED
BUT THE MERGER PROPOSAL IS NOT APPROVED, THE CAL JOCKEY CHARTER AND BYLAW
AMENDMENT PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL
WILL NOT TAKE EFFECT.
Bay Meadows will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of shares
of Bay Meadows Common Stock held in their names. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees
of Bay Meadows, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications
with, stockholders or their representatives. D.F. King & Co., Inc. has been
engaged by Bay Meadows to act as proxy solicitors and will receive a fee of
$5,000 plus expenses. In addition, ChaseMellon has been engaged by Bay Meadows
to mail proxies to the holders of Bay Meadows Common Stock on the Bay Meadows
Record Date and will receive a fee of approximately $3,000.
THE BOARD OF DIRECTORS OF BAY MEADOWS HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF BAY MEADOWS VOTE FOR APPROVAL OF
THE MERGER PROPOSAL AND FOR THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT
PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER" AND "--
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF BAY MEADOWS."
PATRIOT SPECIAL MEETING
The Patriot Special Meeting will be held at the Holiday Inn Select, Dallas,
Texas, on July 1, 1997, at 11:00 a.m., local time. At the Patriot Special
Meeting, holders of Patriot Common Stock will consider and vote upon the
Merger Proposal and the Patriot Incentive Plan Proposal. The Merger Proposal
must be approved by the affirmative vote of the holders of two-thirds of the
outstanding shares of Patriot Common Stock entitled to vote thereon. The
Patriot Incentive Plan Proposal must be approved by the affirmative vote of
the holders of a majority of the shares of Patriot Common Stock present in
person or by proxy and entitled to vote at the Patriot Special Meeting.
Holders of Patriot Common Stock are entitled to one vote per share. At the
present time, it is not anticipated that any other matters will be brought
before the Patriot Special Meeting for consideration and vote by holders of
shares of Patriot Common Stock including without limitation any motion to
adjourn such meeting.
77
<PAGE>
In the event of any vote to adjourn the Patriot Special Meeting in order to
allow Patriot to solicit votes in favor of the Merger Proposal, proxies voting
AGAINST the Merger Proposal will be voted AGAINST the motion to adjourn the
Patriot Special Meeting pursuant to its discretionary authority.
The Patriot Board of Directors has fixed the close of business on May 16,
1997 as the Patriot Record Date for determining holders entitled to notice of
and to vote at the Patriot Special Meeting. Only holders of Patriot Common
Stock at the close of business on the Patriot Record Date will be entitled to
notice of and to vote at the Patriot Special Meeting. As of the Patriot Record
Date, there were outstanding and entitled to vote 44,243,496 shares of Patriot
Common Stock. As of the Patriot Record Date, directors and executive officers
of Patriot and their affiliates who own collectively 877,210 shares
(representing 2.0% of the outstanding shares) have indicated that they intend
to vote all of their shares of Patriot Common Stock to approve the Merger
Proposal and the Patriot Stock Incentive Plan Proposal.
All shares of Patriot Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF PATRIOT COMMON STOCK WILL BE VOTED IN FAVOR OF THE
MERGER PROPOSAL AND THE PATRIOT INCENTIVE PLAN PROPOSAL. A stockholder who has
given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to the Secretary of Patriot, by signing and returning a
later-dated proxy or by voting in person at the Patriot Special Meeting;
however, mere attendance at the Patriot Special Meeting will not in and of
itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the Patriot Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Patriot Common Stock at the Patriot Special Meeting is
necessary to constitute a quorum at the Patriot Special Meeting. Abstentions
and broker non-votes will be treated as shares that are present at the Patriot
Special Meeting for purposes of determining whether a quorum exists. To be
approved, the Merger Proposal must receive the affirmative vote of the holders
of two-thirds of the issued and outstanding shares of Patriot Common Stock
entitled to vote thereon. Abstentions and broker non-votes will have the
effect of votes against the approval of the Merger Proposal. To be approved,
the Patriot Incentive Plan Proposal must be approved by the affirmative vote
of the holders of a majority of the shares of Patriot Common Stock present in
person or by proxy and entitled to vote at the Patriot Special Meeting.
Abstentions will have the effect of votes against the Patriot Incentive Plan
Proposal. Broker non-votes will have no effect on the Patriot Incentive Plan
Proposal because, for purposes of Virginia law and other applicable statutes
and regulations, broker non-votes are considered not to be entitled to vote on
the Patriot Incentive Plan Proposal.
Although each of the Proposals will be voted on and tabulated separately,
under the Merger Agreement it is a condition to the obligation of each of
Patriot, Bay Meadows and Cal Jockey to consummate the Merger and the Related
Transactions that each of the Proposals be approved. BECAUSE EACH OF THE
PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT ADOPTED,
THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE
RELATED TRANSACTIONS. HOWEVER, APPROVAL OF THE PATRIOT INCENTIVE PLAN PROPOSAL
IS NOT A CONDITION TO THE CONSUMMATION OF THE MERGER AND THE RELATED
TRANSACTIONS.
Patriot will bear its own cost of solicitation of proxies. Brokerage firms,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of shares of
Patriot Common Stock held in their names. In addition to the use of the mails,
proxies may be solicited by directors, officers and regular employees of
Patriot, who will not be specifically compensated for such services, by means
of personal calls upon, or telephonic or telegraphic communications with,
stockholders or their representatives. In addition, McKenzie Partners, Inc.
has been engaged by Patriot to act as proxy solicitors and will receive a fee
of approximately $10,000 plus expenses.
78
<PAGE>
THE BOARD OF DIRECTORS OF PATRIOT HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND THE PATRIOT INCENTIVE PLAN PROPOSAL AND UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS OF PATRIOT VOTE FOR APPROVAL OF THE MERGER PROPOSAL AND THE
PATRIOT INCENTIVE PLAN PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER," "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF PATRIOT" AND "PROPOSAL TO APPROVE
THE AMENDMENT AND RESTATEMENT OF THE PATRIOT INCENTIVE PLAN."
79
<PAGE>
THE MERGER AND SUBSCRIPTION
TERMS OF THE MERGER AND SUBSCRIPTION
On October 31, 1996, Patriot, Cal Jockey and Bay Meadows entered into the
October 31, 1996 Agreement pursuant to which the parties agreed to engage in a
business combination transaction. The parties, together with the Patriot
Partnership, thereafter entered into the Merger Agreement which by its terms
supersedes the October 31, 1996 Agreement and more fully details the
transactions to be consummated by the parties. The Board of Directors of each
of Patriot, Cal Jockey and Bay Meadows has approved the October 31, 1996
Agreement, the Merger Agreement and the Related Transactions, including,
without limitation, the Merger, the Subscription, the issuance of up to
approximately 30,500,000 shares of Cal Jockey Common Stock and 30,500,000
shares of Bay Meadows Common Stock, the contribution of certain of the assets
of Bay Meadows to the New Patriot Operating Partnership in exchange for OP
Units of the New Patriot Operating Partnership and the contribution of certain
of the assets of Cal Jockey to the Patriot Partnership in exchange for OP
Units of the Patriot Partnership. Pursuant to the Merger Agreement, at the
Effective Time of the Merger, Patriot will be merged with and into Cal Jockey,
with Cal Jockey being the surviving company in the Merger. In connection with
the Merger, Cal Jockey's name will be changed to "Patriot American
Hospitality, Inc." and Bay Meadows' name will be changed to "Patriot American
Hospitality Operating Company." Presently, shares of Cal Jockey Common Stock
and shares of Bay Meadows Common Stock are paired and are transferable only as
a single unit pursuant to the Pairing Agreement. The Pairing Agreement will
continue after the Merger and, accordingly, each share of New Patriot REIT
Common Stock and each share of New Patriot Operating Company Common Stock will
also be paired and transferable only as a single unit.
Pursuant to the Merger, each outstanding Paired Share of Cal Jockey Common
Stock and Bay Meadows Common Stock will remain outstanding after the Merger
and will automatically, without any action on the part of the stockholders of
Cal Jockey and Bay Meadows, represent the same number of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
By operation of the Merger, each issued and outstanding share of Patriot
Common Stock will be converted into the right to receive 0.51895 shares of New
Patriot REIT Common Stock, subject to certain REIT qualification requirements.
If the Patriot Average Trading Price is less than $17.125, then each share of
Patriot Common Stock will be converted into the number of paired shares equal
to the Patriot Average Trading Price divided by $33.00. The Patriot
Partnership will, in connection with the Merger, subscribe for the Subscribed
Shares in an amount equal to the number of shares of New Patriot REIT Common
Stock that will be issued to Patriot stockholders in the Merger. Immediately
prior to the Merger, the Patriot Partnership will fund the Subscription and
Patriot and the Patriot Partnership will designate the Patriot stockholders as
the recipients of the Subscribed Shares, in compliance with the Pairing
Agreement, on the basis of 0.51895 Subscribed Shares for each share of Patriot
Common Stock outstanding at the Effective Time, subject to certain REIT
qualification requirements and to any adjustments to the Exchange Ratio. The
result of the Merger and Subscription will be that Patriot stockholders will
have the right to receive 0.51895 shares of New Patriot REIT Common Stock and
0.51895 shares of New Patriot Operating Company Common Stock, subject to
certain REIT qualification requirements and to any adjustments to the Exchange
Ratio, for each share of Patriot Common Stock held by them at the Effective
Time of the Merger, which shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock will be paired and transferable only as
a single unit.
The Restated Charters will provide that no person or entity may own, be
deemed to own by virtue of the applicable attribution provisions of the Code
or be deemed to beneficially own pursuant to the applicable provisions of the
Exchange Act, shares of any class or series of Equity Stock of New Patriot
REIT or New Patriot Operating Company at or after the Merger in excess of the
Ownership Limit. If any holder of Patriot Common Stock would receive in the
Merger and the Subscription a number of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock which would cause
such holder or any other person
80
<PAGE>
or entity to own, or be deemed to own, paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock in excess of the
Ownership Limit, then such holder shall acquire no right or interest in such
number of paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock that would cause the Ownership Limit to be
exceeded, but such holder shall, in lieu of receiving the Excess Paired
Shares, have the right to be paid by New Patriot REIT as the surviving company
an amount in cash for such Excess Paired Shares equal to product of the Fair
Market Value per Excess Paired Share multiplied by the number of such Excess
Paired Shares. Assuming the Merger had been consummated on May 28, 1997, the
Fair Market Value of an Excess Paired Share would have been $41.91 per Excess
Paired Share.
No fractional shares of New Patriot REIT Common Stock will be issued in
connection with the Merger and no fractional shares of the Subscribed Shares
will be issued in connection with the Subscription. In lieu thereof, a holder
of Patriot Common Stock otherwise entitled to fractional paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock in
the Merger and Subscription will be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying the Fair Market Value
by the fractional amount of the paired shares of New Patriot REIT and New
Patriot Operating Company to which such holder would otherwise be entitled in
the Merger and Subscription.
Based upon the number of Paired Shares of Cal Jockey Common Stock and Bay
Meadows Common Stock outstanding at May 28, 1997, the number of shares of
Patriot Common Stock outstanding at May 28, 1997 and assuming that no options
or OP Units are exchanged for shares of Patriot Common Stock immediately prior
to the Merger and assuming that the Exchange Ratio is not adjusted due to a
Patriot Average Trading price below $17.125, the former Patriot stockholders
will hold, immediately after the Merger, approximately 23 million paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock, representing approximately 80% of the aggregate number of
outstanding paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock.
As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time, all shares of Patriot Common Stock will cease
to be outstanding, will be canceled and retired and will cease to exist. Each
holder of a Certificate will thereafter cease to have any rights with respect
to such shares of Patriot Common Stock, except the right to receive paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock and cash in lieu of Excess Paired Shares, if any, and fractional
paired shares, if any, of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock upon the surrender of such Certificate.
Promptly after the Effective Time, the Exchange Agent will mail a letter of
transmittal and instructions to each holder of a Certificate as of the
Effective Time for use in effecting the surrender of the Certificate in
exchange for certificates representing paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock and cash in lieu
of Excess Paired Shares and fractional Paired Shares, if any. See "The Merger
Agreement--Exchange of Patriot Stock Certificates."
BACKGROUND OF THE MERGER
On August 4, 1995, the principal of Hudson Bay acquired his first Paired
Shares in Cal Jockey and Bay Meadows, and in September and October 1995 met
several times with a director of Cal Jockey to discuss the history of the
companies, the status of operations, use of the paired share structure and
possible opportunities with respect to developing Cal Jockey's real property.
Several preliminary meetings between Hudson Bay and Cal Jockey took place in
February, March and April 1996. On April 8, 1996, the Board of Directors of
Cal Jockey agreed to explore and discuss possible transactions between Cal
Jockey and interested parties, and further authorized the retention of
investment bankers to assist in such process.
In mid-April 1996, Bay Meadows received a telephone call from another
interested party ("Company A") regarding a possible acquisition of Cal Jockey
and Bay Meadows. On or about April 18, 1996, Company A delivered to Bay
Meadows a written outline of a proposed transaction with the companies. On
April 24, 1996,
81
<PAGE>
the Board of Directors of Bay Meadows decided to continue the discussions that
had involved Bay Meadows' management about a possible transaction with Company
A and to consider the engagement of Montgomery as Bay Meadows' investment
banker. Management of each of Cal Jockey and Bay Meadows had several
exploratory discussions and meetings with representatives of Company A during
April 1996. In late April 1996, Hudson Bay presented separately to the
management of Cal Jockey and Bay Meadows its ideas related to a business
combination with the two companies.
On May 15, 1996, the Boards of Directors of Cal Jockey and Bay Meadows each
retained Montgomery as its investment banker. On May 20, 1996, Company A
submitted a revised proposal at a valuation of $20.00 per Paired Share. During
May and June 1996, Cal Jockey's and Bay Meadows' management and financial
advisors continued discussions with Hudson Bay and Company A, and Montgomery
solicited indications of interest from a number of other potential parties.
During this same period, the Board of Directors of each of Cal Jockey and Bay
Meadows held several meetings at which the status of discussions with Hudson
Bay, Company A and any other interested parties were discussed.
On July 1 and 2, 1996, the principal of Hudson Bay met with representatives
of the Boards of Directors of Cal Jockey and Bay Meadows, respectively, to
formally outline a transaction with the companies at a valuation of $20.00 per
Paired Share. During July 1996, the companies engaged in further discussions
and negotiations with Hudson Bay and Company A regarding a possible
transaction. However, Cal Jockey, Bay Meadows and Company A reached an impasse
concerning valuation of Cal Jockey and Bay Meadows and control over leasing
and management of properties in the surviving entity, and discussions and
negotiations with Company A ceased by the end of July. By letter dated July
12, 1996, Hudson Bay expressed its intent to pursue a transaction with both
Cal Jockey and Bay Meadows.
While the foregoing activities and discussions were occurring, a committee
of dissident stockholders sued Cal Jockey over the timing of its 1996 annual
meeting of stockholders, and then in August Cal Jockey sued this group, Bay
Meadows and Bay Meadows' Chairman and President in connection with the Cal
Jockey annual meeting and a Bay Meadows special meeting. See "Stockholders'
Meetings, Litigation and Disagreements."
During the first two weeks of August 1996, Cal Jockey and Hudson Bay engaged
in further discussions and negotiations regarding the terms of a proposed
transaction with Hudson Bay. Cal Jockey also engaged in a review and due
diligence investigation of Hudson Bay's investment strategy and the types of
real estate assets proposed to be acquired, among other things. During the
first week of August 1996, Bay Meadows received and reviewed certain materials
relating to a potential transaction with Hudson Bay and informed Cal Jockey of
key questions and objections it had with respect to such a transaction. On
August 7, 1996, Bay Meadows indicated that it would postpone further
discussions with respect to a transaction with Hudson Bay until after the Cal
Jockey annual meeting scheduled for August 30, 1996.
On August 12, 14 and 18, 1996, the Cal Jockey Board of Directors met at
length with its legal and financial advisors to consider the terms of the
proposed transaction with Hudson Bay, the governing agreement (the "Formation
Agreement") and the additional agreements contemplated thereby. On August 18,
1996, after reviewing the terms of the Hudson Bay transaction and considering,
among other things, the oral presentations by its legal and financial advisors
and Montgomery's opinion addressed to the Cal Jockey Board of Directors as to
the fairness, from a financial point of view, of the consideration to be
received by the stockholders of Cal Jockey and Bay Meadows in the proposed
transaction, the Cal Jockey Board of Directors approved the Hudson Bay
transaction by a vote of four to one with one abstention and authorized Cal
Jockey to enter into the Formation Agreement and related agreements. Ms.
Marylin Gunderson voted against the Hudson Bay transaction but did not state
her reasons for doing so, and Mr. Richard Perazzo abstained on the grounds
that he needed more time to consider the proposed transaction. Legal counsel
for Cal Jockey inquired about Ms. Gunderson's and Mr. Perazzo's reasons for
voting in such manner. Ms. Gunderson declined to explain her reason for voting
against the proposal and Mr. Perazzo noted no particular term or provision of
the proposal giving rise to his concerns or causing him to abstain from
voting. The Cal Jockey Board of Directors also approved the adoption of
indemnification agreements between Cal Jockey and each of its directors. See
"--Interests of Certain Officers and Directors."
82
<PAGE>
On August 19, 1996, Cal Jockey publicly announced that it had entered into
the Formation Agreement. Later that same day, Bay Meadows publicly announced
that it expected to continue negotiations with Hudson Bay non-exclusively,
thereby remaining open for discussions with other interested parties. The
Formation Agreement as signed by Cal Jockey contemplated that, among other
things, (a) Cal Jockey and Bay Meadows would each become the sole general
partner of a limited partnership (the "Realty Partnership" and the "Hudson Bay
Operating Partnership," respectively) to which Cal Jockey and Bay Meadows
would each contribute all of its assets (subject to substantially all of its
liabilities) in exchange for an approximate 27.8% interest in such Realty
Partnership and the Hudson Bay Operating Partnership, respectively, and (b)
Hudson Bay would be obligated to contribute $291 million and $9 million over a
period of up to three years to the Realty Partnership and the Hudson Bay
Operating Partnership, respectively, in exchange for an approximate 72.2%
limited partnership interest in each of the Realty Partnership and the Hudson
Bay Operating Partnership. The limited partnership interests in the Realty
Partnership and the Hudson Bay Operating Partnership held by Hudson Bay were
exchangeable for up to approximately 72.2% of the issued and outstanding
Paired Shares, subject to certain adjustments. The foregoing transaction was
valued effectively at $20.00 per Paired Share. The Formation Agreement also
provided that Cal Jockey and Bay Meadows would grant to Hudson Bay a warrant
to purchase up to 5 million units in each of the Realty Partnership and the
Hudson Bay Operating Partnership, at a combined exercise price of $25.69 per
pair of units, which would later be exchangeable for Paired Shares. In
addition, Cal Jockey and Bay Meadows would adopt an option agreement pursuant
to which up to 576,300 Paired Shares would be granted to persons who might
become managers or employees of Cal Jockey or Bay Meadows, including the
principal of Hudson Bay. Further, the Formation Agreement provided that Cal
Jockey and Bay Meadows could use up to $10 million to repurchase outstanding
Paired Shares for cash from the stockholders of Cal Jockey and Bay Meadows at
a price not to exceed $20.00 per Paired Share. Hudson Bay's obligations under
the Formation Agreement were conditioned upon Hudson Bay securing adequate
financing, and consummation of the transactions provided for in the Formation
Agreement was conditioned upon Bay Meadows' approval of the Formation
Agreement. Under the terms of the Formation Agreement, in the event that,
prior to the consummation of the Hudson Bay transaction, the Cal Jockey Board
of Directors accepted another offer from a third party, Hudson Bay would be
entitled to receive a $2.9 million termination fee. Cal Jockey was generally
prohibited from initiating discussions with regard to alternative transactions
by the terms of the Formation Agreement. However, Cal Jockey expressly
reserved the right, to the extent required by its fiduciary obligations, to
furnish non-public information with respect to Cal Jockey in response to an
unsolicited request and discuss that information and, upon receipt of any bona
fide proposal related to the acquisition of Cal Jockey that the directors
determined could result in a more favorable transaction to the Cal Jockey
stockholders than the Hudson Bay transaction (an "Overbid"), participate in
discussions and negotiations regarding that proposal.
After the announcement of the Hudson Bay transaction, a number of parties
indicated to Montgomery or Bay Meadows an interest in engaging Cal Jockey and
Bay Meadows in a possible transaction. On August 21, 1996, Company A
reinitiated discussions with Bay Meadows regarding a possible transaction with
Cal Jockey and Bay Meadows. On August 23, 1996, Bay Meadows met with Company A
to discuss a possible acquisition. The following day, Bay Meadows met with
another party (later disclosed to be Starwood Capital Group, L.L.C. ("Company
B")) which was interested in pursuing a transaction with the companies. On
August 24, 1996, Bay Meadows was also contacted by another interested party,
with whom Bay Meadows met on August 27, 1996.
The Bay Meadows Board of Directors met on August 28, 1996 to, among other
things, consider the proposed Hudson Bay transaction. Hudson Bay made a
presentation at the meeting and responded to questions of directors concerning
its formation, its investment strategy, the business background and experience
of its principal, its ability to raise the necessary capital, a possible
distribution of real estate sale proceeds to existing holders of Paired Shares
rather than the Realty Partnership and the Hudson Bay Operating Partnership,
the remedies available for Hudson Bay's failure to make promised cash
contributions to the Realty Partnership and the Hudson Bay Operating
Partnership and the prospects for continued horse racing at Bay Meadows.
Following the presentation, the Bay Meadows Board of Directors determined to
continue considering other unsolicited proposals, as well as to continue
considering the Hudson Bay transaction. Concerns expressed by directors of Bay
Meadows relating to the Hudson Bay transaction included Hudson Bay's relative
lack of experience in
83
<PAGE>
directly purchasing and operating real properties, the limited $10 million in
cash available to the holders of Paired Shares as an alternative to remaining
stockholders in the surviving entity, the nonproportionate sharing of "upside"
results due to the warrants and options included in the Hudson Bay transaction
and Hudson Bay's unproven ability to raise and advantageously invest its $300
million commitment to the Realty Partnership and the Hudson Bay Operating
Partnership. At the same meeting, the Bay Meadows Board of Directors
authorized (i) indemnification agreements for directors and officers and (ii)
severance agreements with specified officers with potential severance
benefits, following a change of control as defined in the agreements, of from
one to two years' compensation. See "--Interests of Certain Officers and
Directors."
On or about August 30, 1996, the companies received a written indication of
interest from Company B. Between August 30, 1996 and September 24, 1996, a
number of additional interested parties contacted Montgomery and in some
instances, either Cal Jockey or Bay Meadows, to request information and to
discuss, with varying levels of specificity, the possibility of an alternative
transaction to the Hudson Bay transaction. In each case, Cal Jockey and its
legal counsel reviewed its obligations under the Formation Agreement to ensure
compliance with the "no solicitation" provisions of that agreement. On
September 19, 1996, Bay Meadows requested Montgomery to advise all appropriate
parties of the "opportunity that exists with respect to Bay Meadows." Cal
Jockey did not join in such request. During this period, Cal Jockey signed
confidentiality agreements with a number of interested parties.
Representatives of Cal Jockey and Bay Meadows, including their financial
advisors, had various exploratory meetings with several of these parties
during this same period of time.
Beginning in late August 1996, Patriot began to consider the possibility of
acquiring Bay Meadows and Cal Jockey, primarily because of the perceived
advantages which the paired share structure would provide Patriot and its
stockholders. For a description of these advantages, see "--Reasons for the
Merger and the Related Transactions; Recommendation of the Board of Directors
of Patriot." In these initial discussions, it was anticipated that both
Patriot and PaineWebber would be involved in the acquisition. Under this
proposed acquisition structure, following consummation of the transaction,
Patriot's stockholders would control 99% of the outstanding Paired Shares, Bay
Meadows' horse racing operations and liabilities would be spun off to Bay
Meadows' existing stockholders, and substantially all of Cal Jockey's real
properties would be transferred to a Patriot/PaineWebber-sponsored realty
partnership. In light of Cal Jockey's agreement with Hudson Bay, Patriot and
PaineWebber decided that no contact would be made with Cal Jockey, but that
instead PaineWebber would approach Bay Meadows concerning a possible
transaction.
On September 24, 1996, Bay Meadows' President met with PaineWebber, which
represented an interested party later disclosed to be Patriot, to discuss a
possible transaction with Cal Jockey and Bay Meadows. On September 29, 1996,
PaineWebber forwarded to Bay Meadows a draft of a legally-binding letter
agreement among a PaineWebber affiliate, Bay Meadows and an undesignated
party, disclosed two days later to be Patriot. The letter agreement
contemplated a transaction in which the following would occur: (i) cash
distributions aggregating $20.00 on the Paired Shares would be made by the
companies; (ii) Bay Meadows would distribute to its stockholders stock in a
newly-formed subsidiary to which all of Bay Meadows' horse racing properties,
operations and liabilities, and $1.5 million of operating cash, would be
transferred; (iii) the spun-off horse racing company would enter into a 10-
year lease with a Patriot/PaineWebber-sponsored realty partnership with the
realty partnership making $8-10 million available for stable improvements;
(iv) Cal Jockey would merge with Patriot, with Cal Jockey as the surviving
entity; and (v) in the proposed merger, the existing Cal Jockey and Bay
Meadows shares would remain outstanding, but Patriot stockholders would
receive Paired Shares constituting 99% of the outstanding Paired Shares.
Simultaneously with the closing of this proposed transaction, the existing
members of Cal Jockey's and Bay Meadows' Boards of Directors would be replaced
by persons designated by Patriot. The letter agreement was not subject to any
financing contingency. The letter agreement required Bay Meadows to terminate
other pending discussions, and not to solicit other proposals, while the
agreement remained in effect. Bay Meadows was, however, permitted to negotiate
unsolicited proposals to the extent required by the fiduciary duties of its
Board of Directors and to terminate the agreement in order to accept a
superior proposal (and in certain other circumstances) upon payment to Patriot
of a $4.5 million termination fee. The letter agreement called for the
transaction to be submitted to the stockholders of Cal Jockey, Bay Meadows and
Patriot for approval.
84
<PAGE>
On October 1, 1996, Bay Meadows informed Montgomery, without revealing
Patriot's name, that it was engaged in discussions with an interested third
party. On October 1, 1996 and October 2, 1996, representatives of Bay Meadows,
Patriot and PaineWebber met to discuss the draft letter agreement from
Patriot. The discussions were conducted under confidentiality restrictions
insisted upon by Patriot and PaineWebber that, at that time, precluded
disclosure of the proposal or Patriot's identity to Cal Jockey. Under
Montgomery's joint engagement by Cal Jockey and Bay Meadows, participation by
Montgomery in the Bay Meadows-Patriot discussions without disclosing the
identity of the parties and the substance of the discussions to Cal Jockey was
precluded.
On October 4, 1996, Montgomery notified the Boards of Directors of Bay
Meadows and Cal Jockey that several other interested parties were likely to
submit proposals in the near future. By letter dated October 5, 1996, Company
B presented a proposal to the companies for a possible transaction with the
Company based on a value of $21.00 in cash per Paired Share.
On October 5, 1996, the Board of Directors of Patriot met to consider the
proposed transaction with Cal Jockey and Bay Meadows. At this meeting,
Patriot's senior management, together with its legal and financial advisors,
reviewed with its Board of Directors the current operations and properties of
Cal Jockey and Bay Meadows, the paired share structure of Cal Jockey and Bay
Meadows and its utility, the background of the proposed merger, and certain
financial and valuation analyses of the transaction. Patriot's senior
management also discussed with the Board of Directors the strategic rationale
for the transaction and the potential benefits and negative consequences of
the proposed merger and the related transactions to Patriot and its
stockholders. For a discussion of these benefits and negative consequences,
see "--Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Patriot." Patriot's legal counsel also discussed
with the Patriot Board of Directors, among other things, the terms of the
legal documentation relating to the proposed merger, the timetable for signing
such definitive documentation and its fiduciary duties to its stockholders.
Following these presentations, the directors asked numerous questions of
management and its legal and financial advisors and discussed at length the
issues raised by these presentations. At the conclusion of these discussions,
the Patriot Board of Directors decided that PaineWebber would not be a party
to the transaction and thus following the transaction Cal Jockey's real estate
assets would be owned and controlled exclusively by Patriot. The Patriot Board
of Directors authorized management to proceed with the submission of a revised
bid concerning the acquisition of Bay Meadows and Cal Jockey and the
negotiation of definitive documentation for the transaction with Bay Meadows.
On October 5, 1996, the Bay Meadows Board of Directors met for a
presentation by Montgomery regarding the Hudson Bay transaction and related
topics. Montgomery reviewed the terms of the Hudson Bay transaction and the
status of Hudson Bay's efforts to seek the necessary investment commitments,
and discussed other potential transactions. Montgomery reported that, in
response to Bay Meadows' September 19, 1996 letter, it had requested a waiver
from Hudson Bay of the limitations contained in the Formation Agreement
against Cal Jockey's solicitation of other proposals, and that Hudson Bay had
declined to grant the requested waiver. Montgomery stated, however, that it
had received a number of unsolicited indications of interest to make proposals
of alternatives to the Hudson Bay transaction, and reviewed such indications
of interest with the Board of Directors of Bay Meadows.
On October 7, 1996, Company B announced publicly a proposal for a possible
business transaction with Cal Jockey and Bay Meadows with a value of $22.00
per Paired Share, a $1.00 increase over its October 5, 1996 proposal. On
October 8, 1996, the Companies also received a written preliminary proposal
from another party ("Company C") in the range of $20.00 to $24.00 per Paired
Share. On October 9, 1996, Bay Meadows publicly announced that it would
consult with Cal Jockey regarding Company B's offer and would continue to
consider and have discussions with Company B and other interested parties.
Between October 5, 1996 and October 9, 1996, negotiations between Bay
Meadows and Patriot continued. On October 9, 1996, Patriot submitted a
proposal to Bay Meadows, which revised its previous proposal, among other
ways, to: (i) change the structure to eliminate the cash distribution on the
Paired Shares and substitute a merger of Patriot into Cal Jockey in which the
stockholders could elect to receive cash consideration; (ii) increase the cash
consideration available at the election of the stockholders of Cal Jockey and
Bay Meadows from $20.00
85
<PAGE>
to $22.00 per Paired Share; (iii) permit the stockholders of Cal Jockey and
Bay Meadows to elect to either retain their stock interest, valued at $22.00
in cash per Paired Share, or to receive $22.00 cash per Paired Share; (iv)
limit the amount available for improvements to the spun-off horse racing
company's stables to $8 million; (v) shorten the term of the lease between the
spun-off horse racing company and the post-merger realty partnership to seven
years or less (depending on the cost of the stables) and revise the annual
rent; (vi) add a dividend of Bay Meadows preferred stock with an approximate
value of $0.60 for each Paired Share, and (vii) reduce the fee owed to Patriot
upon a termination of the transaction by the companies to $2.9 million. The
Patriot proposal assumed that Cal Jockey would be required to pay a $2.9
million termination fee to Hudson Bay.
On October 9, 1996, Patriot and PaineWebber consented to the disclosure of
the Patriot proposal to Cal Jockey (subject to Cal Jockey's entry into a
confidentiality agreement similar to the one previously signed by Bay
Meadows). That day, Bay Meadows disclosed to Montgomery that Patriot was the
previously undisclosed third party, and described the terms of Patriot's
proposal. After signing a confidentiality agreement, Cal Jockey was provided
with a draft letter agreement among Patriot, a PaineWebber affiliate, Bay
Meadows and Cal Jockey in the form that was then under discussion between
Patriot, PaineWebber and Bay Meadows.
On the evening of October 9, 1996, the Bay Meadows Board of Directors met,
with Montgomery and Bay Meadows' counsel present, to consider the Patriot
proposal. The terms of the Patriot proposal were reviewed by Bay Meadows'
legal counsel, including changes that had been proposed by Bay Meadows but not
accepted by Patriot. During the meeting of the Bay Meadows Board of Directors,
Cal Jockey faxed a letter to the Bay Meadows Board of Directors asking it to
not make a definitive decision regarding the Patriot transaction in light of
the other offers recently received and the fact that Cal Jockey had just that
day learned of the terms of the Patriot proposal. The Bay Meadows Board of
Directors did not consider this letter to have any material effect on its
discussions and continued its deliberations. After discussion, the Bay Meadows
Board of Directors resolved, based in part on Montgomery's recommendation, to
continue to negotiate for improvements and clarification in Patriot's proposal
and to invite Cal Jockey to join the negotiations.
On October 10, 1996, the Bay Meadows Board of Directors reconvened, with Bay
Meadows' counsel present. Hudson Bay made a second presentation to the Board
of Directors on the Formation Agreement and addressed concerns expressed by
directors following its initial presentation. Hudson Bay indicated a possible
willingness to increase the valuation of the Paired Shares in the Hudson Bay
transaction to $21.00 or $22.00 per Paired Share. At the conclusion of Hudson
Bay's presentation, a Bay Meadows director expressed the earlier reservations
but said he might reconsider his position if Hudson Bay increased the
valuation of the proposed transaction to $25.00-$26.00 per Paired Share.
Hudson Bay said it would not be productive to pursue such discussions.
Following Hudson Bay's presentation, three of Cal Jockey's directors,
together with Cal Jockey's counsel and Montgomery, joined the Bay Meadows
Board of Directors meeting for a joint review and discussion of the Patriot
proposal and other proposals. Montgomery reviewed the Patriot proposal and the
status of the proposals by Hudson Bay, Company B and Company C. Bay Meadows'
counsel reviewed the terms of the Patriot proposal and the issues that Bay
Meadows regarded as unresolved. At the conclusion of the meeting, the Bay
Meadows Board of Directors and the Cal Jockey Board of Directors
representatives, based in part on Montgomery's recommendation, agreed to
jointly continue negotiations with Patriot for improvements and clarification
in Patriot's proposal and to continue discussions with other parties that had
submitted Overbids. A negotiation meeting of Patriot, Bay Meadows and Cal
Jockey, and their respective financial and legal representatives, was
scheduled for October 14, 1996, and Montgomery was directed to contact all
parties that had submitted Overbids.
On October 11, 1996, after learning that Montgomery was contacting those
parties that had submitted Overbids, Patriot requested both Bay Meadows and
Cal Jockey to enter into an exclusive negotiations agreement. Following
discussions, the requested agreement called for both companies not to
negotiate with parties other than Patriot, or encourage other parties to make
proposals, for a 10-day period, which would be subject to termination at any
time by either company in order to pursue negotiation of a binding agreement
for a transaction with
86
<PAGE>
another party which its Board of Directors deemed superior. Bay Meadows
indicated it would be willing to sign such an agreement as it was a condition
for continuation of negotiations by Patriot. Cal Jockey indicated that,
although it wished to continue negotiations with Patriot, it was not willing
to sign the exclusivity agreement in light of the other unsolicited offers on
the table, its obligations under the Formation Agreement and the fact that Cal
Jockey had only recently learned of the Patriot proposal and had not had
sufficient time to evaluate the proposal.
Over the weekend of October 11, 1996 to October 13, 1996, Cal Jockey and its
legal advisors continued to evaluate all offers and commenced a more specific
evaluation and analysis of the Patriot proposal, including a limited legal and
financial due diligence review in order to determine the viability of
consummating a business combination transaction with Patriot.
On October 14, 1996, representatives of Bay Meadows, Cal Jockey and Patriot,
including their respective legal and financial advisors, met. Cal Jockey
stated that, although it was interested in commencing discussions regarding a
possible transaction with Patriot, in light of the other unsolicited offers on
the table and its commitments under the Formation Agreement, it was not
willing to execute a binding letter agreement on the time schedule
contemplated by Patriot. Because of Cal Jockey's position on this issue,
Patriot withdrew its offer at the conclusion of the meeting. Later that day,
Montgomery was contacted by Company B and Company C regarding the status of
their respective offers.
On October 15, 1996, Cal Jockey held a meeting of its Board of Directors at
which Montgomery presented details regarding the proposals from Company B and
Company C as well as the unsolicited indications of interest received from
other parties. The Cal Jockey Board of Directors set a deadline of Monday,
October 21, 1996 at 5:00 p.m. (which was subsequently extended to October 25,
1996), after which it would move to sign a commitment with the highest bidder.
Montgomery was instructed to contact all parties that had previously submitted
Overbids and inform them of this deadline.
During the period from October 16, 1996 to October 24, 1996, there were
daily telephone conversations between Montgomery and various parties,
including Hudson Bay, Patriot, Company A, Company B and Company C and two
additional parties ("Company D" and "Company E"), both of whom had contacted
Montgomery and requested information and meetings with the management of Cal
Jockey and Bay Meadows. During this period, there also were discussions
between Company D and Patriot concerning the submission of a joint bid for Cal
Jockey and Bay Meadows. The parties also discussed the possible acquisition of
Company D by Patriot concurrently with Patriot's acquisition of Cal Jockey and
Bay Meadows. The discussions between the parties with respect to the
submission of a joint bid broke off on October 25, 1996.
On October 24, 1996, Cal Jockey held a meeting of its Board of Directors to
consider and discuss outstanding proposals. The Cal Jockey Board of Directors
invited the Bay Meadows Board of Directors to attend a joint meeting on
October 25, 1996 to discuss all offers received by the deadline.
On October 25, 1996, the Patriot Board of Directors held a meeting at which,
among other things, management, together with the company's legal counsel and
financial advisors, updated the Patriot Board of Directors on the status of
the negotiations with Bay Meadows and Cal Jockey including the deadline set
for submission of bids. The directors then asked numerous questions concerning
the transaction, the identity of other bidders, and the likely range of bids
which could be submitted by such parties. After reviewing the potential
benefits of the transaction to Patriot and its stockholders, the Patriot Board
of Directors approved the submission of a bid pursuant to which stockholders
of Cal Jockey and Bay Meadows would receive (a) the entire equity interest in
a new company to be spun-off from Bay Meadows, (b) shares of preferred stock
of Bay Meadows with an aggregate face amount of $3.5 million and an annual
coupon of 5% and (c) an amount per Paired Share (in either cash or in the form
of a continuing interest in the surviving companies) which would bring the
aggregate consideration (including consideration described in clauses (a) and
(b)) to $27.50, provided that the
87
<PAGE>
consideration referred to in this clause (c) would in no event be less than
$24.00 per Paired Share. Such bid also contemplated an up-front payment by
Patriot to Cal Jockey of $2.9 million to cover Cal Jockey's obligations with
respect to the Hudson Bay termination fee as well as a $4.5 million break-up
fee.
On October 25, 1996, the Boards of Directors of Cal Jockey and Bay Meadows
held a joint meeting which was also attended by Montgomery and the respective
legal counsel of Cal Jockey and Bay Meadows to discuss all offers received by
the deadline. At the meeting, Montgomery distributed Overbids received from
Patriot, Company B, Company D, Company E and Hudson Bay, and reviewed the
details of each offer. The directors of both companies asked questions and
discussed at length each bid. The Boards of Directors each decided to pursue a
possible transaction with Company D exclusively, in which Paired Shares were
valued at $30.00 per Paired Share. Accordingly, the Boards of Directors
directed Montgomery to contact Company D to clarify issues related to its
proposal and to contact all other parties, including Hudson Bay, to inform
them that the companies were pursuing negotiations with another party.
Cal Jockey's legal counsel, with input from Bay Meadows' legal counsel,
began drafting documentation for a potential transaction with Company D and
commenced legal due diligence, with Bay Meadows intending to commence its own
legal due diligence shortly thereafter. Montgomery also commenced financial
due diligence with respect to Company D.
On October 29, 1996, the Patriot Board of Directors met to discuss the
status of the negotiations with Cal Jockey and Bay Meadows and to decide
whether or not to submit another bid with respect to the transaction.
Management, along with Patriot's legal and financial advisors, updated the
Board of Directors on the events that had occurred since its last meeting,
including that the companies had informed Patriot that they were pursuing a
transaction with another company. Patriot's management then reviewed with the
Board of Directors the strategic rationale for the transaction and its
potential benefits and consequences to the Patriot stockholders. The Board of
Directors then had a lengthy discussion concerning the transaction and whether
Patriot should submit another bid or alternatively to allow Cal Jockey and Bay
Meadows to proceed with a transaction with Company D. Following this
discussion, the Board of Directors directed management to submit a bid
pursuant to which Patriot would acquire all of the outstanding shares of Bay
Meadows Common Stock and Cal Jockey Common Stock at $33.00 per share (either
in cash or in the form of a continuing interest in the surviving company).
PaineWebber then made a presentation to the Board of Directors concerning its
financial analysis of the proposed transaction and provided an oral opinion as
to the fairness, from a financial point of view, of the consideration to be
received by holders of Patriot Common Stock in the proposed merger. The Board
of Directors then authorized management to send a letter to Bay Meadows and
Cal Jockey outlining their bid and to begin immediately negotiating a
definitive agreement relating to the transaction.
On October 29, 1996, the companies received an unsolicited proposal from
Patriot valued at $33.00 per Paired Share. Under the terms of the proposal,
stockholders of Cal Jockey and Bay Meadows would be given the opportunity to
receive either $33.00 cash per Paired Share or paired shares in the surviving
companies valued at $33.00. Patriot would merge with and into Cal Jockey, with
Cal Jockey being the surviving company. The proposal did not contain any
financing contingency and did not require a due diligence period. The proposal
also provided for preservation of the paired structure between Cal Jockey and
Bay Meadows. Montgomery informed Company D that another proposal had been
submitted which the Boards of Directors of Cal Jockey and Bay Meadows would be
considering.
On the advice of legal counsel, Cal Jockey called a meeting of its Board of
Directors for the morning of October 30, 1996 to discuss and evaluate the
Patriot proposal. Cal Jockey directed Montgomery and Cal Jockey's legal
counsel to pursue discussions and negotiations with Patriot. Later that same
day, Company D submitted a revised bid that valued the Paired Shares at $33.00
per Paired Share.
On the evening of October 30, 1996, the Board of Directors of Cal Jockey and
Bay Meadows held a joint meeting to consider and evaluate the proposals from
Patriot and Company D. The directors reviewed both
88
<PAGE>
proposals and asked questions of their respective financial advisors and legal
counsel. Among other things, the Boards of Directors of Cal Jockey and Bay
Meadows considered that (i) Company D's proposal did not include a mechanism
for the Cal Jockey and Bay Meadows stockholders to receive cash for all of
their Paired Shares where Patriot's proposal allowed substantially all of the
stockholders to be cashed out, (ii) consummation of a transaction with Company
D was conditioned on the receipt of certain third party consents by Company D
which there was no assurance could be obtained immediately, if at all, where
Patriot's proposal included no such condition and (iii) Company D's proposal
was conditioned on a satisfactory due diligence review period where Patriot's
proposal included no diligence review period. Based on these factors, the
Boards of Directors of each of Cal Jockey and Bay Meadows decided to pursue a
transaction with Patriot. The Boards of Directors also agreed to seek
inclusion of the following additional terms in the Patriot transaction: (a) a
fixed exchange ratio for the Paired Shares to be issued to Patriot
stockholders in the merger which would be based on the value of Patriot's
stock on October 30, 1996 (which was $34.25 (prior to Patriot's 2-for-1 stock
split)) to allow Cal Jockey and Bay Meadows stockholders to benefit from any
increase in Patriot's stock price, and a floor of $33.00 per Paired Share in
cash to be received by holders of Paired Shares who might elect to receive
cash rather than stock in the surviving company; and (b) Patriot's agreement
to fund the $2.9 million termination fee owed to Hudson Bay as a result of
entering into the Patriot transaction. The directors of the companies did not
direct their advisors to present Company D with an opportunity to meet these
additional terms because the directors found Patriot's bid (without these
additional terms) to be preferable to Company D's bid because of factors (i)
through (iii) described above, one of which could not be changed by Company D
(i.e., Company D's requirement to obtain third party consents). The directors
directed their respective legal counsel and Montgomery to discuss these and
other points with Patriot. Patriot responded by agreeing to include such terms
in the October 31, 1996 Agreement. After further joint discussions, the Boards
of Directors of Cal Jockey and Bay Meadows met separately to consider and
evaluate the proposals. Both Boards of Directors voted unanimously to enter
into an agreement with Patriot.
Throughout the evening of October 30, 1996, legal counsel for Patriot, Cal
Jockey and Bay Meadows negotiated the balance of the terms of the October 31,
1996 Agreement which included setting out the details surrounding the
Subscription, the Offer and the structure of the proposed merger of Patriot
into Cal Jockey, with attention paid to preserving the paired structure of Cal
Jockey and Bay Meadows following consummation of the transaction. The parties
also agreed that Patriot's payment of the Hudson Bay termination fee would be
in the form of a $2.9 million loan to Cal Jockey to be repaid by Cal Jockey in
the event of termination of the October 31, 1996 Agreement.
On the morning of October 31, 1996, Cal Jockey and Bay Meadows entered into
the October 31, 1996 Agreement with Patriot. That day, Cal Jockey notified
Hudson Bay that it was terminating the Formation Agreement and subsequently
wired to Hudson Bay its $2.9 million termination fee.
Following the signing of the October 31, 1996 Agreement through February 24,
1997, legal counsel for Patriot, Cal Jockey and Bay Meadows drafted and
negotiated the terms of the Merger Agreement. The purpose of the Merger
Agreement was to provide further details of the steps required to consummate
the transactions contemplated in the October 31, 1996 Agreement while
maintaining the terms and provisions negotiated in the October 31, 1996
Agreement. The negotiations pertaining to the Merger Agreement centered
primarily on certain terms of the Restated Charters, specifically the
staggered board provisions, the conditional nature of the Proposals, the
rights of Patriot and Cal Jockey to make distributions to their respective
stockholders prior to consummation of the Merger and the process by which the
relative value of the Cal Jockey Common Stock and the Bay Meadows Common Stock
would be determined for purposes of the Offer.
The Patriot Board of Directors unanimously approved the form of the merger
agreement at a meeting on January 30, 1997. During such meeting, the Patriot
Board of Directors reviewed the terms of the merger agreement and thereafter
authorized management to complete negotiations of, and execute, the merger
agreement.
89
<PAGE>
The Cal Jockey Board of Directors unanimously approved the form of the
merger agreement at a meeting on February 21, 1997. During such meeting, the
Cal Jockey Board of Directors reviewed the terms of the Merger Agreement and
thereafter authorized management to complete negotiations of, and execute, the
Merger Agreement.
The Bay Meadows Board of Directors unanimously approved the form of the
merger agreement at a meeting on February 26, 1997. At the meeting, the Bay
Meadows Board of Directors and Bay Meadows' legal counsel discussed the
features of the merger agreement and the differences between the merger
agreement and the October 31, 1996 Agreement. The Bay Meadows Board of
Directors also consulted with its financial advisor, Montgomery.
Subsequently, in the course of making the required securities filings in
connection with the Merger, certain timing issues relating to the Offer and
the Merger arose. In light of the fact that the Cal Jockey and Bay Meadows
stockholders had for over six months enjoyed the ability to realize more than
the $33.00 cash per Paired Share price provided for in the Offer by selling
their Paired Shares on the AMEX, the parties agreed to amend and restate the
Merger Agreement to, among other things, (i) eliminate the Offer, (ii) provide
a mechanism to adjust the Exchange Ratio (but only in the event that the
Patriot Average Trading Price were to fall below $17.125 per share so that the
stockholders of Cal Jockey and Bay Meadows as of the time of the Merger would
hold paired shares of New Patriot REIT and New Patriot Operating Company equal
in value, as of a date shortly before the Merger, to $33.00 per Paired Share,
(iii) extend from June 30, 1997 to July 14, 1997 the date on or after which
the parties could terminate the Merger Agreement if the conditions to their
respective obligations under the Merger Agreement were not satisfied or
waived, and (iv) provide that stockholders of Patriot would not receive any
dividend payments prior to the Effective Time for Patriot earnings during the
period between June 30, 1997 and the date of the closing of the Merger.
The Cal Jockey Board of Directors unanimously approved the Merger Agreement
at a meeting on May 28, 1997. At the meeting, the Cal Jockey Board of
Directors considered and discussed with its legal counsel and its financial
advisor, among other things, the features of the Merger Agreement, the
differences between the Merger Agreement and the Agreement and Plan of Merger
dated as of February 24, 1997 (the "February 24, 1997 Agreement"), the
opportunities that Cal Jockey stockholders desiring to receive cash for their
Paired Shares had enjoyed for over six months to realize more than the $33.00
cash per Paired Share price provided for in the Offer by selling their Paired
Shares on the AMEX, the effects of the proposed mechanism to adjust the
Exchange Ratio (if necessary) so that Cal Jockey stockholders would hold
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock as of the time of the Merger equal in value, as of a date
shortly before the Merger, to $33.00 per Paired Share, the timing issues
relating to the Offer and the Merger, the considerations involved in delaying
the Merger, and Montgomery's updating opinion, rendered orally to the Board of
Directors of Cal Jockey, to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole, were fair to the
stockholders of Cal Jockey and Bay Meadows from a financial point of view. At
the meeting the Cal Jockey Board of Directors also approved the payment of an
aggregate of $600,000 to the Directors and the sole employee of Cal Jockey as
compensation for services previously rendered to Cal Jockey by such
individuals. See "--Interests of Certain Officers and Directors."
The Bay Meadows Board of Directors unanimously approved the Merger Agreement
at a meeting on May 27, 1997. At the meeting, the Bay Meadows Board of
Directors considered and discussed with its legal counsel and its financial
advisor, among other things, the features of the Merger Agreement, the
differences between the Merger Agreement and the February 24, 1997 Agreement,
the opportunities that Bay Meadows stockholders desiring to receive cash for
their Paired Shares had enjoyed for over six months to realize more than the
$33.00 cash per Paired Share price provided for in the Offer by selling their
Paired Shares on the AMEX, the effects of the proposed mechanism to adjust the
Exchange Ratio (if necessary) so that Bay Meadows stockholders would hold
paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock as of the time of the Merger equal in value, as of a date
shortly before the Merger, to $33.00 per Paired Share, the timing issues
relating to the Offer and the Merger, the considerations involved in delaying
the
90
<PAGE>
Merger and Montgomery's updating opinion, rendered orally to the Board of
Directors of Bay Meadows, to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole, were fair to the
stockholders of Cal Jockey and Bay Meadows from a financial point of view.
On May 27, 1997 the Patriot Board of Directors unanimously approved the
Merger Agreement. The Patriot Board of Directors unanimously concluded that
the proposed amendments (including the elimination of the Offer and the
addition of a provision in the Merger Agreement providing for adjustment of
the Exchange Ratio if the Patriot Average Trading Price is less than $17.125)
were in the best interests of Patriot and its stockholders.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF PATRIOT
The Board of Directors of Patriot unanimously approved the October 31, 1996
Agreement at a meeting of the Patriot Board on October 29, 1996, thereafter
unanimously approved the February 24, 1997 Agreement on January 30, 1997 and
thereafter unanimously approved the Merger Agreement on May 27, 1997. THE
BOARD OF DIRECTORS OF PATRIOT BELIEVES THAT THE MERGER AND THE RELATED
TRANSACTIONS ARE FAIR TO AND IN THE BEST INTERESTS OF PATRIOT AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE "FOR" THE
MERGER PROPOSAL. In reaching this determination, the Board of Directors of
Patriot consulted with Patriot management, as well as its financial advisors,
legal counsel and accountants, and considered a number of factors. The
material factors considered by the Patriot Board of Directors in reaching the
foregoing conclusions are described below.
In making its determination with respect to the Merger and the Related
Transactions, the Patriot Board considered the following factors, all of which
the Patriot Board of Directors deemed favorable, in approving the October 31,
1996 Agreement, the February 24, 1997 Agreement and thereafter the Merger
Agreement and the Related Transactions:
(i) Through the Merger, Patriot's stockholders will be able to realize
the value inherent in the paired share REIT structure of Cal Jockey and Bay
Meadows. Under this paired share structure, shares of a REIT and an
operating company are paired together and are traded as a single unit. The
Patriot Board of Directors believes that this structure will allow Patriot,
in combination with its paired operating company, to become a fully
integrated owner and operator of hotels. Because the Code was amended in
1983 to prohibit the pairing of shares between a REIT and an operating
company, Cal Jockey and Bay Meadows is one of only four publicly-traded
paired share REITs remaining in existence.
(ii) With the paired share structure, Patriot would have a competitive
advantage over most other hotel REITs. Currently, like most other hotel
REITs, Patriot is prohibited from operating its hotels and must lease its
hotels to third party operators. These leases must be structured so that
the third party operator captures a portion of each hotel's current cash
flow and current growth. With the paired share structure, New Patriot
Operating Company will be able to lease and operate newly acquired hotels
as well as any of Patriot's existing hotels that are re-leased to New
Patriot Operating Company and thus stockholders will be able to retain the
economic benefit of both the lease payments received by New Patriot REIT
and the operating profits of New Patriot Operating Company. Only one other
publicly-traded hotel REIT, Starwood Lodging Trust ("Starwood"), has a
paired share structure.
(iii) The paired share structure will permit New Patriot Operating
Company to assume direct operational control over hotels owned by New
Patriot REIT that are leased to and managed by New Patriot Operating
Company. Thus, New Patriot Operating Company will be able to directly
control strategic business decisions with respect to the marketing and
management of hotels acquired following the Merger or existing hotels that
are re-leased to New Patriot Operating Company following the Merger.
(iv) Following the Merger, Patriot will have increased flexibility in
potential hotel acquisitions. To date, Patriot has acquired hotels
principally through an innovative multiple lessee structure. Following the
Merger, New Patriot REIT will have the ability to lease its hotels to New
Patriot Operating Company or, as appropriate, to independent lessees. The
Patriot Board of Directors also believes that the Merger will
91
<PAGE>
significantly increase the universe of Patriot's potential hotel
acquisitions because, in addition to hotels, it will be able to acquire
hotel operators, independent hotel management companies and owners of hotel
franchises or brands through New Patriot Operating Company.
(v) The Patriot Board of Directors believes the Merger may have a
favorable effect on the FFO multiple at which Patriot's stock is traded.
Since its Initial Offering, Patriot has traded at an FFO multiple discount
to Starwood. Based in part on discussions with PaineWebber and other
investment banking firms, the Patriot Board of Directors believes that the
paired share structure is an important reason why Starwood trades at a
significant multiple premium to all other hotel REITs, including Patriot.
The Board of Directors believes that the acquisition of this paired share
structure may help to narrow or eliminate this multiple differential, and
thus reduce Patriot's cost of capital over time.
(vi) The opinion, analyses and presentations of PaineWebber described
below under "--Opinion of Patriot's Financial Advisor," including the
opinion of PaineWebber that the consideration to be received by holders of
Patriot Common Stock in connection with the Merger is fair, from a
financial point of view, to holders of Patriot Common Stock. The Patriot
Board of Directors did not perform its own financial analysis in evaluating
the Merger and the Related Transactions, but rather relied on PaineWebber's
financial analyses in its overall evaluation of the Merger and viewed such
analyses as favorable to its determination. The Patriot Board of Directors
viewed PaineWebber's opinion as favorable to its determination because
PaineWebber is an internationally recognized investment banking firm with
experience in the valuation of businesses and their securities in
connection with mergers and acquisitions and in providing advisory services
and raising capital for companies in the real estate industry.
The Patriot Board of Directors also considered the following factors, all of
which the Patriot Board of Directors considered negative, in its deliberations
concerning the Merger:
(i) The amount of the premium which Patriot is paying to acquire Cal
Jockey and Bay Meadows and the significant transaction costs involved in
connection with consummating the Merger and the Related Transactions
(estimated at approximately $14.3 million), the loan to Cal Jockey to pay
the $2.9 million break-up fee to Hudson Bay, and the substantial management
time and effort required to effectuate the Merger and the Related
Transactions and to integrate the structures of Patriot, Cal Jockey and Bay
Meadows. As a result of the acquisition price being paid by Patriot for Cal
Jockey and Bay Meadows, the Merger has a dilutive effect on Patriot's net
income per share, FFO per share and Cash Available for Distribution per
share on a pro forma basis for 1996 and may have a dilutive effect on net
income per share, FFO per share and Cash Available for Distribution per
share in future years. See "Unaudited Pro Forma Combined Financial
Statements."
(ii) Although the paired share structure will permit Patriot to maintain
flexibility with respect to hotel acquisitions in the future, the Patriot
Board of Directors believes that stockholders would expect New Patriot
Operating Company to lease and manage as many of Patriot's hotel properties
as possible in order to maximize the stockholders' cash flow returns. As a
result, hotel management companies, franchises and others who currently
approach Patriot with acquisition opportunities in hopes of establishing
lessee relationships with Patriot may be reluctant to do so in the future
out of concern that Patriot will rely on New Patriot Operating Company to
lease and manage the acquired property. This could have a negative effect
on Patriot's acquisition activities in the future. See "Risk Factors--Hotel
Industry Risks."
(iii) The Merger could have a negative effect on Patriot's relationship
with its existing Lessees who could be concerned that they will lose
operating control over leased hotels upon expiration of the current lease
term. Because Patriot is dependent upon lease payments from Lessees for
substantially all of its income, this could have an adverse effect on
Patriot's results of operations in the future. See "Risk Factors--
Dependence on Lessees and Payments under the Participating Leases."
(iv) Patriot will acquire the horse racing operations of Bay Meadows, a
business which has been experiencing a trend of declining track attendance
and in which Patriot has no prior experience. See "Risk Factors--Horse
Racing Industry Risks."
(v) The risk that the anticipated benefits of the Merger and the Related
Transactions, particularly the paired share structure, might not be fully
realized.
92
<PAGE>
(vi) The benefits of the transaction to be received by certain officers
and directors of Bay Meadows. See "--Interests of Certain Officers and
Directors."
In the opinion of the Patriot Board of Directors, the factors listed above
represent the material potential risks and adverse consequences to Patriot's
existing stockholders which could occur as a result of the transaction. In
considering the Merger and the Related Transactions, the Patriot Board of
Directors considered the impact of these risks and consequences on Patriot's
existing stockholders. In the opinion of the Patriot Board of Directors,
however, these potential risks and consequences were outweighed by the
potential positive factors considered by the Board of Directors which are
described above. Accordingly, the Patriot Board of Directors voted to approve
the Merger Proposal.
In view of the wide variety of factors considered by the Patriot Board of
Directors, the Patriot Board of Directors did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination.
In the event the Merger and the Related Transactions are not consummated for
any reason, Patriot will continue to pursue its business objectives of (i)
maximizing FFO and cash available for distribution to holders of Patriot
Common Stock, (ii) increasing distributions per share of Patriot Common Stock,
(iii) increasing the value of its properties by continuing its growth through
the active acquisition and development of new hotels and other properties and
(iv) holding its properties for long-term investment. In addition, Patriot may
seek other business combination opportunities and additional debt or equity
financing.
OPINION OF PATRIOT'S FINANCIAL ADVISOR
Patriot retained PaineWebber on August 23, 1996 to act as financial advisor
in connection with, among other things, a possible business combination with
Cal Jockey and Bay Meadows. In such capacity, PaineWebber participated in
discussions and negotiations among Patriot, Cal Jockey and Bay Meadows and
rendered financial advice to Patriot including rendering an opinion as to
whether the consideration to be received by holders of Patriot Common Stock in
connection with the Merger was fair, from a financial point of view, to
holders of Patriot Common Stock.
The Patriot Board of Directors was familiar with certain individuals at
PaineWebber because those individuals assisted Patriot with its Initial
Offering and the Follow-On Offering, arranged for the Line of Credit and have
provided general financial advisory services to Patriot. Based upon these
relationships, the Patriot Board of Directors retained PaineWebber to act as
its financial advisor. The Patriot Board of Directors also based its decision
to retain PaineWebber upon PaineWebber's prominence as an investment banking
and financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes, especially with respect to REITs and other
real estate companies.
On October 29, 1996, PaineWebber delivered its oral opinion to the Patriot
Board of Directors to the effect that, as of the date of such opinion, based
on PaineWebber's review and subject to certain assumptions and limitations set
forth therein, the consideration to be received by holders of Patriot Common
Stock in the Merger (taking into account the funds to be provided by Patriot
to Cal Jockey and Bay Meadows to purchase outstanding shares of Cal Jockey
Common Stock and Bay Meadows Common Stock in the Offer) was fair, from a
financial point of view, to holders of Patriot Common Stock. PaineWebber
subsequently confirmed its oral opinion by delivery of a written opinion dated
October 29, 1996. PaineWebber's opinion (the "PaineWebber Opinion") does not
constitute a recommendation to any stockholder of Patriot as to how any such
stockholder should vote on the Merger Proposal or any other proposal.
Additionally, the PaineWebber Opinion does not address the business decision
of the Patriot Board of Directors to engage in the transactions contemplated
by the Merger Agreement. In accordance with the provisions of the engagement
letter, dated August 23, 1996, between Patriot and PaineWebber (the
"PaineWebber Engagement Letter"), Patriot has not requested that PaineWebber
provide, and PaineWebber will not provide, an update of the PaineWebber
Opinion.
93
<PAGE>
A COPY OF THE PAINEWEBBER OPINION DATED OCTOBER 29, 1996, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE
OF THE REVIEW UNDERTAKEN BY PAINEWEBBER, IS ATTACHED HERETO AS ANNEX F AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE PAINEWEBBER OPINION
SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION. STOCKHOLDERS OF PATRIOT ARE URGED TO READ THE PAINEWEBBER
OPINION IN ITS ENTIRETY. THE PAINEWEBBER OPINION IS ADDRESSED TO THE BOARD OF
DIRECTORS OF PATRIOT AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF
VIEW OF THE MERGER CONSIDERATION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY PATRIOT STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE PATRIOT
SPECIAL MEETING.
In connection with rendering its opinion, PaineWebber, among other things:
(i) reviewed Patriot's Annual Report, Form 10-K and related financial
information for the fiscal year ended December 31, 1995, and Patriot's Forms
10-Q and the related unaudited financial information for the quarterly periods
ended March 31, 1996 and June 30, 1996; (ii) reviewed the Annual Reports,
Forms 10-K and related financial information for the three fiscal years ended
December 31, 1995, December 31, 1994 and December 31, 1993 of each of Cal
Jockey and Bay Meadows, and the Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996 and June 30, 1996
of each of Cal Jockey and Bay Meadows; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of Patriot, Cal Jockey and Bay Meadows furnished to
PaineWebber by Patriot, Cal Jockey and Bay Meadows, respectively, including,
without limitation, certain assumptions provided to PaineWebber by Patriot
about the availability, cost and timing of acquisitions and dispositions of
assets following the Merger and the Related Transactions; (iv) conducted
discussions with members of senior management of Patriot, Cal Jockey and Bay
Meadows, concerning their respective businesses and prospects; (v) reviewed
the financial terms of the October 29, 1996 draft of the October 31, 1996
Agreement; and (vi) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters
as PaineWebber deemed necessary.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was either publicly available or
supplied, communicated or otherwise made available to it by or on behalf of
Patriot, Cal Jockey or Bay Meadows, and PaineWebber did not assume any
responsibility to independently verify such information or undertake an
independent appraisal of the assets of Patriot, Cal Jockey and Bay Meadows.
With respect to the financial forecasts examined by it, PaineWebber assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the respective managements of
Patriot, Cal Jockey and Bay Meadows, and their respective assets. Also in that
regard, at Patriot's direction, PaineWebber assumed that after the Merger and
the Related Transactions, New Patriot REIT will not be subject to Section 269B
of the Code, that the representations and warranties of each of the parties to
the October 31, 1996 Agreement (including, without limitation, those relating
to REIT status and the Pairing Agreement), are true and correct and will
remain so following consummation of the transactions contemplated by the
October 31, 1996 Agreement and that the tax costs to Patriot and its
stockholders resulting from the transactions contemplated by the October 31,
1996 Agreement will be immaterial. PaineWebber's analyses used in preparing
the PaineWebber Opinion assumed a closing date of the Merger of March 31,
1997. The PaineWebber Opinion is based upon regulatory, economic, monetary and
market conditions existing on the date thereof. PaineWebber assumed, with
Patriot's consent, that all material assets and liabilities (contingent or
otherwise, known or unknown) of Patriot, Cal Jockey and Bay Meadows are as set
forth in their respective consolidated financial statements.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances, and
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of the analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber Opinion. Any estimates contained in these
94
<PAGE>
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty and neither Patriot nor
PaineWebber assumes responsibility for the accuracy of such analyses or
estimates.
The following paragraphs summarize the material analyses performed by
PaineWebber in arriving at the PaineWebber Opinion. PaineWebber performed its
analyses prior to Patriot effecting a 2-for-1 stock split; accordingly, the
following summary does not reflect the 2-for-1 stock split effected by Patriot
in the form of a stock dividend distributed on March 18, 1997.
Valuation of Paired Share Structure
Discounted Cash Flow Analysis. PaineWebber undertook a discounted cash flow
analysis of the paired share structure of Cal Jockey and Bay Meadows. At the
direction of Patriot, PaineWebber assumed in determining such valuation that
New Patriot REIT would consummate $300 million in acquisitions annually over
the ten years following the closing of the Merger and that 70.0%, or $210
million, of such acquisitions annually would be consummated utilizing the
paired share structure (that is, that the fee interest in the applicable real
property would be acquired by New Patriot REIT and the property would be
leased to and managed by New Patriot Operating Company). PaineWebber's
analysis also assumed a variable cost of management by New Patriot Operating
Company of each hotel property of New Patriot REIT equal to 1.125% of
anticipated gross revenues of such hotel property acquired by New Patriot
REIT. This assumption compared to an increasing scale of cash flow retained by
a third party lessee associated with leasing such a hotel property to, and
such hotel property being managed by, a third party lessee beginning at 3% of
gross revenues of such a hotel property in the first year following its
acquisition by New Patriot REIT and increasing to 5.2% of gross revenue over a
ten-year period. PaineWebber also made certain other assumptions with respect
to the relationship between gross revenues and the acquisition cost of hotel
properties, the fixed costs associated with internal management of hotels and
the growth rates of gross revenues and the fixed costs associated with
internal management. Applying discount rates ranging from 12.5% to 14.0% to
the resulting difference in net operating income and a range of terminal exit
multiples of 8.5x to 10.0x, PaineWebber derived a valuation range for the
paired share structure of $95.9 million to $119.1 million. PaineWebber noted
that this valuation does not assign any value to the potential for future
leasing and management by New Patriot Operating Company of hotel properties
currently owned by Patriot and currently leased and managed by third parties
when the leases for such hotel properties begin to expire in 2005.
Comparative Multiple Analysis. PaineWebber undertook an analysis of the
potential impact of the paired share structure on the multiple of FFO per
share at which Patriot Common Stock trades. PaineWebber compared the price
performance of Patriot Common Stock to that of the common stock of Starwood,
Patriot's principal competitor among hotel REITs focused on high quality,
full-service hotel properties in major United States markets and the only
existing hotel REIT which has the paired share structure. For the 30 trading
days prior to October 29, 1996, PaineWebber noted that Starwood's common stock
traded at an 18% to 26% FFO multiple premium to Patriot Common Stock (based on
daily mean First Call FFO estimates for 1996), a premium which many in the
industry attribute principally to Starwood's paired share structure. Assuming
a $107.5 million purchase price for the paired share structure of Cal Jockey
and Bay Meadows (the midpoint of PaineWebber's valuation range) financed with
debt at an interest rate of 8.0%, PaineWebber determined that the purchase of
the paired share structure at this price would be dilutive on a pro forma
basis to New Patriot REIT's FFO per share, assuming no additional acquisitions
were made utilizing the benefits of the paired share structure. However,
PaineWebber noted that the potential multiple expansion which could result
from Patriot's acquisition of the paired share structure appeared to more than
compensate for this reduction in FFO. Assuming multiple increases of 60% to
80% of the difference between FFO multiples of the price of Patriot Common
Stock and the common stock of Starwood for the 30 trading day period prior to
October 29, 1996, PaineWebber calculated an implied price range per paired
share of New Patriot Operating Company Common Stock and New Patriot REIT
Common Stock of $33.06 to $34.31 which reflects an increase over the average
share price of Patriot Common Stock for the 30 trading day period prior to
October 29, 1996 of $0.05 to $1.30, respectively, notwithstanding the
acquisition's initial dilutive impact to Patriot's FFO per share.
95
<PAGE>
PaineWebber utilized the above comparative multiple analysis as a means of
validating its valuation of the paired share structure, recognizing that the
paired share structure is a unique corporate asset which does not itself
generate cash flow. Accordingly, PaineWebber believed it was reasonable to
consider the potential impact of the paired share structure on Patriot's
multiple in connection with rendering its fairness opinion. This comparative
multiple analysis is, however, only an analytical method of valuation, and
there can be no assurance that Patriot's FFO multiple will rise in the manner
suggested by this analysis.
Valuation of Race Operations
Selected Comparable Public Companies Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of Bay Meadows to the
corresponding data of certain publicly traded companies that PaineWebber
considered comparable (collectively, the "PaineWebber Comparable Companies").
The PaineWebber Comparable Companies were selected principally based upon
their operation of pari-mutuel horse racing and satellite wagering facilities
and their lack of other businesses or assets which may have an impact on their
respective valuations. The PaineWebber Comparable Companies consisted of
Canterbury Park Holding Corporation, Churchill Downs Incorporated,
International Thoroughbred Breeders, Inc. and Penn National Gaming, Inc.
PaineWebber derived a range of values for Bay Meadow's race operations (the
"Race Operations") by applying the Race Operations' estimated 1996 earnings
before interest, taxes, depreciation and amortization ("EBITDA"), as adjusted
by Bay Meadows, to a corresponding EBITDA multiple for the PaineWebber
Comparable Companies. The corresponding EBITDA multiples for the PaineWebber
Comparable Companies were based on the latest 12 months of available financial
statements and the average closing stock prices for each of the PaineWebber
Comparable Companies for the 30 trading day period prior to October 29, 1996.
PaineWebber observed that the EBITDA multiple for the PaineWebber Comparable
Companies ranged from 8.4x to 21.3x, with a median of 10.3x.
PaineWebber computed a value for the Race Operations by multiplying the Race
Operations' estimated 1996 EBITDA, as adjusted by Bay Meadows to an EBITDA
multiple range of 8.0x to 9.5x. PaineWebber observed that this method produced
a valuation range for the Race Operations of $29.3 million to $34.8 million.
Discounted Cash Flow Analysis. PaineWebber used projections and other
information supplied by the managements of Patriot and Bay Meadows to estimate
the cash flow of the Race Operations for the years 1997 through 2003,
inclusive, using discount rates ranging from 13% to 15%. PaineWebber estimated
the terminal value of the Race Operations by taking the Race Operations'
estimated EBITDA in 2003, including a reduction for payments under an assumed
lease between New Patriot REIT and New Patriot Operating Company covering the
land underlying the Racecourse (the "Racecourse Lease"), and applying a range
of terminal multiples of 8.0x to 9.5x to the resulting total. PaineWebber then
discounted the range of terminal values back using discount rates ranging from
13% to 15%, the same discount rates used in valuing the cash flow for the
years 1997 through 2003, inclusive. PaineWebber then added together the range
of present values of the free cash flow and the range of present values of the
terminal value to arrive at a discounted cash flow valuation range for the
Race Operations of $26.2 million to $31.0 million.
Valuation of Cal Jockey
Discounted Cash Flow Analysis. Using information and assumptions provided by
Patriot and Cal Jockey, PaineWebber used a discounted cash flow methodology to
value the individual parcels of real estate owned by Cal Jockey, including (i)
the Stable Area, assumed to be sold to Property Resources pursuant to the
Franklin Agreement, (ii) the Training Track Area, assumed to be sold to
Airdial pursuant to the Iacocca Agreement, (iii) the remaining acres
underlying the Racecourse, assumed to be retained in order to continue the
Race Operations (the "Racecourse Area"), (iv) the Tennis Club Parcel and (v)
the parcel adjacent to the Racecourse, which is to be subject to the Borders
Lease.
Valuation of the Stable Area, Training Track Area and Racecourse
Area. PaineWebber used projections and other information and assumptions
provided by the managements of Cal Jockey and Patriot to estimate the
96
<PAGE>
quarterly cash flow of Cal Jockey's real estate portfolio (defined as revenue
and sale proceeds less net entitlement costs, commissions and other similar
costs) for the period beginning March 31, 1997 and ending at an assumed date
of closing of the pending sales of the Stable Area and the Training Track Area
of April 30, 1998. PaineWebber estimated the cash flow associated with the
pending sales of the Stable Area and the Training Track Area pursuant to the
terms of the Franklin Agreement and the Iacocca Agreement, respectively,
assuming the consummation of such pending sales. Based on the terms and
conditions of such agreements and assumptions supplied by Patriot and Cal
Jockey, PaineWebber assumed that Patriot would receive approximately $51.0
million in aggregate proceeds from the sales of the Stable Area and the
Training Track Area, net of entitlement and off-site costs associated with
development. While PaineWebber noted that there can be no assurance as to
whether the sales of the Stable Area and the Training Track Area pursuant to
the Franklin Agreement and the Iacocca Agreement will in fact be consummated,
PaineWebber believed that the discount rates it utilized in its analysis
fairly reflected this contingency. Moreover, PaineWebber was advised that the
transactions were negotiated at arms' length among credible parties and,
accordingly, PaineWebber concluded that the price to be paid in these
transactions represented fair value for the real property.
With respect to the Racecourse Area, PaineWebber assumed the existence of
the Racecourse Lease. Using assumptions provided by Patriot, PaineWebber
estimated the cash flow generated by the Racecourse Area for the period
beginning March 31, 1997 and ending March 31, 2004. PaineWebber computed the
terminal value of the Racecourse Area by multiplying the remaining acres
available for development by the average sale price per acre of the Stable
Area and the Training Track Area after applying an annual 2% growth rate over
a seven-year period and deducting applicable selling expenses.
PaineWebber computed an aggregate value for the Stable Area, the Training
Track Area and the Racecourse Area as of March 31, 1997 by discounting the
cash flow and terminal values associated with the respective properties at
discount rates ranging from 19% to 21%. PaineWebber noted that the discounted
cash flow valuation produced a range of aggregate values for the Stable Area,
the Training Track Area and the Racecourse Area of $74.1 million to $77.9
million.
Valuation of Pending Sale of Tennis Club Parcel. Based on the July 1996
agreement with Public Storage Inc. described in "The Companies--Cal Jockey--
Pending Sales and Negotiations," PaineWebber calculated the present value
range, as of March 31, 1997, assuming a sale date of December 31, 1997, of the
pending sale of the Tennis Club Parcel, to be $1.96 million to $2.0 million,
by applying a discount rate range of 9.0% to 12.0%. PaineWebber noted that
while there can be no assurance as to whether the pending sale of the Tennis
Club Parcel will in fact be consummated, PaineWebber believed that the
discount rates it utilized in its analysis fairly reflected this contingency.
Moreover, PaineWebber was advised that the transaction was negotiated at arms'
length between credible parties and, accordingly, PaineWebber concluded that
the sale price represented fair value for the Tennis Club Parcel.
Valuation of Borders Lease. PaineWebber also undertook a valuation of the
land subject to the Borders Lease described in "The Companies--Cal Jockey--
Pending Sales and Negotiations." Using a capitalization rate range of 12% to
14% applied to payments under the Borders Lease, PaineWebber calculated the
range of implied net proceeds resulting from the sale of the parcel of land
subject to the Borders Lease to be $1.9 million to $2.3 million. PaineWebber
noted that there could be no assurance as to whether the Borders Lease would
in fact be executed.
Aggregate Value of Components
The individual valuations of the assets and business of Cal Jockey and Bay
Meadows, including the paired share structure, produced a valuation range of
$200.1 million to $236.1 million, or a range of approximately $33.48 to $39.50
per share. PaineWebber observed that the $33.00 per share value to be paid to
stockholders of Cal Jockey and Bay Meadows pursuant to the Merger and the
Offer was below the range produced by PaineWebber's valuation analysis.
Pursuant to the PaineWebber Engagement Letter, PaineWebber will receive a
fee of $250,000 for delivery of the PaineWebber Opinion. In addition,
PaineWebber is entitled to receive a fee (the "Acquisition Fee") in an
97
<PAGE>
amount equal to 1% of the aggregate consideration involved in the Merger and
the Offer (based on an acquisition price of $33.00 per Paired Share). This fee
will be due and payable upon consummation of the Merger. If within 180 days of
the termination or expiration of Patriot's engagement of PaineWebber in
connection with the transactions contemplated by the PaineWebber Engagement
Letter, any of Patriot or its affiliates engages, without a financial advisor
or with a financial advisor other than PaineWebber or its affiliates, in a
transaction pursuant to which PaineWebber would have otherwise been entitled
to the Acquisition Fee pursuant to the PaineWebber Engagement Letter, Patriot
will pay PaineWebber at the closing of such transaction a fee equal to 0.5% of
the aggregate consideration involved in such transaction. Patriot has agreed
to reimburse PaineWebber for its reasonable out-of-pocket expenses including
the fees and disbursements of its legal counsel. Patriot has also agreed to
indemnify PaineWebber, its affiliates and their respective officers,
directors, employees, agents, controlling person, representative or agent
against certain liabilities, including liabilities under federal securities
laws. In addition to $250,000 for delivery of the PaineWebber Opinion, Patriot
will pay PaineWebber an Acquisition Fee of approximately $2 million, assuming
there are 5,763,257 Paired Shares outstanding and 162,000 Paired Shares
underlying unexercised stock options.
In the past, PaineWebber has provided financial advisory services and
investment banking services and has acted as a lender, to Patriot (including
acting as an underwriter for Patriot) and received fees for the rendering of
these services. PaineWebber may provide financial advisory or investment
banking services to, and act as an underwriter or placement agent for or
lender to, Patriot, Cal Jockey or Bay Meadows in the future. In the ordinary
course of PaineWebber's business, PaineWebber trades the equity and debt
securities of Patriot, Cal Jockey and Bay Meadows for its own account and for
the accounts of its customers and, accordingly, may at any time hold long or
short positions in such securities. PaineWebber and certain executive officers
and directors of Patriot and certain affiliates of Patriot have had
discussions regarding joint investments and/or acquisitions (and financing
therefor).
During the negotiations which eventually resulted in the execution of the
October 31, 1996 Agreement, PaineWebber engaged in discussions with Patriot
regarding a potential acquisition by PaineWebber or an affiliate thereof of
certain of the real estate assets of Cal Jockey following consummation of the
transactions contemplated by the October 31, 1996 Agreement. See "--Background
of the Merger." These discussions, however, had terminated prior to the time
that PaineWebber had finalized the valuation analyses described above and
delivered its fairness opinion to the Patriot Board of Directors. Thus,
neither Patriot nor PaineWebber believe that PaineWebber had any conflict of
interest at the time that PaineWebber delivered the PaineWebber Opinion. In
December 1996, PaineWebber and Patriot resumed such discussions and
subsequently reached an agreement in principle pursuant to which an affiliate
of PaineWebber would purchase substantially all of the land owned by Cal
Jockey following consummation of the Merger for a purchase price of $78.05
million in cash. See "The Companies--Surviving Companies--Proposed PaineWebber
Land Sale."
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF CAL JOCKEY
The Cal Jockey Board of Directors unanimously approved the October 31, 1996
Agreement at a meeting of the Cal Jockey Board of Directors on October 30,
1996, unanimously approved the February 24, 1997 Agreement, at a meeting of
the Cal Jockey Board of Directors on February 21, 1997 and thereafter
unanimously approved the Merger Agreement and the Related Transactions at a
meeting of the Cal Jockey Board of Directors on May 28, 1997. THE CAL JOCKEY
BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE IN THE BEST
INTERESTS OF CAL JOCKEY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF CAL JOCKEY VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL AND
"FOR" APPROVAL OF THE CAL JOCKEY CHARTER AND BYLAW AMENDMENT PROPOSAL.
In unanimously approving the October 31, 1996 Agreement, the February 24,
1997 Agreement, the Merger Agreement and the Related Transactions and in
recommending that Cal Jockey's stockholders approve the Merger Proposal and
the Cal Jockey Charter and Bylaw Amendment Proposal, the Cal Jockey Board of
Directors
98
<PAGE>
consulted with Cal Jockey's management, as well as its financial and legal
advisors, and considered a number of factors. The material factors considered
by the Cal Jockey Board of Directors in reaching the foregoing conclusions are
described below.
(i) Historical and Recent Market Prices Compared to Consideration to be
Received by Holders of Paired Shares. At each meeting, the Cal Jockey Board
of Directors reviewed the historical market prices and recent trading
activity of the Paired Shares. The Cal Jockey Board of Directors considered
as favorable to its determination the fact that Cal Jockey stockholders
would hold Paired Shares as of the time of the Merger that had a market
value, as of a date shortly before the Merger, of not less than $33.00 per
Paired Share, representing a premium of 33% over the closing sale price of
$24.875 for Paired Shares on October 30, 1996, the last trading day
preceding Cal Jockey's announcement that Cal Jockey and Patriot had signed
the October 31, 1996 Agreement and an approximate premium of 130% over the
average sale price of $14.36 for Paired Shares during the first quarter of
1996, prior to receipt of merger inquiries from any potential acquiror. At
the October 30, 1996 and the February 21, 1997 meetings, the Cal Jockey
Board of Directors also considered as favorable the mechanism contained in
the February 24, 1997 Agreement that gave stockholders the ability to
benefit from appreciation in the Patriot Common Stock at prices above
$34.25 while eliminating exposure to declines in the price of Patriot
Common Stock by fixing the tender price in the Offer at $33.00 per Paired
Share. At the May 28, 1997 meeting, in deciding to eliminate the Offer from
the Merger Agreement, the Cal Jockey Board of Directors considered the fact
that the stockholders of Cal Jockey and Bay Meadows had for over six months
enjoyed the ability to realize more than the $33.00 cash per Paired Share
price provided for in the Offer by selling their Paired Shares on the AMEX.
The Cal Jockey Board of Directors also considered the effects of the
mechanism contained in the Merger Agreement that adjusted the Exchange
Ratio, in the event the price of Patriot Common Stock were to fall below
$17.125, the equivalent of $33.00 per Paired Share based on the Exchange
Ratio so that the stockholders of Cal Jockey and Bay Meadows as of the time
of the Merger would hold paired shares of New Patriot REIT and New Patriot
Operating Company equal in value, as of a date shortly before the Merger,
to $33.00 per Paired Share. The Cal Jockey Board of Directors also
considered the timing issues pertaining to the Offer and the Merger, as
well as the considerations involved in delaying the Merger.
(ii) Cal Jockey's Business, Condition and Prospects. The Cal Jockey Board
of Directors considered information with respect to the financial
condition, results of operations and business of Cal Jockey and Bay
Meadows, on both a historical and prospective basis, and current industry,
economic and market conditions. In particular, the Cal Jockey Board of
Directors considered the potential impact in the future on Cal Jockey's
revenues due to a steady decline in daily on-track attendance on a
nationwide basis and an increase in competition from other gaming and
leisure activities. The Cal Jockey Board of Directors considered favorable
to its determination that a combination with Patriot would allow Cal Jockey
to enjoy significant growth opportunities, including expansion into the
lodging industry, as a result of the Merger.
(iii) Patriot's Business, Condition and Prospects. The Cal Jockey Board
of Directors considered information with respect to the financial
condition, results of operations and business of Patriot, on both a
historical and prospective basis, and current industry, economic and market
conditions. Cal Jockey's financial representatives made presentations to
and provided the Cal Jockey Board of Directors with information regarding
Patriot's financial condition and prospects after conducting business and
financial due diligence. Cal Jockey's legal representatives made
presentations to the Cal Jockey Board of Directors and conducted legal due
diligence. In evaluating Patriot's prospects, the Cal Jockey Board of
Directors considered, among other things, the performance of its hotels,
the geographical distribution of its hotels, the strength of its management
team, the success of its recent hotel acquisitions and the reputation of
Patriot in the hotel industry. The Cal Jockey Board of Directors also found
favorable the fact that New Patriot REIT would enjoy increased market
capitalization, increased liquidity and greater financial strength.
(iv) Termination Provisions and Termination Fee. The Cal Jockey Board of
Directors considered the provisions contained in the October 31, 1996
Agreement and retained in the February 24, 1997 Agreement and in the Merger
Agreement that permit the Cal Jockey Board of Directors to continue to
receive unsolicited inquiries and proposals, negotiate and give information
to third parties and to terminate the Merger Agreement upon payment to
Patriot of the $5,000,000 termination fee (in addition to the repayment
99
<PAGE>
to Patriot of the $2,900,000 Loan, the proceeds of which were used to pay a
termination fee paid in connection with the termination of the Hudson Bay
transaction), if by reason of an alternative proposal being made or the Cal
Jockey Board of Directors' determination that it will not recommend
approval of the Merger or its withdrawal of such recommendation in the
exercise of its fiduciary duties. The Cal Jockey Board of Directors
believed this termination fee was within the range of fees payable in
comparable transactions and that the fee would not, in and of itself,
preclude alternative proposals.
(v) Opinion of Montgomery Securities. At the October 30, 1996 Meeting,
the Cal Jockey Board of Directors considered as favorable to its
determination the oral opinion delivered to the Cal Jockey Board of
Directors at that meeting by Montgomery (which it subsequently confirmed in
a written opinion dated October 30, 1996) that, as of the date of such
opinion, and based upon and subject to certain matters stated therein, the
consideration to be received by holders of Cal Jockey Common Stock and Bay
Meadows Common Stock pursuant to the Merger and the Offer in accordance
with the terms provided in the draft of the October 31, 1996 Agreement
provided to Montgomery was fair, from a financial point of view, to such
holders. At the May 28, 1997 meeting, the Cal Jockey Board of Directors
viewed as favorable to its determination to eliminate the Offer an updating
opinion rendered orally by Montgomery (which Montgomery subsequently
updated in a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole, were fair from
a financial point of view to the Cal Jockey and Bay Meadows stockholders.
(vi) Ability of Stockholders of Cal Jockey to Obtain a Continuing Equity
Interest in Patriot. The Cal Jockey Board of Directors regarded as
favorable to its determination the fact that the terms of the Merger permit
holders of Paired Shares to continue to hold an equity interest in New
Patriot REIT and New Patriot Operating Company following the Merger.
(vii) Other Indications of Interest. The Cal Jockey Board of Directors
reviewed its numerous discussions over time with other companies regarding
a potential transaction with Cal Jockey as described in "--Background of
the Merger." In particular, the Cal Jockey Board of Directors discussed the
indications of interest it had received during its discussions with Patriot
and the terms of the proposed Hudson Bay transaction. The Cal Jockey Board
of Directors regarded as favorable to its determination that the proposed
Hudson Bay transaction and the Cal Jockey Board of Directors' discussions
over time with other parties, in particular Company D, failed to yield a
transaction on terms as favorable as those presented in the October 31,
1996 Agreement and restated in the February 24, 1997 Agreement and in the
Merger Agreement.
(viii) Termination Fee of Hudson Bay Transaction. The Cal Jockey Board of
Directors considered its obligation under the agreement governing the
Hudson Bay transaction to pay a $2,900,000 termination fee in the event Cal
Jockey decided to enter into a transaction with another party. In
particular, the Cal Jockey Board of Directors considered the fact that the
Patriot transaction is an economically superior alternative to the Hudson
Bay transaction, and included the $2,900,000 Loan to Cal Jockey.
The Cal Jockey Board of Directors also considered the following potentially
negative factors in its deliberations concerning the Merger:
(i) Failure to Satisfy Conditions. The Cal Jockey Board of Directors
considered the various conditions to Patriot's obligations to consummate
the Merger. See "The Merger Agreement--Conditions to the Merger."
(ii) Leverage of the Surviving Company. The Cal Jockey Board of Directors
considered the fact that the surviving company would have substantial debt
obligations as compared to no indebtedness of Cal Jockey.
(iii) Dilutive Effect of the Merger. The Cal Jockey Board of Directors
considered the fact that the holders of Paired Shares prior to the Merger
would own a lesser percentage of shares of the total number of paired
shares of New Patriot REIT and New Patriot Operating Company because of the
shares issued to Patriot stockholders in the Merger.
100
<PAGE>
(iv) No Solicitation of Other Proposals; Termination Fees. The Cal Jockey
Board of Directors considered the fact that under the terms of the October
31, 1996 Agreement, Cal Jockey and its representatives would be prohibited
from encouraging, soliciting or initiating the submission of any
Acquisition Proposal (see "The Merger Agreement--Certain Covenants"),
entering into any agreement for an Acquisition Proposal or participating in
any way in discussions or negotiations with any person in connection with
any Acquisition Proposal, unless such action was required for the Cal
Jockey Board of Directors to comply with its fiduciary duties to
stockholders under applicable law. The Cal Jockey Board of Directors also
considered the possibility that Cal Jockey could be required, if the Merger
Agreement was terminated under certain circumstances, to pay Patriot a
termination fee of $5,000,000 in addition to the repayment to Patriot of
the $2,900,000 Loan. The Cal Jockey Board of Directors recognized that the
inclusion of such provisions in the October 31, 1996 Agreement would render
it unlikely that a more attractive offer for the acquisition of Cal Jockey
would be presented to Cal Jockey and its stockholders; however, the Cal
Jockey Board of Directors believed that, based on its efforts to find a
buyer for Cal Jockey, the October 31, 1996 Agreement, the February 24, 1997
Agreement and the Merger Agreement represented the best offer reasonably
available to Cal Jockey and its stockholders. See "The Merger Agreement--
Certain Covenants," "--Loan for Hudson Bay Termination Fee" and "--
Termination Amount and Expenses."
The Cal Jockey Board of Directors was aware of the potential benefits to the
directors discussed below in "--Interests of Certain Officers and Directors,"
including the provisions of the October 31, 1996 Agreement affording
indemnification and directors' insurance to the directors of Cal Jockey for
actions and omissions of such persons occurring prior to the Effective Time.
These provisions were important to the Cal Jockey Board of Directors; however,
these factors did not affect the Cal Jockey Board of Directors' evaluation or
recommendation of the transaction because such provisions are customary in
agreements relating to business combinations.
In the opinion of the Cal Jockey Board of Directors, the above factors
represent the material potential adverse consequences which could occur as a
result of the Merger. In considering the Merger and the Related Transactions,
the Cal Jockey Board of Directors considered the impact of these factors on
Cal Jockey's existing stockholders. In the opinion of the Cal Jockey Board of
Directors, however, these potentially negative factors were outweighed by the
potential positive factors considered by the Cal Jockey Board of Directors
which are described above. Accordingly, the Cal Jockey Board of Directors
voted to approve the Merger Proposal.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Cal Jockey Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF BAY MEADOWS
The Bay Meadows Board of Directors unanimously approved the October 31, 1996
Agreement at a meeting of the Bay Meadows Board of Directors on October 30,
1996, unanimously approved the February 24, 1997 Agreement at a meeting of the
Bay Meadows Board of Directors on February 26, 1997 and thereafter unanimously
approved the Merger Agreement and the Related Transactions at a meeting of the
Bay Meadows Board of Directors on May 27, 1997. THE BAY MEADOWS BOARD OF
DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE IN THE BEST
INTERESTS OF BAY MEADOWS AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF BAY MEADOWS VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL AND
"FOR" APPROVAL OF THE BAY MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL.
In unanimously approving the October 31, 1996 Agreement, the February 24,
1997 Agreement, the Merger Agreement and the Related Transactions, and in
recommending that Bay Meadows' stockholders approve the Merger Proposal and
the Bay Meadows Charter and Bylaw Amendment Proposal, the Bay Meadows Board of
Directors consulted with Bay Meadows' management, as well as Bay Meadows'
financial and legal advisors, and considered a number of factors. The material
factors considered by the Bay Meadows Board of Directors in reaching the
foregoing conclusions are described below.
101
<PAGE>
(i) Historical and Recent Market Prices Compared to Consideration to be
Received by Holders of Paired Shares. At each meeting, the Bay Meadows
Board of Directors reviewed the historical market prices and recent trading
activity of the Paired Shares. The Bay Meadows Board of Directors
considered as favorable to its determination the fact that Bay Meadows
stockholders would hold Paired Shares as of the time of the Merger that had
a market value, as of a date shortly before the Merger, of not less than
$33.00 per Paired Share, representing a premium of 33% over the closing
sale price of $24.875 for Paired Shares on October 30, 1996, the last
trading day preceding Bay Meadows' announcement that Bay Meadows, Cal
Jockey and Patriot had signed the October 31, 1996 Agreement, and an
approximate premium of 130% over the average sale price of $14.36 for
Paired Shares during the first quarter of 1996, prior to the receipt of
merger inquiries from any potential acquiror. At the October 30, 1996 and
the February 26, 1997 meetings, the Bay Meadows Board of Directors also
considered as favorable the mechanism contained in the February 24, 1997
Agreement that gave stockholders the ability to benefit in price
appreciation of the Patriot Common Stock at prices above $34.25, while
eliminating exposure to declines in the price of Patriot Common Stock by
fixing the tender price in the Offer at $33.00 per Paired Share. At the May
27, 1997 meeting, in deciding to eliminate the Offer from the Merger
Agreement, the Bay Meadows Board of Directors considered the fact that the
stockholders of Cal Jockey and Bay Meadows had for over six months enjoyed
the ability to realize more than the $33.00 cash per Paired Share price
provided for in the Offer by selling their Paired Shares on the AMEX. The
Bay Meadows Board of Directors also considered the effects of the mechanism
contained in the Merger Agreement that adjusted the Exchange Ratio, but
only in the event the price of Patriot's Common Stock were to fall below
$17.125, the equivalent of $33.00 per Paired Share based on the Exchange
Ratio, so that the stockholders of Cal Jockey and Bay Meadows as of the
time of the Merger would hold shares of New Patriot REIT and New Patriot
Operating Company equal in value, as of a date shortly before the Merger,
to $33.00 per Paired Share. The Bay Meadows Board of Directors also
considered the timing issues pertaining to the Offer and the Merger, as
well as the considerations involved in delaying the Merger.
(ii) Bay Meadows' Business, Condition and Prospects. The Bay Meadows
Board of Directors considered information with respect to the financial
condition, results of operations, business and business risks of Bay
Meadows and Cal Jockey, on both a historical and prospective basis, and
current industry, economic and market conditions. The Bay Meadows Board of
Directors considered favorable to its determination that a combination with
Patriot would allow Bay Meadows to enjoy significant growth and
diversification opportunities, including expansion into the lodging
industry, as a result of the Merger.
(iii) Patriot's Business, Condition and Prospects. The Bay Meadows Board
of Directors considered information with respect to the financial
condition, results of operations and business of Patriot, on both a
historical and prospective basis, and current industry, economic and market
conditions. Bay Meadows' financial representatives made presentations to
and provided the Bay Meadows Board of Directors with information regarding
Patriot's financial condition and prospects after conducting business and
financial due diligence. Bay Meadows' legal representatives made
presentations to the Bay Meadows Board of Directors and conducted legal due
diligence. In evaluating Patriot's prospects, the Bay Meadows Board of
Directors considered, among other things, the performance of its hotels,
the geographical distribution of its hotels, the strength of its management
team, the success of its recent hotel acquisitions and the reputation of
Patriot in the hotel industry. The Bay Meadows Board of Directors found
favorable the fact that Bay Meadows and Cal Jockey would enjoy increased
market capitalization, increased liquidity and greater financial strength.
(iv) Termination Provisions and Termination Fee. The Bay Meadows Board of
Directors considered the provisions contained in the October 31, 1996
Agreement and retained in the February 24, 1997 Agreement and the Merger
Agreement that permit the Bay Meadows Board of Directors to continue to
receive unsolicited inquiries and proposals, negotiate and give information
to third parties and to terminate the Merger Agreement upon payment to
Patriot of the $5,000,000 termination fee (in addition to the repayment by
Cal Jockey to Patriot of the $2,900,000 loan made by Patriot in connection
with the termination of the Hudson Bay transaction), if by reason of an
alternative proposal being made or the Bay Meadows Board of Directors
determines that it will not recommend approval of the Merger, or withdraws
such recommendation, in the exercise of its fiduciary duties. The Bay
Meadows Board of Directors believed
102
<PAGE>
this termination fee was within the range of fees payable in comparable
transactions and that the fee would not, in and of itself, preclude
alternative proposals.
(v) Opinion of Montgomery Securities. At the October 30, 1996 meeting,
the Bay Meadows Board of Directors considered as favorable to its
determination the oral opinion delivered to the Bay Meadows Board of
Directors at that meeting by Montgomery (which it subsequently confirmed in
a written opinion dated as of October 30, 1996) that as of the date of such
opinion, and based upon and subject to certain matters stated therein, the
consideration to be received by holders of Cal Jockey Common Stock and Bay
Meadows Common Stock pursuant to the Merger and the Offer in accordance
with the terms provided in the draft of the October 31, 1996 Agreement
provided to Montgomery was fair, from a financial point of view, to such
holders. At the May 27, 1997 meeting, the Bay Meadows Board of Directors
viewed as favorable to its determination to eliminate the Offer an updating
opinion rendered orally by Montgomery (which Montgomery subsequently
updated in a written opinion dated the date of this Joint Proxy
Statement/Prospectus) to the effect that, as of that date, the financial
terms of the Merger and the Subscription, taken as a whole were fair from a
financial point of view, to the Cal Jockey and Bay Meadows stockholders.
(vi) Ability of Stockholders of Bay Meadows to Obtain a Continuing Equity
Interest in Patriot. The Bay Meadows Board of Directors regarded as
favorable to its determination the fact that the terms of the Merger permit
holders of Paired Shares to continue to hold an equity interest in New
Patriot REIT and New Patriot Operating Company following the Merger.
(vii) Other Indications of Interest. The Bay Meadows Board of Directors
reviewed the numerous discussions over time with other companies regarding
a potential transaction with Bay Meadows as described in "--Background of
the Merger." In particular, the Bay Meadows Board of Directors discussed
the indications of interest received during its discussions with Patriot
and the terms of the proposed Hudson Bay transaction. The Bay Meadows Board
of Directors regarded as favorable to its determination that the proposed
Hudson Bay transaction and discussions over time with other parties, in
particular Company D, failed to yield a transaction on terms as favorable
as those presented in the February 24, 1997 Agreement and in the Merger
Agreement.
(viii) Ability to Terminate Consideration of Hudson Bay
Transaction. Because Cal Jockey had signed an agreement with Hudson Bay,
the Bay Meadows Board of Directors was considering such agreement and how
to improve the terms which the Bay Meadows Board of Directors found
objectionable. The Bay Meadows Board of Directors viewed as favorable the
fact that the Merger Agreement is an economically superior alternative to
the Hudson Bay transaction and does not raise the concerns that the Hudson
Bay transaction raised. See "--Background of the Merger."
The Bay Meadows Board of Directors believes that the Merger offers the
opportunity to create a combined company with greater financial resources and
flexibility, competitive strengths and business opportunities than would be
possessed by Bay Meadows alone.
The Bay Meadows Board of Directors also considered the following potentially
negative factors in its deliberations concerning the Merger:
(i) Failure to Satisfy Conditions. The Bay Meadows Board of Directors
considered the various conditions to Patriot's obligations to consummate
the Merger which, if not fulfilled, would permit Patriot to not consummate
the Merger. See "The Merger Agreement--Conditions to the Merger."
(ii) Failure to Achieve Anticipated Benefits. The Bay Meadows Board of
Directors considered the risk that the anticipated benefits of the Merger
may not be realized as a result of, among other things, possible changes in
the hospitality and real estate markets.
(iii) Leverage of the Surviving Company. The Bay Meadows Board of
Directors considered the fact that the surviving company would have
substantial debt obligations as compared to no indebtedness of Bay Meadows.
(iv) Dilutive Effect of the Merger. The Bay Meadows Board of Directors
considered the fact that the holders of Paired Shares prior to the Merger
would own a lesser percentage of shares of the total number of
103
<PAGE>
paired shares of New Patriot REIT and New Patriot Operating Company because
of the shares issued to Patriot stockholders in the Merger.
(v) No Solicitation of Other Proposals; Termination Fees. The Bay Meadows
Board of Directors considered the fact that under the terms of the October
31, 1996 Agreement, the February 24, 1997 Agreement and the Merger
Agreement, Bay Meadows and its directors, officers, employees, agents and
representatives would be prohibited from initiating, soliciting,
encouraging, participating in negotiations or otherwise facilitating a
proposal of an acquisition by or business combination with a party other
than Patriot, and the possibility that Bay Meadows and Cal Jockey may be
required, if the Merger Agreement is terminated under certain
circumstances, to pay Patriot a termination fee of $5,000,000 (in addition
to Cal Jockey's obligation to repay the $2,900,000 Loan). See "The Merger
Agreement--Termination Amount and Expenses." The Bay Meadows Board of
Directors recognized that the inclusion of such provisions in the Merger
Agreement would render it less likely that a more attractive offer for the
acquisition of Bay Meadows would be presented to the companies and their
stockholders. The Bay Meadows Board of Directors believed, however, that,
based on its efforts to find a buyer for the companies and consideration of
earlier proposals, the October 31, 1996 Agreement, the February 24, 1997
Agreement and the Merger Agreement represent the best offer reasonably
available to the companies and their stockholders.
The Bay Meadows Board of Directors also was aware of the provisions of the
Merger Agreement affording indemnification and directors' insurance to the
directors of Bay Meadows for actions and omissions of such persons occurring
prior to the Effective Time. These provisions were important to the Bay
Meadows Board of Directors but this factor did not affect the Bay Meadows
Board of Directors' evaluation or recommendation of the transaction because
such provisions are customary in agreements relating to business combinations.
The Bay Meadows Board of Directors also was aware that some Bay Meadows
employees hold options to purchase Paired Shares and/or had entered into
severance agreements with Bay Meadows which would provide them certain
benefits upon consummation of the Merger. See "--Interests of Certain Officers
and Directors." This factor did not affect the Bay Meadows Board of Directors'
evaluation or recommendation of the transaction because such benefits are
common in business transactions and would likely arise in a business
combination with any party.
In the opinion of the Bay Meadows Board of Directors, the above factors
represent the material potential adverse consequences which could occur as a
result of the Merger. In considering the Merger and the Related Transactions,
the Bay Meadows Board of Directors considered the impact of these factors on
Bay Meadows' existing stockholders. In the opinion of the Bay Meadows Board of
Directors, however, these potentially negative factors were outweighed by the
potential positive factors considered by the Bay Meadows Board of Directors
which are described above. Accordingly, the Bay Meadows Board of Directors
voted to approve the Merger Proposal.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Bay Meadows Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
OPINION OF FINANCIAL ADVISOR FOR CAL JOCKEY AND BAY MEADOWS
Pursuant to engagement letters dated May 15, 1996, each of Cal Jockey and
Bay Meadows, respectively, retained Montgomery to act as its exclusive
financial advisor in connection with the consideration by each such company of
a sale of an interest in one or both of the companies to a third party.
Montgomery is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Each of Cal Jockey and Bay Meadows selected Montgomery as its
financial advisor on the basis of Montgomery's experience and its reputation
in the investment community.
On October 30, 1996, Montgomery delivered to the Boards of Directors of each
of Cal Jockey and Bay Meadows, at a joint meeting of those Boards of
Directors, its oral opinion, subsequently confirmed in writing as of the same
date, that the consideration to be received by the stockholders of Cal Jockey
and Bay Meadows in the Merger and the Offer in accordance with the terms
provided in the draft of the October 31, 1996 Agreement
104
<PAGE>
provided to Montgomery was fair to such stockholders from a financial point of
view, as of that date. Montgomery also has rendered orally to the Board of
Directors of each of Cal Jockey and Bay Meadows, at meetings of those Boards
of Directors on May 28 and May 27, 1997, respectively, its updating opinions
to the effect that, as of those respective dates, the financial terms of the
Merger and the Subscription, taken as a whole, were fair to the stockholders
of Cal Jockey and Bay Meadows from a financial point of view. In addition,
Montgomery has updated its oral opinions rendered on May 27 and May 28, 1997
by delivery of a written opinion dated the date of this Joint Proxy
Statement/Prospectus to the effect that, as of such date the financial terms
of the Merger and the Subscription, taken as a whole, are fair to the
stockholders of Cal Jockey and Bay Meadows from a financial point of view. The
amount of such consideration pursuant to the October 31, 1996 Agreement and
the financial terms of the transactions pursuant to the Merger Agreement were
determined pursuant to negotiations between Cal Jockey, Bay Meadows and
Patriot, and not pursuant to recommendations of Montgomery. No limitations
were imposed by Cal Jockey or Bay Meadows on Montgomery with respect to the
investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE BOARDS OF DIRECTORS OF
CAL JOCKEY AND BAY MEADOWS DATED AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ATTACHED HERETO AS ANNEX G AND IS INCORPORATED HEREIN
BY REFERENCE. THE FOLLOWING SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. MONTGOMERY'S
OPINION IS DIRECTED TO THE BOARDS OF DIRECTORS OF CAL JOCKEY AND BAY MEADOWS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF CAL JOCKEY, BAY
MEADOWS OR PATRIOT AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE
PROPOSALS. IN FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN
EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES ACT,
AND A STATEMENT TO SUCH EFFECT IS INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN
OPINION.
In connection with its opinions, Montgomery, among other things: (i)
reviewed publicly available financial and other data with respect to Cal
Jockey, Bay Meadows and Patriot, including the consolidated financial
statements for recent years and interim periods, in connection with its
opinion dated October 30, 1996, to June 30, 1996 and, in connection with the
updating opinions rendered on May 27 and May 28, 1997 and the written opinion
dated the date of this Joint Proxy Statement/Prospectus, to March 31, 1997,
and, in each case, certain other relevant financial and operating data
relating to Cal Jockey and Bay Meadows made available to Montgomery from
published sources and from the internal records of Cal Jockey and Bay Meadows;
(ii) reviewed the financial terms and conditions of, in connection with its
opinion dated October 30, 1996, the October 30, 1996 draft of the October 31,
1996 Agreement, and, in connection with the updating opinions rendered on May
27 and May 28 and the written opinion dated the date of this Joint Proxy
Statement/Prospectus, the financial terms and conditions of the Merger
Agreement, in each case as provided to Montgomery by the management of Cal
Jockey and Bay Meadows; (iii) reviewed drafts of this Joint Proxy
Statement/Prospectus, in connection with the updating opinions rendered on May
27 and May 28, 1997 and the written opinion dated the date of this Joint Proxy
Statement/Prospectus; (iv) reviewed certain publicly available information
concerning the trading of, and the trading market for, the Paired Shares and
Patriot Common Stock; (v) reviewed and discussed with representatives of the
management of Cal Jockey and Bay Meadows certain information of a business and
financial nature regarding Cal Jockey and Bay Meadows, furnished to Montgomery
by them, including a summary analysis prepared by Cal Jockey management of the
70 net acres on which the Racecourse is located; (vi) reviewed and discussed
with representatives of the management of Cal Jockey and Bay Meadows financial
forecasts and related assumptions of Cal Jockey and Bay Meadows prepared by
Montgomery in consultation with Cal Jockey and Bay Meadows management;
(vii) made inquiries regarding and discussed, in connection with its opinion
dated October 30, 1996, the October 31, 1996 Agreement and the terms of the
Merger and the Offer as described therein, and, in connection with the
updating opinions rendered on May 27 and May 28, 1997 and the written opinion
dated the date of this Joint Proxy Statement/Prospectus, the Merger Agreement
and the terms of the Merger as described therein, and, in each case, other
matters related thereto with counsel of Cal Jockey and Bay Meadows; (viii)
reviewed the terms of certain transfers of real property which Montgomery
deemed comparable to the real property owned by Cal Jockey, including the
terms of two real property sales by Cal Jockey announced in 1996; and
(ix) performed such other analyses and examinations as Montgomery deemed
appropriate.
105
<PAGE>
In connection with its review, Montgomery did not assume any obligation to
independently verify the foregoing information and relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts prepared by Montgomery in consultation with the respective
managements of Cal Jockey and Bay Meadows, as described above, Montgomery
assumed for purposes of its opinions that such forecasts reflect the best
available estimates and judgments of the respective managements of Cal Jockey
and Bay Meadows at the time of such consultation as to the future financial
performance of Cal Jockey and Bay Meadows, and that they provide a reasonable
basis upon which Montgomery could form its opinions. Neither Cal Jockey nor
Bay Meadows publicly discloses internal management forecasts of the type
prepared by Montgomery in consultation with the respective managements of Cal
Jockey and Bay Meadows in connection with Montgomery's review of the Merger.
Such forecasts were not prepared with a view toward public disclosure. In
addition, such forecasts were based upon numerous variables and assumptions
that are inherently uncertain, including, without limitation, factors related
to general economic and competitive conditions. Accordingly, actual results
could vary significantly from those set forth in such forecasts. Montgomery
has assumed no liability for such forecasts. With respect to the summary
analysis prepared by Cal Jockey's management of the 70 net acres on which the
Racecourse is located, upon its advice and with the consent of the Boards of
Cal Jockey and Bay Meadows, Montgomery assumed for purposes of its opinions
that such summary analysis reflects the best available estimates and judgments
of Cal Jockey's management at the time of preparation as to the value of that
real property and that it provides a reasonable basis upon which Montgomery
could form its opinions. Montgomery also assumed that there have been no
material changes in the assets, financial condition, results of operations,
business or prospects of Cal Jockey, Bay Meadows or Patriot since the
respective dates of their last financial statements made available to
Montgomery. Montgomery relied on advice of counsel and independent accountants
to Cal Jockey and Bay Meadows as to all legal and financial reporting matters
with respect to Cal Jockey, Bay Meadows, the draft of the October 31, 1996
Agreement and the Merger Agreement and the transactions contemplated therein.
Montgomery assumed that the Merger, the Subscription and the Offer would be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, Montgomery did
not assume responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Cal Jockey, Bay Meadows or Patriot, nor was Montgomery furnished
with any such appraisals. Finally, Montgomery's opinions are based on
economic, monetary and market and other conditions as in effect on, and the
information made available to Montgomery as of, October 30, 1996 or, in the
case of the updating opinions rendered orally on May 27 and May 28, 1997 and
the written opinion dated the date of this Joint Proxy Statement/Prospectus,
as of the respective dates such opinions were rendered or delivered.
For purposes of its opinion dated October 30, 1996, Montgomery analyzed the
Merger and the Offer as a whole, and did not analyze any part of such
transactions on an individual basis. Accordingly, it was Montgomery's
understanding that, pursuant to the Merger and the Offer, each holder of a
Paired Share would have received either (i) $33.00 cash for each Paired Share
or (ii) a paired share of New Patriot REIT and New Patriot Operating Company.
For purposes of its updating opinions rendered orally on May 27 and May 28,
1997 and its written opinion dated the date of this Joint Proxy
Statement/Prospectus, Montgomery analyzed the Merger and the Subscription
taken as a whole, and did not analyze any part of such transactions on an
individual basis.
Montgomery also assumed, with the consent of the managements of Cal Jockey
and Bay Meadows, that the transactions pursuant to the Merger Agreement,
including, in connection with its opinion dated October 30, 1996, the Offer,
would be consummated in accordance with the terms described in the draft of
the October 31, 1996 Agreement or, in connection with the updating opinions
rendered orally on May 27 and May 28, 1997 and its written opinion dated the
date of this Joint Proxy Statement/Prospectus, the Merger Agreement that was
provided to it, without any amendments thereto, and without waiver by Cal
Jockey or Bay Meadows of any of the conditions to their respective obligations
thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
the Boards of Directors of Cal Jockey and Bay Meadows on October 30, 1996 in
connection with its opinion dated such date.
Real Estate Valuation Analysis. Using public and other available
information, including the summary analysis prepared by Cal Jockey management
of the real estate on which Cal Jockey's racetrack is located, as
106
<PAGE>
noted above, Montgomery calculated the imputed value of a Paired Share, based
on the value of the real estate owned by Cal Jockey. In connection with this
analysis, Montgomery reviewed the present value of projected cash flows from
operations of Cal Jockey and Bay Meadows, as provided to Montgomery by the
managements of Cal Jockey and Bay Meadows, and the present value of the
currently planned sales in 1997 of two parcels of land and a sale in 2001 of
the remaining real estate currently owned by Cal Jockey, based on potential
sales prices provided by the management of Cal Jockey. Montgomery also
reviewed the consideration paid in fifteen sales or listings of real estate
announced since April 1992 that Montgomery deemed to be comparable to the real
estate owned by Cal Jockey. This analysis indicated an imputed equity (defined
as aggregate value minus net debt) of Cal Jockey and Bay Meadows of between
$84.5 million and $101.9 million, or between $14.66 and $17.68 per Paired
Share.
Discounted Cash Flow Analysis. Montgomery applied a discounted cash flow
analysis to the financial cash flow forecasts for Cal Jockey and Bay Meadows
for 1997 through 2001, prepared by Montgomery in consultation with management
of Cal Jockey and Bay Meadows. In conducting this analysis, Montgomery first
calculated the present values of the forecasted cash flows. Second, Montgomery
estimated the aggregate value of Cal Jockey and Bay Meadows at the end of 2001
by applying multiples ranging from 5.5x to 7.5x to Cal Jockey's and Bay
Meadows' estimated EBITDA. Such cash flow streams and aggregate values were
discounted to present values using discount rates ranging from 14.0% to 16.0%,
chosen to reflect different assumptions regarding Cal Jockey's and Bay
Meadows' cost of capital, and such present values were then reduced by Cal
Jockey's and Bay Meadows' net debt as of October 30, 1996. This analysis
indicated an imputed equity value of Cal Jockey and Bay Meadows of between
$87.4 million and $96.8 million, or between $15.17 and $16.79 per Paired
Share.
Comparable Company Analysis. Using public and other available information,
Montgomery calculated the imputed value of a Paired Share based on the
multiples of estimated 1996 EBITDA at which five publicly traded horse racing
companies, comprised of Churchill Downs Inc., Hollywood Park, Inc.,
International Thoroughbred Breeders, Inc., Penn National Gaming Inc. and Santa
Anita Realty Enterprises, Inc. (the "Montgomery Comparable Companies"), were
trading on October 30, 1996. The October 30, 1996 stock prices of the
Montgomery Comparable Companies reflected multiples of 7x to 8x 1996 EBITDA to
aggregate value (defined as market capitalization plus total debt less cash
and cash equivalents). Montgomery applied the foregoing multiples to the
applicable statistic for Cal Jockey and Bay Meadows, and made applicable
adjustments to reflect Cal Jockey's and Bay Meadows' net debt (defined as debt
minus cash) at October 30, 1996. This analysis indicated an imputed equity
value of Cal Jockey and Bay Meadows of between $95.7 million and $102.6
million, or between $16.60 and $17.81 per Paired Share.
Estimated Paired Share Benefits. Montgomery also analyzed the increment to
the imputed equity value of Paired Shares that may be attributable to the
paired share structure. In such analysis, Montgomery analyzed the increment to
the equity value of Cal Jockey and Bay Meadows attributable to the paired
share structure, and did not analyze the potential increment to the equity
value of any other company that could be obtained through the paired share
structure. Montgomery estimated that the profits of lessees of typical REITs
in the lodging industry amount to approximately 2-3% of the EBITDA of such
REITs. Applying that rate to the estimated 1996 EBITDA of Cal Jockey and Bay
Meadows, Montgomery calculated an estimated amount of $100,000 to $200,000.
Montgomery also derived the multiple of share price to estimated 1996 funds
from operations of 11 comparable REITs in the lodging industry, comprised of
American General Hospitality Corp., Equity Inns, Inc., FelCor Suite Hotels,
Inc., Hospitality Properties Trust, Innkeepers USA Trust, Jameson Inns, Inc.,
Patriot, RFS Hotel Investors Inc., Starwood Lodging Trust, Sunstone Hotel
Investors, Inc. and Winston Hotels, Inc., based on the share prices of those
companies on October 30, 1996. Such multiples indicated an implied equity
value increment resulting from such operating profits of Bay Meadows of $1.4
million to $2.5 million or between $0.24 and $0.44 per Paired Share.
No other company, REIT or transaction used in the comparable company
analysis or the estimated paired share benefits analysis as a comparison is
identical to Cal Jockey, Bay Meadows or the Merger or the Offer. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which Cal
Jockey and Bay Meadows and the Merger and the Offer are being compared.
107
<PAGE>
While the foregoing summary describes all analyses and examinations that
Montgomery deems material to its opinion dated October 30, 1996, it is not a
comprehensive description of all analyses and examinations actually conducted
by Montgomery. The preparation of a fairness opinion necessarily is not
susceptible to partial analysis or summary description. Montgomery believes
that its analyses and the summary set forth above must be considered as a
whole and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the Boards of Directors of Cal Jockey and Bay Meadows.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Montgomery's view of the actual
value of Cal Jockey and Bay Meadows. In performing its analyses, Montgomery
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Cal Jockey, Bay Meadows and Patriot.
The analyses performed by Montgomery are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of Montgomery's analysis of the fairness of the
Merger, the Subscription and the Offer to the stockholders of Cal Jockey and
Bay Meadows and were provided to the Boards of Directors of Cal Jockey and Bay
Meadows in connection with the delivery of Montgomery's October 30, 1996
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any
securities may trade at any time in the future. Montgomery used in its
analyses various projections of future performance prepared by the managements
of Cal Jockey and Bay Meadows. The projections are based on numerous variables
and assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, Montgomery's opinions and presentation to Cal Jockey and
Bay Meadows were among the many factors taken into consideration by Cal Jockey
and Bay Meadows in making their respective determinations to approve, and to
recommend that its stockholders approve, the Proposals.
Pursuant to separate letter agreements dated May 15, 1996 (the "Montgomery
Engagement Letters"), each of Cal Jockey and Bay Meadows engaged Montgomery to
act as its respective exclusive financial advisor in connection with the
Merger. Upon execution of the Montgomery Engagement Letters, Cal Jockey and
Bay Meadows paid Montgomery a combined amount of $50,000. In addition, if the
Merger is effected, the Montgomery Engagement Letters provide for Cal Jockey
and Bay Meadows to pay Montgomery a fee equal to a percentage of the combined
value retained by the existing stockholders of Cal Jockey and Bay Meadows
after the closing of the Merger, determined in accordance with the applicable
percentage: (i) 1.3% in the case of a combined value retained of up to $100
million; (ii) 1.3%, declining ratably to 1.1%, in the case of a combined value
retained of $100-200 million; or (iii) 0.95% in the case of a combined value
retained over $200 million. Although the precise amount of such fee cannot be
determined until the closing of the Merger, based on the number of shares and
options outstanding as of April 3, 1997 and the high and low closing prices
for Patriot Common Stock (after the 2-for-1 stock split) over the 30 day
period ending April 3, 1997 (which were $26.38 and $22.38, respectively),
Montgomery's fee is estimated to be between $2.9 million and $2.4 million. The
obligation of Cal Jockey and Bay Meadows to pay such fee is not conditioned on
the outcome of Montgomery's opinions or whether or not such opinions were
deemed to be favorable for any party's purposes, although the obligation to
pay such fee is contingent upon the consummation of the Merger. Accordingly,
the payment of a substantial majority of Montgomery's total fee is subject to
the consummation of the Merger. The $50,000 fee noted above will be credited
against the fee payable to Montgomery if the Merger is consummated. The Boards
of Directors of Cal Jockey and Bay Meadows were aware of this fee structure
and took it into account in considering Montgomery's opinions and in approving
the October 31, 1996 Agreement, the February 24, 1997 Agreement and the Merger
Agreement. The Montgomery Engagement Letters also call for Cal Jockey and Bay
Meadows to reimburse Montgomery for its reasonable out-of-pocket expenses,
each to a maximum of $10,000 unless it otherwise consents. Pursuant to
separate letter agreements, each of Cal Jockey and Bay Meadows have agreed to
indemnify Montgomery, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal
securities laws.
108
<PAGE>
In the ordinary course of its business, Montgomery actively trades the
equity securities of Patriot for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Montgomery also has acted as an underwriter in connection
with offerings of securities of Patriot and performed various investment
banking services for Patriot.
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS
In considering the recommendation of the Boards of Directors of Patriot, Cal
Jockey and Bay Meadows to approve the Merger Proposal, stockholders of
Patriot, Cal Jockey and Bay Meadows should be aware that certain members of
the managements and the Boards of Directors of Patriot, Cal Jockey and Bay
Meadows have certain interests in, and will receive benefits as a consequence
of, the Merger and the Related Transactions that are separate from the
interests of, and benefits to, stockholders of Patriot, Cal Jockey and Bay
Meadows generally.
Cal Jockey Compensation. On May 28, 1997, at the same meeting at which the
Cal Jockey Board approved the Merger Agreement, the Cal Jockey Board of
Directors agreed to pay its members, Kjell H. Qvale, James M. Harris, James P.
Conn, David M. Gjerdrum and Ronald J. Volkman and the sole employee of Cal
Jockey, Ray Kuratek, the aggregate sum of $600,000 to be allocated by the Cal
Jockey Board of Directors at a subsequent Board meeting. The Cal Jockey Board
of Directors agreed to pay such amount as compensation for services previously
rendered to Cal Jockey by such individuals, particularly in recognition of
their significant contributions to the Merger process. The compensation
payments are conditioned upon consummation of the Merger and the Related
Transactions. The fact that Cal Jockey has only one employee, combined with
the complex structure of the Merger and Related Transactions, has resulted in
significant efforts and time commitments from these individuals in connection
with the Merger.
Bay Meadows Severance Agreements. On August 30, 1996, Bay Meadows entered
into individual Severance Agreements with the following Officers: Eugene F.
Barsotti, Jr., Sharon Kelly, F. Jack Liebau, Michael Scalzo, Frank Trigeiro
and Nathaniel Wess. Each of the Severance Agreements with the Officers provide
that, if following a change in control of Bay Meadows, the respective
Officer's employment is terminated prior to January 1, 1998, or within 24
months following a change in control of Bay Meadows prior to January 1998, he
or she will be entitled receive (i) payments of full base salary, and accrued
vacation and personal holidays from the date of notice of termination to the
date of termination (not to be less than 30 days) at the highest rate in
effect during the 12 months immediately preceding notice of termination, (ii)
an amount equal to his or her annual base salary at the highest rate in effect
during the 12 months immediately preceding notice of termination (or, with
respect to Messrs. Liebau and Barsotti, two times such amount), and (iii) an
amount equal to the amount of any bonus or other incentive compensation paid
during the 12 months immediately preceding notice of termination or calendar
year 1996, whichever is higher. As of May 28, 1997, the payments that would be
made pursuant to clauses (ii) through (iii) would be $141,000, $695,000,
$65,000, $120,000, $65,000 and $65,000 for Messrs. Barsotti, Liebau, Scalzo,
Trigeiro, Wess and Ms. Kelly, respectively. In addition to the payments that
would be made pursuant to clauses (i) through (iii) above, the Officers would
be entitled to receive (a) continued contribution by Bay Meadows into any
pension or retirement plan in effect with regard to the Officer, as well as
continued designation as an employee for this purpose, until January 1, 1998
at the highest rate in effect during the 12 months immediately preceding
notice of termination or a lump sum payment of the actuarial equivalent of
such continued contribution, (b) the right to purchase the Bay Meadows
automobile assigned to him or her for book value, (c) payment of all legal
fees and expenses incurred as the result of termination and (d) two years of
continued coverage under Bay Meadows' health care and welfare benefit plans.
Stock Options. As of May 28, 1997, Bay Meadows had granted to the Officers a
total of 137,500 options to purchase Paired Shares as follows: 12,500, 95,000,
7,500, 7,500, 7,500 and 7,500 to Messrs. Barsotti, Liebau, Scalzo, Trigeiro,
Wess and Ms. Kelly, respectively. As of May 28, 1997, a total of 126,668 of
the options granted to the Officers were vested as follows: 11,667, 86,667,
6,667, 7,500, 7,500 and 6,667 options of Messrs. Barsotti, Liebau, Scalzo,
Trigeiro, Wess and Ms. Kelly, respectively. According to the terms of such
options, all options which are not currently vested will become fully vested
and immediately exercisable in connection with the Merger and the Related
Transactions. In the event the Officers exercise the 137,500 options then,
based on the $41 1/2 closing price of a Paired Share as quoted on the AMEX as
of the close of business on May 28, 1997, the
109
<PAGE>
aggregate value (net of the exercise price) for such options would be
$3,761,875, including $343,125, $2,623,750, $196,875, $200,625, $200,625 and
$196,875 for the options of Messrs. Barsotti, Liebau, Scalzo, Trigeiro, Wess
and Ms. Kelly, respectively. If the Officers choose not to exercise their
options prior to the Merger and the Related Transactions, they will hold fully
vested options to purchase 137,500 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Presently there is a
disagreement between Bay Meadows and Cal Jockey concerning the total number of
outstanding options to purchase Cal Jockey Common Stock that have been granted
to Bay Meadows in connection with its issuance of options to purchase Paired
Shares to the Officers and certain other employees of Bay Meadows. For a
description of such disagreement, see "Stockholders' Meetings, Litigation and
Disagreements."
James P. Conn, currently a director of Cal Jockey, served as President and
Chief Executive Officer of Bay Meadows from March 1988 to November 1992. In
connection with such service, Mr. Conn holds a fully vested stock option for
20,000 Paired Shares. In the event Mr. Conn exercises such option, the
aggregate value (net of the exercise price) for such option would be $585,000
based on the $41 1/2 closing price of a Paired Share as quoted on the AMEX on
May 28, 1997. If Mr. Conn chooses not to exercise his option prior to the
Merger and the Related Transactions, he will hold a fully vested option to
purchase 20,000 paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock.
Indemnification Agreements. In August 1996 and November 1996, Cal Jockey
entered into indemnification agreements (the "Cal Jockey Indemnification
Agreements") with Kjell H. Qvale, James M. Harris, James P. Conn, Brian M.
Herrera, Richard E. Perazzo, Marylin K. Gunderson, David M. Gjerdrum and
Ronald J. Volkman (each a "Cal Jockey Indemnitee"). The Cal Jockey
Indemnification Agreements provide indemnification and advancement of expenses
for claims relating to the Cal Jockey Indemnitee's capacity as a director to
the fullest extent permitted by the DGCL, as amended from time to time, if the
Cal Jockey Indemnitee acted in good faith and in a manner he reasonably
believed to be in the best interests of Cal Jockey, and such indemnification
shall continue after the Cal Jockey Indemnitee has ceased to serve as a
director of Cal Jockey. The Cal Jockey Indemnification Agreements also provide
that, to the extent directors' and officers' liability insurance is maintained
by Cal Jockey, Cal Jockey will provide for the continued coverage of the Cal
Jockey Indemnitee under such directors' and officers' liability insurance
policies for the term of the respective agreements. Each Cal Jockey
Indemnification Agreement terminates upon the later of: (i) 10 years after the
date the Cal Jockey Indemnitee ceased to serve as a director or (ii) the final
termination of a proceeding then pending.
Bay Meadows entered into indemnification agreements (the "Bay Meadows
Indemnification Agreements") in August 1996 with Eugene F. Barsotti, Jr., Greg
S. Gunderson, John C. Harris, F. Jack Liebau, Lee R. Tucker, Anthony J. Zidich
and Frank Trigeiro, and in January 1997 with F. Scott Gross (each a "Bay
Meadows Indemnitee"). The Bay Meadows Indemnification Agreements provide
indemnification and advancement of expenses for claims relating to the Bay
Meadows Indemnitee's capacity as a director or officer to the fullest extent
permitted by the DGCL, as amended from time to time, and, to the extent
directors' and officers' liability insurance is maintained by Bay Meadows, the
agreements also provide for the continued coverage of the Bay Meadows
Indemnitee under such directors' and officers' liability insurance policies
for the term of the respective agreements. The Bay Meadows Indemnification
Agreements further provide that Bay Meadows' indemnification obligations will
be secured by a standby letter of credit in the amount of $1,000,000 naming
each of the Bay Meadows Indemnitees as beneficiaries. To date Bay Meadows has
not obtained such letter of credit and none of Bay Meadows, Cal Jockey or
Patriot intend to obtain such letter of credit. These parties do not believe
that the failure to obtain such letter of credit will delay or otherwise
affect the closing of the Merger. In the Merger Agreement, Patriot has agreed
to provide the directors, officers, employees, and agents of Bay Meadows with
all rights to indemnification existing under their respective indemnification
agreements, including the obligation to secure the standby letter of credit,
and thus New Patriot REIT will be contractually bound following the Merger to
honor these agreements and provide such persons with any amounts to which they
are due under such agreements. See "--Indemnification Covenant."
Indemnification Covenant. Pursuant to the terms of the Merger Agreement,
Patriot has agreed to cause New Patriot REIT and New Patriot Operating Company
to provide the directors, officers, employees and agents of Cal Jockey and Bay
Meadows and each of their respective subsidiaries with all rights to
indemnification or
110
<PAGE>
exculpation existing under their respective charters, bylaws or
indemnification agreements in effect as of the date of the Merger Agreement
with respect to matters occurring at or prior to the Effective Time and to
provide for the survival of all such indemnification agreements and provide
such persons with all rights to indemnification or exculpation under the Cal
Jockey Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay
Meadows Bylaws as in effect as of the date of the Merger Agreement for a
period of not less than six years after the Effective Time. Patriot has also
agreed, subject to certain conditions, to cause New Patriot REIT and New
Patriot Operating Company to maintain in effect any current policies of the
directors' and officers' liability insurance maintained by Cal Jockey and Bay
Meadows for Cal Jockey's and Bay Meadows' directors and officers for a period
of six years from the Effective Time. In addition, Patriot has agreed that New
Patriot REIT, in all cases, will guarantee the indemnification obligations of
New Patriot Operating Company. See "The Merger Agreement--Indemnification."
Interests of Certain Patriot Executive Officers. Certain executive officers
of Patriot own all of the membership interests in PAH RSI Lessee. PAH RSI
Lessee presently leases the Carefree Resorts and four additional hotels from
Patriot, and is currently expected by the Effective Time to lease from Patriot
nine additional hotels which are the subject of Proposed Acquisitions. See
"The Companies--Surviving Companies--Operations of New Patriot REIT and New
Patriot Operating Company Following the Merger." PAH RSI Lessee also owns
certain non-leasable assets relating to the Carefree Resorts. Following
consummation of the Merger, New Patriot REIT expects to terminate such leases
with PAH RSI Lessee by paying the fair market value of the leasehold interests
to PAH RSI Lessee or otherwise seek to have New Patriot Operating Company
acquire such leaseholds. In addition, New Patriot Operating Company will offer
to acquire the non-leasable assets from PAH RSI Lessee at the then fair market
value of such assets. Based on current market conditions, Patriot presently
believes that the fair market value of the leasehold interests and assets (net
of liabilities) currently held by PAH RSI Lessee is approximately $225,000. No
assurances can be made as to what the purchase price of the leasehold
interests and assets will be or as to whether the owners will sell the assets.
See "Risk Factors--Certain Conflicts of Interests Relating to Patriot."
ACCOUNTING TREATMENT
Cal Jockey will account for the Merger as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. Although Cal Jockey and Bay Meadows are issuing their Paired
Shares to Patriot stockholders and will be the surviving legal companies
following the Merger, Cal Jockey and Bay Meadows are considered the acquired
companies for accounting purposes as the Patriot stockholders will represent
the majority stockholders of New Patriot REIT and New Patriot Operating
Company. The fair market value of the consideration (cash, stock, etc.) given
by the acquiring company (i.e., Patriot for such purposes) is used as the
valuation basis for the combination. The assets and liabilities of the
acquired companies (i.e., Cal Jockey and Bay Meadows for such purposes) are
revalued to their respective fair market values at the combination date. The
financial statements of the acquiring company reflect the combined operations
from the date of combination.
REGULATORY APPROVAL
Patriot, Cal Jockey and Bay Meadows believe that the Merger and the Related
Transactions may be consummated without notification being given or certain
information being furnished by any of these parties to the Federal Trade
Commission (the "FTC") or the Antitrust Division of the Department of Justice
(the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and that no waiting
period requirements under the HSR Act are applicable to the parties with
respect to the Merger and the Related Transactions. However, there can be no
assurance that the consummation of the Merger and the Related Transactions
will not be delayed by reason of the HSR Act. At any time before or after
consummation of the Merger and the Related Transactions, the Antitrust
Division or the FTC could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger and the Related Transactions or seeking
divestiture of substantial assets of Patriot, Cal Jockey or Bay Meadows. At
any time before or after the Effective Time, any state could take such action
under its own antitrust laws as it deems necessary or desirable. Such action
could include seeking to
111
<PAGE>
enjoin the consummation of the Merger and the Related Transactions or seeking
divestiture of substantial assets of Patriot, Cal Jockey or Bay Meadows.
Private parties may also seek to take legal action under antitrust laws under
certain circumstances.
An annual license is required from the CHRB to conduct a Thoroughbred horse
racing meet and to act as a satellite facility in California. Bay Meadows has
received its license for the 1997 horse racing season. See "The Companies--Bay
Meadows." Following the Merger and the Related Transactions, New Patriot
Operating Company will be required to file an amendment to Bay Meadows' CHRB
application for its 1997 license reflecting that New Patriot Operating Company
will be conducting Bay Meadows' horse racing operations as the reconstituted
Bay Meadows during the remainder of its 1997 horse racing meet. In informal
discussions, representatives of the CHRB have indicated to Bay Meadows'
management that the CHRB would not object to such an amendment to Bay Meadows'
application. No assurances can be given, however, that the CHRB will not
object to such an amendment when it is filed. Failure to receive timely
approval of such an amendment to its application could have a material adverse
effect on New Patriot Operating Company. Additionally, California law requires
that each of the directors and certain employees of New Patriot Operating
Company must be licensed with the CHRB. While Patriot and Bay Meadows do not
foresee any difficulties in obtaining such licenses, no assurances can be
given that the CHRB will grant licenses to each of the proposed directors and
each of such employees of New Patriot Operating Company. If a director or
employee required to be licensed were denied a license by the CHRB, New
Patriot Operating Company would have to replace such director or employee with
a director or employee who was so licensed.
CERTAIN RESALE RESTRICTIONS
All paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock received by Patriot stockholders in the Merger and the
Related Transactions will be freely transferable, except that paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Patriot at the time of the Patriot Special
Meeting may be resold by them only in transactions permitted by the resale
provision of Rule 145 promulgated under the Securities Act (or Rule 144
promulgated under the Securities Act in the case of such persons who become
affiliates of Cal Jockey or Bay Meadows) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Patriot, Cal
Jockey or Bay Meadows generally include individuals or entities that control,
are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
stockholders of such party. The Merger Agreement requires Patriot to exercise
its reasonable best efforts to cause each of its affiliates to execute a
written agreement to the effect that such person will not offer to sell,
transfer or otherwise dispose of any of the paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock issued to such
person in or pursuant to the Merger and the Related Transactions unless (i)
such sale, transfer or other disposition has been registered under the
Securities Act, (ii) such sale, transfer or other disposition is made in
conformity with Rule 145 under the Securities Act or (iii) in the opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to New
Patriot REIT and New Patriot Operating Company, such sale, transfer or other
disposition is exempt from registration under the Securities Act.
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot, Cal Jockey and Bay Meadows
to consummate the Merger and the Related Transactions that the parties obtain
the approval for the listing of the paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock outstanding as of the
Merger and issuable in the Merger and the Related Transactions on the NYSE,
subject to official notice of issuance. See "The Merger Agreement--Conditions
to the Merger."
DISSENTERS' RIGHTS
As provided under the DGCL and the VSCA, stockholders of Cal Jockey, Bay
Meadows and Patriot do not have dissenters' rights in connection with the
Merger and the Related Transactions.
112
<PAGE>
THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides for a number of transactions among Patriot,
the Patriot Partnership, Cal Jockey and Bay Meadows, including the Merger of
Patriot with and into Cal Jockey and the Subscription for the Subscribed
Shares. This Joint Proxy Statement/Prospectus provides a summary of the
material terms of the Merger Agreement. The discussion and description of the
material terms of the Merger Agreement in this Joint Proxy
Statement/Prospectus are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is attached to this Joint
Proxy Statement/Prospectus as Annex A and which is incorporated herein by
reference.
THE MERGER AND SUBSCRIPTION
Pursuant to the Merger Agreement, at the Effective Time of the Merger,
Patriot will be merged with and into Cal Jockey, with Cal Jockey being the
surviving company in the Merger. The Merger Agreement provides for, among
other things, the contribution of certain of the assets of Bay Meadows to the
New Patriot Operating Partnership in exchange for OP Units of the New Patriot
Operating Partnership and the contribution of certain of the assets of Cal
Jockey to the Patriot Partnership in exchange for OP Units of the Patriot
Partnership. In connection with the Merger, Cal Jockey's name will be changed
to "Patriot American Hospitality, Inc." and Bay Meadows' name will be changed
to "Patriot American Hospitality Operating Company." Presently shares of Cal
Jockey Common Stock and shares of Bay Meadows Common Stock are paired and are
transferable only as a single unit pursuant to the Pairing Agreement. The
Pairing Agreement will continue after the Merger and the Related Transactions
and, accordingly, each share of New Patriot REIT Common Stock and each share
of New Patriot Operating Company Common Stock will also be paired and
transferable only as a single unit.
In the Merger, each outstanding Paired Share of Cal Jockey Common Stock and
Bay Meadows Common Stock will remain outstanding after the Merger and will,
without any action on the part of the stockholders of Cal Jockey and Bay
Meadows, represent the same number of paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. By operation of the
Merger, each issued and outstanding share of Patriot Common Stock, except
shares issued and held in Patriot's treasury (which will be canceled pursuant
to the Merger Agreement), will be converted into the right to receive 0.51895
shares of New Patriot REIT Common Stock, subject to certain REIT qualification
requirements described below. If the Patriot Average Trading Price is less
than $17.125, then each share of Patriot Common Stock will be converted into
the number of paired shares equal to the Patriot Average Trading Price divided
by $33.00. The Patriot Partnership will, in connection with the Merger,
subscribe for the Subscribed Shares of New Patriot Operating Company Common
Stock in an amount equal to the number of shares of New Patriot REIT Common
Stock which will be issued to Patriot stockholders in the Merger. Immediately
prior to the Merger, the Patriot Partnership will fund the Subscription.
Patriot and the Patriot Partnership will designate the Patriot stockholders as
the recipients of the Subscribed Shares, in compliance with the Pairing
Agreement, on the basis of 0.51895 Subscribed Shares for each outstanding
share of Patriot Common Stock outstanding at the Effective Time, subject to
certain REIT qualification requirements describe below and to any adjustment
to the Exchange Ratio. The result of the Merger and Subscription will be that
Patriot stockholders will have the right to receive for each share of Patriot
Common Stock held by them at the effective time of the Merger 0.51895 shares
of New Patriot REIT Common Stock and 0.51895 shares of New Patriot Operating
Company Common Stock, subject to certain REIT qualification requirements
described below and to any adjustment to the Exchange Ratio, which shares will
be paired and transferable only in a single unit.
The Restated Charters of New Patriot REIT and New Patriot Operating Company
will provide that no person or entity may own, be deemed to own by virtue of
the applicable attribution provisions of the Code or be deemed to beneficially
own pursuant to the applicable provisions of the Exchange Act, shares of any
class or series of Equity Stock of New Patriot REIT or New Patriot Operating
Company at or after the Merger in excess of the Ownership Limit. If any holder
of Patriot Common Stock would receive in the Merger and the
113
<PAGE>
Subscription a number of paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock such that the holder or any other
person or entity would own, or be deemed to own, paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock in excess of
the Ownership Limit, then such holder shall acquire no right or interest in
such number of paired shares which would cause such holder or any other person
or entity to exceed the Ownership Limit, but such holder shall, in lieu of
receiving the Excess Paired Shares, have the right to be paid an amount in
cash for such Excess Paired Shares equal to the product of the Fair Market
Value per Excess Paired Share multiplied by the number of such Excess Paired
Shares. Assuming the Merger had been consummated on May 28, 1997, the Fair
Market Value of an Excess Paired Share would have been $41.91 per Excess
Paired Share.
EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL and the VSCA, the Effective Time of the Merger
will occur upon the approval and acceptance for recordation of the Certificate
of Merger by the Delaware Secretary and the issuance of a Certificate of
Merger by the Virginia State Corporation Commission. Subject to the
fulfillment or waiver of the other conditions to the obligations of Patriot,
Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions, it is currently expected that the Merger will be consummated on
the fifth business day following Cal Jockey and Bay Meadows publicly
announcing the satisfaction or waiver of the conditions to the Merger.
EXCHANGE OF PATRIOT STOCK CERTIFICATES
As of the Effective Time, (i) Cal Jockey shall deposit with the Exchange
Agent selected by Patriot on or prior to the Effective Time, for the benefit
of the holders of shares of Patriot Common Stock, a certificate representing
the shares of Cal Jockey Common Stock to be issued to, and the cash in lieu of
Excess Paired Shares and fractional Paired Shares to be paid to, the Patriot
stockholders in exchange for the outstanding shares of Patriot Common Stock
and (ii) Bay Meadows shall simultaneously deposit with the Exchange Agent, for
the benefit of the holders of shares of Patriot Common Stock, a certificate
representing the Subscribed Shares to be issued to the Patriot stockholders
pursuant to the Subscription.
Promptly after the Effective Time, Patriot, Cal Jockey and Bay Meadows will
cause the Exchange Agent to mail to each holder of record of a Certificate
representing shares of Patriot Common Stock outstanding as of the Effective
Time (i) a letter of transmittal which shall specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
delivery of the Certificates to the Exchange Agent (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender of the
Certificates. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such Letter of Transmittal duly executed and completed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate representing the
number of whole shares of New Patriot REIT Common Stock to which such holder
shall be entitled issued back-to-back with a certificate representing the
whole number of shares of New Patriot Operating Company Common Stock to which
such holder shall be entitled and (y) a check representing the amount of cash
in lieu of Excess Paired Shares, if any, and fractional paired shares, if any,
due such holder plus the amount of any dividends or distribution, if any, as
described below, after giving effect to any required withholding tax. The
Certificate so surrendered will be canceled. PATRIOT STOCKHOLDERS SHOULD NOT
SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
Cal Jockey and Bay Meadows stockholders shall, as a result of the Merger,
continue to own and hold their Paired Shares. These outstanding Paired Shares
shall automatically represent the same number of paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock after the
Merger without any requirement to cancel or exchange the existing stock
certificates representing said Paired Shares. BAY MEADOWS AND CAL JOCKEY
STOCKHOLDERS DO NOT NEED TO SURRENDER THEIR CERTIFICATES.
114
<PAGE>
No dividends or other distributions on paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock will be paid with
respect to any shares of Patriot Common Stock represented by a Certificate
until such Certificate is surrendered for exchange as provided above. Any such
dividend or distribution amounts with a record date after the Effective Time
and a payment date prior to the surrender of such Certificate shall be
deposited (less the amount of any withholding taxes which may be required
thereon) with the Exchange Agent on the applicable payment date, to be held by
the Exchange Agent in a non-interest bearing account until the surrender of
such Certificate. Following surrender of any such Certificate, the holder
thereof shall be entitled to receive in addition to the paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock and not paid to such holder, less the amount of any withholding
taxes which may be required thereon and (ii) at the appropriate payment date,
the amount of any dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock, less the amount
of any withholding taxes which may be required thereon.
No fractional paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock will be issued in connection with the Merger.
Each holder of Patriot Common Stock otherwise entitled to a fractional paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock shall receive, in lieu thereof, upon surrender of a Certificate,
an amount in cash (without interest), rounded to the nearest cent, determined
by multiplying (i) the Fair Market Value by (ii) the fraction of a paired
share of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock to which such holder would otherwise be entitled.
At and after the Effective Time, there will be no transfers on the stock
transfer books of Patriot of the shares of Patriot Common Stock which were
outstanding immediately prior to the Effective Time.
Any portion of the monies from which cash payments in lieu of Excess Paired
Shares and fractional interests in paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock, any dividends or
distributions and any shares of New Patriot REIT Common Stock and any shares
of New Patriot Operating Company Common Stock deposited for the benefit of the
holders of shares of Patriot Common Stock that remain unclaimed by the former
stockholders of Patriot one year after the Effective Time will be distributed
as follows: any cash for Excess Paired Shares and fractional paired shares,
and dividends or distributions of New Patriot REIT or shares of New Patriot
REIT Common Stock shall be returned to New Patriot REIT and any dividends or
distributions of New Patriot Operating Company and any Subscribed Shares shall
be returned to New Patriot Operating Company. Any former stockholders of
Patriot who have not complied with the exchange procedures described above
within one year after the Effective Time shall thereafter look only to New
Patriot REIT for issuance or payment of that portion of their paired shares
representing New Patriot REIT Common Stock and cash in lieu of Excess Paired
Shares, if any, and fractional paired shares, if any, and to New Patriot
Operating Company for issuance or payment of that portion of their paired
shares representing New Patriot Operating Company Common Stock (plus, in each
case, dividends and distributions, if any, as determined pursuant to the
Merger Agreement, without any interest thereon). None of New Patriot REIT, New
Patriot Operating Company, Patriot, the Exchange Agent or any other person
will be liable to any former holder of shares of Patriot Common Stock for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
No interest will be paid or accrued on cash in lieu of Excess Paired Shares
and fractional paired shares or on any dividend or distribution, payable to
holders of Certificates.
In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by New Patriot REIT and New
Patriot Operating Company, the posting by such person of a bond in such
reasonable amount as New Patriot
115
<PAGE>
REIT and New Patriot Operating Company may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent or New Patriot REIT and New Patriot Operating Company will
issue in exchange for such lost, stolen or destroyed Certificate the paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock and cash in lieu of Excess Paired Shares, if any, and fractional
paired shares, if any (plus, to the extent applicable, dividends and
distributions payable, if any).
At the Effective Time, each outstanding option to purchase Paired Shares of
Cal Jockey Common Stock and Bay Meadows Common Stock issued by Bay Meadows
that is outstanding immediately prior to the Effective Time (that will not
automatically terminate by its terms as a result of the Merger) shall remain
outstanding and shall continue to represent the right to purchase the same
number of paired shares of New Patriot REIT Common Stock and New Patriot REIT
Operating Company Common Stock.
At the Effective Time, Patriot's obligations with respect to each
outstanding option to acquire capital stock or other equity interest in
Patriot or a subsidiary of Patriot (exclusive of the redemption rights of the
OP Units of the Patriot Partnership) that will not automatically terminate by
its terms at the Effective Time (the "Existing Patriot Options") will be
assumed by New Patriot REIT (the "Assumed Options"), subject to the provision
that the Existing Patriot Options will continue to have, and be subject to,
the same terms and conditions as set forth in the stock option plans and
agreements (as in effect immediately prior to the Effective Time) pursuant to
which such Existing Patriot Options were issued, except that (i) each Existing
Patriot Option will be exercisable for that number of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock equal
to the product of the number of shares of Patriot Common Stock covered by such
Existing Patriot Option immediately prior to the Effective Time multiplied by
the Exchange Ratio and rounded to the nearest whole number of paired shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and (ii) the exercise price per paired shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock under such Existing Patriot
Option will be equal to the exercise price per share of Patriot Common Stock
under the Existing Patriot Option divided by the Exchange Ratio and rounded to
the nearest cent. The adjustment with respect to any Existing Patriot Options
that are "incentive stock options" (as defined in Section 422 of the Code)
will be and is intended to be effected in a manner that is consistent, to the
extent possible, with Section 424(a) of the Code. Notwithstanding the
foregoing, in no event shall a holder of an Assumed Option be permitted to
exercise any portion of such Assumed Option that will result in any person
owning, or being deemed to own, paired shares of New Patriot REIT Common Stock
and New Patriot REIT Operating Company Common Stock in excess of the Ownership
Limit or otherwise in violation of any restrictions on ownership and transfer
contained in the Restated Charter or the Restated Bylaws of New Patriot REIT
and New Patriot REIT Operating Company. New Patriot Operating Company will
grant to New Patriot REIT options to acquire shares of New Patriot Operating
Company Common Stock equal to that number of shares of New Patriot REIT Common
Stock that will be issuable under the Assumed Options and such options will
have an exercise price equal to the fair market value of the New Patriot
Operating Company Common Stock to be issued upon such exercise, as determined
in accordance with the Pairing Agreement by mutual agreement of New Patriot
REIT and New Patriot Operating Company or if the parties are unable to agree
on such exercise price the determination shall be made by an independent third
party, and shall be exercisable by New Patriot REIT only if and to the extent
a holder of an Assumed Option exercises his or her Assumed Option.
Notwithstanding the immediately preceding sentence, in no event shall New
Patriot REIT be permitted to hold any such options that would result in any
person or entity owning, or being deemed to own under the applicable
attribution rules of the Code, paired shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock after the Merger in excess of
the Ownership Limit or in violation of any other restrictions contained in the
Restated Charters and Restated Bylaws, and in no event shall New Patriot REIT
be permitted to exercise such options to the extent that such exercise would
result in New Patriot REIT owning, or being deemed to own under the applicable
attribution rules of the Code, at any time, New Patriot Operating Company
Common Stock in excess of the Ownership Limit or in violation of any other
restrictions contained in the Restated Charter or Restated Bylaws of New
Patriot Operating Company, as amended and restated.
116
<PAGE>
CONDITIONS TO THE MERGER
The respective obligations of Patriot, Cal Jockey and Bay Meadows to effect
the Merger and the Related Transactions are subject to the fulfillment or
waiver of several conditions at or prior to the Effective Time including,
among others, that: (i) all waivers, consents, authorizations, orders,
approvals and expiration of waiting periods required under law, regulation or
agreement to be obtained in order to consummate the Merger and Related
Transactions shall have been obtained except where the failure to obtain any
such waiver, consent, authorization, order or approval would not have a
Patriot Material Adverse Effect, a Cal Jockey Material Adverse Effect, or a
Bay Meadows Material Adverse Effect (each as defined below), as the case may
be; (ii) the representations and warranties of the other parties contained in
the Merger Agreement shall be true and correct in all material respects as of
the Effective Time; (iii) the other parties shall have complied in all
material respects with all agreements and covenants required by the Merger
Agreement and Subscription Agreement to be complied with by it; (iv) no
injunction, restraining order or other order of any federal or state court
shall be in effect which prevents the consummation of the Merger and the
Related Transactions; (v) approval of the Proposals by the requisite vote of
stockholders of each of Patriot, Cal Jockey and Bay Meadows shall have been
obtained; (vi) no statute, rule or regulation shall have been enacted by any
state or governmental agency that would prevent consummation of the Merger;
(vii) the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, shall have been declared effective by the
Commission under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceedings for that purpose shall have been initiated or
threatened by the Commission; and (viii) Cal Jockey and Bay Meadows shall have
obtained approval for the listing of the paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock outstanding as of
the Merger and issuable in the Merger on the NYSE, subject to official notice
of issuance.
The obligation of Patriot to effect the Merger and the Related Transactions
is also subject to the fulfillment or waiver of certain conditions at or prior
to the Effective Time including among others, that: (i) no substantial change
occurred in the principal business, principal assets or structure of Cal
Jockey or Bay Meadows or in the "grandfathered" status of Cal Jockey pursuant
to Section 136(c) of the Deficit Reduction Act of 1984, as amended, shall have
occurred or be pending; (ii) no change shall have occurred concerning Cal
Jockey or any of its subsidiaries or Bay Meadows or any of its subsidiaries
that has had or could be reasonably likely to have a material adverse effect
on the assets, financial condition, results of operations or businesses of (x)
Cal Jockey and its subsidiaries taken as a whole (a "Cal Jockey Material
Adverse Effect") or (y) Bay Meadows, Cal Jockey and their subsidiaries taken
as a whole (a "Bay Meadows Material Adverse Effect"), other than any
developments that generally affect the industry in which Cal Jockey or Bay
Meadows operate; (iii) Cal Jockey and Bay Meadows shall not be financially
insolvent on a combined balance sheet basis immediately prior to the Effective
Time; and (iv) each of the directors of Cal Jockey and each of the directors
of Bay Meadows shall have resigned as of the Effective Time from their
respective Boards of Directors and the persons designated by Patriot shall be
appointed the directors of each of New Patriot REIT and New Patriot Operating
Company.
Similarly, Cal Jockey's and Bay Meadows' obligations to effect the Merger
and the Related Transactions are also subject to the fulfillment or waiver of
the condition that no change shall have occurred concerning Patriot or any of
its subsidiaries that has had or could be reasonably likely to have a material
adverse effect on the business, results of operations or financial condition
of Patriot and its subsidiaries taken as a whole (a "Patriot Material Adverse
Effect"), other than any developments that generally affect the industry in
which Patriot operates.
Of the conditions described in the three preceding paragraphs, the following
conditions are not waivable by the parties: (i) no injunction, restraining
order or other order of any federal or state court preventing the consummation
of the Merger; (ii) approval of the Proposals by the requisite vote of the
stockholders of each of Patriot, Cal Jockey and Bay Meadows; (iii) no statute,
rule or regulation being enacted preventing the consummation of the Merger;
(iv) the Registration Statement being declared effective by the Commission and
no stop order or proceeding suspending the effectiveness thereof being issued;
and (v) obtaining approval for the listing of the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock on the NYSE.
117
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
relating to, among other things: (i) the due organization, corporate power,
authority and standing of Patriot, Bay Meadows and Cal Jockey and their
respective subsidiaries and similar corporate matters; (ii) the authorization,
execution, delivery and enforceability of the Merger Agreement; (iii) the
capital structure of Patriot, Bay Meadows and Cal Jockey; (iv) lack of
conflicts under charters or bylaws and violations of any instruments, and
required consents or approvals; (v) certain documents filed by each of
Patriot, Bay Meadows and Cal Jockey with the Commission and the accuracy of
information contained therein; (vi) conduct of business in the ordinary course
and the absence of certain changes or material adverse effects; (vii) taxes;
(viii) real property; (ix) permits; (x) receipt of fairness opinions; and (xi)
the Pairing Agreement. These representations and warranties do not survive the
Merger.
CERTAIN COVENANTS
Each of Cal Jockey and Bay Meadows agreed to terminate any discussions or
negotiations relating to, or that may reasonably be expected to lead to, any
Acquisition Proposal (as defined below). Until the earlier to occur of the
termination of the Merger Agreement or the consummation of the transactions
contemplated therein, neither Cal Jockey nor Bay Meadows nor any of their
subsidiaries shall, directly or indirectly, take any action to (i) encourage,
solicit or initiate the submission of any Acquisition Proposal, (ii) enter
into any agreement for an Acquisition Proposal with a party unrelated to
Patriot, or (iii) participate in any way in discussions or negotiations with,
or furnish any non-public information to, any person in connection with any
Acquisition Proposal. Notwithstanding the above, either Cal Jockey or Bay
Meadows or their representatives may, in response to an unsolicited bona fide
offer or proposal made by a third party to it, provide information to or have
discussions or negotiations with such third party to the extent required by
the fiduciary obligations of its respective Board of Directors under
applicable law, if such Board of Directors shall have received advice from
outside counsel to such effect. Cal Jockey and Bay Meadows will immediately
communicate to Patriot the receipt of any third party solicitation, proposal
or bona fide inquiry that Cal Jockey, Bay Meadows or any of their
representatives may receive in respect of any such transaction, or of any
request for such information.
An "Acquisition Proposal" is any proposed (i) merger, consolidation or
similar transaction involving Bay Meadows or Cal Jockey, (ii) sale, lease or
other disposition directly or indirectly by merger, consolidation, share
exchange or otherwise of (A) any assets of Bay Meadows or its subsidiaries
representing 15% or more of the consolidated assets of Bay Meadows and its
subsidiaries or (B) any assets of Cal Jockey or its subsidiaries representing
15% or more of the consolidated assets of Cal Jockey and its subsidiaries
(excluding in each case any transactions relating to the disposition of
certain Cal Jockey property on terms substantially similar and no less
favorable than those previously publicly disclosed to the Commission or
pursuant to the agreements previously provided to Patriot), (iii) issue, sale
or other disposition of (including by way of merger, consolidation, share
exchange or any similar transaction) securities (or options, rights or
warrants to purchase, or securities convertible into, such securities)
representing 15% or more of the votes attached to the outstanding securities
of Bay Meadows or Cal Jockey, (iv) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), or the right to acquire beneficial
ownership or any "group" (as such term is defined under the Exchange Act)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of 15% or more of the outstanding shares of Bay Meadows
Common Stock or Cal Jockey Common Stock, (v) recapitalization, restructuring,
liquidation, dissolution, or other similar type of transaction with respect to
Cal Jockey, Bay Meadows or any of their subsidiaries or (vi) transaction which
is similar in form, substance or purpose to any of the foregoing transactions.
Patriot, Cal Jockey and Bay Meadows have each agreed to use their best
efforts to take all action necessary (i) to convene a meeting of their
stockholders as promptly as practicable to consider and vote upon the approval
of the Proposals, (ii) to cause their respective Board of Directors to
recommend and declare advisable to their respective stockholders such approval
and (iii) to take all lawful action to solicit, and use all best efforts to
obtain, approval of their respective stockholders. Cal Jockey and Bay Meadows
have each agreed that none of the Board of Directors of Bay Meadows, the Board
of Directors of Cal Jockey or any committee of any of the Boards of
118
<PAGE>
Directors shall (i) withdraw or modify the approval or recommendation by such
Board of Directors or such committee of the Merger Agreement and the
transactions thereunder, (ii) approve or recommend any Acquisition Proposal or
(iii) cause Cal Jockey or Bay Meadows to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, in the
event that either of the Boards of Directors of Cal Jockey or Bay Meadows
determines in good faith after receiving advice of its respective outside
counsel that such action is necessary in order for such Board of Directors to
comply with its fiduciary duties to stockholders under applicable law, the
Board of Directors of Bay Meadows or Cal Jockey, as the case may be, may (i)
withdraw or modify its approval or recommendation of the transactions, (ii)
approve or recommend a bona fide Acquisition Proposal with terms the Boards of
Directors of Cal Jockey or Bay Meadows determine are more favorable from a
financial point of view to Cal Jockey's stockholders or Bay Meadows'
stockholders (a "Superior Proposal") or (iii) terminate the Merger Agreement.
Patriot has agreed that neither its Board of Directors nor any committee of
its Board of Directors shall withdraw or modify the approval or recommendation
by such Board of Directors or such committee of the Proposals. Notwithstanding
the foregoing, in the event that the Patriot Board of Directors determines in
good faith after receiving advice of Patriot's outside counsel that such
action is necessary in order for the Board of Directors of Patriot to comply
with its fiduciary duties to stockholders under applicable law, the Board of
Directors of Patriot may withdraw or modify its approval or recommendation of
the Merger Agreement and the transactions thereunder.
Each of Patriot, Bay Meadows, Cal Jockey and their subsidiaries have agreed
to afford the other full access during normal business hours to all of its
properties, books, contracts, commitments and records and shall furnish
promptly to such parties (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal or
state securities laws and (ii) all other information concerning its business,
properties and personnel as such party may reasonably request, including any
financial and operating data.
Each of Patriot, Cal Jockey and Bay Meadows have agreed to use their
respective reasonable best efforts to (i) obtain all material consents,
authorizations, orders and approvals required in connection with the Merger
Agreement and the transactions thereunder, (ii) resolve any action, suit,
proceeding or investigation which shall have been instituted or which a
governmental agency shall have indicated its intention to institute which
jeopardizes any of the transactions and, (iii) subject to the terms and
conditions of the Merger Agreement, to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate the Merger and the Related
Transactions; provided, however, that none of them are obligated to take any
action which, in the reasonable opinion of such party, would (x) have a
material adverse effect on such party and its subsidiaries taken as a whole
(with regard to Bay Meadows, would have a Bay Meadows Material Adverse Effect)
or (y) have a material adverse effect or otherwise materially restrict or
impair the effective operation of Bay Meadows, Cal Jockey or Patriot following
the time of consummation of the Transactions (with regard to Bay Meadows,
would have a Bay Meadows Material Adverse Effect). Patriot, Cal Jockey and Bay
Meadows have each agreed to consult and cooperate with each other and agree
upon the terms and substance of all press releases, announcements and public
statements with respect to the Merger and the Merger Agreement.
Except as expressly required or permitted by the Merger Agreement, each of
Bay Meadows and Cal Jockey will, prior to the Effective Time, and will cause
its respective subsidiaries to (i) operate its businesses in the ordinary
course of business, (ii) not take any action or fail to take any action which
would or could reasonably be expected to terminate Cal Jockey's status as a
REIT or the paired status of the stock of Bay Meadows and Cal Jockey, (iii)
not take any extraordinary action or fail to take any action, the failure of
which to take would itself be an extraordinary action (including, without
limitation, entering into any new or modifying any existing contract between
Bay Meadows and Cal Jockey or any of their respective subsidiaries or
affiliates), and (iv) not declare, set aside or pay any dividend or other
distribution in respect of its capital stock, whether in stock, cash or other
property, other than, in the case of Cal Jockey, dividends required in order
to preserve Cal Jockey's status as a REIT or to avoid federal income or excise
taxes on its undistributed income. Cal Jockey shall not sell, transfer or
encumber any Cal Jockey property or any interest therein or take any other
action or fail to take
119
<PAGE>
any action if the effect of such action or inaction materially adversely
affects any Cal Jockey property, provided that nothing in the Merger Agreement
shall be deemed to prohibit Cal Jockey from consummating the transactions
relating to the disposition of certain Cal Jockey property on terms
substantially similar and no less favorable than those previously publicly
disclosed by Cal Jockey or pursuant to the agreements previously provided to
Patriot.
Patriot will not, prior to the Effective Time, without the consent of Cal
Jockey and Bay Meadows, (i) raise more than $500,000,000 through the sale of
shares of Patriot Common Stock, (ii) materially alter the nature of its
fundamental business operations, (iii) take any action or fail to take any
action which would or could reasonably be expected to terminate Patriot's
status as a REIT or (iv) declare, set aside or pay any dividend or other
distribution in respect of its capital stock, whether in stock, cash or other
property, other than dividends required in order to preserve Patriot's status
as a REIT or to avoid federal income or excise taxes on its undistributed
income; provided that the amount of any such dividends shall be calculated
assuming that the Effective Time occurs on June 30, 1997.
Subject to the terms and conditions of the Merger Agreement each of Patriot,
Cal Jockey and Bay Meadows shall: (i) to the extent required, promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger and the Related Transactions;
(ii) use all reasonable best efforts to cooperate with one another in (A)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the closing from, any governmental or regulatory
authorities and any third parties in connection with the execution and
delivery of the Merger Agreement, the consummation of the Merger and the
transactions thereunder and (B) timely making all such filings and timely
seeking all such consents, approvals, permits or authorizations; (iii) use all
reasonable best efforts to obtain in writing any consents required from third
parties to effectuate the Merger and the Related Transactions; and (iv) use
all reasonable best efforts to take, or cause to be taken, all other actions
and do, or cause to be done, all other things necessary, proper or appropriate
to consummate and make effective the Merger and the Related Transactions.
Each of Patriot, Cal Jockey and Bay Meadows have agreed to cooperate and
promptly prepare and submit to the NYSE all reports, applications and other
documents that may be necessary or desirable to enable all of the Paired
Shares of Cal Jockey Common Stock and Bay Meadows Common Stock that will be
outstanding or will be reserved for issuance at the Effective Time to be
listed for trading on the NYSE.
Patriot has agreed to use its reasonable best efforts to deliver or cause to
be delivered to Cal Jockey prior to the Effective Time from each of Patriot's
affiliates, within the meaning of Rule 145 promulgated under the Securities
Act, including, without limitation, all directors and executive officers of
Patriot, an affiliate letter.
Each of Cal Jockey and Bay Meadows have agreed to provide to Patriot copies
of all engagement letters, contracts, arrangements or understandings with
agents, brokers, investment bankers, financial advisors or other persons or
firms which may result in the obligation of Cal Jockey or Bay Meadows to pay
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to the Merger Agreement or the
consummation of the transactions thereunder.
LOAN FOR HUDSON BAY TERMINATION FEE
In connection with the transactions contemplated by the Merger Agreement, on
October 31, 1996, Patriot made the $2,900,000 Loan to Cal Jockey, which was
used to pay the termination fee due to Hudson Bay under the Hudson Bay
Agreement. Cal Jockey caused such amount to be paid to Hudson Bay in
accordance with the Hudson Bay Agreement. In accordance with the promissory
note, as amended and restated, the $2,900,000 Loan is payable on July 14, 1997
and accrues interest at a rate of 5% per annum. In the event of the
termination of the Merger Agreement for any reason, Cal Jockey has agreed to
immediately repay to Patriot the $2,900,000 Loan. In addition, in the event of
termination of the Merger Agreement for certain reasons, Patriot may be
required to pay up to $2,900,000 to Cal Jockey, which amount Patriot may
offset against the principal amount due on the $2,900,000 Loan. See "--
Termination Amount and Expenses."
120
<PAGE>
TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time in a number of circumstances including, among others: (i)
such time as the parties shall mutually agree, (ii) at the option of Bay
Meadows and Cal Jockey, acting jointly, but not individually, on or after July
14, 1997, if by that date all of the conditions to Bay Meadows' and Cal
Jockey's obligations shall not have been satisfied or waived (see "--
Conditions to the Merger"); (iii) at the option of Patriot, on or after July
14, 1997, if by that date all of the conditions to Patriot's obligations shall
not have been satisfied or waived (see "--Conditions to the Merger"); (iv) at
the option of Patriot if at any time prior to the Effective Time the number of
horse race days permitted to be held during 1997 at the premises currently
operated by Bay Meadows is less than 80; (v) at the option of Bay Meadows or
Cal Jockey if the Board of Directors of either determines in good faith after
receiving advice of its respective outside counsel that such action is
necessary in order for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law; (vi) at the option of Patriot if
the Board of Directors of either of Bay Meadows or Cal Jockey or any committee
of either Board of Directors has (A) withdrawn or modified its approval or
recommendation of the Merger Agreement or the Related Transactions, (B) failed
to recommend that the stockholders of Bay Meadows and Cal Jockey vote in favor
of such transactions, (C) approved or recommended any Acquisition Proposal or
(D) resolved to do any of the foregoing; or (vii) at the option of any of the
parties to the Merger Agreement if the stockholders of Patriot, Cal Jockey or
Bay Meadows do not approve any of the Proposals.
TERMINATION AMOUNT AND EXPENSES
In the event the Merger Agreement is terminated (i) because of the failure
to obtain Cal Jockey or Bay Meadows stockholder approval of any of the
Proposals and during the 12-month period following such termination Cal Jockey
or Bay Meadows enters into a binding acquisition agreement with a third party
or (ii) at the option of Cal Jockey or Bay Meadows because either of their
respective Boards of Directors determines such action is necessary to comply
with its fiduciary duties to stockholders under applicable laws, then Cal
Jockey or Bay Meadows, as the case may be, shall pay to Patriot $5,000,000 in
immediately available funds (in addition to Cal Jockey's obligation to repay
the $2,900,000 Loan). In addition, in the event the Merger Agreement is
terminated by Patriot because the Board of Directors or any committee of the
Board of Directors of either Cal Jockey or Bay Meadows (a) withdraws or
modifies its approval or recommendation of the Proposals, (b) fails to
recommend that the stockholders of Cal Jockey and Bay Meadows vote in favor of
the Proposals, (c) approves or recommends any Acquisition Proposal with a
third party or (d) resolves to do any of the foregoing, Cal Jockey and Bay
Meadows shall pay to Patriot $5,000,000 in immediately available funds or with
a note due within 90 days accruing interest at 7% per annum (in addition to
Cal Jockey's obligation to repay of the $2,900,000 Loan).
In the event the Merger Agreement is terminated because of (i) a breach of
Patriot's representations and warranties that would have a Patriot Material
Adverse Effect, (ii) the failure by Patriot to comply with all covenants and
agreements set forth in the Merger Agreement or (iii) the failure to obtain
Cal Jockey, Bay Meadows or Patriot stockholder approval of any of the
Proposals, Patriot shall pay to Cal Jockey $2,900,000 or such lesser amount
requested by Cal Jockey (which amount will offset the principal amount due on
the $2,900,000 Loan); provided, that such amount shall be immediately repaid
by Cal Jockey to Patriot if during the 12-month period following any such
termination on account of a failure to obtain Cal Jockey or Bay Meadows
stockholder approval of any of the Proposals, Cal Jockey or Bay Meadows enters
into a binding acquisition agreement with a third party. In the event (a) the
Patriot Board of Directors withdraws or modifies its approval or
recommendation of the Merger Proposal or (b) Patriot's stockholders fail to
approve the Merger Proposal, Patriot shall promptly reimburse Cal Jockey and
Bay Meadows for their out-of-pocket costs and expenses incurred in connection
with the Merger Agreement and the Related Transactions in an amount requested
by Cal Jockey and Bay Meadows up to $1,000,000 in the aggregate. In the event
Cal Jockey and Bay Meadows stockholders approve the Merger Proposal but fail
to approve either the Cal Jockey Charter and Bylaw Amendment Proposal or the
Bay Meadows Charter and Bylaws Amendment Proposal and Patriot terminates the
Merger Agreement because of such failure, Patriot shall promptly pay to Cal
Jockey and Bay Meadows $5,000,000 or such lesser amount requested by Cal
Jockey and Bay Meadows. In addition, pursuant to the terms
121
<PAGE>
of the Wyndham Merger Agreement, if the Merger is not consummated by September
1, 1997, then either Patriot or Wyndham could terminate the Wyndham Merger
Agreement and Patriot would be required to pay Wyndham a $25 million
termination fee.
Except as described above or otherwise provided in the Merger Agreement,
Patriot, Cal Jockey and Bay Meadows have agreed that all costs and expenses
incurred in connection with the Merger and the Related Transactions shall be
paid by the party incurring such expenses, except that (i) the filing fee in
connection with the HSR Act filing, if any, (ii) the filing fee in connection
with the Registration Statement or the Joint Proxy Statement/Prospectus with
the Commission, (iii) the filing fee in connection with the listing of the
paired shares on the NYSE, if any, and (iv) the expenses incurred for printing
and mailing the Registration Statement and the Joint Proxy
Statement/Prospectus, shall be shared equally by Patriot on the one hand, Cal
Jockey and Bay Meadows on the other hand. Patriot, Cal Jockey and Bay Meadows
have also agreed that all costs and expenses for professional services
rendered pursuant to the transactions contemplated by the Merger Agreement
including, but not limited to, investment banking and legal services, will be
paid by the party incurring such services.
INDEMNIFICATION
In connection with the Merger, New Patriot REIT and New Patriot Operating
Company will maintain in effect all rights to indemnification existing in
favor of any director, officer, employee or agent of Cal Jockey or Bay Meadows
and their respective subsidiaries which are in effect as of the date of the
Merger Agreement with respect to matters occurring at or prior to the
Effective Time for a period of six years after the Effective Time; provided,
that in the event any claim or claims are asserted or made within such six-
year period, all rights to indemnification in respect of any such claim or
claims will continue until disposition of any and all such claims. In
addition, New Patriot REIT and New Patriot Operating Company shall cause to be
maintained in effect for a period of six years from the Effective Time any
current policies of directors' and officers' liability insurance maintained by
Cal Jockey and/or Bay Meadows as of the date of the Merger Agreement or
substitute policies with the same coverage and conditions, subject to certain
limitations.
AMENDMENTS
Patriot, Bay Meadows and Cal Jockey may amend the Merger Agreement by
written agreement at any time before or after approval of matters presented in
connection with the Merger by the stockholders of Patriot or the stockholders
of Bay Meadows and Cal Jockey, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval.
122
<PAGE>
PROPOSALS TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE CAL JOCKEY AND BAY
MEADOWS CHARTERS AND BYLAWS
(FOR CAL JOCKEY AND BAY MEADOWS STOCKHOLDERS ONLY)
PROPOSED AMENDMENT AND RESTATEMENT OF CAL JOCKEY'S AND BAY MEADOWS' CHARTERS
AND BYLAWS
At the Cal Jockey Special Meeting, the stockholders of Cal Jockey will be
asked to consider and vote upon a proposal to amend and restate the Cal Jockey
Charter and the Cal Jockey Bylaws and, at the Bay Meadows Special Meeting, the
stockholders of Bay Meadows will be asked to consider and vote upon a proposal
to amend and restate the Bay Meadows Charter and the Bay Meadows Bylaws.
Under the terms of the Merger Agreement, it is a condition to the obligation
of each of Patriot, Cal Jockey and Bay Meadows to consummate the Merger and
the Related Transactions that both the Cal Jockey Charter and Bylaw Amendment
Proposal and the Bay Meadows Charter and Bylaw Amendment Proposal be approved.
The affirmative vote of a majority of the issued and outstanding shares of
each of Cal Jockey Common Stock and Bay Meadows Common Stock is required to
approve each of the Cal Jockey Charter and Bylaw Amendment Proposal and the
Bay Meadows Charter and Bylaw Amendment Proposal, respectively. See "The
Meetings of Stockholders--Cal Jockey Special Meeting" and "--Bay Meadows
Special Meeting."
Under the terms of the Merger Agreement, assuming no options or OP Units are
exchanged for shares of Patriot Common Stock prior to the Merger and assuming
that the Exchange Ratio is not adjusted due to a Patriot Average Trading price
below $17.125, the stockholders of Patriot, upon consummation of the Merger
and the Related Transactions, will hold in the aggregate approximately 80% of
the outstanding paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. Accordingly, Patriot, Cal Jockey and Bay
Meadows agreed that the certificates of incorporation and the bylaws of Cal
Jockey and Bay Meadows would be amended and restated to reflect differences
contained in the Patriot Charter and the Patriot Bylaws. In addition, the
parties wish to amend and restate the certificates of incorporation and bylaws
of Cal Jockey and Bay Meadows to, among other things, incorporate changes in
Delaware law that are not currently contained therein, to implement a
staggered board of directors and to substantially increase the number of
authorized shares of Cal Jockey and Bay Meadows Common Stock, preferred stock,
par value $0.10 per share, of Cal Jockey ("Cal Jockey Preferred Stock") and
preferred stock, par value $0.10 per share, of Bay Meadows ("Bay Meadows
Preferred Stock").
If the Cal Jockey Charter and Bylaw Amendment Proposal and the Bay Meadows
Charter and Bylaw Amendment Proposal are approved, the current directors of
Cal Jockey and Bay Meadows will resign and the resulting vacancies will be
filled by persons designated by Patriot to be appointed to the Boards of
Directors of New Patriot REIT and New Patriot Operating Company. Such
designees shall be classified, with respect to the term for which they
severally hold office, into three classes and shall serve as directors for the
remainder of their full terms. For more information concerning the Patriot
designees, see "Management of New Patriot REIT and New Patriot Operating
Company."
Certain of the proposed amendments to the certificates of incorporation and
bylaws of Cal Jockey and Bay Meadows could have a potential anti-takeover
effect on New Patriot REIT and New Patriot Operating Company. The
implementation of a staggered board, for example, would prevent stockholders
from voting on the election of more than one class of directors at each annual
meeting and thus could have the effect of keeping the members of the Boards of
Directors of New Patriot REIT and New Patriot Operating Company in control for
a longer period of time. The staggered board provision, the fact that
directors of New Patriot REIT and New Patriot Operating Company would be
removable only for cause, the fact that stockholders would not be permitted to
call a special meeting of stockholders and the fact that the written consent
of all stockholders entitled to vote on a matter would be required for
stockholders to take action on such a matter without a meeting could have the
effect of making it more difficult for a third party to acquire control of New
Patriot REIT and New Patriot Operating Company, including certain acquisitions
which stockholders may deem to be in their best interests. For a more detailed
discussion of the proposed amendments to the certificates of incorporation and
bylaws of
123
<PAGE>
Cal Jockey and Bay Meadows, see "Description of Capital Stock--Certain
Provisions of the Restated Charters and Restated Bylaws" and "Comparison of
Stockholder Rights."
Stockholders of Cal Jockey and Bay Meadows should carefully read the forms
of Restated Charters and Restated Bylaws attached as Annexes B, C, D and E to
this Joint Proxy Statement/Prospectus and the information under the heading
"Comparison of Stockholder Rights."
THE BOARD OF DIRECTORS OF CAL JOCKEY RECOMMENDS THAT THE CAL JOCKEY CHARTER
AND BYLAW AMENDMENT PROPOSAL BE APPROVED AND THEREFORE RECOMMENDS A VOTE "FOR"
THIS PROPOSAL. THE BOARD OF DIRECTORS OF BAY MEADOWS RECOMMENDS THAT THE BAY
MEADOWS CHARTER AND BYLAW AMENDMENT PROPOSAL BE APPROVED AND THEREFORE
RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE
PATRIOT INCENTIVE PLAN
(FOR PATRIOT STOCKHOLDERS ONLY)
The Patriot Board of Directors has amended and restated the Patriot
Incentive Plan and is recommending such amendment and restatement to Patriot
stockholders for approval. If approved by the Patriot stockholders, the number
of shares of Patriot Common Stock available for issuance under the Patriot
Incentive Plan would be increased from 2,000,000 to 5,000,000 shares. The
amendment and restatement of the Patriot Incentive Plan also provides for
alternative forms of awards (such as deferred stock units and dividend
equivalent rights), increases the annual individual option grant limit and
provides that all awards will become fully vested upon a Change of Control
(as defined in the Patriot Incentive Plan) of Patriot unless otherwise
provided in the applicable award agreement. All options and other awards of
Patriot that are outstanding immediately prior to the Merger will be assumed
by New Patriot REIT following the consummation of the Merger. The approval of
the Patriot Incentive Plan is not a condition to the obligation of each of
Patriot, Cal Jockey and Bay Meadows to consummate the Merger and the Related
Transactions.
REASONS FOR THE PATRIOT INCENTIVE PLAN PROPOSAL
The Patriot Compensation Committee of the Patriot Board of Directors (the
"Patriot Compensation Committee") believes that the Patriot Incentive Plan has
been, and continues to be, an important incentive in attracting, maintaining
and motivating the caliber of directors, officers and other employees
necessary to continue Patriot's success and growth. The Patriot Compensation
Committee believes that the ability to grant additional options and
alternative forms of stock-based awards will help retain and attract
directors, officers and other employees who are in a position to contribute to
the successful conduct of the business and affairs of Patriot and, in
addition, will help stimulate in such individuals an increased desire to
render greater service to Patriot.
By using long-term stock incentives that vest over time as a significant
component of total compensation, the Patriot Compensation Committee believes
the interests of Patriot's executives will be more closely aligned with the
interests of Patriot's stockholders. The Patriot Compensation Committee also
believes that for a fast-growing company like Patriot, it is important to
attract and retain talent by paying competitive total compensation. Using
stock-based compensation as a significant component of total compensation will
allow Patriot's executives to receive at or above competitive salary levels if
Patriot's performance continues to be superior.
Patriot believes it has performed in a stellar fashion since September 1995
when measured by almost any standard of excellence. As of May 28, 1997, the
stock price has increased by 79.2% and total shareholder return of
approximately 91.5% has been achieved. Patriot's total market capitalization
has grown from an initial equity market of approximately $350 million to total
capitalization of approximately $1.7 billion. Assuming all of the Proposed
Acquisitions are consummated, New Patriot REIT's hotel portfolio will include
70 hotels, aggregating 16,833 rooms, representing a 300% increase in the size
of New Patriot REIT's room portfolio since Patriot's
124
<PAGE>
Initial Offering. Patriot's performance based on total stockholder return for
1996 was second highest in its peer group of high performing REITs and lodging
corporations.
The Patriot Compensation Committee believes that much of the extraordinary
performance of Patriot since its Initial Offering is attributable to the
leadership of Paul A. Nussbaum, the Chairman of the Board and Chief Executive
Officer. To award Mr. Nussbaum appropriately, the Patriot Compensation
Committee has engaged a compensation consultant to prepare a review of
compensation arrangements for chief executive officers at a peer group of
comparable high performing REITs and lodging corporations (including both
hotel REITs and hotel operating companies) and to design a long-term incentive
program for Mr. Nussbaum. The Patriot Compensation Committee believes that in
light of the Merger and the Related Transactions and the resulting unique
paired share structure of New Patriot REIT and New Patriot Operating Company,
it is appropriate to compare compensation arrangements for chief executive
officers at both hotel REITs and hotel operating companies.
After much study and consideration, the Patriot Compensation Committee has
concluded that the foundation of Patriot's long-term incentive program for Mr.
Nussbaum should be a significant grant of non-qualified options which will be
his sole equity award for the next five years. To reinforce a long-term pay
strategy that maximizes the interests of stockholders and to keep Mr.
Nussbaum's long-term compensation arrangement competitive with other chief
executive officers in Patriot's peer group, on April 1, 1997, the Patriot
Compensation Committee awarded a two-tier option program to Mr. Nussbaum. The
tier one award is a ten-year option to purchase 1,350,000 shares of Patriot
Common Stock with an exercise price equal to $22.375 per share, the fair
market value at the time of grant. This option would not be exercisable until
the end of five years. The tier two award is a ten-year premium-priced option
to purchase 1,250,000 shares of Patriot Common Stock. This grant has five
equal tranches of 250,000 shares each with an increasing exercise price
ranging from $24.61 to $36.04. This tier two option would not be exercisable
until April 1, 2002. It is the view of the Patriot Compensation Committee that
the use of fair market value options and, in particular, options priced in
excess of fair market value, would incentivize Mr. Nussbaum to continue to
strive to achieve superior performance for Patriot and to increase the total
return to Patriot's stockholders. If Patriot's share value does not increase
above the option exercise prices, Mr. Nussbaum would not be able to realize
value from either option grant.
To accommodate the above-described option grants, upon the recommendation of
the Patriot Compensation Committee, the Patriot Board of Directors amended and
restated the Patriot Incentive Plan to authorize the issuance of an additional
3,000,000 shares of Patriot Common Stock and to increase the individual limit
on option grants. Since January 1, 1997, Patriot has also issued 541.35
deferred stock units to non-employee directors in lieu of cash fees. The
effectiveness of these grants of deferred stock units and the above-referenced
option grants to the Patriot Chief Executive Officer, as well as any future
grants of awards under the Patriot Incentive Plan, however, are contingent
upon the approval of the Patriot Incentive Plan Proposal by the Patriot
stockholders.
As of May 28, 1997, options to purchase 3,955,600 shares of Patriot Common
Stock and grants of 642,800 shares of restricted stock and 541.35 deferred
stock units were outstanding under the Patriot Incentive Plan.
The closing price of the Patriot Common Stock as reported on the NYSE on May
28, 1997 was $21 1/2 per share.
THE PATRIOT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE PATRIOT
INCENTIVE PLAN PROPOSAL BE APPROVED, AND THEREFORE RECOMMENDS A VOTE "FOR"
THIS PROPOSAL.
SUMMARY OF THE PATRIOT INCENTIVE PLAN
The material terms of the Patriot Incentive Plan are summarized below. The
summary is qualified in its entirety by the full text of the Patriot Incentive
Plan.
Plan Administration; Eligibility. The Patriot Incentive Plan is administered
by the Patriot Compensation Committee of the Patriot Board of Directors. All
members of the Patriot Compensation Committee must be
125
<PAGE>
"non-employee directors" as that term is defined under the rules promulgated
by the Commission and "outside directors" as defined in Section 162(m) of the
Code and the regulations promulgated thereunder.
The Patriot Compensation Committee has full power to select, from among the
persons eligible for awards, the individuals to whom awards will be granted,
to make any combination of awards to participants, and to determine the
specific terms of each award, subject to the provisions of the Patriot
Incentive Plan. Persons eligible to participate in the Patriot Incentive Plan
are generally those employees and consultants of Patriot and its subsidiaries
whose efforts contribute to the performance or success of Patriot and its
subsidiaries, as selected from time to time by the Patriot Compensation
Committee. Non-employee directors of Patriot are also eligible for awards
under the Patriot Incentive Plan and may elect to take all or a portion of
their fees in the form of deferred stock units.
Stock Options. The Patriot Incentive Plan permits the granting of both
options to purchase Patriot Common Stock intended to qualify as incentive
stock options ("Incentive Options") under Section 422 of the Code and options
that do not so qualify ("Non-Qualified Options"). The option exercise price of
each option will be determined by the Patriot Compensation Committee but may
not be less than 100% of the fair market value of the shares on the date of
grant except that in connection with the initial employment of an individual,
the Patriot Compensation Committee may grant such individuals Non-Qualified
Options at no less than 85% of the fair market value of the shares on the date
of grant.
The term of each option will be fixed by the Patriot Compensation Committee
and may not exceed ten years from date of grant in the case of an Incentive
Option. The Patriot Compensation Committee will determine at what time or
times each option may be exercised and, subject to the provisions of the
Patriot Incentive Plan, the period of time, if any, after retirement, death,
disability or termination of employment during which options may be exercised.
Options may be made exercisable in installments, and the exercisability of
options may be accelerated by the Patriot Compensation Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or a cash equivalent acceptable to the Patriot Compensation
Committee or, if the Patriot Compensation Committee so permits, by delivery of
shares of Patriot Common Stock already owned by the optionee. The exercise
price may also be delivered to Patriot by a broker pursuant to irrevocable
instructions to the broker from the optionee.
To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one year, and a shorter term and
higher minimum exercise price in the case of certain large shareholders.
To satisfy the performance-based compensation exception to the $1 million
cap on Patriot's tax deduction imposed by Section 162(m) of the Code, the
Patriot Incentive Plan also provides that no individual may be granted options
in any calendar year to purchase more than 2,600,000 shares of Patriot Common
Stock. Prior to the amendment, the individual limit was 500,000 shares of
Patriot Common Stock.
Restricted Stock. The Patriot Compensation Committee may also award shares
of Patriot Common Stock to eligible participants subject to such conditions
and restrictions as the Patriot Compensation Committee may determine
("Restricted Stock"). These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with
Patriot through a specified restricted period. These performance objectives
may include return on equity, FFO, cash available for distribution, earnings
per share, return on assets or capital, or increase in fair market value of
Patriot Common Stock. The purchase price, if any, of shares of Restricted
Stock will be determined by the Patriot Compensation Committee. If the
performance goals and other restrictions are not attained, the participants
may forfeit their awards of Restricted Stock.
Unrestricted Stock. The Patriot Compensation Committee may also grant shares
of Patriot Common Stock (at no cost or for a purchase price determined by the
Patriot Compensation Committee) which are free from any restrictions under the
Patriot Incentive Plan ("Unrestricted Stock"). Unrestricted Stock may be
issued to eligible
126
<PAGE>
participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such eligible
participants.
Deferred Stock Units. Subject to the approval of the Patriot Compensation
Committee, an eligible participant may, pursuant to an advance written
election, receive all or a portion of his compensation in deferred stock
units. These units would have the same value as shares and would receive
dividend equivalent rights.
Performance Share Awards. The Patriot Compensation Committee may grant
awards ("Performance Share Awards") to eligible participants entitling the
recipient to receive shares of Patriot Common Stock upon the achievement of
individual or Patriot performance goals and such other conditions as the
Patriot Compensation Committee shall determine. Except as otherwise determined
by the Patriot Compensation Committee, rights under a Performance Share Award
not yet earned will terminate upon a participant's termination of employment.
Performance Share Awards may be awarded independently or in connection with
stock options or other awards under the Patriot Incentive Plan.
Dividend Equivalent Rights. The Patriot Compensation Committee may grant
dividend equivalent rights, which entitle the recipient to receive credits for
dividends that would be paid if the recipient had held specified shares of
Patriot Common Stock. Dividend equivalent rights may be granted as a component
of another award or as a freestanding award. Dividend equivalents credited
under the Patriot Incentive Plan may be paid currently or may be deemed to be
reinvested in additional shares of Patriot Common Stock, which may thereafter
accrue additional dividend equivalents at fair market value at the time of
deemed reinvestment. Dividend equivalent rights may be settled in cash, shares
of Patriot Common Stock, or a combination thereof, in a single installment or
installments, as specified in the award.
Adjustments for Stock Dividends, Mergers, Etc. The Patriot Compensation
Committee will make appropriate adjustments in outstanding awards to reflect
stock dividends, stock splits and similar events. In the event of a merger,
liquidation or similar event, the Patriot Compensation Committee in its
discretion may provide for substitution or adjustments or may (subject to the
provisions described below under "--Change of Control Provisions") accelerate
or, upon payment or other consideration for the vested portion of any awards
as the Patriot Compensation Committee deems equitable in the circumstances,
terminate such awards. Upon consummation of the Merger, all outstanding awards
may be adjusted in accordance with the Exchange Ratio and will be converted to
either options to acquire paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock, restricted paired shares or
deferred stock units payable in the form of paired shares, as the case may be.
Tax Withholding. Patriot Incentive Plan participants are responsible for the
payment of any federal, state or local taxes which Patriot is required by law
to withhold from the value of any award. Patriot may deduct any such taxes
from any payment otherwise due to the participant. Participants may elect to
have such tax obligations satisfied either by authorizing Patriot to withhold
shares of stock to be issued pursuant to an award under the Patriot Incentive
Plan or by transferring to Patriot shares of Patriot Common Stock having a
value equal to the amount of such taxes.
Amendments and Termination. The Patriot Board of Directors may amend or
terminate the Patriot Incentive Plan from time to time, and the Patriot
Compensation Committee may at any time amend or cancel outstanding awards for
the purpose of satisfying changes in the law or for any other lawful purpose.
However, no such action may be taken which adversely affects any rights under
outstanding awards without the holder's consent. Further, amendments to the
Patriot Incentive Plan shall be subject to approval by Patriot's stockholders
if (i) the amendment increases the aggregate number of shares of Patriot
Common Stock that may be issued under the Patriot Incentive Plan, (ii) the
amendment changes the class of individuals eligible to become participants, or
(iii) the amendment materially increases the benefits that may be provided
under the Patriot Incentive Plan.
Change of Control Provisions. The Patriot Incentive Plan provides that in
the event of a Change of Control of Patriot, unless otherwise provided in the
applicable award agreement, all stock options shall automatically
127
<PAGE>
become fully exercisable and any risk of forfeiture included in any stock
awards, dividend equivalent rights and deferred stock units shall lapse. The
award agreement for Mr. Nussbaum's tier two option grant provides that the
tier two option would not vest in the event of a change of control of Patriot.
In addition, at any time prior to or after a Change of Control, the Patriot
Compensation Committee may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine appropriate. The
Patriot Compensation Committee will not take such actions in connection with
the Merger with Cal Jockey.
STOCKHOLDERS' VOTE REQUIRED TO APPROVE PROPOSAL
The amendment and restatement of the Patriot Incentive Plan will become
effective upon the affirmative vote of the holders of a majority of the
Patriot Common Stock present in person or by proxy at the Patriot Special
Meeting and entitled to vote on the matter so long as the holders of at least
50% of the outstanding Patriot Common Stock vote on the matter.
NEW PLAN BENEFITS TABLE
Approximately 16 employees and six non-employee directors are eligible to
participate in the Patriot Incentive Plan. As of May 28, 1997, the following
grants have been made under the Patriot Incentive Plan with respect to the
proposed increase in shares available for issuance. No other grants have been
made with respect to the proposed increase in shares available for issuance.
PATRIOT AMERICAN HOSPITALITY, INC. 1995 INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
DOLLAR NUMBER OF DEFERRED
VALUE STOCK OPTIONS STOCK UNITS
---------- ------------- -----------
<S> <C> <C> <C>
Paul A. Nussbaum..................... $ 0 2,600,000(1) 0
Chairman of the Board of Directors
and Chief Executive Officer
Executive Group...................... $ 0 2,600,000 0
Non-Executive Director Group......... $11,639.03(2) 0 541.35(3)
</TABLE>
- --------
(1) Includes a ten-year option to purchase 1,350,000 shares of Patriot Common
Stock with an exercise price of $22.375 per share. Such option would not
be exercisable until April 1, 2002. Also includes a ten-year option to
purchase 1,250,000 shares of Patriot Common Stock with five equal tranches
of 250,000 shares with exercise prices of $24.61, $27.07, $29.78, $32.76
and $36.04, respectively. Such option would not be exercisable until April
1, 2002.
(2) Valuation is based on the May 28, 1997 closing price of Patriot Common
Stock as reported on the NYSE of $21 1/2.
(3) The deferred stock units were granted at values ranging from $22.50 to
$26.00.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal federal income tax consequences
of option grants under the Patriot Incentive Plan. It does not describe all
federal tax consequences under the Patriot Incentive Plan, nor does it
describe state or local tax consequences.
Incentive Options. No taxable income is realized by the optionee upon the
grant or exercise of an Incentive Option. If shares issued to an optionee
pursuant to the exercise of an Incentive Option are not sold or transferred
within two years from the date of grant or within one year after the date of
exercise, then (a) upon sale of such shares, any amount realized in excess of
the option price (the amount paid for the shares) will be taxed to the
optionee as a long-term capital gain and any loss sustained will be a long-
term capital loss, and (b) there will be no deduction for Patriot for federal
income tax purposes. The exercise of an Incentive Option will give rise to an
item of tax preference that may result in alternative maximum tax liability
for the optionee.
128
<PAGE>
If shares of Patriot Common Stock acquired upon the exercise of an Incentive
Option are disposed of prior to the expiration of the two-year and one-year
holding periods described above (a "disqualifying disposition"), generally (a)
the optionee will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on a sale of such shares) over the
option price thereof, and (b) Patriot will be entitled to deduct such amount.
Special rules will apply where all or a portion of the exercise price of the
Incentive Option is paid by tendering shares of Patriot Common Stock.
If an Incentive Option is exercised at a time when it no longer qualifies
for the tax treatment described above, the option is treated as a Non-
Qualified Option. Generally, except in the case of death, an Incentive Option
will not be eligible for the tax treatment described above if it is exercised
more than three months following termination of employment (or one year in the
case of termination of employment by reason of death or disability).
Non-Qualified Options. With respect to Non-Qualified Options under the
Patriot Incentive Plan, no income is realized by the optionee at the time the
option is granted. Generally, (a) at exercise, ordinary income is realized by
the optionee in an amount equal to the difference between the option price and
the fair market value of the shares on the date of exercise, and Patriot
receives a tax deduction for the same amount, and (b) at disposition,
appreciation or depreciation after the date of exercise is treated as either
short-term or long-term capital gain or loss depending on how long the shares
have been held. Special rules will apply where all or a portion of the
exercise price of the Non-Qualified Option is paid by tendering shares of
Patriot Common Stock.
Payments in Respect of a Change of Control. The Patriot Incentive Plan
provides for acceleration or payment of awards and related shares in the event
of a Change of Control. Such acceleration or payment may cause the
consideration involved to be treated in whole or in part as "parachute
payments" under the Code. Acceleration of benefits under other Patriot stock
and benefits plans and other contracts with employees in the event of a Change
of Control could be subject to being combined with Patriot Incentive Plan
accelerations for "parachute payment" purposes. Any such "parachute payments"
may be non-deductible to Patriot in whole or in part, and the recipient may be
subject to a 20% excise tax on all or part of such payments (in addition to
other taxes ordinarily payable).
Limitation on Patriot's Deduction. As a result of new Section 162(m) of the
Code, Patriot's tax deduction for certain awards under the Patriot Incentive
Plan may be limited to the extent that a "covered employee" (e.g., the chief
executive officer and four other executives named in the Summary Compensation
Table in Patriot's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996) receives compensation in excess of $1,000,000 in such
taxable year of Patriot (other than performance-based compensation that
otherwise meets the requirements of Section 162(m) of the Code).
129
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of all material United States federal
income tax consequences of the Merger and the Related Transactions to Patriot,
Cal Jockey and Bay Meadows and their respective U.S. Stockholders (as defined
below in "--Federal Income Taxation of Holders of Paired Shares--Taxation of
Taxable U.S. Stockholders") as well as certain other tax considerations for
U.S. holders of paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. The following discussion is based upon current
provisions of the Code, existing, temporary and final regulations thereunder
and current administrative rulings and court decisions, all of which are
subject to change, possibly on a retroactive basis. No attempt has been made
to comment on all United States federal income tax consequences of the Merger
and the Related Transactions that may be relevant to stockholders of Patriot,
Cal Jockey and Bay Meadows. The tax discussion set forth below is included for
general information only. It is not intended to be, nor should it be construed
to be, legal or tax advice to a particular stockholder of Patriot, Cal Jockey
or Bay Meadows.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF PATRIOT COMMON STOCK, CAL JOCKEY COMMON STOCK OR BAY MEADOWS
COMMON STOCK SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX- EXEMPT ORGANIZATIONS,
NON-U.S. STOCKHOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE
EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION.
STOCKHOLDERS OF PATRIOT, CAL JOCKEY AND BAY MEADOWS ARE URGED TO CONSULT THEIR
TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND THE
RELATED TRANSACTIONS, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF
THE MERGER AND THE RELATED TRANSACTIONS.
TAX CONSEQUENCES OF THE MERGER
Goodwin, Procter & Hoar llp, counsel for Patriot, has delivered its opinion
to Patriot substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. Accordingly, no gain or loss
will be recognized by Patriot as a result of the Merger. Stockholders of
Patriot will recognize gain, but not loss, on the exchange of shares of
Patriot Common Stock for paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock in an amount equal to the lesser of
(a) the fair market value of the New Patriot Operating Company Common Stock as
of the Effective Time that they receive (plus the amount of cash received for
Excess Paired Shares or in lieu of fractional shares of New Patriot Operating
Company, if any) (such value and cash received by a stockholder is referred to
herein as the stockholder's "boot") or (b) the amount by which the fair market
value of the paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock as of the Effective Time (plus the amount of
cash received for Excess Paired Shares or in lieu of fractional paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock, if any) exceeds the stockholder's adjusted tax basis in the Patriot
Common Stock exchanged therefor. Any such gain will be characterized as
capital gain (assuming the Patriot Common Stock exchanged was a capital asset
in the hands of the stockholder) unless the boot received has the effect of
the distribution of a dividend, in which case the gain would be treated as a
dividend to the extent of the stockholder's ratable share of Patriot's
undistributed earnings and profits (see below). The companies' estimate of the
value of a share of New Patriot Operating Company Common Stock is discussed
below. No gain or loss will be recognized by Cal Jockey as a result of the
Merger. Bay Meadows, which is not a party to the Merger, will not recognize
gain or loss, nor will stockholders of Cal Jockey and Bay Meadows as of the
Effective Time. Goodwin, Procter & Hoar llp's opinion is based, in part, upon
a representation by the management of Patriot to the effect that, to the best
knowledge of Patriot's management, there is no plan or intention on the part
of the stockholders of Patriot to dispose of a number of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
130
<PAGE>
received in the Merger that would reduce the aggregate value of the New
Patriot REIT Common Stock held by Patriot stockholders to less than 50% of the
value of the Patriot Common Stock as of the Effective Time, and upon counsel's
assumption to the effect that such representation is correct as if made
without such "best knowledge" qualification. The opinion referred to above has
been filed as an exhibit to the Registration Statement, of which this Joint
Proxy Statement/Prospectus is a part.
In general, the determination as to whether the gain recognized by a Patriot
stockholder in the Merger will be treated as capital gain or dividend income
depends upon whether and to what extent the transactions related to the Merger
will be deemed to reduce the stockholder's percentage stock ownership of New
Patriot REIT. For purposes of that determination, the stockholder is treated
as if it first exchanged all of its shares of Patriot Common Stock solely for
New Patriot REIT Common Stock and then New Patriot REIT immediately redeemed
(the "deemed redemption") a portion of such New Patriot REIT Common Stock in
exchange for the boot the stockholder actually received. If, under Section 302
of the Code, the deemed redemption is "not essentially equivalent to a
dividend" with respect to the stockholder then any gain recognized by the
stockholder in the transaction will be capital gain. In general, in order for
the deemed redemption to be "not essentially equivalent to a dividend," the
deemed redemption must result in a "meaningful reduction" in the stockholder's
deemed percentage stock ownership of New Patriot REIT. In general, that
determination requires a comparison of (i) the percentage of the outstanding
stock of New Patriot REIT the stockholder owned immediately before the deemed
redemption and (ii) the percentage of the outstanding stock of New Patriot
REIT the stockholder owns immediately after the deemed redemption. Stock owned
for this purpose includes stock actually owned as well as stock deemed owned
under the constructive ownership rules of Section 318 of the Code. The IRS has
indicated in a published ruling that, in the case of a small minority holder
of a publicly held corporation who exercises no control over corporate
affairs, a reduction in the holder's proportionate interest in the corporation
from .0001118% to .0001081% would constitute a meaningful reduction.
The aggregate tax basis of the shares of New Patriot REIT Common Stock
received by a Patriot stockholder in the Merger (including any fractional
shares for which cash is received) will be the same as the aggregate tax basis
of his or her shares of Patriot Common Stock exchanged therefor, increased by
any gain recognized in the transaction (whether capital gain or dividend
income), and decreased by the fair market value of the New Patriot Operating
Company Common Stock received, any cash received in lieu of fractional shares
of New Patriot Operating Company Common Stock and any cash received for Excess
Paired Shares. The holding period for shares of New Patriot REIT Common Stock
received by a stockholder will include the period that such shares of Patriot
Common Stock were held by the holder, provided such shares were held as a
capital asset at the Effective Time.
If a Patriot stockholder has differing basis and/or holding periods in
respect of his shares of Patriot Common Stock, he should consult his tax
advisor prior to the exchange with regard to computing his gain with respect
to particular blocks of Patriot Common Stock and identifying the particular
bases and/or holding periods of the particular shares of New Patriot REIT
Common Stock he receives in the exchange.
The aggregate tax basis of the shares of New Patriot Operating Company
Common Stock received by a Patriot stockholder in the Merger will be equal to
the fair market value of the New Patriot Operating Company Common Stock as of
the Effective Time. The holding period for shares of New Patriot Operating
Company Common Stock received by a stockholder will begin on the day it is
distributed.
Cash received in lieu of a fractional shares of New Patriot REIT Common
Stock will be treated as received in redemption for such fractional interest,
and gain or loss will be recognized, measured by the difference between the
amount of cash received and the portion of the basis of the shares of New
Patriot REIT Common Stock allocable to such fractional shares. Such gain or
loss will constitute capital gain or loss from the sale of stock if the
stockholder holds its Patriot Common Stock as a capital asset at the Effective
Time, and will be long-term capital gain or loss if the holding period for
such shares of Patriot Common Stock was greater than one year at the Effective
Time.
131
<PAGE>
In connection with the Merger and Subscription, Patriot, Cal Jockey and Bay
Meadows are obligated to agree on the relative values of a share of Cal Jockey
Common Stock and a share of Bay Meadows Common Stock that comprise a Paired
Share. The companies have determined that the value of a share of New Patriot
Operating Company Common Stock as of the Effective Time should represent 5% of
the then value of a Paired Share. There can be no assurance, however, that the
IRS will agree with such valuation, and Patriot cannot assure its stockholders
that the IRS will not challenge such valuation.
PRE-MERGER DIVIDEND
To maintain its qualification as a REIT prior to the Merger, Patriot will be
required to distribute to its stockholders immediately prior to the Merger at
least 95% of any undistributed "real estate investment trust taxable income"
of Patriot for Patriot's short taxable year ending with the Merger (the "Pre-
Merger Dividend"). See "Risk Factors--REIT Tax Risks." The Pre-Merger Dividend
made to Patriot's taxable U.S. Stockholders will be taken into account by such
U.S. Stockholders as ordinary income to the extent it is made out of current
or accumulated earnings and profits, and will not be eligible for the
dividends received deduction generally available for corporations. See
"Certain Federal Income Tax Considerations--Federal Income Taxation of Holders
of Paired Shares."
Immediately prior to the consummation of the Merger, Cal Jockey will pay a
dividend to the holders of Paired Shares. See "Summary--Distribution and
Dividend Policy--Cal Jockey and Bay Meadows." This dividend will be taxable to
Cal Jockey's taxable U.S. Stockholders as ordinary income (or capital gain in
the case of any portion properly designated as a capital gain dividend) to the
extent it is made out of current or accumulated earnings and profits, and will
not be eligible for the dividends received deduction generally available to
corporations. See "Certain Federal Income Tax Considerations--Federal Income
Taxation of Holders of Paired Shares."
SALE OF LAND BY NEW PATRIOT REIT
The agreements governing Cal Jockey's sales of the Stable Area and the
Training Track Area and the agreement governing the Proposed PaineWebber Land
Sale provide that the purchasers will cooperate with Cal Jockey in structuring
the transactions as tax-deferred like-kind exchanges. There can be no
assurances that the transactions will qualify as tax-deferred like-kind
exchanges or that suitable properties for exchange will be located and the
exchanges completed within the relatively short time periods allowed by
applicable IRS regulations. If the sales cannot be qualified as tax-deferred
like-kind exchanges, but the gain qualifies for capital gains treatment, New
Patriot REIT can elect to distribute the gain (Patriot estimates the maximum
gain to be approximately $73 million if the Proposed PaineWebber Land Sale is
consummated) to its stockholders, who would be taxed at applicable capital
gains rates. If the proceeds are not distributed, the gain will be taxed to
New Patriot REIT at applicable capital gains rates. To the extent that the
gain does not qualify for capital gains treatment, the gain will be combined
with New Patriot REIT's other taxable income, 95% of which must be distributed
each year in order to maintain New Patriot REIT's status as a REIT. There can
be no assurance, however, that New Patriot REIT will make any such
distribution. Legislative proposals to restrict like-kind exchanges, if
enacted with an effective date that included the Proposed PaineWebber Land
Sale, could adversely affect New Patriot REIT's ability to complete a like-
kind exchange, although it is currently anticipated that the new rules would
not apply to exchanges made pursuant to binding agreements in place at the
time of enactment and thus would not apply to the Proposed PaineWebber Land
Sale.
Notwithstanding the foregoing, in the event that any of the property
proposed to be sold by New Patriot REIT in the Proposed PaineWebber Land Sale
constitutes dealer property, then the sales thereof would not be eligible for
tax-deferred like-kind exchange treatment, the gain would be subject to a 100%
tax, and the amount of gain would constitute nonqualifying income that likely
would disqualify New Patriot REIT as a REIT; provided that the 100% tax would
not apply and the amount of gain would not disqualify New Patriot REIT as a
REIT if the sales were eligible for a certain statutory safe harbor (but the
gain would have to be distributed to maintain REIT qualification if the
properties nonetheless constituted dealer property). Although Cal Jockey
believes that the Stable Area and the Training Track Area do not constitute
dealer property, and Patriot believes that the Proposed PaineWebber Land Sale
will not constitute a sale of dealer property, whether or not such sales
constitute sales of dealer property are factual determinations not susceptible
of legal opinion, and the companies are not receiving
132
<PAGE>
opinions from counsel on such determinations. Moreover, there can be no
assurance that the proposed sales will qualify for the statutory safe harbor
referred to above. As a result, the opinion rendered by Goodwin, Procter &
Hoar llp regarding New Patriot REIT's qualification as a REIT for periods
following the Merger necessarily relies on representations from Patriot to the
effect that none of the proposed sales will constitute sales of dealer
property.
REIT QUALIFICATION
General
If certain detailed conditions imposed by the provisions of the Code are
met, entities such as Cal Jockey and Patriot that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations generally are not taxed at the corporate level on their "real
estate investment trust taxable income" that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., at both the corporate and stockholder levels) that ordinarily
results from the use of corporations.
Prior to the consummation of the Merger, Cal Jockey and Patriot have been
and will continue to be operated in a manner intended to allow each of them to
qualify as a REIT. Patriot intends that New Patriot REIT will operate
following the Merger in a manner so that New Patriot REIT will continue to
qualify as a REIT. If New Patriot REIT fails to qualify as a REIT in any
taxable year, New Patriot REIT will be subject to federal income taxation as
if it were a domestic corporation, and New Patriot REIT's stockholders will be
taxed in the same manner as stockholders of ordinary corporations. In this
event, New Patriot REIT could be subject to potentially significant tax
liabilities, and the amount of cash available for distribution to stockholders
would be reduced and possibly eliminated. Moreover, the liabilities of New
Patriot REIT following the Merger will include any unpaid taxes of Cal Jockey
and Patriot, including taxes resulting if Cal Jockey or Patriot failed to
qualify as REIT for periods prior to the Merger, which also could reduce or
eliminate cash available for distribution to New Patriot REIT's stockholders
following the Merger. Unless entitled to relief under certain Code provisions,
and subject to the discussion below regarding Section 269B(a)(3) of the Code,
New Patriot REIT also would be disqualified from re-electing REIT status for
the four taxable years following the year during which qualification was lost.
New Patriot REIT's qualification and taxation as a REIT following the Merger
will depend upon New Patriot REIT's continuing ability to meet, through actual
operating results, the income and asset requirements, distribution levels,
diversity of stock ownership and other requirements for qualification as a
REIT under the Code. Counsel will not review New Patriot REIT's compliance
with these tests on a continuing basis. Moreover, qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely
within New Patriot REIT's control. The complexity of these provisions is
greater in the case of a REIT that owns hotels and leases them to a
corporation with which its stock is paired. See "Risk Factors--REIT Tax
Risks." Accordingly, no assurance can be given that New Patriot REIT will
satisfy such tests on a continuing basis. Moreover, New Patriot REIT's ability
to qualify as a REIT following the Merger also generally will depend on the
qualification of Cal Jockey and of Patriot as REITs for periods prior to the
Merger. See "Risk Factors--REIT Tax Risks."
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin Procter & Hoar llp has rendered an opinion regarding (i) Patriot's
qualification as a REIT for periods prior to the Merger, (ii) Cal Jockey's
qualification as a REIT for periods prior to the Merger and (iii) New Patriot
REIT's ability to qualify as a REIT following the Merger. The opinion of
Goodwin Procter & Hoar llp has been filed as an exhibit to the Registration
Statement, of which the Joint Proxy Statement/Prospects is a part. This
opinion is based on representations from Patriot and Cal Jockey regarding
Patriot's, Cal Jockey's and New Patriot REIT's compliance with the
requirements for REIT qualification, and none are binding on the IRS.
Moreover, each of Patriot's, Cal Jockey's and New Patriot REIT's qualification
as a REIT depends on its having met or meeting, as
133
<PAGE>
the case may be, through actual operating results, the various requirements
for qualification as a REIT under the Code. Counsel has not verified and will
not verify the companies' compliance with those tests. Accordingly, no
assurance can be given that the IRS will not challenge the status of Cal
Jockey or Patriot as a REIT prior to the Merger or the status of New Patriot
REIT as a REIT following the Merger.
Paired Shares; Potential Reallocation of Income
Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company qualifies as a REIT.
If Section 269B(a)(3) applied to New Patriot REIT and New Patriot Operating
Company, then New Patriot REIT would not be eligible to be taxed as a REIT.
Section 269B(a)(3) does not apply, however, if the shares of the REIT and the
non-REIT were paired on or before June 30, 1983 and the REIT was taxable as a
REIT on or before June 30, 1983. As a result of this "grandfathering" rule,
Section 269B(a)(3) has not applied to Cal Jockey and Bay Meadows. By its
terms, this grandfathering rule will continue to apply to New Patriot REIT
after the Merger. There are, however, no judicial or administrative
authorities interpreting this "grandfathering" rule in the context of a merger
or otherwise, and this interpretation, as well as the opinion of Goodwin,
Procter & Hoar llp regarding Cal Jockey's qualification as a REIT prior to the
Merger and the opinion of Goodwin, Procter & Hoar llp regarding New Patriot
REIT's qualification as a REIT following the Merger, are based solely on the
literal language of the statute. Moreover, if for any reason Cal Jockey failed
to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would
not be available to Cal Jockey or New Patriot REIT, in which case neither Cal
Jockey nor New Patriot REIT would qualify as a REIT for any taxable year.
Even though Section 269B(a)(3) of the Code should not apply to New Patriot
REIT and New Patriot Operating Company, the IRS could assert that New Patriot
REIT and New Patriot Operating Company should be treated as one entity under
general tax principles. In general, such an assertion should only be upheld if
the separate corporate identities are a sham or unreal. A majority of the
directors of each of New Patriot REIT and New Patriot Operating Company
immediately following the Merger will not serve as directors of the other
company. In addition, New Patriot REIT and New Patriot Operating Company have
different employees, separate creditors and are subject to different state law
licensing and regulatory requirements. Patriot has represented that New
Patriot REIT and New Patriot Operating Company and their respective subsidiary
entities will each maintain separate books and records and all material
transactions among them have been and will be negotiated and structured with
the intention of achieving an arm's-length result.
Potential Reallocation of Income
Due to the paired share structure, New Patriot REIT, New Patriot Operating
Company, the Patriot Partnership, the New Patriot Operating Partnership, and
their respective subsidiary entities will be controlled by the same interests.
As a result, the IRS could, pursuant to Section 482 of the Code, seek to
distribute, apportion or allocate gross income, deductions, credits or
allowances between or among them if it determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes
or to clearly reflect income. Patriot believes that all material transactions
between New Patriot REIT and New Patriot Operating Company, and among them
and/or their subsidiary entities, will be negotiated and structured with the
intention of achieving an arm's-length result. Cal Jockey and Bay Meadows
believe that all material transactions between them have been similarly
negotiated and structured with the intention of achieving an arm's-length
result. If true, the potential application of Section 482 of the Code should
not have a material effect on New Patriot REIT or New Patriot Operating
Company. There can be no assurance, however, that the IRS will not challenge
the terms of such transactions, or that such challenge would not be
successful.
134
<PAGE>
TAXATION OF NEW PATRIOT OPERATING COMPANY
As a "C" corporation under the Code, New Patriot Operating Company will be
subject to United States federal income tax on its taxable income at corporate
rates.
EFFECTS OF COMPLIANCE WITH REIT REQUIREMENTS
Operating income derived from hotels or a racetrack does not constitute
qualifying income under the REIT requirements. Accordingly, all of Patriot's
hotels, other than hotels held by taxable entities in which Patriot does not
hold voting control (currently the Crowne Plaza Ravinia Hotel and the Marriott
WindWatch Hotel), have been leased to Lessees and will continue to be leased
after the Merger. Similarly, Cal Jockey has leased the Racecourse to Bay
Meadows and New Patriot REIT will continue to lease the Racecourse for so long
as New Patriot REIT owns the Racecourse (or will sublease it following the
Proposed PaineWebber Land Sale). Rent derived from such leases will be
qualifying income under the REIT requirements, provided several requirements
are satisfied. Among other requirements, a lease may not have the effect of
giving New Patriot REIT a share of the net income of the Lessee, and the
amount of personal property leased under the lease must not exceed a defined,
low level. New Patriot REIT also may not provide services, other than
customary services, to the Lessees or their subtenants. In addition, the
leases must also qualify as "true" leases for federal income tax purposes (as
opposed to service contracts, joint ventures or other types of arrangements).
There are, however, no controlling Treasury Regulations, published rulings, or
judicial decisions that discuss whether leases similar to the Participating
Leases constitute "true" leases. Therefore, there can be no complete assurance
that the IRS will not successfully assert a contrary position.
Payments under a lease will not constitute qualifying income for purposes of
the REIT requirements if New Patriot REIT owns, directly or indirectly, 10% or
more of the ownership interests in the relevant Lessee. Constructive ownership
rules apply, such that, for instance, New Patriot REIT is deemed to own the
assets of stockholders who own 10% or more in value of the stock of New
Patriot REIT. The Restated Charters are therefore designed to prevent a
stockholder of New Patriot REIT from owning New Patriot REIT Common Stock or
New Patriot Operating Company Common Stock that would cause New Patriot REIT
to own, actually or constructively, 10% or more of the ownership interests in
a Lessee (including New Patriot Operating Company and the New Patriot
Operating Partnership). Thus, New Patriot REIT should never own, actually or
constructively, 10% or more of a Lessee. However, because the relevant
constructive ownership rules are broad and it is not possible to monitor
continually direct and indirect transfers of Paired Shares, and because the
charter provisions referred to above may not be effective, no absolute
assurance can be given that such transfers, or other events of which New
Patriot REIT has no knowledge, will not cause New Patriot REIT to own
constructively 10% or more of one or more Lessees at some future date.
In addition to the considerations discussed above, the REIT requirements
will impose a number of other restrictions on the operations of New Patriot
REIT. For example, net income from sales of property sold to customers in the
ordinary course of business (other than inventory acquired by reason of
certain foreclosures) is subject to a 100% tax unless eligible for a certain
safe harbor. If the gross income subject to the 100% tax, 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) exceeds
30% of New Patriot REIT's gross income in any taxable year, New Patriot REIT
will fail to qualify as a REIT. See "--Sale of Land by New Patriot REIT."
Minimum distribution requirements also will apply to New Patriot REIT, as
discussed elsewhere in this Joint Proxy Statement/Prospectus. See "Risk
Factors--REIT Tax Risks--Adverse Effects of REIT Minimum Distribution
Requirements."
Any profits earned by the New Patriot Operating Company from hotel
operations in excess of the rents payable to the Patriot Partnership will be
taxed at regular corporate rates.
TAX ASPECTS OF NEW PATRIOT REIT'S INVESTMENT IN THE PATRIOT PARTNERSHIP AND
NEW PATRIOT OPERATING COMPANY'S INVESTMENT IN THE NEW PATRIOT OPERATING
PARTNERSHIP
Patriot holds substantially all of its assets through the Patriot
Partnership and the Patriot Partnership's subsidiary partnerships, and, as a
result of the Merger, New Patriot REIT will acquire Patriot's general partner
135
<PAGE>
and limited partner interests in the Patriot Partnership. In addition, New
Patriot Operating Company will conduct substantially all of its operations
through the New Patriot Operating Partnership. New Patriot REIT's interest in
the Patriot Partnership and New Patriot Operating Company's investment in the
New Patriot Operating Partnership involve special tax considerations,
including those described below.
Classification as Publicly Traded Partnership
Notwithstanding that the Patriot Partnership and the New Patriot Operating
Partnership are partnerships rather than associations taxable as corporations,
the IRS could allege that the Patriot Partnership or the New Patriot Operating
Partnership is a "publicly traded partnership" under Section 7704 of the Code.
If such an assertion were successfully made, such partnership would be subject
to tax as a corporation under the Code unless certain conditions regarding the
nature of its income were satisfied. In the case of the Patriot Partnership,
taxation as a corporation would disqualify New Patriot REIT as a REIT.
A partnership is a publicly traded partnership if interests in such
partnership are either traded on an established securities market or are
"readily tradable on a secondary market (or the substantial equivalent
thereof)." A publicly traded partnership is not taxed as a corporation,
however, if at least 90% of its gross income for each taxable year consists of
certain passive income, including interest, dividends, real property rents,
and gains from the sale or other disposition of real property.
Interests in the Patriot Partnership or its subsidiary partnerships have not
been traded on an established securities market and no interests in such
partnerships will be traded on an established securities market following the
Merger and the Related Transactions. Moreover, Patriot believes that, for
periods ending on or before the Merger, the Patriot Partnership and each
subsidiary partnership has qualified and will qualify for a certain safe
harbor from treatment as a publicly traded partnership based on the number of
partners in such partnerships as well as the 90% qualifying income exemption
referred to above. It is currently anticipated that following the Merger,
these partnerships will continue to rely on the safe harbor based on the
number of their partners and/or the qualifying income exception and that the
New Patriot Operating Partnership will rely on the safe harbor based on the
number of its partners. Alternatively, following the Merger, the Patriot
Partnership Agreement and the New Patriot Operating Partnership may rely on
restrictions on transfers and redemptions to be included in their respective
partnership agreements designed to prevent such partnerships being taxed as
corporations under Section 7704 of the Code. There can be no assurance,
however, that efforts to avoid taxation as a corporation under these
provisions will be successful.
Tax Allocations with Respect to Contributed Properties
Several of Patriot's hotels or interests therein have been acquired by
contribution, and the Patriot Partnership and may acquire assets by
contribution in the future. The New Patriot Operating Partnership will be
formed in part through contribution and also may acquire assets by
contribution in the future. Pursuant to Section 704(c) of the Code, income,
gain, loss and deduction attributable to appreciated or depreciated property
that is contributed to a partnership must be allocated in a manner such that
for federal income tax purposes the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. Allocations required by
Section 704(c) are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. Depending on the method chosen for making allocations required by
Section 704(c), New Patriot REIT and New Patriot Operating Company (i) may be
allocated smaller depreciation and other deductions with respect to assets
contributed to the Patriot Partnership or the New Patriot Operating
Partnership, respectively, than would be allocated to New Patriot REIT and New
Patriot Operating Company if the assets had a tax basis equal to their fair
market value at the time of their contribution and (ii) may be allocated
taxable gain in the event of a sale of assets contributed to their respective
partnerships in excess of the economic profit allocated to them as a result of
the sale. These allocations could cause New Patriot REIT to recognize
additional taxable income, which might adversely affect New Patriot REIT's
ability to comply with the distribution requirements for REITs, and also could
result in increased taxes payable by New Patriot Operating Company.
136
<PAGE>
PAH RAVINIA, PAH WINDWATCH AND PAH BOULDERS
The Patriot Partnership owns 100% of the non-voting stock of PAH Ravinia and
PAH Boulders and 100% of the non-voting member interests in PAH WindWatch, and
owns, indirectly, 4% of the voting equity interests in PAH Ravinia and PAH
WindWatch, representing approximately 99% of the economic interests in each of
the entities. In addition, the Patriot Partnership owns mortgage notes on the
hotels held by PAH Ravinia and PAH WindWatch. By virtue of its ownership of OP
Units in the Patriot Partnership, New Patriot REIT will be considered to own
its pro rata share of such equity interests and mortgage notes.
To qualify as a REIT, neither Patriot nor New Patriot REIT may own more than
10% of the voting securities of any issuer. Further, neither Patriot nor New
Patriot REIT may own equity or unsecured debt securities of any single issuer
if the value of such securities exceeds 5% of the total value of New Patriot
REIT's assets. Patriot believes that it has, and that New Patriot REIT will,
satisfy these requirements with respect to PAH Ravinia, PAH WindWatch and PAH
Boulders. If the IRS were to successfully challenge these determinations,
however, New Patriot REIT would fail to qualify as a REIT.
Each of PAH Ravinia, PAH Boulders and PAH WindWatch currently pays federal,
state and local income taxes on its taxable income at normal corporate rates.
The amount of any such taxes reduce amounts available for distribution to
stockholders.
STATE AND LOCAL TAXATION
New Patriot REIT, New Patriot Operating Company, the Patriot Partnership,
the New Patriot Operating Partnership and their stockholders or partners may
be subject to state and local taxes in various jurisdictions, including those
in which it or they transact business, own property or reside. The state and
local tax treatment of such entities or persons may not conform to the federal
income tax consequences discussed above. Consequently, Patriot, Cal Jockey and
Bay Meadows stockholders should consult their own tax advisors regarding the
effect of state and local tax laws on the ownership of paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
Separate Taxation
Notwithstanding that paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock may only be transferred as a unit,
holders of paired shares will be treated for U.S. federal income tax purposes
as holding equal numbers of shares of New Patriot REIT Common Stock and of New
Patriot Operating Company Common Stock. The tax treatment of distributions to
stockholders and of any gain or loss upon sale or other disposition of the
paired shares (as well as the amount of gain or loss) must therefore be
determined separately with respect to each share of New Patriot REIT Common
Stock and each share of New Patriot Operating Company Common Stock contained
within each paired share. The tax basis and holding period for each share of
New Patriot REIT Common Stock and each share of New Patriot Operating Company
Common Stock also must be determined separately. See "--Tax Consequences of
the Merger." Upon a taxable sale of a paired share, the amount realized should
be allocated between New Patriot REIT Common Stock and the New Patriot
Operating Company Common Stock based on their then relative values.
Taxation of Taxable U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of paired shares
that for United States federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate, the income of which is subject
to United States federal income taxation regardless of its source or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust and (v) is not an entity that has a special status under the Code (such
as a tax-exempt organization).
137
<PAGE>
As long as New Patriot REIT qualifies as a REIT, distributions made to New
Patriot REIT'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. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed New
Patriot REIT's actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held his New Patriot REIT 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 New Patriot REIT 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 New Patriot REIT Common Stock, such distributions will be
included in income as long-term capital gain (or short-term capital gain if
the New Patriot REIT Common Stock has been held for one year or less) assuming
shares are a capital asset in the hands of the stockholder. In addition, any
distribution declared by New Patriot REIT 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 New Patriot REIT and received by
the stockholder on December 31 of such year, provided that the distribution is
actually paid by New Patriot REIT during January of the following calendar
year.
Distributions from New Patriot Operating Company up to the amount of New
Patriot Operating Company's current or accumulated earnings and profits will
be taken into account by U.S. Stockholders as ordinary income and generally
will be eligible for the dividends-received deduction for corporations
(subject to certain limitations). Distributions in excess of New Patriot
Operating Company's current and accumulated earnings and profits will not be
taxable to a holder to the extent that they do not exceed the adjusted basis
of the holder's New Patriot Operating Company Common Stock, but rather will
reduce the adjusted basis of such New Patriot Operating Company Common Stock.
To the extent that such distributions exceed the adjusted basis of a holder's
New Patriot Operating Company Common Stock they will be included in income as
long-term capital gain (or short-term capital gain if the stock has been held
for one year or less) assuming the shares are a capital asset in the hands of
the stockholder.
Taxable distributions from New Patriot REIT or New Patriot Operating Company
and gain or loss from the disposition of shares of New Patriot REIT Common
Stock and New Patriot Operating Company 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 New Patriot REIT or New
Patriot Operating Company generally will be treated as investment income for
purposes of the investment interest limitations. Capital gains from the
disposition of paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock (or distributions from either company treated
as such) will be treated as investment income only if the stockholder so
elects, in which case such capital gains will be taxed at ordinary income
rates. New Patriot REIT and New Patriot Operating Company will notify
stockholders after the close of their taxable years as to the portions of the
distributions attributable to that year that constitute ordinary income,
return of capital, and (in the case of New Patriot REIT) capital gain.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of New Patriot REIT or of New Patriot
Operating Company.
Taxation of Stockholders on the Disposition of Paired Shares
In general, any gain or loss realized upon a taxable disposition of paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock by a stockholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock have been
held for more than one year and otherwise as short-term capital gain or loss.
Existing Patriot stockholders who receive paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock in the Merger will
have different holding periods with respect
138
<PAGE>
to their New Patriot REIT Common Stock and their New Patriot Operating Company
Common Stock. Accordingly, the portions of the gain or loss recognized on the
disposition of paired shares attributable to New Patriot REIT Common Stock or
New Patriot Operating Company Common Stock may not have the same character for
federal income tax purposes. In addition, any loss upon a sale or exchange of
New Patriot REIT Common Stock by a stockholder who has held such stock for six
months or less (after applying certain holding period rules), will be treated
as a long-term capital loss to the extent of distributions from New Patriot
REIT required to be treated by such stockholder as long-term capital gain. All
or a portion of any loss realized upon a taxable disposition of paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock may be disallowed if other paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock are purchased within 30
days before or after the disposition.
Information Reporting Requirements and Backup Withholding
New Patriot REIT and New Patriot Operating Company will each report to their
U.S. Stockholders and the IRS the amount of distributions paid during each
calendar year, and the amount of tax withheld, if any. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to distributions paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide New Patriot REIT and New Patriot
Operating Company with his correct taxpayer identification number also may be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In
addition, New Patriot REIT may be required to withhold a portion of capital
gain distributions to any stockholders who fail to certify their nonforeign
status to New Patriot REIT. The IRS issued proposed regulations in April 1996
regarding the backup withholding rules. These proposed regulations would alter
the current system of backup withholding compliance.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. They are, however, subject to
taxation on their UBTI. While many investments in real estate generate UBTI,
amounts distributed by New Patriot REIT to Exempt Organizations generally
should not constitute UBTI, nor should dividends paid by New Patriot Operating
Company generally constitute UBTI. However, if an Exempt Organization finances
its acquisition of paired shares with debt, a portion of its income from New
Patriot REIT and New Patriot Operating Company will constitute UBTI pursuant
to the "debt-financed property" rules. Furthermore, social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans that are exempt from taxation under
paragraphs (7), (9), (17), and (20), respectively, of Code section 501(c) are
subject to different UBTI rules, which generally will require them to
characterize distributions from New Patriot REIT and New Patriot Operating
Company as UBTI.
139
<PAGE>
CALIFORNIA JOCKEY CLUB, BAY MEADOWS OPERATING COMPANY AND
PATRIOT AMERICAN HOSPITALITY, INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
PRO FORMA FINANCIAL INFORMATION--MERGER
<S> <C>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited). ........................................ 143
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 145
Pro Forma Condensed Combined Balance Sheet as of
March 31, 1997 (unaudited). ........................................... 148
NEW PATRIOT REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 150
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 151
NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 152
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 154
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 157
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 158
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE PROPOSED WYNDHAM TRANSACTIONS
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 161
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 163
Pro Forma Condensed Combined Balance Sheet as of
March 31, 1997 (unaudited)............................................. 166
NEW PATRIOT REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 169
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 171
NEW PATRIOT OPERATING COMPANY:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 173
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 175
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 178
Pro Forma Condensed Combined Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 179
PRO FORMA FINANCIAL INFORMATION--PRE MERGER
PATRIOT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited). ........................................ 182
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1997 (unaudited). .............................. 184
Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1997 (unaudited)............................................. 186
</TABLE>
140
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On October 31, 1996, Patriot, Cal Jockey and Bay Meadows entered into the
October 31, 1996 Agreement pursuant to which the parties agreed to engage in a
business combination. Cal Jockey and Bay Meadows (collectively, "CJC/BMOC")
are two separate companies whose shares of common stock are paired and trade
together as a single unit (referred to herein as a "paired share" ownership
structure). On February 24, 1997, the parties entered into the February 24,
1997 Agreement, pursuant to which Patriot will merge with and into Cal Jockey,
with Cal Jockey being the surviving company. Immediately following the Merger,
Cal Jockey's name will be changed to "Patriot American Hospitality, Inc." and
Bay Meadows' name will be changed to "Patriot American Hospitality Operating
Company."
Pursuant to the Merger Agreement, Patriot stockholders will be entitled to
receive, for each share of Patriot Common Stock held by them at the effective
time of the Merger, 0.51895 shares of New Patriot REIT Common Stock and
0.51895 shares of New Patriot Operating Company Common Stock, which shares
will be paired and transferable only as a single unit. In the event, however,
that the Patriot Average Trading Price is below $17.125, then each share of
Patriot Common Stock will be converted into the number of paired shares equal
to the Patriot Average Trading Price divided by $33.00. In addition, each
outstanding Paired Share will remain outstanding after the Merger and will
represent the same number of paired shares of New Patriot REIT Common Stock
and New Patriot Operating Company Common Stock.
The unaudited Pro Forma Financial Statements have been adjusted for the
purchase method of accounting whereby the Racecourse facility and related
leasehold improvements owned by CJC/BMOC are adjusted to estimated fair market
value. Although CJC/BMOC are issuing their Paired Shares to Patriot
stockholders and will be the surviving legal entities following the Merger,
CJC/BMOC are considered the acquired companies for accounting purposes as the
current Patriot stockholders will hold the majority of the combined paired
shares of New Patriot REIT Common Stock and New Patriot Operating Company
Common Stock subsequent to the Merger (approximately 80%, assuming no options
or OP Units of the Patriot Partnership are exchanged for shares of Patriot
Common Stock prior to the Merger and assuming the Exchange Ratio is not
adjusted due to a Patriot Average Trading Price below $17.125 as described
above). The fair market values of the assets and liabilities of CJC/BMOC have
been determined based upon preliminary estimates and are subject to change as
additional information is obtained. Management of Patriot does not anticipate
that the preliminary allocation of purchase costs based upon the estimated
fair market value of the assets and liabilities of CJC/BMOC will materially
change; however, the allocations of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value
as of the close of the transaction. Therefore, the allocations reflected in
the following unaudited Pro Forma Financial Statements may differ from the
amounts ultimately determined.
In the first quarter of 1997, Patriot acquired ownership interests in four
hotel properties (the "Recent Acquisitions") which include the Radisson
Overland Park Hotel in Overland Park, Kansas, the Radisson Hotel in
Northbrook, Illinois, the Luxeford Suites Hotel in Minneapolis, Minnesota and
the Holiday Inn Redmont Hotel in Birmingham, Alabama. Additionally, in April
1997, Patriot acquired the Sheraton Park Place Hotel in Minneapolis, Minnesota
and in May 1997, Patriot acquired the Myrtle Beach Hilton Oceanfront Golf
Resort. The acquisitions were financed primarily with funds drawn on the Line
of Credit.
In January 1997, Patriot acquired the Carefree Resorts for a total purchase
price of approximately $264 million. This acquisition was primarily financed
with funds drawn on the Line of Credit and the issuance of 1,295,077 OP Units
of the Patriot Partnership.
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Marriott WindWatch Hotel (which are separately owned through Non-
Controlled Subsidiaries), to Lessees. Patriot's investments in these Non-
Controlled Subsidiaries are accounted for using the equity method of
accounting and Patriot's share of their net income is reflected in Equity in
Earnings of Unconsolidated Subsidiaries in the accompanying unaudited Pro
Forma Financial Statements. The Lessees, in turn, have entered into separate
agreements with Operators to manage the hotels. Following the Merger, New
Patriot REIT expects to terminate its leases with PAH RSI Lessee
141
<PAGE>
relating to the Carefree Resorts, the Radisson Northbrook Hotel, the Luxeford
Suites Hotel, the Sheraton Park Place Hotel and the Myrtle Beach Hilton
Oceanfront Golf Resort and re-lease such hotel properties to New Patriot
Operating Company. In addition, it is anticipated that New Patriot Operating
Company will offer to acquire certain
assets of PAH RSI Lessee including inventories, trade names and the right to
receive certain royalty fees subsequent to the Merger and the Related
Transactions.
As of March 31, 1997 Patriot owned interests in 54 hotels and resorts and
had an approximate 83.1% interest in the Patriot Partnership. This ownership
interest in the Patriot Partnership is also reflected for unaudited Pro Forma
Financial Statement presentation purposes.
Patriot and PaineWebber have entered into an agreement pursuant to which
following the close of the Merger an affiliate of PaineWebber will purchase
substantially all of the land of Cal Jockey, including the land subject to the
Franklin Agreement and Iaccoca Agreement, but excluding the land subject to
the Borders Lease, for a purchase price of $78.05 million. New Patriot REIT
would retain ownership of the improvements located on the land. Simultaneously
with the consummation of such purchase, the PaineWebber affiliate and New
Patriot REIT would enter into a ground lease covering that portion of the land
on which the Racecourse is situated. New Patriot REIT would then sublease the
Racecourse land and related improvements to New Patriot Operating Company.
The following unaudited Pro Forma Condensed Combined Statements of
Operations presented on pages 143 through 145 assume the following
transactions have occurred at the beginning of the periods presented: (i) the
Merger and the Related Transactions have been consummated on terms set forth
in the Merger Agreement; (ii) the Proposed PaineWebber Land Sale has been
consummated, the PaineWebber affiliate has leased that portion of the land
upon which the Racecourse is situated to New Patriot REIT, and New Patriot
REIT has subleased this land to New Patriot Operating Company; (iii) New
Patriot REIT has leased certain land to Borders; (iv) Patriot has acquired the
Recent Acquisitions and the Carefree Resorts and (v) the mortgage notes to
affiliates of CHC Lease Partners have been funded. In addition, the unaudited
Pro Forma Combined Balance Sheet data on page 148 is presented as if the
transactions discussed above had occurred on March 31, 1997.
The following unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 of New Patriot REIT and New Patriot Operating Company are
derived from the individual unaudited Pro Forma Condensed Consolidated
Statements of Operations of New Patriot REIT and New Patriot Operating Company
which are located on pages 150 through 154. These Pro Forma Condensed Combined
Statements of Operations are also derived from the unaudited Pro Forma
Condensed Consolidated Statements of Operations of Patriot which are located
on pages 182 through 184. Such pro forma information is based in part upon the
Separate and Combined Statements of Income of CJC/BMOC filed with CJC/BMOC's
Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly
Report on Form 10-Q for the three months ended March 31, 1997, as amended; the
Consolidated Statements of Operations of Patriot filed with Patriot's Annual
Report on Form 10-K for the year ended December 31, 1996 and Quarterly Report
on Form 10-Q for the three months ended March 31, 1997; the historical
financial statements of certain hotels acquired by Patriot filed in Patriot's
Current Reports on Form 8-K dated April 2, 1996, as amended, December 5, 1996
and January 16, 1997, as amended; and the Pro Forma Condensed Combined
Statements of Operations of the Lessees which are located on pages 157 and
158. In management's opinion, all material adjustments necessary to reflect
the effects of these transactions have been made. The following unaudited Pro
Forma Condensed Combined Statements of Operations do not include the results
of operations of the Sheraton Park Place Hotel acquired by Patriot in April
1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by Patriot in
May 1997. Pro forma financial information which is adjusted for the Proposed
Wyndham Transactions begins on page 161.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of New Patriot REIT and New Patriot Operating Company would have
been assuming such transactions had been completed as of the beginning of the
period presented, nor do they purport to represent the results of operations
for future periods. Further, the unaudited Pro Forma Condensed Combined
Statement of Operations for the interim period ended March 31, 1997 is not
necessarily indicative of the results of operations for the full year.
142
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease rev-
enue................... $130,570 $ -- $(25,967)(A) $104,603
Hotel revenue........... -- 58,685(B) -- 58,685
Club and spa revenue.... -- 24,710 -- 24,710
Racecourse facility rev-
enue................... 6,682 51,946 (6,348)(C) 52,280
Club membership reve-
nue.................... -- 4,277 -- 4,277
Shopping center reve-
nue.................... -- 1,730 -- 1,730
Interest and other in-
come................... 10,765 12,274 (1,204)(D) 21,835
-------- -------- -------- --------
Total revenue........... 148,017 153,622 (33,519) 268,120
-------- -------- -------- --------
Expenses:
Departmental costs--ho-
tel operations......... -- 47,280 -- 47,280
Racing facility opera-
tions.................. -- 47,180 (6,348)(C) 40,832
Ground lease expense.... 5,354 -- -- 5,354
General and administra-
tive................... 5,992 10,181 (34)(D) 16,139
Repair and maintenance.. -- 8,045 -- 8,045
Utilities............... -- 4,082 -- 4,082
Interest expense........ 45,201 1,300 (1,170)(D) 45,331 (E)
Real estate and personal
property taxes and ca-
sualty insurance....... 13,372 398 -- 13,770
Marketing............... -- 7,767 -- 7,767
Management fees......... -- 3,194 -- 3,194
Depreciation and amorti-
zation................. 38,335 1,072 -- 39,407
Participating lease pay-
ments.................. -- 25,967 (25,967)(A) --
General liability insur-
ance................... -- 656 -- 656
-------- -------- -------- --------
Total expenses.......... 108,254 157,122 (33,519) 231,857
-------- -------- -------- --------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provi-
sion and minority inter-
ests.................... 39,763 (3,500) -- 36,263
Equity in earnings of
unconsolidated subsidi-
aries.................. 7,560 -- -- 7,560
-------- -------- -------- --------
Income (loss) before in-
come tax provision and
minority interests...... 47,323 (3,500) -- 43,823
Income tax provision.... -- (62) -- (62)
-------- -------- -------- --------
Income (loss) before mi-
nority interests........ 47,323 (3,562) -- 43,761
Minority interest in the
Patriot Partnerships... (6,548) 499 -- (6,049)
Minority interest in
other partnerships..... (553) -- -- (553)
-------- -------- -------- --------
Net income (loss) appli-
cable to common share-
holders................. $ 40,222 $ (3,063) $ -- $ 37,159 (E)
======== ======== ======== ========
Net income (loss) per
common paired share(F).. $ 1.40 $ (0.11) $ 1.29 (E)
======== ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............. 28,793 28,793 28,793 (E)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the six hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $38,940 and food and beverage
sales of $19,745.
(C) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by New Patriot REIT to New Patriot
Operating Company.
(D) Represents the elimination of $1,170 of interest income and expense
related to a note receivable issued to Patriot in connection with the sale
of certain assets to PAH RSI Lessee, which assets are assumed to be
acquired by New Patriot Operating Company, and the elimination of other
intercompany income and expense items.
(E) The pro forma amounts presented assume an average interest rate of 7.2502%
per annum (representing LIBOR plus 1.7%) on the outstanding debt
obligations with a term of three years. An increase of 0.25% in the
interest rate would increase pro forma interest expense to $46,652,
decrease net income applicable to common shareholders to $36,244 and
decrease net income per common share to $1.26.
143
<PAGE>
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000 and
provide for a term loan of $500,000. The additional availability under this
New Credit Facility will be primarily used to finance future acquisitions
and the term loan will be used to finance the Proposed Wyndham Transactions.
In the event Patriot is successful in obtaining the New Credit Facility,
deferred loan costs totaling approximately $16,325, including fees, legal
and other expenses are expected to be incurred in connection with the New
Credit Facility (of which approximately $10,150 relates to the modification
and extension of the Line of Credit and has been reflected in the pro forma
financial information).
(F) In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 Earnings Per Share
("Statement 128"). Statement 128 specifies the computation, presentation
and disclosure requirements for basic earnings per share and diluted
earnings per share. Management believes that adoption of Statement 128
will not have a material effect on the earnings per share of New Patriot
REIT and New Patriot Operating Company.
144
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease rev-
enue................... $36,551 $ -- $ (9,428)(A) $27,123
Hotel revenue........... -- 19,068(B) -- 19,068
Club and spa revenue.... -- 8,706 -- 8,706
Racecourse facility rev-
enue................... 1,760 20,269 (1,677)(C) 20,352
Club membership reve-
nue.................... -- 348 -- 348
Shopping center reve-
nue.................... -- 474 -- 474
Interest and other in-
come................... 2,669 4,459 (317)(D) 6,811
------- ------- -------- -------
Total revenue........... 40,980 53,324 (11,422) 82,882
------- ------- -------- -------
Expenses:
Departmental costs--ho-
tel operations......... -- 13,828 -- 13,828
Racing facility opera-
tions.................. -- 16,949 (1,677)(C) 15,272
Ground lease expense.... 1,336 -- -- 1,336
General and administra-
tive................... 3,502 2,591 -- 6,093
Repair and maintenance.. -- 2,247 -- 2,247
Utilities............... -- 949 -- 949
Interest expense........ 11,709 319 (317)(D) 11,711(E)
Real estate and personal
property taxes and ca-
sualty insurance....... 3,404 129 -- 3,533
Marketing............... -- 1,870 -- 1,870
Management fees......... -- 1,482 -- 1,482
Depreciation and amorti-
zation................. 9,862 268 -- 10,130
Participating lease pay-
ments.................. -- 9,428 (9,428)(A) --
General liability insur-
ance................... -- 252 -- 252
------- ------- -------- -------
Total expenses.......... 29,813 50,312 (11,422) 68,703
------- ------- -------- -------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provi-
sion and minority inter-
ests.................... 11,167 3,012 -- 14,179
Equity in earnings of
unconsolidated subsidi-
aries.................. 1,021 -- -- 1,021
------- ------- -------- -------
Income (loss) before in-
come tax provision and
minority interests...... 12,188 3,012 -- 15,200
Income tax provision.... -- (1,205) -- (1,205)
------- ------- -------- -------
Income (loss) before mi-
nority interests........ 12,188 1,807 -- 13,995
Minority interest in the
Patriot Partnerships... (1,676) (253) -- (1,929)
Minority interest in
other partnerships..... (219) -- -- (219)
------- ------- -------- -------
Net income (loss) appli-
cable to common share-
holders................. $10,293 $ 1,554 $ -- $11,847 (E)
======= ======= ======== =======
Net income (loss) per
common paired share(F).. $ 0.35 $ 0.05 $ 0.40 (E)
======= ======= =======
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............. 29,074 29,074 29,074 (E)
======= ======= =======
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the six hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $13,177 and food and beverage
sales of $5,891.
(C) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by New Patriot REIT to New Patriot
Operating Company.
(D) Represents the elimination of $293 of interest income and expense related
to a note receivable issued to Patriot in connection with the sale of
certain assets to PAH RSI Lessee, which assets are assumed to be acquired
by New Patriot Operating Company, and the elimination of other
intercompany income and expense items.
(E) The pro forma amounts presented assume an average interest rate of 7.2012%
per annum (representing LIBOR plus 1.7%) on the outstanding debt
obligations with a term of three years. An increase of 0.25% in the
interest rate would increase pro forma interest expense to $12,073 and
decrease net income applicable to common shareholders to $11,590. Net
income per common share would be unchanged.
145
<PAGE>
Patriot has entered into a Commitment Letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000
and provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed Wyndham
Transactions. In the event Patriot is successful in obtaining the New
Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with the New Credit Facility (of which approximately $10,150
relates to the modification and extension of the Line of Credit and has
been reflected in the pro forma financial information).
(F) In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 which specifies the computation, presentation and
disclosure requirements for basic earnings per share and diluted earnings
per share. Management believes that adoption of Statement 128 will not
have a material effect on the earnings per share of New Patriot REIT and
New Patriot Operating Company.
146
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Merger and the Related Transactions, as well as (i) the
sale of substantially all of the Cal Jockey land to an affiliate of
PaineWebber, (ii) the subsequent leaseback of certain land by New Patriot REIT
on which the Racecourse is situated, (iii) the sub-lease of the Racecourse
land and related improvements from New Patriot REIT to New Patriot Operating
Company, and (iv) the lease of certain land of New Patriot REIT to Borders,
had occurred as of March 31, 1997. The following unaudited Pro Forma Condensed
Combined Balance Sheet is also derived from Patriot's Pro Forma Condensed
Consolidated Balance Sheet as of March 31, 1997 included elsewhere in this
Joint Proxy Statement/Prospectus which is presented as if the funding of the
mortgage notes to affiliates of CHC Lease Partners had occurred as of March
31, 1997. Such pro forma information is based in part upon CJC/BMOC's Combined
Balance Sheet as of March 31, 1997 and Patriot's Consolidated Balance Sheet as
of March 31, 1997 and should be read in conjunction with the financial
statements filed with CJC/BMOC's and Patriot's respective Quarterly Reports on
Form 10-Q for the three months ended March 31, 1997. In management's opinion,
all material adjustments necessary to reflect the effect of these transactions
have been made. The following unaudited Pro Forma Condensed Combined Balance
Sheet does not include the Sheraton Park Place Hotel acquired by Patriot in
April 1997 and the Myrtle Beach Hilton Oceanfront Golf Resort acquired by
Patriot in May 1997.
Although Cal Jockey and Bay Meadows are issuing their Paired Shares to
Patriot stockholders and will be the surviving legal entities following the
Merger, CJC/BMOC are considered the acquired companies for accounting purposes
as the current Patriot stockholders will hold the majority of paired shares of
the combined companies subsequent to the Merger (approximately 80%, assuming
no options or OP Units of the Patriot Partnership are exchanged for shares of
Patriot Common Stock prior to the Merger and assuming the Exchange Ratio is
not adjusted due to a Patriot Average Trading Price below $17.125).
Accordingly, the accompanying Pro Forma Condensed Combined Balance Sheet
reflects adjustments to record the net assets of CJC/BMOC at their estimated
fair market values and the elimination of CJC/BMOC's historical shareholders'
equity. The fair market values of the assets and liabilities of CJC/BMOC have
been determined based upon preliminary estimates and are subject to change as
additional information is obtained. Management of Patriot does not anticipate
that the preliminary allocation of purchase costs based upon the estimated
fair market value of the assets and liabilities of CJC/BMOC will materially
change; however, the allocations of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value
as of the close of the transaction. Therefore, the allocations reflected in
the following unaudited Pro Forma Condensed Combined Balance Sheet may differ
from the amounts ultimately determined. The following unaudited Pro Forma
Condensed Combined Balance Sheet is not necessarily indicative of what the
actual financial position would have been assuming such transactions had been
completed as of March 31, 1997, nor does it purport to represent the future
financial position of New Patriot REIT and New Patriot Operating Company.
147
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
CJC/
PATRIOT BMOC PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in hotel and
resort properties and land
held for sale.............. $ 947,722 $ -- $ -- $ 947,722
Net investment in Racecourse
facility and related im-
provements................. -- 18,800 5,465 (A) 24,265
Mortgage notes and other re-
ceivables from unconsoli-
dated subsidiaries......... 73,622 -- -- 73,622
Notes receivable............ 113,189 -- (9,237)(B) 103,952
Investment in unconsolidated
subsidiaries............... 12,140 -- -- 12,140
Cash and equivalents........ 6,271 7,708 -- 13,979
Restricted cash............. -- -- 78,050 (C) 78,050
Securities available for
sale....................... -- 5,609 -- 5,609
Accounts receivable......... 15,648 1,269 -- 16,917
Goodwill.................... -- -- 97,216 (D) 97,216
Deferred expenses, net...... 14,447 -- -- 14,447
Prepaid expenses and other
assets..................... 12,009 733 6,337 (B) 19,079
Deferred income taxes....... -- 227 -- 227
---------- ------- -------- ----------
Total assets............... $1,195,048 $34,346 $177,831 $1,407,225
========== ======= ======== ==========
LIABILITIES AND SHAREHOLD-
ERS' EQUITY
Borrowings under a line of
credit and mortgage notes.. $ 579,862 $ -- $ -- (G) $ 579,862
Dividends and distributions
payable.................... 13,938 -- -- 13,938
Accounts payable and accrued
expenses................... 13,498 7,738 14,252 (E) 35,488
Note payable................ -- 2,900 (2,900)(B) --
Due to unconsolidated sub-
sidiaries.................. 6,098 -- -- 6,098
Minority interest in the Pa-
triot Partnership.......... 127,262 -- -- 127,262
Minority interest in other
partnerships............... 13,774 -- -- 13,774
Shareholders' equity:
Preferred stock............ -- -- -- --
Common stock............... -- 116 457 (F) 573
Paid-in capital............ 457,178 18,385 171,229 (G) 646,792
Unearned stock compensa-
tion, net................. (16,261) -- -- (16,261)
Unrealized gain on securi-
ties available for sale... -- 1,323 (1,323)(G) --
Retained earnings.......... (301) 3,884 (3,884)(G) (301)
---------- ------- -------- ----------
Total shareholders' equi-
ty........................ 440,616 23,708 166,479 630,803
---------- ------- -------- ----------
Total liabilities and
shareholders' equity...... $1,195,048 $34,346 $177,831 $1,407,225
========== ======= ======== ==========
</TABLE>
- --------
(A) Represents adjustment for the purchase method of accounting whereby the
Racecourse facility and related leasehold improvements owned by CJC/BMOC
are adjusted to estimated fair market value after the sale of
substantially all of the Cal Jockey land to an affiliate of PaineWebber
for $78,050.
(B) Represents the elimination of $9,237 notes receivable and accrued interest
between New Patriot REIT and PAH RSI Lessee which relate to certain
assets, trade names and the right to receive certain royalty fees which
are to be acquired by New Patriot Operating Company. In addition, the
$2,900 note payable between CJC/BMOC and Patriot issued in connection with
the Merger has been eliminated.
(C) Represents the cash proceeds from the sale of substantially all of the Cal
Jockey land to an affiliate of PaineWebber. It is assumed that the sale of
the land will be structured as a tax-deferred exchange. In order to
qualify as a tax-deferred exchange, suitable properties must be located
and exchanged and the exchange must be effectuated within a relatively
short time period allowed by applicable IRS regulations. Until such time
that suitable properties are located, the proceeds from the sale of land
will be maintained in a restricted trust account.
(D) Represents the purchase consideration in excess of the fair market value
of the net assets of CJC/BMOC. Patriot primarily attributes this amount to
the paired share structure that, subsequent to the Merger, will enable New
Patriot REIT and New Patriot Operating Company to be a fully integrated
owner and operator of hotels. The paired share tax treatment is no longer
available under the Code; however, CJC/BMOC is one of only four publicly-
held companies in existence for which this structure has been
"grandfathered."
(E) Represents adjustment for accrued Merger costs including, legal and
accounting fees, printing and various other professional fees anticipated
in connection with the Merger and the Related Transactions.
148
<PAGE>
(F) Represents the exchange of shares of Patriot Common Stock for paired shares
of New Patriot REIT Common Stock and New Patriot Operating Company Common
Stock. Pursuant to the Merger Agreement, Patriot stockholders are entitled
to receive, for each share of Patriot Common Stock held by them at the
Effective Time, 0.51895 shares of New Patriot REIT Common Stock and 0.51895
shares of New Patriot Operating Company Common Stock, which shares will be
paired and transferable only as a single unit. At March 31, 1997, Patriot
had 44,093,496 shares of Patriot Common Stock outstanding which were
assumed to be exchanged for approximately 22,882,320 paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock,
resulting in an increase in common stock of approximately $457, which has
been offset by a corresponding adjustment to Paid-in Capital.
(G) Pursuant to the Merger Agreement, Patriot stockholders will receive 0.51895
shares of New Patriot REIT Common Stock and 0.51895 shares of New Patriot
Operating Company Common Stock (subject to certain REIT qualification
requirements and assuming the Exchange Ratio is not adjusted due to a
Patriot Average Trading Price below $17.125) for each Patriot share. The
estimated value of the CJC/BMOC shares, based on the closing price of
Patriot shares on October 30, 1996, of $17.125 (adjusted for the 2-for-1
stock split), is $33.00 per paired share. Based on 5,763,257 CJC/BMOC
Paired Shares outstanding, the total purchase consideration is
approximately $190,187. The adjustments to shareholders' equity eliminate
CJC/BMOC historical equity accounts totaling $23,708 and record equity
based on the number of Paired Shares held by CJC/BMOC that remain
outstanding after the Merger at $33.00 per Paired Share.
149
<PAGE>
NEW PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CAL JOCKEY
PRO FORMA HISTORICAL MERGER PRO FORMA
(A) (B) ADJUSTMENTS TOTAL
--------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue..... $130,570 $ -- $ -- $130,570
Rental of Racecourse facility
and land....................... -- 4,918 1,764 (C) 6,682
Interest and other income....... 10,271 494 -- 10,765
-------- ------- ------ --------
Total revenue................... 140,841 5,412 1,764 148,017
-------- ------- ------ --------
Expenses:
Ground lease expense............ 1,390 -- 3,964 (D) 5,354
General and administrative...... 5,342 5,696 (5,046)(E) 5,992
Interest expense................ 45,201 -- -- 45,201
Real estate and personal prop-
erty taxes and casualty insur-
ance........................... 13,372 -- -- 13,372
Depreciation and amortization... 35,123 932 2,280 (F) 38,335
-------- ------- ------ --------
Total expenses.................. 100,428 6,628 1,198 108,254
-------- ------- ------ --------
Income (loss) before equity in
earnings of unconsolidated sub-
sidiaries and minority inter-
ests............................ 40,413 (1,216) 566 39,763
Equity in earnings of unconsoli-
dated subsidiaries............. 7,560 -- -- 7,560
-------- ------- ------ --------
Income (loss) before minority in-
terests......................... 47,973 (1,216) 566 47,323
Minority interest in the Patriot
Partnership.................... (8,014) -- 1,466 (G) (6,548)
Minority interest in other part-
nerships....................... (553) -- -- (553)
-------- ------- ------ --------
Net income (loss) applicable to
common shareholders............. $ 39,406 $(1,216) $2,032 $ 40,222
======== ======= ====== ========
Net income (loss) per common
share(H)........................ $ 0.89 $ (0.21) $ 1.40
======== ======= ========
Weighted average number of common
shares and common share equiva-
lents outstanding............... 44,378 5,763 28,793
======== ======= ========
</TABLE>
- --------
(A) Represents Patriot's pro forma results of operations for the year ended
December 31, 1996. See page 182.
(B) Represents the historical results of operations of Cal Jockey for the year
ended December 31, 1996.
(C) Represents adjustments to Racecourse facility rental revenue as a result
of (i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and the Proposed PaineWebber Land Sale and (ii) rental income related to
the Borders Lease.
(D) Represents ground lease payments to be made with respect to the proposed
ground lease with an affiliate of PaineWebber.
(E) Represents adjustment for certain administrative salaries and other
expenses not expected to be incurred by New Patriot REIT of $568 and
approximately $1,194 of non-recurring legal fees and Merger related costs
of $3,284.
(F) Represents adjustment to reduce depreciation related to the Racecourse
facility by $93, offset by amortization of goodwill of $2,373 which
results from the adjustment for purchase method of accounting whereby the
Racecourse facility and retained leasehold improvements owned by CJC/BMOC
are adjusted to estimated fair market value. Depreciation is computed
using the straight-line method and is based upon the estimated useful
lives of 20 years for the Racecourse facility and 5 to 7 years for F, F &
E. These estimated useful lives are based on management's knowledge of the
properties and the industry in general. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(G) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(H) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
150
<PAGE>
NEW PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CAL JOCKEY
PRO FORMA HISTORICAL MERGER PRO FORMA
(A) (B) ADJUSTMENTS TOTAL
--------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue...... $36,551 $ -- $ -- $36,551
Rental of Racecourse facility and
land............................ -- 1,660 100 (C) 1,760
Interest and other income........ 2,555 114 -- 2,669
------- ------ ----- -------
Total revenue.................... 39,106 1,774 100 40,980
------- ------ ----- -------
Expenses:
Ground lease expense............. 345 -- 991 (D) 1,336
General and administrative....... 3,461 456 (415)(E) 3,502
Interest expense................. 11,709 36 (36)(F) 11,709
Real estate and personal property
taxes and casualty insurance.... 3,380 24 -- 3,404
Depreciation and amortization.... 9,064 239 559 (G) 9,862
------- ------ ----- -------
Total expenses................... 27,959 755 1,099 29,813
------- ------ ----- -------
Income (loss) before equity in
earnings of unconsolidated sub-
sidiaries and minority inter-
ests............................. 11,147 l,019 (999) 11,167
Equity in earnings of unconsoli-
dated subsidiaries.............. 1,021 -- -- 1,021
------- ------ ----- -------
Income (loss) before minority in-
terests.......................... 12,168 1,019 (999) 12,188
Minority interest in the Patriot
Partnership..................... (2,019) -- 343 (H) (1,676)
Minority interest in other part-
nerships........................ (219) -- -- (219)
------- ------ ----- -------
Net income (loss) applicable to
common shareholders.............. $ 9,930 $1,019 $(656) $10,293
======= ====== ===== =======
Net income (loss) per common
share(I)......................... $ 0.22 $ 0.18 $ 0.35
======= ====== =======
Weighted average number of common
shares and common share equiva-
lents outstanding................ 44,919 5,763 29,074
======= ====== =======
</TABLE>
- --------
(A) Represents Patriot's pro forma results of operations for the three months
ended March 31, 1997. See page 184.
(B) Represents the historical results of operations of Cal Jockey for the
three months ended March 31, 1997.
(C) Represents adjustments to Racecourse facility rental revenue as a result
of (i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and the Proposed PaineWebber Land Sale and (ii) rental income related to
the Borders Lease.
(D) Represents ground lease payments to be made with respect to the proposed
ground lease with an affiliate of PaineWebber.
(E) Represents adjustment for non-recurring legal fees and Merger-related
costs not expected to be incurred by New Patriot REIT.
(F) Represents elimination of $36 of interest expense related to the $2,900
note payable between CJC/BMOC and Patriot.
(G) Represents adjustment to reduce depreciation related to the Racecourse
facility by $30, offset by amortization of goodwill of $589 which results
from the adjustment for purchase method of accounting whereby the
Racecourse facility and retained leasehold improvements owned by CJC/BMOC
are adjusted to estimated fair market value. Depreciation is computed
using the straight-line method and is based upon the estimated useful
lives of 20 years for the Racecourse facility and 5 to 7 years for F, F &
E. These estimated useful lives are based on management's knowledge of the
properties and the industry in general. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(H) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(I) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
151
<PAGE>
NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------
BAY
MEADOWS CAREFREE RECENT
HISTORICAL RESORTS ACQUISITIONS PRO FORMA
(A) (B) (C) ADJUSTMENTS TOTAL
---------- -------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $29,251 $ 9,689 $ -- $ 38,940
Food and beverage...... -- 17,356 2,389 -- 19,745
Club and spa revenue... -- 24,710 -- -- 24,710
Pari-mutuel revenue.... 41,476 -- -- -- 41,476
Other racing income.... 10,470 -- -- -- 10,470
Club membership reve-
nue................... -- 4,277 -- -- 4,277
Shopping center reve-
nue................... -- 1,730 -- -- 1,730
Telephone and other ho-
tel revenue........... -- 9,569 769 -- 10,338
Interest and other in-
come.................. 1,526 410 -- -- 1,936
------- ------- ------- ----- --------
Total revenue.......... 53,472 87,303 12,847 -- 153,622
------- ------- ------- ----- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ -- 42,175 5,105 -- 47,280
Direct operating costs
of racing facility.... 20,950 -- -- -- 20,950
Purses and incentive
awards................ 17,054 -- -- -- 17,054
Commissions, concession
costs and Racecourse
facility rental....... 8,483 -- -- 693 (D) 9,176
General and administra-
tive.................. 3,552 6,229 961 (561)(E) 10,181
Repair and mainte-
nance................. -- 7,386 659 -- 8,045
Utilities.............. -- 3,480 602 -- 4,082
Marketing.............. 1,436 5,589 742 -- 7,767
Management fees........ -- 2,971 223 -- 3,194
Depreciation and amor-
tization.............. 754 -- -- 318 (F) 1,072
Participating lease
payments.............. -- 21,464 (G) 4,503 (G) -- 25,967
Interest expense....... 130 1,170 (H) -- -- 1,300
Real estate and per-
sonal property taxes
and insurance......... 398 -- -- -- 398
General liability
insurance............. -- 492 164 -- 656
------- ------- ------- ----- --------
Total expenses......... 52,757 90,956 12,959 450 157,122
------- ------- ------- ----- --------
Income (loss) before
income tax provision
and minority interest.. 715 (3,653) (112) (450) (3,500)
Income tax (provision)
benefit............... (260) -- -- 198 (I) (62)
------- ------- ------- ----- --------
Income (loss) before
minority interest...... 455 (3,653) (112) (252) (3,562)
Minority interest in
the Patriot Operating
Partnership........... -- 511 (J) 16 (J) (28) (J) 499
------- ------- ------- ----- --------
Net income (loss)
applicable to common
shareholders........... $ 455 $(3,142) $ (96) $(280) $ (3,063)
======= ======= ======= ===== ========
Net income (loss) per
common share(K)........ $ 0.08 $ (0.11)
======= ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 5,763 28,793
======= ========
</TABLE>
- --------
(A) Represents the historical results of operations of Bay Meadows for the
year ended December 31, 1996.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Carefree Resort properties had been leased to New
Patriot Operating Company at the beginning of the period presented.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Radisson Northbrook Hotel and the Luxeford Suites
Hotel had been leased to New Patriot Operating Company at the beginning of
the period presented.
(D) Represents adjustment to Racecourse facility rental expense as a result of
(i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and (ii) the Proposed PaineWebber Land Sale.
152
<PAGE>
(E) Represents adjustment for estimated incremental general and administrative
expenses of approximately $300 and certain expenses not expected to be
incurred by New Patriot Operating Company of $861, including approximately
$472 of non-recurring legal fees and approximately $389 of Merger-related
costs.
(F) Represents an increase in depreciation of furniture and equipment of $245,
and amortization of goodwill of $73 which results from the adjustment for
purchase method of accounting whereby the furniture and equipment owned by
Bay Meadows is adjusted to estimated fair market value. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 5 to 7 years for F, F & E. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(G) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(H) Represents interest expense incurred on promissory notes issued to the
Patriot Partnership by PAH RSI Lessee in connection with the acquisition
of certain assets, which assets are assumed to be acquired by New Patriot
Operating Company.
(I) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma operating loss of the Carefree Resorts and
the pro forma adjustments to Bay Meadows for the year ended December 31,
1996.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(K) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
153
<PAGE>
NEW PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------
BAY
MEADOWS CAREFREE RECENT
HISTORICAL RESORTS ACQUISITIONS PRO FORMA
(A) (B) (C) ADJUSTMENTS TOTAL
---------- -------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $11,059 $2,118 $ -- $13,177
Food and beverage...... -- 5,440 451 -- 5,891
Club and spa revenue... -- 8,706 -- -- 8,706
Pari-mutuel revenue.... 17,099 -- -- -- 17,099
Other racing income.... 3,170 -- -- -- 3,170
Club membership reve-
nue................... -- 348 -- -- 348
Shopping center reve-
nue................... -- 474 -- -- 474
Telephone and other ho-
tel revenue........... -- 3,588 181 -- 3,769
Interest and other in-
come.................. 232 458 -- -- 690
------- ------- ------ ----- -------
Total revenue.......... 20,501 30,073 2,750 -- 53,324
------- ------- ------ ----- -------
Expenses:
Departmental costs--
hotel, club and spa
operations............ -- 12,670 1,158 -- 13,828
Direct operating costs
of racing facility.... 6,608 -- -- -- 6,608
Purses and incentive
awards................ 7,240 -- -- -- 7,240
Commissions, concession
costs and Racecourse
facility rental....... 3,084 -- -- 17 (D) 3,101
General and administra-
tive.................. 783 1,809 248 (249)(E) 2,591
Repair and mainte-
nance................. -- 2,105 142 -- 2,247
Utilities.............. -- 759 190 -- 949
Marketing.............. 465 1,185 220 -- 1,870
Management fees........ -- 1,425 57 -- 1,482
Depreciation and amor-
tization.............. 181 -- -- 87 (F) 268
Participating lease
payments.............. -- 8,292 (G) 1,136 (G) -- 9,428
Interest expense....... 26 293 (H) -- -- 319
Real estate and per-
sonal property taxes
and insurance......... 129 -- -- -- 129
General liability
insurance............. 122 108 22 -- 252
------- ------- ------ ----- -------
Total expenses......... 18,638 28,646 3,173 (145) 50,312
------- ------- ------ ----- -------
Income (loss) before
income tax provision
and minority interest.. 1,863 1,427 (423) 145 3,012
Income tax (provision)
benefit............... (748) -- -- (457)(I) (1,205)
------- ------- ------ ----- -------
Income (loss) before
minority interest...... 1,115 1,427 (423) (312) 1,807
Minority interest in
the Patriot Operating
Partnership........... -- (200)(J) 59 (J) (112)(J) (253)
------- ------- ------ ----- -------
Net income (loss)
applicable to common
shareholders........... $ 1,115 $ 1,227 $ (364) $(424) $ 1,554
======= ======= ====== ===== =======
Net income (loss) per
common share(K)........ $ 0.19 $ 0.05
======= =======
Weighted average number
of common shares and
common share
equivalents
outstanding............ 5,763 29,074
======= =======
</TABLE>
- --------
(A) Represents the historical results of operations of Bay Meadows for the
three months ended March 31, 1997.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Carefree Resort properties had been leased to New
Patriot Operating Company at the beginning of the period presented.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Radisson Northbrook Hotel and the Luxeford Suites
Hotel had been leased to New Patriot Operating Company at the beginning of
the period presented.
(D) Represents adjustment to Racecourse facility rental expense as a result of
(i) a proposed lease agreement between New Patriot REIT and New Patriot
Operating Company subsequent to the Merger and the Related Transactions
and (ii) the Proposed PaineWebber Land Sale.
(E) Represents adjustment for estimated incremental general and administrative
expenses of approximately $75 and certain expenses not expected to be
incurred by New Patriot Operating Company of $324, including approximately
$257 of non-recurring legal fees and approximately $67 of Merger related
costs.
154
<PAGE>
(F) Represents an increase in depreciation of furniture and equipment of $69,
and amortization of goodwill of $18 which results from the adjustment for
purchase method of accounting whereby the furniture and equipment owned by
Bay Meadows is adjusted to estimated fair market value. Depreciation is
computed using the straight-line method and is based upon the estimated
useful lives of 5 to 7 years for F, F & E. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the
Code, Patriot believes the life of the paired share structure is
perpetual. Under generally accepted accounting principles, however, the
maximum amortization period is 40 years for intangible assets.
(G) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(H) Represents interest expense incurred on promissory notes issued to the
Patriot Partnership by PAH RSI Lessee in connection with the acquisition
of certain assets, which assets are assumed to be acquired by New Patriot
Operating Company.
(I) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma operating income of the Carefree Resorts and
the pro forma adjustments to Bay Meadows for the three months ended March
31, 1997.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Merger of approximately
14.0%.
(K) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
155
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Marriott WindWatch Hotel, which are separately owned through the Non-
Controlled Subsidiaries, to Lessees. The Combined Lessees subsequent to the
Merger and the Related Transactions are expected to consist of CHC Lease
Partners (which leases 25 hotels), NorthCoast Lessee (which leases 9 hotels),
Doubletree Lessee (which leases 6 hotels), Wyndham Lessee (which leases 2
hotels), Metro Lease Partners (which leases 1 hotel) and Grand Heritage Lessee
(which leases 3 hotels). With respect to the hotels leased to PAH RSI Lessee,
New Patriot REIT expects to terminate its leases with PAH RSI Lessee and re-
lease such hotels to New Patriot Operating Company. PAH RSI Lessee leased six
hotels from Patriot as of March 31, 1997 which have been eliminated in the
following unaudited Pro Forma Condensed Combined Statements of Operations.
Patriot acquired the Sheraton Park Place Hotel in April 1997 and the Myrtle
Beach Hilton Oceanfront Golf Resort in May 1997 and then leased these hotels
to PAH RSI Lessee. The operations of the Sheraton Park Place Hotel and the
Myrtle Beach Hilton Oceanfront Golf Resort have not been included in the
following pro forma financial data. The Participating Leases provide for
staggered terms of ten to twelve years and the payment of the greater of base
or participating rent, plus certain additional charges, as applicable.
The Combined Lessees' unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 are presented as if 46 of the hotels that Patriot currently
leases to the Combined Lessees pursuant to Participating Leases had been
leased as of January 1, 1996. Six of the hotels leased to PAH RSI Lessee
(excluding the Sheraton Park Place Hotel, which was acquired by Patriot in
April 1997, and the Myrtle Beach Hilton Oceanfront Golf Resort, which was
acquired by Patriot in May 1997) are assumed to have been leased to New
Patriot Operating Company and, therefore, have been eliminated from the Pro
Forma Condensed Combined Statements of Operations for the Combined Lessees.
The pro forma information is based in part upon the Statements of Operations
of CHC Lease Partners, and the Statement of Operations of NorthCoast Lessee
filed with Patriot's Annual Report on Form 10-K for the year ended December
31, 1996 and the Statements of Operations of CHC Lease Partners, the Statement
of Operations of NorthCoast Lessee and the Statement of Operations of PAH RSI
Lessee filed with Patriot's Quarterly Report on Form 10-Q for the three months
ended March 31, 1997. In management's opinion, all adjustments necessary to
reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
156
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LESSEES COMBINED
PRE-MERGER MERGER LESSEES
PRO FORMA ADJUSTMENTS PRO FORMA
(A) (G) TOTAL
----------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room................................... $260,991 $(38,940) $222,051
Food and beverage...................... 105,234 (19,745) 85,489
Conference center...................... 2,354 -- 2,354
Club and spa revenue................... 24,710 (24,710) --
Club membership revenue................ 4,277 (4,277) --
Shopping center revenue................ 1,730 (1,730) --
Telephone and other.................... 32,667 (10,748) 21,919
--------- -------- --------
Total revenue....................... 431,963 (100,150) 331,813
--------- -------- --------
Expenses:
Departmental costs and expenses........ 177,861 (47,280) 130,581
General and administrative............. 38,371 (6,822) 31,549
Ground lease expense................... 2,064 -- 2,064
Repair and maintenance................. 24,460 (8,045) 16,415
Utilities.............................. 19,793 (4,082) 15,711
Marketing.............................. 35,646 (6,331) 29,315
Interest expense....................... 1,173 (B) (1,170) 3
Insurance.............................. 2,881 (656) 2,225
Participating lease payments........... 130,570 (C) (25,967) 104,603
--------- -------- --------
Total expenses...................... 432,819 (100,353) 332,466
--------- -------- --------
Income (loss) before lessee income (ex-
pense)................................. (856) 203 (653)
--------- -------- --------
Dividend and interest income............ 1,543 (D) -- 1,543
Management fees......................... (10,265)(E) 3,195 (7,070)
Lessee general and administrative....... (2,043)(F) 367 (1,676)
--------- -------- --------
(10,765) 3,562 (7,203)
--------- -------- --------
Net loss................................ $ (11,621) $ 3,765 $ (7,856)
========= ======== ========
</TABLE>
- --------
(A) The Lessees pre-Merger pro forma results of operations represent the
combined pro forma operating results of the Lessees. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners and Metro Lease Partners for the year
ended December 31, 1996 and NorthCoast Lessee, Doubletree Lessee, Wyndham
Lessee and Grand Heritage Lessee for the period from their respective
inception of operations through December 31, 1996 and (ii) adjustments to
the Lessees' combined results of operations assuming the 52 hotels
currently leased by Patriot to the Lessees (including six of the hotel
properties leased to PAH RSI Lessee as of March 31, 1997 and excluding the
Sheraton Park Place Hotel acquired in April 1997 and the Myrtle Beach
Hilton Oceanfront Golf Resort acquired in May 1997) had been leased at the
beginning of the period presented.
(B) Represents pro forma interest expense on promissory notes issued in
connection with the acquisition of certain assets by PAH RSI Lessee,
assuming the notes were outstanding at the beginning of the period
presented.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
(G) Represents the elimination of the pro forma results of operations for the
four Carefree Resorts, the Radisson Northbrook Hotel and the Luxeford
Suites Hotel which are expected to be leased to New Patriot Operating
Company following the Merger.
157
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
LESSEES COMBINED
PRE-MERGER MERGER LESSEES
PRO FORMA ADJUSTMENTS PRO FORMA
(A) (G) TOTAL
----------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room................................... $ 69,862 $(13,177) $56,685
Food and beverage...................... 27,891 (5,891) 22,000
Conference center...................... 748 -- 748
Club and spa revenue................... 8,706 (8,706) --
Club membership revenue................ 348 (348) --
Shopping center........................ 474 (474) --
Telephone and other.................... 9,658 (4,227) 5,431
-------- -------- -------
Total revenue....................... 117,687 (32,823) 84,864
-------- -------- -------
Expenses:
Departmental costs..................... 46,332 (13,828) 32,504
General and administrative............. 9,610 (1,927) 7,683
Ground lease........................... 320 -- 320
Repairs and maintenance................ 6,322 (2,247) 4,075
Utilities.............................. 4,622 (949) 3,673
Marketing.............................. 9,081 (1,405) 7,676
Interest............................... 293 (B) (293) --
Insurance.............................. 631 (130) 501
Participating lease payments........... 36,551 (C) (9,428) 27,123
-------- -------- -------
113,762 (30,207) 83,555
-------- -------- -------
Income (loss) before lessee income (ex-
pense)................................. 3,925 (2,616) 1,309
-------- -------- -------
Dividend and interest income............ 945 (D) -- 945
Management fees......................... (3,117)(E) 1,482 (1,635)
Lessee general and administrative....... (575)(F) 120 (455)
-------- -------- -------
(2,747) 1,602 (1,145)
-------- -------- -------
Net income (loss)....................... $ 1,178 $ (1,014) $ 164
======== ======== =======
</TABLE>
- --------
(A) The Lessees pre-Merger pro forma results of operations represent the
combined pro forma operating results of the Lessees. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners, Metro Lease Partners, NorthCoast Lessee,
Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the three
months ended March 31, 1997 and, for PAH RSI Lessee, for the period from
inception of operations through March 31, 1997 and (ii) adjustments to the
Lessees' combined results of operations assuming the 52 hotels currently
leased by Patriot to the Lessees (including six of the hotel properties
currently leased to PAH RSI Lessee as of March 31, 1997 and excluding the
Sheraton Park Place Hotel acquired in April 1997 and the Myrtle Beach
Hilton Oceanfront Golf Resort acquired in May 1997) had been leased at the
beginning of the period presented.
(B) Represents pro forma interest expense on promissory notes issued in
connection with the acquisition of certain assets by PAH RSI Lessee,
assuming the notes were outstanding at the beginning of the period
presented.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
(G) Represents the elimination of the pro forma results of operations for the
four Carefree Resorts, the Radisson Northbrook Hotel and the Luxeford
Suites Hotel which are expected to be leased to New Patriot Operating
Company following the Merger.
158
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On April 14, 1997, Patriot and Wyndham entered into the Wyndham Merger
Agreement pursuant to which Wyndham will merge with and into New Patriot REIT
with New Patriot REIT being the surviving company. As a result of the Wyndham
Merger, New Patriot REIT will acquire all of the assets and liabilities of
Wyndham, including Wyndham's portfolio of 23 owned and leased hotels with an
aggregate of 4,877 rooms, Wyndham's 64 managed and franchised properties,
management and franchise agreements that have been executed for 15 properties
that are currently closed for renovation or construction or are in the process
of being converted to the Wyndham brand, and the proprietary brand names
Wyndham, Wyndham Garden and Wyndham Hotels & Resorts. Pursuant to the Wyndham
Merger Agreement, upon consummation of the Wyndham Merger each outstanding
share of Wyndham Common Stock will be converted into the right to receive
0.712 paired shares, subject to certain adjustments based on the Average
Trading Price of the paired shares.
In lieu of receiving paired shares in the Wyndham Merger, Wyndham
stockholders have the right to elect to receive cash in an amount per share
equal to the Wyndham Exchange Ratio (as it may be adjusted) multiplied by the
average closing price of the paired shares over the five trading days
immediately preceding the closing of the Wyndham Merger, subject to an
aggregate limitation of $100,000 of cash. If stockholders holding shares of
Wyndham Common Stock with a value in excess of $100,000 elect to receive cash,
such cash will be allocated on a pro rata basis among such stockholders.
Following the Wyndham Merger, New Patriot REIT, through certain of its
subsidiaries, will own the ten Wyndham hotels and will lease such hotels to
New Patriot Operating Company. The 13 hotel leases assumed by New Patriot REIT
will be sub-leased to New Patriot Operating Company. The 79 management and
franchise contracts; the Wyndham, Wyndham Garden and Wyndham Hotels & Resorts
proprietary brand names; and the Wyndham hotel management company will be
transferred to corporate subsidiaries of New Patriot REIT (collectively, the
"New Wyndham Entities"). New Patriot REIT will own a 99% non-voting interest
and New Patriot Operating Company will own the 1% controlling voting interest
in each of the New Wyndham Entities. Therefore, the operating results of the
New Wyndham Entities will be consolidated with those of New Patriot Operating
Company for financial reporting purposes. New Patriot REIT will account for
its investment in the New Wyndham Entities using the equity method of
accounting.
New Patriot REIT will also assume Wyndham's existing indebtedness,
substantially all of which is expected to be refinanced with funds drawn on
the New Credit Facility.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by Wyndham are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of Wyndham has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management of Patriot does not anticipate
that the preliminary allocation of purchase costs based upon the estimated
fair market value of the assets and liabilities of Wyndham will materially
change; however, the allocation of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value
as of the close of the transaction. Therefore, the allocation reflected in the
following unaudited Pro Forma Financial Statements may differ from the amounts
ultimately determined.
In connection with the execution of the Wyndham Merger Agreement, Patriot
also entered into agreements with partnerships affiliated with members of the
Trammell Crow family providing for the acquisition by New Patriot REIT of 11
full-service Wyndham-branded hotels with 3,072 rooms for approximately
$331,664 in cash, plus approximately $14,000 in additional consideration if
two hotels meet certain operational targets. Subsequent
159
<PAGE>
to the Crow Acquisition, New Patriot REIT will lease the 11 hotels to New
Patriot Operating Company. In addition, in connection with the Crow
Acquisition, the leases with the Wyndham Lessee related to the Wyndham Garden
Hotel-Midtown and the Wyndham Greenspoint Hotel will be terminated and New
Patriot REIT will lease these hotel properties to New Patriot Operating
Company. The Crow Acquisition and the Wyndham Merger are collectively referred
to herein as the Proposed Wyndham Transactions.
The Wyndham Merger and the Crow Acquisition are to be consummated
concurrently and are subject to various conditions, including the consummation
of the Merger and approval of the Proposed Wyndham Transactions by the
stockholders of New Patriot REIT, New Patriot Operating Company and Wyndham.
It is currently anticipated that the stockholders meetings to approve the
Proposed Wyndham Transactions will occur in the fourth quarter of 1997.
The following unaudited Pro Forma Condensed Combined Statements of
Operations as adjusted for the Proposed Wyndham Transactions for the year
ended December 31, 1996 and the three months ended March 31, 1997 assume the
Proposed Wyndham Transactions occurred on January 1, 1996. The Pro Forma
Condensed Combined Statements of Operations are derived from the New Patriot
REIT and New Patriot Operating Company Pro Forma Condensed Combined Statements
of Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 included elsewhere in this Joint Proxy Statement/Prospectus,
the Consolidated Statements of Income of Wyndham filed with Wyndham's Annual
Report on Form 10-K for the year ended December 31, 1996 and the Quarterly
Report on Form 10-Q for the three months ended March 31, 1997, and the
Combined Crow Family Hotel Partnerships financial statements for the year
ended December 31, 1996 and the three months ended March 31, 1997 included
elsewhere in this Joint Proxy Statement/Prospectus. During 1996, one of the
hotels (The La Guardia Airport Hotel) was closed for renovation. As a result,
the hotel reported no historical results of operations for 1996 and therefore
is not included in the following unaudited Pro Forma Condensed Combined
Statement of Operations for the year ended December 31, 1996 and the three
months ended March 31, 1997. In management's opinion, all material adjustments
necessary to reflect the effects of these transactions have been made.
The New Patriot REIT and New Patriot Operating Company pro forma information
is also presented as if (i) the Merger and the Related Transactions were
consummated on terms set forth in the Merger Agreement; (ii) the Proposed
PaineWebber Land Sale was consummated, the PaineWebber affiliate leased that
portion of the land upon which the Racecourse is situated to New Patriot REIT,
and New Patriot REIT subleased this land to New Patriot Operating Company;
(iii) New Patriot REIT leased certain land to Borders; and (iv) Patriot
acquired the Recent Acquisitions and the Carefree Resorts at the beginning of
the period presented. Such pro forma information is based in part upon the
Separate and Combined Statements of Income of CJC/BMOC filed with CJC/BMOC's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Quarterly Report on Form 10-Q for the three months ended March 31, 1997, as
amended; the Consolidated Statements of Operations filed with Patriot's Annual
Report on Form 10-K for the year ended December 31, 1996 and the Quarterly
Report on Form 10-Q for the three months ended March 31, 1997; the historical
financial statements of certain hotels acquired by Patriot filed in Patriot's
Current Reports on Form 8-K dated April 2, 1996, as amended, December 5, 1996
and January 16, 1997, as amended; and the Pro Forma Condensed Combined
Statements of Operations of the Lessees included elsewhere in this Joint Proxy
Statement/Prospectus.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of New Patriot REIT and New Patriot Operating Company as adjusted
for the Merger and the Related Transactions and the Proposed Wyndham
Transactions would have been assuming such transactions had been completed as
of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
160
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $187,791 $ -- $ (92,207)(A) $ 95,584
Hotel revenue.......... -- 324,862 (B) -- 324,862
Club and spa revenue... -- 24,710 -- 24,710
Racecourse facility
revenue and hotel
lease revenue......... 18,451 51,946 (18,117)(C) 52,280
Management fees........ -- 15,815 -- 15,815
Club membership
revenue............... -- 4,277 -- 4,277
Shopping center
revenue............... -- 1,730 -- 1,730
Service fees........... -- 3,962 -- 3,962
Reimbursement fees..... -- 14,506 -- 14,506
Interest and other
income................ 11,265 33,187 (1,204)(D) 43,248
-------- -------- --------- --------
Total revenue.......... 217,507 474,995 (111,528) 580,974
-------- -------- --------- --------
Expenses:
Departmental costs--
hotel operations...... -- 171,649 -- 171,649
Racing facility
operations............ -- 47,180 (6,348)(C) 40,832
Ground lease and hotel
lease expense......... 16,485 11,769 (11,769)(C) 16,485
Direct operating costs
of management
company............... -- 12,035 -- 12,035
Service department
expenses.............. -- 4,970 -- 4,970
Reimbursement
expenses.............. -- 15,448 -- 15,448
General and
administrative........ 6,292 31,554 (34)(D) 37,812
Repair and
maintenance........... -- 18,941 -- 18,941
Utilities.............. -- 14,306 -- 14,306
Interest expense....... 83,664 1,300 (1,170)(D) 83,794
Real estate and
personal property
taxes and casualty
insurance............. 21,831 398 -- 22,229
Marketing.............. -- 26,229 -- 26,229
Management fees........ -- 3,194 -- 3,194
Depreciation and
amortization.......... 64,498 16,879 -- 81,377
Participating lease
payments.............. -- 92,207 (92,207)(A) --
General liability
insurance............. -- 3,964 -- 3,964
Equity participation
compensation.......... -- 2,919 -- 2,919
Miscellaneous.......... -- 1,426 -- 1,426
-------- -------- --------- --------
Total expenses......... 192,770 476,368 (111,528) 557,610
-------- -------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 24,737 (1,373) -- 23,364
Equity in earnings of
unconsolidated
subsidiaries.......... 4,987 -- 2,573 (E) 7,560
-------- -------- --------- --------
Income (loss) before
income tax provision
and minority
interests.............. 29,724 (1,373) 2,573 30,924
Income tax provision... (175) (2,192) -- (2,367)
-------- -------- --------- --------
Income (loss) before
minority interests..... 29,549 (3,565) 2,573 28,557
Minority interests in
the Patriot
Partnerships.......... (2,842) 97 -- (2,745)
Minority interest in
consolidated
subsidiaries and other
partnerships.......... (553) 2,573 (2,573)(E) (553)
-------- -------- --------- --------
Net income (loss)
applicable to common
shareholders........... $ 26,154 $ (895) $ -- $ 25,259 (F)
======== ======== ========= ========
Net income (loss) per
common paired
share(G)............... $ 0.60 $ (0.02) $ 0.58 (F)
======== ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............ 43,721 43,721 43,721 (F)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 29 hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $225,202 and food and
beverage sales of $99,660.
(C) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by New Patriot
REIT to New Patriot Operating Company.
(D) Represents the elimination of $1,170 of interest income and expense
related to a note receivable issued to Patriot in connection with the sale
of certain assets to PAH RSI Lessee, which assets are assumed to be
acquired by New Patriot Operating Company and the elimination of other
intercompany income and expense items.
(E) Represents the elimination of equity in losses of the New Wyndham
Entities.
161
<PAGE>
(F) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Set forth below is a
summary comparison of the net impact to pro forma net income applicable to
common shareholders and net income per paired share (i) assuming no
Wyndham stockholders elect to receive cash ("All Stock"); (ii) assuming
approximately 3,295 shares of Wyndham Common Stock are purchased for cash
("Cash Option") (based on total funds available of $100,000, an estimated
market price per paired share of $42.61 (based upon the average closing
price for the five days prior to May 12, 1997 of Patriot's Common Stock of
$22.12) and a Wyndham Exchange Ratio equal to 0.712 paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock
for each share of Wyndham Common Stock); and (iii) assuming an interest
rate of 7.30% on the incremental borrowings per annum related to the term
loan (representing LIBOR plus 1.75%) on outstanding debt obligations of
approximately $482,089 for All Stock and $582,089 for Cash Option with
terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 7,300
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $30,371 $23,071
Income tax provision.................................... (2,367) (2,367)
Minority interests in the Patriot Partnerships.......... (2,745) (2,132)
------- -------
Net income applicable to common shareholders............ $25,259 $18,572
======= =======
Net income per paired share............................. $ 0.58 $ 0.45
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 43,721 41,375
======= =======
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock (the "Maximum Wyndham Exchange Ratio"). On a pro forma basis, the
effect of the Maximum Wyndham Exchange Ratio assuming All Stock would result
in a decrease in total consideration to approximately $600,482 which would
decrease pro forma amortization of goodwill by $265. As a result, pro forma
net income would be $25,499 and net income per common paired share would be
$0.58. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio assuming Cash Option would result in net income of $18,810 and net
income per common paired share of $0.45.
Additionally, the following table presents the net impact to pro forma net
income applicable to common shareholders and net income per common paired
share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 7,550
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $27,845 $20,295
Income tax provision.................................... (2,367) (2,367)
Minority interests in the Patriot Partnerships.......... (2,497) (1,847)
------- -------
Net income applicable to common shareholders............ $22,981 $16,081
======= =======
Net income per paired share............................. $ 0.53 $ 0.39
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 43,721 41,375
======= =======
</TABLE>
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000 and
provide for a term loan of $500,000. The additional availability under this
New Credit Facility will be primarily used to finance future acquisitions
and the term loan will be used to finance the Proposed Wyndham Transactions.
Deferred loan costs of approximately $6,175 related to the financing
associated with the Proposed Wyndham Transactions has been reflected in the
pro forma financial information.
(G) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT and New
Patriot Operating Company.
162
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
NEW PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $52,665 $ -- $(28,107)(A) $ 24,558
Hotel revenue.......... -- 95,879 (B) -- 95,879
Club and spa revenue... -- 8,706 -- 8,706
Racecourse facility
revenue and hotel
lease revenue......... 7,189 20,269 (7,106)(C) 20,352
Management fees........ -- 4,809 -- 4,809
Club membership
revenue............... -- 348 -- 348
Shopping center
revenue............... -- 474 -- 474
Service fees........... -- 1,062 -- 1,062
Reimbursement fees..... -- 3,370 -- 3,370
Interest and other
income................ 2,669 10,866 (317)(D) 13,218
------- -------- -------- --------
Total revenue.......... 62,523 145,783 (35,530) 172,776
------- -------- -------- --------
Expenses:
Departmental costs--
hotel operations...... -- 44,381 -- 44,381
Racing facility
operations............ -- 16,949 (1,677)(C) 15,272
Ground lease and hotel
lease expense......... 6,505 5,429 (5,429)(C) 6,505
Direct operating costs
of management
company............... -- 4,243 -- 4,243
Service department
expenses.............. -- 1,152 -- 1,152
Reimbursement
expenses.............. -- 3,370 -- 3,370
General and
administrative........ 3,577 8,845 -- 12,422
Repair and
maintenance........... -- 5,499 -- 5,499
Utilities.............. -- 4,089 -- 4,089
Interest expense....... 21,361 319 (317)(D) 21,363
Real estate and
personal property
taxes and casualty
insurance............. 6,717 129 -- 6,846
Marketing.............. -- 7,779 -- 7,779
Management fees........ -- 1,482 -- 1,482
Depreciation and
amortization.......... 16,402 4,457 -- 20,859
Participating lease
payments.............. -- 28,107 (28,107)(A) --
General liability
insurance............. -- 994 -- 994
Miscellaneous.......... -- (6) -- (6)
------- -------- -------- --------
Total expenses......... 54,562 137,218 (35,530) 156,250
------- -------- -------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 7,961 8,565 -- 16,526
Equity in earnings of
unconsolidated
subsidiaries.......... 1,950 -- (963)(E) 987
------- -------- -------- --------
Income before income tax
provision and minority
interests.............. 9,911 8,565 (963) 17,513
Income tax provision... (44) (4,031) -- (4,075)
------- -------- -------- --------
Income before minority
interests.............. 9,867 4,534 (963) 13,438
Minority interests in
the Patriot
Partnerships.......... (946) (350) -- (1,296)
Minority interest in
consolidated
subsidiaries and other
partnerships.......... (219) (963) 963(E) (219)
------- -------- -------- --------
Net income applicable to
common shareholders.... $ 8,702 $ 3,221 $ -- $ 11,923 (F)
======= ======== ======== ========
Net income per common
paired share(G)........ $ 0.20 $ 0.07 $ 0.27 (F)
======= ======== ========
Weighted average number
of common paired shares
and common paired share
equivalents
outstanding............ 44,214 44,214 44,214 (F)
======= ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 29 hotel properties leased by New Patriot REIT to New Patriot
Operating Company.
(B) Hotel revenue includes revenue from rooms of $66,280 and food and beverage
sales of $29,599.
(C) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by New Patriot
REIT to New Patriot Operating Company.
(D) Represents primarily the elimination of $293 of interest income and
expense related to a note receivable issued to Patriot in connection with
the sale of certain assets to PAH RSI Lessee, which assets are assumed to
be acquired by New Patriot Operating Company and the elimination of other
intercompany income and expense items.
163
<PAGE>
(E) Represents the elimination of equity in income of the New Wyndham
Entities.
(F) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. Set forth below is a
summary comparison of the net impact to pro forma net income applicable to
common shareholders and net income per paired share (i) assuming Wyndham
stockholders elect to receive cash All Stock; (ii) assuming approximately
3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, an estimated market
price per paired share of $42.61 (based upon the average closing for the
five days prior to May 12, 1997 of Patriot's Common Stock of $22.12) and a
Wyndham Exchange Ratio equal to 0.712 paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock for each share
of Wyndham Common Stock); and (iii) assuming an average interest rate of
7.251% per annum related to the term loan (representing LIBOR plus 1.75%)
on outstanding debt obligations of approximately $482,089 for All Stock
and $582,089 for Cash Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 1,813
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $17,294 $15,481
Income tax provision.................................... (4,075) (4,075)
Minority interests in the Patriot Partnerships.......... (1,296) (1,175)
------- -------
Net income applicable to common shareholders............ $11,923 $10,231
======= =======
Net income per paired share............................. $ 0.27 $ 0.24
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 44,214 41,868
======= =======
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio assuming All Stock would result in a decrease in total consideration
to approximately $600,482 which would decrease pro forma amortization of
goodwill by $66. As a result pro forma net income would be $11,984 and net
income per common paired share would be $0.27. On a pro forma basis, the
effect of the Maximum Wyndham Exchange Ratio assuming Cash Option would
result in net income of $10,291 and net income per common paired share of
$0.25.
Additionally, the following table presents the net impact to pro forma net
income applicable to common stockholders and net income per common paired
share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
ALL CASH
STOCK OPTION
------- -------
<S> <C> <C>
Increase in interest expense as a result of additional
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $ 1,875
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $16,631 $14,756
Income tax provision.................................... (4,075) (4,075)
Minority interests in the Patriot Partnerships.......... (1,231) (1,100)
------- -------
Net income applicable to common shareholders............ $11,325 $ 9,581
======= =======
Net income per paired share............................. $ 0.26 $ 0.23
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Proposed Wyndham
Transactions........................................... 9.8% 10.3%
======= =======
Weighted average number of common paired shares and
common paired share equivalents outstanding............ 44,214 41,868
======= =======
</TABLE>
Patriot has entered into a commitment letter with PaineWebber Real Estate
and Chase which will modify and extend the Line of Credit up to $700,000 and
provide for a term loan of $500,000. The additional availability under this
New Credit Facility will be primarily used to finance future acquisitions
and the term loan will be used to finance the Proposed Wyndham Transactions.
Deferred loan costs of approximately $6,175 related to the financing
associated with the Proposed Wyndham Transactions has been reflected in the
pro forma financial information.
(G) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT and New
Patriot Operating Company.
164
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Proposed Wyndham Transactions had occurred as of March 31,
1997. The Pro Forma Condensed Combined Balance Sheet is also derived from the
New Patriot REIT and New Patriot Operating Company Pro Forma Condensed
Combined Balance Sheet as of March 31, 1997 included elsewhere in this Joint
Proxy Statement/Prospectus which is presented as if (i) the Merger and Related
Transactions were consummated on terms set forth in the Merger Agreement; (ii)
the Proposed PaineWebber Land Sale was consummated, the PaineWebber affiliate
leased that portion of the land upon which the Racecourse is situated to New
Patriot REIT and New Patriot REIT subleased this land to New Patriot Operating
Company; and (iii) New Patriot REIT leased certain land to Borders. Such pro
forma information is based in part upon Wyndham's Consolidated Balance Sheet
as of March 31, 1997, Patriot's Consolidated Balance Sheet as of March 31,
1997, and CJC/BMOC's Combined Balance Sheet as of March 31, 1997 and should be
read in conjunction with the financial statements filed with Wyndham's,
Patriot's and CJC/BMOC's respective Quarterly Reports on Form 10-Q for the
three months ended March 31, 1997. In management's opinion, all material
adjustments necessary to reflect the effect of these transactions have been
made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of the Proposed Wyndham Transactions at
their estimated fair market values and the elimination of Wyndham's historical
shareholders' equity. The fair market values of the assets and liabilities of
Wyndham have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management of Patriot does
not anticipate that the preliminary allocation of purchase costs based upon
the estimated fair market values of the assets and liabilities of Wyndham will
materially change; however, the allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocations reflected
in the following unaudited Pro Forma Condensed Combined Balance Sheet may
differ from the amounts ultimately determined. The following unaudited Pro
Forma Condensed Combined Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming such transactions had
been completed as of March 31, 1997, nor does it purport to represent the
future financial position of New Patriot REIT and New Patriot Operating
Company as adjusted for the Merger and the Related Transactions and the
Proposed Wyndham Transactions.
165
<PAGE>
NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT
REIT AND
NEW PATRIOT
OPERATING
COMPANY CROW
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) HISTORICAL(C) ADJUSTMENTS TOTAL
----------- ------------ ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
and resort properties
and land held for
sale................... $ 947,722 $343,388 $140,923 $174,962 (D) $1,606,995
Net investment in
Racecourse facility and
related improvements... 24,265 -- -- -- 24,265
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 73,622 -- -- -- 73,622
Notes and other
receivables from
affiliates............. -- -- 27,350 -- 27,350
Notes receivable........ 103,952 -- 6,340 -- 110,292
Investment in
unconsolidated
subsidiaries........... 12,140 -- 1,091 -- 13,231
Cash and cash
equivalents............ 13,979 -- 7,087 -- 21,066
Restricted cash......... 78,050 -- 450 -- 78,500
Securities available for
sale................... 5,609 -- -- -- 5,609
Accounts receivable,
net.................... 16,917 -- 18,743 -- 35,660
Goodwill................ 97,216 -- -- 280,695 (E) 377,911
Deferred expenses, net.. 14,447 -- 7,629 (1,454)(F) 20,622
Management contract
costs.................. -- -- 11,290 52,292 (G) 63,582
Trade name and franchise
costs.................. -- -- -- 85,550 (H) 85,550
Prepaid expenses and
other assets........... 19,079 -- 31,062 -- 50,141
Deferred income taxes... 227 -- 15,629 (15,551)(I) 305
---------- -------- -------- -------- ----------
Total assets........... $1,407,225 $343,388 $267,594 $576,494 $2,594,701
========== ======== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $ 579,862 $343,388 $138,331 $ 30,026 (J) $1,091,607
Dividends and
distributions payable.. 13,938 -- -- -- 13,938
Accounts payable and
accrued expenses....... 34,968 -- 32,912 -- 67,880
Deferred income tax
liability.............. 520 -- -- 50,609 (I) 51,129
Deposits................ -- -- 1,307 -- 1,307
Deferred gain........... -- -- 11,880 (11,880)(I) --
Due to unconsolidated
subsidiaries........... 6,098 -- -- -- 6,098
Minority interests in
the Patriot
Partnerships........... 127,262 -- -- -- 127,262
Minority interest in
other partnerships..... 13,774 -- -- -- 13,774
Shareholders' equity:
Common stock........... 573 -- 200 85 (K) 858
Paid-in capital........ 646,792 -- 84,342 540,203 (L) 1,271,337
Unearned stock compen-
sation, net........... (16,261) -- -- (16,261)
Unrealized gain from
exchange loss......... -- -- (33) -- (33)
Notes receivable from
stockholders.......... -- -- (16,639)(M) -- (16,639)
Receivable from affili-
ates.................. -- -- (1,255)(N) -- (1,255)
Retained earnings...... (301) -- 16,549 (32,549)(L) (16,301)
---------- -------- -------- -------- ----------
Total shareholders' eq-
uity.................. 630,803 -- 83,164 507,739 1,221,706
---------- -------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $1,407,225 $343,388 $267,594 $576,494 $2,594,701
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
166
<PAGE>
- --------
(A) Represents the Pro forma Condensed Combined Balance Sheet of New Patriot
REIT and New Patriot Operating Company as of March 31, 1997 which reflects
the Merger and the Related Transactions.
(B) Represents adjustments to New Patriot REIT's and New Patriot Operating
Company's pro forma financial position assuming the acquisition of the 11
hotel properties from partnerships affiliated with members of the Trammell
Crow family had occurred at March 31, 1997.
(C) Represents historical balance sheet of Wyndham as of March 31, 1997.
(D) Represents adjustment for the purchase method of accounting whereby the
investments in hotel properties owned by Wyndham are adjusted to record
the assets at their estimated fair market values.
(E) Represents the purchase consideration in excess of fair market value of
the net assets of Wyndham.
(F) Represents the additional loan fees to be incurred in conjunction with the
financing for the Proposed Wyndham Transactions, net of Wyndham's
historical deferred loan fees.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by Wyndham are adjusted to their estimated fair
market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 79 hotels. The contracts
have an average remaining life of 14.6 years and provide for payment of
management fees ranging from 1% to 5% of gross revenues plus certain
incentive fees based on specified criteria as defined in the respective
management agreements.
(H) Represents the estimated fair market value of the Wyndham tradenames and
other franchise related assets.
(I) Pursuant to the Wyndham Merger, deferred income taxes, the deferred income
tax liability and the deferred gain which resulted from the sale and
lease-back of the hotel properties leased by GHALP, Inc., an affiliate of
Wyndham, have been adjusted to reflect the effects of the Wyndham Merger.
(J) Represents financing of $6,175 of additional loan fees related to the
financing of the Proposed Wyndham Transactions, estimated mortgage
prepayment penalties of $16,000, and $7,851 of acquisition-related costs
incurred in connection with the Proposed Wyndham Transactions.
(K) Represents the exchange of Wyndham Common Stock, for paired shares of New
Patriot REIT Common Stock and New Patriot Operating Company Common Stock.
Pursuant to the Wyndham Merger, Wyndham stockholders are entitled to
receive, for each share of Wyndham Common Stock held by them, the Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. At March 31, 1997,
20,018 shares of Wyndham Common Stock were outstanding which were assumed
to be exchanged for approximately 14,253 paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock, resulting in
an adjustment to increase Wyndham Common Stock.
(L) Pursuant to the Wyndham Merger Agreement, Wyndham stockholders may elect
to receive for each share of Wyndham Common Stock held by them either (i)
cash for shares or (ii) 0.712 shares of New Patriot REIT Common Stock and
0.712 shares of New Patriot Operating Company Common Stock. The estimated
market price per paired share is $42.88 (based upon the closing price on
April 11, 1997, the business day prior to the date of the execution of the
Wyndham Merger Agreement, of Patriot's Common Stock of $22.25). Based on
20,018 shares of Wyndham Common Stock outstanding, the total purchase
consideration is approximately $611,099. The adjustments to shareholders'
equity eliminate Wyndham's historical equity accounts totaling $101,091
and record equity based on the number of paired shares of New Patriot REIT
Common Stock and New Patriot Operating Company Common Stock issued in the
exchange.
The pro forma balances assume all of the outstanding Wyndham Common Stock is
exchanged for paired shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock. Set forth below is a summary comparison of
the net impact to pro forma borrowings and shareholders' equity (i) assuming
Wyndham stockholders elect to receive All Stock; (ii) assuming approximately
3,295 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, an estimated market
price per paired share of $42.61, based upon the average closing price for
the five days prior to May 12, 1997, of Patriot's Common Stock of $22.12,
and the Wyndham Exchange Ratio equal to 0.712 paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock for each
share of Wyndham Common Stock); and (iii) assuming an interest rate of
7.251% related to the term loan (representing LIBOR plus 1.75%) on
outstanding debt obligations of approximately $482,089 for All Stock and
approximately $582,089 for the Cash Option with terms of 3 to 5 years.
<TABLE>
<CAPTION>
ALL STOCK CASH OPTION
--------- -----------
<S> <C> <C>
Number of shares of Wyndham Common Stock purchased
for cash........................................... -- 3,295
======== ========
Cash paid for shares of Wyndham Common Stock
(assumed to be financed through the New Credit
Facility or other similar financing sources)....... $ -- $100,000
Number of paired shares issued pursuant to the
Wyndham Merger..................................... 14,253 11,906
======== ========
Purchase consideration for shares................... $611,099 $511,099
Adjustment to common stock for paired shares
issued............................................. (285) (238)
Outstanding options to purchase common stock assumed
in the Wyndham Merger.............................. 13,731 13,731
Book value of Wyndham paid-in capital............... (84,342) (84,342)
-------- --------
Adjustment to paid-in capital....................... 540,203 440,250
-------- --------
Mortgage prepayment penalties incurred from
refinancing of Wyndham debt........................ (16,000) (16,000)
Elimination of historical retained earnings......... (16,549) (16,549)
-------- --------
Adjustment to retained earnings..................... (32,549) (32,549)
Adjustment to common stock.......................... 85 38
-------- --------
Adjustment to shareholders' equity................. $507,739 $407,739
======== ========
</TABLE>
The Wyndham Exchange Ratio is subject to adjustment in the event that the
Average Trading Price of the paired shares is less than $42.13 per paired
share. If the Average Trading Price is less than $42.13 per paired share,
the Wyndham Exchange Ratio will be adjusted so that each outstanding share
of Wyndham Common Stock will be converted into the right to receive a number
of paired shares equal to $30.00 divided by the Average Trading Price.
However, if the Average Trading Price is less than $40.21 per paired share,
there will be no further adjustments to the Wyndham Exchange Ratio; but in
such circumstances Wyndham has the right, waivable by it, to terminate the
Wyndham Merger Agreement without liability. As a result, the Maximum Wyndham
Exchange Ratio would be 0.746 paired shares for each share of Wyndham Common
Stock. On a pro forma basis, the effect of the Maximum Wyndham Exchange
Ratio would decrease total consideration to approximately $600,482.
167
<PAGE>
In connection with the Wyndham Merger, options to purchase approximately
1,064 shares of Wyndham Common Stock which were issued by Wyndham to certain
officers and employees of Wyndham will be converted to options to purchase
757 paired shares of New Patriot REIT Common Stock and New Patriot Operating
Company Common Stock. Such options to purchase paired shares will vest
immediately upon consummation of the Wyndham Merger. The stated exercise
prices will be adjusted to reflect the Wyndham Exchange Ratio. The excess of
the estimated value of a paired share of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock on the date the Wyndham Merger is
consummated (based upon the closing price on April 11, 1997, the business
day prior to the date of the execution of the Wyndham Merger Agreement, of
Patriot's Common Stock of $22.25 and the Wyndham Exchange Ratio) over the
stated exercise price of the options (as adjusted for the Wyndham Exchange
Ratio) is reflected as additional purchase consideration for the Wyndham
Merger.
(M) Represents shareholder notes purchased by Wyndham in conjunction with its
initial offering. In connection with the Wyndham Merger, New Patriot REIT
will acquire these notes at their historical cost which approximates their
estimated fair value.
(N) Represents deferred management fees owed by an affiliate of Wyndham that
are deferred until certain operating criteria, as defined per the
management and loan agreement, are met. Such deferred management fees will
be acquired by New Patriot REIT at their stated historical cost, which
approximates their estimated fair value, as a result of the Wyndham
Merger.
168
<PAGE>
NEW PATRIOT REIT
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW
PATRIOT
REIT CROW WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $130,570 $38,046 $ 19,175 $ -- $187,791
Rental of Racecourse
facility, land and
hotels................ 6,682 -- 9,404 2,365 (D) 18,451
Interest and other
income................ 10,765 -- 500 -- 11,265
-------- ------- -------- ------ --------
Total revenue.......... 148,017 38,046 29,079 2,365 217,507
-------- ------- -------- ------ --------
Expenses:
Ground and hotel lease
expense............... 5,354 1,325 9,806 -- 16,485
General and
administrative........ 5,992 100 (E) 200 (E) -- 6,292
Interest expense....... 45,201 25,068 (F) 11,810 (F) 1,585 (F) 83,664
Real estate and
personal property
taxes and casualty
insurance............. 13,372 4,233 4,226 -- 21,831
Depreciation and
amortization.......... 38,335 13,077 (G) 13,086 (G) -- 64,498
-------- ------- -------- ------ --------
Total expenses......... 108,254 43,803 39,128 1,585 192,770
-------- ------- -------- ------ --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 39,763 (5,757) (10,049) 780 24,737
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 7,560 -- -- (2,573)(H) 4,987
-------- ------- -------- ------ --------
Income (loss) before
income tax provision
and minority
interests.............. 47,323 (5,757) (10,049) (1,793) 29,724
Income tax provision... -- -- -- (175)(I) (175)
-------- ------- -------- ------ --------
Income (loss) before mi-
nority interests....... 47,323 (5,757) (10,049) (1,968) 29,549
Minority interest in
the Patriot Partner-
ship.................. (6,548) 564 (J) 985 (J) 2,157 (J) (2,842)
Minority interest in
other partnerships.... (553) -- -- -- (553)
-------- ------- -------- ------ --------
Net income (loss)
applicable to common
shareholders........... $ 40,222 $(5,193) $ (9,064) $ 189 $ 26,154 (K)
======== ======= ======== ====== ========
Net income per common
share(L)............... $ 1.40 $ 0.60 (K)
======== ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 28,793 43,721 (K)
======== ========
</TABLE>
- -------
(A) Represents the pro forma results of operations of New Patriot REIT for the
year ended December 31, 1996 which reflects the impact of the Merger and
the Related Transactions. See page 150.
(B) Represents adjustments to New Patriot REIT's results of operations
assuming the Crow Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As
a result, the pro forma results of operations for the Crow Acquisition
reflects the results of operations for ten hotels for the year ended
December 31, 1996.
(C) Represents adjustments to New Patriot REIT's results of operations
assuming the Wyndham Merger had been consummated at the beginning of the
period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by New Patriot REIT from third parties and then sub-leased to New
Patriot Operating Company.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by New Patriot REIT.
(F) For the Crow Acquisition, the adjustment represents interest expense
incurred on net borrowings under the New Credit Facility which will be
used to purchase the hotel properties. For the Wyndham Merger, the
adjustment represents interest expense on current debt obligations and
interest expense related to certain capital lease obligations which are
expected to be assumed in connection with the Wyndham Merger. New Patriot
REIT expects to refinance Wyndham's long-term debt with borrowings under
the New Credit Facility. New Patriot REIT will pay an estimated $16,000 in
mortgage prepayment penalties. This amount will be reported as an
extraordinary item in New Patriot REIT's results of operations following
the completion of the Proposed Wyndham Transactions and has been reflected
as an adjustment to retained earnings for pro forma presentation purposes.
Certain of the debt to be repaid contains restrictions regarding the
payment of dividends with which New Patriot REIT would be unable to
comply. In addition, the New Credit Facility generally has a more
favorable interest rate than the debt expected to be repaid. The
adjustment of $1,585 represents amortization of $1,235 related to
additional loan fees to be incurred in connection with new borrowings for
the Proposed Wyndham Transactions and incremental interest expense of
$350. The deferred loan costs are being amortized using the straight-line
method over the terms of the loans. Interest expense incurred on the New
Credit Facility borrowings
169
<PAGE>
assumes an average interest rate of 7.30% per annum related to the term loan
(representing LIBOR plus 1.75%). An increase of 0.25% in the interest rate
would increase pro forma interest expense to $86,191, decrease net income
applicable to common shareholders to $23,876 and decrease net income per
common share to $0.55.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E . These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in losses of the New Wyndham Entities which own the
Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which will be
controlled by New Patriot Operating Company.
(I) Represents provision for New Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(K) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock for each share of
Wyndham Common Stock), pro forma interest expense would increase by
$7,300, net income would be $19,461, and net income per common share would
be $0.47, based on 41,375 weighted average number of common shares and
common share equivalents outstanding.
(L) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
170
<PAGE>
NEW PATRIOT REIT
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW
PATRIOT
REIT CROW WYNDHAM
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $36,551 $10,851 $ 5,263 $ -- $52,665
Rental of Racecourse
facility, land and
hotels................ 1,760 -- 4,838 591 (D) 7,189
Interest and other
income................ 2,669 -- -- -- 2,669
------- ------- -------- ------ -------
Total revenue.......... 40,980 10,851 10,101 591 62,523
------- ------- -------- ------ -------
Expenses:
Ground and hotel lease
expense............... 1,336 331 4,838 -- 6,505
General and
administrative........ 3,502 25 (E) 50 (E) -- 3,577
Interest expense....... 11,709 6,225 (F) 3,550 (F) (123)(F) 21,361
Real estate and
personal property
taxes and casualty
insurance............. 3,404 1,156 2,157 -- 6,717
Depreciation and
amortization.......... 9,862 3,269 (G) 3,271 (G) -- 16,402
------- ------- -------- ------ -------
Total expenses......... 29,813 11,006 13,866 (123) 54,562
------- ------- -------- ------ -------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 11,167 (155) (3,765) 714 7,961
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 1,021 -- (34) 963 (H) 1,950
------- ------- -------- ------ -------
Income (loss) before
income tax provision
and minority
interests.............. 12,188 (155) (3,799) 1,677 9,911
Income tax provision... -- -- -- (44)(I) (44)
------- ------- -------- ------ -------
Income (loss) before mi-
nority interests....... 12,188 (155) (3,799) 1,633 9,867
Minority interest in
the Patriot Partner-
ship.................. (1,676) 15 (J) 372 (J) 343 (J) (946)
Minority interest in
other partnerships.... (219) -- -- -- (219)
------- ------- -------- ------ -------
Net income (loss)
applicable to common
shareholders........... $10,293 $ (140) $ (3,427) $1,976 $ 8,702 (K)
======= ======= ======== ====== =======
Net income (loss) per
common share(L)........ $ 0.35 $ 0.20 (K)
======= =======
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,074 44,214 (K)
======= =======
</TABLE>
- --------
(A) Represents the pro forma results of operations of New Patriot REIT for the
three months ended March 31, 1997 which reflects the impact of the Merger
and the Related Transactions. See page 151.
(B) Represents adjustments to New Patriot REIT's results of operations
assuming the Crow Acquisition had occurred at the beginning of the period
presented. One of the hotels was closed during 1996 due to renovation. As
a result, the pro forma results of operations for the Crow Acquisition
reflects the results of operations for ten hotels for the three months
ended March 31, 1997.
(C) Represents adjustments to New Patriot REIT's results of operations
assuming the Wyndham Merger had been consummated at the beginning of the
period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by New Patriot REIT from third parties and then sub-leased to New
Patriot Operating Company.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by New Patriot REIT.
(F) For the Crow Acquisition, the adjustment represents interest expense
incurred on net borrowings under the New Credit Facility which will be
used to purchase the hotel properties. For the Wyndham Merger, the
adjustment represents interest expense on current debt obligations and
interest expense related to certain capital lease obligations which are
expected to be assumed in connection with the Wyndham Merger. New Patriot
REIT expects to refinance Wyndham's long-term debt with borrowings under
the New Credit Facility. New Patriot REIT will pay approximately $16,000
in mortgage prepayment penalties. This amount will be reported as an
extraordinary item in New Patriot REIT's results of operations following
the completion of the Proposed Wyndham Transactions and has been reflected
as an adjustment to retained earnings for pro forma presentation purposes.
Certain of the debt to be repaid contains restrictions regarding the
payment of dividends with which New Patriot REIT would be unable to
comply. In addition, the New Credit Facility generally has a more
favorable interest rate than the debt expected to be repaid. The
adjustment of $(123) represents amortization of $408 related to additional
loan fees to be incurred in connection with new borrowings for the
Proposed Wyndham Transactions and reduction in interest expense of $531.
The deferred loan costs are being amortized using the straight-line method
over the terms of the
171
<PAGE>
loans. Interest expense incurred on the New Credit Facility borrowings
assumes an average interest rate of 7.251% per annum related to the term
loan (representing LIBOR plus 1.75%). An increase of 0.25% in the interest
rate would increase pro forma interest expense to $22,023, decrease net
income applicable to common shareholders to $8,104 and decrease net income
per common share to $0.18, based on 44,214 weighted average number of common
shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E. These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in income of the New Wyndham Entities which own the
Wyndham tradenames and franchise related assets, the management and
franchising contracts and the hotel management company, which will be
controlled by New Patriot Operating Company.
(I) Represents provision for New Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(K) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock. If the maximum
number of shares of Wyndham Common Stock are purchased for cash (based on
total funds available of $100,000, an estimated market price per paired
share of $42.61, based upon the average closing price for the five days
prior to May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock for each share of
Wyndham Common Stock), pro forma interest expense would increase by
$1,813, net income would be $7,028, and net income per common share would
be $0.17, based on 41,868 weighted average number of common shares and
common share equivalents outstanding.
(L) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot REIT.
172
<PAGE>
NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW WYNDHAM
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
----------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue............ $ 38,940 $ 70,450 $ 99,584 $16,228 $ -- $225,202
Food and beverage....... 19,745 39,330 32,206 8,379 -- 99,660
Club and spa revenue.... 24,710 -- -- -- -- 24,710
Pari-mutuel revenue..... 41,476 -- -- -- -- 41,476
Other racing income..... 10,470 -- -- -- -- 10,470
Management fees......... -- -- 22,524 -- (6,709)(E) 15,815
Club membership
revenue................ 4,277 -- -- -- -- 4,277
Shopping center
revenue................ 1,730 -- -- -- -- 1,730
Service fees............ -- -- 3,962 -- -- 3,962
Reimbursement income.... -- -- 14,506 -- -- 14,506
Telephone and other
hotel revenue.......... 10,338 9,744 6,988 1,931 -- 29,001
Interest and other
income................. 1,936 -- 2,250 -- -- 4,186
-------- -------- -------- ------- -------- --------
Total revenue........... 153,622 119,524 182,020 26,538 (6,709) 474,995
-------- -------- -------- ------- -------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............. 47,280 49,367 65,053 9,949 -- 171,649
Direct operating costs
of Racecourse
facility............... 20,950 -- -- -- -- 20,950
Purses and incentive
awards................. 17,054 -- -- -- -- 17,054
Commissions, concession
costs and racing
facility rental........ 9,176 -- -- -- -- 9,176
Ground lease and hotel
lease expense.......... -- -- -- -- 11,769 (F) 11,769
Direct operating costs
of management company
....................... -- -- 12,035 -- -- 12,035
Service department
expenses............... -- -- 4,970 -- -- 4,970
Reimbursement expenses.. -- -- 15,448 -- -- 15,448
General and
administrative......... 10,181 10,314 7,888 2,971 200 (G) 31,554
Repair and maintenance.. 8,045 5,219 4,533 1,144 -- 18,941
Utilities............... 4,082 4,584 4,585 1,055 -- 14,306
Marketing............... 7,767 9,104 7,620 1,738 -- 26,229
Management fees......... 3,194 5,783 -- 926 (6,709)(E) 3,194
Depreciation and
amortization........... 1,072 -- 8,110 (H) -- 7,697 (H) 16,879
Participating lease
payments............... 25,967 (I) 38,046 (I) 19,175 (I) 9,019 (I) -- 92,207
Interest expense........ 1,300 -- -- -- -- 1,300
Real estate and personal
property taxes and
insurance.............. 398 -- -- -- -- 398
General liability
insurance.............. 656 624 2,449 235 -- 3,964
Equity participation
compensation .......... -- -- 2,919 -- -- 2,919
Miscellaneous .......... -- 871 555 99 (99) 1,426
-------- -------- -------- ------- -------- --------
Total expenses.......... 157,122 123,912 155,340 27,136 12,858 476,368
-------- -------- -------- ------- -------- --------
Income (loss) before
income tax provision and
minority interests...... (3,500) (4,388) 26,680 (598) (19,567) (1,373)
Income tax (provision)
benefit................ (62) -- (3,991)(J) -- 1,861 (J) (2,192)
-------- -------- -------- ------- -------- --------
Income (loss) before mi-
nority interests........ (3,562) (4,388) 22,689 (598) (17,706) (3,565)
Minority interest in the
Patriot Operating
Partnership............ 499 430 (K) (2,224)(K) 59 (K) 1,333 (K) 97
Minority interest in
consolidated
subsidiaries........... -- -- -- -- 2,573 (L) 2,573
-------- -------- -------- ------- -------- --------
Net income (loss)
applicable to common
shareholders............ $ (3,063) $ (3,958) $ 20,465 $ (539) $(13,800) $ (895)(M)
======== ======== ======== ======= ======== ========
Net income (loss) per
common share(N)......... $ (0.11) $ (0.02)(M)
======== ========
Weighted average number
of common shares and
common share equivalents
outstanding............. 28,793 43,721 (M)
======== ========
</TABLE>
See notes on following page.
173
<PAGE>
- --------
(A) Represents the pro forma results of operations of New Patriot Operating
Company for the year ended December 31, 1996 which reflects the Merger and
the Related Transactions. See page 152.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Crow Acquisition had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Wyndham Merger had been consummated at the
beginning of the period presented.
(D) Represents adjustments to New Patriot Operating Company's results of
operations assuming the two hotels currently leased by Wyndham Lessee were
leased by New Patriot Operating Company at the beginning of the period
presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Wyndham Lessee which are assumed to be leased by New Patriot
Operating Company and managed by a New Wyndham Entity.
(F) Represents pro forma lease expense related to the sub-lease agreement with
New Patriot REIT for those hotel properties leased by New Patriot REIT
from third party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by New Patriot Operating Company.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over a 40-year estimated useful life.
Amortization of management contracts is computed using the straight-line
method over the 14.6-year average remaining term of the related franchise
agreements.
(I) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to New Patriot Operating Company's estimated
federal and state tax provision for the Proposed Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(L) Represents adjustment for minority interest in the New Wyndham Entities
held by New Patriot REIT.
(M) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT and New
Patriot Operating Company Common Stock. If the maximum number of shares of
Wyndham Common Stock are purchased for cash (based on total funds
available of $100,000, an estimated market price per paired share of
$42.61, based upon the average closing price for the five days prior to
May 12, 1997, of Patriot's Common Stock averaging $22.12, and a Wyndham
Exchange Ratio equal to 0.712 paired shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock for each share of
Wyndham Common Stock), pro forma net loss would be $(890), and net loss
per common share would be $(0.02), based on 41,375 weighted average number
of common shares and common share equivalents outstanding.
(N) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
174
<PAGE>
NEW PATRIOT OPERATING COMPANY
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NEW PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW WYNDHAM
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
----------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $13,177 $20,031 $28,576 $4,496 $ -- $ 66,280
Food and beverage...... 5,891 10,311 11,060 2,337 -- 29,599
Club and spa revenue... 8,706 -- -- -- -- 8,706
Pari-mutuel revenue.... 17,099 -- -- -- -- 17,099
Other racing income.... 3,170 -- -- -- -- 3,170
Management fees........ -- -- 6,098 -- (1,289)(E) 4,809
Club membership
revenue............... 348 -- -- -- -- 348
Shopping center
revenue............... 474 -- -- -- -- 474
Service fees........... -- -- 1,062 -- -- 1,062
Reimbursement income... -- -- 3,370 -- -- 3,370
Telephone and other
hotel revenue......... 3,769 2,598 2,688 490 -- 9,545
Interest and other
income................ 690 -- 631 -- -- 1,321
------- ------- ------- ------ ------- --------
Total revenue.......... 53,324 32,940 53,485 7,323 (1,289) 145,783
------- ------- ------- ------ ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 13,828 13,298 14,641 2,614 -- 44,381
Operating expense...... -- -- 4,243 -- -- 4,243
Service department
expenses.............. -- -- 1,152 -- -- 1,152
Reimbursement
expenses.............. -- -- 3,370 -- -- 3,370
Direct operating costs
of Racecourse
facilities............ 6,608 -- -- -- -- 6,608
Purses and incentive
awards................ 7,240 -- -- -- -- 7,240
Commissions,
concessions costs and
racing facility
rental................ 3,101 -- -- -- -- 3,101
General and
administrative........ 2,591 2,841 2,642 729 50 (G) 8,853
Sublease for GHALP
Hotels................ -- -- -- -- 5,429 (F) 5,429
Repair and
maintenance........... 2,247 1,346 1,636 270 -- 5,499
Utilities.............. 949 1,304 1,577 259 -- 4,089
Marketing.............. 1,870 2,502 2,951 456 -- 7,779
Management fees........ 1,482 1,050 -- 239 (1,289)(E) 1,482
Depreciation and
amortization.......... 268 -- 2,559 -- 1,630 (H) 4,457
Participating lease
payments.............. 9,428 10,851 (I) 5,263 (I) 2,565 (I) -- 28,107
Interest expense....... 319 -- -- -- -- 319
Real estate and
personal property
taxes and casuality
insurance ............ 129 -- -- -- -- 129
General liability
insurance ............ 252 97 612 33 -- 994
Foreign currency
exchange.............. -- -- (6) -- -- (6)
Other.................. -- 39 (47) 54 (54) (8)
------- ------- ------- ------ ------- --------
Total expenses......... 50,312 33,328 40,593 7,219 5,766 137,218
------- ------- ------- ------ ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 3,012 (388) 12,892 104 (7,055) 8,565
Income tax (provision)
benefit............... (1,205) -- (2,992)(J) -- 166 (J) (4,031)
------- ------- ------- ------ ------- --------
Income (loss) before mi-
nority interests....... 1,807 (388) 9,900 104 (6,889) 4,534
Minority interest in
the Patriot Operating
Partnership........... (253) 38 (K) (970)(K) (10)(K) 845 (K) (350)
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (963)(L) (963)
------- ------- ------- ------ ------- --------
Net income (loss)
applicable to common
shareholders........... $ 1,554 $ (350) $ 8,930 $ 94 $(7,007) $ 3,221 (M)
======= ======= ======= ====== ======= ========
Net income per common
share(N)............... $ 0.05 $ 0.07 (M)
======= ========
Weighted average number
of common shares and
common share
equivalents
outstanding............ 29,074 44,214 (M)
======= ========
</TABLE>
See notes on following page.
175
<PAGE>
- --------
(A) Represents the pro forma results of operations of New Patriot Operating
Company for the three months ended March 31, 1997 which reflects the
Merger and the Related Transactions. See page 154.
(B) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Crow Acquisition had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Acquisition reflects the results of operations for ten hotels for the year
ended December 31, 1996.
(C) Represents adjustments to New Patriot Operating Company's results of
operations assuming the Wyndham Merger had been consummated at the
beginning of the period presented.
(D) Represents adjustments to New Patriot Operating Company's results of
operations assuming the two hotels currently leased by Wyndham Lessee has
been leased by New Patriot Operating Company at the beginning of the
period presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Wyndham Lessee which are assumed to be leased by New Patriot
Operating Company and managed by a New Wyndham Entity.
(F) Represents pro forma lease expense related to the sub-lease agreement with
New Patriot REIT for those hotel properties leased by New Patriot REIT
from third party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by New Patriot Operating Company.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over a 40-year estimated useful life.
Amortization of management contracts is computed using the straight-line
method over the 14.6-year average remaining term of the related franchise
agreements.
(I) Represents lease payments from New Patriot Operating Company to New
Patriot REIT calculated on a pro forma basis by applying the provisions of
the Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to New Patriot Operating Company's estimated
federal and state tax provision for the Proposed Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Proposed Wyndham
Transactions of approximately 9.8%. The estimated minority interest
percentage subsequent to the Merger (and prior to the Proposed Wyndham
Transactions) is approximately 14.0%.
(L) Represents adjustment for minority interest in the New Wyndham Entities
held by New Patriot REIT.
(M) The pro forma amounts presented assume all of the outstanding Wyndham
Common Stock is exchanged for paired shares of New Patriot REIT and New
Patriot Operating Company Common Stock. If the maximum number of shares of
Wyndham Common Stock are purchased for cash (based on total funds
available of $100,000, an estimated market price per paired share of
$42.61, based upon the average closing price for the five days prior to
May 12, 1997, of Patriot's Common Stock of $22.12, and a Wyndham Exchange
Ratio equal to 0.712 paired shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock for each share of Wyndham
Common Stock), pro forma net income would be $3,203, and net income per
common share would be $0.08, based on 41,868 weighted average number of
common shares and common share equivalents outstanding.
(N) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of New Patriot Operating
Company.
176
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and
the Marriott WindWatch Hotel, which are separately owned through Non-
Controlled Subsidiaries, to Lessees. The Combined Lessees subsequent to the
Proposed Wyndham Transactions and the Merger and the Related Transactions are
expected to consist of CHC Lease Partners (which leases 25 hotels), NorthCoast
Lessee (which leases 9 hotels), Doubletree Lessee (which leases 6 hotels),
Metro Lease Partners (which leases 1 hotel) and Grand Heritage Lessee (which
leases 3 hotels). With respect to the hotels leased to PAH RSI Lessee,
subsequent to completion of the Merger and the Related Transactions, New
Patriot REIT expects to terminate its leases with PAH RSI Lessee and re-lease
such hotels to New Patriot Operating Company. With respect to the two hotels
currently leased to Wyndham Lessee (the Wyndham Garden Hotel-Midtown and the
Wyndham Greenspoint Hotel), subsequent to the completion of the Proposed
Wyndham Transactions, New Patriot REIT expects to terminate its leases with
Wyndham Lessee and re-lease such hotels to New Patriot Operating Company. The
Participating Leases provide for staggered terms of ten to twelve years and
the payment of the greater of base or participating rent, plus certain
additional charges, as applicable.
The following Combined Lessees' unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the three
months ended March 31, 1997 are presented as if the hotels that Patriot
currently leases to the Combined Lessees pursuant to Participating Leases had
been leased as of January 1, 1996. Six of the hotels leased to PAH RSI Lessee
(excluding the Sheraton Park Place Hotel which was acquired in April 1997 and
the Myrtle Beach Hilton Oceanfront Golf Resort which was acquired by Patriot
in May 1997) and the two hotels leased to Wyndham Lessee are assumed to have
been leased to New Patriot Operating Company and, therefore, have been
eliminated from the Pro Forma Condensed Combined Statements of Operations for
the Combined Lessees. The pro forma information is based in part upon the
Statements of Operations of CHC Lease Partners and the Statement of Operations
of NorthCoast Lessee filed with Patriot's Annual Report on Form 10-K for the
year ended December 31, 1996 and the Statements of Operations of CHC Lease
Partners, the Statement of Operations of NorthCoast Lessee and the Statement
of Operations of PAH RSI Lessee filed with Patriot's Quarterly Report on Form
10-Q for the three months ended March 31, 1997 and the Pro Forma Statement of
Operations of the Combined Lessees located elsewhere in this Joint Proxy
Statement/Prospectus. In management's opinion, all material adjustments
necessary to reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended March
31, 1997 is not necessarily indicative of the results of operations for the
full year.
177
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
LESSEES WYNDHAM
PRO FORMA LESSEE PRO FORMA
TOTAL(A) PRO FORMA(B) TOTAL
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room.................................... $222,051 $(16,228) $205,823
Food and beverage....................... 85,489 (8,379) 77,110
Conference center....................... 2,354 -- 2,354
Telephone and other..................... 21,919 (1,931) 19,988
-------- -------- --------
Total revenue........................ 331,813 (26,538) 305,275
-------- -------- --------
Expenses:
Departmental costs and expenses......... 130,581 (9,949) 120,632
General and administrative.............. 31,549 (2,971) 28,578
Ground lease expense.................... 2,064 -- 2,064
Repair and maintenance.................. 16,415 (1,144) 15,271
Utilities............................... 15,711 (1,055) 14,656
Marketing............................... 29,315 (1,738) 27,577
Interest expense........................ 3 -- 3
Insurance............................... 2,225 (235) 1,990
Participating lease payments............ 104,603 (C) (9,019) 95,584
-------- -------- --------
Total expenses....................... 332,466 (26,111) 306,355
-------- -------- --------
Income (loss) before lessee income
(expense)............................... (653) (427) (1,080)
-------- -------- --------
Dividend and interest income............. 1,543 (D) -- 1,543
Management fees.......................... (7,070)(E) 926 (6,144)
Lessee general and administrative........ (1,676)(F) 99 (1,577)
-------- -------- --------
(7,203) 1,025 (6,178)
-------- -------- --------
Net loss................................. $ (7,856) $ 598 $ (7,258)
======== ======== ========
</TABLE>
- --------
(A) The Combined Lessees pro forma results of operations represent the
combined pro forma operating results of the Lessees after consummation of
the Merger and the Related Transactions. See page 157. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners and Metro Lease Partners for the year
ended December 31, 1996 and the combined historical results of operations
of NorthCoast Lessee, Doubletree Lessee, Wyndham Lessee and Grand Heritage
Lessee for the period from their respective inception of operations
through December 31, 1996 and (ii) adjustments to the combined Lessees
results of operations assuming the 46 hotels currently leased by Patriot
to the Lessees (excluding six of the hotel properties leased to PAH RSI
Lessee as of March 31, 1997 and excluding the Sheraton Park Place Hotel
acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront
Golf Resort acquired by Patriot in May 1997) had been leased at the
beginning of the period presented.
(B) Represents the elimination of the pro forma results of operations for the
Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are
currently leased to the Wyndham Lessee and which, following the Proposed
Wyndham Transactions, are expected to be leased to New Patriot Operating
Company.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
178
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE PROPOSED WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
LESSEES WYNDHAM
PRO FORMA LESSEE PRO FORMA
TOTAL(A) PRO FORMA(B) TOTAL
--------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room..................................... $56,685 $(4,496) $52,189
Food and beverage........................ 22,000 (2,337) 19,663
Conference center........................ 748 -- 748
Telephone and other...................... 5,431 (490) 4,941
------- ------- -------
Total revenue......................... 84,864 (7,323) 77,541
------- ------- -------
Expenses:
Departmental costs and expenses.......... 32,504 (2,614) 29,890
General and administrative............... 7,683 (729) 6,954
Ground lease expense..................... 320 -- 320
Repair and maintenance................... 4,075 (270) 3,805
Utilities................................ 3,673 (259) 3,414
Marketing................................ 7,676 (456) 7,220
Insurance................................ 501 (33) 468
Participating lease payments............. 27,123 (C) (2,565) 24,558
------- ------- -------
Total expenses........................ 83,555 (6,926) 76,629
------- ------- -------
Income (loss) before lessee income
(expense)................................ 1,309 (397) 912
------- ------- -------
Dividend and interest income.............. 945 (D) -- 945
Management fees........................... (1,635)(E) 239 (1,396)
Lessee general and administrative......... (455)(F) 54 (401)
------- ------- -------
(1,145) 293 (852)
------- ------- -------
Net income (loss)......................... $ 164 $ (104) $ 60
======= ======= =======
</TABLE>
- --------
(A) The Combined Lessees' pro forma results of operations represent the
combined pro forma operating results of the Lessees after consummation of
the Merger and the Related Transactions. See page 158. These Lessees' pro
forma results of operations include (i) the combined historical results of
operations of CHC Lease Partners, Metro Lease Partners, NorthCoast Lessee,
Doubletree Lessee, Wyndham Lessee and Grand Heritage Lessee for the three
months ended March 31, 1997 and (ii) adjustments to the combined Lessees
results of operations assuming the 46 hotels currently leased by Patriot
to the Lessees (excluding six of the hotel properties leased to PAH RSI
Lessee as of March 31, 1997 and excluding the Sheraton Park Place Hotel
acquired by Patriot in April 1997 and the Myrtle Beach Hilton Oceanfront
Golf Resort acquired by Patriot in May 1997) had been leased at the
beginning of the period presented.
(B) Represents the elimination of the pro forma results of operations for the
Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel which are
currently leased to the Wyndham Lessee and which, following the Proposed
Wyndham Transactions, are expected to be leased to New Patriot Operating
Company.
(C) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(D) Includes dividend income on OP Units in the Patriot Partnership which form
a portion of the required capitalization of CHC Lease Partners and
NorthCoast Lessee, respectively. Pro forma amounts exclude additional
dividend income earned on OP Units held by certain Lessees, and pro forma
interest income earned on invested cash balances.
(E) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(F) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
179
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Patriot completed the Initial Offering on October 2, 1995 and commenced
operations. Upon completion of the Initial Offering, Patriot, through its
wholly-owned subsidiary, PAH LP, contributed substantially all of the net
proceeds of the Initial Offering to the Patriot Partnership in exchange for an
approximate 85.3% limited partnership interest in the Patriot Partnership.
Patriot, through its wholly-owned subsidiary, PAH GP, is the sole general
partner and the holder of a 1.0% general partnership interest in the Patriot
Partnership.
The Patriot Partnership used approximately $263,600 of the net proceeds of
the Initial Offering to acquire ownership interests in 20 hotels (the "Initial
Hotels") from various entities (the "Selling Entities") and to repay existing
mortgage and other indebtness of the Initial Hotels. In consideration for the
sale of the Initial Hotels, certain owners in the Selling Entities, including
affiliates of Patriot, elected to receive OP Units in the Patriot Partnership.
The 2,324,312 OP Units received by such owners represented an approximate
13.7% equity interest in the Patriot Partnership as Patriot commenced
operations. The balance of the proceeds from the Initial Offering, together
with proceeds from the Line of Credit, were used to finance acquisitions of
two additional hotel investments, to provide for renovations to existing
hotels and for general working capital during 1995.
During 1996, Patriot acquired 24 additional hotel properties, utilizing cash
drawn on its Line of Credit and issuing 600,703 OP Units of the Patriot
Partnership in connection with the purchases. In May 1996, Patriot sold an
aggregate of approximately $40,000 of equity securities in the Private
Placement. The proceeds of the Private Placement were used primarily to reduce
amounts outstanding under the Line of Credit.
During the third quarter of 1996, Patriot completed the Follow-On Offering.
The offering price of all shares sold in the Follow-On Offering was $14.125
per share, resulting in net proceeds (less the underwriters' discount and
offering expenses) of approximately $160,222, of which approximately $151,963
was used to reduce amounts outstanding under the Line of Credit. As a result,
at December 31, 1996, the Patriot Partnership owned interests in 46 hotels in
18 states with an aggregate 11,340 guest rooms and Patriot owned an
approximate 87.3% interest in the Patriot Partnership.
In the first quarter of 1997, Patriot acquired ownership interests in the
Recent Acquisitions. Subsequent to March 31, 1997, Patriot acquired the
Sheraton Park Place Hotel in Minneapolis, Minnesota and the Myrtle Beach
Hilton Oceanfront Golf Resort. These acquisitions were financed primarily with
funds drawn on the Line of Credit.
In addition, in January 1997, Patriot acquired the Carefree Resorts for a
total purchase price of approximately $264 million. The acquisition of the
Carefree Resorts was primarily financed with funds drawn on the Line of Credit
and the issuance of 1,295,077 OP Units of the Patriot Partnership.
As of March 31, 1997, Patriot owned interests in 54 hotels and resorts in 21
states with an aggregate of 12,671 guest rooms and had an approximate 83.1%
interest in the Patriot Partnership.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 of Patriot are presented as if (i) the Private Placement and
the Follow-On Offering, (ii) the acquisition of 24 additional hotel properties
in 1996 including a hotel owned through a Non-Controlled Subsidiary, (iii) the
acquisition of the Carefree Resorts and the Recent Acquisitions (excluding the
Sheraton Park Place Hotel acquired by Patriot in April 1997 and the Myrtle
Beach Hilton Oceanfront Golf Resort acquired by Patriot in May 1997 and leased
to PAH RSI Lessee) and (iv) the funding of the mortgage notes to affiliates of
CHC Lease Partners had occurred on January 1, 1996. Such pro forma information
is based in part upon the Consolidated Statements of Operations of Patriot
filed with Patriot's Annual Report on Form 10-K for the year ended December
31, 1996 and the Quarterly Report on Form 10-Q for the three months ended
March 31, 1997; the historical financial statements of certain hotels acquired
by Patriot
180
<PAGE>
filed in Patriot's Current Reports on Form 8-K dated April 2, 1996, as
amended, December 5, 1996 and January 16, 1997, as amended; and the Pro Forma
Condensed Combined Statements of Operations of the Lessees. In management's
opinion, all adjustments necessary to reflect the effects of these
transactions have been made. The following unaudited Pro Forma Financial
Statements do not reflect the Merger and the Related Transactions.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of what actual results of operations
of Patriot would have been assuming such transactions had been completed as of
January 1, 1996, nor do they purport to represent the results of operations
for future periods. Further, the unaudited Pro Forma Condensed Consolidated
Statement of Operations for the interim period ended March 31, 1997 is not
necessarily indicative of the results of operations for the full year.
181
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------
PATRIOT RECENT CAREFREE
HISTORICAL ADJUSTMENTS ACQUISITIONS RESORTS PRO FORMA
(A) (B) (C) (D) TOTAL
---------- ----------- ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $75,893 $27,111 (E) $6,102 (E) $21,464 (E) $130,570
Interest and other in-
come.................. 600 8,501 (F) -- 1,170 (F) 10,271
------- ------- ------ ------- --------
Total revenue.......... 76,493 35,612 6,102 22,634 140,841
------- ------- ------ ------- --------
Expenses:
Ground lease expense... 1,075 315 (G) -- -- 1,390
General and administra-
tive.................. 4,500 742 (H) -- 100 (H) 5,342
Interest expense....... 7,380 20,502 (I) 3,240 (I) 14,079 (I) 45,201
Real estate and per-
sonal property taxes
and casualty
insurance............. 7,150 3,703 (J) 1,076 (J) 1,443 (J) 13,372
Depreciation and amor-
tization.............. 17,420 8,451 (K) 1,843 (K) 7,409 (K) 35,123
------- ------- ------ ------- --------
Total expenses......... 37,525 33,713 6,159 23,031 100,428
------- ------- ------ ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries and
minority interests..... 38,968 1,899 (57) (397) 40,413
Equity in earnings of
unconsolidated
subsidiaries.......... 5,845 1,372 (L) -- 343 (M) 7,560
------- ------- ------ ------- --------
Income (loss) before
minority interests..... 44,813 3,271 (57) (54) 47,973
Minority interest in
the Patriot
Partnership........... (6,767) (1,247) -- -- (8,014)(N)
Minority interest in
other partnerships.... (55) (650)(O) 152 (O) -- (553)
------- ------- ------ ------- --------
Net income (loss)
applicable to common
shareholders........... $37,991 $ 1,374 $ 95 $ (54) $ 39,406
======= ======= ====== ======= ========
Net income per common
share (P)(Q)........... $ 1.06 $ 0.89
======= ========
Weighted average number
of common shares and
common share
equivalents outstanding
(P) ................... 35,938 44,378
======= ========
</TABLE>
- --------
(A) Represents Patriot's historical results of operations for the year ended
December 31, 1996.
(B) Represents adjustments to Patriot's results of operations assuming the
Private Placement, the Follow-On Offering and the acquisition of the 24
hotels in 1996 had occurred as of the beginning of the period presented.
(C) Represents adjustments to Patriot's results of operations assuming the
acquisition of the four Recent Acquisitions: the Luxeford Suites Hotel,
the Holiday Inn Redmont Hotel, the Radisson Overland Park Hotel and the
Radisson Northbrook Hotel, had occurred at the beginning of the period
presented.
(D) Represents adjustments to Patriot's results of operations assuming the
acquisition of the Carefree Resort properties had occurred at the
beginning of the period presented. Sales and cost of sales related to the
residential real estate which was owned, developed and sold by the
Carefree Resorts are excluded because Patriot anticipates selling the
residential real estate to an affiliate at fair market value. Therefore,
no gain or loss on the sale of the residential real estate is expected.
(E) Represents lease payments from the Lessees to the Patriot Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(F) Pro forma interest and other income consists of historical interest and
other income of approximately $600 related to the 46 hotels owned as of
December 31, 1996, an adjustment for pro forma interest income of $21
earned on notes receivable issued to the Patriot Partnership by certain of
the Non-Controlled Subsidiaries, and pro forma interest income of $1,170
earned on notes receivable issued to the Patriot Partnership by PAH RSI
Lessee in connection with the sale of certain assets and the right to
receive certain royalty fees (assuming such notes were outstanding at the
beginning of the period presented), resulting in pro forma interest and
other income of $1,791. In addition, pro forma interest and other income
has been adjusted to include $8,480 of interest income earned on $103,000
of mortgage notes receivable from certain affiliates of CHC Lease Partners
which bear interest at an annual rate equal to LIBOR plus 2.75%.
(G) Represents ground lease payments to be made with respect to certain of the
hotels.
(H) Represents increased salaries, insurance, travel, audit, legal and other
expenses associated with operating as a public company and the continued
growth of Patriot. Also includes annual amortization of unearned stock
compensation computed on a straight-line basis over the three to four year
vesting periods.
182
<PAGE>
(I) Pro forma interest expense consists of historical interest expense and
amortization of deferred loan costs of $7,380, pro forma interest expense
of approximately $8,966 related to the 46 hotels owned as of December 31,
1996, pro forma interest expense of approximately $3,240 related to the
Recent Acquisitions, and pro forma interest expense of approximately
$14,079 related to the acquisition of Carefree Resorts. Pro forma interest
expense also includes an adjustment to reflect interest expense of
approximately $7,391 incurred on net borrowings under the Line of Credit
which will be used to fund $103,000 in mortgage notes receivable from
certain affiliates of CHC Lease Partners. In addition, pro forma interest
expense includes adjustments to reflect additional interest expense of
approximately $762 related to borrowings under the Line of Credit used to
fund deferred loan costs of approximately $10,150 associated with the
modification and extension of the Line of Credit and amortization of such
deferred loan costs of approximately $3,383. Deferred loan costs are
amortized over the term of the related loan.
Additionally, a 0.25% increase in the interest rate on the Line of Credit
would increase interest expense to $46,522, decrease net income to $38,308
and decrease net income per common share to $0.86 per share. Patriot has
entered into a commitment letter with PaineWebber Real Estate and Chase
which will modify and extend the Line of Credit up to $700,000 and provide
for a term loan of $500,000. The additional availability under this New
Credit Facility will be primarily used to finance future acquisitions and
the term loan will be used to finance the Proposed Wyndham Transactions. In
the event Patriot is successful in obtaining the New Credit Facility,
deferred loan costs totaling approximately $16,325, including fees, legal
and other expenses are expected to be incurred in connection with New
Credit Facility (of which approximately $10,150 relate to the modification
and extension of the Line of Credit and have been reflected in the pro
forma financial information).
(J) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Patriot Partnership.
(K) Represents adjustments to depreciation on the Patriot hotels owned as of
December 31, 1996 of $8,441 and amortization of $10. the adjustments
related to the Recent Acquisitions and the Carefree Resorts acquisition
represent depreciation. Depreciation is computed using the straight-line
method and is based upon the estimated useful lives of 35 years for hotel
buildings and improvements and 5 to 7 years for F, F & E. These estimated
useful lives are based on management's knowledge of the properties and the
hotel industry in general. Amortization of franchise fees is computed
using the straight-line method over the terms of the related franchise
agreement.
(L) Represents equity in income of the unconsolidated subsidiaries which own
the Crowne Plaza Ravinia Hotel and the Marriott WindWatch Hotel.
(M) Represents equity in income of PAH Boulders, Inc.
(N) Represents the adjustments to minority interest assuming the acquisition
of the 24 hotels by Patriot in 1996, including the hotels owned through
the Non-Controlled Subsidiaries, the Private Placement and the Follow-On
Offering of Patriot's common stock, the acquisition of the Recent
Acquisitions, and the acquisition of the Carefree Resorts had occurred at
the beginning of the period presented. Prior to the acquisition of the
Recent Acquisitions and the Carefree Resorts, the minority interest
percentage was approximately 12.7%. Subsequent to the acquisition of the
Carefree Resorts, the minority interest percentage was approximately
16.9%.
(O) Represents the minority interest related to the partnerships with DTR PAH
Holding, Inc., assuming such entities had been formed and the six hotels
owned by such partnerships had been acquired at the beginning of the
period presented.
(P) The net income per common share and the weighted average number of common
shares and common share equivalents have been adjusted for the 2-for-1
stock split effected in the form of a stock dividend.
(Q) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of Patriot.
183
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------
PATRIOT RECENT CAREFREE
HISTORICAL ACQUISITIONS RESORTS PRO FORMA
(A) ADJUSTMENTS (B) (C) TOTAL
---------- ----------- ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $35,013 $ -- $ 618 (D) $ 920 (D) $36,551
Interest and other
income................ 375 2,125 (E) -- 55 (E) 2,555
------- ------- ----- ----- -------
Total revenue.......... 35,388 2,125 618 975 39,106
------- ------- ----- ----- -------
Expenses:
Ground lease expense... 345 -- -- -- 345
General and
administrative........ 2,782 679 (F) -- -- 3,461
Interest expense....... 7,805 2,870 (G) 365 (G) 669 (G) 11,709
Real estate and per-
sonal property taxes
and casualty
insurance............. 3,201 -- 120 (H) 59 (H) 3,380
Depreciation and
amortization.......... 8,496 -- 229 (I) 339 (I) 9,064
------- ------- ----- ----- -------
Total expenses......... 22,629 3,549 714 1,067 27,959
------- ------- ----- ----- -------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries and
minority interests..... 12,759 (1,424) (96) (92) 11,147
Equity in earnings of
unconsolidated
subsidiaries.......... 1,021 -- -- -- 1,021
------- ------- ----- ----- -------
Income (loss) before
minority interests..... 13,780 (1,424) (96) (92) 12,168
Minority interest in
the Patriot
Partnership........... (2,232) 213 (J) -- -- (2,019)(J)
Minority interest in
other partnerships.... (200) -- (19) (K) -- (219)
------- ------- ----- ----- -------
Net income (loss)
applicable to common
shareholders........... $11,348 $(1,211) $(115) $ (92) $ 9,930
======= ======= ===== ===== =======
Net income per common
share (L)(M)........... $ 0.25 $ 0.22
======= =======
Weighted average number
of common shares and
common share
equivalents outstanding
(L) ................... 44,552 44,919
======= =======
</TABLE>
- --------
(A) Represents Patriot's historical results of operations for the three months
ended March 31, 1997.
(B) Represents adjustments to Patriot's results of operations assuming the
acquisition of the four Recent Acquisitions: the Luxeford Suites Hotel,
the Holiday Inn Redmont Hotel, the Radisson Overland Park Hotel and the
Radisson Northbrook Hotel, had occurred at the beginning of the period
presented.
(C) Represents adjustments to Patriot's results of operations assuming the
acquisition of the Carefree Resort properties had occurred at the
beginning of the period presented. Sales and cost of sales related to the
residential real estate which was owned, developed and sold by the
Carefree Resorts are excluded because Patriot anticipates selling the
residential real estate to an affiliate at fair market value. Therefore,
no gain or loss on the sale of the residential real estate is expected.
(D) Represents lease payments from the Lessees to the Patriot Partnership
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(E) Pro forma interest and other income consists of historical interest and
other income of $375 related to the 54 hotels owned as of March 31, 1997
and pro forma interest income of $55 earned on notes receivable issued to
the Patriot Partnership by PAH RSI Lessee in connection with the sale of
certain assets and the right to receive certain royalty fees (assuming
such notes were outstanding at the beginning of the period presented),
resulting in pro forma interest and other income of $430. In addition, pro
forma interest and other income has been adjusted to include $2,125 of
interest income earned on $103,000 of mortgage notes receivable from
certain affiliates of CHC Lease Partners which bear interest at an annual
rate equal to LIBOR plus 2.75%, assuming such notes were outstanding at
the beginning of the period presented.
(F) Represents amortization of unearned stock compensation computed on a
straight-line basis over the three to four year vesting periods.
(G) Pro forma interest expense consists of historical interest expense and
amortization of deferred loan costs of $7,805, pro forma interest expense
of approximately $365 incurred on the net borrowings under the Line of
Credit related to the Recent Acquisitions and pro forma interest expense
of approximately $669 incurred on the Carefree Resorts, resulting in pro
forma interest expense of $8,839. Pro forma interest expense also includes
an adjustment to reflect interest expense of approximately $1,835 incurred
on net borrowings under the Line of Credit which will be used to fund
$103,000 in mortgage notes receivable from certain affiliates of CHC Lease
Partners. In
184
<PAGE>
addition, pro forma interest expense includes adjustments to reflect
additional interest expense of approximately $189 related to borrowings
under the Line of Credit used to fund deferred loan costs of approximately
$10,150 associated with the expansion and modification of the Line of Credit
and the amortization of such deferred loan costs of approximately $846.
Deferred loan costs are amortized over the term of the related loan.
Additionally, a 0.25% increase in the interest rate on the Line of Credit
would increase interest expense to $12,071, decrease net income to $9,628
and decrease net income per common share to $0.21 per share. Patriot has
entered into a commitment letter with PaineWebber Real Estate and Chase
which will modify and extend the Line of Credit up to $700,000 and provide
for a term loan of $500,000. The additional availability under this New
Credit Facility will be primarily used to finance future acquisitions and
the term loan will be used to finance the Proposed Wyndham Transactions. In
the event Patriot is successful in obtaining the New Credit Facility,
deferred loan costs totaling approximately $16,325, including fees, legal
and other expenses are expected to be incurred in connection with the New
Credit Facility (of which approximately $10,150 relate to the modification
and extension of the Line of Credit and have been reflected in the pro forma
financial information).
(H) Represents real estate and personal property taxes, and casualty insurance
to be paid by the Patriot Partnership.
(I) Represents adjustments to depreciation on the Recent Acquisitions and the
Carefree Resorts. Depreciation is computed using the straight-line method
and is based upon the estimated useful lives of 35 years for hotel
buildings and improvements and 5 to 7 years for F, F & E. These estimated
useful lives are based on management's knowledge of the properties and the
hotel industry in general.
(J) Represents the adjustments to minority interest assuming the acquisition
of the Recent Acquisitions and the acquisition of the Carefree Resorts had
occurred at the beginning of the period presented. Prior to the
acquisition of the Recent Acquisitions and the Carefree Resorts, the
minority interest percentage was approximately 12.7%. Subsequent to the
acquisition of the Carefree Resorts, the minority interest percentage was
approximately 16.9%.
(K) Represents the minority interest related to the partnerships with DTR PAH
Holding, Inc., assuming such entities had been formed and the six hotels
owned by such partnerships had been acquired at the beginning of the
period presented.
(L) The net income per common share and the weighted average number of common
shares and common share equivalents have been adjusted for the 2-for-1
stock split effected in the form of a stock dividend.
(M) In February 1997, the Financial Accounting Standards Board issued
Statement 128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on the earnings per share of Patriot.
185
<PAGE>
PATRIOT (PRE MERGER)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if the funding of the mortgage notes to certain affiliates of CHC
Lease Partners had occurred on March 31, 1997. Such pro forma information is
based in part upon Patriot's Consolidated Balance Sheet as of March 31, 1997
and should be read in conjunction with the financial statements filed with
Patriot's Quarterly Report on Form 10-Q for the period ended March 31, 1997.
In management's opinion, all adjustments necessary to reflect the effect of
this transaction have been made.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
not necessarily indicative of what the actual financial position would have
been assuming the above described transaction had been completed as of March
31, 1997, nor does it purport to represent the future financial position of
Patriot.
<TABLE>
<CAPTION>
PATRIOT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS TOTAL
---------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Net investment in hotel and resort prop-
erties and land held for sale.......... $947,722 $ -- $ 947,722
Mortgage notes and other receivables
from unconsolidated subsidiaries....... 73,622 -- 73,622
Notes receivable........................ 10,189 103,000(A) 113,189
Investment in unconsolidated subsidiar-
ies.................................... 12,140 -- 12,140
Cash and cash equivalents............... 6,271 -- 6,271
Accounts receivable..................... 15,648 -- 15,648
Deferred expenses, net.................. 4,297 10,150(B) 14,447
Prepaid expenses and other assets....... 12,009 -- 12,009
---------- -------- ----------
Total assets........................... $1,081,898 $113,150 $1,195,048
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit and
mortgage notes......................... $466,712 $113,150(C) $ 579,862
Dividends and distributions payable..... 13,938 -- 13,938
Accounts payable and accrued expenses... 13,498 -- 13,498
Due to unconsolidated subsidiaries...... 6,098 -- 6,098
Minority interest in the Patriot Part-
nership................................ 127,262 -- 127,262
Minority interest in other partner-
ships.................................. 13,774 -- 13,774
Shareholders' equity:
Preferred stock........................ -- -- --
Common stock........................... -- -- --
Paid-in capital........................ 457,178 -- 457,178
Unearned stock compensation, net....... (16,261) -- (16,261)
Retained earnings...................... (301) -- (301)
---------- -------- ----------
Total shareholders' equity............. 440,616 -- 440,616
---------- -------- ----------
Total liabilities and shareholders' eq-
uity.................................. $1,081,898 $113,150 $1,195,048
========== ======== ==========
</TABLE>
- --------
(A) Represents mortgage notes issued to the Patriot Partnership by certain
affiliates of CHC Lease Partners.
(B) Represents deferred loan costs to be incurred in connection with
modification and extension of the Line of Credit.
(C) Represents draws on the Line of Credit related to the funding of mortgage
notes receivable from certain affiliates of CHC Lease Partners. Patriot
has entered into a commitment letter with PaineWebber Real Estate and
Chase which will modify and extend the Line of Credit up to $700,000 and
provide for a term loan of $500,000. The additional availability under
this New Credit Facility will be primarily used to finance future
acquisitions and the term loan will be used to finance the Proposed
Wyndham Transactions. In the event Patriot is successful in obtaining the
New Credit Facility, deferred loan costs totaling approximately $16,325,
including fees, legal and other expenses are expected to be incurred in
connection with the New Credit Facility (of which approximately $10,150
relate to the modification and extension of the Line of Credit and have
been reflected in the pro forma financial information).
186
<PAGE>
MANAGEMENT OF NEW PATRIOT REIT ANDNEW PATRIOT OPERATING COMPANY
NEW PATRIOT REIT
The current members of the Board of Directors of Patriot will become members
of the Board of Directors of New Patriot REIT following the Merger. Three
current executive officers of Patriot will become the executive officers of
New Patriot REIT following the Merger. The age, positions and business
experience of the directors and executive officers of New Patriot REIT are set
forth below. Assuming the Restated Charter is approved by stockholders, the
Board of Directors of New Patriot REIT will be segregated into three classes,
with terms ending in 1997, 1998 and 1999 at the annual meetings of
stockholders, respectively. Directors elected at future stockholder meetings
will hold office for three year terms. Executive officers are elected annually
by the Board of Directors for terms ending on the next annual meeting of the
Board of Directors.
<TABLE>
<CAPTION>
NAME POSITION WITH NEW PATRIOT REIT AGE
---- ------------------------------ ---
<C> <S> <C>
Paul A. Nussbaum...... Chairman of the Board of Directors, Chief Executive 49
Officer and President
(term expires 1997)
William W. Evans III.. Office of the Chairman 45
Rex E. Stewart........ Chief Financial Officer and Treasurer 49
John H. Daniels....... Director (term expires 1999) 70
Leonard Boxer......... Independent Director (term expires 1997) 58
John C. Deterding..... Independent Director (term expires 1999) 65
Gregory R. Dillon..... Independent Director (term expires 1998) 74
Thomas S. Foley....... Independent Director (term expires 1998) 68
Arch K. Jacobson...... Independent Director (term expires 1997) 69
</TABLE>
Paul A. Nussbaum became Chairman of the Board of Directors and Chief
Executive Officer of Patriot in April 1995 and will continue in such capacity
and will assume the position of President for New Patriot REIT following the
Merger. Mr. Nussbaum founded the Patriot American group of companies ("Patriot
American") in 1991 and has been its Chief Executive Officer since its
inception. Prior to his association with Patriot American, Mr. Nussbaum
practiced real estate and corporate law in New York for 20 years, the last 12
years of which as chairman of the real estate department of Schulte Roth &
Zabel. He currently serves as a member of the Dallas Citizens' Council and is
a member of the Urban Land Institute, the American College of Real Estate
Lawyers and the Advisory Board of the Real Estate Center of the Wharton School
of Business, University of Pennsylvania. Mr. Nussbaum is a member of the Board
of Visitors of the Georgetown University Law Center and an Overseer of Colby
College, Waterville, Maine. He holds a B.A. from the State University of New
York at Buffalo and a J.D. from the Georgetown University Law Center.
William W. Evans III began serving in the Office of the Chairman of Patriot
in March 1997 and will continue in such capacity for New Patriot REIT
following the Merger. Previously, Mr. Evans was a Managing Director in
PaineWebber's Real Estate Group with responsibility for the origination and
structuring of principal transactions. He joined PaineWebber as a result of
the firm's acquisition of Kidder, Peabody and Co. Incorporated in December
1994. Prior to joining Kidder, Peabody in 1992, Mr. Evans was a First Vice
President and head of the Real Estate Financing Division of Swiss Bank
Corporation, responsible for all real estate activities of the U.S.
organization of the bank. Mr. Evans is a graduate of the University of
Virginia.
Rex E. Stewart became Executive Vice President and Chief Financial Officer
of Patriot in April 1995 and will serve in the position as Chief Financial
Officer and Treasurer for New Patriot REIT following the Merger. From 1993
until joining Patriot, he served as Chief Financial Officer and Treasurer of
Metro Joint Venture, an independent hotel management company based in Dallas,
Texas, which currently manages the Holiday Inn Select, North Dallas and the
Embassy Suites, Hunt Valley. He served in the same capacities for Metro
Hotels, Inc. from 1986 until 1993. Previously, Mr. Stewart was the Chief
Financial Officer of Lincoln Hotel Corporation, which owned and operated a
chain of upscale and luxury hotels across the United States. Prior to his
employment
187
<PAGE>
with Lincoln Hotel Corporation, Mr. Stewart was an audit manager with Arthur
Andersen & Co. in Dallas, Texas. He holds a B.B.A. from Texas A&M University
and an M.B.A. from the University of Southern California. He is a certified
public accountant.
John H. Daniels became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
served as President of The Daniels Group Inc., a real estate development and
management company, since 1984. Mr. Daniels has also served as Vice Chairman
of Patriot American since its inception in 1991. Prior to forming The Daniels
Group Inc., Mr. Daniels served as Chairman and Chief Executive Officer of
Cadillac Fairview Corporation, a publicly held real estate development and
management company. Mr. Daniels has more than 40 years of real estate
development and management experience. Mr. Daniels is also a director of
Cineplex-Odeon Corporation, Consolidated H.C.I. Corporation, Samoth Capital
Corporation and Anitech Enterprises Inc. Mr. Daniels holds a B.S. in
Architecture from the University of Toronto.
Leonard Boxer became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been a partner and chairman of the real estate department of the law firm of
Stroock & Stroock & Lavan in New York, New York since 1987. Previously, he was
a founder and managing partner and head of the real estate department of
Olnick Boxer Blumberg Lane & Troy, a real estate law firm in New York. Mr.
Boxer is a member of the Board of Trustees of New York University Law School.
He is a member of the New York Regional Cabinet of the United States Holocaust
Memorial Museum. Mr. Boxer holds a B.A. and an L.L.B. from New York
University.
John C. Deterding became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been the owner of Deterding Associates, a real estate consulting company,
since June 1993. From 1975 until June 1993, he served as Senior Vice President
and General Manager of the Commercial Real Estate division of General Electric
Capital Corporation ("GECC"). In directing the real estate activities at GECC,
he was responsible for both domestic and international lending activities,
portfolio purchases, joint ventures, asset management and real estate
securitization. From November 1989 to June 1993, Mr. Deterding served as
Chairman of the General Electric Real Estate Investment Company, a privately
held REIT. He served as Director of GECC Financial Corporation from 1986 to
1993. Mr. Deterding is also a former member and trustee of the Urban Land
Institute. He holds a B.S. from the University of Illinois.
Gregory R. Dillon became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been Vice Chairman Emeritus of Hilton Hotels Corporation ("Hilton") since
1993. He has been a director of Hilton since 1977 and was elected Vice
Chairman in 1990. Mr. Dillon served as an Executive Vice President of Hilton
from 1980 until 1993. Mr. Dillon was also Executive Vice President of Hilton's
franchise company, Hilton Inns, Inc., from 1971 to 1986. He is a director of
the Conrad N. Hilton Foundation and is a founding member of the American Hotel
Association's Industry Real Estate Financing Advisory Council and the National
Association of Corporate Real Estate Executives. In addition to his
undergraduate degree, Mr. Dillon holds an L.L.B. from DePaul University.
Thomas S. Foley became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
been a partner in the Washington, D.C. office of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. since January 1995. From 1965 through 1994, Mr. Foley served 15
terms in the U.S. House of Representatives. Mr. Foley was Speaker of the U.S.
House of Representatives from June 1989 through December 1994. Mr. Foley
currently is a director of the H.J. Heinz Company, and he serves on the Global
Advisory Board of Coopers & Lybrand L.L.P., the Board of Advisors for the
Center for Strategic and International Studies and the Board of Directors for
the Center for National Policy. Mr. Foley holds a B.A. and an L.L.B. from the
University of Washington.
Arch K. Jacobson became a director of Patriot in September 1995 and will
continue in such capacity for New Patriot REIT following the Merger. He has
served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was
Chairman of Union
188
<PAGE>
Pacific Realty Co., a real estate management and development company. He
served in various capacities with the Real Estate Department of The Prudential
Insurance Company from 1955 to 1980 and was President and Chief Executive
Officer of the Prudential Development Company (a subsidiary of the Prudential
Insurance Company) from 1982 to 1986. Mr. Jacobson currently serves as a
director of Walden Residential Properties, Inc., a publicly traded multifamily
apartment REIT. He was formerly a director of La Quinta Limited Partners, and
chaired the committee of independent directors that negotiated the tender
offer for and purchase of that company in 1994. Mr. Jacobson holds a B.S. from
Texas A&M University.
NEW PATRIOT OPERATING COMPANY
Following the consummation of the Merger, the current executive officers of
Patriot will become executive officers of New Patriot Operating Company and
the persons listed below will become directors of New Patriot Operating
Company. The ages, positions and business experience of these executive
officers and directors are set forth below. Assuming approval of the Restated
Charter, the Board of Directors of New Patriot Operating Company will be
segregated into three classes, with terms ending in 1997, 1998 and 1999 at the
annual meeting of stockholders, respectively. Directors elected at future
stockholder meetings will hold office for three years. Executive officers are
elected annually by the Board of Directors for terms ending on the next annual
meeting of the Board of Directors.
<TABLE>
<CAPTION>
NAME POSITION WITH NEW PATRIOT OPERATING COMPANY AGE
- ---- ------------------------------------------- ---
<S> <C> <C>
Paul A. Nussbaum........... Chairman of the Board of Directors and Chief 49
Executive Officer
Thomas W. Lattin........... President and Chief Operating Officer 52
Rex E. Stewart............. Chief Financial Officer and Treasurer 49
Michael Murphy............. Senior Vice President--Acquisitions 40
Leslie Ng.................. Senior Vice President--Acquisitions 38
Arch K. Jacobson........... Independent Director 69
</TABLE>
In connection with the consummation of the Merger and the Related
Transactions, three additional independent directors will be appointed to the
Board of Directors of New Patriot Operating Company.
Paul A. Nussbaum will become Chairman of the Board of Directors and Chief
Executive Officer for New Patriot Operating Company following the Merger. For
biographical information on Mr. Nussbaum, see "--New Patriot REIT."
Thomas W. Lattin became President and Chief Operating Officer of Patriot in
April 1995 and will continue in such capacity for New Patriot Operating
Company following the Merger. He has more than 25 years of experience in the
hotel industry as an executive and consultant. From 1976 through 1983, Mr.
Lattin served as President of the Mariner Corporation, a hotel development and
management company based in Houston, Texas. During his tenure, Mariner's hotel
portfolio of owned and managed properties grew from two hotels to 25 hotels
throughout the Sunbelt states. In 1984, he founded Great West Hotels, a hotel
management and consulting company, and served as President and Chief Executive
Officer through 1987. From 1987 through 1994, he served as the National
Partner of the hospitality industry consulting practice of Laventhol & Horwath
and subsequently as a partner in the national hospitality consulting group of
Coopers & Lybrand L.L.P. In 1994, he joined the Hospitality Group of Kidder,
Peabody & Co. Incorporated as a Senior Vice President and later served as a
Senior Vice President with PaineWebber, following PaineWebber's acquisition of
certain assets of Kidder, Peabody & Co. Mr. Lattin is a contributing author of
an introductory textbook on hotel management, which is used by colleges and
universities worldwide. Mr. Lattin holds a B.S. and M.S. in Hotel Management
from the Cornell School of Hotel Administration. He is a certified public
accountant.
Rex E. Stewart will become Chief Financial Officer and Treasurer for New
Patriot Operating Company following the Merger. For biographical information
on Mr. Stewart, see "--New Patriot REIT."
189
<PAGE>
Michael Murphy became Senior Vice President--Acquisitions of Patriot in
April 1996 and will continue in such capacity for New Patriot Operating
Company following the Merger. From 1994 through 1996, Mr. Murphy was Chief
Executive Officer and Founder of The Stonebridge Group, Inc., a company
specializing in structuring and negotiating capital market financing
transactions. From 1988 to 1994 Mr. Murphy was a Principal of Affirmative
Equities Company, a New York real estate and advising firm. Mr. Murphy
graduated from Williams College, Williamstown, Massachusetts and holds a J.D.
from Fordham University School of Law, New York.
Leslie Ng became Senior Vice President--Acquisitions of Patriot in June 1995
and will continue in such capacity for New Patriot Operating Company following
the Merger. From 1992 to June 1995, he served as Senior Vice President,
Development of CHC International, Inc. From 1987 until 1992, Mr. Ng was Vice
President, Real Estate of Tobishima Associates, Ltd., a multinational real
estate investment and development company. Prior to his association with
Tobishima Associates, Ltd., Mr. Ng was a management consultant at Deloitte &
Touche from 1985 to 1987 and a structural engineer at Burns and Roe, Inc., an
engineering and construction management company, from 1980 to 1983. Mr. Ng
holds a B.E. in civil engineering from The Cooper Union and an M.B.A. from the
Wharton School, University of Pennsylvania.
Arch K. Jacobson will become a director of New Patriot Operating Company
upon consummation of the Merger. For biographical information on Mr. Jacobson,
see "Management of New Patriot REIT and New Patriot Operating Company--New
Patriot REIT."
OVERLAP OF MANAGEMENT OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
Paul A. Nussbaum and Rex E. Stewart will serve as the Chief Executive
Officer and Chief Financial Officer, respectively, for both New Patriot REIT
and New Patriot Operating Company. Patriot believes that this type of
management structure will decrease the possibility of disagreements between
the management and Board of Directors of these two entities and avoid
situations like those currently occurring between Bay Meadows and Cal Jockey.
See "The Companies--Cal Jockey" and "Stockholders' Meetings, Litigation and
Disagreements." However, no assurance can be given that Messrs. Nussbaum's and
Stewart's interests as officers of one company will not conflict with their
interests as officers of the other company. See "Risk Factors--Potential
Conflicts of Interest Between New Patriot REIT and New Patriot Operating
Company." This overlap in management will terminate in connection with the
consummation of the Proposed Wyndham Transactions. See "The Companies--
Surviving Companies--The Proposed Wyndham Transactions." At the present time,
it is impossible to predict the percentages of time which Messrs. Nussbaum and
Stewart will provide services to New Patriot REIT and New Patriot Operating
Company, respectively. Such percentages will vary from year to year depending
on the respective amount and types of business performed by each such entity.
Messrs. Nussbaum and Stewart will not receive a full salary from each company;
instead, the Compensation Committees of the Boards of Directors of the two
companies will meet on an annual basis to determine the appropriate allocation
of their salaries between the two companies. Each company shall be responsible
for paying its allocable portion of the salaries.
190
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon approval of the Proposals, the rights of stockholders of New Patriot
REIT and New Patriot Operating Company will be governed by the Restated
Charters and the Restated Bylaws. The following discussion summarizes certain
of the key terms of the Restated Charter and the Restated Bylaws. This summary
does not purport to be complete and is subject to and qualified in its
entirety by reference to the Restated Charters and the Restated Bylaws, which
are attached to this Joint Proxy Statement/Prospectus as Annexes B and D and
Annexes C and E, respectively, and the relevant provisions of the DGCL.
Stockholders of Patriot, Cal Jockey and Bay Meadows should carefully read the
Restated Charters and the Restated Bylaws.
Cal Jockey currently has the authority to issue 10,000,000 shares of Cal
Jockey Common Stock and 3,000,000 shares of Cal Jockey Preferred Stock under
the Cal Jockey Charter. Bay Meadows currently has the authority to issue
10,000,000 shares of Bay Meadows Common Stock and 3,000,000 shares of Bay
Meadows Preferred Stock under the Bay Meadows Charter. Patriot currently has
the authority to issue 200,000,000 shares of Patriot Common Stock and
20,000,000 shares of preferred stock, no par value. Under the Restated
Charters, each of New Patriot REIT and New Patriot Operating Company will have
the authority to issue 650,000,000 shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock, respectively, 100,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), and
750,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"). No shares of Preferred Stock or Excess Stock will be outstanding
immediately following the consummation of the Merger.
COMMON STOCK
The holders of paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock will be entitled to one vote per share
on all matters voted on by stockholders, including elections of directors.
Except as otherwise required by law, by the Restated Charters with respect to
Excess Stock or provided in any resolution adopted by the Board of Directors
of either New Patriot REIT or New Patriot Operating Company with respect to
any series of Preferred Stock, the holders of paired shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock exclusively
possess all voting power. The Restated Charters do not provide for cumulative
voting in the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock and the rights of holders of Excess
Stock, the holders of paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock are entitled to such dividends as may
be declared from time to time by the Boards of Directors of New Patriot REIT
and New Patriot Operating Company from funds available for such purpose, and
upon liquidation will be entitled to receive pro rata all assets of New
Patriot REIT and New Patriot Operating Company available for distribution to
such holders. All paired shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock issued pursuant to the Merger will be
fully paid and nonassessable, and the holders thereof will not have preemptive
rights.
PREFERRED STOCK
The Board of Directors of each of New Patriot REIT and New Patriot Operating
Company 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 of each of New Patriot REIT and New Patriot Operating Company has
the power to establish the preferences and rights of each class or series of
Preferred Stock, each 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 New Patriot REIT
Common Stock or New Patriot Operating Company Common Stock, respectively. The
issuance of shares of Preferred Stock could have the effect of delaying or
preventing a change in control of New Patriot REIT and New Patriot Operating
Company.
191
<PAGE>
EXCESS STOCK
Upon the violation of certain transfer restrictions contained in the
Restated Charters, shares of any class or series of Equity Stock of New
Patriot REIT and New Patriot Operating Company will automatically be converted
into an equal number of shares of Excess Stock of New Patriot REIT or New
Patriot Operating Company, as the case may be, and transferred to a trust (a
"Trust"). Such shares of Excess Stock held in trust shall remain outstanding
shares of stock of New Patriot REIT and New Patriot Operating Company and
shall be held by the trustee of the Trust (the "Trustee") for the benefit of a
charitable beneficiary (a "Beneficiary"). The Trustee and the Beneficiary
shall be designated pursuant to the terms of the Pairing Agreement. Each share
of Excess Stock shall entitle the holder to the number of votes the holder
would have if such share of Excess Stock was a share of Equity Stock of the
same class or series from which such Excess Stock was converted, on all
matters submitted to a vote at any meeting of stockholders. The Trustee, as
record holder of the Excess Stock, shall be entitled to vote all shares of
Excess Stock. Each share of Excess Stock shall be entitled to the same
dividends and distributions (as to timing and amount) as may be declared by
the Board of Directors of New Patriot REIT or New Patriot Operating Company,
as the case may be, as shares of the class or series of Equity Stock from
which such Excess Stock was converted. The Trustee of the Trust, as record
holder of the shares of the Excess Stock, shall be entitled to receive all
dividends and distributions and shall hold such dividends and distributions in
trust for the benefit of the Beneficiary of the Trust. Upon the sale of the
shares of Excess Stock to either a permitted transferee under the Restated
Charters (the "Permitted Transferee") or to New Patriot REIT and New Patriot
Operating Company, such shares of Excess Stock will be automatically converted
into an equal number of shares of Equity Stock of the same class or series
from which such Excess Stock was converted.
THE PAIRING AGREEMENT
Under the Pairing Agreement, shares of New Patriot REIT Common Stock and New
Patriot Operating Company Common Stock and shares of Preferred Stock that are
convertible into shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock shall not be transferrable or transferred on
the books of such company unless a simultaneous transfer is made by the same
transferor to the same transferee of an equal number of shares of that same
class or series of Equity Stock of the other company. Neither New Patriot REIT
nor New Patriot Operating Company may issue shares of New Patriot REIT Common
Stock and New Patriot Operating Company Common Stock or shares of Preferred
Stock that are convertible into shares of New Patriot REIT Common Stock and
New Patriot Operating Company Common Stock unless provision has been made for
the simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of Equity Stock of the other company and
for the pairing of such shares. Each certificate issued for paired shares of
New Patriot REIT or New Patriot Operating Company must be issued "back-to-
back" with a certificate evidencing the same number of shares of the other
company. The certificates must bear a conspicuous legend on its face referring
to the restrictions on ownership and transfer under the Pairing Agreement.
In addition, neither New Patriot REIT nor New Patriot Operating Company may
declare a stock dividend, issue any rights or warrants or otherwise reclassify
shares unless the other company simultaneously takes the same or equivalent
action.
CERTAIN PROVISIONS OF THE RESTATED CHARTERS AND RESTATED BYLAWS
Restrictions on Ownership and Transfer
For New Patriot REIT 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 New Patriot REIT'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 New Patriot REIT 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, New Patriot REIT 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
192
<PAGE>
New Patriot REIT's gross income for each year must consist of rents from real
property and income from certain other real property investments. The rents
received by the Patriot Partnership and its subsidiary partnerships from the
Lessees will not qualify as rents from real property if New Patriot REIT owns,
actually or constructively, 10% or more of the ownership interests in any
Lessee within the meaning of Section 856(d)(2)(B) of the Code, the result of
which would be the loss of REIT status for New Patriot REIT. See "Certain
Federal Income Tax Considerations--REIT Qualification."
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own (as those terms
are defined below) in excess of 9.8% of the outstanding shares of any class or
series of Equity Stock of New Patriot REIT or New Patriot Operating Company,
unless the Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Restated Charters. Any transfer of Equity
Stock of New Patriot REIT or New Patriot Operating Company that would (i)
result in any person or entity owning, directly or indirectly, shares of
Equity Stock of New Patriot REIT or New Patriot Operating Company in excess of
the Ownership Limit, unless the Ownership Limit is waived by the Board of
Directors of the relevant corporation in accordance with the Restated
Charters, (ii) result in the capital stock of New Patriot REIT being
beneficially owned (within the meaning of Section 856(a)(5) of the Code) by
fewer than 100 persons within the meaning of Section 856(a)(5) of the Code,
(iii) result in New Patriot REIT being "closely held" within the meaning of
Section 856(h) of the Code or (iv) cause New Patriot REIT to own, actually or
constructively, 10% or more of the ownership interests in a tenant of the real
property of New Patriot REIT or a subsidiary of New Patriot REIT within the
meaning of section 856(d)(2)(B) of the Code, shall be void ab initio, and the
intended transferee will acquire no right or interest in such shares of Equity
Stock. For purposes of the Restated Charters, "Beneficial Ownership" means,
with respect to any individual or entity, ownership of shares of Equity Stock
equal to the sum of (i) the shares of Equity Stock directly or indirectly
owned by such individual or entity, (ii) the number of shares of Equity Stock
treated as owned directly or indirectly by such individual or entity through
the application of the constructive ownership rules of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code, and (iii) the number of
shares of Equity Stock which such individual or entity is deemed to
beneficially own pursuant to Rule 13d-3 under the Exchange Act. For purposes
of computing the percentage of shares of any class or series of Equity Stock
of New Patriot REIT or New Patriot Operating Company Beneficially Owned by any
person or entity, any shares of Equity Stock of New Patriot REIT or New
Patriot Operating Company which are deemed to be Beneficially Owned by such
person or entity pursuant to Rule 13d-3 of the Exchange Act but which are not
outstanding shall be deemed to be outstanding. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have correlative meanings.
Also for purposes of the Restated Charters, "Constructive Ownership" means
ownership of shares of Equity Stock by an individual or entity who is or would
be treated as a direct or indirect owner of such shares of Equity Stock
through the application of Section 318 of the Code, as modified by Section
856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Owns"
and "Constructively Owned" shall have correlative meanings.
Upon the occurrence of a purported transfer of shares that would result in a
violation of any of the foregoing transfer restrictions, that number of shares
that violate the transfer restrictions shall be automatically converted into
an equal number of shares of Excess Stock and transferred to a Trust for the
benefit of the Beneficiary, effective on the Trading Day (as hereinafter
defined) prior to the date of the purported transfer of such shares, and the
record holder of the shares of Equity Stock that are converted into shares of
Excess Stock (a "Prohibited Owner") shall submit such number of shares of
Equity Stock to New Patriot REIT or New Patriot Operating Company, as the case
may be, for registration in the name of the Trustee. In the case of Equity
Stock that is paired, upon the conversion of a share of Equity Stock into a
share of Excess Stock, the corresponding paired share of that same class or
series of Equity Stock of the other company shall simultaneously be converted
into a share of Excess Stock; such shares of Excess Stock shall be paired and
shall be simultaneously transferred to a Trust. Upon the occurrence of such a
conversion of shares of any class or series of Equity Stock into an equal
number of shares of Excess Stock, such shares of Equity Stock shall be
automatically retired and canceled, without any action required by the Board
of Directors of either of New Patriot REIT or New Patriot Operating Company,
and shall thereupon be restored to the status of authorized but unissued
shares of the particular class
193
<PAGE>
or series of Equity Stock from which such Excess Stock was converted and may
be reissued as that particular class or series of Equity Stock.
Shares of Equity Stock that are converted into shares of Excess Stock and
transferred to a Trust shall be held in trust for the exclusive benefit of the
Beneficiary. Shares of Excess Stock will remain issued and outstanding shares
of stock. Each share of Excess Stock shall be entitled to the same dividends
and distributions (as to both timing and amount) as may be declared by the
Board of Directors of New Patriot REIT or New Patriot Operating Company, as
the case may be, as shares of the class or series of Equity Stock from which
such Excess Stock was converted. The Trustee, as record holder of the shares
of Excess Stock, shall be entitled to receive all dividends and distributions
and shall hold all such dividends or distributions in trust for the benefit of
the Beneficiary. The Prohibited Owner with respect to such shares of Excess
Stock shall repay to the Trust the amount of any dividends or distributions
received by it (i) that are attributable to any shares of Equity Stock that
have been converted into shares of Excess Stock and (ii) the record date of
which was on or after the date that such shares were converted into shares of
Excess Stock. New Patriot REIT and New Patriot Operating Company shall take
all measures that they determine reasonably necessary to recover the amount of
any such dividend or distribution paid to a Prohibited Owner, including, if
necessary, withholding any portion of future dividends or distributions
payable on shares of Equity Stock beneficially owned or constructively owned
by the person who, but for the restrictions on transfer, would constructively
own or beneficially own the shares of Excess Stock and, as soon as reasonably
practicable following receipt or withholding thereof, shall pay over to the
Trust for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
In the event of any voluntary or involuntary liquidation of, or winding up
of, or any distribution of the assets of, New Patriot REIT or New Patriot
Operating Company, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of New Patriot REIT or New Patriot Operating Company, as the case may
be, that is available for distribution to the holders of such class or series
of Equity Stock. The Trust shall distribute to the Prohibited Owner the
amounts received upon such liquidation, dissolution, or winding up, or
distribution; provided, however, that the Prohibited Owner shall not be
entitled to receive amounts in excess of, in the case of a purported transfer
in which the Prohibited Owner gave value for shares of Equity Stock and which
transfer resulted in the conversion of the shares into shares of Excess Stock,
the price per share, if any, such Prohibited Owner paid for the shares of
Equity Stock (which, in the case of Equity Stock that is paired, shall equal
the price paid per share multiplied by the most recent Valuation Percentage
(as hereinafter defined)) and, in the case of a non-transfer event or transfer
in which the Prohibited Owner did not give value for such shares (e.g., if the
shares were received through a gift or devise) and which non-transfer event or
transfer, as the case may be, resulted in the conversion of the shares into
shares of Excess Stock, the price per share equal to the Market Price (as
hereinafter defined) on the date of such non-transfer event or transfer. Any
remaining amount in such Trust shall be distributed to the Beneficiary.
Each share of Excess Stock shall entitle the holder to the number of votes
the holder would have, if such share of Excess Stock was a share of Equity
Stock of the same class or series from which such Excess Stock was converted,
on all matters submitted to a vote at any meeting of stockholders. The holders
of shares of Excess Stock converted from the same class or series of Equity
Stock shall vote together with the holders of such Equity Stock as a single
class on all such matters. The Trustee, as record holder of the shares of
Excess Stock, shall be entitled to vote all shares of Excess Stock. Any vote
taken by a Prohibited Owner prior to the discovery by New Patriot REIT or New
Patriot Operating Company, as the case may be, that the shares of Equity Stock
were exchanged for shares of Excess Stock will be rescinded as void ab initio.
The Trustee shall have the exclusive and absolute right to designate a
Permitted Transferee of any and all shares of Excess Stock if New Patriot REIT
or New Patriot Operating Company or both, in the case of paired shares, fail
to exercise its or their option with respect to such shares as described
below; provided, however, that (i) the Permitted Transferee so designated
purchases for valuable consideration (whether in a public or private sale) the
shares of Excess Stock (which, in the case of Excess Stock that is paired,
shall equal the price paid per share multiplied by the most recent Valuation
Percentage) and (ii) the Permitted Transferee so designated may
194
<PAGE>
acquire such shares of Excess Stock without violating any of the
aforementioned transfer restrictions and without such acquisition resulting in
the exchange of such shares of Equity Stock so acquired for shares of Excess
Stock and the transfer of such shares of Excess Stock to a Trust. Upon the
designation by the Trustee of a Permitted Transferee, the Trustee shall cause
to be transferred to the Permitted Transferee that number of shares of Excess
Stock of New Patriot REIT or New Patriot Operating Company, as the case may
be, acquired by the Permitted Transferee. Upon such transfer of the shares of
Excess Stock to the Permitted Transferee, such shares of Excess Stock shall be
automatically converted into an equal number of shares of Equity Stock of the
same class and series from which such Excess Stock was converted. In the case
of Equity Stock that is paired, upon the conversion of a share of Excess Stock
into a share of Equity Stock of the same class or series from which such
Excess Stock was converted, the corresponding paired share of Excess Stock of
the other company shall simultaneously be converted into a share of Equity
Stock of the same class or series from which such Excess Stock was converted
and such shares of Equity Stock shall be paired. Upon the occurrence of such a
conversion of shares of Excess Stock into an equal number of shares of Equity
Stock, such shares of Excess Stock shall be automatically retired and
canceled, without any action required by the Board of Directors of New Patriot
REIT or New Patriot Operating Company, and shall thereupon be restored to the
status of authorized but unissued shares of Excess Stock and may be reissued
as such. The Trustee shall (i) cause to be recorded on the stock transfer
books of New Patriot REIT or New Patriot Operating Company or both, in the
case of paired shares, that the Permitted Transferee is the holder of record
of such number of shares of Equity Stock and (ii) distribute to the
Beneficiary any and all amounts held with respect to the shares of Excess
Stock after making payment to the Prohibited Owner. If the transfer of shares
of Excess Stock to a purported Permitted Transferee shall violate any of the
aforementioned transfer restrictions including, without limitation, the
Ownership Limit, such transfer shall be void ab initio as to that number of
shares of Excess Stock that cause the violation of any such restriction when
such shares are converted into shares of Equity Stock and the purported
Permitted Transferee shall be deemed to be a Prohibited Owner and shall
acquire no rights in such shares of Excess Stock. Such shares of Equity Stock
shall be automatically re-converted into Excess Stock and transferred to the
Trust from which they were originally sold. Such conversion and transfer to
the Trust shall be effective as of the close of trading on the Trading Day
prior to the date of the transfer to the purported Permitted Transferee and
the provisions of the Restated Charters regarding compensation to a Prohibited
Owner shall apply to such shares with respect to any future transfer of such
shares by the Trust.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of (i)
(a) in the case of a purported transfer in which the Prohibited Owner gave
value for shares of Equity Stock and which transfer resulted in the conversion
of such shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) and (b) in the case of a non-transfer event or transfer in which
the Prohibited Owner did not give value for such shares (e.g., if the shares
were received through a gift or devise) and which non-transfer event or
transfer, as the case may be, resulted in the conversion of such shares into
shares of Excess Stock, the price per share equal to the Market Price on the
date of such non-transfer event or transfer and (ii) the price per share
(which, in the case of Excess Stock that is paired, shall be determined based
on the Valuation Percentage) received by the Trustee from the sale or other
disposition of such shares of Excess Stock. Any amounts received by the
Trustee in respect of such shares of Excess Stock and in excess of such
amounts to be paid the Prohibited Owner shall be distributed to the
Beneficiary.
Shares of Excess Stock shall be deemed to have been offered for sale by a
Trust to New Patriot REIT or New Patriot Operating Company or both, in the
case of paired shares, or a designee of such company or companies, at a price
per share equal to the lesser of (i) the price per share (which, in the case
of Excess Stock that is paired, shall be determined based on the Valuation
Percentage) in the transaction that created such shares of Excess Stock (or,
in the case of devise, gift or non-transfer event, the Market Price at the
time of such devise, gift or non-transfer event) or (ii) the Market Price on
the date either company or both companies, in the case of paired shares,
accept such offer. Either company or both companies, in the case of paired
shares, shall have the right to accept such offer for a period of 90 days
following the later of (a) the date of the non-transfer event or
195
<PAGE>
purported transfer which results in such shares of Excess Stock or (b) the
date on which either company or both companies, in the case of paired shares,
determine in good faith that a transfer or non-transfer event resulting in
shares of Excess Stock has previously occurred, if either company or both
companies, in the case of paired shares, do not receive a notice of such
transfer or non-transfer event. In the case of shares of Excess Stock that are
paired, neither New Patriot REIT nor New Patriot Operating Company shall
accept such an offer with respect to its shares of Excess Stock without the
agreement of the other company to accept such offer with respect to the
corresponding paired shares of its Excess Stock.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. "Closing Price" on any
date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Equity Stock are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Equity Stock are
listed or admitted to trading or, if the shares of Equity Stock are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if the shares of Equity Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the shares of Equity Stock. In
the case of Equity Stock that is paired, "Market Price" shall mean the "Market
Price" for paired shares multiplied by a fraction (expressed as a percentage)
determined by dividing the value for such Equity Stock most recently
determined under the Pairing Agreement over the value of a paired share most
recently determined under the Pairing Agreement (the "Valuation Percentage").
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
Any person or entity that acquires or attempts to acquire shares of Equity
Stock in violation of the aforementioned transfer restrictions, or any person
or entity that owned shares of Equity Stock that were transferred to a Trust,
shall immediately give written notice to New Patriot REIT or New Patriot
Operating Company or both, in the case of paired shares, of such event and
shall provide such other information as the appropriate company or both
companies, as the case may be, may request to determine the effect, if any, of
such violation, on New Patriot REIT's status as a REIT.
Each person or entity that is an owner, actually or constructively, of
shares of Equity Stock and each person or entity that (including the
stockholder of record) is holding shares of Equity Stock for such an owner
shall provide to New Patriot REIT or New Patriot Operating Company or both, in
the case of paired shares, a written statement or affidavit stating such
information as the appropriate company or both companies, as the case may be,
may request to determine New Patriot REIT's status as a REIT and to ensure
compliance with the Ownership Limit. In addition, every person or entity that
owns of record, actually or constructively, more than 5%, or such lower
percentages as required pursuant to regulations under the Code, of the
outstanding shares of any class or series of Equity Stock of New Patriot REIT
or New Patriot Operating Company shall, within 30 days after January 1 of each
year, provide to New Patriot REIT or New Patriot Operating Company or both, in
the case of paired shares, a written statement or affidavit stating the name
and address of such owner, the number of shares of Equity Stock owned,
actually or constructively, and a description of how such shares are held.
All certificates representing shares of Equity Stock shall bear a legend
referring to the aforementioned transfer restrictions. The transfer
restrictions will continue to apply until the Board of Directors of New
Patriot REIT determines that it is no longer in the best interests of New
Patriot REIT to attempt to qualify, or to continue to qualify, as a REIT.
196
<PAGE>
The restrictions on transfer contained in the Restated Charters could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of shares of Equity Stock might receive a premium from
their shares of Equity Stock over the then prevailing Market Price or which
such holders might believe to be otherwise in their best interest.
Number of Directors; Removal; Filling Vacancies
The Restated Charters and the Restated Bylaws provide that the number of
directors of each of New Patriot REIT and New Patriot Operating Company shall
be fixed by resolution duly adopted from time to time by the Board of
Directors. Pursuant to the terms of the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified.
The Restated Charters and the Restated Bylaws each provide that a director
may be removed, only for cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to New Patriot REIT or New
Patriot Operating Company, as the case may be. Any and all vacancies in the
Board of Directors, however occurring, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director so appointed
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred and until such director's successor is duly
elected and qualified or, if earlier, such director's earlier resignation or
removal.
The staggered board provision prevents stockholders of New Patriot REIT and
New Patriot Operating Company from voting on the election of all directors at
each annual meeting. The existence of a staggered board, the fact that
directors may only be removed for cause and the fact that vacancies in the
Board of Directors shall be filled soley by the remaining directors may have
the effect of delaying or deferring a change in control of New Patriot REIT
and New Patriot Operating Company or the removal of incumbent management.
Special Meetings of Stockholders
The Restated Bylaws provide that a special meeting of stockholders may only
be called by the Chairman of the Board of Directors or a majority of the Board
of Directors. Accordingly, stockholders of New Patriot REIT and New Patriot
Operating Company will have no ability to call a special meeting of
stockholders.
Limitation of Liability and Indemnification
The Restated Charters, in conjunction with the DGCL, eliminate a director's
personal liability to New Patriot REIT or New Patriot Operating Company, as
the case may be, or their respective stockholders for breach of fiduciary
duty, except for liability (i) for any breach of the director's duty of
loyalty to New Patriot REIT or New Patriot Operating Company, as the case may
be, or their respective stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The DGCL permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of the
corporation, provided that
197
<PAGE>
each such person acted in good faith and in a manner that he or she reasonably
believed was in or not opposed to the corporation's best interests and in the
case of a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The DGCL does not allow indemnification of directors in
the case of an action by or in the right of the corporation (including
stockholder derivative suits) unless the directors successfully defend the
action or indemnification is ordered by the court. The Restated Bylaws provide
for indemnification to the fullest extent authorized by the DGCL and,
therefore, these statutory indemnification rights are available to the
directors, officers, employees and agents of New Patriot REIT and New Patriot
Operating Company.
Amendment of Restated Charters and Restated Bylaws
The Restated Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion, the Restated Charter may be amended in
the manner prescribed by the DGCL, which requires the approval of the Board of
Directors and the approval of the stockholders by the affirmative vote of a
majority of the outstanding shares entitled to vote on such amendment.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office or (ii) at any meeting of stockholders by the affirmative vote of at
least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Business Combinations
The DGCL requires that a merger, consolidation or any sale, lease or
exchange of all or substantially all of a corporation's property and assets
(collectively, "business combinations") be approved by a majority of the
outstanding shares of the corporation entitled to vote on such a matter, or a
greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage in a
business combination with an "interested stockholder" for a period of three
years following the time of the transaction in which the person became an
interested stockholder, unless (i) prior to such time the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii)
upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the vote of
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Subject to certain exceptions, the DGCL defines an "interested
stockholder" as a person who, together with affiliates and associates, owns,
or within three years did own, 15% or more of the corporation's voting stock.
The Restated Bylaws provide that any corporate action shall be approved at a
stockholder meeting at which a quorum is present by the affirmative vote of a
majority of shares present in person or by proxy at such meeting and entitled
to vote on the matter, except where a larger vote is required by law, the
Restated Charters or the Restated Bylaws. The DGCL provides for a larger vote
with respect to business combinations and, therefore, a business combination
involving New Patriot REIT or New Patriot Operating Company requires the
approval of a majority of the outstanding shares of New Patriot REIT or New
Patriot Operating Company, as the case may be. In addition, the Restated
Charters provide that a business combination with a Related Person (as defined
below) requires, with certain exceptions, the approval of 66 2/3% of the
outstanding shares of capital stock of New Patriot REIT or New Patriot
Operating Company, as the case may be, which shall include the affirmative
vote of at least 50% of the outstanding shares of capital stock held by
stockholders other than the Related Person.
198
<PAGE>
However, such 66 2/3% voting requirement shall not be applicable if the
business combination was approved by the Board of Directors prior to the
acquisition by such Related Person of the beneficial ownership of 5% or more
of the outstanding shares of the capital stock of New Patriot REIT or New
Patriot Operating Company, as the case may be. For purposes of the Restated
Charters, a "Related Person" is defined as any person or entity who
beneficially owns (as defined in Rule 13d-3 promulgated under the Exchange
Act) more than 5% of the outstanding shares of capital stock of New Patriot
REIT or New Patriot Operating Company, as the case may be, and any "affiliate"
or "associate" (as those terms are defined in Rule 12b-2 promulgated under the
Exchange Act).
The business combination provisions of the DGCL, together with the Related
Person provision of the Restated Charters, may have the effect of deterring
certain takeovers of New Patriot REIT and New Patriot Operating Company.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Patriot stockholders are presently governed by the VSCA, the
Patriot Charter and the Patriot Bylaws and the rights of the stockholders of
Cal Jockey and Bay Meadows are presently governed by the DGCL, the Cal Jockey
Charter, the Bay Meadows Charter, the Cal Jockey Bylaws and the Bay Meadows
Bylaws. Under the terms of the Merger Agreement, upon stockholder approval of
the Proposals, the Cal Jockey Charter and the Cal Jockey Bylaws and the Bay
Meadows Charter and the Bay Meadows Bylaws will be amended and restated and
such amended and restated charters and bylaws will become the Restated
Charters and the Restated Bylaws of New Patriot REIT and New Patriot Operating
Company, respectively. At the Effective Time, stockholders of Patriot, and
stockholders of Cal Jockey and Bay Meadows will become stockholders of New
Patriot REIT and New Patriot Operating Company and their rights will
thereafter be governed by the DGCL, the Restated Charters and the Restated
Bylaws. In considering the recommendation of the Boards of Directors of
Patriot, Cal Jockey and Bay Meadows to approve the Proposals, stockholders of
Patriot, Cal Jockey and Bay Meadows should be aware that the rights of
stockholders of New Patriot REIT and New Patriot Operating Company under the
Restated Charters and the Restated Bylaws will differ significantly from the
existing rights of the Patriot stockholders under the Patriot Charter and
Patriot Bylaws as well as the existing rights of the stockholders of Cal
Jockey and Bay Meadows under the Cal Jockey Charter, the Bay Meadows Charter,
the Cal Jockey Bylaws and the Bay Meadows Bylaws.
The following discussion summarizes (i) certain differences between the
rights of stockholders of Patriot and the rights of stockholders of New
Patriot REIT and New Patriot Operating Company and (ii) certain differences
between the rights of stockholders of Cal Jockey and Bay Meadows and the
rights of stockholders of New Patriot REIT and New Patriot Operating Company.
This summary does not purport to be complete and is subject to and qualified
in its entirety by reference to: the Restated Charters and the Restated
Bylaws, which are attached as Annexes B and D and Annexes C and E,
respectively, to this Joint Proxy Statement/Prospectus; the Patriot Charter,
the Patriot Bylaws, the Cal Jockey Charter, the Bay Meadows Charter, the Cal
Jockey Bylaws and the Bay Meadows Bylaws (which are incorporated by reference
as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part); and the relevant provisions of the DGCL.
Stockholders of Patriot, Cal Jockey and Bay Meadows should carefully read the
Restated Charters and the Restated Bylaws.
COMPARISON OF RIGHTS OF PATRIOT STOCKHOLDERS TO STOCKHOLDERS OF NEW PATRIOT
REIT AND NEW PATRIOT OPERATING COMPANY
Amendment of Charter
In conformity with the VSCA, amendment of the Patriot Charter generally
requires the approval of a majority of the votes entitled to be cast by each
voting group that is entitled to vote on the matter, with the exception of
certain provisions of the Patriot Charter, which require the approval of
greater proportions.
199
<PAGE>
The Restated Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion, the Restated Charter may be amended in
the manner prescribed by the DGCL, which requires the approval of the Board of
Directors and the approval of the stockholders by the affirmative vote of a
majority of the outstanding shares entitled to vote on such amendment.
Accordingly, the stockholders of New Patriot REIT and New Patriot Operating
Company will generally have the same ability to amend the Restated Charters
that Patriot stockholders have to amend the Patriot Charter.
Amendment of Bylaws
In conformity with the VSCA, the Patriot Bylaws may be amended or altered at
any meeting of the Board of Directors by the vote of a majority of the number
of directors fixed by the Patriot Bylaws. The stockholders entitled to vote in
respect of the election of directors, however, shall have the power, by the
vote of a majority of the votes entitled to be cast at a meeting at which a
quorum is present, to rescind, amend, alter or repeal any bylaw and enact any
bylaw which, if expressly so provided, may not be amended, altered or repealed
by the Board of Directors.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office or (ii) at any meeting of stockholders by the affirmative vote of at
least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Thus, stockholders of New Patriot REIT and New Patriot Operating Company
will generally have a lesser ability to amend or repeal the Restated Bylaws
than Patriot stockholders have to amend or repeal the Patriot Bylaws.
Directors
The Patriot Charter and the Patriot Bylaws provide that Patriot shall have
not fewer than three nor more than fifteen directors. In addition, the Patriot
Bylaws provide that the minimum and maximum number of directors may be changed
by vote of the stockholders and that the number of directors may be changed,
within the minimum and maximum range, by the Board of Directors. Pursuant to
the terms of the Patriot Charter, each director will hold office for a one-
year term expiring at the annual meeting of stockholders to be held the
following year and until his or her successor is duly elected and qualified.
The Patriot Charter and the Patriot Bylaws provide that a director may be
removed, with or without cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. The Patriot Charter does not contain a definition of
what constitutes "cause." Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of the majority of the remaining directors,
even if less than a quorum of the Board of Directors, and the term of office
of any director so elected shall expire at the next stockholders' meeting at
which directors are elected.
The Restated Charters and Restated Bylaws provide that the number of
directors shall be fixed by resolution duly adopted from time to time by the
Board of Directors. Pursuant to the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified.
200
<PAGE>
The Restated Charters and Restated Bylaws provide that a director may be
removed, only for cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to New Patriot REIT or New
Patriot Operating Company, as the case may be.
Any and all vacancies in the Board of Directors, however occurring, shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum of the Board of Directors. Any
director so appointed shall hold office for the remainder of the full term of
the class of directors in which the vacancy occurred and until such director's
successor shall have duly elected and qualified or until such director's
earlier resignation or removal.
The staggered board provision in the Restated Charters prevents stockholders
of New Patriot REIT and New Patriot Operating Company from voting on the
election of all directors at each annual meeting. The existence of a staggered
board and the fact that directors may only be removed for cause may have the
effect of delaying or deferring a change in control of New Patriot REIT and
New Patriot Operating Company or the removal of incumbent management.
Limitation of Liability
The Patriot Charter, in conjunction with the VSCA, provides that, in any
proceeding brought by or in the right of Patriot or brought by or on behalf of
stockholders of Patriot, no director or officer of Patriot shall be liable to
Patriot or its stockholders for monetary damages with respect to any
transaction, occurrence or course of conduct, whether prior or subsequent to
the effective date of the Patriot Charter, except for liability resulting from
such person's having engaged in willful misconduct or a knowing violation of
the criminal law or any federal or state securities law.
The Restated Charters, in conjunction with the DGCL, eliminate a director's
personal liability to New Patriot REIT or New Patriot Operating Company, as
the case may be, or their respective stockholders for breach of fiduciary
duty, except for liability (i) for any breach of the director's duty of
loyalty to New Patriot REIT or New Patriot Operating Company, as the case may
be, or their respective stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
Indemnification
The VSCA requires a corporation to indemnify its directors and officers
against reasonable expenses incurred by them in defense of any proceeding to
which they are made a party because of their position with the corporation and
in which they prevail, unless the corporation's articles of incorporation
limit this right. The VSCA also authorizes a corporation to more broadly
indemnify its directors and officers, and to extend such indemnification to
its employees and agents, and to make additional provisions for advances and
reimbursement of expenses to them, subject to certain limitations, including
restrictions against indemnification for willful misconduct or knowing
violation of the criminal law. The VSCA does not permit a corporation to
indemnify its directors, however, in connection with a proceeding (i) by or in
the right of the corporation in which the director was adjudged liable to the
corporation or (ii) in which a director has been adjudged liable on the basis
that a benefit was improperly received by him. These statutory indemnification
rights of directors and officers are not limited by the Patriot Charter and
are, therefore, available to Patriot's directors and officers. In addition,
the Patriot Charter provides that the Patriot Board of Directors is empowered
to cause Patriot to indemnify any person, other than a director or officer of
Patriot, to the same extent as it would indemnify a director or officer.
201
<PAGE>
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or otherwise. The DGCL permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of the
corporation, provided that each such person acted in good faith and in a
manner that he reasonably believed was in or not opposed to the corporation's
best interests and in the case of a criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The DGCL does not allow
indemnification of directors in the case of an action by or in the right of
the corporation (including stockholder derivative suits) unless the directors
successfully defend the action or indemnification is ordered by the court. The
Restated Bylaws provide for indemnification to the fullest extent authorized
by the DGCL and, therefore, these statutory indemnification rights are
available to the directors, officers, employees and agents of New Patriot REIT
and New Patriot Operating Company.
Special Meetings of Stockholders
The Patriot Bylaws provide that a special meeting of the stockholders may be
called by the Chairman of the Board of Directors, a majority of the Board of
Directors, or as otherwise provided for in the Patriot Charter. The Patriot
Charter provides that a special meeting of stockholders shall be called by the
Secretary upon the written request of the holders of shares entitled to cast
not less than 25% of all the votes entitled to be cast at such meeting. In
addition, unless requested by stockholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter that is substantially the same as a matter voted
on at any meeting of the stockholders held during the preceding twelve months.
The Restated Bylaws provide that a special meeting of stockholders may only
be called by the Chairman of the Board of Directors or a majority of the Board
of Directors.
Accordingly, unlike Patriot stockholders, stockholders of New Patriot REIT
and New Patriot Operating Company will have no ability to call a special
meeting of stockholders.
Action by Stockholders Without a Meeting
The VSCA provides that any action required or permitted to be taken at an
annual or special meeting of stockholders may be taken by written consent
without a meeting if the action is taken by all the stockholders entitled to
vote on the action.
The Restated Charters provide that any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken in lieu of
such meeting only by unanimous written consent of the stockholders signed by
each stockholder entitled to vote on the matter.
Accordingly, stockholders of New Patriot REIT and New Patriot Operating
Company will have the same ability to take action without a meeting as the
stockholders of Patriot currently have.
Restrictions on Ownership and Transfer; Pairing
The Patriot Charter, subject to certain exceptions described below,
provides, pursuant to an ownership limit, that no person or entity may own, or
be deemed to own by virtue of the attribution provisions of the Code, more
than 9.8% of either (a) the outstanding shares of any class of common stock or
(b) the outstanding shares of any class or series of preferred stock (subject
to the look-through ownership limit applicable to certain stockholders, as
described below). Any transfer of common stock or preferred stock that would
(i) result in any person or entity owning, directly or indirectly, common
stock or preferred stock in excess of the ownership limit, (ii) result in
common stock and preferred stock being owned by fewer than 100 persons
(determined without reference to any rule of attribution), (iii) result in
Patriot's being "closely held" within the meaning of Section 856(h) of the
Code or (iv) cause Patriot to own, actually or constructively, 10% or more of
the ownership interests in a tenant of the real property of Patriot, the
Patriot Partnership or a subsidiary partnership within the meaning of
202
<PAGE>
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.
Pursuant to the Patriot Charter, 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 Patriot Charter allows such an entity under the look-
through ownership limit to own up to 15% of the shares of any class or series
of Patriot's capital stock, provided that such ownership does not cause any
beneficial owner of such entity to exceed the ownership limit or otherwise
result in a violation of clauses (ii), (iii) and (iv) of the preceding
paragraph.
The Restated Bylaws provide that, until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and shares of Preferred Stock which are convertible into shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock shall not be
transferable or transferred on the books of either company unless a
simultaneous transfer is made by the same transferor to the same transferee of
an equal number of shares of that same class or series of Equity Stock of the
other company and such shares are paired with one another. In addition,
pursuant to the Pairing Agreement, New Patriot REIT and New Patriot Operating
Company may not issue shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or shares of Preferred Stock that are
convertible into shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock unless provision has been made for the
simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of Equity Stock of the other company and
for the pairing of such shares.
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own in excess of 9.8%
of the outstanding shares of any class or series of Equity Stock of New
Patriot REIT or New Patriot Operating Company, unless the Ownership Limit is
waived by the Board of Directors of the relevant corporation in accordance
with the Restated Charters. For purposes of computing the percentage of shares
of any class or series of Equity Stock of New Patriot REIT or New Patriot
Operating Company Beneficially Owned by any person or entity, any shares of
Equity Stock of New Patriot REIT or New Patriot Operating Company which are
deemed to be Beneficially Owned by such person or entity pursuant to Rule 13d-
3 of the Exchange Act but which are not outstanding shall be deemed to be
outstanding. Any transfer of shares of Equity Stock of New Patriot REIT or New
Patriot Operating Company that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of New Patriot REIT or
New Patriot Operating Company in excess of the Ownership Limit, unless the
Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Restated Charters, (ii) result in the
capital stock of New Patriot REIT being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (iii) result in New Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or (iv) cause
New Patriot REIT to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the real property of New Patriot REIT or a
subsidiary of New Patriot REIT within the meaning of Section 856(d)(2)(B) of
the Code, shall be void ab initio, and the intended transferee will acquire no
rights in such shares of Equity Stock.
Thus, the ownership and transfer restrictions provided for in the Restated
Charter and the Restated Bylaws, by virtue of the provisions regarding pairing
and the ownership limit, are more stringent than those provided for in the
Patriot Charter. Such ownership and transfer restrictions may have the effect
of delaying, deferring or preventing the acquisition of control of Patriot or
New Patriot REIT and New Patriot Operating Company.
Stockholder Approval of Certain Business Combination Transactions
The VSCA requires that a merger or share exchange shall be approved by each
voting group entitled to vote on the merger or share exchange by more than
two-thirds of all the votes entitled to be cast by that voting group;
provided, however, that the articles of incorporation may provide for a
greater or lesser vote so long as
203
<PAGE>
the vote provided for is not less than a majority of all the votes cast on the
plan by each voting group entitled to vote on the transaction at a meeting at
which a quorum of the voting group exists. In addition, the VSCA contains a
statute which prohibits, with certain exceptions, a publicly-held corporation
from entering into an "affiliated transaction" with an "interested
stockholder." The VSCA defines an "affiliated transaction" as any transaction
between the corporation and an "interested stockholder." The VSCA defines an
"interested stockholder" as any beneficial owner of more than 10% of any class
of the outstanding voting shares for a period of three years after the
stockholder crosses the 10% threshold. The Patriot Charter provides that a
merger or share exchange shall be approved by at least two-thirds of the votes
entitled to be cast by each voting group that is entitled to vote on such
transaction.
The DGCL requires that a business combination be approved by a majority of
the outstanding shares of the corporation entitled to vote on such a matter,
or a greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage, with
certain exceptions, in a business combination with an "interested stockholder"
for a period of three years following the time of the transaction in which the
person became an interested stockholder. Subject to certain exceptions, the
DGCL defines an "interested stockholder" as a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The Restated Bylaws provide that any corporate action, except where a larger
vote is required by law, the Restated Charters or the Restated Bylaws, shall
be approved at a stockholder meeting at which a quorum is present by the
affirmative vote of a majority of shares present in person or by proxy at such
meeting and entitled to vote on the matter. The DGCL provides for a larger
vote with respect to business combinations and, therefore, a business
combination involving New Patriot REIT or New Patriot Operating Company
requires the approval of a majority of the outstanding shares of New Patriot
REIT or New Patriot Operating Company, as the case may be. In addition, the
Restated Charters provide that a business combination with a Related Person
requires, with certain exceptions, the approval of 66 2/3% of the outstanding
shares of the capital stock of New Patriot REIT or New Patriot Operating
Company, as the case may be, which shall include the affirmative vote of at
least 50% of the outstanding shares the capital stock held by stockholders
other than the Related Person. However, such 66 2/3% voting requirement shall
not be applicable if the business combination was approved by the Board of
Directors prior to the acquisition by such Related Person of the beneficial
ownership of 5% or more of the outstanding shares of the capital stock of New
Patriot REIT or New Patriot Operating Company, as the case may be.
The higher percentage of stockholder approval required for a business
combination with a Related Person under the Restated Charters may make it more
difficult for a person or entity to acquire control of New Patriot REIT or New
Patriot Operating Company.
Transactions with Certain Affiliated Persons
Both the Patriot Bylaws and the Restated Bylaws provide that any action
pertaining to any transaction involving Patriot, New Patriot REIT or New
Patriot Operating Company, as the case may be, in which an advisor, director
or officer of such corporation, or any affiliate of any of the foregoing
persons, has any direct or indirect interest other than solely as a result of
their status as a director, officer, or stockholder of such corporation, must
be approved by a majority of the directors, including a majority of the
Independent Directors (as defined in the Patriot Bylaws and the Restated
Bylaws), even if the Independent Directors constitute less than a quorum.
Thus, approval by the Patriot Board of Directors of transactions between
Patriot and such affiliated persons of Patriot requires the same voting
threshold as does approval by the New Patriot REIT Board of Directors or
transactions between New Patriot REIT and such affiliated persons of New
Patriot REIT.
Control Share Acquisitions
The VSCA provides that shares acquired in a transaction that would cause the
acquiring person's voting strength to cross any of three thresholds (20%, 33%
or 50%) have no voting rights unless granted by a majority
204
<PAGE>
vote of shares not owned by the acquiring person or any officer or employee-
director of the corporation. The acquiring stockholder can request a special
meeting of the stockholders to consider granting voting rights to shares that
he owns or proposes to acquire. The request generally must be voted on at a
special meeting of stockholders to be called within 10 days thereafter. Any
special meeting to consider whether to grant voting rights must be held no
earlier than 30 days and no later than 50 days from the date of the request.
The Patriot Charter contains a provision exempting any and all acquisitions of
Patriot's shares of capital stock from the foregoing provisions of the VSCA.
Delaware does not have a control share acquisition statute.
Dissenters' Rights
Pursuant to both the VSCA and the DGCL, a stockholder of a corporation
engaging in certain transactions may, under certain circumstances, dissent
from a merger, consolidation or other transaction and demand payment in cash
in the amount of the fair value of his or her shares (as appraised pursuant to
judicial proceedings) in lieu of the consideration such stockholder would
otherwise receive in such transaction.
Under the VSCA, stockholders of a corporation are entitled to dissent from
certain mergers, consolidations or share exchanges by such corporation, or
upon the disposition of all or substantially all of its assets. However,
unless otherwise provided in the articles of incorporation, stockholders
generally have no appraisal rights with respect to their shares if the shares
(i) are listed on a national securities exchange or (ii) held by at least
2,000 record stockholders.
Under the DGCL, stockholders of a corporation are entitled to appraisal
rights only with respect to certain statutory mergers or consolidations.
Unless otherwise provided in the certificate of incorporation, the DGCL does
not grant appraisal rights to (i) stockholders with respect to a merger or
consolidation of a corporation, the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders,
if such stockholders receive only shares of the surviving corporation or
shares of any other corporation which are either listed on a national
securities exchange or held of record by more than 2,000 holders or (ii)
stockholders of a corporation surviving a merger if no vote of the
stockholders of such corporation is required to approve the merger.
Repurchase and Redemption of Shares
The VSCA expressly authorizes a corporation to reacquire shares it has
previously issued; provided, however, that the purchase of shares by the
corporation must be approved by the board of directors and will not be
permitted if, as a result, (i) the corporation would not be able to pay its
debts as they become due in the normal course of business or (ii) the
corporation's total assets would be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights were superior to those whose shares
were reacquired.
The DGCL provides generally that the stock of any series or class may be
made subject to redemption by the corporation at its option or at the option
of the holders of such stock or upon the happening of an event; provided,
however, that (i) at the time of the redemption the corporation must have
outstanding shares of at least one class or series, which shares are not
redeemable and are endowed with full voting powers and (ii) such repurchase or
redemption must not impair the capital of the corporation.
Payment of Dividends
The VSCA provides that the board of directors of a corporation may
authorize, and the corporation may make, distributions to stockholders,
subject to any restrictions that may be contained in the articles of
incorporation; provided, however, that no distribution may be made if, after
giving it effect (i) the corporation
205
<PAGE>
would not be able to pay its debts as they become due in the normal course of
business or (ii) the corporation's total assets would be less than the sum of
its total liabilities plus (unless the articles of incorporation provide
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to
those receiving the distribution. The Patriot Charter provides that, subject
to the right of holders of preferred stock, the holders of common stock shall
be entitled to receive such dividend and other distributions in cash, stock or
property of Patriot as may be declared thereon by the Patriot Board of
Directors from time to time.
The DGCL provides that a corporation may, unless otherwise restricted by its
certificate of incorporation, declare and pay dividends out of surplus, or if
no surplus exists, out of its net profits for the current or preceding fiscal
year, provided that the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets. The Restated Charters
provide that, subject to the rights of holders of preferred stock, holders of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
shall be entitled to receive such dividends and other distributions in cash,
stock or property of New Patriot REIT or New Patriot Operating Company, as the
case may be, as may be declared thereon by the respective Board of Directors
from time to time.
Dissolution
Under the VSCA, voluntary dissolution of a corporation generally requires
the recommendation of the board of directors and the approval of holders of
more than two-thirds of all votes entitled to be cast on the proposal to
dissolve.
Under the DGCL, voluntary dissolution of a corporation generally requires
the adoption of a board of directors' resolution by a majority of the entire
board of directors approving the dissolution and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon.
Thus, a lesser vote of the stockholders of New Patriot REIT and New Patriot
Operating Company is required to authorize voluntary dissolution than is
currently required for Patriot stockholders.
Inspection of Books and Records
The Patriot Bylaws, in conjunction with the VSCA, provide that any person
who has been a stockholder of record for at least six months or is the holder
of at least 5% of all of the outstanding shares of Patriot may inspect and
copy, during regular business hours, the books and records of Patriot at its
principal office, provided that such stockholder gives Patriot written notice
of his or her demand at least five business days before the date on which he
wishes to inspect and copy the records. In addition, for a period of at least
10 days before each meeting of stockholders, a complete list of stockholders
entitled to vote at such meeting shall be made available by Patriot to any
stockholder at any time during usual business hours.
Under the DGCL, any stockholder of record has a right to examine the books
and records and the stockholder list of the corporation for a "proper
purpose." The DGCL defines a "proper purpose" as any purpose reasonably
related to such a person's interest as a stockholder, and allows a stockholder
of record to inspect the stockholder list during the 10-day period preceding a
meeting of the stockholders for any purpose germane to the meeting.
Thus, the books and records of New Patriot REIT and New Patriot Operating
Company will be more accessible to their stockholders than are the books and
records of Patriot.
206
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CAL JOCKEY AND BAY MEADOWS TO
STOCKHOLDERS OF NEW PATRIOT REIT AND NEW PATRIOT OPERATING COMPANY
Amendment of Bylaws
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that,
except as otherwise provided by law, the Cal Jockey Bylaws or the Bay Meadows
Bylaws, as the case may be, may be amended or repealed, (i) with the exception
of certain provisions of the Cal Jockey Bylaws and the Bay Meadows Bylaws, by
the affirmative vote of a majority of the respective company's directors
present at any meeting at which there is a quorum and (ii) by the affirmative
vote of stockholders entitled to exercise a majority of the voting power of
the respective companies or by the written assent of such stockholders.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office and (ii) at any meeting of stockholders by the affirmative vote of
at least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Thus, stockholders of New Patriot REIT and New Patriot Operating Company
will generally have a lesser ability to amend or repeal the Restated Bylaws
than the stockholders of Cal Jockey and Bay Meadows have to amend or repeal
the Cal Jockey Bylaws and the Bay Meadows Bylaws.
Directors
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that each
of the Board of Directors shall have not fewer than one director, and that the
number of directors subject to the minimum of one may be changed by resolution
of the Board of Directors, subject to the power of the stockholders to change
such action of the directors. In addition, the Cal Jockey Bylaws and the Bay
Meadows Bylaws establish that each director will hold office for a one-year
term expiring at the annual meeting of stockholders to be held the following
year and until his or her successor is duly elected and qualified. Pursuant to
the terms of the Cal Jockey Charter and the Bay Meadows Charter, upon one
company's stockholder's notice of intention to cumulate such stockholders'
votes for electing candidates to the Board of Directors, all stockholders may
cumulate their votes for candidates in nomination. That is, each stockholder
is entitled to the number of votes that is equal to the number of shares owned
by such stockholder multiplied by the number of directors to be elected, and
such stockholder may cumulate such votes for a single candidate or distribute
such votes among as many candidates as he deems appropriate. The candidates
receiving the highest number of affirmative votes of the shares entitled to be
voted for them up to the number of directors to be elected by such shares are
elected. Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides
that stockholders may remove any director, with or without cause, by the
affirmative vote of the holders of a majority of the outstanding shares of
stock entitled to vote. Neither the Cal Jockey Bylaws nor the Bay Meadows
Bylaws contains a definition of what constitutes "cause." Pursuant to the Cal
Jockey Charter and the Bay Meadows Charter, vacancies may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
the next annual election or until their successors are duly elected and shall
qualify, unless sooner displaced.
The Restated Charters and Restated Bylaws provide that the number of
directors shall be fixed by resolution duly adopted from time to time by the
Board of Directors. Pursuant to the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified. The Restated Charters and Restated Bylaws provide that a
director may be removed, only for cause, by the vote of holders of at least
75% of the outstanding shares of capital stock entitled to vote for the
election of
207
<PAGE>
directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude, or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to New Patriot REIT or New
Patriot Operating Company, as the case may be.
Any and all vacancies in the Board of Directors, however occurring, shall be
filled solely by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum of the Board of Directors. Any
director so appointed shall hold office for the remainder of the full term of
the class of directors in which the vacancy occurred and until such director's
successor shall have duly elected and qualified or until such director's
earlier resignation or removal.
This staggered board provision prevents stockholders of New Patriot REIT and
New Patriot Operating Company from voting on the election of all directors at
each annual meeting. The existence of a staggered board and the fact that
directors may not be removed without cause may have the effect of delaying or
deferring a change in control of New Patriot REIT and New Patriot Operating
Company or removal of incumbent management. Eliminating cumulative voting for
directors means that directors are elected by a majority stockholder vote
rather than a majority of outstanding shares.
Special Meetings of Stockholders
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that a
special meeting of the stockholders may be called at any time by the act of a
majority of the directors present at any meeting at which there is a quorum of
the respective Board of Directors.
The Restated Bylaws provide that a special meeting of the stockholders may
only be called by the Chairman of the Board of Directors or a majority of the
Board of Directors.
Accordingly, the directors of Cal Jockey and Bay Meadows have a similar
ability to call a special meeting of the stockholders as do the directors of
New Patriot REIT and New Patriot Operating Company, with the exception that
the Chairman of the Board of New Patriot REIT and New Patriot Operating
Company may call a special meeting of the stockholders independent of his or
her Board of Directors.
Action by Stockholders Without a Meeting
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that any
action required or permitted to be taken at an annual or special meeting of
stockholders may be taken by written consent without a meeting if the action
is taken by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were presented and voted.
The Restated Charters provide that any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken in lieu of
such meeting only by unanimous written consent of the stockholders signed by
each stockholder entitled to vote on the matter.
Because all stockholders are required to consent for New Patriot REIT and
New Patriot Operating Company stockholders to act without a meeting rather
than a majority of stockholders as is currently required by the Cal Jockey
Bylaws and the Bay Meadows Bylaws, it will be more difficult for the
stockholders of New Patriot REIT and New Patriot Operating Company to take
action without a meeting.
Restrictions on Ownership and Transfer; Pairing
Each of the Cal Jockey Bylaws and the Bay Meadows Bylaws provides that if
the Board of Directors shall at any time and in good faith be of the opinion
that direct or constructive ownership of shares has or may become
208
<PAGE>
concentrated to an extent which would cause Cal Jockey to fail to qualify or
to be disqualified to be taxed as a REIT under the Code, or would cause any
rent paid to Cal Jockey to fail to qualify or to be disqualified as "rent from
real properties," as defined by the Code, the Cal Jockey Board of Directors
shall have the power to call for purchase from any stockholder of Cal Jockey,
and the Bay Meadows Board of Directors shall have the power to call for
purchase from any stockholder of Bay Meadows, such number of shares as is
sufficient in the opinion of the directors of Cal Jockey or the directors of
Bay Meadows to maintain or bring the direct or indirect ownership of shares
into conformity with the Code, and to refuse to register any proposed transfer
of shares which would result in Cal Jockey's being unable to conform to the
requirements of the Code. Thus, Cal Jockey and Bay Meadows have the power to
repurchase shares from any stockholder of Cal Jockey or Bay Meadows who
actually or constructively owns 10% or more of the outstanding Paired Shares
and to refuse to register any transfer of shares which would result in a
holder actually or constructively owning 10% or more of the outstanding Paired
Shares.
In addition, the shares of Cal Jockey Common Stock and the shares of Bay
Meadows Common Stock are paired and neither shares are transferable or
transferred on the books of either company, unless a simultaneous transfer is
made by the same transferor to the same transferee of an equivalent number of
shares of Cal Jockey Common Stock or Bay Meadows Common Stock, as the case may
be, and such shares are paired with one another.
The Restated Bylaws provide that until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
New Patriot REIT Common Stock and New Patriot Operating Company Common Stock
and Shares of Preferred Stock that are convertible into shares of New Patriot
REIT Common Stock and New Patriot Operating Company Common Stock shall not be
transferable or transferred on the books of either company unless a
simultaneous transfer is made by the same transferor to the same transferee of
an equal number of shares of that same class or series of Equity Stock of the
other company and such shares are paired with one another. In addition,
pursuant to the Pairing Agreement, New Patriot REIT and New Patriot Operating
Company may not issue shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock or shares of Preferred Stock that are
convertible into shares of New Patriot REIT Common Stock and New Patriot
Operating Company Common Stock unless provision has been made for the
simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of Equity Stock of the other company and
for the pairing of such shares.
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own in excess of 9.8%
of the outstanding shares of any class or series of Equity Stock of New
Patriot REIT or New Patriot Operating Company, unless the Ownership Limit is
waived by the Board of Directors of the relevant corporation in accordance
with the Restated Charters. For purposes of computing the percentage of shares
of any class or series of Equity Stock of New Patriot REIT or New Patriot
Operating Company Beneficially Owned by any person or entity, any shares of
Equity Stock of New Patriot REIT or New Patriot Operating Company which are
deemed to be Beneficially Owned by such person or entity pursuant to Rule 13d-
3 of the Exchange Act but which are not outstanding shall be deemed to be
outstanding. Any transfer of shares of Equity Stock of New Patriot REIT or New
Patriot Operating Company that would (i) result in any person or entity
owning, directly or indirectly, shares of Equity Stock of New Patriot REIT or
New Patriot Operating Company in excess of the Ownership Limit, unless the
Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Restated Charters, (ii) result in the
capital stock of New Patriot REIT being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (iii) result in New Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or (iv) cause
New Patriot REIT to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the real property of New Patriot REIT or a
subsidiary of New Patriot REIT within the meaning of Section 856(d)(2)(B) of
the Code, shall be void ab initio and the intended transferee will acquire no
rights in such shares of Equity Stock. Upon the occurrence of a purported
transfer of shares that would result in a violation of any of the foregoing
restrictions, that number of shares that violate the transfer restriction
shall be automatically converted into an equal number
209
<PAGE>
of shares of Excess Stock and transferred to a Trust, effective on the Trading
Day prior to the date of the purported transfer of such shares, and the
Prohibited Owner shall submit such number of shares of Equity Stock to New
Patriot REIT or New Patriot Operating Company, as the case may be, for
registration in the name of the Trustee.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of (i)
(a) in the case of a purported transfer in which the Prohibited Owner gave
value for shares of Equity Stock and which transfer resulted in the conversion
of such shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) and (b) in the case of a non-transfer event or transfer in which
the Prohibited Owner did not give value for such shares (e.g., if the shares
were received through a gift or devise) and which non-transfer event or
transfer, as the case may be, resulted in the conversion of such shares into
shares of Excess Stock, the price per share equal to the Market Price on the
date of such non-transfer event or transfer or (ii) the price per share
(which, in the case of Excess Stock that is paired, shall be determined based
on the Valuation Percentage) received by the Trustee from the sale or other
disposition of such shares of Excess Stock. Any amounts received by the
Trustee in respect of such shares of Excess Stock and in excess of such
amounts to be paid the Prohibited Owner shall be distributed to the
Beneficiary.
The Restated Charters provide for the transfer of Excess Stock into a Trust,
whereas each of the Cal Jockey Bylaws and the Bay Meadows Bylaws allow their
respective Board of Directors to purchase excess shares from stockholders. In
addition, these ownership and transfer restrictions may have the effect of
delaying, deferring or preventing the acquisition of control of Cal Jockey and
Bay Meadows or New Patriot REIT and New Patriot Operating Company.
Transactions with Certain Affiliated Persons
Unlike the Cal Jockey Bylaws and the Bay Meadows Bylaws, the Restated Bylaws
provide that any action pertaining to any transaction involving New Patriot
REIT or New Patriot Operating Company, as the case may be, in which an
advisor, director or officer of such corporation, or any affiliate of any of
the foregoing persons, has any direct or indirect interest other than solely
as a result of their status as a director, officer, or shareholder of such
corporation, must be approved by a majority of the directors, including a
majority of the Independent Directors (as defined in the Restated Bylaws),
even if the Independent Directors constitute less than a quorum.
Thus, the Restated Bylaws place stronger restrictions on transactions with
affiliated persons than do the Cal Jockey Bylaws and the Bay Meadows Bylaws.
Dissenters' Rights
Pursuant to the DGCL, stockholders of a corporation are entitled to
appraisal rights only with respect to certain statutory mergers or
consolidations. Unless otherwise provided in the certificate of incorporation,
the DGCL does not grant appraisal rights to (i) stockholders with respect to a
merger or consolidation of a corporation, the shares of which are either
listed on a national securities exchange or are held of record by more than
2,000 holders, if such stockholders receive only shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or held of record by more than 2,000 holders or
(ii) stockholders of a corporation surviving a merger if no vote of the
stockholders of such corporation is required to approve the merger.
210
<PAGE>
STOCKHOLDERS' MEETINGS, LITIGATION AND DISAGREEMENTS
On August 30, 1996, Cal Jockey held its annual meeting of stockholders,
which included a contested election for directors, and Bay Meadows separately
held a special meeting of stockholders to vote on a resolution to continue on-
site stabling at the Racecourse. At the Bay Meadows special meeting, a
majority of stockholders approved a resolution authorizing the Bay Meadows
Board of Directors to pursue on-site stabling. At the Cal Jockey annual
meeting, Cal Jockey stockholders elected three incumbent directors and two
directors nominated by the California Jockey Club Shareholders Committee (the
"Shareholders Committee").
Prior to these meetings, three lawsuits were filed in anticipation of such
meetings. On July 3, 1996, the Shareholders Committee filed a suit to compel
Cal Jockey to hold its annual meeting. The San Mateo City Superior Court set
the annual meeting for August 30, 1996. On August 14, 1996, Cal Jockey filed
suit against the members of the Shareholders Committee, Bay Meadows, and Bay
Meadows' Chairman and President, alleging violations of securities laws in
connection with the contested election and the Bay Meadows special meeting.
The parties subsequently agreed to place this case on inactive status. On
August 16, 1996, Property Resources who had contracted with Cal Jockey to
acquire the Stable Area pursuant to the Franklin Agreement, filed a suit
against Bay Meadows, its Board of Directors and executive officers and the
Shareholders Committee for interference with such contract as a result of
actions taken in connection with the Bay Meadows special meeting. The parties
subsequently agreed to settle the dispute.
Generally, as a result of the paired share structure of Cal Jockey and Bay
Meadows, when one company has desired to grant options to purchase Paired
Shares to its employees such company has requested the other company to grant
an option to it to cover the portion of the option relating to the other
company's stock. Presently Cal Jockey and Bay Meadows disagree as to the total
number of options Cal Jockey has agreed to grant to Bay Meadows to cover Bay
Meadows' outstanding options to its executive officers and employees. As of
March 27, 1997, Bay Meadows has granted options to purchase up to 162,000
Paired Shares to persons who are or were Bay Meadows executive officers and
employees. Bay Meadows maintains that Cal Jockey agreed to and is obligated to
provide stock options to Bay Meadows for the purchase of 162,000 shares of Cal
Jockey Common Stock to match the options granted by Bay Meadows. Cal Jockey
has acknowledged agreement to grant to Bay Meadows options to purchase up to
107,500 shares of Cal Jockey Common Stock to back up the option grants by Bay
Meadows. Presently, there has been no resolution of this disagreement over
said option amounts.
OTHER MATTERS
It is not expected that any matters other than those described in this Joint
Proxy Statement/Prospectus will be brought before the Patriot Special Meeting,
the Cal Jockey Special Meeting or the Bay Meadows Special Meeting. If any
other matters are presented, however, it is the intention of the persons named
in the Patriot proxy, the Cal Jockey proxy and the Bay Meadows proxy to vote
the proxy, respectively, in accordance with their best judgment.
LEGAL MATTERS
Certain legal matters in connection with the Merger and Related Transactions
will be passed upon for Patriot by Goodwin, Procter & Hoar llp, Boston,
Massachusetts. Certain legal matters in connection with the Merger and Related
Transactions and the validity of the shares of Cal Jockey Common Stock to be
issued pursuant to the Merger will be passed upon for Cal Jockey by Latham &
Watkins, San Francisco, California. Certain legal matters in connection with
the Merger and Related Transactions and the validity of the Subscribed Shares
to be issued pursuant to the Subscription will be passed upon for Bay Meadows
by McCutchen, Doyle, Brown & Enersen, LLP, San Francisco, California.
211
<PAGE>
EXPERTS
The (a) Consolidated Financial Statements of Patriot as of December 31, 1996
and 1995 and for the year ended December 31, 1996 and the period October 2,
1995 (inception of operations) through December 31, 1995 and the related
financial statement schedules, (b) the Combined Financial Statements of the
Initial Hotels as of December 31, 1994 and for the year ended December 31,
1994 and the period January 1, 1995 through October 1, 1995, and (c) the
Financial Statements of NorthCoast Hotels, L.L.C. as of December 31, 1996 and
the period April 2, 1996 (inception of operations) through December 31, 1996
appearing in Patriot's 1996 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 herein by reference. With respect to the
Combined Financial Statements of the Initial Hotels, such report is based in
part on the reports of Coopers & Lybrand L.L.P., independent accountants, as
set forth in their respective reports for Certain of the Initial Hotels and
Troy Hotel Investors. The (a) Financial Statements of Buckhead Hospitality
Joint Venture as of December 31, 1995 and for the year then ended, (b) the
Combined Financial Statements of Gateway Hotel Limited Partnership and
Wenatchee Hotel Limited Partnership as of December 31, 1995 and for the year
then ended, and (c) the individual Statements of Direct Revenue and Direct
Operating Expenses for the Plaza Park Suites Hotel and the Roosevelt Hotel for
the year ended December 31, 1995, appearing in Patriot's Current Report on
Form 8-K, dated April 2, 1996, as amended (filed April 17, 1996 and June 14,
1996), have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference. The (a) Statement of Direct Revenue and Direct Operating Expenses
of the Mayfair Suites Hotel for the year ended December 31, 1995, (b)
Statement of Direct Revenue and Direct Operating Expenses of Marriott
Windwatch Hotel for the year ended December 29, 1995, and (c) the Financial
Statements of Concorde O'Hare Limited Partnership as of December 29, 1995 and
for the year then ended appearing in Patriot's Current Report on Form 8-K,
dated December 5, 1996 (filed December 5, 1996), have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. The (a) Consolidated
Financial Statements of Resorts Limited Partnership as of and for the years
ended December 31, 1996 and 1995, (b) the Financial Statements of CV Ranch
Limited Partnership as of and for the years ended December 31, 1996 and 1995,
and (c) the Financial Statements of Telluride Resort and Spa Limited
Partnership as of and for the years ended December 31, 1996 and 1995,
appearing in Patriot's Current Report on Form 8-K, dated January 16, 1997, as
amended (filed January 31, 1997, February 21, 1997, April 8, 1997, April 9,
1997, and May 19, 1997) have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Each of the above referenced financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The Financial Statements of Certain of the Initial Hotels as of December 31,
1994 and for the period from January 1, 1995 to October 1, 1995 and for the
year ended December 31, 1994, the Financial Statements of Troy Hotel Investors
as of October 1, 1995 and for the period January 1, 1995 to October 1, 1995
and Troy Park Associates as of December 29, 1994 and for the period January 1,
1994 through December 29, 1994, the statement of Direct Revenue and Direct
Operating Expenses for the Holiday Inn-- Miami Airport for the year ended
August 31, 1996, and the Consolidated Financial Statements of Wyndham Hotel
Corporation and Subsidiaries as of December 31, 1995 and 1996 and for the
three years in the period ended December 31, 1996, incorporated by reference
in this Joint Proxy Statement/Prospectus, have been audited by Coopers &
Lybrand, L.L.P., independent accountants, as set forth in their reports
thereon. Each of the above referenced financial statements have been
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing.
The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended,
incorporated by reference in this Joint Proxy Statement/Prospectus, have been
audited by Pannell Kerr Forster PC, independent auditors, as set forth in
their report thereon. The above referenced financial statements have been
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing.
212
<PAGE>
The CHC Lease Partners financial statements as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and the period inception (October 2,
1995) through December 31, 1995, incorporated by reference in this Joint Proxy
Statement/ Prospectus, 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.
The Separate and Combined Financial Statements of Cal Jockey and Bay Meadows
and its subsidiary as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, incorporated by reference in this
Joint Proxy Statement/Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report with respect thereto (which
expresses an unqualified opinion and includes an explanatory paragraph
relating to the proposed merger and certain disagreements between Cal Jockey
and Bay Meadows), and are incorporated by reference herein in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
The Combined Financial Statements of the Crow Family Hotel Partnerships
included in this Joint Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts.
STOCKHOLDER PROPOSALS
Any Cal Jockey stockholder who wishes to submit a proposal for presentation
at Cal Jockey's 1997 Annual Meeting of Stockholders must have submitted the
proposal to California Jockey Club, 2600 South Delaware Street, P.O. Box 1117,
San Mateo, California 94403, Attention: Secretary. Such proposal must have
been received not later than April 15, 1997 for inclusion, if appropriate, in
Cal Jockey's proxy statement and form of proxy relating to its 1997 Annual
Meeting.
Any Bay Meadows stockholder who wishes to submit a proposal for presentation
at Bay Meadows' 1997 Annual Meeting of Stockholders must have submitted the
proposal to Bay Meadows Operating Company, 2600 South Delaware Street, P.O.
Box 5050, San Mateo, California 94402, Attention: Secretary. Such proposal
must have been received not later than February 15, 1997 for inclusion, if
appropriate, in Bay Meadows' proxy statement and form of proxy relating to its
1997 Annual Meeting.
Any Patriot stockholder who wishes to submit a proposal for presentation at
Patriot's 1997 Annual Meeting of Stockholders (which will be held only if the
Merger has not been consummated prior to the date the meeting is to be held)
must have submitted the proposal to Patriot American Hospitality, Inc., 3030
LBJ Freeway, Suite 1500, Dallas, Texas 75234, Attention: Shareholder
Relations. Such proposal must have been received not later than November 29,
1996 in order to be considered for inclusion, if appropriate, in Patriot's
proxy statement and form of proxy relating to its 1997 Annual Meeting.
213
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners
Crow Family Hotel Partnerships
We have audited the accompanying combined balance sheets of Crow Family
Hotel Partnerships (identified in Note 1) (collectively the "Partnerships") as
of December 31, 1996 and 1995 and the related combined statements of
operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships, which are to be acquired by Patriot American Hospitality, Inc.,
and may not necessarily reflect the financial position, results of operations
and cash flows of the Partnerships that might have resulted had they actually
operated as a stand-alone entity.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Partnerships as of December 31, 1996 and 1995 and the combined results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
May 6, 1997
F-1
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------------ -----------
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.................... $ 1,443 $ 2,377 $ 4,172
Cash, restricted............................. 2,626 3,062 2,771
Accounts receivable, less allowance of $119
and $112 in 1995 and 1996, respectively..... 5,284 6,733 8,087
Inventories.................................. 988 1,002 954
Prepaid expenses and other................... 1,123 1,429 2,166
-------- -------- --------
Total current assets....................... 11,464 14,603 18,150
-------- -------- --------
Cash, restricted for noncurrent assets......... 4,567 3,593 4,248
Property and equipment, net.................... 164,429 176,501 180,276
Other assets................................... 8,846 8,773 8,438
-------- -------- --------
Total assets............................... $189,306 $203,470 $211,112
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Current liabilities:
Accounts payable and accrued expenses........ $ 18,070 $ 18,951 $ 17,419
Due to affiliates............................ 4,206 384 5,727
Due to operator.............................. 1,925 2,855 3,662
Advance deposits............................. 857 1,206 1,310
Current portion of long-term debt (net of
discount of $1,779 and $1,746 in 1995 and
1996) and capital lease obligations......... 1,901 68,078 69,582
-------- -------- --------
Total current liabilities.................. 26,959 91,474 97,700
-------- -------- --------
Advances from partners......................... 4,679 4,911 5,358
Long-term debt and capital lease obligations... 219,804 163,858 164,255
-------- -------- --------
224,483 168,769 169,613
-------- -------- --------
Commitments and contingencies
Partners' deficit.............................. (62,136) (56,773) (56,201)
-------- -------- --------
Total liabilities and partners' deficit.... $189,306 $203,470 $211,112
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-2
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 QUARTER ENDED MARCH 31
------------------------- ------------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms................... $48,038 $56,608 $70,450 $ 15,113 $ 20,031
Food and beverage....... 34,163 37,238 39,330 7,861 10,311
Telephone............... 2,711 3,746 4,727 1,039 1,238
Other departmental reve-
nues................... 2,284 2,916 3,167 705 809
Other income............ 790 1,302 1,893 325 551
------- ------- ------- ----------- -----------
87,986 101,810 119,567 25,043 32,940
------- ------- ------- ----------- -----------
Operating costs and
expenses:
Rooms................... 11,464 13,826 16,418 3,752 4,444
Food and beverage....... 23,997 26,784 28,832 6,290 7,767
Telephone............... 1,181 1,552 1,745 417 478
Lease expense........... 2,274 2,298 2,296 549 641
Management fees......... 3,632 4,370 5,783 862 1,169
Energy costs............ 3,574 4,383 4,584 1,139 1,304
Property insurance and
taxes.................. 3,499 4,002 4,233 1,066 1,147
General and administra-
tive................... 17,780 20,979 24,290 5,740 6,485
Depreciation and amorti-
zation................. 6,429 7,178 8,784 1,874 2,533
Other expenses.......... 2,494 2,531 3,244 515 647
------- ------- ------- ----------- -----------
76,324 87,903 100,209 22,204 26,615
------- ------- ------- ----------- -----------
Operating income...... 11,662 13,907 19,358 2,839 6,325
Interest income........... 85 179 76 -- --
Interest expense.......... (18,415) (20,465) (21,258) (4,930) (5,753)
------- ------- ------- ----------- -----------
Net income (loss)......... $(6,668) $(6,379) $(1,824) $ (2,091) $ 572
======= ======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1993........................................ $ (88,878)
Capital contributions............................................. 14,558
Contribution of note payable...................................... 11,608
Capital distributions............................................. (610)
Net loss.......................................................... (6,668)
---------
Balance at December 31, 1994........................................ (69,990)
Capital contributions............................................. 16,379
Capital distributions............................................. (2,146)
Net loss.......................................................... (6,379)
---------
Balance at December 31, 1995........................................ (62,136)
Capital contributions............................................. 7,740
Capital distributions............................................. (553)
Net loss.......................................................... (1,824)
---------
Balance at December 31, 1996........................................ (56,773)
Net income (unaudited)............................................ 572
---------
Balance at March 31, 1997 (unaudited)............................... $ (56,201)
=========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------- -----------
1994 1995 1996 1997
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $(6,668) $(6,379) $(1,824) $ 572
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 6,429 7,178 8,784 2,533
Amortization of loan cost........... 385 704 538 194
(Increase) decrease in accounts re-
ceivable........................... (2,634) 1,256 (1,449) (1,354)
Net decrease (increase) in due from
affiliates......................... 181 (218) (1,464) 5,343
(Increase) decrease in inventories.. (268) 76 (14) 48
(Increase) decrease in prepaid ex-
penses............................. (81) 234 (327) (737)
Decrease (increase) in other as-
sets............................... 562 (1,102) (343) (141)
Increase (decrease) in accounts
payable and accrued expenses....... 3,823 1,665 788 (1,532)
Increase in due to operator......... 141 524 930 807
Increase in advance deposits........ 12 238 349 104
(Increase) decrease in restricted
cash............................... (487) (148) (435) 291
------- ------- ------- ------
Net cash provided by operating ac-
tivities......................... 1,395 4,028 5,533 6,128
------- ------- ------- ------
Cash flow from investing activities:
Property and equipment additions...... (28,148) (37,283) (19,916) (6,026)
(Increase) decrease in cash restricted
for noncurrent assets................ (1,058) 893 975 (655)
------- ------- ------- ------
Net cash used in investing activi-
ties............................. (29,206) (36,390) (18,941) (6,681)
------- ------- ------- ------
Cash flows from financing activities:
Net (increase) decrease in advances
from partners........................ (637) (1,740) (2,126) 447
Proceeds from long-term debt.......... 22,256 21,481 12,299 2,908
Repayments of long-term debt and capi-
tal lease obligations................ (6,546) (2,667) (3,019) (1,007)
Partners' contributions............... 14,558 16,379 7,740 --
Partners' distributions............... (610) (2,146) (552) --
Other................................. (901) (20) -- --
------- ------- ------- ------
Net cash provided by financing ac-
tivities......................... 28,120 31,287 14,342 2,348
------- ------- ------- ------
Increase (decrease) in cash and cash
equivalents............................ 309 (1,075) 934 1,795
Cash and cash equivalents at beginning
of year................................ 2,209 2,518 1,443 2,377
------- ------- ------- ------
Cash and cash equivalents at end of
year................................... $ 2,518 $ 1,443 $ 2,377 $4,172
======= ======= ======= ======
Supplemental cash flow information:
Cash paid for interest................ $14,795 $18,943 $21,619 $6,900
Noncash activity:
Capital lease obligations............. 265 259 -- --
Interest added to principal of notes
payable.............................. 401 448 1,161 --
Contribution of note payable.......... 11,608 -- -- --
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. COMBINED PARTNERSHIPS DESCRIPTION AND BASIS OF PRESENTATION:
The accompanying combined financial statements include the accounts of 11
hotel partnerships (the "Partnerships") which are owned by various
corporations, partnerships and joint ventures. These partnerships are
beneficially owned or controlled by various members of the family of Trammell
Crow. The Partnerships along with Wyndham Hotel Corporation ("WHC"), which
manages the 11 hotels, are being considered for acquisition by Patriot
American Hospitality, Inc., a publicly traded real estate investment trust
("REIT").
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships and may not necessarily reflect the financial position, results
of operations and cash flows of the Partnerships that might have resulted had
they actually operated as a stand-alone entity.
The accounts of the Partnerships and related hotels consist of the following
hotel entities:
<TABLE>
<CAPTION>
PARTNERSHIPS HOTELS
------------ ------
<S> <C>
Hotel Bel Age Associates, L.P. Wyndham Bel Age
Franklin Plaza Associates Wyndham Franklin Plaza
MTD Associates Wyndham Milwaukee Center
Itasca Hotel Company Wyndham Northwest Chicago
WHC-LG Hotel Associates, L.P. Garden Hotel at LaGuardia Airport
CLC Limited Partnership Wyndham Garden Hotel-Las Colinas
Novi Garden Hotel Associates Wyndham Garden Hotel-Novi
Pleasanton Hotel Associates, Ltd. Wyndham Garden Hotel-Pleasanton
Wood Dale Garden Hotel Partnership Wyndham Garden Hotel-Wood Dale
Convention Center Boulevard Hotel,
Limited Wyndham Riverfront
Hotel and Convention Center Partners
I-XI, Ltd. Wyndham Palm Springs
</TABLE>
Interim Financial Statements
The interim financial statements have been prepared by the Partnerships
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations; nevertheless, management believes that
the disclosures herein are adequate to prevent the information presented from
being misleading. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial position of the Partnerships with respect to the results of their
operations for the interim periods from January 1, 1996 to March 31, 1996, and
from January 1, 1997 to March 31, 1997, have been included herein. The results
of operations for the interim periods are not necessarily indicative of the
results for the full year.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Partnerships to
concentration of credit risk consist principally of cash investments. The
Partnerships maintain cash and cash equivalents in accounts with major
F-6
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. Management believes credit risk related to these
deposits is minimal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Restricted cash consists of amounts in escrow for the payment of property
taxes and interest. Cash restricted for noncurrent assets consists of a
reserve for fixed asset repairs and replacements and hotel renovations.
Inventories
Inventories consisting of food, beverage, china, linen, glassware,
silverware, uniforms and supplies are stated at cost which approximates
market, with cost determined using the first-in, first-out method.
Property and Equipment
Buildings and site improvements are carried at cost and are depreciated
using the straight-line method over 40 and 20 years, respectively. Furniture
and equipment are recorded at cost and are depreciated using the straight-line
method over their estimated useful lives of approximately 5 years. Normal
repairs and maintenance are charged to expense as incurred.
Investment in property is recorded at cost, except when it has been
determined that the property has sustained a permanent impairment in value. At
such time, a write-down is recorded to reduce the property to its estimated
recoverable amount. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Cost of assets under construction are reported as construction in progress.
Construction in progress is not depreciated until the construction is
completed and the related assets are in use. Interest and taxes incurred
during the construction period are capitalized as part of the building cost.
Other Assets
Other assets consist primarily of unamortized loan costs, capitalized
organization costs and capitalized lease acquisition costs. Other assets are
stated at cost, except when it has been determined that the asset has
sustained a permanent impairment in value. These costs are amortized using the
straight-line method over the following periods:
<TABLE>
<S> <C>
Loan costs Over the term of the loan
Organization costs 60 months
Preopening expenses 12 months
Lease acquisition costs Over the term of the lease
</TABLE>
Income Taxes
The Partnerships are not taxable entities and the results of their
operations are included in the tax returns of the partners. The Partnerships'
tax returns and the amount of allocable income or loss are subject to
examination
F-7
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
by federal and state taxing authorities. If such examinations result in
changes to income or loss, the tax liability of the partners could be changed
accordingly.
Revenue Recognition
Room, food and beverage, telephone and other revenues are recognized when
earned.
Self-Insurance
The Partnerships are self-insured for various levels of general liability,
workers' compensation and employee medical coverages. The general and auto
liability premiums are paid to a related party who maintains a loss reserve
fund. Workers' compensation premiums are paid to an independent insurance
company. The Partnerships' workers' compensation insurance is subject to a
"retro adjustment" which could result in additional premiums or a refund of
premiums based on actual claims settled by the insurance company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Land.................................................. $ 18,575 $ 21,924
Buildings............................................. 148,644 162,764
Furniture, fixtures and equipment..................... 23,124 28,763
Construction in progress.............................. 12,329 8,345
-------- --------
202,672 221,796
Less accumulated depreciation......................... (38,243) (45,295)
-------- --------
$164,429 $176,501
======== ========
</TABLE>
Substantially all the Partnerships' property and equipment are pledged as
collateral for mortgage notes payable.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS:
The Partnerships entered into management agreements with a wholly-owned
subsidiary of Wyndham Hotel Corporation (the "Operator"). These management
agreements, having terms ranging from 10 to 22 years, provide for base
management fees and chain service fees ranging from 2.5% to 5% of gross
revenues, plus incentive fees ranging from 14% to 25% of income after fixed
charges or excess cash, as defined in the respective management agreements.
The Partnerships incurred incentive management fees of $509,000, $870,000 and
$1,638,000, during the years ended December 31, 1994, 1995 and 1996,
respectively. In addition, the agreements require the Partnerships to pay a
marketing contribution to the Operator equal to 1.5% of monthly room revenues.
The Partnerships made marketing contributions of $721,000, $850,000 and
$1,056,000 in 1994, 1995 and 1996, respectively. Due to operator represents
management fees, chain service fees and other expenses payable to the
Operator.
The Partnerships receive services from and provide services to affiliates,
which are reimbursed in the normal course of business. In 1994, 1995 and 1996,
the Partnerships reimbursed the Operator for services such as administrative,
tax, legal, accounting, finance, risk management, sales and central
reservations totaling $1,283,000, $1,566,000 and $1,497,000, respectively.
F-8
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Certain partnerships, in the normal course of business, have made advances
to or received advances from (including operating deficit loans) the partners
and their affiliates. Such amounts are classified as "Due to affiliates" in
the accompanying combined financial statements and accrue interest at rates
ranging from 2.62% to 10%. Interest expense of $222,000, $305,000 and $303,000
in 1994, 1995 and 1996, respectively, on advances from partners and affiliates
is included in other accrued expenses in the accompanying combined financial
statements. No due dates have been specified for these advances and such
advances may be repaid from available cash flow.
Pursuant to one of the partnership agreements, the general partner of the
partnership earns an annual management fee for services rendered in connection
with the business of the partnership equal to 1% of gross revenues ($207,000,
$220,000 and $233,000 in 1994, 1995 and 1996, respectively). Unpaid general
partner management fees are classified as "Due to affiliates" in the
accompanying combined financial statements.
The Partnerships participate in a centralized cash management system with
affiliates who are excluded from these combined financial statements. Gross
receipts from the hotels are deposited into the centralized cash management
system, from which operating expenses and other disbursements are paid. The
net position with the pool is reported as "Due to affiliates" in the
accompanying combined financial statements.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable............................................... $ 4,092 $ 4,755
Taxes.......................................................... 3,219 3,067
Accrued interest............................................... 6,716 6,136
Payroll and related costs...................................... 2,433 2,961
Other.......................................................... 1,610 2,032
------- -------
$18,070 $18,951
======= =======
</TABLE>
F-9
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
Substantially all of the hotel property is pledged as collateral for long-
term debt consisting of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Mortgage note, bearing interest at 10% with monthly payments
of interest only, maturing August 1, 1997.................... $11,308 $11,308
Mortgage note, bearing interest at 10%, with monthly payments
of interest only at 5%, pay rate increasing 1% per year (7%
and 8% at December 31, 1995 and 1996). Net cash flow, as de-
fined, is payable quarterly and is applied first to deferred
interest with balance, if any, applied to principal. Note ma-
tures August 1, 1997......................................... 7,627 6,662
Note payable to a financial institution, for which payment is
guaranteed by certain partners, bearing interest at 9.75%.
Interest only is payable through November 1, 1996, with prin-
cipal and interest payable in monthly installments commencing
November 1, 1996. Additional interest of 30% of net cash
flow, as defined, is payable quarterly. Note matures October
31, 2000..................................................... 8,500 8,470
Mortgage note, bearing interest at 10%, with monthly payments
of interest only. Note matures August 1, 1997................ 10,521 10,521
Mortgage note, bearing interest at 10.71%, with current pay
rate of 6.5% increasing to 8.5% on January 1, 1997, with an-
nual increases of .5% per year to maturity. The difference
between the amount of interest accrued and that paid is pay-
able quarterly from available gross income, as defined. The
amounts accrued at December 31, 1995 and 1996, respectively,
were $3,132,000 and $1,866,000. In addition, additional in-
terest, based on net cash flows, as defined, is payable
through December 31, 1997. No additional interest was paid in
1994, 1995, or 1996. At maturity, April 1, 2001, or upon
sale, an additional amount equal to 40% of the residual val-
ue, as defined, is due....................................... 47,000 47,000
Noninterest bearing mortgage shortfall payable, maturing April
1, 2001...................................................... 2,917 2,917
Mortgage note, bearing interest at 9.82%, principal and inter-
est payable in monthly installments through October, 1999,
maturing October 13, 1999.................................... 10,781 10,591
Mortgage note, bearing interest at 10.875%, principal and in-
terest payable in monthly installments, contingent interest
equal to 5% of gross room sales, as defined, payable monthly,
principal maturing December 31, 2023......................... 17,774 17,701
Mortgage note, bearing interest at annually increasing rates
ranging from 5.78% to 13.07%. Specified interest payments are
due monthly, with the difference between the amount of inter-
est paid and accrued at the contract rate added to the prin-
cipal of the note. Additional interest is due quarterly equal
to 30% of adjusted gross revenue, as defined. The note ma-
tures on October 13, 2004. At maturity, the lender is due
Shared Appreciation Interest, as defined. The note is call-
able after February 1, 2000. The loan has an interest reserve
account of $1,028,000 and $1,000,000, as of December 31, 1995
and 1996, respectively. The related partnership may make
withdrawals from this reserve to cover any interest
shortfalls, as defined. The loan agreement provides for a re-
lease of the interest reserve account to the related partner-
ship after October 1, 1997, if certain conditions are met.... 9,219 9,378
Mortgage note, bearing interest at 11%, principal and interest
payable monthly through July 1997, maturing August 1997...... 24,928 24,446
Note payable, due on April 21, 2003, or on demand by lender... 10 10
</TABLE>
F-10
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Mortgage note, bearing interest at 9.25% with interest
only. Payments through January 1, 1998, and principal and
interest payable monthly beginning February 1, 1998, based
upon a twenty year amortization. In addition, net cash
flow, as defined, is payable quarterly. On December 31,
2000, all remaining principal and interest are due, net
cash flow, as defined, payable quarterly.................. 6,876 12,610
Mortgage note, bearing interest at an initial rate of
9.125%, adjusted for the Citibank Base Rate plus .625%.
All principal and interest payable on January 12, 1997,
extended to April 12, 1997. The loan was subsequently
refinanced with a $13,750,000 note bearing interest at
8.25%, with monthly payments of principal and interest
totaling $118,150 through September 2001, with the
remaining balance due October 1, 2001..................... 6,105 13,430
Certificates of Participation, bearing interest at a
variable rate, adjusted weekly to be the rate necessary to
remarket the certificates at par (4.8% and 4% at December
31, 1995 and 1996). Interest payments are due monthly, and
principal payments are due annually until maturity in
2014. Upon the occurrence of certain events, the variable
interest rate will convert to a fixed rate. The
certificates were issued at a discount of $2,046,000 which
is being amortized to interest expense over the life of
the certificates using the effective interest method. In
addition to the hotel property, the certificates are
secured by letters of credit totaling the outstanding
principal balance of the certificates. The letters of
credit are secured by other property and ownership
interests owned by the partners of the hotel partnership.
The letters of credit bear an annual fee of 2% of the
outstanding principal balance of the certificates. Until
expiration in December 1995, pursuant to the terms of an
interest rate swap agreement, interest payments were fixed
at 5.69% for the hotel partnership, and the counterparty
paid interest at one half of its daily prime rate. The
original cost of the agreement was capitalized as an other
asset and amortized over the life of the swap agreement
using the straight line method. Additional interest
expense incurred as a result of the swap agreement totaled
$1,130 and $449 in 1994 and 1995.......................... 59,300 58,200
Discount on certificates................................... (1,779) (1,746)
-------- --------
221,087 231,498
Current portion of long-term debt.......................... (1,720) (67,893)
-------- --------
Long-term debt, excluding current portion.................. $219,367 $163,605
======== ========
</TABLE>
The annual principal requirements of the long-term debt for the five years
subsequent to December 31, 1996 (excluding a discount of $1,746,000) are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1997 $ 67,893
1998 1,864
1999 11,874
2000 22,303
2001 52,244
Thereafter.................................................... 77,066
--------
Total long-term debt at December 31, 1996................... $233,244
========
</TABLE>
As discussed above, certain of the mortgage notes payable contain provisions
which require additional payments to the lenders based on residual values or
shared appreciation of the properties at the maturity of the
F-11
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
loan or sale of the property. If the properties are acquired, management
estimates that additional payments related to these provisions ranging from
$11,500,000 to $14,000,000 will be paid to the lenders from the proceeds of
the sale. These amounts are considered as additional costs to sell the
properties and they will be reflected in the financial statements at the time
the transaction is completed.
The terms of substantially all of the mortgage notes require the respective
partnerships to make deposits, on a monthly basis, to tax escrow accounts for
the payment of real estate and personal property taxes and assessments. The
terms of the mortgage notes also require hotel partnerships to maintain
furniture, fixture and equipment reserve accounts ("FF&E Reserve") equal to an
amount ranging from 3% to 4% of gross revenues, as defined, to be used for
capital expenditures. The balances of the tax escrow accounts and the FF&E
Reserve are included in "Cash, restricted" and "Cash, restricted for
noncurrent assets", respectively, in the accompanying combined financial
statements.
The Partnerships will use the proceeds from the sale of the properties to
repay existing debt. Approximately $67,900,000 of the combined partnerships'
debt matures in 1997. In the event the assets are not sold before the debt
matures, management intends to extend or refinance these existing mortgage
notes.
7. CONTRIBUTION OF NOTE PAYABLE:
In May 1994, a revolving credit facility utilized by one of the hotel
partnerships was converted to a related party note payable and was then
contributed by the partners to the hotel partnership. This contribution is
reflected on the accompanying combined statement of partners' deficit for the
year ended December 31, 1994. Prior to the conversion, the revolving credit
facility bore interest at LIBOR plus .65% and was secured by property owned by
affiliates of the partners of the hotel partnership.
8. EMPLOYEE BENEFIT PLANS:
All employees at the Partnerships are employees of WHC. The Partnerships
reimburse WHC for all expenses and charges related to the employees'
participation in any of the WHC benefit programs. Included in these plans are
the Wyndham Employees Savings and Retirement Plan, a 401(k) retirement savings
plan (the "Plan") and a self-insured group health plan.
Employees who are over 21 years of age and have completed one year of
service are eligible to participate in the Plan. The Plan matches employee
contributions up to 4% of the employee's salary. For the years ended December
31, 1994, 1995 and 1996, the Partnerships reimbursed WHC $215,000, $198,000
and $282,000, respectively for the Plan.
The Partnerships also reimburse WHC for costs related to the employees'
participation in a self-insured group health plan. For the years ended
December 31, 1994, 1995 and 1996, the Partnership reimbursed WHC $910,000,
$1,036,000 and $1,112,000, respectively.
One hotel makes contributions, based on monthly rates per employee, as
specified in union agreements, to union-administered, multi-employer, defined
benefit retirement plans. Because the plans cover numerous employees from many
organizations, no plan benefit information is presented. Expenses relating to
these plans totaled $82,000, $80,000 and $105,000 in 1994, 1995 and 1996
respectively.
F-12
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
Certain hotel partnerships lease equipment and land under capital and
operating leases having noncancellable agreements extending beyond one year.
Capital leases have imputed interest rates ranging from 8% to 14.29%. Future
minimum lease payments required under the capital leases (together with the
present value of net minimum lease payments) and operating leases at December
31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
<S> <C> <C>
Year ending December 31:
1997 $224 $ 1,639
1998 172 1,616
1999 68 1,508
2000 45 1,499
2001 -- 1,482
Thereafter............................................ -- 49,367
---- -------
Total minimum lease payments............................ 509 $57,111
=======
Less imputed interest................................... 71
----
Present value of net minimum lease payment.............. 438
Less current portion.................................... 185
----
Long-term portion of net minimum lease payments......... $253
====
</TABLE>
A partnership leases the land on which the hotel is built through two lease
agreements. Rent of $1 is payable annually to one of the partners under one of
these leases. The partner financed this purchase of land with an interest-free
advance from the partnership of $3,625,000. The remainder of the land is
leased from a state authority for $653,000 annually, payable in quarterly
installments of $163,000. These leases are dated July 31, 1978, with an
initial term of 65 years, and two renewal options of 15 years each, subject to
the term of the lessor's legal existence.
Another hotel partnership leases the land on which the hotel is built under
a sub-lease effective January 1, 1985, with an initial term of 75 years and
one renewal option of 25 years. Lease payments include two components: (1)
"basic rent" which escalate every 5 years based on the consumer price index,
and (2) "additional rent," as defined in the master lease, to the extent that
it exceeds basic rent. Basic rent payments are due annually on December 20 on
a prepaid basis, and the current basic rent payment is $672,000 per year. To
date, no additional rent has been paid as the basic rent exceeds all amounts
calculated as additional rent.
The Partnerships incurred rent expense totaling $2,245,000, 2,272,000 and
$2,259,000 in 1994, 1995 and 1996, respectively, which includes operating
leases and the three land leases.
The Partnerships may be subject to certain litigation and claims in the
ordinary course of business which are generally covered by insurance policies.
In management's opinion, litigation and claims will not have a material
adverse effect upon the financial position or results of operations of the
Partnerships.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Partnerships have estimated the fair value of its financial instruments
at December 31, 1996 as required by Statement of Financial Accounting
Standards No. 107. The carrying values of cash and cash equivalents, accounts
receivable and accrued expenses are reasonable estimates of their fair values
due to their short-term maturities. Long-term debt had a fair value of
approximately $226,265,000 and $238,581,000 at December 31, 1995 and 1996,
respectively. Fair value was estimated using an interest rate of prime plus
one percent at December 31, 1995 and 1996.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
PATRIOT AMERICAN HOSPITALITY, INC.,
PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P.,
CALIFORNIA JOCKEY CLUB
AND
BAY MEADOWS OPERATING COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. THE SUBSCRIPTION.............................................. A-1
1.1 Subscription Agreement.............................................. A-1
1.2 Subscribed Shares................................................... A-1
ARTICLE 2. [INTENTIONALLY OMITTED]....................................... A-2
ARTICLE 3. THE MERGER.................................................... A-2
3.1 The Merger.......................................................... A-2
3.2 The Closing......................................................... A-2
3.3 Effective Time...................................................... A-2
3.4 Merger Structure.................................................... A-2
ARTICLE 4. CERTIFICATE OF INCORPORATION AND BYLAWS OF EACH OF CAL JOCKEY
AND BMOC....................................................... A-2
4.1 Charter............................................................. A-2
4.2 Bylaws.............................................................. A-3
4.3 Amendments of Governing Documents of the Companies' Subsidiaries.... A-3
ARTICLE 5. EXCHANGE OF STOCK............................................. A-3
5.1 Outstanding Paired Shares of Cal Jockey Stock and BMOC Stock........ A-3
5.2 Conversion of Patriot Stock......................................... A-3
5.3 Exchange of Certificates Representing Patriot Stock................. A-5
5.4 Return of Exchange Fund............................................. A-6
5.5 Lost or Stolen Certificates......................................... A-7
ARTICLE 6. REGISTRATION AND SOLICITATION PROCESS......................... A-7
6.1 Proxy Statement; Registration Statement............................. A-7
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PATRIOT..................... A-8
7.1 Organization and Qualifications..................................... A-8
7.2 Capitalization...................................................... A-8
7.3 Authority Relative to this Agreement................................ A-9
7.4 No Conflict; Required Filings and Consents.......................... A-9
7.5 Fairness Opinion.................................................... A-10
7.6 SEC Reports and Financial Statements................................ A-10
7.7 Absence of Certain Changes or Events; Obligations................... A-10
7.8 REIT Status......................................................... A-10
7.9 Permits............................................................. A-10
ARTICLE 8. REPRESENTATIONS AND WARRANTIES OF BMOC........................ A-11
8.1 Organization and Qualifications..................................... A-11
8.2 Capitalization...................................................... A-11
8.3 Authority Relative to this Agreement................................ A-11
8.4 No Conflict; Required Filings and Consents.......................... A-11
8.5 Fairness Opinion.................................................... A-12
8.6 SEC Reports and Financial Statements................................ A-12
8.7 Absence of Certain Changes or Events; Obligations................... A-12
8.8 Pairing Agreement................................................... A-13
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 9. REPRESENTATIONS AND WARRANTIES OF CAL JOCKEY................... A-13
9.1 Organization and Qualifications.................................... A-13
9.2 Capitalization..................................................... A-13
9.3 Authority Relative to this Agreement............................... A-13
9.4 No Conflict; Required Filings and Consents......................... A-13
9.5 Fairness Opinion................................................... A-14
9.6 SEC Reports and Financial Statements............................... A-14
9.7 Absence of Certain Changes or Events; Obligations.................. A-15
9.8 Real Property...................................................... A-15
9.9 Permits............................................................ A-15
9.10 REIT Status........................................................ A-15
9.11 Pairing Agreement.................................................. A-16
ARTICLE 10. COVENANTS..................................................... A-16
10.1 No Solicitation.................................................... A-16
10.2 Access............................................................. A-18
10.3 Consents........................................................... A-18
10.4 Efforts............................................................ A-18
10.5 Announcements...................................................... A-18
10.6 Interim Operations................................................. A-19
10.7 Filings; Other Action.............................................. A-19
10.8 Listing Application................................................ A-19
10.9 Affiliates of Patriot.............................................. A-20
10.10 Expenses........................................................... A-20
10.11 Brokers and Finders................................................ A-20
10.12 Indemnification and Insurance...................................... A-20
ARTICLE 11. CONDITIONS.................................................... A-21
11.1 Conditions to BMOC's and Cal Jockey's Obligations.................. A-21
11.2 Conditions to Patriot's Obligations................................ A-22
ARTICLE 12. TERMINATION................................................... A-23
12.1 Termination........................................................ A-23
12.2 Extension; Waiver.................................................. A-24
12.3 Payment of Fee to Hudson Bay Partners, L.P. ....................... A-24
ARTICLE 13. GENERAL PROVISIONS............................................ A-25
13.1 San Mateo City Council Meeting..................................... A-25
13.2 Nonsurvival of Representations, Warranties and Agreements.......... A-25
13.3 Notices............................................................ A-25
13.4 Assignment; Binding Effect; Benefit................................ A-26
13.5 Entire Agreement................................................... A-26
13.6 Governing Law...................................................... A-26
13.7 Counterparts....................................................... A-26
13.8 Headings........................................................... A-27
13.9 Incorporation...................................................... A-27
13.10 Severability....................................................... A-27
13.11 Interpretation and Certain Definitions............................. A-27
</TABLE>
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
February 24, 1997, as amended and restated as of May 28, 1997, by and among
Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"),
Patriot American Hospitality Partnership, L.P. ("Patriot Operating
Partnership"), California Jockey Club, a Delaware corporation ("Cal Jockey"),
and Bay Meadows Operating Company, a Delaware corporation ("BMOC"). Cal Jockey
and BMOC may from time to time be referred to herein collectively as the
"Companies."
W I T N E S S E T H:
WHEREAS, the parties hereto entered into an Agreement and Plan of Merger
dated as of February 24, 1997 (the "February 24 Agreement") and the parties
desire to amend and restate the February 24 Agreement in order, among other
things, to eliminate the Offer (as such term is defined in February 24
Agreement);
WHEREAS, the parties hereto desire and have agreed that the representations,
warranties, covenants and agreements contained herein are and shall be deemed
to have been made as of February 24, 1997 unless otherwise specifically
indicated to the contrary herein;
WHEREAS, the shares of common stock, par value $.01 per share, of Cal Jockey
("Cal Jockey Stock") and the shares of common stock, par value $.01 per share,
of BMOC ("BMOC Stock") are paired and transferable and traded only in
combination as a single unit (the "Paired Shares") on the American Stock
Exchange;
WHEREAS, Patriot, Cal Jockey and BMOC entered into a binding acquisition
agreement dated as of October 31, 1996 (the "Acquisition Agreement") pursuant
to which the parties agreed to engage in a business combination among Patriot,
Cal Jockey and BMOC. This Agreement constitutes one of the "Implementation
Agreements" referenced in the Acquisition Agreement;
WHEREAS, the Board of Directors of each of Patriot, Cal Jockey and BMOC have
determined that a business combination among Patriot, Cal Jockey and BMOC is
in the best interest each of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic and financial benefits, and accordingly have agreed to effect the
transactions provided for herein (the "Transactions") upon the terms and
subject to the conditions set forth herein; and
WHEREAS, Patriot, Patriot Operating Partnership, Cal Jockey and BMOC desire
to make certain representations, warranties, covenants and agreements in
connection with the Transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the representations, warranties, covenants and agreements contained herein,
the parties hereby agree as follows:
ARTICLE 1.
THE SUBSCRIPTION
1.1 Subscription Agreement. Immediately prior to Closing (as hereinafter
defined), Patriot Operating Partnership and BMOC shall enter into a
subscription agreement in substantially the form of Exhibit A attached hereto
(the "Subscription Agreement") pursuant to which Patriot Operating Partnership
will agree to subscribe for, and BMOC will issue, a number of shares (the
"Subscribed Shares") of BMOC Stock equal to the number of shares of Cal Jockey
Stock to be issued to stockholders of Patriot pursuant to the Merger (as
hereinafter defined).
1.2 Subscribed Shares. The parties hereto acknowledge and agree that the
Subscribed Shares will be issued in accordance with Section 5.3(a) hereof to
the stockholders of Patriot in connection with the Merger and will be
A-1
<PAGE>
paired with the Cal Jockey Stock issued in the Merger in accordance with that
certain Pairing Agreement, dated as of February 17, 1983 and amended from time
to time thereafter, by and between Cal Jockey and BMOC (the "Pairing
Agreement") and neither Patriot nor Patriot Operating Partnership will at any
time become a stockholder of BMOC.
ARTICLE 2.
[INTENTIONALLY OMITTED]
ARTICLE 3.
THE MERGER
3.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 3.3 hereof), Patriot shall be merged
with and into Cal Jockey in accordance with this Agreement and the separate
corporate existence of Patriot shall thereupon cease (the "Merger"). Cal
Jockey shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
specified in Section 259 of the Delaware General Corporation Law (the "DGCL")
and Section 13.1-721 of the Virginia Stock Corporation Act (the "VSCA").
3.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Goodwin, Procter & Hoar LLP, on the day on which Cal Jockey and BMOC issue a
press release announcing that the last of the conditions set forth in Article
11 have been fulfilled or waived in accordance herewith or (b) at such other
time, date or place as the parties hereto may agree. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
3.3 Effective Time. If all of the conditions to the Merger set forth in
Article 11 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 12, the
parties hereto shall cause a Certificate of Merger satisfying the requirements
of the DGCL and Articles of Merger satisfying the requirements of the VSCA to
be properly executed, verified and delivered for filing in accordance with the
DGCL and the VSCA on the Closing Date. The Merger shall become effective upon
the acceptance for record of the Certificate of Merger by the Secretary of
State of Delaware in accordance with the DGCL and issuance of a Certificate of
Merger by the State Corporation Commission of Virginia or at such later time
which the parties hereto shall have agreed upon and designated in such filing
in accordance with applicable law as the effective time of the Merger (the
"Effective Time").
3.4 Merger Structure. In connection with the Merger, each of the parties
hereto acknowledges and agrees to take all actions and enter into such
agreements, instruments and documents in forms mutually acceptable to Patriot,
Cal Jockey and BMOC necessary to effectuate the transactions (other than the
Offer) contemplated by that certain memorandum, dated as of February 24, 1997,
from Goodwin, Procter & Hoar llp delivered concurrently herewith, including,
without limitation, the creation of a BMOC operating partnership, the
contribution of BMOC's assets to such BMOC operating partnership in connection
with the Merger and the contribution of Cal Jockey's assets to Patriot
Operating Partnership in connection with the Merger.
ARTICLE 4.
CERTIFICATE OF INCORPORATION AND BYLAWS OF EACH OF CAL JOCKEY AND BMOC
4.1 Charter. Prior to the Effective Time of the Merger and subject to
approval of the stockholders of Cal Jockey and BMOC, the Certificate of
Incorporation of Cal Jockey shall have been amended and restated in the form
of Exhibit B and the Certificate of Incorporation of BMOC shall have been
amended and restated in a form substantially similar to Exhibit B with such
changes as the parties shall mutually agree. The Certificate of
A-2
<PAGE>
Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Cal Jockey, as so amended and restated.
4.2 Bylaws. Prior to the Effective Time of the Merger, the Bylaws of Cal
Jockey shall have been amended and restated in the form of Exhibit C and the
Bylaws of BMOC shall have been amended and restated in a form substantially
similar to Exhibit C with such changes as the parties shall mutually agree.
The Bylaws of the Surviving Corporation shall be the Bylaws of Cal Jockey, as
so amended and restated.
4.3 Amendments of Governing Documents of the Companies' Subsidiaries. In
connection with the Closing, the charter, bylaws, partnership agreements and
equivalent documents for the subsidiaries (as defined in Section 13.11 hereof)
of each of Cal Jockey and BMOC shall be amended to change the name of the
entity and to make certain other changes to such documents requested by
Patriot in order to reflect the Transactions contemplated by this Agreement,
provided that any such changes shall be subject to the prior consent of Cal
Jockey and BMOC, which consent shall not be unreasonably withheld. Each of Cal
Jockey, BMOC and their respective subsidiaries will take all actions which are
necessary to effectuate such amendments and will use their best efforts to
cause all of the stockholders, partners or members in any subsidiary of Cal
Jockey or BMOC to approve such amendments and to take such other actions to
effectuate such amendments and the Transactions contemplated by this Agreement
as may be reasonably requested by Patriot.
ARTICLE 5.
EXCHANGE OF STOCK
5.1 Outstanding Paired Shares of Cal Jockey Stock and BMOC Stock.
(a) At the Effective Time, each Paired Share of Cal Jockey Stock and BMOC
Stock outstanding immediately prior to the Effective Time which was not
tendered and accepted for payment pursuant to the Offer shall remain
outstanding and shall continue to represent one Paired Share of Cal Jockey
Stock and BMOC Stock.
(b) At the Effective Time, each option exercisable for a Paired Share of Cal
Jockey Stock and BMOC Stock outstanding immediately prior to the Effective
Time (that will not automatically terminate by its terms at the Effective
Time) shall remain outstanding and shall continue to represent an option to
purchase a Paired Share of Cal Jockey Stock and BMOC Stock.
5.2 Conversion of Patriot Stock.
(a) At the Effective Time, each share of common stock, no par value per
share, of Patriot (the "Patriot Stock") issued and outstanding immediately
prior to the Effective Time (other than those shares of Patriot Stock to be
canceled pursuant to Section 5.2(d)) shall, by virtue of the Merger and
without any action on the part of Patriot, Cal Jockey, BMOC or the holders of
any of the securities of any of these corporations, be converted into 0.51895
shares of Cal Jockey Stock; provided, however, if the Average Closing Price
(as hereinafter defined) of a share of Patriot Stock is less than $17.125 per
share, then each share of Patriot Stock issued and outstanding immediately
prior to the Effective Time (other than those shares of Patriot Stock to be
canceled pursuant to Section 5.2(d)) shall, by virtue of the Merger and
without any action on the part of Patriot, Cal Jockey, BMOC or the holders of
any of the securities of these corporations, be converted into a number of
shares of Cal Jockey Stock equal to the Average Closing Price divided by
$33.00; provided further, however, that the applicable number of shares of Cal
Jockey Stock to be issued upon such conversion as provided above shall be
subject to adjustment for stock splits, recapitalizations, stock dividends and
similar transactions (the applicable number of shares of Cal Jockey Stock to
be issued upon conversion as provided herein being the "Exchange Ratio").
Simultaneously, at the Effective Time, each Patriot stockholder shall be
entitled to receive pursuant to the Subscription Agreement an equivalent
number of Subscribed Shares for each share of Patriot Stock, as so converted
pursuant to this Section 5.2(a), such that the Subscribed Shares and the
shares of Cal Jockey Stock received by a Patriot stockholder in the Merger
shall become Paired Shares which are transferable only as a single unit. The
provisions of this Section 5.2(a) are intended to comply with Sections 2(a)
and 2(b) of the Pairing
A-3
<PAGE>
Agreement. For purposes of this Agreement, the term "Average Closing Price"
shall mean the average per share closing price of a share of Patriot Stock as
reported for New York Stock Exchange composite transactions in the Wall Street
Journal over the twenty (20) trading days immediately preceding the third
trading day prior to the date on which the meetings of stockholders of Cal
Jockey, BMOC and Patriot to approve the transactions contemplated by this
Agreement are to be convened.
(b) Notwithstanding anything contained in this Agreement to the contrary, in
order for the Surviving Corporation to qualify and maintain status as a real
estate investment trust (a "REIT") within the meaning of Section 856 of the
Internal Revenue Code of 1986, as amended (the "Code"), no person or entity
shall own, or be deemed to own by virtue of the attribution provisions of
Section 544 (as modified by Section 856(h)(1)(B)) or Section 318 (as modified
by Section 856(d)(5)) of the Code more than 9.8% of the outstanding Paired
Shares of Cal Jockey Stock and BMOC Stock (the "Ownership Limit") at or after
the Merger. Therefore, if any holder of Patriot Stock would receive in
connection with the Merger and the Subscription a number of Paired Shares of
Cal Jockey Stock and BMOC Stock such that any person or entity would own, or
be deemed to own under the applicable attribution rules of the Code referred
to above, Paired Shares of Cal Jockey Stock and BMOC Stock in excess of the
Ownership Limit, then such holder shall acquire no right or interest in such
number of Paired Shares of Cal Jockey Stock and BMOC Stock which would cause
such person or entity to exceed the Ownership Limit, but such holder shall, in
lieu of receiving those Paired Shares of Cal Jockey Stock and BMOC Stock which
would cause the Ownership Limit to be exceeded (the "Excess Paired Shares"),
have the right to be paid by the Surviving Corporation an amount in cash for
such Excess Paired Shares equal to the product of the Fair Market Value (as
hereinafter defined) per Excess Paired Share multiplied by the number of such
Excess Paired Shares. "Fair Market Value" shall be equal to the greater of (i)
the average closing price of a Paired Share of Cal Jockey Stock and BMOC Stock
as reported for composite transactions on the American Stock Exchange in the
Wall Street Journal on the four (4) trading days immediately preceding the
Closing Date and (ii) the average closing price of a share of Patriot Stock as
reported for composite transactions on the New York Stock Exchange in the Wall
Street Journal on the four (4) trading days immediately preceding the Closing
Date multiplied by 1.92697, subject to adjustment to account for changes in
the Exchange Ratio pursuant to Section 5.2(a).
(c) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Patriot Stock shall cease to be outstanding,
shall be canceled and retired and shall cease to exist and each holder of a
certificate (a "Certificate" and, collectively, the "Certificates")
representing any shares of Patriot Stock shall thereafter cease to have any
rights with respect to such shares of Patriot Stock, except the right to
receive, without interest, Paired Shares of Cal Jockey Stock and BMOC Stock,
dividend(s) payable in accordance with Section 5.3(c) and cash in lieu of
Excess Paired Shares (if any) and fractional Paired Shares of Cal Jockey Stock
and BMOC Stock in accordance with Sections 5.2(b) and 5.3(e), respectively,
upon the surrender of such Certificate.
(d) Each share of Patriot Stock issued and held in Patriot's treasury at the
Effective Time, if any, by virtue of the Merger, shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and no
payment of any consideration shall be made with respect thereto.
(e) At the Effective Time, Patriot's obligations with respect to each stock
option and other security convertible into or exchangeable for any capital
stock or other equity interest in Patriot or a subsidiary of Patriot
(exclusive of the redemption rights of the limited partnership units of the
Patriot Operating Partnership) that will not automatically terminate by its
terms at the Effective Time (the "Existing Patriot Options") shall be assumed
by Cal Jockey (the "Assumed Options"). The Assumed Options shall, unless
otherwise amended prior to the Effective Date, continue to have, and be
subject to, the same terms and conditions as set forth in the plans and
agreements (as in effect immediately prior to the Effective Time) pursuant to
which the Existing Patriot Options were issued, except that (i) all references
to Patriot shall be deemed to be references to Cal Jockey, (ii) each Existing
Patriot Option shall be exercisable for that number of whole Paired Shares of
Cal Jockey Stock and BMOC Stock equal to the product of the number of shares
of Patriot Stock covered by such Existing Patriot Option immediately prior to
the Effective Time multiplied by the Exchange Ratio and rounded to the nearest
whole number of Paired Shares of Cal Jockey Stock and BMOC Stock and (iii) the
exercise price per Paired Share of Cal Jockey Stock and BMOC Stock under such
Existing Patriot Option shall be equal to the exercise
A-4
<PAGE>
price per share of Patriot Stock under the Existing Patriot Option divided by
the Exchange Ratio and rounded to the nearest cent. To the extent permitted by
law, the adjustment provided herein with respect to any Existing Patriot
Options that are "incentive stock options" (as defined in Section 422 of the
Code) shall be and is intended to be effected in a manner that is consistent
with Section 424(a) of the Code. Notwithstanding the foregoing, in no event
shall a holder of an Assumed Option be permitted to exercise any portion of
such Assumed Option that will result in any person or entity owning, or being
deemed to own, Paired Shares of Cal Jockey Stock and BMOC Stock at or after
the Merger in excess of the Ownership Limit or otherwise in violation of any
restrictions contained in the Certificates of Incorporation or Bylaws of Cal
Jockey and BMOC, as amended and restated. BMOC shall agree to grant to Cal
Jockey options to acquire shares of BMOC Stock equal to that number of shares
of Cal Jockey Stock that will be issuable under the Assumed Options in
accordance with this Section 5.2(e); such options shall have an exercise price
equal to the then fair market value of the BMOC Stock to be issued upon such
exercise, as determined in accordance with the Pairing Agreement by mutual
agreement of the parties hereto or if the parties are unable to agree on such
exercise price the determination shall be made by an independent third party
chosen by mutual agreement of Patriot, Cal Jockey and BMOC, and shall be
exercisable by Cal Jockey only if and to the extent a holder of an Assumed
Option exercises his or her Assumed Option. Notwithstanding the immediately
preceding sentence, (i) in no event shall Cal Jockey be permitted to hold any
such options that would result in any person or entity owning, or being deemed
to own under the applicable attribution rules of the Code referred to in
Section 5.2(b) hereof, Paired Shares of Cal Jockey Stock and BMOC Stock after
the Merger in excess of the Ownership Limit or in violation of any other
restrictions contained in the Certificates of Incorporation or Bylaws of Cal
Jockey and BMOC, as amended and restated (assuming for such purpose that such
options constitute "options" within the meaning of such attribution rules);
and (ii) in no event shall Cal Jockey be permitted to exercise such options to
the extent that such exercise would result in Cal Jockey owning, or being
deemed to own under the applicable attribution rules of the Code referred to
in Section 5.2(b) hereof, at any time, BMOC Stock in excess of the Ownership
Limit or in violation of any other restrictions contained in the Certificate
of Incorporation or Bylaws of BMOC, as amended and restated. Each of Cal
Jockey and BMOC shall reserve for issuance the number of shares of Cal Jockey
Stock or BMOC Stock, as the case may be, that will become issuable upon the
exercise of such Assumed Options pursuant to this Section 5.2(e) and the
Surviving Corporation shall promptly after the Effective Time issue to each
holder of an outstanding Existing Patriot Option a document evidencing the
assumption by the Surviving Corporation of Patriot's obligations with respect
thereto under this Section 5.2(e).
5.3 Exchange of Certificates Representing Patriot Stock.
(a) As of the Effective Time, (i) Cal Jockey shall deposit, or shall cause
to be deposited, with an exchange agent selected by Patriot on or prior to the
Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of Patriot Stock, for exchange in accordance with this Article 5, a
certificate representing the shares of Cal Jockey Stock to be issued pursuant
to Section 5.2(a) and the cash in lieu of Excess Paired Shares and fractional
Paired Shares paid pursuant to Section 5.2(b) and this Section 5.3,
respectively, in exchange for outstanding shares of Patriot Stock and
simultaneously (ii) BMOC shall deposit, or shall cause to be deposited, with
the Exchange Agent, for the benefit of the holders of shares of Patriot Stock,
for distribution in accordance with Section 5.2(a), a certificate representing
the Subscribed Shares, to be paired with the shares of Cal Jockey Stock
described in clause (i) above (such certificates for shares of Cal Jockey
Stock and the certificates for Subscribed Shares and such cash in lieu of
Excess Paired Shares and fractional Paired Shares shall hereinafter be
referred to as the "Exchange Fund"). The provisions of this Section 5.3 are
intended to comply with Sections 2(a) and 2(b) of the Pairing Agreement.
(b) Promptly after the Effective Time, the parties hereto shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Cal Jockey and BMOC may reasonably
specify and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates printed "back-to-back" evidencing
Paired Shares of Cal Jockey Stock and BMOC Stock and cash in lieu of Excess
Paired Shares, if any, and fractional Paired Shares, if any. Upon surrender of
a Certificate for
A-5
<PAGE>
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing the number of whole Paired Shares of Cal Jockey
Stock and BMOC Stock to which such holder shall be entitled, and (y) a check
representing the amount of cash in lieu of Excess Paired Shares, if any, and
fractional Paired Shares, if any, due such holder plus the amount of any
dividends or distributions, if any, pursuant to clause (c) of this Section
5.3, after giving effect to any required withholding tax, and the Certificate
so surrendered shall forthwith be canceled. No interest will be paid or
accrued on the cash in lieu of Excess Paired Shares, if any, and fractional
Paired Shares, if any, or on the dividends or distributions, if any, payable
to holders of Certificates pursuant to this Section 5.3. In the event of a
transfer of ownership of Patriot Stock which is not registered in the stock
transfer records of Patriot, a certificate representing the proper number of
Paired Shares of Cal Jockey Stock and BMOC Stock, together with a check for
the cash to be paid in lieu of Excess Paired Shares, if any, and fractional
Paired Shares, if any, plus, to the extent applicable, the amount of any
dividends or distributions, if any, payable pursuant to clause (c) of this
Section 5.3, may be issued to such a transferee if the Certificate
representing shares of such Patriot Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, dividends or
other distributions on Paired Shares of Cal Jockey Stock and BMOC Stock with
respect to any shares of Patriot Stock represented by a Certificate that has
not been surrendered for exchange shall be paid only as provided herein. Any
such dividend or distribution amounts with a record date after the Effective
Time and a payment date prior to the surrender of such Certificate shall be
deposited (less the amount of any withholding taxes which may be required
thereon) with the Exchange Agent on the applicable payment date, to be held by
the Exchange Agent in a non-interest bearing account until the surrender of
such Certificate. Following surrender of any such Certificate, the holder
thereof shall be entitled to receive for the whole Paired Shares of Cal Jockey
Stock and BMOC Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
whole Paired Shares and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Paired Shares, less the amount of any
withholding taxes which may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
stock transfer books of Patriot of the shares of Patriot Stock which were
outstanding immediately prior to the Effective Time and if, after the
Effective Time, Certificates are presented for transfer, they shall be
canceled and exchanged for certificates for Paired Shares of Cal Jockey Stock
and BMOC Stock, dividends and cash in lieu of Excess Paired Shares, if any,
and fractional Paired Shares, if any, in accordance with this Section 5.3.
Certificates surrendered for exchange by any person constituting an
"affiliate" of Patriot for purposes of Rule 145, as such rule may be amended
from time to time ("Rule 145"), of the rules and regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until Cal Jockey has received an affiliate letter (the "Affiliate
Letter") from such person as provided in Section 10.9.
(e) No fractional Paired Shares of Cal Jockey Stock and BMOC Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional Paired
Shares pursuant to this Agreement, each holder of Patriot Stock upon surrender
of a Certificate for exchange shall be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the Fair
Market Value by (ii) the fractional amount of the Paired Shares of Cal Jockey
Stock and BMOC Stock which such holder would otherwise be entitled to receive
under this Article 5.
5.4 Return of Exchange Fund. Any portion of the Exchange Fund (including any
cash for Excess Paired Shares and fractional Paired Shares, any dividends or
distributions of Cal Jockey or BMOC and any shares of Cal Jockey Stock or any
Subscribed Shares) that remains unclaimed by the former stockholders of
Patriot one year after the Effective Time shall be distributed as follows: any
cash for Excess Paired Shares and fractional
A-6
<PAGE>
Paired Shares, any dividends or distributions of Cal Jockey or shares of Cal
Jockey Stock shall be returned to Cal Jockey and any dividends or
distributions of BMOC and any Subscribed Shares shall be returned to BMOC
(provided that Cal Jockey and BMOC shall agree to issue said cash or shares in
accordance with this Article 5 to former stockholders of Patriot who
thereafter surrender their Certificates). Any former stockholders of Patriot
who have not theretofore complied with this Article 5 shall thereafter look
only to Cal Jockey for issuance or payment of that portion of their Paired
Shares representing Cal Jockey Stock and cash in lieu of Excess Paired Shares,
if any, and fractional Paired Shares, if any, and to BMOC for issuance or
payment of that portion of their Paired Shares representing BMOC Stock (plus,
in each case, dividends and distributions to the extent set forth in Section
5.3(c), if any), as determined pursuant to this Agreement, without any
interest thereon. None of Cal Jockey, BMOC, Patriot, the Exchange Agent or any
other person shall be liable to any former holder of shares of Patriot Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
5.5 Lost or Stolen Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed and,
if required by Cal Jockey and BMOC, the posting by such person of a bond in
such reasonable amount as Cal Jockey and BMOC may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent or Cal Jockey and BMOC will issue in exchange for such lost,
stolen or destroyed Certificate the Paired Shares of Cal Jockey Stock and BMOC
Stock and cash in lieu of Excess Paired Shares, if any, and fractional Paired
Shares, if any, to which such person is entitled under Section 5.3(b) (and to
the extent applicable, dividends and distributions payable pursuant to Section
5.3(c)).
ARTICLE 6.
REGISTRATION AND SOLICITATION PROCESS
6.1 Proxy Statement; Registration Statement.
(a) As promptly as practicable after execution of this Agreement, (i) each
of Patriot, Cal Jockey and BMOC shall prepare and file with the SEC (with
appropriate requests for confidential treatment, unless the parties hereto
otherwise agree) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), a joint proxy statement/prospectus and forms of proxies (such
joint proxy statement/prospectus together with any amendments to supplements
thereto, the "Proxy Statement") relating to the stockholder meetings of each
of Patriot, Cal Jockey and BMOC and the vote of the stockholders of Patriot,
Cal Jockey and BMOC with respect to the Merger and the Transactions and (ii)
following clearance by the SEC of the Proxy Statement, Cal Jockey and BMOC
shall prepare and file with the SEC under the Securities Act a registration
statement on Form S-4 (such registration statement, together with any
amendments or supplements thereto, the "Form S-4"), in which the Proxy
Statement will be included as a prospectus, in connection with the
registration under the Securities Act of the shares of Cal Jockey Stock and
the Subscribed Shares to be distributed to the stockholders of Patriot in the
Merger. The respective parties will cause the Proxy Statement and the Form S-4
to comply as to form in all material respects with the applicable provisions
of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Each of Patriot, Cal Jockey and BMOC shall furnish all information
about itself and its business and operations and all necessary financial
information to the other as the other may reasonably request in connection
with the preparation of the Proxy Statement and the Form S-4. Each of Cal
Jockey and BMOC shall use its reasonable best efforts, and Patriot will
cooperate with them, to have the Form S-4 declared effective by the SEC as
promptly as practicable (including clearing the Proxy Statement with the SEC).
Each of Patriot, Cal Jockey and BMOC agrees promptly to correct any
information provided by it for use in the Proxy Statement and the Form S-4 if
and to the extent that such information shall have become false or misleading
in any material respect, and each of the parties thereto further agrees to
take all steps necessary to amend or supplement the Proxy Statement and the
Form S-4 and to cause the Proxy Statement and the Form S-4 as so amended or
supplemented to be filed with the SEC and to be disseminated to their
respective stockholders, in each case as and to the extent required by
applicable federal and state securities laws. Each of Cal Jockey, BMOC and
Patriot
A-7
<PAGE>
agrees that the information provided by it for inclusion in the Proxy
Statement or the Form S-4 and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the respective meetings of
stockholders of Cal Jockey, BMOC and Patriot, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of Cal Jockey
and BMOC will advise and deliver copies (if any) to Patriot, promptly after it
receives notice thereof, of any request by the SEC for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or
requests by the SEC for additional information, or notice of the time when the
Form S-4 has become effective or any supplement or amendment has been filed,
the issuance of any stop order, the suspension of the qualification of the Cal
Jockey Stock issuable in connection with the Merger or of the Subscribed
Shares for offering or sale in any jurisdiction.
(b) Each of Patriot, Cal Jockey and BMOC shall use its best efforts to
timely mail the joint proxy statement/prospectus contained in the Form S-4 to
its stockholders. It shall be a condition to the mailing of the joint proxy
statement/prospectus that (i) Cal Jockey and BMOC each shall have received a
"comfort" letter from Ernst & Young, LLP, independent public accountants for
Patriot, of the kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement"), dated as of the date on
which the Form S-4 shall become effective and as of the Effective Time, each
addressed to Cal Jockey and BMOC, in form and substance reasonably
satisfactory to Cal Jockey and BMOC, concerning the procedures undertaken by
Ernst & Young, LLP with respect to the financial statements and information of
Patriot and its subsidiaries contained in the Form S-4 and the other matters
contemplated by the AICPA Statement and otherwise customary in scope and
substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement and
(ii) Patriot shall have received a "comfort" letter from Deloitte & Touche
LLP, independent public accountants for Cal Jockey and BMOC, of the kind
contemplated by the AICPA Statement, dated as of the date on which the Form S-
4 shall become effective and as of the Effective Time, each addressed to
Patriot, in form and substance reasonably satisfactory to Patriot, concerning
the procedures undertaken by Deloitte & Touche LLP with respect to the
financial statements and information of Cal Jockey and BMOC and their
subsidiaries contained in the Form S-4 and the other matters contemplated by
the AICPA Statement and otherwise customary in scope and substance for letters
delivered by independent public accountants in connection with transactions
such as those contemplated by this Agreement.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES OF PATRIOT
Except as set forth in the disclosure schedule delivered concurrently
herewith to Cal Jockey and BMOC, which shall refer to the relevant Sections of
this Agreement (the "Patriot Disclosure Schedule"), Patriot represents and
warrants to Cal Jockey and BMOC as follows:
7.1 Organization and Qualifications. Patriot and each subsidiary of Patriot
is a corporation, partnership, limited liability company or other legal entity
duly incorporated or organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has the
requisite power and authority and all governmental permits, approvals and
other authorizations necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure
to be so organized, existing or in good standing or to have such power,
authority and governmental permits, approvals and other authorizations would
not, individually or in the aggregate, have a material adverse effect on the
assets, financial condition, results of operations or businesses (a "Material
Adverse Effect") of Patriot and its subsidiaries, taken as a whole (a "Patriot
Material Adverse Effect").
7.2 Capitalization. The authorized capital stock of Patriot is as set forth
on the Patriot Disclosure Schedule. Except as set forth thereon, as of the
date hereof, no shares of capital stock or other voting securities of Patriot
were issued, reserved for issuance or outstanding. Except as set forth thereon
and except as contemplated herein,
A-8
<PAGE>
there are no options or agreements relating to the issued or unissued capital
stock of Patriot or any subsidiary of Patriot, or obligating Patriot or any
subsidiary to issue, transfer, grant or sell any shares of capital stock of,
or other equity interests in, or securities convertible into or exchangeable
for any capital stock or other equity interests in, Patriot or any subsidiary.
There are no outstanding contractual obligations of Patriot or any subsidiary
to repurchase, redeem or otherwise acquire any shares of capital stock of
Patriot or any subsidiary.
7.3 Authority Relative to this Agreement. Patriot has all necessary
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and, subject to adoption and approval of
this Agreement and the Transactions by the stockholders of Patriot as
contemplated hereby, to consummate the Transactions. The execution and
delivery of this Agreement by Patriot and the consummation by it of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Patriot are necessary
to authorize this Agreement or to consummate the Transactions (other than the
stockholder approval referenced above). This Agreement has been duly and
validly executed and delivered by Patriot and, assuming the due authorization,
execution and delivery thereof by each other party hereto, constitutes the
legal, valid and binding obligation of Patriot, enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
generally and by equitable principles to which the remedies of specific
performance and injunctive and similar forms of relief are subject.
7.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Patriot does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, (A) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of Patriot or
any of its subsidiaries, (B) subject to the making of the filings and
obtaining the approvals identified herein, conflict with or violate any law,
rule, regulation, order, judgment or decree (collectively, "Laws") applicable
to Patriot or any of its subsidiaries or by which any property or asset of
Patriot or any of its subsidiaries is bound or affected, or (C) except as
disclosed in the Patriot Disclosure Schedule, conflict with or result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss or modification
in a manner materially adverse to Patriot or its subsidiaries of any material
right or benefit under, or give to others any right of termination, amendment,
acceleration, repurchase or repayment, increased payments or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of Patriot or any subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise, or other
instrument or obligation, whether written or oral (collectively, "Contracts"),
to which Patriot or any subsidiary is a party or by which Patriot or any
subsidiary or any property or asset of Patriot or any subsidiary is bound or
affected, except, in the case of clauses (B) and (C) for any such conflicts or
violations which would not prevent or delay in any material respect
consummation of the Transactions, or otherwise, individually or in the
aggregate, prevent Patriot from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Patriot Material Adverse Effect.
(b) The execution and delivery of this Agreement by Patriot does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any federal, state or local
governmental or regulatory agency, authority, commission or instrumentality,
whether domestic or foreign (each a "Governmental Entity"), except (A) for
applicable requirements of (1) the Exchange Act, the Securities Act, and state
securities or "blue sky" laws ("Blue Sky Law") and (2) the Hart-Scott Rodino
Antitrust Improvements Act (the "HSR Act"), (B) for any consents related to
the transfer of liquor licenses or any consents required by the appropriate
California gaming and entertainment authorities, and (C) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, prevent
or delay in any material respect consummation of the Transactions, or
otherwise prevent Patriot from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a
Patriot Material Adverse Effect.
A-9
<PAGE>
7.5 Fairness Opinion. Patriot has received a written fairness opinion from
PaineWebber Incorporated, its financial advisor, to the effect that the
Transactions are fair to the holders of Patriot Stock from a financial point
of view, and Patriot has delivered a true and correct copy of such opinion to
Cal Jockey and BMOC.
7.6 SEC Reports and Financial Statements. Each form, report, schedule,
registration statement and definitive proxy statement filed by Patriot with
the SEC since December 31, 1995 and prior to the date hereof (as such
documents have been amended prior to the date hereof, collectively, the
"Patriot SEC Reports"), as of their respective dates, complied in all material
respects with the applicable requirements of the Securities Act, Exchange Act
and the rules and regulations thereunder. None of the Patriot SEC Reports, as
of their respective dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except for such statements, if any, as have
been modified or superseded by subsequent filings prior to the date hereof.
The consolidated financial statements of Patriot and its subsidiaries included
in such reports comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited interim financial statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited interim
financial statements, to normal, year-end audit adjustments) the respective
consolidated financial position of Patriot and its subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Since December 31, 1995, neither Patriot nor any
of its subsidiaries has incurred any liabilities or obligations (whether
absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise
and whether due or to become due) of any nature, except liabilities,
obligations or contingencies (i) which are reflected on the unaudited balance
sheet of Patriot and its subsidiaries, as of June 30, 1996 (including the
notes thereto), or (ii) which (A) were incurred in the ordinary course of
business after June 30, 1996 and are consistent with past practices, (B) are
disclosed in the Patriot SEC Reports filed after June 30, 1996, or (C) would
not, individually or in the aggregate, have a Patriot Material Adverse Effect.
Since December 31, 1995, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
Patriot or any material subsidiary.
7.7 Absence of Certain Changes or Events; Obligations. Except as
contemplated by this Agreement, as disclosed in any Patriot SEC Report filed
before October 31, 1996 or as set forth in the Patriot Disclosure Schedule,
since December 31, 1995, (i) Patriot and its subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past
practice, and (ii) there has not occurred or arisen any event that,
individually or in the aggregate, has had or, insofar as reasonably can be
foreseen, is likely in the future to have, a Patriot Material Adverse Effect
other than any developments that generally affect the industry in which
Patriot operates.
7.8 REIT Status. Patriot (A) will be taxed for the tax year ended December
31, 1995 and for the tax year ended December 31, 1996 as a REIT within the
meaning of Section 856 of the Code, (B) has complied (or will comply) with all
applicable provisions of the Code relating to a REIT, for 1995 and 1996 and
that portion of the 1997 tax year ending upon the consummation of the Merger,
(C) has operated, and intends to continue to operate, in such a manner as to
qualify as a REIT for 1995 and 1996 and that portion of the 1997 tax year
ending upon the consummation of the Merger, and (D) has not taken or omitted
to take any action which could reasonably be expected to result in a challenge
to its status as a REIT, and no such challenge is pending or, to Patriot's
knowledge, threatened.
7.9 Permits. To the knowledge of Patriot, Patriot has all licenses, permits,
orders, consents, approvals, registrations, authorizations, qualifications and
filings with and under all federal, state, local or foreign laws and
governmental or regulatory bodies and all industry or other nongovernmental
self-regulatory organizations ("Permits") required for the operation of its
properties and businesses as they are currently being operated, and are in
compliance therewith, except for those Permits the lack of which would not
have a Patriot Material Adverse Effect. To the knowledge of Patriot, none of
such Permits shall be canceled as a result of the
A-10
<PAGE>
consummation of the Transactions, except for those Permits the lack of which
would not have a Patriot Material Adverse Effect.
ARTICLE 8.
REPRESENTATIONS AND WARRANTIES OF BMOC
Except as set forth in the disclosure schedule delivered concurrently
herewith to Patriot, which shall refer to the relevant Sections of this
Agreement (the "BMOC Disclosure Schedule"), BMOC severally represents and
warrants to Patriot as follows:
8.1 Organization and Qualifications. BMOC and each subsidiary of BMOC is a
corporation, partnership or other legal entity duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization and has the requisite corporate power and
authority and all governmental permits, approvals and other authorizations
necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental permits, approvals and other authorizations would not,
individually or in the aggregate, have a Material Adverse Effect on BMOC, Cal
Jockey and their respective subsidiaries, taken as a whole (a "BMOC Material
Adverse Effect").
8.2 Capitalization. The authorized capital stock of BMOC is as set forth on
the BMOC Disclosure Schedule. Except as set forth thereon, as of the date
hereof, no shares of capital stock or other voting securities of BMOC were
issued, reserved for issuance or outstanding. Except as set forth above and
except as contemplated herein, there are no options or agreements relating to
the issued or unissued capital stock of BMOC or any subsidiary of BMOC, or
obligating BMOC or any subsidiary to issue, transfer, grant or sell any shares
of capital stock of, or other equity interests in, or securities convertible
into or exchangeable for any capital stock or other equity interests in, BMOC
or any subsidiary. There are no outstanding contractual obligations of BMOC or
any subsidiary to repurchase, redeem or otherwise acquire any shares of
capital stock of BMOC or any subsidiary.
8.3 Authority Relative to this Agreement. BMOC has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and, subject to adoption and approval of this Agreement
and the Transactions by the stockholders of BMOC as contemplated hereby, to
consummate the Transactions. The execution and delivery of this Agreement by
BMOC and the consummation by it of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of BMOC are necessary to authorize this Agreement or
to consummate the Transactions (other than the stockholder approval referenced
above). This Agreement has been duly and validly executed and delivered by
BMOC and, assuming the due authorization, execution and delivery thereof by
each other party hereto, constitutes the legal, valid and binding obligation
of BMOC, enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally and by equitable
principles to which the remedies of specific performance and injunctive and
similar forms of relief are subject.
8.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by BMOC does not, and the
performance of its obligations hereunder and the consummation of the
Transactions by it will not, (A) conflict with or violate the certificate of
incorporation or bylaws or equivalent organizational documents of BMOC or any
of its subsidiaries, (B) subject to the making of the filings and obtaining
the approvals identified herein, conflict with or violate any Laws applicable
to BMOC or any of its subsidiaries or by which any property or asset of BMOC
or any of its subsidiaries is bound or affected, or (C) except as disclosed in
the BMOC Disclosure Schedule, conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in the loss or modification in a manner
materially adverse to BMOC or its
A-11
<PAGE>
subsidiaries of any material right or benefit under, or give to others any
right of termination, amendment, acceleration, repurchase or repayment,
increased payments or cancellation of, or result in the creation of a lien or
other encumbrance on any property or asset of BMOC or any subsidiary pursuant
to, any Contract to which BMOC or any subsidiary is a party or by which BMOC
or any subsidiary or any property or asset of BMOC or any subsidiary is bound
or affected, except, in the case of clauses (B) and (C) for any such conflicts
or violations which would not prevent or delay in any material respect
consummation of the Transactions, or otherwise, individually or in the
aggregate, prevent BMOC from performing its obligations under this Agreement
in any material respect, and would not, individually or in the aggregate, have
a BMOC Material Adverse Effect.
(b) The execution and delivery of this Agreement by BMOC does not, and the
performance of its obligations hereunder and the consummation of the
Transactions by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity, except
(A) for applicable requirements of (1) the Exchange Act, the Securities Act,
and Blue Sky Laws and (2) the HSR Act, (B) for any consents related to the
transfer of liquor licenses or any consents required by the appropriate
California gaming and entertainment authorities, and (C) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, prevent
or delay in any material respect consummation of the Transactions, or
otherwise prevent BMOC from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a BMOC
Material Adverse Effect.
8.5 Fairness Opinion. BMOC has received a written fairness opinion from
Montgomery Securities ("Montgomery"), its financial advisor, to the effect
that the Transactions are fair to the holders of BMOC Stock from a financial
point of view, and BMOC has delivered a true and correct copy of such opinion
to Patriot.
8.6 SEC Reports and Financial Statements. Except as set forth on the BMOC
Disclosure Schedule, each form, report, schedule, registration statement and
definitive proxy statement filed by BMOC with the SEC since December 31, 1995
and prior to the date hereof (as such documents have been amended prior to the
date hereof and relate to BMOC, collectively, the "BMOC SEC Reports"), as of
their respective dates, complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations thereunder. Except as set forth in the BMOC Disclosure Schedule,
none of the BMOC SEC Reports, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except for such statements, if any, as have been modified or superseded by
subsequent filings prior to the date hereof. The combined financial statements
of BMOC, Cal Jockey and their respective subsidiaries included in such reports
comply in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may
be indicated in the notes thereto or, in the case of the unaudited interim
financial statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited interim financial statements, to
normal, year-end audit adjustments) the combined financial position of BMOC,
Cal Jockey and their subsidiaries as of the dates thereof and the combined
results of their operations and cash flows for the periods then ended. Except
as set forth in the BMOC Disclosure Schedule, since December 31, 1995, neither
BMOC nor any of its subsidiaries has incurred any liabilities or obligations
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due) of any nature, except liabilities,
obligations or contingencies (i) which are reflected on the unaudited balance
sheet of BMOC and its subsidiaries, as of June 30, 1996 (including the notes
thereto), or (ii) which (A) were incurred in the ordinary course of business
after June 30, 1996 and are consistent with past practices, (B) are disclosed
in the BMOC SEC Reports filed after June 30, 1996, or (C) would not,
individually or in the aggregate, have a BMOC Material Adverse Effect. Since
December 31, 1995, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
BMOC or any material subsidiary.
8.7 Absence of Certain Changes or Events; Obligations. Except as
contemplated by this Agreement, as disclosed in any BMOC SEC Report filed
before October 31, 1996 or as set forth in the BMOC Disclosure
A-12
<PAGE>
Schedule, since December 31, 1995, (i) BMOC and its subsidiaries have
conducted their respective businesses only in the ordinary course, consistent
with past practice, and have not taken any action that would be inconsistent
with the covenants set forth in Section 10.6, and (ii) there has not occurred
or arisen any event that, individually or in the aggregate, has had or,
insofar as reasonably can be foreseen, is likely in the future to have, a BMOC
Material Adverse Effect other than any developments that generally affect the
industry in which BMOC operates.
8.8 Pairing Agreement. The Pairing Agreement was duly and validly authorized
and is a legal, valid and binding agreement of BMOC enforceable against BMOC
in accordance with its terms. The outstanding shares of Cal Jockey are paired
with the outstanding shares of BMOC pursuant to the Pairing Agreement, and
such pairing is permitted pursuant to Section 136(c) of the Deficit Reduction
Act of 1984 (the "Deficit Act").
ARTICLE 9.
REPRESENTATIONS AND WARRANTIES OF CAL JOCKEY
Except as set forth in the disclosure schedule delivered concurrently
herewith to the execution hereof to Patriot, which shall refer to the relevant
Sections of this Agreement (the "Cal Jockey Disclosure Schedule"), Cal Jockey
severally represents and warrants to Patriot as follows:
9.1 Organization and Qualifications. Cal Jockey and each subsidiary of Cal
Jockey is a corporation, partnership or other legal entity duly incorporated
or organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite
corporate power and authority and all governmental permits, approvals and
other authorizations necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure
to be so organized, existing or in good standing or to have such power,
authority and governmental permits, approvals and other authorizations would
not, individually or in the aggregate, have a Material Adverse Effect on Cal
Jockey and its subsidiaries, taken as a whole (a "Cal Jockey Material Adverse
Effect").
9.2 Capitalization. The authorized capital stock of Cal Jockey is as set
forth on the Cal Jockey Disclosure Schedule. Except as set forth thereon, as
of the date hereof, no shares of capital stock or other voting securities of
Cal Jockey were issued, reserved for issuance or outstanding. Except as set
forth above and except as contemplated herein, there are no options or
agreements relating to the issued or unissued capital stock of Cal Jockey or
any subsidiary of Cal Jockey, or obligating Cal Jockey or a subsidiary to
issue, transfer, grant or sell any shares of capital stock of, or other equity
interests in, or securities convertible into or exchangeable for any capital
stock or other equity interests in, Cal Jockey or any subsidiary. There are no
outstanding contractual obligations of Cal Jockey or any subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of Cal
Jockey or any subsidiary.
9.3 Authority Relative to this Agreement. Cal Jockey has all necessary
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and, subject to adoption and approval of
this Agreement and the Transactions by the stockholders of Cal Jockey as
contemplated hereby, to consummate the Transactions. The execution and
delivery of this Agreement by Cal Jockey and the consummation by it of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Cal Jockey are
necessary to authorize this Agreement or to consummate the Transactions (other
than the stockholder approval referenced above). This Agreement has been duly
and validly executed and delivered by Cal Jockey and, assuming the due
authorization, execution and delivery thereof by each other party hereto,
constitutes the legal, valid and binding obligation of Cal Jockey, enforceable
against it in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally and by equitable principles to which the remedies
of specific performance and injunctive and similar forms of relief are
subject.
9.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Cal Jockey does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, (A) conflict with or violate the
A-13
<PAGE>
certificate of incorporation or bylaws or equivalent organizational documents
of Cal Jockey or any of its subsidiaries, (B) subject to the making of the
filings and obtaining the approvals identified herein, conflict with or
violate any Laws applicable to Cal Jockey or any of its subsidiaries or by
which any property or asset of Cal Jockey or any of its subsidiaries is bound
or affected, or (C) except as disclosed in the Cal Jockey Disclosure Schedule,
conflict with or result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
result in the loss or modification in a manner materially adverse to Cal
Jockey or its subsidiaries of any material right or benefit under, or give to
others any right of termination, amendment, acceleration, repurchase or
repayment, increased payments or cancellation of, or result in the creation of
a lien or other encumbrance on any property or asset of Cal Jockey or any
subsidiary pursuant to, any Contract to which Cal Jockey or any subsidiary is
a party or by which Cal Jockey or any subsidiary or any property or asset of
Cal Jockey or any subsidiary is bound or affected, except, in the case of
clauses (B) and (C) for any such conflicts or violations which would not
prevent or delay in any material respect consummation of the Transactions, or
otherwise, individually or in the aggregate, prevent Cal Jockey from
performing its obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Cal Jockey Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Cal Jockey does not, and
the performance of its obligations hereunder and the consummation of the
Transactions by it will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity except
(A) for applicable requirements of (1) the Exchange Act, the Securities Act
and Blue Sky Laws and (2) the HSR Act, (B) for any consents related to the
transfer of liquor licenses or any consents required by the appropriate
California gaming and entertainment authorities and (C) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, prevent
or delay in any material respect consummation of the Transactions, or
otherwise prevent Cal Jockey from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a Cal
Jockey Material Adverse Effect.
9.5 Fairness Opinion. Cal Jockey has received a written fairness opinion
from Montgomery, its financial advisor, to the effect that the Transactions
are fair to the holders of Cal Jockey Stock from a financial point of view,
and Cal Jockey has delivered a true and correct copy of such opinion to
Patriot.
9.6 SEC Reports and Financial Statements. Except as set forth in the Cal
Jockey Disclosure Schedules, each form, report, schedule, registration
statement and definitive proxy statement filed by Cal Jockey with the SEC
since December 31, 1995 and prior to the date hereof (as such documents have
been amended prior to the date hereof and relate to Cal Jockey, collectively,
the "Cal Jockey SEC Reports"), as of their respective dates, complied in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Except as set forth in
the Cal Jockey Disclosure Schedules, none of the Cal Jockey SEC Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except for such statements, if any, as have
been modified or superseded by subsequent filings prior to the date hereof.
The consolidated financial statements of Cal Jockey and its subsidiaries
included in such reports comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited interim financial statements, as permitted by Form 10-Q
of the SEC) and fairly present (subject, in the case of the unaudited interim
financial statements, to normal, year-end audit adjustments) the respective
consolidated financial position of Cal Jockey and its subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended. Except as set forth in the Cal Jockey Disclosure
Schedule, since December 31, 1995, neither Cal Jockey nor any of its
subsidiaries has incurred any liabilities or obligations (whether absolute,
accrued, fixed, contingent, liquidated, unliquidated or otherwise and whether
due or to become due) of any nature, except liabilities, obligations or
contingencies (i) which are reflected on the unaudited balance
A-14
<PAGE>
sheet of Cal Jockey and its subsidiaries, as of June 30, 1996 (including the
notes thereto), or (ii) which (A) were incurred in the ordinary course of
business after June 30, 1996 and consistent with past practices, (B) are
disclosed in the Cal Jockey SEC Reports filed after June 30, 1996, or (C)
would not, individually or in the aggregate, have a Cal Jockey Material
Adverse Effect. Since December 31, 1995, there has been no change in any of
the significant accounting (including tax accounting) policies, practices or
procedures of Cal Jockey or any material subsidiary.
9.7 Absence of Certain Changes or Events; Obligations. Except as
contemplated by this Agreement, as disclosed in any Cal Jockey SEC Report
filed before October 31, 1996 or as set forth in the Cal Jockey Disclosure
Schedule, since December 31, 1995, (i) Cal Jockey and its subsidiaries have
conducted their respective businesses only in the ordinary course, consistent
with past practice, and have not taken any action that would be inconsistent
with the covenants set forth in Section 10.6, and (ii) there has not occurred
or arisen any event that, individually or in the aggregate, has had or,
insofar as reasonably can be foreseen, is likely in the future to have, a Cal
Jockey Material Adverse Effect other than any developments that generally
affect the industry in which Cal Jockey operates.
9.8 Real Property. The Cal Jockey Disclosure Schedule lists all of the real
property owned by, or subject to a lease with, Cal Jockey (the "Cal Jockey
Properties" and, individually, a "Cal Jockey Property"). To the knowledge of
Cal Jockey, except as set forth in the title reports listed in the Cal Jockey
Disclosure Schedule or as otherwise disclosed in the Cal Jockey Disclosure
Schedule, each of the Cal Jockey Properties is owned by (or in the case of
leases, leased by) Cal Jockey free and clear of any mortgages, liens, pledges,
options, charges, claims, easements, restrictions, security interests, rights-
of-way or other encumbrances ("Encumbrances") other than Encumbrances which,
individually or in the aggregate, would not have a Cal Jockey Material Adverse
Effect. To the knowledge of Cal Jockey, Cal Jockey is in compliance with all
applicable laws, statues, ordinances and regulations, whether federal, state
or local (including those applicable to zoning, environmental conditions and
racing) except where the failure to comply would not have a Cal Jockey
Material Adverse Effect.
9.9 Permits. To the knowledge of Cal Jockey, Cal Jockey has all Permits
required for the operation of its properties and businesses as they are
currently being operated, and are in compliance therewith, except for those
Permits the lack of which would not have a Cal Jockey Material Adverse Effect.
To the knowledge of Cal Jockey, none of such Permits shall be canceled as a
result of the consummation of the Transactions, except for those Permits the
lack of which would not have a Cal Jockey Material Adverse Effect. The Cal
Jockey Disclosure Schedule sets forth a true and correct list (to the
knowledge of Cal Jockey) of all Permits that are (i) material to the operation
of its properties and business as they are currently being operated or (ii)
required for the execution, delivery and performance by Cal Jockey of this
Agreement, except for those Permits, the absence of which would not reasonably
be expected to (x) have a Cal Jockey Material Adverse Effect or (y) prevent or
materially delay the consummation of the Transactions. To the knowledge of Cal
Jockey, except as disclosed in the Cal Jockey Disclosure Schedule, the Cal
Jockey SEC Reports or in reports of consultants delivered to Patriot with the
Cal Jockey Disclosure Schedule, there are no structural, mechanical, HVAC,
environmental or zoning violations relating to the Cal Jockey Properties which
would reasonably be expected to have a Cal Jockey Material Adverse Effect.
9.10 REIT Status. Cal Jockey (A) will be taxed for the tax year ended
December 31, 1995 and for the tax year ended December 31, 1996 as a REIT
within the meaning of Section 856 of the Code, (B) has complied (or will
comply) with all applicable provisions of the Code relating to a REIT for 1995
and 1996 and that portion of the 1997 tax year ending upon the consummation of
the Merger, (C) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for 1995 and 1996 and that portion of the 1997
tax year ending upon the consummation of the Merger, and (D) has not taken or
omitted to take any action which could reasonably be expected to result in a
challenge to its status as a REIT, and no such challenge is pending or, to Cal
Jockey's knowledge, threatened. Cal Jockey is "grandfathered" from the
application of Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of
the Deficit Act, and no challenge to such "grandfathered" status is pending,
or to Cal Jockey's knowledge, threatened.
A-15
<PAGE>
9.11 Pairing Agreement. The Pairing Agreement was duly and validly
authorized and is a legal, valid and binding agreement of Cal Jockey
enforceable against Cal Jockey in accordance with its terms. The outstanding
shares of Cal Jockey are paired with the outstanding shares of BMOC pursuant
to the Pairing Agreement, and such pairing is permitted pursuant to Section
136(c) of the Deficit Act.
ARTICLE 10.
COVENANTS
10.1 No Solicitation.
(a) Each of Cal Jockey and BMOC represent and warrant with respect to itself
only that it has terminated any discussions or negotiations relating to, or
that may reasonably be expected to lead to, any Acquisition Proposal (as
hereinafter defined). Until the earlier of the termination of this Agreement
pursuant to its terms or the consummation of the Transactions, neither Cal
Jockey nor BMOC nor any of their subsidiaries shall, directly or indirectly,
take (nor shall Cal Jockey or BMOC authorize, and they shall use their best
efforts not to permit, any of their subsidiaries, officers, directors,
employees, representatives, investment bankers, attorneys, accountants or
other agents or affiliates (collectively, the "Representatives") to take) any
action to (i) encourage, solicit or initiate the submission of any Acquisition
Proposal, (ii) enter into any agreement for a Third Party Transaction (as
hereafter defined) or (iii) participate in any way in discussions or
negotiations with, or furnish any non-public information to, any person in
connection with any Acquisition Proposal. Notwithstanding any other provision
of this Section 10.1(a), either Cal Jockey or BMOC or their Representatives
may, in response to an unsolicited bona fide offer or proposal made by a third
party to it, provide information to or have discussions or negotiations with
such third party to the extent required by the fiduciary obligations of its
respective Board of Directors under applicable law, if such Board of Directors
shall have received advice from outside counsel to such effect. Cal Jockey and
BMOC will immediately communicate to Patriot the receipt of any third party
solicitation, proposal or bona fide inquiry that Cal Jockey, BMOC or any of
their Representatives may receive in respect of any such transaction, or of
any request for such information.
(b) As used herein, the term "Acquisition Proposal" shall mean any proposed
(i) merger, consolidation or similar transaction involving BMOC or Cal Jockey,
(ii) sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of (A) any assets of BMOC or its
subsidiaries representing 15% or more of the consolidated assets of BMOC and
its subsidiaries or (B) any assets of Cal Jockey or its subsidiaries
representing 15% or more of the consolidated assets of Cal Jockey and its
subsidiaries (excluding in each case any transactions relating to the
disposition of certain Cal Jockey property on terms substantially similar and
no less favorable than those previously publicly disclosed in the Cal Jockey
SEC Reports or pursuant to the agreements previously provided to Patriot),
(iii) issue, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 15% or more of the votes attached to the outstanding
securities of BMOC or Cal Jockey, (iv) transaction in which any person shall
acquire beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership or any "group" (as
such term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of 15% or
more of the outstanding shares of common stock of BMOC or Cal Jockey, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to Cal Jockey, BMOC or any of their
subsidiaries, or (vi) transaction which is similar in form, substance or
purpose to any of the foregoing transactions.
(c) As used herein, the term "Third Party Transaction" shall mean a
transaction, with a party unrelated to Patriot, referred to in an Acquisition
Proposal.
(d) Cal Jockey will use its best efforts to take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders as promptly as practicable to
A-16
<PAGE>
consider and vote upon each of the following proposals: (i) approval of this
Agreement and the Transactions contemplated herein including the Merger and
the contribution of Cal Jockey's assets to the Patriot Operating Partnership;
(ii) approval of the amendment and restatement of Cal Jockey's Certificate of
Incorporation and Bylaws in the form of Exhibits B and C, respectively (the
"Cal Jockey Charter Proposal"); and (iii) such other proposals (if any) as the
parties shall mutually agree (proposals (i) and (iii) are collectively
referred to as the "Cal Jockey Stockholder Proposals"). BMOC will use its best
efforts to take all action necessary in accordance with applicable law and its
Certificate of Incorporation and Bylaws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon each of the
following proposals: (i) approval of this Agreement and the Transactions
contemplated herein including the issuance of the Subscribed Shares and the
contribution of BMOC's assets to an operating partnership; (ii) approval of
the amendment and restatement of BMOC's Certificate of Incorporation and
Bylaws in forms substantially similar to Exhibits B and C, respectively, with
such changes as the parties shall mutually agree (the "BMOC Charter
Proposal"); and (iii) such other proposals (if any) as the parties shall
mutually agree (proposals (i) and (iii) are collectively referred to as the
"BMOC Stockholder Proposals"). The parties hereto each agree that the Proxy
Statement shall provide that each of the above-described proposals must be
approved by the respective stockholders to consummate the Transaction
contemplated herein. The Boards of Directors of Cal Jockey and BMOC shall
recommend and declare advisable to their respective stockholders approval of
such proposals and Cal Jockey and BMOC shall take all lawful action to
solicit, and use their best efforts to obtain, approval of their respective
stockholders, and none of the Board of Directors of BMOC, the Board of
Directors of Cal Jockey nor any committee of either Board of Directors shall
(i) withdraw or modify the approval or recommendation by such Board of
Directors or such committee of the Transactions, (ii) approve or recommend any
Acquisition Proposal, or (iii) cause Cal Jockey or BMOC to enter into any
letter of intent, agreement in principle, an acquisition agreement or other
similar agreement with respect to any Acquisition Proposal. Notwithstanding
the foregoing, in the event that either of the Board of Directors of Cal
Jockey or the Board of Directors of BMOC determines in good faith after
receiving advice of its respective outside counsel that such action is
necessary in order for such Board of Directors to comply with its fiduciary
duties to stockholders under applicable law, the Board of Directors of BMOC or
Cal Jockey, as the case may be, may (subject to the following sentences of
this Section 10.1(d)) withdraw or modify its approval or recommendation of the
Transactions, approve or recommend a Superior Proposal (as hereinafter
defined) or terminate this Agreement, but in each case only concurrently with
the payment(s) as required by Section 12.1(e), 12.1(f) or 12.3, as applicable.
For purposes of this Agreement, a "Superior Proposal" means any bona fide
Acquisition Proposal, the terms of which the Board of Directors of Cal Jockey
or the Board of Directors of BMOC determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized reputation) to
be more favorable from a financial point of view to Cal Jockey's or BMOC's
stockholders than the Transactions.
(e) Patriot will use its best efforts to take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of its stockholders as promptly as practicable to
consider and vote upon each of the following proposals: (i) approval of this
Agreement and the Transactions contemplated herein including the Merger; and
(ii) such other proposals (if any) as the parties shall mutually agree
(collectively, the "Patriot Stockholder Proposals"). The Board of Directors of
Patriot shall recommend and declare advisable approval of such proposals and
Patriot shall take all lawful action to solicit, and use its best efforts to
obtain, such approval, and neither the Board of Directors of Patriot nor any
committee thereof shall withdraw or modify the approval or recommendation by
such Board of Directors or such committee of the Transactions. Notwithstanding
the foregoing, in the event that the Board of Directors of Patriot determines
in good faith after receiving advice of Patriot's outside counsel that such
action is necessary in order for the Board of Directors of Patriot to comply
with its fiduciary duties to Patriot's stockholders under applicable law, the
Board of Directors of Patriot may (subject to the following sentence) withdraw
or modify its approval or recommendation of the Transactions. In the event
that (i) Patriot's Board of Directors withdraws or modifies its approval or
recommendation of the Transactions or (ii) approval of the Patriot Stockholder
Proposals is not obtained, Patriot shall promptly reimburse Cal Jockey and
BMOC for their out-of-pocket costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby in an amount requested
by Cal Jockey and BMOC up to $1 million in the aggregate; provided that Cal
Jockey's right to receive such
A-17
<PAGE>
payment shall be conditioned on the receipt by Cal Jockey of a written opinion
(satisfactory to Cal Jockey) from Cal Jockey's tax counsel to the effect that
receipt of such payment will not result in a loss of Cal Jockey's REIT status.
In the event that stockholder approval is obtained for the BMOC Stockholder
Proposals and the Cal Jockey Stockholder Proposals, but is not obtained for
either the BMOC Charter Proposal or the Cal Jockey Charter Proposal and
Patriot terminates this Agreement pursuant to Section 12.1(g), Patriot shall
promptly pay $5 million in the aggregate to Cal Jockey and BMOC in immediately
available funds as well as any additional amounts due under Section 12.3;
provided that Cal Jockey's right to receive such payment shall be conditioned
on the receipt by Cal Jockey of a written opinion (satisfactory to Cal Jockey)
from Cal Jockey's tax counsel to the effect that receipt of such payment will
not result in a loss of Cal Jockey's REIT status.
10.2 Access. Each of BMOC and Cal Jockey shall (and shall cause each of
their subsidiaries to) afford to Patriot, Patriot Operating Partnership and
their Representatives full access during normal business hours to all of its
properties, books, contracts, commitments and records and shall (and shall
cause each of its subsidiaries to) furnish promptly to such parties (i) a copy
of each report, schedule and other document filed or received by it pursuant
to the requirements of federal or state securities laws and (ii) all other
information concerning its business, properties and personnel as such party
may reasonably request, including any financial and operating data. Each of
Patriot and Patriot Operating Partnership shall (and shall cause each of their
subsidiaries to) afford to each of Cal Jockey and BMOC and their respective
Representatives full access during normal business hours to all of its
properties, books, contracts, commitments and records and shall (and shall
cause each of its subsidiaries to) furnish promptly to such parties (x) a copy
of each report, schedule and other document filed or received by it pursuant
to the requirements of federal or state securities laws and (y) all other
information concerning its business, properties and personnel as Cal Jockey or
BMOC may reasonably request, including any financial and operating data. Any
such access shall commence forthwith, and shall be conducted in such a manner
so as not to interfere unreasonably with the business or operations of BMOC,
Cal Jockey, Patriot or Patriot Operating Partnership, respectively. Treatment
of all information obtained as contemplated above shall be subject to the
agreement, dated as of September 25, 1996, between Patriot and BMOC and
relating to confidentiality, and the agreement dated October 8, 1996 between
Patriot, Cal Jockey and Montgomery Securities relating to confidentiality
(collectively, the "Confidentiality Agreements"); provided that the parties
hereto agree that such Confidentiality Agreements shall be deemed to be among
all of the parties hereto and shall apply to any information exchanged among
any of the parties hereto.
10.3 Consents. The parties hereto will use their respective reasonable best
efforts to (i) obtain all material consents, authorizations, orders and
approvals required in connection with this Agreement and the Transactions and
(ii) resolve any action, suit, proceeding or investigation which shall have
been instituted or which a governmental agency shall have indicated its
intention to institute which jeopardizes any of the Transactions; provided,
however, that no party hereto shall be obligated to take any action which, in
the reasonable opinion of such party (following consultation with its
counsel), would (x) have a Material Adverse Effect on such party and its
subsidiaries taken as a whole (with regard to BMOC, would have a BMOC Material
Adverse Effect) or (y) have a Material Adverse Effect or otherwise materially
restrict or impair the effective operation of BMOC, Cal Jockey, or Patriot
following the time of consummation of the Transactions (with regard to BMOC,
would have a BMOC Material Adverse Effect).
10.4 Efforts. Subject to the terms and conditions herein provided each of
the parties hereto agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
Transactions; provided, however, that no party hereto shall be obligated to
take any action which, in the reasonable opinion of such party (following
consultation with its counsel) would (x) have a Material Adverse Effect on
such party and its subsidiaries taken as a whole (with regard to BMOC, would
have a BMOC Material Adverse Effect) or (y) have a Material Adverse Effect or
otherwise materially restrict the operations of such party following the
consummation of the Transactions (with regard to BMOC, would have a BMOC
Material Adverse Effect).
10.5 Announcements. The parties hereto will consult and cooperate with each
other and agree upon the terms and substance of all press releases,
announcements and public statements with respect to this Agreement
A-18
<PAGE>
and the Transactions, provided that such consultation and cooperation shall
not interfere with any obligation of any party hereto to disclose any
information as required by applicable law. Any press release or other
announcement by any party with respect to the Transactions will be subject to
the consent and approval of the other parties, which consent or approval shall
not be unreasonably withheld.
10.6 Interim Operations.
(a) Except as expressly required or permitted by this Agreement, from and
after October 31, 1996 until the earlier of (i) the consummation of the
Transactions or (ii) the termination of this Agreement pursuant to its terms,
(1) each of BMOC and Cal Jockey covenant to Patriot that each of them will and
will cause its respective subsidiaries to (w) operate its businesses in the
ordinary course of business, (x) not take any action or fail to take any
action which would or could reasonably be expected to terminate Cal Jockey's
status as a REIT or the pairing status of the stock of BMOC and Cal Jockey,
(y) not take any extraordinary action or fail to take any action, the failure
of which to take would itself be an extraordinary action (including, without
limitation, entering into any new or modifying any existing contract between
BMOC and Cal Jockey or any of their respective subsidiaries or affiliates),
and (z) except as set forth in the Cal Jockey Disclosure Schedule, not
declare, set aside or pay any dividend or other distribution in respect of its
capital stock, whether in stock, cash or other property, other than, in the
case of Cal Jockey, dividends required in order to preserve Cal Jockey's
status as a REIT or to avoid federal income or excise taxes on its
undistributed income and (2) Cal Jockey covenants to Patriot that it shall not
sell, transfer or encumber any Cal Jockey Property or any interest therein or
take any other action or fail to take any action if the effect of such action
or inaction materially adversely affects any Cal Jockey Property, provided
that nothing herein shall be deemed to prohibit Cal Jockey from consummating
the transactions relating to the disposition of certain Cal Jockey Property on
terms substantially similar and no less favorable than those previously
publicly disclosed in the Cal Jockey SEC Reports or pursuant to the agreements
previously provided to Patriot.
(b) From and after October 31, 1996, until the earlier of (i) the
consummation of the Transactions or (ii) the termination of this Agreement
pursuant to its terms, Patriot will not, without the consent of Cal Jockey and
BMOC, (1) raise more than $500 million through the sale of shares of its
common stock, (2) materially alter the nature of its fundamental business
operations, (3) take any action or fail to take any action which would or
could reasonably be expected to terminate Patriot's status as a REIT, and (4)
declare, set aside or pay any dividend or other distribution in respect of its
capital stock, whether in stock, cash or other property, other than (x) the
dividends disclosed in the Patriot Disclosure Schedule, or (y) dividends
required in order to preserve Patriot's status as a REIT or to avoid federal
income or excise taxes on its undistributed income; provided, that the amount
of any such dividends shall be calculated assuming that the Effective Time
occurs on June 30, 1997.
10.7 Filings; Other Action. Subject to the terms and conditions herein
provided, each of Patriot, Cal Jockey and BMOC shall: (a) to the extent
required, promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to the Transactions; (b)
use all reasonable best efforts to cooperate with one another in (i)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Closing from, governmental or regulatory authorities
of the United States, the several states and foreign jurisdictions and any
third parties in connection with the execution and delivery of this Agreement,
the consummation of the Transactions and (ii) timely making all such filings
and timely seeking all such consents, approvals, permits or authorizations;
(c) use all reasonable best efforts to obtain in writing any consents required
from third parties to effectuate the Transactions, such consents to be in
reasonably satisfactory form to each of Patriot, Cal Jockey and BMOC; and (d)
use all reasonable best efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the Transactions. If, at any time
after the Effective Time, any further action is necessary or desirable to
carry out the purpose of this Agreement, the parties hereto shall take all
such necessary action.
10.8 Listing Application. Each of Patriot, Cal Jockey and BMOC shall
cooperate and promptly prepare and submit to the New York Stock Exchange (the
"NYSE") all reports, applications and other documents that may
A-19
<PAGE>
be necessary or desirable to enable all of the shares of Cal Jockey Stock and
BMOC Stock that will be outstanding or will be reserved for issuance at the
Effective Time to be listed for trading on the NYSE. Each of Patriot, Cal
Jockey and BMOC shall furnish all information about itself and its business
and operation and all necessary financial information to the other as the
other may reasonably request in connection with the such NYSE listing process.
Each of Cal Jockey, BMOC and Patriot agrees promptly to correct any
information provided by it for use in the NYSE listing process if and to the
extent that such information shall have become false or misleading in any
material respect. Each of Patriot, Cal Jockey and BMOC will advise and deliver
copies (if any) to the other parties, promptly after it receives notice
thereof, of any request by the NYSE for amendment of any submitted materials
or comments thereon and responses thereto or requests by the NYSE for
additional information.
10.9 Affiliates of Patriot. Prior to the Closing Date, Patriot shall deliver
to Cal Jockey a list of names and addresses of those persons who were, in
Patriot's reasonable judgment, at the record date for its stockholders'
meeting to approve the Merger, "affiliates" (each such person, an "Affiliate")
of Patriot within the meaning of Rule 145, including without limitation all
directors and executive officers of Patriot. Patriot shall use its reasonable
efforts to deliver or cause to be delivered to Cal Jockey, from each of the
Affiliates identified in the foregoing list, an Affiliate Letter, and from
each person who may be deemed to have become an "affiliate" of Patriot within
the meaning of Rule 145 after delivery of the first such list hereunder and
prior to the Effective Time.
10.10 Expenses. Subject to the provisions of Section 10.1(e), all costs and
expenses incurred in connection with this Agreement and the Transactions shall
be paid by the party incurring such expenses, except that (a) the filing
fee(s) in connection with the filing of the Offer Documents and the Form S-4
with the SEC, (b) the filing fee in connection with the listing of the Paired
Shares on the NYSE, if any, and (c) the expenses incurred for printing and
mailing the Offer Documents, the Form S-4 and the joint proxy
statement/prospectus, shall be shared equally by Patriot, on the one hand, and
Cal Jockey and BMOC, on the other hand. Subject to the provisions of Section
10.1(e), all costs and expenses for professional services rendered pursuant to
the transactions contemplated by this Agreement including, but not limited to,
investment banking and legal services, will be paid by each party incurring
such services.
10.11 Brokers and Finders. The Cal Jockey Disclosure Schedule and the BMOC
Disclosure Schedule set forth all engagement letters, contracts, arrangements
or understandings with agents, brokers, investment bankers, financial advisors
or other persons or firms which may result in the obligation of Cal Jockey or
BMOC to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the Transactions and true and correct copies of such documents
have been delivered to Patriot. Other than the foregoing disclosed
arrangements, neither Cal Jockey nor BMOC is aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the Transactions, and each of Cal Jockey and BMOC acknowledges and agrees
that all such finder's fees, brokerage or agent's commissions or other like
payments shall be the responsibility of Cal Jockey and BMOC and not that of
Patriot. Patriot acknowledges and agrees that any finder's fees, brokerage or
agent's commissions or other like payments incurred by any agents, brokers,
investment bankers, financial advisors or other persons or firms engaged by
Patriot in connection with the negotiations leading to this Agreement or the
consummation of the Transactions, including the arrangement(s) disclosed in
the Patriot Disclosure Schedule, shall be the responsibility of Patriot and
not that of Cal Jockey or BMOC.
10.12 Indemnification and Insurance. The Surviving Corporation and BMOC,
respectively, will maintain in effect all rights to indemnification existing
in favor of any director, officer, employee or agent of Cal Jockey and/or BMOC
and their respective subsidiaries (the "Indemnified Parties") as provided in
their respective Certificates of Incorporation, Bylaws or in indemnification
agreements with Cal Jockey and/or BMOC or any of their respective subsidiaries
which are in effect as of the date hereof (or disclosed in the BMOC Disclosure
Schedule) with respect to matters occurring at or prior to the Effective Time,
and all of such rights of
A-20
<PAGE>
indemnification shall survive the consummation of the Transactions and shall
continue in full force and effect for a period of not less than six (6) years
from the Effective Time; provided, that in the event any claim or claims are
asserted or made within such six-year period, all rights to indemnification in
respect of any such claim or claims shall continue until final disposition of
any and all such claims. It is understood and agreed that the Surviving
Corporation and BMOC shall advance, indemnify and hold harmless, as and to the
full extent permitted by applicable law, each Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including attorneys'
fees and expenses), judgments, fines and amounts paid in settlement in
connection with any threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective
Time). In addition, the Surviving Corporation and BMOC shall cause to be
maintained in effect for not less than six (6) years from the Effective Time
any current policies of the directors' and officers' liability insurance
maintained by Cal Jockey and/or BMOC as of the date hereof; provided, that
such corporations will be permitted to substitute therefor policies of at
least the same coverage containing terms and conditions which are no less
advantageous and provided that such substitution shall not result in any gaps
or lapses in coverage with respect to matters occurring prior to the Effective
Time; provided, further, that such corporations shall not be required to pay
an annual premium in excess of 200% of the last annual premium paid by Cal
Jockey and/or BMOC prior to the date hereof and if they are unable to obtain
the insurance required, they shall obtain as much comparable insurance as
possible for an annual premium equal to such maximum amount. In all cases, the
Surviving Corporation guarantees the indemnification obligations of BMOC with
respect to any claims of the Indemnified Parties under this Section 10.12. The
parties hereto acknowledge and agree that this Section 10.12 is intended to
grant third party rights to the Indemnified Parties to enforce the covenants
contained in this Section 10.12.
ARTICLE 11.
CONDITIONS
11.1 Conditions to BMOC's and Cal Jockey's Obligations. The obligations of
BMOC and Cal Jockey to consummate the Transactions are subject to the
satisfaction of each of the following conditions:
(a) All waivers, consents, authorizations, orders, approvals or expiration
of waiting periods required under any law, regulation or agreement to be
obtained by any of the parties hereto in order to consummate the Transactions
shall have been obtained, except where the failure to have obtained any such
waiver, consent, authorization, order or approval would not have a BMOC
Material Adverse Effect, a Cal Jockey Material Adverse Effect, or a Patriot
Material Adverse Effect, as the case may be.
(b) The representations and warranties of Patriot set forth herein shall be
true and correct in all respects as of the date hereof, and as of the time the
Transactions are consummated (except for representations and warranties that
speak as of a specific date or time which need only be true and correct in all
respects as of such date or time), other than, in all such cases, such
failures to be true and/or correct as would not in the aggregate reasonably be
expected to have a Patriot Material Adverse Effect; provided, however, that if
any of the representations and warranties are already qualified in any respect
by materiality or as to a Patriot Material Adverse Effect for purposes of this
Section such materiality or Patriot Material Adverse Effect qualification will
be in all respects ignored (but subject to the overall standard as to Patriot
Material Adverse Effect set forth immediately prior to this proviso).
(c) Patriot shall have complied in all material respects with all covenants
and agreements set forth herein to be performed by it prior to the Effective
Time and Patriot Operating Partnership shall have complied in all material
respects with all covenants and agreements set forth herein and in the
Subscription Agreement to be performed by it prior to the Effective Time.
(d) No injunction, restraining order or other order of any federal or state
court which prevents the consummation of the Transactions shall be in effect.
A-21
<PAGE>
(e) No statute, rule or regulation shall have been enacted by any state or
governmental agency that would prevent the consummation of the Transactions.
(f) Stockholder approval of the BMOC Charter Proposal, the BMOC Stockholder
Proposals, the Cal Jockey Charter Proposal and the Cal Jockey Stockholder
Proposals shall have been obtained.
(g) Stockholder approval of the Patriot Stockholder Proposals shall have
been obtained.
(h) The Form S-4 shall have been declared effective by the SEC under the
Securities Act, and no stop order suspending the effectiveness of the Form S-4
shall have been issued by the SEC, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(i) Cal Jockey and BMOC shall have obtained the approval for the listing of
the Paired Shares of common stock of Cal Jockey and BMOC on the NYSE effective
upon consummation of the Merger, subject to official notice of issuance.
(j) No Patriot Material Adverse Effect shall have occurred between the date
hereof and consummation of the Transactions other than any developments that
generally affect the industry in which Patriot operates.
11.2 Conditions to Patriot's Obligations. The obligation of Patriot to
consummate the Transactions is subject to the satisfaction of each of the
following conditions:
(a) All waivers, consents, authorizations, orders, approvals or expiration
of waiting periods required under any law, regulation or agreement to be
obtained by any of the parties hereof in order to consummate the Transactions
shall have been obtained, except where the failure to have obtained any
waiver, consent, authorization, order or approval would not have a Patriot
Material Adverse Effect, a BMOC Material Adverse Effect or a Cal Jockey
Material Adverse Effect, as the case may be.
(b) The representations and warranties of each of BMOC and Cal Jockey set
forth herein shall be true and correct in all respects as of the date hereof,
and as of the time the Transactions are consummated (except for
representations and warranties that speak as of a specific date or time which
need only be true and correct in all respects as of such date or time), other
than, in all such cases, such failures to be true and/or correct as would not
in the aggregate reasonably be expected to have a Cal Jockey Material Adverse
Effect or a BMOC Material Adverse Effect, as the case may be; provided,
however, that if any of the representations and warranties is already
qualified in any respect by materiality or as to a Cal Jockey Material Adverse
Effect or a BMOC Material Adverse Effect for purposes of this Section such
materiality or Cal Jockey Material Adverse Effect or BMOC Material Adverse
Effect qualification will be in all respects ignored (but subject to the
overall standard as to Material Adverse Effect set forth immediately prior to
this proviso).
(c) Each of BMOC and Cal Jockey shall have complied in all material respects
with all covenants and agreements set forth herein and the Subscription
Agreement (with respect to BMOC only) to be performed by each of them prior to
the Effective Time.
(d) No injunction, restraining order or other order of any federal or state
court which prevents the consummation of the Transactions shall be in effect.
(e) No statute, rule or regulation shall have been enacted by any state or
governmental agency that would prevent the consummation of the Transactions.
(f) (i) Except as required or permitted by this Agreement or as set forth in
the BMOC Disclosure Schedule or the Cal Jockey Disclosure Schedule, no
substantial change in the principal business, principal assets or structure of
BMOC or Cal Jockey or in the "grandfathered" status of Cal Jockey pursuant to
Section 136(c) of the Deficit Act between the date hereof and the consummation
of the Transactions shall have occurred or be pending (provided that nothing
herein shall be deemed to prohibit Cal Jockey from consummating the
A-22
<PAGE>
transactions relating to the disposition of certain Cal Jockey Property on
terms substantially similar and no less favorable than those previously
publicly disclosed in the Cal Jockey SEC Reports and pursuant to the
agreements previously provided to Patriot except as otherwise provided in
Section 13.1 hereof) and (ii) no BMOC Material Adverse Effect or Cal Jockey
Material Adverse Effect shall have occurred between the date hereof and
consummation of the Transactions other than any developments that generally
affect the industry in which BMOC or Cal Jockey operates.
(g) Stockholder approval of the BMOC Stockholder Proposals, the BMOC Charter
Proposal, the Cal Jockey Stockholder Proposals and the Cal Jockey Charter
Proposal shall have been obtained.
(h) Stockholder approval of the Patriot Stockholder Proposals shall have
been obtained.
(i) The Form S-4 shall have been declared effective by the SEC under the
Securities Act, and no stop order suspending the effectiveness of the Form S-4
shall have been issued by the SEC, and no proceedings for that purpose shall
have been initiated or threatened by the SEC.
(j) Cal Jockey and BMOC shall have obtained the approval for the listing of
the Paired Shares of common stock of Cal Jockey and BMOC on the NYSE effective
upon consummation of the Merger, subject to official notice of issuance.
(k) BMOC and Cal Jockey shall not be financially insolvent on a combined
balance sheet basis immediately prior to consummation of the Transactions.
(l) Each of the directors of Cal Jockey and each of the directors of BMOC
shall have resigned as of the Effective Time from their respective Boards of
Directors and the persons designated by Patriot and disclosed in the Form S-4
or other person later nominated by Patriot shall be appointed the directors of
each of Cal Jockey and BMOC as of the Effective Time.
ARTICLE 12.
TERMINATION
12.1 Termination. This Agreement shall terminate at the earlier of:
(a) Such time as the parties shall mutually agree.
(b) At the option of BMOC and Cal Jockey, acting jointly, but not
individually, on or after July 14, 1997, if by that date all of the conditions
set forth in Section 11.1 shall not have been satisfied or waived.
(c) At the option of Patriot, on or after July 14, 1997, if by that date all
of the conditions set forth in Section 11.2 shall not have been satisfied or
waived.
(d) At the option of Patriot, if at any time prior to the Closing the number
of race days permitted to be held during 1997 at the premises currently
operated by BMOC is less than 80.
(e) At the option of BMOC or Cal Jockey in accordance with Section 10.1(d),
provided the terminating party has complied with all provisions thereof, and
provided further that the terminating party simultaneously pays to Patriot the
sum of $5 million (or such lesser amount requested by Patriot) in immediately
available funds; provided that Patriot's right to receive such payment shall
be conditioned upon receipt by Patriot of a written opinion (satisfactory to
Patriot) from Patriot's tax counsel to the effect that receipt of such payment
will not result in a loss of Patriot's REIT status.
(f) At the option of Patriot, if (i) the Board of Directors of BMOC or Cal
Jockey or any committee of either Board of Directors shall have (A) withdrawn
or modified its approval or recommendation of this Agreement or
A-23
<PAGE>
the Transactions, or (B) failed to recommend that the stockholders of BMOC and
Cal Jockey vote in favor of the Transactions, or (C) approved or recommended
any Acquisition Proposal, or (ii) the Board of Directors of BMOC or Cal Jockey
or any committee of either Board of Directors shall have resolved to do any of
the foregoing; provided that BMOC and Cal Jockey (jointly and severally) shall
promptly following termination for any of the reasons set forth in this clause
(f) pay to Patriot the sum of $5 million (or such lesser amount requested by
Patriot) in immediately available funds or with a note due within 90 days
accruing interest at 7% per annum; provided that Patriot's right to receive
such payment shall be conditioned upon receipt by Patriot of a written opinion
(satisfactory to Patriot) from Patriot's tax counsel to the effect that
receipt of such payment will not result in a loss of Patriot's REIT status.
(g) At the option of any of the parties hereto, if the stockholder approval
is not obtained for any of the BMOC Stockholder Proposals, the Cal Jockey
Stockholder Proposals, the BMOC Charter Proposal, the Cal Jockey Charter
Proposal or the Patriot Stockholder Proposals at the respective stockholder
meetings called for that purpose.
In the event that (x) this Agreement is terminated pursuant to Section
12.1(g) (i) by Cal Jockey or Bay Meadows because stockholder approval is not
obtained for any of the BMOC Stockholder Proposals, the Cal Jockey Stockholder
Proposals, the BMOC Charter Approval, or the Cal Jockey Charter Approval or
(ii) by Patriot because stockholder approval is not obtained for any of the
BMOC Stockholder Proposals or Cal Jockey Stockholder Proposals, and (y) prior
to twelve (12) months following such termination, BMOC or Cal Jockey enters
into a binding agreement for a Third Party Transaction, BMOC or Cal Jockey, as
the case may be, shall pay to Patriot the aggregate amount of $5 million (or
such lesser amount requested by Patriot) in immediately available funds;
provided that Patriot's right to receive such payment shall be conditioned
upon receipt by Patriot of a written opinion (satisfactory to Patriot) from
Patriot's tax counsel to the effect that receipt of such payment will not
result in a loss of Patriot's REIT status.
12.2 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party. The waiver by any party hereto of a breach of any term or
provision hereof shall not be construed as a waiver of any subsequent breach.
12.3 Payment of Fee to Hudson Bay Partners, L.P. On October 31, 1996,
Patriot loaned to Cal Jockey $2.9 million (the "Loan"), the terms of which are
set forth in the Promissory Note attached hereto as Exhibit D (the "Promissory
Note") and which Loan was used to pay the termination fee due to Hudson Bay
Partners, L.P. ("Hudson Bay") under Section 11.2(c) of the Formation
Agreement, dated as of August 18, 1996, among Cal Jockey, BMOC and Hudson Bay
(the "Hudson Bay Agreement"). Cal Jockey caused such amount to be paid to
Hudson Bay in accordance with the Hudson Bay Agreement. The parties hereto
acknowledge and agree that the reference in paragraph numbered 1 of the
Promissory Note to "Section 14 of the Agreement" shall hereinafter be deemed
to refer to Section 12.1 of this Agreement. In the event of the termination of
this Agreement, Cal Jockey shall immediately repay to Patriot the Loan in
immediately available funds. If this Agreement is terminated (i) because of
the failure of Patriot to satisfy the conditions set forth in Sections 11.1(b)
or 11.1(c) or (ii) under Section 12.1(g), then Patriot shall pay Cal Jockey
$2.9 million or such lesser amount requested by Cal Jockey (the "Patriot
Payment"); provided that Cal Jockey's right to receive such payment shall be
conditioned on the receipt by Cal Jockey of a written opinion (satisfactory to
Cal Jockey) from Cal Jockey's tax counsel to the effect that receipt of such
payment will not result in a loss of Cal Jockey's REIT status. Notwithstanding
the foregoing, in the event that (x) this Agreement is terminated under
Section 12.1(g) (i) by Cal Jockey or Bay Meadows because of the failure to
obtain approval of the BMOC Stockholder Proposals, the Cal Jockey Stockholder
Proposals, the BMOC Charter Proposal or the Cal Jockey Charter Proposal or
(ii) by Patriot because of the failure to obtain approval of any of the BMOC
Stockholder Proposals or Cal Jockey Stockholder Proposals
A-24
<PAGE>
and (y) during the twelve (12) month period following said termination BMOC or
Cal Jockey enters into a binding agreement for a Third Party Transaction, Cal
Jockey shall immediately repay the Patriot Payment to Patriot in immediately
available funds without interest.
ARTICLE 13.
GENERAL PROVISIONS
13.1 San Mateo City Council Meeting. The parties hereto agree that no action
taken prior to the date hereof by the San Mateo City Council with respect to
the issuance of any of the Entitlements (as hereinafter defined), including
final certification of the final Environmental Impact Report of Cal Jockey and
BMOC, shall be deemed a Material Adverse Effect for purposes of this
Agreement or shall be construed in any way to be a breach of representations,
warranties or covenants contained in this Agreement. The term "Entitlements"
shall have the meaning ascribed to such term under the Agreement of Purchase
and Sale, dated as of May 31, 1995, by and between Cal Jockey and Property
Resources, Inc., as amended, and the Agreement of Purchase and Sale, dated as
of December 15, 1995, by and between Cal Jockey and Lee Iacocca & Associates,
Inc., as amended.
13.2 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate as of the
Effective Time and shall not survive the Merger, provided, however, that the
agreements contained in Articles 2 and 5, the last sentence of Section 10.7,
Section 10.12 and this Article 13 shall survive the Merger.
13.3 Notices. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Patriot: Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
Fax: (972) 888-8029
With copies to:Goodwin, Procter & Hoar LLP
Exchange Place, 53 State Street
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
Fax: (617) 523-1231
If to Cal Jockey:California Jockey Club
2600 South Delaware Street
P.O. Box 1117
San Mateo, CA 94403
Attn: Kjell H. Qvale
Fax: (415) 776-9826
With copies to:Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, CA 94111
Attn: Christopher Kaufman, Esq.
Fax: (415) 395-8095
If to BMOC:Bay Meadows Operating Company
2600 South Delaware Street
A-25
<PAGE>
P.O. Box 5050
San Mateo, CA 94402
Attn: F. Jack Liebau
Fax: (415) 573-7825
With copies to: McCutchen Doyle Brown & Enersen, LLP
Three Embarcadero Center
San Francisco, CA 94111-4066
Attn: Bartley C. Deamer, Esq.
Fax: (415) 393-2286
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so delivered.
13.4 Assignment; Binding Effect; Benefit. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors. This Agreement may not be assigned by any party without prior
consent of all parties hereto, provided that any party hereto may assign its
rights and obligations hereunder to any affiliate to implement the
Transactions, provided that (i) such affiliate agrees to be bound hereby, (ii)
such party remains liable hereunder, and (iii) such assignment does not
adversely affect the Transactions from the perspective of the other parties.
13.5 Entire Agreement. This Agreement, the Exhibits attached hereto, the
Patriot Disclosure Schedule, the Cal Jockey Disclosure Schedule, the BMOC
Disclosure Schedule, the Subscription Agreement and any documents delivered by
the parties and their affiliates in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings among the
parties with respect thereto, including the Acquisition Agreement and the
February 24 Agreement, except that the Confidentiality Agreements shall remain
in effect and shall be binding upon the parties in accordance with their
terms. No addition to or modification or amendment of any provision of this
Agreement shall be binding upon any party hereto unless made in accordance
with Section 12.2 or otherwise made in writing and signed by all parties
hereto. Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement.
13.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
Each of the parties hereto agrees, (a) to the extent such party is not
otherwise subject to service of process in the State of Delaware, to appoint
and maintain an agent in the State of Delaware as such party's agent for
acceptance of legal process, and (b) that service of process may also be made
on such party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of valid
service. Service made pursuant to (a) or (b) above shall have the same legal
force and effect as if served upon such party personally within the State of
Delaware. For purposes of implementing the parties' agreement to appoint and
maintain an agent for service of process in the State of Delaware, each such
party does hereby appoint The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, as such agent.
13.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and
A-26
<PAGE>
the same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
13.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
13.9 Incorporation. The Patriot Disclosure Schedule, the Cal Jockey
Disclosure Schedule, the BMOC Disclosure Schedule and all Exhibits attached
hereto and thereto and referred to herein and therein are hereby incorporated
herein and made a part hereof for all purposes as if fully set forth herein.
13.10 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
13.11 Interpretation and Certain Definitions.
(a) In this Agreement, unless the context otherwise requires, words
describing the singular number shall include the plural and vice versa, and
words denoting any gender shall include both genders.
(b) As used in this Agreement, the word "subsidiary" or "subsidiaries" when
used with respect to any party means any corporation, partnership, joint
venture, business trust or other entity, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the board of directors or others performing similar functions with respect to
such corporation or other organization.
(c) As used in this Agreement, the word "person" means an individual, a
corporation, a partnership, an association, a joint-stock company, a trust, a
limited liability company, any unincorporated organization or any other
entity.
A-27
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
PATRIOT AMERICAN HOSPITALITY, INC.
ATTEST:
By: /s/ Rex E. Stewart By: /s/ Paul A. Nussbaum
--------------------------------- ---------------------------------
Name: Rex E. Stewart Name: Paul A. Nussbaum
Title: Executive Vice President Title: Chairman
PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
ATTEST: By: PAH GP, Inc., its general partner
By: /s/ Rex E. Stewart By: /s/ Paul A. Nussbaum
--------------------------------- ---------------------------------
Name: Rex E. Stewart Name: Paul A. Nussbaum
Title: Executive Vice President Title: Chairman
CALIFORNIA JOCKEY CLUB
ATTEST:
By: /s/ Lillian Eva Fredriksson By: /s/ Kjell H. Qvale
--------------------------------- ---------------------------------
Name: Lillian Eva Fredriksson Name: Kjell H. Qvale
Title: Assistant Title: Chairman
BAY MEADOWS OPERATING COMPANY
ATTEST:
By: /s/ Frank Trigeiro By: /s/ F. Jack Liebau
--------------------------------- --------------------------------
Name: Frank Trigeiro Name: F. Jack Liebau
Title: Vice President--Finance Title: President
A-28
<PAGE>
ANNEX B
PROPOSED FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW PATRIOT REIT
California Jockey Club, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is California Jockey Club. The date of the
filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was January 27, 1983 (the "Original Certificate
of Incorporation"). The name under which the Corporation filed the Original
Certificate of Incorporation was Bay Meadows Realty Enterprises, Inc. The name
of the Corporation was changed to California Jockey Club on March 31, 1983, by
way of amendment to the Original Certificate of Incorporation. Pursuant to
this Amended and Restated Certificate of Incorporation, the name of the
Corporation is hereby changed to Patriot American Hospitality, Inc.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Original
Certificate of Incorporation, was duly adopted by the Board of Directors of
the Corporation in accordance with the provisions of Sections 242 and 245 of
the Delaware General Corporation Law, as amended from time to time (the
"DGCL"), and was duly adopted by the stockholders of the Corporation in
accordance with the applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Original Certificate of Incorporation, as amended to
date, is hereby amended and restated in its entirety to provide as herein set
forth in full.
I.
NAME
The name of the corporation is Patriot American Hospitality, Inc.
II.
PURPOSES
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
CAPITAL STOCK
The Corporation shall have the authority to issue 650,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), 750,000,000
shares of excess stock, par value $.01 per share (the "Excess Stock"), and
100,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
B-1
<PAGE>
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one
vote on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock
and subject to any other provisions of this Certificate or any amendment
hereto, holders of Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock or property of the Corporation as
may be declared thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken
by the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only
by an unanimous written consent of the stockholders signed by each
stockholder entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall
be stated and expressed herein or in the resolution or resolutions
providing for the issue of shares of a particular series, and in such
resolution or resolutions providing for the issue of shares of such series,
the Board of Directors is expressly authorized to fix or establish the
basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of
such series issued shall be cumulative, and the extent of participation
rights, if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire
or redeem shares of such series as a sinking fund or otherwise, and the
terms and conditions of any such redemption;
d. The designation and maximum number of shares of such series
issuable;
e. The right to vote, if any, with holders of shares of any other
class or series, either generally or as a condition to specified
corporate action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary
liquidation;
h. The rights, if any, of the holders of shares of such series to
convert such shares into other classes of stock of the Corporation, or
to exchange such shares for other securities or assets, and the terms
and conditions of any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors
and not prohibited by law.
All shares of Preferred Stock of any one series shall be identical with
each other in all respects except, if so determined by the Board of
Directors, as to the dates from which dividends thereon shall be
cumulative; and all shares of Preferred Stock shall be of equal rank with
each other, regardless of series, and shall be identical with each other in
all respects except as provided herein or in the resolution or resolutions
providing for the issue of a particular series. In case dividends on all
shares of Preferred Stock for any regular dividend period are not paid in
full, all such shares shall participate ratably in any partial payment of
dividends for such period in proportion to the full amounts of dividends
for such period to which they are respectively entitled.
B-2
<PAGE>
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms
shall have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the application of the constructive ownership rules of
Section 544 of the Internal Revenue Code of 1986, as amended (the "Code"),
as modified by Section 856(h)(l)(B) of the Code, and (iii) the number of
shares of Equity Stock which such person is deemed to beneficially own
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(c) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(c) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause any Person to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit, including, but not
limited to, (i) the granting of any option or entering into any agreement
for the sale, transfer or other disposition of shares of Equity Stock or
(ii) the sale, transfer, assignment or other disposition of interests in
any Person or of any securities or rights convertible into or exchangeable
for shares of Equity Stock that results in changes in Beneficial Ownership
or Constructive Ownership of shares of Equity Stock.
"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 9.8% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by any Person, any shares of Equity Stock of the
Corporation which are deemed to be Beneficially Owned by such Person
pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding.
B-3
<PAGE>
"Pairing Agreement" shall mean the Pairing Agreement, dated as of
February 17, 1983, by and between Bay Meadows Realty Enterprises, Inc. (the
predecessor of California Jockey Club) and Bay Meadows Operating Company,
as amended from time to time in accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Board of Directors determines that it is no longer in the best interests of
the Corporation to attempt to, or continue to, qualify under the Code as a
real estate investment trust (a "REIT").
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section (D) of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality
Operating Company (the "Operating Company") in accordance with the Pairing
Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person shall Beneficially Own or
Constructively Own outstanding shares of Equity Stock in excess of the
Ownership Limit and (ii) any Transfer (whether or not the result of a
transaction entered into through the facilities of the New York Stock
Exchange) that, if effective, would result in any Person Beneficially
Owning or Constructively Owning shares of Equity Stock in excess of the
Ownership Limit shall be void ab initio as to the Transfer of that
number of shares of Equity Stock which would be otherwise Beneficially
Owned or Constructively Owned by such Person in excess of the Ownership
Limit and the intended transferee shall acquire no rights in such
shares of Equity Stock.
b. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that, if
effective, would result in the Corporation being "closely held" within
the meaning of Section 856(h) of the Code shall be void ab initio as to
the Transfer of that number of shares of Equity Stock that would cause
the Corporation to be "closely held" within the meaning of Section
856(h) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
c. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that, if
effective, would cause the Corporation to Constructively Own 10% or
more of the ownership interests in a tenant of the real property of the
Corporation or any direct or indirect subsidiary (whether a
corporation, partnership, limited liability company or other entity) of
the Corporation (a "Subsidiary"), within the meaning of Section
856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of
that number of shares of Equity Stock that would cause the Corporation
to Constructively Own 10%
B-4
<PAGE>
or more of the ownership interests in a tenant of the real property of
the Corporation or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no
rights in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) that, if effective, would result in the
shares of capital stock of the Corporation being beneficially owned
(within the meaning of Section 856(a)(5) of the Code) by fewer than 100
persons within the meaning of Section 856(a)(5) of the Code shall be
void ab initio and the intended transferee shall acquire no rights in
such shares of Equity Stock.
3. Owners Required to Provide Information. Until the Restriction
Termination Date:
a. Every Beneficial Owner or Constructive Owner of more than 5%, or
such lower percentages as required pursuant to regulations under the
Code, of the outstanding shares of any class or series of Equity Stock
of the Corporation shall, within 30 days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive Owner, the
number of shares of Equity Stock Beneficially Owned or Constructively
Owned, and a description of how such shares are held. Each such
Beneficial Owner or Constructive Owner shall provide to the Corporation
such additional information as the Corporation may request to ensure
compliance with the restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of
shares of Equity Stock and each Person (including the stockholder of
record) who is holding shares of Equity Stock for a Beneficial Owner or
Constructive Owner shall provide to the Corporation a written statement
or affidavit stating such information as the Corporation may request in
order to determine the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit.
4. Exception. The Board of Directors, upon receipt of a ruling from the
Internal Revenue Service or an opinion of counsel in each case to the
effect that the restrictions contained in Sections (C)(2)(b) through (d) of
this Article IV would not be violated, may exempt a Person from the
Ownership Limit, provided that (A) the Board of Directors obtains such
representations and undertakings from such Person as are reasonably
necessary to ascertain that no Person's Beneficial Ownership or
Constructive Ownership of shares of Equity Stock will (i) result in the
capital stock of the Corporation being beneficially owned (within the
meaning of Section 856(a)(5) of the Code) by fewer than 100 persons within
the meaning of Section 856(a)(5) of the Code, (ii) result in the
Corporation being "closely held" within the meaning of Section 856(h) of
the Code or (iii) cause the Corporation to Constructively Own 10% or more
of the ownership interests in the real property of a tenant of the
Corporation or a Subsidiary within the meaning of Section 856(d)(2)(B) of
the Code and (B) such Person agrees in writing that any violation or
attempted violation of the Ownership Limit will result in the conversion of
such shares into shares of Excess Stock pursuant to Section (D)(1) of this
Article IV.
5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall
preclude the settlement of any transaction entered into through the
facilities of the New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either
Beneficially Own or Constructively Own shares of Equity Stock in excess
of the Ownership Limit, then, (i) except as otherwise provided in
Section (C)(4) of this Article IV, the purported transferee shall be
deemed to be a Prohibited Owner and shall acquire no right or interest
(or, in the case of a Non-Transfer Event, the Person holding record
title to the shares of Equity Stock Beneficially
B-5
<PAGE>
Owned or Constructively Owned by such Beneficial Owner or Constructive
Owner, shall cease to own any right or interest) in such number of
shares of Equity Stock which would cause such Beneficial Owner or
Constructive Owner to Beneficially Own or Constructively Own shares of
Equity Stock in excess of the Ownership Limit, (ii) such number of
shares of Equity Stock in excess of the Ownership Limit (rounded up to
the nearest whole share) shall be automatically converted into an equal
number of shares of Excess Stock and transferred to a Trust in
accordance with Section (D)(4) of this Article IV and (iii) the
Prohibited Owner shall submit such number of shares of Equity Stock to
the Corporation for registration in the name of the Trustee of the
Trust. Such conversion into Excess Stock and transfer to a Trust shall
be effective as of the close of trading on the Trading Day prior to the
date of the Transfer or Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event that, if effective, would (i) result in
the capital stock of the Corporation being beneficially owned (within
the meaning of Section 856(a)(5) of the Code) by fewer than 100 persons
within the meaning of Section 856(a)(5) of the Code, (ii) result in the
Corporation being "closely held" within the meaning of Section 856(h)
of the Code or (iii) cause the Corporation to Constructively Own 10% or
more of the ownership interest in a tenant of the Corporation's or a
Subsidiary's real property within the meaning of Section 856(d)(2)(B)
of the Code, then (x) the purported transferee shall be deemed to be a
Prohibited Owner and shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the Person holding record title of the
shares of Equity Stock with respect to which such Non-Transfer Event
occurred, shall cease to own any right or interest) in such number of
shares of Equity Stock, the ownership of which by such purported
transferee or record holder would (A) result in the shares of capital
stock of the Corporation being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the
meaning of Section 856(a)(5) of the Code, (B) result in the Corporation
being "closely held" within the meaning of Section 856(h) of the Code
or (C) cause the Corporation to Constructively Own 10% or more of the
ownership interests in a tenant of the Corporation's or a Subsidiary's
real property within the meaning of Section 856(d)(2)(B) of the Code,
(y) such number of shares of Equity Stock (rounded up to the nearest
whole share) shall be automatically converted into an equal number of
shares of Excess Stock and transferred to a Trust in accordance with
Section (D)(4) of this Article IV and (z) the Prohibited Owner shall
submit such number of shares of Equity Stock to the Corporation for
registration in the name of the Trustee of the Trust. Such conversion
into Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the Transfer
or Non-Transfer Event, as the case may be.
c. Upon the occurrence of such a conversion of shares of any class or
series of Equity Stock into an equal number of shares of Excess Stock,
such shares of Equity Stock shall be automatically retired and
canceled, without any action required by the Board of Directors of the
Corporation, and shall thereupon be restored to the status of
authorized but unissued shares of the particular class or series of
Equity Stock from which such Excess Stock was converted and may be
reissued by the Corporation as that particular class or series of
Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at
any time determine in good faith that a Transfer has taken place in
violation of Section (C)(2) of this Article IV or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section (C)(2) of
this Article IV, the Corporation shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or
acquisition, including, but not limited to, refusing to give effect to such
Transfer on the stock transfer books of the Corporation or instituting
proceedings to enjoin such Transfer or acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this
Article IV, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant
to Sections (D)(1) and (D)(4) of this Article IV, shall immediately give
written notice to the Corporation of such event and shall provide
B-6
<PAGE>
to the Corporation such other information as the Corporation may request in
order to determine the effect, if any, of such Transfer or Non-Transfer
Event, as the case may be, on the Corporation's status as a REIT.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that
results in Excess Stock pursuant to Section (D)(1) of this Article IV, such
Excess Stock shall be automatically transferred to a Trust to be held for
the exclusive benefit of the Beneficiary. The Corporation and the Operating
Company shall name a Beneficiary for each Trust pursuant to the terms of
the Pairing Agreement. Any conversion of shares of Equity Stock into shares
of Excess Stock and transfer to a Trust shall be effective as of the close
of trading on the Trading Day prior to the date of the Transfer or Non-
Transfer Event that results in the conversion. Shares of Excess Stock so
held in trust shall remain issued and outstanding shares of stock of the
Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the
same dividends and distributions (as to both timing and amount) as may be
declared by the Board of Directors as shares of the class or series of
Equity Stock from which such Excess Stock was converted. The Trustee, as
record holder of the shares of Excess Stock, shall be entitled to receive
all dividends and distributions and shall hold all such dividends or
distributions in trust for the benefit of the Beneficiary. The Prohibited
Owner with respect to such shares of Excess Stock shall repay to the Trust
the amount of any dividends or distributions received by it (i) that are
attributable to any shares of Equity Stock that have been converted into
shares of Excess Stock and (ii) the record date of which was on or after
the date that such shares were converted into shares of Excess Stock. The
Corporation shall take all measures that it determines reasonably necessary
to recover the amount of any such dividend or distribution paid to a
Prohibited Owner, including, if necessary, withholding any portion of
future dividends or distributions payable on shares of Equity Stock
Beneficially Owned or Constructively Owned by the Person who, but for the
provisions of this Article IV, would Constructively Own or Beneficially Own
the shares of Equity Stock that were converted into shares of Excess Stock;
and, as soon as reasonably practicable following the Corporation's receipt
or withholding thereof, shall pay over to the Trust for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the
same class or series from which the Equity Stock was converted, that
portion of the assets of the Corporation that is available for distribution
to the holders of such class or series of Equity Stock. The Trust shall
distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided,
however, that the Prohibited Owner shall not be entitled to receive amounts
in excess of, in the case of a purported Transfer in which the Prohibited
Owner gave value for shares of Equity Stock and which Transfer resulted in
the conversion of the shares into shares of Excess Stock, the price per
share, if any, such Prohibited Owner paid for the shares of Equity Stock
(which, in the case of Equity Stock that is paired, shall equal the price
per paired share multiplied by the most recent Valuation Percentage) and,
in the case of a Non-Transfer Event or Transfer in which the Prohibited
Owner did not give value for such shares (e.g., if the shares were received
through a gift or devise) and which Non-Transfer Event or Transfer, as the
case may be, resulted in the conversion of the shares into shares of Excess
Stock, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the holder to
the number of votes the holder would have, if such share of Excess Stock
was a share of Equity Stock of the same class or series from which such
Excess Stock was converted, on all matters submitted to a vote at any
meeting of stockholders. The holders of shares of Excess Stock converted
from the same class or series of Equity Stock shall vote together with the
holders of such Equity Stock as a single class on all such matters. The
Trustee, as record holder of the Excess Stock, shall be entitled to vote
all shares of Excess Stock. Any vote by a Prohibited Owner as a purported
holder of shares of Equity Stock prior to the discovery by the Corporation
that the shares of Equity Stock have been converted into shares of Excess
Stock shall, subject to applicable law, be rescinded and shall be void ab
initio with respect to such shares of Excess Stock, and the Prohibited
Owner
B-7
<PAGE>
shall be deemed to have given, as of the close of trading on the Trading
Day prior to the date of the purported Transfer or Non-Transfer Event that
results in the conversion of the shares of Equity Stock into shares of
Excess Stock and the transfer of such shares to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV, an irrevocable proxy to the
Trustee to vote the shares of Excess Stock in the manner in which the
Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to
designate a Permitted Transferee of any and all shares of Excess Stock
if the Company fails to exercise its option with respect to such shares
pursuant to Section (D)(10) hereof within the time period set forth
therein. As soon as practicable, but in an orderly fashion so as not to
materially adversely affect the Market Price of the shares of Excess
Stock, the Trustee shall designate any Person as a Permitted
Transferee; provided, however, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or
private sale) the shares of Excess Stock (which, in the case of paired
Excess Stock, shall be determined based on the Valuation Percentage)
and (ii) the Permitted Transferee so designated may acquire such shares
of Excess Stock without violating any of the restrictions set forth in
Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired
into shares of Excess Stock and the transfer of such shares to a Trust
pursuant to Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee
shall cause to be transferred to the Permitted Transferee that number
of shares of Excess Stock acquired by the Permitted Transferee. Upon
such transfer of the shares of Excess Stock to the Permitted
Transferee, such shares of Excess Stock shall be automatically
converted into an equal number of shares of Equity Stock of the same
class and series from which such Excess Stock was converted. Upon the
occurrence of such a conversion of shares of Excess Stock into an equal
number of shares of Equity Stock, such shares of Excess Stock shall be
automatically retired and canceled, without any action required by the
Board of Directors of the Corporation, and shall thereupon be restored
to the status of authorized but unissued shares of Excess Stock and may
be reissued by the Corporation as Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer
books of the Corporation that the Permitted Transferee is the holder of
record of such number of shares of Equity Stock, and (ii) distribute to
the Beneficiary any and all amounts held with respect to the shares of
Excess Stock after making payment to the Prohibited Owner pursuant to
Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in
Section (C)(2) of this Article IV, such Transfer shall be void ab
initio as to that number of shares of Excess Stock that cause the
violation of any such restriction when such shares are converted into
shares of Equity Stock (as described in clause (b) above) and the
purported Permitted Transferee shall be deemed to be a Prohibited Owner
and shall acquire no rights in such shares of Excess Stock or Equity
Stock. Such shares of Equity Stock shall be automatically re-converted
into Excess Stock and transferred to the Trust from which they were
originally Transferred. Such conversion and transfer to the Trust shall
be effective as of the close of trading on the Trading Day prior to the
date of the Transfer to the purported Permitted Transferee and the
provisions of this Article IV shall apply to such shares, including,
without limitation, the provisions of Sections D(8) through (D)(10)
with respect to any future Transfer of such shares by the Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be
entitled (following discovery of the shares of Excess Stock and subsequent
designation of the Permitted Transferee in accordance with Section (D)(8)
of this Article IV or following the acceptance of the offer to purchase
such shares in accordance with Section (D)(10) of this Article IV) to
receive from the Trustee following the sale or other disposition of such
shares of Excess Stock the lesser of (i) (a) in the case of a purported
Transfer in which the Prohibited Owner gave value for shares of Equity
Stock and which Transfer resulted in the conversion of such shares into
shares of Excess Stock,
B-8
<PAGE>
the price per share, if any, such Prohibited Owner paid for the shares of
Equity Stock (which, in the case of paired Excess Stock, shall be
determined based on the Valuation Percentage) and (b) in the case of a Non-
Transfer Event or Transfer in which the Prohibited Owner did not give value
for such shares (e.g., if the shares were received through a gift or
devise) and which Non-Transfer Event or Transfer, as the case may be,
resulted in the conversion of such shares into shares of Excess Stock, the
price per share equal to the Market Price on the date of such Non-Transfer
Event or Transfer or (ii) the price per share (which, in the case of paired
Excess Stock, shall be determined based on the Valuation Percentage)
received by the Trustee from the sale or other disposition of such shares
of Excess Stock in accordance with this Section (D)(9) or Section (D)(10)
of this Article IV. Any amounts received by the Trustee in respect of such
shares of Excess Stock and in excess of such amounts to be paid the
Prohibited Owner pursuant to this Section (D)(9) shall be distributed to
the Beneficiary in accordance with the provisions of Section (D)(8) of this
Article IV. Each Beneficiary and Prohibited Owner shall waive any and all
claims that it may have against the Trustee and the Trust arising out of
the disposition of shares of Excess Stock, except for claims arising out of
the gross negligence or willful misconduct of, or any failure to make
payments in accordance with this Section (D) of this Article IV by, such
Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be
deemed to have been offered for sale to the Corporation or its designee, at
a price per share equal to the lesser of (i) the price per share (which, in
the case of paired Excess Stock, shall be determined based on the Valuation
Percentage) in the transaction that created such shares of Excess Stock
(or, in the case of devise, gift or Non-Transfer Event, the Market Price at
the time of such devise, gift or Non-Transfer Event) or (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer for a period of 90
days following the later of (a) the date of the Non-Transfer Event or
purported Transfer which results in such shares of Excess Stock or (b) the
date on which the Corporation determines in good faith that a Transfer or
Non-Transfer Event resulting in shares of Excess Stock has previously
occurred, if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section (D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT and to
ensure compliance with the requirements of the Pairing Agreement and with the
restrictions set forth in Section C of this Article IV.
G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company represented by this combined certificate are
subject to restrictions in the respective Amended and Restated Certificate
of Incorporation of each company which prohibit (a) any Person from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated Certificate of Incorporation of each
company) in excess of 9.8% of the number of outstanding shares of any class
or series of Equity Stock (as that term is defined in the respective
Amended and Restated Certificate of Incorporation of each company), (b) any
Person (as that term is defined in the respective Amended and Restated
Certificate of Incorporation of each company), from acquiring or
maintaining any ownership interest in the stock of either company that is
inconsistent with (i) the requirements of the Internal Revenue Code of
1986, as amended, pertaining to real estate investment trusts or (ii)
Article IV of the respective Amended and Restated Certificate of
Incorporation of each company and (c) any transfer of shares of any
B-9
<PAGE>
class or series of Equity Stock of either company that are paired pursuant
to the Pairing Agreement, dated as of February 17, 1983, by and between the
two companies, as amended from time to time in accordance with the
provisions thereof (the "Pairing Agreement"), except in combination with an
equal number of shares of the other company in accordance with the
respective Amended and Restated Bylaws of each company and the Pairing
Agreement, copies of which are on file with the transfer agent, and the
holder of this certificate by his acceptance hereof consents to be bound by
such restrictions.
Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company will furnish without charge to each stockholder who so
requests a copy of the relevant provisions of the respective Amended and
Restated Certificate of Incorporation and the respective Amended and
Restated Bylaws of each company, a copy of the Pairing Agreement and a copy
of the provisions setting forth the designations, preferences, privileges
and rights of each class of stock or series thereof that each company is
authorized to issue and the qualifications, limitations and restrictions of
such preferences and/or rights. Any such request may be addressed to the
Secretary of either company or to the transfer agent named on the face
hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall be in no way affect the
validity of any other provision.
V.
DIRECTORS
A. General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Bylaws or this Certificate, all of
the powers of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I Directors of the Corporation
shall be Paul A. Nussbaum, Arch K. Jacobson and Leonard Boxer; the initial
Class II Directors of the Corporation shall be Thomas S. Foley and Gregory R.
Dillon; and the initial Class III Directors of the Corporation shall be John
H. Daniels and John C. Deterding. The initial Class I Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1997;
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 1998; and the initial Class III
Directors shall serve for a term expiring at the annual meeting of
stockholders to be held in 1999. At each annual meeting of stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at such meeting and entitled to vote on the
election of directors, and shall hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. The directors elected to each class shall hold office until their
successors are duly elected and qualified or until their earlier resignation
or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's
B-10
<PAGE>
successor shall have been duly elected and qualified, or until such director's
right to hold such office terminates pursuant to said provisions, whichever
occurs earlier, subject to such director's earlier death, disqualification,
resignation or removal. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of
any series of Preferred Stock having such right to elect additional directors
are divested of such right pursuant to the provisions of such stock, the terms
of office of all such additional directors elected by the holders of such
stock, or elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly.
D. Removal of Directors. Subject to the rights, if any, of any series of
Preferred Stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote
of the holders of at least 75% of the shares then entitled to vote at an
election of directors. At least 30 days prior to any meeting of stockholders
at which it is proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director whose removal
will be considered at the meeting. For purposes of this Certificate, "cause,"
with respect to the removal of any director shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a court, (iii) gross
dereliction of duty, (iv) commission of any act involving moral turpitude or
(v) commission of an act that constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit to such director and a material injury to the
Corporation.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
VI.
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
B-11
<PAGE>
VII.
MAINTENANCE OF REIT STATUS
For so long as the Board of Directors deems the maintenance of REIT status
to be in the best interests of the Corporation, it shall be the duty of the
Board of Directors to ensure that the Corporation satisfies the requirements
for qualification as a REIT under the Code, including, but not limited to, the
ownership of its outstanding stock, the nature of its assets, the sources of
its income, and the amount and timing of its distributions to its
stockholders.
VIII.
RELATED PERSON TRANSACTION
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the corporation.
For purposes of this Article VIII:
1. The term "Business Combination" shall mean (a) any merger, reorganization
or consolidation of this corporation with or into a Related Person, (b) any
sale, lease, exchange, transfer or other disposition, including, without
limitation, a mortgage or any other security device, of all or any substantial
part of the assets of this corporation (including, without limitation, any
voting securities of a subsidiary) or of a subsidiary, to a Related Person,
(c) any merger or consolidation of a Related Person with or into this
corporation or a subsidiary of this corporation and (d) any sale, lease,
exchange, transfer or other disposition of all or any substantial part of the
assets of a Related Person to this corporation or a subsidiary of this
corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate five
percent (5%) or more of the outstanding shares of the capital stock of this
corporation, and any "affiliate" or "associate" (as those terms are defined in
Rule 12b-2 of the Exchange Act) of any such individual, corporation,
partnership or other person or entity; provided, however, that the term
"Related Person" shall not include either Patriot American Hospitality
Operating Company or any subsidiary of this corporation.
3. The term "substantial part of the assets" shall mean assets having a fair
market value or book value, whichever is greater, equal to 25% or more of such
value of the total assets as reflected on the most recent quarterly balance
sheet of the corporation as of a date no earlier than forty-five (45) days
prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this corporation which
any Related Person has the right to acquire pursuant to any agreement or upon
exercise of conversion rights, warrants or options, or otherwise shall be
deemed beneficially owned by such Related Person.
The provisions set forth in this Article VIII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
B-12
<PAGE>
IX.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Subject to Article VIII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation.
B-13
<PAGE>
ANNEX C
PROPOSED FORM OF
AMENDED AND RESTATED
BYLAWS
OF
NEW PATRIOT REIT
ARTICLE I.
DEFINITIONS
For purposes of these Bylaws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of
such other Person or (iii) any officer, director, employee, partner or trustee
of such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes
of this definition, the term "Person" shall mean, and includes, any natural
person, corporation, partnership, association, trust, limited liability
company or any other legal entity. For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
(b) "Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
(c) "Corporation" shall mean Patriot American Hospitality, Inc.
(d) "DGCL" shall mean the Delaware General Corporation Law, as amended from
time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per share,
and the preferred stock, par value $.01 per share of the Corporation and the
Operating Company.
(f) "Independent Director" shall mean a director of the Corporation who is
not (i) an officer or employee of the Corporation, (ii) a director or officer
of Operating Company or (iii) an Affiliate of (a) any lessee of any property
of the Corporation, (b) a subsidiary of the Corporation or (c) any partnership
that is an affiliate of the Corporation.
(g) "Operating Company" shall mean Patriot American Hospitality Operating
Company.
(h) "Public Announcement" shall mean: (i) disclosure in a press release
reported by the Dow Jones News Service, Associated Press or comparable
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation
at the time of the mailing of such letter or report.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
2.1 Places of Meetings. All meetings of the stockholders shall be held at
such place, either within or without the State of Delaware, as from time to
time may be fixed by the Board of Directors.
C-1
<PAGE>
2.2 Annual Meetings. The annual meeting of the stockholders, for the
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by the Board of Directors.
2.3 Special Meetings. A special meeting of the stockholders for any purpose
or purposes may be called at any time only by the Chairman of the Board or by
a majority of the Board of Directors. At a special meeting no business shall
be transacted and no corporate action shall be taken other than that stated in
the notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat
and to each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice, by delivering such notice to him or her or
by mailing it, postage prepaid, addressed to such stockholder at the address
of such stockholder as it appears on the stock transfer books of the
Corporation. Such notice shall be deemed to be delivered when hand delivered
to such address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual meeting or special meeting of
stockholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of
stockholders commence a new time period for the giving of a stockholder's
notice under Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of
business, (b) the Board of Directors determines that adjournment is necessary
or appropriate to enable the stockholders to consider fully information that
the Board of Directors determines has not been made sufficiently or timely
available to stockholders or (c) the Board of Directors determines that
adjournment is otherwise in the best interests of the Corporation. When any
annual meeting or special meeting of stockholders is adjourned to another
hour, date or place, notice need not be given of the adjourned meeting, other
than an announcement at the meeting at which the adjournment is taken, of the
hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
and each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by the Certificate, any number of
stockholders together holding at least a majority of the outstanding shares of
capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of business. If less
than a quorum shall be in attendance at the time for which a meeting shall
have been called, the meeting may be adjourned from time to time by a majority
of the stockholders present or represented by proxy.
C-2
<PAGE>
2.6 Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the stock transfer
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. Proxies shall be filed with the
secretary of the meeting before being voted. Except as otherwise limited
therein or as otherwise provided by law, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting, but they shall
not be valid after final adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by or
on behalf of any one of them unless at or prior to the exercise of the proxy
the Corporation receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid, and the burden of proving invalidity shall
rest on the challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these Bylaws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate
or by these Bylaws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote
shares which it holds in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the hour, date and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a stockholder
of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the
first annual meeting following the end of the fiscal year ended December 31,
1996, a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not later than 90 days prior to the anniversary
date of the immediately preceding annual meeting (the "Anniversary Date");
provided, however, that in the event the annual meeting is scheduled to be
held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (1) the
90th day prior to the scheduled date of such annual meeting or (2) the 15th
day following the day on which Public Announcement of the date of such annual
meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such
annual meeting and the reasons for conducting such business at such annual
meeting, (ii) the name and address, as they appear on the stock transfer books
of the Corporation, of the stockholder proposing such
C-3
<PAGE>
business, (iii) the class and number of shares of the capital stock of the
Corporation beneficially owned by the stockholder proposing such business,
(iv) the names and addresses of the beneficial owners, if any, of any capital
stock of the Corporation registered in such stockholder's name on such books,
and the class and number of shares of the capital stock of the Corporation
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the capital stock of the
Corporation beneficially owned by such other stockholders and (vi) any
material interest of the stockholder proposing to bring such business before
such meeting (or any other stockholders known to be supporting such proposal)
in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with
the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors
nor such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in
accordance with the terms of this Section 2.9. If the presiding officer
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section 2.9 or that the information
provided in a stockholder's notice does not satisfy the information
requirements of this Section 2.9 in any material respect, such proposal shall
not be presented for action at the annual meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of
this Section 2.9, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9, and
nothing in this Section 2.9 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.10 Inspectors of Elections. The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he
or she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or if
not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
C-4
<PAGE>
ARTICLE III.
DIRECTORS
3.1 General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Certificate or these Bylaws, all of
the powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of directors shall be fixed by
resolution duly adopted from time to time by the Board of Directors.
3.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected and removed in the manner provided for in
Article V of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the manner
provided for in Article V of the Certificate.
(c) At any meeting of the Board of Directors, a majority of the number of
directors then in office shall constitute a quorum for the transaction of
business. However, if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to
time, and the meeting may be held as adjourned without further notice,
except that when any meeting of the Board of Directors, either regular of
special, is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of the original meeting.
3.4 Meetings of Directors. Meetings of the Board of Directors shall be held
at places within or without the State of Delaware and at times fixed by
resolution of the Board of Directors, or upon call of the Chairman of the
Board, and the Secretary of the Corporation or officer performing the
Secretary's duties shall give not less than 24 hours' notice by letter,
facsimile, telegraph or telephone (or in person) of all meetings of the Board
of Directors, provided that notice need not be given of the annual meeting or
of regular meetings held at times and places fixed by resolution of the Board
of Directors. Meetings may be held at any time without notice if all of the
directors are present, or if those not present waive notice in writing either
before or after the meeting; provided, however, that attendance at a meeting
for the express purpose of objecting at the beginning of a meeting to the
transaction of any business because the meeting is not lawfully convened shall
not be considered a waiver of notice.
3.5 Nominations. Nominations of candidates for election as directors of the
Corporation at any annual meeting may be made only (a) by, or at the direction
of, a majority of the Board of Directors or (b) by any holder of record (both
as of the time notice of such nomination is given by the stockholder as set
forth below and as of the record date for the annual meeting in question) of
any shares of the capital stock of the Corporation entitled to vote at such
annual meeting who complies with the timing, informational and other
requirements set forth in this Section 3.5. Any stockholder who has complied
with the timing, informational and other requirements set forth in this
Section 3.5 and who seeks to make such a nomination must be, or his, her or
its representative must be, present in person at the annual meeting. Only
persons nominated in accordance with the procedures set forth in this Section
3.5 shall be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3.5. For the first annual
meeting following the end of the fiscal year ended December 31, 1996, a
stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not less than 90 days prior to the Anniversary
Date; provided, however, that in the event the annual meeting is scheduled to
be held on a date more than 30 days before the Anniversary Date or more than
60 days after the Anniversary
C-5
<PAGE>
Date, a stockholder's notice shall be timely if delivered to, or mailed and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 90th day prior to the scheduled
date of such annual meeting or (y) the 15th day following the day on which
Public Announcement of the date of such annual meeting is first made by the
Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of
such stockholder and of the beneficial owners (if any) of the capital stock of
the Corporation registered in such stockholder's name and the name and address
of other stockholders known by such stockholder to be supporting such
nominee(s); (b) the class and number of shares of the capital stock of the
Corporation which are held of record, beneficially owned or represented by
proxy by such stockholder and by any other stockholders known by such
stockholder to be supporting such nominee(s) on the record date for the annual
meeting in question (if such date shall then have been made publicly
available) and on the date of such stockholder's notice; and (c) a description
of all arrangements or understandings between such stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3.5 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.5 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.5, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder
nomination was not made in accordance with the terms of this Section 3.5 or
that the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.5 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding
officer determines that a nomination was made in accordance with the terms of
this Section 3.5, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.5, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 90 days prior to the Anniversary
Date, a stockholder's notice required by this Section 3.5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to
and received by, the Corporation at its principal executive office not later
than the close of business on the 15th day following the day on which such
Public Announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 3.5. Election of directors at an annual meeting need not be by
written ballot, unless otherwise provided by the Board of Directors or
presiding officer at such annual meeting. If written ballots are to be used,
ballots bearing the names of all the persons who have been nominated for
election as directors at the annual meeting in accordance with the procedures
set forth in this Section 3.5 shall be provided for use at the annual meeting.
C-6
<PAGE>
3.6 Voting.
(a) Except as provided in subsection (c) of this Section 3.6, the action
of the majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors, unless a larger vote
is required for such action by the Certificate, these Bylaws or by law.
(b) Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing. Such written consent shall
be filed with the records of the meetings of the Board of Directors and
shall be treated for all purposes as a vote at a meeting of the Board of
Directors.
(c) Notwithstanding anything in these Bylaws to the contrary, (i) any
action pertaining to a sale or other disposition of any of the following
hotels: (1) Radisson New Orleans; (2) Bourbon Orleans; (3) North Dallas
Holiday Inn; and (4) San Angelo Holiday Inn and (ii) any other action
pertaining to any transaction involving the Corporation, including the
purchase, sale, lease, or mortgage of any real estate asset, entering into
joint venture investments or any other transaction, in which an advisor,
director or officer of the Corporation, or any Affiliate of any of the
foregoing persons, has any direct or indirect interest other than solely as
a result of their status as a director, officer, or stockholder of the
Corporation, must be approved by a majority of the directors, including a
majority of the Independent Directors, even if the Independent Directors
constitute less than a quorum.
3.7 Manner of Participation. Directors may participate in meetings of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can
hear each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these Bylaws.
3.8 Compensation. By resolution of the Board of Directors, directors may be
allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE IV.
COMMITTEES
4.1 Executive Committee. The Board of Directors, by resolution duly adopted,
may elect an Executive Committee which shall consist of not less than two
directors, including the Chairman of the Board. The members of the Executive
Committee shall serve until their successors are designated by the Board of
Directors, until removed, or until the Executive Committee is dissolved by the
Board of Directors. All vacancies that may occur in the Executive Committee
shall be filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee shall
have all power vested in the Board of Directors by law, by the Certificate, or
by these Bylaws, except as otherwise provided in the DGCL. The Executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action that the Executive Committee may have taken on behalf of
the Board of Directors since the last regular or special meeting of the Board
of Directors.
Meetings of the Executive Committee shall be held at such places and at such
times fixed by resolution of the Executive Committee, or upon call of the
Chairman of the Board. Not less than 12 hours' notice shall be given by
letter, facsimile, telegraph or telephone (or in person) of all meetings of
the Executive Committee; provided, however, that notice need not be given of
regular meetings held at times and places fixed by resolution of the Executive
Committee and that meetings may be held at any time without notice if all of
the members of the Executive Committee are present or if those not present
waive notice in writing either before or after the meeting; provided, further,
that attendance at a meeting for the express purpose of objecting at the
beginning of a meeting to the transaction of any business because the meeting
is not lawfully convened shall not be considered a waiver of notice. A
majority of the members of the Executive Committee then serving shall
constitute a quorum for the transaction of business at any meeting of the
Executive Committee.
C-7
<PAGE>
4.2 Compensation Committee. The Board of Directors, at its regular annual
meeting, shall designate a Compensation Committee which shall consist of two
or more non-employee directors. In addition, the Board of Directors at any
time may designate one or more alternate members of the Compensation
Committee, who shall be non-employee directors, who may act in place of any
absent regular member upon invitation by the chairman or secretary of the
Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers and to exercise such further
powers with respect to bonuses as may from time to time be conferred by the
Board of Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to
removal by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A majority
of the number of regular members then serving on the Compensation Committee
shall constitute a quorum; and regular and alternate members present shall be
counted to determine whether there is a quorum. The Compensation Committee
shall keep minutes of its meetings, and all action taken by it shall be
reported to the Board of Directors.
4.3 Audit Committee. The Board of Directors, at its regular annual meeting,
shall designate an Audit Committee which shall consist of two or more
directors whose membership on the Audit Committee shall meet the requirements
set forth in the rules of the New York Stock Exchange, as amended from time to
time. Vacancies in the Audit Committee shall be filled by the Board of
Directors with directors meeting the requirements set forth above, giving
consideration to continuity of the Audit Committee, and members shall be
subject to removal by the Board of Directors at any time. The Audit Committee
shall fix its own rules of procedure and a majority of the members serving
shall constitute a quorum. The Audit Committee shall meet at least twice per
year with both the internal and the Corporation's outside auditors present at
each meeting and shall keep minutes of its meetings and all action taken shall
be reported to the Board of Directors. The Audit Committee shall review the
reports and minutes of any audit committees of the Corporation's subsidiaries.
The Audit Committee shall review the Corporation's financial reporting
process, including accounting policies and procedures. The Audit Committee
shall examine the report of the Corporation's outside auditors, consult with
them with respect to their report and the standards and procedures employed by
them in their audit, report to the Board of Directors the results of its study
and recommend the selection of auditors for each fiscal year.
4.4 Nominating Committee. The Board of Directors, by resolution duly
adopted, shall designate a Nominating Committee which shall consist of three
or more directors. The Nominating Committee shall make recommendations to the
Board of Directors regarding nominees for election as directors by the
stockholders at each annual meeting of stockholders and make such other
recommendations regarding tenure, classification and compensation of directors
as the Nominating Committee may deem advisable from time to time. The
Nominating Committee shall fix its own rules of procedure and a majority of
the members then serving shall constitute a quorum.
4.5 Other Committees. The Board of Directors, by resolution adopted, may
establish such other standing or special committees of the Board of Directors
as it may deem advisable, and the members, terms and authority of such
committees shall be as set forth in the resolutions establishing the same.
C-8
<PAGE>
ARTICLE V.
OFFICERS
5.1 Election of Officers; Terms. The officers of the Corporation shall be
elected by the Board of Directors and shall include a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer or Chief
Financial Officer. Other officers, including Executive Vice Presidents and
Senior Vice Presidents, may be specified by the Board of Directors, and
assistant and subordinate officers, may from time to time be elected by the
Board of Directors. All officers shall hold office until the next annual
meeting of the Board of Directors and until their successors are duly elected
and qualified. The Chairman of the Board shall be chosen from among the
directors. Any two officers may be combined in the same person as the Board of
Directors may determine.
5.2 Removal of Officers; Vacancies. Any officer of the Corporation may be
removed with or without cause, at any time, by the Board of Directors.
Vacancies shall be filled by the Board of Directors.
5.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his or
her other duties as the Board of Directors may see fit.
5.4 Duties of the Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall be responsible for
the execution of the policies of the Board of Directors, shall serve as the
Chairman of the Executive Committee and shall have direct supervision over the
business of the Corporation and its several officers, subject to the ultimate
authority of the Board of Directors. He or she shall be a director, and,
except as otherwise provided in these Bylaws or in the resolutions
establishing such committees, he or she shall be ex officio a member of all
committees of the Board of Directors. He or she shall preside at all meetings
of stockholders, the Board of Directors and the Executive Committee. He or she
may sign and execute in the name of the Corporation share certificates, deeds,
mortgages, bonds, contracts or other instruments except in cases where the
signing and the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law otherwise to be signed or executed. In addition,
he or she shall perform all duties incident to the office of the Chairman of
the Board and Chief Executive Officer and such other duties as from time to
time may be assigned to him or her by the Board of Directors.
5.5 Duties of the President. Unless the Board of Directors, by resolution
duly adopted, designates some other person to serve as the Chief Operating
Officer of the Corporation, the President shall serve as Chief Operating
Officer and shall have direct supervision over the business of the Corporation
and its several officers, subject to the authority of the Board of Directors
and the Chairman of the Board, and shall consult with and report to the
aforementioned officer. The President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments, except in
cases where the signing and the execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law otherwise to be signed or
executed. In addition, he or she shall perform all duties incident to the
office of the President and such other duties as from time to time may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
5.6 Duties of the Vice Presidents. Each Vice President, if any, shall have
such powers and duties as may from time to time be assigned to him or her by
the Chairman of the Board or the Board of Directors. When there shall be more
than one Vice President of the Corporation, the Board of Directors may from
time to time designate one of them to perform the duties of the President in
the absence of the President. Any Vice President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board of Directors, except where the signing and
execution of such documents shall be expressly delegated by the Board of
Directors or the Chairman of the Board to some other officer or agent of the
Corporation or shall be required by law or otherwise to be signed or executed.
C-9
<PAGE>
5.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall have charge and custody of and be responsible
for all funds and securities of the Corporation, and shall cause all such
funds and securities to be deposited in such banks and depositories as shall
be designated by the Board of Directors. He or she shall be responsible (i)
for maintaining adequate financial accounts and records in accordance with
generally accepted accounting practices, (ii) for the preparation of
appropriate operating budgets and financial statements, (iii) for the
preparation and filing of all tax returns required by law and (iv) for the
performance of all duties incident to the office of Treasurer or Chief
Financial Officer and such other duties as from time to time may be assigned
to him or her by the Board of Directors, the Audit Committee or the Chairman
of the Board. The Treasurer or Chief Financial Officer may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except where the signing and execution of such
documents shall be expressly delegated by the Board of Directors or the
Chairman of the Board to some other officer or agent of the Corporation or
shall be required by law or otherwise to be signed or executed.
5.8 Duties of the Secretary. The Secretary shall act as secretary of all
meetings of the Board of Directors, all committees of the Board of Directors
and stockholders of the Corporation. He or she shall (i) keep and preserve the
minutes of all such meetings in permanent books, (ii) ensure that all notices
required to be given by the Corporation are duly given and served, (iii) have
custody of the seal of the Corporation and shall affix the seal or cause it to
be affixed to all share certificates of the Corporation and to all documents
the execution of which on behalf of the Corporation under its corporate seal
is duly authorized in accordance with law or the provisions of these Bylaws,
(iv) have custody of all deeds, leases, contracts and other important
corporate documents, (v) have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation, (vi)
see that all reports, statements and other documents required by law (except
tax returns) are properly filed and (vii) in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him or her by the Board of Directors or the Chairman of the
Board.
ARTICLE VI.
CAPITAL STOCK
6.1 Certificates. Each stockholder shall be entitled to a certificate of the
capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the
transfer agent or the registrar may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, the certificate may be
issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to a restriction on transfer
(as provided in Article IV of the Certificate) and every certificate issued
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend (as provided in Article IV of the Certificate)
with respect thereto as is required by law.
6.2 Pairing. Until the limitation on transfer provided for in the Pairing
Agreement, dated as of February 17, 1983, by and between Bay Meadows Realty
Enterprises, Inc. (the predecessor of California Jockey Club) and Bay Meadows
Operating Company (the "Pairing Agreement"), as amended from time to time in
accordance with the provisions thereof, shall be terminated:
(a) The shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement shall not be transferable, and shall not
be transferred on the stock transfer books of the Corporation, unless (i) a
simultaneous transfer is made by the same transferor to the same transferee
or (ii) arrangements have been made with the Operating Company for the
acquisition by the transferee, of a like number of shares of the same class
or series of Equity Stock of the Operating Company and such shares are
paired with one another.
C-10
<PAGE>
(b) Each certificate evidencing ownership of shares of Equity Stock of
the Corporation that are paired pursuant to the Pairing Agreement and
issued and not canceled prior to the Effective Time of the Restriction
shall be deemed to evidence a like number of shares of the same class or
series of Equity Stock of the Operating Company.
(c) A legend shall be placed on the face of each certificate evidencing
ownership of shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement referring to the restrictions on transfer
set forth herein.
(d) Notwithstanding the foregoing, the Corporation may issue or transfer
shares of its Equity Stock to the Operating Company without regard to the
restrictions of this Section 6.2.
(e) To the extent that a paired share of Equity Stock of the Corporation
is converted into a share of excess stock, par value $.01 per share (the
"Excess Stock"), of the Corporation in accordance with the provisions of
Article IV of the Certificate, such share of Excess Stock of the
Corporation, together with the corresponding share of Excess Stock of the
Operating Company, which has been converted from a share of Equity Stock of
the Operating Company in accordance with Article IV of the Certificate and
the Pairing Agreement, shall be automatically transferred to a trust
established by the Corporation and the Operating Company for such purpose
in accordance with Article IV of the Certificate.
6.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of the
Corporation shall immediately notify the Corporation of any loss, destruction
or mutilation of the certificate therefor, and the Board of Directors may in
its discretion cause one or more new certificates for the same number of
shares in the aggregate to be issued to such stockholder upon the surrender of
the mutilated certificate or upon satisfactory proof of such loss or
destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 Transfer of Stock. Subject to the restrictions on transfer of stock
described in Section 6.2 of these Bylaws and Article IV of the Certificate,
the stock of the Corporation shall be transferable or assignable only on the
stock transfer books of the Corporation by the holder in person or by attorney
on surrender of the certificate for such shares duly endorsed and, if sought
to be transferred by attorney, accompanied by a written power of attorney to
have the same transferred on the stock transfer books of the Corporation. The
Corporation will recognize, however, the exclusive right of the person
registered on its stock transfer books as the owner of shares to receive
dividends and to vote as such owner.
6.5 Fixing Record Date. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend, or to make a
determination of stockholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not less than 10
nor more than 60 days prior to the date on which the particular action
requiring such determination of stockholders, is to be taken. If no record
date is fixed for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled
to notice of or to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
ARTICLE VII.
INDEMNIFICATION
7.1 Definitions. For purposes of this Article VII:
(a) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an
C-11
<PAGE>
officer, employee or agent of the Corporation or is or was a director,
officer, employee or agent of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise that such Officer
is or was serving at the request of the Corporation and (iii) in the case
of a Non-Officer Employee, is or was an employee of the Corporation or is
or was a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise that such Non-Officer Employee is or was serving at the request
of the Corporation;
(b) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and
binding costs, costs of preparation of demonstrative evidence and other
courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone
charges, postage, delivery service fees, and all other disbursements, costs
or expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, settling or otherwise participating
in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
7.2 Indemnification of Directors and Officers. Subject to the operation of
Section 7.4 of these Bylaws, each Director and Officer shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment) against any and all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Director or Officer or on such Director's or Officer's behalf
in connection with any threatened, pending or completed Proceeding or any
claim, issue or matter therein, which such Director or Officer is, or is
threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The rights of indemnification provided by this Section
7.2 shall exist as to a Director or Officer after he or she has ceased to be a
Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation shall indemnify any Director or Officer seeking
indemnification in connection with a Proceeding initiated by such Director or
Officer only if such Proceeding was authorized by the Board of Directors.
7.3 Indemnification of Non-Officer Employees. Subject to the operation of
Section 7.4 of these Bylaws, each Non-Officer Employee may, in the discretion
of the Board of Directors, be indemnified by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
against any
C-12
<PAGE>
and all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Non-Officer Employee or on such Non-
Officer Employee's behalf in connection with any threatened, pending or
completed Proceeding, or any claim, issue or matter therein, which such Non-
Officer Employee is, or is threatened to be made, a party to or participant in
by reason of such Non-Officer Employee's Corporate Status, if such Non-Officer
Employee acted in good faith and in a manner such Non-Officer Employee
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall
inure to the benefit of his or her heirs, personal representatives, executors
and administrators. Notwithstanding the foregoing, the Corporation may
indemnify any Non-Officer Employee seeking indemnification in connection with
a Proceeding initiated by such Non-Officer Employee only if such Proceeding
was authorized by the Board of Directors.
7.4 Good Faith. Unless ordered by a court, no indemnification shall be
provided pursuant to this Article VII to a Director, to an Officer or to a
Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal Proceeding, such person had no reasonable cause to
believe his or her conduct was unlawful. Such determination shall be made by
(a) a majority vote of the Disinterested Directors, even though less than a
quorum of the Board of Directors, (b) if there are no such Disinterested
Directors, or if a majority of Disinterested Directors so direct, by
independent legal counsel in a written opinion or (c) by the stockholders of
the Corporation.
7.5 Advancement of Expenses to Directors Prior to Final Disposition. The
Corporation shall advance all Expenses incurred by or on behalf of any
Director in connection with any Proceeding in which such Director is involved
by reason of such Director's Corporate Status within 10 days after the receipt
by the Corporation of a written statement from such Director requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director
is not entitled to be indemnified against such Expenses.
7.6 Advancement of Expenses to Officers and Non-Officer Employees Prior to
Final Disposition. The Corporation may, in the discretion of the Board of
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such
Officer or Non-Officer Employee is involved by reason of such Officer or Non-
Officer Employee's Corporate Status upon the receipt by the Corporation of a
statement or statements from such Officer or Non-Officer Employee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Officer or Non-Officer Employee and
shall be preceded or accompanied by an undertaking by or on behalf of such
Officer or Non-Officer Employee to repay any Expenses so advanced if it shall
ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
7.7 Contractual Nature of Rights. The foregoing provisions of this Article
VII shall be deemed to be a contract between the Corporation and each Director
and Officer entitled to the benefits hereof at any time while this Article VII
is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer
is not paid in full by the Corporation within (a) 60 days after the receipt by
the Corporation of a written claim for indemnification or (b) in the case of a
Director, 10 days after the receipt by the Corporation of documentation of
Expenses and the required undertaking, such Director or Officer may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, and if successful in whole or in part, such Director or
Officer shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of
C-13
<PAGE>
such indemnification or, in the case of a Director, advancement of Expenses,
under this Article VII shall not be a defense to the action and shall not
create a presumption that such indemnification or advancement is not
permissible.
7.8 Non-Exclusivity of Rights. The rights to indemnification and advancement
of Expenses set forth in this Article VII shall not be exclusive of any other
right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
Bylaws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
7.9 Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the
provisions of this Article VII.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1 Seal. The seal of the Corporation shall consist of a flat-faced circular
die, of which there may be any number of counterparts, on which there shall be
engraved the word "Seal" and the name of the Corporation.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such date
and shall consist of such accounting periods as may be fixed by the Board of
Directors.
8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for the
payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.4 Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law, these
Bylaws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed at
any annual meeting of stockholders, or special meeting of stockholders
called for such purpose, by the affirmative vote of at least two-thirds of
the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative
vote of a majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
8.5 Voting of Stock Held. Unless otherwise provided by resolution of the
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the vote that the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such
other corporation; and the Chairman of the Board shall instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent and may execute or cause to be executed on behalf of the Corporation,
and under its corporate seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the premises. In lieu of such appointment, the
Chairman of the Board may himself or herself attend any meetings of the
holders of shares or other securities of any such other corporation and there
vote or exercise any or all power of the Corporation as the holder of such
shares or other securities of such other corporation.
C-14
<PAGE>
ANNEX D
PROPOSED FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW PATRIOT OPERATING COMPANY
Bay Meadows Operating Company, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Bay Meadows Operating Company. The date of
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was January 27, 1983 (the "Original Certificate
of Incorporation"). The name under which the Corporation filed the Original
Certificate of Incorporation was Bay Meadows Operating Company. Pursuant to
this Amended and Restated Certificate of Incorporation, the name of the
Corporation is hereby changed to Patriot American Hospitality Operating
Company.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Original
Certificate of Incorporation, was duly adopted by the Board of Directors of
the Corporation in accordance with the provisions of Sections 242 and 245 of
the Delaware General Corporation Law, as amended from time to time (the
"DGCL"), and was duly adopted by the stockholders of the Corporation in
accordance with the applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Original Certificate of Incorporation, as amended to
date, is hereby amended and restated in its entirety to provide as herein set
forth in full.
I.
NAME
The name of the corporation is Patriot American Hospitality Operating
Company.
II.
PURPOSES
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
CAPITAL STOCK
The Corporation shall have the authority to issue 650,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), 750,000,000
shares of excess stock, par value $.01 per share (the "Excess
D-1
<PAGE>
Stock"), and 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one
vote on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock
and subject to any other provisions of this Certificate or any amendment
hereto, holders of Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock or property of the Corporation as
may be declared thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken
by the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only
by an unanimous written consent of the stockholders signed by each
stockholder entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall
be stated and expressed herein or in the resolution or resolutions
providing for the issue of shares of a particular series, and in such
resolution or resolutions providing for the issue of shares of such series,
the Board of Directors is expressly authorized to fix or establish the
basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of
such series issued shall be cumulative, and the extent of participation
rights, if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire
or redeem shares of such series as a sinking fund or otherwise, and the
terms and conditions of any such redemption;
d. The designation and maximum number of shares of such series
issuable;
e. The right to vote, if any, with holders of shares of any other
class or series, either generally or as a condition to specified
corporate action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary
liquidation;
h. The rights, if any, of the holders of shares of such series to
convert such shares into other classes of stock of the Corporation, or
to exchange such shares for other securities or assets, and the terms
and conditions of any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors
and not prohibited by law.
All shares of Preferred Stock of any one series shall be identical with
each other in all respects except, if so determined by the Board of
Directors, as to the dates from which dividends thereon shall be
cumulative; and all shares of Preferred Stock shall be of equal rank with
each other, regardless of series, and shall be identical with each other in
all respects except as provided herein or in the resolution or resolutions
providing for the issue of a particular series. In case dividends on all
shares of Preferred Stock for any regular dividend period are not paid in
full, all such shares shall participate ratably in any partial payment of
dividends for such period in proportion to the full amounts of dividends
for such period to which they are respectively entitled.
D-2
<PAGE>
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms
shall have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the application of the constructive ownership rules of
Section 544 of the Internal Revenue Code of 1986, as amended (the "Code"),
as modified by Section 856(h)(1)(B) of the Code, and (iii) the number of
shares of Equity Stock which such Person is deemed to beneficially own
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The terms "Beneficial Owner," "Beneficially
Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(c) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(c) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause any Person to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit, including, but not
limited to, (i) the granting of any option or entering into any agreement
for the sale, transfer or other disposition of shares of Equity Stock or
(ii) the sale, transfer, assignment or other disposition of interests in
any Person or of any securities or rights convertible into or exchangeable
for shares of Equity Stock that results in changes in Beneficial Ownership
or Constructive Ownership of shares of Equity Stock.
"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 9.8% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by
D-3
<PAGE>
any Person, any shares of Equity Stock of the Corporation which are deemed
to be Beneficially Owned by such Person pursuant to Rule 13d-3 of the
Exchange Act but which are not outstanding shall be deemed to be
outstanding.
"Pairing Agreement" shall mean the Pairing Agreement, dated as of
February 17, 1983, by and between Bay Meadows Realty Enterprises, Inc. (the
predecessor of California Jockey Club) and Bay Meadows Operating Company,
as amended from time to time in accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Corporation is no longer a party to the Pairing Agreement, the Pairing
Agreement terminates or the Corporation is no longer required by the
Pairing Agreement to maintain the restrictions set forth in this Section C
of this Article IV.
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section (D) of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality,
Inc. ("Patriot REIT") in accordance with the Pairing Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person shall Beneficially Own or
Constructively Own outstanding shares of Equity Stock in excess of the
Ownership Limit and (ii) any Transfer (whether or not the result of a
transaction entered into through the facilities of the New York Stock
Exchange) that, if effective, would result in any Person Beneficially
Owning or Constructively Owning shares of Equity Stock in excess of the
Ownership Limit shall be void ab initio as to the Transfer of that
number of shares of Equity Stock which would be otherwise Beneficially
Owned or Constructively Owned by such Person in excess of the Ownership
Limit and the intended transferee shall acquire no rights in such
shares of Equity Stock.
b. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that are paired
pursuant to the Pairing Agreement that, if effective, would result in
Patriot REIT being "closely held" within the meaning of Section 856(h)
of the Code shall be void ab initio as to the Transfer of that number
of shares of Equity Stock that are paired pursuant to the Pairing
Agreement that would cause Patriot REIT to be "closely held" within the
meaning of Section 856(h) of the Code, and the intended transferee
shall acquire no rights in such shares of Equity Stock.
D-4
<PAGE>
c. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of shares of Equity Stock that, if
effective, would cause Patriot REIT to Constructively Own 10% or more
of the ownership interests in a tenant of the real property of Patriot
REIT or any direct or indirect subsidiary (whether a corporation,
partnership, limited liability company or other entity) of Patriot REIT
(a "Subsidiary"), within the meaning of Section 856(d)(2)(B) of the
Code, shall be void ab initio as to the Transfer of that number of
shares of Equity Stock that would cause Patriot REIT to Constructively
Own 10% or more of the ownership interests in a tenant of the real
property of Patriot REIT or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no
rights in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or
not the result of a transaction entered into through the facilities of
the New York Stock Exchange) of Equity Stock that is paired pursuant to
the Pairing Agreement that, if effective, would result in the capital
stock of Patriot REIT being beneficially owned (within the meaning of
Section 856(a)(5) of the Code) by fewer than 100 persons within the
meaning of Section 856(a)(5) of the Code shall be void ab initio and
the intended transferee shall acquire no rights in such shares of
Equity Stock.
3. Owners Required To Provide Information. Until the Restriction
Termination Date:
a. Every Beneficial Owner or Constructive Owner of more than 5%, or
such lower percentages as required pursuant to regulations under the
Code, of the outstanding shares of any class or series of Equity Stock
of the Corporation shall, within 30 days after January 1 of each year,
provide to the Corporation a written statement or affidavit stating the
name and address of such Beneficial Owner or Constructive Owner, the
number of shares of Equity Stock Beneficially Owned or Constructively
Owned, and a description of how such shares are held. Each such
Beneficial Owner or Constructive Owner shall provide to the Corporation
such additional information as the Corporation may request to ensure
compliance with the restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of
shares of Equity Stock and each Person (including the stockholder of
record) who is holding shares of Equity Stock for a Beneficial Owner or
Constructive Owner shall provide to the Corporation a written statement
or affidavit stating such information as the Corporation may request to
ensure compliance with the restrictions set forth in this Section C of
this Article IV.
4. Exception. The Board of Directors may exempt a Person from the
Ownership Limit, provided that (A) such exemption is permitted by and made
in accordance with the Pairing Agreement and (B) such Person agrees in
writing that any violation or attempted violation of the Ownership Limit
will result in the conversion of such shares into shares of Excess Stock
pursuant to Section (D)(1) of this Article IV and provides such other
representations and undertakings as the Board of Directors may reasonably
require.
5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall
preclude the settlement of any transaction entered into through the
facilities of the New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either
Beneficially Own or Constructively Own shares of Equity Stock in excess
of the Ownership Limit, then, (i) except as otherwise provided in
Section (C)(4) of this Article IV, the purported transferee shall be
deemed to be a Prohibited Owner and shall acquire no right or interest
(or, in the case of a Non-Transfer Event, the Person holding record
title to the shares of Equity Stock Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner,
shall cease to own any right or interest) in such number of shares of
Equity Stock which would cause such Beneficial
D-5
<PAGE>
Owner or Constructive Owner to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit, (ii) such
number of shares of Equity Stock in excess of the Ownership Limit
(rounded up to the nearest whole share) shall be automatically
converted into an equal number of shares of Excess Stock and
transferred to a Trust in accordance with Section (D)(4) of this
Article IV and (iii) the Prohibited Owner shall submit such number of
shares of Equity Stock to the Corporation for registration in the name
of the Trustee of the Trust. Such conversion into Excess Stock and
transfer to a Trust shall be effective as of the close of trading on
the Trading Day prior to the date of the Transfer or Non-Transfer
Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article
IV, prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event that, if effective, would (i) result in
the capital stock of Patriot REIT being beneficially owned (within the
meaning of Section 856(a)(5) of the Code) by fewer than 100 persons
within the meaning of Section 856(a)(5) of the Code, (ii) result in
Patriot REIT being "closely held" within the meaning of Section 856(h)
of the Code or (iii) cause Patriot REIT to Constructively Own 10% or
more of the ownership interest in a tenant of Patriot REIT's or a
Subsidiary's real property within the meaning of Section 856(d)(2)(B)
of the Code, then (x) the purported transferee shall be deemed to be a
Prohibited Owner and shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the Person holding record title of the
shares of Equity Stock with respect to which such Non-Transfer Event
occurred, shall cease to own any right or interest) in such number of
shares of Equity Stock, the ownership of which by such purported
transferee or record holder would (A) result in the capital stock of
Patriot REIT being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (B) result in Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or
(C) cause Patriot REIT to Constructively Own 10% or more of the
ownership interests in a tenant of Patriot REIT's or a Subsidiary's
real property within the meaning of Section 856(d)(2)(B) of the Code,
(y) such number of shares of Equity Stock (rounded up to the nearest
whole share) shall be automatically converted into an equal number of
shares of Excess Stock and transferred to a Trust in accordance with
Section (D)(4) of this Article IV and (z) the Prohibited Owner shall
submit such number of shares of Equity Stock to the Corporation for
registration in the name of the Trustee of the Trust. Such conversion
into Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the Transfer
or Non-Transfer Event, as the case may be.
c. Upon the occurrence of such a conversion of shares of any class or
series of Equity Stock into an equal number of shares of Excess Stock,
such shares of Equity Stock shall be automatically retired and
canceled, without any action required by the Board of Directors of the
Corporation, and shall thereupon be restored to the status of
authorized but unissued shares of the particular class or series of
Equity Stock from which such Excess Stock was converted and may be
reissued by the Corporation as that particular class or series of
Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at
any time determine in good faith that a Transfer has taken place in
violation of Section (C)(2) of this Article IV or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section (C)(2) of
this Article IV, the Corporation shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or
acquisition, including, but not limited to, refusing to give effect to such
Transfer on the stock transfer books of the Corporation or instituting
proceedings to enjoin such Transfer or acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this
Article IV, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant
to Sections (D)(1) and (D)(4) of this Article IV, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order
to determine the effect,
D-6
<PAGE>
if any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's compliance with the terms of the Pairing Agreement, including
the effect on Patriot REIT's status as a real estate investment trust.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that
results in Excess Stock pursuant to Section (D)(1) of this Article IV, such
Excess Stock shall be automatically transferred to a Trust to be held for
the exclusive benefit of the Beneficiary. The Corporation and Patriot REIT
shall name a Beneficiary for each Trust pursuant to the terms of the
Pairing Agreement. Any conversion of shares of Equity Stock into shares of
Excess Stock and transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer or Non-
Transfer Event that results in the conversion. Shares of Excess Stock so
held in trust shall remain issued and outstanding shares of stock of the
Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the
same dividends and distributions (as to both timing and amount) as may be
declared by the Board of Directors as shares of the class or series of
Equity Stock from which such Excess Stock was converted. The Trustee, as
record holder of the shares of Excess Stock, shall be entitled to receive
all dividends and distributions and shall hold all such dividends or
distributions in trust for the benefit of the Beneficiary. The Prohibited
Owner with respect to such shares of Excess Stock shall repay to the Trust
the amount of any dividends or distributions received by it (i) that are
attributable to any shares of Equity Stock that have been converted into
shares of Excess Stock and (ii) the record date of which was on or after
the date that such shares were converted into shares of Excess Stock. The
Corporation shall take all measures that it determines reasonably necessary
to recover the amount of any such dividend or distribution paid to a
Prohibited Owner, including, if necessary, withholding any portion of
future dividends or distributions payable on shares of Equity Stock
Beneficially Owned or Constructively Owned by the Person who, but for the
provisions of this Article IV, would Constructively Own or Beneficially Own
the shares of Equity Stock that were converted into shares of Excess Stock;
and, as soon as reasonably practicable following the Corporation's receipt
or withholding thereof, shall pay over to the Trust for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the
same class or series from which the Equity Stock was converted, that
portion of the assets of the Corporation that is available for distribution
to the holders of such class or series of Equity Stock. The Trust shall
distribute to the Prohibited Owner the amounts received upon such
liquidation, dissolution, or winding up, or distribution; provided,
however, that the Prohibited Owner shall not be entitled to receive amounts
in excess of, in the case of a purported Transfer in which the Prohibited
Owner gave value for shares of Equity Stock and which Transfer resulted in
the conversion of the shares into shares of Excess Stock, the price per
share, if any, such Prohibited Owner paid for the shares of Equity Stock
(which, in the case of Equity Stock that is paired, shall equal the price
per paired share multiplied by the most recent Valuation Percentage) and,
in the case of a Non-Transfer Event or Transfer in which the Prohibited
Owner did not give value for such shares (e.g., if the shares were received
through a gift or devise) and which Non-Transfer Event or Transfer, as the
case may be, resulted in the conversion of the shares into shares of Excess
Stock, the price per share equal to the Market Price on the date of such
Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the holder to
the number of votes the holder would have, if such share of Excess Stock
was a share of Equity Stock of the same class or series from which such
Excess Stock was converted, on all matters submitted to a vote at any
meeting of stockholders. The holders of shares of Excess Stock converted
from the same class or series of Equity Stock shall vote together with the
holders of such Equity Stock as a single class on all such matters. The
Trustee, as record holder of the Excess Stock, shall be entitled to vote
all shares of Excess Stock. Any vote by a Prohibited
D-7
<PAGE>
Owner as a purported holder of shares of Equity Stock prior to the
discovery by the Corporation that the shares of Equity Stock have been
converted into shares of Excess Stock shall, subject to applicable law, be
rescinded and shall be void ab initio with respect to such shares of Excess
Stock, and the Prohibited Owner shall be deemed to have given, as of the
close of trading on the Trading Day prior to the date of the purported
Transfer or Non-Transfer Event that results in the conversion of the shares
of Equity Stock into shares of Excess Stock and the transfer of such shares
to a Trust pursuant to Sections (D)(1) and (D)(4) of this Article IV, an
irrevocable proxy to the Trustee to vote the shares of Excess Stock in the
manner in which the Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to
designate a Permitted Transferee of any and all shares of Excess Stock
if the Company fails to exercise its option with respect to such shares
pursuant to Section (D)(10) hereof within the time period set forth
therein. As soon as practicable, but in an orderly fashion so as not to
materially adversely affect the Market Price of the shares of Excess
Stock, the Trustee shall designate any Person as a Permitted
Transferee; provided, however, that (i) the Permitted Transferee so
designated purchases for valuable consideration (whether in a public or
private sale) the shares of Excess Stock (which, in the case of paired
Excess Stock, shall be determined based on the Valuation Percentage)
and (ii) the Permitted Transferee so designated may acquire such shares
of Excess Stock without violating any of the restrictions set forth in
Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired
into shares of Excess Stock and the transfer of such shares to a Trust
pursuant to Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee
shall cause to be transferred to the Permitted Transferee that number
of shares of Excess Stock acquired by the Permitted Transferee. Upon
such transfer of the shares of Excess Stock to the Permitted
Transferee, such shares of Excess Stock shall be automatically
converted into an equal number of shares of Equity Stock of the same
class and series from which such Excess Stock was converted. Upon the
occurrence of such a conversion of shares of Excess Stock into an equal
number of shares of Equity Stock, such shares of Excess Stock shall be
automatically retired and canceled, without any action required by the
Board of Directors of the Corporation, and shall thereupon be restored
to the status of authorized but unissued shares of Excess Stock and may
be reissued by the Corporation as Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer
books of the Corporation that the Permitted Transferee is the holder of
record of such number of shares of Equity Stock, and (ii) distribute to
the Beneficiary any and all amounts held with respect to the shares of
Excess Stock after making payment to the Prohibited Owner pursuant to
Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in
Section (C)(2) of this Article IV, such Transfer shall be void ab
initio as to that number of shares of Excess Stock that cause the
violation of any such restriction when such shares are converted into
shares of Equity Stock (as described in clause (b) above) and the
purported Permitted Transferee shall be deemed to be a Prohibited Owner
and shall acquire no rights in such shares of Excess Stock or Equity
Stock. Such shares of Equity Stock shall be automatically re-converted
into Excess Stock and transferred to the Trust from which they were
originally Transferred. Such conversion and transfer to the Trust shall
be effective as of the close of trading on the Trading Day prior to the
date of the Transfer to the purported Permitted Transferee and the
provisions of this Article IV shall apply to such shares, including,
without limitation, the provisions of Sections D(8) through (D)(10)
with respect to any future Transfer of such shares by the Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be
entitled (following discovery of the shares of Excess Stock and subsequent
designation of the Permitted Transferee in accordance with Section (D)(8)
of this Article IV or following the acceptance of the offer to purchase
such shares in accordance with Section (D)(10) of this
D-8
<PAGE>
Article IV) to receive from the Trustee following the sale or other
disposition of such shares of Excess Stock the lesser of (i) (a) in the
case of a purported Transfer in which the Prohibited Owner gave value for
shares of Equity Stock and which Transfer resulted in the conversion of
such shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock (which, in the case of
paired Excess Stock, shall be determined based on the Valuation Percentage)
and (b) in the case of a Non-Transfer Event or Transfer in which the
Prohibited Owner did not give value for such shares (e.g., if the shares
were received through a gift or devise) and which Non-Transfer Event or
Transfer, as the case may be, resulted in the conversion of such shares
into shares of Excess Stock, the price per share equal to the Market Price
on the date of such Non-Transfer Event or Transfer or (ii) the price per
share (which, in the case of paired Excess Stock, shall be determined based
on the Valuation Percentage) received by the Trustee from the sale or other
disposition of such shares of Excess Stock in accordance with this Section
(D)(9) or Section (D)(10) of this Article IV. Any amounts received by the
Trustee in respect of such shares of Excess Stock and in excess of such
amounts to be paid the Prohibited Owner pursuant to this Section (D)(9)
shall be distributed to the Beneficiary in accordance with the provisions
of Section (D)(8) of this Article IV. Each Beneficiary and Prohibited Owner
shall waive any and all claims that it may have against the Trustee and the
Trust arising out of the disposition of shares of Excess Stock, except for
claims arising out of the gross negligence or willful misconduct of, or any
failure to make payments in accordance with this Section (D) of this
Article IV by, such Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be
deemed to have been offered for sale to the Corporation or its designee, at
a price per share equal to the lesser of (i) the price per share (which, in
the case of paired Excess Stock, shall be determined based on the Valuation
Percentage) in the transaction that created such shares of Excess Stock
(or, in the case of devise, gift or Non-Transfer Event, the Market Price at
the time of such devise, gift or Non-Transfer Event) or (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer for a period of 90
days following the later of (a) the date of the Non-Transfer Event or
purported Transfer which results in such shares of Excess Stock or (b) the
date on which the Corporation determines in good faith that a Transfer or
Non-Transfer Event resulting in shares of Excess Stock previously has
occurred, if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section (D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders to ensure compliance with the requirements of the Pairing
Agreement and with the restrictions set forth in Section C of this Article IV.
G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company represented by this combined certificate are
subject to restrictions in the respective Amended and Restated Certificate
of Incorporation of each company which prohibit (a) any Person from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated
D-9
<PAGE>
Certificate of Incorporation of each company) in excess of 9.8% of the
number of outstanding shares of any class or series of Equity Stock (as
that term is defined in the respective Amended and Restated Certificate of
Incorporation of each company), (b) any Person (as that term is defined in
the respective Amended and Restated Certificate of Incorporation of each
company) from acquiring or maintaining any ownership interest in the stock
of either company that is inconsistent with (i) the requirements of the
Internal Revenue Code of 1986, as amended, pertaining to real estate
investment trusts or (ii) Article IV of the respective Amended and Restated
Certificate of Incorporation of each company and (c) any transfer of shares
of any class or series of Equity Stock of either company that are paired
pursuant to the Pairing Agreement, dated as of February 17, 1997 between
the two companies, as amended from time to time in accordance with the
provisions thereof (the "Pairing Agreement"), except in combination with an
equal number of shares of the other company in accordance with the
respective Amended and Restated Bylaws of each company and the Pairing
Agreement, copies of which are on file with the transfer agent, and the
holder of this certificate by his acceptance hereof consents to be bound by
such restrictions.
Patriot American Hospitality, Inc. and Patriot American Hospitality
Operating Company will furnish without charge to each stockholder who so
requests a copy of the relevant provisions of the respective Amended and
Restated Certificates of Incorporation and the respective Amended and
Restated Bylaws of each company, a copy of the Pairing Agreement and a copy
of the provisions setting forth the designations, preferences, privileges
and rights of each class of stock or series thereof that each company is
authorized to issue and the qualifications, limitations and restrictions of
such preferences and/or rights. Any such request may be addressed to the
Secretary of either Company or to the transfer agent named on the face
hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall be in no way affect the
validity of any other provision.
V.
DIRECTORS
A. General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Bylaws or this Certificate, all of
the powers of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. The initial Class I Directors of the Corporation
shall be ; the initial Class II Directors of the
Corporation shall be ; and the initial Class III
Directors of the Corporation shall be . The initial Class
I Directors shall serve for a term expiring at the annual meeting of
stockholders to be held in 1997; the initial Class II Directors shall serve
for a term expiring at the annual meeting of stockholders to be held in 1998;
and the initial Class III Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 1999. At each annual meeting of
stockholders, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at such meeting and entitled
to vote on the election of directors, and shall hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election. The directors elected to each class
shall hold office until their successors are duly elected and qualified or
until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election,
D-10
<PAGE>
term of office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate and any certificates of
designation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall
have been duly elected and qualified, or until such director's right to hold
such office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Preferred Stock having such right to elect additional directors are divested
of such right pursuant to the provisions of such stock, the terms of office of
all such additional directors elected by the holders of such stock, or elected
to fill any vacancies resulting from the death, resignation, disqualification
or removal of such additional directors, shall forthwith terminate and the
total and authorized number of directors of the Corporation shall be reduced
accordingly.
D. Removal of Directors. Subject to the rights, if any, of any series of
Preferred Stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote
of the holders of at least 75% of the shares then entitled to vote at an
election of directors. At least 30 days prior to any meeting of stockholders
at which it is proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director whose removal
will be considered at the meeting. For purposes of this Certificate, "cause,"
with respect to the removal of any director shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a court, (iii) gross
dereliction of duty, (iv) commission of any act involving moral turpitude or
(v) commission of an act that constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit to such director and a material injury to the
Corporation.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
VI.
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the
D-11
<PAGE>
director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
VII.
RELATED PERSON TRANSACTION
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the corporation.
For purposes of this Article VII:
1. The term "Business Combination" shall mean (a) any merger, reorganization
or consolidation of this corporation with or into a Related Person, (b) any
sale, lease, exchange, transfer or other disposition, including, without
limitation, a mortgage or any other security device, of all or any substantial
part of the assets of this corporation (including, without limitation, any
voting securities of a subsidiary) or of a subsidiary, to a Related Person,
(c) any merger or consolidation of a Related Person with or into this
corporation or a subsidiary of this corporation and (d) any sale, lease,
exchange, transfer or other disposition of all or any substantial part of the
assets of a Related Person to this corporation or a subsidiary of this
corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate five
percent (5%) or more of the outstanding shares of the capital stock of this
corporation, and any "affiliate" or "associate" (as those terms are defined in
Rule 12b-2 of the Exchange Act) of any such individual, corporation,
partnership or other person or entity; provided, however, that the term
"Related Person" shall not include either Patriot REIT or any subsidiary of
this corporation.
3. The term "substantial part of the assets" shall mean assets having a fair
market value or book value, whichever is greater, equal to 25% or more of such
value of the total assets as reflected on the most recent quarterly balance
sheet of the corporation as of a date no earlier than forty-five (45) days
prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this corporation which
any Related Person has the right to acquire pursuant to any agreement or upon
exercise of conversion rights, warrants or options, or otherwise shall be
deemed beneficially owned by such Related Person.
D-12
<PAGE>
The provisions set forth in this Article VII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
VIII.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Subject to Article VII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation.
D-13
<PAGE>
ANNEX E
PROPOSED FORM OF
AMENDED AND RESTATED
BYLAWS
OF
NEW PATRIOT OPERATING COMPANY
ARTICLE I.
DEFINITIONS
For purposes of these Bylaws, the following words shall have the meanings
set forth below:
(a) "Affiliate" of a Person shall mean (i) any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
other Person, (ii) any Person that owns, beneficially, directly or indirectly,
5% or more of the outstanding capital stock, shares or equity interests of
such other Person or (iii) any officer, director, employee, partner or trustee
of such other Person or any Person controlling, controlled by or under common
control with such Person (excluding directors and Persons serving in similar
capacities who are not otherwise Affiliates of such Person). For the purposes
of this definition, the term "Person" shall mean, and includes, any natural
person, corporation, partnership, association, trust, limited liability
company or any other legal entity. For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
(b) "Certificate" shall mean the Amended and Restated Certificate of
Incorporation of the Corporation, as amended from time to time.
(c) "Corporation" shall mean Patriot American Hospitality Operating Company.
(d) "DGCL" shall mean the Delaware General Corporation Law, as amended from
time to time.
(e) "Equity Stock" shall mean the common stock, par value $.01 per share,
and the preferred stock, par value $.01 per share of the Corporation and
Patriot REIT.
(f) "Independent Director" shall mean a director of the Corporation who is
not (i) an officer or employee of the Corporation, (ii) a director or officer
of Patriot REIT or (iii) an Affiliate of (a) any lessee of any property of the
Corporation, (b) a subsidiary of the Corporation or (c) any partnership that
is an Affiliate of the Corporation.
(g) "Patriot REIT" shall mean Patriot American Hospitality, Inc.
(h) "Public Announcement" shall mean: (i) disclosure in a press release
reported by the Dow Jones News Service, Associated Press or comparable
national news service, (ii) a report or other document filed publicly with the
Securities and Exchange Commission (including, without limitation, a Form 8-K)
or (iii) a letter or report sent to stockholders of record of the Corporation
at the time of the mailing of such letter or report.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
2.1 Places of Meetings. All meetings of the stockholders shall be held at
such place, either within or without the State of Delaware, as from time to
time may be fixed by the Board of Directors.
2.2 Annual Meetings. The annual meeting of the stockholders, for the
election of directors and transaction of such other business as may come
properly before the meeting, shall be held at such date and time as shall be
determined by the Board of Directors.
E-1
<PAGE>
2.3 Special Meetings. A special meeting of the stockholders for any purpose
or purposes may be called at any time only by the Chairman of the Board or by
a majority of the Board of Directors. At a special meeting no business shall
be transacted and no corporate action shall be taken other than that stated in
the notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law) not less than 10 days nor more than 60
days before the annual meeting, to each stockholder entitled to vote thereat
and to each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice, by delivering such notice to him or her or
by mailing it, postage prepaid, addressed to such stockholder at the address
of such stockholder as it appears on the stock transfer books of the
Corporation. Such notice shall be deemed to be delivered when hand delivered
to such address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual meeting or special meeting of
stockholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of
stockholders commence a new time period for the giving of a stockholder's
notice under Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of
business, (b) the Board of Directors determines that adjournment is necessary
or appropriate to enable the stockholders to consider fully information that
the Board of Directors determines has not been made sufficiently or timely
available to stockholders or (c) the Board of Directors determines that
adjournment is otherwise in the best interests of the Corporation. When any
annual meeting or special meeting of stockholders is adjourned to another
hour, date or place, notice need not be given of the adjourned meeting, other
than an announcement at the meeting at which the adjournment is taken, of the
hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
and each stockholder who, by law or under the Certificate or under these
Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by the Certificate, any number of
stockholders together holding at least a majority of the outstanding shares of
capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum for the transaction of business. If less
than a quorum shall be in attendance at the time for which a meeting shall
have been called, the meeting may be adjourned from time to time by a majority
of the stockholders present or represented by proxy.
2.6 Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the stock transfer
books of the Corporation, unless otherwise provided by law or
E-2
<PAGE>
by the Certificate. Stockholders may vote either in person or by written
proxy, but no proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. Proxies shall be filed
with the secretary of the meeting before being voted. Except as otherwise
limited therein or as otherwise provided by law, proxies shall entitle the
persons authorized thereby to vote at any adjournment of such meeting, but
they shall not be valid after final adjournment of such meeting. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by or on behalf of any one of them unless at or prior to the exercise
of the proxy the Corporation receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid, and the burden of proving
invalidity shall rest on the challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these Bylaws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate
or by these Bylaws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote
shares which it holds in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the hour, date and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a stockholder
of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the
first annual meeting following the end of the fiscal year ended December 31,
1996, a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not later than 90 days prior to the anniversary
date of the immediately preceding annual meeting (the "Anniversary Date");
provided, however, that in the event the annual meeting is scheduled to be
held on a date more than 30 days before the Anniversary Date or more than 60
days after the Anniversary Date, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (1) the
90th day prior to the scheduled date of such annual meeting or (2) the 15th
day following the day on which Public Announcement of the date of such annual
meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such
annual meeting and the reasons for conducting such business at such annual
meeting, (ii) the name and address, as they appear on the stock transfer books
of the Corporation, of the stockholder proposing such business, (iii) the
class and number of shares of the capital stock of the Corporation
beneficially owned by the
E-3
<PAGE>
stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered
in such stockholder's name on such books, and the class and number of shares
of the capital stock of the Corporation beneficially owned by such beneficial
owners, (v) the names and addresses of other stockholders known by the
stockholder proposing such business to support such proposal, and the class
and number of shares of the capital stock of the Corporation beneficially
owned by such other stockholders and (vi) any material interest of the
stockholder proposing to bring such business before such meeting (or any other
stockholders known to be supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with
the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors
nor such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in
accordance with the terms of this Section 2.9. If the presiding officer
determines that any stockholder proposal was not made in a timely fashion in
accordance with the provisions of this Section 2.9 or that the information
provided in a stockholder's notice does not satisfy the information
requirements of this Section 2.9 in any material respect, such proposal shall
not be presented for action at the annual meeting in question. If the Board of
Directors, a designated committee thereof or the presiding officer determines
that a stockholder proposal was made in accordance with the requirements of
this Section 2.9, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2.9, and
nothing in this Section 2.9 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
2.10 Inspectors of Elections. The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
presiding officer shall appoint one or more inspectors to act at the meeting.
Any inspector may, but need not, be an officer, employee or agent of the
Corporation. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall perform such duties as are required by the DGCL,
including the counting of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors. The presiding officer may review all
determinations made by the inspectors, and in so doing the presiding officer
shall be entitled to exercise his or her sole judgment and discretion and he
or she shall not be bound by any determinations made by the inspectors. All
determinations by the inspectors and, if applicable, the presiding officer,
shall be subject to further review by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or if
not elected or in his or her absence, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meeting at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
E-4
<PAGE>
ARTICLE III.
DIRECTORS
3.1 General Powers. The property, affairs and business of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law, the Certificate or these Bylaws, all of
the powers of the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of directors shall be fixed by
resolution duly adopted from time to time by the Board of Directors.
3.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected and removed in the manner provided for in
Article V of the Certificate.
(b) Vacancies in the Board of Directors shall be filled in the manner
provided for in Article V of the Certificate.
(c) At any meeting of the Board of Directors, a majority of the number of
directors then in office shall constitute a quorum for the transaction of
business. However, if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to
time, and the meeting may be held as adjourned without further notice,
except that when any meeting of the Board of Directors, either regular of
special, is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of the original meeting.
3.4 Meetings of Directors. Meetings of the Board of Directors shall be held
at places within or without the State of Delaware and at times fixed by
resolution of the Board of Directors, or upon call of the Chairman of the
Board, and the Secretary of the Corporation or officer performing the
Secretary's duties shall give not less than 24 hours' notice by letter,
facsimile, telegraph or telephone (or in person) of all meetings of the Board
of Directors, provided that notice need not be given of the annual meeting or
of regular meetings held at times and places fixed by resolution of the Board
of Directors. Meetings may be held at any time without notice if all of the
directors are present, or if those not present waive notice in writing either
before or after the meeting; provided, however, that attendance at a meeting
for the express purpose of objecting at the beginning of a meeting to the
transaction of any business because the meeting is not lawfully convened shall
not be considered a waiver of notice.
3.5 Nominations. Nominations of candidates for election as directors of the
Corporation at any annual meeting may be made only (a) by, or at the direction
of, a majority of the Board of Directors or (b) by any holder of record (both
as of the time notice of such nomination is given by the stockholder as set
forth below and as of the record date for the annual meeting in question) of
any shares of the capital stock of the Corporation entitled to vote at such
annual meeting who complies with the timing, informational and other
requirements set forth in this Section 3.5. Any stockholder who has complied
with the timing, informational and other requirements set forth in this
Section 3.5 and who seeks to make such a nomination must be, or his, her or
its representative must be, present in person at the annual meeting. Only
persons nominated in accordance with the procedures set forth in this Section
3.5 shall be eligible for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3.5. For the first annual
meeting following the end of the fiscal year ended December 31, 1996, a
stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which the Public
Announcement of the date of such annual meeting is first made by the
Corporation. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at
its principal executive office not less than 90 days prior to the Anniversary
Date; provided, however, that in the event the annual meeting is scheduled
E-5
<PAGE>
to be held on a date more than 30 days before the Anniversary Date or more
than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later
of (x) the 90th day prior to the scheduled date of such annual meeting or (y)
the 15th day following the day on which Public Announcement of the date of
such annual meeting is first made by the Corporation.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or
re-election as a director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of
such stockholder and of the beneficial owners (if any) of the capital stock of
the Corporation registered in such stockholder's name and the name and address
of other stockholders known by such stockholder to be supporting such
nominee(s); (b) the class and number of shares of the capital stock of the
Corporation which are held of record, beneficially owned or represented by
proxy by such stockholder and by any other stockholders known by such
stockholder to be supporting such nominee(s) on the record date for the annual
meeting in question (if such date shall then have been made publicly
available) and on the date of such stockholder's notice; and (c) a description
of all arrangements or understandings between such stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3.5 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.5 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.5, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder
nomination was not made in accordance with the terms of this Section 3.5 or
that the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.5 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding
officer determines that a nomination was made in accordance with the terms of
this Section 3.5, the presiding officer shall so declare at the annual meeting
and ballots shall be provided for use at the meeting with respect to such
nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.5, in the event that the number of directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 90 days prior to the Anniversary
Date, a stockholder's notice required by this Section 3.5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to
and received by, the Corporation at its principal executive office not later
than the close of business on the 15th day following the day on which such
Public Announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 3.5. Election of directors at an annual meeting need not be by
written ballot, unless otherwise provided by the Board of Directors or
presiding officer at such annual meeting. If written ballots are to be used,
ballots bearing the names of all the persons who have been nominated for
election as directors at the annual meeting in accordance with the procedures
set forth in this Section 3.5 shall be provided for use at the annual meeting.
E-6
<PAGE>
3.6 Voting.
(a) Except as provided in subsection (c) of this Section 3.6, the action
of the majority of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors, unless a larger vote
is required for such action by the Certificate, these Bylaws or by law.
(b) Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if all members of the
Board of Directors consent thereto in writing. Such written consent shall
be filed with the records of the meetings of the Board of Directors and
shall be treated for all purposes as a vote at a meeting of the Board of
Directors.
(c) Notwithstanding anything in these Bylaws to the contrary, any action
pertaining to any transaction involving the Corporation, including entering
into joint venture investments or any other transaction, in which an
advisor, director or officer of the Corporation, or any Affiliate of any of
the foregoing persons, has any direct or indirect interest other than
solely as a result of their status as a director, officer, or stockholder
of the Corporation, must be approved by a majority of the directors,
including a majority of the Independent Directors, even if the Independent
Directors constitute less than a quorum.
3.7 Manner of Participation. Directors may participate in meetings of the
Board of Directors by means of conference telephone or similar communications
equipment by means of which all directors participating in the meeting can
hear each other, and participation in a meeting in accordance herewith shall
constitute presence in person at such meeting for purposes of these Bylaws.
3.8 Compensation. By resolution of the Board of Directors, directors may be
allowed a fee and expenses for attendance at all meetings, but nothing herein
shall preclude directors from serving the Corporation in other capacities and
receiving compensation for such other services.
ARTICLE IV.
COMMITTEES
4.1 Executive Committee. The Board of Directors, by resolution duly adopted,
may elect an Executive Committee which shall consist of not less than two
directors, including the Chairman of the Board. The members of the Executive
Committee shall serve until their successors are designated by the Board of
Directors, until removed, or until the Executive Committee is dissolved by the
Board of Directors. All vacancies that may occur in the Executive Committee
shall be filled by the Board of Directors.
When the Board of Directors is not in session, the Executive Committee shall
have all power vested in the Board of Directors by law, by the Certificate, or
by these Bylaws, except as otherwise provided in the DGCL. The Executive
Committee shall report at the next regular or special meeting of the Board of
Directors all action that the Executive Committee may have taken on behalf of
the Board of Directors since the last regular or special meeting of the Board
of Directors.
Meetings of the Executive Committee shall be held at such places and at such
times fixed by resolution of the Executive Committee, or upon call of the
Chairman of the Board. Not less than 12 hours' notice shall be given by
letter, facsimile, telegraph or telephone (or in person) of all meetings of
the Executive Committee; provided, however, that notice need not be given of
regular meetings held at times and places fixed by resolution of the Executive
Committee and that meetings may be held at any time without notice if all of
the members of the Executive Committee are present or if those not present
waive notice in writing either before or after the meeting; provided, further,
that attendance at a meeting for the express purpose of objecting at the
beginning of a meeting to the transaction of any business because the meeting
is not lawfully convened shall not be considered a waiver of notice. A
majority of the members of the Executive Committee then serving shall
constitute a quorum for the transaction of business at any meeting of the
Executive Committee.
E-7
<PAGE>
4.2 Compensation Committee. The Board of Directors, at its regular annual
meeting, shall designate a Compensation Committee which shall consist of two
or more non-employee directors. In addition, the Board of Directors at any
time may designate one or more alternate members of the Compensation
Committee, who shall be non-employee directors, who may act in place of any
absent regular member upon invitation by the chairman or secretary of the
Compensation Committee.
With respect to bonuses, the Compensation Committee shall have and may
exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board of Directors, to
determine bonus awards to executive officers and to exercise such further
powers with respect to bonuses as may from time to time be conferred by the
Board of Directors.
With respect to salaries, the Compensation Committee shall have and may
exercise the power to fix and determine from time to time all salaries of the
executive officers of the Corporation, and such further powers with respect to
salaries as may from time to time be conferred by the Board of Directors.
The Compensation Committee shall administer the Corporation's stock
incentive plans and from time to time may grant, consistent with the plans,
stock options and other awards permissible under such plans.
Vacancies in the Compensation Committee shall be filled by the Board of
Directors, and members of the Compensation Committee shall be subject to
removal by the Board of Directors at any time.
The Compensation Committee shall fix its own rules of procedure. A majority
of the number of regular members then serving on the Compensation Committee
shall constitute a quorum; and regular and alternate members present shall be
counted to determine whether there is a quorum. The Compensation Committee
shall keep minutes of its meetings, and all action taken by it shall be
reported to the Board of Directors.
4.3 Audit Committee. The Board of Directors, at its regular annual meeting,
shall designate an Audit Committee which shall consist of two or more
directors whose membership on the Audit Committee shall meet the requirements
set forth in the rules of the New York Stock Exchange, as amended from time to
time. Vacancies in the Audit Committee shall be filled by the Board of
Directors with directors meeting the requirements set forth above, giving
consideration to continuity of the Audit Committee, and members shall be
subject to removal by the Board of Directors at any time. The Audit Committee
shall fix its own rules of procedure and a majority of the members serving
shall constitute a quorum. The Audit Committee shall meet at least twice per
year with both the internal and the Corporation's outside auditors present at
each meeting and shall keep minutes of its meetings and all action taken shall
be reported to the Board of Directors. The Audit Committee shall review the
reports and minutes of any audit committees of the Corporation's subsidiaries.
The Audit Committee shall review the Corporation's financial reporting
process, including accounting policies and procedures. The Audit Committee
shall examine the report of the Corporation's outside auditors, consult with
them with respect to their report and the standards and procedures employed by
them in their audit, report to the Board of Directors the results of its study
and recommend the selection of auditors for each fiscal year.
4.4 Nominating Committee. The Board of Directors, by resolution duly
adopted, shall designate a Nominating Committee which shall consist of three
or more directors. The Nominating Committee shall make recommendations to the
Board of Directors regarding nominees for election as directors by the
stockholders at each annual meeting of stockholders and make such other
recommendations regarding tenure, classification and compensation of directors
as the Nominating Committee may deem advisable from time to time. The
Nominating Committee shall fix its own rules of procedure and a majority of
the members then serving shall constitute a quorum.
4.5 Other Committees. The Board of Directors, by resolution adopted, may
establish such other standing or special committees of the Board of Directors
as it may deem advisable, and the members, terms and authority of such
committees shall be as set forth in the resolutions establishing the same.
E-8
<PAGE>
ARTICLE V.
OFFICERS
5.1 Election of Officers; Terms. The officers of the Corporation shall be
elected by the Board of Directors and shall include a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary and a Treasurer or Chief
Financial Officer. Other officers, including Executive Vice Presidents and
Senior Vice Presidents, may be specified by the Board of Directors, and
assistant and subordinate officers, may from time to time be elected by the
Board of Directors. All officers shall hold office until the next annual
meeting of the Board of Directors and until their successors are duly elected
and qualified. The Chairman of the Board shall be chosen from among the
directors. Any two officers may be combined in the same person as the Board of
Directors may determine.
5.2 Removal of Officers; Vacancies. Any officer of the Corporation may be
removed with or without cause, at any time, by the Board of Directors.
Vacancies shall be filled by the Board of Directors.
5.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his or
her other duties as the Board of Directors may see fit.
5.4 Duties of the Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall be responsible for
the execution of the policies of the Board of Directors, shall serve as the
Chairman of the Executive Committee and shall have direct supervision over the
business of the Corporation and its several officers, subject to the ultimate
authority of the Board of Directors. He or she shall be a director, and,
except as otherwise provided in these Bylaws or in the resolutions
establishing such committees, he or she shall be ex officio a member of all
committees of the Board of Directors. He or she shall preside at all meetings
of stockholders, the Board of Directors and the Executive Committee. He or she
may sign and execute in the name of the Corporation share certificates, deeds,
mortgages, bonds, contracts or other instruments except in cases where the
signing and the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law otherwise to be signed or executed. In addition,
he or she shall perform all duties incident to the office of the Chairman of
the Board and Chief Executive Officer and such other duties as from time to
time may be assigned to him or her by the Board of Directors.
5.5 Duties of the President. Unless the Board of Directors, by resolution
duly adopted, designates some other person to serve as the Chief Operating
Officer of the Corporation, the President shall serve as Chief Operating
Officer and shall have direct supervision over the business of the Corporation
and its several officers, subject to the authority of the Board of Directors
and the Chairman of the Board, and shall consult with and report to the
aforementioned officer. The President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments, except in
cases where the signing and the execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the Corporation or shall be required by law otherwise to be signed or
executed. In addition, he or she shall perform all duties incident to the
office of the President and such other duties as from time to time may be
assigned to him or her by the Board of Directors or the Chairman of the Board.
5.6 Duties of the Vice Presidents. Each Vice President, if any, shall have
such powers and duties as may from time to time be assigned to him or her by
the Chairman of the Board or the Board of Directors. When there shall be more
than one Vice President of the Corporation, the Board of Directors may from
time to time designate one of them to perform the duties of the President in
the absence of the President. Any Vice President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other
instruments authorized by the Board of Directors, except where the signing and
execution of such documents shall be expressly delegated by the Board of
Directors or the Chairman of the Board to some other officer or agent of the
Corporation or shall be required by law or otherwise to be signed or executed.
E-9
<PAGE>
5.7 Duties of the Treasurer or Chief Financial Officer. The Treasurer or
Chief Financial Officer shall have charge and custody of and be responsible
for all funds and securities of the Corporation, and shall cause all such
funds and securities to be deposited in such banks and depositories as shall
be designated by the Board of Directors. He or she shall be responsible (i)
for maintaining adequate financial accounts and records in accordance with
generally accepted accounting practices, (ii) for the preparation of
appropriate operating budgets and financial statements, (iii) for the
preparation and filing of all tax returns required by law and (iv) for the
performance of all duties incident to the office of Treasurer or Chief
Financial Officer and such other duties as from time to time may be assigned
to him or her by the Board of Directors, the Audit Committee or the Chairman
of the Board. The Treasurer or Chief Financial Officer may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except where the signing and execution of such
documents shall be expressly delegated by the Board of Directors or the
Chairman of the Board to some other officer or agent of the Corporation or
shall be required by law or otherwise to be signed or executed.
5.8 Duties of the Secretary. The Secretary shall act as secretary of all
meetings of the Board of Directors, all committees of the Board of Directors
and stockholders of the Corporation. He or she shall (i) keep and preserve the
minutes of all such meetings in permanent books, (ii) ensure that all notices
required to be given by the Corporation are duly given and served, (iii) have
custody of the seal of the Corporation and shall affix the seal or cause it to
be affixed to all share certificates of the Corporation and to all documents
the execution of which on behalf of the Corporation under its corporate seal
is duly authorized in accordance with law or the provisions of these Bylaws,
(iv) have custody of all deeds, leases, contracts and other important
corporate documents, (v) have charge of the books, records and papers of the
Corporation relating to its organization and management as a Corporation, (vi)
see that all reports, statements and other documents required by law (except
tax returns) are properly filed and (vii) in general, perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him or her by the Board of Directors or the Chairman of the
Board.
ARTICLE VI.
CAPITAL STOCK
6.1 Certificates. Each stockholder shall be entitled to a certificate of the
capital stock of the Corporation in such form as may from time to time be
prescribed by the Board of Directors. Such certificate shall be signed by the
Chairman of the Board, the President or a Vice President and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The
Corporation seal and the signatures by the Corporation's officers, the
transfer agent or the registrar may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, the certificate may be
issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to a restriction on transfer
(as provided in Article IV of the Certificate) and every certificate issued
when the Corporation is authorized to issue more than one class or series of
stock shall contain such legend (as provided in Article IV of the Certificate)
with respect thereto as is required by law.
6.2 Pairing. Until the limitation on transfer provided for in the Pairing
Agreement, dated as of February 17, 1983, by and between Bay Meadows Realty
Enterprises, Inc. (the predecessor of California Jockey Club) and Bay Meadows
Operating Company (the "Pairing Agreement"), as amended from time to time in
accordance with the provisions thereof, shall be terminated:
(a) The shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement shall not be transferable, and shall not
be transferred on the stock transfer books of the Corporation, unless (i) a
simultaneous transfer is made by the same transferor to the same transferee
or (ii) arrangements have been made with Patriot REIT for the acquisition
by the transferee, of a like number of shares of the same class or series
of Equity Stock of Patriot REIT and such shares are paired with one
another.
E-10
<PAGE>
(b) Each certificate evidencing ownership of shares of Equity Stock of
the Corporation that are paired pursuant to the Pairing Agreement and
issued and not canceled prior to the Effective Time of the Restriction
shall be deemed to evidence a like number of shares of the same class or
series of Equity Stock of Patriot REIT.
(c) A legend shall be placed on the face of each certificate evidencing
ownership of shares of Equity Stock of the Corporation that are paired
pursuant to the Pairing Agreement referring to the restrictions on transfer
set forth herein.
(d) Notwithstanding the foregoing, the Corporation may issue or transfer
shares of its Equity Stock to Patriot REIT without regard to the
restrictions of this Section 6.2.
(e) To the extent that a paired share of Equity Stock of the Corporation
is converted into a share of excess stock, par value $.01 per share (the
"Excess Stock"), of the Corporation in accordance with the provisions of
Article IV of the Certificate, such share of Excess Stock of the
Corporation, together with the corresponding share of Excess Stock of
Patriot REIT, which has been converted from a share of Equity Stock of
Patriot REIT in accordance with Article IV of the Amended and Restated
Certificate of Incorporation of Patriot REIT and the Pairing Agreement,
shall be automatically transferred to a trust established by the
Corporation and Patriot REIT for such purpose in accordance with Article IV
of the Certificate.
6.3 Lost, Destroyed and Mutilated Certificates. Holders of the shares of the
Corporation shall immediately notify the Corporation of any loss, destruction
or mutilation of the certificate therefor, and the Board of Directors may in
its discretion cause one or more new certificates for the same number of
shares in the aggregate to be issued to such stockholder upon the surrender of
the mutilated certificate or upon satisfactory proof of such loss or
destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.4 Transfer of Stock. Subject to the restrictions on transfer of stock
described in Section 6.2 of these Bylaws and Article IV of the Certificate,
the stock of the Corporation shall be transferable or assignable only on the
stock transfer books of the Corporation by the holder in person or by attorney
on surrender of the certificate for such shares duly endorsed and, if sought
to be transferred by attorney, accompanied by a written power of attorney to
have the same transferred on the stock transfer books of the Corporation. The
Corporation will recognize, however, the exclusive right of the person
registered on its stock transfer books as the owner of shares to receive
dividends and to vote as such owner.
6.5 Fixing Record Date. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend, or to make a
determination of stockholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not less than 10
nor more than 60 days prior to the date on which the particular action
requiring such determination of stockholders, is to be taken. If no record
date is fixed for the determination of stockholders entitled to notice of or
to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notices of the meeting are mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled
to notice of or to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
E-11
<PAGE>
ARTICLE VII.
INDEMNIFICATION
7.1 Definitions. For purposes of this Article VII:
(a) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an
officer, employee or agent of the Corporation or is or was a director,
officer, employee or agent of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise that such Officer
is or was serving at the request of the Corporation and (iii) in the case
of a Non-Officer Employee, is or was an employee of the Corporation or is
or was a director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise that such Non-Officer Employee is or was serving at the request
of the Corporation;
(b) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors;
(c) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding;
(d) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and
binding costs, costs of preparation of demonstrative evidence and other
courtroom presentation aids and devices, costs incurred in connection with
document review, organization, imaging and computerization, telephone
charges, postage, delivery service fees, and all other disbursements, costs
or expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating,
being or preparing to be a witness in, settling or otherwise participating
in, a Proceeding;
(e) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or
Officer;
(f) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors; and
(g) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative.
7.2 Indemnification of Directors and Officers. Subject to the operation of
Section 7.4 of these Bylaws, each Director and Officer shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment) against any and all Expenses,
judgments, penalties, fines and amounts reasonably paid in settlement that are
incurred by such Director or Officer or on such Director's or Officer's behalf
in connection with any threatened, pending or completed Proceeding or any
claim, issue or matter therein, which such Director or Officer is, or is
threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The rights of indemnification provided by this Section
7.2 shall exist as to a Director or Officer after he or she has ceased to be a
Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation
E-12
<PAGE>
shall indemnify any Director or Officer seeking indemnification in connection
with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors.
7.3 Indemnification of Non-Officer Employees. Subject to the operation of
Section 7.4 of these Bylaws, each Non-Officer Employee may, in the discretion
of the Board of Directors, be indemnified by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment),
against any and all Expenses, judgments, penalties, fines and amounts
reasonably paid in settlement that are incurred by such Non-Officer Employee
or on such Non-Officer Employee's behalf in connection with any threatened,
pending or completed Proceeding, or any claim, issue or matter therein, which
such Non-Officer Employee is, or is threatened to be made, a party to or
participant in by reason of such Non-Officer Employee's Corporate Status, if
such Non-Officer Employee acted in good faith and in a manner such Non-Officer
Employee reasonably believed to be in or not opposed to the best interests of
the Corporation and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 7.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall
inure to the benefit of his or her heirs, personal representatives, executors
and administrators. Notwithstanding the foregoing, the Corporation may
indemnify any Non-Officer Employee seeking indemnification in connection with
a Proceeding initiated by such Non-Officer Employee only if such Proceeding
was authorized by the Board of Directors.
7.4 Good Faith. Unless ordered by a court, no indemnification shall be
provided pursuant to this Article VII to a Director, to an Officer or to a
Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal Proceeding, such person had no reasonable cause to
believe his or her conduct was unlawful. Such determination shall be made by
(a) a majority vote of the Disinterested Directors, even though less than a
quorum of the Board of Directors, (b) if there are no such Disinterested
Directors, or if a majority of Disinterested Directors so direct, by
independent legal counsel in a written opinion or (c) by the stockholders of
the Corporation.
7.5 Advancement of Expenses to Directors Prior to Final Disposition. The
Corporation shall advance all Expenses incurred by or on behalf of any
Director in connection with any Proceeding in which such Director is involved
by reason of such Director's Corporate Status within 10 days after the receipt
by the Corporation of a written statement from such Director requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director
is not entitled to be indemnified against such Expenses.
7.6 Advancement of Expenses to Officers and Non-Officer Employees Prior to
Final Disposition. The Corporation may, in the discretion of the Board of
Directors, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such
Officer or Non-Officer Employee is involved by reason of such Officer or Non-
Officer Employee's Corporate Status upon the receipt by the Corporation of a
statement or statements from such Officer or Non-Officer Employee requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Officer or Non-Officer Employee and
shall be preceded or accompanied by an undertaking by or on behalf of such
Officer or Non-Officer Employee to repay any Expenses so advanced if it shall
ultimately be determined that such Officer or Non-Officer Employee is not
entitled to be indemnified against such Expenses.
7.7 Contractual Nature of Rights. The foregoing provisions of this Article
VII shall be deemed to be a contract between the Corporation and each Director
and Officer entitled to the benefits hereof at any time while
E-13
<PAGE>
this Article VII is in effect, and any repeal or modification thereof shall
not affect any rights or obligations then existing with respect to any state
of facts then or theretofore existing or any Proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts. If
a claim for indemnification or advancement of Expenses hereunder by a Director
or Officer is not paid in full by the Corporation within (a) 60 days after the
receipt by the Corporation of a written claim for indemnification or (b) in
the case of a Director, 10 days after the receipt by the Corporation of
documentation of Expenses and the required undertaking, such Director or
Officer may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and if successful in whole or in part,
such Director or Officer shall also be entitled to be paid the expenses of
prosecuting such claim. The failure of the Corporation (including its Board of
Directors or any committee thereof, independent legal counsel, or
stockholders) to make a determination concerning the permissibility of such
indemnification or, in the case of a Director, advancement of Expenses, under
this Article VII shall not be a defense to the action and shall not create a
presumption that such indemnification or advancement is not permissible.
7.8 Non-Exclusivity of Rights. The rights to indemnification and advancement
of Expenses set forth in this Article VII shall not be exclusive of any other
right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
Bylaws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
7.9 Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Director, Officer or Non-Officer Employee, or arising out of any such
person's Corporate Status, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL or the
provisions of this Article VII.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1 Seal. The seal of the Corporation shall consist of a flat-faced circular
die, of which there may be any number of counterparts, on which there shall be
engraved the word "Seal" and the name of the Corporation.
8.2 Fiscal Year. The fiscal year of the Corporation shall end on such date
and shall consist of such accounting periods as may be fixed by the Board of
Directors.
8.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders for the
payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.4 Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law, these
Bylaws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed at
any annual meeting of stockholders, or special meeting of stockholders
called for such purpose, by the affirmative vote of at least two-thirds of
the shares present in person or represented by proxy at such meeting and
entitled to vote on such amendment or repeal, voting together as a single
class; provided, however, that if the Board of Directors recommends that
stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative
vote of a majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
E-14
<PAGE>
8.5 Voting of Stock Held. Unless otherwise provided by resolution of the
Board of Directors or of the Executive Committee, if any, the Chairman of the
Board may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the vote that the Corporation may be entitled to cast as a stockholder or
otherwise in any other corporation, any of whose securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, or to consent in writing to any action by any such
other corporation; and the Chairman of the Board shall instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent and may execute or cause to be executed on behalf of the Corporation,
and under its corporate seal or otherwise, such written proxies, consents,
waivers or other instruments as may be necessary or proper in the premises. In
lieu of such appointment, the Chairman of the Board may himself or herself
attend any meetings of the holders of shares or other securities of any such
other corporation and there vote or exercise any or all power of the
Corporation as the holder of such shares or other securities of such other
corporation.
E-15
<PAGE>
ANNEX F
October 29, 1996
Board of Directors
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Ladies and Gentlemen:
We understand that Patriot American Hospitality, Inc., a Virginia
corporation (the "Company"), is contemplating entering into an Acquisition
Agreement (the "Acquisition Agreement") with Bay Meadows Operating Company
("BMOC") and California Jockey Club ("CJ"), pursuant to which the following
transactions, among other things, would occur (collectively, the "Proposed
Transaction"): (i) the Company would enter into a subscription agreement (the
"Subscription Agreement") to purchase for cash a number of shares of common
stock, $.01 par value per share, of BMOC (the "BMOC Stock") equal to the
number of shares of common stock, $.01 par value per share, of CJ (the "CJ
Stock" and, together with the BMOC Stock, the "Paired Stock") to be issued to
the holders of the outstanding shares of common stock, no par value, of the
Company (the "Company Stockholders") in connection with the Merger (as
hereinafter defined); (ii) prior to consummation of the Merger, each of BMOC
and CJ would commence a self-tender offer (collectively, the "Tender Offer")
for the outstanding shares of Paired Stock at an aggregate price of $33.00 per
share of Paired Stock; provided, that the holders of the Paired Stock prior to
the Merger own at least 1% of the outstanding shares of paired stock of the
Surviving Corporation (as hereinafter defined), which Tender Offer would be
financed with funds received from the Company pursuant to the Subscription
Agreement and a loan from the Company; (iii) the Company would effect a merger
(the "Merger") with and into CJ, pursuant to which CJ would be the surviving
corporation (the "Surviving Corporation"); and (iv) in the Merger, each
Company Share would be converted into the right to receive 1.0379 shares of
Paired Stock (the "Merger Consideration").
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration (taking into account the funds to be
provided by the Company to CJ and BMOC to purchase outstanding shares of
Paired Stock in the Tender Offer) to be received by the Company Stockholders
in the Proposed Transaction.
We understand that all approvals required for the consummation of the
Proposed Transaction have been obtained, or prior to consummation of the
Proposed Transaction will be obtained. We understand that the Merger will be
accounted for under the purchase method of accounting.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Report, Form 10-K and related financial
information for the fiscal year ended December 31, 1995, and the Company's
Forms 10-Q and the related unaudited financial information for the
quarterly periods ended March 31, 1996 and June 30, 1996;
(2) Reviewed the Annual Reports, Forms 10-K and related financial information
for the three fiscal years ended December 31, 1995, December 31, 1994 and
December 31, 1993 of each of BMOC and CJ, and the Forms 10-Q and the
related unaudited financial information for the quarterly periods ended
March 31, 1996 and June 30, 1996 of each of BMOC and CJ;
ANNEX F-1
<PAGE>
Board of Directors
Patriot American Hospitality, Inc.
Page 2
October 29, 1996
(3) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company,
BMOC and CJ, furnished to us by the Company, BMOC and CJ, respectively,
including, without limitation, certain assumptions provided to us by the
Company about the availability, cost and timing of acquisitions and
dispositions of assets following the Merger;
(4) Conducted discussions with members of senior management of the Company,
BMOC and CJ, concerning their respective business and prospects;
(5) Reviewed the financial terms of the October 29, 1996 draft of the
Acquisition Agreement; and
(6) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was either publicly available or supplied, communicated
or otherwise made available to us by or on behalf of BMOC, CJ and the Company,
and we have not assumed any responsibility to independently verify such
information or undertaken an independent appraisal of the assets of BMOC, CJ
or the Company. With respect to the financial forecasts examined by us, we
have assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the respective
managements of the Company, BMOC and CJ, respectively, and their respective
assets. Also in that regard, at the Company's direction, we have assumed that
after the Merger, the Surviving Corporation will not be subject to Section
269B of the Internal Revenue Code of 1986, as amended, that the
representations and warranties of each of the parties to the Acquisition
Agreement (including, without limitation, those relating to "REIT Status" and
the "Pairing Agreement") are true and correct and will remain so following
consummation of the transactions contemplated by the Acquisition Agreement and
that the tax costs to the Company and its stockholders resulting from the
Proposed Transaction will be immaterial. Our analyses used in preparing our
opinion assumed a closing date of the Merger of March 31, 1997. Our opinion is
based upon regulatory, economic, monetary and market conditions existing on
the date hereof. We have assumed, with your consent, that all material assets
and liabilities (contingent or otherwise, known or unknown) of the Company,
BMOC and CJ are as set forth in their respective consolidated financial
statements.
This opinion does not address the business decision of the Board of
Directors of the Company to engage in the Proposed Transaction or constitute a
recommendation to any Company Stockholder as to how any such Company
Stockholder should vote on the Proposed Transaction. No opinion is expressed
herein as to the price or trading range at which the Company Shares or the
shares of Paired Stock may trade at any time.
This opinion has been prepared for the use of the Board of Directors of the
Company and shall not be reproduced, summarized, described or referred to, or
given to any other person or otherwise made public, without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may
be reproduced in full in a joint proxy statement/prospectus of the Company,
BMOC and CJ with respect to the meetings of their respective stockholders in
connection with the Proposed Transaction.
As you are aware, PaineWebber Incorporated is currently acting as financial
advisor to the Company and will receive a fee for rendering this opinion and
will receive an additional fee upon consummation of the Proposed Transaction.
In the past, PaineWebber Incorporated has provided financial advisory services
and investment banking services to the Company (including acting as an
underwriter for the Company) and received fees for the rendering of these
services. We may provide financial advisory or investment banking services to,
and act as an underwriter or placement agent for, the Company, BMOC or CJ in
the future. Moreover, as you are aware, prior to the date hereof, PaineWebber
Incorporated engaged in discussions with the Company
ANNEX F-2
<PAGE>
Board of Directors
Patriot American Hospitality, Inc.
Page 3
October 29, 1996
regarding a potential acquisition by PaineWebber Incorporated or an affiliate
thereof of certain of the real estate assets of CJ following consummation of
the transactions contemplated by the Acquisition Agreement. Such discussions
have not resulted in an agreement between the Company, on the one hand, and
PaineWebber Incorporated or an affiliate thereof, on the other hand, and are
not ongoing on the date hereof, but such discussions may commence again in the
future. We understand that the foregoing facts regarding such discussions have
been made known to you in connection with your consideration of the
transactions contemplated by the Acquisition Agreement.
In the ordinary course of our business, we trade the equity and debt
securities of the Company, BMOC and CJ for our own account and for the
accounts of our customers and, accordingly, may at any time hold long or short
positions in such securities. We and certain executive officers and directors
of the Company have had discussions regarding joint investments and/or
acquisitions (and financing therefor).
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration (taking into account the funds
to be provided by the Company to CJ and BMOC to purchase outstanding shares of
Paired Stock in the Tender Offer) is fair from a financial point of view to
the Company Stockholders.
Very truly yours,
PAINEWEBBER INCORPORATED
ANNEX F-3
<PAGE>
ANNEX G
May 30, 1997
Board of Directors
California Jockey Club
2600 South Delaware Street
San Mateo, California 94403
Board of Directors
Bay Meadows Operating Company
2600 South Delaware Street
San Mateo, California 94402
Gentlemen:
We understand that Bay Meadows Operating Company, a Delaware corporation
("BMOC"), California Jockey Club, a Delaware corporation ("CJC"), Patriot
American Hospitality, Inc., a Virginia corporation ("PAH"), and Patriot
American Hospitality Partnership, L.P. ("PAH LP"), have entered into an
Agreement and Plan of Merger dated as of February 24, 1997, as amended and
restated as of May 28, 1997 (as so amended and restated, the "Agreement"),
pursuant to which, among other things, PAH will merge (the "Merger") with and
into CJC, with CJC as the surviving corporation. Pursuant to the Merger, as
more fully described in the Agreement and as further described to us by
management of CJC and BMOC, each outstanding share of the common stock of PAH
("PAH Common Stock") (other than treasury stock) will be converted into
0.51895 of a share of the common stock of CJC ("CJC Common Stock") (reflecting
the 2-for-1 split of PAH Common Stock effective in March 1997, and subject to
certain adjustments), or, if the average closing price of a share of PAH
Common Stock as reported for New York Stock Exchange composite transactions
over the 20 trading days immediately preceding the third business day prior to
the date on which the meetings of the stockholders of CJC, BMOC and PAH to
approve the Merger and related transactions are to be convened (the "Average
Closing Price") is less than $17.125, such number of shares of CJC Common
Stock as is equal to (i) the Average Closing Price divided by (ii) $33.00.
Notwithstanding the foregoing, if any holder of PAH Common Stock would own (or
be deemed to own) more than 9.8% of the Paired Shares (as defined below) after
the Merger (giving effect to the Subscription, as defined below), such holder
would receive, in respect of such number of Paired Shares as would otherwise
exceed such amount, and in lieu of such Paired Shares, the right to receive in
cash the fair market value of such Paired Shares, determined as provided in
the Agreement.
In connection with the Merger, as more fully described in the Agreement and
the related Subscription Agreement and as further described to us by
management of CJC and BMOC, PAH LP will purchase from BMOC (the "Subscription"
and, together with the Merger, the "Transactions") shares of the common stock
of BMOC ("BMOC Common Stock"), for a price per share equal to the product of
(i) the greater of $33.00 and the "fair market value" of a Paired Share (as
defined in the Subscription Agreement) multiplied by (ii) the quotient of the
value of a share of BMOC Common Stock divided by the value of a Paired Share,
as determined in accordance with the Subscription Agreement. Such shares of
BMOC Common Stock will be issued to holders of the PAH Common Stock being
converted into shares of CJC Common Stock in the Merger, and such shares of
BMOC Common Stock will be paired with such shares of CJC Common Stock. The
managements of CJC and BMOC have informed us that upon consummation of the
Transactions, based upon certain assumptions described in the Joint Proxy
Statement/Prospectus (as defined below), the current stockholders of CJC and
BMOC will hold in the aggregate approximately 20% of the outstanding Paired
Shares.
G-1
<PAGE>
Board of Directors
California Jockey Club
Bay Meadows Operating Company
May 30, 1997
Page Two
For purposes hereof, "Paired Share" means a unit consisting of one share of
CJC Common Stock and one share of BMOC Common Stock, which we understand are
paired pursuant to a pairing agreement, dated February 15, 1983, between CJC
and BMOC.
You have asked for our opinion as investment bankers as to whether the
financial terms of the Transactions, as described herein, taken as a whole,
are fair to the stockholders of CJC and BMOC from a financial point of view,
as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to CJC, BMOC and PAH,
including the consolidated financial statements for recent years and interim
periods to March 31, 1997, and certain other relevant financial and operating
data relating to CJC and BMOC made available to us from published sources and
from the internal records of CJC and BMOC; (ii) reviewed the financial terms
and conditions of the Agreement, provided to us by management of CJC and BMOC;
(iii) reviewed the May 27, 1997 draft of the joint proxy statement and
prospectus relating to the Agreement (the "Joint Proxy Statement/Prospectus");
(iv) reviewed certain publicly available information concerning the trading
of, and the trading market for, the Paired Shares and the PAH Common Stock;
(v) reviewed and discussed with representatives of the management of CJC and
BMOC certain information of a business and financial nature regarding CJC and
BMOC, furnished to us by them, including a summary analysis prepared by CJC
management of the seventy net acres on which CJC's racetrack is located; (vi)
reviewed and discussed with representatives of the management of CJC and BMOC
financial forecasts and related assumptions of CJC and BMOC prepared by us in
consultation with CJC and BMOC management; (vii) made inquiries regarding and
discussed the Joint Proxy Statement/Prospectus, the Transactions and the
Agreement and other matters related thereto with counsel to CJC and BMOC;
(viii) reviewed the terms of certain transfers of real property which we
deemed comparable to the real property owned by CJC, including the terms of
two real property sales by CJC announced in 1996; and (ix) performed such
other analyses and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for CJC and BMOC prepared by us in consultation with the respective
managements of CJC and BMOC, upon their advice and with your consent we have
assumed for purposes of our opinion that such forecasts reflect the best
available estimates and judgments of their respective managements at the time
of such consultation with us as to the future financial performance of CJC and
BMOC and that they provide a reasonable basis upon which we can form our
opinion. With respect to the summary analysis prepared by CJC management of
the seventy net acres on which CJC's racetrack is located, upon its advice and
with your consent we have assumed for purposes of our opinion that such
summary analysis reflects the best available estimates and judgments of CJC's
management at the time of preparation as to the value of that real property
and that it provides a reasonable basis upon which we can form our opinion. We
have also assumed that there have been no material changes in CJC's, BMOC's or
PAH's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. We have relied on advice of counsel and independent
accountants to CJC and BMOC, respectively, as to all legal and financial
reporting matters with respect to CJC and BMOC, the Transactions and the
Agreement. We have assumed that the Transactions will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or
G-2
<PAGE>
Boards of Directors
California Jockey Club
Bay Meadows Operating Company
May 30, 1997
Page Three
liabilities (contingent or otherwise) of CJC, BMOC or PAH. Finally, our
opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have further assumed with your consent that the Transactions will be
consummated in accordance with the terms described in the Agreement, without
any further amendments thereto, and without waiver by CJC or BMOC of any of
the conditions to their respective obligations thereunder.
We have acted as financial advisor to CJC and BMOC in connection with the
Transactions and will receive a fee for our services, including rendering this
opinion, substantially all of which is contingent upon the consummation of the
Transactions.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the financial terms of the Transactions, taken as a
whole, are fair to the stockholders of CJC and BMOC from a financial point of
view, as of the date hereof.
We are not expressing an opinion regarding the price at which the Paired
Shares to be retained by the stockholders of CJC and BMOC in the Transactions
may trade at any future time.
In the ordinary course of our business, we actively trade the equity
securities of PAH for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of
securities of PAH and performed various investment banking services for PAH
and would expect to continue to do so in the future.
This opinion is directed to the Boards of Directors of BMOC and CJC in their
consideration of the Transactions and is not a recommendation to any
stockholder as to how such stockholder should vote with respect to the
Transactions. This opinion may not be used or referred to by BMOC or CJC, or
quoted or disclosed to any person in any manner, without our prior written
consent, which consent is hereby given to the inclusion of this opinion in the
Joint Proxy Statement/Prospectus. In furnishing this opinion, we do not admit
that we are experts within the meaning of the term "experts" as used in the
Securities Act and the rules and regulations promulgated thereunder.
Very truly yours,
/s/ Montgomery Securities
Montgomery Securities
G-3
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 1, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Paul A. Nussbaum, Thomas W.
Lattin and Rex E. Stewart, and each of them, as Proxies of the undersigned,
with full power of substitution, to vote all shares of Common Stock of Patriot
American Hospitality, Inc. ("Patriot") held of record by the undersigned as of
the close of business on May 16, 1997, on behalf of the undersigned at the
Special Meeting of Stockholders (the "Patriot Special Meeting") to be held at
the Holiday Inn Select, North Dallas, Texas, at 11:00 a.m., local time, on
Tuesday, July 1, 1997, and at any adjournments or postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1 AND "FOR" PROPOSAL 2. IN THEIR DISCRETION, THE
PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE PATRIOT SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF. A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN
THE ENCLOSED ENVELOPE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
(SEE REVERSE SIDE)
<PAGE>
X PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of February 24, 1997, as amended and restated as of May 28,
1997, by and among Patriot, Patriot American Hospitality Partnership, L.P.,
California Jockey Club and Bay Meadows Operating Company and the
transactions thereunder.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To consider and vote upon a proposal to amend and restate the Patriot
American Hospitality, Inc. 1995 Incentive Plan.
[_] [_] [_]
3. To consider and act upon any other matters that may properly be brought
before the Patriot Special Meeting and at any adjournments or postponements
thereof.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of the Patriot Special Meeting and the Joint Proxy Statement/Prospectus
with respect thereto and hereby revoke(s) any proxy or proxies heretofore
given. This proxy may be revoked at any time before it is exercised.
SIGNATURE(S) _______________________________________ Date _________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
