-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UakxHu9ZOkvigTcboZPCMZd/LtBg0xcwYIRIMtywJaoElr5INP+5F96a+GaLrB8/ ymlOPaayTz8nWxYEgscPUg== 0000930661-98-000683.txt : 19980401 0000930661-98-000683.hdr.sgml : 19980401 ACCESSION NUMBER: 0000930661-98-000683 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY INC/DE CENTRAL INDEX KEY: 0000016343 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942872485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09319 FILM NUMBER: 98580430 BUSINESS ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2148631000 MAIL ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY OPERATING CO DATE OF NAME CHANGE: 19970717 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA JOCKEY CLUB DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WYNDHAM INTERNATIONAL INC CENTRAL INDEX KEY: 0000715273 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 942878485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09320 FILM NUMBER: 98580431 BUSINESS ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 BUSINESS PHONE: 2148631000 MAIL ADDRESS: STREET 1: 1950 STEMMONS FRWY STREET 2: STE 6001 CITY: DALLAS STATE: TX ZIP: 75207 FORMER COMPANY: FORMER CONFORMED NAME: PATRIOT AMERICAN HOSPITALITY OPERATING CO\DE DATE OF NAME CHANGE: 19970723 FORMER COMPANY: FORMER CONFORMED NAME: BAY MEADOWS OPERATING CO DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________ to ______________ Commission File Number 1-9319 Commission File Number 1-9320 PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC. - -------------------------------------- -------------------------------------- (Exact name of registrant as specified (Exact name of registrant as specified in its charter) in its charter) Delaware 94-0358820 Delaware 94-2878485 - -------------------------------------- -------------------------------------- (State or other (I.R.S. Employer (State or other (I.R.S. Employer jurisdiction of Identification No.) jurisdiction of Identification No.) incorporation or incorporation or organization) organization) 1950 Stemmons Freeway, Suite 6001 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Dallas, Texas 75207 - -------------------------------------- -------------------------------------- (Address of principal (Zip Code) (Address of principal (Zip Code) executive offices) executive offices) (214) 863-1000 (214) 863-1000 - -------------------------------------- -------------------------------------- (Registrant's telephone number, (Registrant's telephone number, including area code) including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value New York Common Stock, par value New York $0.01 per share Stock Exchange $0.01 per share Stock Exchange - -------------------------------------- -------------------------------------- (Title of (Name of each Exchange (Title of (Name of each Exchange each class) on which registered) each class) on which registered) Securities registered pursuant to Section 12(g) of the Act: none none Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ ] The aggregate market value of the paired voting stock held by non- affiliates of Patriot American Hospitality, Inc. and Wyndham International, Inc. as of March 25, 1998 was $2,488,510,573, based upon a price of $26.3125 per paired share. As of March 25, 1998, there were 105,386,253 paired shares of Patriot American Hospitality, Inc. and Wyndham International, Inc. common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference to the definitive joint proxy statement for the annual meetings of the stockholders of Patriot and Wyndham International to be held on May 28, 1998, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. 2 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. FORM 10-K ANNUAL REPORT INDEX FORM 10-K REPORT ITEM NO. PAGE - -------- --------- PART I 1. Business................................................. 2. Properties............................................... 3. Legal Proceedings........................................ 4. Submission of Matters to a Vote of Security Holders...... PART II 5. Market Price for Registrant's Common Equity and Related Stockholder Matters...................................... 6. Selected Financial Data.................................. 7. Managements' Discussion and Analysis of Financial Condition and Results of Operations...................... 8. Financial Statements and Supplementary Data.............. 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... PART III 10. Directors and Executive Officers of the Registrant....... 11. Executive Compensation................................... 12. Security Ownership of Certain Beneficial Owners and Management............................................... 13. Certain Relationships and Related Transactions........... PART IV 14. Exhibits, Financial Statements and Schedules, and Reports on Form 8-K...................................... SIGNATURES................................................... 3 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS The entity formerly known as Patriot American Hospitality, Inc. (collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was formed April 17, 1995 as a self-administered real estate investment trust ("REIT") for the purpose of acquiring equity interests in hotel properties. On October 2, 1995, Old Patriot completed an initial public offering (the "Initial Offering") of 29,210,000 shares of its common stock and commenced operations. On July 1, 1997, Old Patriot merged with and into California Jockey Club ("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal Jockey Merger"). Cal Jockey's shares of common stock are paired and trade together with the shares of common stock of Bay Meadows Operating Company ("Bay Meadows") as a single unit pursuant to a stock pairing agreement. In connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot American Hospitality Operating Company" ("Patriot Operating Company"). In January 1998, as a result of the merger of Wyndham Hotel Corporation ("Old Wyndham") with and into Patriot as discussed below, Patriot Operating Company changed its name to Wyndham International, Inc. and is referred to herein, collectively with its subsidiaries, as "Wyndham International." The term "Companies" as used herein includes Patriot, Wyndham International and each of their respective subsidiaries. Patriot and Wyndham International are both Delaware corporations. The Cal Jockey Merger was accounted for as a reverse acquisition whereby Cal Jockey was considered to be the acquired company for accounting purposes. Consequently, the historical financial information of Old Patriot became the historical financial information for Patriot. For accounting purposes, Wyndham International commenced its operations concurrent with the closing of the Cal Jockey Merger on July 1, 1997. The shares of common stock of Patriot ("Patriot Common Stock") and the shares of common stock of Wyndham International ("Wyndham International Common Stock") are paired on a one-for-one basis and may only be held or transferred in units consisting of one share of Patriot Common Stock and one share of Wyndham International Common Stock (the "Paired Shares"). In 1983, the Internal Revenue Code of 1986, as amended (the "Code"), prohibited the pairing of shares between a REIT and a management company, however, this rule does not apply to the Companies because its Paired Share structure existed prior to the change in regulations and is "grandfathered" under the Code. Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole general partner and the holder of a 1.0% general partnership interest in Patriot American Hospitality Partnership, L.P. (the "REIT Partnership"). In addition, Patriot, through its wholly owned subsidiary, PAH LP, Inc., owned an approximate 85.3% limited partnership interest in the REIT Partnership as of December 31, 1997. The REIT Partnership was formed in connection with Old Patriot's Initial Offering. Old Patriot contributed its assets to the partnership in exchange for units of limited partnership interest ("OP Units") of the REIT Partnership. Wyndham International owns a 1.0% general partnership interest and an approximate 83.9% limited partnership interest in Patriot American Hospitality Operating Partnership, L.P. (the "OpCo Partnership") as of December 31, 1997. The OpCo Partnership was formed in connection with the Cal Jockey Merger. Bay Meadows contributed its assets to the OpCo Partnership in exchange for OP Units of the OpCo Partnership. Collectively, the REIT Partnership and the OpCo Partnership are referred to herein as the "Operating Partnerships." Subsequent to completion of the Cal Jockey Merger and the transactions contemplated by the Cal Jockey Merger Agreement, substantially all of the operations of Patriot and Wyndham International have been conducted through the Operating Partnerships and their subsidiaries. During 1997, Patriot, either directly or through the REIT Partnership and its subsidiaries, invested approximately $1.3 billion in the acquisition of 45 hotels with over 12,000 guest rooms. These acquisitions 4 were financed primarily with funds drawn on the Companies' revolving credit facility (and, prior to the Cal Jockey Merger, Old Patriot's line of credit facility), a $350 million term loan, new mortgage financing of approximately $237 million, the issuance of 5,629,172 OP Units of the Operating Partnerships valued at approximately $130 million, the issuance of 1,719,535 Paired Shares valued at approximately $38.5 million, and the assumption of mortgage debt in the amount of approximately $34.3 million. Six of the hotels were acquired through a like-kind exchange. In addition, Wyndham International acquired Grand Heritage Hotels, Inc., a hotel management and marketing company, and PAH RSI, LLC, a limited liability company that owned certain trade names and other hotel management assets related to four of Patriot's resort properties. Wyndham International also acquired an approximate 50% ownership interest in GAH-II, L.P. ("GAH"), an affiliate of CHC International, Inc. and the Gencom American Hospitality group of companies. The Companies completed a public offering of 10,580,000 Paired Shares in August 1997, two forward sale transactions with a bank in November 1997 and sold 3,250,000 unregistered Paired Shares to a financial institution in December 1997 which is subject to a one-year forward stock purchase agreement. The net proceeds of these transactions were used primarily to reduce outstanding indebtedness. In addition, the Companies completed two direct placements of Paired Shares in order to redeem 2,000,033 OP Units of the Operating Partnerships in November 1997. RECENT DEVELOPMENTS Merger with Wyndham Hotel Corporation On January 5, 1998, pursuant to the Agreement and Plan of Merger dated as of April 14, 1997, as thereafter amended (the "Wyndham Merger Agreement"), between Patriot, Wyndham International and Wyndham Hotel Corporation ("Old Wyndham"), Old Wyndham merged with and into Patriot, with Patriot being the surviving corporation (the "Wyndham Merger"). As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio of owned, leased or managed hotels consisting of 98 hotels operated by Old Wyndham (including 16 Patriot hotels which were managed by Old Wyndham), as well as eight franchised hotels, which in the aggregate contain approximately 25,900 rooms. The total purchase consideration of approximately $982 million consisted of 21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible Preferred Stock of Patriot (which are convertible on a one-for-one basis into Paired Shares), cash of approximately $339 million to repay debt and pay Wyndham shareholders who elected to receive cash (which was financed with funds drawn on the Companies' revolving credit facility (the "Revolving Credit Facility")), and the assumption of approximately $54 million in debt. Merger with WHG Casinos & Resorts, Inc. On January 16, 1998, pursuant to an Agreement and Plan of Merger dated as of September 30, 1997 (the "WHG Merger Agreement"), between Patriot, Wyndham International and WHG Casinos & Resorts Inc. ("WHG"), a newly formed subsidiary of Wyndham International merged with and into WHG with WHG being the surviving corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham International acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room El Conquistador Resort & Country Club (the "El Conquistador"), all of which are located in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc., the management company for the three hotels and the Las Casitas Village at the El Conquistador. By operation of the WHG Merger, WHG's outstanding equity securities were exchanged for 5,004,690 Paired Shares. In addition, Wyndham International assumed approximately $21.3 million of debt. Other Recent Transactions Holiday Inn. On January 13, 1998, Patriot, through the REIT Partnership, acquired the 173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase price of approximately $14.5 million. Buena Vista Palace Hotel. On January 14, 1998, Patriot, through the REIT Partnership, acquired an aggregate 95% equity interest in the joint venture that owns the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for approximately $141.6 million, including the assumption of approximately $50.3 million of mortgage debt. Patriot was also granted an option to acquire the remaining 5% equity interest in the hotel. The hotel is also subject to a ground lease and Wyndham International holds a participating loan in the amount of $23.8 million (the "Participating Note"). 5 Proposed Acquisitions CHC International, Inc. The Companies and CHC International, Inc. ("CHCI") have entered into an Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger Agreement"), providing, subject to regulatory approvals, for the merger of the hospitality-related businesses of CHCI with and into Wyndham International with Wyndham International being the surviving company (the "CHCI Merger"). Subject to regulatory approvals, CHCI's gaming operations will be transferred to a new legal entity prior to the CHCI Merger and such operations will not be a part of the transaction. It is anticipated that the CHCI Merger will be consummated in the second quarter of 1998. As a result of the CHCI Merger, Wyndham International, through its subsidiaries, will acquire the remaining 50% investment interest in GAH, the remaining 17 leases and 16 of the associated management contracts related to the Patriot hotels leased by CHC Lease Partners, 12 third-party management contracts, two third-party lease contracts, the Grand Bay and Registry Hotels & Resorts proprietary brand names and certain other hospitality management assets. Wyndham has also agreed to provide CHCI with a $7 million line of credit until such time as the CHCI Merger is completed. By operation of the CHCI Merger, all issued and outstanding common stock of CHCI will be exchanged for approximately 4,396,000 shares of Wyndham International preferred stock, subject to certain adjustments. Interstate Hotels Company. On December 2, 1997, the Companies and Interstate Hotels Company ("Interstate") entered into an Agreement and Plan of Merger (the "Interstate Merger Agreement"), pursuant to which Interstate will merge with and into Patriot with Patriot being the surviving corporation (the "Interstate Merger"). Pursuant to the Interstate Merger Agreement, stockholders of Interstate will have the right to elect to convert each of their shares of Interstate common stock into the right to receive either (i) $37.50 in cash, subject to proration in certain circumstances (the "Interstate Cash Consideration"), or (ii) a number of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for each share of Interstate common stock not exchanged for cash (the "Interstate Exchange Ratio"). After the elections are made by stockholders of Interstate, proration will be used to ensure that 40% of the outstanding shares of Interstate common stock will be converted into the right to receive Interstate Cash Consideration and that the remaining 60% of the outstanding shares of Interstate common stock will be converted into the right to receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment in certain circumstances for the exercise of dissenters' rights. "The special meetings of the stockholders of Patriot, Wyndham International and Interstate at which approval of the Interstate Merger will be sought were originally scheduled for March 30, 1998. On March 30, 1998, Patriot, Wyndham International and Interstate each adjourned their respective stockholders' meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham International and Interstate elected to convene and then adjourn their respective stockholders' meetings without a formal vote so as to permit additional time to negotiate with Marriott International, Inc. ("Marriott") relating to certain issues Marriott has raised concerning Marriott-branded hotels owned by Interstate. While Patriot and Marriott had entered into a non- binding letter agreement in December 1997 regarding these matters, on March 30, 1998, Marriott filed a lawsuit in the United States District Court for the District of Maryland seeking to enjoin the Interstate Merger until Interstate complies with certain rights of notification and first refusal which Marriott alleges would be triggered by the Interstate Merger." As a result of the Interstate Merger, Patriot will acquire all of the assets and liabilities of Interstate, including Interstate's portfolio of 222 owned, leased or managed hotels located in the United States, Canada, the Caribbean and Russia. Of Interstate's portfolio, 41 hotels aggregating approximately 11,928 rooms are owned or controlled by Interstate, 89 hotels aggregating approximately 10,258 rooms are leased and 92 hotels aggregating approximately 23,227 rooms are managed or subject to service agreements. Patriot will also assume or refinance all of Interstate's existing indebtedness, which totaled approximately $800 million as of December 31, 1997. In addition, Patriot will buy out or assume certain options to purchase shares of common stock, par value $0.01 per share, of Interstate ("Interstate Common Stock") and assume certain severance obligations. On March 23, 1998, the Companies announced that Interstate shareholders receiving Paired Shares in the Interstate Merger will be entitled to receive Patriot's regular quarterly dividend of $0.32 per share for the first quarter of 1998 and will be entitled to participate with all other Patriot shareholders in a special distribution of accumulated earnings and profits from Patriot's acquisition of Old Wyndham. Arcadian International PLC. On January 20, 1998, Patriot announced in the United Kingdom its intention to proceed with a takeover of Arcadian International PLC ("Arcadian"), a company listed on the London Stock Exchange, for cash consideration totaling (Pounds)92 million (or approximately $152 million at the exchange rate on February 5, 1998) (the "Arcadian Acquisition"). Arcadian is an owner, developer and operator of hotels in the United Kingdom and continental Europe. Arcadian's portfolio currently includes 12 hotels with a total of approximately 724 rooms throughout the United Kingdom, as well as interests held in joint ventures with third parties. In connection with the Arcadian Acquisition, Patriot will assume or refinance all of Arcadian's existing indebtedness, which totaled approximately $77 million as of February 5, 1998. 6 Patriot has also entered into agreements with the shareholders of Malmaison Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest, to acquire the remaining interests in Malmaison not currently owned by Arcadian for an aggregate purchase price of approximately $58.1 million, including the assumption of approximately $23.6 million of indebtedness (the "Malmaison Acquisition"). In connection with the Malmaison Acquisition, Patriot expects to acquire (i) two hotels currently owned by Malmaison and one hotel which Malmaison has agreed to acquire and (ii) two additional hotels currently under development by Malmaison. Golden Door Spa. In February 1998, the Companies signed a purchase contract to acquire the Golden Door Spa in Escondido, California for a purchase price of approximately $28 million. The purchase price is to be paid with a combination of cash, OP Units of the Operating Partnerships and a short-term note. SF Hotel Company, L.P. On March 23, 1998, the Companies entered into an agreement to acquire all of the partnership interests in SF Hotel Company, L.P. ("Summerfield") for approximately $170 million. The purchase price is to be paid with a combination of cash and issuance of a total of approximately 4,590,000 OP Units of the Operating Partnerships and/or Paired Shares (the "Summerfield Acquisition"). The final transaction price is subject to adjustment based on (i) the market price of the Paired Shares through the end of 1998 and (ii) achievement of certain performance criteria for the Summerfield portfolio through 2001. As a result of the Summerfield Acquisition, the Companies will acquire four Summerfield Suites/(R)/ hotels and lease or manage 33 Summerfield Suites/(R)/ and Sierra Suites hotels/(R)/. DESCRIPTION OF BUSINESS As of March 25, 1998, Patriot, either directly or through the REIT Partnership and other subsidiaries, owned interests in 118 hotels with an aggregate of over 29,400 rooms (excluding one hotel closed for renovations). In order for Patriot to qualify for favorable tax status as a real estate investment trust ("REIT") under the Code, Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are separately owned through special purpose entities, to Wyndham International or to other third party lessees (the "Lessees") who are responsible for operating the hotels. Currently, Patriot leases 17 of its hotel investments to CHC Lease Partners for staggered terms of ten to twelve years pursuant to separate participating leases providing for the payment of the greater of base or participating rent, plus certain additional charges, as applicable (the "Participating Leases"). Twelve of the hotels are leased to NorthCoast Hotels, L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR North Canton, Inc. (the "Doubletree Lessee") leases four hotels; and Metro Hotels Leasing Corporation ("Metro Lease Partners") leases one hotel under similar Participating Lease agreements. The Lessees, in turn, have entered into separate agreements with hotel management entities (the "Operators") to manage the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel acquisitions were structured without lessees and are managed directly by Holiday Inns, Inc. and Wyndham International, respectively. Wyndham International leases 81 hotels from Patriot pursuant to Participating Lease agreements which are substantially similar to the Participating Lease agreements of the Lessees. Wyndham International manages 68 of these hotels through certain of its hotel management subsidiaries and has entered into separate management agreements with hotel Operators to manage 13 of the hotels. 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, Los Angeles, Miami, Minneapolis, San Diego, 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. As of March 25, 1998, the owned hotels include 106 full service hotels, seven resort hotels, four limited service hotels and an executive conference center. All but six of the 118 hotels are operated under franchise or brand affiliations with nationally recognized hotel companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(R)/, Hilton/(R)/, Hyatt/(R)/, Four Points by Sheraton/(R)/, Holiday Inn/(R)/, Wyndham/SM/, Wyndham Garden/(R)/, WestCoast/(R)/, Doubletree/(R)/, Embassy Suites/(R)/, Hampton Inn/(R)/, Carefree/(R)/, Grand Heritage/(R)/, Marriott/(R)/, Marriott Courtyard/(R)/, Sheraton/(R)/, Grand Bay/(R)/ and ClubHouse/(R)/. Additionally, the Companies lease 13 hotels from third parties, manage 58 hotels (excluding one hotel closed for renovations) for independent owners and franchise eight hotels. Wyndham International currently leases from Patriot 81 of the 118 hotels owned by Patriot. Patriot expects that substantially all of its future acquisitions will be leased to Wyndham International. 7 In addition to leasing and managing hotels, Wyndham International is also engaged in the business of conducting and offering pari-mutuel wagering on thoroughbred horse racing, the principal business conducted by Bay Meadows prior to the Cal Jockey Merger. Patriot intends to continue to expand and diversity its hotel portfolio through the acquisition of primarily full service commercial hotels and major tourist hotels in major metropolitan areas and destination resorts or conference centers. Patriot believes that market conditions remain favorable for the acquisition of additional hotels and hotel portfolios and expects to continue its aggressive acquisition activities. Additionally, Wyndham International intends to continue to capitalize on opportunities to acquire hotel operators, owners of hotel franchises or brands and independent hotel management companies. The Companies generally seek investments in hotels where management believes that profits can be increased by the introduction of more professional and efficient management techniques, a change of franchise affiliation or the injection of capital for market repositioning, renovating, or expanding a property. Competition The hotel industry is highly competitive and the Companies' hotels are subject to competition from other hotels for guests. Many of the Companies' competitors may have substantially greater marketing and financial resources than the Companies. Each of the Companies' hotels compete for guests primarily with other similar hotels in its immediate vicinity and secondarily with other similar hotels in its geographic market. Management believes that brand recognition, location, the quality of the hotel and services provided, and price are the principal competitive factors affecting the Companies' hotels. Patriot and Wyndham International may compete for acquisition opportunities with entities that have greater financial resources than the Companies or which may accept more risk than the Companies. Competition may generally reduce the number of suitable investment opportunities and increase the bargaining power of property owners seeking to sell. Further, the Companies' management believes that it will face competition for acquisition opportunities from entities organized for purposes substantially similar to the objectives of Patriot or Wyndham International. While the Bay Meadows Racecourse (the "Racecourse"), when it is conducting live racing, has had little direct competition from other tracks in the San Francisco Bay Area, the Racecourse competes with off-track wagering facilities in Northern California and telephone betting accounts being offered by off-track wagering facilities in various states and foreign countries and other forms of legalized gambling, particularly Indian gaming and others such as the California State Lottery and local card clubs. In addition, the San Francisco Bay Area annually has numerous sporting events, county fairs and other entertainment attractions which compete with the Racecourse for the sports and entertainment dollar. It is difficult to evaluate the competitive impact of these other forms of entertainment and gambling on the operations of the Racecourse, other than to say that they are significant. Seasonality The hotel industry is seasonal in nature. Revenue at certain of the Companies' hotels are greater in the first and second quarters of a calendar year and at other hotels in the second and third quarters of a calendar year. Seasonal variations in revenue at the hotels may cause quarterly fluctuations in Patriot's lease revenues and in Wyndham International's hotel-related revenues. The Bay Meadows Racecourse operations are also subject to seasonal variations. Historically, the Bay Meadows racing meet has commenced in August each year and has ended in the following January. Employees As of March 25, 1998, Patriot employs 19 persons, including Messrs. Nussbaum, Evans and Jones and Ms. Raymond, the executive officers of Patriot, and retains appropriate support personnel to manage its operations in lieu of retaining an advisor. Wyndham International employs approximately 30,000 persons, including Messrs. Carreker, Alibhai and Jones, the executive officers of Wyndham International, and retains appropriate support personnel to manage its operations, including operation of the 81 hotels leased from Patriot. 8 Environmental Matters Neither Patriot, Wyndham International, the REIT Partnership nor the OpCo Partnership has been identified by the United States Environmental Protection Agency or any similar state agency as a responsible or potentially responsible party for, nor have they been the subject of any governmental proceedings with respect to, any hazardous waste contamination. If Patriot, Wyndham International or any of their respective subsidiaries were to be identified as a responsible party, they would in most circumstances be strictly liable, jointly and severally with other responsible parties, for environmental investigation and clean-up costs incurred by the government and, to a more limited extent, by private persons. Phase I environmental site assessments are performed on all of the Patriot hotels prior to acquisition. To date, these assessments have not revealed any environmental liability or compliance concerns that management believes would have a material adverse effect on the Companies' business, assets, results of operations or liquidity. Based on the results of these assessments, the Companies and their outside consultants believe that the Companies' overall potential for environmental impairment is low. Based upon the environmental reports described above, the Companies believe that a substantial number of the hotels incorporate potentially asbestos- containing materials. Under applicable current federal, state and local laws, asbestos need not be removed from or encapsulated in a hotel unless and until the hotel is renovated or remodeled. The Companies have asbestos operation and maintenance plans for each property testing positive for asbestos. Based upon the above-described environmental reports and testing, future remediation costs are not expected to have a material adverse effect on the results of operations, financial position or cash flows of Patriot or Wyndham International and compliance with environmental laws has not had and is not expected to have a material adverse effect on the capital expenditures, earnings or competitive position of the Companies. Tax Status Cal Jockey has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (the "Code") since 1983. Patriot, as the successor to Cal Jockey in the Cal Jockey Merger, intends to continue to elect to be taxed as a REIT. Patriot generally will not be subject to federal income tax on its taxable net income that is distributed currently to its shareholders. If Patriot fails to qualify as a REIT in any taxable year, Patriot will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates. However, even if Patriot continues to qualify for taxation as a REIT, Patriot may be subject to certain state and local taxes on its income and properties and federal income and excise taxes under certain special circumstances. Proposed Legislation Affecting The Paired Share Structure Patriot's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as Wyndham International. The "grandfathering" rules governing Section 296B generally provide, however, that Section 296B(a)(3) does not apply to a paired REIT if the REIT and the paired operating company were paired on June 30, 1983. Patriot's and Wyndham International's respective precedessors, Cal Jockey and Bay Meadows, 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. Patriot's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation. In this regard, on February 2, 1998, the Department of Treasury released an explanation of the revenue proposals included in the Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax Proposals, among other things, include a freeze on the grandfathered status of paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham International would be treated as one entity with respect to properties acquired on or after the date of the first Congressional committee action with respect to such proposal and with respect to activities or services relating to such properties that are undertaken or performed by one of the paired entities on or after such date. The Tax Proposals would also prohibit REITs from holding stock of a corporation possessing more than 10% of the vote or value of all classes of stock of the corporation. This proposal would be effective with respect to the stock acquired on or after the date of first Congressional committee action with respect to the proposal; provided that the proposal would not apply to stock acquired before such effective date if, on or after such date, the subsidiary corporation engaged in a new trade or business or acquired substantial new assets. On March 26, 1998, William Archer, Chairman of the Ways and Means Committee of the United States House of Representatives and William V. Roth, Jr., Chairman of the Finance Committee of the United States Senate, introduced identical legislation (the "Proposed Legislation") in both the House of Representatives and the Senate to limit this "grandfathering rule." Under the Proposed Legislation, the anti-pairing rules provided in the Code would apply to real property interests acquired after March 26, 1998 by Patriot and Wyndham International, or a subsidiary or partnership in which 10% or greater interest is owned by Patriot or Wyndham International (collectively, the "REIT Group"), unless (1) the real property interests are acquired pursuant to a written agreement which is binding on March 26, 1998 and all times thereafter or (2) the acquisition of such real property interests were described in a public announcement or in a filing with the Securities and Exchange Commission on or before March 26, 1998. In addition, the Proposed Legislation also provides that a property held by Patriot or Wyndham International that is not subject to the anti-pairing rules would become subject to such rules in the event of an improvement placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (x) the undepreciated cost of the property (prior to the improvement) or (y) in the case of property acquired where there is a substantial basis, the fair market value of the property on the day it was acquired by Patriot and Wyndham International. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect as of December 31, 1999 and at all times thereafter. The above discussion is based solely on the Tax Proposals and the Proposed Legislation. The Proposed Legislation will not become effective unless it is duly passed by Congress and signed by the President. It is impossible at this time to determine all of the ramifications which could result from enactment of the Proposed Legislation. However, Patriot believes that the previously announced and pending acquisitions of Interstate, Arcadian and Summerfield are unaffected by the Proposed Legislation and expects that such acquisitions will be completed as currently scheduled. PENDING ADOPTION OF AUTHORITATIVE STATEMENTS Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("Statement 130"), "Reporting Comprehensive Income." Statement 130 requires that all components of comprehensive income and the ending accumulated balances for each item, classified by their nature, be reported in the financial statements in the period in which they are recognized. Statement 130 is effective for fiscal years beginning after December 15, 1997. The Companies will be required to adopt Statement 130 beginning with their interim financial statements for the first quarter of 1998. Comparative financial statements for prior years presented in these interim financial statements are required to be reclassified to conform to the new Statement 130 presentation. Management does not anticipate that adoption of Statement 130 reporting requirements will have a material impact on the operating results or financial position of the Companies. Segment Reporting In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. SFAS 131 changes current practice by establishing a new framework on which to base segment reporting, including the determining of a segment and the financial information to be disclosed for each segment, referred to as "management" approach. The management approach requires that management identify "operating segments" based on the way that management disaggregates the entity for making internal operating decisions. SFAS 131 is effective for fiscal years beginning after December 15, 1997, and requires restatement of information for earlier periods. Management is determining the segments to be disclosed and intends to adopt the statement for the year ended December 31, 1998. ITEM 2. PROPERTIES MARKET SEGMENTATION Patriot classifies its hotels into four primary market segments: (i) full service, (ii) limited service, (iii) resorts, and (iv) conference center. As of December 31, 1997, Patriot owned 81 full service hotels aggregating over 21,700 guest rooms, which target both business and leisure travelers, including meetings and groups, who prefer a full range of facilities, services and amenities. At year end, all but four of Patriot's full service hotels were operated under franchise or brand affiliations with nationally recognized hotel companies, including Crowne Plaza/(R)/, Radisson/(R)/, Ramada/(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)/, Carefree/(R)/, Grand Heritage/(R)/, Marriott/(R)/, Marriott Courtyard/(R)/, Sheraton/(R)/, and Grand Bay/(R)/. Full service hotels generally offer a full range of meeting and conference facilities and banquet space. Facilities generally include restaurants and lounge areas, gift shops and recreational facilities, including swimming pools. Full service hotels generally provide a significant array of guest services, including room service, valet services and laundry. Three of Patriot's hotels, the Bourbon Orleans Hotel in New Orleans the Fairmount Hotel in San Antonio and the Park Shore Hotel in Honolulu, are luxury hotels in major U.S. tourist markets. 9 The Tremont House Hotel in Boston, operates as an upscale full service hotel in a major U.S. market. Patriot owns four limited service hotels aggregating 447 guest rooms, which target both business and leisure travelers. Patriot's limited service hotels consist of four Hampton Inns/(R)/. Limited service hotels generally have limited or no meeting space. Hotels operating in this market segment generally seek to minimize operational costs by offering only those basic services required by travelers. Because they cater to both business and leisure travelers, limited service hotels generally maintain relatively consistent occupancy on weekdays and weekends. As of December 31, 1997, Patriot owned five resort properties aggregating 978 guest rooms, including the Wyndham/TM/ Resort & Spa in Fort Lauderdale, Florida (formerly the Bonaventure Resort & Spa) and the four Carefree/(R)/ resort properties which were acquired in January 1997. Resorts are designed to offer unique destinations which appeal to today's sophisticated vacation traveler and to blend with their environment, enhancing the natural surroundings with design that fits the locale. Each resort's recreational activities are of the highest caliber and are designed to capitalize on the natural attractions of the location. Many offer a combination of golf, tennis, skiing, a health spa, hiking or other sports. Patriot owns one conference center with 250 guest rooms, which targets corporate and other executive groups. Conference centers are distinguishable from traditional full service hotels in that they are dedicated, designed and equipped to handle all services for large meetings and conferences. Conference centers typically offer state-of-the-art meeting and conference rooms, with a full complement of business support services. Conference centers generally include banquet and ballroom facilities, and restaurant and bar facilities. In addition, facilities generally include a fitness center, swimming pool and tennis courts. Because of the specialized nature of conference centers, there are relatively few such properties in the U.S. DESCRIPTION OF PROPERTIES The following table sets forth certain information for the year ended December 31, 1997 and 1996 with respect to the hotels Patriot owned as of December 31, 1997. This information reflects actual operating results of the hotels both prior and subsequent to acquisition by Patriot. 10
Total Revenue Average Occupancy ---------------------- ----------------- Number of Year Built/ Property Name Location Rooms Renovated 1997 1996 1997 1996 - ------------- -------- ----- --------- ---- ---- ---- ---- FULL SERVICE HOTELS: Amassador West.................. Chicago, IL................. 219 1924 $ 8,387 $ 8,144 66.3% 66.2% Bourbon Orleans Hotel (2)....... New Orleans, LA............. 216 1800s/1995 9,409 8,248 83.7 83.3 The Buttes...................... Tempe, AZ................... 353 1986 27,917 27,120 78.5 83.5 Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 495 1986 23,617 24,237 69.9 71.0 Crowne Plaza Toledo............. Toledo, OH.................. 241 1985 7,804 7,224 63.5 63.1 Doubletree Allen Center (2)..... Houston, TX................. 341 1978/1984 14,236 13,207 67.6 67.2 Doubletree Hotel................ Des Plaines (Chicago), IL... 242 1969/1997 5,011 5,100 62.7 81.4 Doubletree Guest Suites (2)..... Glenview, IL................ 252 1988 10,277 8,705 80.3 75.7 Doubletree Hotel................ Minneapolis, MN............. 230 1986 6,177 6,084 61.0 68.7 Doubletree Hotel................ Tallahassee, FL............. 244 1977/1997 4,522 3,946 48.6 59.4 Doubletree Hotel (2)............ Tulsa, OK................... 417 1982 10,630 10,699 63.3 68.7 Doubletree Hotel................ Westminster (Denver), CO.... 180 1980/1992 6,244 5,566 74.1 73.4 Doubletree - Anaheim (2)........ Orange, CA.................. 454 1984 14,627 13,473 67.2 70.3 Doubletree - Miami Airport...... Miami, FL................... 266 1975/1997 4,660 4,499 56.4 53.4 Doubletree - Post Oak (2)....... Houston, TX................. 449 1982 22,598 19,942 75.7 72.2 Doubletree - Corporate Woods (2) Overland Park, KS........... 356 1982 15,734 14,674 73.0 75.5 Doubletree - St Louis (2)....... Chesterfield, MO............ 223 1984 13,404 12,341 73.2 74.1 Doubletree Park Place........... Minneapolis, MN............. 298 1981 9,912 11,049 66.1 73.9 Embassy Suites.................. Hunt Valley, MD............. 223 1985/1995 6,828 6,399 71.9 71.3 Fairmount Hotel................. San Antonio, TX............. 37 1906/1994 2,623 2,838 66.3 77.6 Four Points by Sheraton......... Saginaw, MI................. 156 1984 3,627 3,980 66.6 70.5 Grand Bay Hotel Coconut Grove(2) Miami, FL................... 178 1983 17,460 15,753 75.8 67.9 Del Mar Hilton.................. Del Mar (San Diego), CA..... 245 1989 9,660 8,209 74.9 69.8 Hilton Cleveland South.......... Independence, OH............ 191 1980/1994 9,345 8,117 66.5 69.2 Melbourne Airport Hilton........ Melbourne, FL............... 237 1986 6,595 6,004 70.3 65.8 Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 385 1974 16,254 14,797 72.8 69.3 Holiday Inn..................... San Angelo, TX.............. 148 1984/1994 3,251 3,124 67.6 71.3 Holiday Inn..................... San Francisco, CA........... 224 1964 8,355 7,636 87.7 87.3 Holiday Inn..................... Sebring, FL................. 148 1983/1995 2,806 2,510 56.8 55.2 Holiday Inn Aristocrat.......... Dallas, TX.................. 172 1925/1994 4,929 4,881 66.1 69.7 Holiday Inn Crockett............ San Antonio, TX............. 206 1909/1996 5,185 5,090 65.8 65.3 Holiday Inn Lenox............... Atlanta, GA................. 297 1987/1995 7,003 7,891 63.2 68.2 Holiday Inn Northwest Plaza..... Austin, TX.................. 193 1984/1994 5,808 6,222 72.4 79.6 Holiday Inn Northwest........... Houston, TX................. 193 1982/1994 3,461 3,046 64.4 62.7 Holiday Inn - YO Ranch.......... Kerrville, TX............... 200 1984 3,936 4,051 50.3 57.4 Holiday Inn Redmont Hotel....... Birmingham, AL.............. 112 1925/1991 1,538 1,735 49.5 53.2 Holiday Inn Westlake............ Beachwood, OH............... 266 1980 8,585 8,052 80.3 75.0 Average Daily Rate Revenue Per Available (ADR) Room (REVPAR)(1) ------------------ --------------------- Property Name Location 1997 1996 1997 1996 - ------------- -------- ---- ---- ---- ---- Full Service Hotels: Amassador West.................. Chicago, IL................. $110.69 $106.11 $ 73.44 $ 70.28 Bourbon Orleans Hotel (2)....... New Orleans, LA............. 133.69 120.17 111.94 100.16 The Buttes...................... Tempe, AZ................... 140.94 128.11 110.61 106.99 Crowne Plaza Ravinia Hotel (3).. Atlanta, GA................. 116.44 119.74 81.44 85.05 Crowne Plaza Toledo............. Toledo, OH.................. 83.96 79.08 53.29 49.91 Doubletree Allen Center (2)..... Houston, TX................. 102.58 91.96 69.30 61.80 Doubletree Hotel................ Des Plaines (Chicago), IL... 72.18 56.67 45.23 46.10 Doubletree Guest Suites (2)..... Glenview, IL................ 95.15 85.39 76.41 64.67 Doubletree Hotel................ Minneapolis, MN............. 93.81 77.31 57.21 53.12 Doubletree Hotel................ Tallahassee, FL............. 73.60 47.73 35.76 28.37 Doubletree Hotel (2)............ Tulsa, OK................... 69.39 63.03 43.92 43.29 Doubletree Hotel................ Westminster (Denver), CO.... 82.44 73.99 61.09 54.28 Doubletree - Anaheim (2)........ Orange, CA.................. 80.81 69.54 54.28 48.88 Doubletree - Miami Airport...... Miami, FL................... 67.56 71.71 38.12 38.26 Doubletree - Post Oak (2)....... Houston, TX................. 102.57 94.17 77.68 67.98 Doubletree - Corporate Woods (2) Overland Park, KS........... 97.34 88.01 71.02 66.47 Doubletree - St Louis (2)....... Chesterfield, MO............ 95.45 90.76 69.90 67.28 Doubletree Park Place........... Minneapolis, MN............. 79.24 72.67 52.38 53.67 Embassy Suites.................. Hunt Valley, MD............. 90.47 85.07 65.03 60.63 Fairmount Hotel................. San Antonio, TX............. 158.90 144.71 105.41 112.32 Four Points by Sheraton......... Saginaw, MI................. 59.38 62.95 39.52 44.36 Grand Bay Hotel Coconut Grove(2) Miami, FL................... 226.77 205.24 171.86 139.39 Del Mar Hilton.................. Del Mar (San Diego), CA..... 92.81 84.50 69.55 58.99 Hilton Cleveland South.......... Independence, OH............ 92.96 86.34 61.86 59.74 Melbourne Airport Hilton........ Melbourne, FL............... 66.03 61.56 46.42 40.53 Hilton Inn Myrtle Beach......... Myrtle Beach, SC............ 93.99 88.46 68.45 61.31 Holiday Inn..................... San Angelo, TX.............. 63.36 60.54 42.80 43.15 Holiday Inn..................... San Francisco, CA........... 84.98 72.95 74.50 63.72 Holiday Inn..................... Sebring, FL................. 63.14 57.78 35.86 31.91 Holiday Inn Aristocrat.......... Dallas, TX.................. 92.73 88.10 61.33 61.45 Holiday Inn Crockett............ San Antonio, TX............. 86.41 85.25 56.86 55.64 Holiday Inn Lenox............... Atlanta, GA................. 83.84 88.96 53.00 60.63 Holiday Inn Northwest Plaza..... Austin, TX.................. 85.03 83.75 61.59 66.65 Holiday Inn Northwest........... Houston, TX................. 59.61 54.69 38.38 34.31 Holiday Inn - YO Ranch.......... Kerrville, TX............... 75.35 66.18 37.93 38.01 Holiday Inn Redmont Hotel....... Birmingham, AL.............. 58.11 58.45 28.78 31.07 Holiday Inn Westlake............ Beachwood, OH............... 73.49 72.01 59.04 54.04
See notes on page 13. 11
Total Revenue Average Occupancy ---------------------- ----------------- Number of Year Built/ Property Name Location Rooms Renovated 1997 1996 1997 1996 - ------------- -------- ----- --------- ---- ---- ---- ---- FULL SERVICE HOTELS - CONTINUED: Holiday Inn Select.............. Farmers Branch (Dallas), TX. 374 1979/1994 $ 9,827 $ 10,271 63.0% 69.4% Hyatt Newporter................. Newport Beach, CA........... 410 1962 22,686 19,940 74.7 74.6 Hyatt Regency................... Lexington, KY............... 365 1977/1992 13,007 12,457 61.3 63.2 Marriott Hotel.................. Troy, MI.................... 350 1990 21,010 18,815 77.8 78.2 Marriott Courtyard.............. Beachwood, OH............... 113 1986 3,591 3,159 79.1 83.8 The Mayfair Hotel............... St. Louis, MO............... 182 1925/1990 4,205 4,316 50.3 56.5 Omni Inner Harbour Hotel........ Baltimore, MD............... 707 1968 24,860 21,161 68.2 64.7 Park Shore Honolulu (4)......... Honolulu, HI................ 227 1968 -- -- -- -- Radisson Suites Town & Country.. Houston, TX................. 173 1986/1992 4,608 4,422 77.0 69.9 Radisson Hotel & Suites......... Dallas, TX.................. 198 1986/1994 5,274 5,278 72.2 72.4 Radisson Northbrook............. Northbrook, IL.............. 310 1976/1994 7,562 6,793 71.7 67.6 Radisson New Orleans Hotel...... New Orleans, LA............. 759 1924/1995 22,771 20,720 67.3 68.1 Radisson Suite Hotel............ Kansas City, KS............. 240 1931/1989 6,135 5,661 61.5 64.5 Radisson Overland Park.......... Overland Park, KS........... 190 1974 4,518 4,506 64.8 67.0 Radisson Hotel (2).............. Beachwood, OH............... 196 1968 5,846 5,634 74.8 80.6 Radisson Hotel.................. Akron, OH................... 130 1989 2,946 2,982 67.3 68.8 Radisson Riverwalk.............. Jacksonville, FL............ 322 1979/1996 10,453 9,507 81.1 77.7 Ramada Inn...................... San Francisco, CA........... 323 1962 7,616 7,419 89.7 90.7 Sheraton City Centre............ Washington, D.C............. 353 1969 13,976 12,604 69.4 64.7 Sheraton Gateway - Miami Airport Miami, FL................... 408 1976/1995 13,380 11,996 74.2 75.3 Sheraton Grand Hotel (2)........ Tampa, FL................... 324 1984 17,333 15,247 71.8 68.2 Tremont House................... Boston, MA.................. 322 1925/* 12,392 10,317 74.0 75.1 The Tutwiler.................... Birmingham, AL.............. 147 1913/1986 3,811 4,084 61.0 67.8 Union Station................... Nashville, TN............... 124 1986 3,749 3,571 53.2 56.1 WestCoast Gateway............... Seattle, WA................. 145 1990 2,970 2,726 84.8 83.4 WestCoast Hotel & Marina........ Long Beach, CA.............. 195 1978/1997 2,657 2,934 32.0 44.7 WestCoast Pickwick Hotel........ San Francisco, CA........... 189 1928/* 3,618 3,431 58.5 65.4 WestCoast Plaza Park Suites..... Seattle, WA................. 193 1928/* 6,813 6,479 76.1 73.3 WestCoast Roosevelt Hotel....... Seattle, WA................. 151 1929/1987 4,372 4,102 74.1 73.8 WestCoast Valley River Inn...... Eugene, OR.................. 257 1973 10,634 9,963 67.1 67.9 WestCoast Wenatchee Center Hotel Wenatchee, WA............... 147 1988/1994 4,136 4,229 57.3 64.1 Wyndham Bel Age Hotel........... Los Angeles, CA............. 200 1984 14,995 15,023 77.0 77.0 Wyndham Emerald Plaza (2)....... San Diego, CA............... 436 1991 19,798 17,980 76.0 74.1 Wyndham Franklin Plaza.......... Philadelphia, PA............ 758 1979 35,842 33,358 72.6 74.0 Wyndham Greenspoint Hotel (2)... Houston, TX................. 472 1985/1995 21,134 19,063 70.2 72.6 Wyndham Northwest Chicago....... Chicago, IL................. 408 1983 24,377 23,252 67.2 67.8 Wyndham Riverfront Hotel........ New Orleans, LA............. 202 1996 -- -- -- -- Wyndham WindWatch (4)........... Long Island, NY............. 360 1989 17,580 18,211 68.4 75.6 Average Daily Rate Revenue Per Available (ADR) Room (REVPAR)(1) ------------------ --------------------- Property Name Location 1997 1996 1997 1996 - ------------- -------- ---- ---- ---- ---- FULL SERVICE HOTELS - CONTINUED: Holiday Inn Select.............. Farmers Branch (Dallas), TX. $ 79.09 $ 75.06 $ 49.86 $ 52.08 Hyatt Newporter................. Newport Beach, CA........... 111.28 98.54 83.11 73.50 Hyatt Regency................... Lexington, KY............... 89.47 84.22 54.82 53.23 Marriott Hotel.................. Troy, MI.................... 118.86 109.41 92.51 85.61 Marriott Courtyard.............. Beachwood, OH............... 97.25 80.44 76.89 67.44 The Mayfair Hotel............... St. Louis, MO............... 93.54 89.53 47.08 50.62 Omni Inner Harbour Hotel........ Baltimore, MD............... 99.08 91.38 67.61 59.10 Park Shore Honolulu (4)......... Honolulu, HI................ -- -- -- -- Radisson Suites Town & Country.. Houston, TX................. 87.32 83.09 67.28 58.11 Radisson Hotel & Suites......... Dallas, TX.................. 77.24 76.53 55.76 55.43 Radisson Northbrook............. Northbrook, IL.............. 76.95 68.00 55.16 45.98 Radisson New Orleans Hotel...... New Orleans, LA............. 87.82 81.08 59.06 55.17 Radisson Suite Hotel............ Kansas City, KS............. 81.96 73.37 50.43 47.34 Radisson Overland Park.......... Overland Park, KS........... 74.71 67.64 48.43 45.29 Radisson Hotel (2).............. Beachwood, OH............... 77.62 69.73 58.03 56.19 Radisson Hotel.................. Akron, OH................... 73.66 72.79 49.59 50.11 Radisson Riverwalk.............. Jacksonville, FL............ 71.81 68.28 58.26 53.07 Ramada Inn...................... San Francisco, CA........... 57.39 51.74 51.50 46.91 Sheraton City Centre............ Washington, D.C............. 121.29 115.19 84.16 74.56 Sheraton Gateway - Miami Airport Miami, FL................... 85.80 76.74 63.64 57.77 Sheraton Grand Hotel (2)........ Tampa, FL................... 102.39 93.75 73.54 63.98 Tremont House................... Boston, MA.................. 123.51 102.43 91.35 76.92 The Tutwiler.................... Birmingham, AL.............. 106.56 101.43 64.96 68.77 Union Station................... Nashville, TN............... 100.48 94.44 53.49 52.99 WestCoast Gateway............... Seattle, WA................. 60.37 55.55 51.17 46.31 WestCoast Hotel & Marina........ Long Beach, CA.............. 70.66 58.17 22.61 25.98 WestCoast Pickwick Hotel........ San Francisco, CA........... 79.01 66.82 46.23 43.71 WestCoast Plaza Park Suites..... Seattle, WA................. 116.23 114.38 88.48 83.82 WestCoast Roosevelt Hotel....... Seattle, WA................. 98.16 92.38 72.71 68.19 WestCoast Valley River Inn...... Eugene, OR.................. 92.79 88.76 62.23 60.24 WestCoast Wenatchee Center Hotel Wenatchee, WA............... 63.82 59.19 36.54 37.94 Wyndham Bel Age Hotel........... Los Angeles, CA............. 145.56 140.17 112.10 107.89 Wyndham Emerald Plaza (2)....... San Diego, CA............... 114.96 103.48 87.35 76.66 Wyndham Franklin Plaza.......... Philadelphia, PA............ 104.00 96.28 75.51 71.28 Wyndham Greenspoint Hotel (2)... Houston, TX................. 96.39 85.60 67.63 62.13 Wyndham Northwest Chicago....... Chicago, IL................. 111.39 102.85 74.88 69.74 Wyndham Riverfront Hotel........ New Orleans, LA............. -- -- -- -- Wyndham WindWatch (4)........... Long Island, NY............. 116.74 104.75 79.83 79.21
See notes on the following page. 12
Total Revenue Average Occupancy ---------------------- ----------------- Number of Year Built/ Property Name Location Rooms Renovated 1997 1996 1997 1996 - ------------- -------- ----- --------- ---- ---- ---- ---- FULL SERVICE HOTELS CONTINUED: Wyndham Garden - Las Colinas.... Dallas, TX.................. 168 1986 $ 5,917 $ 5,744 73.3% 72.6% Wyndham Garden - Midtown........ Atlanta, GA................. 191 1987/1994 6,439 7,475 71.1 72.8 Wyndham Garden - Novi........... Detroit, MI................. 148 1988 4,671 4,308 76.5 75.9 Wyndham Garden Hotel............ Pleasanton, CA.............. 171 1985 5,748 4,775 82.3 73.5 Wyndham Garden - Wood Dale...... Chicago, IL................. 162 1986 5,578 5,282 71.1 71.4 The Garden at LaGuardia (6)..... New York, NY................ 229 1988 -- -- -- -- ------ -------- -------- ---- ---- 21,716 $781,250 $733,788 69.6% 70.7% ------ -------- -------- ---- ---- LIMITED SERVICE HOTELS: Hampton Inn Jacksonville Airport Jacksonville, FL............ 113 1985 $ 2,277 $ 2,165 84.5% 86.1% Hampton Inn..................... Rochester, NY............... 113 1986 2,348 2,202 75.2 74.2 Hampton Inn Cleveland Airport... North Olmsted, OH........... 113 1986 2,063 1,978 67.7 72.2 Hampton Inn..................... Canton, OH.................. 108 1985 1,597 1,535 68.7 68.5 ------ -------- -------- ---- ---- 447 $ 8,285 $ 7,880 74.1% 75.3% ------ -------- -------- ---- ---- RESORTS: The Boulders.................... Scottsdale, AZ.............. 160 1985 $ 34,125 $ 53,444 72.4% 78.7% Carmel Valley Ranch............. Carmel, CA.................. 100 1987 13,904 15,932 75.9 76.2 The Lodge at Ventana Canyon (2). Tucson, AZ.................. 49 1985/1995 12,952 12,298 68.1 68.0 The Peaks Resort & Spa.......... Telluride, CO............... 177 1992/1993 17,615 19,774 60.0 57.6 Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 492 1981/* 19,633 18,280 49.7 51.2 ------ -------- -------- ---- ---- 978 $ 98,229 $119,728 58.9% 59.7% ------ -------- -------- ---- ---- CONFERENCE CENTER: Peachtree Conference Center..... Peachtree City (Atlanta), GA 250 $ 14,996 $ 15,086 58.8% 59.3% ------ -------- -------- ---- ---- Total/Weighted Average 23,391(7) $902,760 $876,482 69.1% 70.2% ====== ======== ======== ==== ==== Average Daily Rate Revenue Per Available (ADR) Room (REVPAR)(1) ------------------ --------------------- Property Name Location 1997 1996 1997 1996 - ------------- -------- ---- ---- ---- ---- FULL SERVICE HOTELS CONTINUED: Wyndham Garden - Las Colinas.... Dallas, TX.................. $102.35 $100.47 $ 75.02 $ 72.95 Wyndham Garden - Midtown........ Atlanta, GA................. 98.99 107.94 70.41 78.59 Wyndham Garden - Novi........... Detroit, MI................. 82.43 74.83 63.05 56.77 Wyndham Garden Hotel............ Pleasanton, CA.............. 91.59 82.62 75.39 60.71 Wyndham Garden - Wood Dale...... Chicago, IL................. 93.10 86.76 66.17 61.97 The Garden at LaGuardia (6)..... New York, NY................ -- -- -- -- ------- ------- ------- ------- $ 94.82 $ 87.05 $ 65.98 $ 61.54 ------- ------- ------- ------- LIMITED SERVICE HOTELS: Hampton Inn Jacksonville Airport Jacksonville, FL............ $ 62.81 $ 58.53 $ 53.09 $ 50.39 Hampton Inn..................... Rochester, NY............... 72.96 69.31 54.84 51.45 Hampton Inn Cleveland Airport... North Olmsted, OH........... 71.23 64.28 48.25 46.43 Hampton Inn..................... Canton, OH.................. 56.44 54.19 38.79 37.14 ------- ------- ------- ------- $ 65.93 $ 61.66 $ 48.85 $ 46.46 ------- ------- ------- ------- RESORTS: The Boulders.................... Scottsdale, AZ.............. $326.91 $333.14 $236.55 $262.33 Carmel Valley Ranch............. Carmel, CA.................. 255.89 235.80 194.22 179.63 The Lodge at Ventana Canyon (2). Tucson, AZ.................. 216.40 184.85 147.26 125.67 The Peaks Resort & Spa.......... Telluride, CO............... 245.58 221.26 147.25 127.36 Wyndham Resort & Spa............ Ft. Lauderdale, FL.......... 106.07 92.50 52.76 47.33 ------- ------- ------- ------- $201.54 $184.19 $118.63 $110.05 ------- ------- ------- ------- CONFERENCE CENTER: Peachtree Conference Center..... Peachtree City (Atlanta), GA $116.67 $117.28 $ 68.57 $ 69.52 ------- ------- ------- ------- Total/Weighted Average $ 98.28 $ 90.22 $ 67.91 $ 63.34 ======= ======= ======= =======
______________________ (1) REVPAR is determined by dividing room revenue by available rooms for the applicable period. (2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998. (3) The Crowne Plaza Ravinia Hotel is owned by PAH Ravinia, Inc., an unconsolidated subsidiary of Patriot. The hotel acquisition was structured without a lessee. (4) The Wyndham WindWatch Hotel is owned by PAH Windwatch, LLC, an unconsolidated subsidiary of Patriot. The hotel acquisition was structured without a lessee. (5) Revenue and revenue statistical information is not available from the prior owner of this hotel. (6) Revenue statistical information not available because the hotel was out of service for renovations or construction. (7) Subsequent to December 31, 1997, the Companies acquired 27 additional hotel properties with a total of over 6,000 guest rooms. As a result, as of March 25, 1998, the Companies owned 118 hotels with an aggregate of over 29,400 guest rooms. * Renovations are in progress at these hotels. 13 HOTELS ACQUIRED BY PATRIOT SUBSEQUENT TO YEAR END:
Year Ended December 31, 1997 --------------------------------------- Number Year Built/ Total Average Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR - ---------------------- -------- --------- ------- --------- --- ------ FULL SERVICE HOTELS: Buena Vista Palace Hotel Orlando, FL (1)................................. 1,014 1983/1997 $68,633 82.4% $139.84 $115.23 Snavely Holiday Inn Beachwood, OH (2)............................... 173 1974 5,073 72.0 86.60 62.32 Wyndham Bristol Place Hotel Toronto, Canada................................. 287 1974/* 10,160 75.2 116.41 87.57 Wyndham Garden Brookfield Brookfield, IL.................................. 178 1990 5,223 75.7 74.83 56.63 Wyndham Garden - Charlotte Charlotte, NC................................... 173 1989 5,165 71.6 83.39 59.71 Wyndham Garden - Commerce Los Angeles, CA (3)............................. 201 1991 6,867 69.8 83.25 58.14 Wyndham Garden - Market Center Dallas, TX...................................... 230 1968/1997 4,274 64.0 90.90 58.14 Wyndham Garden - Indianapolis Indianapolis, IN................................ 171 1990 4,789 67.7 77.58 52.53 Wyndham Garden - Overland Park Overland Park, KS............................... 181 1971/1997 3,649 60.3 78.53 47.34 Wyndham Garden - Schaumburg Schaumburg, IL.................................. 188 1985 5,448 71.1 86.94 61.85 Wyndham Garden - Vinings Atlanta, GA (2)................................. 159 1985 5,018 70.2 86.77 60.92 ClubHouse Inn - Albuquerque Albuquerque, NM................................. 137 1987 2,229 63.8 65.14 41.54 ClubHouse Inn - Atlanta (Norcross) Atlanta, GA (2)................................. 147 1988 2,222 57.3 68.76 39.39 ClubHouse Inn - Knoxville Knoxville, TN (2)............................... 137 1989 2,247 63.7 57.29 42.89 ClubHouse Inn - Nashville Airport Nashville, TN................................... 135 1988 2,401 71.5 65.74 47.01 ClubHouse Inn & Conference Center Nashville, TN................................... 285 1991/* 6,350 71.5 75.11 53.68 ClubHouse Inn - Overland Park Overland Park, KS (2)........................... 143 1988 2,916 76.7 70.05 53.74 ClubHouse Inn - Topeka Topeka, KS...................................... 121 1986 2,100 74.3 61.90 45.99 ClubHouse Inn - Valdosta Valdosta, GA.................................... 121 1988 2,079 79.0 57.27 45.24 ClubHouse Inn - Wichita Wichita, KS (2)................................. 120 1985 2,226 76.7 63.69 48.85 ClubHouse Inn - Savannah Savanna, GA..................................... 138 1989 2,163 69.8 59.98 41.89 ClubHouse Inn - Kansas City Airport Kansas City, MO................................. 138 1992/* 2,622 71.9 65.37 47.01 ClubHouse Inn - Omaha Omaha, NE (2)................................... 137 1991 2,686 73.3 70.26 51.49 ClubHouse Inn - Richardson Richardson, TX.................................. 137 1996 2,198 58.9 71.20 41.91 ClubHouse Inn - St. Louis St. Louis, MO................................... 142 1997 -- -- -- -- RESORTS: Wyndham Rose Hall Resort Montego Bay, Jamaica (3)........................ 489 1972/1997 $18,637 63.2% $ 83.17 $ 52.57
14 The Companies also acquired the following leasehold interests in connection with the Wyndham Merger. These hotels are leased from unaffiliated third parties under long-term lease agreements. The leasehold interests are held by special purpose entities in which Patriot owns a 99% non-controlling ownership interest and Wyndham International owns a 1% controlling ownership interest.
Year Ended December 31, 1997 --------------------------------------- Number Year Built/ Total Average Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR - ---------------------- -------- --------- ------- --------- --- ------ LEASED HOTELS: Wyndham Harbour Island Tampa, FL (3)................................... 300 1986 $14,269 71.4% $113.86 $ 81.28 Wyndham Garden - Perimeter Atlanta, GA..................................... 143 1987 3,643 64.7 82.71 53.48 Wyndham Garden - Bloomington Minneapolis, MN................................. 209 1988 7,348 79.6 82.96 66.00 Wyndham Garden - Bothell Seattle, WA..................................... 166 1989 5,471 76.9 83.57 64.25 Wyndham Garden - Chandler Chandler, AZ.................................... 159 1987 5,652 82.5 90.59 74.76 Wyndham Garden - Naperville Chicago, IL..................................... 143 1986 4,269 76.6 81.98 62.76 Wyndham Garden - Nashville Airport Nashville, TN................................... 180 1987 5,329 74.2 83.62 62.04 Wyndham Garden - North Phoenix Phoenix, AZ..................................... 166 1988 4,623 73.8 79.37 58.60 Wyndham Garden - North San Diego San Diego, CA................................... 180 1989 6,735 85.5 89.18 76.25 Wyndham Garden - Phoenix Airport Phoenix, AZ..................................... 210 1987 7,455 72.4 100.40 72.70 Wyndham Garden - Salt Lake City Salt Lake City, UT.............................. 381 1985/* 13,523 70.8 96.35 67.51 Wyndham Garden - Seattle/Tacoma Seattle, WA (3)................................. 204 1988 6,983 74.7 92.29 68.98 Wyndham Garden - Sunnyvale San Jose, CA.................................... 180 1987 8,120 85.6 115.43 98.80
(1) Patriot owns a 95% equity interest in the joint venture that owns this hotel. The hotel is also encumbered by a ground lease, a $50.3 million first lien mortgage note and a $23.8 million Participating Note held by Wyndham International. (2) This hotel is encumbered by mortgage indebtedness as of March 25, 1998. (3) These hotels (and in the case of the Wyndham Rose Hall Resort, the golf course adjacent to the hotel property) are subject to ground leases which, including renewal options, expire between 2018 and 2077. * Renovations are in progress at these hotels. In addition, as a result of the Wyndham Merger, Patriot acquired one hotel that is currently closed for renovation, investment interests in two additional hotels, 42 hotels under management contracts and eight franchised hotels, which in the aggregate contain approximately 13,900 guest rooms. 15 HOTELS ACQUIRED BY WYNDHAM INTERNATIONAL SUBSEQUENT TO YEAR END:
Year Ended December 31, 1997 ---------------------------------------- Number Year Built/ Total Average Property Name/Location of Rooms Renovated Revenue Occupancy ADR REVPAR - ---------------------- -------- ----------- -------- --------- --- -------- RESORTS: Condado Plaza Hotel & Casino San Juan, Puerto Rico........................... 570 1959/1962 $12,465 82.0% $143.84 $117.97
In addition, Wyndham International acquired a 50% equity interest in the 388-room El San Juan Hotel & Casino in Carolina, Puerto Rico and a 23.3% equity interest in the 751-room El Conquistador Resort & Country Club in Las Croabas, Puerto Rico in connection with the WHG Merger. OPERATION OF THE HOTELS As described in "Item 1 Description of Business," Patriot leases each of the hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel to Wyndham International or the Lessees pursuant to separate Participating Leases. The Participating Leases have an average term of approximately five years, with various expiration dates through 2008, subject to earlier termination upon the occurrence of certain contingencies described in the Participating Leases (including, particularly, irreparable damage or destruction of the hotel, condemnation of the hotel property, failure to meet performance goals, or disposition of the hotel). The variation of the lease terms is intended to provide Patriot protection from the risk inherent in simultaneous lease expirations. In general, each Participating Lease requires the lessee of each hotel to pay the greater of (i) Base Rent in a fixed amount or (ii) Participating Rent based on percentages of room revenue, food and beverage revenue and other revenue at each hotel leased by it, plus certain additional charges. In general, Patriot is responsible for paying (i) real estate and personal property taxes on the hotels (except to the extent that personal property associated with the hotels is owned by the Lessee), (ii) casualty insurance on the hotels, (iii) business interruption insurance on the hotels and (iv) ground rent with respect to certain of the hotels. The lessees (including Wyndham International) are required to pay for all liability insurance on the hotels it leases, with extended coverage, including comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to the hotels, with Patriot as an additional named insured. Patriot carries comprehensive liability, fire, extended coverage and business interruption insurance with respect to all of its hotels, with policy specifications, insured limited and deductibles customarily carried for similar properties. Patriot will carry similar insurance with respect to any other properties developed or acquired in the future. Management of Patriot believes its hotel investments are adequately insured in accordance with industry standards. Generally, the inventory required in the operation of the hotels is transferred to the Lessee upon acquisition of the hotel. Upon termination of the Participating Lease, the Lessee is obligated to surrender the related hotel together with all such inventory to Patriot. FRANCHISE AND BRAND AFFILIATIONS As of December 31, 1997, all but four of Patriot's hotels are operated under franchise or brand affiliations with nationally recognized hotel companies. Franchisors and brand operators provide a variety of benefits for hotels which include national advertising, publicity and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards and centralized reservation systems. The hotel lessee is the licensee under the franchise agreement related to such hotel. The hotel lessee is responsible for making all payments under the franchise agreements to the franchisors. Franchise royalties and fees generally range from 1% to 10% of room revenue. The duration of the franchise agreements are varied, but generally may be terminated upon prior notice and/or upon payment of certain specified fees. However, the hotel lessees are not entitled to terminate the franchise license for a hotel without prior written consent of Patriot. 16 The franchise licenses generally specify certain management, operational, record keeping, accounting, reporting and marketing standards and procedures with which the hotel lessee must comply. The franchise licenses obligate the hotel lessee to comply with the franchisors' standards and requirements with respect to training of operational personnel, safety, maintaining specified insurance, the types of services and products ancillary to guest room services that may be provided by the lessees, display of signage, and the type, quality and age of furniture, fixtures and equipment included in guest rooms, lobbies and other common areas. Compliance with such standards may from time to time require significant expenditures for capital improvements. The franchisors have agreed that upon the occurrence of certain events of default by a lessee under a franchise license, the franchisors will transfer the franchise license for the hotel to Patriot (or its designee) or make other arrangements to continue the hotel as part of the franchisor's system. The lessees' rights related to branded hotels are generally contained in the management agreements related to such hotels. The lessees do not pay additional franchise royalties or fees other than those specified in the management agreements for use of the brands. Generally, the lessees' rights to use the brands terminate upon any termination of the applicable management agreement. MANAGEMENT OF THE HOTELS The Lessees (including Wyndham International) have entered into management contracts with the Operators to operate and manage each of the hotels leased from Patriot. As of December 31, 1997, 31 of Patriot's hotels were managed by operators affiliated with Wyndham International (as of March 25, 1998, 68 of Patriot's hotels were managed by operators affiliated with Wyndham International). The management agreements provide for management fees based upon a percentage of total revenue at each of the hotels managed by them. The management fees generally range from 1% to 5% of total revenues. Generally, in the event of the termination of any of the Participating Leases with the hotel lessees, the related management agreement also terminates. Generally, the management agreements also provide for the subordination of certain management fee payments to the Lessees' obligations pursuant to the Participating Leases. MAINTENANCE AND IMPROVEMENTS The Participating Leases obligate Patriot to establish annually a reserve for capital improvements at the hotels leased to the Lessees (including the periodic replacement and refurbishment of furniture, fixtures and equipment ("FF&E")). Patriot and the Lessees agree on the use of funds in these reserves, and Patriot has the right to approve the Lessees' annual and long-term capital expenditure budgets. The aggregate minimum amount of such reserves average 4.0% of total revenue for the hotels. Patriot, at its election, may chose to expend more than 4.0% on any hotel. Any unexpended amounts will remain the property of Patriot upon termination of the Participating Leases. Otherwise, the Lessees are required, at their own expense, to make repairs (other than capital repairs) which may be necessary and appropriate to keep their leased hotels in good order and repair. BAY MEADOWS RACECOURSE The Bay Meadows Racecourse is a horse race track located on approximately 174 acres of land in San Mateo, California which is used for Thoroughbred racing. The principal Racecourse facilities include (i) the main one-mile dirt horse race track with six furlongs and one and one-quarter mile chutes, inside of which is a seven furlong turf course; (ii) the main structure which contains a grandstand, a clubhouse and a turf club; (iii) a parking area; and (iv) a barn and stable area situated on the track's infield area. In connection with the Cal Jockey Merger, Patriot sold substantially all of the land related to the Racecourse to an affiliate of PaineWebber Incorporated ("Paine Webber") for a purchase price of approximately $80.9 million (the "PaineWebber Land Sale"). Patriot retained ownership of the improvements located on the land, including the Racecourse and its related facilities. Simultaneously with the consummation of the PaineWebber Land Sale, the PaineWebber affiliate and Patriot entered into a ground lease covering a portion of the land on which the Racecourse is situated for a term of seven years. The lease provides for quarterly rental payments (starting at $750,000 and escalating to $1,250,000 over the term of the lease) Patriot has subleased the Racecourse land and leased the related improvements to Wyndham International in order to permit Wyndham International to continue horse racing operations at the Racecourse through the term of Patriot's lease. The sublease is for a term of seven years with annual payments due 17 based on percentages of revenue generated. In addition, Patriot has leased certain land adjacent to the Racecourse to Borders, Inc. for an initial term of 20 years (with fixed net annual rent starting at $279,000 and escalating to $416,000 over the term of the lease). In connection with the sale, Patriot assigned all of its rights and benefits under existing leases, contracts, permits and entitlements related to the land sold (excluding the Borders Lease) to the PaineWebber affiliate, and the PaineWebber affiliate assumed substantially all of Patriot's development obligations including, but not limited to, all obligations for on and off-site improvements and all obligations under existing lease contracts. The parties have the option to renew such leases upon their expiration under certain circumstances. ITEM 3. LEGAL PROCEEDINGS Except as described below, the Patriot, Wyndham International and their respective subsidiaries are currently not subject to any material legal proceedings or claims nor, to management's knowledge, are any material legal proceedings or claims currently threatened. On April 14, 1997, an action styled Kwalbrun v. James D. Carreker, et. al., was filed in the Delaware Court of Chancery in and for New Castle County (the "Wyndham Stockholders' Litigation"), purportedly as a class action on behalf of the Old Wyndham stockholders, against Old Wyndham, Old Patriot and the members of the Board of Directors of Old Wyndham. The complaint alleged that the Old Wyndham Board of Directors breached its fiduciary duties owed to Old Wyndham's public stockholders in connection with the Board of Directors' approval of the Wyndham Acquisition. In particular, the complaint alleged that the Wyndham Merger was negotiated at the expense of Old Wyndham's public stockholders, and that the Old Wyndham Board of Directors permitted Old Patriot to negotiate on more favorable terms the acquisition of certain hotels from members and affiliates of the Trammell Crow family (the "Crow Assets Acquisition"). Old Patriot is alleged to have knowingly aided and abetted the alleged breach of fiduciary duties. The complaint sought to enjoin, preliminarily and permanently, consummation of the Wyndham Merger and the Crow Assets Acquisition under the terms presently proposed and also sought unspecified damages. The parties to the Wyndham Stockholders' Litigation have entered into a Memorandum of Understanding, as amended, which sets forth the principal bases for settlement which included providing certain additional disclosures to the stockholders of Old Wyndham, Patriot and Wyndham International related to the Wyndham Merger. The Memorandum of Understanding, as amended, and the proposed settlement are contingent upon execution of an appropriate and satisfactory Stipulation of Settlement (the "Stipulation") and related documents, and the approval of the Delaware Court of Chancery. It is currently anticipated that the parties to the Memorandum of Understanding, as amended, will enter into the formal Stipulation and present such Stipulation to the Delaware Court of Chancery for approval during the second quarter of 1998. The Lessees and the Operators have advised Patriot that they currently are not involved in any material litigation, other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 31, 1997, Patriot, Patriot Operating Company and Wyndham held their stockholder meetings to, among other things, approve the merger of Wyndham into Patriot. At the Patriot stockholders meeting, the following votes were cast by stockholders: (i) Approval of Wyndham Merger For 48,244,283; Against 125,578; and Abstain 160,582; (ii) Approval of the amendment to the pairing agreement between Patriot and Patriot Operating Company For 48,241,349; Against 117,195; and Abstain 171,899; and (iii) Approval of the amendment and restatement of the Certificate of Incorporation For 48,218,580; Against 120,761 and Abstain 191,102. At the Patriot Operating Company stockholders meeting, the following votes were cast by stockholders: (i) Approval of Wyndham Merger For 48,240,549; Against 116,674; and Abstain 173,220; (ii) Approval of the amendment to the pairing agreement between Patriot and Patriot Operating Company For 48,233,413; Against 123,566; and Abstain 173,464; and (iii) Approval of the amendment and restatement of the Certificate of Incorporation For 48,219,711; Against 131,904 and Abstain 178,818. 18 PART II ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION On July 1, 1997, Old Patriot merged with and into Cal Jockey and Cal Jockey changed its name to Patriot American Hospitality, Inc. The Cal Jockey Merger was accounted for as a reverse acquisition and, consequently, the historical financial information of Old Patriot became the historical financial information of Patriot. The following table sets forth the quarterly high and low sale prices per share as reported on the New York Stock Exchange ("NYSE") of Old Patriot Common Stock (symbol "PAH") through July 1, 1997, and the distributions paid by Old Patriot with respect to each such period. From and after July 2, 1997, the following table sets forth the quarterly high and low sale prices per share of the Paired Shares as reported on the NYSE (symbol "PAH"). The sale prices and distributions in the table through July 1, 1997 have been adjusted to reflect (i) Old Patriot's 2-for-1 stock split in March 1997, (ii) the conversion of each share of Old Patriot Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and (iii) the Companies' 1.927- for-1 stock split in July 1997.
Per Share High (1) Low (1) Dividend (1) ------------------ ---------------- ------------------ 1996: First Quarter............................................. $14.44 $12.88 $ 0.2400 Second Quarter............................................ $14.81 $13.19 $ 0.2400 Third Quarter............................................. $16.81 $14.00 $ 0.2400 Fourth Quarter............................................ $22.00 $16.25 $ 0.2625 1997: First Quarter............................................. $26.38 $20.75 $ 0.2625 Second Quarter............................................ $23.75 $18.50 $ 0.3225 (2) Third Quarter............................................. $32.13 $22.00 $ 0.2625 Fourth Quarter............................................ $34.50 $26.88 $ 0.3200 (3)
- --------------------- (1) Represents shares of Old Patriot Common Stock for periods through July 1, 1997, and Paired Shares for periods after July 1, 1997, except that dividends have been paid only on shares of Patriot Common Stock for periods after July 1, 1997. No dividends have been paid on shares of Wyndham International Common Stock. (2) Dividends paid for the second quarter of 1997 include a special dividend of $0.06 per share paid by Old Patriot on June 30, 1997. To maintain its qualification as a REIT prior to consummation of the Cal Jockey Merger, Old Patriot was required to distribute to its stockholders any undistributed "real estate investment trust taxable income" of Old Patriot for Old Patriot's short taxable year ending with the consummation of the Cal Jockey Merger. (3) On January 5, 1998, Patriot declared a dividend of $0.32 per common share to holders of record as of January 8, 1998. A portion of this dividend will be used to reduce 1997 REIT taxable income of Patriot. HOLDERS As of March 25, 1998, there were approximately 3,500 record holders of the Companies' Paired Shares, including shares held in "street name" by nominees who are record holders, and approximately 26,600 shareholders. DIVIDENDS Patriot intends to continue to make regular quarterly distributions to its shareholders. The Board of Directors, in its sole discretion, determines the actual distribution rate based on a number of factors, including the amount of cash available for distribution, Patriot's financial condition, capital expenditure requirements for Patriot's properties, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code") and such other factors as the Board of Directors deems relevant. Patriot's actual cash available for distribution is affected by a number of factors, including changes in occupancy or ADR at its hotels. 19 On March 23, 1998, the Companies announced that Interstate shareholders receiving Paired Shares in the Interstate Merger will be entitled to receive Patriot's regular quarterly dividend of $0.32 per share for the first quarter of 1998 and will be entitled to participate with all other Patriot shareholders in a special distribution of accumulated earnings and profits from Patriot's acquisition of Old Wyndham. In order to maintain its qualification as a REIT, Patriot must make annual distributions to its shareholders of at least 95% of its taxable income (excluding net capital gains). Under certain circumstances, Patriot may be required to make distributions in excess of cash available for distribution in order to meet such distribution requirements. In such event, Patriot would seek to borrow the amount of the deficiency or sell assets to obtain the cash necessary to make distributions to retain its qualification as a REIT for federal income tax purposes. RECENT SALES OF UNREGISTERED SECURITIES Since September 30, 1997, the Companies have issued equity securities in private placements in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") in the amounts and for the consideration set forth below. In October 1997, the REIT Partnership and the OpCo Partnership each issued 354,951 OP Units (with an aggregate value of approximately $8.3 million) to the sellers of three hotels owned by affiliates of CHC Lease Partners as partial consideration for the acquisition of these hotels by the REIT Partnership. In December 1997, the REIT Partnership and the OpCo Partnership each issued 221,553 OP Units (with an aggregate value of approximately $6.4 million) to the sellers of Wyndham Emerald Plaza as partial consideration for the acquisition of that hotel by the REIT Partnership. In December 1997, the Companies issued 3,250,000 Paired Shares to a financial institution for aggregate consideration of approximately $93.6 million in cash. The sale of the Paired Shares is subject to a price adjustment agreement which matures in December 1998. In February 1998, the Companies issued 4,900,000 Paired Shares to a financial institution for aggregate consideration of approximately $121.8 million in cash. The sale of the Paired Shares is subject to a Purchase Price Adjustment Mechanism which matures in February 1999. ITEM 6. SELECTED FINANCIAL INFORMATION The following tables set forth selected separate and combined historical financial information for Patriot and Wyndham International. The following financial information should be read in conjunction with, and is qualified in its entirety by, the historical financial statements and notes thereto of Patriot and Wyndham International included elsewhere in this Annual Report on Form 10-K. 20 PATRIOT AND WYNDHAM INTERNATIONAL SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
PERIOD OCTOBER 2, 1995 YEAR ENDED DECEMBER 31, (INCEPTION OF --------------------------------------------- OPERATIONS) THROUGH 1997 1996 DECEMBER 31, 1995 -------------------- --------------------- -------------------- (in thousands, except per share data) OPERATING DATA: Total revenue...................................... $ 335,035 $ 76,493 $ 11,095 Income before income tax provision, minority interests and extraordinary item.................. 4,142 44,813 7,064 Income before extraordinary item................... 362 37,991 6,096 Net (loss) income.................................. $ (2,172) $ 37,991 $ 5,359 PER SHARE DATA (1): Basic earnings per share: Income before extraordinary item.................. $ 0.01 $ 1.07 $ 0.21 Extraordinary item, net of minority interests..... (0.05) -- (0.03) ----------- --------- --------- Net (loss) income per Paired Share................ $ (0.04) $ 1.07 $ 0.18 =========== ========= ========= Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18 =========== ========= ========= Dividends per Paired Share (2)..................... $ 1.1675 $ 0.9825 $ 0.24 =========== ========= ========= CASH FLOW DATA: Cash provided by operating activities.............. $ 108,110 $ 61,196 $ 7,618 Cash used in investing activities.................. (1,193,079) (419,685) (306,948) Cash provided by financing activities.............. 1,125,801 360,324 304,099
AS OF DECEMBER 31, ------------------------------------------------------------------ 1997 1996 1995 -------------------- -------------------- -------------------- (in thousands) BALANCE SHEET DATA: Investment in real estate and related improvements and land held for development, at cost, net....... $ 2,044,649 $ 641,825 $ 265,759 Total assets....................................... 2,507,853 760,931 324,224 Total debt......................................... 1,112,337 214,339 9,500 Minority interest in Operating Partnerships........ 220,177 68,562 41,522 Minority interest in consolidated subsidiaries..... 49,694 11,711 -- Stockholders' equity............................... 989,892 437,039 261,778
PERIOD OCTOBER 2, 1995 (INCEPTION OF YEAR ENDED DECEMBER 31, OPERATIONS) ------------------------------------------- THROUGH 1997 1996 DECEMBER 31, 1995 -------------------- -------------------- -------------------- (in thousands) OTHER DATA: Funds from operations (3).......................... $ 111,542 $ 64,463 $ 9,798 Cash available for distribution (4)................ 94,396 55,132 8,603 Weighted average number of common shares and OP Units outstanding (5)............................. 65,981 42,200 34,001
See accompanying notes on page 23. 21 PATRIOT SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD OCTOBER 2, 1995 YEAR ENDED DECEMBER 31, (INCEPTION OF -------------------------------------------- OPERATIONS) THROUGH 1997 1996 DECEMBER 31, 1995 -------------------- -------------------- ------------------- OPERATING DATA: Total revenue...................................... $ 185,554 $ 76,493 $ 11,095 Income before minority interests and extraordinary item.............................................. 3,769 44,813 7,064 Income before extraordinary item................... 382 37,991 6,096 Net (loss) income.................................. $ (2,152) $ 37,991 $ 5,359 PER SHARE DATA (1): Basic earnings per share: Income (loss) before extraordinary item........... $ 0.01 $ 1.07 $ 0.21 Extraordinary item, net of minority interests..... (0.05) -- (0.03) ----------- ---------- ---------- Net income (loss) per common share................ $ (0.04) $ 1.07 $ 0.18 =========== ========== ========== Diluted Earnings Per Share......................... $ (0.04) $ 1.06 $ 0.18 =========== ========== ========== Dividends per common share (2)..................... $ 1.1675 $ 0.9825 $ 0.24 =========== ========== ==========
WYNHDAM INTERNATIONAL SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED DECEMBER 31, 1997 ----------------- OPERATING DATA: Total Revenue................................................................................. $ 204,134 Income before income tax provision and minority interests..................................... 373 Net loss...................................................................................... $ (20) PER SHARE DATA (1): Basic earnings per share...................................................................... $ -- ================= Diluted earnings per share.................................................................... $ -- ================= Dividends per common share (2)................................................................ $ -- =================
See accompanying notes on following page. 22 NOTES TO PATRIOT AND WYNDHAM INTERNATIONAL SELECTED FINANCIAL INFORMATION (1) On January 30, 1997, the Old Patriot Board of Directors declared a 2-for-1 stock split effected in the form of a stock dividend on March 18, 1997 to stockholders of record on March 7, 1997. On July 1, 1997, by operation of the Cal Jockey Merger, each issued and outstanding share of Old Patriot Common Stock was converted into 0.51895 Paired Shares. In addition, on July 10, 1997, the respective Boards of Directors of Patriot and Wyndham International declared a 1.927-for-1 stock split on their shares of common stock effected in the form of a stock dividend distributed on July 25, 1997 to stockholders of record on July 15, 1997. All references herein to the number of shares, per share amounts and market prices of the Paired Shares and options to purchase Paired Shares have been restated to reflect the impact of the Cal Jockey Merger and the above-described stock splits, as applicable. In addition, in February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("Statement 128"). Statement 128 specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. The weighted average number of shares and earnings per share amounts presented herein have been restated to reflect the impact of Statement 128. (2) Dividends paid for the year ended December 31, 1997 include a special dividend of $0.06 per share paid by Old Patriot on June 30, 1997. To maintain its qualification as a REIT prior to consummation of the Cal Jockey Merger, Old Patriot was required to distribute to its stockholders any undistributed "real estate investment trust taxable income" of Old Patriot for Old Patriot's short taxable year ending with the consummation of the Cal Jockey Merger. No dividends have been paid by Wyndham International for the six months ended December 31, 1997. (3) In accordance with the resolution adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), funds from operations ("FFO") represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains or losses from debt restructuring or sales of property, plus depreciation of real property, and after adjustments for unconsolidated partnerships, joint ventures and corporations. Adjustments for Patriot's unconsolidated subsidiaries are calculated to reflect FFO on the same basis. Patriot and Wyndham International have also made certain adjustments to FFO for real estate related amortization expense and the write off of certain costs of acquiring leaseholds. FFO should not be considered as an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Under the Participating Leases, Patriot is obligated to establish a reserve for capital improvements at its hotels (including the replacement or refurbishment of FF&E) and to pay real estate and personal property taxes and casualty insurance. Management believes that FFO is helpful to investors as a measure of performance of an equity REIT, because, along with cash flows from operating activities, investing activities and financing activities, it provides investors with an understanding of the ability of Patriot and Wyndham International to incur and service debt and to make capital expenditures. (4) Cash available for distributions represents FFO, as adjusted for certain non-cash items (e.g., non-real estate related depreciation and amortization), less reserves for capital expenditures. (5) The number of limited partnership units of the Operating Partnerships ("OP Units") used in the calculation is based on the equivalent number of Paired Shares issuable upon redemption (after giving effect to the change in the OP Unit conversion factor which coincides with the 2-for-1 stock split, the conversion of shares in the Cal Jockey Merger and the 1.927-for-1 stock split). 23 ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Form 10-K constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (the "Act"). The words "believe", "expect", "anticipate", "intend", "estimate" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and to note that they speak only as of the date hereof. Although forward-looking statements reflect management's good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievement of the Companies to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The Companies undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Certain factors that might cause a difference include, but are not limited to, risks associated with the Companies' rapid growth and its ability to integrate its existing operations, departments and systems with those acquired in the Wyndham Merger and the WHG Merger and those being acquired in the Interstate Merger; risks associated with the adoption of legislation, regulations or administrative interpretations which could adversely affect the Companies' paired share structure; Patriot's dependence upon rental payments from Wyndham International and the Lessees for substantially all of Patriot's income and the dependence upon the abilities of Wyndham International, the Lessees and the Operators (as such terms are defined herein) to manage the hotels; risks associated with the hotel industry and real estate markets in general; and risks associated with debt financing. BACKGROUND ORGANIZATION The entity formerly known as Patriot American Hospitality, Inc. (collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was formed April 17, 1995 as a self-administered real estate investment trust ("REIT") for the purpose of acquiring equity interests in hotel properties. On October 2, 1995, Old Patriot completed an initial public offering (the "Initial Offering") of 29,210,000 shares of its common stock and commenced operations. On July 1, 1997, Old Patriot merged with and into California Jockey Club ("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal Jockey Merger"). Cal Jockey's shares of common stock are paired and trade together with the shares of common stock of Bay Meadows Operating Company ("Bay Meadows") as a single unit pursuant to a stock pairing agreement. In connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot American Hospitality Operating Company" (collectively with its subsidiaries, "Patriot Operating Company"). Subsequent to year end, as a result of the merger of Wyndham Hotel Corporation with and into Patriot as discussed below, Patriot Operating Company changed its name to Wyndham International, Inc. and is referred to herein, collectively with its subsidiaries, as "Wyndham International". The term "Companies" as used herein includes Patriot, Wyndham International and their respective subsidiaries. The Cal Jockey Merger has been accounted for as a reverse acquisition whereby Cal Jockey is considered to be the acquired company for accounting purposes. Consequently, the historical financial information of Old Patriot became the historical financial information for Patriot. For accounting purposes, Wyndham International commenced its operations concurrent with the closing of the Cal Jockey Merger on July 1, 1997. The financial statements have been adjusted for the purchase method of accounting whereby the Bay Meadows Racecourse ("Racecourse") facilities and related leasehold improvements owned by Cal Jockey and Bay Meadows have been adjusted to estimated fair market value. The excess purchase consideration over the estimated fair market value of the assets acquired and the liabilities assumed was recorded as goodwill. By operation of the Cal Jockey Merger, each issued and outstanding share of common stock, no par value per share of Old Patriot ("Old Patriot Common Stock") was converted into 0.51895 shares of common stock, par value $0.01 per share of Patriot ("Patriot Common Stock") and 0.51895 shares of common stock, par value $0.01 per share of Wyndham International ("Wyndham International Common Stock"), which shares are paired and transferable only as a single unit (collectively, shares of Patriot Common Stock and shares of Wyndham International Common Stock are referred to herein as the "Paired Shares"). Each paired share of Cal Jockey and 24 Bay Meadows common stock remained outstanding and represented the same number of Paired Shares of Patriot Common Stock and Wyndham International Common Stock. In connection with the Cal Jockey Merger, Bay Meadows formed an operating partnership, Patriot American Hospitality Operating Company Partnership, L.P. (the "OpCo Partnership") into which Bay Meadows contributed its assets in exchange for units of limited partnership interest ("OP Units") of the OpCo Partnership, and Cal Jockey contributed certain of its assets to Patriot American Hospitality Partnership, L.P. (the "REIT Partnership") in exchange for OP Units of the REIT Partnership (collectively, the OpCo Partnership and the REIT Partnership are referred to herein as the "Patriot Partnerships"). Subsequent to completion of the Cal Jockey Merger and the transactions contemplated by the Cal Jockey Merger Agreement, substantially all of the operations of Patriot and Wyndham International have been conducted through the Patriot Partnerships and their subsidiaries. In connection with the Cal Jockey Merger, Patriot and Wyndham International increased the total number of shares authorized. The amounts of authorized shares of Patriot and Wyndham International are as follows: (i) 100 million shares of preferred stock, (ii) 650 million shares of common stock, and (iii) 750 million shares of excess stock (as defined in the amended and restated charters of Patriot and Wyndham International). THE COMPANIES As of December 31, 1997, Patriot, through the REIT Partnership, PAH Ravinia, Inc. ("PAH Ravinia"), PAH Windwatch, L.L.C. ("PAH Windwatch") and other subsidiaries, owned interests in 91 hotels with an aggregate of over 23,300 guest rooms. The hotels are diversified by franchise or brand affiliation and serve primarily major U.S. business centers, including Atlanta, Boston, Chicago, Cleveland, Dallas, Denver, Houston, Los Angeles, Miami, Minneapolis, New York, San Diego, 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 and prominent hotels in major tourist destinations. The hotels include 81 full service hotels, five resort hotels, four limited service hotels and an executive conference center. All but four of the hotels are operated under franchise or brand affiliations with nationally recognized hotel companies. Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are separately owned through special purpose entities, to Wyndham International or to third party lessees (the "Lessees") who are responsible for operating the hotels. As of December 31, 1997, 55 hotels were leased to Wyndham International and its affiliates and 34 hotels were leased to the Lessees. Patriot leased 17 of its hotel investments to CHC Lease Partners for staggered terms of ten to twelve years pursuant to separate participating leases providing for the payment of the greater of base or participating rent, plus certain additional charges, as applicable (the "Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels, L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. In addition, DTR North Canton, Inc. (the "Doubletree Lessee") leased four hotels; and Metro Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel under similar Participating Lease agreements. The Lessees, in turn, have entered into separate agreements with hotel management entities (the "Operators") to manage the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel acquisitions were structured without lessees and are managed directly by Operators (as of December 31, 1997, Holiday Inns, Inc. and Wyndham Hotel Corporation, respectively). Wyndham International manages 31 of its hotels through certain of its hotel management subsidiaries and has entered into separate management agreements with hotel Operators to manage 24 of its hotels. In addition to leasing and managing hotels, Wyndham International is also engaged 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, Wyndham International 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. The Racecourse also 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. INVESTMENTS IN PROPERTIES During the year ended December 31, 1997, Patriot acquired 41 hotels and four resort properties for approximately $1.3 billion. These acquisitions were financed primarily with funds drawn on the Companies' 25 revolving credit facility (and, prior to the Cal Jockey Merger, Old Patriot's line of credit facility), a $350 million term loan, the issuance of 5,629,172 OP Units valued at approximately $130 million, the issuance of 1,719,535 Paired Shares valued at approximately $38.5 million, the placement of approximately $237 million in new mortgage debt and the assumption of other mortgage debt in the amount of approximately $34.3 million. In July 1997, Patriot sold approximately 174 acres of land in San Mateo, California, representing substantially all of the land which was owned by Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber Incorporated ("PaineWebber") for a purchase price of approximately $80.9 million (the "PaineWebber Land Sale"). These funds were placed in a restricted trust account in order to facilitate a tax-deferred, like-kind exchange through the acquisition of suitable hotel properties. During 1997, six suitable hotels were acquired using the proceeds from this restricted account. Patriot retained ownership of the improvements located on the land, including the Racecourse and its related facilities. Simultaneous with the consummation of the PaineWebber Land Sale, the PaineWebber affiliate and Patriot entered into a ground lease covering a portion of the land on which the Racecourse is situated for a term of seven years. Patriot has subleased the Racecourse land and leased the related improvements to Wyndham International in order to permit Wyndham International to continue horseracing operations at the Racecourse through the term of Patriot's lease. The sublease is for a term of seven years with annual payments based on percentages of revenue generated. In connection with the sale, Patriot assigned substantially all of its rights and benefits under existing leases, contracts, permits and entitlements relating to the land sold to the PaineWebber affiliate, and the PaineWebber affiliate assumed substantially all of Patriot's development obligations including, but not limited to, all obligations for on and off-site improvements and all obligations under existing lease and contracts. Pursuant to the agreement, Patriot is obligated to fund up to $10.25 million of development costs for new stables ($4 million of which Patriot has funded). The parties have the option to renew such leases upon their expiration under certain circumstances. In August 1997, Wyndham International purchased a participating loan from National Resort Ventures, L.P., a Delaware limited partnership, related to the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for approximately $23.75 million in cash. The Buena Vista Palace Hotel was owned by a joint venture between Equitable Life Insurance Company, which owns a 55% interest and Hotel Venture Partners, Ltd., a Florida limited partnership ("HVP"), which owns a 45% interest. The loan is subordinated to a ground lease and a $50.3 million first leasehold mortgage loan. Patriot acquired an aggregate 95% equity interest in the hotel in January 1998 (see discussion below in "1998 Acquisitions and Mergers"). In June 1997, Patriot loaned approximately $20.5 million to a partnership affiliated with members of CHC Lease Partners relating to the Doubletree Hotel in Glenview, Illinois. In July 1997, Patriot loaned approximately $25.6 million to another partnership affiliated with members of CHC Lease Partners, relating to the Sheraton Gateway Hotel in Miami (also known as the Sheraton River House Hotel). Additionally, Patriot purchased two additional loans from a financial institution on which partnerships affiliated with the members of CHC Lease Partners were borrowers for an aggregate purchase price of $57 million. Each of the four mortgage loans is secured by first priority liens on the respective hotels. In connection with such loans, Patriot entered into a short-term financing arrangement (the "Paine Webber Mortgage Financing") with an affiliate of Paine Webber Real Estate Securities, Inc. ("Paine Webber Real Estate") whereby such affiliate loaned Patriot $103 million to fund these transactions. In September and October 1997, Patriot, through the REIT Partnership and certain other subsidiaries, acquired the partnerships that own these four hotels. BUSINESSES ACQUIRED In August 1997, the Companies acquired Grand Heritage Hotels, Inc. a hotel management and marketing company, and other Grand Heritage subsidiaries including Grand Heritage Leasing, L.L.C., which leased three hotels from Patriot (the "Grand Heritage Acquisition"). The total purchase price for the Grand Heritage Acquisition was approximately $22.5 million which was financed primarily through the issuance of 931,972 Class A preferred OP Units of the OpCo Partnership. Grand Heritage Hotels, Inc., directly and through certain of its subsidiaries, owns 17 management contracts, five of which are related to hotels leased by Wyndham International. Effective September 1, 1997, Patriot acquired the leasehold interests related to seven Patriot hotels which were previously leased by CHC Lease Partners and re-leased such hotels to Wyndham International. Prior to such acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate of CHC International, Inc. ("CHCI") and the Gencom American Hospitality group of companies ("Gencom"), along with the leaseholds related to the 26 seven hotels were terminated. In a related transaction effective October 1, 1997, Patriot acquired one additional leasehold interest related to a Patriot hotel previously leased to CHC Lease Partners and re-leased such hotel to Wyndham International (and the hotel's management contract with CHCI was also terminated prior to the acquisition). The aggregate purchase price of the eight leasehold interests was approximately $52.8 million. Concurrently, Wyndham International purchased an approximate 50% managing, controlling ownership interest in GAH from affiliates of Gencom for a purchase price of approximately $13.9 million. These transactions were financed with approximately $644,000 of cash, and by issuing 2,388,932 paired OP Units of the REIT Partnership and the OpCo Partnership and 476,682 preferred OP Units of the OpCo Partnership. GAH, directly and through certain of its subsidiaries, owns 16 third-party management contracts, and certain other hospitality management assets. Concurrent with Wyndham International's purchase of its controlling interest in GAH, Wyndham International also entered into a Hospitality Advisory, Asset Management and Support Services Agreement with CHCI and GAH whereby Wyndham International will provide certain hospitality advisory, asset management and support services to certain CHCI and GAH subsidiaries for base fee aggregating approximately $750,000 per month plus a percentage of excess cash flows of the hotels. STOCK SPLIT On January 30, 1997, the Board of Directors of Old Patriot declared a 2-for-1 stock split on its shares of common stock effected in the form of a stock dividend distributed on March 18, 1997 to shareholders of record on March 7, 1997. On July 10, 1997, the respective Boards of Directors of Patriot and Wyndham International declared a 1.927-for-1 stock split on its shares of common stock effected in the form of a stock dividend distributed on July 25, 1997 to shareholders of record on July 15, 1997. Unless otherwise indicated, all references herein to the number of shares, per share amounts, and market prices of the common stock and options to purchase common stock have been restated to reflect the impact of the conversion of each share of Old Patriot Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and to reflect the impact of the 1.927-for-1 stock split. In addition, all references herein to the number of shares, per share amounts, and market prices of the common stock and options to purchase common stock related to periods prior to Old Patriot's 2-for-1 stock split distributed in March 1997 have been restated to reflect the impact of such stock split. As a result of Old Patriot's 2-for-1 stock split in March 1997, the Cal Jockey Merger and the 1.927-for-1 stock split in July 1997, the number of OP Units outstanding and the OP Unit conversion factor has been adjusted to re-establish a 1-for-1 exchange ratio of OP Units to common shares. PATRIOT AMERICAN HOSPITALITY, INC. Results of Operations: Quarter Ended December 31, 1997 Compared with Quarter Ended December 31, 1996 Patriot's Participating Lease revenue from the Lessees (including Wyndham International) for the three months ended December 31, 1997, increased 159% from $23,158,000 in 1996 to $59,889,000 in 1997. This increase is primarily due to the acquisition of 45 hotel properties during 1997. Patriot owns 91 hotel properties as of December 31, 1997 including two hotels that are separately owned through special purpose entities. Interest and other income increased from $188,000 in 1996 to $888,000 in 1997 which is primarily attributable to additional investments in mortgage notes receivable and interest and dividend income earned on cash investments. Additionally, for the three months ended December 31, 1997, Patriot reported $1,469,000 of income related to the lease of the Racecourse facility and land to Wyndham International. For the three months ended December 31, 1997 as compared to the same period for 1996, Patriot experienced similar increases in expenses as a result of the acquisition of hotels discussed above. 27 General and administrative expenses were $3,575,000 for the three months ended December 31, 1997, compared to $1,227,000 for 1996. General and administrative expenses include the amortization of unearned stock compensation of $1,374,000 for 1997 and $438,000 for 1996. Additionally, Patriot incurred expenses of $90,000 in 1997 (none in 1996) associated with evaluating properties and companies to be acquired which were ultimately not purchased. Ground lease expense increased from $364,000 to $2,124,000 for the three months ended December 31, 1996 compared to the same period in 1997 as a result of acquisition of properties subject to existing ground leases. Real estate and personal property taxes and casualty insurance were $6,739,000 for the three months ended December 31, 1997, compared to $2,698,000 for the three months ended December 31, 1996. Interest expense for the three months ended December 31, 1997 was $19,023,000 compared to $2,899,000 in 1996. Patriot's outstanding debt obligations as of December 31, 1997 and 1996 were approximately $1,112,337,000 and $214,339,000, respectively. The primary components of interest expense for the three months ended December 31, 1997 are $10,325,000 of interest related to the Revolving Credit Facility and Term Loan, $6,419,000 of interest on mortgage notes and the Old Line of Credit, $1,416,000 of amortization of deferred financing costs and $863,000 of other interest related to other miscellaneous notes and commitments payable. Interest expense for the three months ended December 31, 1996 consists primarily of $2,587,000 of interest on the Old Line of Credit, $158,000 of amortization of deferred financing costs and $154,000 of other interest related to other miscellaneous notes and commitments payable. Additionally, Patriot capitalized interest totaling $1,064,000 and $91,000 for the three months ended December 31, 1997 and 1996, respectively, associated with major renovations of certain hotel properties. In connection with Patriot's acquisition of eight leasehold interests in 1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot recognized expense of $10,679,000 related to the cost of acquiring these leasehold interests. Depreciation and amortization expense was $18,413,000 for the three months ended December 31, 1997 compared to $5,792,000 for the same period in 1996. Patriot's share of income from unconsolidated subsidiaries was $1,527,000 for the fourth quarter of 1997 compared to $1,468,000 for the fourth quarter of 1996. Minority's interest share of income in the REIT Partnership was $519,000 and $1,625,000 for the three months ended December 31, 1997 and 1996, respectively. Minority's interest share of income in Patriot's other consolidated subsidiaries was $306,000 for the fourth quarter of 1997 and $53,000 for the fourth quarter of 1996. As a result, the net income applicable to common shareholders was $2,395,000 for the three months ended December 31, 1997 and $10,156,000 for the three months ended December 31, 1996. Results of Operations: Year Ended December 31, 1997 Compared with Year Ended December 31, 1996 Patriot's Participating Lease revenue from the Lessees (including Wyndham International) for the year ended December 31, 1997 increased 134% from $75,893,000 in 1996 to $177,659,000 in 1997. This increase is primarily due to the acquisition of 45 hotel properties during 1997. Patriot owns 91 hotel properties as of December 31, 1997 including two hotels that are separately owned through special purpose entities. Interest and other income increased from $600,000 in 1996 to $5,103,000 in 1997 which is primarily attributable to additional investments in mortgage notes receivable and interest and dividend income earned on cash investments. Additionally for the year ended December 31, 1997, Patriot reported $2,792,000 of income related to the lease of the Racecourse facility and land to Wyndham International. For the year ended December 31, 1997 as compared to the same period for 1996, Patriot experienced similar increases in expenses as a result of the acquisition of hotels discussed above. General and administrative expenses were $11,157,000 for the year ended December 31, 1997, compared to $4,500,000 for 1996. General and administrative expenses include the amortization of unearned stock 28 compensation of $4,686,000 for 1997 and $1,068,000 for 1996. Additionally, Patriot incurred expenses of $1,068,000 in 1997 and $173,000 in 1996 associated with evaluating properties and companies to be acquired which were ultimately not purchased. Ground lease expense increased from $1,075,000 to $4,117,000 for the year ended December 31, 1996 compared to the same period in 1997. Real estate and personal property taxes and casualty insurance were $17,958,000 for the year ended December 31, 1997, compared to $7,150,000 for the year ended December 31, 1996. Interest expense for the year ended December 31, 1997 was $51,000,000 compared to $7,380,000 in 1996. Patriot's outstanding debt obligations as of December 31, 1997 and 1996 were approximately $1,112,337,000 and $214,339,000, respectively. The primary components of interest expense for the year ended December 31, 1997 are $33,750,000 of interest related to the Revolving Credit Facility and Term Loan, $12,585,000 of interest on mortgage notes and the Old Line of Credit, $2,581,000 of amortization of deferred financing costs and $2,084,000 of other interest related to other miscellaneous notes and commitments payable. Interest expense for the year ended December 31, 1996 consists primarily of $6,755,000 of interest on the Old Line of Credit, $431,000 of amortization of deferred financing costs and $194,000 of other interest related to other miscellaneous notes and commitments payable. Additionally, Patriot capitalized interest totaling $2,562,000 and $91,000 for the year ended December 31, 1997 and 1996, respectively, associated with major renovations of certain hotel properties. In connection with Patriot's acquisition of eight leasehold interests in 1997 for hotels that Patriot owns and leased to CHC Lease Partners, Patriot recognized expense of $54,499,000 related to the cost of acquiring these leasehold interests. Depreciation and amortization expense was $49,069,000 for the year ended December 31, 1997, compared to $17,420,000 for the same period in 1996. Patriot's share of income from unconsolidated subsidiaries was $6,015,000 for the year ended December 31, 1997, compared to $5,845,000 in 1996. Minority's interest share of income in the REIT Partnership was $1,713,000 and $6,767,000 for the year ended December 31, 1997 and 1996, respectively. Minority's interest share of income in Patriot's other consolidated subsidiaries was $1,674,000 in 1997 and $55,000 in 1996. Concurrent with the repayment of the Old Line of Credit, Patriot wrote off the remaining balance of unamortized deferred financing costs associated with the Old Line of Credit in the amount of $2,910,000. This amount, net of $376,000 of minority interest share of the net loss, has been reported as an extraordinary item. As a result, net loss was $2,152,000 for the year ended December 31, 1997, compared to net income of $37,991,000 for the year ended December 31, 1996. Results of Operations: Year Ended December 31, 1996 Compared with the Period October 2, 1995 (inception of operations) through December 31, 1995 Old Patriot completed its initial public offering of common stock on October 2, 1995 and commenced operations with the acquisition of 20 hotels. Because 1995 was a short fiscal year for Patriot, the operating results for the year ended December 31, 1996 are not directly comparable to 1995. For the year ended December 31, 1996, Patriot's Participating Lease revenue from the Lessees was $75,893,000, compared $10,582,000 in 1995. Interest and other income was $600,000 for the year ended December 31, 1996, compared to $513,000 in 1995. In 1995, interest and other income consisted primarily of interest earned on invested cash balances resulting from the net proceeds of the initial public offering. For the year ended December 31, 1996 as compared to the period October 2, 1995 (inception of operations) through December 31, 1995, Patriot experienced similar increases in expenses as a result of the short fiscal year for Patriot in 1995, as discussed above. 29 General and administrative expenses were $4,500,000 for the year ended December 31, 1996, compared to $607,000 for 1995. General and administrative expenses include the amortization of unearned stock compensation of $1,068,000 for 1996 and $71,000 for 1995. Ground lease expense totaled $1,075,000 in 1996 (none in 1995). Real estate and personal property taxes and insurance was $7,150,000 for 1996, compared to $901,000 for 1995 Patriot reported $7,380,000 of interest expense for the year ended December 31, 1996, compared to $89,000 in 1995. Patriot's outstanding debt obligations as of December 31, 1996 and 1995 were approximately $214,339,000 and $9,500,000, respectively. Interest expense in 1996 consisted primarily of $6,755,000 of interest incurred on the Revolving Credit Facility, the Old Line of Credit and mortgage note balances outstanding and $431,000 of amortization of deferred financing costs. Interest expense in 1995 consisted of $62,000 of interest incurred on the Old Line of Credit balance and $27,000 of amortization of deferred financing costs. Depreciation and amortization expense was $17,420,000 for 1996, compared to $2,590,000 for 1995. Patriot's share of income from unconsolidated subsidiaries was $5,845,000 in 1996, compared to $156,000 in 1995. Minority interest's share of income of the REIT Partnership was $6,767,000 for the year ended December 31, 1996, compared to $968,000 in 1995. Minority interest's share of income of other consolidated Patriot subsidiaries was $55,000 for 1996 (none in 1995). Patriot reported extraordinary losses in 1995 totaling $737,000 (net of the minority interest share of the loss) related to the pay-off of assumed mortgage debt on hotel properties acquired. As a result, net income was $37,991,000 for the year ended December 31, 1996, compared to net income of $5,359,000 for the period October 2, 1995 (inception of operations) through December 31, 1995. WYNDHAM INTERNATIONAL, INC. As of December 31, 1997, Wyndham International (formerly known as Patriot Operating Company, or, prior to the Cal Jockey merger, Bay Meadows) leases 55 hotels from Patriot, managing 31 of those hotels, and manages 12 hotels for third parties. In addition, Wyndham International operates the Bay Meadows Racecourse. Subsequent to the Cal Jockey Merger in July 1997, the major portion of the revenues of Wyndham International and Patriot have been derived from the leasing and operation of hotels. Results of Operations: Six Months Ended December 31, 1997 Concurrent with the closing of the Cal Jockey Merger, Wyndham International began leasing four hotels from the REIT Partnership and commenced its hotel management operations on July 1, 1997. During the remainder of the period Wyndham International acquired the leases for 51 additional Patriot hotels. In addition, Wyndham International acquired the hotel management operations of Grand Heritage Hotels, Inc. and an approximate 50% controlling ownership interest in GAH. For the six months ended December 31, 1997, Wyndham International had room revenues of $95,095,000 from the 55 hotels it leased during the period. Food and beverage and telephone and other revenues were $72,632,000 for the period. In addition, Wyndham International reported management fee and service fee income of $7,088,000 for the six months ended December 31, 1997. Interest and other income for the period includes $1,103,000 of interest income related to the Subscription Notes. Participating Lease payments and hotel operating expenses were $50,626,000 and $121,184,000, respectively. Direct operating costs of the management company and service department were $1,216,000 for the period. Total revenues from the Racecourse facility operations (including interest and other income) were $26,344,000 for the six months ended December 31, 1997. Total costs and expenses associated with the Racecourse 30 operations (including marketing costs, general and administrative expenses and depreciation and amortization expenses) were $24,245,000 for the six months ended December 31, 1997. Minority interest's share of loss in the OpCo Partnership was $29,000 for the six months ended December 31, 1997. Minority interest's share of loss in Wyndham International's other consolidated subsidiaries was $59,000 in 1997. As a result, the net loss was $20,000 for the six months ended December 31, 1997. STATISTICAL INFORMATION During 1997, Patriot's portfolio of 91 owned hotels experienced strong growth in both average daily rate ("ADR") and revenue per available room ("REVPAR") of approximately 8.9_% and 7.2%, respectively, while occupancy remained relatively stable. Management attributes this growth to continued marketing efforts throughout the portfolio on hotels that have been newly renovated, and repositioned in certain cases, as well as to the current strength of market conditions in the U.S. lodging industry. The following table sets forth certain statistical information for Patriot's 91 owned hotels as of December 31, 1997 and 1996 as if the hotels were owned at the beginning of the periods presented.
Occupancy ADR REVPAR ---------------------- --------------------------- -------------------------- 1997 1996 1997 1996 1997 1996 -------- -------- --------- --------- -------- --------- Hotels owned and leased to Wyndham International........................ 69.7% 70.0% $ 103.58 $ 94.61 $ 72.20 $ 66.18 Hotels leased to third party Lessees.. 67.8 70.0 84.68 78.32 57.43 55.15 Unconsolidated subsidiaries........... 69.3 73.0 116.57 113.22 80.76 82.60 -------- -------- --------- --------- -------- --------- Weighted average..................... 61.9% 70.2% $ 98.28 $ 90.22 $ 67.91 $ 63.34
COMBINED LIQUIDITY AND CAPITAL RESOURCES CASH FLOW PROVIDED BY OPERATING ACTIVITIES The Companies' principal source of cash to fund operating expenses and distributions to its shareholders is cash flow provided by operating activities. Patriot's principal source of revenue is rent payments from the Lessees and Wyndham International under the Participating Leases. Wyndham International's principal source of cash flow is from the operation of the hotels it leases. The Lessees' and Wyndham International's ability to make the rent payments to Patriot is dependent upon their ability to efficiently manage the hotels and generate sufficient cash flow from operation of the hotels. Combined cash and cash equivalents as of December 31, 1997 were $47.4 million, including capital improvement reserves of $5 million. Combined cash flows from operating activities of the Companies were $108.1 million for the year ended December 31, 1997, which represent a combination of the collection of rents under Participating Leases with third party Lessees and cash flows generated by the hotels operated by Wyndham International. Cash and cash equivalents for Patriot as of December 31, 1996 was $6.6 million, including capital improvement reserves of $2.5 million. Cash flows from operating activities of Patriot were $61.2 million for the year ended December 31, 1996, which primarily represent the collection of rents under Participating Leases. 31 CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES During 1997, the Companies continued to experience rapid growth through the merger and acquisition of hotel properties and management companies. These transactions were funded with a combination of issuance and or assumption of debt as well as sale of registered and unregistered securities. Combined cash flows used in investing activities of the Companies were $1.2 billion for the year ended December 31, 1997, resulting primarily from the merger and acquisition of hotel properties and management companies and the renovation expenditures at certain hotels. Combined cash flows from financing activities of $1.1 billion for the year ended December 31, 1997 were primarily related to borrowings on the Revolving Credit Facility, the Term Loan and mortgage notes and net proceeds from public and private placement of equity securities, net of payments of dividends and distributions. Patriot's cash flows used in investing activities were $419.7 million for the year ended December 31, 1996, resulting primarily from the acquisition of hotel properties. Cash flows from Patriot's financing activities of $360.3 million for the year ended December 31, 1996 were primarily related to borrowings on the Old Line of Credit and net proceeds from public and private placement of equity securities, net of payments of dividends and distributions. On July 21, 1997, the Companies entered into a revolving credit facility with Paine Webber Real Estate, The Chase Manhattan Bank ("Chase") and certain other lenders for a 3-year unsecured revolving line of credit (the "Revolving Credit Facility"). The original Revolving Credit Facility commitment was in the amount of $700 million. In December 1997, the credit agreement was amended and the commitment amount was increased to $900 million. Borrowings have been made under the Revolving Credit Facility to repay all outstanding amounts under Old Patriot's secured line of credit with Paine Webber Real Estate (the "Old Line of Credit"). The Revolving Credit Facility may also be used for acquisition of additional properties, businesses and other assets, for capital expenditures and for general working capital purposes. The interest rate for the Revolving Credit Facility ranges from LIBOR plus 1.0% to 2.0% (depending on the Companies' leverage ratio or investment grade ratings received from the rating agencies) or the customary alternate base rate announced from time to time plus 0.0% to 0.5% (depending on the Companies' leverage ratio). The weighted average interest rate in effect for the Revolving Credit Facility for the period ended December 31, 1997 was 7.63% per annum. In December 1997, Patriot entered into a $350 million unsecured term loan (the "Term Loan") with Paine Webber Real Estate and Chase which matures January 31, 1999. The Term Loan was used to finance payments made in connection with the acquisition of certain properties and has an interest rate equal to the interest rate on the Revolving Credit Facility. The Companies have entered into three interest rate swap arrangements to swap floating rate LIBOR-based interest rates for fixed rate interest amounts as a hedge against $375 million of the Revolving Credit Facility and Term Loan. Each of the interest rate swaps covers $125 million of borrowings under the Revolving Credit Facility and fixes the LIBOR portion of the Revolving Credit Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The interest rate swap arrangements expire November 2002. In August 1997, the Companies completed a public offering of 10,580,000 Paired Shares of common stock (including 1,380,000 Paired Shares issued upon exercise of the underwriters' over-allotment option). The net proceeds of this offering (less the underwriters' discount and expenses) of approximately $209.8 million were used primarily to reduce the outstanding debt under the Revolving Credit Facility. On November 7, 1997, Patriot entered into two forward sale transactions with The Chase Manhattan Bank in the aggregate principal amount of $275 million. The terms of the transactions provide that on June 2, 1998, either Chase will be obligated to pay Patriot or Patriot will be obligated to pay Chase a cash settlement amount based on the then current yield on 10-year U.S. Treasury Notes. The forward sale transactions cover principal amounts of $175 million with a forward yield of 6.0% and $100 million with a forward yield of 5.995%. If the index price of the securities on June 1, 1998 is greater than the "Forward Price" (which is to be calculated based on the forward yield rate and the economic variables applicable to 10-year U.S. Treasury Notes), Patriot will be obligated to pay Chase a cash settlement amount based on the spread between the index price and the Forward Price times the principal amount. If the index price is less than the Forward Price, Chase will be obligated to pay Patriot a cash settlement amount based on the spread between the index price and the Forward Price times the principal amount. 32 On November 13, 1997, pursuant to a letter agreement dated September 30, 1997, the Companies sold 1,000,033 paired shares to PaineWebber (the "PaineWebber Direct Placement") for a purchase price per paired share of $27.6875, or aggregate consideration of $27.7 million. In addition, pursuant to a letter agreement dated September 30, 1997, the Companies sold 1,000,000 paired shares to LaSalle Advisors Limited Partnership ("LaSalle"), as agent for certain clients of LaSalle (the "LaSalle Direct Placement"), at a purchase price per paired share of $27.625, or aggregate consideration of $27.6 million. On September 30, 1997, the Companies exercised their right to call 2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan Stanley Real Estate Fund, L.P. and certain related entities (the "Morgan Stanley Call"). The exercise price on the Morgan Stanley Call was $25.875 per pair of OP Units. The Morgan Stanley Call was funded with the proceeds of the PaineWebber Direct Placement and the LaSalle Direct Placement. On December 31, 1997, the Companies sold 3,250,000 unregistered Paired Shares to UBS Limited, an English corporation, for a purchase price per Paired Share of $28.8125, or aggregate consideration of approximately $93.6 million. In connection with this private placement, the Companies also entered into an agreement with Union Bank of Switzerland, London Branch ("UBS") which provides for an adjustment of the purchase price of the Paired Shares as of a specific date. Because the Companies must periodically increase their equity base to maintain financial flexibility and continue with their growth strategy, management may utilize private placements of equity, in conjunction with a price adjustment mechanism, as a means for the Companies to raise capital, while also retaining the opportunity to adjust the pricing of the equity issuance during the term of the agreement. The price adjustment agreement with UBS provides that if the aggregate return on the 3,250,000 Paired Shares issued does not exceed the calculated forward yield (which is based upon the three-month LIBOR rate plus 1.40%) as measured from time to time, the Companies will be required to issue to UBS additional Paired Share with a market value equivalent to the yield deficiency. Conversely, if the aggregate return on the issued shares is in excess of the calculated forward yield, a portion of the Paired Shares originally issued by the Companies will be returned. In addition, the Companies are required to register Paired Shares with the Securities and Exchange Commission to settle its obligations under the agreement. Under certain market conditions, UBS has the right to accelerate the settlement of all or a portion of the transaction. The final settlement date is December 31, 1998. As of December 31, 1997, the private placement of Paired Shares is accounted for as equity and any subsequent adjustments in the share price will be reflected as an adjustment to equity. Such early settlements may force the Companies to issue Paired Shares at a depressed price to satisfy their obligation under the Forward Contract. UBS-LB may also accelerate the settlement of the entire transaction upon certain events of default under the Companies' indebtedness. Additionally, in connection with a private placement of 4,900,000 Paired Shares to NMS Services, Inc. ("NMS"), an affiliate of NationsBanc Montgomery Securities LLC, the Companies entered into a Purchase Price Adjustment Mechanism Agreement, dated as of February 26, 1998, with NMS (the "Price Adjustment Agreement"), pursuant to which the parties agreed to adjust the purchase price of the 4,900,000 Paired Shares on or prior to February 26, 1999 by the difference between (i) the market price for the Paired Shares at the time of the settlement and (ii) a reference price (the "Reference Price") based on the closing price for the Paired Shares on February 25, 1998 plus a forward accretion, minus an adjustment to reflect distributions on the Paired Shares during the transaction period (such difference, the "Price Difference"). If the Price Difference is positive, NMS agrees to deliver Paired Shares to the Companies equal in value to the aggregate Price Difference. If the Price Difference is negative, the Companies agree to deliver cash or additional Paired Shares equal in value to the aggregate Price Difference to NMS. In the event that the market price for the Paired Shares at the time of settlement is lower than the Reference Price, the Companies will have to deliver cash or additional Paired Shares to NMS, which would have diluting effects on the equity stock of the Companies. Additionally, under certain adverse market conditions, NMS has the right to accelerate the settlement of all or a portion of the obligation under the Price Adjustment Agreement. Such early settlements may force the Companies to issue Paired Shares at a depressed price, which may heighten the diluting effects. NMS may also accelerate the settlement of the entire transaction upon certain events of default under the Companies indebtedness. Management believes that the Paired Shares have been undervalued in the public markets since late 1997, primarily because of concerns regarding the integration of the Companies' various acquisitions and possible legislative action which may affect the paired share structure. Accordingly, management of Patriot and Wyndham International has been generally unwilling to publicly issue common equity at current price levels. Because the Companies must periodically increase their equity base to maintain financial flexibility and continue their growth strategy, management has utilized private placements of Paired Shares coupled with price adjustment mechanisms as a means for the Companies to raise needed equity capital, while also retaining the opportunity to re-price the equity issuance during the term of the price adjustment agreement. As of March 25, 1998, the Companies had approximately $815 million outstanding under the Revolving Credit Facility and $350 million outstanding on the Term Loan. As of such date, Patriot also had over $400 million of mortgage debt outstanding that encumbered 23 hotels, resulting in total indebtedness of approximately $1.6 billion. As of March 25, 1998, the availability of funds, under the Revolving Credit Facility is approximately $75 million. 33 The Companies have obtained a commitment to amend the existing Revolving Credit Facility to, among other things, provide approx. $1.45 billion in additional financing. In addition, the Companies are evaluating other permanent sources of capital, including the issuance of equity and long-term debt. It is expected that additional common or preferred equity offerings will be used both to acquire hotel properties and to limit the Companies' overall debt to market capitalization ratio. 1998 ACQUISITIONS AND MERGERS Wyndham Hotel Corporation On April 14, 1997, Old Patriot entered into a merger agreement with Wyndham Hotel Corporation ("Old Wyndham") which was later ratified by Patriot and Wyndham International, (the "Wyndham Merger Agreement") which provided for the merger of Old Wyndham with and into Patriot (the "Wyndham Merger"), with Patriot being the surviving company. Concurrently, Old Patriot and CF Securities, L.P. ("CF Securities"), the principal stockholder of Old Wyndham, entered into a stock purchase agreement (the "Stock Purchase Agreement"). The Merger Agreement generally provided for the conversion of each outstanding share of common stock, par value $0.01 per share, of Old Wyndham (the "Old Wyndham Common Stock"), other than shares as to which the holder thereof elected to receive cash (subject to proration), into the right to receive 1.372 Paired Shares (the "Exchange Ratio"). The Wyndham Merger Agreement provided that, in lieu of receiving Paired Shares in the Wyndham Merger, stockholders of Old Wyndham could elect to receive cash (such election being referred to herein as a "Cash Election" and such cash being referred to herein as "Cash Consideration") for all or any portion of their shares of Old Wyndham Common Stock in an amount per share equal to $42.80, subject to an aggregate availability of $100 million of cash for all Cash Elections (including a Cash Election by CF Securities pursuant to the Stock Purchase Agreement). In November 1997, in connection with its merger with Patriot, Old Wyndham commenced a fixed spread cash tender offer for all $100 million of its outstanding 10 1/2% Senior Subordinated Notes due 2006 (the "Notes") and commenced a solicitation of consents of a majority of the holders of the Notes to eliminate or modify certain covenants and other provisions contained in the indenture under which the Notes were issued. The purchase price for Notes validly tendered and accepted for purchase was an amount based on a yield to the first redemption date equal to a 75 basis point spread over the yield of the 6 1/2% U.S. Treasury Note due May 31, 2001 as of 3:00 p.m., EST, on the second business day immediately preceding the expiration date of the tender offer, less a consent payment of $20.00 per $1,000 principal amount. The tender offer expired at Midnight, EST, on Friday, January 2, 1998. On January 5, 1998, the Wyndham Merger was consummated. As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio of owned, leased or managed hotels consisting of 98 hotels operated by Old Wyndham (including 16 Patriot hotels which were managed by Old Wyndham), as well as eight franchised hotels, which in the aggregate contain approximately 25,900 rooms. The total purchase consideration of approximately $982 million consisted of 21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible Preferred Stock of Patriot (which are convertible on a one-for-one basis into Paired Shares), cash of approximately $339 million to repay debt and pay Wyndham shareholders who elected to receive cash (which was financed with funds drawn on the Revolving Credit Facility), and the assumption of approximately $54 million in debt. WHG Casinos & Resorts, Inc On September 30, 1997, Patriot, Wyndham International and WHG Casinos & Resorts Inc. ("WHG") entered into an Agreement and Plan of Merger (the "WHG Merger Agreement") providing for the merger of a newly formed subsidiary of Wyndham International with and into WHG with WHG being the surviving corporation (the "WHG Merger"). On January 16, 1998, the WHG Merger was consummated. As a result of the WHG Merger, Wyndham International acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room El Conquistador Resort & Country Club (the "El Conquistador"), all of which are located in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc., the management company for the three hotels and the Las Casitas Village at the El Conquistador. A total of 5,004,690 Paired Shares were issued in connection with the WHG Merger (valued at approximately $138 million). In addition, Wyndham International assumed WHG's outstanding debt of approximately $21.3 million. 34 In January 1998, Patriot, through the REIT Partnership, acquired the 173-room Holiday Inn in Beachwood, Ohio for an aggregate purchase price of approximately $14.5 million. In addition, Patriot acquired an aggregate 95% equity interest in the Buena Vista Palace Hotel in Orlando, Florida for a total purchase price of approximately $141.6 million, including the assumption of approximately $50.3 million of indebtedness. As part of the agreement, Patriot was also granted an option to acquire the remaining 5% equity interest in the hotel. POTENTIAL ACQUISITIONS CHC International, Inc. The Companies and CHC International, Inc. ("CHCI") have entered into an Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger Agreement"), providing, subject to regulatory approvals, for the merger of the hospitality-related businesses of CHCI with and into Wyndham International with Wyndham International being the surviving company (the "CHCI Merger"). Subject to regulatory approvals, CHCI's gaming operations will be transferred to a new legal entity prior to the CHCI Merger and such operations will not be a part of the transaction. It is anticipated that the CHCI Merger will be consummated in the second quarter of 1998. As a result of the CHCI Merger, Wyndham International, through its subsidiaries, will acquire the remaining 50% investment interest in GAH, the remaining 17 leases and 16 of the associated management contracts related to the Patriot hotels leased by CHC Lease Partners, leased by Wyndham International, 12 third-party management contracts, the Grand Bay and Registry Hotels & Resorts proprietary brand names and certain other hospitality management assets. Wyndham has also agreed to provide CHCI with a $7 million line of credit until such time as the CHCI Merger is completed. By operation of the CHCI Merger, all issued and outstanding common stock of CHCI will be exchanged for approximately 4,396,000 shares of Wyndham International preferred stock, subject to certain adjustments. Interstate Hotels Company On December 2, 1997, Patriot, Wyndham International and Interstate Hotels Company ("Interstate") entered into an Agreement and Plan of Merger (the "Interstate Merger Agreement") providing for the merger of Interstate with and into Patriot (the "Interstate Merger") with Patriot being the surviving company. Pursuant to the Interstate Merger Agreement, stockholders of Interstate will have the right to elect to convert each of their shares of Interstate common stock into the right to receive either (i) $37.50 in cash, subject to proration in certain circumstances (the "Interstate Cash Consideration"), or (ii) a number of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for each share of Interstate common stock not exchanged for cash (the "Interstate Exchange Ratio"). After the elections are made by stockholders of Interstate, proration will be used to ensure that 40% of the outstanding shares of Interstate common stock will be converted into the right to receive Interstate Cash Consideration and that the remaining 60% of the outstanding shares of Interstate common stock will be converted into the right to receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment in certain circumstances for the exercise of dissenters' rights. Patriot will also assume or refinance all of Interstate's existing indebtedness, which totaled approximately $800 million as of December 31, 1997. In addition, Patriot will buy out or assume certain options to purchase Interstate common stock held by certain Interstate employees and directors, and will assume certain severance obligations in connection with the Interstate Merger. "The special meetings of the stockholders of Patriot, Wyndham International and Interstate at which approval of the Interstate Merger will be sought were originally scheduled for March 30, 1998. On March 30, 1998, Patriot, Wyndham International and Interstate each adjourned their respective stockholders' meetings to April 2, 1998 at 1:00 p.m. (CST). Patriot, Wyndham International and Interstate elected to convene and then adjourn their respective stockholders' meetings without a formal vote so as to permit additional time to negotiate with Marriott International, Inc. ("Marriott") relating to certain issues Marriott has raised concerning Marriott-branded hotels owned by Interstate. While Patriot and Marriott had entered into a non-binding letter agreement in December 1997 regarding these matters, on March 30, 1998, Marriott filed a lawsuit in the United States District Court for the District of Maryland seeking to enjoin the Interstate Merger until Interstate complies with certain rights of notification and first refusal which Marriott alleges would be triggered by the Interstate Merger." On March 23, 1998, the Companies announced that Interstate shareholders receiving Paired Shares in the Interstate Merger will be entitled to receive Patriot's regular quarterly dividend of $0.32 per share for the first quarter of 1998 and will be entitled to participate with all other Patriot shareholders in a special distribution of accumulated earnings and profits from Patriot's acquisition of Old Wyndham. Arcadian International PLC On January 20, 1998, Patriot announced in the United Kingdom its intention to proceed with a takeover of Arcadian International PLC ("Arcadian"), a company listed on the London Stock Exchange, for cash consideration totaling (Pounds)92 million (or approximately $152 million at the exchange rate on February 5, 1998) (the "Arcadian Acquisition"). Arcadian is an owner, developer and operator of hotels in the United Kingdom and continental Europe. Arcadian's portfolio currently includes 12 hotels with a total of approximately 724 rooms throughout the United Kingdom, as well as interests held in joint ventures with third parties. In connection with the Arcadian 35 Acquisition, Patriot will assume or refinance all of Arcadian's existing indebtedness, which totaled approximately $77 million as of February 5, 1998. Patriot has also entered into agreements with the shareholders of Malmaison Limited ("Malmaison"), a joint venture in which Arcadian holds a 34.6% interest, to acquire the remaining interests in Malmaison not currently owned by Arcadian for an aggregate of approximately $58.1 million, including the assumption of approximately $23.6 million of indebtedness (the "Malmaison Acquisition"). In connection with the Malmaison Acquisition, Patriot expects to acquire (i) two hotels currently owned by Malmaison and one hotel which Malmaison has agreed to acquire and (ii) two additional hotels currently under development by Malmaison. Golden Door Spa In February 1998, the Companies signed a purchase contract to acquire the Golden Door Spa in Escondido, California for a purchase price of approximately $28 million. The purchase price is to be paid with a combination of cash, OP Units of the Operating Partnerships and a short-term note. SF Hotel Company, L.P. On March 17, 1998, the Companies entered into an agreement to acquire all of the partnership interests in SF Hotel Company, L.P. ("Summerfield") for approximately $170 million. The purchase price is to be paid with a combination of cash and issuance of a total of approximately 4,590,000 OP Units of the Operating Partnerships and/or Paired Shares (the "Summerfield Acquisition"). The final transaction price is subject to adjustment based on (i) the market price of the Paired Shares through the end of 1998 and (ii) achievement of certain performance criteria for the Summerfield portfolio through 2001. As a result of the Summerfield Acquisition, the Companies will acquire four Summerfield Suites/(R)/ hotels and lease or manage 33 Summerfield Suites/(R)/ and Sierra Suites hotels/(R)/. As part of its ongoing business, the Companies continually engage in discussions with public and private real estate entities, including, without limitation, current lessees of Patriot's hotels, regarding possible portfolio or single asset acquisitions, as well as the acquisition of hotel leasing and management operations. No assurances can be made that the Companies will acquire any such acquisition opportunities. RENOVATIONS AND CAPITAL IMPROVEMENTS During 1997, the Companies completed approximately $82.2 million in total capital improvements and renovations on various hotel properties. Approximately $56.9 million of the total capital costs related to significant renovations at certain of the hotel properties. These major renovations included upgrading the quality of the furniture and fixtures in guest rooms, public meeting space and lobby areas as well as adding additional rooms to certain of the hotels. Patriot completed over $13.5 million of capital improvements during 1996 as well as commenced and completed renovations at certain of the hotels. During 1996, approximately $11.1 million of total capital improvement expenditures were related to significant renovations at certain of the hotel properties which included upgrading the rooms, public meeting space and lobby areas. During 1997 for the 91 hotels owned as of December 31, 1997, Patriot has incurred over $56.9 million related to renovations or completion of renovations at a number of the hotels. Total renovations include approximately $22.9 million related to the completion of major additions and renovations begun during 1996 at the Tremont House in Boston, Massachusetts; the Wyndham Resort & Spa in Fort Lauderdale, Florida; and the WestCoast Long Beach Hotel and Marina in Long Beach, California. The renovation of the Tremont House in Boston included the construction of 32 additional guest rooms. Additionally, major renovations of approximately $12.4 million began in late 1996 and have been completed at the Holiday Inn - Miami Airport in Miami, Florida and the Holiday Inn in Des Plaines, Illinois (both of which have now been converted to Doubletree brands); and the Doubletree Hotel in Tallahassee, Florida. Renovations are in process and expected to be completed during 1998 on the Doubletree Hotel at Allen Center in Houston, Texas; the Radisson Hotel in Northbrook, Illinois; the Radisson Hotel in Overland Park, Kansas; the Doubletree Guest Suites Hotel (formerly Luxeford Suites Hotel) in Minneapolis, Minnesota, the Peachtree Conference Center in Atlanta, Georgia and the Pickwick Hotel in San Francisco, California (approximately $9.5 million was incurred as of December 31, 1997). During 1998, management has budgeted over $188 million in capital improvements and renovations of hotel properties to complete renovation of hotels commenced in 1997 (discussed above), and to continue the enhancement of existing hotels and hotels recently acquired. 36 Pursuant to the Participating Leases, Patriot is obligated to establish a reserve for each hotel for capital improvements, including the periodic replacement or refurbishment of furniture, fixtures and equipment ("F, F & E"). The aggregate amount of such reserves average 4.0% of total revenue, with the amount of such reserve with respect to each hotel based upon projected capital requirements of such hotel. Management believes such amounts are sufficient to fund recurring capital expenditures for the hotels. Capital expenditures, exclusive of renovations, may exceed 4.0% of total revenues in a single year. The budgeted capital improvements excluding renovations consist of upgrades and replacements of soft goods and furniture and fixtures, upgrades of telephone systems, and other equipment purchases and improvements which management believes will continue to enhance and maintain the revenue-producing capabilities of certain of the hotels. The budgeted renovations to certain of the hotel properties include complete renovation of rooms, lobby, public areas and meeting space by replacing existing soft and hard goods with a higher quality of furnishings, with the intention of upgrading the overall quality of the hotel facility. Management believes these renovations will enhance the revenue-producing capabilities of these hotels and strengthen the hotels' position in their respective markets. The Companies attempt to schedule renovations and improvements during traditionally lower occupancy periods in an effort to minimize disruption to the hotel's operations. Therefore, management does not believe such renovations and capital improvements will have a material effect on the results of operations of the hotels. Capital expenditures will be financed through the capital expenditure reserves, the Revolving Credit Facility or other financing sources or with working capital. PROPOSED LEGISLATION AFFECTING THE PAIRED SHARE STRUCTURE Patriot's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Internal Revenue Code (the "Code"). Section 269B(a)(3) would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as Wyndham International. The "grandfathering" rules governing Section 296B generally provide, however, that Section 296B(a)(3) does not apply to a paired REIT if the REIT and the paired operating company were paired on June 30, 1983. Patriot's and Wyndham International's respective precedessors, Cal Jockey and Bay Meadows, 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. Patriot's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation. In this regard, on February 2, 1998, the Department of Treasury released an explanation of the revenue proposals included in the Clinton Administration's fiscal 1999 budget (the "Tax Proposals"). The Tax Proposals, among other things, include a freeze on the grandfathered status of paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham International would be treated as one entity with respect to properties acquired on or after the date of the first Congressional committee action with respect to such proposal and with respect to activities or services relating to such properties that are undertaken or performed by one of the paired entities on or after such date. The Tax Proposals would also prohibit REITs from holding stock of a corporation possessing more than 10% of the vote or value of all classes of stock of the corporation. This proposal would be effective with respect to the stock acquired on or after the date of first Congressional committee action with respect to the proposal; provided that the proposal would not apply to stock acquired before such effective date if, on or after such date, the subsidiary corporation engaged in a new trade or business or acquired substantial new assets. On March 26, 1998, William Archer, Chairman of the Ways and Means Committee of the United States House of Representatives and William V. Roth, Jr., Chairman of the Finance Committee of the United States Senate, introduced identical legislation (the "Proposed Legislation") in both the House of Representatives and the Senate to limit this "grandfathering rule." Under the Proposed Legislation, the anti-pairing rules provided in the Code would apply to real property interests acquired after March 26, 1998 by Patriot and Wyndham International, or a subsidiary or partnership in which 10% or greater interest is owned by Patriot or Wyndham International (collectively, the "REIT Group"), unless (1) the real property interests are acquired pursuant to a written agreement which is binding on March 26, 1998 and all times thereafter or (2) the acquisition of such real property interests were described in a public announcement or in a filing with the Securities and Exchange Commission on or before March 26, 1998. In addition, the Proposed Legislation also provides that a property held by Patriot or Wyndham International that is not subject to the anti-pairing rules would become subject to such rules in the event of an improvement placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (x) the undepreciated cost of the property (prior to the improvement) or (y) in the case of property acquired where there is a substantial basis, the fair market value of the property on the day it was acquired by Patriot and Wyndham International. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect as of December 31, 1999 and at all times thereafter. The above discussion is based solely on the Tax Proposals and the Proposed Legislation. The Proposed Legislation will not become effective unless it is duly passed by Congress and signed by the President. It is impossible at this time to determine all of the ramifications which could result from enactment of the Proposed Legislation. However, Patriot believes that the previously announced and pending acquisitions of Interstate, Arcadian and Summerfield are unaffected by the Proposed Legislation and expects that such acquisitions will be completed as currently scheduled. YEAR 2000 The approach of the year 2000 has created a challenging problem for many companies. The problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Companies' computer programs that have time-sensitive software may recognize the "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Companies are conducting comprehensive reviews of their computer systems to identify the systems that could be affected by the year 2000 and are developing an implementation plan to resolve the issue. Required modifications to existing software and conversions to new software are in progress to correct identified problems. Management anticipates that the year 2000 will not pose significant operations problems for the Companies once these modifications and conversions are completed. INFLATION Operators of hotels in general possess the ability to adjust room rates quickly. However, competitive pressures may limit Wyndham International's and the Lessees' ability to raise room rates in the face of inflation. SEASONALITY The hotel industry is seasonal in nature. Revenues for certain of Patriot's hotels are greater in the first and second quarters of a calendar year and at other hotels in the second and third quarters of a calendar year. Seasonal variations in revenue at the hotels may cause quarterly fluctuations in the Patriot Companies' revenues. FUNDS FROM OPERATIONS Combined Funds from Operations of the Companies (as defined and computed below) was $33.4 million for the three months ended December 31, 1997 and $18.3 million for the three months ended December 31, 1996. Combined Funds from Operations of the Companies was $111.5 million for the year ended December 31, 1997 and $64.5 million for the year ended December 31, 1996. Management considers Funds from Operations to be a key measure of REIT performance. Funds from Operations represents net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from debt restructuring or sales of property, plus depreciation of real property, amortization of goodwill and amortization of management contracts and trade names, and after adjustments for unconsolidated partnerships, joint ventures and corporations. Adjustments for Patriot's unconsolidated subsidiaries 37 are calculated to reflect Funds from Operations on the same basis. The Companies have also made certain adjustments to Funds from Operations for real estate related amortization and the write off of certain lease costs. Funds from Operations should not be considered as an alternative to net income or other measurements under generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. Funds from Operations does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. The following reconciliation of net income to Funds from Operations illustrates the difference between the two measures of operating performance for the three months ended December 31, 1997 and 1996:
Three Months Ended December 31, ------------------------------- 1997 1996 ----------- ----------- (in thousands) Net income.............................................. $ 1,666 $10,156 Add: Minority interest in the Operating Partnerships....... 375 1,625 Depreciation of buildings and improvements and furniture, fixtures and equipment.................. 17,155 5,763 Amortization of goodwill.............................. 1,135 -- Amortization of management contracts and trade names.. 1,227 -- Amortization of franchise fees........................ 22 22 Amortization of capitalized lease costs............... -- 40 Cost of acquiring leaseholds.......................... 10,679 -- Adjustment for Funds from Operations of unconsolidated subsidiaries: Equity in earnings of unconsolidated subsidiaries..... (1,527) (1,468) Funds from Operations of unconsolidated subsidiaries.. 2,698 2,196 ------- ------- Funds from Operations................................... $33,430 $18,334 ======= ======= Weighted average shares and OP Units outstanding: Basic................................................. 82,030 50,131 ======= ======= Diluted............................................... 84,600 51,076 ======= =======
The following reconciliation of net income (loss) to Funds from Operations illustrates the difference between the two measures of operating performance for the year ended December 31, 1997 and 1996:
Year Ended December 31, ------------------------------- 1997 1996 ----------- ----------- (in thousands) Net (loss) income....................................... $ (2,172) $37,991 Add: Extraordinary loss from early extinguishment of debt.. 2,534 -- Minority interest in the Operating Partnerships....... 1,684 6,767 Depreciation of buildings and improvements and furniture, fixtures and equipment.................. 47,694 17,302 Amortization of goodwill.............................. 1,851 -- Amortization of management contracts and trade names.. 1,696 -- Amortization of franchise fees........................ 88 88 Amortization of capitalized lease costs............... 102 116 Cost of acquiring leaseholds.......................... 54,499 -- Adjustment for Funds from Operations of unconsolidated subsidiaries: Equity in earnings of unconsolidated subsidiaries..... (6,015) (5,845) Funds from Operations of unconsolidated subsidiaries.. 9,581 8,044 -------- ------- Funds from Operations................................... $111,542 $64,463 ======== ======= Weighted average shares and OP Units outstanding: Basic................................................. 64,160 41,662 ======== ======= Diluted............................................... 65,981 42,200 ======== =======
38 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The independent auditors' reports, financial statements and financial statement schedules listed in the accompanying index are filed as part of this report. See Index to Financial Statements and Financial Statement Schedules on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III The information called for by this Part III is, in accordance with General Instruction G(3) to Form 10-K, incorporated herein by reference to the information contained in the Companies' definitive joint proxy statement for the annual meeting of stockholders of Patriot and Wyndham International to be held May 28, 1998, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K (a) The index to the audited financial statements and financial statement schedules is included on page F-1 of this report. The financial statements are included herein at pages F-1 through F-57. The following financial statement schedules are included herein at pages F-51 through F-57: Schedule III - Real Estate and Accumulated Depreciation for Patriot American Hospitality, Inc. Schedule IV - Mortgage Loans on Real Estate for Patriot American Hospitality, Inc. All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted. (b) Reports on Form 8-K for the quarter ended December 31, 1997: Joint Current Report on Form 8-K, dated September 30, 1997 was filed with the Securities and Exchange Commission on October 14, 1997 (and amended October 28, 1997) with respect to Patriot's acquisition of ten hotels from affiliates of Gencom and CHCI, Patriot's acquisition of eight leasehold interests from affiliates of CHC Lease Partners, Wyndham International's acquisition of an approximately 50% ownership interest in GAH and the execution of the merger agreement between Patriot, Wyndham International and CHCI. Joint Current Report on Form 8-K, dated September 30, 1997 was filed with the Securities and Exchange Commission on November 12, 1997 with respect to the execution of the merger agreement between Patriot, Wyndham International and WHG Resorts & Casinos Inc. Joint Current Report on Form 8-K, dated December 2, 1997 was filed with the Securities and Exchange Commission on December 4, 1997 with respect to the execution of the merger agreement between Patriot, Wyndham International and Interstate Hotels Company. Joint Current Report on Form 8-K, dated December 10, 1997 was filed with the Securities and Exchange Commission on December 10, 1997 with respect to Patriot's acquisition of certain hotels. 39 (c) Exhibits: Exhibit No. Description - ------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of Patriot American Hospitality, Inc. ("Patriot"), incorporated by reference to Exhibit 3.1 to Patriot's and Wyndham International, Inc.'s Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01). 3.2 Amended and Restated Bylaws of Patriot (filed herewith) 3.3 Amended and Restated Certificate of Incorporation of Wyndham International, Inc. ("Wyndham International"), (formerly known as Patriot American Hospitality Operating Company) incorporated by reference to Exhibit 3.3 to Patriot's and Wyndham International's Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333- 44203 and 333-44203-01). 3.4 Amended and Restated Bylaws of Wyndham International (filed herewith). 3.5 Certificate of Designations, Preferences and Rights of Patriot Series A Convertible Preferred Stock, incorporated by reference to Exhibit 3.5 to Patriot's and Wyndham International's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203-01 4.1 Agreement (the "Pairing Agreement"), dated as of February 17, 1983 and as amended February 18, 1988, between Bay Meadows Operating Company ("Bay Meadows") and California Jockey Club ("Cal Jockey") (formerly known as Bay Meadows Realty Enterprises, Inc.), as amended, incorporated by reference to Exhibit 4.3 to Cal Jockey's and Bay Meadows' Registration Statement on Form S-2, and to Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual Report on Form 10-K for the year ended December 31, 1987 (Nos. 001-09319 and 001-09320). 4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to Exhibit 4.2 to Patriot's and Patriot American Hospitality Operating Company's ("Patriot Operating Company") Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 4.3 Amendment No. 3 to the Pairing Agreement, incorporated by reference to Exhibit 4.3 to Patriot's and Wyndham International's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203-01). 4.4 Cooperation Agreement, dated as of December 18, 1997, between Patriot and Wyndham International, incorporated by reference to Exhibit 4.4 to Patriot's and Wyndham International's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203-01). 10.1 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., Cal Jockey and Bay Meadows, incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Cal Jockey's and Bay Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01). 10.2 Agreement and Plan of Merger, dated as of April 14, 1997, between Patriot and Wyndham Hotel Corporation (the "Wyndham Merger Agreement"), incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.3 Amendment No. 1 to Wyndham Merger Agreement, dated as of November 3, 1997, incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Patriot's and Patriot Operating Company's Joint Registration Statements on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.4 Amendment No. 2 to Wyndham Merger Agreement, dated as of December 9, 1997, incorporated by reference to Annex S-A to the Joint Proxy Statement/Prospectus included in Patriot's and Patriot Operating Company's Post-Effective Amendment to Form S-4 filed December 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.5 Agreement and Plan of Merger, dated as of September 30, 1997, by and among Patriot Operating Company, Patriot and CHC International, Inc., incorporated by reference to Exhibit 10.40 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.6 Agreement and Plan of Merger, dated as of September 30, 1997, by and among WHG Resorts & Casinos Inc., Patriot, Patriot American Hospitality Operating Company Acquisition Subsidiary and Patriot Operating Company, incorporated by reference to Exhibit 2.1 to Patriot's and Patriot Operating Company's Registration Statement on Form S-4 filed November 12, 1997 (Nos. 333-40041 and 333-40041-01). 10.7 Agreement and Plan of Merger, dated as of December 2, 1997, by and among Interstate Hotels Company, Patriot and Wyndham International, incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Patriot's and Wyndham International's Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01). 40 Exhibit No. Description - ------------------------------------------------------------------------------- 10.8 Second Amended and Restated Agreement of Limited Partnership of Patriot American Hospitality Partnership, L.P. ("REIT Partnership Agreement"), incorporated by reference to Exhibit 10.1 (1) to Cal Jockey's and Bay Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01). 10.9 First Amendment to the REIT Partnership Agreement, incorporated by reference to Exhibit 10.1 (2) to Cal Jockey's and Bay Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01). 10.10 Third Amendment to the REIT Partnership Agreement, dated as of July 1, 1997, incorporated by reference to Exhibit 10.1 (4) to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.11 Fifth Amendment to the REIT Partnership Agreement (filed herewith). 10.12 Agreement of Limited Partnership of Patriot American Hospitality Operating Partnership, L.P. dated as of June 27, 1997, ("Op Co Partnership Agreement"), incorporated by reference to Exhibit 10.2 (1) to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.13 First Amendment to the Op Co Partnership Agreement, dated as of August 15, 1997, incorporated by reference to Exhibit 10.2 (2) to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S- 4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.14 Third Amendment to the Op Co Partnership Agreement (filed herewith). 10.15 Fifth Amendment to the Op Co Partnership Agreement (filed herewith). 10.16 Shareholders Agreement, dated as of December 2, 1997, by and among Patriot, Patriot Operating Company, the shareholders of Interstate Hotel Company named on the signature pages thereto, and Interstate Hotels Company, incorporated by reference to Exhibit 10.1 to Patriot's and Patriot Operating Company's Current Report on Form 8-K dated December 2, 1997 and filed December 4, 1997 (Nos. 001-09319 and 001- 09320). 10.17 Hospitality Advisory, Asset Management and Support Services Agreement, dated as of September 30, 1997, by and among Patriot American Hospitality Operating Partnership, L.P. and certain subsidiaries of CHC International, Inc., incorporated by reference to Exhibit 10.42 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.18 Amended and Restated Credit Agreement, dated as of December 16, 1997, among Patriot, Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and various lenders identified therein, incorporated by reference to Exhibit 10.2 to Patriot's and Wyndham International's Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333- 44203-01). 10.19 Term Loan Agreement, dated as of December 16, 1997, among Patriot, Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and various lenders identified therein, incorporated by reference to Exhibit 10.3 to Patriot's and Wyndham International's Registration Statement on Form S- 4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01). 10.20 Executive Employment Agreement, dated as of April 14, 1997, between Patriot and James D. Carreker, incorporated by reference to Exhibit 10.20 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.21 Executive Employment Agreement, dated as of April 14, 1997, between Patriot and Anne L. Raymond, incorporated by reference to Exhibit 10.21 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.22 Executive Employment Agreement, dated as of April 14, 1997, between Patriot and Leslie V. Bentley, incorporated by reference to Exhibit 10.22 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.23 Executive Employment Agreement, dated as of April 14, 1997, between Patriot and Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.23 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333- 39875 and 333-39875-01). 41 Exhibit No. Description - ------------------------------------------------------------------------------- 10.24 Executive Employment Agreement, dated as of April 14, 1997, between Patriot and Paul A. Nussbaum (filed herewith). 10.25 Executive Employment Agreement, dated as of February 14, 1997, between Patriot and William W. Evans III, as supplemented on April 14, 1997 (filed herewith). 10.26 Executive Employment Agreement, dated as of June 1997, between Patriot and Paul Novak (filed herewith). 10.27 Executive Employment Agreement, dated as of October 1, 1997, between Patriot Operating Company and Michael Grossman (filed herewith). 10.28 Executive Employment Agreement, dated as of October 1, 1997, between Patriot Operating Company and Karim Alibhai (filed herewith). 10.29 Standstill Agreement, dated as of April 14, 1997, by and among Patriot and CF Securities, L.P., incorporated by reference to Exhibit 10.9 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.30 Voting Agreement, dated as of April 14, 1997, by and among Patriot and CF Securities, L.P., incorporated by reference to Exhibit 10.10 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.31 Voting Agreement, dated as of April 14, 1997, by and among Patriot and Paul A. Nussbaum, incorporated by reference to Exhibit 10.11 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.32 Voting Agreement, dated as of April 14, 1997, by and among Patriot and William W. Evans III, incorporated by reference to Exhibit 10.12 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.33 Voting Agreement, dated as of April 14, 1997, by and among Patriot and Leslie V. Bentley, incorporated by reference to Exhibit 10.13 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.34 Voting Agreement, dated as of April 14, 1997, by and among Patriot and James D. Carreker, incorporated by reference to Exhibit 10.14 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.35 Voting Agreement, dated as of April 14, 1997, by and among Patriot and Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.15 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.36 Voting Agreement, dated as of April 14, 1997, by and among Patriot and Anne L. Raymond, incorporated by reference to Exhibit 10.16 to Patriot's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 12.1 Statement regarding computation of ratios (filed herewith). 21.1 Significant Subsidiaries of Patriot and Wyndham International (filed herewith). 23.1 Consent of Ernst & Young LLP (filed herewith). 24.1 Powers of Attorney (included on signature pages). 27.1 Financial Data Schedule of Patriot (filed herewith). 27.2 Financial Data Schedule of Wyndham International (filed herewith). 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 30, 1998 PATRIOT AMERICAN HOSPITALITY, INC. By:/s/ Paul A. Nussbaum -------------------------- Paul A. Nussbaum Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Capacities in which signed Date --------- -------------------------- ---- /s/ Paul A. Nussbaum - --------------------------- Paul A. Nussbaum Chairman of the Board of Directors March 30, 1998 and Chief Executive Officer (Principal Executive Officer) /s/ William W. Evans III - --------------------------- William W. Evans III President, Chief Operating Officer March 30, 1998 and Director /s/ Anne L. Raymond - --------------------------- Anne L. Raymond Executive Vice President and March 30, 1998 Chief Financial Officer (Principal Financial Officer) /s/ Lawrence S. Jones - -------------------------- Lawrence S. Jones Executive Vice President and March 30, 1998 Treasurer (Principal Accounting Officer) /s/ John H. Daniels - -------------------------- John H. Daniels Director March 30, 1998 /s/ John C. Deterding - -------------------------- John C. Deterding Director March 30, 1998 /s/ Gregory R. Dillon - -------------------------- Gregory R. Dillon Director March 30, 1998 /s/ Arch K. Jacobson - -------------------------- Arch K. Jacobson Director March 30, 1998 /s/ James D. Carreker - -------------------------- James D. Carreker Director March 30, 1998 /s/ Phillip J. Ward - -------------------------- Phillip J. Ward Director March 30, 1998 /s/ Harlan R. Crow - -------------------------- Harlan R. Crow Director March 30, 1998 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: March 30, 1998 WYNDHAM INTERNATIONAL, INC. By:/s/ James D. Carreker -------------------------- James D. Carreker Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Capacities in which signed Date --------- -------------------------- ---- /s/ James D. Carreker - ------------------------- James D. Carreker Chairman of the Board and Chief March 30, 1998 Executive Officer (Principal Executive Officer) /s/ Karim Alibhai - ------------------------- Karim Alibhai President, Chief Operating Officer March 30, 1998 and Director /s/ Lawrence S. Jones - ------------------------- Lawrence S. Jones Executive Vice President and March 30, 1998 Treasurer (Principal Financial Officer and Principal Accounting Officer) /s/ Paul A. Nussbaum - ------------------------- Paul A. Nussbaum Director March 30, 1998 /s/ Arch K. Jacobson - ------------------------- Arch K. Jacobson Director March 30, 1998 /s/ Leonard Boxer - ------------------------- Leonard Boxer Director March 30, 1998 /s/ Russ Lyon, Jr. - ------------------------- Russ Lyon, Jr. Director March 30, 1998 /s/ Burton C. Einspruch - ------------------------- Burton C. Enspruch Director March 30, 1998 /s/ Sherwood Weiser - ------------------------- Sherwood Weiser Director March 30, 1998 /s/ James C. Leslie - ------------------------- James C. Leslie Director March 30, 1998 /s/ Susan T. Groenteman - ------------------------- Susan T. Groenteman Director March 30, 1998 44 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ---- HISTORICAL FINANCIAL INFORMATION COMBINED PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC.: Report of Independent Auditors - Ernst & Young LLP....................................................... Combined Balance Sheets as of December 31, 1997 and 1996................................................. Combined Statements of Operations for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995.................................... Combined Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995............................. Combined Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995.................................... PATRIOT AMERICAN HOSPITALITY, INC. : Consolidated Balance Sheets as of December 31, 1997 and 1996........................................... Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995.................................. Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995....................... Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995.................................. WYNDHAM INTERNATIONAL, INC. (FORMERLY KNOWN AS PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY): Consolidated Balance Sheet as of December 31, 1997..................................................... Consolidated Statement of Operations for the six months ended December 31, 1997........................ Consolidated Statement of Shareholders' Equity for the six months ended December 31, 1997.............. Consolidated Statement of Cash Flows for the six months ended December 31, 1997........................ Notes to Financial Statements............................................................................ Financial Statement Schedules: Schedule III - Real Estate and Accumulated Depreciation................................................ Schedule IV - Mortgage Loans on Real Estate............................................................
F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Patriot American Hospitality, Inc. and Wyndham International, Inc. We have audited (i) the accompanying consolidated balance sheets of Patriot American Hospitality, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995; (ii) the accompanying consolidated balance sheet of Wyndham International, Inc. (formerly known as Patriot American Hospitality Operating Company) as of December 31, 1997, and the related consolidated statement of operations, shareholders' equity and cash flows for the six months ended December 31, 1997; and (iii) the accompanying combined balance sheets of Patriot American Hospitality, Inc. and Wyndham International, Inc. (the "Companies") as of December 31, 1997 and 1996, and the related combined statements of operations, shareholders' equity, and cash flows for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These consolidated financial statements and schedules are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, (i) the consolidated financial position of Patriot American Hospitality, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995; (ii) the consolidated financial position of Wyndham International, Inc. at December 31, 1997 and the consolidated results of its operations and its cash flows for the six months ended December 31, 1997; and (iii) the combined financial position of the Companies at December 31, 1997 and 1996, and the combined results of their operations and their cash flows for the years ended December 31, 1997 and 1996 and the period October 2, 1995 (inception of operations) through December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Dallas, Texas February 9, 1998 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31, 1997 1996 ------------------ ------------------- ASSETS Investment in real estate and related improvements and land held for development, net of accumulated depreciation of $68,805 in 1997 and $19,815 in 1996.......................................................... $ 2,044,649 $ 641,825 Cash and cash equivalents, including capital improvement reserves of $5,005 in 1997 and $2,458 in 1996............................................... 47,436 6,604 Accounts receivable......................................................... 54,693 5,351 Investment in unconsolidated subsidiaries................................... 11,802 11,291 Mortgage notes and other receivables from unconsolidated subsidiaries....... 76,419 72,209 Other mortgage notes and other receivables.................................. 12,983 -- Inventories................................................................. 10,450 1,648 Management contracts, net of accumulated amortization of $1,574............. 20,879 -- Trade names and franchise costs, net of accumulated amortization of $122.... 11,166 -- Deferred expenses, net of accumulated amortization of $2,097 in 1997 and $750 in 1996............................................................. 21,417 3,063 Deferred acquisition costs.................................................. 52,500 15,394 Goodwill, net of accumulated amortization of $1,851......................... 126,007 -- Other assets, net of accumulated depreciation of $70 in 1997 and $18 in 1996 16,463 3,546 Income taxes receivable..................................................... 989 -- ----------------- ----------------- Total assets......................................................... $ 2,507,853 $ 760,931 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings under line of credit facility, term loan and mortgage notes...... $ 1,112,337 $ 214,339 Accounts payable and accrued expenses....................................... 73,273 10,117 Dividends and distributions payable......................................... 27,636 13,129 Sales taxes payable......................................................... 5,616 -- Deposits.................................................................... 12,423 -- Due to unconsolidated subsidiaries.......................................... 7,255 6,034 Deferred income tax liability............................................... 9,550 -- Minority interest in the Operating Partnerships............................. 220,177 68,562 Minority interest in other consolidated subsidiaries........................ 49,694 11,711 Commitment and contingencies................................................ -- -- Shareholders' Equity: Preferred stock (paired shares), $0.01 par value, authorized: 100,000,000 shares each; no shares issued and outstanding.......................... -- -- Excess stock (paired shares), $0.01 par value, authorized: 750,000,000 shares each; no shares issued and outstanding.......................... -- -- Common stock (paired shares), $0.01 par value, authorized: 650,000,000 shares each; issued and outstanding: 73,276,716 shares in 1997 and 43,613,496 shares in 1996.............................................. 1,466 436 Additional paid in capital............................................... 1,070,973 442,104 Unearned stock compensation, net of accumulated amortization of $5,825 in 1997 and $1,139 in 1996................................................ (13,116) (5,427) Distributions in excess of retained earnings............................. (69,431) (74) ------------------ ------------------ Total shareholders' equity........................................... 989,892 437,039 ----------------- ----------------- Total liabilities and shareholders' equity........................... $ 2,507,853 $ 760,931 ================= =================
See notes to financial statements. F-3 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD OCTOBER 2, 1995 (INCEPTION OF OPERATIONS) YEARS ENDED THROUGH DECEMBER DECEMBER 31, 31, ------------------------------ ------------------ 1997 1996 1995 --------------- -------------- ------------------ Revenue: Participating lease revenue.................................. $ 127,033 $ 75,893 $ 10,582 Hotel revenue................................................ 167,727 -- -- Racecourse facility and land lease revenue................... 26,511 -- -- Management fee and service fee income........................ 7,088 -- -- Interest and other income.................................... 6,676 600 513 ------------- ------------- --------------- Total revenue.......................................... 335,035 76,493 11,095 ------------- ------------- --------------- Expenses: Departmental costs-- hotel operations........................ 84,758 -- -- Racing facility operations................................... 21,620 -- -- Direct operating costs of management company and service department................................................. 1,216 -- -- General and administrative................................... 17,181 4,500 607 Ground lease expense......................................... 4,117 1,075 -- Repair and maintenance....................................... 7,821 -- -- Utilities.................................................... 7,144 -- -- Interest expense............................................. 50,531 7,380 89 Real estate and personal property taxes and casualty insurance................................................... 17,958 7,150 901 Marketing.................................................... 15,437 -- -- Management fees.............................................. 1,941 -- -- Cost of acquiring leaseholds................................. 54,499 -- -- Depreciation and amortization................................ 52,685 17,420 2,590 ------------- ------------- --------------- Total expenses......................................... 336,908 37,525 4,187 ------------- ------------- --------------- (Loss) income before equity in earnings of unconsolidated subsidiaries, income tax provision, minority interests and extraordinary item........................................... (1,873) 38,968 6,908 Equity in earnings of unconsolidated subsidiaries............ 6,015 5,845 156 ------------- ------------- --------------- Income before income tax provision, minority interests and extraordinary item........................................... 4,142 44,813 7,064 Income tax provision......................................... (481) -- -- -------------- ------------- --------------- Income before minority interests and extraordinary item......... 3,661 44,813 7,064 Minority interest in the Operating Partnerships.............. (1,684) (6,767) (968) Minority interest in consolidated subsidiaries............... (1,615) (55) -- -------------- -------------- --------------- Income before extraordinary item................................ 362 37,991 6,096 Extraordinary loss from early extinguishment of debt, net of minority interest.......................................... (2,534) -- (737) -------------- ------------- --------------- Net (loss) income............................................... $ (2,172) $ 37,991 $ 5,359 ============= ============= =============== Basic earnings (loss) per common Paired Share: Income before extraordinary item............................. $ 0.01 $ 1.07 $ 0.21 Extraordinary loss........................................... (0.05) -- (0.03) ------------- ------------- --------------- Net (loss) income per common Paired Share.................. $ (0.04) $ 1.07 $ 0.18 ============= ============= =============== Diluted earnings (loss) per common Paired Share: Income before extraordinary item............................. $ 0.01 $ 1.06 $ 0.21 Extraordinary loss........................................... (0.05) $ -- $ (0.03) ------------- ------------- --------------- Net (loss) income per common Paired Share.................. $ (0.04) $ 1.06 $ 0.18 ============= ============= ==============
See notes to financial statements. F-4 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NUMBER OF SHARES DISTRIBU- ------------------------- UNEARNED TIONS IN STOCK EXCESS OF WYNDHAM COMMON PAID-IN COMPEN- RETAINED PATRIOT INTERNATIONAL STOCK CAPITAL SATION EARNINGS TOTAL ----------- ------------- -------- ------------ --------- ---------- ----------- Issuance of shares, net of 29,210,000 offering expenses............ $ 292 $ 312,878 $ -- $ -- $ 313,170 Acquisition of interests from -- -- -- -- (19,357) affiliates................... (19,357) Predecessor basis of interests -- -- -- 1,840 acquired from affiliates..... -- 1,840 Issuance of OP Units to -- -- 9,363 non-affiliates............... 9,363 -- Minority interest at closing -- -- -- (41,670) of Initial Offering.......... -- (41,670) Issuance of shares to 121,870 40 employees and directors..... 1 1,461 (1,422) -- Net income..................... -- -- -- -- 5,359 5,359 Amortization of unearned stock -- -- -- -- 71 compensation................. 71 Common stock dividend declared..................... -- -- -- -- (7,038) (7,038) ----------- -------- ------------ --------- ---------- ----------- Balance, December 31, 1995..... 29,331,870 293 264,515 (1,351) (1,679) 261,778 Issuance of shares, net of offering expenses............ 13,916,186 139 181,253 -- -- 181,392 Issuance of shares to 365,440 37 employees and directors...... 4 5,177 (5,144) -- Redemption price of OP Units -- -- -- (8,841) in excess of book value...... (8,841) -- Net income..................... -- -- -- -- 37,991 37,991 Amortization of unearned stock -- -- -- compensation................. -- 1,068 1,068 Common stock dividends declared..................... -- -- -- -- (36,386) (36,386) ----------- -------- ------------ --------- ---------- ----------- Balance, December 31, 1996..... 43,613,496 436 442,104 (5,427) (74) 437,039 Issuance of shares for mergers and acquisition of properties................... 12,824,433 57,135,658 699 231,247 -- -- 231,946 Issuance of shares, net of offering expenses............ 15,830,033 15,830,033 318 386,417 -- -- 386,735 Issuance of shares to employees and directors...... 547,867 4,167 5 12,896 (12,839) -- 62 Forfeiture of unvested employee stock grants........ (42,900) (42,900) -- (464) 464 -- -- Issuance of shares for exercise of options.......... 314,967 310,938 6 2,301 -- -- 2,307 Issuance of shares to redeem OP Units..................... 188,820 38,820 2 2,554 -- -- 2,556 Redemption price of OP Units in excess of book value...... -- -- -- (6,082) -- -- (6,082) Net loss....................... -- -- -- -- -- (2,172) (2,172) Amortization of unearned stock compensation................. -- -- -- -- 4,686 -- 4,686 Common stock dividends declared..................... -- -- -- -- -- (67,185) (67,185) ----------- ------------ -------- ------------ --------- ---------- ----------- Balance, December 31, 1997..... 73,276,716 73,276,716 $ 1,466 $ 1,070,973 $ (13,116)$ (69,431) $ 989,892 ========== ============ ======== ============ ========= ========== ===========
See notes to financial statements. F-5 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD OCTOBER 2, 1995 (INCEPTION OF OPERATIONS) YEARS ENDED THROUGH DECEMBER DECEMBER 31, 31, ------------------------------ ------------------ 1997 1996 1995 --------------- -------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income............................................ $ (2,172) $ 37,991 $ 5,359 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation............................................... 49,022 17,302 2,529 Amortization of unearned stock compensation................ 4,686 1,068 71 Amortization of deferred loan costs........................ 2,630 431 27 Amortization of lease inducement costs..................... 102 116 23 Amortization of management contracts and trade names....... 1,694 -- -- Amortization of goodwill................................... 1,851 -- -- Other amortization......................................... 118 118 61 Cost of acquiring leaseholds............................... 54,499 -- -- Payment of interest on notes receivable from unconsolidated subsidiaries.............................. 5,001 4,833 -- Accrued interest receivable................................ (1,318) -- -- Issuance of common stock to directors...................... 61 37 -- Equity in earnings of unconsolidated subsidiaries.......... (6,015) (5,845) (156) Minority interest in income of Operating Partnerships...... 1,684 6,767 968 Minority interest in income of other consolidated subsidiaries................................ 1,615 55 -- Extraordinary items........................................ 2,534 -- 737 Changes in assets and liabilities: Accounts receivable...................................... (18,176) -- -- Lease revenue receivable................................. (4,359) (3,091) (2,260) Deferred expenses........................................ (24) -- (292) Inventories.............................................. (2,736) -- -- Other assets............................................. (3,205) (1,003) (589) Accounts payable and other accrued expenses.............. 18,685 2,741 1,140 Deposits................................................. 2,354 -- -- Due to unconsolidated subsidiaries....................... (421) (324) -- ------------- ------------- --------------- Net cash provided by operating activities.............. 108,110 61,196 7,618 ------------- ------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of hotel properties and related working capital assets..................................... (939,234) (353,217) (260,665) Improvements and additions to hotel properties............... (82,269) (21,889) (609) Payment of merger related costs.............................. (9,045) -- -- Cash received in acquisition of hotel leases................. 14,192 -- -- Change in other assets....................................... -- 1,219 (150) Deferred acquisition costs................................... (67,743) (14,797) (598) Investment in unconsolidated subsidiaries.................... (1,574) -- (4,238) Investment in mortgage notes and other receivables from unconsolidated subsidiaries................................ (500) (31,400) (40,587) Principal payments received on mortgage and other notes receivable................................................. 139 399 -- Investment in other mortgage and other notes receivable...... (116,090) -- (101) ------------- ------------- --------------- Net cash used in investing activities.................. (1,202,124) (419,685) (306,948) ------------- ------------- ---------------
F-6 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. COMBINED STATEMENTS OF CASH FLOWS - CONTINUED (IN THOUSANDS)
PERIOD OCTOBER 2, 1995 (INCEPTION OF OPERATIONS) YEARS ENDED THROUGH DECEMBER DECEMBER 31, 31, ------------------------------ ------------------ 1997 1996 1995 --------------- -------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line of credit facility and mortgage notes......................................... 1,865,634 396,302 9,500 Repay borrowings under line of credit facility............... (1,001,880) (191,463) -- Payments to acquire interests of affiliates in the Initial Hotels............................................. -- -- (18,879) Payment of deferred loan costs............................... (24,471) (1,189) (361) Prepayment penalties on assumed mortgage loans............... -- -- (174) Payments for capital leases.................................. 644 -- -- Proceeds from issuance of common stock....................... 401,945 199,723 314,013 Payment of offering costs.................................... (15,519) (462) -- Proceeds from exercise of options to purchase common stock... 2,195 -- -- Contributions received from minority interest in consolidated subsidiaries.................................. 35,829 11,656 -- Payments to redeem OP Units.................................. (63,826) (16,584) -- Dividends and distributions paid............................. (65,705) (37,659) -- ------------- ------------- --------------- Net cash provided by financing activities.............. 1,134,846 360,324 304,099 ------------- ------------- --------------- Net increase in cash and cash equivalents....................... 40,832 1,835 4,769 Cash and cash equivalents at beginning of period................ 6,604 4,769 -- ------------- ------------- --------------- Cash and cash equivalents at end of period...................... $ 47,436 $ 6,604 $ 4,769 ============= ============= =============== Supplemental disclosure of cash flow information: Cash paid during the period for interest..................... $ 48,254 $ 6,938 $ -- ============= ============= =============== Cash paid during the period for income taxes................. $ 325 $ -- $ -- ============= ============= ===============
See notes to financial statements. F-7 PATRIOT AMERICAN HOSPITALITY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, ----------------------------------- 1997 1996 --------------- --------------- ASSETS Investment in real estate and related improvements and land held for development, net of accumulated depreciation of $67,501 in 1997 and $19,815 in 1996......................................................... $ 2,016,267 $ 641,825 Cash and cash equivalents, including capital improvement reserves of $5,005 in 1997 and $2,458 in 1996........................................... 20,360 6,604 Lease revenue receivable...................................................... 12,105 5,351 Investment in unconsolidated subsidiaries..................................... 11,802 11,291 Mortgage notes and other receivables from unconsolidated subsidiaries......... 76,419 72,209 Notes and other receivables from Wyndham International........................ 42,946 -- Goodwill, net of accumulated amortization of $1,257........................... 87,999 -- Inventories................................................................... 1,306 1,648 Deferred expenses, net of accumulated amortization of $2,097 in 1997 and $750 in 1996............................................................ 21,417 3,063 Deferred acquisition costs.................................................... 21,374 15,394 Other assets, net of accumulated depreciation of $70 in 1997 and $18 in 1996.. 9,110 3,546 --------------- --------------- Total assets................................................................ $ 2,321,105 $ 760,931 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings under line of credit facility, term loan and mortgage notes........ $ 1,112,337 $ 214,339 Subscription notes payable to Wyndham International........................... 12,875 -- Accounts payable and accrued expenses......................................... 28,572 10,117 Dividends and distributions payable........................................... 27,185 13,129 Due to unconsolidated subsidiaries............................................ 7,255 6,034 Minority interest in REIT Partnership......................................... 174,640 68,562 Minority interest in other consolidated subsidiaries.......................... 49,214 11,711 Commitments and contingencies................................................. -- -- Shareholders' equity: Preferred stock, $0.01 par value; authorized: 100,000,000 shares; no shares issued and outstanding............................................ -- -- Excess stock, $0.01 par value; authorized: 750,000,000 shares; no shares issued and outstanding.............................................. -- -- Common stock, $0.01 par value; authorized: 650,000,000 shares; shares issued and outstanding: 73,276,716 shares in 1997 and 43,613,496 shares in 1996............................................... 733 436 Paid-in capital............................................................... 990,821 442,104 Unearned stock compensation, net of accumulated amortization of $5,825 in 1997 and $1,139 in 1996........................................ (13,116) (5,427) Distributions in excess of retained earnings.................................. (69,411) (74) --------------- --------------- Total shareholders' equity.................................................... 909,027 437,039 --------------- --------------- Total liabilities and shareholders' equity.................................... $ 2,321,105 $ 760,931 =============== ===============
See notes to financial statements. F-8 PATRIOT AMERICAN HOSPITALITY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD OCTOBER 2, 1995 (INCEPTION OF OPERATIONS) YEARS ENDED THROUGH DECEMBER DECEMBER 31, 31, ------------------------------ ------------------ 1997 1996 1995 --------------- -------------- ------------------ Revenue: Participating lease revenue.................................. $ 177,659 $ 75,893 $ 10,582 Racecourse facility and land lease revenue................... 2,792 -- -- Interest and other income.................................... 5,103 600 513 ------------- ------------- --------------- Total revenue.......................................... 185,554 76,493 11,095 ------------- ------------- --------------- Expenses: General and administrative................................... 11,157 4,500 607 Ground lease expense......................................... 4,117 1,075 -- Interest expense............................................. 51,000 7,380 89 Real estate and personal property taxes and casualty insurance.................................................. 17,958 7,150 901 Cost of acquiring leaseholds................................. 54,499 -- -- Depreciation and amortization................................ 49,069 17,420 2,590 ------------- ------------- --------------- Total expenses......................................... 187,800 37,525 4,187 ------------- ------------- --------------- (Loss) income before equity in earnings of unconsolidated subsidiaries, minority interests and extraordinary item...... (2,246) 38,968 6,908 Equity in earnings of unconsolidated subsidiaries............ 6,015 5,845 156 ------------- ------------- --------------- Income before minority interests and extraordinary item......... 3,769 44,813 7,064 Minority interest in the REIT Partnership.................... (1,713) (6,767) (968) Minority interest in consolidated subsidiaries............... (1,674) (55) -- -------------- -------------- --------------- Income before extraordinary item................................ 382 37,991 6,096 Extraordinary loss from early extinguishment of debt, net of minority interest.......................................... (2,534) -- (737) -------------- ------------- ---------------- Net (loss) income............................................... $ (2,152) $ 37,991 $ 5,359 ============== ============= =============== Basic earnings (loss) per common share: Income before extraordinary item............................. $ 0.01 $ 1.07 $ 0.21 Extraordinary loss........................................... (0.05) -- (0.03) ------------- ------------- --------------- Net (loss) income per common share......................... $ (0.04) $ 1.07 $ 0.18 ============= ============= ============== Diluted earnings(loss) per common share: Income before extraordinary item............................. $ 0.01 $ 1.06 $ 0.21 Extraordinary loss........................................... (0.05) -- (0.03) ------------- ------------- -------------- Net (loss) income per common share......................... $ (0.04) $ 1.06 $ 0.18 ============= ============= ==============
See notes to financial statements. F-9 PATRIOT AMERICAN HOSPITALITY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DISTRIBUTIONS UNEARNED IN EXCESS OF NUMBER OF COMMON PAID-IN STOCK RETAINED SHARES STOCK CAPITAL COMPENSATION EARNINGS TOTAL ------ ----- ------- ------------ -------- ----- Issuance of shares, net of offering expenses................ 29,210,000 $ 292 $ 312,878 $ -- $ -- $ 313,170 Acquisition of interests from affiliates....................... -- -- (19,357) -- -- (19,357) Predecessor basis of interests..... -- 1,840 -- -- 1,840 acquired from affiliates......... -- Issuance of OP Units to non-affiliates................... -- -- 9,363 -- -- 9,363 Minority interest at closing of Initial Offering.............. -- -- (41,670) -- -- (41,670) Issuance of shares to employees and directors.......... 121,870 1 1,461 (1,422) -- 40 Net income......................... -- -- -- -- 5,359 5,359 Amortization of unearned stock compensation..................... -- -- -- 71 -- 71 Common stock dividend declared..... -- -- -- -- (7,038) (7,038) ---------- -------- ----------- ---------- ----------- ----------- Balance, December 31, 1995......... 29,331,870 293 264,515 (1,351) (1,679) 261,778 Issuance of shares, net of offering expenses................ 13,916,186 139 181,253 -- -- 181,392 Issuance of shares to employees and directors.......... 365,440 4 5,177 (5,144) -- 37 Redemption price of OP Units in excess of book value.......... -- -- (8,841) -- -- (8,841) Net income......................... -- -- -- -- 37,991 37,991 Amortization of unearned stock compensation..................... -- -- -- 1,068 -- 1,068 Common stock dividends declared.... -- -- -- -- (36,386) (36,386) ---------- ----------- ----------- ---------- ----------- ----------- Balance, December 31, 1996......... 43,613,496 436 442,104 (5,427) (74) 437,039 Issuance of shares for mergers and acquisition of properties....................... 12,824,433 128 170,222 -- -- 170,350 Issuance of shares, net of offering expenses................ 15,830,033 159 367,076 -- -- 367,235 Issuance of shares to employees and directors.......... 547,867 5 12,896 (12,839) -- 62 Forfeiture of unvested employee stock grants............ (42,900) -- (464) 464 -- -- Issuance of shares for exercise of options.............. 314,967 3 2,192 -- -- 2,195 Issuance of shares to redeem OP Units......................... 188,820 2 2,494 -- -- 2,496 Redemption price of OP Units in excess of book value.......... -- -- (5,699) -- -- (5,699) Net loss........................... -- -- -- -- (2,152) (2,152) Amortization of unearned stock compensation..................... -- -- -- 4,686 -- 4,686 Common stock dividends declared.... -- -- -- -- (67,185) (67,185) ---------- ----------- -------------- ---------- ----------- ----------- Balance, December 31, 1997......... 73,276,716 $ 733 $ 990,821 $ (13,116) $ (69,411) $ 909,027 ========== =========== ============== ========== =========== ===========
See notes to financial statements. F-10 PATRIOT AMERICAN HOSPITALITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD OCTOBER 2, 1995 (INCEPTION OF OPERATIONS) YEARS ENDED THROUGH DECEMBER DECEMBER 31, 31, ------------------------------ ------------------ 1997 1996 1995 --------------- -------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income............................................ $ (2,152) $ 37,991 $ 5,359 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation............................................... 47,694 17,302 2,529 Amortization of unearned stock compensation................ 4,686 1,068 71 Amortization of deferred loan costs........................ 2,630 431 27 Amortization of lease inducement costs..................... 102 116 23 Amortization of goodwill................................... 1,257 -- -- Other amortization......................................... 118 118 61 Cost of acquiring leaseholds............................... 54,499 -- -- Payment of interest on notes receivable from unconsolidated subsidiaries.............................. 5,001 4,833 -- Accrued interest receivable................................ (550) -- -- Issuance of common stock to directors...................... 61 37 -- Equity in earnings of unconsolidated subsidiaries.......... (6,015) (5,845) (156) Minority interest in income of REIT Partnership............ 1,713 6,767 968 Minority interest in income of other consolidated subsidiaries................................ 1,674 55 -- Extraordinary items........................................ 2,534 -- 737 Changes in assets and liabilities: Lease revenue receivable................................. (6,754) (3,091) (2,260) Due from Wyndham International........................... 506 -- -- Deferred expenses........................................ (24) -- (292) Other assets............................................. (2,383) (1,003) (589) Accounts payable and other accrued expenses.............. 10,657 2,741 1,140 Due to unconsolidated subsidiaries....................... (421) (324) -- -------------- ------------- --------------- Net cash provided by operating activities.............. 114,833 61,196 7,618 ------------- ------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of hotel properties and related working capital assets..................................... (937,135) (353,217) (260,665) Improvements and additions to hotel properties............... (82,269) (21,889) (609) Changes in due from Wyndham International.................... (39,060) -- -- Changes in other assets...................................... -- 1,219 (150) Deferred acquisition costs................................... (36,617) (14,797) (598) Investment in unconsolidated subsidiaries.................... (1,574) -- (4,238) Investment in mortgage notes and other receivables from unconsolidated subsidiaries................................ (500) (31,400) (40,587) Principal payments received on mortgage and other notes receivable................................................. 139 399 -- Investment in other mortgage and other notes receivable...... (103,875) -- (101) ------------- ------------- --------------- Net cash used in investing activities.................. (1,200,891) (419,685) (306,948) -------------- ------------- ---------------
F-11 PATRIOT AMERICAN HOSPITALITY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (IN THOUSANDS)
PERIOD OCTOBER 2, 1995 (INCEPTION OF OPERATIONS) YEARS ENDED THROUGH DECEMBER DECEMBER 31, 31, ------------------------------ ------------------ 1997 1996 1995 --------------- -------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line of credit facilities, term loan and mortgage notes............................................. 1,865,634 396,302 9,500 Repay borrowings under line of credit facility............... (1,001,880) (191,463) -- Principal payments on subscription notes payable to Wyndham International...................................... (16,070) -- -- Payments to acquire interests of affiliates in the Initial Hotels............................................. -- -- (18,879) Payment of deferred loan costs............................... (24,471) (1,189) (361) Prepayment penalties on assumed mortgage loans............... -- -- (174) Payments for capital leases.................................. 503 -- -- Proceeds from issuance of common stock....................... 382,754 199,723 314,013 Payment of offering costs.................................... (15,519) (462) -- Proceeds from exercise of options to purchase common stock... 2,195 -- -- Contributions received from minority interest in consolidated subsidiaries.................................. 35,829 11,656 -- Payments to redeem OP Units.................................. (63,826) (16,584) -- Dividends and distributions paid............................. (65,335) (37,659) -- ------------- ------------- --------------- Net cash provided by financing activities.............. 1,099,814 360,324 304,099 ------------- ------------- --------------- Net increase in cash and cash equivalents....................... 13,756 1,835 4,769 Cash and cash equivalents at beginning of period................ 6,604 4,769 -- ------------- ------------- --------------- Cash and cash equivalents at end of period...................... $ 20,360 $ 6,604 $ 4,769 ============= ============= =============== Supplemental disclosure of cash flow information: Cash paid during the period for interest..................... $ 48,254 $ 6,938 $ -- ============= ============= ===============
See notes to financial statements. F-12 WYNDHAM INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, 1997 ----------------- ASSETS Current assets: Cash and cash equivalents................................................................... $ 27,076 Accounts receivable......................................................................... 46,340 Subscription notes receivable from Patriot American Hospitality, Inc........................ 12,875 Inventories................................................................................. 9,144 Prepaid expenses and other current assets................................................... 5,227 --------------- Total current assets.................................................................... 100,662 Investment in furniture, fixtures and equipment, net of accumulated depreciation of $1,304....... 28,382 Mortgage notes and other receivables............................................................. 12,983 Receivables from prior owners.................................................................... 5,767 Management contracts, net of accumulated amortization of $1,574.................................. 20,879 Trade names and franchise costs, net of accumulated amortization of $122......................... 11,166 Deferred acquisition costs....................................................................... 31,126 Goodwill, net of accumulated amortization of $594................................................ 38,008 Other assets..................................................................................... 2,126 Income taxes receivable.......................................................................... 989 --------------- Total assets............................................................................ $ 252,088 =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses....................................................... $ 19,203 Accrued liabilities......................................................................... 22,663 Dividends and distributions payable......................................................... 451 Participating lease payments payable to Patriot American Hospitality, Inc................... 9,519 Sales taxes payable......................................................................... 5,616 Deposits.................................................................................... 12,423 Notes and other amounts payable to Patriot American Hospitality, Inc........................ 42,946 --------------- Total current liabilities............................................................... 112,821 Deferred income tax liability.................................................................... 9,550 Other liabilities................................................................................ 2,835 Minority interest in OpCo Partnership............................................................ 45,537 Minority interest in other consolidated subsidiaries............................................. 480 Commitments and contingencies.................................................................... -- Shareholders' equity: Preferred stock, $0.01 par value; authorized: 100,000,000 shares; no shares issued and outstanding........................................................ -- Excess stock, $0.01 par value; authorized: 750,000,000 shares; no shares issued and outstanding........................................................ -- Common stock, $0.01 par value; authorized: 650,000,000 shares; issued and outstanding: 73,276,716 shares............................................... 733 Paid-in capital............................................................................. 80,152 Retained earnings/(deficit)................................................................. (20) --------------- Total shareholders' equity.............................................................. 80,865 --------------- Total liabilities and shareholders' equity.............................................. $ 252,088 ===============
See notes to financial statements. F-13 WYNDHAM INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED DECEMBER 31, 1997 ----------------- Revenue: Room revenue.................................................................................. $ 95,095 Other hotel revenue........................................................................... 72,632 Racecourse facility revenue................................................................... 26,344 Management fee and service fee income......................................................... 7,088 Interest and other income..................................................................... 2,975 --------------- Total revenue............................................................................. 204,134 --------------- Expenses: Departmental costs -- hotel operations........................................................ 84,758 Racecourse facility operations................................................................ 24,245 Direct operating costs of management company and service department........................... 1,216 General and administrative.................................................................... 6,024 Repair and maintenance........................................................................ 7,821 Utilities..................................................................................... 7,144 Marketing..................................................................................... 15,437 Management fees............................................................................... 1,941 Depreciation and amortization................................................................. 3,616 Participating lease payments.................................................................. 50,626 Interest expense.............................................................................. 933 -------------- Total expenses ........................................................................... 203,761 --------------- Income before income tax provision and minority interests........................................ 373 Income tax provision.......................................................................... (481) ---------------- Loss before minority interests................................................................... (108) Minority interest in OpCo Partnership......................................................... 29 Minority interest in other consolidated subsidiaries.......................................... 59 --------------- Net loss......................................................................................... $ (20) ================ Basic earnings per common share.................................................................. $ -- =============== Diluted earnings per common share................................................................ $ -- ===============
See notes to financial statements. F-14 WYNDHAM INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
RETAINED COMMON PAID-IN EARNINGS/ NUMBER OF SHARES STOCK CAPITAL (DEFICIT) TOTAL Issuance of shares for mergers and acquisition of properties... 57,135,658 $ 571 $ 61,025 $ -- $ 61,596 Issuance of shares, net of offering expenses............... 15,830,033 159 19,341 -- 19,500 Issuance of shares to employees -- and directors................... 4,167 -- -- -- Forfeiture of unvested employee -- stock grants.................... (42,900) -- -- -- Issuance of shares for exercise -- of options...................... 310,938 3 109 112 Issuance of shares to redeem OP -- Units........................... 38,820 -- 60 60 Redemption price of OP Units in excess of book value......... -- -- (383) -- (383) Net loss.......................... -- -- -- (20) (20) ---------------- ----------- ----------- ----------- ------------ Balance, December 31, 1997........ 73,276,716 $ 733 $ 80,152 $ (20) $ 80,865 ================ =========== =========== =========== ============
See notes to financial statements. F-15 WYNDHAM INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED DECEMBER 31, 1997 ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................................................... $ (20) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation........................................................................... 1,328 Amortization of management contracts and trade names................................... 1,694 Amortization of goodwill............................................................... 594 Accrued interest receivable............................................................ (768) Minority interest in income of OpCo Partnership........................................ (29) Minority interest in income of other consolidated subsidiaries......................... (59) Changes in assets and liabilities: Accounts receivable.................................................................... (18,176) Inventories............................................................................ (2,736) Other assets........................................................................... (822) Accounts payable and other accrued expenses............................................ 8,028 Deposits............................................................................... 2,354 Participating lease payments payable to Patriot American Hospitality, Inc.............. 2,395 Other amounts payable to Patriot American Hospitality, Inc............................. (506) ----------------- Net cash used in operating activities......................................... (6,723) ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Improvements and additions to furniture and fixtures....................................... (2,099) Payment of merger-related costs............................................................ (9,045) Cash received upon acquisition of hotel leases............................................. 14,192 Investment in mortgage notes and other receivables......................................... (4,281) ----------------- Net cash used in investing activities...................................... (1,233) ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments received on subscription notes receivable......................................... 16,070 Capital leases............................................................................. 141 Net proceeds from issuance of common stock................................................. 19,191 Distributions paid......................................................................... (370) ----------------- Net cash provided by financing activities..................................... 35,032 ----------------- Net increase in cash and cash equivalents....................................................... 27,076 Cash and cash equivalents at beginning of period................................................ -- ----------------- Cash and cash equivalents at end of period...................................................... $ 27,076 ================= Supplemental disclosure of cash flow information: Cash paid during the period for income taxes............................................... $ 325 =================
See notes to financial statements. F-16 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1. ORGANIZATION: The entity formerly known as Patriot American Hospitality, Inc. (collectively with its subsidiaries, "Old Patriot"), a Virginia corporation, was formed April 17, 1995 as a self-administered real estate investment trust ("REIT") for the purpose of acquiring equity interests in hotel properties. On October 2, 1995, Old Patriot completed an initial public offering (the "Initial Offering") of 29,210,000 shares of its common stock and commenced operations. On July 1, 1997, Old Patriot merged with and into California Jockey Club ("Cal Jockey"), with Cal Jockey being the surviving legal entity (the "Cal Jockey Merger"). Cal Jockey's shares of common stock are paired and trade together with the shares of common stock of Bay Meadows Operating Company ("Bay Meadows") as a single unit pursuant to a stock pairing arrangement. In connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot American Hospitality, Inc." ("Patriot") and Bay Meadows changed its name to "Patriot American Hospitality Operating Company." Subsequent to year end, as a result of the merger of Wyndham Hotel Corporation with and into Patriot as discussed in Note 21 (see also Note 12), Patriot American Hospitality Operating Company changed its name to "Wyndham International, Inc." and is referred to herein, collectively with its subsidiaries, as "Wyndham International". The term "Companies" as used herein includes Patriot, Wyndham International and their respective subsidiaries. Patriot and Wyndham International are both Delaware corporations. The Cal Jockey Merger has been accounted for as a reverse acquisition whereby Cal Jockey is considered to be the acquired company for accounting purposes. Consequently, the historical financial information of Old Patriot became the historical financial information for Patriot. For accounting purposes, Wyndham International commenced its operations concurrent with the closing of the Cal Jockey Merger on July 1, 1997. The financial statements have been adjusted for the purchase method of accounting whereby the Bay Meadows Racecourse ("Racecourse") facilities and related leasehold improvements owned by Cal Jockey and Bay Meadows have been adjusted to estimated fair market value. The excess purchase consideration over the estimated fair market value of the assets acquired and the liabilities assumed was recorded as goodwill. By operation of the Cal Jockey Merger, each issued and outstanding share of common stock, no par value per share of Old Patriot ("Old Patriot Common Stock") was converted into 0.51895 shares of common stock, par value $0.01 per share of Patriot ("Patriot Common Stock") and 0.51895 shares of common stock, par value $0.01 per share of Wyndham International ("Wyndham International Common Stock"), which shares are paired and transferable only as a single unit (collectively, shares of Patriot Common Stock and shares of Wyndham International Common Stock are referred to herein as the "Paired Shares"). Each paired share of Cal Jockey and Bay Meadows common stock remained outstanding and represented the same number of Paired Shares of Patriot Common Stock and Wyndham International Common Stock. In connection with the Cal Jockey Merger, Bay Meadows formed an operating partnership, Patriot American Hospitality Operating Partnership, L.P. (the "OpCo Partnership") into which Bay Meadows contributed its assets in exchange for units of limited partnership interest ("OP Units") of the OpCo Partnership, and Cal Jockey contributed certain of its assets to Patriot American Hospitality Partnership, L.P. (the "REIT Partnership") in exchange for OP Units of the REIT Partnership (collectively, the OpCo Partnership and the REIT Partnership are referred to herein as the "Operating Partnerships"). Subsequent to completion of the Cal Jockey Merger and the transactions contemplated by the Cal Jockey Merger Agreement, substantially all of the operations of Patriot and Wyndham International have been conducted through the Operating Partnerships and their subsidiaries. Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole general partner and the holder of a 1.0% general partnership interest in the REIT Partnership. In addition, Patriot, through its wholly owned subsidiary, PAH LP, Inc., owns an approximate 85.3% limited partnership interest in the REIT Partnership as of December 31, 1997. Wyndham International owns a 1.0% general partnership interest and an approximate 83.9% limited partnership interest in the OpCo Partnership as of December 31, 1997. F-17 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) At December 31, 1997, Patriot, through the REIT Partnership and other subsidiaries, owned interests in 91 hotels with an aggregate of over 23,300 guest rooms. Patriot leases each of its hotels, except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are separately owned through special purpose entities, to Wyndham International or to other third party lessees (the "Lessees") who are responsible for operating the hotels. At December 31, 1997, Patriot leased 17 of its hotel investments to CHC Lease Partners for staggered terms of ten to twelve years pursuant to separate participating leases providing for the payment of the greater of base or participating rent, plus certain additional charges, as applicable (the "Participating Leases"). Twelve of the hotels were leased to NorthCoast Hotels, L.L.C. ("NorthCoast Lessee") under similar Participating Lease agreements. DTR North Canton, Inc. (the "Doubletree Lessee") leased four hotels; and Metro Hotels Leasing Corporation ("Metro Lease Partners") leased one hotel under similar Participating Lease agreements. The Lessees, in turn, have entered into separate agreements with hotel management entities (the "Operators") to manage the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel acquisitions were structured without lessees and are managed directly by Holiday Inns, Inc. and Wyndham Hotel Corporation, respectively. At December 31, 1997, Wyndham International leased 55 hotels from Patriot pursuant to Participating Lease agreements which are substantially similar to the Participating Lease agreements of the Lessees. Wyndham International manages 31 of these hotels through certain of its hotel management subsidiaries and has entered into separate management agreements with hotel Operators to manage 24 of the hotels. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation The separate consolidated financial statements include the accounts of Patriot and Wyndham International, their respective wholly-owned subsidiaries, and the partnerships, corporations and limited liability companies in which Patriot or Wyndham International own at least 50% controlling interest. The separate consolidated financial statements of Patriot and Wyndham International have also been combined for purposes of financial statement presentation. All significant intercompany accounts and transactions have been eliminated. Investment in Real Estate and Related Improvements The hotel properties are stated at cost. Depreciation is computed using the straight-line method based upon estimated useful lives of the assets of 35 years for the hotel buildings and improvements, 7 years for the Racecourse facility and 5 to 7 years for furniture, fixtures and equipment. These estimated useful lives are based on management's knowledge of the properties and the industry in general. The acquisition of affiliated interests in the 20 hotels acquired in connection with Old Patriot's Initial Offering (the "Initial Hotels") has been recorded at predecessor cost. In connection with the Initial Offering, cash payments to acquire the interests of predecessor owners who were deemed to be affiliates of Old Patriot have been reflected as a reduction of shareholders' equity in the accompanying financial statements in 1995. In accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, Patriot would record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No such impairment losses have been recognized to date. Repairs and maintenance of hotel properties owned by Patriot are paid by the Lessees (including Wyndham International). Major renewals and betterments are capitalized. Interest associated with borrowings used to finance substantial hotel renovations is capitalized and amortized over the estimated useful life of the assets. Interest of $2,562 and $91 was capitalized in 1997 and 1996, respectively. F-18 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Cash and Cash Equivalents All highly liquid investments with an original maturity date of three months or less when purchased are considered to be cash equivalents. Investment in Unconsolidated Subsidiaries Patriot's investments in PAH Ravinia, Inc. ("PAH Ravinia"), the entity which owns the Crowne Plaza Ravinia Hotel, PAH Windwatch, L.L.C. ("PAH Windwatch"), the entity which owns the Wyndham WindWatch Hotel, and PAH Boulders, Inc. (PAH Boulders"), the entity which owns certain assets including the right to receive certain royalty fees, are accounted for using the equity method of accounting. Patriot owns an approximate 99% non-voting interest in each of these entities. The voting interests of PAH Ravinia and PAH Windwatch are owned by partnerships in which Patriot has a 4% interest. The voting interests of PAH Boulders are held by the OpCo Partnership. Patriot's share of the net income of PAH Ravinia, PAH Windwatch and PAH Boulders is included in Patriot's statement of operations. Inventories Inventories consist of food, beverages, china, linen, glassware and silverware and are stated at cost, which approximates market. Management contracts, trade names and franchise costs The costs associated with the acquisition of management contracts, trade names and franchises have been recorded as deferred costs. Amortization of management contracts is computed using the straight-line method over the term of the related management agreements. Amortization of trade names and franchise costs is computed using the straight-line method over estimated useful lives ranging from 20 to 35 years. Deferred Expenses Deferred expenses consist of the following:
December 31, ------------------------------- 1997 1996 --------------- -------------- Deferred loan costs............................................. $ 22,798 $ 1,550 Leasing costs................................................... -- 1,684 Franchise fees.................................................. 429 429 Organization costs.............................................. 150 150 Other........................................................... 137 -- ------------ ------------- 23,514 3,813 Less: accumulated amortization.................................. (2,097) (750) ------------ ------------- $ 21,417 $ 3,063 ============ =============
Deferred loan costs are amortized to interest expense on a straight-line basis (which approximates the interest method) over the terms of the related loans, which range from one to ten years. Deferred loan costs includes $4,132 of fully-amortized costs associated with Patriot's old line of credit facility which was repaid in July 1997 (see Note 7). Leasing costs are amortized to participating lease revenue over the lives of the leases. Pursuant to the acquisition of certain leaseholds and a merger agreement described in Note 4, the remaining unamortized balance of leasing costs was written off in 1997. Franchise costs are amortized using the straight-line method over the terms of the related franchise agreements. Amortization of organization costs is computed using the straight-line method over five years. F-19 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Goodwill Goodwill recognized in connection with the acquisition of certain businesses is amortized utilizing the straight-line method over a period of 20 to 40 years. Under generally accepted accounting principles the maximum amortization period is 40 years for intangible assets. Other Assets Leasehold improvements and furniture, fixtures and equipment related to the Companies' corporate offices are carried at cost and amortized over estimated useful lives of 5 to 7 years. Deposits Deposits represent cash received from guests for future hotel reservations at the hotels that Wyndham International manages. Revenue Recognition The REIT Partnership leases its hotel properties to Wyndham International and the Lessees pursuant to separate Participating Leases. In addition, the REIT Partnership leases the Racecourse facilities to Wyndham International pursuant to a separate lease agreement (see Note 3). Lease income is recognized when earned under the related leases. Wyndham International operates and manages hotel properties and the Racecourse facility. Hotel revenue, management fees, service fees, Racecourse facility revenue and other income are recognized when earned. Stock Splits On January 30, 1997, the Board of Directors declared a 2-for-1 stock split on Old Patriot Common Stock effected in the form of a stock dividend distributed on March 18, 1997 to shareholders of record on March 7, 1997. In addition, on July 10, 1997, the respective Boards of Directors of Patriot and Wyndham International declared a 1.927-for-1 stock split on its shares of common stock effected in the form of a stock dividend distributed on July 25, 1997 to shareholders of record on July 15, 1997. Unless otherwise indicated, all references in the combined and consolidated financial statements to the number of shares, per share amounts, and market prices of the common stock and options to purchase common stock have been restated to reflect the impact of the conversion of each share of Old Patriot Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and the 1.927-for-1 stock split. In addition, all references in the combined and consolidated financial statements to the number of shares, per share amounts, and market prices of the common stock and options to purchase common stock related to periods prior to the 2-for-1 stock split distributed in March 1997 have been restated to reflect the impact of such stock split. As a result of the 2-for-1 stock split in March 1997, the Cal Jockey Merger and the 1.927-for-1 stock split in July 1997, the number of OP Units outstanding and the OP Unit conversion factor has been adjusted to re-establish a 1-for-1 exchange ratio of OP Units to common shares. Earnings per Share The Companies have adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("Statement 128") for the year ended December 31, 1997. Statement 128 specifies the computation, presentation and disclosure requirements for basic earnings per share and diluted earnings per share. Earnings per share disclosures for all periods presented have been calculated in accordance with requirements of Statement 128. Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period presented. Shares of common stock granted to officers and employees of Patriot and Wyndham International F-20 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) are included in the computation only after the shares become fully vested. Diluted earnings per share is computed based upon the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the periods presented. The diluted earnings per share computations also include options to purchase common stock which were outstanding during the period. The number of shares outstanding related to the options has been calculated by application of the "treasury stock" method. See Note 11 for more detailed disclosures regarding the applicable numerators and denominators used in the earnings per share calculations. Dividends Patriot intends to pay regular quarterly dividends in order to maintain its REIT status under the Internal Revenue Code. Payment of such dividends is dependent upon receipt of distributions from the REIT Partnership. Stock Compensation The Companies account for their stock compensation arrangements under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and intend to continue to do so. See Note 15 for a discussion of the Companies' stock compensation arrangements and pro forma disclosure of the effect on income from operations and earnings per share of such arrangements pursuant to the requirements of Financial Accounting Standards Board Statement 123, "Accounting for Stock-Based Compensation" ("Statement 123"). Equity Transactions Subject to Price Adjustment The Companies have entered into various equity transactions which are subject to price adjustment agreements based upon the future fair market value of the Companies' Paired Shares. The agreements generally provide for a quarterly settlement mechanism involving either cash or the issuance or receipt of additional Paired Shares. At each settlement date, the Companies will record an adjustment to equity for the change in fair market value of the Companies' Paired Shares subject to these price adjustment agreements. Minority Interest in the Operating Partnerships Minority interest in the Operating Partnerships includes adjustments for the minority partners' share of the current period net income and certain other adjustments for the issuance or redemption of OP Units. Income Taxes Patriot intends to continue to qualify to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. Under the Internal Revenue Code, if certain requirements are met in a tax year, a corporation that is treated as a REIT will generally not be subject to federal income tax with respect to income which it distributes to its shareholders. Patriot has declared dividends in excess of its taxable income for 1996 and 1995. Accordingly, no provision for income taxes has been reflected in the statement of operations. For federal income tax purposes, 1997 dividends amounted to $1.17 per share, none of which was considered return of capital. In 1996, dividends amounted to $0.98 per share, none of which was considered return of capital and in 1995, dividends amounted to $0.24 per share, 26% of which was considered a return of capital. Earnings and profits, which determine the taxability of dividends to shareholders, differ from net income reported for financial reporting purposes due to differences for federal tax purposes in the estimated useful lives used to compute depreciation and the carrying value (basis) of the investment in hotel properties. Additionally, certain costs associated with the Initial Offering are treated differently for federal tax purposes than for financial reporting purposes. Wyndham International records its provision for income taxes in accordance with Statement of Financial Accounting Standard No. 109 ("Statement 109"). Under the liability method of Statement 109, deferred taxes are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect in the years the differences are expected to reverse. See Note 16. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. F-21 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Concentrations With the exception of its investment in the Racecourse facility, Patriot currently invests exclusively in hotel properties. The hotel industry is highly competitive and Patriot's hotel investments are subject to competition from other hotels for guests. Each of Patriot's hotels competes for guests primarily with other similar hotels in its immediate vicinity and other similar hotels in its geographic market. Patriot believes that brand recognition, location, the quality of the hotel and services provided, and price are the principal competitive factors affecting its hotel investments. In 1997, 1996 and 1995, Patriot earned rents under the Participating Leases of $177,659, $75,893 and $10,582, respectively (net of leasing cost amortization of $102, $116 and $23, respectively), of which $52,714, $54,186 and $10,432 was earned from the Participating Leases with CHC Lease Partners in 1997, 1996 and 1995, respectively. (In addition, Patriot earned rents under the Participating Leases with Wyndham International of $50,626 in 1997. Such participating lease revenue and the related expense has been eliminated in the combined statements of operations.) Patriot must rely on Wyndham International and the Lessees to generate sufficient cash flow from operation of the hotels to enable the Lessees to meet rent obligations under the Participating Leases. (See also Note 3 for discussion of the agreement to acquire certain affiliates of CHC Lease Partners and, as a result, acquire the remaining 17 leasehold interests held by CHC Lease Partners). Seasonality The hotel industry is seasonal in nature. Revenues at certain hotels are greater in the first and second quarters of a calendar year and at other hotels in the second and third quarters of a calendar year. Seasonal variations in revenues at Patriot's hotels may cause quarterly fluctuations in Patriot's lease revenues. Reclassification Certain prior year balances have been reclassified to conform to the current year presentation. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("Statement 130"), "Reporting Comprehensive Income." Statement 130 requires that all components of comprehensive income and the ending accumulated balances for each item, classified by their nature, be reported in the financial statements in the period in which they are recognized. Statement 130 is effective for fiscal years beginning after December 15, 1997. The Companies will be required to adopt Statement 130 beginning with their interim financial statements for the first quarter of 1998. Comparative financial statements for prior years presented in these interim financial statements are required to be reclassified to conform to the new Statement 130 presentation. Management does not anticipate that adoption of Statement 130 reporting requirements will have a material impact on the operating results or financial position of the Companies. Segment Reporting In June 1997, FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 specifies revised guidelines for determining the entity's operating segments and the type and level of financial information to be disclosed. SFAS 131 changes current practice by establishing new framework on which to base segment reporting, including the determining of a segment and the financial information to be disclosed for each segment, referred to as "management" approach. The management approach requires that management identify "operating segments" based on the way that management disaggregates the entity for making internal operating decisions. SFAS 131 is effective for the fiscal years beginning after December 15, 1997, and requires restatement of information for earlier periods. Management is determining the segments to be disclosed and intends to adopt the statement for the year ended December 31, 1998. F-22 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 3. INVESTMENTS IN REAL ESTATE AND RELATED IMPROVEMENTS AND LAND HELD FOR DEVELOPMENT: Investment in Real Estate and Related Improvements and Land Held for Development consists of the following:
As of December 31, As of December 31, 1997 1996 ---------------------------------------------------------------- ------------ Patriot ---------------------------------------------- Patriot Hotel Racecourse Wyndham Hotel Properties Facility Total International Properties ------------- ------------ ------------ ------------- ------------ Land.......................... $ 168,222 $ -- $ 168,222 $ -- $ 56,739 Land held for development..... 17,980 -- 17,980 -- -- Buildings and improvements.... 1,676,551 18,795 1,695,346 -- 540,755 Furniture, fixtures and equipment.................. 187,705 517 188,222 29,686 64,146 Renovations in progress....... 13,998 -- 13,998 -- -- ------------- ------------ ------------ ------------ ------------ 2,064,456 19,312 2,083,768 29,686 661,640 Less: accumulated depreciation (66,122) (1,379) (67,501) (1,304) (19,815) ------------- ------------ ------------ ------------ ------------ $ 1,998,334 $ 17,933 $ 2,016,267 $ 28,382 $ 641,825 ============= ============ ============ ============ ============
Investments in Hotel Properties During 1995, Old Patriot, through the REIT Partnership, acquired 21 hotels for approximately $327,236 (including closing costs). These acquisitions were financed primarily with net proceeds of the Initial Offering and $47,685 in OP Units (including $38,322 in OP Units paid to affiliates). In connection with the assumption and repayment of mortgage and other indebtedness on certain of these properties, Patriot assumed $680 in unamortized deferred financing costs which were written off upon repayment of the debt, and paid $174 in mortgage prepayment penalties. These amounts have been reported as an extraordinary item in the accompanying financial statements. During 1996, Old Patriot acquired investments in 23 hotels for approximately $372,147 (including closing costs and approximately $3,456 related to the assumption of operating liabilities and acquisition costs). These acquisitions were financed primarily with funds drawn on Old Patriot's line of credit facility and the issuance of 600,703 OP Units valued at approximately $16,391. In addition, the payment of a portion of the purchase price related to the acquisition of six of the hotels, in the amount of $2,000, was paid in February 1998. This amount is included in accounts payable and accrued expenses at December 31, 1997 and 1996. During 1997, Patriot, through the REIT Partnership and its subsidiaries, invested approximately $1,331,459 in the acquisition of 45 hotels with a total of approximately 12,000 guest rooms. These acquisitions were financed primarily with funds drawn on Patriot's revolving credit facility (and Old Patriot's line of credit), the $350,000 term loan, new mortgage financing in the amount of $236,892, the issuance of 5,629,172 OP Units valued at approximately $130,137, the issuance of 1,719,535 Paired Shares valued at approximately $38,492, like-kind exchange of properties (see discussion below) and the assumption of mortgage debt in the amount of approximately $34,263. Like-Kind Exchange of Properties On July 14, 1997, Patriot sold approximately 174 acres of land in San Mateo, California, representing substantially all of the land which was owned by Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber Incorporated ("PaineWebber") for a purchase price of approximately $80,864 (the "PaineWebber F-23 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Land Sale"). These funds were placed in a restricted trust account in order to facilitate a tax-deferred, like-kind exchange through the acquisition of suitable hotel properties. During 1997, six hotels were acquired using the proceeds from this restricted account. Patriot retained ownership of the improvements located on the land, including the Racecourse and its related facilities. Cal Jockey Merger At the closing of the Cal Jockey Merger, 11,105,795 paired shares of Cal Jockey and Bay Meadows were outstanding, resulting in total purchase consideration for the transaction of approximately $190,188 (of which $130,516 related to Cal Jockey and $59,672 related to Bay Meadows). The estimated value of the Cal Jockey and Bay Meadows paired shares was $33.00 per paired share based on a conversion ratio of Old Patriot Common Stock into Paired Shares equal to 0.51895, and the closing market price of Old Patriot's Common Stock on October 30, 1996 (the date the Cal Jockey Merger Agreement was executed) of $17.125. Land Leases Simultaneous with the consummation of the PaineWebber Land Sale, the PaineWebber affiliate and Patriot entered into a ground lease covering a portion of the land on which the Racecourse is situated for a term of seven years. The lease provides for quarterly rental payments of $750 through March 1998, $813 through March 1999, $875 through March 2000, $1,000 through March 2002 and $1,250 through July 2004. Patriot has subleased the Racecourse land and leased the related improvements to a wholly owned subsidiary of Wyndham International in order to permit Wyndham International to continue horseracing operations at the Racecourse through the term of Patriot's lease. The sublease is for a term of seven years with annual payments based on percentages of revenue generated. In addition, Patriot has leased certain land adjacent to the Racecourse to Borders, Inc. (the "Borders Lease") for an initial term of 20 years with a fixed net annual rent of $279 for years 1 through 10, $362 for years 11 through 15 and $416 for years 16 through 20. In connection with the sale, Patriot assigned all of its rights and benefits under existing leases, contracts, permits and entitlements relating to the land sold (excluding the Borders Lease) to the PaineWebber affiliate, and the PaineWebber affiliate assumed substantially all of Patriot's development obligations including, but not limited to, all obligations for on and off-site improvements and all obligations under existing lease and contracts. Pursuant to the agreement, Patriot is obligated to fund up to $10,250 of development costs for new stables ($4,000 of which has been funded as of December 31, 1997). The parties have the option to renew such leases upon their expiration under certain circumstances. Land Held for Development In connection with the acquisition of four resort properties, Patriot acquired certain land held for development, including commercial and residential land and construction in progress of single-family homes. Patriot recorded proceeds of approximately $8,393 as a result of land sales for the year ended December 31, 1997 which was recorded as a reduction in the basis of land held for development. As part of the continued growth of the Companies, Patriot intends to sell the land held for development to Wyndham International to further develop. 4. OTHER BUSINESSES ACQUIRED: Grand Heritage In August 1997, Wyndham International acquired Grand Heritage Hotels, Inc. a hotel management and marketing company, and other Grand Heritage subsidiaries including Grand Heritage Leasing, L.L.C. which leased three hotels from Patriot (the "Grand Heritage Acquisition"). The total purchase price for the Grand Heritage Acquisition was approximately $22,500 which was financed primarily through the issuance of 931,972 Class A preferred OP Units of Wyndham International. Grand Heritage Hotels, Inc., directly and through certain of its subsidiaries, owns 17 management contracts, five of which are related to hotels leased by Wyndham International. F-24 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Gencom American Hospitality and CHC International, Inc. Effective September 1, 1997, Patriot acquired the leasehold interests related to seven Patriot hotels which were previously leased by CHC Lease Partners and re-leased such hotels to Wyndham International. Prior to such acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate of CHC International, Inc. ("CHCI") and the Gencom American Hospitality group of companies ("Gencom"), along with the leaseholds related to the seven hotels were terminated. In a related transaction effective October 1, 1997, Patriot acquired one additional leasehold interest related to a Patriot hotel previously leased by CHC Lease Partners and re-leased such hotel to Wyndham International (the hotel's management contract with CHCI was also terminated prior to the acquisition). The aggregate purchase price of the eight leasehold interests was approximately $52,766, which is reflected as a cost of acquiring leaseholds in the accompanying statements of operations of Patriot. Concurrently, Wyndham International purchased an approximate 50% managing, controlling ownership interest in GAH from affiliates of Gencom for a purchase price of approximately $13,860. These transactions were financed with approximately $644 of cash, and by issuing 2,388,932 paired OP Units of the REIT Partnership and the OpCo Partnership and 476,682 preferred OP Units of the OpCo Partnership. GAH, directly and through certain of its subsidiaries, owns 16 third- party management contracts, and certain other hospitality management assets. Concurrent with Wyndham International's purchase of its controlling interest in GAH, Wyndham International also entered into a Hospitality Advisory, Asset Management and Support Services Agreement with CHCI and GAH whereby Wyndham International will provide certain hospitality advisory, asset management and support services to certain CHCI and GAH subsidiaries for a base fee aggregating approximately $750 per month plus a percentage of excess cash flows of the hotels. Wyndham International reported income of $2,944 in 1997 under the provisions of this agreement (after elimination of $871 of income related to GAH). Patriot, Wyndham International and CHCI have also entered into an Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger Agreement"), providing, subject to regulatory approvals, for the merger of the hospitality-related businesses of CHCI with and into Wyndham International with Wyndham International being the surviving company (the "CHCI Merger"). Subject to regulatory approvals, CHCI's gaming operations will be transferred to a new legal entity prior to the CHCI Merger and such operations will not be a part of the transaction. It is anticipated that the CHCI Merger will be consummated in the second quarter of 1998. As a result of the CHCI Merger, Wyndham International, through its subsidiaries, will acquire the remaining 50% investment interest in GAH, the remaining 17 leases and 16 of the associated management contracts related to the Patriot hotels leased by CHC Lease Partners, 12 third-party management contracts, 2 third-party lease contracts, the Grand Bay and Registry Hotels & Resorts proprietary brand names and certain other hospitality management assets. Wyndham International has also agreed to provide CHCI with a $7,000 line of credit until such time as the CHCI Merger is completed. As of December 31, 1997, Wyndham International had advanced a total of $1,000 to CHCI pursuant to such line of credit arrangement (see Note 6). By operation of the CHCI Merger, each issued and outstanding share of common stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain stock option rights will be converted into the right to receive shares of Series A Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham International (the "Wyndham International Series A Preferred Stock") and shares of Series B Redeemable Convertible Preferred Stock, par value $0.01 per share, of Wyndham International (the "Wyndham International Series B Preferred Stock"). The formula for determining the exchange ratio of CHCI Shares for Wyndham International Series A Preferred Stock and Wyndham International Series B Preferred Stock is based on issuing an aggregate of approximately 4,396,000 shares of Wyndham International preferred stock (based on an aggregate purchase value of approximately $102,200 and a market price per paired share of $23.25), subject to reduction if certain specified events occur and subject to increase representing adjustments for dividends paid on paired shares of Patriot and Wyndham International common stock after September 30, 1997. Generally, the aggregate number of shares of Wyndham International preferred stock that each shareholder shall have the right to receive pursuant to the CHCI F-25 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Merger shall consist of, to the extent possible, an equal number of Wyndham International Series A Preferred Stock and Wyndham International Series B Preferred Stock. In connection with the acquisition of GAH, preferred OP Units of the OpCo Partnership with a value of approximately $5,000 have been held back and the CHCI Merger equity consideration is subject to reduction in the amount of approximately $5,000 if the hotels and leaseholds acquired fail to achieve certain operating targets over the period prior to the closing of the CHCI Merger. In addition, on September 30, 2000 and September 30, 2002, Wyndham International may be obligated to pay the CHCI stockholders and a subsidiary of Wyndham International may be obligated to pay a Gencom-related entity additional consideration, in each case based upon the delivery and performance of certain specified assets. 5. INVESTMENTS IN AND MORTGAGE NOTES RECEIVABLE FROM UNCONSOLIDATED SUBSIDIARIES: In December 1995, Patriot, through the REIT Partnership, acquired an approximate 99% non-voting ownership interest in PAH Ravinia, a Virginia corporation, for $4,458 and PAH Ravinia acquired the 495-room Crowne Plaza Ravinia Hotel in Atlanta, Georgia. As part of the financing for the acquisition of the Crowne Plaza Ravinia Hotel, Patriot, through the REIT Partnership, advanced $40,500 to PAH Ravinia, which is evidenced by two mortgage notes consisting of a $36,000 first mortgage note and a $4,500 second mortgage note. The principal amount of both notes is due November 28, 1998. Interest at an annual rate equal to 10.25% and 12.5% on the first and second mortgage notes, respectively, is payable monthly. All amounts owing under the mortgage notes will become due upon a sale of the hotel to a third party purchaser. The mortgage notes are collateralized by deeds of trust on the Crowne Plaza Ravinia Hotel. In September 1996, Patriot, through the REIT Partnership, acquired an approximate 99% non-voting ownership interest in PAH Windwatch, a Delaware limited liability company. Patriot's investment in PAH Windwatch of approximately $6,217 is evidenced by a promissory note. PAH Windwatch acquired the 362-room Wyndham WindWatch Hotel (formerly the Marriott WindWatch Hotel) in Hauppauge (Long Island), New York for approximately $31,102. As part of the financing for the acquisition of the Wyndham WindWatch Hotel, Patriot, through the REIT Partnership, advanced PAH Windwatch $31,400 which is evidenced by a first lien mortgage note. The principal amount of the note is due on August 31, 1999. Interest at an annual rate equal to 9% is payable monthly. All amounts owed under the mortgage note will become due upon the sale of the hotel to a third party purchaser. The mortgage note is collateralized by a deed of trust on the Wyndham WindWatch Hotel. In January 1997, in connection with the acquisition of four resort properties, Patriot, through the REIT Partnership, contributed certain assets associated with these resorts (including the right to receive certain royalty fees) valued at $1,574 in exchange for an approximate 99% non-voting ownership interest in PAH Boulders, Inc., a Virginia corporation. The controlling 1% voting ownership interest in PAH Boulders, Inc. was held by certain executive officers of Patriot. In October 1997, Wyndham International acquired this 1% voting ownership interest for nominal consideration. 6. OTHER NOTES RECEIVABLE: On August 1, 1997, Wyndham International purchased a participating loan from National Resort Ventures, L.P., a Delaware limited partnership, related to the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for $23,750 (the "Participating Note"). The Participating Note has an outstanding principal balance at December 31, 1997 of $8,664. The difference between the purchase price of the Participating Note and the principal balance was recorded as deferred acquisition cost. The Participating Note is subordinated to a ground lease, a $50,300 first leasehold mortgage loan and a separate $8,500 participating loan and bears interest at a rate of 13% per annum. See Notes 12 and 21. F-26 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) On November 30, 1997, Wyndham International loaned $3,250 to a partnership affiliated with certain former owners of Grand Heritage management company who own the Broadview Hotel in Wichita, Kansas. The promissory note accrues interest at a rate of 12.5% per annum. Monthly payments of interest at a rate of 9.5% per annum are required. In addition, monthly interest payments at a rate of 3.0% per annum are payable from excess cash flow (as defined in the note agreement). The principal balance and all unpaid accrued interest are due on November 30, 2000. As of December 31, 1997, the outstanding principal and accrued interest balance of this note was $3,315. In connection with the CHCI Merger agreement, Wyndham International has advanced an aggregate of $1,000 to CHCI as of December 31, 1997. These advances bear interest at a rate of 1% above the interest rate applicable to base rate loans under the Companies' unsecured revolving credit facility (as such rate is defined in the revolving credit facility agreement). Interest payments are required monthly in arrears. The advances may be prepaid without penalty and are due upon the closing of the CHCI Merger (see Note 4). 7. LINE OF CREDIT FACILITY, TERM LOAN AND MORTGAGE NOTES: Outstanding borrowings under Patriot's line of credit facilities, term loan and various mortgage notes consist of the following:
December 31, --------------------------- 1997 1996 ------------- ------------- Line of credit facilities ................................... $ 455,743 $ 192,339 Term Loan ................................................... 350,000 -- Paine Webber Mortgage Financing ............................. 103,000 -- Mortgage notes payable to Metropolitan Life Insurance Company..................................................... 98,892 -- Other mortgage debt ......................................... 104,702 22,000 ---------- ---------- $1,112,337 $ 214,339 ========== ==========
Line of Credit Facilities Unsecured Revolving Credit Facility. On July 21, 1997, the Companies entered into a revolving credit facility with Paine Webber Real Estate, The Chase Manhattan Bank ("Chase") and certain other lenders for a 3-year unsecured Revolving Credit Facility (the "Revolving Credit Facility"). The original Revolving Credit Facility commitment was in the amount of $700,000, however, in December 1997, this amount was increased to $900,000. Borrowings have been made under the Revolving Credit Facility to repay all outstanding amounts under Old Patriot's secured line of credit with Paine Webber Real Estate (the "Old Line of Credit"). The Revolving Credit Facility may also be used for acquisition of additional properties, businesses and other assets, for capital expenditures and for general working capital purposes. The interest rate for the Revolving Credit Facility ranges from LIBOR plus 1.0% to 2.0% (depending on the Companies' leverage ratio or investment grade ratings received from the rating agencies) or the customary alternate base rate announced from time to time plus 0.0% to 0.5% (depending on the Companies' leverage ratio). The weighted average interest rate in effect for the Revolving Credit Facility for the period ended December 31, 1997 was 7.63% per annum. As of December 31, 1997, $455,743 was outstanding under the Revolving Credit Facility. The Revolving Credit Facility requires the Companies to maintain certain financial ratios with respect to liquidity, loan to value and net worth and imposes certain limitations on acquisitions. The Companies are in compliance with such covenants at December 31, 1997. The unused commitment under the Revolving Credit Facility at December 31, 1997 is $444,257, subject to certain restrictions and provisions of the Revolving Credit Facility Agreement. F-27 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) The Companies have entered into three interest rate swap arrangements to swap floating rate LIBOR-based interest rates for fixed rate interest amounts as a hedge against $375,000 of the outstanding balance on the Revolving Credit Facility. Each of the interest rate swaps covers $125,000 of borrowings under the Revolving Credit Facility and fixes the LIBOR portion of the Revolving Credit Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The interest rate swap arrangements expire November 2002. If the actual LIBOR rate is less than the specified fixed interest rate, Patriot is obligated to pay the differential interest amount, such amount being recorded as incremental interest expense. If the LIBOR is greater than the specified fixed interest rate, the differential interest amount is refunded to Patriot. Patriot paid $587 of net incremental interest expense related to the interest rate swap arrangements in 1997. Old Line of Credit. In connection with the Initial Offering, Old Patriot obtained the Old Line of Credit, a revolving credit facility to fund the acquisition of hotels, renovations and capital improvements to hotels and for general working capital purposes. The Old Line of Credit was collateralized by a first mortgage lien on certain of the hotels. The Old Line of Credit incurred interest on outstanding balances at a rate per annum equal to the 30-day LIBOR rate plus 1.90%. LIBOR was 5.56% at December 31, 1996 and 5.69% at December 31, 1995. The weighted average interest rate incurred by Patriot during 1996 and 1995 under this borrowing was 7.38% and 7.71%, respectively. The Old Line of Credit was repaid with funds drawn on the Revolving Credit Facility in July 1997. In connection with the repayment of the Old Line of Credit, $2,910 of unamortized deferred loan costs related to the Old Line of Credit were written off. Such amount (net of the minority interest portion which equals $376) has been reported as an extraordinary item in Patriot's consolidated statements of operations. Term Loan Patriot has a $350,000 unsecured term loan with Paine Webber Real Estate and Chase (the "Term Loan"). The Term Loan was used to finance payments made in connection with the acquisition in December 1997 of certain hotel properties, has an interest rate per annum equal to the interest rate on the Revolving Credit Facility (7.96% at December 31, 1997), and matures January 31, 1999. Paine Webber Mortgage Financing In July 1997, Patriot entered into a short-term financing arrangement (the "Paine Webber Mortgage Financing") with an affiliate of Paine Webber Real Estate Securities, Inc. ("Paine Webber Real Estate") whereby such affiliate loaned Patriot $103,000 through April 15, 1998 at a rate equal to the greater of 30-day LIBOR plus 1.75% or the borrowing rate on the Revolving Credit Facility. The weighted average interest rate incurred under this borrowing was 7.6% for the period ended December 31, 1997. The proceeds of the Paine Webber Mortgage Financing were used by Patriot to fund or acquire four mortgage loans to certain partnerships affiliated with members of CHC Lease Partners. The Paine Webber Mortgage Financing is secured by a collateral assignment of the first lien mortgage loans encumbering four hotels (which have an aggregate net book value as of December 31, 1997 of $122,786). In September and October 1997, Patriot, through the REIT Partnership and certain other subsidiaries, acquired the four partnerships that own the hotels securing these mortgage notes. Metropolitan Life Insurance Company Mortgage Notes In connection with the purchase of four hotels in September 1997, Patriot obtained $98,892 of mortgage financing with Metropolitan Life Insurance Company encumbering six hotels (which have an aggregate net book value as of December 31, 1997 of $197,488). The loans bear interest at 8.08% per annum, and require monthly payments of interest only until 1999. Thereafter, monthly payments of principal and interest, in the amount of $755 are required until the October 1, 2007 maturity date. Other Mortgage Debt Patriot, through the REIT Partnership and other subsidiaries, is obligated under other mortgage notes with various banks and financial institutions that, as of December 31, 1997, had outstanding balances totaling $104,702. These notes are collateralized by mortgage liens on the property and equipment of seven hotels (which have an F-28 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) aggregate net book value as of December 31, 1997 of $147,711). The notes bear interest at rates ranging from 6.5% to 9.75% per annum and maturity dates in 1998 through 2005. The weighted average interest rate incurred by Patriot under these borrowings during the year ended December 31, 1997 was 7.35%. Under the terms of the related loan agreements, principal amortization and balloon payment requirements at December 31, 1997 are as follows for each of the next five years: Year Amount ---- ------ 1998........................................ $ 160,132 1999........................................ 350,826 2000........................................ 457,521 2001........................................ 1,928 2002........................................ 2,090 2003 and thereafter......................... 139,840 ------------- $ 1,112,337 ============= Forward Sale Transaction In addition, in November 1997, Patriot entered into two forward sale transactions with The Chase Manhattan Bank in the aggregate principal amount of $275,000. The terms of the transactions provide that on June 2, 1998, either Chase will be obligated to pay Patriot or Patriot will be obligated to pay Chase a cash settlement amount based on the then current yield on 10-year U.S. Treasury Notes. The forward sale transactions cover principal amounts of $175,000 with a forward yield of 6.0% and $100,000 with a forward yield of 5.995%. If the index price of the securities on June 1, 1998 is greater than the "Forward Price" (which is to be calculated based on the forward yield rate and the economic variables applicable to 10-year U.S. Treasury Notes), Patriot will be obligated to pay Chase a cash settlement amount based on the spread between the index price and the Forward Price times the principal amount. If the index price is less than the Forward Price, Chase will be obligated to pay Patriot a cash settlement amount based on the spread between the index price and the Forward Price times the principal amount. 8. SUBSCRIPTION NOTES: In order to effect the issuance of the paired shares of common stock and OP Units which were issued in the Cal Jockey Merger, the REIT Partnership subscribed for shares of Bay Meadows common stock (which became shares of Wyndham International Common Stock) in an amount equal to the number of shares of Patriot Common Stock that were issued to Old Patriot stockholders in the Cal Jockey Merger. In addition, the REIT Partnership similarly subscribed for OP Units in the OpCo Partnership in an amount equal to the number of OP Units of the REIT Partnership that were outstanding subsequent to the Cal Jockey Merger. These subscriptions were funded through the issuance of promissory notes in the aggregate amount of $58,901 (the "Subscription Notes") payable to Wyndham International. The Subscription Notes, as amended, accrue interest at a rate of 8% per annum and mature December 31, 1998. As of December 31, 1997, the Subscription Notes balance remaining outstanding was $12,875. The combined statements of operations for the year ended December 31, 1997 reflect the elimination of $1,103 of interest income and expense related to the Subscription Notes. F-29 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 9. PARTICIPATING LEASES: The REIT Partnership has leased the hotels under the Participating Leases to Wyndham International and the Lessees through 2008. Minimum future rental income under these non-cancelable operating leases for the next five years and thereafter is as follows: Rent Amount ------------------------------------ Wyndham Year Lessees International ---- ------- ------------- 1998.................. $ 57,410 $ 117,557 1999.................. 55,588 102,729 2000.................. 55,824 102,904 2001.................. 56,055 103,079 2002.................. 56,289 75,806 2003 and thereafter... 231,682 48,731 ------------- ------------- $ 512,848 $ 550,806 ============= ============= The Participating Leases obligate Patriot to establish a reserve for capital improvements for the replacement and refurbishment of furniture, fixtures and equipment and other capital expenditures. Patriot and the Lessees (including Wyndham International) agree on the use of funds in these reserves, and Patriot has the right to approve the Lessees' annual and long-term capital expenditures budgets. Such reserve amount is to average 4.0% of total revenues for the hotels. At December 31, 1997 and 1996, $5,005 and $2,458, respectively, of cash is reserved for capital improvements, net of capital improvements made to date. Generally, Patriot is responsible for the payment of (i) real estate and personal property taxes on its hotel investments (except to the extent that personal property associated with the hotels is owned by the Lessees), (ii) casualty insurance on the hotels and (iii) business interruption insurance on the hotels. The Lessees are required to pay for all liability insurance on Patriot's hotels, with extended coverage, including comprehensive general public liability, workers' compensation and other insurance appropriate and customary for properties similar to Patriot's hotels with Patriot as an additional named insured. In connection with the acquisition of its initial 20 hotel investments in 1995, Patriot acquired the inventories for these hotels with an estimated fair market value of $2,035. The inventories were transferred to CHC Lease Partners for its use in the operation of the hotels. Under the Participating Lease Agreements for these hotels, CHC Lease Partners was obligated to return an equivalent inventory to Patriot at the end of the respective lease terms, less $1,000. The $1,000 was considered a lease inducement and was recorded as a reduction in inventory and an increase in deferred expenses. In connection with the acquisition of one other hotel in 1996, Patriot recorded an additional lease inducement of $685. These amounts were being amortized to Participating Lease revenue on a straight-line basis over the lives of the leases. In connection with the acquisition of eight leasehold interests from CHC Lease Partners in September and October 1997, the remaining unamortized lease inducement balance was written off as a cost of acquiring these leaseholds. 10. MANAGEMENT SERVICES AND RELATED REVENUES: During 1997, in connection with the Grand Heritage Acquisition, the GAH Acquisition and other transactions, Wyndham International entered into or acquired management agreements for 43 hotels. As of December 31, 1997, Wyndham International manages 31 of Patriot's hotels and 12 hotels owned by third parties. Management fees earned for hotels owned by Patriot were $3,626 in 1997. Income and expense for such fees have been eliminated in the accompanying combined financial statements. F-30 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 11. COMPUTATION OF EARNINGS PER SHARE: Basic and diluted earnings per share have been computed as follows: Combined
Period October 2, 1995 (inception of Year Ended Year Ended operations) through December 31, 1997 December 31, 1996 December 31, 1995 ----------------------- ------------------------ ------------------------ Basic Diluted Basic Diluted Basic Diluted ----------- ----------- ----------- ------------ ----------- ------------ (in thousands, except per share amounts) Income before extraordinary item....$ 362 $ 362 $ 37,991 $ 37,991 $ 6,096 $ 6,096 Extraordinary loss.................. (2,534) (2,534) -- -- (737) (737) --------- --------- ---------- --------- ---------- ---------- Net (loss) income...................$ (2,172) $ (2,172) $ 37,991 $ 37,991 $ 5,359 $ 5,359 ========= ========= ========== ========= ========== ========== Weighted average number of Paired Shares outstanding............... 54,201 54,201 35,400 35,400 29,213 29,213 ========= ========= ========== ========== Dilutive securities: Effect of unvested stock grants.. 264 119 Dilutive options to purchase Paired Shares.................. 274 16 --------- ---------- 35,938 29,348 ========= ========== Earnings per Paired Share: Income before extraordinary item. $ 0.01 $ 0.01 $ 1.07 $ 1.06 $ 0.21 $ 0.21 Extraordinary loss............... (0.05) (0.05) -- -- (0.03) (0.03) --------- --------- --------- -------- ---------- ---------- Net (loss) income................$ (0.04) $ (0.04) $ 1.07 $ 1.06 $ 0.18 $ 0.18 ========= ========= ========= ========= ========== ==========
The dilutive effect of unvested stock grants of 804 and options to purchase common stock of 1,017 were not included in the computation of diluted earnings per share for the year ended December 31, 1997 because they are anti-dilutive. F-31 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Period October 2, 1995 (inception of Year Ended Year Ended operations) through December 31, 1997 December 31, 1996 December 31, 1995 ---------------------- ----------------------- ------------------------ Basic Diluted Basic Diluted Basic Diluted ----------- ---------- ---------- ----------- ----------- ----------- (in thousands, except per share amounts) Income before extraordinary item....$ 382 $ 382 $ 37,991 $ 37,991 $ 6,096 $ 6,096 Extraordinary loss.................. (2,534) (2,534) -- -- (737) (737) --------- --------- ---------- --------- ---------- ---------- Net (loss) income...................$ (2,152) $ (2,152) $ 37,991 $ 37,991 $ 5,359 $ 5,359 ========= ========= ========== ========= ========== ========== Weighted average number of common shares outstanding............... 54,201 54,201 35,400 35,400 29,213 29,213 ========= ========= ========== ========== Dilutive securities: Effect of unvested stock grants.. 264 119 Dilutive options to purchase common stock................... 274 16 --------- ---------- 35,938 29,348 ========= ========== Earnings per share: Income before extraordinary item. $ 0.01 $ 0.01 $ 1.07 $ 1.06 $ 0.21 $ 0.21 Extraordinary loss............... (0.05) (0.05) -- -- (0.03) (0.03) --------- --------- --------- -------- ---------- ---------- Net (loss) income................$ (0.04) $ (0.04) $ 1.07 $ 1.06 $ 0.18 $ 0.18 ========= ========= ========= ========= ========== ==========
The dilutive effect of unvested stock grants of 804 and options to purchase common stock of 1,017 were not included in the computation of diluted earnings per share for the year ended December 31, 1997 because they are anti-dilutive. Wyndham International
Year Ended December 31, 1997 ----------------------- Basic Diluted ----------- ---------- (in thousands, except per share amounts) Net loss......................................................$ (20) $ (20) ========= ========= Weighted average number of common shares outstanding.......... 54,201 54,201 ========= ========= Earnings per share: Net loss...................................................$ (0.00) $ (0.00) ========= =========
The dilutive effect of unvested stock grants of 804 and options to purchase common stock of 1,017 were not included in the computation of diluted earnings per share for the year ended December 31, 1997 because they are anti-dilutive. See Note 15 for a discussion of the impact of Statement 123 ("Accounting for Stock-Based Compensation") on earnings per share. F-32 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 12. COMMITMENTS AND CONTINGENCIES: Office Lease Patriot had an agreement with an affiliate to provide Patriot with office space and limited support personnel for Patriot's headquarters for an annual fee of approximately $141 through February 1998. Pursuant to the merger with Wyndham Hotel Corporation (see discussion below and Note 21), Patriot terminated its agreement with the affiliate and entered into an agreement with an affiliate of Wyndham Hotel Corporation to provide the Companies with office space for the Companies' headquarters. The lease term is for a period of 10 years and requires annual rent payments of $1,197 through 2007. Employment Agreements The Companies have entered into employment agreements with each of their respective executive officers. Generally, the agreements provide for annual base compensation with any increases during the three-year term of the agreement to be approved by the Compensation Committees of Patriot's or Wyndham International's Board of Directors, as applicable. Business Combinations Wyndham Hotel Corporation. On April 14, 1997, Old Patriot entered into a merger agreement with Wyndham Hotel Corporation ("Old Wyndham") which was later ratified by Patriot and Wyndham International, (the "Wyndham Merger Agreement") through which Old Wyndham will merge with and into Patriot (the "Wyndham Merger"), with Patriot being the surviving company. Concurrently, Old Patriot and CF Securities, L.P. ("CF Securities"), the principal stockholder of Old Wyndham, entered into a stock purchase agreement (the "Stock Purchase Agreement"). The Merger Agreement generally provides for the conversion of each outstanding share of common stock, par value $0.01 per share, of Old Wyndham (the "Old Wyndham Common Stock"), other than shares as to which the holder thereof has elected to receive cash (subject to proration), into the right to receive 1.372 Paired Shares. The 1.372 conversion ratio (the "Exchange Ratio") was subject to certain adjustments based upon the average trading price of the Companies' Paired Shares prior to the completion of the Wyndham Merger. The Wyndham Merger Agreement provides that, in lieu of receiving Paired Shares in the Wyndham Merger, stockholders of Old Wyndham could elect to receive cash (such election being referred to herein as a "Cash Election" and such cash being referred to herein as "Cash Consideration") for all or any portion of their shares of Old Wyndham Common Stock in an amount per share equal to $42.80, subject to an aggregate availability of $100,000 of cash for all Cash Elections (including a Cash Election by CF Securities pursuant to the Stock Purchase Agreement). At December 31, 1997, Old Wyndham's portfolio of owned, leased or managed hotels consisted of 97 hotels operated by Old Wyndham, as well as eight franchised hotels, which in the aggregate contained over 25,500 rooms. Old Wyndham's portfolio includes 88 upscale hotel properties and 17 midscale properties operating under the ClubHouse brand. Pursuant to the Wyndham Merger Agreement, Old Wyndham will merge with and into Patriot and the companies will continue their operations within the paired share structure. Following the Wyndham Merger, the 37 hotels owned or leased by Old Wyndham will be leased or subleased by Patriot to Patriot Operating Company, whose name changed to Wyndham International in connection with the Wyndham Merger. The Wyndham Merger was subject to various closing conditions including approval of the Wyndham Merger by the stockholders of Patriot, Wyndham International and Old Wyndham. The stockholder meetings of Old Wyndham, Patriot and Wyndham International were held on December 31, 1997, at which time the Wyndham Merger was approved. See Note 21. WHG Casinos & Resorts, Inc. On September 30, 1997, Patriot, Wyndham International and WHG Casinos & Resorts Inc. ("WHG") entered into an Agreement and Plan of Merger (the "WHG Merger Agreement") providing for the merger of a newly formed subsidiary of Wyndham International with and into WHG with WHG being the F-33 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) surviving corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham International will acquire the 570-room Condado Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room El Conquistador Resort & Country Club (the "El Conquistador"), all of which are located in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc., the management company for the three hotels and the Las Casitas Village at the El Conquistador. Under the terms of the WHG Merger Agreement, each share of WHG common stock generally will be converted into the right to receive 0.784 Paired Shares of Patriot and Wyndham International common stock, subject to certain adjustments related to the timing of the closing of this transaction and the average closing price of the Paired Shares over the ten trading days immediately preceding the third business day prior to the WHG stockholders' meeting at which approval for the WHG Merger is sought. In addition, each issued and outstanding share of WHG Series B Convertible Preferred Stock will be converted into the right to receive that number of Paired Shares that the holder of such share of WHG Series B Convertible Preferred Stock would have the right to receive assuming conversion of such share, together with any accrued and unpaid dividends thereon, into shares of WHG common stock immediately prior to the effective time of the WHG Merger. The special meeting of stockholders of WHG at which approval of the WHG Merger will be sought is scheduled for January 16, 1998. See Note 21. Interstate Hotels Company. On December 2, 1997, Patriot, Wyndham International and Interstate Hotels Company ("Interstate") entered into an Agreement and Plan of Merger (the "Interstate Merger Agreement") providing for the merger of Interstate with and into Patriot (the "Interstate Merger") with Patriot being the surviving company. Pursuant to the Interstate Merger Agreement, stockholders of Interstate will have the right to elect to convert each of their shares of Interstate common stock into the right to receive either (i) $37.50 in cash, subject to proration in certain circumstances (the "Interstate Cash Consideration"), or (ii) a number of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for each share of Interstate common stock not exchanged for cash (the "Interstate Exchange Ratio"). After the elections are made by stockholders of Interstate, proration will be used to ensure that 40% of the outstanding shares of Interstate common stock will be converted into the right to receive Interstate Cash Consideration and that the remaining 60% of the outstanding shares of Interstate common stock will be converted into the right to receive Paired Shares at the Interstate Exchange Ratio, subject to adjustment in certain circumstances for the exercise of dissenters' rights. The special meetings of stockholders of Patriot, Wyndham International and Interstate at which approval of the Interstate Merger will be sought are scheduled for March 30, 1998. See Note 21. Potential Acquisitions In August 1997, Wyndham International purchased the Participating Note from National Resort Ventures, L.P., related to the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for approximately $23,750 in cash (see Notes 6 and 21). The Buena Vista Palace Hotel is owned by a joint venture between Equitable Life Insurance Company, which owns a 55% interest, and Hotel Venture Partners, Ltd., which owns a 45% interest. In November 1997, Patriot agreed to acquire a 95% equity interest in the Buena Vista Palace Hotel for approximately $141,600 including the assumption of an existing first leasehold mortgage with a balance of approximately $50,300. As part of the agreement, Patriot also was granted an option to acquire the remaining 5% equity interest in the hotel. Contingencies The Companies are currently not subject to any material legal proceedings or claims nor, to management's knowledge, are any material legal proceedings or claims currently threatened. 13. RELATED PARTY TRANSACTIONS: Mortgage Notes and Other Receivables from Unconsolidated Subsidiaries As described in Note 5, Patriot, through the REIT Partnership, loaned $40,500 in the form of mortgage notes to PAH Ravinia as part of the financing for PAH Ravinia's acquisition of the Crowne Plaza Ravinia Hotel. F-34 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Patriot recognized $43 of interest income in both 1997 and 1996 and $3 of interest income in 1995 related to such mortgage notes (excluding $4,280 of such interest eliminated for financial reporting purposes in both 1997 and 1996 and $351 in 1995). Patriot had aggregate receivables (including mortgage notes) of $41,587 and $40,866 due from PAH Ravinia as of December 31, 1997 and 1996, respectively. Patriot through the REIT Partnership, also loaned $31,400 in the form of a mortgage note to PAH Windwatch (see Note 5), as part of the financing for PAH Windwatch's acquisition of the Wyndham WindWatch Hotel. Patriot recognized $28 and $8 of interest income in 1997 and 1996, respectively, related to such mortgage notes (excluding $2,810 and $754 of such interest eliminated for financial reporting purposes). Patriot had aggregate receivables (including the mortgage note) of $34,060 and $31,343 due from PAH Windwatch as of December 31, 1997 and 1996, respectively. Acquisitions of Interests from Officers and Directors In September and October 1997, in connection with certain transactions with affiliates of Gencom and CHCI to acquire ten hotels, eight leasehold interests and an investment interest in GAH (see Note 4), two of the Companies' Executive Officers and one of the Directors received cash in the aggregate amount of approximately $3,577 and a total of 2,544,308 OP Units of the Operating Partnerships and 476,682 preferred OP Units of the OpCo Partnership (with an aggregate value of approximately $70,238) as consideration for their ownership interests in such assets acquired. PAH RSI, L.L.C. and Wyndham International In connection with the acquisition of four resort properties in January 1997, the REIT Partnership and certain of its subsidiaries acquired certain assets relating to these resorts and then sold these assets to PAH RSI, L.L.C. (a limited liability corporation which was owned and controlled by certain executive officers of Patriot) for approximately $2,000. In addition, PAH RSI, L.L.C. acquired from the REIT Partnership and certain of its subsidiaries certain trade names and the right to receive royalty fees through the issuance of a promissory note for $9,000, due January 17, 2002. Interest at an annual rate of 13% is payable semi-annually commencing July 1, 1997. As of December 31, 1997, principal and accrued interest of approximately $9,598 was outstanding. In October 1997, Wyndham International, through certain of its subsidiaries, acquired the members' interests of PAH RSI, L.L.C. for approximately $143. As a result, Wyndham International acquired the assets (including leasehold interests for eight of Patriot's hotels) and assumed the liabilities of PAH RSI, L.L.C. 14. MINORITY INTERESTS: Minority Interest in the Operating Partnerships Pursuant to the Operating Partnerships' respective limited partnership agreements, the common limited partners of the Operating Partnerships, including certain affiliates of the Companies, received rights (the "Redemption Rights") that enable them to cause the Operating Partnerships to redeem each pair of OP Units (consisting of one OP Unit of the REIT Partnership and the one OP Unit of the OpCo Partnership) in exchange for cash equal to the value of a Paired Share (or, at the Companies' election, the Companies may purchase each pair of OP Units offered for redemption for one Paired Share of common stock). In the case of the OpCo Partnership's Class A preferred OP Units and Class C preferred OP Units described below, each of these preferred OP Units may be redeemed for cash equal to the value of a Paired Share (or, at Wyndham International's election, Wyndham International may purchase each preferred OP unit offered for redemption for one Paired Share of common stock). The Redemption Rights generally may be exercised at any time after one year following the issuance of the OP Units. The number of shares of common stock issuable upon exercise of the Redemption Rights will be adjusted for share splits, mergers, consolidations or similar pro rata transactions which would have the effect of diluting the ownership interests of the limited partners of the Operating Partnerships or the shareholders of the Companies. F-35 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) As a result of the 2-for-1 stock split in March 1997, the Cal Jockey Merger and the 1.927-for-1 stock split in July 1997, the number of OP Units outstanding and the OP Unit conversion factor was adjusted to re-establish a one-for-one exchange ratio of OP Units to common shares. The REIT Partnership had a total of 49,974,000 OP Units outstanding as of December 31, 1997, of which 43,613,496 OP Units were held by Patriot and 5,035,700 OP Units and 1,324,804 Preferred OP Units were held by minority partners, which represent the minority interest in the REIT Partnership. During 1997, the REIT Partnership issued an additional 20,376 OP Units valued at approximately $370 in connection with The Tutwiler Hotel acquisition, and 2,590,197 OP Units valued at approximately $58,662 in connection with the acquisition of the four resort properties. In accordance with their redemption rights, during the first six months of 1997 certain partners elected to redeem a total of 379,606 OP Units for a total of $14,441 in cash (based upon the market price of Old Patriot Common Stock on the effective dates of the redemptions) and 150,000 shares of Old Patriot Common Stock (such amounts have not been adjusted to reflect the stock splits and Cal Jockey Merger). As of June 30, 1997, the REIT Partnership had 6,887,049 OP Units and 1,324,804 preferred OP Units outstanding. In connection with the Cal Jockey Merger, the holders of REIT Partnership OP Units and preferred OP Units received OP Units and Class B preferred OP Units of the OpCo Partnership in an amount equal to the number of REIT Partnership units held by them at the closing of the Cal Jockey Merger. In addition, during 1997, the Operating Partnerships each issued 2,456,172 OP Units in connection with the acquisition of hotel properties, and 2,388,932 OP Units in connection with Patriot's acquisition of eight leasehold interests from CHC Lease Partners and Wyndham International's acquisition of its approximate 50% ownership interest in GAH and redeemed 6,298 OP Units. In addition, the OpCo Partnership issued 931,972 Class A Preferred OP Units in connection with the Grand Heritage Acquisition and 476,682 Class C Preferred OP Units in connection with the acquisition of the approximate 50% ownership interest in GAH. On September 30, 1997, the Companies exercised their right to call 2,000,033 OP Units in each of the Operating Partnerships held by The Morgan Stanley Real Estate Fund, L.P. and certain related entities (the "Morgan Stanley Call"). The exercise price on the Morgan Stanley Call was $25.875 per pair of OP Units. The Morgan Stanley Call was funded with the proceeds of certain direct placements of the Companies' Paired Shares (see Note 15). As of December 31, 1997, the REIT Partnership had a total of 84,868,079 OP Units outstanding of which 73,276,716 OP Units were held by Patriot and 10,266,559 OP Units and 1,324,804 preferred OP Units were held by minority partners, which represent the minority interest in the REIT Partnership. The OpCo Partnership had a total of 86,276,733 OP Units outstanding as of December 31, 1997, of which 73,276,716 OP Units were held by Wyndham International and 10,266,559 OP Units, 931,972 Class A Preferred OP Units, 1,324,804 Class B Preferred OP Units and 476,682 Class C Preferred OP Units were held by minority partners, which represent the minority interest in the OpCo Partnership. Minority Interest in Other Subsidiaries Patriot has entered into a number of partnership agreements with DTR PAH Holding, Inc. ("DTR"), an affiliate of Doubletree Hotels Corporation, related to the acquisition of 11 hotels. The REIT Partnership owns an 85% to 90% general partnership interest in each partnership and DTR owns a 15% to 10% limited partnership interest in each partnership. The partnerships were formed for the purpose of acquiring hotel properties. The financial position and results of operations of each partnership is included in the consolidated financial statements of Patriot. DTR's interest in the partnerships is included in minority interest in other subsidiaries in the accompanying consolidated financial statements. During 1996, Patriot acquired five hotels through such partnerships with DTR for approximately $83,300. The acquisitions were financed with a combination of cash and funds drawn on the Old Line of Credit. F-36 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) During 1997, Patriot acquired six hotels through such partnerships with DTR for approximately $182,900. The acquisitions were financed through a combination of mortgage debt of $98,892, cash contributions to the partnerships of approximately $58,342 by the REIT Partnership and approximately $10,658 by DTR, and the issuance of 614,046 paired OP Units of the Operating Partnerships (valued at approximately $15,000 based on the average market price of the Companies' common stock for the 20 days prior to the closing of the acquisition). The REIT Partnership's contributions were financed primarily with funds drawn on the Revolving Credit Facility. In addition, in July 1997, Patriot, through the REIT Partnership, acquired 90% of the equity interests in four separate limited liability companies which own four hotels with an aggregate of 705 guest rooms for an aggregate purchase price of approximately $51,066. The REIT Partnership's contribution was financed primarily with funds drawn on the Revolving Credit Facility. One of the hotels is subject to a mortgage loan with a financial institution with a principal balance of approximately $5,714 as of December 31, 1997. 15. SHAREHOLDERS' EQUITY: Capital Stock Patriot's and Wyndham International's respective Boards of Directors have authorized the issuance of up to 100,000,000 shares of preferred stock in one or more series. The number of shares in each series and the designation, powers, preferences and rights of each such series and the qualifications, limitations or restrictions thereof have not been established. As of December 31, 1997, no preferred stock was issued. Old Patriot was initially capitalized through the issuance of 2,850 shares of no par value common stock to three of Old Patriot's executive officers for which the executive officers paid nominal consideration. In connection with the Initial Offering, Patriot declared an approximate 41-to-1 stock split of its outstanding common shares, resulting in the issuance of an additional 115,900 shares of common stock to such executive officers. The aggregate value of $1,425 (based upon the initial public offering price of $12.00 per share), less cash received of $3, was recorded as unearned stock compensation and is being amortized over the three-year vesting period. On October 2, 1995, Old Patriot completed the Initial Offering of 29,210,000 shares of its common stock (including 3,810,000 shares of common stock issued upon exercise of the underwriters' over-allotment option). The offering price of all shares sold was $12.00 per share, resulting in net proceeds (less the underwriters' discount and other offering expenses) of approximately $313,170. In May 1996, Old Patriot sold an aggregate of approximately $40,000 of equity securities in a private placement to an institutional investor that purchased the securities on behalf of two owners. The securities consisted of 1,622,786 shares of common stock sold at $13.475 per share and 1,324,804 Class B Preferred OP Units sold at $13.688 per unit. The common stock is of the same class as Old Patriot's then-existing common stock and is entitled to the same voting and dividend rights as all outstanding common stock, subject to certain restrictions on the resale of the stock. The Class B Preferred OP Units are entitled to quarterly distributions equal to 103% of the quarterly dividends paid on the common stock (and, subsequent to the Cal Jockey Merger, Paired Shares). Generally, three years following issuance, the Class B Preferred OP Units may be converted into Paired Shares on a one-for-one basis (i.e., one Paired Share for one Class B Preferred OP Unit), subject to certain limitations. After 10 years, Patriot will have the right to exchange all the outstanding Class B Preferred OP Units for Paired Shares on a one-for-one basis. During the third quarter of 1996, Old Patriot completed a second public offering of 12,293,400 shares of its common stock (including 1,293,400 shares of common stock issued upon exercise of the underwriters' over-allotment option). The offering price of all shares sold in this offering was $14.125 per share, resulting in net proceeds (less the underwriters' discount and other offering expenses) of approximately $160,222, of which approximately $151,963 was used to reduce amounts outstanding under the Old Line of Credit. F-37 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) In August 1997, the Companies completed a public offering of 10,580,000 Paired Shares of common stock (including 1,380,000 Paired Shares issued upon exercise of the underwriters' over-allotment option). The net proceeds of this offering (less the underwriters' discount and expenses) of approximately $209,795 were used primarily to reduce the outstanding debt under the Revolving Credit Facility. On November 13, 1997, pursuant to a letter agreement dated September 30, 1997, the Companies sold 1,000,033 Paired Shares to PaineWebber (the "PaineWebber Direct Placement") for a purchase price per Paired Share of $27.6875, or aggregate consideration of $27,688. In addition, pursuant to a letter agreement dated September 30, 1997, the Companies sold 1,000,000 Paired Shares to LaSalle Advisors Limited Partnership ("LaSalle"), as agent for certain clients of LaSalle (the "LaSalle Direct Placement"), at a purchase price per Paired Share of $27.625, or aggregate consideration of $27,625. The proceeds of the PaineWebber Direct Placement and the LaSalle Direct Placement were used to fund the Morgan Stanley Call (see Note 14). On December 31, 1997, the Companies sold 3,250,000 unregistered Paired Shares to UBS Limited, an English corporation, for a purchase price per Paired Share of $28.8125, or aggregate consideration of approximately $93,641. In connection with this private placement of equity, the Companies also entered into an agreement with Union Bank of Switzerland, London Branch ("UBS") which provides for an adjustment in the purchase price of the Paired Shares as of a specific date. Because the Companies must periodically increase their equity base to maintain financial flexibility and continue with their growth strategy, management may utilize private placements of equity in conjunction with a price adjustment mechanism, as a means for the Companies to raise capital, while also retaining the opportunity to adjust the pricing of the equity issuance during the term of the agreement. The price adjustment agreement with UBS provides that if the aggregate return on the 3,250,000 Paired Shares issued does not exceed the calculated forward yield (which is based upon the three-month LIBOR rate plus 1.40%) as measured from time to time, the Companies will be required to issue to UBS additional Paired Shares with a market value equivalent to the yield deficiency. Conversely, if the aggregate return on the issued shares is in excess of the calculated forward yield, a portion of the Paired Shares originally issued by the Companies will be returned. In addition, the Companies are required to register Paired Shares with the Securities and Exchange Commission to settle its obligations under the agreement. Under certain market conditions UBS has the right to accelerate the settlement of all or a portion of the transaction. The final settlement date is December 31, 1998. As of December 31, 1997, the private placement of Paired Shares is accounted for as equity and any subsequent adjustments in the share price will be reflected as an adjustment to equity. Cash Dividends and Stock Splits On January 30, 1997, Old Patriot declared a 2-for-1 stock split effected in the form of a stock dividend, which was distributed on March 18, 1997 to shareholders of record on March 7, 1997. On December 26, 1997, Patriot declared a $0.32 per common share dividend to holders of record on January 5, 1998. Patriot paid dividends of $0.2625 per common share for each of the first three quarters of 1997. In addition, in connection with the Cal Jockey Merger, Old Patriot also declared a special dividend of $0.06 per common share payable to holders of record on June 27, 1997, which was paid on June 30, 1997. Concurrent with each of the dividend declarations, the Operating Partnerships authorized distributions in the same amount on outstanding OP Units. Old Patriot paid dividends of $0.24 per common share for the fourth quarter of 1995 (its first quarter of operations) and for the each of the first three quarters of 1996. Old Patriot paid dividends of $0.2625 per common share for the fourth quarter of 1996. Stock Incentive Plans Old Patriot adopted the 1995 Incentive Plan and the Non-Employee Directors' Incentive Plan in connection with its initial formation. In connection with the Cal Jockey Merger, these stock incentive plans were amended and adopted by the Companies. The 1995 Incentive Plan, as amended (the "1995 Incentive Plan"), and the Non-Employee Directors' Plan, as amended (the "Directors' Plan"), were adopted for the purpose of (i) attracting and retaining employees, directors and others, (ii) providing incentives to those deemed important to the success of the Companies, and (iii) associating the interests of these individuals with the interests of the Companies and their shareholders through opportunities for increase stock ownership. As a result of the continued growth of the Companies, Patriot and Wyndham International each adopted a 1997 Incentive Plan. The 1995 Incentive Plan. Under the 1995 Incentive Plan, employees of the Companies are eligible to receive stock options, stock awards or performance shares, subject to certain restrictions. All awards under the 1995 Incentive Plan are determined by the Compensation Committees of the respective Boards of Directors and a F-38 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) maximum of 5,000,000 shares of common stock may be issued under the 1995 Incentive Plan. As of December 31, 1997, the maximum amount of available shares under this plan have been issued. The Directors' Plan. The Directors' Plan provides for the award of stock options and stock awards to each eligible non-employee director of the Companies. Each eligible director receives nonqualified options to purchase 15,000 Paired Shares upon their election to the Board of Directors of either Patriot or Wyndham International. On the date of each annual meeting of the Companies' shareholders, each non-employee director then in office receives an additional grant of nonqualified options to purchase 5,000 Paired Shares, with the maximum aggregate number of Paired Shares subject to options to be granted to each non-employee director being 35,000. The exercise price of options will be 100% of the fair market value of a Paired Share on the date of grant. The exercise price may be paid in cash, cash equivalents acceptable to the Compensation Committee, common stock or a combination thereof. Options granted under the Directors' Plan are exercisable for ten years from the date of grant. The Directors' Plan also provides for the annual award of common stock to each eligible director in payment of one-half of the annual retainer of $13 payable to each such director. The number of shares awarded will be determined based upon the fair market value of the stock at the date of the grant. Such shares vest immediately upon grant and are non-forfeitable. The 1997 Incentive Plans. The 1997 Incentive Plans provide for the award of stock options, stock awards or performance shares to each eligible employee and director of Patriot and Wyndham International. All awards under the 1997 Incentive Plans are determined by the Compensation Committees of the respective Board of Directors of Patriot and Wyndham International. Under each 1997 Incentive Plan, the aggregate number of Paired Shares available for grants of awards shall be the sum of (i) 3,000,000 Paired Shares plus (ii) 10% of any future net increase in the total number of shares of paired common stock. Under the Companies' 1997 Incentive Plans, each independent director may elect to take all or a portion of his/her fees in the form of deferred paired share units. In addition, the independent directors of Patriot and Wyndham International will automatically be granted a non-qualified stock option, immediately exercisable in full, to acquire 10,000 Paired Shares at an exercise price per Paired Share equal to the fair market value of a Paired Share on the date of grant. Option terms are fixed by the Compensation Committees and may not exceed ten years from the date of grant. Stock Grant Awards During 1996, pursuant to the Directors' Plan and the Incentive Plan, Old Patriot awarded 48,000 shares of common stock to its non-employee directors and 314,800 shares of common stock to certain of its officers and employees. In addition, the directors were granted 2,640 shares of common stock with an aggregate value of $37 in payment of one-half of the annual retainer payable to each director. Old Patriot recorded a total of $5,144 (the aggregate value of Old Patriot's common stock based on the market price at the date of the award) as unearned stock compensation in 1996, which is being amortized over the vesting period of four years. During 1997, pursuant to the Incentive Plans, the Board of Directors awarded 547,867 Paired Shares of common stock to certain officers of the Companies. The Companies recorded a total of $12,897 (the aggregate value of the common stock based on the market price at the date of the award) as unearned stock compensation in 1997, which is being amortized over the vesting periods of one to five years. For 1997, 1996 and 1995, $4,686, $1,068 and $71, respectively, of amortization of stock compensation related to stock grants awarded to Patriot's directors, officers and certain employees is included in general and administrative expense in the accompanying consolidated financial statements. Stock Option Awards Upon completion of the Initial Offering in 1995, 1,000,000 options were granted to the executive officers to purchase shares of Old Patriot common stock. Each option is exercisable at an amount equal to the initial public offering price of $12.00 per share. Of the options granted, 55,560 vested immediately, while the remaining options F-39 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) become exercisable at various dates through January 1, 2005. In addition, each eligible director who was a member of Old Patriot's Board as of September 27, 1995, was awarded nonqualified options to purchase 15,000 shares of common stock on that date (each such director, a "Founding Director"). The options granted to Founding Directors have an exercise price equal to the initial public offering price of $12.00 per share and vested immediately. During 1996, pursuant to the Directors' Plan and the Incentive Plan, Old Patriot's Board of Directors granted stock options to purchase 30,000 shares of common stock to Old Patriot's directors and stock options to purchase 355,600 shares of common stock to Old Patriot's officers and certain employees. The exercise price of the options granted to the directors is $14.188 (the market price of Old Patriot's common stock on May 23, 1996, the date of the grant). For the officers and employees employed as of the grant date of April 19, 1996, the exercise price of the options is $13.438 (the market price of Old Patriot's common stock on the date of grant). For officers and employees hired subsequent to April 19, 1996, the exercise price is equal to the market price of Old Patriot's common stock on the employee's date of hire. The options to purchase common stock vest annually over a period of seven years. In connection with the acquisition of four resort properties in January 1997, certain former owners of the resorts who are also employees of Resorts Services, Inc., the company which manages the resorts, were granted nonqualified options to purchase an aggregate of 780,008 shares of Old Patriot Common Stock at an exercise price of $19.125 (based on the market price of Old Patriot's common stock on the date the purchase contract for the resorts was executed after giving effect to the March 1997 and July 1997 stock splits and the Cal Jockey Merger) as additional consideration for entering into the purchase and sale agreement for the resort properties. The estimated fair value of the options issued, in the aggregate amount of $3,266, was recorded as additional purchase consideration for the acquisition of the resort properties. The options to purchase common stock vest annually over a period of four years. During the first quarter of 1997, one of the executive officers of Patriot was granted nonqualified options to purchase an aggregate of 560,009 shares of common stock at an exercise price of $24.13 (based on the market price of Old Patriot's Common Stock on the date of the grant after giving effect to the March 1997 and July 1997 stock splits and the Cal Jockey Merger). These options to purchase common stock vest annually over a period of three years. During the second quarter of 1997, the Compensation Committee of Old Patriot's Board of Directors awarded a two-tier option program for Patriot's chief executive officer which is intended to be his sole equity award for the next five years. The tier one award is a ten-year option to purchase 1,350,022 shares of common stock with an exercise price equal to $22.375 per share, the fair market value of Old Patriot's Common Stock on the date of the grant (after giving effect to the July 1997 stock split and the Cal Jockey Merger). The tier two award is a ten-year premium priced option to purchase an aggregate of 1,250,020 shares of common stock. This grant has five equal tranches of 250,004 shares each with an increasing exercise price ranging from $24.61 to $36.04. These options are not exercisable until April 1, 2002. Additionally, during the second quarter of 1997, another executive officer of Old Patriot was granted nonqualified options to purchase an aggregate of 100,002 Paired Shares of common stock at an exercise price of $22.625 (based on the market price of Old Patriot's common stock on the date of the grant after giving effect to the July 1997 stock split and the Cal Jockey Merger). These options to purchase common stock vest annually over a period of seven years. During the third quarter of 1997, one of the executive officers of Wyndham International was granted nonqualified options to purchase an aggregate of 280,000 Paired Shares at an exercise price of $32.063 per Paired Share (based on the market price of the Paired Shares on the date of the grant). These options to purchase Paired Shares vest quarterly over a period of three years. During the fourth quarter of 1997, the independent directors of Patriot and Wyndham International were granted nonqualified options to purchase an aggregate of 100,000 Paired Shares at an exercise price of $32.625 per F-40 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) Paired Share (based on the market price of the Paired Shares on the date of grant). The options to purchase Paired Shares vested on the date of grant. As of December 31, 1997, pursuant to the Directors' Plan, the 1995 Incentive Plan and the 1997 Incentive Plans, the Companies have authorized the grant of options for up to 5,115,652 Paired Shares with exercise prices ranging from $5.51 to $36.04 per Paired Share (1,289,688 of such options were vested). During 1997, a total of 314,967 Paired Shares were issued pursuant to exercise of options (at exercise prices ranging from $5.51 to $14.25) resulting in net proceeds of $2,307. The Companies have elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Companies' employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Statement 123 Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Companies had accounted for their compensatory employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of 6.61%, 6.09% and 5.97%; dividend yields of 6%; volatility factors of the expected market price of the Companies' common stock of 0.389, 0.173 and 0.173, and a weighted average expected life of the options of 6 years, 5 years and 4 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Companies' employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options that have vesting periods and are non-transferable. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Companies' pro forma information is as follows:
1997 1996 1995 --------------- --------------- --------------- Pro forma net (loss) income........$ (4,949) $ 37,607 $ 5,193 Pro forma earnings per share: Basic...........................$ (0.09) $ 1.06 $ 0.18 Diluted.........................$ (0.09) $ 1.04 $ 0.18
F-41 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) A summary of the Companies' stock option activity, and related information for the years ended December 31 is as follows:
1997 1996 1995 ---------------------- ---------------------- ---------------------- Weighted Weighted Weighted Average Average Average Options Exercise Options Exercise Options Exercise (000's) Price (000's) Price (000's) Price ---------- ----------- ----------- ---------- ---------- ----------- Outstanding, beginning of year... 1,476 $ 12.39 1,090 $ 12.00 -- $ -- Granted.......................... 3,640 26.31 386 13.51 1,090 12.00 Exercised........................ (6) 13.83 -- -- -- -- Forfeited........................ (27) 13.79 -- -- -- -- --------- -------- --------- --------- --------- -------- Outstanding, end of year......... 5,083 $ 22.35 1,476 $ 12.39 1,090 $ 12.00 ========= ========= ========= ========= ========= ======== Exercisable at end of year....... 972 $ 15.98 401 $ 12.00 -- $ 12.00 Weighted average fair value of options granted during year... $ 4.28 $ 1.27 $ 1.19
Exercise prices for compensatory options outstanding as of December 31, 1997 ranged from $12.00 to $36.04. The weighted average remaining contractual life of those options was nine years. Exercise prices for compensatory options outstanding as of December 31, 1996 ranged from $12.00 to $15.125. The weighted average remaining contractual life of those options was nine years. 16. INCOME TAXES: The income tax provision of Wyndham International for the six months ended December 31, 1997 consists of the following: Current: Federal................................................................. $ 199 State................................................................... 130 --------------- Total current................................................................ 329 --------------- Deferred: Federal................................................................. 136 State................................................................... 16 --------------- Total deferred............................................................... 152 --------------- Total income tax expense................................... $ 481 ===============
The reason for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate of 34% to income before income taxes, is as follows: Tax at statutory rate........................................................ $ 127 State income taxes........................................................... 118 Non-deductible expenses...................................................... 236 --------------- Total income tax expense................................... $ 481 ===============
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of F-42 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Wyndham International's deferred tax assets and liabilities as of December 31, 1997 are as follows: Deferred tax assets: Other non-current assets................................................ $ 89 --------------- Total deferred tax assets........................................... 89 Deferred tax liabilities: Depreciation............................................................ (600) Trade names............................................................. (959) Management contracts.................................................... (7,937) Other non-current liabilities........................................... (143) --------------- Total deferred tax liabilities...................................... (9,639) --------------- Net deferred income tax liability.......................... $ (9,550) ===============
17. FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107 requires disclosures about the fair value for all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about fair value of financial instruments is based on pertinent information available to management as of December 31, 1997. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Management estimates the fair value of (i) accounts receivable, accounts payable and accrued expenses approximate carrying value due to the relatively short maturity of these instruments; (ii) the notes receivable approximate carrying value based upon effective borrowing rates for issuance of debt with similar terms and remaining maturities; and (iii) the borrowings under the Revolving Credit Facility, Term Loan and various other mortgage notes approximate carrying value because these borrowings accrue interest at floating interest rates based on market or accrue interest at fixed rates which approximate market rates. F-43 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 18. NON-CASH INVESTING AND FINANCING ACTIVITIES: Patriot and Wyndham International In connection with the acquisition of hotel properties, the following assets were acquired, liabilities assumed and consideration given:
1997 1996 1995 -------------- -------------- -------------- Assets acquired: Cash received upon acquisition of hotel leases.....$ (14,192) $ -- $ -- Accounts receivable................................ (27,108) 537 -- Inventories........................................ (6,408) 613 -- Goodwill........................................... (112,562) -- -- Other assets....................................... (6,531) 510 313 Trade names and management contracts............... (33,739) -- -- Deferred expenses (net of write-off of deferred financing costs of $679 in 1995)................ -- 685 127 Liabilities assumed: Accounts payable and accrued expenses..............$ 49,577 $ 4,195 $ (1,102) Mortgage notes receivable.......................... 103,673 -- -- Capital lease obligation acquired.................. 503 -- -- Mortgage notes..................................... 34,244 -- -- Deferred income tax liability...................... 9,550 -- -- Consideration given: Issuance of common stock, stock options and OP Units...........................................$ 449,415 $ 16,391 $ 13,303 ========== ========= ======== Other non-cash investing and financing activities: Reclassification of deferred acquisition costs to property costs..................................$ 30,637 ==========
Patriot In connection with the acquisition of hotel properties, the following assets were acquired, liabilities assumed and consideration given:
1997 1996 1995 -------------- -------------- -------------- Assets acquired: Account receivable.................................$ (1,507) $ 537 $ -- Inventories........................................ -- 613 -- Goodwill........................................... (89,256) -- -- Other assets....................................... -- 510 313 Deferred expenses (net of write-off of deferred financing costs of $679 in 1995)................ -- 685 127 Liabilities assumed: Accounts payable and accrued expenses..............$ 7,517 $ 4,195 $ (1,102) Mortgage notes receivable.......................... 103,673 -- -- Subscription notes payable, net of $38,461 of acquisitions funded on behalf of Wyndham International................................... 21,191 -- -- Capital lease obligation acquired.................. 503 -- -- Mortgage notes..................................... 34,244 -- -- Consideration given: Issuance of common stock, stock options and OP Units...........................................$ 340,794 $ 16,391 $ 13,303 ========== ========= ======== Other non-cash investing and financing activities: Reclassification of deferred acquisition costs to property costs..................................$ 30,637 ========== Note receivable funded on behalf of Wyndham International...................................$ 7,934 Deferred acquisition costs funded on behalf of Wyndham International........................... 31,126 Equipment and improvements conveyed to Wyndham International................................... 32,210 Acquisitions costs funded on behalf of Wyndham International................................... 6,251 Due from Wyndham International.................... (77,521) ==========
In connection with Old Patriot's investment in an unconsolidated subsidiary in 1996, Old Patriot issued a promissory note payable to the unconsolidated subsidiary in the amount of $6,217 which has been included in due to unconsolidated subsidiaries in the accompanying financial statements. F-44 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) In connection with the Initial Offering and acquisition of the initial 20 hotels in 1995: Predecessor basis of interests acquired from affiliates................. $ 1,840 Issuance of OP Units to non-affiliates.................................. 9,363 Distribution of note receivable as consideration........................ (479) Minority interest at closing of the Initial Offering.................... (41,670) Accrued Initial Offering costs.......................................... (843)
Other non-cash investing and financing activities:
1997 1996 1995 -------------- -------------- -------------- Dividends and distributions declared and payable.....$ 27,572 $ 13,129 $ 8,154 Issuance of shares to employees and directors......... 62 37 37 Accrued acquisition and other costs................... -- 844 28
Wyndham International In connection with the Cal Jockey Merger, the acquisition of management companies and the leasing of hotel properties, the following assets were acquired, liabilities assumed and consideration given:
1997 --------------- Assets acquired: Accounts receivable.......................................... $ (25,601) Subscription notes receivable................................ (59,652) Inventories.................................................. (6,408) Goodwill..................................................... (29,557) Other assets................................................. (6,531) Equipment and improvements................................... (27,611) Trade names.................................................. (11,287) Management contracts......................................... (22,452) Liabilities assumed: Accounts payable and accrued expenses........................ 46,659 Due to Patriot............................................... 38,461 Deferred income tax liability................................ 9,550 Consideration given: Issuance of common stock and OP Units........................ 108,621 ------------- Cash received upon acquisition of hotel leases............... $ 14,192 ============= Other non-cash investing and financing activities: Notes receivable............................................. $ (7,934) Deferred acquisition costs................................... (31,126) Due to Patriot............................................... 39,060 =============
F-45 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Wyndham Combined Patriot International --------------------------- ---------------------------- --------------- 1997 1996 1997 1996 1997 ------------- ------------- ---------------------------- --------------- (in thousands, except per share amounts) FIRST QUARTER: Total revenue........... $ 35,388 $ 12,463 $ 35,388 $ 12,463 $ -- Income before extraordinary item.... $ 11,348 $ 7,128 $ 11,348 $ 7,128 $ -- Net income.............. $ 11,348 $ 7,128 $ 11,348 $ 7,128 $ -- Net income per share/Paired Share: Basic............... $ 0.26 $ 0.24 $ 0.26 $ 0.24 $ -- Diluted............. $ 0.25 $ 0.24 $ 0.25 $ 0.24 $ -- Weighted average number of shares: Basic............... 43,189 29,213 43,189 29,213 Diluted............. 44,554 29,469 44,554 29,469 SECOND QUARTER: Total revenue........... $ 37,730 $ 18,007 $ 37,730 $ 18,007 $ -- Income before extraordinary item.... $ 11,818 $ 8,683 $ 11,818 $ 8,683 $ -- Net income.............. $ 11,818 $ 8,683 $ 11,818 $ 8,683 $ -- Net income per share/Paired Share: Basic............... $ 0.27 $ 0.29 $ 0.27 $ 0.29 $ -- Diluted............. $ 0.26 $ 0.29 $ 0.26 $ 0.29 $ -- Weighted average number of shares: Basic............... 43,323 30,052 43,323 30,052 Diluted............. 44,970 30,346 44,970 30,346 THIRD QUARTER: Total revenue........... $ 81,638 $ 22,677 $ 50,190 $ 22,677 $ 44,184 Income (loss) before extraordinary item (1) $ (24,470) $ 12,024 $ (25,179) $ 12,024 $ 709 Net income (loss)....... $ (27,004) $ 12,024 $ (27,713) $ 12,024 $ 709 Net income (loss) per share/Paired Share: Basic............... $ (0.44) $ 0.31 $ (0.45) $ 0.31 $ 0.01 Diluted............. $ (0.44) $ 0.30 $ (0.45) $ 0.30 $ 0.01 Weighted average number of shares: Basic............... 61,647 39,039 61,647 39,039 61,647 Diluted............. 61,647 39,672 61,647 39,672 63,638
F-46 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Wyndham Combined Patriot International --------------------------- ---------------------------- --------------- 1997 1996 1997 1996 1997 ------------- ------------- ---------------------------- --------------- (in thousands, except per share amounts) FOURTH QUARTER: Total revenue........... $ 180,279 $ 23,346 $ 62,246 $ 23,346 $ 159,950 Income before extraordinary item (2) $ 1,666 $ 10,156 $ 2,395 $ 10,156 $ (729) Net income (loss)....... $ 1,666 $ 10,156 $ 2,395 $ 10,156 $ (729) Net income (loss) per share/Paired Share: Basic............... $ 0.02 $ 0.24 $ 0.04 $ 0.24 $ (0.01) Diluted............. $ 0.02 $ 0.23 $ 0.03 $ 0.23 $ (0.01) Weighted average number of shares: Basic............... 68,287 43,171 68,287 43,171 68,287 Diluted............. 70,856 44,116 70,856 44,116 68,287
- ----------------------------- (1) Income (loss) before extraordinary item for the third quarter of 1997 includes costs to acquire leaseholds, a non-recurring expense, in the amount of $43,820 that was reported by Patriot. (2) Income before extraordinary item for the fourth quarter of 1997 includes costs to acquire leaseholds, a non-recurring expense, in the amount of $10,679 that was reported by Patriot. F-47 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 20. PRO FORMA RESULTS OF OPERATIONS (UNAUDITED): The following unaudited separate and combined pro forma results of operations of Patriot and Wyndham International are presented as if (i) the acquisition of the 91 hotels owned by Patriot as of December 31, 1997; (ii) the Cal Jockey Merger and the related transactions; (iii) the replacement of Old Line of Credit with the Revolving Credit Facility and the funding of the Term Loan and other mortgage debt; (iv) the Grand Heritage Acquisition; (v) the acquisition of eight leasehold interests and the approximate 50% investment interest in GAH; and (vi) the private placements of equity securities and public offering of the Companies' common stock which occurred during 1997 and 1996 had occurred on January 1, 1996, and the hotels (except the Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel) had been leased to Wyndham International or the Lessees pursuant to the Participating Leases. The following unaudited pro forma financial information is not necessarily indicative of what actual results of operations of Patriot and Wyndham International 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. PATRIOT AND WYNDHAM INTERNATIONAL COMBINED PRO FORMA RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 -------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 821,758 $ 746,960 Net income.................................................................. 50,341 21,781 Basic earnings per Paired Share............................................. $ 0.70 $ 0.30 ================= ================= Diluted earnings per Paired Share........................................... $ 0.68 $ 0.29 ================= ================= Weighted average number of Paired Shares.................................... 72,477 72,477 Dilutive securities: Effect of unvested stock grants........................................ 800 800 Dilutive options to purchase Paired Shares............................. 1,017 273 ----------------- ----------------- Weighted average number of Paired Shares and Paired Share equivalents outstanding.................................. 74,294 73,550 ================= =================
F-48 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PATRIOT CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 -------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 292,135 $ 263,004 Net income.................................................................. 57,713 45,099 Basic earnings per share.................................................... $ 0.80 $ 0.62 ================= ================= Diluted earnings per share.................................................. $ 0.78 $ 0.61 ================= ================= Weighted average number of common shares.................................... 72,477 72,477 Dilutive securities: Effect of unvested stock grants........................................ 800 800 Dilutive options to purchase Paired Shares............................. 1,017 273 ----------------- ----------------- Weighted average number of common shares and common share equivalents outstanding.................................. 74,294 73,550 ================= =================
WYNDHAM INTERNATIONAL CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 -------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 749,119 $ 678,186 Net loss.................................................................... (7,372) (23,318) Basic loss per share........................................................ $ (0.10) $ (0.32) ================= ================= Diluted loss per share...................................................... $ (0.10) $ (0.32) ================= ================= Weighted average number of common shares.................................... 72,477 72,477 ================= =================
F-49 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 21. SUBSEQUENT EVENTS: Businesses Acquired Wyndham Merger. On January 5, 1998, the Wyndham Merger was consummated. As a result of the Wyndham Merger, Patriot acquired Old Wyndham's portfolio of owned, leased or managed hotels consisting of 98 hotels operated by Old Wyndham (including 16 Patriot hotels which were managed by Old Wyndham), as well as eight franchised hotels, which in the aggregate contain approximately 25,900 rooms. The total purchase consideration of approximately $982,000 consisted of 21,594,188 Paired Shares and 4,860,876 shares of Series A Convertible Preferred Stock of Patriot (which are convertible on a one-for-one basis into Paired Shares), cash of approximately $339,000 to repay debt and pay Wyndham shareholders who elected to receive cash (which was financed with funds drawn on the Revolving Credit Facility), and the assumption of approximately $54,000 in mortgage debt. WHG Merger. On January 16, 1998, the WHG Merger was consummated. As a result of the WHG Merger, Wyndham International acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-room El Conquistador, as well as a 62% interest in the management company for the three hotels and the Las Casitas Village at the El Conquistador. A total of 5,004,690 Paired Shares were issued in connection with the WHG Merger and approximately $21,327 of debt was assumed, resulting in total purchase consideration of approximately $159,363. Hotel Acquired On January 14, 1998, Patriot, through the REIT Partnership, acquired an aggregate 95% equity interest in the Buena Vista Palace Hotel in Orlando, Florida for an aggregate purchase price of approximately $141,600, including the assumption of approximately $50,300 of indebtedness. As part of the agreement, Patriot was also granted an option to acquire the remaining 5% equity interest in the hotel. In addition, the Participating Note held by Wyndham International (see Note 6) was modified to reflect an outstanding principal balance of $23,750 (Wyndham International's acquisition price). The REIT Partnership leased the hotel to Wyndham International pursuant to a three-year Participating Lease agreement. The hotel is being managed by a third party Operator. F-50 PATRIOT AMERICAN HOSPITALITY, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (IN THOUSANDS)
COST CAPITALIZED INITIAL COST SUBSEQUENT TO ACQUISITION --------------------- ------------------------- BUILDINGS AND DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS - --------------------------------- ------------- ---- ------------- ---- ------------ FULL SERVICE HOTELS: AMASSADOR WEST Chicago, Illinois................ $ -- $ 2,059 $ 11,856 $ -- $ 4 BOURBON ORLEANS HOTEL New Orleans, Louisiana........... 13,500 1,942 14,209 171 984 THE BUTTES Tempe, Arizona................... -- -- 55,297 1 CROWNE PLAZA TOLEDO Toledo, Ohio..................... -- -- 16,082 177 DOUBLETREE ALLEN CENTER Houston, Texas................... 11,156 2,280 24,707 -- 785 DOUBLETREE HOTEL Des Plaines (Chicago), Illinois.. -- 1,903 5,555 -- 3,148 DOUBLETREE GUEST SUITES Glenview, Illinois............... 20,500 3,237 19,709 -- 216 DOUBLETREE HOTEL Minneapolis, Minnesota........... -- 1,650 15,895 -- 553 DOUBLETREE HOTEL Tallahassee, Florida............. -- 2,127 7,779 -- 2,585 DOUBLETREE HOTEL Tulsa, Oklahoma.................. 9,246 1,428 18,596 -- 31 DOUBLETREE HOTEL Westminster (Denver), Colorado... -- 1,454 9,973 15 798 DOUBLETREE - ANAHEIM Orange, California............... 13,467 2,464 23,297 -- 3 DOUBLETREE - MIAMI AIRPORT Miami, Florida................... -- 3,808 7,052 -- 2,063 DOUBLETREE - POST OAK Houston, Texas................... 29,748 4,441 43,672 -- 70 DOUBLETREE - CORPORATE WOODS Overland Park, Kansas............ 21,909 3,317 38,088 -- 11 DOUBLETREE - ST. LOUIS Chesterfield, Missouri........... 13,366 2,160 18,300 -- 3 DOUBLETREE PARK PLACE Minneapolis, Minnesota........... -- 2,188 13,531 -- 918 EMBASSY SUITES Hunt Valley, Maryland............ -- 529 13,872 6 301 FAIRMOUNT HOTEL San Antonio, Texas............... -- 2,957 -- (20) FOUR POINTS BY SHERATON Saginaw, Michigan................ -- 773 6,451 8 248 GRAND BAY HOTEL COCONUT GROVE Miami, Florida................... 25,200 3,066 28,442 -- -- DEL MAR HILTON Del Mar (San Diego), California.. -- 1,900 11,435 20 532 GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD (a) ------------------------------ BUILDINGS AND ACCUMULATED YEAR DATE OF LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION ---- ------------ ----- ------------- ----- ----------- FULL SERVICE HOTELS: AMASSADOR WEST Chicago, Illinois................ $ 2,059 $ 11,860 $ 13,919 $ 143 1924 1997 BOURBON ORLEANS HOTEL New Orleans, Louisiana........... 2,113 15,193 17,306 941 1800s 1995 THE BUTTES Tempe, Arizona................... -- 55,298 55,298 350 1986 1997 CROWNE PLAZA TOLEDO Toledo, Ohio..................... -- 16,259 16,259 153 1985 1997 DOUBLETREE ALLEN CENTER Houston, Texas................... 2,280 25,492 27,772 774 1978 1996 DOUBLETREE HOTEL Des Plaines (Chicago), Illinois.. 1,903 8,703 10,606 262 1969 1996 DOUBLETREE GUEST SUITES Glenview, Illinois............... 3,237 19,925 23,162 188 1988 1997 DOUBLETREE HOTEL Minneapolis, Minnesota........... 1,650 16,448 18,098 375 1986 1997 DOUBLETREE HOTEL Tallahassee, Florida............. 2,127 10,364 12,491 322 1977 1996 DOUBLETREE HOTEL Tulsa, Oklahoma.................. 1,428 18,627 20,055 539 1982 1996 DOUBLETREE HOTEL Westminster (Denver), Colorado... 1,469 10,771 12,240 455 1980 1996 DOUBLETREE - ANAHEIM Orange, California............... 2,464 23,300 25,764 223 1984 1997 DOUBLETREE - MIAMI AIRPORT Miami, Florida................... 3,808 9,115 12,923 290 1975 1996 DOUBLETREE - POST OAK Houston, Texas................... 4,441 43,742 48,183 417 1982 1997 DOUBLETREE - CORPORATE WOODS Overland Park, Kansas............ 3,317 38,099 41,416 364 1982 1997 DOUBLETREE - ST. LOUIS Chesterfield, Missouri........... 2,160 18,303 20,463 175 1984 1997 DOUBLETREE PARK PLACE Minneapolis, Minnesota........... 2,188 14,449 16,637 279 1981 1997 EMBASSY SUITES Hunt Valley, Maryland............ 535 14,173 14,708 851 1985 1995 FAIRMOUNT HOTEL San Antonio, Texas............... -- 2,937 2,937 191 1906 1995 FOUR POINTS BY SHERATON Saginaw, Michigan................ 781 6,699 7,480 423 1984 1995 GRAND BAY HOTEL COCONUT GROVE Miami, Florida................... 3,066 28,442 31,508 196 1983 1997 DEL MAR HILTON Del Mar (San Diego), California.. 1,920 11,967 13,887 588 1989 1996
See accompanying notes to this schedule on page F-56. F-51 PATRIOT AMERICAN HOSPITALITY, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (IN THOUSANDS)
COST CAPITALIZED INITIAL COST SUBSEQUENT TO ACQUISITION --------------------- ------------------------- BUILDINGS AND DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS - ---------------------------------- ------------- ---- ------------- ---- ------------ HILTON CLEVELAND SOUTH Independence, Ohio................ -- 2,760 12,264 29 1,013 MELBOURNE AIRPORT HILTON Melbourne, Florida................ -- 1,502 6,391 -- 171 HILTON INN MYRTLE BEACH Myrtle Beach, South Carolina...... -- 5,644 26,470 61 445 HOLIDAY INN San Angelo, Texas................. -- 428 3,982 4 182 HOLIDAY INN San Francisco, California......... -- -- 18,807 -- 3 HOLIDAY INN Sebring, Florida.................. -- 626 2,387 7 336 HOLIDAY INN ARISTOCRAT Dallas, Texas..................... -- 144 7,806 2 199 HOLIDAY INN CROCKETT San Antonio, Texas................ -- 1,936 12,130 21 1,170 HOLIDAY INN LENOX Atlanta, Georgia.................. -- -- 10,090 -- 298 HOLIDAY INN NORTHWEST PLAZA Austin, Texas..................... -- 1,424 9,323 15 168 HOLIDAY INN NORTHWEST Houston, Texas.................... -- 333 2,324 4 343 HOLIDAY INN - YO RANCH Kerrville, Texas.................. -- 410 6,099 -- 134 HOLIDAY INN REDMONT Birmingham, Alabama............... -- 227 2,151 2 48 HOLIDAY INN WESTLAKE Beachwood, Ohio................... -- 2,843 14,218 -- 387 HOLIDAY INN SELECT Farmers Branch (Dallas), Texas.... -- 3,045 15,786 33 1,379 HYATT NEWPORTER Newport Beach, California......... -- -- 15,611 -- 1,254 HYATT REGENCY Lexington, Kentucky............... -- -- 11,958 -- 1,169 MARRIOTT HOTEL Troy, Michigan.................... -- 1,790 29,220 19 1,770 MARRIOTT COURTYARD Beachwood, Ohio................... -- 1,510 7,553 -- 118 THE MAYFAIR HOTEL St. Louis, Missouri............... -- 250 7,559 3 952 OMNI INNER HARBOUR HOTEL Baltimore, Maryland............... -- 1,129 49,491 -- 341 PARK SHORE HONOLULU Honolulu, Hawaii.................. -- -- 24,339 -- 45 RADISSON SUITES TOWN & COUNTRY Houston, Texas.................... -- 655 9,725 7 317 GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD (a) ------------------------------ BUILDINGS AND ACCUMULATED YEAR DATE OF LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION ---- ------------ ----- ------------- ----- ----------- HILTON CLEVELAND SOUTH Independence, Ohio................ 2,789 13,277 16,066 823 1980 1995 MELBOURNE AIRPORT HILTON Melbourne, Florida................ 1,502 6,562 8,064 45 1986 1997 HILTON INN MYRTLE BEACH Myrtle Beach, South Carolina...... 5,705 26,915 32,620 446 1974 1997 HOLIDAY INN San Angelo, Texas................. 432 4,164 4,596 263 1984 1995 HOLIDAY INN San Francisco, California......... -- 18,810 18,810 224 1964 1997 HOLIDAY INN Sebring, Florida.................. 633 2,723 3,356 162 1983 1995 HOLIDAY INN ARISTOCRAT Dallas, Texas..................... 146 8,005 8,151 504 1925 1995 HOLIDAY INN CROCKETT San Antonio, Texas................ 1,957 13,300 15,257 830 1909 1995 HOLIDAY INN LENOX Atlanta, Georgia.................. -- 10,388 10,388 534 1987 1996 HOLIDAY INN NORTHWEST PLAZA Austin, Texas..................... 1,439 9,491 10,930 604 1984 1995 HOLIDAY INN NORTHWEST Houston, Texas.................... 337 2,667 3,004 157 1982 1995 HOLIDAY INN - YO RANCH Kerrville, Texas.................. 410 6,233 6,643 58 1984 1997 HOLIDAY INN REDMONT Birmingham, Alabama............... 229 2,199 2,428 52 1925 1997 HOLIDAY INN WESTLAKE Beachwood, Ohio................... 2,843 14,605 17,448 194 1980 1997 HOLIDAY INN SELECT Farmers Branch (Dallas), Texas.... 3,078 17,165 20,243 1,049 1979 1995 HYATT NEWPORTER Newport Beach, California......... -- 16,865 16,865 802 1962 1996 HYATT REGENCY Lexington, Kentucky............... -- 13,127 13,127 586 1977 1996 MARRIOTT HOTEL Troy, Michigan.................... 1,809 30,990 32,799 1,925 1990 1995 MARRIOTT COURTYARD Beachwood, Ohio................... 1,510 7,671 9,181 103 1986 1997 THE MAYFAIR HOTEL St. Louis, Missouri............... 253 8,511 8,764 290 1925 1996 OMNI INNER HARBOUR HOTEL Baltimore, Maryland............... 1,129 49,832 50,961 656 1968 1997 PARK SHORE HONOLULU Honolulu, Hawaii.................. -- 24,384 24,384 231 1968 1997 RADISSON SUITES TOWN & COUNTRY Houston, Texas.................... 662 10,042 10,704 631 1986 1995
See accompanying notes to this schedule on page F-56. F-52 PATRIOT AMERICAN HOSPITALITY, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (IN THOUSANDS)
COST CAPITALIZED INITIAL COST SUBSEQUENT TO ACQUISITION --------------------- ------------------------- BUILDINGS AND DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS - --------------------------------- ------------- ---- ------------- ---- ------------ RADISSON HOTEL & SUITES Dallas, Texas.................... -- 1,011 8,276 10 258 RADISSON NORTHBROOK Northbrook, Illinois............. -- 1,437 10,968 16 211 RADISSON NEW ORLEANS HOTEL New Orleans, Louisiana........... -- 2,463 23,630 26 714 RADISSON SUITE HOTEL Kansas, Kansas................... -- 914 10,341 -- 331 RADISSON OVERLAND PARK Overland Park, Kansas............ -- 1,296 5,377 14 249 RADISSON HOTEL Beachwood, Ohio.................. 5,713 2,226 11,129 -- 124 RADISSON HOTEL Akron, Ohio...................... -- 1,136 5,678 -- 121 RADISSON RIVERWALK Jacksonville, Florida............ -- 2,400 16,965 -- 180 RAMADA INN San Francisco, California........ -- -- 15,853 -- 97 SHERATON CITY CENTRE Washington, D.C.................. -- -- 34,244 -- 4 SHERATON GATEWAY - MIAMI AIRPORT Miami, Florida................... 25,625 2,561 23,009 -- -- SHERATON GRAND HOTEL Tampa, Florida................... 31,675 1,448 31,565 -- 164 TREMONT HOUSE Boston, MA....................... -- 1,776 14,066 18 3,580 THE TUTWILER Birmingham, Alabama.............. -- 1,444 8,124 16 282 UNION STATION Nashville, Tennessee............. -- -- 7,512 -- 488 WESTCOAST GATEWAY Seattle, Washington.............. -- 1,139 10,370 12 232 WESTCOAST HOTEL & MARINA Long Beach, California........... -- -- 3,145 -- 1,487 WESTCOAST PICKWICK HOTEL San Francisco, California........ -- 2,000 11,922 22 1,220 WESTCOAST PLAZA PARK SUITES Seattle, Washington.............. -- 1,515 24,276 16 508 WESTCOAST ROOSEVELT HOTEL Seattle, Washington.............. -- 882 14,870 9 439 WESTCOAST VALLEY RIVER INN Eugene, Oregon................... -- 1,754 15,839 19 637 WESTCOAST WENATCHEE CENTER HOTEL Wenatchee, Washington............ -- 650 6,736 7 196 WYNDHAM BEL AGE HOTEL Los Angeles, California.......... -- 5,653 32,212 -- -- GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD (a) ------------------------------ BUILDINGS AND ACCUMULATED YEAR DATE OF LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION ---- ------------ ----- ------------- ----- ----------- RADISSON HOTEL & SUITES Dallas, Texas.................... 1,021 8,534 9,555 537 1986 1995 RADISSON NORTHBROOK Northbrook, Illinois............. 1,453 11,179 12,632 304 1976 1997 RADISSON NEW ORLEANS HOTEL New Orleans, Louisiana........... 2,489 24,344 26,833 1,495 1924 1995 RADISSON SUITE HOTEL Kansas, Kansas................... 914 10,672 11,586 99 1931 1997 RADISSON OVERLAND PARK Overland Park, Kansas............ 1,310 5,626 6,936 143 1974 1997 RADISSON HOTEL Beachwood, Ohio.................. 2,226 11,253 13,479 152 1968 1997 RADISSON HOTEL Akron, Ohio...................... 1,136 5,799 6,935 78 1989 1997 RADISSON RIVERWALK Jacksonville, Florida............ 2,400 17,145 19,545 162 1979 1997 RAMADA INN San Francisco, California........ -- 15,950 15,950 189 1962 1997 SHERATON CITY CENTRE Washington, D.C.................. -- 34,248 34,248 120 1969 1997 SHERATON GATEWAY - MIAMI AIRPORT Miami, Florida................... 2,561 23,009 25,570 163 1976 1997 SHERATON GRAND HOTEL Tampa, Florida................... 1,448 31,729 33,177 222 1984 1997 TREMONT HOUSE Boston, MA....................... 1,794 17,646 19,440 859 1925 1996 THE TUTWILER Birmingham, Alabama.............. 1,460 8,406 9,866 257 1913 1996 UNION STATION Nashville, Tennessee............. -- 8,000 8,000 93 1986 1997 WESTCOAST GATEWAY Seattle, Washington.............. 1,151 10,602 11,753 525 1990 1996 WESTCOAST HOTEL & MARINA Long Beach, California........... -- 4,632 4,632 193 1978 1996 WESTCOAST PICKWICK HOTEL San Francisco, California........ 2,022 13,142 15,164 388 1928 1996 WESTCOAST PLAZA PARK SUITES Seattle, Washington.............. 1,531 24,784 26,315 1,227 1985 1996 WESTCOAST ROOSEVELT HOTEL Seattle, Washington.............. 891 15,309 16,200 756 1928 1996 WESTCOAST VALLEY RIVER INN Eugene, Oregon................... 1,773 16,476 18,249 619 1973 1996 WESTCOAST WENATCHEE CENTER HOTEL Wenatchee, Washington............ 657 6,932 7,589 342 1988 1996 WYNDHAM BEL AGE HOTEL Los Angeles, California.......... 5,653 32,212 37,865 39 1984 1997
See accompanying notes to this schedule on page F-56. F-53 PATRIOT AMERICAN HOSPITALITY, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (IN THOUSANDS)
COST CAPITALIZED INITIAL COST SUBSEQUENT TO ACQUISITION --------------------- ------------------------- BUILDINGS AND DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS - ----------------------------------- ------------- ---- ------------- ---- ------------ WYNDHAM EMERALD PLAZA San Diego, California.............. 35,000 5,551 60,462 -- -- WYNDHAM FRANKLIN PLAZA Philadelphia, Pennsylvania......... -- -- 67,671 -- -- WYNDHAM GREENSPOINT HOTEL Houston, Texas..................... 22,000 1,930 39,815 20 941 WYNDHAM NORTHWEST CHICAGO Chicago, Illinois.................. -- 1,212 52,025 -- -- WYNDHAM RIVERFRONT HOTEL New Orleans, Louisiana............. -- 2,774 28,023 -- -- WYNDHAM GARDEN - LAS COLINAS Dallas, Texas...................... -- 1,884 16,963 -- -- WYNDHAM GARDEN HOTEL - MIDTOWN Atlanta, Georgia................... -- 2,323 13,785 25 716 WYNDHAM GARDEN - NOVI Detroit, Michigan.................. -- 555 10,401 -- -- WYNDHAM GARDEN HOTEL Pleasanton, California............. -- 1,568 12,845 -- -- WYNDHAM GARDEN - WOODDALE Chicago, Illinois.................. -- 2,266 12,939 -- -- THE GARDEN AT LAGUARDIA New York, New York................. -- 1,800 16,443 -- -- LIMITED SERVICE HOTELS: HAMPTON INN JACKSONVILLE AIRPORT Jacksonville, Florida.............. -- 285 4,355 4 164 HAMPTON INN Rochester, New York................ -- 104 7,829 2 348 HAMPTON INN CLEVELAND AIRPORT North Olmsted, Ohio................ -- 236 5,483 2 389 HAMPTON INN Canton, Ohio....................... -- 350 4,315 3 357 CONFERENCE CENTER: PEACHTREE CONFERENCE CENTER Peachtree City (Atlanta), Georgia.. -- 3,059 21,915 33 3,109 RESORTS: THE BOULDERS Scottsdale, Arizona................ -- 13,188 121,700 -- 844 CARMEL VALLEY RANCH Carmel, California................. -- 4,764 14,704 -- 647 GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD (a) ------------------------------ BUILDINGS AND ACCUMULATED YEAR DATE OF LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION ---- ------------ ----- ------------- ----- ----------- WYNDHAM EMERALD PLAZA San Diego, California.............. 5,551 60,462 66,013 -- 1991 1997 WYNDHAM FRANKLIN PLAZA Philadelphia, Pennsylvania......... -- 67,671 67,671 80 1979 1997 WYNDHAM GREENSPOINT HOTEL Houston, Texas..................... 1,950 40,756 42,706 1,696 1985 1996 WYNDHAM NORTHWEST CHICAGO Chicago, Illinois.................. 1,212 52,025 53,237 62 1983 1997 WYNDHAM RIVERFRONT HOTEL New Orleans, Louisiana............. 2,774 28,023 30,797 34 1996 1997 WYNDHAM GARDEN - LAS COLINAS Dallas, Texas...................... 1,884 16,963 18,847 20 1986 1997 WYNDHAM GARDEN HOTEL - MIDTOWN Atlanta, Georgia................... 2,348 14,501 16,849 594 1987 1996 WYNDHAM GARDEN - NOVI Detroit, Michigan.................. 555 10,401 10,956 12 1988 1997 WYNDHAM GARDEN HOTEL Pleasanton, California............. 1,568 12,845 14,413 2 1985 1997 WYNDHAM GARDEN - WOODDALE Chicago, Illinois.................. 2,266 12,939 15,205 18 1986 1997 THE GARDEN AT LAGUARDIA New York, New York................. 1,800 16,443 18,243 20 1988 1997 LIMITED SERVICE HOTELS: HAMPTON INN JACKSONVILLE AIRPORT Jacksonville, Florida.............. 289 4,519 4,808 284 1985 1995 HAMPTON INN Rochester, New York................ 106 8,177 8,283 510 1986 1995 HAMPTON INN CLEVELAND AIRPORT North Olmsted, Ohio................ 238 5,872 6,110 361 1986 1995 HAMPTON INN Canton, Ohio....................... 353 4,672 5,025 287 1985 1995 CONFERENCE CENTER: PEACHTREE CONFERENCE CENTER Peachtree City (Atlanta), Georgia.. 3,092 25,024 28,116 1,425 1984 1995 RESORTS: THE BOULDERS Scottsdale, Arizona................ 13,188 122,544 135,732 3,340 1985 1997 CARMEL VALLEY RANCH Carmel, California................. 4,764 15,351 20,115 418 1987 1997
See accompanying notes to this schedule on page F-56. F-54 PATRIOT AMERICAN HOSPITALITY, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (IN THOUSANDS)
COST CAPITALIZED INITIAL COST SUBSEQUENT TO ACQUISITION --------------------- ------------------------- BUILDINGS AND DESCRIPTION ENCUMBERANCES LAND IMPROVEMENTS LAND IMPROVEMENTS - --------------------------------- ------------- ---- ------------- ---- ------------ THE LODGE AT VENTANA CANYON Tucson, Arizona, ................ 28,489 13,287 23,332 -- 235 THE PEAKS RESORT & SPA Telluride, Colorado.............. -- 5,141 13,997 -- 467 WYNDHAM RESORT & SPA Ft. Lauderdale, Florida.......... -- 2,134 16,448 23 7,163 RACECOURSE FACILITY: BAY MEADOWS RACECOURSE San Mateo, California............ -- -- 15,052 -- 3,743 ------------ --------- ----------- -------- ---------- $ 306,594 $ 167,498 $ 1,639,048 $ 724 $ 56,298 ============ ========= =========== ======== ========== GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD (a) ------------------------------ BUILDINGS AND ACCUMULATED YEAR DATE OF LAND IMPROVEMENTS TOTAL DEPRECIATION(b)(c) BUILT ACQUISITION ---- ------------ ----- ------------- ----- ----------- THE LODGE AT VENTANA CANYON Tucson, Arizona, ................ 13,287 23,567 36,854 639 1985 1997 THE PEAKS RESORT & SPA Telluride, Colorado.............. 5,141 14,464 19,605 451 1992 1997 WYNDHAM RESORT & SPA Ft. Lauderdale, Florida.......... 2,157 23,611 25,768 779 1961 1996 RACECOURSE FACILITY: BAY MEADOWS RACECOURSE San Mateo, California............ -- 18,795 18,795 1,379 1934 1997 --------- ----------- ---------- ------- $ 168,222 $ 1,695,346 $1,863,568 $41,041 ========= =========== ========== =======
See accompanying notes to this schedule on following page. F-55 PATRIOT AMERICAN HOSPITALITY, INC. NOTES TO SCHEDULE III (IN THOUSANDS) PERIOD OCTOBER 2, 1995 YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, (a) Reconciliation of Real Estate: 1997 1996 1995 ------------ ------------ ------------ Balance at beginning of period $ 597,494 $ 242,132 $ -- Additions during period: Acquisitions ................... 1,209,052 342,557 242,132 Improvements ................... 56,298 12,805 -- ---------- ---------- ---------- Balance at end of period $1,863,568 $ 597,494 $ 242,132 ========== ========== ========== (b) Reconciliation of Accumulated Depreciation: Balance at beginning of period $ 12,048 $ 1,508 $ -- Depreciation for period 28,993 10,540 1,508 ---------- ---------- ---------- Balance at end of period ........... $ 41,041 $ 12,048 $ 1,508 ========== ========== ========== (c) Depreciation is computed on buildings and improvements based upon a useful life of 35 years. F-56 PATRIOT AMERICAN HOSPITALITY, INC. SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE AS OF DECEMBER 31, 1997 (IN THOUSANDS)
PERIODIC INTEREST MATURITY PAYMENT DESCRIPTION RATE DATE TERMS - -------------------------------- -------- ----------------- --------------------- Promissory note, collateralized by 10.25% November 28, 1998 Monthly payments of a first lien deed of trust on the interest only are Crowne Plaza Ravinia Hotel. required. Principal payable in full at maturity. Promissory note, collateralized by 12.5% November 28, 1998 Monthly payments of a second lien deed of trust on the interest only are Crowne Plaza Ravinia Hotel. required. Principal payable in full at maturity. Promissory note, collateralized by 9.0% August 31, 1999 Monthly payments of a first lien deed of trust on the interest only are Wyndham WindWatch Hotel. required. Principal payable in full at maturity. PRINCIPAL AMOUNT OF LOANS SUBJECT TO FACE CARRYING DELINQUENT PRIOR AMOUNT OF AMOUNT OF PRINCIPAL OR DESCRIPTION LIENS MORTGAGES MORTGAGES (A) INTEREST - -------------------------------- ------------- ------------- ------------- ------------ Promissory note, collateralized by None $ 36,000 $ 36,000 None a first lien deed of trust on the Crowne Plaza Ravinia Hotel. Promissory note, collateralized by $ 36,000 4,500 4,500 None a second lien deed of trust on the Crowne Plaza Ravinia Hotel. Promissory note, collateralized by None 31,400 31,102 None a first lien deed of trust on the ------------- ------------- Wyndham WindWatch Hotel. $ 71,900 $ 71,602 ============= =============
(a) Reconciliation of Mortgage Loans on Real Estate:
Period Year Year October 2, 1995 Ended Ended Through December 31, December 31, December 31, 1997 1996 1995 ------------ ------------ -------------- Balance at beginning of period........... $ 71,602 $ 40,500 $ -- New mortgage loans....................... -- 31,400 40,500 Principal payments received.............. -- (298) -- ------------ ------------ -------------- Balance at end of period................. $ 71,602 $ 71,602 $ 40,500 ============ ============ ==============
For federal income tax purposes, the aggregate cost of investments in mortgage loans on real estate is the carrying amount as disclosed in the schedule. F-57 PATRIOT EXHIBIT INDEX FOR 10-K FOR YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of Patriot American Hospitality, Inc. ("Patriot REIT"), incorporated by reference to Exhibit 3.1 to Patriot REIT's and Wyndham International, Inc.'s Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203- 01). 3.2 AMENDED AND RESTATED BYLAWS OF PATRIOT REIT (FILED HEREWITH). 3.3 Amended and Restated Certificate of Incorporation of Wyndham International, Inc. ("Wyndham") (formerly known as Patriot American Hospitality Operating Company), incorporated by reference to Exhibit 3.3 to Patriot REIT's and Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01). 3.4 AMENDED AND RESTATED BYLAWS OF WYNDHAM (FILED HEREWITH). 3.5 Certificate of Designations, Preferences and Rights of Patriot REIT Series A Convertible Preferred Stock, incorporated by reference to Exhibit 3.5 to Patriot REIT's and Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333- 44203 and 333-44203-01). 4.1 Agreement (the "Pairing Agreement"), dated as of February 17, 1983 and as amended February 18, 1988, between Bay Meadows Operating Company ("Bay Meadows") and California Jockey Club ("Cal Jockey") (formerly known as Bay Meadows Realty Enterprises, Inc.), as amended, incorporated by reference to Exhibit 4.3 to Cal Jockey's and Bay Meadows' Registration Statement on Form S-2, and to Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual Report on Form 10-K for the year ended December 31, 1987 (Nos. 001-09319 and 001- 09320). 4.2 Amendment No. 2 to the Pairing Agreement, incorporated by reference to Exhibit 4.2 to Patriot REIT's and Patriot American Hospitality Operating Company's ("Patriot Operating Company") Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 4.3 Amendment No. 3 to the Pairing Agreement, incorporated by reference to Exhibit 4.3 to Patriot REIT's and Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203-01). 4.4 Cooperation Agreement, dated as of December 18, 1997, between Patriot REIT and Wyndham, incorporated by reference to Exhibit 4.4 to Patriot REIT's and Wyndham's Form S-4/A filed February 13, 1998 (Nos. 333-44203 and 333-44203- 01). 1 10.1 Agreement and Plan of Merger, dated as of February 24, 1997, as amended and restated as of May 28, 1997, by and among Patriot REIT, Patriot American Hospitality Partnership, L.P., Cal Jockey and Bay Meadows, incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Cal Jockey's and Bay Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01). 10.2 Agreement and Plan of Merger, dated as of April 14, 1997, between Patriot REIT and Wyndham Hotel Corporation (the "Wyndham Merger Agreement"), incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.3 Amendment No. 1 to Wyndham Merger Agreement, dated as of November 3, 1997, incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.4 Amendment No. 2 to Wyndham Merger Agreement, dated as of December 9, 1997, incorporated by reference to Annex S-A to the Joint Proxy Statement/Prospectus included in Patriot REIT's and Patriot Operating Company's Post-Effective Amendment to Form S-4 filed December 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.5 Agreement and Plan of Merger, dated as of September 30, 1997, by and among Patriot Operating Company, Patriot REIT and CHC International, Inc., incorporated by reference to Exhibit 10.40 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.6 Agreement and Plan of Merger, dated as of September 30, 1997 by and among WHG Resorts & Casinos Inc., Patriot REIT, Patriot American Hospitality Operating Company Acquisition Subsidiary and Patriot Operating Company, incorporated by reference to Exhibit 2.1 to Patriot REIT's and Patriot Operating Company's Registration Statement on Form S-4 filed November 12, 1997 (Nos. 333-40041 and 333-40041-01). 10.7 Agreement and Plan of Merger, dated as of December 2, 1997, by and among Interstate Hotels Company, Patriot REIT and Wyndham, incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus included in Patriot REIT's and Wyndham's Form S-4 filed January 13, 1998 (Nos. 333- 44203 and 333-44203-01). 10.8 Second Amended and Restated Agreement of Limited Partnership of Patriot American Hospitality Partnership, L.P. ("Realty Partnership Agreement"), incorporated by reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333- 28085 and 333-28085-01). 2 10.9 First Amendment to the Realty Partnership Agreement, incorporated by reference to Exhibit 10.1(2) to Cal Jockey's and Bay Meadows' Registration Statement on Form S-4 filed May 30, 1997 (Nos. 333-28085 and 333-28085-01). 10.10 Third Amendment to Realty Partnership Agreement, dated as of July 1, 1997, incorporated by reference to Exhibit 10.1(4) to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333-39875-01). 10.11 FIFTH AMENDMENT TO REALTY PARTNERSHIP AGREEMENT (FILED HEREWITH) 10.12 Agreement of Limited Partnership of Patriot American Hospitality Operating Partnership, L.P., dated as of June 27, 1997, ("Operating Partnership Agreement"), incorporated by reference to Exhibit 10.2(1) to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.13 First Amendment to Operating Partnership Agreement, dated as of August 15, 1997, incorporated by reference to Exhibit 10.2(2) to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (No. 333-39875 and 333-39875-01). 10.14 THIRD AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT (FILED HEREWITH) 10.15 FIFTH AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT (FILED HEREWITH) 10.16 Shareholders Agreement, dated as of December 2, 1997, by and among Patriot REIT, Patriot Operating Company, the shareholders of Interstate Hotels Company named on the signature pages thereto, and Interstate Hotels Company, incorporated by reference to Exhibit 10.1 to Patriot REIT's and Patriot Operating Company's Current Report on Form 8-K dated December 2, 1997 and filed December 4, 1997 (Nos. 001-09319 and 001- 09320). 10.17 Hospitality Advisory, Asset Management and Support Services Agreement, dated as of September 30, 1997, by and among Patriot American Hospitality Operating Partnership, L.P. and certain subsidiaries of CHC International, Inc., incorporated by reference to Exhibit 10.42 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.18 Amended and Restated Credit Agreement, dated as of December 16, 1997, among Patriot REIT, Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and various lenders identified therein incorporated by reference to Exhibit 10.2 to Patriot REIT's and Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01). 10.19 Term Loan Agreement, dated as of December 16, 1997, among Patriot REIT, Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and various lenders identified therein incorporated by reference to Exhibit 10.3 to Patriot REIT's and Wyndham's Registration Statement on Form S-4 filed January 13, 1998 (Nos. 333-44203 and 333-44203-01). 3 10.20 Executive Employment Agreement, dated as of April 14, 1997, between Patriot REIT and James D. Carreker, incorporated by reference to Exhibit 10.20 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333- 39875 and 333-39875-01). 10.21 Executive Employment Agreement, dated as of April 14, 1997, between Patriot REIT and Anne L. Raymond, incorporated by reference to Exhibit 10.21 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333- 39875 and 333-39875-01). 10.22 Executive Employment Agreement, dated as of April 14, 1997, between Patriot REIT and Leslie V. Bentley, incorporated by reference to Exhibit 10.22 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333- 39875 and 333-39875-01). 10.23 Executive Employment Agreement, dated as of April 14, 1997, between Patriot REIT and Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.23 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333- 39875 and 333-39875-01). 10.24 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF APRIL 14, 1997, BETWEEN PATRIOT REIT AND PAUL A. NUSSBAUM (FILED HEREWITH). 10.25 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF FEBRUARY 14, 1997, BETWEEN PATRIOT REIT AND WILLIAM W. EVANS III, AS SUPPLEMENTED ON APRIL 14, 1997 (FILED HEREWITH). 10.26 EXECUTIVE EMPLOYMENT AGREEMENT DATED AS OF JUNE 1997, BETWEEN PATRIOT REIT AND PAUL NOVAK (FILED HEREWITH). 10.27 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 1, 1997, BETWEEN PATRIOT OPERATING COMPANY AND MICHAEL GROSSMAN (FILED HEREWITH). 10.28 EXECUTIVE EMPLOYMENT AGREEMENT, DATED AS OF OCTOBER 1, 1997 BETWEEN PATRIOT OPERATING COMPANY AND KARIM ALIBHAI (FILED HEREWITH). 10.29 Standstill Agreement, dated as of April 14, 1997, by and among Patriot REIT and CF Securities, L.P., incorporated by reference to Exhibit 10.9 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.30 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and CF Securities, L.P., incorporated by reference to Exhibit 10.10 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.31 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and Paul A. Nussbaum, incorporated by reference to Exhibit 10.11 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.32 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and William W. Evans III, incorporated by reference to Exhibit 10.12 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.33 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and Leslie V. Bentley, incorporated by reference to Exhibit 10.13 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.34 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and James D. Carreker, incorporated by reference to Exhibit 10.14 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.35 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and Stanley M. Koonce, Jr., incorporated by reference to Exhibit 10.15 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 10.36 Voting Agreement, dated as of April 14, 1997, by and among Patriot REIT and Anne L. Raymond, incorporated by reference to Exhibit 10.16 to Patriot REIT's and Patriot Operating Company's Joint Registration Statement on Form S-4 filed November 10, 1997 (Nos. 333-39875 and 333- 39875-01). 12.1 STATEMENT REGARDING COMPUTATION OF RATIOS (FILED HEREWITH). 21.1 SIGNIFICANT SUBSIDIARIES OF PATRIOT REIT AND WYNDHAM (FILED HEREWITH). 23.1 CONSENT OF ERNST & YOUNG LLP (FILED HEREWITH). 24.1 POWERS OF ATTORNEY (INCLUDED ON SIGNATURE PAGES) 27.1 FINANCIAL DATA SCHEDULE OF PATRIOT REIT (FILED HEREWITH). 27.2 FINANCIAL DATE SCHEDULE OF WYNDHAM (FILED HEREWITH). 4 EX-3.2 2 AMENDED AND RESTATED BYLAWS OF PATRIOT REIT EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF PATRIOT AMERICAN HOSPITALITY, INC. 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 Wyndham International, Inc. (formerly "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 2 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. 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. 3 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 4 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 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 5 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 6 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. 7 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 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 8 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 9 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. ARTICLE III. ------------ DIRECTORS --------- 3.1 General Powers. Except as otherwise expressly provided by law, the -------------- Certificate or these Bylaws, the property, affairs and business of the Corporation shall be managed under the direction of the Board of Directors and 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. 10 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. Subject to the provisions of Article V of the --------------------- Certificate, 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. Subject to the provisions of Article V of the Certificate, 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 11 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 12 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 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 13 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. 14 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. 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. 15 (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. 16 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. Subject to the provisions of the Certificate, 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. If an Executive Committee is established, the members of such committee shall serve until their successors are designated by the Board of Directors, until removed, or until such 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, if established, 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, if established, 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, if established, 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 17 (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. 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 18 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 19 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. Subject to the provisions of the Certificate, -------------------- the Board of Directors, by resolution duly adopted, may designate a Nominating Committee which shall consist of three or more directors. The Nominating Committee, if established, 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. In addition to such committees as may be established ---------------- by the Certificate and subject to the provisions of the Certificate, 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. 20 ARTICLE V. OFFICERS 5.1 Election of Officers; Terms. Subject to the provisions of the --------------------------- Certificate, 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. Subject to the provisions of the Certificate, 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. Subject to the provisions of the ------------------------------ Certificate, 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 or as provided in the Certificate. 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. 21 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 (if one is established) 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 or as provided in the Certificate, 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 22 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. 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 23 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 24 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 or in a Certificate of Designations) with respect thereto as is required by law. 25 6.2 Pairing. Until the limitation on transfer provided for in the Pairing ------- Agreement, dated as of February 17, 1983, by and between the Operating Company and the Corporation (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, except in accordance with the provisions of as provided in the Pairing Agreement. (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 26 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 27 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 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; 28 (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. 29 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 30 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. 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 31 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. 7.4 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. 7.5 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 32 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. 7.6 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 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. 7.7 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 33 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. 7.8 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. 34 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 35 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. 36 EX-3.4 3 AMENDED AND RESTATED BYLAWS OF WYNDHAM EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS OF WYNDHAM INTERNATIONAL, INC. 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. 1 (c) "Corporation" shall mean Wyndham International, Inc. (formerly "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 2.2 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 3 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 4 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 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. 5 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 6 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 7 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 8 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 9 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. 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 10 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. Subject to the provisions of Article V of the --------------------- Certificate, 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. Subject to the provisions of Article V of the Certificate, 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 11 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 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. 12 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 13 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 14 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. 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. 15 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. Subject to the provisions of the Certificate, ------------------- 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. If an Executive Committee is established, the members of such committee shall serve until their successors are designated by the Board of Directors, until removed, or until such 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, if established, 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, if established, shall report at the next regular or special meeting of the Board of Directors all action that the 16 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, if established, 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. 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 17 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 18 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. Subject to the provisions of the Certificate, -------------------- the Board of Directors, by resolution duly adopted, may designate a Nominating Committee which shall consist of three or more directors. The Nominating Committee, if established, 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. In addition to such committees as may be ---------------- established by the Certificate and subject to the provisions of the Certificate, the Board of Directors, by resolution adopted, may establish such other standing or special committees of the Board of 19 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. ARTICLE V. OFFICERS 5.1 Election of Officers; Terms. Subject to the provisions of the --------------------------- Certificate, 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. Subject to the provisions of the Certificate, 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. Subject to the provisions of the ------------------------------ Certificate, 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 or as provided in the Certificate. 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. 20 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 (if one is established) 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 or as provided in the Certificate, 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 21 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. 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 22 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 23 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 or in a Certificate of Designations) 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 Patriot REIT and the Corporation (the "Pairing Agreement"), as amended from time to time in accordance with the provisions thereof, shall be terminated: 24 (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, except in accordance with the provisions of the Pairing Agreement. (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. 25 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 26 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 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; 27 (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, 28 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 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 29 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 30 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 31 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. 32 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 33 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. 34 EX-10.11 4 FIFTH AMENDMENT TO REALTY PARTNERSHIP AGREEMENT EXHIBIT 10.11 PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P. FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP This Fifth Amendment is made as of September 30, 1997 by PAH GP, Inc., a Delaware corporation, as general partner (the "General Partner") of Patriot American Hospitality Partnership, L.P., a Virginia limited partnership (the "Partnership"), and as attorney-in-fact for each of the limited partners of the Partnership (collectively, the "Limited Partners") for the purpose of amending the Second Amended and Restated Agreement of Limited Partnership of the Partnership dated as of April 11, 1997, as amended to date (the "Partnership Agreement"). All capitalized terms used herein and not defined shall have the respective meanings ascribed to them in the Partnership Agreement. WHEREAS, it is necessary and desirable to impose certain restrictions on the exercise of the redemption rights granted under the Partnership Agreement so that the Partnership may avoid treatment as a publicly traded partnership, and the General Partner is authorized pursuant to Article III and Section 8.05(f) of the Partnership Agreement to make such amendments; and WHEREAS, the General Partner desires to make certain other conforming amendments in connection with the foregoing, which amendments may be made in the General Partner's discretion pursuant to Section 11.01 of the Partnership Agreement. NOW, THEREFORE, the General Partner undertakes to implement the following amendments to the Partnership Agreement: Section 1. Amendments to Text of Partnership Agreement. ------------------------------------------- A. Article I, Defined Terms, is amended to add the following definitions of "Deferred Cash Amount," "Deferred Redemption Right," "LP Unit Percentage," "Notice 88-75," and "Private Transfer." "DEFERRED CASH AMOUNT" means an amount of cash per Partnership Unit equal to the value of the REIT Shares Amount on the Specified Redemption Date. The value of the REIT Shares Amount on the date of such valuation shall be determined in the manner provided in the definition of "Cash Amount." "DEFERRED REDEMPTION RIGHT" has the meaning provided in Section 8.05(i) hereof. "LP UNIT PERCENTAGE" means a percentage of the total interests in Partnership capital or Partnership profits determined without regard to Partnership Units held by the General Partner and any other person related to the General Partner within the meaning of Section 267(b) or 707(b)(1) of the Code (and after applying the rules of Section 856(i) of the Code), all as determined under Regulations Section 1.7704-1(k) and Section II.F of Notice 88-75 using any reasonable method selected by the General Partner. Notwithstanding the foregoing, in the event that the General Partner and the persons related to the General Partner described above own 10% or less of the interests in the Partnership's capital and profits, then the interests of the General Partner and such persons shall not be disregarded in computing the LP Unit Percentage. "NOTICE 88-75" means IRS Notice 88-75, 1988-2 C.B. 386, regarding certain safe harbors from treatment as a publicly traded partnership. "PRIVATE TRANSFER" means a Transfer described in one of the following clauses: (i) A Transfer in which the basis of the Partnership Unit in the hands of the transferee is determined, in whole or in part, by reference to its basis in the hands of the transferor Partner or is determined under Section 732 of the Code; (ii) A Transfer at death; (iii) A Transfer between members of a family as defined under Section 267(c)(4) of the Code, (i.e., to the Partner's brother, ---- sister (by whole or half blood), spouse, ancestor or lineal descendant); (iv) A Transfer involving a distribution from a retirement plan qualified under Section 401(a) of the Code; or (v) A Transfer that, when aggregated with other Transfers by the Partner during any 30 calendar day period, represents a Transfer of Partnership Units representing an LP Unit Percentage of more than five percent (5%). The foregoing definition of "Private Transfer" is intended to include only such Transfers as would be disregarded in determining whether Partnership Units are readily tradable on a secondary market or the substantial equivalent thereof pursuant to Treasury Regulations Section 1.7704-1(e) (i), (ii), (iii), (v) and (vi) and pursuant to Section II.B of Notice 88-75, and shall be construed and administered in accordance therewith. The General Partner may modify this definition of Private Transfer from time to time in its discretion to ensure that the terms of the definition comply and continue to comply with such requirements. B. Article I, Defined Terms, is amended to replace the definition of "Redeeming Partner" with the following definition. All other terms defined in Article I shall remain in full force and effect. "REDEEMING PARTNER" has the meanings provided in Sections 8.05(a) and 8.05(i) hereof, as the context so requires. C. Article VIII, Rights and Obligations of the Limited Partners, shall be amended to replace the first phrase of the first sentence of Section 8.05(a) with the following phrase: "Subject to Sections 8.05(b) through 8.05(j)," D. Article VIII, Rights and Obligations of the Limited Partners, shall be amended to replace the final proviso of Section 8.05(e) with the following proviso: "provided, that any such redemption shall be effected by the Partnership in the form of the Cash Amount or the Deferred Cash Amount (as applicable) and shall be subject to any other restrictions imposed on the exercise by a Limited Partner of the Redemption Right and Deferred Redemption Right as set forth in this Section 8.05." E. Article VIII, Rights and Obligations of the Limited Partners, shall be amended to add paragraphs (i) and (j) to section 8.05, as follows: (i) Deferred Redemption Rights. Subject to certain other -------------------------- provisions of this Article VIII as provided below, each Limited Partner, other than PAH LP, shall have the right (the "Deferred Redemption Right"), on or after the first anniversary of the date on which he acquires Partnership Units (or such later or earlier date as shall be determined in the sole and absolute discretion of the General Partner at the time of the issuance of the Partnership Units), to require the Partnership to redeem on a Specified Redemption Date all or a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in a form of the Deferred Cash Amount to be paid by the Partnership. The Deferred Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the General Partner) by the Limited Partner who is exercising the Deferred Redemption Right (the "Redeeming Partner"); provided, however, that the Partnership shall not be obligated to satisfy such Redemption Right if the Company and/or the General Partner elects to purchase the Partnership Units subject to the Notice of Redemption pursuant to Section 8.05(b) (as modified by the next succeeding paragraph of this Section 8.05(i)); and provided, further, that no Limited Partner may deliver more than two Notices of Redemption during each calendar year. A Limited Partner may not exercise the Deferred Redemption Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000 Partnership Units, all of the Partnership Units held by such Partner, unless the General Partner consents, in its sole discretion. The Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with respect to Partnership Units if the record date for such distribution is on or after the Specified Redemption Date. The foregoing Deferred Redemption Right shall be subject to the provisions of Section 8.05(b), reading "Deferred Redemption Right" for "Redemption Right" and "Deferred Cash Amount" for "Cash Amount"; provided that if the General Partner and/or the Company shall elect to exercise its right to purchase Partnership Units under Section 8.05(b) with respect to a Notice of Redemption under this Section 8.05(i), the General Partner and/or the Company shall not be required to so notify the Redeeming Partner until five Business Days prior to the Specified Redemption Date. The foregoing Deferred Redemption Right shall also be subject to the provisions of Sections 8.05(c), 8.05(d), 8.05(e), 8.05(f), 8.05(g) and 8.05(h), also reading "Deferred Redemption Right" for "Redemption Right" and "Deferred Cash Amount" for "Cash Amount" where the context requires. The foregoing Deferred Redemption Right also shall be subject to Section 8.05(j). The foregoing Deferred Redemption Right is intended to comply with the requirements of Regulations Section 1.7704-1(f) and Section II.E.1 of Notice 88-75 and shall be construed and administered in accordance therewith. The General Partner may modify the Deferred Redemption Right from time to time in its discretion to ensure that the terms of the Deferred Redemption Right comply and continue to comply with such requirements. (j) Restrictions on Exercise of Redemption Right and Deferred --------------------------------------------------------- Redemption Right. ---------------- (i) Notwithstanding the provisions of Sections 8.05(a) and 8.05(b), a Limited Partner shall be entitled to exercise the Redemption Right only if the redemption or purchase of the Limited Partner's Partnership Units would constitute a Private Transfer (within the meaning of clause (v) of the definition of Private Transfer). (ii) Notwithstanding the provisions of Sections 8.05(i) and 8.05(b), a Limited Partner shall be entitled to exercise the Deferred Redemption Right only if (x) the redemption or purchase of the Limited Partner's Partnership Units would constitute a Private Transfer (within the meaning of clause (v) of the definition of Private Transfer) or (y) the number of Partnership Units to be purchased or redeemed, when aggregated with other Transfers of Partnership Units within the same taxable year of the Partnership (but not including Private Transfers), would constitute an LP Unit Percentage of ten percent (10%) or less. (iii) The General Partner may establish such policies and procedures as it may deem necessary or desirable in its sole discretion to administer the 10% LP Unit Percentage limit set forth in subparagraph (ii) above, including without limitation imposing further limitations on the number of Partnership Units with respect to which the Deferred Redemption Right may be exercised to coordinate the exercise of the Deferred Redemption Right with the limitations on Transfers set forth in Section 9.02(e) and by establishing procedures to allocate the ability to exercise the Deferred Redemption Right among the Limited Partners and over the course of any taxable year. (iv) The restrictions set forth in this Section 8.05(j) shall continue in effect until such time as the Partnership is no longer potentially subject to classification as a publicly traded partnership, as defined in Section 7704 of the Code, in the absence of such restrictions, as determined by the General Partner in its discretion. The restrictions set forth in this Section 8.05(j), together with the restrictions on the Transfer of Partnership Units set forth in Section 9.02, are intended to limit transfers of interests in the Partnership in such a manner as to permit the Partnership to qualify for the safe harbors from treatment as a publicly traded partnership set forth in both Treasury Regulations Sections 1.7704-1(d), (e), (f) and (j) and Sections II.B, II.C.2 and II.E.1 of Notice 88-75 and shall be construed and administered in accordance therewith. The General Partner may modify the restrictions set forth in this Section 8.05(j), and the provisions of Section 9.02, from time to time in its discretion to ensure that the Partnership complies and continues to comply with such requirements. F. Article IX, Transfers of Limited Partnership Interests, shall be amended to replace the first sentence of Section 9.02(a) with the following: Subject to Sections 9.02(b) through 9.02(e), a Limited Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all or any portion of his Limited Partnership Interest or any of such Limited Partner's economic rights as a Limited Partner, whether voluntarily (including by exercise of any redemption or conversion rights) or by operation of law or at judicial sale or otherwise (collectively, a "Transfer") with or without the consent of the General Partner; provided however that upon Transfer of -------- any Preferred Units, the holder thereof shall not be entitled to the additional UBTI Adjuster distribution as set forth in Section 5.08(b). G. Article IX, Transfers of Limited Partnership Interests, shall be amended to redesignate Section 9.02(e) as Section 9.02(f) and to insert the following new Section 9.02(e): (e) No Limited Partner may effect a Transfer of its Limited Partnership Interest, in whole or in part, unless (i) the Transfer is a Private Transfer, (ii) the Transfer is a redemption or sale permitted by the provisions of Section 8.05, or (iii) the Transfer satisfies both of the following tests, (x) when aggregated with other Transfers of Partnership Units within the same taxable year of the Partnership (but not including Private Transfers or Transfers pursuant to exercises of the Deferred Redemption Right), the Transfer would constitute an LP Unit Percentage of two percent (2%) or less, and (y) when aggregated with other Transfers of Partnership Units within the same taxable year of the Partnership (but not including Private Transfers), the Transfer would constitute an LP Unit Percentage of ten percent (10%) or less. The General Partner may establish such policies and procedures as it may deem necessary or desirable in its sole discretion to administer the 2% and 10% LP Unit Percentage limits set forth in the foregoing subclause (iii) in the manner described in Section 8.05(j)(iii). Solely for purposes of this Section 9.02(e), the term "Transfer" shall not include (except as provided in the following clause) the mere pledge, hypothecation or grant of a security interest in a Partnership Unit, but shall include any transfer of a Partnership Unit within the meaning of Treasury Regulations Section 1.7704-1(a)(3) (other than transfers that have not been recognized by the Partnership) or any transaction treated as a transfer for purposes of Notice 88-75. The restrictions set forth in this Section 9.02(e) shall continue in effect until such time as the Partnership is no longer potentially subject to classification as a publicly traded partnership, as defined in Section 7704 of the Code, as determined by the General Partner in its discretion. Section 2. Effective Date. The amendments to the text of the Partnership -------------- Agreement provided in Section 1 of this Fourth Amendment shall take effect as of the date first set forth above. Except as amended by Section 1 of this Fourth Amendment, the terms of the Agreement shall remain in full force and effect. Section 3. Defined Terms. Capitalized terms used without definition in this ------------- Fourth Amendment shall have the meanings set forth in the Partnership Agreement. Section 4. Partnership Agreement. The Partnership Agreement and this Fourth --------------------- Amendment shall be read together and shall have the same effect as if the provisions of the Partnership Agreement and this Fourth Amendment were contained in one document. Any provisions of the Partnership Agreement not amended by this Fourth Amendment shall remain in full force and effect as provided in the Partnership Agreement immediately prior to the date hereof. [End of Page] IN WITNESS WHEREOF, the General Partner has executed this Fourth Amendment as of the date first written above. GENERAL PARTNER PAH GP, INC. /s/ William W. Evans III ------------------------ By: William W. Evans III Its: President LIMITED PARTNERS By: PAH GP, Inc. as attorney-in-fact for each of the Limited Partners /s/ William W. Evans III ------------------------ By: William W. Evans III Its: President EX-10.14 5 THIRD AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT EXHIBIT 10.14 PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P. THIRD AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP This Third Amendment is made as of September 30, 1997 by Patriot American Hospitality Operating Company, a Delaware corporation, as general partner (the "General Partner") of Patriot American Hospitality Operating Partnership, L.P., a Delaware limited partnership (the "Partnership"), and as attorney-in-fact for each of the limited partners of the Partnership (collectively, the "Limited Partners") for the purpose of amending the Agreement of Limited Partnership of the Partnership dated as of June 27, 1997, as amended to date (the "Partnership Agreement"). All capitalized terms used herein and not defined shall have the respective meanings ascribed to them in the Partnership Agreement. WHEREAS, it is necessary and desirable to impose certain restrictions on the exercise of the redemption rights granted under the Partnership Agreement so that the Partnership may avoid treatment as a publicly traded partnership, and the General Partner is authorized pursuant to Article III and Section 8.05(f) of the Partnership Agreement to make such amendments; and WHEREAS, the General Partner desires to make certain other conforming amendments in connection with the foregoing, which amendments may be made in the General Partner's discretion pursuant to Section 11.01 of the Partnership Agreement. NOW, THEREFORE, the General Partner undertakes to implement the following amendments to the Partnership Agreement: Section 1. Amendments to Text of Partnership Agreement. ------------------------------------------- A. Article I, Defined Terms, is amended to add the following definitions of "LP Unit Percentage" and "Private Transfer." "LP UNIT PERCENTAGE" means a percentage of the total interests in Partnership capital or Partnership profits determined without regard to Partnership Units held by the General Partner and any other person related to the General Partner within the meaning of Section 267(b) or 707(b)(1) of the Code (and after applying the rules of Section 856(i) of the Code), all as determined under Regulations Section 1.7704-1(k) using any reasonable method selected by the General Partner. Notwithstanding the foregoing, in the event that the General Partner and the persons related to the General Partner described above own 10% or less of the interests in the Partnership's capital and profits, then the interests of the General Partner and such persons shall not be disregarded in computing the LP Unit Percentage. "PRIVATE TRANSFER" means a Transfer described in one of the following clauses: (i) A Transfer in which the basis of the Partnership Unit in the hands of the transferee is determined, in whole or in part, by reference to its basis in the hands of the transferor Partner or is determined under Section 732 of the Code; (ii) A Transfer at death; (iii) A Transfer between members of a family as defined under Section 267(c)(4) of the Code, (i.e., to the Partner's brother, ---- sister (by whole or half blood), spouse, ancestor or lineal descendant); (iv) A Transfer involving a distribution from a retirement plan qualified under Section 401(a) of the Code; or (v) A Transfer that, when aggregated with other Transfers by the Partner and any related persons (within the meaning of Section 267(b) or 707(b)(1) of the Code) during any 30 calendar day period, represents a Transfer of Partnership Units representing an LP Unit Percentage of more than two percent (2%). The foregoing definition of "Private Transfer" is intended to include only such Transfers as would be disregarded in determining whether Partnership Units are readily tradable on a secondary market or the substantial equivalent thereof pursuant to Treasury Regulations Section 1.7704-1(e) (i), (ii), (iii), (v) and (vi), and shall be construed and administered in accordance therewith. The General Partner may modify this definition of Private Transfer from time to time in its discretion to ensure that the terms of the definition comply and continue to comply with such requirements. B. Article I, Defined Terms, is amended to replace the definitions of "Deferred Redemption Right" and "Redeeming Partner" with the following definitions. All other terms defined in Article I shall remain in full force and effect. "DEFERRED REDEMPTION RIGHT" has the meaning provided in Section 8.05(i) hereof. "REDEEMING PARTNER" has the meanings provided in Sections 8.05(a) and 8.05(i) hereof, as the context so requires. C. Article VIII, Rights and Obligations of the Limited Partners, shall be amended to replace the first phrase of the first sentence of Section 8.05(a) with the following phrase: "Subject to Sections 8.05(b) through 8.05(j)," D. Article VIII, Rights and Obligations of the Limited Partners, shall be amended to replace the final proviso of Section 8.05(e) with the following proviso: "provided, that any such redemption shall be effected by the Partnership in the form of the Cash Amount or the Deferred Cash Amount (as applicable) and shall be subject to any other restrictions imposed on the exercise by a Limited Partner of the Redemption Right and Deferred Redemption Right as set forth in this Section 8.05." E. Article VIII, Rights and Obligations of the Limited Partners, shall be amended to add paragraphs (i) and (j) to section 8.05, as follows: (i) Deferred Redemption Rights. Subject to certain other -------------------------- provisions of this Article VIII as provided below, each Limited Partner (other than the Company) shall have the right (the "Deferred Redemption Right"), on or after the first anniversary of the date on which he acquires Partnership Units (or such later or earlier date as shall be determined in the sole and absolute discretion of the General Partner at the time of the issuance of the Partnership Units), to require the Partnership to redeem on a Specified Redemption Date all or a portion of the Partnership Units held by such Limited Partner at a redemption price equal to and in a form of the Deferred Cash Amount to be paid by the Partnership. The Deferred Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Partnership (with a copy to the Company) by the Limited Partner who is exercising the Deferred Redemption Right (the "Redeeming Partner"); provided, however, that the Partnership shall not be obligated to satisfy such Deferred Redemption Right if the Company elects to purchase the Partnership Units subject to the Notice of Redemption pursuant to Section 8.05(b) (as modified by the next succeeding paragraph of this Section 8.05(i)); and provided, further, that no Limited Partner may deliver more than two Notices of Redemption during each calendar year. A Limited Partner may not exercise the Deferred Redemption Right for less than 1,000 Partnership Units or, if such Limited Partner holds less than 1,000 Partnership Units, all of the Partnership Units held by such Partner, unless the General Partner consents, in its sole discretion. The Redeeming Partner shall have no right, with respect to any Partnership Units so redeemed, to receive any distribution paid with respect to Partnership Units if the record date for such distribution is on or after the Specified Redemption Date. The foregoing Deferred Redemption Right shall be subject to the provisions of Section 8.05(b), reading "Deferred Redemption Right" for "Redemption Right" and "Deferred Cash Amount" for "Cash Amount"; provided that if the Company shall elect to exercise its right to purchase Partnership Units under Section 8.05(b) with respect to a Notice of Redemption under this Section 8.05(i), the Company shall not be required to so notify the Redeeming Partner until five Business Days prior to the Specified Redemption Date. The foregoing Deferred Redemption Right shall also be subject to the provisions of Sections 8.05(c), 8.05(d), 8.05(e), 8.05(f), 8.05(g) and 8.05(h), also reading "Deferred Redemption Right" for "Redemption Right" and "Deferred Cash Amount" for "Cash Amount" where the context requires. The foregoing Deferred Redemption Right also shall be subject to Section 8.05(j). The foregoing Deferred Redemption Right is intended to comply with the requirements of Regulations Section 1.7704-1(f) and shall be construed and administered in accordance therewith. The General Partner may modify the Deferred Redemption Right from time to time in its discretion to ensure that the terms of the Deferred Redemption Right comply and continue to comply with such requirements. (j) Restrictions on Exercise of Redemption Right and Deferred --------------------------------------------------------- Redemption Right. ---------------- (i) Notwithstanding the provisions of Sections 8.05(a) and 8.05(b), a Limited Partner shall be entitled to exercise the Redemption Right only if the redemption or purchase of the Limited Partner's Partnership Units would constitute a Private Transfer (within the meaning of clause (v) of the definition of Private Transfer). (ii) Notwithstanding the provisions of Sections 8.05(i) and 8.05(b), a Limited Partner shall be entitled to exercise the Deferred Redemption Right only if (x) the redemption or purchase of the Limited Partner's Partnership Units would constitute a Private Transfer (within the meaning of clause (v) of the definition of Private Transfer) or (y) the number of Partnership Units to be purchased or redeemed, when aggregated with other Transfers of Partnership Units within the same taxable year of the Partnership (but not including Private Transfers), would constitute an LP Unit Percentage of ten percent (10%) or less. (iii) The General Partner may establish such policies and procedures as it may deem necessary or desirable in its sole discretion to administer the 10% LP Unit Percentage limit set forth in subparagraph (ii) above, including without limitation by imposing further limitations on the number of Partnership Units with respect to which the Deferred Redemption Right may be exercised to coordinate the exercise of the Deferred Redemption Right with the limitations on Transfers set forth in Section 9.02(e) and by establishing procedures to allocate the ability to exercise the Deferred Redemption Right among the Limited Partners and over the course of any taxable year. (iv) The restrictions set forth in this Section 8.05(j) shall continue in effect until such time as the Partnership is no longer potentially subject to classification as a publicly traded partnership, as defined in Section 7704 of the Code, in the absence of such restrictions, as determined by the General Partner in its discretion. The restrictions set forth in this Section 8.05(j), together with the restrictions on the Transfer of Partnership Units set forth in Section 9.02, are intended to limit transfers of interests in the Partnership in such a manner as to permit the Partnership to qualify for the safe harbors from treatment as a publicly traded partnership set forth in both Treasury Regulations Sections 1.7704-1(d), (e), (f) and (j) and shall be construed and administered in accordance therewith. The General Partner may modify the restrictions set forth in this Section 8.05(j), and the provisions of Section 9.02, from time to time in its discretion to ensure that the Partnership complies and continues to comply with such requirements. F. Article IX, Transfers of Limited Partnership Interests, shall be amended to replace the first phrase of Section 9.02(a) with the following phrase: "Subject to Sections 9.02(b) through 9.02(e)," G. Article IX, Transfers of Limited Partnership Interests, shall be amended to redesignate Section 9.02(e) as Section 9.02(f) and to insert the following new Section 9.02(e): (e) No Limited Partner may effect a Transfer of its Limited Partnership Interest, in whole or in part, unless (i) the Transfer is a Private Transfer, (ii) the Transfer is a redemption or sale permitted by the provisions of Section 8.05, or (iii) the Transfer satisfies both of the following tests, (x) when aggregated with other Transfers of Partnership Units within the same taxable year of the Partnership (but not including Private Transfers or Transfers pursuant to exercises of the Deferred Redemption Right), the Transfer would constitute an LP Unit Percentage of two percent (2%) or less, and (y) when aggregated with other Transfers of Partnership Units within the same taxable year of the Partnership (but not including Private Transfers), the Transfer would constitute an LP Unit Percentage of ten percent (10%) or less. The General Partner may establish such policies and procedures as it may deem necessary or desirable in its sole discretion to administer the 2% and 10% LP Unit Percentage limits set forth in the foregoing subclause (iii) in the manner described in Section 8.05(j)(iii). Solely for purposes of this Section 9.02(e), the term "Transfer" shall not include (except as provided in the following clause) the mere pledge, hypothecation or grant of a security interest in a Partnership Unit, but shall include any transfer of a Partnership Unit within the meaning of Treasury Regulations Section 1.7704-1(a)(3) (other than transfers that have not been recognized by the Partnership). The restrictions set forth in this Section 9.02(e) shall continue in effect until such time as the Partnership is no longer potentially subject to classification as a publicly traded partnership, as defined in Section 7704 of the Code, as determined by the General Partner in its discretion. H. Article XI, Amendment of Agreement, shall be amended to correct an incorrect cross-reference by replacing Section 11.01(a) with the following: (a) any amendment affecting the operation of the Conversion Factor or the Redemption Right (except as provided in Section 8.05(f) or 7.01(e) hereof) in a manner adverse to the Limited Partners; Section 2. Effective Date. The amendments to the text of the Partnership -------------- Agreement provided in Section 1 of this Second Amendment shall take effect as of the date first set forth above. Except as amended by Section 1 of this Second Amendment, the terms of the Agreement shall remain in full force and effect. Section 3. Defined Terms. Capitalized terms used without definition in this ------------- Second Amendment shall have the meanings set forth in the Partnership Agreement. Section 4. Partnership Agreement. The Partnership Agreement and this Second --------------------- Amendment shall be read together and shall have the same effect as if the provisions of the Partnership Agreement and this Second Amendment were contained in one document. Any provisions of the Partnership Agreement not amended by this Second Amendment shall remain in full force and effect as provided in the Partnership Agreement immediately prior to the date hereof. [End of Page] IN WITNESS WHEREOF, the General Partner has executed this Second Amendment as of the date first written above. GENERAL PARTNER PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY /s/ Leslie Ng ------------- By: Leslie Ng Its: Senior Vice President LIMITED PARTNERS By: Patriot American Hospitality Operating Company, as attorney-in-fact for each of the Limited Partners /s/ Leslie Ng ------------- By: Leslie Ng Its: Senior Vice President EX-10.15 6 FIFTH AMENDMENT TO OPERATING PARTNERSHIP AGREEMENT EXHIBIT 10.15 PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P. FIFTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP This Fifth Amendment is made as of September 30, 1997 by and among Patriot American Hospitality Operating Company, a Delaware corporation, as general partner (the "General Partner") of Patriot American Hospitality Operating Partnership, L.P., a Delaware limited partnership (the "Partnership"), and as attorney-in-fact for each of the limited partners of the Partnership (collectively, the "Limited Partners"), and Karim Alibhai (the "Contributor") for the purpose of amending the Agreement of Limited Partnership of the Partnership dated June 27, 1997, as amended to date (the "Partnership Agreement"). All capitalized terms used herein and not defined shall have the respective meanings ascribed to them in the Partnership Agreement. WHEREAS, the Contributor has made certain Capital Contributions to the Partnership; WHEREAS, the General Partner desires to accept such additional Capital Contributions; WHEREAS, in connection with such Capital Contributions the General Partner desires to create a series of Class C Preferred Limited Partner Units of the Partnership and to make certain conforming changes to the Partnership Agreement; WHEREAS, the General Partner has determined that such amendment is not adverse to the Limited Partners; NOW, THEREFORE, the General Partner undertakes to implement the following amendments to the Partnership Agreement pursuant to the authority granted to the General Partner under Section 4.02(a) of the Partnership Agreement: Section 1. Amendments to Text of Partnership Agreement. ------------------------------------------- Article I, Defined Terms is amended to add the following definitions of "Class C Preferred Unit" and "Class C Preferred Unit Holder" and to replace the current definition of "Percentage Interest" with the definition of that term described below. All other terms defined in Article I shall remain in full force and effect. "Class C Preferred Unit" means a limited partnership interest represented by a fractional, undivided share of the Partnership Interests of all Partners issued hereunder which has the rights, preferences and other privileges designated herein. The allocation of Class C Preferred Units among the Partners shall be set forth on Exhibit A, as may be amended --------- from time to time. "Class C Preferred Unitholder" means a limited partner that holds Class C Preferred Units. "Percentage Interest" means the percentage ownership interest in the Partnership of each Partner, as determined by dividing the Partnership Units owned by a Partner (including any outstanding Preferred Units of any series or class) by the total number of Partnership Units outstanding (including any outstanding Preferred Units of any series or class). The Percentage Interest of each Partner shall be as set forth on Exhibit A, as --------- may be amended from time to time. For purposes of applying Section 5.01(a)(1)(v), however, a Partner's Percentage Interest shall not include the number of any Class C Preferred Units held by the Partner. For purposes of applying Section 5.02(a), a Partner's Percentage Interest shall not include the number of any Class B or Class C Preferred Units held by the Partner. Section 4.02(d) of the Partnership Agreement is deleted and replaced with the following: (d) Exchange of Preferred Units. --------------------------- (i) In the event the General Partner acquires Class B Preferred Units from the Preferred Unitholders (in exchange for cash or Company Shares), the Partnership shall, as soon as practicable thereafter, exchange each Class B Preferred Unit held by the General Partner for such number of Partnership Units which are not designated as Preferred Units, as determined by the Conversion Factor then in effect. (ii) If REIT Class B Preferred Units are converted into preferred stock of Patriot REIT, then the Class B Preferred Units shall be converted into preferred stock of the Company having the same designations, preferences and other rights as the Class B Preferred Units, provided, however, that no such conversion will occur unless the Company has the authority to issue such preferred stock. Section 5.01(a) of the Partnership Agreement is deleted and replaced with the following: 5.01 ALLOCATION OF PROFIT AND LOSS. ----------------------------- (a) General. Profit and Loss of the Partnership for each fiscal ------- year of the Partnership shall be allocated among the Partners as follows: (1) Profit of the Partnership shall be allocated: 2 (i) first, among the Class C Preferred Unitholders until the excess of the Loss allocated to such Preferred Unitholders under Section 5.01(a)(2)(iii), over the Profit allocated to such Preferred Unitholders under this Section 5.01(a)(1)(i), is equal to zero, in each case on a cumulative basis for all fiscal years of the Partnership; (ii) second, among the Class C Preferred Unitholders in proportion to their respective Percentage Interests until the excess of the Profit allocated to such Preferred Unitholders under this Section 5.01(a)(1)(ii) over the Loss allocated to such Preferred Unitholders under Section 5.01(a)(2)(i) is equal to the distributions to such Preferred Unitholders under Section 5.02(a)(1), in each case on a cumulative basis for all fiscal years of the Partnership; (iii) third, among the Class A Preferred Unitholders until the excess of the Loss allocated to the Class A Preferred Unitholders under Section 5.01(a)(2)(ii), over the Profit allocated to the Class A Preferred Unitholders under this Section 5.01(a)(1)(iii), is equal to zero, in each case on a cumulative basis for all fiscal years of the Partnership; (iv) fourth, among the Class A Preferred Unitholders in proportion to their respective Percentage Interests until the excess of the Profit allocated to the Class A Preferred Unitholders under this Section 5.01(a)(1)(iv) over the Loss allocated to the Class A Preferred Unitholders under Section 5.01(a)(2)(i) is equal to the distributions to such Class A Preferred Unitholders under Section 5.02(a)(2), in each case on a cumulative basis for all fiscal years of the Partnership; and (v) thereafter, among the Partners in accordance with their respective Percentage Interests. (2) Loss of the Partnership shall be allocated: (i) first, between the Class C Preferred Unitholders, as a class, and the Partners other than the Class C Preferred Unitholders, as a class, in proportion to the aggregate positive Capital Account balances of the two classes of Partners (making appropriate adjustments in the case of a Class C Preferred Unitholder who also holds Partnership Units of another class, and also, solely for purposes of this allocation, subtracting from the aggregate Capital Account balance of the Class C Unitholders an amount equal to the product of the Class C Preference Amount and the number of Class C Preferred Units). Allocations of Loss among the Class C Preferred Unitholders pursuant to this Section 5.01(a)(2)(i) shall 3 be made in proportion to their respective Percentage Interests until their Adjusted Capital Account balances contain only an amount equal to the product of the Class C Preference Amount and the number of such Preferred Units held by each such Unitholder. Allocations of Loss among the Partners other than the Class C Preferred Unitholders pursuant to this Section 5.01(a)(2)(i) shall be made in accordance with their respective Percentage Interests until the balances of their Adjusted Capital Accounts are equal to zero (or, with respect to the Class A Preferred Unitholders, their Adjusted Capital Account balances contain only the Agreed Value of their Capital Contributions); (ii) second, among the Class A Preferred Unitholders in proportion to their respective Percentage Interests until the balances of their Adjusted Capital Accounts are equal to zero; and (iii) third, among the Class C Preferred Unitholders in proportion to their respective Percentage Interests until the balances of their Adjusted Capital Accounts are equal to zero. Section 5.02 of the Partnership Agreement is deleted and replaced with the following: 5.02 OPERATING DISTRIBUTIONS. ----------------------- (a) Except as otherwise provided in Section 5.06, cash available for distribution by the Partnership shall be distributed as follows: (1) First, if there are any Class C Preferred Units outstanding on any record date for payment of a REIT Share dividend or Company Share dividend, the General Partner shall distribute to the Class C Preferred Unitholder(s) of record on such date (concurrently with the payment of the applicable dividend), an amount with respect to each Class C Preferred Unit equal to the Class C Preferred Distribution Amount, plus the amount of any Special Class C Distribution Amount then outstanding. (2) Second, if there are any Class A Preferred Units outstanding on any record date for payment of a REIT Share dividend, the General Partner shall distribute to the Class A Preferred Unitholder(s) of record on such date (concurrently with the payment of such dividend) an amount with respect to each such Class A Preferred Unit equal to the Class A Preferred Distribution Amount. (3) Third, if there are any Class B Preferred Units outstanding on any record date for payment of a Company Share dividend, the 4 General Partner shall distribute to the Class B Preferred Unitholder(s) of record on such date (concurrently with the payment of such distribution) an amount with respect to each such Class B Preferred Unit equal to the Class B Preferred Distribution Amount. (4) Fourth, the General Partner shall distribute any remaining cash available for distribution on a quarterly (or, at the election of the General Partner, more frequent) basis, in an amount determined by the General Partner in its sole discretion, to the Partners who are Partners on the Partnership Record Date for such quarter (or other distribution period) in accordance with their respective Percentage Interests on the Partnership Record Date. For purposes of this Section 5.02(a)(4), Percentage Interests shall not include any Class B or Class C Preferred Units, but shall include Class A Preferred Units. (b) In no event may a Partner receive a distribution of cash with respect to a Partnership Unit if such Partner is entitled to receive a dividend with respect to a Company Share or a REIT Share for which all or part of such Partnership Unit has been or will be exchanged. Section 5.08 of the Partnership Agreement is deleted and replaced with the following: 5.08 ADDITIONAL DISTRIBUTIONS PROVISIONS AND DEFINITIONS RELATING TO --------------------------------------------------------------- PREFERRED UNITS. --------------- Notwithstanding any other provision to the contrary in this Agreement, as long as there remain any Preferred Units outstanding (of any class or series), the following additional distribution provisions and definitions shall apply. (a) "Class A Preferred Distribution Amount" shall mean, for any quarter or other period with respect to which a REIT Share dividend is paid and a distribution is required to be made pursuant to Section 5.02(a)(3), an amount per Class A Preferred Unit equal to the amount of such dividend per REIT Share. The General Partner agrees that, without the consent of a majority of the Class A Preferred Unit Holders (such consent not to be unreasonably withheld or delayed provided all Class A Preferred Distribution Amounts are current), it will use reasonable efforts to limit its borrowings from the REIT Partnership or other sources so that the Partnership has at all times sufficient borrowing capacity to discharge its obligations with respect to the Class A Preferred Distribution Amounts. (b) "Class B Preferred Distribution Amount" shall mean, for any quarter or other period with respect to which a Company Share dividend is paid and a 5 distribution is required to be made pursuant to Section 5.02(a)(4), an amount equal to such amount that if it were the sole amount distributed on a Class B Preferred Unit pursuant to Section 5.02(a)(4) for such quarter or other period would provide the Class B Preferred Unitholder with a distribution on such Class B Preferred Unit equal to 103% of the corresponding Company Share dividend to be paid for such quarter or other period. Notwithstanding the foregoing, the Class B Preferred Distribution Amount with respect to any Class B Preferred Unitholder shall not exceed the Class B Preferred Unitholder's Capital Account balance (after reducing such balance to reflect the items described in Regulations section 1.704-1(b)(ii)(2)(d)(4), (5) and (6) and after increasing such Capital Account balance to reflect such Class B Preferred Unitholder's shares of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain), determined as of the date of the relevant distribution. (c) "Class C Preferred Distribution Amount" shall mean, for any quarter or other period with respect to which a REIT Share dividend or a Company Share dividend is paid, an amount per Class C Preferred Unit equal to the amount of such dividend(s) per REIT Share and/or Company Share. The Class C Preferred Distribution Amount shall be cumulative, and shall be deemed to be in arrears and shall accrue if not distributed by the Partnership at the time such REIT Share dividend or Company Share dividend is paid. The Class C Preferred Distribution Amount shall also be appropriately adjusted in the case of an event that causes the Conversion Factor to be adjusted. In the event that a dividend is paid with respect to REIT Shares or Company Shares in a form that the adjustment provided by the foregoing sentence does not address (for example, a distribution of shares of a subsidiary corporation in a spinoff transaction), to the extent commercially reasonable, the Class C Distribution Amount shall be made in the same form as the dividend on REIT Shares or Company Shares, as applicable, and otherwise shall be made in an alternate form, or in an amount of cash, that provides economic value to the Class C Unitholders substantially equivalent to the relevant dividend. The General Partner agrees that, unless the condition is waived by Class C Preferred Unitholders holding more than 50% of the Class C Preferred Units (such consent not to be unreasonably withheld or delayed provided all Class C Preferred Distribution Amounts and Special Class C Distribution Amounts are current) it will use commercially reasonable efforts to limit its borrowings from the REIT Partnership or other sources so that the Partnership has at all times sufficient borrowing capacity to discharge its obligations with respect to the Class C Preferred Distribution Amount and the Special Class C Distribution Amount, including without limitation the payment of distributions in the amount of and at the time of the relevant REIT Share and Company Share dividends. 6 (d) "Special Class C Distribution Amount" shall mean, in the event that the Partnership fails to distribute the full amount of the Class C Preferred Distribution Amount for any period with respect to which a REIT Share dividend or Company Share dividend is paid, an amount equal to the difference between (x) the annual rate (calculated on the basis of actual days elapsed from the date on which the relevant distribution should have been made) of .15 (15%) times the Class C Preferred Distribution Amount (which includes accrued but undistributed amounts from prior periods) and (y) any partial distribution of the Class C Preferred Distribution Amount actually made with respect to such period. (e) "Class C Preference Amount" shall mean $23.25 plus any accrued but undistributed Class C Preferred Distribution Amount and plus any accrued but undistributed Special Class C Distribution Amount. Section 11.01(a) is replaced with the following: (a) any amendment affecting the operation of the Conversion Factor or the Redemption Right (except as provided in Section 8.05(f) or 7.01(e) hereof) in a manner adverse to the Limited Partners; The following Section 11.03 is added to the Partnership Agreement: 11.03 VOTING RIGHTS OF CLASS C PREFERRED UNITHOLDERS. ---------------------------------------------- Notwithstanding the provisions of Section 11.02, the holders of record of Class C Preferred Units shall be entitled to vote on any matter on which Limited Partners are entitled to vote. In addition, the holders of Class C Preferred Units shall have the right to vote as a separate class of Partnership Units on the following, each of which shall require the consent of holders of record of Class C Preferred Units representing more than 50% of the Class C Preferred Units: (a) Any amendment creating or resulting in any class of Units with the right to receive distributions in priority to the distributions on Class C Preferred Units, including without limitation priority as to time of payment; (b) Any amendment that would adversely affect the rights of the Class C Preferred Unitholders to receive the distributions payable with respect to the Class C Preferred Units hereunder; (c) Any amendment that would materially and adversely alter the Partnership's allocations of Profit and Loss with respect to Class C Preferred Units; and 7 (d) Any amendment that imposes on the Class C Preferred Unitholders (in their capacity as such) any obligation to make Additional Capital Contributions to the Partnership. For purposes of clarifying the foregoing, the voting rights of the Class C Preferred Unitholders shall not include any voting rights with respect to amendments to the Agreement with respect to the issuance of interests in the Partnership that are entitled to receive operating distributions in parity to, or junior to the operating distributions with respect to Class C Preferred Units, or with respect to the issuance of interests in the Partnership that are entitled to liquidating distributions in preference to liquidating distributions on Class C Preferred Units. Section 2. Acceptance of Capital Contributions. ----------------------------------- (a) The General Partner hereby accepts the Capital Contributions of the Contributor. The Contributor is already a Limited Partner of the Partnership. In consideration of such Capital Contributions and pursuant to Section 4.02(a)(i) of the Partnership Agreement, the General Partner hereby issues to the Contributor the number of Class C Preferred Units listed on Schedule A ---------- attached hereto. The Agreed Value of the Capital Contributions of the Contributor with respect to the Class C Preferred Units shall be equal to the number of Class C Preferred Units issued to the Contributor, multiplied by the average of the daily market price of Paired Shares for the ten consecutive trading days immediately preceding the date of this Fifth Amendment, which market price shall be determined in accordance with the procedures set forth in the definition of "Cash Amount" in the Partnership Agreement. (b) The issuance of such Class C Preferred Units shall become effective as of the date of this Fifth Amendment, which will also be the date upon which such issuances are recorded on the books and records of the Partnership. Section 3. Amendment to Partnership Agreement. Pursuant to Article XI of ---------------------------------- the Partnership Agreement, the General Partner hereby amends the Partnership Agreement by deleting Exhibit A in its entirety and replacing it with Exhibit A --------- --------- attached hereto. Section 4. Defined Terms. Capitalized terms used without definition in this ------------- Fifth Amendment shall have the meanings set forth in the Partnership Agreement. Section 5. Partnership Agreement. The Partnership Agreement and this Fifth --------------------- Amendment shall be read together and shall have the same effect as if the provisions of the Partnership Agreement and this Fifth Amendment were contained in one document. [End of Page] 8 IN WITNESS WHEREOF, the General Partner has executed this Fifth Amendment as of the date first written above. GENERAL PARTNER PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY /s/ Rex E. Stewart ------------------ By: Rex E. Stewart Its: Chief Financial Officer LIMITED PARTNERS By: PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY, as attorney-in-fact for each of the Limited Partners, other than the Contributor /s/ Rex E. Stewart ------------------ By: Rex E. Stewart Its: Chief Financial Officer CONTRIBUTOR /s/ Karim Alibhai ----------------- Karim Alibhai Schedule A ---------- Class C Preferred ----------------- Contributor Units - ----------- ----- Karim Alibhai 476,682 EX-10.24 7 EXECUTIVE EMPLOYMENT AGREEMENT DATED 4-14-97 EXHIBIT 10.24 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the 14th day of April, 1997, between Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"), and Paul A. Nussbaum ("Executive"). WHEREAS, Patriot and Executive are parties to an Employment Agreement dated as of October 2, 1995 and an Agreement Not to Compete dated as of October 2, 1995 (the "October 1995 Agreements"); WHEREAS, Patriot and Executive intend to replace the October 1995 Agreements with this Agreement; WHEREAS, Executive is currently serving as the Chairman of the Board and Chief Executive Officer of Patriot; WHEREAS, Patriot and Wyndham Hotel Corporation are entering into an Agreement and Plan of Merger, dated as of the date hereof, which provides, upon the terms and subject to the conditions thereof, for the merger (the "Merger") of Wyndham Hotel Corporation with and into a successor by merger to Patriot ("New Patriot") (either Patriot or New Patriot shall hereinafter be known as the "Company"), the outstanding common stock of which will be paired and transferable only as a single unit with the common stock of Bay Meadows Operating Company, a Delaware corporation, which shall, at the effective time of the Merger be renamed Wyndham International ("Wyndham"); WHEREAS, Executive is desirous of committing himself to serve the Company on the terms herein provided. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT. The initial term of this Agreement shall extend from April 14, 1997 (the "Commencement Date") until the fifth anniversary of the effective date of the Merger. On the second anniversary of the effective date of the Merger and every even-numbered anniversary date thereafter, the term of this Agreement shall be automatically extended for an additional two (2) years unless either party otherwise elects by notice in writing delivered to the other at least ninety (90) days prior to the second anniversary or even-numbered anniversary date thereafter. The term of this Agreement shall be subject to termination as provided in Paragraph 7 and may be referred to herein as the "Period of Employment." 2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve as the Chairman of the Board and Chief Executive Officer of the Company, reporting to the Board of Directors of the Company (the "Board"), shall have supervision and control over and responsibility for the day-to-day business and affairs of the Company, and shall have such other powers and duties as may from time to time be prescribed by the Board, provided that such duties are consistent with Executive's position or other positions that he may hold from time to time. Should, during the Period of Employment but after the effective date of the Merger, Executive not be nominated to serve (or, if nominated, not be elected to serve) as a member of the Board and as a Director of the Board of Directors of Wyndham, a Delaware corporation, then Executive may, as provided in Subparagraph 7(f), terminate his employment hereunder, which termination shall be deemed to be for Good Reason, as defined in Subparagraph 7(f). Except as may be otherwise approved by the Board, Executive shall devote substantially all his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, Executive may serve on other boards of directors or engage in religious, charitable or other community activities as long as such services and activities are disclosed to the Board and do not materially interfere with Executive's performance of his duties to the Company as provided in this Agreement. Subject to the provisions of Paragraph 5 below and the approval of the Board, Executive may also engage in other business and receive compensation therefor, so long as such activities do not materially interfere with Executive's performance of his duties hereunder. 3. COMPENSATION AND RELATED MATTERS. (A) BASE SALARY. Initially, Executive shall receive an annual base salary ("Base Salary") equal to the rate in effect immediately prior to the Commencement Date. On July 1, 1997, Executive's Base Salary shall be increased to an annual rate of Five Hundred Thousand Dollars and xx/100 Cents ($500,000.00). Thereafter, Executive's Base Salary shall be redetermined at least thirty (30) days before each annual compensation determination date established by the Company during the Period of Employment in an amount to be fixed by the Board. The Base Salary, as redetermined, may be referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted Base Salary shall be payable in substantially equal bi-weekly installments and shall in no way limit or reduce the obligations of the Company hereunder. (B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base Salary, Executive shall be eligible to receive, on or about the annual compensation determination date established by the Company of each year, during the Period of Employment, cash incentive compensation in an amount determined by the Compensation Committee of the Board based on individual performance, performance by the Company and total return to shareholders. The incentive compensation potential shall be up to one hundred percent (100%) of Base Salary or Adjusted Base Salary. Executive will also participate in such incentive compensation plans as the Board shall determine. (C) EXPENSES. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures then in effect and established by the Company for its senior executive officers) in performing services hereunder during the Period of Employment, provided that Executive properly accounts therefor in accordance with Company policy. 2 (D) OTHER BENEFITS. During the Period of Employment, Executive shall be entitled to continue to participate in or receive benefits under all of the Company's Employee Benefit Plans in effect on the date hereof, or under plans or arrangements that provide Executive with at least substantially equivalent benefits to those provided under such Employee Benefit Plans. As used herein, "Employee Benefit Plans" include, without limitation, each pension and retirement plan; supplemental pension, retirement and deferred compensation plan; savings and profit-sharing plan; stock ownership plan; stock purchase plan; stock option plan; life insurance plan; medical insurance plan; disability plan; and health and accident plan or arrangement established and maintained by the Company on the date hereof. To the extent that the scope or nature of benefits described in this section are determined under the policies of the Company based in whole or in part on the seniority or tenure of an employee's service, Executive shall be deemed to have a tenure with the Company equal to the actual time of Executive's service with Company plus the actual service by Executive to any predecessor of the Company. During the Period of Employment, Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement which may, in the future, be made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to Executive under the Employee Benefit Plans presently in effect or any employee benefit plan or arrangement which may be made available in the future shall be deemed to be in lieu of compensation payable to Executive under Subparagraphs 3(a) and 3(b). Any payments or benefits payable to Executive under a plan or arrangement referred to in this Subparagraph 3(d) in respect of any calendar year during which Executive is employed by the Company for less than the whole of such year shall, unless otherwise provided in the applicable plan or arrangement, be prorated in accordance with the number of days in such calendar year during which he is so employed. Should any such payments or benefits accrue on a fiscal (rather than calendar) year, then the proration in the preceding sentence shall be on the basis of a fiscal year rather than calendar year. (E) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, a life insurance policy on the life of Executive in an amount not less than the greater of (i) three (3) times the sum of his then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus range or (ii) $2,000,000. Executive shall have the right to designate the beneficiary under such policy. (F) VACATIONS. Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers. Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. To the extent that the scope or nature of benefits described in this section are determined under the policies of the Company based in whole or in part on the seniority or tenure of an employee's service, Executive shall be deemed to have a tenure with the Company equal to the actual time of Executive's service with Company plus the actual service by Executive to the Previous Employer. 3 (G) DISABILITY INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, long-term disability insurance providing for payment of benefits at rates not less than 60% of Executive's current Base Salary or Adjusted Base Salary. (H) COMPARABILITY. Notwithstanding anything to the contrary in the foregoing provisions of this Paragraph 3, Executive's Base Salary or Adjusted Base Salary and benefits under Employee Benefit Plans or otherwise shall in no event be less than the amounts and benefits paid or awarded to the Chairman of the Board and Chief Executive Officer of Wyndham in connection with his employment by Wyndham or its affiliates on and after the effective date of the Merger, and the basis upon which incentive compensation is determined and expenses are reimbursed in the case of Executive shall be the same as is the case with respect to the Chairman of the Board and Chief Executive Officer of Wyndham in connection with such employment. 4. BOARD SERVICE. Executive agrees to serve as a director of the Company and Wyndham, if elected or appointed thereto, provided he is indemnified for serving in such capacities as set forth in the Indemnification Agreement. 5. UNAUTHORIZED DISCLOSURE. (A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of his employment with the Previous Employer or the Company (and, if applicable, the predecessors of either of them), he has been allowed to become, and will continue to be allowed to become, acquainted with the Company's and Wyndham's business affairs, information, trade secrets, and other matters which are of a proprietary or confidential-nature, including but not limited to the Company's, Wyndham's and their respective predecessors' operations, business opportunities, price and cost information, finance, customer information, business plans, various sales techniques, manuals, letters, notebooks, procedures, reports, products, processes, services, and other confidential information and knowledge (collectively the "Confidential Information") concerning the Company's, Wyndham's and their respective predecessors' business. The Company agrees to provide on an ongoing basis such Confidential Information as the Company deems necessary or desirable to aid Executive in the performance of his duties. Executive understands and acknowledges that such Confidential Information is confidential, and he agrees not to disclose such Confidential Information to anyone outside the Company or Wyndham except as he deems reasonably necessary or appropriate in connection with performing his duties on behalf of the Company. Executive further agrees that he will not during employment and/or at any time thereafter use such Confidential Information in competing, directly or indirectly, with the Company or Wyndham. At such time as Executive shall cease to be employed by the Company, he will immediately turn over to the Company all Confidential Information, including papers, documents, writings, electronically stored information, other property, and all copies of them provided to or created by him during the course of his employment with the Company. 4 (B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions of this Paragraph 5 shall be binding upon Executive's heirs, successors, and legal representatives. The provisions of this Paragraph 5 shall survive the termination of this Agreement for any reason. 6. COVENANT NOT TO COMPETE. The provisions of this Paragraph 6 shall apply during Executive's employment with the Company and for a period of three (3) years commencing when the employment relationship has ended for any reason other than death; provided, however, that the prohibition set forth in the second sentence of this Paragraph 6 shall not apply in the case of termination of employment solely as a result of the expiration of the Period of Employment without extension. In consideration for Executive's employment by the Company under the terms provided in this Agreement and as a means to aid in the performance and enforcement of the terms of the Unauthorized Disclosure provisions of Paragraph 5, Executive agrees that Executive will not, directly or indirectly, as an owner, director, principal, agent, officer, employee, partner, consultant, servant, or otherwise, carry on, operate, manage, control, or become involved in any manner with any business, operation, corporation, partnership, association, agency, or other person or entity which is in the business of owning, operating, managing or granting franchise rights with respect to hotels, motels or other lodging facilities in any area or territory in which the Company or Wyndham conducts operations. Executive also agrees that Executive will not, directly or indirectly, either for himself or for any other business, operation, corporation, partnership, association, agency, or other person or entity, call upon, compete for, solicit, divert, or take away, or attempt to divert or take away any of the customers of the Company or Wyndham in any of the areas or territories in which the Company or Wyndham conducts operations. Further, Executive will not directly or indirectly solicit or induce any present or future employee of the Company or Wyndham to accept employment with Executive or with any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated, and Executive will not employ or cause any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated to employ any present or future employee of the Company or Wyndham without providing the Company or Wyndham with ten (10) days' prior written notice of such proposed employment. Should Executive violate the provisions of this Paragraph, then in addition to all other rights and remedies available to the Company or Wyndham at law or in equity, the duration of this covenant shall automatically be extended for the period of time from which Executive began such violation until he permanently ceases such violation. Notwithstanding the foregoing, Executive shall be permitted to continue to engage in activities that would otherwise be prohibited by this Paragraph 6 with respect to the interests he currently owns in the properties described in Schedule I and attached hereto and made a part hereof by this reference and to engage in such activities with respect to any other hotel, motel or lodging facility that would be immaterial to the operations of the Company or Wyndham in the area or territory in question. Immateriality, for purposes of the foregoing sentence, shall be determined in the sole discretion of the Board in good faith. Notwithstanding anything to the contrary contained herein, Executive's acceptance of a position with The Patriot Group or its subsidiaries or affiliates ("Patriot Group Interests") after his termination of employment shall not be deemed to be a violation of the foregoing non-compete provisions subject to the 5 condition that Patriot Group Interests does not, during the period of Executive's employment and the period of non-competition described in the first sentence of this section, directly or indirectly form a hospitality operating company (as opposed to making individual investments in hospitality properties). 7. TERMINATION. Executive's employment hereunder may be terminated without any breach of this Agreement under the following circumstances: (A) DEATH. Executive's employment hereunder shall terminate upon his death. (B) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been absent from his duties hereunder on a full-time basis for one hundred eighty (180) calendar days in the aggregate in any twelve (12) month period, the Company may terminate Executive's employment hereunder. (C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder for Cause if such termination is approved by not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board called and held for such purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct by Executive constituting a material act of willful misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or property of the Company or any of its affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (B) criminal or civil conviction or conduct by Executive that would reasonably be expected to result in material injury to the reputation of the Company if he were retained in his position with the Company, including, without limitation, conviction of a felony involving moral turpitude; or (C) continued, deliberate non-performance by Executive of his duties hereunder (other than by reason of Executive's physical or mental illness, incapacity or disability) and such non-performance has continued for more than thirty (30) days following written notice of such non-performance from the Board. (D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the Period of Employment, the Company may terminate Executive's employment if (i) such termination is approved by not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board called and held for such purpose; and (ii) Executive has materially failed to perform his duties hereunder or has violated, in material respects, the policies and procedures of the Company and such failure or violation has continued for more than ninety (90) days following written notice of such violation from the Board. (E) TERMINATION WITHOUT CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder without Cause if such termination is approved by not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board called and held for such purpose. Any termination by the Company of Executive's employment under this Agreement which does not constitute a termination for 6 Cause under Subparagraph 7(c), termination for performance under Subparagraph 7(d), or result from the death or disability of the Executive under Subparagraph 7(a) or (b) or result from the expiration of the Period of Employment without extension, shall be deemed a termination without Cause. (F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment, Executive may terminate his employment hereunder for any reason, including but not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall mean that Executive has complied with the "Good Reason Process" (hereinafter defined) following the occurrence of any of the following events: (A) a substantial adverse change, not consented to by Executive, in the nature or scope of Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by Executive immediately prior to the Commencement Date; (B) any removal, during the Period of Employment, of Executive from or, any failure by management to nominate, or, if nominated, any failure by the stockholders to re-elect, Executive to any of the positions indicated in Paragraph 2, except in connection with a termination of Executive's employment; (C) an involuntary reduction in Executive's Base Salary or Adjusted Base Salary or involuntary reduction in cash incentive compensation plan (but not reduction in incentive compensation appropriate for level of performance) except for across-the-board salary reductions similarly affecting all or substantially all management employees; (D) a breach by the Company of any of its other material obligations under this Agreement and the failure of the Company to cure such breach within thirty (30) days after written notice thereof by Executive; (E) the relocation of the Company's offices at which Executive is principally employed or the relocation of the offices of Executive's primary workgroup to a location more than thirty (30) miles from such offices, or the requirement by the Company for Executive to be based anywhere other than the Company's offices at such location on an extended basis, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations; or (F) if for any reason the Chairman of the Board and Chief Executive Officer of Wyndham ceases to serve in such capacity and Executive is not offered the opportunity to fill such position on terms no less favorable to Executive than those upon which the departing Chairman and Chief Executive Officer of Wyndham was serving or, if Executive declines such offered position and such offered position is filled by a person not approved by Executive. "Good Reason Process" shall mean that (i) the Executive reasonably determines in good faith that a "Good Reason" event has occurred; (ii) Executive notifies the Company in writing of the occurrence of the Good Reason event; (iii) Executive cooperates in good faith with the Company's efforts, for a period not less than ninety (90) days following such notice, to modify Executive's employment situation in a manner acceptable to Executive and Company; and (iv) notwithstanding such efforts, one or more of the Good Reason events continues to exist and has not been modified in a manner acceptable to Executive. (G) NOTICE OF TERMINATION. Except for termination as specified in Subparagraph 7(a), any termination of Executive's employment by the Company or any such termination by Executive shall be communicated by written Notice of Termination to the other party hereto. 7 For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if Executive's employment is terminated by his death, the date of his death; (B) if Executive's employment is terminated on account of disability under Subparagraph 7(b), the date on which Notice of Termination is given; (C) if Executive's employment is terminated by the Company under Subparagraph 7(c), (d) or (e), thirty (30) days after the date on which a Notice of Termination is given; and (D) if Executive's employment is terminated by Executive under Subparagraph 7(f), thirty (30) days after the date on which a Notice of Termination is given. 8. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) If Executive's employment terminates by reason of his death, the Company shall, within ninety (90) days of death, pay in a lump sum amount to such person as Executive shall designate in a notice filed with the Company or, if no such person is designated, to Executive's estate, Executive's accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of his death, plus his accrued and unpaid incentive compensation under Subparagraph 3(b). All unvested stock options and stock-based grants shall immediately vest in Executive's estate or other legal representatives and become exercisable, and Executive's estate or other legal representatives shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. In addition to the foregoing, any payments to which Executive's spouse, beneficiaries, or estate may be entitled under any employee benefit plan shall also be paid in accordance with the terms of such plan or arrangement. Such payments, in the aggregate, shall fully discharge the Company's obligations hereunder. (b) During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, Executive shall continue to receive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary and accrued and unpaid incentive compensation payments under Subparagraph 3(b), until Executive's employment is terminated due to disability in accordance with Subparagraph 7(b) or until Executive terminates his employment in accordance with Subparagraph 7(f), whichever first occurs. All unvested stock options and stock-based grants shall immediately vest and become exercisable and Executive shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. Upon termination due to death prior to the termination first to occur as specified in the preceding sentence, Subparagraph 8(a) shall apply. 8 (c) If Executive's employment is terminated by Executive other than for Good Reason as provided in Subparagraph 7(f), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given. Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. (d) If Executive terminates his employment for Good Reason as provided in Subparagraph 7(f) or if Executive's employment is terminated by the Company without Cause as provides in subparagraph 7(e), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base-Salary at the rate in effect at the time Notice of Termination is given and his accrued and unpaid incentive compensation under Subparagraph 3(b). In addition, subject to signing by Executive of a general release of claims in a form and manner satisfactory to the Company, (i) the Company shall pay Executive, on the Date of Termination, such additional amounts to which Executive may be entitled in accordance with the Company's then current severance policies (the "Severance Amount"), provided that, at a minimum, Executive shall be entitled to receive an amount in a lump sum (the "Minimum Severance Amount") equal to three (3) times the sum of Executive's Average Base Salary and Average Incentive Compensation. For purposes of this Agreement, "Average Base Salary" shall mean the average of the annual Base Salary or, if applicable, Adjusted Base Salary received by Executive for each of the three (3) immediately preceding fiscal years or such fewer number of complete fiscal years as Executive may have been employed by the Company or any of Previous Employer. For purposes of this Agreement, "Average Incentive Compensation" shall mean the average of the annual incentive compensation under Subparagraph 3(b) received by Executive for the three (3) immediately preceding fiscal years or such fewer number of complete fiscal years as Executive may have been employed by the Company or any of Previous Employer. Notwithstanding the foregoing, in the event Executive terminates his employment for Good Reason as provided in Subparagraph 7(f), he shall be entitled to the Severance Amount or the Minimum Severance Amount only if he provides the Notice of Termination provided for in Subparagraph 7(g) within thirty (30) days after the occurrence of the event or events which constitute such Good Reason as specified in clauses (A), (B), (C), (D), (E) or (F) of Subparagraph 7(f); (ii) in addition to any other benefits to which Executive may be entitled in accordance with the Company's then existing severance policies, the Company shall: (a) for a period of three (3) years commencing on the Date of Termination, provide Executive, at the Company's expense, with an office, and 9 related telephone and telefax facilities, and an assistant at a location of Executive's choosing, provided that the office facilities shall be comparable to Executive's office at the Company on the Date of Termination; (b) for a period of one (1) year commencing on the Date of Termination, pay for the cost of executive outplacement services selected by Executive for use in connection with obtaining alternate employment; and (c) for a period of one (1) year commencing on the Date of Termination, pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to his termination of employment; and (iii) Executive shall receive all the rights and benefits granted or in effect with respect to Executive under the Company's employee stock option or incentive plans and agreements with Executive pursuant thereto. In addition to the foregoing, unless otherwise provided in the applicable option or award agreement, all stock options and other stock-based awards in which Executive otherwise would have vested if he would have remained employed for a period of three (3) years commencing on the Date of Termination shall immediately accelerate and become exercisable or nonforfeitable as of the Date of Termination. (e) If Executive's employment is terminated by the Company for Cause as provided in Subparagraph 7(c) or for performance as provided in Subparagraph 7(d), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given and in case of termination for performance as provided by Subparagraph 7(d), his accrued and unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. Notwithstanding the foregoing and in addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive shall immediately expire on the Date of Termination if Executive's employment is terminated by the Company for Cause as provided by Subparagraph 7(c). (f) Regardless of the reason for termination, for a period of five (5) years beginning on the Date of Termination, the Company will provide such reasonable assistance and support to Executive as he shall reasonably require in connection with the preparation and filing of tax returns, statements and forms insofar as such returns, statements or forms relate to Executive's association with the Company, Wyndham or any of their respective predecessors or affiliates. 10 At the Company's election, such assistance and support shall be provided by either tax personnel from the Company or certified public accountants selected and compensated by the Company. (g) Nothing contained in the foregoing Subparagraphs 8(a) through 8(f) shall be construed so as to affect Executive's rights or the Company's obligations relating to agreements or benefits which are unrelated to termination of employment. 9. PARACHUTE PAYMENT. The provisions of this Paragraph 9 set forth certain terms of an agreement reached between Executive and the Company regarding Executive's rights and obligations upon the occurrence of a Change in Control of the Company. These provisions are intended to assure and encourage in advance Executive's continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Subparagraph 8(d)(i) regarding severance pay upon a termination of employment, if such termination of employment occurs within eighteen (18) months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or effect beginning eighteen (18) months after the occurrence of a Change in Control. (A) ESCROW. Within fifteen (15) days after the occurrence of the first event constituting a Change in Control, the Company shall place funds in an amount equal to the estimated Parachute Amount in escrow, pursuant to arrangements that are mutually acceptable to the Company and Executive providing for the payment of the Parachute Amount in the event Executive becomes entitled thereto pursuant to Subparagraph 9(b)(i) (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained until the earlier of (A) eighteen (18) months after the occurrence of the first event constituting a Change in Control or (B) the payment to Executive of the Parachute Amount pursuant to the provisions of Subparagraph 9(b)(i). (B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence of the first event constituting a Change in Control, Executive's employment terminates for any reason other than (A) death, (B) his inability, due to illness, accident, or other physical or mental incapacity, to perform his duties for more than one hundred eighty (180) days during any twelve-month period, or (C) his Voluntary Resignation ("Termination"), then: (i) the Company shall pay Executive in a lump sum an amount equal to the applicable Parachute Amount on the tenth (10th) day following Executive's Termination; and (ii) unless otherwise provided in the applicable option agreement or award agreement, all stock options and other stock-based awards granted to Executive by the Company shall immediately accelerate and become exercisable or non-forfeitable as of the date of Change in Control, and Executive shall be entitled to any other rights and benefits with respect to stock-related awards, to the extent and upon the terms provided 11 in the employee stock option or incentive plan or any agreement or other instrument attendant thereto pursuant to which such options or awards were granted. (C) GROSS UP PAYMENT. (i) Excess Parachute Payment. If Executive incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") on "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, the Company will pay to Executive an amount (the "Gross Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the excess parachute payment and any federal, state and local income tax (together with penalties and interest) and Excise Tax upon the payment provided for by this Subparagraph 9(c)(i), will be equal to the Parachute Amount. (ii) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of Executive's residence on the date of Executive's Termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. (iii) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount thereof will be based upon the opinion of tax counsel selected by Executive and approved by the Company, which approval will not be unreasonably withheld. If such opinion is not finally accepted by the Internal Revenue Service (or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional Gross Up Payments will be made in the manner provided by this Subparagraph (c). (iv) Time For Payment. The Company will pay the estimated amount of the Gross Up Payment in cash to Executive concurrent with Employee's Termination. Executive and the Company agree to reasonably cooperate in the determination of the actual amount of the Gross Up Payment. Further, Executive and the Company agree to make such adjustments to the estimated amount of the Gross Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of Executive will refer to refunds of prior overpayments and in the case of the Company will refer to makeup of prior underpayments. (D) DEFINITIONS. For purposes of this Paragraph 9, the following terms shall have the following meanings: "CHANGE IN CONTROL" shall mean an event which shall be deemed to have occurred if (i) any "person" or "group" (as such terms are used in Sections 13(d) and 12 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who at the Commencement Date constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors then still in office who either were directors at the Commencement Date or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Notwithstanding the foregoing, neither the merger of the Company into California Jockey Club nor the merger of Wyndham International Corporation into the Company shall be deemed to be a Change in Control. "COMPANY" shall mean not only Patriot American Hospitality, Inc., but also its successors by merger or otherwise. "PARACHUTE AMOUNT" shall mean an amount equal to the greater of the Severance Amount or the Minimum Severance Amount provided for in Subparagraph 8(d)(i). "VOLUNTARY RESIGNATION" shall mean any termination of Executive's employment by his own act, unless such termination is for Good Reason occurring within ninety (90) days prior to, or at any time after, the occurrence of a Change in Control. 10. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: 13 if to the Executive: At his home address as shown in the Company's personnel records; if to the Company: Patriot American Hospitality, Inc. 3030 LBJ Freeway, Suite 1500 Dallas, TX 75234 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, unless specifically referred to herein, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Texas (without regard to principles of conflicts of laws). 12. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The invalid portion of this Agreement, if any, shall be modified by any court having jurisdiction to the extent necessary to render such portion enforceable. 13. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. ARBITRATION; OTHER DISPUTES. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas, Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding the above, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of Paragraph 5 or 6 hereof. Furthermore, should a dispute occur concerning Executive's mental or physical 14 capacity as described in Subparagraphs 7(b) or 8(b), a doctor selected by Executive and a doctor selected by the Company shall be entitled to examine Executive. If the opinion of the Company's doctor and Executive's doctor conflict, the Company's doctor and Executive's doctor shall together agree upon a third doctor, whose opinion shall be binding. Any amount to which Executive is entitled under this Agreement (including any disputed amount), which is not paid when due, shall bear interest at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum lawful rate. 15. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company that Executive's execution of this Agreement, Executive's employment with the Company and the performance of Executive's proposed duties for the Company will not violate any obligations Executive may have to any employer or other party, and Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. 16. LITIGATION AND REGULATORY COOPERATION. During and after Executive's employment, Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while Executive was employed by the Company; provided, however, that such cooperation shall not materially and adversely affect Executive or expose Executive to an increased probability of civil or criminal litigation. Executive's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Executive's employment, Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company shall also provide Executive with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse Executive for all costs and expenses incurred in connection with his performance under this Paragraph 16, including, but not limited to, reasonable attorneys' fees and costs. 17. OCTOBER 2, 1995 EMPLOYMENT AGREEMENT AND AGREEMENT NOT TO COMPETE. The October 1995 Agreements between Executive and Company are hereby terminated. 15 IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PATRIOT AMERICAN HOSPITALITY, INC. By: /s/ Tom Lattin --------------------------------- Its: President --------------------------------- /s/ Paul A. Nussbaum -------------------------------- Paul A. Nussbaum 16 EX-10.25 8 EXECUTIVE EMPLOYMENT AGREEMENT--WILLIAM W. EVANS EXHIBIT 10.25 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of February 14, 1997, by and between PATRIOT AMERICAN HOSPITALITY, INC., a Virginia corporation (the "Company"), and WILLIAM W. EVANS, III (the "Executive") Recitals A. The Company is a corporation operating as a self-administered real estate investment trust. B. The Company desires to employ the Executive, and the Executive desires to accept employment with the Company, on the terms and provisions set forth in this Agreement. Agreement NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment and Office. The Company shall employ the Executive, and --------------------- the Executive agrees to be employed by the Company, in the capacity and office of Office of the Chairman of the Company to serve for the Term (as hereinafter defined), subject to earlier termination as hereinafter provided. 2. Term. The term of the Executive's employment under this Agreement ---- shall begin on March 1, 1997, or such earlier date as may be agreed upon by the Executive and the Company, and shall continue until February 29, 2000 (the "Initial Term"); provided, however, that, unless either party otherwise elects by notice in writing delivered to the other at least 90 days prior to the end of the Initial Term, or at least 90 days prior to December 31 of each subsequent year, such term automatically shall be renewed for successive one-year terms (as so extended, the "Term"). 3. Duties and Responsibilities. The Executive shall devote substantially --------------------------- all of his business time to the business of the Company as shall be reasonably required in the performance of his duties and shall perform services consistent with his office, as from time to time shall be assigned to him by the Chairman (the "Chairman") of the Board of Directors of the Company (the "Board"). The duties of the Office of the Chairman shall include identifying, negotiating and closing corporate mergers and acquisitions, strategic planning, obtaining and closing debt and equity financings, negotiating and closing other financial transactions, and performing such other similar duties as may be determined by the Chairman. The Executive shall have full authority and responsibility, subject to the general direction, approval and control of the Chairman, in connection with the performance of such duties. The Executive shall report directly and solely to the Chairman. 4. Compensation. ------------ (a) Base Salary. The Company shall initially pay the Executive an ----------- annual base salary (the "Base Salary") of $300,000, to be paid in semi-monthly payments. The Executive shall be eligible to be considered for periodic increases in the Base Salary under the Company's normal policies and procedures for Senior Executive (as defined below) salary increases, as currently administered by the Compensation Committee of the Board. The Executive's Base Salary shall not be reduced below the initial Base Salary at any time during the Term without the consent of the Executive. (b) Additional Compensation. In addition to the Base Salary, the ----------------------- Company may from time to time pay the Executive other incentive compensation (the "Incentive Compensation"), including, but not limited to, stock options, appreciation rights and awards, incentive compensation, restricted stock or cash bonuses, in accordance with existing or future incentive compensation plans of the Company (the "Incentive Plans"). The Executive's cash bonus shall not be less than 30% of the Base Salary for the first year of the Term. The Executive shall, for each full or partial year during the Term, be eligible to participate in all Incentive Plans available to other Senior Executive's of the Company, and the Executive's participation shall be on terms no less favorable than those generally applicable to other Senior Executives of the Company. For any partial year during the Term, the Executive shall be entitled to a pro rata amount of any Incentive Compensation that he would otherwise have been entitled to had he been employed by the Company for the full year, regardless of whether such Incentive Plan is by its terms only payable for full years or at specified times. (c) Senior Executives. For the purposes of this Agreement, "Senior ----------------- Executives" shall mean the senior executive officers of the Company, including the Chairman. The Executive shall be entitled to participate in all benefit and compensation plans, and shall be entitled to all perquisites, received by the Senior Executives generally or by the Chairman; provided, however, that the Executive's compensation and participation in all such plans shall at all times equal or exceed the compensation and participation in such plans of all other officers and employees of the Company, including the Senior Executives, other than the Chairman. The Executive shall not be entitled to access to the services of Jet Solutions or other providers of corporate jet services to the Company. 5. Benefits. During the Term, the Executive shall be eligible to -------- participate in each of the Company's present employee benefit plans, policies or arrangements and any such plans, policies or arrangements that the Company may maintain or establish during the Term and to receive all fringe benefits for which his position makes him eligible in accordance with the Company's usual policies and the terms and provisions of such plans, policies or arrangements; provided, however, that the foregoing shall not be construed to create any obligation on the part of the Company to establish or maintain the effectiveness of any such plan, policy or arrangement, nor shall the foregoing be construed to affect the Company's right to restrict, terminate or otherwise modify any such plan, policy or arrangement, except that the Company shall provide the Executive with at least the following: 2 (a) The Company will provide Executive with term life insurance with a face amount of $2,000,000. The Beneficiary of the term life insurance policy will be the Executive's spouse or other person(s) as designated by the Executive from time to time. The Company shall provide such insurance through any U.S.- based life insurance company with a Best's rating of B+ or higher. (b) The Company will provide Executive with disability insurance providing for payment to the Executives of benefits at rates not less than 60% of the sum of the Base Salary payable to the Executive for the period immediately preceding the Executive's disability, which payments shall be payable from the date the Executive ceases to be entitled to receive payment of the Base Salary and the Incentive Compensation (or either thereof) and continuing for so long as the Executive is disabled, or as otherwise terminable pursuant to the Company's long term disability plan for the Senior Executives. (c) The Company shall obtain and maintain insurance policies providing executive liability and indemnification insurance coverage for the Executive to the same extent and providing limits of liability, deductibles and exclusions as are provided for the Company's Senior Executive officers and outside directors. This covenant shall survive the expiration of the Term and the termination of this Agreement or the Executive's employment hereunder, for any reason. (d) The Executive shall be entitled to all rights, benefits and privileges to which other Senior Executives of the Company are entitled, including, but not limited to, participation in any retirement, pension, profit- sharing, insurance, hospital or other plans which may now be in effect or which may hereafter be adopted by the Company (including dependent participation and coverage). The Executive shall be entitled to and receive all fringe benefits, including, but not limited to, club and professional memberships, automobile leases and allowances and expense accounts, available to other Senior Executives of the Company, and the Executive's participation shall be on terms no less favorable than those generally applicable to other Senior Executives of the Company. 6. Initial Stock. ------------- (a) Issuance. Upon execution of this Agreement, the Company shall -------- issue to the Executive 100,000 shares (the "Initial Stock") of the common stock, no par value, of the Company (the "Common Stock"). The Initial Stock shall vest and become nonforfeitable with respect to 25% of the number of shares of the Initial Stock originally granted on each anniversary of this Agreement. The Executive shall not be required to make any payment in connection with such vesting. The Executive shall be entitled to all dividends and distributions made in connection with the Initial Stock the effective dates of which occur during the period commencing on the date of this Agreement and continuing with respect to each share of Initial Stock until the divestiture of such share, if any. 3 (b) Effect of Merger. Upon the effective date of the merger ---------------- contemplated in that certain Agreement and Plan of Merger among the Company, California Jockey Club and Bay Meadows Operating Company (the "Merger Agreement"), the Initial Stock shall be automatically converted into such a number of paired shares (the "Paired Stock") as determined in accordance with the conversion terms and provisions contained in the Merger Agreement applicable to other outstanding shares of Common Stock. For the purposes of this Agreement, all such converted shares shall be deemed Initial Stock. 7. Stock Options. ------------- (a) Grant of Options; Vesting. Upon execution of this Agreement, the ------------------------- Company shall grant to the Executive non-qualified stock options (the "Options") to purchase 280,000 shares of the Common Stock. The Options shall vest and become exercisable with respect to 8 1/3% of the number of shares of Common Stock subject thereto quarterly on the first day of each quarter thereafter, such that all of the Options have vested and are exercisable on or before the third anniversary of this Agreement. The Options shall expire on the tenth anniversary of the date of their grant. The exercise price per share for the Options shall be the quoted closing price per share for the Common Stock on the New York Stock Exchange on the business day immediately preceding the date of this Agreement. Vested Options shall not terminate or otherwise be affected by the termination, for any reason, of the Executive's employment under this Agreement. (b) Effect of Merger. Upon the effective date of the merger ---------------- contemplated in the Merger Agreement, the Options shall be automatically converted into stock options for such a number of shares of the Paired Stock with a corresponding exercise price as determined in accordance with the conversion terms and provisions contained in the Merger Agreement applicable to other outstanding options covering shares of Common Stock; provided, however, that such options shall have rights no less favorable than the original Options. For the purposes of this Agreement, all such converted options shall be deemed Options. 8. Other Options and Awards. The Executive shall be eligible for future ------------------------ grants of stock options, stock appreciation rights, stock awards, dividend and dividend equivalent rights, and similar incentive awards under the Incentive Plans or otherwise (the "Future Grants"). The Options and the Initial Stock shall not be deemed in lieu of or in satisfaction of such Future Grants. 9. Registration. All Initial Stock, Future Grants, and shares of Common ------------ Stock and Paired Stock issuable upon exercise of the Options and any Future Grants (collectively, the "Executive's Stock") shall at all times, and at the Company's expense, (i) be registered through the filing of Form S-8 registration statements with the Securities and Exchange Commission, and (ii) be listed on the securities exchange on which the Common Stock, the Paired Stock or such other stock is then listed and traded. In the event that the Company, using commercially reasonable efforts, has been unable to obtain such registration or listing for all of the Executive's Stock, the Company shall be required to purchase, at the written election 4 of the Executive, all or part of such Executive's Stock, as may be determined by the Executive (the "Put"). The Executive may exercise the Put as to all or any portion of such shares, and in one or more groups and at one or more times, as Executive may elect at any time within six (6) months following the issuance of the applicable shares to Executive. The purchase price to be paid by the Company for such shares of the Executive's Stock shall be (i) the exchange closing price for such shares on the day the Executive delivers written notice to the Company of his exercise of the Put, if shares of such stock are publicly traded, or (ii) the fair market value of such shares determined as of the day the Executive delivers written notice to the Company of his exercise of the Put, if shares of such stock are not publicly traded. The foregoing notwithstanding, the fair market value of such shares shall in all cases be determined as if such shares were registered, and listed and traded on the applicable exchange, and no discount shall be made on account of their not being registered, or listed and traded on such exchange. 10. Office. The Company shall provide a private office suite (the ------ "Office") located in New York City, New York, or otherwise within reasonable commuting distance from Darien, Connecticut, to the Executive for his use during the Term. The Office shall be subject to the Executive's reasonable approval. The Company shall provide and pay for all incidental expenses incurred in connection with the Office, including, but not limited to, utilities, cleaning, office administration, photocopier, facsimile, telephone and other office equipment costs, insurance and parking. The Executive acknowledges and agrees that he shall be available for travel up to five business days a week, as reasonably required in order to perform his duties under this Agreement. 11. Staff. The Company shall provide the Executive with an executive ----- assistant, who shall be a full time employee of the Company and who shall be entitled to the same or substantially equivalent benefits as those provided to, and shall be paid, including bonuses and other compensation, at a level equivalent to the pay of (subject to reasonable adjustment to reflect cost of living and salary variations between localities), other employees of the Company in similar positions. The executive assistant may be assigned to work for one or more of the Senior Executives officing at the New York City office. The selection, hiring and termination of the Executive's executive assistant and any replacement, shall be subject to the Executive's reasonable review and approval. 12. Indemnification. --------------- (a) Scope of Indemnification. To the fullest extent permitted by the ------------------------ organizational documents or bylaws of the Company, or by resolutions of the Board or, if greater, by applicable law, the Company shall indemnify the Executive and hold him harmless against all costs, expenses, suits, actions, fines, penalties, judgments, settlements, claims, excise taxes, and losses, including, but not limited to, reasonable attorneys fees and costs, incurred by the Executive arising out of or resulting from the Executive being made a party, or being threatened to be made a party, to any action, suit or proceeding, whether criminal, civil or administrative (a "Proceeding"), by reason of the fact that he is or was a director, officer, or employee of the Company or of any parent or subsidiary, whether direct or indirect, or 5 affiliate of the Company (an "Affiliate"), or is or was serving at the request of the Company or an Affiliate as a director, officer, employee, agent, fiduciary or trustee of another corporation, partnership, trust, employee pension or benefit plan, or other entity. The indemnification provided hereunder shall survive the expiration of the Term and the termination of this Agreement, for any reason, and the Executive ceasing to be a director, officer, employee, agent, fiduciary or trustee of the Company, an Affiliate, an employee pension or benefit plan, or other entity. (b) Advances. To the fullest extent permitted by law, the Company -------- shall advance to the Executive, within 15 days after delivery to the Company by the Executive of a written request for advance, all costs and expenses reasonably incurred by the Executive in connection with a Proceeding; provided, however, that the Executive undertakes to repay the amount of such advances if it shall thereafter be determined that such costs and expense are not subject to indemnification hereunder. 13. Termination upon Death. In the event of the Executive's death, the ---------------------- Executive's employment under this Agreement shall terminate, and upon such termination: (i) the Executive's estate or other legal representatives shall be entitled to receive any accrued but unpaid compensation and benefits through the date of death, including, but not limited to, pro rated cash bonus compensation; (ii) the beneficiaries under the Executive's life insurance policies provided for in Section 5 shall receive the proceeds therefrom; (iii) all unvested Initial Stock, Options, Future Grants, other stock options, appreciation rights and awards, incentive awards, and benefit and compensation plans shall immediately vest in the Executive's estate or other legal representatives and become nonforfeitable, and any restrictions thereon shall immediately lapse; and (iv) for a period of one (1) year following the date of termination, the Executive's spouse, dependents and other survivors shall receive medical and related health benefit coverage under the existing Company plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), but at the same level as their respective participation prior to the Executive's death, the cost of which shall be paid by the Company. Except as otherwise provided herein, any continued rights and benefits the Executive may have under employee benefit plans and programs of the Company upon death, if any, shall be determined in accordance with the terms of such plans and programs. 14. Termination upon Disability. In the event of the Executive's --------------------------- Disability (as hereinafter defined), the Executive's employment under this Agreement may be terminated at the Company's election, by determination of the Board, and upon such termination: (i) the Executive shall be entitled to receive any accrued but unpaid compensation and benefits through the date of termination, including, but not limited to, pro rated cash bonus compensation; (ii) the Executive (or his estate or other legal representatives) shall be entitled to the benefits and proceeds under the disability insurance policies provided for in Section 5, to the extent provided in the policies; (iii) all unvested Initial Stock, Options, Future Grants, other stock options, appreciation rights and awards, incentive awards, and benefits and compensation plans shall immediately vest in Executive and become nonforfeitable, and any restrictions thereon shall immediately lapse; and (iv) for a period of one (1) year following the 6 date of termination, the Executive and his spouse, dependents and other survivors shall receive medical and related health benefit coverage under the existing Company plans pursuant to COBRA, but at same level as their respective participation prior to the Executive's termination, the cost of which shall be paid by the Company. Except as otherwise provided herein, any continued rights and benefits the Executive may have under employee benefit plans and programs of the Company upon termination for disability, if any, shall be determined in accordance with the terms of such plans and programs. For the purpose of this Agreement, "Disability" shall mean the failure of the Executive to substantially perform his usual and customary duties as described in Section 3, for a period of 180 consecutive days by reason of the physical or mental disability of the Executive, confirmed by the Executive's regular physician, provided that such physician's determination is reasonable under the circumstances and is supported by a detailed report setting forth the basis for the physician's determination. 15. Termination With Cause; Voluntary Termination. --------------------------------------------- (a) Termination with Cause. The Company may, by the determination of ---------------------- the Board, terminate the Executive's employment under this Agreement for Cause. For the purposes of this Agreement, "Cause" shall mean, and shall be limited to, the occurrence of any one or more of the following events: (i) The deliberate or willful failure by the Executive (other than by reason of the Executive's physical or mental illness, incapacity or disability, or with the express approval of the Chairman or the Board) to substantially perform his duties as described in Section 3, and the continuation of such failure for a period of 30 days after delivery by the Company to the Executive of written notice specifying the scope and nature of such failure and its intention to terminate the Executive for Cause; provided, however, that the failure of the Company or the Executive to achieve or meet performance or incentive goals shall, in and of itself, not constitute a failure of the Executive to perform his duties. (ii) The intentional misappropriation by the Executive of funds or property of the Company, other than the occasional, customary and de minimis use of Company funds or property for personal purposes (e.g., the use of the Executive's assistant to make reservations for non-business travel). (iii) The conviction of the Executive of committing a felony involving moral turpitude, fraud or dishonesty. (iv) Dishonesty of the Executive to the Company concerning any material matter. (v) A material breach by the Executive of any of Executive's material obligations under this Agreement, and the continuation of such breach for a period of 7 30 days after delivery by the Company to the Executive of written notice specifying the scope and nature of such breach and its intention to terminate the Executive for Cause. (vi) The election by the Company to discontinue the automatic extension of the Term as provided in Section 2. The Company may only exercise its right to terminate the Executive for Cause through formal action of the Board at a properly noticed meeting thereof, for which the Executive has received not less than 30 days' prior written notice and at which the Executive is permitted to present argument on his behalf. The foregoing action must occur and be completed within 180 days following the Chairman or the Board first becoming aware of the occurrence of the last event providing a basis for or otherwise significantly contributing to a determination of Cause. The Board may suspend the Executive during the pendency of such notice period, without any such suspension constituting the basis for a Constructive Termination, provided that the Company continues the Executive's entitlement to compensation and benefits pursuant to Sections 4 and 5 during such suspension period. (b) Voluntary Termination. The Executive may, for any reason, --------------------- voluntarily terminate his employment under this Agreement upon 30 days' prior written notice to the Company. For the purposes of this Agreement, "Voluntary Termination" shall mean the Executive's voluntary termination of his employment hereunder (including the election by the Executive to discontinue the automatic extension of the Term as provided in Section 2), other than pursuant to a Constructive Termination (as hereinafter defined). (c) Effect of Termination. In the event the Executive's employment --------------------- under this Agreement is terminated by the Company for Cause or by the Executive through his Voluntary Termination, upon such termination: (i) the Executive shall be entitled to receive any accrued but unpaid cash compensation and benefits through the date of termination, excluding, however, any pro rated Incentive Compensation; and (ii) all vested Initial Stock and Options shall continue to be exercisable for their exercise term, as if the Executive had not been terminated. Except as otherwise provided herein, any continued rights and benefits the Executive may have under employee benefit plans and programs of the Company upon termination for Cause or Voluntary Termination, if any, shall be determined in accordance with the terms of such plans and programs. 16. Termination Without Cause; Constructive Termination. --------------------------------------------------- (a) Termination Without Cause. The Company may, by the determination ------------------------- of the Board, terminate the Executive's employment under this Agreement without Cause upon 30 days' prior written notice to the Executive. Any termination by the Company of the Executive's employment under this Agreement which does not constitute a termination for Cause, or result from the death or Disability of the Executive, shall be deemed a termination without Cause. 8 (b) Constructive Termination. The Executive may terminate his ------------------------ employment under this Agreement upon the occurrence of any of the following events, and such termination shall be deemed a "Constructive Termination" for the purposes of this Agreement: (i) The Executive ceases to hold the office and title of Office of the Chairman. (ii) The Executive ceases to report directly and solely to the Chairman. (iii) The Executive ceases to have the responsibilities contemplated hereunder, or his responsibilities are otherwise materially and involuntarily altered, diminished or reduced, as compared to those established in this Agreement. (iv) The Executive's compensation or benefits are materially and involuntarily reduced, as compared to those established in this Agreement. (v) The Executive's place of employment is moved to a location not within reasonable commuting distance from the Executive's current residence in Darien, Connecticut without the Executive's consent. (vi) The material failure of the Company to perform any of its obligations under this Agreement, without limitation to or by the foregoing enumerated events. Notwithstanding the foregoing, Constructive Termination shall not include acts which are cured by the Company within 30 days from receipt by the Company of written notice from the Executive (the "Preliminary Notice of Constructive Termination") identifying in reasonable detail the act or acts constituting Constructive Termination. The Preliminary Constructive Termination Notice shall be given by the Executive within 120 days after learning of the last act which the Executive alleges constitutes Constructive Termination hereunder or otherwise significantly contributes thereto. The Executive may only exercise his right to terminate his employment through a Constructive Termination within 30 days after the expiration of the Company's period to cure such acts as set forth above. The Executive may suspend performance of his obligations hereunder during such cure period, without any such suspension constituting the basis for a Termination with Cause or being deemed a Voluntary Termination, and during such period the Company shall continue the Executive's entitlement to compensation and benefits pursuant to Sections 4 and 5. (c) Effect of Termination. In the event the Executive's employment --------------------- under this Agreement is terminated by the Company without Cause or by the Executive following the occurrence of a Constructive Termination, upon such termination: (i) the Executive shall be entitled to receive any accrued but unpaid compensation and benefits through the date of 9 termination; (ii) the Executive (or his estate or other legal representatives) shall be entitled to the benefits and proceeds under the life insurance and disability insurance policies provided for in Section 5 to the extend provided in such policies; (iii) all unvested Initial Stock, Options, Future Grants, other stock options, appreciation rights and awards, incentive awards, and benefit and compensation plans shall immediately vest in Executive and become nonforfeitable, and any restrictions thereon shall immediately lapse; (iv) for one (1) year or the remainder of the Term, whichever is longer, the Executive and his spouse, dependents and other survivors shall receive all benefits, including, but not limited to, fringe benefits, life and disability insurance, and medical and related health benefit coverage under the existing Company plans pursuant to COBRA, but at the same level as their respective participation prior to the Executive's termination, the cost of which shall be paid by the Company; and (v) the Company shall pay to the Executive (or his estate or legal representatives), within 30 days after the date of termination, a non-discounted single lump sum amount, equal to (A) the Executive's Base Salary in effect as of the date of termination plus the average annual Incentive Compensation and Future Grants (or fair market value thereof for non-cash Incentive Compensation and Future Grants) earned or paid to the Executive during the Term prior to the date of termination, multiplied by (B) the greater of one (1) year or the remaining length of the Term after the date of the termination. Except as otherwise provided herein, any continued rights and benefits the Executive may have under employee benefit plans and programs of the Company upon termination, if any, shall be determined in accordance with the terms of such plans and programs. 17. Change in Control. The Executive shall be entitled to the same ----------------- privileges, rights and benefits as the Chairman in the event of a Change in Control. For purposes of this Agreement, a "Change in Control" shall have the definition of any equivalent term in the then applicable agreement between the Chairman and the Company defining the Chairman's privileges, rights and benefits with respect to a change in control of the Company. 18. No Offset; No Obligation to Mortgage. In the event of a termination ------------------------------------ of the Executive's employment, the Company shall not be entitled to offset any amounts payable by the Executive to the Company against any amounts payable to the Executive under this Agreement. The parties acknowledge and agree that the Executive's actual damages in the event of a termination of his employment hereunder would be difficult to quantify and determine, and that the amounts payable to the Executive hereunder in such event are a reasonable estimate of such damages. Furthermore, in the event of such termination, the Executive shall be under no obligation to seek other employment or to otherwise mitigate his damages, and no compensation, benefits or other amounts received by the Executive in connection with his subsequent employment, if any, shall be offset against or otherwise reduce the amounts payable to the Executive hereunder. 19. Certain Benefit Plans not Affected. Notwithstanding the provisions of ---------------------------------- this Agreement, the Executive's rights under any plan or arrangement of the Company described in Section 280G(b)(6) of the Internal Revenue Code of 1986, as amended, or any successor 10 provision thereto, shall not be altered as a result of any acceleration or vesting provision hereof. 20. Vacation. During the Term, the Executive shall be entitled each year -------- to five (5) weeks' vacation, or such greater amount as other Senior Executives of the Company are generally entitled, during which time his compensation shall be paid in full. 21. Expense Reimbursement. The Company shall promptly pay, or reimburse --------------------- the Executive for, at the Executive's election, all ordinary and reasonable business expenses incurred by the Executive in connection with the performance of his duties under this Agreement, provided that the Executive provides reasonable documentation or verification of such expenses. 22. Other Activities. The Executive may engage in outside activities and ---------------- provide services to other parties, with or without compensation, provided that such activities and services are disclosed to the Board and the Board does not object in writing to such outside activities and services, and such outside activities and services do not materially interfere with the Executive's performance of his duties to the Company as provided in this Agreement. 23. Confidential Information and Cooperation. ---------------------------------------- (a) Confidential Information. As used in this Agreement, ------------------------ "Confidential Information" means information belonging to the Company which is of value to the Company in the course of conducting its business and the disclosure of which could reasonably result in a material competitive or other disadvantage to the Company, and which has been obtained by the Executive solely as a result of his employment with the Company. Confidential Information includes, without limitation, financial information, reports, and forecasts; inventions, improvements and other intellectual property; trade secrets; know- how; designs, processes or formulae; software; market or sales information or plans; customer lists; and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company. Confidential Information includes information developed by the Executive in the course of the Executive's employment by the Employer, as well as other information to which the Executive may have access by reason of and during the Executive's employment. Confidential Information also incudes the confidential information of others with which the Company has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of the Executive's duties under Section 23(b). (b) Confidentiality. The Executive understands and agrees that the --------------- Executive's employment creates a relationship of confidence and trust between the Executive and the Company with respect to all Confidential Information. At all times, both during the Executive's employment with the Company and after its termination, the Executive will keep in confidence and trust all such Confidential Information, and will not use or disclose any such 11 Confidential Information without the written consent of the Company, except as may be necessary in the ordinary course of performing the Executive's duties to the Company or as required by law. (c) Documents, Records, Etc. All documents, records, data, apparatus, ----------------------- equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Executive by the Company or are produced by the Executive in connection with the Executive's employment will be and remain the sole property of the Company. The Executive will return to the Company all such materials and property as and when requested by the Company. In any event, the Executive will return all such materials and property immediately upon termination of the Executive's employment for any reason. (d) Nonsolicitation. During the Term, the Executive will refrain from --------------- directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with the Company (other than terminations of employment of subordinate employees undertaken in the course of the Executive's employment with the Company). The Executive understands that the restrictions set forth in this Section 23(d) are intended to protect the Company's interest in its Confidential Information and established employee, relationships and goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose. (e) Third-Party Agreements and Rights. The Executive represents to --------------------------------- the Company that the Executive's execution of this Agreement, the Executive's employment with the Company and the performance of the Executive's proposed duties for the Company will not violate any obligations the Executive may have to any employer or other party, and the Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (f) Litigation and Regulatory Cooperation. During and after the ------------------------------------- Executive's employment, the Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company; provided, however, that such cooperation shall not materially and adversely affect the Executive or expose the Executive to an increased probability of civil or criminal litigation. The Executive's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive's employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall also provide Executive with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs 12 after his termination of employment, and reimburse Executive for all costs and expenses incurred in connection with his performance under this Section 23(f), including, but not limited to, reasonable attorneys' fees and costs. (g) Injunction. The Executive agrees that it would be difficult to ---------- measure any damages caused to the Company which might result from any breach by the Executive of the promises set forth in Sections 23(b), (c) and (d), and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, subject to Section 24 of this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of Section 23(b), (c) or (d), the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company. 24. Arbitration of Disputes. Any controversy or claim arising out of or ----------------------- relating to this Agreement or the breach thereof or otherwise arising out of the Executive's employment or the termination of that employment (including, without limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such an agreement, under the auspices of the American Arbitration Association ("AAA") in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators. In the event that any person or entity other than the Executive or the Company may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity's agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. This Section 24 shall be specifically enforceable. Notwithstanding the foregoing, this Section 24 shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration proceeding pursuant to this Section 24. 25. Executive's Legal Fees. Upon the execution of this Agreement, the ---------------------- Company shall pay to or on behalf of the Executive, the reasonable attorneys' fees and costs incurred by Executive in the negotiation and drafting of this Agreement, not to exceed $15,000. 26. Confidentiality; Public Disclosure. The terms and provisions of this ---------------------------------- Agreement shall be deemed confidential information, and prior to the commencement of the Term, the Company will keep in confidence and trust the terms and provisions of this Agreement and will not use or disclose any such information without the written consent of the Executive, except as may be necessary in the ordinary course of the Company's business, in connection with its performance of its obligations hereunder, or as required by law. In addition to the foregoing, the Company shall not make any public announcements or disclosures, or issue and press releases relating to the Executive's employment by the Company, without the prior written 13 approval of the Executive thereof, including, but not limited to, the content, timing and scope of such announcements, disclosures or releases. 27. Authorization. The Company represents and warrants to the Executive ------------- that the person executing this Agreement on behalf of the Company has all necessary power, right and authority to so execute this Agreement, and that all requisite corporate action has been taken to authorize the execution of this Agreement and the performance of all of the Company's obligations hereunder, including, but not limited to, the granting of the Options and the issuance of the Initial Stock, and none of the foregoing acts or obligations is in contravention of the organizational documents or bylaws of the Company. 28. Notices. Any notice or request to be given hereunder to either party ------- hereto shall be deemed effective only if in writing and either (1) delivered personally to the Executive (in the case of a notice to the Executive) or to the Corporate Secretary of the Company, or entities, or (2) sent by certified or registered mail, postage prepaid, to the addresses set forth on the signature page hereof or to such other address as either party may hereafter specify to the other by notice similarly served, and in the case of any notice or request being given to the Company, with a copy thereof being delivered in the manner set forth above to Gilbert G. Menna, P.C., Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts 02109, and in the case of any notice or request being given to the Executive, with a copy thereof being delivered in the manner set forth above to Bruce B. Johnson, Esq., Otten, Johnson, Robinson, Neff & Ragonetti, P.C., 950 17th Street, Suite 1600, Denver, Colorado 80202. 29. Assignment. This Agreement and the rights and obligations of the ---------- parties hereto, shall bind and inure to the benefit of each of the parties thereto, and shall also bind and inure to the benefit of the Executive's heirs and legal representatives and any successor or successors of the Company by merger or consolidation and any assignee of all or substantially all of the Company's business and properties; except as to any such successor or assignee of the Company, neither this Agreement nor any duties, rights or benefits hereunder may be assigned by the Company or by the Executive without the express written consent of the other party hereto. 30. Governing Law and Interpretation. This Agreement shall be construed -------------------------------- and enforced in accordance with the internal laws of the State of Delaware. The Executive and the Company represent that this Agreement was negotiated at arm's length with adequate opportunity by each to obtain advice and assistance of counsel. The contra proferentum rule of construction shall not apply to the benefit of either party in the event of a disagreement over interpretation or application of the Agreement. 31. Litigation Costs. In the event that the Executive shall successfully ---------------- prosecute or defend a proceeding relating to the enforcement or interpretation of any provision of this Agreement, in addition to any other relief awarded the Executive in such action, the parties agree that the decision rendered shall award the Executive all of his reasonable attorneys' fees, disbursements and other costs incurred by the Executive in prosecuting such case. 14 32. Modification. No modification or waiver of any provision hereof shall ------------ be made unless it be in writing and signed by both of the parties hereto. 33. Scope of Agreement. This Agreement constitutes the whole of the ------------------ agreement between the parties on the subject matter, superseding all prior oral and written conversations, negotiations, understandings, and agreements in effect as of the date of this Agreement. 34. Caption and Headings. The paragraph and section captions and heading -------------------- used herein are for convenience only, and neither constitute a part of, nor shall be used in the interpretation or construction of, this Agreement. 35. Severability. To the extent that any provision of this Agreement may ------------ be deemed or determined to be invalid or unenforceable for any reasons, such invalidity or unenforceability shall not impair or affect any other provision, and this Agreement shall be interpreted as to most fully give effect to its terms and still be valid and enforceable. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written above. COMPANY: PATRIOT AMERICAN HOSPITALITY, INC., a Virginia corporation By: /s/ Paul A. Nussbaum ----------------------------------- Name: Paul A. Nussbaum Title: Chairman and Chief Executive Officer Address: 3030 LBJ Freeway Suite 1500 Dallas, Texas 75234 EXECUTIVE: /s/ William W. Evans, III -------------------------------------- William W. Evans, III Address: 24 Saddle Ridge Road Darien, Connecticut 06820 16 SUPPLEMENTAL EMPLOYMENT AGREEMENT --------------------------------- This Supplemental Employment Agreement ("Supplemental Agreement") is made as of April 14, 1997 between Patriot American Hospitality, Inc., a Virginia corporation ("Patriot") and William W. Evans, III ("Executive"). WHEREAS, Patriot and Executive are parties to an Employment Agreement ("Employment Agreement") dated as of February 14, 1997; WHEREAS, Section 17 of the Employment Agreement provides that Executive shall be entitled to the same privileges, rights and benefits as the Chairman and Chief Executive Officer ("Chairman") in the event of a Change in Control of Patriot; WHEREAS, Patriot and its Chairman have entered into an Employment Agreement of even date herewith which provides its Chairman with certain benefits upon a Change in Control of Patriot; WHEREAS, Patriot desires to provide Executive with the same Change in Control benefits made available to its Chairman by entering into this Supplemental Agreement with Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. PARACHUTE PAYMENT. The provisions of this Paragraph 1 set forth certain terms of an agreement reached between Executive and the Company regarding Executive's rights and obligations upon the occurrence of a Change in Control of the Company. These provisions are intended to assure and encourage in advance Executive's continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Section 16 of the Employment Agreement regarding severance pay upon a termination of employment, if such termination of employment occurs within eighteen (18) months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or effect beginning eighteen (18) months after the occurrence of a Change in Control. (A) ESCROW. Within fifteen (15) days after the occurrence of the first event constituting a Change in Control, the Company shall place funds in an amount equal to the estimated Parachute Amount in escrow, pursuant to arrangements that are mutually acceptable to the Company and Executive providing for the payment of the Parachute Amount in the event Executive becomes entitled thereto pursuant to Subparagraph 1(b)(i) (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained until the earlier of (A) eighteen (18) months after the occurrence of the first event constituting a Change in Control or (B) the payment to Executive of the Parachute Amount pursuant to the provisions of Subparagraph 1(b)(i). (B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence of the first event constituting a Change in Control, Executive's employment terminates for any reason other than (A) death, (B) his Disability (as defined in the Employment Agreement), or (C) his Voluntary Termination (as defined in the Employment Agreement) ("Termination"), then: (i) the Company shall pay Executive in a lump sum an amount equal to the applicable Parachute Amount on the tenth (10th) day following Executive's Termination; and (ii) the Initial Stock and all stock options and other stock-based awards granted to Executive by the Company shall immediately vest, accelerate and become exercisable and non-forfeitable, and any restrictions thereon shall lapse, as of the date of Change in Control, and Executive shall be entitled to any other rights and benefits with respect to stock- related awards, to the extent and upon the terms provided in the employee stock option or incentive plan or any agreement or other instrument attendant thereto pursuant to which such options or awards were granted. (C) GROSS UP PAYMENT. (i) Excess Parachute Payment. If Executive incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") on "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, the Company will pay to Executive an amount (the "Gross Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the excess parachute payment and any federal, state and local income tax (together with penalties and interest) and Excise Tax upon the payment provided for by this Subparagraph 1(c)(i), will be equal to the Parachute Amount. (ii) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of Executive's residence on the date of Executive's Termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. (iii) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount thereof will be based upon the opinion of tax counsel selected by Executive and approved by the Company, which approval will not be unreasonably withheld. If the position contained in such opinion regarding the applicability of Excise Tax to all or any portion of the payments 2 hereunder is challenged or contested by the Internal Revenue Service or any state or local taxing authority, then the Company may either (i) pay to the Executive the Gross Up Payment required based on the position taken by the Internal Revenue Service, or (ii) contest the position taken by the Internal Revenue Service, at the Company's sole cost and expense. In the event the Company elects to contest the position of the Internal Revenue Service, the Company shall indemnify the Executive against all costs, expenses and liabilities incurred by the Executive in connection therewith, including, without limitation, penalties and interest assessed by the Internal Revenue Service, and in the event that the Company does not prevail in a final determination thereof, the Company shall pay to the Executive the Gross Up Payment required based on the result of such contest. (iv) Time For Payment. The Company will pay the estimated amount of the Gross Up Payment in cash to Executive concurrent with Employee's Termination. Executive and the Company agree to reasonably cooperate in the determination of the actual amount of the Gross Up Payment. Further, Executive and the Company agree to make such adjustments to the estimated amount of the Gross Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of Executive will refer to refunds of prior overpayments and in the case of the Company will refer to makeup of prior underpayments. (D) DEFINITIONS. For purposes of this Paragraph 1, the following terms shall have the following meanings: "CHANGE IN CONTROL" shall mean an event which shall be deemed to have occurred if (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who at the Commencement Date constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors then still in office who either were directors at the Commencement Date or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined 3 voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Notwithstanding the foregoing, neither the merger of the Company into California Jockey Club nor the merger of Wyndham International Corporation into the Company shall be deemed to be a Change in Control. "COMPANY" shall mean not only Patriot American Hospitality, Inc., but also its successors by merger or otherwise. "PARACHUTE AMOUNT" shall mean an amount equal to such additional amounts to which Executive shall be entitled in accordance with the Company's then current severance policies, provided, that at a minimum Executive shall be entitled to receive an amount in a lump sum equal to three (3) times the sum of Executive's Average Base Salary and Average Incentive Compensation. For purposes of this Supplemental Agreement, "Average Base Salary" shall mean the average of the annual Base Salary received by Executive pursuant to Section 4(a) of the Employment Agreement for each of the three (3) immediately preceding fiscal years or such fewer number of complete fiscal years as Executive may have been employed by the Company. For purposes of this Supplemental Agreement, "Average Incentive Compensation" shall mean the average of the annual cash bonuses received by Executive pursuant to Section 4(b) of the Employment Agreement for the three (3) immediately preceding fiscal years or such fewer number of complete fiscal years as Executive may have been employed by the Company. 2. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: At his home address as shown in the Company's personnel records; if to the Company: Patriot American Hospitality, Inc. 3030 LBJ Freeway, Suite 1500 Dallas, TX 75234 4 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 3. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, unless specifically referred to herein, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware (without regard to principles of conflicts of laws). 4. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The invalid portion of this Agreement, if any, shall be modified by any court having jurisdiction to the extent necessary to render such portion enforceable. 5. EFFECT OF SUPPLEMENT. Except as expressly modified by this Supplemental Agreement, the terms and provisions of the Employment Agreement shall remain in full force and effect. 6. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Supplemental Agreement effective on the date and year first above written. PATRIOT AMERICAN HOSPITALITY, INC. By: /s/ Paul A. Nussbaum ------------------------------------ Paul A. Nussbaum Chairman and Chief Executive Officer /s/ William W. Evans, III ------------------------------------ William W. Evans, III 5 EX-10.26 9 EXECUTIVE EMPLOYMENT AGREEMENT--PAUL NOVACK EXHIBIT 10.26 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of this _________ day of June, 1997, between Patriot American Hospitality, Inc., a Virginia corporation (the "Company"), and Paul Novak ("Executive"). WHEREAS, Patriot is desirous of engaging Executive as Executive Vice President - Acquisitions and Development; and WHEREAS, Executive is desirous of committing to serve the Company on the terms herein provided. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT. The initial term of this Agreement shall extend from the date hereof (the "Commencement Date") until the third anniversary of the Commencement Date. The term of this Agreement shall be subject to termination as provided in Paragraph 7 and may be referred to herein as the "Period of Employment." 2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve as Executive Vice President - Acquisitions and Development of the Company, reporting to the Chairman of the Board of the Company (the "Chairman") on all matters, shall have supervision and control over and responsibility for the day- to-day business and affairs of those functions and operations of the Company described on Schedule I attached hereto and made a part hereof by this reference and shall have such other powers and duties as may from time to time be prescribed by the Chairman, provided that such duties are consistent with Executive's position or other positions that he may hold from time to time. Executive shall devote his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, Executive may serve on other boards of directors or engage in religious, charitable or other community activities as long as such services and activities are disclosed to the Chairman and do not materially interfere with Executive's performance of his duties to the Company as provided in this Agreement. 3. COMPENSATION AND RELATED MATTERS. (A) BASE SALARY. Initially, Executive shall receive an annual base salary ("Base Salary") equal to the annual rate of Two Hundred Fifty Thousand Dollars and xx/100 Cents ($250,000.00). Should the Company complete a Carnival transaction or another transaction of a similar size prior to January 1, 1998, Executive's Base Salary shall be increased to an annual rate of Two Hundred Seventy-Five Thousand Dollars and xx/100 Cents ($275,000.00). Thereafter, Executive's Base Salary shall be redetermined at least thirty (30) days before each annual compensation determination date established by the Company during the Period of Employment in an amount to be fixed by the Board. The Base Salary, as redetermined, may be referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted Base Salary shall be payable in substantially equal bi-weekly installments and shall in no way limit or reduce the obligations of the Company hereunder. (B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base Salary, Executive shall be eligible to receive, on or about the annual compensation determination date established by the Company of each year, during the Period of Employment, cash incentive compensation in an amount determined by the Compensation Committee of the Board based on individual performance, performance by the Company and total return to shareholders. The incentive compensation potential shall be up to eighty percent (80%) of Base Salary or Adjusted Base Salary. For 1997, Executive shall be entitled to a minimum incentive compensation of sixty percent (60%) of Base Salary, less any incentive compensation that he receives from The Hampstead Group for services rendered in 1997 (other than distributions from investments). Executive will also participate in such incentive compensation plans as the Board of Directors of the Company ("Board") shall determine. (C) EXPENSES. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures then in effect and established by the Company for its senior executive officers) in performing services hereunder during the Period of Employment, provided that Executive properly accounts therefor in accordance with Company policy. (D) RESTRICTED STOCK GRANT. Upon execution of this Agreement, the Company shall issue to Executive 60,000 shares of the common stock, no par value, of the Company ("Common Stock"). Such shares shall vest and become nonforfeitable on a ratable basis over five (5) years, on each anniversary of the date of grant. (E) OPTION GRANT. Upon execution of this Agreement, the Company shall issue to Executive a non-qualified stock option (the "Option") to acquire 100,000 shares of Common Stock. The Option shall vest and become exercisable ratably over seven (7) years, on each anniversary of the date of grant. The Option shall expire on the tenth anniversary of the date of grant. The exercise price per share for the Option shall be the quoted closing price per share for the Common Stock on the New York Stock Exchange on the date of execution of this Agreement. If such date is not a business day, the price shall be determined as of the immediately preceding business day. (F) OTHER BENEFITS. During the Period of Employment, Executive shall be entitled to continue to participate in or receive benefits under all of the Company's Employee Benefit Plans in effect on the date hereof, or under plans or arrangements that provide Executive with at least substantially equivalent benefits to those provided under such Employee Benefit Plans. As used herein, "Employee Benefit Plans" include, without limitation, each pension and retirement plan; supplemental pension, retirement and deferred compensation plan; savings and profit-sharing plan; stock ownership plan; stock purchase plan; stock option plan; life insurance plan; medical insurance plan; disability plan; and health and accident plan or 2 arrangement established and maintained by the Company on the date hereof for employees of the same status within the hierarchy of the Company. During the Period of Employment, Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement which may, in the future, be made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to Executive under the Employee Benefit Plans presently in effect or any employee benefit plan or arrangement which may be made available in the future shall be deemed to be in lieu of compensation payable to Executive under Subparagraphs 3(a) and 3(b). Any payments or benefits payable to Executive under a plan or arrangement referred to in this Subparagraph 3(f) in respect of any calendar year during which Executive is employed by the Company for less than the whole of such year shall, unless otherwise provided in the applicable plan or arrangement, be prorated in accordance with the number of days in such calendar year during which he is so employed. Should any such payments or benefits accrue on a fiscal (rather than calendar) year, then the proration in the preceding sentence shall be on the basis of a fiscal year rather than calendar year. (G) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, a life insurance policy on the life of Executive in an amount not less than the sum of the amount of Executive's then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus range. Executive shall have the right to designate the beneficiary under such policy. (H) VACATIONS. Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers. Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. Executive plans to take vacation from August 2, 1997 through August 9, 1997 and from August 19, 1997 through August 28, 1997, and Executive will be paid for such vacation time. (I) DISABILITY INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, long-term disability insurance providing for payment of benefits at rates not less than 60% of Executive's current Base Salary or Adjusted Base Salary. 4. UNAUTHORIZED DISCLOSURE. (A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of his employment with the Company (and, if applicable, the predecessors of either of them), he has been allowed to become, and will continue to be allowed to become, acquainted with the Company's and Patriot American Hospitality Operating Company's ("Affiliated Company's") business affairs, information, trade secrets, and other matters which are of a proprietary or confidential-nature, including but not limited to the Company's and Affiliated Company's and their respective predecessors' operations, business opportunities, price and cost information, 3 finance, customer information, business plans, various sales techniques, manuals, letters, notebooks, procedures, reports, products, processes, services, and other confidential information and knowledge (collectively the "Confidential Information") concerning the Company's, Affiliated Company's and their respective predecessors' business. The Company agrees to provide on an ongoing basis such Confidential Information as the Company deems necessary or desirable to aid Executive in the performance of his duties. Executive understands and acknowledges that such Confidential Information is confidential, and he agrees not to disclose such Confidential Information to anyone outside the Company or the Affiliated Company except as he deems reasonably necessary or appropriate in connection with performing his duties on behalf of the Company. Executive further agrees that he will not during employment and/or at any time thereafter use such Confidential Information in competing, directly or indirectly, with the Company or the Affiliated Company. At such time as Executive shall cease to be employed by the Company, he will make every effort to immediately turn over to the Company all Confidential Information, including papers, documents, writings, electronically stored information, other property, and all copies of them provided to or created by him during the course of his employment with the Company. (B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions of this Paragraph 4 shall be binding upon Executive's heirs, successors, and legal representatives. The provisions of this Paragraph 4 shall survive the termination of this Agreement for any reason. 5. COVENANT NOT TO COMPETE. The provisions of this Paragraph 5 shall apply during Executive's employment with the Company and for a period of eighteen (18) months or such longer period for which severance is payable under Paragraph 7 commencing when the employment relationship has ended for any reason other than death; provided, however, that the prohibition set forth in the second sentence of this Paragraph 5 shall not apply in the case of termination of employment solely as a result of the expiration of the Period of Employment without extension. In consideration for Executive's employment by the Company under the terms provided in this Agreement and as a means to aid in the performance and enforcement of the terms of the Unauthorized Disclosure provisions of Paragraph 4, Executive agrees that Executive will not, directly or indirectly, as an owner, director, principal, agent, officer, employee, partner, consultant, servant, or otherwise, carry on, operate, manage, control, or become involved in any manner with any business, operation, corporation, partnership, association, agency, or other person or entity which is in the business of owning, operating, managing or granting franchise rights with respect to hotels, motels or other lodging facilities in any area or territory in which the Company or Affiliated Company conducts operations; provided, however, that the foregoing does not prohibit Executive from owning up to one percent (1%) of the outstanding stock of a publicly held corporation engaged in the hospitality business. Executive also agrees that Executive will not, directly or indirectly, either for himself or for any other business, operation, corporation, partnership, association, agency, or other person or entity, call upon, compete for, solicit, divert, or take away, or attempt to divert or take away any of the customers of the Company or Affiliated Company in any of the areas or territories in which the Company or Affiliated Company conducts operations. Further, Executive will not directly or indirectly solicit or induce any present or future 4 employee of the Company or Affiliated Company to accept employment with Executive or with any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated, and Executive will not employ or cause any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated to employ any present or future employee of the Company or Affiliated Company without providing the Company or Affiliated Company with ten (10) days' prior written notice of such proposed employment. Should Executive violate the provisions of this Paragraph, then in addition to all other rights and remedies available to the Company or Affiliated Company at law or in equity, the duration of this covenant shall automatically be extended for the period of time from which Executive began such violation until he permanently ceases such violation. Notwithstanding the foregoing, Executive shall be permitted to continue to engage in activities that would otherwise be prohibited by this Paragraph 5 with respect to the interests he currently owns and which are described in Schedule II attached hereto and made a part hereof by this reference and to engage in such activities with respect to any other hotel, motel or lodging facility that would be immaterial to the operations of the Company in the area or territory in question. Immateriality, for purposes of the foregoing sentence, shall be determined in the sole discretion of the Board of Directors in good faith. Notwithstanding anything to the contrary contained herein, Executive's acceptance of a position with The Hampstead Group or its subsidiaries or affiliates ("The Hampstead Group") after his termination of employment shall not be deemed to be a violation of the foregoing non-compete provisions. 6. TERMINATION. Executive's employment hereunder may be terminated without any breach of this Agreement under the following circumstances: (A) DEATH. Executive's employment hereunder shall terminate upon his death. (B) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been absent from his duties hereunder on a full-time basis for one hundred eighty (180) calendar days in the aggregate in any twelve (12) month period, the Company may terminate Executive's employment hereunder. (C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder for Cause if such termination is approved by not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board called and held for such purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct by Executive constituting a material act of willful misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or property of the Company or any of its affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (B) criminal or civil conviction or conduct by Executive that would reasonably be expected to result in material injury to the reputation of the Company if he were retained in his position with the Company, including, without limitation, conviction of a felony involving moral turpitude; or (C) continued, deliberate non-performance by Executive of his duties 5 hereunder (other than by reason of Executive's physical or mental illness, incapacity or disability) and such non-performance has continued for more than thirty (30) days following written notice of such non-performance from the Board. (D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the Period of Employment, the Company may terminate Executive's employment if (i) such termination is approved by not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board called and held for such purpose; and (ii) Executive has materially failed to perform his duties hereunder or has violated, in material respects, the policies and procedures of the Company and such failure or violation has continued for more than ninety (90) days following written notice of such violation from the Board. (E) TERMINATION WITHOUT CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder without Cause if such termination is approved by not less than two-thirds (2/3) of the entire membership of the Board at a meeting of the Board called and held for such purpose. Any termination by the Company of Executive's employment under this Agreement which does not constitute a termination for Cause under Subparagraph 6(c), termination for performance under Subparagraph 6(d), or result from the death or disability of the Executive under Subparagraph 6(a) or (b), shall be deemed a termination without Cause. The termination of Executive's employment as a result of the expiration of the Period of Employment without extension shall also be deemed a termination without Cause. (F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment, Executive may terminate his employment hereunder for any reason, including but not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall mean that Executive has complied with the "Good Reason Process" (hereinafter defined) following the occurrence of any of the following events: (A) a substantial adverse change, not consented to by Executive, in the nature or scope of Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by Executive immediately prior to the Commencement Date; (B) any removal, during the Period of Employment, of Executive from or, any failure by management to nominate, or, if nominated, any failure by the Board to re-elect, Executive to any of the positions indicated in Paragraph 2, except in connection with a termination of Executive's employment; (C) an involuntary reduction in Executive's Base Salary or Adjusted Base Salary or involuntary reduction in cash incentive compensation plan (but not reduction in incentive compensation appropriate for level of performance) except for across-the-board salary reductions similarly affecting all or substantially all management employees; (D) a breach by the Company of any of its other material obligations under this Agreement and the failure of the Company to cure such breach within thirty (30) days after written notice thereof by Executive; or (E) the relocation of the Company's offices at which Executive is principally employed or the relocation of the offices of Executive's primary workgroup to a location more than thirty (30) miles from such offices, or the requirement by the Company for Executive to be based anywhere other than the Company's offices at such location on an extended basis, except for 6 required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations. "Good Reason Process" shall mean that (i) the Executive reasonably determines in good faith that a "Good Reason" event has occurred; (ii) Executive notifies the Company in writing of the occurrence of the Good Reason event; (iii) Executive cooperates in good faith with the Company's efforts, for a period not less than ninety (90) days following such notice, to modify Executive's employment situation in a manner acceptable to Executive and Company; and (iv) notwithstanding such efforts, one or more of the Good Reason events continues to exist and has not been modified in a manner acceptable to Executive. (G) NOTICE OF TERMINATION. Except for termination as specified in Subparagraph 6(a), any termination of Executive's employment by the Company or any such termination by Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if Executive's employment is terminated by his death, the date of his death; (B) if Executive's employment is terminated on account of disability under Subparagraph 6(b), the date on which Notice of Termination is given; (C) if Executive's employment is terminated by the Company under Subparagraph 6(c), (d) or (e), thirty (30) days after the date on which a Notice of Termination is given; and (D) if Executive's employment is terminated by Executive under Subparagraph 6(f), thirty (30) days after the date on which a Notice of Termination is given. 7. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) If Executive's employment terminates by reason of his death, the Company shall, within ninety (90) days of death, pay in a lump sum amount to such person as Executive shall designate in a notice filed with the Company or, if no such person is designated, to Executive's estate, Executive's accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of his death, plus his accrued and unpaid incentive compensation under Subparagraph 3(b). All unvested stock options and stock-based grants shall immediately vest in Executive's estate or other legal representatives and become exercisable, and Executive's estate or other legal representatives shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. In addition to the foregoing, any payments to which Executive's spouse, beneficiaries, or estate may be entitled under any employee benefit plan shall also be paid in accordance with the terms of such plan or arrangement. Such payments, in the aggregate, shall fully discharge the Company's obligations hereunder. 7 (b) During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, Executive shall continue to receive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary and accrued and unpaid incentive compensation payments under Subparagraph 3(b), until Executive's employment is terminated due to disability in accordance with Subparagraph 6(b) or until Executive terminates his employment in accordance with Subparagraph 6(f), whichever first occurs. All unvested stock options and stock-based grants shall immediately vest and become exercisable and Executive shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. Upon termination due to death prior to the termination first to occur as specified in the preceding sentence, Subparagraph 7(a) shall apply. (c) If Executive's employment is terminated by Executive other than for Good Reason as provided in Subparagraph 6(f), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given. Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. (d) If Executive terminates his employment for Good Reason as provided in Subparagraph 6(f) or if Executive's employment is terminated by the Company without Cause as provides in subparagraph 6(e), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given and his accrued and unpaid incentive compensation under Subparagraph 3(b). In addition, subject to signing by Executive of a general release of claims in a form and manner satisfactory to the Company, (i) the Company shall pay Executive, on the Date of Termination, such additional amounts to which Executive may be entitled in accordance with the Company's then current severance policies (the "Severance Amount"), provided that, at a minimum, Executive shall be entitled to receive an amount in a lump sum (the "Minimum Severance Amount") equal to the sum of Executive's Average Base Salary and Average Incentive Compensation payable for twenty-four (24) months or the sum of Executive's Average Base Salary and Average Incentive Compensation payable for the remaining length of the original three-year term after the Date of Termination, whichever is greater. For purposes of this Agreement, "Average Base Salary" shall mean the average of the annual Base Salary or, if applicable, Adjusted Base Salary received by Executive for each of the three (3) immediately preceding fiscal years or 8 such fewer number of complete fiscal years as Executive may have been employed by the Company. For purposes of this Agreement, "Average Incentive Compensation" shall mean the average of the annual incentive compensation under Subparagraph 3(b) received by Executive for the three (3) immediately preceding fiscal years or such fewer number of complete fiscal years as Executive may have been employed by the Company. Notwithstanding the foregoing, in the event Executive terminates his employment for Good Reason as provided in Subparagraph 6(f), he shall be entitled to the Severance Amount or the Minimum Severance Amount only if he provides the Notice of Termination provided for in Subparagraph 6(g) within thirty (30) days after the occurrence of the event or events which constitute such Good Reason as specified in clauses (A), (B), (C), (D), (E) and (F) of Subparagraph 6(f); (ii) in addition to any other benefits to which Executive may be entitled in accordance with the Company's then existing severance policies, the Company shall: (a) for a period of six (6) months commencing on the Date of Termination, pay for the cost of executive outplacement services selected by Executive for use in connection with obtaining alternate employment; and (b) for a period of twenty-four (24) months commencing on the Date of Termination, pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to his termination of employment; and (iii) Executive shall receive all the rights and benefits granted or in effect with respect to Executive under the Company's employee stock option or incentive plans and agreements with Executive pursuant thereto. In addition to the foregoing, unless otherwise provided in the applicable option or award agreement, all stock options in which Executive otherwise would have vested if he would have remained employed for a period of eighteen (18) months or if termination of employment occurs within the first eighteen (18) months of the Commencement Date, the remaining length of the original three-year term, shall immediately accelerate and become exercisable or nonforfeitable as of the Date of Termination, and all restricted stock awards in which Executive otherwise would have vested if he would have remained employed for a period of twenty-four (24) months or if termination of employment occurs within the first twelve (12) months of the Commencement Date, the remaining length of the original three-year, shall immediately accelerate and become nonforfeitable as of the Date of Termination. (e) If Executive's employment is terminated by the Company for Cause as provided in Subparagraph 6(c) or for performance as provided in Subparagraph 6(d), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is 9 given and in case of termination for performance as provided by Subparagraph 6(d), his accrued and unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. Notwithstanding the foregoing and in addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive shall immediately expire on the Date of Termination if Executive's employment is terminated by the Company for Cause as provided by Subparagraph 6(c). (f) Nothing contained in the foregoing Subparagraphs 7(a) through 7(e) shall be construed so as to affect Executive's rights or the Company's obligations relating to agreements or benefits which are unrelated to termination of employment. 8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain terms of an agreement reached between Executive and the Company regarding Executive's rights and obligations upon the occurrence of a Change in Control of the Company. These provisions are intended to assure and encourage in advance Executive's continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Subparagraph 7(d)(i) regarding severance pay upon a termination of employment, if such termination of employment occurs within eighteen (18) months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or effect beginning eighteen (18) months after the occurrence of a Change in Control. (A) ESCROW. Within fifteen (15) days after the occurrence of the first event constituting a Change in Control, the Company shall place funds in an amount equal to the estimated Parachute Amount in escrow, pursuant to arrangements that are mutually acceptable to the Company and Executive providing for the payment of the Parachute Amount in the event Executive becomes entitled thereto pursuant to Subparagraph 8(b)(i) (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained until the earlier of (A) eighteen (18) months after the occurrence of the first event constituting a Change in Control or (B) the payment to Executive of the Parachute Amount pursuant to the provisions of Subparagraph 8(b)(i). (B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence of the first event constituting a Change in Control, Executive's employment terminates for any reason other than (A) death, (B) his inability, due to illness, accident, or other physical or mental incapacity, to perform his duties for more than one hundred eighty (180) days during any twelve-month period, or (C) his Voluntary Resignation ("Termination"), then: 10 (i) the Company shall pay Executive in a lump sum an amount equal to the applicable Parachute Amount on the tenth (10th) day following Executive's Termination; and (ii) unless otherwise provided in the applicable option agreement or award agreement, all stock options and other stock-based awards granted to Executive by the Company shall immediately accelerate and become exercisable or non-forfeitable as of the date of Change in Control, and Executive shall be entitled to any other rights and benefits with respect to stock-related awards, to the extent and upon the terms provided in the employee stock option or incentive plan or any agreement or other instrument attendant thereto pursuant to which such options or awards were granted. (C) GROSS UP PAYMENT. (i) Excess Parachute Payment. If Executive incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") on "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, the Company will pay to Executive an amount (the "Gross Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the excess parachute payment and any federal, state and local income tax (together with penalties and interest) and Excise Tax upon the payment provided for by this Subparagraph 8(c)(i), will be equal to the Parachute Amount. (ii) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of Executive's residence on the date of Executive's Termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. (iii) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount thereof will be based upon the opinion of tax counsel selected by Executive and approved by the Company, which approval will not be unreasonably withheld. If such opinion is not finally accepted by the Internal Revenue Service (or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional Gross Up Payments will be made in the manner provided by this Subparagraph (c). (iv) Time For Payment. The Company will pay the estimated amount of the Gross Up Payment in cash to Executive concurrent with Employee's Termination. Executive and the Company agree to reasonably cooperate in the determination of the actual amount of the Gross Up Payment. Further, Executive and the Company agree to make such adjustments to the estimated amount of the Gross Up Payment as may be 11 necessary to equal the actual amount of the Gross Up Payment, which in the case of Executive will refer to refunds of prior overpayments and in the case of the Company will refer to makeup of prior underpayments. (D) DEFINITIONS. For purposes of this Paragraph 8, the following terms shall have the following meanings: "CHANGE IN CONTROL" shall mean an event which shall be deemed to have occurred if (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who at the Commencement Date constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors then still in office who either were directors at the Commencement Date or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Notwithstanding the foregoing, neither the merger of the Company with California Jockey Club nor the merger of the Company with Wyndham Hotel Corporation shall be deemed a Change in Control for purposes of this Agreement. "PARACHUTE AMOUNT" shall mean an amount equal to the greater of the Severance Amount or the Minimum Severance Amount provided for in Subparagraph 7(d)(i). "VOLUNTARY RESIGNATION" shall mean any termination of Executive's employment by his own act, unless such termination is for Good Reason occurring within ninety (90) days prior to, or at any time after, the occurrence of a Change in Control. 12 9. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: At his home address as shown in the Company's personnel records; if to the Company: Patriot American Hospitality, Inc. 3030 LBJ Freeway, Suite 1500 Dallas, TX 75234 Attn.: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, unless specifically referred to herein, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Texas (without regard to principles of conflicts of laws). 11. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The invalid portion of this Agreement, if any, shall be modified by any court having jurisdiction to the extent necessary to render such portion enforceable. 12. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13 13. ARBITRATION; OTHER DISPUTES. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Dallas, Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding the above, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning Executive's mental or physical capacity as described in Subparagraphs 7(b) or 7(b), a doctor selected by Executive and a doctor selected by the Company shall be entitled to examine Executive. If the opinion of the Company's doctor and Executive's doctor conflict, the Company's doctor and Executive's doctor shall together agree upon a third doctor, whose opinion shall be binding. Any amount to which Executive is entitled under this Agreement (including any disputed amount), which is not paid when due, shall bear interest at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum lawful rate. 14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company that Executive's execution of this Agreement, Executive's employment with the Company and the performance of Executive's proposed duties for the Company will not violate any obligations Executive may have to any employer or other party, and Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. 15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's employment, Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while Executive was employed by the Company; provided, however, that such cooperation shall not materially and adversely affect Executive or expose Executive to an increased probability of civil or criminal litigation. Executive's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Executive's employment, Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company shall also provide Executive with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse Executive for all costs and expenses incurred in connection with his performance under this Paragraph 15, including, but not limited to, reasonable attorneys' fees and costs. 16. ASSIGNMENT. At the sole election of the Company, this Agreement may be assigned by the Company to Patriot American Hospitality Operating Company. 14 IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PATRIOT AMERICAN HOSPITALITY, INC. By: /s/ Paul A. Nussbaum --------------------------------- Its: Chairman and Chief Executive Officer /s/ Paul Novak --------------------------------- Paul Novak 15 SCHEDULE I TO EMPLOYMENT AGREEMENT Title: Executive Vice President - Acquisitions and Development. Reports directly to Chairman, Chief Executive Officer Location: Dallas, Texas Responsibility: Oversight of property acquisition and new development activities. SCHEDULE II TO EMPLOYMENT AGREEMENT A. Equity position in lodging related holdings of The Hampstead Group. 1. Bedrock Partners - ownership of 15 Wyndham Garden Hotels and 2 Wyndham Hotels and Resorts and approximately 2.2 million shares of Wyndham Hotel Corp. stock. 2. Bristol Hotel Company - ownership of approximately 33% of the stock of this NYSE company. B. Equity position in a hotel acquisition partnership with William. E. Simon of Los Angeles, California. 1. Essex House Hotel - 81 rooms and suites in South Beach, Miami Beach, Florida. 2. The Lafayette Hotel - 60+ rooms in South Beach, Miami Beach, Florida. Note: Any future investments with this partnership would be presented to the Company prior to individual investment seeking the Company's approval and verification of no conflict of interest with the Company. EX-10.27 10 EXECUTIVE EMPLOYMENT AGREEMENT--MICHAEL GROSSMAN EXHIBIT 10.27 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the first day of October, 1997, between Patriot American Hospitality Operating Company, a Delaware corporation (the "Company"), and Michael Grossman ("Executive"). WHEREAS, Gencom Lessee, L.P., a Delaware limited partnership, has entered into a Contribution Agreement with Patriot American Hospitality Operating Company Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"), which provides, upon the terms and subject to the conditions thereof, for the contribution of its interests in GAH-II, L.P., a Delaware limited partnership, to the Operating Partnership; WHEREAS, the Company is desirous of engaging Executive to serve as the Executive Vice President of the Company and President and Chief Operating Officer of the GAH Division of the Company effective upon the closing of the Contribution Agreement; and WHEREAS, Executive is desirous of committing to serve the Company on the terms herein provided. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT. The initial term of this Agreement shall extend from the effective closing date of the Contribution Agreement (the "Commencement Date") until the third anniversary of the Commencement Date. On or before the second anniversary of the Commencement Date and each even anniversary thereafter, the term of this Agreement shall (i) be formally extended for an additional two (2) years by mutual agreement of the Company and Executive; or (ii) this Agreement shall expire in accordance with its terms. The term of this Agreement shall be subject to termination as provided in Paragraph 6 and may be referred to herein as the "Period of Employment." 2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve as Executive Vice President of the Company and President and Chief Operating Officer of the GAH Division of the Company, reporting to the President and Chief Operating Officer of the Company, shall have supervision and control over and responsibility for the day-to-day business and affairs of those functions and operations of the GAH Division of the Company and shall have such other powers and duties as may from time to time be prescribed by the Chairman, provided that such duties are consistent with Executive's position or other positions that he may hold from time to time. Executive shall devote his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, Executive may serve on other boards of directors or engage in religious, charitable or other community activities as long as such services and activities are disclosed to the Chairman and do not materially interfere with Executive's performance of his duties to the Company as provided in this Agreement. 3. COMPENSATION AND RELATED MATTERS. (A) BASE SALARY. Initially, Executive shall receive an annual base salary ("Base Salary") of Two Hundred and Fifty Thousand Dollars and xx/100 Cents ($250,000.00). Thereafter, Executive's Base Salary shall be redetermined at least thirty (30) days before each annual compensation determination date established by the Company during the Period of Employment in an amount to be fixed by the Board. The Base Salary, as redetermined, may be referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted Base Salary shall be payable in substantially equal bi-weekly installments and shall in no way limit or reduce the obligations of the Company hereunder. (B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base Salary, Executive shall be eligible to receive, on or about the annual compensation determination date established by the Company of each year, during the Period of Employment, cash incentive compensation in an amount determined by the Compensation Committee of the Board based on individual performance, performance by the Company and total return to shareholders. The incentive compensation potential shall be up to eighty percent (80%) of Base Salary or Adjusted Base Salary. Executive will also participate in such incentive compensation plans as the Board of Directors of the Company ("Board") shall determine. (C) EXPENSES. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures then in effect and established by the Company for its senior executive officers) in performing services hereunder during the Period of Employment, provided that Executive properly accounts therefor in accordance with Company policy. (D) OTHER BENEFITS. During the Period of Employment, Executive shall be entitled to continue to participate in or receive benefits under all of the Company's Employee Benefit Plans in effect on the date hereof, or under plans or arrangements that provide Executive with at least substantially equivalent benefits to those provided under such Employee Benefit Plans. As used herein, "Employee Benefit Plans" include, without limitation, each pension and retirement plan; supplemental pension, retirement and deferred compensation plan; savings and profit-sharing plan; stock ownership plan; stock purchase plan; stock option plan; life insurance plan; medical insurance plan; disability plan; and health and accident plan or arrangement established and maintained by the Company on the date hereof for employees of the same status within the hierarchy of the Company. To the extent that the scope or nature of benefits described in this section are determined under the policies of the Company based in whole or in part on the seniority or tenure of an employee's service, Executive shall be deemed to have a tenure with the Company equal to the actual time of Executive's service with Company plus the actual service by Executive with GAH-II, L.P. (the "Previous Employer"). During the Period of Employment, Executive shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement which may, in the future, be made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or 2 arrangement. Nothing paid to Executive under the Employee Benefit Plans presently in effect or any employee benefit plan or arrangement which may be made available in the future shall be deemed to be in lieu of compensation payable to Executive under Subparagraphs 3(a) and 3(b). Any payments or benefits payable to Executive under a plan or arrangement referred to in this Subparagraph 3(d) in respect of any calendar year during which Executive is employed by the Company for less than the whole of such year shall, unless otherwise provided in the applicable plan or arrangement, be prorated in accordance with the number of days in such calendar year during which he is so employed. Should any such payments or benefits accrue on a fiscal (rather than calendar) year, then the proration in the preceding sentence shall be on the basis of a fiscal year rather than calendar year. (E) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, a life insurance policy on the life of Executive in an amount not less than the sum of the amount of Executive's then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus range. Executive shall have the right to designate the beneficiary under such policy. (F) VACATIONS. Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers. Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. To the extent that the scope or nature of benefits described in this section are determined under the policies of the Company based in whole or in part on the seniority or tenure of an employee's service, Executive shall be deemed to have a tenure with the Company equal to the actual time of Executive's service with Company plus the actual service by Executive to the Previous Employer. (G) DISABILITY INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, long-term disability insurance providing for payment of benefits at rates not less than 60% of Executive's current Base Salary or Adjusted Base Salary. 4. UNAUTHORIZED DISCLOSURE. (A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of his employment with the Previous Employer or the Company (and, if applicable, the predecessors of either of them), he has been allowed to become, and will continue to be allowed to become, acquainted with the Company's and Patriot American Hospitality, Inc.'s ("Affiliated Company's") business affairs, information, trade secrets, and other matters which are of a proprietary or confidential nature, including but not limited to the Company's and Affiliated Company's and their respective predecessors' operations, business opportunities, price and cost information, finance, customer information, business plans, various sales techniques, manuals, letters, notebooks, procedures, reports, products, processes, services, and other confidential information and knowledge (collectively the "Confidential Information") concerning the Company's, Affiliated Company's and their respective predecessors' business. 3 The Company agrees to provide on an ongoing basis such Confidential Information as the Company deems necessary or desirable to aid Executive in the performance of his duties. Executive understands and acknowledges that such Confidential Information is confidential, and he agrees not to disclose such Confidential Information to anyone outside the Company or the Affiliated Company except to the extent that Executive deems such disclosure or use reasonably necessary or appropriate in connection with performing his duties on behalf of the Company. Executive further agrees that he will not during employment and/or at any time thereafter use such Confidential Information (to the extent that it has not become public) in competing, directly or indirectly, with the Company or the Affiliated Company. At such time as Executive shall cease to be employed by the Company, he will immediately turn over to the Company all Confidential Information, including papers, documents, writings, electronically stored information, other property, and all copies of them provided to or created by him during the course of his employment with the Company (or, if applicable, Previous Employer). (B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions of this Paragraph 4 shall be binding upon Executive's heirs, successors, and legal representatives. The provisions of this Paragraph 4 shall survive the termination of this Agreement for any reason. 5. COVENANT NOT TO COMPETE. The provisions of this Paragraph 5 shall apply during Executive's employment with the Company and for a period of eighteen (18) months or such longer period for which severance is payable under Paragraph 7 commencing when the employment relationship has ended for any reason other than death; provided, however, that the prohibition set forth in the second sentence of this Paragraph 5 shall not apply in the case of termination of employment solely as a result of the expiration of the Period of Employment without extension. In consideration for Executive's employment by the Company under the terms provided in this Agreement and as a means to aid in the performance and enforcement of the terms of the Unauthorized Disclosure provisions of Paragraph 4, Executive agrees that Executive will not, directly or indirectly, as an owner, director, principal, agent, officer, employee, partner, consultant, servant, or otherwise, carry on, operate, manage, control, or become involved in any manner with any business, operation, corporation, partnership, association, agency, or other person or entity which is in the business of owning, operating, managing or granting franchise rights with respect to hotels, motels or other lodging facilities in any area or territory in which the Company or Affiliated Company conducts operations; provided, however, that the foregoing does not prohibit Executive from owning up to one percent (1%) of the outstanding stock of a publicly held corporation engaged in the hospitality business. Executive also agrees that Executive will not, directly or indirectly, either for himself or for any other business, operation, corporation, partnership, association, agency, or other person or entity, call upon, compete for, solicit, divert, or take away, or attempt to divert or take away any of the customers of the Company or Affiliated Company in any of the areas or territories in which the Company or Affiliated Company conducts operations. Further, Executive will not directly or indirectly solicit or induce any present or future employee of the Company or Affiliated Company to accept employment with Executive or with any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated, and Executive will not employ or cause any 4 business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated to employ any present or future employee of the Company or Affiliated Company without providing the Company or Affiliated Company with ten (10) days' prior written notice of such proposed employment. Should Executive violate the provisions of this Paragraph, then in addition to all other rights and remedies available to the Company or Affiliated Company at law or in equity, the duration of this covenant shall automatically be extended for the period of time from which Executive began such violation until he permanently ceases such violation. Notwithstanding the foregoing, Executive shall be permitted to continue to engage in activities that would otherwise be prohibited by this Paragraph 5 with respect to the interests he currently owns and which are described in Schedule I attached hereto and made a part hereof by this reference and to engage in such activities with respect to any other hotel, motel or lodging facility that would be immaterial to the operations of the Company in the area or territory in question. Immateriality, for purposes of the foregoing sentence, shall be determined in the sole discretion of the Board of Directors in good faith. Notwithstanding anything to the contrary contained herein, Executive's acceptance of a position with the Gencom Group of companies or its subsidiaries or affiliates after his termination of employment shall not be deemed to be a violation of the foregoing non-compete provisions. 6. TERMINATION. Executive's employment hereunder may be terminated without any breach of this Agreement under the following circumstances: (A) DEATH. Executive's employment hereunder shall terminate upon his death. (B) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been absent from his duties hereunder on a full-time basis for one hundred eighty (180) calendar days in the aggregate in any twelve (12) month period, the Company may terminate Executive's employment hereunder. (C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder for Cause if such termination is approved by a majority of the Board at a meeting of the Board called and held for such purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct by Executive constituting a material act of willful misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or property of the Company or any of its affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (B) criminal or civil conviction or conduct by Executive that would reasonably be expected to result in material injury to the reputation of the Company if he were retained in his position with the Company, including, without limitation, conviction of a felony involving moral turpitude; (C) continued, willful and deliberate non-performance by Executive of his material duties hereunder (other than by reason of Executive's physical or mental illness, incapacity or disability) and such non-performance has continued for more than thirty (30) days following written notice of such non-performance from the Board; 5 or (D) a breach by Executive of any of the provisions contained in Paragraphs 4 and 5 of this Agreement. (D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the Period of Employment, the Company may terminate Executive's employment if (i) such termination is approved by a majority of the Board at a meeting of the Board called and held for such purpose; and (ii) Executive has materially failed to perform his duties hereunder or has violated, in material respects, the policies and procedures of the Company and such failure or violation has continued for more than ninety (90) days following written notice of such violation from the Board. (E) TERMINATION WITHOUT CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder without Cause if such termination is approved by a majority of the Board at a meeting of the Board called and held for such purpose. Any termination by the Company of Executive's employment under this Agreement which does not constitute a termination for Cause under Subparagraph 6(c), termination for performance under Subparagraph 6(d), or result from the death or disability of the Executive under Subparagraph 6(a) or (b) shall be deemed a termination without Cause. (F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment, Executive may terminate his employment hereunder for any reason, including but not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall mean that Executive has complied with the "Good Reason Process" (hereinafter defined) following the occurrence of any of the following events: (A) a substantial diminution or other substantive adverse change, not consented to by Executive, in the nature or scope of Executive's responsibilities, authorities, powers, functions or duties from the responsibilities, authorities, powers, functions or duties exercised by Executive immediately prior to the Commencement Date; (B) any removal, during the Period of Employment, of Executive from or, any failure by management to nominate, or, if nominated, any failure by the Board to re-elect, Executive to any of the positions indicated in Paragraph 2, except in connection with a termination of Executive's employment; (C) an involuntary reduction in Executive's Base Salary or Adjusted Base Salary or involuntary reduction in cash incentive compensation plan (but not reduction in incentive compensation appropriate for level of performance) except for across- the-board salary reductions similarly affecting all or substantially all management employees; (D) a breach by the Company of any of its other material obligations under this Agreement and the failure of the Company to cure such breach within thirty (30) days after written notice thereof by Executive; (E) the relocation of the Company's offices at which Executive is principally employed or the relocation of the offices of Executive's primary workgroup to a location more than thirty (30) miles from such offices, or the requirement by the Company for Executive to be based anywhere other than the Company's offices at such location on an extended basis, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations; or (F) any change in the identity of the person to whom Executive directly reports; provided, however, that this clause (F) shall cease to apply on and after the third anniversary of the Commencement Date. "Good Reason Process" shall 6 mean that (i) the Executive reasonably determines in good faith that a "Good Reason" event has occurred; (ii) Executive notifies the Company in writing of the occurrence of the Good Reason event; (iii) Executive cooperates in good faith with the Company's efforts, for a period not less than ninety (90) days following such notice, to modify Executive's employment situation in a manner acceptable to Executive and Company; and (iv) notwithstanding such efforts, one or more of the Good Reason events continues to exist and has not been modified in a manner acceptable to Executive. (G) NOTICE OF TERMINATION. Except for termination as specified in Subparagraph 6(a), any termination of Executive's employment by the Company or any such termination by Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if Executive's employment is terminated by his death, the date of his death; (B) if Executive's employment is terminated on account of disability under Subparagraph 6(b), the date on which Notice of Termination is given; (C) if Executive's employment is terminated by the Company under Subparagraph 6(c), (d) or (e), thirty (30) days after the date on which a Notice of Termination is given; and (D) if Executive's employment is terminated by Executive under Subparagraph 6(f), thirty (30) days after the date on which a Notice of Termination is given. 7. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) If Executive's employment terminates by reason of his death, the Company shall, within ninety (90) days of death, pay in a lump sum amount to such person as Executive shall designate in a notice filed with the Company or, if no such person is designated, to Executive's estate, Executive's accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of his death, plus his accrued and unpaid incentive compensation under Subparagraph 3(b). All unvested stock options and stock-based grants shall immediately vest in Executive's estate or other legal representatives and become exercisable, and Executive's estate or other legal representatives shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. In addition to the foregoing, any payments to which Executive's spouse, beneficiaries, or estate may be entitled under any employee benefit plan shall also be paid in accordance with the terms of such plan or arrangement. Such payments, in the aggregate, shall fully discharge the Company's obligations hereunder. (b) During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, Executive shall continue to receive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary and accrued and 7 unpaid incentive compensation payments under Subparagraph 3(b), until Executive's employment is terminated due to disability in accordance with Subparagraph 6(b) or until Executive terminates his employment in accordance with Subparagraph 6(f), whichever first occurs. All unvested stock options and stock-based grants shall immediately vest and become exercisable and Executive shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. Upon termination due to death prior to the termination first to occur as specified in the preceding sentence, Subparagraph 7(a) shall apply. (c) If Executive's employment is terminated by Executive other than for Good Reason as provided in Subparagraph 6(f), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given. Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. (d) If Executive terminates his employment for Good Reason as provided in Subparagraph 6(f) or if Executive's employment is terminated by the Company without Cause as provided in Subparagraph 6(e), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base-Salary at the rate in effect at the time Notice of Termination is given and his accrued and unpaid incentive compensation under Subparagraph 3(b). In addition, subject to signing by Executive of a general release of claims (other than continuing rights under this Agreement) in a form and manner satisfactory to the Company, (i) the Company shall continue Executive's compensation at a rate equal to the sum of Executive's Average Base Salary and Average Incentive Compensation for the remaining term of the Agreement (but not less than eighteen (18) months) (the "Minimum Severance Amount") or such longer period provided by the Company's then current severance polices (the "Severance Amount"); provided, however, that in the event Executive commences any employment during the period of salary continuation, the Company shall be entitled to set-off against the remaining amount of salary continuation by the amount of any cash compensation received by Executive from the new employer. Such salary continuation shall be payable in equal installments, in advance, on a quarterly basis. The amount payable in each quarter will not be subject to any set-off so long as Executive certifies in writing prior to each quarterly payment that he has not accepted employment with a new employer (including, without limitation, contract and consulting engagements). Notwithstanding the foregoing, if 8 the Executive breaches any of the provisions contained in Paragraphs 4 and 5 of this Agreement, all salary continuation payments shall immediately cease. For purposes of this Agreement, "Average Base Salary" shall mean the average of the annual Base Salary or, if applicable, Adjusted Base Salary received by Executive for each of the three (3) immediately preceding fiscal years or such fewer number of complete or partial fiscal years as Executive may have been employed by the Company. For purposes of this Agreement, "Average Incentive Compensation" shall mean the average of the annual incentive compensation under Subparagraph 3(b) received by Executive for the three (3) immediately preceding fiscal years or such fewer number of complete or partial fiscal years as Executive may have been employed by the Company. Notwithstanding the foregoing, in the event Executive terminates his employment for Good Reason as provided in Subparagraph 6(f), he shall be entitled to the Severance Amount or the Minimum Severance Amount only if he provides the Notice of Termination provided for in Subparagraph 6(g) within thirty (30) days after the occurrence of the event or events which constitute such Good Reason as specified in clauses (A), (B), (C), (D) and (E) of Subparagraph 6(f); (ii) in addition to any other benefits to which Executive may be entitled in accordance with the Company's then existing severance policies, the Company shall: (a) for a period of six (6) months commencing on the Date of Termination, pay for the cost of executive outplacement services selected by Executive for use in connection with obtaining alternate employment; and (b) for a period of one (1) year commencing on the Date of Termination, pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to his termination of employment; and (iii) Executive shall receive all the rights and benefits granted or in effect with respect to Executive under the Company's employee stock option or incentive plans and agreements with Executive pursuant thereto. In addition to the foregoing, unless otherwise provided in the applicable option or award agreement, all stock options and other stock-based awards in which Executive otherwise would have vested if he would have remained employed for a period of twenty-four (24) months or if termination of employment occurs within the first twelve (12) months of the Commencement Date, the remaining length of the original three-year term after the Date of Termination commencing on the Date of Termination shall immediately accelerate and become exercisable or nonforfeitable as of the Date of Termination. (e) If Executive's employment is terminated by the Company for Cause as provided in Subparagraph 6(c) or for performance as provided in Subparagraph 6(d), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, 9 if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given and in case of termination for performance as provided by Subparagraph 6(d), his accrued and unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. Notwithstanding the foregoing and in addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive shall immediately expire on the Date of Termination if Executive's employment is terminated by the Company for Cause as provided by Subparagraph 6(c). (f) If Executive's employment is terminated as a result of the expiration of the Period of Employment without extension, then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given and his accrued and unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. (g) Regardless the reason for termination, for a period of three (3) years beginning on the Date of Termination, the Company will provide at the expense of the Company such reasonable assistance and support to Executive as he shall reasonably require in connection with the preparation and filing of tax returns, statements and forms insofar as such returns, statements and forms relate to Executive's association with the Company, Affiliated Company, Previous Employer or any of their respective predecessors or affiliates. At the Company's election, such assistance and support shall be provided by either tax personnel of the Company or certified public accountants selected and compensated by the Company. (h) Nothing contained in the foregoing Subparagraphs 7(a) through 7(f) shall be construed so as to affect Executive's rights or the Company's obligations relating to agreements or benefits which are unrelated to termination of employment. 8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain terms of an agreement reached between Executive and the Company regarding Executive's rights and obligations upon the occurrence of a Change in Control of the Company. These provisions are intended to assure and encourage in advance Executive's continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Subparagraph 7(d)(i) regarding severance pay upon a termination of employment, if such 10 termination of employment occurs within eighteen (18) months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or effect beginning eighteen (18) months after the occurrence of a Change in Control. (A) ESCROW. Within fifteen (15) days after the occurrence of the first event constituting a Change in Control, the Company shall place funds in an amount equal to the estimated Parachute Amount in escrow, pursuant to arrangements that are mutually acceptable to the Company and Executive providing for the payment of the Parachute Amount in the event Executive becomes entitled thereto pursuant to Subparagraph 8(b)(i) (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained until the earlier of (A) eighteen (18) months after the occurrence of the first event constituting a Change in Control or (B) the payment to Executive of the Parachute Amount pursuant to the provisions of Subparagraph 8(b)(i). (B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence of the first event constituting a Change in Control, Executive's employment terminates for any reason other than (A) death, (B) his inability, due to illness, accident, or other physical or mental incapacity, to perform his duties for more than one hundred eighty (180) days during any twelve-month period or (C) his Voluntary Resignation ("Termination"), then: (i) the Company shall pay Executive in a lump sum an amount equal to the applicable Parachute Amount on the tenth (10th) day following Executive's Termination; and (ii) unless otherwise provided in the applicable option agreement or award agreement, all stock options and other stock-based awards granted to Executive by the Company shall immediately accelerate and become exercisable or non-forfeitable as of the date of Change in Control, and Executive shall be entitled to any other rights and benefits with respect to stock-related awards, to the extent and upon the terms provided in the employee stock option or incentive plan or any agreement or other instrument attendant thereto pursuant to which such options or awards were granted. (C) GROSS UP PAYMENT. (i) Excess Parachute Payment. If Executive incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") on "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, the Company will pay to Executive an amount (the "Gross Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the excess parachute payment and any federal, state and local taxes (together with penalties and interest) and Excise Tax upon the payment provided for by this Subparagraph 8(c)(i), will be equal to the Parachute Amount. 11 (ii) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Executive will be deemed to pay federal income taxes at the highest marginal rate of federal taxation in the calendar year in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of Executive's residence on the date of Executive's Termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. (iii) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount thereof will be based upon the opinion of tax counsel selected by Executive and approved by the Company, which approval will not be unreasonably withheld. The costs of obtaining the opinion of tax counsel shall be borne by the Company. If such opinion is not finally accepted by the Internal Revenue Service (or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional Gross Up Payments will be made in the manner provided by this Subparagraph (c). (iv) Time For Payment. The Company will pay the estimated amount of the Gross Up Payment in cash to Executive concurrent with Employee's Termination. Executive and the Company agree to reasonably cooperate in the determination of the actual amount of the Gross Up Payment. Further, Executive and the Company agree to make such adjustments to the estimated amount of the Gross Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of Executive will refer to refunds of prior overpayments and in the case of the Company will refer to makeup of prior underpayments. (D) DEFINITIONS. For purposes of this Paragraph 8, the following terms shall have the following meanings: "CHANGE IN CONTROL" shall mean an event which shall be deemed to have occurred if (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who at the Commencement Date constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors then still in office who either were directors at the Commencement Date or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (iii) the 12 stockholders of the Company approve a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. "PARACHUTE AMOUNT" shall mean an amount equal to the greater of the Severance Amount or the Minimum Severance Amount provided for in Subparagraph 7(d)(i). "VOLUNTARY RESIGNATION" shall mean any termination of Executive's employment by his own act, unless such termination is for Good Reason. 9. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: At his home address as shown in the Company's personnel records; if to the Company: Patriot American Hospitality Operating Company 3030 LBJ Freeway, Suite 1500 Dallas, TX 75234 Attn.: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or 13 dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, unless specifically referred to herein, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Texas (without regard to principles of conflicts of laws). 11. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The invalid portion of this Agreement, if any, shall be modified by any court having jurisdiction to the extent necessary to render such portion enforceable. 12. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. ARBITRATION; OTHER DISPUTES. In the event of any dispute or controversy arising under or in connection with this Agreement, the parties shall first promptly try in good faith to settle such dispute or controversy by mediation under the Commercial Mediation Rules of the American Arbitration Association before resorting to arbitration. In the event such dispute or controversy remains unresolved in whole or in part for a period of thirty (30) days after it arises, the parties will settle any remaining dispute or controversy exclusively by arbitration in Dallas, Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding the above, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning Executive's mental or physical capacity as described in Subparagraph 6(b), 6(c) or 7(b), a doctor selected by Executive and a doctor selected by the Company shall be entitled to examine Executive. If the opinion of the Company's doctor and Executive's doctor conflict, the Company's doctor and Executive's doctor shall together agree upon a third doctor, whose opinion shall be binding. Any amount to which Executive is entitled under this Agreement (including any disputed amount), which is not paid when due, shall bear interest at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum lawful rate. 14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company that Executive's execution of this Agreement, Executive's employment with the Company and the performance of Executive's proposed duties for the Company will not violate any obligations Executive may have to any employer or other party, and Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. 14 15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's employment, Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while Executive was employed by the Company; provided, however, that such cooperation shall not materially and adversely affect Executive or expose Executive to an increased probability of civil or criminal litigation. Executive's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Executive's employment, Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company shall also provide Executive with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and reimburse Executive for all costs and expenses incurred in connection with his performance under this Paragraph 15, including, but not limited to, reasonable attorneys' fees and costs. 16. ASSIGNMENT. At the sole election of the Company, this Agreement may be assigned by the Company to Patriot American Hospitality, Inc. IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY By: /s/ Paul A. Nussbaum --------------------------------- Its: Chairman and Chief Executive Officer /s/ Michael Grossman -------------------------------------- Michael Grossman 15 EX-10.28 11 EXECUTIVE EMPLOYMENT AGREEMENT--KARIM ALIBHAI EXHIBIT 10.28 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made as of the first day of October, 1997, between Patriot American Hospitality Operating Company, a Delaware corporation (the "Company"), and Karim Alibhai ("Executive"). WHEREAS, Gencom Lessee, L.P. a Delaware limited partnership has entered into a Contribution Agreement with Patriot American Hospitality Operating Company Partnership, a Delaware limited partnership (the "Operating Company") which provides, upon the terms and subject to the conditions thereof, for the contribution of its interests in GAH-II, L.P., a Delaware limited partnership, to the Operating Partnership; WHEREAS, the Company is desirous of engaging Executive to serve as the President and Chief Operating Officer of the Company effective upon the closing of the Contribution Agreement; and WHEREAS, Executive is desirous of committing to serve the Company on the terms herein provided. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT. The initial term of this Agreement shall begin on the effective closing date of the Contribution Agreement (the "Commencement Date") and end on the third anniversary of the Commencement Date. On or before the second anniversary of the Commencement Date (and each even anniversary thereof), the term of this Agreement shall be extended for an additional two (2) years unless either the Company or Executive provides written notice of its or his intent not to extend the Agreement at least forty-five (45) days prior to such anniversary date in which event this Agreement shall expire in accordance with its terms. The term of this Agreement shall be subject to termination as provided in Paragraph 6 and may be referred to herein as the "Period of Employment." 2. POSITION AND DUTIES. During the Period of Employment, Executive shall serve as President and Chief Operating Officer of the Company, reporting solely to the Chairman of the Board of the Company (the "Chairman"), shall have supervision and control over and responsibility for the day-to-day business and affairs of those functions and operations of the Company described on Schedule I attached hereto and made a part hereof by this reference and shall have such other powers and duties as may from time to time be prescribed by the Chairman, provided that such duties are consistent with Executive's position or other positions that he may hold from time to time. The Company shall take such action as necessary to elect Executive as a Class II Director with an initial term expiring at the 1998 annual meeting. Executive shall serve as a member of the Transactions Committee and the Cooperation Committee when such committees are formed. Executive shall devote substantially his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, Executive may serve on other boards of directors, engage in religious, charitable or other community activities and oversee personal investments and family business as long as such services and activities do not materially interfere with Executive's performance of his duties to the Company as provided in this Agreement. 3. COMPENSATION AND RELATED MATTERS. (A) BASE SALARY. Initially, Executive shall receive an annual base salary ("Base Salary") of Three Hundred Fifty Thousand Dollars and xx/100 Cents ($350,000.00). Thereafter, Executive's Base Salary shall be redetermined at least thirty (30) days before each annual compensation determination date established by the Company during the Period of Employment in an amount to be fixed by the Board, but may never be decreased except in connection with across- the-board salary reductions similarly affecting all executives of the Company and the Affiliated Company (as defined below). The Base Salary, as redetermined, may be referred to herein as "Adjusted Base Salary." The Base Salary or Adjusted Base Salary shall be payable in substantially equal bi-weekly installments and shall in no way limit or reduce the obligations of the Company hereunder. (B) INCENTIVE COMPENSATION. In addition to Base Salary or Adjusted Base Salary, Executive shall be eligible to receive, on or about the annual compensation determination date established by the Company of each year, during the Period of Employment, cash incentive compensation in an amount determined by the Compensation Committee of the Board based on individual performance, performance by the Company and total return to shareholders. Such performance criteria will be established by mutual agreement of Executive and the Company on an annual basis. The incentive compensation potential shall be up to eighty percent (80%) of Base Salary or Adjusted Base Salary; provided in no event will such incentive compensation be less then $75,000 paid for each full year of employment. Executive will also participate in such incentive compensation plans as the Board of Directors of the Company ("Board") shall determine. (C) EXPENSES. Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures then in effect and established by the Company for its senior executive officers) in performing services hereunder during the Period of Employment, provided that Executive properly accounts therefor in accordance with Company policy. (D) OPTION GRANT. On the Commencement Date, the Company shall issue to Executive a non-qualified stock option (the "Option") to acquire 280,000 shares of the paired common stock ("Paired Shares") of the Company and Patriot American Hospitality, Inc. ("Affiliated Company"). The Option shall vest and become exercisable with respect to 8 1/3% of the number of Paired Shares underlying the Option quarterly on the first day of each calendar quarter thereafter, such that all the Paired Shares underlying the Option have vested and are exercisable on or before the third anniversary of the Commencement Date. The 2 exercise price per Paired Share for the Option shall be the quoted closing price per Paired Share on the New York Stock Exchange on the Commencement Date. (E) OTHER BENEFITS. During the Period of Employment, Executive shall be entitled to continue to participate in or receive benefits under all of the Company's Employee Benefit Plans in effect on the date hereof, or under plans or arrangements that provide Executive with at least substantially equivalent benefits to those provided under such Employee Benefit Plans. As used herein, "Employee Benefit Plans" include, without limitation, each pension and retirement plan; supplemental pension, retirement and deferred compensation plan; savings and profit-sharing plan; stock ownership plan; stock purchase plan; stock option plan; life insurance plan; medical insurance plan; disability plan; and health and accident plan or arrangement established and maintained by the Company on the date hereof for employees of the same status within the hierarchy of the Company. To the extent that the scope or nature of benefits described in this section are determined under the policies of the Company based in whole or in part on the seniority or tenure of an employee's service, Executive shall be deemed to have a tenure with the Company equal to the actual time of Executive's service with Company plus the actual service by Executive with GAH-II, L.P. (the "Previous Employer"). During the Period of Employment, Executive shall be entitled to receive all perquisites and fringe benefits available to the President of Affiliated Company. During the Period of Employment, Executive shall also be entitled to participate in or receive benefits under any employee benefit plan or arrangement which may, in the future, be made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plan or arrangement. Nothing paid to Executive under the Employee Benefit Plans presently in effect or any employee benefit plan or arrangement which may be made available in the future shall be deemed to be in lieu of compensation payable to Executive under Subparagraphs 3(a) and 3(b). Any payments or benefits payable to Executive under a plan or arrangement referred to in this Subparagraph 3(e) in respect of any calendar year during which Executive is employed by the Company for less than the whole of such year shall, unless otherwise provided in the applicable plan or arrangement, be prorated in accordance with the number of days in such calendar year during which he is so employed. Should any such payments or benefits accrue on a fiscal (rather than calendar) year, then the proration in the preceding sentence shall be on the basis of a fiscal year rather than calendar year. (F) LIFE INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, a life insurance policy on the life of Executive in an amount not less than the sum of the amount of Executive's then current Base Salary or Adjusted Base Salary plus the mid-point of his bonus range. Executive shall have the right to designate the beneficiary under such policy. (G) VACATIONS. Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers. Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. To the extent that the scope or nature of benefits described in this 3 section are determined under the policies of the Company based in whole or in part on the seniority or tenure of an employee's service, Executive shall be deemed to have a tenure with the Company equal to the actual time of Executive's service with Company plus the actual service by Executive to the Previous Employer. (H) DISABILITY INSURANCE. The Company shall pay the premiums on, and maintain in effect throughout the Period of Employment, long-term disability insurance providing for payment of benefits at rates not less than 60% of Executive's current Base Salary or Adjusted Base Salary. (I) INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE. During Executive's employment, Executive shall receive the maximum indemnification protection from the Company as permitted by applicable law and shall receive directors' and officers' insurance coverage provided to any other director or officer of the Company or the Affiliated Company. 4. UNAUTHORIZED DISCLOSURE. (A) CONFIDENTIAL INFORMATION. Executive acknowledges that in the course of his employment with the Previous Employer or the Company (and, if applicable, the predecessors of either of them), he has been allowed to become, and will continue to be allowed to become, acquainted with the Company's and Affiliated Company's business affairs, information, trade secrets, and other matters which are of a proprietary or confidential nature, including but not limited to the Company's and Affiliated Company's and their respective predecessors' operations, business opportunities, price and cost information, finance, customer information, business plans, various sales techniques, manuals, letters, notebooks, procedures, reports, products, processes, services, and other confidential information and knowledge (collectively the "Confidential Information") concerning the Company's, Affiliated Company's and their respective predecessors' business. The Company agrees to provide on an ongoing basis such Confidential Information as the Company deems necessary or desirable to aid Executive in the performance of his duties. Executive understands and acknowledges that such Confidential Information is confidential, and he agrees not to disclose such Confidential Information to anyone outside the Company or the Affiliated Company except to the extent that Executive deems such disclosure or use reasonably necessary or appropriate in connection with performing his duties on behalf of the Company. Executive further agrees that he will not during employment and/or at any time thereafter use such Confidential Information (to the extent it has not become public) in competing, directly or indirectly, with the Company or the Affiliated Company. At such time as Executive shall cease to be employed by the Company, he will immediately turn over to the Company all Confidential Information, including papers, documents, writings, electronically stored information, other property, and all copies of them provided to or created by him during the course of his employment with the Company (or, if applicable, Previous Employer). 4 (B) HEIRS, SUCCESSORS, AND LEGAL REPRESENTATIVES. The foregoing provisions of this Paragraph 4 shall be binding upon Executive's heirs, successors, and legal representatives. The provisions of this Paragraph 4 shall survive the termination of this Agreement for any reason. 5. COVENANT NOT TO COMPETE. The provisions of this Paragraph 5 shall apply during Executive's employment with the Company and for a period of twenty-four (24) months or such longer period for which severance is payable under Paragraph 7 commencing when the employment relationship has ended for any reason other than death; provided, however, that the prohibition set forth in the second sentence of this Paragraph 5 shall not apply in the case of termination of employment solely as a result of the expiration of the Period of Employment without extension. In consideration for Executive's employment by the Company under the terms provided in this Agreement and as a means to aid in the performance and enforcement of the terms of the Unauthorized Disclosure provisions of Paragraph 4, Executive agrees that Executive will not, directly or indirectly, as an owner, director, principal, agent, officer, employee, partner, consultant, servant, or otherwise, carry on, operate, manage, control, or become involved in any manner with any business, operation, corporation, partnership, association, agency, or other person or entity which is in the business of owning, operating, managing or granting franchise rights with respect to hotels, motels or other lodging facilities in any area or territory in which the Company or Affiliated Company conducts operations; provided, however, that the foregoing does not prohibit Executive from owning up to one percent (1%) of the outstanding stock of a publicly held corporation engaged in the hospitality business; and provided, further, that the foregoing does not prohibit activities in the hotel industry by Executive's family partnerships in which Executive does not have a management role. Executive also agrees that Executive will not, directly or indirectly, either for himself or for any other business, operation, corporation, partnership, association, agency, or other person or entity, call upon, compete for, solicit, divert, or take away, or attempt to divert or take away any of the customers of the Company or Affiliated Company in any of the areas or territories in which the Company or Affiliated Company conducts operations. Further, Executive will not directly or indirectly solicit or induce any present or future employee of the Company or Affiliated Company to accept employment with Executive or with any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated, and Executive will not employ or cause any business, operation, corporation, partnership, association, agency, or other person or entity with which Executive may be associated to employ any present or future employee of the Company or Affiliated Company without providing the Company or Affiliated Company with ten (10) days' prior written notice of such proposed employment. Should Executive violate the provisions of this Paragraph, then in addition to all other rights and remedies available to the Company or Affiliated Company at law or in equity, the duration of this covenant shall automatically be extended for the period of time from which Executive began such violation until he permanently ceases such violation. Notwithstanding the foregoing, Executive shall be permitted to continue to engage in activities that would otherwise be prohibited by this Paragraph 5 with respect to the interests he currently owns and which are described in Schedule II attached hereto and made a part hereof by this reference and to engage in such activities with respect to any other hotel, motel or lodging facility that would be immaterial to 5 the operations of the Company in the area or territory in question. Immateriality, for purposes of the foregoing sentence, shall be determined in the sole discretion of the Board of Directors in good faith. Notwithstanding anything to the contrary contained herein, Executive's acceptance of a position with the Gencom Group of companies or affiliates, including any of the family- owned business or establishment of his own business after his termination of employment shall not be deemed to be a violation of the foregoing non-compete provisions so long as Executive does not become an employee of or become affiliated with a hospitality company that owns a brand that competes in any of the business tiers of the Company. By way of illustration solely, as of the Commencement Date, Executive would be deemed to violate the non-compete provisions if he should become an employee of Promus, Hyatt or Starwood/Westin, but Executive would not be deemed to violate the non-compete provisions if he should become an employee of American General, Interstate or Microtel. 6. TERMINATION. Executive's employment hereunder may be terminated without any breach of this Agreement under the following circumstances: (A) DEATH. Executive's employment hereunder shall terminate upon his death. (B) DISABILITY. If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have been absent from his duties hereunder on a full-time basis for one hundred eighty (180) calendar days in the aggregate in any twelve (12) month period, the Company may terminate Executive's employment hereunder. (C) TERMINATION BY COMPANY FOR CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder for Cause if such termination is approved by a majority of the Board at a meeting of the Board called and held for such purpose. For purposes of this Agreement "Cause" shall mean: (A) conduct by Executive constituting a material act of willful misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or property of the Company or any of its affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (B) criminal or civil conviction or conduct by Executive that would reasonably be expected to result in material injury to the reputation of the Company if he were retained in his position with the Company, including, without limitation, conviction of a felony involving moral turpitude; (C) continued, willful and deliberate non-performance by Executive of his material duties hereunder (other than by reason of Executive's physical or mental illness, incapacity or disability) and such non-performance has continued for more than thirty (30) days following written notice of such non-performance from the Board; or (D) a breach by Executive of any of the provisions contained in Paragraphs 4 and 5 of this Agreement. (D) TERMINATION BY COMPANY FOR PERFORMANCE REASONS. At any time during the Period of Employment, the Company may terminate Executive's employment if (i) such termination is approved by a majority of the Board at a meeting of the Board called and held for such purpose; and (ii) Executive has materially failed to perform his material duties 6 hereunder or has violated, in material respects, the material policies and procedures of the Company and such failure or violation has continued for more than ninety (90) days following written notice of such violation from the Board. (E) TERMINATION WITHOUT CAUSE. At any time during the Period of Employment, the Company may terminate Executive's employment hereunder without Cause if such termination is approved by a majority of the Board at a meeting of the Board called and held for such purpose. Any termination by the Company of Executive's employment under this Agreement which does not constitute a termination for Cause under Subparagraph 6(c), termination for performance under Subparagraph 6(d), or result from the death or disability of the Executive under Subparagraph 6(a) or (b) shall be deemed a termination without Cause. (F) TERMINATION BY EXECUTIVE. At any time during the Period of Employment, Executive may terminate his employment hereunder for any reason, including but not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall mean that Executive has complied with the "Good Reason Process" (hereinafter defined) following the occurrence of any of the following events: (A) a significant adverse change, not consented to in writing by Executive, in the nature or scope of Executive's responsibilities, status, authorities, powers, functions or duties from the responsibilities, status, authorities, powers, functions or duties exercised by Executive immediately prior to the Commencement Date; (B) any removal, during the Period of Employment, of Executive from or, any failure by management to nominate, or, if nominated, any failure by the Board to re-elect, Executive to any of the positions indicated in Paragraph 2, except in connection with a termination of Executive's employment; (C) an involuntary reduction in Executive's Base Salary or Adjusted Base Salary or involuntary reduction in cash incentive compensation plan (but not reduction in incentive compensation appropriate for level of performance) except for across- the-board salary reductions similarly affecting all or substantially all management employees; (D) a breach by the Company of any of its other material obligations under this Agreement and the failure of the Company to cure such breach within thirty (30) days after written notice thereof by Executive; (E) if Paul A. Nussbaum ceases to serve as Chairman of the Affiliated Company and James D. Carreker ceases to be Chairman of the Company; or (F) the relocation of the Company's offices at which Executive is principally employed or the relocation of the offices of Executive's primary workgroup to a location more than thirty (30) miles from such offices, or the requirement by the Company for Executive to be based anywhere other than the Company's offices at such location on an extended basis, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations; provided however, that this clause (F) shall not apply to the initial relocation from Houston, Texas to Dallas, Texas. "Good Reason Process" shall mean that (i) the Executive reasonably determines in good faith that a "Good Reason" event has occurred; (ii) Executive notifies the Company in writing of the occurrence of the Good Reason event; (iii) Executive cooperates in good faith with the Company's efforts, for a period not less than sixty (60) days following such notice, to modify Executive's employment situation in a manner acceptable to Executive and Company; and (iv) notwithstanding such efforts, one or more of the Good 7 Reason events continues to exist and has not been modified in a manner acceptable to Executive. (G) NOTICE OF TERMINATION. Except for termination as specified in Subparagraph 6(a), any termination of Executive's employment by the Company or any such termination by Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. (H) DATE OF TERMINATION. "Date of Termination" shall mean: (A) if Executive's employment is terminated by his death, the date of his death; (B) if Executive's employment is terminated on account of disability under Subparagraph 6(b), the date on which Notice of Termination is given; (C) if Executive's employment is terminated by the Company under Subparagraph 6(c), (d) or (e), thirty (30) days after the date on which a Notice of Termination is given; and (D) if Executive's employment is terminated by Executive under Subparagraph 6(f), thirty (30) days after the date on which a Notice of Termination is given. 7. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) If Executive's employment terminates by reason of his death, the Company shall, within ninety (90) days of death, pay in a lump sum amount to such person as Executive shall designate in a notice filed with the Company or, if no such person is designated, to Executive's estate, Executive's accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary, to the date of his death, plus his accrued and unpaid incentive compensation under Subparagraph 3(b). All unvested stock options and stock-based grants shall immediately vest in Executive's estate or other legal representatives and become exercisable, and Executive's estate or other legal representatives shall have one (1) year from the Date of Termination, or remaining option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. In addition to the foregoing, any payments to which Executive's spouse, beneficiaries, or estate may be entitled under any employee benefit plan shall also be paid in accordance with the terms of such plan or arrangement. Such payments, in the aggregate, shall fully discharge the Company's obligations hereunder. (b) During any period that Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, Executive shall continue to receive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary and accrued and unpaid incentive compensation payments under Subparagraph 3(b), until Executive's employment is terminated due to disability in accordance with Subparagraph 6(b) or until Executive terminates his employment in accordance with Subparagraph 6(f), whichever first occurs. All unvested stock options and stock-based grants shall immediately vest and become exercisable and Executive shall have one (1) year from the Date of Termination, or remaining 8 option term, if earlier, to exercise the stock options. For a period of one (1) year following the Date of Termination, the Company shall pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to receive health insurance coverage substantially similar to coverage they received prior to the Date of Termination. Upon termination due to death prior to the termination first to occur as specified in the preceding sentence, Subparagraph 7(a) shall apply. (c) If Executive's employment is terminated by Executive other than for Good Reason as provided in Subparagraph 6(f), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given. Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. (d) If Executive terminates his employment for Good Reason as provided in Subparagraph 6(f) or if Executive's employment is terminated by the Company without Cause as provided in Subparagraph 6(e), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base-Salary at the rate in effect at the time Notice of Termination is given and his accrued and unpaid incentive compensation under Subparagraph 3(b). In addition, subject to signing by Executive of a general release of claims (other than continuing rights under this Agreement in a form and manner satisfactory to the Company, (i) the Company shall continue Executive's compensation at a rate equal to the sum of Executive's Average Base Salary and Average Incentive Compensation for the remaining term of the Agreement (but not less than twenty-four (24) months) (the "Minimum Severance Amount") or such longer period provided by the Company's then current severance polices (the "Severance Amount"); provided, however, that in the event Executive commences any employment during the period of salary continuation, the Company shall be entitled to set-off against the remaining amount of salary continuation by the amount of any cash compensation received by Executive from the new employer. Such salary continuation shall be payable in equal installments, in advance, on a quarterly basis. The amount payable in each quarter will not be subject to any set-off so long as Executive certifies in writing prior to each quarterly payment that he has not accepted employment with a new employer (including, without limitation, contract and consulting engagements). Notwithstanding the foregoing, if the Executive breaches any of the provisions contained in Paragraphs 4 and 5 of this Agreement, all salary continuation payments shall immediately cease. For purposes of this Agreement, "Average Base Salary" shall mean the average of the annual Base Salary or, if applicable, Adjusted Base Salary received by Executive for each of the three (3) immediately preceding fiscal years or such fewer number of complete or 9 partial fiscal years as Executive may have been employed by the Company. For purposes of this Agreement, "Average Incentive Compensation" shall mean the average of the annual incentive compensation under Subparagraph 3(b) received by Executive for the three (3) immediately preceding fiscal years or such fewer number of complete or partial fiscal years as Executive may have been employed by the Company. Notwithstanding the foregoing, in the event Executive terminates his employment for Good Reason as provided in Subparagraph 6(f), he shall be entitled to the Severance Amount or the Minimum Severance Amount only if he provides the Notice of Termination provided for in Subparagraph 6(g) within sixty (60) days after the occurrence of the event or events which constitute such Good Reason as specified in clauses (A), (B), (C), (D) and (E) of Subparagraph 6(f); (ii) in addition to any other benefits to which Executive may be entitled in accordance with the Company's then existing severance policies, the Company shall: (a) for a period of six (6) months commencing on the Date of Termination, pay for the cost of executive outplacement services selected by Executive for use in connection with obtaining alternate employment; and (b) for a period of one (1) year commencing on the Date of Termination, pay such health insurance premiums as may be necessary to allow Executive, Executive's spouse and dependents to continue to receive health insurance coverage substantially similar to the coverage they received prior to his termination of employment; and (iii) Executive shall receive all the rights and benefits granted or in effect with respect to Executive under the Company's employee stock option or incentive plans and agreements with Executive pursuant thereto. In addition to the foregoing, all stock options and other stock-based awards in which Executive otherwise would have vested if he would have remained employed for a period of twenty-four (24) months or the remaining term of the Agreement, if longer, shall immediately accelerate and become exercisable or nonforfeitable as of the Date of Termination. (e) If Executive's employment is terminated by the Company for Cause as provided in Subparagraph 6(c) or for performance as provided in Subparagraph 6(d), then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given and in case of termination for performance as provided by Subparagraph 6(d), his accrued and unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. Notwithstanding the foregoing 10 and in addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive shall immediately expire on the Date of Termination if Executive's employment is terminated by the Company for Cause as provided by Subparagraph 6(c). (f) If Executive's employment is terminated as a result of the expiration of the Period of Employment without extension, then the Company shall, through the Date of Termination, pay Executive his accrued and unpaid Base Salary or, if applicable, his Adjusted Base Salary at the rate in effect at the time Notice of Termination is given and his accrued and unpaid incentive compensation under Subparagraph 3(b). Thereafter, the Company shall have no further obligations to Executive except as otherwise expressly provided under this Agreement, provided any such termination shall not adversely affect or alter Executive's rights under any employee benefit plan of the Company in which Executive, at the Date of Termination, has a vested interest, unless otherwise provided in such employee benefit plan or any agreement or other instrument attendant thereto. (g) Regardless the reason for termination, for a period of three (3) years beginning on the Date of Termination, the Company will provide at the expense of the Company such reasonable assistance and support to Executive as he shall reasonably require in connection with the preparation and filing of tax returns, statements and forms insofar as such returns, statements and forms relate to Executive's association with the Company, Affiliated Company, Previous Employer or any of their respective predecessors or affiliates. At the Company's election, such assistance and support shall be provided by either tax personnel of the Company or certified public accountants selected and compensated by the Company. (h) Nothing contained in the foregoing Subparagraphs 7(a) through 7(f) shall be construed so as to affect Executive's rights or the Company's obligations relating to agreements or benefits which are unrelated to termination of employment. 8. PARACHUTE PAYMENT. The provisions of this Paragraph 8 set forth certain terms of an agreement reached between Executive and the Company regarding Executive's rights and obligations upon the occurrence of a Change in Control of the Company. These provisions are intended to assure and encourage in advance Executive's continued attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Subparagraph 7(d)(i) regarding severance pay upon a termination of employment, if such termination of employment occurs within eighteen (18) months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or effect beginning eighteen (18) months after the occurrence of a Change in Control. (A) ESCROW. Within fifteen (15) days after the occurrence of the first event constituting a Change in Control, the Company shall place funds in an amount equal to the estimated Parachute Amount in escrow, pursuant to arrangements that are mutually acceptable to the Company and Executive providing for the payment of the Parachute Amount in the event 11 Executive becomes entitled thereto pursuant to Subparagraph 8(b)(i) (the "Escrow Arrangement"). The Escrow Arrangement shall be maintained until the earlier of (A) eighteen (18) months after the occurrence of the first event constituting a Change in Control or (B) the payment to Executive of the Parachute Amount pursuant to the provisions of Subparagraph 8(b)(i). (B) CHANGE IN CONTROL. If within eighteen (18) months after the occurrence of the first event constituting a Change in Control, Executive's employment terminates for any reason other than (A) death, (B) his inability, due to illness, accident, or other physical or mental incapacity, to perform his duties for more than one hundred eighty (180) days during any twelve-month period or (C) his Voluntary Resignation ("Termination"), then: (i) the Company shall pay Executive in a lump sum an amount equal to the applicable Parachute Amount on the tenth (10th) day following Executive's Termination; and (ii) all stock options and other stock-based awards granted to Executive by the Company shall immediately accelerate and become exercisable or non-forfeitable as of the date of Change in Control, and Executive shall be entitled to any other rights and benefits with respect to stock-related awards, to the extent and upon the terms provided in the employee stock option or incentive plan or any agreement or other instrument attendant thereto pursuant to which such options or awards were granted. (C) GROSS UP PAYMENT. (i) Excess Parachute Payment. If Executive incurs the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986 (the "Code") on "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code, the Company will pay to Executive an amount (the "Gross Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the excess parachute payment and any federal, state and local taxes (together with penalties and interest) and Excise Tax upon the payment provided for by this Subparagraph 8(c)(i), will be equal to the Parachute Amount. (ii) Applicable Rates. For purposes of determining the amount of the Gross Up Payment, Executive will be deemed to pay federal income taxes at the highest marginal rate of federal taxation in the calendar year in which the Gross Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of Executive's residence on the date of Executive's Termination, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes. (iii) Determination of Gross Up Payment Amount. The determination of whether the Excise Tax is payable and the amount thereof will be based upon the 12 opinion of tax counsel selected by Executive and approved by the Company, which approval will not be unreasonably withheld. The costs of obtaining the opinion of tax counsel shall be borne by the Company. If such opinion is not finally accepted by the Internal Revenue Service (or state and local taxing authorities), then appropriate adjustments to the Excise Tax will be computed and additional Gross Up Payments will be made in the manner provided by this Subparagraph (c). (iv) Time For Payment. The Company will pay the estimated amount of the Gross Up Payment in cash to Executive concurrent with Employee's Termination. Executive and the Company agree to reasonably cooperate in the determination of the actual amount of the Gross Up Payment. Further, Executive and the Company agree to make such adjustments to the estimated amount of the Gross Up Payment as may be necessary to equal the actual amount of the Gross Up Payment, which in the case of Executive will refer to refunds of prior overpayments and in the case of the Company will refer to makeup of prior underpayments. (D) DEFINITIONS. For purposes of this Paragraph 8, the following terms shall have the following meanings: "CHANGE IN CONTROL" shall mean an event which shall be deemed to have occurred if (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who at the Commencement Date constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this paragraph) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least eighty percent (80%) of the directors then still in office who either were directors at the Commencement Date or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with or into any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least sixty percent (60%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 13 "PARACHUTE AMOUNT" shall mean an amount equal to the greater of the Severance Amount or the Minimum Severance Amount provided for in Subparagraph 7(d)(i). "VOLUNTARY RESIGNATION" shall mean any termination of Executive's employment by his own act, unless such termination is for Good Reason. 9. NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Executive: At his home address as shown in the Company's personnel records; if to the Company: Patriot American Hospitality Operating Company 3030 LBJ Freeway, Suite 1500 Dallas, TX 75234 Attn.: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, unless specifically referred to herein, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Texas (without regard to principles of conflicts of laws). 11. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. The invalid portion of this Agreement, 14 if any, shall be modified by any court having jurisdiction to the extent necessary to render such portion enforceable. 12. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. ARBITRATION; OTHER DISPUTES. In the event of any dispute or controversy arising under or in connection with this Agreement, the parties shall first promptly try in good faith to settle such dispute or controversy by mediation under the Commercial Mediation Rules of the American Arbitration Association before resorting to arbitration. In the event such dispute or controversy remains unresolved in whole or in part for a period of thirty (30) days after it arises, the parties will settle any remaining dispute or controversy exclusively by arbitration in Dallas, Texas, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding the above, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of Paragraph 4 or 5 hereof. Furthermore, should a dispute occur concerning Executive's mental or physical capacity as described in Subparagraph 6(b), 6(c) or 7(b), a doctor selected by Executive and a doctor selected by the Company shall be entitled to examine Executive. If the opinion of the Company's doctor and Executive's doctor conflict, the Company's doctor and Executive's doctor shall together agree upon a third doctor, whose opinion shall be binding. Any amount to which Executive is entitled under this Agreement (including any disputed amount), which is not paid when due, shall bear interest at a rate equal to the lesser of eighteen percent (18%) per annum or the maximum lawful rate. 14. THIRD-PARTY AGREEMENTS AND RIGHTS. Executive represents to the Company that Executive's execution of this Agreement, Executive's employment with the Company and the performance of Executive's proposed duties for the Company will not violate any obligations Executive may have to any employer or other party, and Executive will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. 15. LITIGATION AND REGULATORY COOPERATION. During and after Executive's employment, Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while Executive was employed by the Company; provided, however, that such cooperation in Executive's good faith opinion shall not materially and adversely affect Executive or expose Executive to an increased probability of civil or criminal litigation or materially interfere, in Executive's good faith opinion, with Executive's personal and business activities. Executive's cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Executive's employment, to the 15 extent that it does not materially interfere, in Executive's good faith opinion, with Executive's personal and business activities, Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by the Company. The Company shall also provide Executive with compensation on an hourly basis calculated at his final base compensation rate for requested litigation and regulatory cooperation that occurs after his termination of employment, and pay in advance upon request Executive for all costs and expenses incurred in connection with his performance under this Paragraph 15, including, but not limited to, reasonable attorneys' fees and costs. 16. ASSIGNMENT. At the sole election of the Company, this Agreement may be assigned by the Company to Patriot American Hospitality, Inc. IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written. PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY By: /s/ Paul A. Nussbaum ---------------------------------- Its: Chairman and Chief Executive Officer /s/ Karim Alibhai ---------------------------------- Karim Alibhai 16 SCHEDULE I TO EXECUTIVE EMPLOYMENT AGREEMENT Title: President and Chief Operating Officer Reports directly to Chairman and Chief Executive Officer Location: Dallas, Texas Responsibilities: The Chief Financial Officer of the Company and the GAH Division will report to Executive. The group overseeing asset management function for the Company will report directly to Executive or at the election of Executive, to the Chief Financial Officer of the Company. SCHEDULE II TO EXECUTIVE EMPLOYMENT AGREEMENT Executive has ownership interests in Gencom Asset Management Services, L.P., which provides asset management services to hotels. Executive also has ownership interests in the following hotels:
HOTEL CITY STATE ----- ---- ----- Crowne Plaza Miami Miami Florida Days Inn Astrodome Houston Texas Days Inn Austin Austin Texas Days Inn Greenspoint Houston Texas Days Inn Port Lavaca Houston Texas Denton Radisson Denton Texas Desjardins Registry Hotel Montreal Canada Edmonton Sheraton Edmonton Canada Four Points Dunwoody Atlanta Georgia Hampton Inn Corpus Corpus Christi Texas Hawthorne Suites Houston Texas Holiday Inn Astrodome Houston Texas Holiday Inn Galleria Houston Texas Holiday Inn Stevens Point Stevens Point Wisconsin Key Biscayne Grand Bay Key Biscayne Florida Marriott Residence Houston Texas Park Plaza Grand Bay Toronto Canada Philadelphia Grand Bay Philadelphia Pennsylvania Radisson Astrodome Houston Texas Ramada Astrodome Houston Texas Sheraton Acapulco Acapulco Mexico Sheraton Astrodome Houston Texas The Inn at Maingate Orlando Florida
EX-12.1 12 COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 RATIO OF EARNINGS TO FIXED CHARGES PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. (in thousands) YEAR YEAR INCEPTION ENDED ENDED THROUGH 12/31/97 12/31/96 12/31/95 -------- -------- -------- EARNINGS: Income before minority interest $ 4,142 $ 44,813 $ 7,064 Add back: fixed charges 53,093 7,471 89 -------- -------- -------- $ 57,235 $ 52,284 $ 7,153 ======== ======== ======== FIXED CHARGES: Interest expense, including amort of DLC $ 50,531 $ 7,380 $ 89 Capitalized interest 2,562 91 - -------- -------- -------- $ 53,093 $ 7,471 $ 89 ======== ======== ======== RATIO: 1.08 7.00 80.37 ======== ======== ======== EX-21.1 13 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 Significant Subsidiaries of Patriot American Hospitality, Inc. ---------------------------------- Patriot American Hospitality Partnership, L.P. Virginia 1500 Canal Street Investors II, L.P. Delaware Albuquerque C.I. Associates, L.P. Kansas Atlanta American Hotel Investors, L.P. Delaware Boulders Joint Venture Arizona Bourbon Orleans Investors II, L.P. Delaware City Centre Partnership, L.P. Delaware CV Ranch L.P. Delaware GHALP Partnership, L.P. Delaware Glenview Hospitality, L.P. Delaware Hotel Venture Partners, Ltd. Florida Kansas City Hospitality, L.P. Delaware Knoxville C.I. Associates, L.P. Tennessee Marina Hospitality, L.P. Delaware Melbourne Hospitality, L.P. Delaware Omaha C.I. Associates, L.P. Kansas Overland Park C.I. Associates, L.P. Kansas PA Hunt Valley Investors, L.P. Virginia PA Ravinia Partners Virginia PA Troy Hospitality Investors, L.P. Delaware PAH-Buttes L.L.C. Delaware PAH GP, Inc. Delaware
1 PAH LP, Inc. Delaware PAH Ventana Canyon, L.P. Delaware PAH Windwatch, LLC Delaware PAH-Akron, L.L.C. Delaware PAH-Beachwood I, L.L.C. Delaware PAH-Beachwood II, L.L.C. Delaware PAH-BV Palace, L.P. Delaware PAH-CI Holding, LLC Delaware PAH-DT Allen Partners, L.P. Delaware PAH-DT Chicago O'Hare Partners, L.P. Delaware PAH-DT Miami Airport Partners, L.P. Delaware PAH-DT Minneapolis Suites Partners, L.P. Delaware PAH-DT Park Place Partners, L.P. Delaware PAH-DT Tallahassee Partners, L.P. Delaware PAH-Grand Bay Miami, L.P. Delaware PAH-HVP General Partner Corp. Delaware PAH-HVP Holding Corp. Delaware PAH-River House, L.P. Delaware PAH-Tampa, L.P. Delaware PAH-Westlake LLC Delaware Patriot Land Holding, LLC Delaware Patriot Miami Note Holder, L.P. Delaware Patriot Racetrack Land LLC Delaware Richardson C.I. Associates, L.P. Texas Royal Palace Hotel Associates Florida
2 Salt Lake City Partnership, L.P. Delaware Savannah C.I. Associates, L.P. Georgia St. Louis C.I. Associates, L.P. Missouri Telluride Resort and Spa L.P. Delaware Toledo Hotel Investors, L.P. Delaware Topeka C.I. Associates, L.P. Kansas Travis Real Estate Group Joint Venture Texas WHC Atlanta GP, LLC Delaware WHC Chicago, LLC Delaware Wichita C.I. Associates III, L.P. Kansas YO Hotel Investors, L.P. Delaware
3 Significant Subsidiaries of Wyndham International, Inc. --------------------------- Bay Meadows Operating Company LLC Delaware Carefree Management LLC Delaware El Conquistador Partnership L.P. Delaware Grand Heritage Hotels (Europe) Limited United Kingdom Grand Heritage Hotels, Inc. Maryland Grand Heritage Leasing LLC Maryland Hotel Del Coronado Management Corporation Delaware Isla Verde Tourism Parking Corporation Puerto Rico Las Casitas Development Company I, S en C (S.E.) Puerto Rico Marquis Hotel Associates Pennsylvania MBAH, Inc. Texas O-H Acquisition, Inc. Delaware P.H.G., LLC Maryland PAH Batterymarch Realty Company, LLC Delaware PAH GAH Holdings, L.P. Delaware PAH Leasing, LLC Delaware PAH Stanly Holding LLC Delaware PAH-Columbus Holding, Inc. Delaware PAH-Franchise Holding, Inc. Delaware PAH-Interest Holding, Inc. Delaware PAH-IP Holding, Inc. Delaware PAH-Pittsburgh CI Holding, Inc. Delaware
4 PAH-Westmont CI Holding, Inc. Delaware PAH-WMC Holding, Inc. Delaware PAH-Xerxes Holding, Inc. Delaware Patriot American Hospitality Operating Partnership, L.P. Delaware Patriot Bougainvillea Development Company, LLC Delaware Patriot Grand Heritage, LLC Delaware Patriot Holding LLC Delaware Posadas de San Juan Associates New York PSMB, Inc. California PWMB, Inc. Delaware Resorts Services, Inc. Arizona Rose Hall Associates, Limited Partnership Texas Salt Lake City Operating Partnership, L.P. Delaware HEPC Garden Albuquerque, Inc. Texas WH Interest, Inc. Texas WHC Caribbean, Ltd. Jamaica WHC Columbus Corporation Delaware WHC Franchise Corporation Delaware WHCMB Overland Park, Inc. Kansas WHCMB Toronto, Inc. Canada WHCMB Utah Private Club Corporation Utah WHCMB, Inc. Delaware WHG El Con Corp. Delaware WHG Resorts & Casinos Inc. Delaware WKA El Con Associates New York
5 WKA Development S.E. Puerto Rico Williams Hospitality Group, Inc. Delaware WIPC, LLC Delaware Wyndham Hotels & Resorts (Aruba) N.V. Aruba Wyndham Hotels & Resorts Management, Ltd. Bermuda Wyndham IP Corporation Delaware Wyndham Management Corporation Delaware Wyndham Management II, LLC Delaware Xerxes Limited Jamaica
6 EX-23.1 14 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the (a) Joint Registration Statement on Form S-3 (File No. 333-29671 and No. 333-29671-01) and related Prospectus of Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American Hospitality Operating Company), (b) Joint Registration Statement on Form S-8 (File No. 333-41927 and No. 333-41927-01) of Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American Hospitality Operating Company), (c) Joint Registration Statement on Form S-3 (File No. 333-39313 and No. 333-39313-01) and related Prospectus of 1,681,793 paired shares of common stock of Patriot American Hospitality, Inc. and Wyndham International, Inc. (formerly Patriot American Hospitality Operating Company), (d) Joint Registration Statement on Form S-4 (File No. 333-44203 and No. 333-44203-01) of Patriot American Hospitality, Inc. and Wyndham International, Inc., (e) Joint Registration Statement on Form S-8 (File No. 333-44197 and No. 333-44197-01) of Patriot American Hospitality, Inc. and Wyndham International, Inc., and (f) Joint Registration Statement on Form S- 3 (File No. 333-28085 and No. 333-28085-01) and related Prospectus of $1,000,000,000 of paired common stock and paired preferred stock of Patriot American Hospitality, Inc. and Wyndham International, Inc. of our report dated February 9, 1998, with respect to the financial statements and schedules of Patriot American Hospitality, Inc. and Wyndham International, Inc. included in this Form 10-K for the year ended December 31, 1997. /s/ Ernst & Young LLP Dallas, Texas March 26, 1998 EX-27.1 15 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 OF PATRIOT AMERICAN HOSPITALITY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS 12-MOS DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 DEC-31-1997 DEC-31-1996 20,360 6,604 0 0 12,105 5,351 0 0 1,306 1,648 0 0 2,083,768 661,640 67,501 19,815 2,321,105 760,931 0 0 0 0 0 0 0 0 733 436 908,294 436,603 2,321,105 760,931 0 0 185,554 76,493 0 0 0 0 136,800 30,145 0 0 51,000 7,380 382 37,991 0 0 0 0 0 0 (2,534) 0 0 0 (2,152) 37,991 (0.04) 1.07 (0.04) 1.06
EX-27.2 16 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 OF WYNDHAM INTERNATIONAL, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUL-01-1997 DEC-31-1997 27,076 0 46,340 0 9,144 100,662 29,686 1,304 252,088 112,821 0 0 0 733 80,132 252,088 167,727 204,134 0 109,003 93,825 0 933 373 (481) 0 0 0 0 (20) 0 0
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