-----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, K89SA3ntJbTaydqcUqWR0nhF0g32TqSMzlCofjmRMczZeTl6KK78oQEU8ujGvLkI GLp/rMUMbaHbAVoL7NGQ2w== 0001047469-98-031757.txt : 19980817 0001047469-98-031757.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031757 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 940358820 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09319 FILM NUMBER: 98691290 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-Q SEC ACT: SEC FILE NUMBER: 001-09320 FILM NUMBER: 98691291 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ JOINT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 1-9319 COMMISSION FILE NUMBER 1-9320 PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC. - -------------------------------------------- -------------------------------------------- (Exact name of registrant as specified in its (Exact name of registrant as specified in its charter) 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, 1950 STEMMONS FREEWAY, SUITE 6001 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, including (Registrant's telephone number, including area code) area code) N/A N/A - ------------------------------------------- ------------------------------------------- (Former name, former address and former (Former name, former address and former fiscal year, fiscal year, if changed since last report) if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of each registrant's classes of common stock, par value $.01 per share, as of the close of business on August 10, 1998, was as follows:
REGISTRANT NUMBER OF SHARES - --------------------------------------------- --------------------------------------------- Patriot American Hospitality, Inc. 145,653,306 Wyndham International, Inc. 145,653,306
PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. INDEX PART I--FINANCIAL INFORMATION
PAGE ----- ITEM 1. FINANCIAL STATEMENTS: COMBINED PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC.: Condensed Combined Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997.................. 3 Condensed Combined Statements of Operations for the three months ended June 30, 1998 and 1997 and the six months ended June 30, 1998 and 1997 (unaudited)........................................................ 4 Condensed Combined Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)............................................................................................ 5 PATRIOT AMERICAN HOSPITALITY, INC.: Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997.............. 6 Condensed Consolidated Statements of Operations for the three months ended June 30, 1998 and 1997 and the six months ended June 30, 1998 and 1997 (unaudited).................................................... 7 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited)............................................................................................ 8 WYNDHAM INTERNATIONAL, INC.: Condensed Consolidated Balance Sheet as of June 30, 1998 (unaudited) and December 31, 1997............... 9 Condensed Consolidated Statement of Operations for the three months ended June 30, 1998 and the six months ended June 30, 1998 (unaudited)................................................................. 10 Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1998 (unaudited)........ 11 Notes to Condensed Financial Statements as of June 30, 1998 (unaudited).................................... 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.................................................................................. 53 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................................................... 54 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................ 54 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: Exhibits................................................................................................. 55 Reports on Form 8-K...................................................................................... 56 SIGNATURES................................................................................................. 57
2 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. CONDENSED COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS Investment in real estate and related improvements and land held for development, net of accumulated depreciation of $146,143 in 1998 and $68,805 in 1997................. $5,649,655 $2,044,649 Cash and cash equivalents............................................................. 138,248 42,431 Restricted cash....................................................................... 25,233 5,005 Accounts and lease revenue receivable................................................. 223,432 57,046 Investment in unconsolidated subsidiaries............................................. 108,738 11,802 Mortgage notes and other receivables from unconsolidated subsidiaries................. 72,175 76,419 Other mortgage notes and other receivables............................................ 43,855 12,983 Management contracts, net of accumulated amortization of $5,756 in 1998 and $1,574 in 1997................................................................................ 196,174 20,879 Leaseholds, net of accumulated amortization of $1,505 in 1998......................... 149,161 -- Trade names and franchise costs, net of accumulated amortization of $2,960 in 1998 and $122 in 1997........................................................................ 138,432 11,166 Goodwill, net of accumulated amortization of $9,717 in 1998 and $1,851 in 1997........ 530,755 126,007 Deferred expenses, net of accumulated amortization of $12,406 in 1998 and $2,097 in 1997................................................................................ 99,861 21,417 Deferred acquisition costs............................................................ 11,092 52,500 Inventories........................................................................... 25,829 10,450 Other assets.......................................................................... 105,419 15,099 ----------- ------------ Total assets........................................................................ $7,518,059 $2,507,853 ----------- ------------ ----------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings under line of credit facility, term loans, mortgage notes and capital leases.............................................................................. $3,692,387 $1,112,709 Accounts payable and accrued expenses................................................. 332,305 78,468 Dividends and distributions payable................................................... 155 27,636 Deposits.............................................................................. 21,539 12,423 Due to unconsolidated subsidiaries.................................................... 7,609 7,304 Deferred income taxes................................................................. 108,221 9,550 Minority interest in the Operating Partnerships....................................... 280,210 220,177 Minority interest in consolidated subsidiaries........................................ 247,749 49,694 Commitment and contingencies.......................................................... Shareholders' Equity: Preferred stock, $0.01 par value, authorized: 100,000,000 shares each; shares issued and outstanding: 8,423,230 shares in 1998......................................... 84 -- 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: 144,957,723 shares in 1998 and 73,276,716 shares in 1997.............................................................................. 2,899 1,466 Additional paid in capital.......................................................... 2,971,856 1,070,973 Receivable from shareholders and affiliates......................................... (15,855) -- Unearned stock compensation, net of accumulated amortization of $8,778 in 1998 and $5,825 in 1997.................................................................... (15,551) (13,116) Unrealized loss on securities available for sale.................................... (621) -- Unrealized foreign exchange gain.................................................... 10 -- Distributions in excess of retained earnings........................................ (114,938) (69,431) ----------- ------------ Total shareholders' equity........................................................ 2,827,884 989,892 ----------- ------------ Total liabilities and shareholders' equity........................................ $7,518,059 $2,507,853 ----------- ------------ ----------- ------------
See notes to condensed financial statements. 3 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. CONDENSED COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1998 1997 1998 1997 ---------- --------- ---------- --------- Revenue: Hotel revenue.................................................... $ 422,010 $ 36,973 $ 712,653 $ 71,986 Lease revenue.................................................... 13,505 -- 34,070 -- Racecourse facility revenue...................................... 1,942 -- 24,991 -- Management fee and service fee income............................ 22,982 -- 36,821 -- Interest and other income........................................ 5,024 757 6,734 1,132 ---------- --------- ---------- --------- Total revenue.................................................. 465,463 37,730 815,269 73,118 ---------- --------- ---------- --------- Expenses: Hotel expenses................................................... 299,021 4,103 499,874 7,649 Racecourse facility operations................................... 2,673 -- 20,857 -- General and administrative....................................... 20,502 2,299 37,808 5,081 Interest expense................................................. 53,494 9,523 89,451 17,328 Cost of acquiring leaseholds..................................... 57,062 -- 57,062 -- Depreciation and amortization.................................... 51,326 9,510 86,929 18,006 ---------- --------- ---------- --------- Total expenses................................................. 484,078 25,435 791,981 48,064 ---------- --------- ---------- --------- Operating income (loss)............................................ (18,615) 12,295 23,288 25,054 Equity in earnings of unconsolidated subsidiaries................ 2,293 2,072 5,487 3,093 ---------- --------- ---------- --------- Income (loss) before income tax provision, minority interests and extraordinary item............................................... (16,322) 14,367 28,775 28,147 Income tax provision............................................. (932) -- (4,490) -- ---------- --------- ---------- --------- Income (loss) before minority interests and extraordinary item..... (17,254) 14,367 24,285 28,147 Minority interest in the Operating Partnerships.................. 4,501 (2,302) 1,447 (4,534) Minority interest in consolidated subsidiaries................... (1,658) (247) (3,014) (447) ---------- --------- ---------- --------- Income (loss) before extraordinary item............................ (14,411) 11,818 22,718 23,166 Extraordinary loss from early extinguishment of debt, net of minority interest.............................................. (11,843) -- (30,560) -- ---------- --------- ---------- --------- Net income (loss).................................................. $ (26,254) $ 11,818 $ (7,842) $ 23,166 ---------- --------- ---------- --------- ---------- --------- ---------- --------- Basic earnings per common Paired Share: Income (loss) before extraordinary item.......................... $ (0.13) $ 0.27 $ 0.19 $ 0.54 Extraordinary loss............................................... $ (0.10) $ -- $ (0.27) $ -- ---------- --------- ---------- --------- Net income (loss) per common Paired Share...................... $ (0.23) $ 0.27 $ (0.08) $ 0.54 ---------- --------- ---------- --------- ---------- --------- ---------- --------- Diluted earnings per common Paired Share: Income (loss) before extraordinary item.......................... $ (0.13) $ 0.26 $ 0.19 $ 0.52 Extraordinary loss............................................... $ (0.10) $ -- $ (0.26) $ -- ---------- --------- ---------- --------- Net income (loss) per common Paired Share...................... $ (0.23) $ 0.26 $ (0.07) $ 0.52 ---------- --------- ---------- --------- ---------- --------- ---------- ---------
See notes to condensed financial statements. 4 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. CONDENSED COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................................................................... $ (7,842) $ 23,166 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation.......................................................................... 67,999 17,949 Amortization of unearned stock compensation........................................... 3,144 1,927 Amortization of deferred loan costs................................................... 8,877 770 Amortization of management contracts and trade names.................................. 8,228 -- Amortization of goodwill and other assets............................................. 10,702 129 Cost of acquiring leaseholds.......................................................... 55,638 -- Net payments collected from unconsolidated subsidiaries............................... 7,754 1,674 Issuance of stock for bonuses and directors' fee...................................... 880 -- Equity in earnings of unconsolidated subsidiaries..................................... (5,487) (3,093) Minority interest in income of Operating Partnerships................................. (1,447) 4,534 Minority interest in income of consolidated subsidiaries.............................. 3,014 447 Deferred income taxes................................................................. (1,591) -- Extraordinary loss from early extinguishment of debt.................................. 30,560 -- Changes in assets and liabilities: Accounts and lease revenue receivable and other assets.............................. (41,641) (7,269) Inventories......................................................................... (1,171) -- Accounts payable and other accrued expenses......................................... 22,845 (1,484) ---------- --------- Net cash provided by operating activities......................................... 160,462 38,750 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of hotel properties and related working capital assets...................... (1,338,475) (242,625) Improvements and additions to hotel properties.......................................... (109,374) (33,636) Cash received in acquisition of hotel leases............................................ 98,312 -- Acquisition of management contracts..................................................... (10,365) -- Collections on other notes receivable................................................... 4,118 -- Increase in restricted cash accounts.................................................... (4,102) (2,015) Deferred acquisition costs.............................................................. (28,197) (7,744) Investment in unconsolidated subsidiaries............................................... (1,369) (1,574) Investment in mortgage and other notes receivable....................................... (3,549) (30,035) Other................................................................................... (495) -- ---------- --------- Net cash used in investing activities............................................. (1,393,496) (317,629) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line of credit facility, term loans, mortgage notes and capital lease obligations........................................................................... 2,447,542 354,854 Repay borrowings under line of credit facility and other debt........................... (1,297,209) (13,388) Payment of deferred loan costs.......................................................... (29,704) (7,358) Proceeds from issuance of common stock.................................................. 277,020 56 Payment of offering costs............................................................... (3,586) -- Contributions received from minority interest in consolidated subsidiaries.............. 3,768 3,608 Collections on notes receivable from shareholders and affiliates........................ 2,999 -- Payments to redeem OP Units............................................................. -- (14,441) Dividends and distributions paid........................................................ (71,937) (44,017) Other................................................................................... (42) (79) ---------- --------- Net cash provided by financing activities......................................... 1,328,851 279,235 ---------- --------- Net increase in cash and cash equivalents................................................. 95,817 356 Cash and cash equivalents at beginning of period.......................................... 42,431 4,146 ---------- --------- Cash and cash equivalents at end of period................................................ $ 138,248 $ 4,502 ---------- --------- ---------- ---------
See notes to condensed financial statements. 5 PATRIOT AMERICAN HOSPITALITY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS Investment in real estate and related improvements and land held for development, net of accumulated depreciation of $125,952 in 1998 and $67,501 in 1997................. $5,045,844 $2,016,267 Cash and cash equivalents............................................................. 42,970 15,355 Restricted cash....................................................................... 22,580 5,005 Accounts and lease revenue receivable................................................. 15,982 14,458 Investment in unconsolidated subsidiaries............................................. 916,989 11,802 Mortgage notes and other receivables from unconsolidated subsidiaries................. 72,175 76,419 Subscription Notes receivable from Wyndham............................................ 133,669 -- Notes and other amounts receivable from Wyndham....................................... 141,209 42,946 Other notes receivable................................................................ 18,750 -- Investment in leaseholds, net of accumulated amortization of $1,428................... 130,659 -- Trade names, net of accumulated amortization of $261.................................. 9,302 -- Goodwill, net of accumulated amortization of $2,549 in 1998 and $1,257 in 1997........ 95,357 87,999 Deferred expenses, net of accumulated amortization of $11,272 in 1998 and $2,097 in 1997................................................................................ 55,030 21,417 Deferred acquisition costs............................................................ 7,442 21,374 Inventories........................................................................... 1,242 1,306 Other assets.......................................................................... 66,279 6,757 ----------- ------------ Total assets...................................................................... $6,775,479 $2,321,105 ----------- ------------ ----------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings under line of credit facility, term loans, mortgage notes and capital leases.............................................................................. $3,454,686 $1,112,709 Subscription Notes payable to Wyndham................................................. 73,408 12,875 Notes and other amounts payable to Wyndham............................................ 51,133 -- Accounts payable and accrued expenses................................................. 96,115 28,151 Dividends and distributions payable................................................... 13 27,185 Deferred lease revenue................................................................ 5,681 -- Due to unconsolidated subsidiaries.................................................... 7,609 7,304 Minority interest in Patriot Partnership.............................................. 233,677 174,640 Minority interest in consolidated subsidiaries........................................ 232,644 49,214 Commitments and contingencies Shareholders' equity: Preferred stock, $0.01 par value; authorized: 100,000,000 shares; shares issued and outstanding: 4,860,876 in 1998.................................................... 48 -- 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: 144,957,723 shares in 1998 and 73,276,716 shares in 1997............. 1,450 733 Additional paid in capital.......................................................... 2,724,724 990,821 Receivable from shareholders........................................................ (14,813) -- Unearned stock compensation, net of accumulated amortization of $8,485 in 1998 and $5,825 in 1997.................................................................... (11,398) (13,116) Unrealized foreign exchange gain.................................................... 20 -- Distributions in excess of retained earnings........................................ (79,518) (69,411) ----------- ------------ Total shareholders' equity........................................................ 2,620,513 909,027 ----------- ------------ Total liabilities and shareholders' equity........................................ $6,775,479 $2,321,105 ----------- ------------ ----------- ------------
See notes to condensed financial statements. 6 PATRIOT AMERICAN HOSPITALITY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1998 1997 1998 1997 ---------- --------- ---------- --------- Revenue: Lease revenue.................................................... $ 135,002 $ 36,973 $ 244,651 $ 71,986 Interest and other income........................................ 5,255 757 8,771 1,132 ---------- --------- ---------- --------- Total revenue.................................................. 140,257 37,730 253,422 73,118 ---------- --------- ---------- --------- Expenses: Real estate and personal property taxes and casualty insurance... 13,301 3,765 25,224 6,966 Ground lease expense............................................. 13,609 338 20,167 683 General and administrative....................................... 4,719 2,299 10,002 5,081 Interest expense................................................. 50,777 9,523 85,027 17,328 Cost of acquiring leaseholds..................................... 4,339 -- 4,339 -- Depreciation and amortization.................................... 41,196 9,510 61,693 18,006 ---------- --------- ---------- --------- Total expenses................................................. 127,941 25,435 206,452 48,064 ---------- --------- ---------- --------- Operating income................................................... 12,316 12,295 46,970 25,054 Equity in earnings of unconsolidated subsidiaries................ 15,656 2,072 19,248 3,093 ---------- --------- ---------- --------- Income before income tax provision, minority interests and extraordinary item............................................... 27,972 14,367 66,218 28,147 Income tax provision............................................. (35) -- (406) -- ---------- --------- ---------- --------- Income before minority interests and extraordinary item............ 27,937 14,367 65,812 28,147 Minority interest in Patriot Partnership......................... (2,140) (2,302) (5,268) (4,534) Minority interest in consolidated subsidiaries................... (1,895) (247) (2,428) (447) ---------- --------- ---------- --------- Income before extraordinary item................................... 23,902 11,818 58,116 23,166 Extraordinary loss from early extinguishment of debt, net of minority interest.............................................. (11,843) -- (30,560) -- ---------- --------- ---------- --------- Net income......................................................... $ 12,059 $ 11,818 $ 27,556 $ 23,166 ---------- --------- ---------- --------- ---------- --------- ---------- --------- Basic earnings per common share: Income before extraordinary item................................. $ 0.18 $ 0.27 $ 0.51 $ 0.54 Extraordinary loss............................................... (0.10) -- (0.28) -- ---------- --------- ---------- --------- Net income per common share...................................... $ 0.08 $ 0.27 $ 0.23 $ 0.54 ---------- --------- ---------- --------- ---------- --------- ---------- --------- Diluted earnings per common share: Income before extraordinary item................................. $ 0.18 $ 0.26 $ 0.49 $ 0.52 Extraordinary loss............................................... (0.09) -- (0.26) -- ---------- --------- ---------- --------- Net income per common share...................................... $ 0.09 $ 0.26 $ 0.23 $ 0.52 ---------- --------- ---------- --------- ---------- --------- ---------- ---------
See notes to condensed financial statements. 7 PATRIOT AMERICAN HOSPITALITY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.............................................................................. $ 27,556 $ 23,166 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.......................................................................... 58,472 17,949 Amortization of unearned stock compensation........................................... 2,660 1,927 Amortization of deferred loan costs................................................... 8,877 770 Amortization of trade names........................................................... 261 -- Amortization of goodwill and other assets............................................. 2,960 129 Cost of acquiring leaseholds.......................................................... 3,000 -- Net payments collected from unconsolidated subsidiaries............................... 7,754 1,674 Issuance of stock for bonuses and directors' fee...................................... 675 -- Equity in earnings of unconsolidated subsidiaries..................................... (19,248) (3,093) Minority interest in income of Patriot Partnership.................................... 5,268 4,534 Minority interest in income of consolidated subsidiaries.............................. 2,428 447 Extraordinary loss from early extinguishment of debt.................................. 30,560 -- Changes in assets and liabilities: Accounts and lease revenue receivable and other assets................................ (49,856) (7,269) Due from Wyndham...................................................................... 1,688 -- Inventory............................................................................. 64 -- Accounts payable and other accrued expenses........................................... 42,061 (1,484) ---------- --------- Net cash provided by operating activities........................................... 125,180 38,750 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of hotel properties and related working capital assets...................... (1,925,156) (242,625) Improvements and additions to hotel properties.......................................... (96,109) (33,636) Cash received upon acquisition of hotel assets.......................................... 9,932 -- Collections on other notes receivable................................................... 4,000 -- Increase in restricted cash accounts.................................................... (3,879) (2,015) Deferred acquisition costs.............................................................. (3,714) (7,744) Investment in unconsolidated subsidiaries............................................... -- (1,574) Investment in mortgage and other notes receivable....................................... (1,305) (30,035) Other................................................................................... 63 -- ---------- --------- Net cash used in investing activities............................................... (2,016,168) (317,629) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line of credit facility, term loans, mortgage notes and capital lease obligations........................................................................... 2,447,542 354,854 Repay borrowings under line of credit facility and other debt........................... (683,662) (13,388) Payment of deferred loan costs.......................................................... (29,704) (7,358) Principal payments on subscription notes payable to Wyndham............................. (12,875) -- Proceeds from issuance of common stock.................................................. 264,663 56 Payment of offering costs............................................................... (3,450) -- Contributions received from minority interest in consolidated subsidiaries.............. 3,768 3,608 Collections on notes receivable from shareholders....................................... 2,999 -- Payments to redeem OP Units............................................................. -- (14,441) Dividends and distributions paid........................................................ (70,636) (44,017) Other................................................................................... (42) (79) ---------- --------- Net cash provided by financing activities........................................... 1,918,603 279,235 ---------- --------- Net increase in cash and cash equivalents................................................. 27,615 356 Cash and cash equivalents at beginning of period.......................................... 15,355 4,146 ---------- --------- Cash and cash equivalents at end of period................................................ $ 42,970 $ 4,502 ---------- --------- ---------- ---------
See notes to condensed financial statements. 8 WYNDHAM INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................................... $ 95,278 $ 27,076 Restricted cash..................................................................... 2,653 -- Accounts receivable................................................................. 207,450 46,340 Notes and other receivables from Patriot............................................ 26,953 12,875 Inventories......................................................................... 24,587 9,144 Prepaid expenses and other current assets........................................... 27,004 5,227 ----------- ------------- Total current assets.............................................................. 383,925 100,662 Investment in real estate and related improvements, net of accumulated depreciation of $20,191 in 1998 and $1,304 in 1997.................................................. 604,239 28,382 Investments in unconsolidated subsidiaries............................................ 69,408 -- Subscription Notes receivable from Patriot............................................ 73,408 -- Notes and other receivables from Patriot.............................................. 24,180 -- Mortgage notes and other receivables.................................................. 25,105 12,983 Management contract costs, net of accumulated amortization of $5,756 in 1998 and $1,574 in 1997...................................................................... 196,174 20,879 Leasehold costs, net of accumulated amortization of $77............................... 18,502 -- Trade names and franchise costs, net of accumulated amortization of $2,802 in 1998 and $122 in 1997........................................................................ 129,130 11,166 Deferred acquisition costs............................................................ 3,650 31,126 Goodwill, net of accumulated amortization of $7,168 in 1998 and $594 in 1997.......... 435,398 38,008 Deferred expenses, net of accumulated amortization of $1,134.......................... 44,831 -- Other assets.......................................................................... 12,136 8,882 ----------- ------------- Total assets...................................................................... $2,020,086 $ 252,088 ----------- ------------- ----------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses............................................... $ 236,189 $ 50,317 Dividends and distributions payable................................................. 142 451 Participating lease payments payable to Patriot..................................... 47,910 9,519 Deposits............................................................................ 21,540 12,423 Notes and other amounts payable to Patriot.......................................... 70,570 42,946 Current portion of mortgage notes and capital lease obligations..................... 25,050 -- ----------- ------------- Total current liabilities......................................................... 401,401 115,656 Subscription Notes payable to Patriot................................................. 133,669 -- Notes and other amounts payable to Patriot............................................ 22,729 -- Mortgage notes payable and capital lease obligations.................................. 212,651 -- Deferred income taxes................................................................. 108,221 9,550 Minority interest in Wyndham Partnership.............................................. 46,533 45,537 Minority interest in consolidated subsidiaries........................................ 892,764 480 Commitments and contingencies......................................................... Shareholders' equity: Preferred stock, $0.01 par value; authorized: 100,000,000 shares; shares issued and outstanding: 3,562,354 in 1998.................................................... 36 -- Excess stock, $0.01 par value; authorized: 750,000,000 shares; no shares issued and outstanding....................................................................... -- -- Common stock, $0.01 par value; authorized: 650,000,000 shares; issued and outstanding: 144,957,723 shares in 1998 and 73,276,716 shares in 1997............. 1,449 733 Additional paid in capital.......................................................... 247,132 80,152 Receivable from shareholders and affiliates......................................... (1,042) -- Unearned executive compensation, net of accumulated amortization of $484............ (4,153) -- Unrealized loss on securities available for sale.................................... (621) -- Unrealized foreign exchange loss.................................................... (10) -- Retained earnings/(deficit)........................................................... (40,673) (20) ----------- ------------- Total shareholders' equity........................................................ 202,118 80,865 ----------- ------------- Total liabilities and shareholders' equity........................................ $2,020,086 $ 252,088 ----------- ------------- ----------- -------------
See notes to condensed financial statements. 9 WYNDHAM INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1998 1998 ------------- ----------- Revenue: Hotel revenue....................................................................... $ 422,010 $ 712,653 Racecourse facility revenue......................................................... 1,942 24,991 Management fee and service fee income............................................... 23,144 37,249 Interest and other income........................................................... 5,151 7,337 ------------- ----------- Total revenue..................................................................... 452,247 782,230 ------------- ----------- Expenses: Hotel expenses...................................................................... 272,111 454,483 Racecourse facility operations...................................................... 2,673 20,857 General and administrative.......................................................... 15,783 27,806 Interest expense.................................................................... 8,099 13,798 Cost of acquiring leaseholds........................................................ 52,723 52,723 Depreciation and amortization....................................................... 10,130 25,236 Lease payments...................................................................... 127,178 216,262 ------------- ----------- Total expenses.................................................................... 488,697 811,165 ------------- ----------- Operating loss........................................................................ (36,450) (28,935) Equity in earnings of unconsolidated subsidiaries................................... 294 2,014 ------------- ----------- Loss before income tax provision and minority interests............................... (36,156) (26,921) Income tax provision................................................................ (897) (4,084) ------------- ----------- Loss before minority interests........................................................ (37,053) (31,005) Minority interest in Wyndham Partnership............................................ 6,641 6,715 Minority interest in consolidated subsidiaries...................................... (13,420) (16,361) ------------- ----------- Net loss.............................................................................. $ (43,832) $ (40,651) ------------- ----------- ------------- ----------- Basic loss per common share........................................................... $ (0.36) $ (0.37) ------------- ----------- ------------- ----------- Diluted loss per common share......................................................... $ (0.36) $ (0.37) ------------- ----------- ------------- -----------
See notes to condensed financial statements. 10 WYNDHAM INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................................................................ $ (40,651) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation.................................................................................. 9,527 Amortization of unearned stock compensation................................................... 484 Amortization of management contracts and trade names.......................................... 7,967 Amortization of goodwill...................................................................... 7,742 Issuance of stock for directors' fees and bonus............................................... 205 Cost of acquiring leaseholds.................................................................. 52,638 Deferred income taxes......................................................................... (1,591) Equity in earnings of unconsolidated subsidiaries............................................. (2,014) Minority interest in income of Wyndham Partnership............................................ (6,715) Minority interest in income of consolidated subsidiaries...................................... 16,361 Changes in assets and liabilities: Accounts receivable and prepaid expenses and other assets..................................... (23,806) Other receivables from Patriot................................................................ (1,688) Inventories................................................................................... (1,235) Accounts payable and other accrued expenses................................................... (13,536) Participating lease payments payable to Patriot............................................... 32,022 --------------- Net cash provided by operating activities................................................. 35,710 --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of hotel properties and related working capital assets.............................. (19,795) Improvements and additions to hotel properties.................................................. (13,693) Increase in restricted cash account............................................................. (223) Acquisition of management contracts............................................................. (10,365) Deferred acquisition costs...................................................................... (24,483) Cash received upon acquisition of hotel leases.................................................. 88,380 Investment in other notes receivable............................................................ (2,244) Collections on other notes receivable........................................................... 118 Investment in unconsolidated subsidiaries....................................................... (1,369) Other........................................................................................... (558) --------------- Net cash provided by investing activities................................................. 15,768 --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of assumed debt....................................................................... (612,742) Payment of capital lease obligations............................................................ (805) Proceeds from issuance of common stock.......................................................... 12,357 Payment of offering costs....................................................................... (136) Collections on Subscription Notes............................................................... 12,875 Contributions received from minority interest in consolidated subsidiaries...................... 606,476 Distributions paid.............................................................................. (1,301) --------------- Net cash provided by financing activities................................................. 16,724 --------------- Net increase in cash and cash equivalents......................................................... 68,202 Cash and cash equivalents at beginning of period.................................................. 27,076 --------------- Cash and cash equivalents at end of period........................................................ $ 95,278 --------------- ---------------
See notes to condensed financial statements. 11 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION: 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 of 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." In January 1998, as a result of the merger of Wyndham Hotel Corporation with and into Patriot as discussed below, Patriot American Hospitality Operating Company changed its name to "Wyndham International, Inc." and is referred to herein, collectively with its subsidiaries, as "Wyndham." The term "Companies" as used herein includes Patriot, Wyndham and their respective subsidiaries. Patriot and Wyndham 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 commenced its operations concurrent with the closing of the Cal Jockey Merger on July 1, 1997. The shares of common stock of Patriot are paired and trade together with the shares of common stock of Wyndham as a single unit pursuant to a stock pairing arrangement. These units, consisting of one share of common stock of Patriot paired with one share of common stock of Wyndham, are referred to herein as "Paired Shares." The term "Patriot Companies" as used herein includes Patriot, Wyndham and their respective subsidiaries. A substantial portion of the assets of Patriot are held by Patriot American Hospitality Partnership, L.P. (the "Patriot Partnership"). Patriot contributed such assets to the Patriot Partnership in exchange for units of limited partnership interest ("OP Units") of the Patriot Partnership. In addition, a substantial portion of the assets of Wyndham are held by Wyndham International Operating Partnership, L.P. (the "Wyndham Partnership," formerly known as Patriot American Hospitality Operating Partnership, L.P.). Wyndham contributed such assets to the Wyndham Partnership in exchange for OP Units of the Wyndham Partnership. Collectively, the Wyndham Partnership and the Patriot Partnership are referred to herein as the "Operating Partnerships." Patriot, through its wholly owned subsidiary, PAH GP, Inc., is the sole general partner and the holder of a 1.0% general partnership interest in the Patriot Partnership. In addition, Patriot, through its wholly owned subsidiary, PAH LP, Inc., owns an approximate 88.7% limited partnership interest in the Patriot Partnership as of June 30, 1998. Wyndham owns a 1.0% general partnership interest and an approximate 87.6% limited partnership interest in the Wyndham Partnership. 12 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION: (CONTINUED) At June 30, 1998, Patriot and Wyndham, through the Operating Partnerships and other subsidiaries, owned interests in 183 hotels with an aggregate of over 44,300 guest rooms and leased 122 hotels from third parties with over 15,700 rooms. In addition, Wyndham manages 174 hotels with over 42,700 guest rooms and franchises 9 hotels with over 2,300 rooms. Patriot leases 214 of its hotels to Wyndham and 14 of Patriot's hotels are leased to third party lessees (the "Lessees") who are responsible for operating the hotels. Generally, these leases provide for the payment of the greater of base or participating rent, plus certain additional charges, as applicable (the "Participating Leases"). The Lessees, in turn, have entered into separate agreements with hotel management entities (the "Operators") to manage the hotels. Seventy-seven of the Companies' hotels are owned by special purpose entities (the "Non-Controlled Subsidiaries"). Patriot owns approximately a 99% non-voting interest and Wyndham owns approximately a 1% controlling voting interest in each of the Non-Controlled Subsidiaries. Therefore, the operating results of the Non-Controlled Subsidiaries are combined with those of Wyndham for financial reporting purposes. Patriot accounts for its investment in the Non-Controlled Subsidiaries using the equity method of accounting. PRINCIPLES OF CONSOLIDATION The unaudited separate consolidated financial statements include the accounts of Patriot and Wyndham, their respective wholly owned subsidiaries and the partnerships, corporations and limited liability companies in which Patriot or Wyndham owns a controlling interest. The unaudited separate consolidated financial statements of Patriot and Wyndham have also been combined for purposes of financial statement presentation. All significant intercompany accounts and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in Patriot's and Wyndham's Joint Annual Report on Form 10-K for the year ended December 31, 1997. Certain prior year amounts have been reclassified to conform to current period presentation. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130 ("Statement 130"), "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components. The Companies have adopted Statement 130 beginning with their interim financial statements for the first quarter of 1998. Management believes that they do not have material items that would require presentation in a separate statement of comprehensive income. 13 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION: (CONTINUED) BUSINESS SEGMENTS In June 1997, FASB issued Statement of Financial Accounting Standards No. 131 ("Statement 131"), "Disclosures About Segments of an Enterprise and Related Information" which specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. Statement 131 is effective for fiscal years beginning after December 15, 1997, but need not be applied to interim financial statements in the initial year of its application. Management believes this statement will result in expanded disclosure for the financial statements. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, FASB issued Statement of Financial Accounting Standards No. 133 ("Statement 133"), "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. The Companies expect to adopt Statement 133 effective January 1, 2000. Statement 133 will require the Companies to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Management has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Companies. PARTICIPATING LEASE REVENUE RECOGNITION In May 1998, the Financial Accounting Standards Board's Emerging Issues Task Force issued EITF number 98-9, "Accounting for Contingent Rent in Interim Financial Periods ("EITF 98-9"). EITF 98-9 provides that a lessor shall defer recognition of contingent rental income in interim periods until specified targets that trigger the contingent income are met. Management has reviewed the terms of its Participating Leases and has determined that the provisions of EITF 98-9 will impact Patriot's current revenue recognition on an interim basis, but will have no impact on Patriot's annual participating rent revenue or interim cash flow from its Participating Leases. Patriot has adopted the provisions of EITF 98-9 and elected to apply the provisions of the new pronouncement on a prospective basis. Generally, Patriot's Participating Leases provide for the payment of the greater of (i) a fixed base rent or (ii) participating rent, based on the revenue of the hotels, plus certain additional charges, as applicable. The Participating Leases contain annual revenue thresholds used to calculate the various tiers of participating rent which are prorated on a monthly basis to determine monthly participating rent payments. The provisions of EITF 98-9 call for straight-line recognition of the annual base rent throughout the year and for the deferral of any additional lease amounts collected or due from the Lessees until such amounts exceed the annual revenue thresholds. This will generally result in base rent being recognized in the first and second quarters and participating rents already collected or due from the Lessees being deferred and then recognized in the third and fourth quarters due to the structure of Patriot's Participating Leases and 14 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION: (CONTINUED) the seasonality of the hotel operations. The effect of the change was to defer recognition of $5,681 of lease revenue during the quarter ended June 30, 1998. 2. HOTELS AND OTHER BUSINESSES ACQUIRED: HOTEL INVESTMENTS PURCHASED During the first half of 1998, Patriot, through the Patriot Partnership and its subsidiaries, invested approximately $234,116 in the acquisition of four hotels with a total of over 1,700 guest rooms and the Golden Door Spa. These acquisitions were financed primarily with funds drawn on Patriot's revolving credit facility, the issuance of 53,989 OP Units of the Operating Partnerships valued at approximately $1,496, the issuance of 390,335 Paired Shares valued at approximately $10,000 and the assumption of mortgage debt in the amount of approximately $80,074. In addition, Patriot acquired an office building that will be converted into a hotel for approximately $33,900. BUSINESS COMBINATIONS WYNDHAM HOTEL CORPORATION--On January 5, 1998, Wyndham Hotel Corporation ("Old Wyndham") merged with and into Patriot, with Patriot being the surviving corporation (the "Wyndham Merger"). Patriot, as a result of the Wyndham Merger, acquired ownership of ten Wyndham hotels and 14 ClubHouse hotels and leased such hotels to Wyndham. Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham. Old Wyndham's remaining 52 management and franchise contracts (excluding 16 hotels that Old Wyndham managed that are owned by Patriot), the Wyndham and ClubHouse proprietary brand names, and the Wyndham hotel management company were transferred to certain of the Non-Controlled Subsidiaries The total purchase consideration for the Wyndham Merger of approximately $982,000 consisted of 21,594,137 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 Old Wyndham shareholders who elected to receive cash (which was financed with funds drawn on Patriot's revolving credit facility) and the assumption of approximately $59,063 in debt. In April 1998, the Companies issued an aggregate 240,437 Paired Shares valued at approximately $5,347 in settlement of certain purchase price adjustment arrangements related to Old Wyndham's acquisition of ClubHouse Hotels, Inc. WHG CASINOS & RESORTS, INC. AND RELATED TRANSACTIONS--On January 16, 1998, a subsidiary of Wyndham merged with and into WHG Casinos & Resorts Inc. ("WHG"), with WHG being the surviving corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns the 751-room El Conquistador Resort & Country Club (the "El Conquistador"), all of which are located in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams Hospitality Group, Inc., the management company for the three hotels and the Las Casitas Village at the El Conquistador. A total of 5,004,690 Paired Shares were issued in connection with 15 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 2. HOTELS AND OTHER BUSINESSES ACQUIRED: (CONTINUED) the WHG Merger and approximately $21,300 of debt was assumed, resulting in total purchase consideration of approximately $159,400. Effective March 1, 1998, Patriot acquired from unaffiliated third parties a 40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity interest in the El Conquistador and a 38% interest in Williams Hospitality Group, Inc. for approximately $31,000 in cash and issuance of 1,818,182 Paired Shares valued at approximately $49,227 (collectively, these transactions and the WHG Merger are referred to herein as the "WHG Transactions"). Wyndham owns the controlling general partner interest in the partnerships that own the El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds voting control of Williams Hospitality Group, Inc. Therefore, the operating results of these entities have been consolidated with those of Wyndham for financial reporting purposes. As a result, approximately $188,922 of debt related to the partnerships that own the El San Juan Hotel & Casino and the El Conquistador has also been reflected in Wyndham's consolidated balance sheet. Patriot accounts for its investment in these entities using the equity method of accounting. ARCADIAN INTERNATIONAL LIMITED--On April 6, 1998, Patriot announced the completion of its acquisition of all of the issued and to-be-issued shares of Arcadian International Limited ("Arcadian," formerly known as Arcadian International Plc) for 60 pence per share. Including the exercise of all outstanding options to purchase shares, the assumption of debt and the acquisition of the remaining shares in the Malmaison Group, the total transaction cost was approximately L185,900 (approximately $308,700 U.S. based on exchange rates at the time of closing). As a result of the transaction, Patriot acquired ten owned hotels located throughout England; one owned hotel in Jersey; five owned and managed Malmaison Hotels; two resorts under development in Tuscany, Italy and Paris, France; and the proprietary Malmaison brand name. Patriot also acquired Arcadian's 50% partnership interest in the redevelopment of the luxury Great Eastern Hotel in London, to be branded as a flagship Wyndham Hotel and operated by Wyndham once the development has been completed. Collectively, the transactions described above are referred to herein as the "Arcadian Acquisition." In connection with the Arcadian Acquisition, Patriot entered into a short-term financing agreement on April 15, 1998 with Paine Webber Real Estate Securities, Inc. ("Paine Webber Real Estate") whereby Paine Webber Real Estate loaned Patriot $160,000 through April 15, 1999, at a rate equal to the borrowing rate on Patriot's Revolving Credit Facility. In addition, Patriot assumed approximately $112,600 of debt in connection with the Arcadian Acquisition. INTERSTATE HOTELS COMPANY--On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of December 2, 1997, as thereafter amended, (the "Interstate Merger Agreement") between Patriot, Wyndham and Interstate Hotels Company ("Interstate"), Interstate merged with and into Patriot with Patriot being the surviving company (the "Interstate Merger"). Pursuant to the Interstate Merger Agreement, stockholders of Interstate could elect to convert each of their shares of Interstate common stock into the right to receive either (i) $37.50 in cash (the "Cash Consideration"), subject to proration in certain circumstances, or (ii) a number of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for each share of Interstate common stock not exchanged for cash (the "Interstate Exchange Ratio"). 16 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 2. HOTELS AND OTHER BUSINESSES ACQUIRED: (CONTINUED) As a result of the Interstate Merger, Patriot acquired controlling interest in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84 hotels representing over 10,100 rooms and management or service agreements for 82 hotels representing over 20,400 rooms located throughout the United States and in Canada, the Caribbean and Russia. The total purchase consideration for the Interstate Merger of approximately $2,086,812 consisted of 28,825,875 Paired Shares, cash of approximately $525,385 to pay Interstate shareholders who elected to receive cash, approximately $787,117 in debt assumed or refinanced by Patriot and approximately $73,351 to pay other transaction-related costs. In addition, Interstate shareholders received rights to receive a cash distribution of $0.429 on each share of Interstate common stock that was converted into Paired Shares, aggregating approximately $9,138. On May 27, 1998, the Companies and Interstate entered into a settlement agreement (the "Settlement Agreement") with Marriott International, Inc. ("Marriott") which addressed certain claims asserted by Marriott in connection with Patriot's then-proposed merger with Interstate. The Settlement Agreement provided for the dismissal of litigation brought by Marriott and allowed Patriot's merger with Interstate to close on June 2, 1998. In addition to dismissal of the Marriott litigation, the Settlement Agreement provides for three principal transactions: (i) the re-branding of ten Marriott hotels formerly under the Wyndham name, (ii) the assumption by Marriott of the management of ten Marriott hotels formerly managed by Interstate for the remaining term of the Marriott franchise agreement, and (iii) the divestiture by the Companies by November 30, 1998 (subject to extension upon payment of certain fees by the Companies) of the third-party management business that was operated by Interstate (the "Spin-off"). SF HOTEL COMPANY, L.P.--On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of the partnership interests in SF Hotel Company, L.P. ("Summerfield") for approximately $298,915 (the "Summerfield Acquisition"). The total purchase consideration for the Summerfield Acquisition consisted of approximately 3,223,795 OP Units of the Operating Partnerships, 1,397,281 Paired Shares, cash of approximately $165,514 and assumption of debt in the amount of approximately $17,083. In addition, the purchase price is subject to future adjustment based on (i) the market price of the Paired Shares through the end of 1998 and (ii) achievement of certain performance criteria through 2001 for seven hotels that are currently under development. As a result of the Summerfield Acquisition, Patriot acquired four Summerfield Suites-Registered Trademark- hotels, leasehold and management interests in 24 Summerfield Suites-Registered Trademark-, Sierra Suites-Registered Trademark- and Sunrise Suites hotels and management contracts and franchise interests for 12 additional Summerfield Suites-Registered Trademark- and Sierra Suites-Registered Trademark- hotels. Patriot has leased or sub-leased such hotels to Wyndham. In addition, Patriot acquired the development contracts for several additional hotels. CHC INTERNATIONAL--On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger Agreement") between Patriot, Wyndham and CHC International ("CHCI"), the hospitality-related businesses of CHCI merged with and into Wyndham with Wyndham being the surviving company (the "CHCI Merger"). CHCI's gaming operations were transferred to a new legal entity prior to the CHCI Merger and such operations were not a part of the transaction. As a result of the CHCI Merger, Wyndham, through its subsidiaries, acquired the remaining 50% investment interest in 17 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 2. HOTELS AND OTHER BUSINESSES ACQUIRED: (CONTINUED) GAH-II, L.P. ("GAH"), the remaining 17 leases and 16 of the associated management contracts related to the Patriot hotels leased by CHC Lease Partners, 8 third-party management contracts, two third-party asset management contracts, the Grand Bay proprietary brand name and certain other hospitality management assets. The aggregate purchase price of the 17 leasehold interests was approximately $52,723, which is reflected as a cost of acquiring leaseholds in the accompanying statements of operations of Wyndham. By operation of the CHCI Merger, all the issued and outstanding shares of common stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain stock option rights were exchanged for an aggregate of 1,781,173 shares of Series A Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham (the "Wyndham Series A Preferred Stock") and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par value $0.01 per share, of Wyndham (the "Wyndham Series B Preferred Stock"). In addition, Wyndham assumed CHCI's outstanding debt in the amount of approximately $16,600. In addition, on September 30, 2000 and September 30, 2002, Wyndham may be obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be obligated to pay a Gencom-related entity additional consideration, in each case based upon the performance of certain specified assets. OTHER During the second quarter of 1998, Patriot re-acquired the leasehold interests for three of its hotels from two of the Lessees for an aggregate purchase price of approximately $4,339, which is reflected as a cost of acquiring leaseholds in the accompanying statements of operations of Patriot. The Companies issued 118,112 Paired Shares valued at $3,000 and paid cash of $637 to Metro Hotels Leasing Corporation and paid cash of $702 to NorthCoast Hotels, L.L.C. in connection with the transaction. Patriot has leased the hotels to Wyndham. 3. SUBSCRIPTION NOTES: In order to effect the issuance of the paired shares of common stock and OP Units which were issued in connection with certain of the Companies' mergers and other acquisition transactions, Patriot and Wyndham have issued promissory notes to fund issuance of Paired Shares and OP Units (the "Subscription Notes"). In connection with the issuance of Paired Shares in the Wyndham Merger, Patriot issued Subscription Notes payable to Wyndham in the aggregate amount of $30,535. These Subscription Notes bear interest at a rate of LIBOR plus 1% per annum and mature January 31, 2001. In connection with the issuance of Paired Shares in the WHG Merger, Wyndham issued Subscription Notes payable to Patriot in the aggregate amount of $133,669. These Subscription Notes bear interest at a rate of 8.7% per annum and mature in January 2001. In connection with the issuance of Paired Shares and OP Units of the Operating Partnerships in the Summerfield Acquisition, Patriot issued Subscription Notes payable to Wyndham in the aggregate amount of $5,816. These Subscription Notes bear interest at a rate of 8.7% per annum and mature in January 2001. 18 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 3. SUBSCRIPTION NOTES: (CONTINUED) In connection with the issuance of Paired Shares in the Interstate Merger, Patriot issued Subscription Notes payable to Wyndham in the aggregate amount of $34,591. These Subscription Notes bear interest at a rate of 8.7% per annum and mature in January 2001. 4. REVOLVING CREDIT FACILITY, TERM LOANS AND OTHER MORTGAGE DEBT: In connection with the Interstate Merger, the Companies closed on the commitment from The Chase Manhattan Bank and Chase Securities, Inc. and PaineWebber Real Estate Securities, Inc. to increase Patriot's existing credit facilities to an aggregate of $2,700,000 (an increase of $1,450,000 from the prior $1,250,000 credit package). The increased credit facilities include the $900,000 Revolving Credit Facility and a series of term loans in the aggregate amount of up to $1,800,000 (the "Term Loans"). Proceeds from the increased credit facilities were used to fund the cash portion of the Interstate Merger consideration, as well as to refinance certain outstanding indebtedness of the Patriot Companies. In addition, the increased credit facilities will be used to fund future acquisitions and for general working capital purposes. Interest rates will be based on the Companies' leverage ratio and may vary from 1.5% to 2.5% over LIBOR. Patriot incurred approximately $27,405 in loan fees and other expenses associated with this financing arrangement. The Companies entered into a fourth interest rate swap arrangement during the first quarter of 1998 to swap floating rate LIBOR-based interest rates for a fixed rate interest amount as a hedge against $125,000 of the outstanding balance on the Companies' revolving credit facility. The interest rate swap fixes the LIBOR portion of the revolving credit facility interest rate at 5.5575% per annum through 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. In June 1998, the Companies entered into a fifth interest rate swap arrangement as a hedge against $250,000 of the outstanding balance on the Companies' variable rate debt. The interest rate swap provides for a fixed LIBOR rate of 5.8425% per annum through June 2003. 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. Additionally, in connection with the Interstate Merger, Patriot assumed four interest rate hedge contracts: an interest rate cap that limits LIBOR to 6% on up to $105,000 of indebtedness through June 1999; an interest rate cap that limits LIBOR to 6% on up to $222,100 of indebtedness through October 1998; an interest rate cap that limits LIBOR to 7% on up to $208,750 of indebtedness from October 1998 through October 1999; and an interest rate swap that provides for a fixed LIBOR rate of 5.8% on $72,000 of indebtedness through December 2000. 19 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 5. COMPUTATION OF EARNINGS PER SHARE: Basic and diluted earnings per share have been computed as follows: COMBINED
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1998 JUNE 30, 1997 ---------------------- -------------------- BASIC DILUTED BASIC DILUTED ---------- ---------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income (loss) before extraordinary item............................. $ (14,411) $ (14,411) $ 11,818 $ 11,818 Preferred stock dividends........................................... (1,555) (1,555) -- -- ---------- ---------- --------- --------- Income (loss) available to common stockholders...................... (15,966) (15,966) 11,818 11,818 Extraordinary loss.................................................. (11,843) (11,843) -- -- ---------- ---------- --------- --------- Net income (loss) available to common stockholders.................. $ (27,809) $ (27,809) $ 11,818 $ 11,818 ---------- ---------- --------- --------- ---------- ---------- --------- --------- Weighted average number of Paired Shares outstanding................ 122,745 122,745 43,323 43,323 ---------- --------- ---------- --------- Dilutive securities: Effect of unvested stock grants................................... -- 927 Dilutive options to purchase Paired Shares........................ -- 720 Dilutive effect of price adjustment arrangements.................. -- -- Dilutive convertible preferred shares............................. -- -- ---------- --------- 122,745 44,970 ---------- --------- ---------- --------- Earnings per Paired Share: Income (loss) before extraordinary item........................... $ (0.13) $ (0.13) $ 0.27 $ 0.26 Extraordinary loss................................................ (0.10) (0.10) -- -- ---------- ---------- --------- --------- Net income (loss)................................................. $ (0.23) $ (0.23) $ 0.27 $ 0.26 ---------- ---------- --------- --------- ---------- ---------- --------- ---------
20 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 5. COMPUTATION OF EARNINGS PER SHARE: (CONTINUED) COMBINED (CONTINUED)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1997 -------------------- -------------------- BASIC DILUTED BASIC DILUTED --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income before extraordinary item...................................... $ 22,718 $ 22,718 $ 23,166 $ 23,166 Preferred stock dividends............................................. (1,555) -- -- -- --------- --------- --------- --------- Income available to common stockholders............................... 21,163 22,718 23,166 23,166 Extraordinary loss.................................................... (30,560) (30,560) -- -- --------- --------- --------- --------- Net income (loss) available to common stockholders.................... $ (9,397) $ (7,842) $ 23,166 $ 23,166 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of Paired Shares outstanding.................. 111,182 111,182 43,256 43,256 --------- --------- --------- --------- Dilutive securities: Effect of unvested stock grants..................................... 888 742 Dilutive options to purchase Paired Shares.......................... 1,688 769 Dilutive effect of price adjustment arrangements.................... 279 -- Dilutive convertible preferred shares............................... 4,746 -- --------- --------- 118,783 44,767 --------- --------- --------- --------- Earnings per Paired Share: Income before extraordinary item.................................... $ 0.19 $ 0.19 $ 0.54 $ 0.52 Extraordinary loss.................................................. (0.27) (0.26) -- -- --------- --------- --------- --------- Net income (loss)................................................... $ (0.08) $ (0.07) $ 0.54 $ 0.52 --------- --------- --------- --------- --------- --------- --------- ---------
21 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 5. COMPUTATION OF EARNINGS PER SHARE: (CONTINUED) PATRIOT
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1998 JUNE 30, 1997 -------------------- -------------------- BASIC DILUTED BASIC DILUTED --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income before extraordinary item...................................... $ 23,902 $ 23,902 $ 11,818 $ 11,818 Preferred stock dividends............................................. (1,555) -- -- -- --------- --------- --------- --------- Income available to common stockholders............................... 22,347 23,902 11,818 11,818 Extraordinary loss.................................................... (11,843) (11,843) -- -- --------- --------- --------- --------- Net income available to common stockholders........................... $ 10,504 $ 12,059 $ 11,818 $ 11,818 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of common shares outstanding.................. 122,745 122,745 43,323 43,323 --------- --------- --------- --------- Dilutive securities: Effect of unvested stock grants..................................... 849 927 Dilutive options to purchase common shares.......................... 1,368 720 Dilutive effect of price adjustment arrangements.................... 555 -- Dilutive convertible preferred shares............................... 4,900 -- --------- --------- 130,417 44,970 --------- --------- --------- --------- Earnings per share: Income before extraordinary item.................................... $ 0.18 $ 0.18 $ 0.27 $ 0.26 Extraordinary loss.................................................. (0.10) (0.09) -- -- --------- --------- --------- --------- Net income.......................................................... $ 0.08 $ 0.09 $ 0.27 $ 0.26 --------- --------- --------- --------- --------- --------- --------- ---------
22 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 5. COMPUTATION OF EARNINGS PER SHARE: (CONTINUED) PATRIOT (CONTINUED)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1997 -------------------- -------------------- BASIC DILUTED BASIC DILUTED --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income before extraordinary item...................................... $ 58,116 $ 58,116 $ 23,166 $ 23,166 Preferred stock dividends............................................. (1,555) -- -- -- --------- --------- --------- --------- Income available to common stockholders............................... 56,561 58,116 23,166 23,166 Extraordinary loss.................................................... (30,560) (30,560) -- -- --------- --------- --------- --------- Net income available to common stockholders........................... $ 26,001 $ 27,556 $ 23,166 $ 23,166 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average number of common shares outstanding.................. 111,182 111,182 43,256 43,256 --------- --------- --------- --------- Dilutive securities: Effect of unvested stock grants..................................... 888 742 Dilutive options to purchase common shares.......................... 1,688 769 Dilutive effect of price adjustment arrangements.................... 279 -- Dilutive convertible preferred shares............................... 4,746 -- --------- --------- 118,783 44,767 --------- --------- --------- --------- Earnings per share: Income before extraordinary item.................................... $ 0.51 $ 0.49 $ 0.54 $ 0.52 Extraordinary loss.................................................. (0.28) (0.26) -- -- --------- --------- --------- --------- Net income.......................................................... $ 0.23 $ 0.23 $ 0.54 $ 0.52 --------- --------- --------- --------- --------- --------- --------- ---------
23 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 5. COMPUTATION OF EARNINGS PER SHARE: (CONTINUED) WYNDHAM
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 JUNE 30, 1998 ---------------------- ---------------------- BASIC DILUTED BASIC DILUTED ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net loss.......................................................... $ (43,832) $ (43,832) $ (40,651) $ (40,651) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of common shares outstanding.............. 122,745 122,745 111,182 111,182 ---------- ---------- ---------- ---------- Dilutive securities: Effect of unvested stock grants................................. -- -- Dilutive options to purchase common shares...................... -- -- Dilutive effect of price adjustment arrangements................ -- -- Dilutive convertible preferred shares........................... -- -- ---------- ---------- 122,745 111,182 ---------- ---------- ---------- ---------- Net loss per share.............................................. $ (0.36) $ (0.36) $ (0.37) $ (0.37) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6. COMMITMENTS AND CONTINGENCIES: The Companies have entered into transactions with three counterparties involving the sale of an aggregate of 13,300,000 shares of Paired Common Stock, with related purchase price adjustment mechanisms ("Price Adjustment Mechanisms"), as described below. NMS TRANSACTION. On February 26, 1998, the Companies entered into transactions with NMS Services, Inc., a subsidiary of NationsBank Corporation (together with its successor, NationsBanc Mortgage Capital Corporation, "NMS"). Pursuant to the terms of a Purchase Agreement dated as of February 26, 1998 (the "NMS Purchase Agreement"), NMS purchased 4,900,000 shares of Paired Common Stock (the "Initial NMS Shares") from the Companies at a purchase price of $24.8625 per share (which reflected a 2.5% discount from $25.50, the last reported sale price of the Paired Common Stock on February 25, 1998) for net proceeds of approximately $121,800. In connection with the issuance of the Initial NMS Shares, the Companies entered into a Purchase Price Adjustment Mechanism, dated as of February 26, 1998, with NMS (as amended on August 14, 1998, effective February 26, 1998, the "NMS Price Adjustment Mechanism"). Pursuant to the NMS Price Adjustment Mechanism, the Companies have agreed to purchase on or before February 25, 1999, in one or more transactions (each an "NMS Settlement"), from NMS a number of shares of Paired Common Stock equal to the number of Initial NMS Shares, at a per paired share price equal to $25.50 plus a forward accretion representing an imputed return at LIBOR plus 150 basis points, minus an adjustment to reflect distributions on shares of the Paired Common Stock (the "NMS Forward Price"). The forward accretion component represents a guaranteed rate of return to NMS. The shares of Paired Common Stock to be 24 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 6. COMMITMENTS AND CONTINGENCIES: (CONTINUED) delivered to or by NMS may consist of shares of Paired Common Stock acquired under the NMS Purchase Agreement or otherwise. The Companies may effect an NMS Settlement by (i) delivering to NMS shares of Paired Common Stock (the "NMS Settlement Shares") equal in value (valued at the dollar volume weighted average price for shares of the Paired Common Stock (as calculated pursuant to the NMS Price Adjustment Mechanism) over a specific period of time (the "NMS Unwind Price")) to the NMS Forward Price at the time of such NMS Settlement times the number of shares subject to such NMS Settlement (the "NMS Settlement Amount") in exchange for such number of shares of Paired Common Stock, (ii) delivering to (or, in the event the NMS Unwind Price is greater than the NMS Forward Price, receiving from) NMS a number of shares of Paired Common Stock equal to the difference between the number of NMS Settlement Shares and the number of shares subject to such NMS Settlement, or (iii) delivering to NMS cash equal to the NMS Settlement Amount in exchange for a number of shares of Paired Common Stock equal to the number of shares subject to such NMS Settlement. If the Companies pay a settlement price in shares of Paired Common Stock, they must also pay a placement fee equal to 2% of the NMS Settlement Amount. The NMS Price Adjustment Mechanism provides that shares may be delivered in settlement only if (i) the Companies have on file with the Securities and Exchange Commission ("SEC") an effective registration statement covering the resale by NMS of the shares to be delivered, (ii) the NMS Unwind Price on the date of such settlement is greater than or equal to $20.00 and (iii) no Mandatory NMS Unwind Event (as defined below) has occurred and is continuing. If such conditions are not met, the Companies generally must deliver cash equal to the NMS Settlement Amount. Under the NMS Price Adjustment Mechanism, on November 26, 1998 (the "NMS Interim Settlement Date"), if the dollar volume weighted average price for shares of the Paired Common Stock on the trading day immediately preceding the Interim Settlement Date (the "NMS Reset Price") is lower than the NMS Forward Price calculated as of the NMS Interim Settlement Date, the Companies must deliver to NMS a number of shares of Paired Common Stock (the "NMS Interim Settlement Shares") equal in value (valued at the NMS Reset Price) to the product of (i) the difference between the NMS Forward Price and the NMS Reset Price times (ii) the number of the shares subject to the NMS Price Adjustment Mechanism (the "NMS Interim Settlement Amount"). If NMS Interim Settlement Shares are delivered by the Companies to NMS (other than as collateral), then (i) the Companies must pay a placement fee equal to 2% of the product of the NMS Unwind Price and the number of shares so delivered, and (ii) the NMS Forward Price will be reduced by the quotient of (A) the NMS Unwind Price times the number of the NMS Interim Settlement Shares, divided by (B) the number of the shares of Paired Common Stock then subject to the Price Adjustment Mechanism. The NMS Price Adjustment Mechanism provides that NMS Interim Settlement Shares may be delivered only if the Companies have an effective registration statement on file with the SEC covering the resale by NMS of the shares to be so delivered. If an effective registration statement is not on file, the Companies must instead deliver cash collateral equal to the NMS Interim Settlement Amount. In connection with the amendment to the NMS Price Adjustment Mechanism, the Companies delivered 2,375,000 shares of Paired Common Stock as collateral to NMS. The Companies previously delivered $179 as collateral to NMS. 25 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 6. COMMITMENTS AND CONTINGENCIES: (CONTINUED) On or after October 15, 1998, if the dollar volume weighted average price of the Paired Common Stock for any two consecutive trading days does not equal or exceed certain amounts (the "NMS Unwind Thresholds"), NMS has the right to force a partial or complete settlement under the NMS Price Adjustment Mechanism. The NMS Unwind Thresholds are $20.00 (33% settlement), $18.75 (67%) and $17.25 (100%). Moreover, NMS has the right to force a complete settlement under the NMS Price Adjustment Mechanism upon the occurrence of any of the following (each a "Mandatory NMS Unwind Event"): (i) default of the Companies with respect to certain indebtedness, (ii) declaration by the Companies of bankruptcy or insolvency or failure to post sufficient cash collateral, (iii) failure of the Companies to have caused a registration statement covering the resale of the shares of Paired Common Stock received by NMS under the NMS Purchase Agreement and NMS Price Adjustment Mechanism to become effective on or before October 15, 1998, or (iv) the sale or refinancing by the Companies of certain properties in which the net proceeds of such sale or refinancing (up to the amount necessary to effect a complete cash settlement) are not applied to a cash settlement under the NMS Price Adjustment Mechanism. Finally, the NMS Price Adjustment Mechanism provides that, upon the consummation of the sale or refinancing of certain properties by the Companies with a third party, the Companies must apply the net proceeds to the extent necessary to effect a complete cash settlement under the NMS Price Adjustment Mechanism. The Companies have agreed to use all commercially reasonable efforts to effect such sale or refinancing. PAINEWEBBER TRANSACTION. On April 6, 1998, the Companies entered into transactions with PaineWebber Incorporated ("PaineWebber") and PaineWebber Financial Products, Inc. ("PWFS" and, together with PaineWebber, the "PaineWebber Parties"). Pursuant to the terms of a Purchase Agreement dated as of April 6, 1998 (the "PaineWebber Purchase Agreement"), PaineWebber purchased 5,150,000 shares of Paired Common Stock (the "Initial PaineWebber Shares") from the Companies at a purchase price of $27.01125 per share, which reflected a 2% discount to the last reported sale price of the Paired Common Stock on April 3, 1998, for net proceeds of approximately $139,100. In connection with the issuance of the Initial PaineWebber Shares, the Companies entered into a Purchase Price Adjustment Mechanism Agreement, dated as of April 6, 1998, with PWFS (as amended on August 14, 1998, the "PaineWebber Price Adjustment Agreement"). Pursuant to the PaineWebber Price Adjustment Agreement, before October 15, 1998, PWFS may agree with the Companies at any time (or, on any of June 30, 1998 or September 30, 1998 (each a "PW Reset Date"), the Companies may cause PWFS) to sell some or all of the Initial PaineWebber Shares through one or more specified methods (in each case a "PW Settlement"). At each PW Settlement, the purchase price of the Initial PaineWebber Shares subject to the PW Settlement is adjusted based upon the difference between (i) the proceeds (net of a negotiated resale spread or underwriting discount) received by PWFS from the sale of the shares of Paired Common Stock and (ii) a reference price (the "Reference Price") equal to the closing price for a share of Paired Common Stock on April 3, 1998 plus a forward accretion reflecting an imputed return at LIBOR plus 140 basis points, minus an adjustment to reflect distributions on the Initial PaineWebber Shares prior to the date of such PW Settlement (such difference, the "PW Price Difference"). If the PW Price Difference is positive, PWFS is obligated to deliver shares of Paired Common Stock or cash to the Companies equal in value to the aggregate PW Price Difference. If the PW Price Difference is negative, 26 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 6. COMMITMENTS AND CONTINGENCIES: (CONTINUED) the Companies are obligated to deliver additional shares of Paired Common Stock equal in value (net of a negotiated resale spread or underwriting discount, as the case may be) to the aggregate PW Price Difference to PWFS. The PaineWebber Price Adjustment Agreement provides that shares may be delivered in settlement only if the Companies have on file with the SEC an effective registration statement covering the resale by PWFS of the shares to be delivered. In addition, within five business days following a PW Settlement or each PW Reset Date, if the Reference Price times the number of shares subject to the PaineWebber Price Adjustment exceeds the product of the closing price of the Paired Common Stock as of such relevant date times the number of shares subject to the PaineWebber Price Adjustment Agreement by more than $5,000 (such excess amount, the "Collateral Amount"), the Companies are required to deliver to PWFS a number of shares of Paired Common Stock (the "Collateral Shares") equal in value (valued at the closing price of the Paired Common Stock on the relevant date) to the Collateral Amount; provided, that if the resale by PWFS of the shares to be so delivered is not covered by an effective registration statement, then the Companies must, at their option, deliver to PWFS, either (i) a number of Collateral Shares equal in value to 125% of the Collateral Amount or (ii) cash collateral equal to the Collateral Amount. The number of Collateral Shares and/or amount of cash collateral held by PWFS will be adjusted every other week. There can be no assurance that a registration statement with respect to any Collateral Shares will be declared and remain effective. On July 8, 1998, the Companies delivered 600,954 shares of Paired Common Stock as Collateral Shares to PWFS. In connection with the Amendment to the PaineWebber Price Adjustment Agreement, the Companies delivered 2,347,218 shares of Paired Common Stock as Collateral Shares to PWFS. If the closing price of the Paired Common Stock on any trading day does not equal or exceed $16.00, PWFS has the right to force a complete settlement under the PaineWebber Price Adjustment Agreement. PWFS also has the right to force a complete settlement under the PaineWebber Price Adjustment Agreement if the Companies (i) are in default with respect to certain specified indebtedness of the Companies, (ii) effect an early settlement, unwind or liquidation of any transaction similar to the transaction with PWFS, or (iii) fail to deliver to PWFS on or before September 30, 1998, an effective registration statement covering the sale of the shares of Paired Common Stock delivered to PWFS. UBS TRANSACTION. On December 31, 1997, the Companies entered into transactions with UBS Limited and Union Bank of Switzerland, London Branch (together with its successor, UBS AG, London Branch, "UBS" and, together with Warburg Dillon Read, LLC, the successor to UBS Limited, the "UBS Parties"). Pursuant to the terms of a Purchase Agreement dated as of December 31, 1997 (the "UBS Purchase Agreement"), UBS Limited purchased 3,250,000 shares of Paired Common Stock (the "Initial UBS Shares") from the Companies at a purchase price of $28.8125 per share (the last reported sale price of the Paired Common Stock on December 30, 1997) for approximately $91,800 in net proceeds. UBS received from the Companies a placement fee of 2%, or approximately $1,900. In connection with the issuance of the Initial UBS Shares, the Companies entered into a Forward Stock Contract, dated as of December 31, 1997, with UBS (as amended on August 14, 1998, the "Forward Stock Contract"). Pursuant to the Forward Stock Contract, the Companies have agreed to purchase on or before October 15, 1998, in one or more transactions (each a "UBS Settlement"), from UBS a number of 27 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 6. COMMITMENTS AND CONTINGENCIES: (CONTINUED) shares of Paired Common Stock equal to the number of Initial UBS Shares, at a per paired share price equal to $28.8125 plus a forward accretion reflecting an imputed return at LIBOR plus 140 basis points, minus an adjustment to reflect distributions on shares of the Paired Common Stock (the "UBS Forward Price"). The forward accretion component represents a guaranteed rate of return to UBS. The shares of Paired Common Stock to be delivered to or by UBS may consist of shares of Paired Common Stock acquired under the UBS Purchase Agreement or otherwise. The Companies may effect a UBS Settlement by (i) delivering to UBS shares of Paired Common Stock (the "UBS Settlement Shares") equal in value (valued at the daily average closing price for shares of the Paired Common Stock over a specific period of time (the "UBS Unwind Price")) to the UBS Forward Price at the time of such UBS Settlement times the number of shares of Paired Common Stock subject to such UBS Settlement (the "UBS Settlement Amount") in exchange for such number of shares, (ii) delivering to (or, in the event the UBS Unwind Price is greater than the UBS Forward Price, receiving from) UBS a number of shares of Paired Common Stock equal to the difference between the number of the UBS Settlement Shares and the number of shares subject to such UBS Settlement, or (iii) delivering to UBS cash equal to the UBS Settlement Amount in exchange for the shares subject to such UBS Settlement. If the Companies make a UBS Settlement in shares of Paired Common Stock, they must also pay to UBS (i) an unwind accretion fee (payable in cash or shares) equal to 50% of the UBS Settlement Amount times the imputed return of LIBOR plus 140 basis points over the period designated for such UBS Settlement and (ii) a placement fee equal to 0.50% of the UBS Settlement Amount. The Forward Stock Contract provides that shares may be delivered in settlement only if the Companies have on file with the SEC an effective registration statement covering the resale by UBS of the shares to be delivered. If an effective registration statement is not on file, the Companies generally must deliver cash equal to the UBS Settlement Amount, except that in the case of a mandatory early settlement (discussed below), the Companies may deliver unregistered shares of Paired Common Stock in an amount necessary to guarantee that UBS will receive the UBS Settlement Amount in private resales of such shares. The Forward Stock Contract provides that on each of March 31, 1998, June 30, 1998 and September 30, 1998 (each a "UBS Interim Settlement Date"), if the closing price for shares of the Paired Common Stock on the trading day immediately preceding such UBS Interim Settlement Date (the "UBS Reset Price") is lower than the UBS Forward Price calculated as of the UBS Interim Settlement Date, the Companies are required to deliver to UBS cash collateral equal to the product of (i) the difference between the UBS Forward Price and the UBS Reset Price, times (ii) the number of shares subject to the Forward Stock Contract (the "UBS Interim Settlement Amount"). With the prior written consent of UBS, the Companies may elect to deliver to UBS a number of shares of Paired Common Stock (the "UBS Interim Settlement Shares") equal in value (valued at the UBS Reset Price) to 125% of the UBS Interim Settlement Amount. The amount of cash collateral or number of shares so held will be adjusted every other week. As of June 30, 1998, the Companies had delivered an aggregate of approximately $6,539 as cash collateral to UBS (as of August 11, 1998, the cash collateral balance with UBS was approximately $35,626). 28 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 6. COMMITMENTS AND CONTINGENCIES: (CONTINUED) If the average closing price of the Paired Common Stock for any two consecutive trading days does not equal or exceed $16.00 (the "UBS Unwind Threshold"), UBS has the right to force a complete settlement under the Forward Stock Contract. UBS also has the right to force a complete settlement under the Forward Stock Contract if the Companies (i) are in default with respect to certain financial covenants under the Forward Stock Contract, (ii) are in default under the Companies' credit facility with Chase Manhattan Bank, (iii) are in default with respect to certain specified indebtedness of the Companies, (iv) declare bankruptcy or become insolvent or fail to post sufficient cash collateral, (v) effect an early settlement, unwind or liquidation of any transaction similar to the transaction with UBS, or (vi) fail to deliver to UBS, on or before September 30, 1998, an effective registration statement covering the sale of the shares of Paired Common Stock delivered to UBS. 7. RELATED PARTY TRANSACTIONS: In connection with the CHCI Merger, Mr. Karim Alibhai, President and Chief Operating Officer of Wyndham, received 156,863 OP Units of the Operating Partnerships valued at approximately $5,000 and entities affiliated with Mr. Alibhai received 85,600 shares of Wyndham Series A Preferred Stock and 85,600 shares of Wyndham Series B Preferred Stock with an aggregate value of approximately $3,980. These units and shares were issued in consideration of Mr. Alibhai's ownership interests in CHCI and its affiliates. In addition, Mr. Sherwood M. Weiser, a director of Wyndham, received 394,397 shares of Wyndham Series A Preferred Stock and 394,398 shares of Wyndham Series B Preferred Stock valued at $18,182 in connection with CHCI Merger as consideration for his ownership interest in CHCI and its affiliates. 8. INCOME TAXES: As a result of the Wyndham Merger, the WHG Merger and the Interstate Merger, Wyndham recorded a deferred tax liability totaling $108,221. The deferred tax liability represents the tax effects of differences between the fair values and the tax bases of identifiable assets acquired and liabilities assumed in connection with the transactions. 9. CASH DIVIDENDS DECLARED: On May 4, 1998, Patriot declared a dividend of $0.32 per share for the first quarter of 1998. The dividend was paid on or about May 29, 1998 to shareholders of record on May 20, 1998. 10. PRO FORMA FINANCIAL INFORMATION: The following unaudited separate and combined pro forma results of operations of Patriot and Wyndham are presented as if the 488 hotels owned, leased, managed or franchised by the Companies as of June 30, 1998, had been acquired on January 1, 1997. Such acquisition transactions include: (i) the Cal Jockey Merger, the Wyndham Merger, the Interstate Merger and the CHCI Merger and the related transactions; (ii) the closing on the commitment for the Revolving Credit Facility and Term Loans; (iii) the acquisition of Grand Heritage Hotels, Inc. and other Grand Heritage subisidiaries; (iv) the Arcadian 29 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 10. PRO FORMA FINANCIAL INFORMATION: (CONTINUED) Acquisition and the Summerfield Acquisition; (v) the WHG Transactions; and (vi) the private placements of equity securities and public offering of the Companies' common stock which occurred during the first half of 1998 and during 1997. The following unaudited pro forma financial information is not necessarily indicative of what actual results of operations of Patriot and Wyndham would have been assuming such transactions had been completed as of January 1, 1997, nor do they purport to represent the results of operations for future periods. PATRIOT AND WYNDHAM COMBINED PRO FORMA RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue................................................................ $ 1,323,360 $ 1,087,741 Net (loss) income (1)........................................................ (10,349) 10,814 Basic earnings per Paired Share.............................................. $ (0.07) $ 0.08 ------------ ------------ ------------ ------------ Diluted earnings per Paired Share............................................ $ (0.07) $ 0.07 ------------ ------------ ------------ ------------ Weighted average number of Paired Shares and Paired Share equivalents outstanding: Basic...................................................................... 137,470 137,470 ------------ ------------ ------------ ------------ Diluted.................................................................... 137,470 148,721 ------------ ------------ ------------ ------------
- ------------------------ (1) Combined pro forma net loss for the six months ended June 30, 1998 includes costs to acquire leaseholds, a non-recurring expense, in the amount of $57,062 that was reported by the Companies. 30 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 10. PRO FORMA FINANCIAL INFORMATION: (CONTINUED) PATRIOT CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue.................................................................. $ 386,052 $ 303,677 Net income(1).................................................................. 50,293 4,298 Basic earnings per share....................................................... $ 0.37 $ 0.03 ---------- ---------- ---------- ---------- Diluted earnings per share..................................................... $ 0.34 $ 0.03 ---------- ---------- ---------- ---------- Weighted average number of common shares and common share equivalents outstanding: Basic........................................................................ 137,470 137,470 ---------- ---------- ---------- ---------- Diluted...................................................................... 148,721 148,721 ---------- ---------- ---------- ----------
- ------------------------ (1) Combined pro forma net loss for the six months ended June 30, 1998 includes costs to acquire leaseholds, a non-recurring expense, in the amount of $4,339 that was reported by Patriot. WYNDHAM CONSOLIDATED PRO FORMA RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, -------------------------- 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue................................................................ $ 1,367,555 $ 1,084,986 Net (loss) income(1)......................................................... (60,214) 6,516 Basic (loss) income per share................................................ $ (0.44) $ 0.05 ------------ ------------ ------------ ------------ Diluted (loss) income per share.............................................. $ (0.44) $ 0.04 ------------ ------------ ------------ ------------ Weighted average number of common shares and common share equivalents outstanding: Basic...................................................................... 137,470 137,470 ------------ ------------ ------------ ------------ Diluted.................................................................... 137,470 148,721 ------------ ------------ ------------ ------------
- ------------------------ (1) Consolidated pro forma net loss for the six months ended June 30, 1998 includes costs to acquire leaseholds, a non-recurring expense, in the amount of $52,723 that was reported by Wyndham. 31 PATRIOT AMERICAN HOSPITALITY, INC. AND WYNDHAM INTERNATIONAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS-- JUNE 30, 1998 (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) (UNAUDITED) 11. SUBSEQUENT EVENTS: On July 28, 1998, Patriot declared a dividend of $0.32 per share for the second quarter of 1998. The dividend is payable on or about August 20, 1998 to shareholders of record on August 10, 1998. In July 1998, Wyndham acquired an approximate 50% limited partnership interest in a partnership with affiliates of Don Shula's Steakhouses, Inc. for $1,500 in cash and 156,272 preferred units of limited partnership interest of Wyndham Partnership. Wyndham entered into this joint venture arrangement to expand the Shula's Steak House brand as a food and beverage amenity in certain of Patriot's hotels. On July 13, 1998, Patriot acquired the remaining minority interests held by a third party in the entities that own the El Conquistador and the El San Juan Hotel & Casino located in Puerto Rico for a total purchase price of $3,990. In addition, during July 1998, the Companies refinanced certain debt related to the El Conquistador and the Condado Plaza Hotel & Casino. Proceeds of $145,000 from the refinancing were used to repay outstanding indebtedness of approximately $139,350, to pay legal and closing costs and to establish certain reserves, including interest reserves, required by the loan agreements. The loans are secured by mortgages on the properties, bear interest at a rate of LIBOR plus 2.25% and mature in December 1998. 32 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Companies' Joint Annual Report on Form 10-K for the year ended December 31, 1997. Certain statements in this Form 10-Q constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (the "Act"). The words "believe", "expect", "anticipate", "intend", "estimate" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements 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, the WHG Merger, the Arcadian Acquisition, the Summerfield Acquisition, the Interstate Merger and the CHCI Merger and other transactions; risks associated with the recent adoption of certain legislation and regulations affecting the Companies' paired share structure; Patriot's dependence upon rental payments from Wyndham and the Lessees for substantially all of Patriot's income and the dependence upon the abilities of Wyndham, 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. THE COMPANIES At June 30, 1998, Patriot and Wyndham, directly or through the Operating Partnerships and other subsidiaries, owned interests in 183 hotels totaling over 44,300 rooms and leased 122 hotels from third parties totaling over 15,700 rooms. In addition, Wyndham managed 174 hotels with over 42,700 rooms for third party owners and franchised nine hotels under the Wyndham, Summerfield or ClubHouse brands. The hotels are diversified by franchise or brand affiliation and serve primarily major U.S. business centers. In addition to hotels catering primarily to business travelers, the Companies' portfolio includes world-class resort hotels and prominent hotels in major tourist destinations. Patriot leases 214 of its owned or leased hotels to Wyndham and 14 of Patriot's hotels are leased to third party lessees (the "Lessees") who are responsible for operating the hotels. Generally, these leases provide for the payment of the greater of base or participating rent, plus certain additional charges, as applicable (the "Participating Leases"). The Lessees, in turn, have entered into separate agreements with hotel management entities (the "Operators") to manage the hotels. Seventy-seven of the Companies' hotels are owned or leased by special purpose entities (the "Non-Controlled Subsidiaries"). Patriot owns an approximate 99% non-voting interest and Wyndham owns an approximate 1% controlling voting interest in each of the Non-Controlled Subsidiaries. Therefore, the operating results of the Non-Controlled Subsidiaries are combined with those of Wyndham for financial reporting purposes. Patriot accounts for its investment in the Non-Controlled Subsidiaries using the equity method of accounting. In addition to leasing and managing hotels, Wyndham is also engaged in the business of conducting and offering pari-mutuel wagering on thoroughbred horse racing at the Bay Meadows Racecourse (the "Racecourse"). 33 HOTELS AND OTHER BUSINESSES ACQUIRED 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 and Wyndham Hotel Corporation ("Old Wyndham"), Old Wyndham merged with and into Patriot, with Patriot being the surviving corporation (the "Wyndham Merger"). Patriot, as a result of the Wyndham Merger, acquired ownership of ten Wyndham hotels and 14 Clubhouse hotels and leased such hotels to Wyndham. Thirteen of the 14 hotel leases assumed by Patriot were sub-leased to Wyndham. Old Wyndham's remaining 52 management and franchise contracts (excluding 16 hotels that Old Wyndham managed that are owned by Patriot), the Wyndham and ClubHouse proprietary brand names, and the Wyndham hotel management company were transferred to corporate subsidiaries of Patriot (collectively, the "Non-Controlled Subsidiaries"). Patriot owns a 99% non-voting interest and Wyndham owns the 1% controlling voting interest in each of the Non-Controlled Subsidiaries. Therefore, the operating results of the Non-Controlled Subsidiaries have been combined with those of Wyndham for financial reporting purposes. Patriot accounts for its investment in the Non-Controlled Subsidiaries using the equity method of accounting. The total purchase consideration for the Wyndham Merger of approximately $982 million consisted of 21,594,137 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 Old 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 $59 million in debt. WHG CASINOS & RESORTS, INC. AND RELATED TRANSACTIONS On January 16, 1998, pursuant to the Agreement and Plan of Merger dated as of September 30, 1997 (the "WHG Merger Agreement) between Patriot, Wyndham and WHG Casinos & Resorts Inc. ("WHG"), a subsidiary of Wyndham merged with and into WHG, with WHG being the surviving corporation (the "WHG Merger"). As a result of the WHG Merger, Wyndham acquired the 570-room Condado Plaza Hotel & Casino, a 50% interest in the partnership that owns the 389-room El San Juan Hotel & Casino and a 23.3% interest in the partnership that owns the 751-room El Conquistador Resort & Country Club (the "El Conquistador"), all of which are located in Puerto Rico. In addition, Wyndham acquired a 62% interest in Williams Hospitality Group, Inc., the management company for the three hotels and the Las Casitas Village at the El Conquistador. A total of 5,004,690 Paired Shares were issued in connection with the WHG Merger and approximately $21.3 million of debt was assumed, resulting in total purchase consideration of approximately $159.4 million. Effective March 1, 1998, Patriot acquired from unaffiliated third parties a 40% interest in the El San Juan Hotel & Casino, an aggregate 68.62% equity interest in the El Conquistador and a 38% interest in Williams Hospitality Group, Inc. for approximately $31 million in cash and issuance of 1,818,182 Paired Shares valued at approximately $49.2 million (collectively, these transactions and the WHG Merger are referred to herein as the "WHG Transactions"). Wyndham owns the controlling general partner interest in the partnerships that own the El San Juan Hotel & Casino and the El Conquistador. Wyndham also holds voting control of Williams Hospitality Group, Inc. Therefore, the operating results of these entities have been combined with those of Wyndham for financial reporting purposes. As a result, approximately $188.9 million of debt related to the partnerships that own the El San Juan Hotel & Casino and the El Conquistador has also been reflected in Wyndham's consolidated balance sheet. Patriot accounts for its investment in these entities using the equity method of accounting. 34 ARCADIAN INTERNATIONAL LIMITED On April 6, 1998, Patriot announced the completion of its acquisition of all of the issued and to-be-issued shares of Arcadian International Limited ("Arcadian," formerly known as Arcadian International Plc) for 60 pence per share. Including the exercise of all outstanding options to purchase shares, the assumption of debt and the acquisition of the remaining shares in the Malmaison Group, the total transaction cost was approximately L185.9 million (approximately $308.7 million U.S. based on exchange rates at the time of closing). As a result of the transaction, Patriot acquired ten owned hotels located throughout England; one owned hotel in Jersey; five owned and managed Malmaison Hotels; two resorts under development in Tuscany, Italy and Paris, France; and the proprietary Malmaison brand name. Patriot also acquired Arcadian's 50% partnership interest in the redevelopment of the luxury Great Eastern Hotel in London, to be branded as a flagship Wyndham Hotel and operated by Wyndham once the development has been completed. Collectively, the transactions described above are referred to herein as the "Arcadian Acquisition." In connection with the Arcadian Acquisition, Patriot entered into a short-term financing agreement on April 15, 1998 with Paine Webber Real Estate Securities, Inc. ("Paine Webber Real Estate") whereby Paine Webber Real Estate loaned Patriot $160 million through April 15, 1999, at a rate equal to the borrowing rate on Patriot's Revolving Credit Facility. In addition, Patriot assumed approximately $112.6 million of debt in connection with the Arcadian Acquisition. INTERSTATE HOTELS COMPANY On June 2, 1998, pursuant to an Agreement and Plan of Merger dated as of December 2, 1997, as thereafter amended, (the "Interstate Merger Agreement") between Patriot, Wyndham and Interstate Hotels Company ("Interstate"), Interstate merged with and into Patriot with Patriot being the surviving company (the "Interstate Merger"). Pursuant to the Interstate Merger Agreement, stockholders of Interstate could elect to convert each of their shares of Interstate common stock into the right to receive either (i) $37.50 in cash (the "Cash Consideration"), subject to proration in certain circumstances, or (ii) a number of Paired Shares of Patriot and Wyndham common stock based on an exchange ratio of 1.341 Paired Shares for each share of Interstate common stock not exchanged for cash (the "Interstate Exchange Ratio"). As a result of the Interstate Merger, Patriot acquired controlling interest in, or ownership of, 42 hotels representing over 12,000 rooms; leases for 84 hotels representing over 10,100 rooms and management or service agreements for 82 hotels representing over 20,400 rooms located throughout the United States and in Canada, the Caribbean and Russia. The total purchase consideration for the Interstate Merger of approximately $2.1 billion consisted of 28,825,875 Paired Shares, cash of approximately $525.4 million to pay Interstate shareholders who elected to receive cash, approximately $787.1 million in debt assumed or refinanced by Patriot and approximately $73.4 million to pay other transaction-related costs. In addition, Interstate shareholders received rights to receive a cash distribution of $0.429 on each share of Interstate common stock that was converted into Paired Shares, aggregating approximately $9.1 million. In connection with the Interstate Merger, the Patriot Companies closed on the commitment from The Chase Manhattan Bank and Chase Securities, Inc. and PaineWebber Real Estate Securities, Inc. to increase Patriot's existing credit facilities to an aggregate of $2.7 billion (an increase of $1.45 billion from the prior $1.25 billion credit package). The increased credit facilities include the $900 million Revolving Credit Facility and a series of term loans in the aggregate amount of up to $1.8 billion (the "Term Loans"). Proceeds from the increased credit facilities were used to fund the cash portion of the Interstate Merger consideration, as well as to refinance certain outstanding indebtedness of the Patriot Companies. In addition, the increased credit facilities will be used to fund future acquisitions and for general working capital purposes. Interest rates will be based on the Patriot Companies' leverage ratio and may vary from 35 1.5% to 2.5% over LIBOR. Patriot incurred approximately $27.4 million in loan fees and other expenses associated with this financing arrangement. On May 27, 1998, the Companies and Interstate entered into a settlement agreement (the "Settlement Agreement") with Marriott International, Inc. ("Marriott") which addressed certain claims asserted by Marriott in connection with Patriot's then proposed merger with Interstate. The Settlement Agreement provided for the dismissal of litigation brought by Marriott and allowed Patriot's merger with Interstate to close on June 2, 1998. See "Part II: Other Information -- Item 1. Legal Proceedings -- Marriott Settlement" for a detailed description of the Settlement Agreement. SF HOTEL COMPANY, L.P. On June 5, 1998, Patriot, through the Patriot Partnership, acquired all of the partnership interests in SF Hotel Company, L.P. ("Summerfield") for approximately $298.9 million (the "Summerfield Acquisition"). The total purchase consideration for the Summerfield Acquisition consisted of approximately 3,223,795 OP Units of the Operating Partnerships, 1,397,281 Paired Shares, cash of approximately $165.5 million and assumption of debt in the amount of approximately $17.1 million. In addition, the purchase price is subject to future adjustment based on (i) the market price of the Paired Shares through the end of 1998 and (ii) achievement of certain performance criteria through 2001 for seven hotels that are currently under development. As a result of the Summerfield Acquisition, Patriot acquired four Summerfield Suites-Registered Trademark- hotels, leasehold and management interests in 24 Summerfield Suites-Registered Trademark-, Sierra Suites-Registered Trademark- and Sunrise Suites hotels and management contracts and franchise interests for 12 additional Summerfield Suites-Registered Trademark- and Sierra Suites-Registered Trademark- hotels. Patriot has leased or sub-leased such hotels to Wyndham. In addition, Patriot acquired the development contracts for several additional hotels. CHC INTERNATIONAL On June 30, 1998, pursuant to an Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger Agreement") between Patriot, Wyndham and CHC International ("CHCI"), the hospitality-related businesses of CHCI merged with and into Wyndham with Wyndham being the surviving company (the "CHCI Merger"). CHCI's gaming operations were transferred to a new legal entity prior to the CHCI Merger and such operations were not a part of the transaction. As a result of the CHCI Merger, Wyndham, through its subsidiaries, acquired the remaining 50% investment interest in GAH-II, L.P. ("GAH"), the remaining 17 leases and 16 of the associated management contracts related to the Patriot hotels leased by CHC Lease Partners, 8 third-party management contracts, two third-party asset management contracts contracts, the Grand Bay proprietary brand name and certain other hospitality management assets. By operation of the CHCI Merger, all the issued and outstanding shares of common stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain stock option rights were exchanged for an aggregate of 1,781,173 shares of Series A Redeemable Convertible Preferred Stock, par value $0.01 per share of Wyndham (the "Wyndham Series A Preferred Stock") and 1,781,181 shares of Series B Redeemable Convertible Preferred Stock, par value $0.01 per share, of Wyndham (the "Wyndham Series B Preferred Stock"). In addition, Wyndham assumed CHCI's outstanding debt in the amount of approximately $16.6 million. In addition, on September 30, 2000 and September 30, 2002, Wyndham may be obligated to pay the CHCI stockholders and a subsidiary of Wyndham may be obligated to pay a Gencom-related entity additional consideration, in each case based upon the performance of certain specified assets. OTHER ACQUISITIONS In addition, during the six months ended June 30, 1998, Patriot acquired investments in five hotels for approximately $234.1 million. These acquisitions were financed primarily with funds drawn on the 36 Companies' revolving credit facility, the issuance of 53,989 OP Units of the Operating Partnerships valued at approximately $1.5 million, the issuance of 390,335 Paired Shares valued at approximately $10 million, and the assumption of other mortgage debt in the amount of approximately $80.1 million. In addition, Patriot acquired an office building that will be converted into a hotel for approximately $33.9 million. SALES OF PAIRED COMMON STOCK WITH PRICE ADJUSTMENT MECHANISMS The Companies have entered into transactions with three counterparties involving the sale of an aggregate of 13.3 million shares of Paired Common Stock, with related purchase price adjustment mechanisms ("Price Adjustment Mechanisms"), as described below. NMS TRANSACTION. On February 26, 1998, the Companies entered into transactions with NMS Services, Inc., a subsidiary of NationsBank Corporation (together with its successor, NationsBanc Mortgage Capital Corporation, "NMS"). Pursuant to the terms of a Purchase Agreement dated as of February 26, 1998 (the "NMS Purchase Agreement"), NMS purchased 4,900,000 shares of Paired Common Stock (the "Initial NMS Shares") from the Companies at a purchase price of $24.8625 per share (which reflected a 2.5% discount from $25.50, the last reported sale price of the Paired Common Stock on February 25, 1998) for net proceeds of approximately $121.8 million. In connection with the issuance of the Initial NMS Shares, the Companies entered into a Purchase Price Adjustment Mechanism, dated as of February 26, 1998, with NMS (as amended on August 14, 1998, effective February 26, 1998, the "NMS Price Adjustment Mechanism"). Pursuant to the NMS Price Adjustment Mechanism, the Companies have agreed to purchase on or before February 25, 1999, in one or more transactions (each an "NMS Settlement"), from NMS a number of shares of Paired Common Stock equal to the number of Initial NMS Shares, at a per paired share price equal to $25.50 plus a forward accretion representing an imputed return at LIBOR plus 150 basis points, minus an adjustment to reflect distributions on shares of the Paired Common Stock (the "NMS Forward Price"). The forward accretion component represents a guaranteed rate of return to NMS. The shares of Paired Common Stock to be delivered to or by NMS may consist of shares of Paired Common Stock acquired under the NMS Purchase Agreement or otherwise. The Companies may effect an NMS Settlement by (i) delivering to NMS shares of Paired Common Stock (the "NMS Settlement Shares") equal in value (valued at the dollar volume weighted average price for shares of the Paired Common Stock (as calculated pursuant to the NMS Price Adjustment Mechanism) over a specific period of time (the "NMS Unwind Price")) to the NMS Forward Price at the time of such NMS Settlement times the number of shares subject to such NMS Settlement (the "NMS Settlement Amount") in exchange for such number of shares of Paired Common Stock, (ii) delivering to (or, in the event the NMS Unwind Price is greater than the NMS Forward Price, receiving from) NMS a number of shares of Paired Common Stock equal to the difference between the number of NMS Settlement Shares and the number of shares subject to such NMS Settlement, or (iii) delivering to NMS cash equal to the NMS Settlement Amount in exchange for a number of shares of Paired Common Stock equal to the number of shares subject to such NMS Settlement. If the Companies pay a settlement price in shares of Paired Common Stock, they must also pay a placement fee equal to 2% of the NMS Settlement Amount. The NMS Price Adjustment Mechanism provides that shares may be delivered in settlement only if (i) the Companies have on file with the Securities and Exchange Commission ("SEC") an effective registration statement covering the resale by NMS of the shares to be delivered, (ii) the NMS Unwind Price on the date of such settlement is greater than or equal to $20.00 and (iii) no Mandatory NMS Unwind Event (as defined below) has occurred and is continuing. There can be no assurance that a registration statement with respect to such shares will be declared and remain effective or that any of the other conditions to a stock settlement will be met. See "--Potential Dilution and Liquidity Effects of the Purchase Price Adjustment Mechanisms." If such conditions are not met, the Companies generally must deliver cash equal to the NMS Settlement Amount. 37 Under the NMS Price Adjustment Mechanism, on November 26, 1998 (the "NMS Interim Settlement Date"), if the dollar volume weighted average price for shares of the Paired Common Stock on the trading day immediately preceding the Interim Settlement Date (the "NMS Reset Price") is lower than the NMS Forward Price calculated as of the NMS Interim Settlement Date, the Companies must deliver to NMS a number of shares of Paired Common Stock (the "NMS Interim Settlement Shares") equal in value (valued at the NMS Reset Price) to the product of (i) the difference between the NMS Forward Price and the NMS Reset Price times (ii) the number of the shares subject to the NMS Price Adjustment Mechanism (the "NMS Interim Settlement Amount"). If NMS Interim Settlement Shares are delivered by the Companies to NMS (other than as collateral), then (i) the Companies must pay a placement fee equal to 2% of the product of the NMS Unwind Price and the number of shares so delivered, and (ii) the NMS Forward Price will be reduced by the quotient of (A) the NMS Unwind Price times the number of the NMS Interim Settlement Shares, divided by (B) the number of the shares of Paired Common Stock then subject to the Price Adjustment Mechanism. The NMS Price Adjustment Mechanism provides that NMS Interim Settlement Shares may be delivered only if the Companies have an effective registration statement on file with the SEC covering the resale by NMS of the shares to be so delivered. If an effective registration statement is not on file, the Companies must instead deliver cash collateral equal to the NMS Interim Settlement Amount. There can be no assurance that a registration statement with respect to such shares will be declared and remain effective. See "--Potential Dilution and Liquidity Effects of the Purchase Price Adjustment Mechanisms." In connection with the amendment to the NMS Price Adjustment Mechanism, the Companies delivered 2,375,000 shares of Paired Common Stock as collateral to NMS. The Companies previously delivered $179,000 as collateral to NMS. On or after October 15, 1998, if the dollar volume weighted average price of the Paired Common Stock for any two consecutive trading days does not equal or exceed certain amounts (the "NMS Unwind Thresholds"), NMS has the right to force a partial or complete settlement under the NMS Price Adjustment Mechanism. The NMS Unwind Thresholds are $20.00 (33% settlement), $18.75 (67%) and $17.25 (100%). Moreover, NMS has the right to force a complete settlement under the NMS Price Adjustment Mechanism upon the occurrence of any of the following (each a "Mandatory NMS Unwind Event"): (i) default of the Companies with respect to certain indebtedness, (ii) declaration by the Companies of bankruptcy or insolvency or failure to post sufficient cash collateral, (iii) failure of the Companies to have caused a registration statement covering the resale of the shares of Paired Common Stock received by NMS under the NMS Purchase Agreement and NMS Price Adjustment Mechanism to become effective on or before October 15, 1998, or (iv) the sale or refinancing by the Companies of certain properties in which the net proceeds of such sale or refinancing (up to the amount necessary to effect a complete cash settlement) are not applied to a cash settlement under the NMS Price Adjustment Mechanism. Finally, the NMS Price Adjustment Mechanism provides that, upon the consummation of the sale or refinancing of certain properties by the Companies with a third party, the Companies must apply the net proceeds to the extent necessary to effect a complete cash settlement under the NMS Price Adjustment Mechanism. The Companies have agreed to use all commercially reasonable efforts to effect such sale or refinancing. PAINEWEBBER TRANSACTION. On April 6, 1998, the Companies entered into transactions with PaineWebber Incorporated ("PaineWebber") and PaineWebber Financial Products, Inc. ("PWFS" and, together with PaineWebber, the "PaineWebber Parties"). Pursuant to the terms of a Purchase Agreement dated as of April 6, 1998 (the "PaineWebber Purchase Agreement"), PaineWebber purchased 5,150,000 shares of Paired Common Stock (the "Initial PaineWebber Shares") from the Companies at a purchase price of $27.01125 per share, which reflected a 2% discount to the last reported sale price of the Paired Common Stock on April 3, 1998, for net proceeds of approximately $139.1 million. In connection with the issuance of the Initial PaineWebber Shares, the Companies entered into a Purchase Price Adjustment Mechanism Agreement, dated as of April 6, 1998, with PWFS (as amended on August 14, 1998, the "PaineWebber Price Adjustment Agreement"). Pursuant to the PaineWebber Price 38 Adjustment Agreement, before October 15, 1998, PWFS may agree with the Companies at any time (or, on any of June 30, 1998 or September 30, 1998 (each a "PW Reset Date"), the Companies may cause PWFS) to sell some or all of the Initial PaineWebber Shares through one or more specified methods (in each case a "PW Settlement"). At each PW Settlement, the purchase price of the Initial PaineWebber Shares subject to the PW Settlement is adjusted based upon the difference between (i) the proceeds (net of a negotiated resale spread or underwriting discount) received by PWFS from the sale of the shares of Paired Common Stock and (ii) a reference price (the "Reference Price") equal to the closing price for a share of Paired Common Stock on April 3, 1998 plus a forward accretion reflecting an imputed return at LIBOR plus 140 basis points, minus an adjustment to reflect distributions on the Initial PaineWebber Shares prior to the date of such PW Settlement (such difference, the "PW Price Difference"). If the PW Price Difference is positive, PWFS is obligated to deliver shares of Paired Common Stock or cash to the Companies equal in value to the aggregate PW Price Difference. If the PW Price Difference is negative, the Companies are obligated to deliver additional shares of Paired Common Stock equal in value (net of a negotiated resale spread or underwriting discount, as the case may be) to the aggregate PW Price Difference to PWFS. The PaineWebber Price Adjustment Agreement provides that shares may be delivered in settlement only if the Companies have on file with the SEC an effective registration statement covering the resale by PWFS of the shares to be delivered. There can be no assurance that a registration statement with respect to such shares will be declared and remain effective. See "--Potential Dilution and Liquidity Effects of the Purchase Price Adjustment Mechanisms." In addition, within five business days following a PW Settlement or each PW Reset Date, if the Reference Price times the number of shares subject to the PaineWebber Price Adjustment exceeds the product of the closing price of the Paired Common Stock as of such relevant date times the number of shares subject to the PaineWebber Price Adjustment Agreement by more than $5,000,000 (such excess amount, the "Collateral Amount"), the Companies are required to deliver to PWFS a number of shares of Paired Common Stock (the "Collateral Shares") equal in value (valued at the closing price of the Paired Common Stock on the relevant date) to the Collateral Amount; provided, that if the resale by PWFS of the shares to be so delivered is not covered by an effective registration statement, then the Companies must, at their option, deliver to PWFS, either (i) a number of Collateral Shares equal in value to 125% of the Collateral Amount or (ii) cash collateral equal to the Collateral Amount. The number of Collateral Shares and/or amount of cash collateral held by PWFS will be adjusted every other week. There can be no assurance that a registration statement with respect to any Collateral Shares will be declared and remain effective. See "--Potential Dilution and Liquidity Effects of the Purchase Price Adjustment Mechanisms." On July 8, 1998, the Companies delivered 600,954 shares of Paired Common Stock as Collateral Shares to PWFS. In connection with the Amendment to the PaineWebber Price Adjustment Agreement, the Companies delivered 2,347,218 shares of Paired Common Stock as Collateral Shares to PWFS. If the closing price of the Paired Common Stock on any trading day does not equal or exceed $16.00, PWFS has the right to force a complete settlement under the PaineWebber Price Adjustment Agreement. PWFS also has the right to force a complete settlement under the PaineWebber Price Adjustment Agreement if the Companies (i) are in default with respect to certain specified indebtedness of the Companies, (ii) effect an early settlement, unwind or liquidation of any transaction similar to the transaction with PWFS, or (iii) fail to deliver to PWFS on or before September 30, 1998, an effective registration statement covering the sale of the shares of Paired Common Stock delivered to PWFS. UBS TRANSACTION. On December 31, 1997, the Companies entered into transactions with UBS Limited and Union Bank of Switzerland, London Branch (together with its successor, UBS AG, London Branch, "UBS" and, together with Warburg Dillon Read, LLC, the successor to UBS Limited, the "UBS Parties"). Pursuant to the terms of a Purchase Agreement dated as of December 31, 1997 (the "UBS Purchase Agreement"), UBS Limited purchased 3,250,000 shares of Paired Common Stock (the "Initial UBS Shares") from the Companies at a purchase price of $28.8125 per share (the last reported sale price 39 of the Paired Common Stock on December 30, 1997) for approximately $91.8 million in net proceeds. UBS received from the Companies a placement fee of 2%, or approximately $1.9 million. In connection with the issuance of the Initial UBS Shares, the Companies entered into a Forward Stock Contract, dated as of December 31, 1997, with UBS (as amended on August 14, 1998, the "Forward Stock Contract"). Pursuant to the Forward Stock Contract, the Companies have agreed to purchase on or before October 15, 1998, in one or more transactions (each a "UBS Settlement"), from UBS a number of shares of Paired Common Stock equal to the number of Initial UBS Shares, at a per paired share price equal to $28.8125 plus a forward accretion reflecting an imputed return at LIBOR plus 140 basis points, minus an adjustment to reflect distributions on shares of the Paired Common Stock (the "UBS Forward Price"). The forward accretion component represents a guaranteed rate of return to UBS. The shares of Paired Common Stock to be delivered to or by UBS may consist of shares of Paired Common Stock acquired under the UBS Purchase Agreement or otherwise. The Companies may effect a UBS Settlement by (i) delivering to UBS shares of Paired Common Stock (the "UBS Settlement Shares") equal in value (valued at the daily average closing price for shares of the Paired Common Stock over a specific period of time (the "UBS Unwind Price")) to the UBS Forward Price at the time of such UBS Settlement times the number of shares of Paired Common Stock subject to such UBS Settlement (the "UBS Settlement Amount") in exchange for such number of shares, (ii) delivering to (or, in the event the UBS Unwind Price is greater than the UBS Forward Price, receiving from) UBS a number of shares of Paired Common Stock equal to the difference between the number of the UBS Settlement Shares and the number of shares subject to such UBS Settlement, or (iii) delivering to UBS cash equal to the UBS Settlement Amount in exchange for the shares subject to such UBS Settlement. If the Companies make a UBS Settlement in shares of Paired Common Stock, they must also pay to UBS (i) an unwind accretion fee (payable in cash or shares) equal to 50% of the UBS Settlement Amount times the imputed return of LIBOR plus 140 basis points over the period designated for such UBS Settlement and (ii) a placement fee equal to 0.50% of the UBS Settlement Amount. The Forward Stock Contract provides that shares may be delivered in settlement only if the Companies have on file with the SEC an effective registration statement covering the resale by UBS of the shares to be delivered. If an effective registration statement is not on file, the Companies generally must deliver cash equal to the UBS Settlement Amount, except that in the case of a mandatory early settlement (discussed below), the Companies may deliver unregistered shares of Paired Common Stock in an amount necessary to guarantee that UBS will receive the UBS Settlement Amount in private resales of such shares. There can be no assurance that a registration statement with respect to settlement shares will be declared and remain effective. See "--Potential Dilution and Liquidity Effects of the Purchase Price Adjustment Mechanisms." The Forward Stock Contract provides that on each of March 31, 1998, June 30, 1998 and September 30, 1998 (each a "UBS Interim Settlement Date"), if the closing price for shares of the Paired Common Stock on the trading day immediately preceding such UBS Interim Settlement Date (the "UBS Reset Price") is lower than the UBS Forward Price calculated as of the UBS Interim Settlement Date, the Companies are required to deliver to UBS cash collateral equal to the product of (i) the difference between the UBS Forward Price and the UBS Reset Price, times (ii) the number of shares subject to the Forward Stock Contract (the "UBS Interim Settlement Amount"). With the prior written consent of UBS, the Companies may elect to deliver to UBS a number of shares of Paired Common Stock (the "UBS Interim Settlement Shares") equal in value (valued at the UBS Reset Price) to 125% of the UBS Interim Settlement Amount. The amount of cash collateral or number of shares so held will be adjusted every other week. To date, the Companies have delivered an aggregate of approximately $35.6 million as cash collateral to UBS. See "--Potential Dilution and Liquidity Effects of the Purchase Price Adjustment Mechanisms." If the average closing price of the Paired Common Stock for any two consecutive trading days does not equal or exceed $16.00 (the "UBS Unwind Threshold"), UBS has the right to force a complete settlement under the Forward Stock Contract. UBS also has the right to force a complete settlement under 40 the Forward Stock Contract if the Companies (i) are in default with respect to certain financial covenants under the Forward Stock Contract, (ii) are in default under the Corporation's credit facility with Chase Manhattan Bank, (iii) are in default with respect to certain specified indebtedness of the Companies, (iv) declare bankruptcy or become insolvent or fail to post sufficient cash collateral, (v) effect an early settlement, unwind or liquidation of any transaction similar to the transaction with UBS, or (vi) fail to deliver to UBS, on or before September 30, 1998, an effective registration statement covering the sale of the shares of Paired Common Stock delivered to UBS. POTENTIAL DILUTION AND LIQUIDITY EFFECTS OF THE PRICE ADJUSTMENT MECHANISMS. If the reset price or unwind price (in the case of the UBS and NMS transactions) or the market price (in the case of the PWFS transaction) of the Paired Common Stock is less than the applicable forward price or reference price on a given settlement date or interim settlement or reset date, the Companies will be obligated to deliver cash or additional shares of Paired Common Stock to effect such settlement, interim settlement or reset. Delivery of cash would adversely affect the Companies' liquidity, and delivery of shares would have dilutive effects on the capital stock of the Companies. Moreover, settlement (whether by reason of a drop in the price of the Paired Common Stock or otherwise) may force the Companies to issue shares of Paired Common Stock at a depressed price, which may heighten the dilutive effects on the capital stock of the Companies. The dilutive effect of a stock settlement and the adverse liquidity effect of a cash settlement increase significantly as the market price of the Paired Common Stock declines below the applicable forward price or reference price. Furthermore, under certain circumstances, the Companies may settle in shares of Paired Common Stock only if an effective registration statement covering such shares is on file. There can be no assurance that a registration statement with respect to any such shares will be declared and remain effective. If the Companies settled all three transactions on August 14, 1998, they would be obligated to deliver to the counterparties a total of approximately $331.5 million in cash (net of cash currently held as collateral by the counterparties) and would receive from the counterparties a total of 13.3 million shares of Paired Common Stock plus all shares of Paired Common Stock then held as collateral by the counterparties. PARTICIPATING LEASE REVENUE RECOGNITION In May 1998, the Financial Accounting Standards Board's Emerging Issues Task Force issued EITF number 98-9, "Accounting for Contingent Rent in Interim Financial Periods ("EITF 98-9"). EITF 98-9 provides that a lessor shall defer recognition of contingent rental income in interim periods until specified targets that trigger the contingent income are met. Management has reviewed the terms of its Participating Leases and has determined that the provisions of EITF 98-9 will impact Patriot's current revenue recognition on an interim basis, but will have no impact on Patriot's annual participating rent revenue or interim cash flow from its Participating Leases. Patriot has adopted the provisions of EITF 98-9 and elected to apply the provisions of the new pronouncement on a prospective basis. PATRIOT AMERICAN HOSPITALITY, INC. RESULTS OF OPERATIONS: QUARTER ENDED JUNE 30, 1998 COMPARED WITH QUARTER ENDED JUNE 30, 1997 Patriot's lease revenue from the Lessees (including Wyndham) for the quarter ended June 30, 1998, increased 265% from $36,973,000 in 1997 to $135,002,000 in 1998. This increase is primarily due to the acquisition of 174 hotel properties during the past twelve months. Patriot owned or leased 228 hotel properties as of June 30, 1998. Additionally, for the three months ended June 30, 1998, Patriot reported $1,377,000 of lease revenue related to the sub-lease of the Racecourse facility and land to Wyndham. Interest and other income increased from $757,000 in 1997 to $5,255,000 in 1998 which is primarily attributable to additional investments in Subscription Notes and other notes receivable from Wyndham and interest and dividend income earned on cash investments. Interest and other income for the three months ended June 30, 1998 includes $3,278,000 of interest income related to notes receivable from Wyndham. 41 Generally, Patriot's Participating Leases provide for the payment of the greater of (i) a fixed base rent or (ii) participating rent, based on the revenue of the hotels, plus certain additional charges, as applicable. The Participating Leases contain annual revenue thresholds used to calculate the various tiers of participating rent which are prorated on a monthly basis to determine monthly participating rent payments. The provisions of EITF 98-9 call for straight-line recognition of the annual base rent throughout the year and for the deferral of any additional lease amounts collected or due from the Lessees until such amounts exceed the annual revenue thresholds. This will generally result in base rent being recognized in the first and second quarters and participating rents already collected or due from the Lessees being deferred and then recognized in the third and fourth quarters due to the structure of Patriot's Participating Leases and the seasonality of the hotel operations. Patriot elected to adopt the provisions of EITF 98-9 beginning in May 1998. The effect of the change was to defer recognition of $5,681 of lease revenue during the quarter ended June 30, 1998. For the three months ended June 30, 1998 as compared to the same period for 1997, Patriot experienced significant increases in expenses as a result of the acquisition of hotels discussed above. Real estate and personal property taxes and casualty insurance were $13,300,000 for the three months ended June 30, 1998, compared to $3,765,000 for the three months ended June 30, 1997. Ground lease expense increased from $338,000 to $13,609,000 for the three months ended June 30, 1997 compared to the same period in 1998 as a result of acquisition of properties subject to existing ground leases, including $1,194,000 related to the Racecourse land lease with an affiliate of PaineWebber, Inc. General and administrative expenses were $4,719,000 for the three months ended June 30, 1998, compared to $2,299,000 for 1997. This increase is primarily attributable to Patriot's tremendous growth over the past year through mergers and acquisitions. General and administrative expenses include the amortization of unearned stock compensation of $1,324,000 for 1998 and $1,306,000 for 1997. Additionally, Patriot incurred expenses of $237,000 in 1998 associated with evaluating properties and companies to be acquired which were ultimately not purchased, compared to $87,000 for 1997. Interest expense for the three months ended June 30, 1998 was $50,777,000 compared to $9,523,000 in 1997. Patriot's outstanding debt obligations as of June 30, 1998 and 1997 were approximately $3.5 billion and $584.3 million, respectively. The primary components of interest expense for the three months ended June 30, 1998 are $32,429,000 of interest related to the revolving credit facility and term loans, $6,373,000 of interest on mortgage notes, $5,374,000 of amortization of deferred financing costs and $9,017,000 of other interest related to other miscellaneous notes, capital lease obligations and commitments payable. Interest expense for the three months ended June 30, 1997 consists primarily of $9,087,000 of interest on Patriot's old line of credit facility and mortgage note balances outstanding and $436,000 of amortization of deferred financing costs. Additionally, Patriot capitalized interest totaling $2,416,000 and $869,000 for the three months ended June 30, 1998 and 1997, respectively, associated with major renovations of certain hotel properties. In connection with Patriot's acquisition of three leasehold interests for hotels that Patriot owns and leased to certain of the Lessees, Patriot recognized expense of $4,339,000 related to the cost of acquiring these leaseholds. Depreciation and amortization expense was $41,196,000 for the three months ended June 30, 1998 compared to $9,510,000 for the same period in 1997. Patriot's share of income from unconsolidated subsidiaries was $15,656,000 for the second quarter of 1998 compared to $2,072,000 for the second quarter of 1997. 42 Minority interest share of income in the Patriot Partnership was $2,140,000 and $2,302,000 for the three months ended June 30, 1998 and 1997, respectively. Minority interest share of income in Patriot's other consolidated subsidiaries was $1,895,000 for the second quarter of 1998 and $247,000 for the second quarter of 1997. Patriot repaid certain debt obligations of Interstate and Summerfield in connection with the Interstate Merger and the Summerfield Acquisition which closed during the quarter. As a result, Patriot incurred certain prepayment penalties and wrote off the remaining balance of unamortized deferred financing costs associated with such debt in the aggregate amount of $11,843,000. As a result, net income was $12,059,000 for the three months ended June 30, 1998 and $11,818,000 for the three months ended June 30, 1997. RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997 Patriot's lease revenue from the Lessees (including Wyndham) for the six months ended June 30, 1998, increased 240% from $71,986,000 in 1997 to $244,651,000 in 1998. This increase is primarily due to the acquisition of 174 hotel properties during the past twelve months. Additionally, for the six months ended June 30, 1998, Patriot reported $2,787,000 of lease revenue related to the sub-lease of the Racecourse facility and land to Wyndham. Interest and other income increased from $1,132,000 in 1997 to $8,771,000 in 1998 which is primarily attributable to investments in Subscription Notes and other notes receivable from Wyndham and interest and dividend income earned on cash investments. Interest and other income for the six months ended June 30, 1998 includes $6,028,000 of interest income related to notes receivable from Wyndham. As discussed above, Patriot elected to adopt the provisions of EITF 98-9 (which provides new guidance for accounting procedures to be applied when accounting for participating lease income) beginning in May 1998. The effect of the change was to defer recognition of $5,681 of lease revenue during the six months ended June 30, 1998. The provisions of EITF 98-9 call for straight-line recognition of the annual base rent throughout the year and for the deferral of any additional lease amounts collected or due from the Lessees until such amounts exceed the annual revenue thresholds. This will generally result in base rent being recognized in the first and second quarters and participating rents already collected or due from the Lessees being deferred and then recognized in the third and fourth quarters due to the structure of Patriot's Participating Leases and the seasonality of the hotel operations. For the six months ended June 30, 1998 as compared to the same period for 1997, Patriot experienced significant increases in expenses as a result of the acquisition of hotels discussed above. Real estate and personal property taxes and casualty insurance were $25,224,000 for the six months ended June 30, 1998, compared to $6,966,000 for the six months ended June 30, 1997. Ground lease expense increased from $683,000 to $20,167,000 for the six months ended June 30, 1997 compared to the same period in 1998 as a result of acquisition of properties subject to existing ground leases, including $2,363,000 related to the Racecourse land lease with an affiliate of PaineWebber, Inc. General and administrative expenses were $10,002,000 for the six months ended June 30, 1998, compared to $5,081,000 for 1997. This increase is primarily attributable to Patriot's tremendous growth over the past year through mergers and acquisitions. General and administrative expenses include the amortization of unearned stock compensation of $2,660,000 for 1998 and $1,927,000 for 1997. Additionally, Patriot incurred expenses of $550,000 in 1998 associated with evaluating properties and companies to be acquired which were ultimately not purchased, compared to $655,000 for 1997. Interest expense for the six months ended June 30, 1998 was $85,027,000 compared to $17,328,000 in 1997. Patriot's outstanding debt obligations as of June 30, 1998 and 1997 were approximately $3.5 billion and $584.3 million, respectively. The primary components of interest expense for the six months ended 43 June 30, 1998 are $54,987,000 of interest related to the revolving credit facility and term loans, $14,316,000 of interest on mortgage notes, $8,876,000 of amortization of deferred financing costs and $11,459,000 of other interest related to other miscellaneous notes, capital lease obligations and commitments payable. Interest expense for the six months ended June 30, 1997 consists primarily of $16,564,000 of interest on Patriot's old line of credit facility and mortgage note balances outstanding and $764,000 of amortization of deferred financing costs. Additionally, Patriot capitalized interest totaling $4,611,000 and $951,000 for the six months ended June 30, 1998 and 1997, respectively, associated with major renovations of certain hotel properties. In connection with Patriot's acquisition of three leasehold interests for hotels that Patriot owns and leased to certain of the Lessees, Patriot recognized expense of $4,339,000 related to the cost of acquiring these leaseholds. Depreciation and amortization expense was $61,693,000 for the six months ended June 30, 1998 compared to $18,006,000 for the same period in 1997. Patriot's share of income from unconsolidated subsidiaries was $19,248,000 for the first half of 1998 compared to $3,093,000 for 1997. Minority interest share of income in the Patriot Partnership was $5,268,000 and $4,534,000 for the six months ended June 30, 1998 and 1997, respectively. Minority interest share of income in Patriot's other consolidated subsidiaries was $2,428,000 for the first half of 1998 and $447,000 for 1997. Patriot repaid certain debt obligations of Old Wyndham, Interstate and Summerfield in connection with the Wyndham Merger, the Interstate Merger and the Summerfield Acquisition. As a result, Patriot incurred certain prepayment penalties and wrote off the remaining balance of unamortized deferred financing costs associated with such debt in the aggregate amount of $30,560,000. As a result, net income was $27,556,000 for the six months ended June 30, 1998 and $23,166,000 for the six months ended June 30, 1997. WYNDHAM INTERNATIONAL, INC. As of June 30, 1998, Wyndham leased 214 hotels from Patriot, managing 202 of those hotels, and managed 174 hotels for third parties. In addition, Wyndham operated the Bay Meadows Racecourse. Subsequent to the Cal Jockey Merger in July 1997, the major portion of the revenues of Wyndham and Patriot have been derived from the leasing and operation of hotels. RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1998 For the three months ended June 30, 1998, Wyndham (including its consolidated subsidiaries) had room revenues of $261,126,000 from the 289 hotels it operated during the period. Food and beverage and telephone and other revenues were $140,681,000 for the period. In addition, Wyndham reported management fee and service fee income of $23,144,000 for the three months ended June 30, 1998. Interest and other income for the period included $1,247,000 of interest income related to the Subscription Notes and other notes receivable from Patriot. Lease payments paid to Patriot pursuant to the Participating Leases, other hotel sub-leases and the Racecourse facility lease were $127,178,000 for the second quarter of 1998. Hotel operating expenses were $272,111,000 for the period. General and administrative expenses were $15,783,000 for the period and consist primarily of salaries and wages of personnel. 44 Interest expense of $8,099,000 for the second quarter of 1998 is primarily attributable to debt obligations related to the three hotels acquired in the WHG Merger. The amount also includes $3,278,000 of interest expense related to the Subscription Notes and other notes payable to Patriot. In connection with the CHCI Merger, Wyndham acquired 17 leasehold interests for hotels that Patriot owns. As a result, Wyndham recognized expense of $52,723,000 related to the cost of acquiring these leaseholds. Total revenues from the Racecourse facility operations were $1,942,000 for the three months ended June 30, 1998. Expenses associated with the Racecourse operations were $2,673,000 for the three months ended June 30, 1998. There were no live racing days conducted during the quarter. Minority interest's share of losses associated with the Wyndham Partnership was $6,641,000 for the three months ended June 30, 1998. Minority interest's share of income in Wyndham's other consolidated subsidiaries was $13,420,000 in 1998. As a result, the net loss was $43,832,000 for the three months ended June 30, 1998. RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30, 1998 For the six months ended June 30, 1998, Wyndham (including its consolidated subsidiaries) had room revenues of $439,157,000 from the 289 hotels it operated during the period. Food and beverage and telephone and other revenues were $236,463,000 for the period. In addition, Wyndham reported management fee and service fee income of $37,248,000 for the six months ended June 30, 1998. Interest and other income for the period included $2,363,000 of interest income related to the Subscription Notes and other notes receivable from Patriot. Lease payments paid to Patriot pursuant to the Participating Leases, other hotel sub-leases and the Racecourse facility lease were $216,262,000 for the first half of 1998. Hotel operating expenses were $454,483,000 for the period. General and administrative expenses were $27,806,000 for the period and consist primarily of salaries and wages of personnel. Interest expense of $13,798,000 for the first half of 1998 is primarily attributable to debt obligations related to the three hotels acquired in the WHG Merger. The amount also includes $6,028,000 of interest expense related to the Subscription Notes and other notes payable to Patriot. In connection with the CHCI Merger, Wyndham acquired 17 leasehold interests for hotels that Patriot owns. As a result, Wyndham recognized expense of $52,723,000 related to the cost of acquiring these leaseholds. Total revenues from the Racecourse facility operations were $24,991,000 for the six months ended June 30, 1998. Expenses associated with the Racecourse operations were $20,857,000 for the six months ended June 30, 1998. The Racecourse operated for 50 live racing days during the six months ended June 30, 1998. Minority interest's share of losses associated with the Wyndham Partnership was $6,715,000 for the six months ended June 30, 1998. Minority interest's share of income in Wyndham's other consolidated subsidiaries was $16,361,000 in 1998. As a result, the net loss was $40,651,000 for the six months ended June 30, 1998. 45 STATISTICAL INFORMATION Second quarter 1998 operating performance across the Companies' owned portfolio improved over the second quarter of 1997, as reflected in a 7.5% increase in revenue per available room ("RevPAR"), a 5.8% increase in average daily rate ("ADR"), and an improvement of 1.6% in occupancy. Similarly, second quarter 1998 operating performance across Wyndham's comparable branded portfolio of owned and managed hotels (hotels in the portfolio for one full common fiscal quarter in both periods presented) improved over the 1997 second quarter, as reflected in a 10.2% increase in RevPAR, an 8.5% increase in ADR, and a 1.5% improvement in occupancy. The Wyndham-branded comparable portfolio was led by strong growth in the Resort division, which posted a 37.4% increase in RevPAR, as several recently renovated properties contributed to the improved performance against weak 1997 results. The Garden division also experienced strong performance, with an 8.3% RevPAR increase driven by improved results at hotels added in the past 18 months. During the second quarter of 1998, Patriot converted 10 hotels, representing approximately 2,200 rooms, to the Wyndham brand; nine of these properties were former Grand Heritage properties, now branded as Wyndham Grand Heritage Hotels, a new product line within the Wyndham family.
THREE MONTHS ENDED JUNE 30 ---------------------------------------------------------------- OCCUPANCY ADR REVPAR -------------------- -------------------- -------------------- 1998 1997 1998 1997 1998 1997 --------- --------- --------- --------- --------- --------- The Companies' owned hotels................................... 75.9% 74.7% $ 107.08 $ 101.20 $ 81.30 $ 75.60 Wyndham-brand comparable portfolio............................ 73.5% 72.4% $ 106.93 $ 98.54 $ 78.59 $ 71.33
For the six months ended June 30, 1998, the Companies' owned portfolio also improved over the comparable period in 1997, as reflected in an 8.1% increase in RevPAR, a 5.9% increase in ADR, and an improvement of 2.1% in occupancy. Similarly, operating performance across Wyndham's comparable branded portfolio of owned and managed hotels for the six-month period improved over last year, as reflected in an 11.2% increase in RevPAR, an 8.1% increase in ADR, and an improvement of 2.9% in occupancy.
SIX MONTHS ENDED JUNE 30 ---------------------------------------------------------------- OCCUPANCY ADR REVPAR -------------------- -------------------- -------------------- 1998 1997 1998 1997 1998 1997 --------- --------- --------- --------- --------- --------- The Companies' owned hotels................................... 73.5% 72.0% $ 110.86 $ 104.70 $ 81.51 $ 75.38 Wyndham-brand comparable portfolio............................ 71.6% 69.6% $ 109.36 $ 101.12 $ 78.25 $ 70.39
COMBINED LIQUIDITY AND CAPITAL RESOURCES CASH FLOW PROVIDED BY OPERATING ACTIVITIES The Companies' principal source of cash to fund operating expenses and distributions to stockholders is cash flow provided by operating activities. Patriot's principal source of revenue is rent payments from the Lessees and Wyndham under the Participating Leases. Wyndham's principal source of cash flow is from the operation of the hotels that it leases and/or manages. The Lessees' and Wyndham's ability to make the rent payments to Patriot is dependent upon their ability to efficiently manage the hotels and generate sufficient cash flow from operation of the hotels. Combined cash and cash equivalents as of June 30, 1998 were $163.5 million, including capital improvement reserves of $25.2 million. Combined cash flows from operating activities of the Companies were $160.5 million for the first half of 1998, which represent a combination of the collection of rents under Participating Leases with third party Lessees and cash flows generated by the hotels operated by Wyndham. 46 Cash and cash equivalents for Patriot as of June 30, 1997 was $9.0 million, including capital improvement reserves of $4.5 million. Cash flows from operating activities of Patriot were $38.5 million for the first half of 1997, which primarily represent the collection of rents under Participating Leases. CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES During the first half of 1998, the Companies experienced a period of rapid growth, acquiring an aggregate of $4.5 billion of hotel properties and management companies. These transactions included the Wyndham Merger, the WHG Merger, the Arcadian Acquisition, the Interstate Merger, the Summerfield Acquisition, the CHCI Merger, and the acquisition of four additional hotel properties and the Golden Door Spa. These transactions were funded with a combination of an aggregate of approximately $1.4 billion in cash (primarily drawn from the Companies' Revolving Credit Facility and Term Loans), issuance of and assumption of other debt aggregating approximately $1.4 billion and the issuance of an aggregate of approximately $1.7 billion of equity securities. Combined cash flows used in investing activities of the Companies were $1.4 billion for the six months ended June 30, 1998, resulting primarily from the acquisition of hotel properties and management companies, renovation expenditures at certain hotels, as well as cash deposited on collateral under one of the Price Adjustment Mechanisms. Combined cash flows from investing activities of $1.3 billion for the six months ended June 30, 1998 were primarily related to borrowings on the Revolving Credit Facility and mortgage notes, and net proceeds from private placements of equity securities, net of payments of dividends and distributions. Patriot's cash flows used in investing activities were $315.3 million for the six months ended June 30, 1997, resulting primarily from the acquisition of hotel properties. Cash flows from Patriot's financing activities of $279.2 million for the six months ended June 30, 1997 were primarily related to borrowings on Patriot's previous line of credit facility, net of payments of dividends and distributions. As of June 30, 1998, Patriot had approximately $841.1 million outstanding under its Revolving Credit Facility and $1.8 billion outstanding on its Term Loans. As of June 30, 1998, the Companies also had over $1.1 billion of mortgage and other debt outstanding, resulting in total indebtedness of approximately $3.7 billion. As of June 30, 1998, the Companies had approximately $34.5 million of availability under the Revolving Credit Facility in addition to cash on hand. Patriot has entered into the transactions with three counterparties involving the sale of an aggregate of 13.3 million shares of Paired Common Stock, with related Purchase Price Adjustments Mechanisms. The terms of the Purchase Price Adjustment Mechanisms require the Companies to issue additional shares of Paired Common Stock or pay a cash settlement amount from time to time based upon the difference between the respective index prices and the respective forward prices, multiplied by the principal amount. For a description of the potential dilution and liquidity effects of the Purchase Price Adjustment Mechanisms, see "--Sale of Paired Common Stock with Price Adjustment Mechanisms." Expenses related to the rapid pace of acquisitions during the first six months of 1998, coupled with the Companies' operating expenses and capital expenditures and development programs, have resulted in Patriot being fully drawn of all available funds under the existing Revolving Credit Facility as of August 14, 1998. Management believes that the Companies have borrowing capacity in addition to the Revolving Credit Facility and is currently negotiating to obtain additional bank financing to fund working capital and other current cash requirements. The Companies are also evaluating additional sources of capital, including, without limitation, refinancing existing indebtedness, issuing additional equity securities or debt, and divesting certain non-core, non-proprietarily branded hotel assets to fund other capital requirements. No assurances can be made regarding the availability or terms of additional sources of capital in the future. Additionally, if the Companies are unable to secure additional sources of financing in the future, no assurances can be made that a future lack of financing sources would not have a material adverse effect on the Companies' financial condition and results of operations. 47 RENOVATIONS AND CAPITAL IMPROVEMENTS During the first half of 1998, the Companies invested approximately $70 million to renovate or re-brand hotels. Pursuant to certain of the Participating Leases, Patriot is obligated to establish a reserve for each such hotel for capital improvements, including the periodic replacement or refurbishment of furniture, fixtures and equipment ("FF&E"). The aggregate amount of such reserves averages 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 these reserves in a single year. The Companies attempt to schedule renovations and improvements during traditionally lower occupancy periods in an effort to minimize disruption to the hotel's operations. Therefore, management does not believe such renovations and capital improvements will have a material effect on the results of operations of the hotels. Capital expenditures will be financed through capital expenditure reserves, the revolving credit facility or other financing sources or with working capital. LEGISLATION AFFECTING THE PAIRED SHARE STRUCTURE Patriot's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Internal Revenue Code of 1986, as amended (the "Code"). Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as Wyndham. The "grandfathering" rules governing Section 296B generally provide, however, that Section 296B(a)(3) does not apply to a paired REIT if the REIT and its paired operating company were paired on June 30, 1983. There are, however, no judicial or administrative authorities interpreting this "grandfathering" rule in the context of a merger into a grandfathered REIT or otherwise. Moreover, although Patriot's and Wyndham's respective predecessors, Cal Jockey and Bay Meadows, were paired on June 30, 1983, if for any reason Cal Jockey failed to qualify as a REIT in 1983 the benefit of the grand fathering rule would not be available to Patriot and Patriot would not qualify as a REIT for any taxable year. Patriot's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation. In this regard, legislation to freeze the grandfathered status of paired share REITS such as Patriot was included in the Internal Revenue Service Restructuring and Reform Act of 1998 (the "IRS Reform Act of 1998"), which was signed into law by the President on July 22, 1998. Under the IRS Reform Act of 1998, the anti-pairing rules generally apply to real property interests acquired after March 26, 1998 by Patriot and Wyndham, or a subsidiary or partnership in which a 10% or greater interest is owned by Patriot or Wyndham (collectively, the "REIT Group"), unless (i) the real property interests are acquired pursuant to a written agreement which is binding on March 26, 1998 and all times thereafter or (ii) the acquisition of such real property interests were described in a public announcement or in a filing with the Securities and Exchange Commission on or before March 26, 1998. In addition, the grandfathered status of any property under the foregoing rules will be lost if the rent on a lease entered into or renewed after March 26, 1998, with respect to such property exceeds an arm's-length rate. The IRS Reform Act of 1998 also provides that a property held by Patriot or Wyndham that is not subject to the anti-pairing rules would become subject to such rules in the event of an improvement placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (x) the undepreciated cost of the property (prior to the improvement) or (y) in the case of property acquired where there is a substituted basis, the fair market value of the property on the day it was acquired by Patriot and Wyndham. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect as of December 31, 1999 and at all times thereafter. 48 The IRS Reform Act of 1998 generally permits Patriot to continue its current method of operations with respect to its existing assets, including the assets acquired in the Interstate Merger, the Arcadian Acquisition, the Summerfield Acquisition and the CHI Merger. However, the legislation would require Patriot to modify its method of operations with respect to newly acquired assets. Patriot has been considering various alternatives, including a possible recapitalization or restructuring of its operations, in response to the legislation. However, if Patriot fails to or is unable to take such steps, the legislation could have a material adverse effect on the future growth of Patriot. There can be no assurance that other legislation affecting REIT qualification will not be enacted. Any such legislation could have a material adverse effect on the Companies. INFLATION Operators of hotels in general possess the ability to adjust room rates quickly. However, competitive pressures may limit Wyndham's and the Lessees' ability to raise room rates in the face of inflation. SEASONALITY The hotel industry is seasonal in nature. Revenues for certain of Patriot's hotels are greater in the first and second quarters of a calendar year and at other hotels in the second and third quarters of a calendar year. Seasonal variations in revenue at the hotels may cause quarterly fluctuations in the Companies' revenues. YEAR 2000 COMPLIANCE The Companies recognize the importance of minimizing the number and seriousness of any disruptions that may occur as a result of Year 2000 and have adopted an extensive compliance program. The Companies are completing the inventory of their information technology and other electronic assets (such as, but not limited to, automated time clocks, point-of-sale, non-information technology systems, including embedded systems that operate security systems, phone systems, energy management systems and other systems) used in the Companies' businesses that may be affected by Year 2000 issues and the related assessment of those assets' Year 2000 compliance. The Companies have completed their assessment of their primary information technology infrastructure and expect to complete the inventory and assessment of substantially all of their Hotels, other than Hotels acquired in the Arcadian Acquisition and the Interstate Merger, by September 15, 1998. The Companies are beginning the inventory and assessment of the systems used in the operation of the Hotels acquired in the Arcadian Acquisition and the Interstate Merger and expect to complete that assessment in the fourth quarter of this year. In addition, 78 of the owners of hotels managed by Wyndham but not owned by Patriot and tenants of hotels owned by Patriot but not leased or operated by Wyndham have indicated they intend to effect their own compliance programs. To the Companies' knowledge, the owners of 27 hotels which are managed by Wyndham have not undertaken any compliance efforts as of this date. The Company is also surveying its vendors and service providers that are critical to the Companies' businesses to determine whether they are Year 2000 compliant. The Companies expect that these surveys will be completed in the fourth quarter of 1998, but cannot guarantee that all vendors or service providers will comply with the Companies' surveys, and therefore the Companies may not be able to determine Year 2000 compliance of those vendors or service providers. At that time, the Companies will determine the extent to which the Companies will be able to replace non-compliant vendors. Due to the lack of an alternative source, there may be instances in which the Companies will have no alternative but to remain with non-compliant vendors or service providers. The Companies are presently negotiating with the vendor that is expected to perform the remediation of the Companies' systems. The scope and cost of this work is not yet known until the inventory and assessment phase is completed. 49 The Companies believe that their reprogramming, upgrading and systems replacements will be implemented and tested by June 30, 1999. The Companies believe that this should provide adequate time to further correct any problems that did not surface during the implementation and testing for those systems. In addition to those systems within the Companies' control and the control of its vendors and suppliers, there are other systems that could have an impact on the Companies' businesses and which may not be Year 2000 compliant by January 1, 2000. These systems could affect the operations of the air traffic control system and airlines or other segments of the lodging and travel industries, or the economy and travel generally. In addition, these systems could affect the Hotels owned by third parties but managed by Wyndham or the third parties that lease Hotels owned by Patriot which are implementing their own compliance programs. These systems are outside of the Companies' control or influence and their compliance may not be verified by the Companies. However, these systems could adversely affect the Companies' financial condition or results of operation. If the Companies are not successful in implementing their Year 2000 compliance plan, the Companies may suffer a material adverse impact on their consolidated results of operations and financial condition. Because of the importance of addressing the Year 2000 problem, the Companies expect to develop contingency plans if they determine that the compliance plans will not be implemented by June 30, 1999. To date, the Companies have expended $600,000 in connection with the inventory and assessment of their information technology and other electronic assets. The Companies presently expect to expend an additional $1.2 million to complete the inventory and assessment phase of the compliance program. FUNDS FROM OPERATIONS Combined Funds from Operations of the Companies (as defined and computed below) was $88.3 million for the three months ended June 30, 1998 and $24.5 million for the three months ended June 30, 1997. Combined Funds from Operations was $163.9 million for the six months ended June 30, 1998 and $47.4 million for the six months ended June 30, 1997. 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 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. 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. 50 The following reconciliation of net (loss) income to Funds from Operations illustrates the difference between the two measures of operating performance for the three months ended June 30, 1998 and 1997:
THREE MONTHS ENDED JUNE 30, --------------------- 1998 1997 ---------- --------- (IN THOUSANDS) Net (loss) income.......................................................................... $ (26,254) $ 11,818 Add: Extraordinary loss from extinguishment of debt........................................... 11,843 -- Minority interest in the Operating Partnerships.......................................... (4,501) 2,302 Depreciation of buildings and improvements and furniture, fixtures and equipment......... 39,296 9,480 Amortization of goodwill and other assets................................................ 5,313 22 Amortization of management contracts and trade names..................................... 4,983 -- Amortization of capitalized lease costs.................................................. 1,505 36 Cost of acquiring leaseholds............................................................. 57,062 -- Adjustment for Funds from Operations of unconsolidated subsidiaries: Equity in earnings of unconsolidated subsidiaries........................................ (2,293) (2,072) Funds from Operations of unconsolidated subsidiaries..................................... 3,436 2,923 Adjustment for minority interest share of Funds from Operations of other consolidated subsidiaries: Minority interest in earnings of consolidated subsidiaries............................... 1,658 -- Minority interest in Funds from Operations of consolidated subsidiaries.................. (3,700) -- ---------- --------- Funds from Operations...................................................................... $ 88,348 $ 24,509 ---------- --------- ---------- --------- Weighted average shares and OP Units outstanding: Basic.................................................................................... 135,770 51,967 ---------- --------- ---------- --------- Diluted.................................................................................. 143,442 53,614 ---------- --------- ---------- ---------
51 The following reconciliation of net (loss) income to Funds from Operations illustrates the difference between the two measures of operating performance for the six months ended June 30, 1998 and 1997:
SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 ---------- --------- (IN THOUSANDS) Net (loss) income.......................................................................... $ (7,842) $ 23,166 Add: Extraordinary loss from extinguishment of debt........................................... 30,560 -- Minority interest in the Operating Partnerships.......................................... (1,447) 4,534 Depreciation of buildings and improvements and furniture, fixtures and equipment......... 66,961 17,947 Amortization of goodwill and other assets................................................ 9,181 44 Amortization of management contracts and trade names..................................... 8,228 -- Amortization of capitalized lease costs.................................................. 1,505 72 Cost of acquiring leaseholds............................................................. 57,062 -- Adjustment for Funds from Operations of unconsolidated subsidiaries: Equity in earnings of unconsolidated subsidiaries........................................ (5,486) (3,093) Funds from Operations of unconsolidated subsidiaries..................................... 7,661 4,762 Adjustment for minority interest share of Funds from Operations of other consolidated subsidiaries: Minority interest in earnings of consolidated subsidiaries............................... 3,014 -- Minority interest in Funds from Operations of consolidated subsidiaries.................. (5,534) -- ---------- --------- Funds from Operations...................................................................... $ 163,863 $ 47,432 ---------- --------- ---------- --------- Weighted average shares and OP Units outstanding: Basic.................................................................................... 124,102 51,824 ---------- --------- ---------- --------- Diluted.................................................................................. 131,703 53,335 ---------- --------- ---------- ---------
52 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS MARRIOTT SETTLEMENT On May 27, 1998, the Companies and Interstate Hotels Company ("Interstate") entered into a settlement agreement (the "Settlement Agreement") with Marriott International, Inc. ("Marriott") which addressed certain claims asserted by Marriott in connection with Patriot's then proposed merger with Interstate. The Settlement Agreement provided for the dismissal of litigation brought by Marriott and allowed Patriot's merger with Interstate to close on June 2, 1998. In addition to dismissal of the Marriott litigation, the Settlement Agreement provides for three principal transactions: (i) the re-branding of ten Marriott hotels under the Wyndham name, (ii) the assumption by Marriott of the management of ten Marriott hotels formerly managed by Interstate for the remaining term of the Marriott franchise agreement, and (iii) the divestiture by the Companies by November 30, 1998 (subject to extension upon payment of certain fees by the Companies) of the third-party management business which was operated by Interstate (the "Spin-off"). The ten Marriott hotels are expected to be converted to the Wyndham brand over the next approximately 15 months. In the event that the Spin-off is completed after November 30, 1998, Marriott will be entitled to receive 110% of the fees otherwise due under the submanagement agreements with respect to the ten hotels Marriott will manage pursuant to the submanagement arrangement described above. In addition, if the SEC Filing is not made by November 30, 1998 or the Spin-off is not completed by January 28, 1999, the Companies will be subject to additional penalties. These additional penalties include the right on the part of Marriott to purchase, subject to third-party consents, the hotels to be submanaged by Marriott and six additional Marriott hotels owned by the Companies at their then appraised values. Moreover, the Companies, subject to any defenses they may have, would owe Marriott liquidated damages with respect to the hotels converted to the Wyndham brand, those to be submanaged by Marriott, and the six additional Marriott hotels Marriott would have the option to purchase. The Companies also anticipate that Marriott would require third-party owners of the Companies' Marriott-branded hotels to choose an alternative manager for their hotels. As a result, each respective hotel would either: (i) lose the Marriott brand, at which time the Companies would have to compensate Marriott for any lost franchise fees or (ii) terminate the management contract with the Companies and enter into a contract with an alternative manager. The Companies would owe liquidated damages on any third-party Marriott-franchised hotel which chooses to convert its brand. DISMISSAL OF WYNDHAM STOCKHOLDERS' LITIGATION 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, purportedly as a class action on behalf of the Old Wyndham stockholders, against Old Wyndham, Patriot and the members of the Board of Directors of Old Wyndham (the "Wyndham Stockholders' Litigation"). 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 Merger. Subsequent to the mailing of Patriot's and Old Wyndham's Joint Proxy Statement/Prospectus on or about November 10, 1997 (the "Joint Proxy Statement/Prospectus"), the Defendants entered into arms' length negotiations that resulted in an agreement, dated November 21, 1997, as amended, to settle the Wyndham Stockholders' Litigation (the "Memorandum of Understanding"). The Memorandum of Understanding set forth the principal bases for the settlement which, among other things, included: (i) the agreement by Old Wyndham to provide the updated fairness opinion of Smith Barney Inc., financial advisor to Old Wyndham, and (ii) certain other disclosures in Patriot's and Old Wyndham's Joint Proxy Statement/Prospectus Supplement mailed on or about December 10, 1997, including (a) additional disclosures relating to the discounted cash flow analyses 53 performed by Merrill Lynch, Pierce, Fenner & Smith Incorporated and (b) financial statements for both Old Wyndham and Patriot as of September 30, 1997. The Memorandum of Understanding and the proposed settlement were contingent upon execution of an appropriate and satisfactory Stipulation and Agreement of Compromise, Settlement and Release (the "Stipulation") and related documents, and the approval of the Delaware Court of Chancery. The parties to the Memorandum of Understanding entered into the formal Stipulation on March 30, 1998 and the Delaware Court of Chancery entered an Order and Final Judgment on June 17, 1998 approving the Stipulation and dismissing the Wyndham Stockholders' Litigation with prejudice. The Delaware Court of Chancery awarded attorneys' fees and expenses to plaintiff's counsel in the aggregate amount of $350,000.00, which sum is to be paid by the defendants as provided in the Stipulation. ITEM 2. CHANGES IN SECURITIES RECENT SALES OF UNREGISTERED SECURITIES Since March 31, 1998, 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, in the amounts and for the consideration set forth below. In April 1998, the Companies issued 5,150,000 Paired Shares to a financial institution for aggregate consideration of approximately $141.9 million in cash. The sale of the Paired Shares is subject to a price adjustment agreement which matures in April 1999. In May 1998, in connection with the acquisition of the Golden Door Spa in Escondido, California, the Companies issued 390,335 Paired Shares valued at approximately $10 million to one of the sellers. In June 1998, in connection with the Summerfield Acquisition, the Companies issued 1,397,281 Paired Shares valued at approximately $35.2 million and 3,223,795 units of limited partnership interest in each of the Patriot Partnership and the Wyndham Partnership valued at approximately $81.1 million to certain of the former owners of Summerfield. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Patriot and Wyndham each convened special meetings of their stockholders on March 30, 1998, which meetings were subsequently adjourned to April 2, 1998 (the "Special Stockholders Meetings"), to consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated December 2, 1997, by and among Interstate Hotels Company, Patriot and Wyndham (the "Interstate Merger Agreement"). On April 2, 1998, the votes of stockholders were submitted at the Patriot and Wyndham Special Stockholders Meetings. For each of Patriot and Wyndham, 63,483,644 shares were voted in favor of the Interstate Merger Agreement; 112,606 shares were voted against the Interstate Merger Agreement; and abstentions were recorded with respect to 269,293 shares. 54 Patriot held its annual meeting of stockholders on May 28, 1998, to elect three directors to serve until 2001. Patriot's stockholders elected the following individuals to serve as directors for additional terms:
NAME VOTES FOR WITHHOLD - ------------------------------ ------------- --------- Paul A. Nussbaum.............. 77,651,439 247,906 Harlan R. Crow................ 77,704,598 194,747 John C. Deterding............. 77,704,419 194,926
Wyndham held its annual meeting of stockholders on May 28, 1998, to elect three directors to serve until 2001. Wyndham's stockholders elected the following individuals to serve as directors for additional terms:
NAME VOTES FOR WITHHOLD - ------------------------------ ------------- --------- James D. Carreker............. 74,048,041 228,808 Russ Lyon, Jr................. 74,094,633 182,216 Sherwood M. Weiser............ 74,091,374 185,475
ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
ITEM NO. DESCRIPTION - ----------- ---------------------------------------------------------------------------------------------- 10.1 Amended and Restated Credit Agreement, dated as of June 2, 1998, among Patriot American Hospitality, Inc., Patriot American Hospitality Partnership, L.P., The Chase Manhattan Bank, PaineWebber Real Estate Securities, Inc. and various lenders identified therein (filed herewith). 10.2 Purchase Agreement, dated as of April 6, 1998, by and among Patriot American Hospitality, Inc., Wyndham International, Inc., PaineWebber Incorporated and PaineWebber Financial Products, Inc. (incorporated by reference to Exhibit 99.1 to Patriot's and Wyndham's Registration Statement on Form S-3 filed July 8, 1998 (Nos. 333-58705 and 333-58705-01)). 10.3 Purchase Price Adjustment Mechanism Agreement, dated as of April 6, 1998, by and among Patriot American Hospitality, Inc., Wyndham International, Inc., PaineWebber Incorporated and PaineWebber Financial Products, Inc. (filed herewith). 10.4 Letter Agreement, dated August 14, 1998, by and among Patriot American Hospitality, Inc.; Wyndham International, Inc. and PaineWebber Financial Products, Inc. (filed herewith). 10.5 Purchase Agreement, dated as of February 26, 1998, by and among Patriot American Hospitality, Inc., Wyndham International, Inc., and NMS Services, Inc. (filed herewith). 10.6 Purchase Price Adjustment Mechanism, dated as of February 26, 1998, by and among Patriot American Hospitality, Inc., Wyndham International, Inc., and NMS Services, Inc. (filed herewith). 10.7 Amendment to Agreements, dated as of August 14, 1998, by and among Patriot American Hospitality, Inc., Wyndham International, Inc. and NationsBanc Mortgage Capital Corporation (filed herewith).
55
ITEM NO. DESCRIPTION - ----------- ---------------------------------------------------------------------------------------------- 10.8 Purchase Agreement, dated as of December 31, 1997, by and among Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, UBS Limited and Union Bank of Switzerland (filed herewith). 10.9 Forward Stock Contract, dated as of December 31, 1997, by and among Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company and Union Bank of Switzerland (filed herewith). 10.10 Letter Agreement, dated as of August 14, 1998, by and among Patriot American Hospitality, Inc., Wyndham International, Inc. and UBS AG, London Branch (filed herewith). 27.1 Financial Data Schedule -- Patriot (filed herewith). 27.2 Financial Data Schedule -- Wyndham (filed herewith).
(b) Reports on Form 8-K: (i) Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and Wyndham International, Inc. dated April 2, 1998 (Nos. 001-09319 and 001-09320 filed April 8, 1998) reporting under Item 5 current developments regarding the Marriott Litigation and the consummation of the acquisition of Arcadian International Limited. (ii) Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and Wyndham International, Inc. dated April 20, 1998 (Nos. 001-09319 and 001-09320 filed April 22, 1998) reporting under Item 5 mergers and other acquisitions subsequent to December 31, 1997. (iii) Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and Wyndham International, Inc. dated May 27, 1998, as amended (Nos. 001-09319 and 001-09320 filed May 27, 1998 and May 28, 1998) reporting under Item 5 the agreement in principle to settle the Marriott Litigation. (iv) Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and Wyndham International, Inc. dated June 2, 1998 (Nos. 001-09319 and 001-09320 filed June 17, 1998) reporting under Item 2 the Interstate Merger and the Summerfield Acquisition. 56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. DATED: August 14, 1998 PATRIOT AMERICAN HOSPITALITY, INC. /S/ LAWRENCE S. JONES ------------------------------------------ Lawrence S. Jones EXECUTIVE VICE PRESIDENT AND TREASURER (AUTHORIZED OFFICER AND PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER) WYNDHAM INTERNATIONAL, INC. /S/ LAWRENCE S. JONES ------------------------------------------ Lawrence S. Jones EXECUTIVE VICE PRESIDENT AND TREASURER (AUTHORIZED OFFICER AND PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER)
57 EX-10.1 2 AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 10.1 ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT among PATRIOT AMERICAN HOSPITALITY, INC., PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., VARIOUS LENDERS, CHASE SECURITIES INC., as Arranger, CREDIT LYONNAIS NEW YORK BRANCH, as Documentation Agent, CITIBANK, N.A., as Documentation Agent, BANKERS TRUST COMPANY, as Documentation Agent, PAINE WEBBER REAL ESTATE SECURITIES INC., as Arranger and Syndication Agent, and THE CHASE MANHATTAN BANK, as Administrative Agent ----------------------------------- Dated as of July 18, 1997 and Amended and Restated as of December 16, 1997 and further Amended and Restated as of June 2, 1998 ----------------------------------- $2,700,000,000 ================================================================================ -2- AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 18, 1997, amended and restated as of December 16, 1997 and further amended and restated as of June 2, 1998, among PATRIOT AMERICAN HOSPITALITY, INC., a Delaware corporation ("Patriot REIT"), PATRIOT AMERICAN HOSPITALITY PARTNERSHIP, L.P., a Virginia limited partnership ("Patriot OP", and together with Patriot REIT, the "Borrowers" and each individually a "Borrower"), the Lenders party hereto from time to time, PAINE WEBBER REAL ESTATE SECURITIES INC. ("Paine Webber") and CHASE SECURITIES INC. ("CSI"), as Arrangers, PAINE WEBBER, as Syndication Agent and THE CHASE MANHATTAN BANK ("Chase"), as Administrative Agent (all capitalized terms used herein and defined in Section 11 are used herein as therein defined). W I T N E S S E T H : WHEREAS, Patriot REIT, Patriot OP, the Original Revolver Lenders, Chase and Paine Webber are parties to an Amended and Restated Credit Agreement, dated as of July 18, 1997 and amended and restated as of December 16, 1997 (as the same has been amended, modified or supplemented to, but not including, the Restatement Effective Date, the "Original Revolving Credit Agreement"); and WHEREAS, Patriot REIT, Patriot OP, the Original Term Lenders, Chase and Paine Webber are parties to a Term Loan Agreement, dated as of December 16, 1997 (as the same has been amended, modified or supplemented to, but not including, the Restatement Effective Date, the "Original Term Loan Agreement", and together with the Original Revolving Credit Agreement, the "Original Credit Agreements"); and WHEREAS, the parties hereto wish to amend and restate each of the Original Credit Agreements in the form of this Agreement to, inter alia, add Patriot REIT as an additional Borrower under the credit facilities evidenced by the Original Credit Agreements and provide the financing for the Interstate Transaction and other acquisitions on the terms and subject to the conditions provided herein and make available to the Borrowers on a joint and several basis the respective credit facilities provided for herein; NOW, THEREFORE, the parties hereto agree that each of the Original Credit Agreements shall be and hereby is amended and restated in its entirety as follows: SECTION 1. Amount and Terms of Credit. 1.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each RL Lender severally agrees, at any time and from time to time on and after the Original Revolver Effective Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or revolving loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the respective Borrower (or, if prior to the Restatement Effective Date, to Patriot OP pursuant to the Original Revolving Credit Agreement), which Revolving Loans (i) shall, at the option of the Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that, except as otherwise specifically provided in Section 1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be of the same Type, (ii) may be repaid and reborrowed at any time in accordance with the provisions hereof, (iii) shall not exceed for any Lender at any time outstanding that aggregate principal amount which, when added to the product of (x) such Lender's Adjusted RL Percentage and (y) the sum of (I) the aggregate amount of all Letter of Credit Outstandings at such time (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) and (II) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Revolving Loan Commitment of such Lender at such time and (iv) shall not exceed for all Lenders at any time outstanding that aggregate principal amount which, when added to (x) the amount of all Letter of Credit Outstandings at such time (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) and (y) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, equals the Adjusted Total Revolving Loan Commitment at such time. Notwithstanding the foregoing, (i) the Borrowers shall not be permitted to incur Revolving Loans, the proceeds of which are used for working capital purposes ("W/C Loans") in aggregate principal amount which, when added to (x) the amount of all Letter of Credit Outstandings at such time (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) and (y) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, would exceed 10% of the Adjusted Total Revolving Loan Commitment then in effect and (ii) the Total Unutilized Revolving Loan Commitment on the Restatement Effective Date, after giving effect to the incurrence of all Loans under this Agreement on such date, shall be at least $250,000,000. After the Restatement Effective Date, all Revolving Loans shall constitute the joint and several obligations of the Borrowers. (b) Subject to and upon the terms and conditions set forth herein, each Original Term Lender severally agrees to continue, on the Restatement Effective Date, the Original Term Loans made by such Original Term Lenders to Patriot OP pursuant to the Original Term Loan Agreement and outstanding on the Restatement Effective Date (immediately prior to giving effect thereto) as term loans (each, a "Tranche I Term Loan" and, collectively, the "Tranche I Term Loans") to the Borrowers hereunder, which Tranche I Term Loans (i) shall, at the option of the Borrowers, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that except as otherwise specifically provided in Section 1.10(b), all Tranche I Term Loans comprising the same Borrowing shall at all times be of the same Type and (ii) shall not exceed for any Lender, in initial principal amount, that amount which equals the aggregate outstanding principal amount of the Original Term Loans made by such Lender and outstanding on the Restatement Effective Date (immediately prior to giving effect thereto) as set forth on Schedule I. Once repaid, Tranche I Term Loans incurred hereunder may not be reborrowed. After the Restatement Effective Date, all Tranche I Term Loans shall constitute the joint and several obligations of the Borrowers. -2- (c) Subject to and upon the terms and conditions set forth herein, each Lender with a Tranche II Term Loan Commitment severally agrees to make on the Restatement Effective Date a term loan or term loans (each a "Tranche II Term Loan" and, collectively, the Tranche II Term Loans") to the respective Borrower, which Tranche II Term Loans (i) shall, at the option of the Borrowers, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (x) except as otherwise specifically provided in Section 1.10(b) all Tranche II Term Loans comprising the same Borrowing shall at all times be of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), all Borrowings of Tranche II Term Loans to be maintained as Eurodollar Loans incurred prior to the 90th day after the Restatement Effective Date may only have an Interest Period of seven days or one month and (I) in case of Interest Periods of one month, may only be made (A) on a single date on or after the Restatement Effective Date and on or before the sixth Business Day following the Restatement Effective Date, (B) on the last day of the Interest Period of the first set of such Borrowings described in clause (A) above and on the last day of the Interest Period of the second set of such Borrowings described in clause (B) above and (II) in the case of Interest Periods of seven days, must be scheduled such that no Interest Period in respect thereof shall be outstanding on the date the one month Interest Periods described in clause (I) above terminate, and (ii) shall not exceed for any Lender, in initial principal amount, that amount which equals the Tranche II Term Loan Commitment of such Lender on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(b)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(b)(ii)). Once repaid, Tranche II Term Loans incurred hereunder may not be reborrowed. All Tranche II Term Loans shall constitute the joint and several obligations of the Borrowers. (d) Subject to and upon the terms and conditions set forth herein, each Lender with a Tranche III Term Loan Commitment severally agrees to make on the Restatement Effective Date a term loan or term loans (each, a "Tranche III Term Loan" and, collectively, the "Tranche III Term Loans") to the respective Borrower, which Tranche III Term Loans (i) shall, at the option of the Borrowers, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (x) except as otherwise specifically provided in Section 1.10(b) all Tranche III Term Loans comprising the same Borrowing shall at all times be of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), all Borrowings of Tranche III Term Loans to be maintained as Eurodollar Loans incurred prior to the 90th day after the Restatement Effective Date may only have an Interest Period of seven days or one month and (I) in case of Interest Periods of one month, may only be made (A) on a single date on or after the Restatement Effective Date and on or before the sixth Business Day following the Restatement Effective Date, (B) on the last day of the Interest Period of the first set of such Borrowings described in clause (A) above and on the last day of the Interest Period of the second set of such Borrowings described in clause (B) above and (II) in the case of Interest Periods of seven days, must be scheduled such that no Interest Period in respect thereof shall be outstanding on the date the one month Interest Periods described in clause (I) above terminate, and (ii) shall not exceed for any Lender, in initial aggregate principal amount, that amount which equals the Tranche III Term Loan Commitment of such Lender on such date (before giving effect to any reductions -3- thereto on such date pursuant to Section 3.03(c)(i) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(c)(ii)). Once repaid, Tranche III Term Loans incurred hereunder may not be reborrowed. All Tranche III Terms Loans shall constitute the joint and several obligations of the Borrowers. (e) Subject to and upon the terms and conditions set forth herein, each Lender with a Tranche B Term Loan Commitment severally agrees, to make on the Restatement Effective Date a term loan or term loans (each, a "Tranche B Term Loan" and, collectively, the "Tranche B Term Loans") to the respective Borrower, which Tranche B Term Loans (i) shall, at the option of the Borrowers, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that (x) except as otherwise specifically provided in Section 1.10(b), all Tranche B Term Loans comprising the same Borrowing shall at all times be of the same Type and (y) unless the Administrative Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), all Borrowings of Tranche B Term Loans to be maintained as Eurodollar Loans incurred prior to the 90th day after the Restatement Effective Date may only have an Interest Period of seven days or one month and (I) in case of Interest Periods of one month, may only be made (A) on a single date on or after the Restatement Effective Date and on or before the sixth Business Day following the Restatement Effective Date, (B) on the last day of the Interest Period of the first set of such Borrowings described in clause (A) above and on the last day of the Interest Period of the second set of such Borrowings described in clause (B) above and (II) in the case of Interest Periods of seven days, must be scheduled such that no Interest Period in respect thereof shall be outstanding on the date the one month Interest Periods described in clause (I) above terminate, and (ii) shall not exceed, for any Lender, in initial principal amount, that amount which equals the Tranche B Term Loan Commitment of such Lender on such date (before giving effect to any reductions thereto on such date pursuant to Section 3.03(d)(i) but after giving effect to any reductions thereto pursuant to Section 3.03(d)(ii)). Once repaid, Tranche B Term Loans incurred hereunder may not be reborrowed. All Tranche B Term Loans shall constitute the joint and several obligations of the Borrowers. (f) Subject to and upon the terms and conditions set forth herein, the Swingline Lender in its individual capacity agrees to make at any time and from time to time on and after the Restatement Effective Date and prior to the Swingline Expiry Date, a revolving loan or revolving loans (each, a "Swingline Loan" and, collectively, the "Swingline Loans") to the respective Borrower, which Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) may be repaid and reborrowed in accordance with the provisions hereof, (iii) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans made by Non-Defaulting Lenders then outstanding and the Letter of Credit Outstandings at such time, an amount equal to the Adjusted Total Revolving Loan Commitment at such time (after giving effect to any reductions to the Adjusted Total Revolving Loan Commitment on such date) and (iv) shall not exceed at any time outstanding, the lesser of (a) the amount which, when added to the amount of all Letter of Credit Outstandings at such time (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) and the aggregate principal amount of all W/C Loans outstanding at such time, would exceed 10% of the -4- Adjusted Total Revolving Loan Commitment then in effect, and (b) the Maximum Swingline Amount. All Swingline Loans shall constitute the joint and several obligations of the Borrowers. The Swingline Lender shall not be obligated to make any Swingline Loans at a time when a Lender Default exists unless the Swingline Lender has entered into arrangements satisfactory to it and the Borrowers to eliminate the Swingline Lender's risk with respect to the Defaulting Lender's or Lenders' participation in such Swingline Loans, including by cash collateralizing such Defaulting Lender's or Lenders' RL Percentage of the outstanding Swingline Loans. The Swingline Lender will not make a Swingline Loan after it has received written notice from either Borrower or the Required Lenders stating that a Default or an Event of Default exists until such time as the Swingline Lender shall have received a written notice of (i) rescission of such notice from the party or parties originally delivering the same or (ii) a waiver of such Default or Event of Default from the Required Lenders. (g) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the RL Lenders that its outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans (provided that such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 10 or upon the exercise of any of the remedies provided in Section 10), in which case a Borrowing of Revolving Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by all RL Lenders (without giving effect to any reductions thereto pursuant to the last paragraph of Section 10) pro rata based on each RL Lender's Adjusted RL Percentage (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to Section 10) and the proceeds thereof shall be applied directly to the Swingline Lender to repay the Swingline Lender for such outstanding Swingline Loans. Each RL Lender hereby irrevocably agrees to make Revolving Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender notwithstanding (i) the amount of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Sections 5 or 6 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) the date of such Mandatory Borrowing and (v) the amount of the Total Revolving Loan Commitment or the Adjusted Total Revolving Loan Commitment at such time. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to either Borrower), then each RL Lender (other than the Swingline Lender) hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrowers on or after such date and prior to such purchase) from the Swingline Lender such participations in the outstanding Swingline Loans as shall be necessary to cause such RL Lenders to share in such Swingline Loans ratably based upon their respective Adjusted RL Percentages (determined before giving effect to any termination of the Revolving Loan Commitments pursuant to the last paragraph of Section 10), provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective participation is required to be purchased and, to the extent attributable to the -5- purchased participation, shall be payable to the participant from and after such date and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing RL Lender shall be required to pay the Swingline Lender interest on the principal amount of participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the rate otherwise applicable to Revolving Loans maintained as Base Rate Loans hereunder for each day thereafter. 1.02 Minimum Borrowing Amounts. The aggregate principal amount of each Borrowing of Loans under a respective Tranche shall not be less than the Minimum Borrowing Amount applicable to such Tranche, provided that Mandatory Borrowings shall be made in the amounts required by Section 1.01(g). More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than fifteen Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) Whenever either Borrower desires to incur a Borrowing hereunder (excluding Borrowings of Swingline Loans), such Borrower shall give the Administrative Agent at its Notice Office at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Base Rate Loan and at least three Business Days' (or, in the case of Loans made on the Restatement Effective Date, two Business Days') prior written notice (or telephonic notice promptly confirmed in writing) of each Eurodollar Loan to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) in the case of a Borrowing of Eurodollar Loans and 12:00 Noon (New York time) in the case of a Borrowing of Base Rate Loans on such day. Each such written notice or written confirmation of telephonic notice (each a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be given by such Borrower in the form of Exhibit A, completed to specify (i) the name of such Borrower or Borrowers, (ii) the aggregate principal amount of the Loans to be incurred pursuant to such Borrowing, (iii) the date of such Borrowing (which shall be a Business Day), (iv) whether the Loans being made pursuant to such Borrowing shall constitute Tranche I Term Loans, Tranche II Term Loans, Tranche III Term Loans, Tranche B Term Loans or Revolving Loans and (v) whether the Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Lender which is required to make Loans of the Tranche specified in the respective Notice of Borrowing, notice of such proposed Borrowing, of such Lender's proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. (b)(i) Whenever either Borrower desires to make a Borrowing of Swingline Loans hereunder, it shall give the Swingline Lender not later than 12:00 Noon (New York time) on the date that a Swingline Loan is to be made, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be made hereunder. Each such notice shall specify in each case (A) the date of Borrowing (which shall be a Business Day) and (B) the aggregate principal amount of the Swingline Loans to be made pursuant to such Borrowing. -6- (ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(g), with each Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 1.01(g). (c) Without in any way limiting the obligation of any Borrower to confirm in writing any telephonic notice of any Borrowing of Loans, the Administrative Agent or the Swingline Lender, as the case may be, may act without liability upon the basis of telephonic notice of such Borrowing, believed by the Administrative Agent or the Swingline Lender, as the case may be, in good faith to be from an Authorized Officer of such Borrower prior to receipt of written confirmation. In each such case, the Borrowers hereby waives the right to dispute the Administrative Agent's and the Swingline Lender's record of the terms of such telephonic notice of such Borrowing of Loans. 1.04 Disbursement of Funds. No later than 1:00 P.M. (New York time) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, not later than 2:00 P.M. (New York time) on the date specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later than 12:00 Noon (New York time) on the date specified in Section 1.01(g)), each Lender with a Commitment of the respective Tranche will disburse its pro rata portion of each Borrowing requested to be made on such date (or in the case of Swingline Loans, the Swingline Lender shall make available the full amount thereof). All such amounts shall be disbursed in Dollars and in immediately available funds at the Payment Office of the Administrative Agent, and the Administrative Agent will promptly disburse to the respective Borrower or Borrowers at the Payment Office in Dollars and in immediately available funds, the aggregate of the amounts so made available by the Lenders. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to disburse to the Administrative Agent such Lender's portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Lender has disbursed such amount to the Administrative Agent on such date of Borrowing and the Administrative Agent may, in reliance upon such assumption, disburse to the respective Borrower or Borrowers a corresponding amount. If such corresponding amount is not in fact disbursed to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrowers and the Borrowers shall pay within one Business Day, on a joint and several basis, such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Lender or the Borrowers, on a joint and several basis, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the respective Borrower until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Lender, at the overnight Federal Funds Rate and (ii) if recovered from a Borrower, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Lender from its obligation to make Loans hereunder or to prejudice any rights which either Borrower may have against any Lender as a result of any failure by such Lender to make Loans hereunder. -7- 1.05 Notes. (a) Each Borrower's obligation to pay the principal of, and interest on, the Loans made by each Lender shall be evidenced (i) if Tranche I Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a "Tranche I Term Note" and, collectively, the "Tranche I Term Notes"), (ii) if Tranche II Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-2 with blanks appropriately completed in conformity herewith (each, a "Tranche II Term Note" and, collectively, the "Tranche II Term Notes"), (iii) if Tranche III Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-3 with blanks appropriately completed in conformity herewith (each, a "Tranche III Term Note" and, collectively, the "Tranche III Term Notes), (iv) if Tranche B Term Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-4 with blanks appropriately completed in conformity herewith (each, a "Tranche B Term Note" and, collectively, the "Tranche B Term Notes"), (v) if Revolving Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-5, with blanks appropriately completed in conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving Notes") and (vi) if Swingline Loans, by a promissory note duly executed and delivered by the Borrowers substantially in the form of Exhibit B-6, with blanks appropriately completed in conformity herewith (the "Swingline Note"). (b) The Tranche I Term Note issued to each Tranche I Term Lender shall (i) be executed by each Borrower, (ii) be payable to the order of such Tranche I Term Lender and be dated the Restatement Effective Date (or, in the case of Tranche I Term Notes issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the outstanding principal amount of the Tranche I Term Loan continued by such Tranche I Term Lender on the Restatement Effective Date (or, in the case of Tranche I Term Notes issued after the Restatement Effective Date, be in a stated principal amount equal to the outstanding principal amount of the Tranche I Term Loan of such Tranche I Term Lender on the date of the issuance thereof) and be payable in the principal amount of Tranche I Term Loans evidenced thereby, (iv) mature on the Tranche I Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) The Tranche II Term Note issued to each Lender with a Tranche II Term Loan Commitment shall (i) be executed by each Borrower, (ii) be payable to the order of such Tranche II Term Lender and be dated the Restatement Effective Date (or, in the case of Tranche II Term Notes issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Tranche II Term Loan Commitment of such Lender on the Restatement Effective Date (or, in the case of Tranche II Term Notes issued after the Restatement Effective Date, be in a stated principal amount equal to the outstanding principal amount of the Tranche II Term Loan of such Lender on the date of the issuance thereof) and be payable in the principal amount of Tranche II Term Loans evidenced thereby, (iv) mature on the Tranche II Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of -8- Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (d) The Tranche III Term Note issued to each Lender with a Tranche III Term Loan Commitment shall (i) be executed by each Borrower, (ii) be payable to the order of such Lender and be dated the Restatement Effective Date (or, in the case of Tranche III Term Notes issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Tranche III Term Loan Commitment of such Lender on the Restatement Effective Date (or, in the case of Tranche III Term Notes issued after the Restatement Effective Date, be in a stated principal amount equal to the outstanding principal amount of the Tranche III Term Loan of such Lender on the date of the issuance thereof) and be payable in the principal amount of Tranche III Term Loans evidenced thereby, (iv) mature on the Tranche III Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (e) The Tranche B Term Note issued to each Lender with a Tranche B Term Loan Commitment shall (i) be executed by each Borrower, (ii) be payable to the order of such Lender and be dated the Restatement Effective Date (or, in the case of Tranche B Term Notes issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Tranche B Term Loan Commitment of such Lender on the Restatement Effective Date (or, in the case of Tranche B Term Notes issued after the Restatement Effective Date, be in a stated principal amount equal to the outstanding principal amount of the Tranche B Term Loan of such Lender on the date of the issuance thereof) and be payable in the principal amount of Tranche B Term Loans evidenced thereby, (iv) mature on the Tranche B Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (f) The Revolving Note issued to each RL Lender shall (i) be executed by each Borrower, (ii) be payable to the order of such RL Lender and be dated the Restatement Effective Date (or, in the case of Revolving Notes issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such RL Lender and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment and mandatory repayment as provided in Sections 4.01 and 4.02 and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. -9- (g) The Swingline Note issued to the Swingline Lender shall (i) be executed by each Borrower, (ii) be payable to the order of the Swingline Lender and be dated the Restatement Effective Date (or, in the case of any Swingline Note issued after the Restatement Effective Date, be dated the date of the issuance thereof), (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of the outstanding Swingline Loans evidenced thereby from time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans evidenced thereby and (vi) be entitled to the benefits of this Agreement and the other Credit Documents. (h) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes properly endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or any error in any such notation or endorsement shall not affect the Borrowers' obligations to the holder from time to time of each Note in respect of such Loans. 1.06 Conversions. Each Borrower shall have the option to convert, on any Business Day occurring on or after the Restatement Effective Date, all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of Loans (other than Swingline Loans which shall at all times be maintained as Base Rate Loans) made pursuant to one or more Borrowings of one or more Types of Loans under a single Tranche into a Borrowing or Borrowings of another Type of Loan under such Tranche; provided that (i) except as otherwise provided in Section 1.10(b) or unless the Borrowers pay all breakage costs and other amounts owing to each Lender pursuant to Section 1.11 concurrently with any such conversion, Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable to the Loans being converted, and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no Event of Default is in existence on the date of the conversion, (iii) no conversion pursuant to this Section 1.06 shall result in a greater number of Borrowings of Eurodollar Loans than is permitted under Section 1.02, (iv) unless the Administrative Agent shall have determined that the Syndication Date has occurred (at which time this clause (iv) shall no longer be applicable), Tranche II Term Loans, Tranche III Term Loans and Tranche B Term Loans converted into Eurodollar Loans prior to the 90th day after the Restatement Effective Date may only have an Interest Period of one month or seven days and may only be converted such that all Interest Periods in respect thereof shall end on the dates required under Section 1.01(c)(i)(y), (d)(i)(y) and (e)(i)(y) and (v) Swingline Loans may not be converted pursuant to this Section 1.06. Each such conversion shall be effected by the Borrower by giving the Administrative Agent at its Notice Office, prior to 11:00 A.M. (New York time), at least three Business Days' (or one Business Day's in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing(s) pursuant to which the Loans were made and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each -10- Lender prompt notice of any such proposed conversion affecting any of its Loans. Upon any such conversion, the proceeds thereof will be deemed to be applied directly on the day of such conversion to prepay the outstanding principal amount of the Loans being converted. 1.07 Pro Rata Borrowings. All Borrowings of Tranche II Term Loans, Tranche III Term Loans, Tranche B Term Loans and Revolving Loans under this Agreement shall be incurred from the Lenders pro rata on the basis of such Lenders' Tranche II Term Loan Commitments, Tranche III Term Loan Commitments, Tranche B Term Loan Commitments or Revolving Loan Commitments, as the case may be; provided that all Borrowings of Revolving Loans made pursuant to a Mandatory Borrowing shall be incurred from the RL Lenders pro rata on the basis of their Adjusted RL Percentages. It is understood that no Lender shall be responsible for any default by any other Lender of its obligation to make Loans hereunder and that each Lender shall be obligated to make the Loans to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder. 1.08 Interest. (a) Each Borrower agrees to pay, on a joint and several basis, interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to the Borrowers until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time. (b) Each Borrower agrees to pay, on a joint and several basis, interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to the Borrowers until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10, as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin plus the Eurodollar Rate for such Interest Period. (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the rate which is the greater of (i) 2% in excess of the rate then borne by such Loans (without giving effect to any increase in the rate borne by such Loans as a result of the operation of this clause (c)) and (ii) the Base Rate then in effect plus 4%, in each case with such interest to be payable on demand. (d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, monthly in arrears on the tenth day of each calendar month, (ii) in respect of each Eurodollar Loan, on the tenth day of each calendar month and (iii) in respect of each Loan, on any repayment or prepayment (on the amount repaid or prepaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) Upon each Interest Determination Date, the Administrative Agent shall determine the Eurodollar Rate for each Interest Period applicable to Eurodollar Loans and shall -11- promptly notify the respective Borrower and the Lenders thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. 1.09 Interest Periods. At the time a Borrower gives any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), such Borrower shall have the right to elect, by giving the Administrative Agent notice thereof, the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of such Borrower, be a seven day period or one month period prior to the Syndication Date, and thereafter be a one, two, three or six-month period, provided that: (i) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period; (ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Eurodollar Loan (including the date of any conversion thereto from a Loan of a different Type) and each Interest Period occurring thereafter in respect of such Eurodollar Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (iii) if any Interest Period relating to a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be selected at any time when an Event of Default is then in existence; (vi) no Interest Period for a Borrowing of any Tranche of Loans shall be selected which extends beyond the respective Maturity Date for such Tranche of Loans; and (vii) no Interest Period in respect of any Borrowing of Tranche B Term Loans shall be selected which extends beyond any date upon which a mandatory repayment of such Tranche B Term Loans will be required to be made under Section 4.02(b) if the aggregate principal amount of Tranche B Term Loans, which have Interest Periods which will expire after such date will be in excess of the aggregate principle amount of Tranche B Term Loans then outstanding less the aggregate amount of such required prepayment. -12- If upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the respective Borrower has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above, such Borrower shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that any Lender shall have determined in good faith (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Administrative Agent): (i) on any Interest Determination Date that, by reason of any changes arising after the Restatement Effective Date affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Lender of the principal of or interest on such Eurodollar Loan or any other amounts payable hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or net profits of such Lender, or any franchise tax, in either case pursuant to the laws of the jurisdiction in which such Lender is organized or in which such Lender's principal office or applicable lending office is located or any subdivision thereof or therein), or (B) a change in official reserve require ments, but, in all events, excluding any change in reserve requirements included in the computation of the Eurodollar Rate and/or (y) other circumstances since the date of this Agreement affecting the interbank Eurodollar market; or (iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Lender (or the Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the respective Borrower and, except in the case of clause (i) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies such Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any -13- Notice of Borrowing or Notice of Conversion given by a Borrower with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by such Borrower, (y) in the case of clause (ii) above, such Borrower shall pay to such Lender, five Business Days after written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, submitted to such Borrower by such Lender in good faith shall, absent manifest error, be final and conclusive and binding on all the parties hereto) and (z) in the case of clause (iii) above, such Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. Each of the Administrative Agent and each Lender agrees that if it gives notice to the respective Borrower of any of the events described in clause (i) or (ii) above, it shall promptly notify such Borrower and, in the case of any such Lender, the Administrative Agent, if such event ceases to exist. If any such event described in clause (iii) above ceases to exist as to a Lender, the obligations of such Lender to make Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans on the terms and conditions contained herein shall be reinstated. In addition, if the Administrative Agent gives notice to the respective Borrower that the events described in clause (i) above cease to exist, then the obligations of the Lenders to make Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans on the terms and conditions contained herein (but subject to clause (iii) above) shall also be reinstated. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the respective Borrower may (and in the case of a Eurodollar Loan affected by the circumstances described in Section 1.10(a)(iii), such Borrower shall) either (x) if the affected Eurodollar Loan is then being made initially or pursuant to a conversion, cancel the respective Borrowing by giving the Administrative Agent telephonic notice (confirmed in writing) on the same date that such Borrower was notified by the affected Lender or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' written notice to the Administrative Agent, require the affected Lender to convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 1.10(b). (c) If at any time any Lender determines in good faith that, after the Restatement Effective Date, the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law and including, without limitation, those announced or published prior to the Restatement Effective Date) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender based on the existence of such Lender's Commitments hereunder or its obligations hereunder, then the Borrowers shall pay (and shall be jointly and severally obligated to pay) to such Lender, five Business Days after such Lender's written -14- demand therefor, such additional amounts as shall be required to compensate such Lender or such other corporation for the increased cost to such Lender or such other corporation or the reduction in the rate of return to such Lender or such other corporation as a result of such increase of capital allocable to the existence of such Lender's commitment or obligations hereunder. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Lender's reasonable good faith determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Lender, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Borrowers, which notice shall show the basis for calculation of such additional amounts. In addition, each such Lender, upon determining that the circumstances giving rise to the payment of additional amounts pursuant to this Section 1.10(c) cease to exist, will give prompt written notice thereof to the Borrowers. 1.11 Compensation. The Borrowers shall, on a joint and several basis, compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans but excluding any loss of anticipated profit) which such Lender may sustain: (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the respective Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any repayment made pursuant to Section 4.01 or 4.02 or as a result of an acceleration of the Loans pursuant to Section 10) or conversion of any Eurodollar Loans occurs on a date which is not the last day of an Interest Period with respect thereto; (iii) if any prepayment of any Eurodollar Loans is not made on any date specified in a notice of prepayment given by the respective Borrower; or (iv) as a consequence of (x) any other default by any Borrower to repay the Loans when required by the terms of this Agreement or any Note held by such Lender or (y) any election made pursuant to Section 1.10(b). 1.12 Change of Lending Office. Each Lender agrees that on the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to such Lender, it will, if requested by any Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding or reducing the consequence of the event giving rise to the operation of such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided in Sections 1.10, 2.05 and 4.04. 1.13 Replacement of Lenders. (a) (x) If any Lender (i) becomes a Defaulting Lender or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings or (ii) -15- refuses to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders as provided in Section 13.12(b) or (y) upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to any Lender which results in such Lender charging to the Borrowers increased costs in excess of those being generally charged by the other Lenders, the Borrowers shall have the right, if no Default or Event of Default will exist immediately after giving effect to the respective replacement, to either replace such Lender (the "Replaced Lender") with one or more other Eligible Transferee or Transferees, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender") reasonably acceptable to the Administrative Agent or, at the option of the Borrowers, to replace only (a) the Revolving Loan Commitment (and outstandings pursuant thereto) of the Replaced Lender with an identical Revolving Loan Commitment provided by the Replacement Lender or (b) in the case of a replacement as provided in Section 13.12(b) where the consent of the respective Lender is required with respect to less than all Tranches of its Loans or Commitments, the Commitments and/or outstanding Term Loans of such Lender in respect of each Tranche where the consent of such Lender would otherwise be individually required, with identical Commitments and/or Loans of the respective Tranche provided by the Replacement Lender; provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replaced Lender and the Replacement Lender shall enter into one or more Assignment and Assumption Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section 13.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans (or, in the case of the replacement of only (a) the Revolving Loan Commitment, the Revolving Loan Commitment and outstanding Revolving Loans or (b) the outstanding Term Loans of one or more Tranches, the outstanding Term Loans of the respective Tranche or Tranches) of, and in each case (except for the replacement of only the outstanding Term Loans of one or more Tranches of the respective Lender) participations in Letters of Credit by, the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum (without duplication) of (1) an amount equal to the principal of, and all accrued interest on, all outstanding Loans (or, in the case of the replacement of only (I) the Revolving Loan Commitment, the outstanding Revolving Loans or (II) the Term Loans of one or more Tranches, the outstanding Term Loans of such Tranche or Tranches) of the Replaced Lender together with all then unpaid interest with respect thereto at such time, (2) except in the case of the replacement of only the outstanding Term Loans of one or more Tranches of a Replaced Lender, an amount equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (3) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender (but only with respect to the relevant Tranche, in the case of the replacement of less than all Tranches of Loans then held by the respective Replaced Lender) pursuant to Section 3.01 and (y) except in the case of the replacement of only the outstanding Term Loans of one or more Tranches of a Replaced Lender, the respective Issuing Lender an amount equal to such Replaced Lender's Adjusted RL Percentage of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations of the Borrowers owing to the Replaced Lender (other than those (a) specifically described in clause (i) above of this proviso in respect of which the assignment -16- purchase price has been, or is concurrently being, paid or (b) relating to any Tranche of Loans and/or Commitments of the respective Replaced Lender which will remain outstanding after giving effect to the respective replacement) shall be paid in full to such Replaced Lender concurrently with such replacement. (b) Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) of the proviso of Section 1.13(a) and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by each Borrower, (x) the Replacement Lender shall become a Lender hereunder and, unless the respective Replaced Lender continues to have outstanding Term Loans or a Revolving Loan Commitment hereunder, the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 12.06, 13.01 and 13.06), which shall survive as to such Replaced Lender and (y) in the case of a replacement of a Defaulting Lender with a Non-Defaulting Lender, the Adjusted RL Percentages of the Lenders shall be automatically adjusted at such time to give effect to such replacement (and to give effect to the replacement of a Defaulting Lender with one or more Non-Defaulting Lenders). Upon the Replaced Lender ceasing to be a Lender hereunder, such Replaced Lender agrees to promptly return to the Borrowers the Note or Notes theretofore delivered to such Replaced Lender pursuant to this Agreement marked "cancelled", or if such Replaced Lender has lost or cannot find such Note or Notes, such Replaced Lender will execute and deliver to the Borrowers a customary lost note and indemnity agreement in form and substance reasonably satisfactory to the Borrowers. SECTION 2. Letters of Credit. 2.01 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, any Borrower may request that any Issuing Lender issue, at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, for the account of such Borrower and for the benefit of any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Obligations, an irrevocable standby letter of credit, in a form customarily used by such Issuing Lender or in such other form as has been approved by such Issuing Lender, such approval not to be unreasonably withheld or delayed (each such standby letter of credit, a "Letter of Credit") in support of such L/C Supportable Obligations. On the Restatement Effective Date, all Original Letters of Credit shall be deemed to have been issued under this Agreement and shall for all purposes constitute "Letters of Credit" hereunder. (b) Subject to the terms and conditions contained herein, the Administrative Agent hereby agrees that it will (and at a Borrower's request each other Issuing Lender may, at its option, agree that it will), at any time and from time to time on or after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, following its receipt of the respective Letter of Credit Request, issue for the account of the respective Borrower one or more Letters of Credit in support of such L/C Supportable Obligations of such Borrower or any of its Subsidiaries as is permitted to remain outstanding without giving rise to a Default or Event of Default hereunder, -17- provided that the respective Issuing Lender shall be under no obligation to issue any Letter of Credit if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Lender from issuing such Letter of Credit or any requirement of law applicable to such Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Lender shall prohibit, or request that such Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Lender with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Lender is not otherwise compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to such Issuing Lender as of the date hereof and which such Issuing Lender in good faith deems material to it; or (ii) such Issuing Lender shall have received notice from any Lender prior to the issuance of such Letter of Credit of the type described in the second sentence of Section 2.02(b). (c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) and the aggregate principal amount of all Revolving Loans made by the Non-Defaulting Lenders and then outstanding and all Swingline Loans then outstanding, would exceed the Adjusted Total Revolving Loan Commitment at such time, (ii) each Letter of Credit shall be denominated in Dollars, (iii) each Letter of Credit shall by its terms terminate on or before the earlier of (A) the date which occurs 12 months after the date of the issuance thereof (although any such Letter of Credit may be automatically extendable for successive periods of up to 12 months, but not beyond the tenth Business Day prior to the Revolving Loan Maturity Date, on terms acceptable to the Issuing Lender thereof) and (B) the tenth Business Day prior to the Revolving Loan Maturity Date, (iv) the Stated Amount of each Letter of Credit upon issuance shall be not less than $100,000 or such lesser amount as is acceptable to the respective Issuing Lender and (v) no Letter of Credit shall be issued the Stated Amount of which, when added to (A) the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit), (B) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) then outstanding, and (C) the aggregate principal amount of all W/C Loans outstanding at such time, would exceed 10% of the Adjusted Total Revolving Loan Commitment then in effect. Notwithstanding anything to the contrary contained in this Agreement, in the event that a Lender Default exists, the respective Issuing Lender shall not be required to issue any Letter of Credit unless such Issuing Lender has entered into an arrangement satisfactory to it and the respective Borrower to eliminate such Issuing Lender's risk with respect to the participation in Letters of Credit by the Defaulting Lender or Lenders, including by cash collateralizing such Defaulting Lender's or Lenders' Percentage of the Letter of Credit Outstandings. -18- 2.02 Letter of Credit Requests. (a) Whenever a Borrower desires that a Letter of Credit be issued for its account, such Borrower shall give the Administrative Agent and the respective Issuing Lender at least three Business Days' (or such shorter period as is acceptable to the respective Issuing Lender) written notice thereof. Each notice shall be in the form of Exhibit C (each a "Letter of Credit Request"). (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the respective Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.01(c). Unless the respective Issuing Lender has received notice from any Lender before it issues a Letter of Credit that one or more of the conditions specified in Section 5 or Section 6, as applicable, are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.01(c), then such Issuing Lender may issue the requested Letter of Credit for the account of the respective Borrower in accordance with such Issuing Lender's usual and customary practices. Upon the issuance of any Letter of Credit, such Issuing Lender shall promptly notify each Lender of such issuance and such notice shall be accompanied by a copy of the issued Letter of Credit. 2.03 Letter of Credit Participations. (a) Immediately upon the issuance by any Issuing Lender of any Letter of Credit, such Issuing Lender shall be deemed to have sold and transferred to each RL Lender, other than such Issuing Lender (each such RL Lender, in its capacity under this Section 2.03, a "Participant"), and each such Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Lender, without recourse or warranty, an undivided interest and participation, to the extent of such Participant's Adjusted RL Percentage, in such Letter of Credit, each drawing made thereunder and the obligations of the relevant Borrower under this Agreement with respect thereto (excluding the Facing Fee), and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Loan Commitments or the Adjusted RL Percentages of the RL Lenders pursuant to Section 1.13 or 13.04, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.03 to reflect the new Adjusted RL Percentages of the assignor and assignee Lender or of all RL Lenders, as the case may be. (b) In determining whether to pay under any Letter of Credit, the respective Issuing Lender shall have no obligation relative to the other Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Lender under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Lender any resulting liability to any Borrower or any Lender. (c) In the event that any Issuing Lender makes any payment under any Letter of Credit and the respective Borrower shall not have reimbursed such amount in full to such Issuing Lender pursuant to Section 2.04(a), such Issuing Lender shall promptly notify the Administrative Agent, which shall promptly notify each Participant, of such failure, and each Participant shall promptly and unconditionally pay to such Issuing Lender the amount of such Participant's -19- Adjusted RL Percentage of such unreimbursed payment in Dollars and same day funds. If the Administrative Agent so notifies any Participant prior to 11:00 A.M. (New York time) on any Business Day, such Participant shall make available such funds to such Issuing Lender on such Business Day. If and to the extent such Participant shall not have so made its Adjusted RL Percentage of the amount of such payment available to such Issuing Lender, such Participant agrees to pay to such Issuing Lender, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to such Issuing Lender at the overnight Federal Funds Rate. The failure of any Participant to make available to such Issuing Lender its Adjusted RL Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to such Issuing Lender its Adjusted RL Percentage of any payment under any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to such Issuing Lender such other Participant's Adjusted RL Percentage of any such payment. (d) Whenever any Issuing Lender receives a payment of a reimbursement obligation as to which it has received any payments from the Participants pursuant to clause (c) above, such Issuing Lender shall forward such payment to the Administrative Agent, which in turn shall distribute to each Participant which has paid its Adjusted RL Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based upon the proportionate aggregate amount originally funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such reimbursement obligation and interest thereon accruing after the purchase of the respective participations. (e) Upon the request of any Participant, each Issuing Lender shall furnish to such Participant copies of any Letter of Credit issued by it and such other documentation as may reasonably be requested by such Participant. (f) The obligations of the Participants to make payments to each Issuing Lender with respect to Letters of Credit issued by it shall be irrevocable and, except as provided in Section 2.03(b), not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, setoff, defense or other right which the respective Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Issuing Lender, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the respective Borrower and the beneficiary named in any such Letter of Credit); -20- (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or (v) the occurrence of any Default or Event of Default. 2.04 Agreement to Repay Letter of Credit Drawings. (a) Each Borrower hereby agrees to reimburse the respective Issuing Lender, by making payment to the Administrative Agent in immediately available funds at the Payment Office, for any drawing (each, a "Drawing") made by it under any Letter of Credit (each such Drawing until reimbursed, an "Unpaid Drawing"), no later than four Business Days after the date of such Drawing, with interest on the amount of such Drawing, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such Drawing, from and including the date of such Drawing to but excluding the date such Issuing Lender was reimbursed by any Borrower therefor at a rate per annum which shall be the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans; provided, however, to the extent such amounts are not reimbursed prior to 12:00 Noon (New York time) on the seventh Business Day following such Drawing, interest shall thereafter accrue on the amount (and until reimbursed by any Borrower) at a rate per annum which shall be the Base Rate in effect from time to time plus 4%, in each such case, with interest to be payable on demand. The respective Issuing Lender shall give the respective Borrower prompt written notice of each Drawing under any Letter of Credit, provided that the failure to give any such notice shall in no way affect, impair or diminish any Borrower's obligations hereunder. (b) The obligations of each Borrower under this Section 2.04 to reimburse the respective Issuing Lender with respect to Drawings (including interest thereon) shall constitute the joint and several obligations of the Borrowers and shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which any Borrower may have or have had against any Lender (including in its capacity as an Issuing Lender or as a Participant), or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing, the respective Issuing Lender's only obligation to any Borrower being to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Lender under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such Issuing Lender any resulting liability to any Borrower. 2.05 Increased Costs. If at any time after the Restatement Effective Date, the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Lender or any Participant -21- with any request or directive by any such authority (whether or not having the force of law), or any change in generally accepted accounting principles, shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued by any Issuing Lender or participated in by any Participant, or (ii) impose on any Issuing Lender or any Participant any other conditions relating, directly or indirectly, to this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Issuing Lender or any Participant of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Issuing Lender or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Issuing Lender or such Participant, or any franchise tax, in either case pursuant to the laws of the United States of America, the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein), but without duplication of any amounts payable in respect of Taxes pursuant to Section 4.04(a), then, five Business Days after written demand to the respective Borrower by such Issuing Lender or any Participant (a copy of which demand shall be sent by such Issuing Lender or such Participant to the Administrative Agent), such Borrower shall pay to such Issuing Lender or such Participant such additional amount or amounts as will compensate such Lender for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital, and all such payment obligations of the relevant Borrower shall constitute the joint and several obligations of the Borrowers. Any Issuing Lender or any Participant, upon determining that any additional amounts will be payable pursuant to this Section 2.05, will give prompt written notice thereof to the respective Borrower, which notice shall include a certificate submitted to such Borrower by such Issuing Lender or such Participant (a copy of which certificate shall be sent by such Issuing Lender or such Participant to the Administrative Agent), setting forth in reasonable detail the basis for and the calculation of such additional amount or amounts necessary to compensate such Issuing Lender or such Participant. The certificate required to be delivered pursuant to this Section 2.05 shall, if delivered in good faith and absent manifest error, be final and conclusive and binding on the respective Borrower. SECTION 3. Fees; Reductions of Commitment. 3.01 Fees. (a) The Borrowers jointly and severally agree to pay to the Administrative Agent for distribution to each Non-Defaulting Lender with a Revolving Loan Commitment, a commitment fee (the "Commitment Fee") for the period from the Restatement Effective Date to but excluding the Revolving Loan Maturity Date (or until such earlier date as the Total Revolving Loan Commitment shall have been terminated), computed at a rate for each day equal to the Applicable Margin on the daily average Unutilized Revolving Loan Commitment of such Non-Defaulting Lender. Accrued Commitment Fees shall be due and payable quarterly in arrears on the tenth day of each January, April, July and October, on the date of any reduction of the Total Unutilized Revolving Loan Commitment pursuant to Section 3.02 and on the Revolving Loan Maturity Date or such earlier date upon which the Total Revolving Loan Commitment is terminated. -22- (b) The Borrowers jointly and severally agree to pay to the Administrative Agent for distribution to each Non-Defaulting Lender with a Revolving Loan Commitment (based on their respective Adjusted RL Percentages) a fee in respect of each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin then in effect for Revolving Loans maintained as Eurodollar Loans on the daily average Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on the tenth day of each January, April, July and October and upon the first day on or after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding. (c) The Borrowers jointly and severally agree to pay to the respective Issuing Lender, for its own account, a facing fee in respect of each Letter of Credit issued by it hereunder (the "Facing Fee") for the period from and including the date of issuance of such Letter of Credit to and including the termination of such Letter of Credit, computed at a rate equal to 0.125% per annum of the daily average Stated Amount of such Letter of Credit. Accrued Facing Fees shall be due and payable quarterly in arrears on the tenth day of each January, April, July and October and on the date upon which such Letter of Credit has been terminated in accordance with its terms. (d) The Borrowers jointly and severally agree to pay, upon each drawing under, issuance of, or amendment to, any Letter of Credit, such amount as shall at the time of such event be the administrative charge which the respective Issuing Lender is generally imposing in connection with such occurrence with respect to letters of credit. (e) The Borrowers jointly and severally agree to pay to each of the Arrangers, for their own account, such other fees as have been agreed to in writing by any Borrower with the Arrangers. 3.02 Voluntary Termination of Commitments. Upon at least three Business Days' prior written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), either Borrower shall have the right, at any time or from time to time, without premium or penalty, to terminate or partially reduce the Total Unutilized Revolving Loan Commitment, in integral multiples of $1,000,000; provided that (x) each such reduction shall apply proportionately to permanently reduce the Revolving Loan Commitment of each RL Lender and (y) no reduction to the Total Unutilized Revolving Loan Commitment shall be in an amount which would cause the Revolving Loan Commitment of any RL Bank to be reduced (as required by the preceding clause (x)) by an amount which exceeds the remainder of (A) the Unutilized Revolving Loan Commitment of such RL Bank as in effect immediately before giving effect to such reduction minus (B) such RL Bank's Adjusted RL Percentage of the aggregate principal amount of Swingline Loans then outstanding. 3.03 Mandatory Termination and Reduction of Commitments. (a) The Total New Commitments (and the Tranche II Term Loan Commitment, the Tranche III Term Loan -23- Commitment and the Tranche B Term Loan Commitment of each Lender) shall terminate in their entirety on June 5, 1998 and each of the Original Credit Agreements shall continue in effect unless the Restatement Effective Date shall have occurred on or prior to such date. (b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche II Term Loan Commitment (and the Tranche II Term Loan Commitment of each Lender) shall (i) terminate in its entirety on the Restatement Effective Date (after giving effect to the making of the Tranche II Term Loans on such date) and (ii) prior to the termination of the Total Tranche II Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02. (c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche III Term Loan Commitment (and the Tranche III Term Loan Commitment of each Lender) shall (i) terminate in its entirety on the Restatement Effective Date (after giving effect to the making of the Tranche III Term Loans on such date) and (ii) prior to the termination of the Total Tranche III Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02. (d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Tranche B Term Loan Commitment (and the Tranche B Term Loan Commitment of each Lender) shall (i) terminate in its entirety on the Restatement Effective Date (after giving effect to the making of the Tranche B Term Loans on such date) and (ii) prior to the termination of the Total Tranche B Term Loan Commitment as provided in clause (i) above, be reduced from time to time to the extent required by Section 4.02. (e) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each RL Lender) shall terminate in its entirety on the Revolving Loan Maturity Date. (f) Each reduction to the Total Tranche II Term Loan Commitment, the Total Tranche III Term Loan Commitment, the Total Tranche B Term Loan Commitment and the Total Revolving Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02) shall be applied proportionately to reduce the Tranche I Term Loan Commitment, the Tranche II Term Loan Commitment, the Tranche III Term Loan Commitment, the Tranche B Term Loan Commitment or the Revolving Loan Commitment, as the case may be, of each Lender with such a Commitment. Notwithstanding the foregoing, so long as the Tranche II Term Loan Commitment or Tranche III Term Loan Commitment remain outstanding, each Lender with a Tranche B Term Loan Commitment may refuse all or any portion of any reduction of its Tranche B Term Loan Commitment pursuant to Section 4.02(c) or (d), in which case all commitment reductions so refused shall be applied pro rata to reduce the Tranche II Term Loan Commitment and Tranche III Term Loan Commitment, as the case may be, of each Lender with such a Commitment. SECTION 4. Prepayments; Payments; Taxes. -24- 4.01 Voluntary Prepayments. Each Borrower shall have the right to prepay the Loans and the right to allocate such prepayments to Revolving Loans, Swingline Loans, Tranche I Term Loans, Tranche II Term Loans, Tranche III Term Loans and/or Tranche B Term Loans as such Borrower elects, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) such Borrower shall give the Administrative Agent prior to 12:00 Noon (New York time) at its Notice Office (x) at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of such Borrower's intent to prepay Base Rate Loans and (y) at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of such Borrower's intent to prepay Eurodollar Loans, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made, which notice (other than any notice to prepay Swingline Loans) the Administrative Agent shall promptly transmit to each of the Lenders; (ii) each prepayment of Loans shall be in an aggregate principal amount of at least $1,000,000, provided that if any partial prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto, then such Borrowing may not be continued as a Borrowing of Eurodollar Loans and any election of an Interest Period with respect thereto given by the relevant Borrower shall have no force or effect; (iii) each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among the Lenders which made such Loans, provided that in connection with any prepayment of Loans pursuant to this Section 4.01(a), such prepayment shall not be applied to any Loans of a Defaulting Lender; (iv) each prepayment of Term Loans pursuant to this Section 4.01 shall be applied to the Tranche I Term Loans, Tranche II Term Loans, Tranche III Term Loans and Tranche B Term Loans on a pro rata basis (based upon the then outstanding principal amount of such loans), provided, that notwithstanding the foregoing, so long as Tranche I Term Loans, Tranche II Term Loans or Tranche III Term Loans remain outstanding, each Lender with Tranche B Term Loans outstanding may refuse all or any portion of such prepayment allocable to it pursuant to this Section 4.01, in which case all prepayments so refused shall be applied to prepay the Tranche I Term Loans, the Tranche II Term Loans and Tranche III Term Loans then outstanding on a pro rata basis; and (v) each prepayment of principal of Tranche B Term Loans pursuant to this Section 4.01 shall be applied to reduce the then remaining Scheduled Repayments of such Tranche in direct order of maturity (based upon the then remaining principal amounts of the Scheduled Repayments of such Tranche after giving effect to all prior reductions thereto). 4.02 Mandatory Repayments and Cash Collateralization. (a)(i) On any day on which the sum of (x) the aggregate outstanding principal amount of the Revolving Loans made by Non-Defaulting Lenders and Swingline Loans (after giving effect to all other repayments thereof on such date) and (y) the Letter of Credit Outstandings on such date exceeds the Adjusted Total Revolving Loan Commitment as then in effect, the Borrowers shall prepay principal of Swingline Loans, and if no Swingline Loans are or remain outstanding, Revolving Loans of Non-Defaulting Lenders in an amount equal to such excess. If, after giving effect to the prepayment or repayment of all outstanding Swingline Loans and all outstanding Revolving Loans of Non-Defaulting Lenders, the aggregate amount of the Letter of Credit Outstandings exceeds the Adjusted Total Revolving Loan Commitment as then in effect, the Borrowers shall -25- on a joint and several basis pay to the Administrative Agent at the Payment Office on such date an amount of cash or Cash Equivalents equal to the amount of such excess (up to a maximum amount equal to the Letter of Credit Outstandings at such time), such cash or Cash Equivalents to be held as security for all obligations of the Borrowers to Non-Defaulting Lenders hereunder in a cash collateral account to be established by the Administrative Agent. (ii) On any day on which the aggregate outstanding principal amount of the Revolving Loans made by any Defaulting Lender exceeds the Revolving Loan Commitment of such Defaulting Lender, the Borrowers shall on a joint and several basis prepay principal of Revolving Loans of such Defaulting Lender in an amount equal to such excess. (b) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on the tenth day following each date set forth below (other than the Tranche B Term Loan Maturity Date, on which date such amounts will be owed immediately), the Borrowers shall be required to repay that principal amount of Tranche B Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(e), a "Scheduled Repayment"): -26-
Scheduled Repayment Date Amount ------------------------ ------ June 30, 1998 $250,000 September 30, 1998 $250,000 December 31, 1998 $250,000 March 31, 1999 $250,000 June 30, 1999 $250,000 September 30, 1999 $250,000 December 31, 1999 $250,000 March 31, 2000 $250,000 June 30, 2000 $250,000 September 30, 2000 $250,000 December 31, 2000 $250,000 March 31, 2001 $250,000 June 30, 2001 $250,000 September 30, 2001 $250,000 December 31, 2001 $250,000 March 31, 2002 $250,000 June 30, 2002 $250,000 September 30, 2002 $250,000 December 31, 2002 $250,000 Tranche B Term Loan Maturity Date $595,250,000 ------------
(c) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date on or after the Restatement Effective Date upon which any Borrower, any Guarantor or any of their respective Subsidiaries receives Net Sale Proceeds from any Asset Sale, an amount equal to the Applicable Prepayment Percentage of the Net Sale Proceeds from such Asset Sale shall be applied as a mandatory repayment in accordance with the requirements of Sections 4.02(e) and (f); provided that (x) with respect to no more than $550,000,000 in the aggregate of such Net Sale Proceeds received by any Borrower, any Guarantor or any of their respective Subsidiaries in connection with an Asset Sale of Non-Strategic Assets, such Net Sale Proceeds shall not give rise to a mandatory repayment on such date to the extent that no Default or Event of Default then exists and such Net Sale Proceeds are used or contractually committed to be used to purchase assets used or to be used in the businesses permitted pursuant to Section 9.01 (including, without limitation (but only to the extent permitted by Section 9.04), the purchase of the capital stock of a Person engaged in such businesses) within 195 days following the date of receipt of such Net Sale Proceeds from such Asset Sale and (y) (i) if all or any portion of such Net Sale Proceeds are not so used (or contractually committed to be used) within such 195-day period, such remaining portion shall be applied on the last day of such period as a mandatory repayment as provided above and (ii) if all or any portion of such Net Sale Proceeds are not so used within such 195-day period referred to in clause (i) of this clause (y) because such amount is contractually committed to be used and -27- subsequent to such date such contract is terminated or expires without being extended and without such portion being so used, such remaining portion shall be applied on the date of such ter mination or expiration as a mandatory repayment as provided above. (d) In addition to any other mandatory repayments or commitment reductions pursuant to this Section 4.02, on each date on or after the Restatement Effective Date on which any Borrower, any Guarantor or any of their respective Subsidiaries receives any cash proceeds from any incurrence of Indebtedness (other than (w) Indebtedness permitted to be incurred pursuant to Section 9.05(iii) as in effect on the Restatement Effective Date, (x) Indebtedness of the Borrowers, the Guarantors and their respective Subsidiaries representing purchase money Indebtedness secured by Liens permitted pursuant to Section 9.06(xii), (y) intercompany Indebtedness to the extent permitted under Section 9.04(ii), and (z) Indebtedness incurred pursuant to the construction and/or major renovation of any Hotel) an amount equal to the Applicable Prepayment Percentage of the Net Cash Proceeds of the respective incurrence of Indebtedness shall be applied as a mandatory repayment in accordance with the requirements of Sections 4.02(e) and (f). (e) Each amount required to be applied pursuant to Sections 4.02(c) and (d) in accordance with this Section 4.02(e) shall be applied (i) first, to repay the outstanding principal amount of Tranche I Term Loans, (ii) second, to the extent in excess of amounts required to be applied pursuant to preceding clause (i), to repay the outstanding principal amount of Tranche II Term Loans, (iii) third, to the extent in excess of the amounts required to be applied pursuant to preceding clauses (i) and (ii), to repay the outstanding principal amount of Tranche III Term Loans, and (iv) fourth, to the extent in excess of the amounts required to be applied pursuant to preceding clauses (i), (ii) and (iii), to repay the outstanding principal amount of Tranche B Term Loans. All repayments of outstanding Tranche B Term Loans pursuant to Section 4.02(c) or (d) shall be applied to reduce the then remaining Scheduled Repayments of such Tranche on a pro rata basis (based upon the then remaining Scheduled Repayments of such Tranche or after giving effect to all prior reductions thereto). (f) With respect to each repayment of Loans required by this Section 4.02, either Borrower may designate the Types of Loans of the respective Tranche which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the respective Tranche pursuant to which made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on the last day of an Interest Period applicable thereto unless (x) all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full and/or (y) concurrently with such repayment, the Borrowers pay all breakage costs and other amounts owing to each Lender pursuant to Section 1.11; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto, such Borrowing shall be converted at the end of the then current Interest Period into a Borrowing of Base Rate Loans; and (iii) each repayment of any Tranche of Loans made pursuant to a Borrowing shall be applied pro rata among such Tranche of Loans. In the absence of a designation by any Borrower as described in the preceding sentence, the Administrative Agent -28- shall, subject to the above, make such designation in its sole discretion. Notwithstanding the foregoing provisions of this Section 4.02(f), if at any time the mandatory prepayment of Term Loans pursuant to Section 4.02 above would result, after giving effect to the procedures set forth above, in the Borrowers incurring breakage costs under Section 1.11 as a result of Eurodollar Loans being prepaid other than on the last day of an Interest Period applicable thereto (the "Affected Eurodollar Loans"), then the Borrowers may in their sole discretion initially deposit a portion (up to 100%) of the amounts that otherwise would have been paid in respect of the Affected Eurodollar Loans with the Administrative Agent (which deposit must be equal in amount to the amount of the Affected Eurodollar Loans not immediately prepaid) to be held as security for the obligations of the Borrowers hereunder pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Administrative Agent and shall provide for investments satisfactory to the Administrative Agent and the Borrowers, with such cash collateral to be directly applied upon the first occurrence (or occurrences) thereafter of the last day of an Interest Period applicable to the relevant Term Loans that are Eurodollar Loans (or such earlier date or dates as shall be requested by the Borrowers), to repay an aggregate principal amount of such Term Loans equal to the Affected Eurodollar Loans not initially prepaid pursuant to this sentence. Notwithstanding anything to the contrary contained in the immediately preceding sentence, all amounts deposited as cash collateral pursuant to the immediately preceding sentence shall be held for the sole benefit of the Lenders whose Loans would otherwise have been immediately prepaid with the amounts deposited upon the taking of any action by the Administrative Agent or the Lenders pursuant to the remedial provisions of Section 10 any amounts held as cash collateral pursuant to this Section 4.02(f) shall, subject to the requirements of applicable law, be immediately applied to the Loans. (g) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date and (ii) all other then outstanding Loans shall be repaid in full on the respective Maturity Date for such Loans. 4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement or any Note (other than interest payments deducted from the Operating Account pursuant to Section 8.14) shall be made to the Administrative Agent for the account of the Lender or Lenders entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Administrative Agent. Any payments under this Agreement or under any Note which are made later than 12:00 Noon (New York Time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 4.04 Net Payments; Taxes. (a) All payments made by any Borrower hereunder or under any Note will be made without reduction on account of any setoff, counterclaim or other defense. Except as provided in Section 4.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, -29- fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or net profits of a Lender, or any franchise tax, in either case pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). Each Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by such Borrower. Except as provided in Section 4.04(b), the Borrowers agree to indemnify and hold harmless each Lender on a joint and several basis, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrowers and the Administrative Agent on or prior to the Restatement Effective Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 13.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor or additional forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor or additional forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that from time to time after the Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, such Lender will promptly deliver to the Borrowers and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor or additional forms), or Form W-8 (or successor or additional forms) and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrowers and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Borrowers shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or -30- any political subdivision or taxing authority thereof or therein) from interest, Fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrowers U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrowers shall not be obligated pursuant to Section 4.04(a) to gross-up payments to be made to a Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrowers the Internal Revenue Service Forms required to be provided to the Borrowers pursuant to this Section 4.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), each Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Restatement Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or with holding of such Taxes. SECTION 5. Conditions Precedent to Restatement Effective Date. The occurrence of the Restatement Effective Date pursuant to Section 13.10, and the obligation of each Lender to continue and/or make Loans hereunder, and the obligation of each Issuing Lender to issue Letters of Credit hereunder, in each case on the Restatement Effective Date, are subject at the time of the occurrence of the Restatement Effective Date to the satisfaction of the following conditions: 5.01 Execution of Agreement; Notes. On or prior to the Restatement Effective Date, (i) this Agreement shall have been executed and delivered as provided in Section 13.10 and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Lenders the appropriate Tranche I Term Note, Tranche II Term Note, Tranche III Term Note, Tranche B Term Note and/or Revolving Note executed by each Borrower, and to the Swingline Lender the Swingline Note executed by each Borrower, in each case in the amount, maturity and as otherwise provided herein. 5.02 Fees, etc. On the Restatement Effective Date, the Borrowers shall have paid to the Arrangers and the Lenders all costs, fees and expenses (including, without limitation, legal fees and expenses and all fees owing under the Original Credit Agreements) payable to the Arrangers and the Lenders to the extent then due. 5.03 Opinions of Counsel. On the Restatement Effective Date, the Administrative Agent shall have received from counsel to the Credit Parties, an opinion or opinions addressed to each of the Arrangers, the Collateral Agent and each of the Lenders and dated the Restatement Effective Date covering the matters set forth in Exhibit E and such other matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request. -31- 5.04 Trust, Corporate, Limited Liability Company and Partnership Documents; Proceedings; etc. (a) On the Restatement Effective Date, the Administrative Agent shall have received a certificate, dated the Restatement Effective Date, signed by the Secretary or an Assistant Secretary of each Credit Party (or from the Secretary or an Assistant Secretary of the general partner of each Credit Party that is a partnership), in the form of Exhibit F with appropriate insertions, together with copies of the declaration of trust, the certificate of incorporation and by-laws, limited liability company agreement or other organizational documents (including partnership agreements and certificates of partnership) of each such Credit Party and the resolutions of each Credit Party referred to in such certificate, and the foregoing shall be reasonably acceptable to the Administrative Agent. (b) On the Restatement Effective Date, all trust, corporate, limited liability company, partnership and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be reasonably satisfactory in form and substance to the Administrative Agent and the Required Lenders, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate and partnership proceedings, governmental approvals, good standing certificates and bring-down telegrams, if any, which the Administrative Agent may have reasonably requested in connection therewith, such documents and papers where appropriate to be certified by proper trust, corporate, limited liability company, partnership or governmental authorities. 5.05 Amended and Restated Affiliate Guaranty. On the Restatement Effective Date, each Person which is a Guarantor on such date shall have duly authorized, executed and delivered a guaranty in the form of Exhibit G (as modified, amended or supplemented from time to time, the "Amended and Restated Affiliate Guaranty"). 5.06 Pledge Agreement. On the Restatement Effective Date, each Pledgor Credit Party shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit H (as modified, supplemented or amended from time to time, the "Pledge Agreement") covering all of such Pledgor Credit Party's present and future Collateral, and shall have delivered to the Collateral Agent, as pledgee, all such Collateral pursuant to and in the manner provided by the Pledge Agreement, together with evidence that such other actions have been taken as may be necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the Pledge Agreement (including, without limitation, in the case of partnership interests to be pledged, within 90 days after the Restatement Effective Date, evidence that each pledged partnership has duly recorded the security interest created by the Pledge Agreement on the partnership books and records of such pledged partnership). 5.07 Adverse Change; Approvals. (a) On the Restatement Effective Date, nothing shall have occurred (and the Lenders shall have become aware of no facts, conditions or other information not previously known) which the Administrative Agent or the Required Lenders believe would reasonably be expected to have (i) a material adverse effect on the rights or remedies of the Administrative Agent or the Lenders, or on the ability of any Credit Party to -32- perform its respective obligations to the Administrative Agent and the Lenders or (ii) a Material Adverse Effect. (b) On or prior to the Restatement Effective Date, all necessary governmental (domestic and foreign) and third party approvals (if any) in connection with the making of the Loans and the transactions contemplated by the Credit Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the making of the Loans and the transactions con templated by the Credit Documents. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the making of the Loans or the transactions contemplated by the Credit Documents. 5.08 Litigation. Except as set forth on Schedule III, on the Restatement Effective Date, no litigation by any entity (private or governmental) shall be pending or, to the Best Knowledge of each Borrower, threatened (i) with respect to the making of the Loans or the Credit Documents or any documentation executed in connection therewith or (ii) which the Administrative Agent or the Required Lenders believe would reasonably be expected to have a Materially Adverse Effect. 5.09 Consummation of Interstate Transaction. On or prior to the Restatement Effective Date, (i) there shall have been delivered to the Administrative Agent a true and correct copy of the Interstate Merger Agreement, certified by such by an appropriate officer of either Borrower, which shall be in the form previously provided to the Administrative Agent with such amendments, modifications and waivers as shall be in form and substance satisfactory to the Arrangers, (ii) the Interstate Transaction, including all of the terms and conditions thereof, shall have been duly approved by the requisite boards of directors and (if required by applicable law) the requisite shareholders of Patriot REIT, Wyndham and Interstate Hotels Corporation, and the Interstate Transaction Documents shall have been duly executed and delivered by the parties thereto and be in full force and effect, (iii) the representations and warranties set forth in the Interstate Transaction Documents shall be true and correct in all material respects as if made on and as of the Restatement Effective Date, (iv) each of the conditions precedent to the consummation of the Interstate Transaction as set forth in the Interstate Transaction Documents shall have been satisfied, and not waived except with the consent of each Arranger (not to be unreasonably withheld), to the satisfaction of each Arranger, (v) all Liens or Indebtedness to be incurred or assumed in connection with the Interstate Transaction shall otherwise be permitted under this Agreement, and (vi) the Interstate Transaction shall have been consummated in accordance with the Interstate Transaction Documents and all applicable law. 5.10 Solvency Certificate; Insurance Certificates. On or prior to the Restatement Effective Date, there shall have been delivered to the Administrative Agent: -33- (a) a solvency certificate in the form of Exhibit I, addressed to each of the Arrangers and each of the Lenders and dated the Restatement Effective Date from an Authorized Financial Officer of Patriot REIT; and (b) certificates of insurance complying with the requirements of Section 8.03 for the business and properties of the Borrowers and the Guarantors, in scope, form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders. 5.11 Pro Forma Balance Sheets; Projections. On the Restatement Effective Date, the Arrangers shall have received unaudited pro forma consolidated balance sheets dated December 31, 1997 and the projections dated the Restatement Effective Date (the "Projections") in each case of Patriot REIT and its Subsidiaries and of Wyndham and its Subsidiaries, prepared in a format consistent with the financial statements referred to in Section 7.05(a), after giving effect to the transactions contem plated hereby, which consolidated balance sheets and Projections shall be in form and substance reasonably satisfactory to the Arrangers and the Required Lenders. 5.12 Original Credit Agreements; etc. On the Restatement Effective Date, (i) unless otherwise agreed by the Administrative Agent and the Borrowers, each Original Lender shall have surrendered to the Administrative Agent for cancellation the promissory notes issued to it pursuant to the Original Credit Agreements, (ii) each Original Lender shall have continued its Original Loans as contemplated by Section 1.01, (iii) the Borrowers shall have paid all accrued and unpaid interest and fees then owing under the Original Credit Agreements through the Restatement Effective Date, and (iv) the Administrative Agent shall have received evidence in form, scope and substance satisfactory to it that the matters set forth in this Section 5.12 have been satisfied on such date. SECTION 6. Conditions Precedent to All Credit Events. The obligation of each Lender to make Loans (including any Loans made on the Restatement Effective Date but excluding Mandatory Borrowings made thereafter, which shall be made as provided in Section 1.01(g)), and the obligation of an Issuing Lender to issue any Letter of Credit, is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 6.01 No Default; Representations and Warranties. At the time of each such Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of the making of such Credit Event (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). 6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan (excluding Swingline Loans and Mandatory Loans), the Administrative Agent shall have received a Notice of Borrowing meeting the requirements of Section 1.03(a). Prior to the -34- making of any Swingline Loan, the Swingline Lender shall have received the notice required by Section 1.03(b)(i). (b) Prior to the issuance of each Letter of Credit, the Administrative Agent and the respective Issuing Lender shall have received a Letter of Credit Request meeting the requirements of Section 2.02. The occurrence of the Restatement Effective Date and the acceptance of the proceeds of each Credit Event shall constitute a representation and warranty by each Borrower to each of the Arrangers and each of the Lenders that all the conditions specified in Section 5 and in this Section 6 and applicable to the Restatement Effective Date and/or such Credit Event, as the case may be, exist as of that time (except to the extent that any of the conditions specified in Section 5 or in this Section 6 are required to be satisfactory to or determined by any Lender, the Required Lenders and/or the Administrative Agent or otherwise expressly calls for a subjective determination to be made by any Lender, the Required Lenders and/or the Administrative Agent). All of the Notes, certificates, legal opinions and other documents and papers referred to in Section 5 and in this Section 6, unless otherwise specified, shall be delivered to the Administrative Agent at the Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts or copies for each of the Lenders and shall be in form and substance reasonably satisfactory to the Arrangers. SECTION 7. Representations and Warranties. In order to induce the Lenders to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, each Borrower makes the following representations and warranties, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and the issuance of the Letters of Credit, with the occurrence of the Restatement Effective Date and the incurrence of each Loan and the issuance of each Letter of Credit on or after the Restatement Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct on and as of the Restatement Effective Date and true and correct in all material respects on the date of each such Credit Event thereafter (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date). To the extent any Borrower makes any representation or warranty hereunder with respect to any Guarantor or any Subsidiary of such Guarantor which is not a Subsidiary of such Borrower, as the case may be, or is not controlled by such Borrower, as the case may be, such representations and warranties are made as to the Best Knowledge of such Borrower, including taking into account all statements, representations and warranties made by such Person in any Credit Document. 7.01. Trust, Corporate, Limited Liability Company and Partnership Status. Each Borrower, each Guarantor, and each of their respective Subsidiaries (i) is a duly organized and validly existing real estate investment trust, corporation, partnership or limited liability company, as the case may be, in good standing (if applicable) under the laws of the jurisdiction of its organization, (ii) has the trust, corporate, partnership or limited liability company power and authority, as the case may be, to own its property and assets and to transact the business in -35- which it is engaged and presently proposes to engage and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where the conduct of its business requires such qualifications except for failures to be so qualified and in good standing which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 7.02 Trust, Corporate, Limited Liability Company or Partnership Power and Authority. Patriot REIT, Wyndham, each Domestic Subsidiary which is a Credit Party or a Pledgor Credit Party and, to the Best Knowledge of each such Subsidiary, each Foreign Subsidiary which is a Credit Party or a Pledgor Credit Party has the trust, corporate, partnership or limited liability company power and authority, as the case may be, to execute, deliver and perform the terms and provisions of each of the Credit Documents to which it is a party and has taken all necessary trust, corporate, partnership or limited liability company action, as the case may be, to authorize the execution, delivery and performance by it of each of such Credit Documents. Patriot REIT, Wyndham, each Domestic Subsidiary which is a Credit Party or a Pledgor Credit Party and, to the Best Knowledge of any such Subsidiary, each Foreign Subsidiary which is a Credit Party or a Pledgor Credit Party has duly executed and delivered each of the Credit Documents to which it is a party, and each of such Credit Documents constitutes the legal, valid and binding obligation of such Credit Party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 7.03 No Violation. Neither the execution, delivery or performance by Patriot REIT, Wyndham, any Domestic Subsidiary which is a Credit Party or Pledgor Credit Party and, to the Best Knowledge of any such Subsidiary, any Foreign Subsidiary which is a Credit Party, of the Credit Documents to which it is a party, nor compliance by it with the terms and provisions thereof, (i) will contravene any provision of any applicable law, statute, rule or regulation or any applicable order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the properties or assets of any Borrower, any Guarantor or any of their respective Subsidiaries, pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument, to which any Borrower, any Guarantor or any of their respective Subsidiaries, is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the declaration of trust, certificate of incorporation, partnership agreement, certificate of partnership, limited liability company agreement or by-laws, as the case may be, of any Borrower, any Guarantor or any of their respective Subsidiaries. 7.04 Governmental Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made and which remain in full force and effect), or exemption by, any governmental -36- or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any such Credit Document, in each case by Patriot REIT, Wyndham, each Domestic Subsidiary which is a Credit Party or Pledgor Credit Party and, to the Best Knowledge of any such Subsidiary, any Foreign Subsidiary which is a Credit Party or Pledgor Credit Party. 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) (i) The unaudited income statements for Patriot REIT and Wyndham and their Subsidiaries prepared on a Company Combined Basis for each of (x) the three-month period ended on December 31, 1997 and (y) the latest nine-month period ended on December 31, 1997 and (ii) the pro forma balance sheet of Patriot REIT and Wyndham and their Subsidiaries prepared on a Company Combined Basis at December 31, 1997 and the pro forma combined income statements for the latest nine-month period ended December 31, 1997 each present fairly the historical financial results of Patriot REIT and Wyndham and their Subsidiaries. All information (other than projections) furnished to the Lenders prior to the Restatement Effective Date with respect to Patriot REIT and Wyndham and their Subsidiaries is true and accurate in all material respects and not incomplete by omitting to state any fact necessary to make such information not misleading in any material respect. Since December 31, 1997, there have been no events or changes which would reasonably be expected to have a Material Adverse Effect. (b) On and as of the Restatement Effective Date and on the date on which each Loan is made, on a Pro Forma Basis after giving effect to all Indebtedness (including the Loans) being incurred or assumed by each Credit Party in connection therewith, (x) the sum of the assets, at a fair valuation, of the Borrowers and the Guarantors (taken as a whole) and each Borrower (on a stand-alone basis) will exceed their respective debts, (y) the Borrowers and the Guarantors (taken as a whole) and each Borrower (on a stand-alone basis) have not incurred and do not intend to incur, and do not believe that they will incur, debts beyond their ability to pay such debts as such debts mature and (z) the Borrowers and the Guarantors (taken as a whole) and each Borrower (on a stand-alone basis) shall not have unreasonably small capital with which to conduct their respective businesses. For purposes of this Section 7.05(b) "debt" means any liability on a claim, and "claim" means (i) right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (c) Except as fully disclosed or reflected in the financial statements delivered pursuant to Section 7.05(a), there were as of the Restatement Effective Date no liabilities or obligations with respect to any Borrower or any Guarantor or any of their respective Subsidiaries, of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in aggregate, would be material to the Borrowers and the Guarantors taken as a whole. As of the Restatement Effective Date, the Senior Management of each Borrower has no knowledge of any basis for the assertion against it -37- of any liability or obligation of any nature that is not fully disclosed in the financial statements delivered pursuant to Section 7.05(a) which would reasonably be expected to be material to the Borrowers and the Guarantors taken as a whole. (d) On and as of the Restatement Effective Date, the Projections, including those prepared on a combined basis for the Borrowers and the Guarantors delivered to the Arrangers and the Lenders prior to the Restatement Effective Date have been prepared on a basis consistent with the financial statements referred to in Section 7.05(a) (other than as set forth or presented in such Projections), and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Senior Management of either Borrower to be misleading in any material respect. On the Restatement Effective Date, the Senior Management of each Borrower believed that the Projections were reasonable; it being recognized by the Lenders that projections (including the Projections) as to future results are not to be viewed as facts and that the actual results for the period or periods covered by such projections may differ from the projected results. 7.06 Litigation. Except as set forth on Schedule III, there are no actions, suits or proceedings pending or, to the Best Knowledge of either Borrower, threatened (i) with respect to any Credit Document or (ii) that would reasonably be expected to have a Material Adverse Effect. 7.07 True and Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of any Borrower, any Guarantor or any of their respective Subsidiaries, in writing to the Administrative Agent or any Lender (including, without limitation, all information contained in the Credit Documents but excluding projections) for purposes of or in connection with this Agreement, the other Credit Documents or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any Borrower, any Guarantor or any of their respective Subsidiaries, in writing to the Administrative Agent or any Lender will be, to the Best Knowledge of each Borrower, true and accurate in all material respects on the date as of which such information is dated or certified and, to the Best Knowledge of each Borrower, not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided (subject, in the case of any information referred to in Section 7.05, to the qualifications (if any) set forth in Section 7.05 with respect to any such information). 7.08 Use of Proceeds; Margin Regulations. (a) The proceeds of the Tranche II Term Loans, Tranche III Term Loans and Tranche B Term Loans shall be used by the Borrowers, subject to the other restrictions set forth in this Agreement, to fund the Interstate Transaction and related fees and expenses. The proceeds of the Revolving Loans shall be used by the Borrowers, and to the extent permitted under this Agreement, their Subsidiaries, to fund (i) acquisitions of properties, assets and businesses, investments, capital expenditures and expenditures for furniture, fixtures and equipment in Hospitality/Leisure-Related Businesses, and (ii) general working capital needs of the Borrowers; provided, however, that the sum of (x) all W/C Loans, (y) the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are -38- repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) and (z) the aggregate principal amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) shall not exceed 10% of the Adjusted Total Revolving Loan Commitment then in effect at any one time. (b) No part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 7.09 Tax Returns and Payments. Each Borrower, each Guarantor and each of their respective Subsidiaries, has timely filed or caused to be timely filed, on the due dates thereof or within applicable grace periods, with the appropriate taxing authority, all Federal income tax returns and other returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of the Borrowers, the Guarantors, and/or each of their respective Subsidiaries, as the case may be, except where the failure to file such Returns (other than Federal income tax returns of Patriot REIT and Wyndham, which must be filed in any event) would not be reasonably expected to have a Material Adverse Effect. The Returns accurately reflect to the Best Knowledge of each Borrower in all material respects (subject to any right to contest tax liabilities in good faith) all liability for taxes of the Borrowers, the Guarantors and each of their respective Subsidiaries, for the periods covered thereby. Each Borrower, each Guarantor and each of their respective Subsidiaries has paid all material taxes payable by them other than taxes which are not delinquent, and other than those contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles. There is no material action, suit, proceeding, investigation, audit, or claim now pending or, to the Best Knowledge of each Borrower, threatened by any authority regarding (i) Patriot REIT's qualification as a real estate investment trust or (ii) any taxes relating to any Borrower, any of the Guarantors or any of their respective Subsidiaries, the result of which in the case of this clause (ii) would be reasonably expected to have a Material Adverse Effect. 7.10 Compliance with ERISA. Each Plan that is a single employer plan as defined in Section 4001(a)(15) of ERISA (a "Single Employer Plan") is in substantial compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Single Employer Plan; no Single Employer Plan is insolvent or in reorganization; to the Best Knowledge of each Borrower, no Multiemployer Plan is insolvent or in reorganization; no Single Employer Plan has an Unfunded Current Liability; no Single Employer Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such Sections of the Code or ERISA, or has applied for or received an extension of any amortization period within the meaning of Section 412 of the Code or Sections 303 or 304 of ERISA; all contributions required to be made by either Borrower or any of its respective Subsidiaries or any ERISA Affiliate with respect to a Plan and a Foreign Pension Plan have been timely made; neither Borrower nor any of its Subsidiaries nor any ERISA Affiliate has incurred -39- any material liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code or reasonably expects to incur any material liability (including any indirect, contingent, or secondary liability) under any of the foregoing Sections with respect to any Plan; no proceedings have been instituted to terminate or appoint a trustee to administer any Single Employer Plan; to the Best Knowledge of each Borrower, no proceedings have been instituted to terminate or appoint a trustee to administer any Multiemployer Plan; no condition exists which presents a reasonably likely risk to either Borrower or any of its Subsidiaries or any ERISA Affiliate of incurring a material liability to or on account of a Single Employer Plan pursuant to the foregoing provisions of ERISA and the Code; to the Best Knowledge of each Borrower, no condition exists which presents a reasonably likely risk to any Borrower or any of its Subsidiaries or any ERISA Affiliate of incurring any material liability to or on account of a Multiemployer Plan pursuant to the foregoing provisions of ERISA and the Code; based solely upon information as may be requested by, and provided to either Borrower by the sponsors of the Multiemployer Plans, the Senior Management of each Borrower believes that the aggregate liabilities of each Borrower and its respective Subsidiaries and ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date hereof, would not be reasonably likely to have a Material Adverse Effect; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of any Borrower or any of its Subsidiaries or any ERISA Affiliate has at all times been operated in substantial compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of any Borrower or any of its Subsidiaries or any ERISA Affiliate exists or, to the Best Knowledge of each Borrower, is likely to arise on account of any Plan; and the Borrowers and the Guarantors may cease contributions to or terminate each employee benefit plan maintained by any of them (if any) without incurring any material liability. 7.11 Real Properties. (a) Each Borrower, each Guarantor and each of their respective Subsidiaries, has good and marketable fee simple absolute title to all material Real Property purported to be owned by them, and has good and marketable title to, or valid leasehold interests in, all other material Real Property purported to be leased by them, on any date on which this representation and warranty is made or deemed made including all material Real Property reflected in the consolidated balance sheets of Patriot REIT, referred to in Section 7.05(a) and in the pro forma balance sheet referred to in Section 5.11 (except as sold or otherwise disposed of since the date of such balance sheets in the ordinary course of business), free and clear of all Liens, other than Permitted Liens. Schedule IV contains a true and complete list of each Hotel owned or leased by the Borrowers, the Guarantors or any of their respective Subsidiaries on the Restatement Effective Date, and the type of interest therein held by such Borrower, any such Guarantor or any of their respective Subsidiaries. (b) All material Real Property leased on the Restatement Effective Date by any Borrower, any Guarantor or any of their respective Subsidiaries, is listed on Schedule IV. To the Best Knowledge of each Borrower, each of such leases is valid and enforceable in accordance with its terms and is in full force and effect in all material respects. The Borrowers shall have -40- delivered within 90 days after the Restatement Effective Date to the Administrative Agent true and complete copies of each of such material leases and all material documents affecting the rights or obligations of any Borrower, any Guarantor or any of their respective Subsidiaries which is a party thereto, including, without limitation, any non-disturbance and recognition agreements, subordination agreements, attornment agreements and agreements regarding the term or rental of any of the leases. None of the Borrowers, the Guarantors or their respective Subsidiaries, nor, to the Best Knowledge of each Borrower, any other party to any such lease is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such lease, except for defaults which would not reasonably be expected to have a Material Adverse Effect. 7.12 Subsidiaries. On the Restatement Effective Date, all Subsidiaries and Unconsolidated Entities of Patriot REIT and Wyndham shall be as set forth on Schedule V, and the ownership interests therein shall be as set forth on Schedule V. 7.13 Compliance with Statutes, etc. (a) Each Borrower, each Guarantor, and each of their respective Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as would not reasonably be expected to have a Material Adverse Effect. (b)(i) To the Best Knowledge of each Borrower, each Hotel complies in all material respects with all Legal Requirements, (ii) all material consents, licenses (including liquor licenses), certificates and permits required by all Legal Requirements for the operation of each Hotel have been obtained and are in full force and effect and (iii) all utility services and facilities necessary for the operation of each Hotel are available at such Hotel, except such non-compliances or failures to comply, obtain or have in full force and effect and available as would not reasonably be expected to have a Material Adverse Effect. 7.14 Investment Company Act. Neither Borrower nor any Guarantor or any of their respective Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 7.15 Public Utility Holding Company Act. Neither Borrower nor any Guarantor or any of their respective Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.16 Environmental Matters. (a) To the Best Knowledge of each Borrower, each Guarantor and each of their respective Subsidiaries, all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws have been complied -41- with. To the Best Knowledge of each Borrower, there are no pending or threatened Environmental Claims against any Borrower, any Guarantor or any of their respective Subsidiaries or any Real Property owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries. To the Best Knowledge of each Borrower, there are no facts, circumstances, conditions or occurrences on any Real Property owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries, or on any property adjoining or in the vicinity of any such Real Property that would reasonably be expected (i) to form the basis of an Environmental Claim against any Borrower, any Guarantor or any of their respective Subsidiaries, or any such Real Property or (ii) to cause any such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property by any Borrower, any Guarantor or any of their respective Subsidiaries, under any applicable Environmental Law. (b) To the Best Knowledge of each Borrower, Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, or Released on or from, any Real Property owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries, except in compliance with all applicable Environmental Laws and reasonably required in connection with the operation, use and maintenance of any such Real Property by such Borrower's, such Guarantor's, or such Subsidiary's business. (c) Notwithstanding anything to the contrary in this Section 7.16, the representations made in this Section 7.16 shall only be untrue if the aggregate effect of all Environmental Claims, restrictions, failures and noncompliance of the types described above would reasonably be expected to have a Material Adverse Effect. 7.17 Labor Relations. None of the Borrowers, any of the Guarantors or any of their respective Subsidiaries is engaged in any unfair labor practice that would reasonably be expected to have a Material Adverse Effect. To the Best Knowledge of each Borrower, there is (i) no unfair labor practice complaint pending or threatened against any Borrower, any Guarantor or any of their respective Subsidiaries before the National Labor Relations Board and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending or threatened against any of them, or (ii) no strike, labor dispute, slowdown or stoppage is pending or threatened against any Borrower, any Guarantor or any of their respective Subsidiaries, in each case with respect to the Hotels, except with respect to any matter specified in clause (i) or (ii) above such as would not reasonably be expected to have a Material Adverse Effect. 7.18 Intellectual Property. Each Borrower, each Guarantor and each of their respective Subsidiaries owns or has the right or ability to use all trademarks, permits, service marks, trade names, licenses and franchises which are material and necessary for the conduct of its respective businesses. 7.19 Indebtedness. Schedule VI sets forth a true and complete list of all Indebtedness (other than intercompany Indebtedness) in excess of $2,500,000 of the Borrowers, the Guarantors and their respective Subsidiaries as of the Restatement Effective Date and -42- intended to remain outstanding after such date (excluding the Loans, the "Existing Indebtedness"), in each case showing the aggregate principal amount thereof and the name of the respective borrower and any other entity which directly or indirectly guaranteed such debt. 7.20 Ground Leases. Each ground lease with respect to any Hotel which is located on a Leasehold is in full force and effect and no party thereto has denied or disaffirmed any of its material obligations thereunder or has defaulted (beyond applicable cure and notice periods) in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant thereto, except in the case of any ground leases such denials, disaffirmations and defaults as would not reasonably be expected to have a Material Adverse Effect. 7.21 Status as REIT. Patriot REIT is organized in conformity with the requirements for qualification as a real estate investment trust under the Code. Patriot REIT has met all of the requirements for qualification as a real estate investment trust under the Code for its Fiscal Year ended December 31, 1997. Patriot REIT is in a position to qualify for its current Fiscal Year as a real estate investment trust under the Code and its proposed methods of operation will enable it to so qualify. 7.22 Operators. Each Affiliated Operator, and to the Best Knowledge of each Borrower, each Third Party Operator, has full power and authority and the legal right to own, lease (or sublease), manage and operate (as applicable) the properties it operates and to conduct the business in which it is currently engaged with respect to any Real Property owned or leased by any Borrower, any Guarantor, or any of their respective Subsidiaries, except in the case of the operation by Third Party Operators of Hotels such failures as would not reasonably be expected to have a Material Adverse Effect. 7.23 Security Interests. On and after the Restatement Effective Date, the Pledge Agreement creates (or after the execution and delivery thereof will create), as security for the Obligations, a valid and enforceable perfected security interest in and Lien on all of the Collateral, superior to and prior to the rights of all third Persons, and subject to no other Liens (except that the Collateral may be subject to the Liens permitted under Section 9.06), in favor of the Collateral Agent. No filings or recordings are required in order to perfect the security interests created under the Pledge Agreement except for filings or recordings required in connection with such Pledge Agreement which shall have been made, or shall have been executed and delivered and a provision for filing shall have been made, on or prior to the execution and delivery thereof as contemplated by Section 8.11. SECTION 8. Affirmative Covenants. Each Borrower hereby covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other obligations incurred hereunder and thereunder, are paid in full: 8.01 Information Covenants. The Borrowers will furnish to the Administrative Agent (with sufficient copies for each of the Lenders, which the Administrative Agent will promptly forward to each of the Lenders): -43- (a) Quarterly Financial Statements. Within 45 days after the end of each Fiscal Quarter, (i) the consolidated balance sheet of Patriot REIT and Wyndham and their Subsidiaries calculated on a Company Combined Basis, as at the end of such quarterly accounting period, (ii) the related consolidated state ments of income for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period and (iii) the related consolidated statements of cash flows for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period, in each case setting forth comparative figures for the corresponding fiscal periods in the prior fiscal year, all of which shall be in reasonable detail and certified by an Authorized Financial Officer of Patriot REIT that, to the best of such officer's knowledge after due inquiry, they fairly present the financial condition of Patriot REIT and its Subsidiaries and of Wyndham and its Subsidiaries, as of the dates indicated and the results of their operations and changes in their cash flows for the periods indicated, subject to normal year-end audit adjustments. (b) Annual Financial Statements. Within 90 days after the end of each Fiscal Year, the consolidated balance sheet of Patriot REIT and Wyndham and their Subsidiaries calculated on a Company Combined Basis, as at the end of such fiscal year and the related consolidated statements of income and shareholders' equity and of cash flows for such fiscal year setting forth com parative figures for the preceding fiscal year and certified by Ernst & Young, any other "Big Six" independent certified public accounting firm or such other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent, whose opinion shall not be qualified as to the scope of audit or as to the status of Patriot REIT or Wyndham as a going concern. (c) Budgets. Prior to the beginning of each Fiscal Year, budgets (including, in any event, budgeted statements of cash flow and budgeted debt and cash balances) for such Fiscal Year prepared in detail, with respect to Patriot REIT and its Subsidiaries and of Wyndham and its Subsidiaries, accompanied by a statement of an Authorized Financial Officer of Patriot REIT to the effect that, to such officer's Best Knowledge, the budget is a reasonable estimate of the period covered thereby, it being recognized by the Lenders that budgets as to future results are not to be viewed as facts and that the actual results for the period or periods covered by such budgets may differ from the budgeted results. (d) Officer's Certificates. At the time of the delivery of the financial statements provided for in Sections 8.01(a) and (b), a certificate of an Authorized Financial Officer of Patriot REIT to the effect that, to the best of such officer's actual knowledge, no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has occurred and is continuing, specifying the nature and extent thereof, which certificate shall be in the form of Exhibit J, shall set forth the calculations required to establish whether the Borrowers were in compliance with the provisions of Sections 8.12, 9.03, 9.04, 9.05, 9.06, 9.08 through 9.12, inclusive at the end of such fiscal quarter or year, as the case may be, and with respect to certificates delivered with the financial statements required to be delivered pursuant to Section 8.01(a), shall set forth the amount of any Net Sale Proceeds received from any Asset Sale occurring during such fiscal quarter. -44- (e) Notice of Default or Litigation. Promptly, and in any event within five Business Days after the Senior Management of any Borrower or any of the Guarantors obtains actual knowledge of (i) the occurrence of any event which constitutes a Default or an Event of Default, (ii) any litigation or governmental investigation or proceeding pending or threatened in writing (x) against any Borrower, any Guarantor or any of their respective Subsidiaries which would reasonably be expected to have a Material Adverse Effect, (y) with respect to any material Indebtedness of any Borrower, any Guarantor or any of their respective Subsidiaries or (z) with respect to any Credit Document and (iii) any other action or condition or event which would reasonably be expected to have a Material Adverse Effect, a certificate of an Authorized Financial Officer of either Borrower specifying (A) the nature and period of existence of any such claimed Default, Event of Default, condition or event, (B) the notice given or action taken by such Person in connection therewith, and (C) what action the Borrowers have taken, is taking and proposes to take with respect thereto. (f) Management Letters. Promptly after the Borrowers' or Wyndham's receipt thereof, a copy of any "management letter" received by such Borrower or Wyndham from its certified public accountants and the management's responses thereto. (g) Other Reports and Filings. Promptly, and without duplication of any documents or information delivered pursuant to another clause of this Section 8.01, copies of all financial information, proxy materials and other information and reports, if any, which any Borrower, any Guarantor or any of their respective Subsidiaries shall file with the Securities and Exchange Commission or any successor thereto (the "SEC") (other than preliminary filings made with the SEC). (h) Environmental Matters. Promptly upon, and in any event within ten Business Days after the Senior Management of any Borrower or any Guarantor obtaining actual knowledge thereof, notice of one or more of the following environmental matters: (i) any pending or threatened material Environmental Claim against any Borrower, any Guarantor, or any of their respective Subsidiaries or any Real Property owned or operated by any Borrower, any Guarantor, or any of their respective Subsidiaries; (ii) any condition or occurrence on or arising from any Real Property owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries that (a) results in non-compliance by any Borrower, any Guarantor or any of their respective Subsidiaries in any material respect with any applicable Environmental Law or (b) would reasonably be expected to form the basis of a material Environmental Claim against any Borrower, any Guarantor or any of their respective Subsidiaries or any such Real Property; (iii) any condition or occurrence on any Real Property owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries that would reasonably be expected to cause such Real Property to be subject to any material restrictions on the ownership, occupancy, use or transferability by any Borrower, any Guarantor or any of their respective Subsidiaries of such Real Property under any Environmental Law; and -45- (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property relating to any material liability owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries as required by any Environmental Law or any governmental or other administrative agency. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and such Borrower's, such Guarantor's or such Subsidiary's response or proposed response thereto. In addition, any Borrower, any Guarantor and any of their respective Subsidiaries will provide the Administrative Agent with copies of all material communications with any government or governmental agency relating to Environmental Laws, all material communications with any Person relating to Environmental Claims, and such detailed reports of any Environmental Claim as may reasonably be requested by the Administrative Agent or any Lender. (i) Annual Meetings with Lenders. At the request of the Administrative Agent or the Required Lenders, the Borrowers shall, at least once during each fiscal year of Patriot REIT, hold a meeting (at a mutually agreeable location and time) with all of the Lenders at which meeting the financial results of the previous fiscal year and the financial condition of the Borrowers and the budgets presented for the current Fiscal Year shall be reviewed, with each Lender bearing its own travel, lodging, food and other costs associated with attending any such meeting. (j) Other Information. From time to time, such other information or documents (financial or otherwise) with respect to the Borrowers, the Guarantors or their respective Subsidiaries as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request. 8.02 Books, Records and Inspections. Each Borrower will, and will cause each of its Subsidiaries, each Guarantor and its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. Each Borrower will cause each of its respective Subsidiaries, each Guarantor and its Subsidiaries to, permit officers and designated representatives of the Administrative Agent, unless a Default or Event of Default is then in existence or discovered during such inspection, in which case such visit shall be at the expense of the Borrowers) or any Lender (at such Lender's expense) to visit and inspect, during regular business hours on reasonable advance notice and under guidance of officers of such Borrower or such Guarantor, or their respective Subsidiaries, any of the properties of any Borrower, any Guarantor or any of their respective Subsidiaries, and to examine the books of account of any Borrower, any Guarantor or any of their respective Subsidiaries, and discuss the affairs, finances and accounts of any Borrower, any Guarantor or any of their respective Subsidiaries with, and be advised as to the same by, its and their Authorized Financial Officers and independent accountants, all at such -46- reasonable times and intervals and to such reasonable extent as the Administrative Agent or any Lender may reasonably request. 8.03 Maintenance of Property; Insurance. Each Borrower will, and will cause each of their respective Subsidiaries to, keep all property owned or leased by such Person and necessary in its business in good working order and condition in accordance with industry standards (ordinary wear and tear excepted). Each Borrower will, and will cause each Guarantor and each of their respective Subsidiaries to maintain insurance with responsible and reputable insurance companies or associations and in such amounts and against at least such risks as is consistent and in accordance with industry practice and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. Such insurance shall include physical damage insurance on all real and personal property (whether now owned or hereafter acquired) on an all risk basis, covering the full repair and replacement costs of all such property and business interruption insurance for the actual loss sustained. 8.04 Corporate Franchises. Each Borrower will, and will cause each of its Subsidiaries, each Guarantor and its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; provided, however, that nothing in this Section 8.04 shall prevent (i) any of the transactions permitted in accordance with Section 9.02 or (ii) the taking or failing to take of any action with respect to the foregoing by any Borrower, any Guarantor or any of their respective Subsidiaries which would not reasonably be expected to have a Material Adverse Effect. 8.05 Compliance with Statutes, etc. Each Borrower will, and will cause each of its Subsidiaries, each Guarantor and its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as would not reasonably be expected to have a Material Adverse Effect. 8.06 Compliance with Environmental Laws. (a) Each Borrower will, and will cause each of its Subsidiaries, each Guarantor and its Subsidiaries to, comply in all material respects with all Environmental Laws applicable to the ownership or use of its Real Property now or hereafter owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries, will promptly pay or cause to be paid all costs and expenses incurred in connection with such compliance, and will keep or cause to be kept all such Real Property free and clear of any Liens imposed pursuant to such Environmental Laws. None of any Borrower, any Guarantor or any of their respective Subsidiaries will generate, use, treat, store, Release or dispose of, or permit the generation, use, treatment, storage, Release or disposal of Hazardous Materials on any Real Property now or hereafter owned or operated by such Borrower, such Guarantor or such Subsidiary, or transport or permit the transportation of Hazardous Materials to or from any such Real Property except for Hazardous Materials used or stored at any such Real Properties in compliance with all applicable Environmental Laws and reasonably required in connection with the operation, use and maintenance of any such Real Property, except where the failure to so -47- comply in respect of the matters described in this clause (a) as would not reasonably be expected to have a Material Adverse Effect. (b) At the written request of the Administrative Agent or the Required Lenders, which request shall specify in reasonable detail the basis therefor, at any time and from time to time after (i) the Obligations have been declared due and payable pursuant to Section 10, (ii) the Administrative Agent receives notice under Section 8.01(h) of any event for which notice is required to be delivered for any Real Property or (iii) any Borrower, any Guarantor or any of their respective Subsidiaries is not in compliance with Section 8.06(a) with respect to any Real Property and the Borrowers will provide, at their sole cost and expense, an environmental site assessment report concerning any such affected Real Property now or hereafter owned or operated by any Borrower, any Guarantor or any of their respective Subsidiaries, prepared by an environmental consulting firm reasonably approved by the Administrative Agent, indicating the presence or absence of Hazardous Materials and the potential cost of any removal or remedial action in connection with any Hazardous Materials on such Real Property. If the Borrowers fail to provide the same within 90 days after such request was made, the Administrative Agent may order the same, and the Borrowers shall grant and hereby grant, to the Administrative Agent and the Lenders and their agents access to such Real Property and specifically grant the Administrative Agent and the Lenders an irrevocable non-exclusive license, subject to the rights of tenants, to undertake such an assessment, all at the Borrowers' expense. 8.07 ERISA. Within 15 Business Days after any Borrower, any of their respective Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrowers will deliver to the Administrative Agent and each Lender a certificate of an Authorized Financial Officer of either Borrower setting forth details as to such occurrence and the action, if any, that such Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred; that an accumulated funding deficiency, under the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may reasonably be expected to be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Single Employer Plan; that any contribution required to be made by Borrower, any of its Subsidiaries or any ERISA Affiliate to a Single Employer Plan or Foreign Pension Plan has not been made within 30 Business Days of the date same is due; that a Single Employer Plan has been or may reasonably be expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Single Employer Plan has an Unfunded Current Liability giving rise to a lien on the assets of any Borrower, any of its Subsidiaries or any ERISA Affiliate under ERISA or the Code; that proceedings may reasonably be expected to be or have been instituted to terminate or appoint a trustee to administer a Single Employer Plan; that a proceeding has been instituted against any Borrower, any of its Subsidiaries or any ERISA Affiliate pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that any Borrower, any of its Subsidiaries or any ERISA Affiliate will or may reasonably be expected to incur or has incurred any material -48- liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 498-B of the Code; or that any Borrower or any of its Subsidiaries may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA). The respective Borrower will deliver to the Administrative Agent with sufficient copies for each Lender (i) a complete copy of the annual report (Form 5500) of each Single Employer Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed by them with the Internal Revenue Service and (ii) copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition to any certificates or notices delivered to the Administrative Agent pursuant to the first sentence hereof, copies of annual reports and any material notices received by any Borrower, any of its Subsidiaries or any ERISA Affiliate with respect to any Single Employer Plan or Foreign Pension Plan shall be delivered to the Administrative Agent (with sufficient copies for each Lender) no later than 15 Business Days after the date such report has been filed with the Internal Revenue Service or such notice has been received by the Borrower, the Subsidiary or the ERISA Affiliate, as applicable. 8.08 End of Fiscal Years; Fiscal Quarters. Each Borrower will cause (i) each of its, and each of its Subsidiaries' (other than PAH Windwatch Partners or PAH Windwatch, LLC, so long as the Hotel owned by such Person is managed by a Third Party Operator), each Guarantor's and each of its Subsidiaries' Fiscal Years to end on December 31 and (ii) each of its Subsidiaries' (other than PAH Windwatch Partners or PAH Windwatch, LLC, so long as the Hotel owned by such Person is managed by a Third Party Operator), each Guarantor's and each of its Subsidiaries' Fiscal Quarters to end on March 31, June 30, September 30 and December 31. 8.09 Performance of Obligations. Each Borrower will cause each of its Subsidiaries, each Guarantor and its Subsidiaries to, perform all of its obligations under the terms of each Management Agreement, ground lease and each mortgage, deed of trust, indenture, loan agreement or credit agreement and each other material agreement, contract or instrument by which it or any Real Property is bound, except such non-performances as would not reasonably be expected to have a Material Adverse Effect. 8.10 Payment of Taxes. Each Borrower will cause each of its Subsidiaries, each Guarantor and its Subsidiaries to pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which any penalties attach thereto, and all lawful claims for sums that have become due and payable which, if unpaid, might become a lien or charge upon any properties of any Borrower, any Guarantor or any of their respective Subsidiaries; provided that none of any Borrower, any Guarantor or any of their respective Subsidiaries shall be required to -49- pay any such tax, assessment, charge, levy or claim (i) which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principles or (ii) the failure to pay which would not be reasonably expected to have a Material Adverse Effect. 8.11 Further Assurances. (a) Each Borrower will, and will cause each Guarantor and each of their respective Wholly-Owned Subsidiaries to, at the expense of the Borrowers, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral covered by the Pledge Agreement as the Collateral Agent may reasonably require. Furthermore, the Borrowers shall cause to be delivered to the Collateral Agent such opinions of counsel and other related documents as may be reasonably requested by the Collateral Agent to assure itself that this Section 8.11 has been complied with. (b) Each of the Credit Parties agrees that each action required above by this Section 8.11 shall be completed as soon as possible, but in no event later than 90 days after such action is either requested to be taken by the Administrative Agent, the Collateral Agent or the Required Lenders or required to be taken by the Borrowers, the Guarantors or their respective Subsidiaries pursuant to the terms of this Section 8.11. 8.12 FF&E Reserves. (i) Within 30 days after the Restatement Effective Date, the respective Borrower, Guarantor or the respective Subsidiary of such person shall have established FF&E Reserves on its books and records with respect to Hotels owned or leased pursuant to a ground lease on the Restatement Effective Date and (ii) within 45 days after each acquisition of a Hotel, a Borrower or a Guarantor shall have established an FF&E Reserve on its books and records with respect to such Hotel. 8.13 REIT Requirements. Patriot REIT shall operate its business at all times so as to satisfy all requirements necessary to qualify as a real estate investment trust under Sections 856 through 860 of the Code. Patriot REIT will maintain adequate records so as to comply with all record-keeping requirements relating to the qualification of Patriot REIT as a real estate investment trust as required by the Code and applicable regulations of the Department of the Treasury promulgated thereunder and will properly prepare and timely file with the IRS all returns and reports required thereby. Patriot REIT will request from its shareholders all shareholder information required by the Code and applicable regulations of the Department of Treasury promulgated thereunder. 8.14 Maintenance of Operating Account. The Borrowers shall at all times maintain a demand deposit account held by the Administrative Agent (the "Operating Account") and shall cause funds to be deposited therein in an amount sufficient to permit the Administrative Agent to automatically deduct therefrom (and the Borrowers hereby irrevocably authorize the Administrative Agent to so deduct) the interest payments, any administrative agency fee, the -50- Commitment Fees, the Letter of Credit Fees and the Facing Fees at 12:00 P.M. on the tenth day of each month in which each such fee is due. 8.15 Interest Rate Protection. The Borrowers will, or will cause the Guarantors or their respective Subsidiaries to, as the case may be, enter into or maintain Interest Rate Protection Agreements reasonably satisfactory to the Administrative Agent, sufficient to ensure that (i) on and after the Restatement Effective Date to but excluding October 3, 1998, 30% and (ii) from such date until the Revolving Loan Maturity Date, 35%, in each case of Total Indebtedness outstanding at any time shall at all times be covered by such Interest Rate Protection Agreements or shall have a fixed rate of interest reasonably satisfactory to the Administrative Agent. 8.16 Foreign Subsidiaries Security. If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, counsel for the Borrowers acceptable to the Arrangers does not within 90 days after a request from the Arrangers deliver to the Administrative Agent evidence, in form and substance satisfactory to the Arrangers, with respect to any Foreign Subsidiary which has not already had all of its stock, partnership interests or limited liability company interests, as the case may be, which are owned by any Pledgor Credit Party, pledged pursuant to the Pledge Agreement that a pledge of 66-2/3% or more of the total combined voting power of all classes of capital stock, partnership interests or limited liability company interests, as the case may be, of such Foreign Subsidiary entitled to vote, would cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, then, unless the Arrangers in their reasonable discretion otherwise agree, that portion of such Foreign Subsidiary's outstanding capital stock, partnership interests or limited liability company interests which is owned by an Pledgor Credit Party and not theretofore pledged pursuant to the Pledge Agreement shall be pledged to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement (or another pledge agreement in substantially similar form, if needed) to the extent that the entering into such Pledge Agreement is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 8.16 to be in form and substance reasonable satisfactory to the Arrangers. SECTION 9. Negative Covenants. Each Borrower covenants and agrees that on and after the Restatement Effective Date and until the Total Commitment and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full: 9.01 Line of Business. Each Borrower will not, and will not permit any of its Subsidiaries or any of the Guarantors or their Subsidiaries to, engage (directly or indirectly) in any business other than Hospitality/Leisure-Related Businesses. 9.02 Consolidation, Merger, etc. Each Borrower will not, and will not permit any of its Subsidiaries to, or any of the Guarantors or any of their Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or sell or -51- dispose of all or substantially all of the assets of the Borrowers, the Guarantors and their respective Subsidiaries taken as a whole, or agree to do any of the foregoing at any future time, except that the following shall be permitted: (i) Investments may be made to the extent permitted by Section 9.04; (ii) (a) the Credit Parties may merge or consolidate with, liquidate into, or transfer all or any portion of their assets to or among one another, (b) any Subsidiary of any Credit Party may merge or consolidate with, liquidate into, or transfer all or any portion of their assets to any Credit Party, so long as such Credit Party is the surviving entity and (c) any Subsidiary of Patriot REIT or Wyndham which is not a Credit Party may transfer all or any portion of its assets to another Subsidiary of Patriot REIT or Wyndham which is not a Credit Party, in each case so long as any security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement so transferred shall remain perfected and in full force and effect or as otherwise agreed to by the Collateral Agent; and (iii) The Borrowers, the Guarantors and their respective Subsidiaries may consummate the Interstate Transaction pursuant to the Interstate Transaction Documents. 9.03 Dividends. Unless otherwise required in order for Patriot REIT to maintain its status as a real estate investment trust in accordance with the written advice of independent counsel, Patriot REIT shall not declare or pay any Dividends on its Stock or Stock Equivalents or any other Dividends; provided, that, notwithstanding the foregoing, (i) during any period of four consecutive Fiscal Quarters, Patriot REIT may pay Dividends for such period in an aggregate amount not to exceed the greater of (x) 90% of the Adjusted Funds From Operations, (y) 100% of Cash Available for Distribution and (z) the minimum amount necessary to maintain tax status as a real estate investment trust and (ii) if no Event of Default then exists or would arise therefrom, Patriot REIT may pay Dividends in excess of the amounts permitted under clause (i) above, but only to the extent necessary to avoid the incurrence of federal, state or local income or excise tax liability. 9.04 Investments. Each Borrower will not, and will not permit any of its Subsidiaries or any Guarantor or any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any Stock, Stock Equivalents, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person (each of the foregoing an "Investment"), including Investments existing on the Restatement Effective Date, except that the following shall be permitted: (i) The Borrowers, the Guarantors and their respective Subsidiaries may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms; (ii) The Borrowers, Wyndham and their respective Subsidiaries may make intercompany loans and contributions among one another; provided that any such Indebtedness incurred after the Restatement Effective Date of a Credit Party to a Non-Credit Party Subsidiary -52- shall be subordinated to the obligations of such Credit Party hereunder or under the other Credit Documents; (iii) The Borrowers, the Guarantors and their respective Subsidiaries may make and/or hold Investments in their respective Wholly-Owned Subsidiaries, other Subsidiaries, Joint Ventures and Unconsolidated Entities engaged in Hospitality/Leisure-Related Businesses so long as the following investment restrictions are met: (A) the sum of all Investments in Joint Ventures (valued at cost) shall not exceed $450,000,000, excluding (i) Investments in Joint Ventures to the extent such Investments are held or contractually committed to as of the Restatement Effective Date, (ii) Investments in Joint Ventures which are Guarantors and (iii) Investments made after the Restatement Effective Date in Joint Ventures which the Arrangers have designated Non-Credit Party Subsidiaries to the extent the Arrangers have, at the time of such designation, also designated them to be treated as Guarantors for purposes of this Section 9.04(iii)(A); (B) the sum of all Investments (valued at cost) attributable to Mortgage Notes shall not exceed $250,000,000; (C) the sum of all Investments (valued at cost) attributable to Limited Service Hotels shall not exceed $250,000,000; (D) the sum of all Investments (valued at cost) attributable to Extended Stay Hotels shall not exceed $750,000,000; and (E) the sum of all Investments (valued at cost) attributable to unimproved land and/or to New Construction shall not exceed $800,000,000, excluding Investments in Joint Ventures in which the Borrowers, the Guarantors and their respective Subsidiaries own, individually or in the aggregate, less than a 20% equity interest. If any Investment may be categorized as qualifying under more than one of the investment restrictions listed in clauses (A) through (E) above, except as otherwise provided in clause (E) above, such Investment shall be counted against each of the investment restriction limits for which it qualifies without regard to the number of such restrictions for which such Investment may qualify. 9.05 Certain Indebtedness Obligations. Each Borrower will not, and will not permit any of the Guarantors or any of their respective Subsidiaries to, contract, create, incur, assume or suffer to exist any: -53- (i) Indebtedness under Interest Rate Protection Agreements other than such Indebtedness entered into in compliance with Section 8.15, and such other non-speculative Interest Rate Protection Agreements which may be entered into from time to time by the Borrowers, the Guarantors or their respective Subsidiaries and which the Borrowers in good faith believe will provide protection against fluctuations in interest rates with respect to outstanding floating rate Indebtedness then outstanding, and permitted to remain outstanding, pursuant to the other provisions of this Section 9.05; (ii) Indebtedness under Derivatives Obligations other than any Indebtedness under Derivatives Obligations which are permitted under Section 9.12 and which are not speculative in nature; and (iii) Indebtedness of any Borrower, any Guarantor or any of their respective Subsidiaries secured by a mortgage, deed of trust, deed to secure debt or other similar instrument placed on any Real Property owned or leased by such Borrower, Guarantor or Subsidiary other than such Indebtedness with respect to which the initial loan to value ratio for any property or group of related properties subject to a single financing (valued by the Borrowers on a reasonable basis) relating to such Indebtedness is greater than or equal to 50%. 9.06 Liens. Each Borrower will not, and will not permit any Guarantor or any of their respective Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of any Borrower, any Guarantor or any of their respective Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with recourse to any Borrower, any Guarantor or any of their respective Subsidiaries) or assign any right to receive income, except for the following (collectively, the "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due and payable or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (ii) Liens in respect of property or assets of any Borrower, any Guarantor or any of their respective Subsidiaries imposed by law which were incurred in the ordinary course of business and which have not arisen to secure Indebtedness for borrowed money, such as carriers', warehousemen's and mechanics' Liens, statutory landlord's Liens, and other similar Liens arising in the ordinary course of business, and which either (x) do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of any Borrower, any Guarantor or any of their respective Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such Lien; (iii) Liens created by or pursuant to this Agreement and the Pledge Agreement; -54- (iv) Liens in existence on the Restatement Effective Date which are listed, and the property subject thereto described, in Schedule VII, including extensions or renewals thereof; (v) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 10.09, provided that the amount of cash and property (determined on a fair market value basis) deposited or delivered to secure the respective judgment or decree or subject to attachment shall not exceed $10,000,000 at any time; (vi) Liens (other than any Lien imposed by ERISA) (x) incurred or deposits made in the ordinary course of business of the Borrowers, the Guarantors and their respective Subsidiaries in connection with workers' compensation, unemployment insurance and other types of social security, (y) to secure the performance by the Borrowers, the Guarantors and their respective Subsidiaries of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) to secure the performance by the Borrowers, the Guarantors and their respective Subsidiaries of leases of Real Property, to the extent incurred or made in the ordinary course of business consistent with past practices; (vii) licenses, sublicenses, leases or subleases entered into in the ordinary course of business not interfering in any material respect with the business of any Borrower, any Guarantor or any of their respective Subsidiaries; (viii) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances, in each case not securing Indebtedness and not interfering in any material respect with the ordinary conduct of the business of any Borrower, any Guarantor or any of their respective Subsidiaries; (ix) Liens arising from precautionary UCC financing statements regarding operating leases; (x) Liens created pursuant to Capital Leases, provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of any Borrower, any Guarantor or any of their respective Subsidiaries (other than other assets subject to Capitalized Lease Obligations owing to the same Person as such Capitalized Lease Obligation); (xi) Permitted Encumbrances; (xii) Liens arising pursuant to purchase money mortgages or security interests securing Indebtedness representing the purchase price (or financing of the purchase price within 90 days after the respective purchase) of assets acquired after the Restatement Effective Date, provided that (i) any such Liens attach only to the assets so purchased, upgrades thereon and, if the asset so purchased is an upgrade, the original asset itself (and such other assets financed by the same financing source) and (ii) the Indebtedness (other than Indebtedness incurred from the -55- same financing source to purchase other assets and excluding Indebtedness representing obligations to pay installation and delivery charges for the property so purchased) secured by any such Lien does not exceed 100%, nor is less than 65%, of the lesser of the fair market value or the purchase price of the property being purchased at the time of the incurrence of such Indebtedness; and (xiii) Liens on property or assets acquired pursuant to an acquisition of assets or property, or on property or assets of a Subsidiary of any Borrower or Guarantor in existence at the time such Subsidiary is acquired pursuant to such an acquisition, provided that such Liens are not incurred in connection with, or in contemplation or anticipation of, such an acquisition and do not attach to any other asset of any Borrower, any Guarantor or any of their respective Subsidiaries; and (xiv) Liens not otherwise permitted by the foregoing clauses (i) through (xiii) to the extent attaching to properties and assets with an aggregate fair market value not in excess of, and securing aggregate liabilities at any time outstanding not in excess of, 5% of tangible net assets, valued on an undepreciated cost basis, of the Borrowers, the Guarantors and their Subsidiaries calculated on a Company Combined Basis. 9.07 Transactions with Affiliates. Each Borrower will not, and will not permit any of its Subsidiaries to, or any of the Guarantors or any of their Subsidiaries to enter into any transaction or series of related transactions with any Affiliate, other than in the ordinary course of business and on terms and conditions substantially as favorable to such Person as would reasonably be obtained by such Person at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except that: (i) intercompany transactions may be entered into to the extent permitted by Section 9.02; (ii) Dividends may be paid to the extent provided in Section 9.03; (iii) Investments may be made to the extent permitted by Section 9.04; and (iv) the Borrowers and the Guarantors may enter into the Operating Leases, ground leases and other intercompany contracts in the ordinary course of business and pay the rentals, fees and other costs and expenses thereunder. 9.08 Total Interest Coverage. Each Borrower will not permit the Total Interest Coverage Ratio to be less than (x) for any Test Period ending prior to December 31, 1999, 2.25:1.0 and (y) for any Test Period ending on or after December 31, 1999, 2.50:1.0. 9.09 Fixed Charge Coverage. Each Borrower will not permit the Fixed Charge Coverage Ratio to be less than (x) for any Test Period ending prior to December 31, 1999, 1.75:1.0 and (y) for any Test Period ending on or after December 31, 1999, 2.0:1.0. -56- 9.10 Tangible Net Worth. Each Borrower will not permit Tangible Net Worth at any time to be less than Minimum Tangible Net Worth. 9.11 Limitations on Indebtedness. (a) In addition to the other restrictions on Indebtedness set forth in this Section 9.11, each Borrower shall not permit the Leverage Ratio to exceed (x) at any time prior to December 31, 1998, 5.5:1.0, (y) at any time on or after December 31, 1998 and prior to June 30, 1999, 5.0:1.0 and (z) at any time on or after June 30, 1999, 4.5:1.0. (b) In addition to the other restrictions on Indebtedness set forth in this Section 9.11, each Borrower shall not permit the Secured Indebtedness Ratio to exceed 2.5:1.0 at any time. (c) In addition to the other restrictions on Indebtedness set forth in this Section 9.11, each Borrower shall not permit Total Recourse Secured Indebtedness to exceed the sum of (x) the amount of such Indebtedness outstanding on the Restatement Effective Date (and extensions, renewals and refinancings thereof) plus (y) $200,000,000. Additionally, in no event shall any Borrower, any Guarantor or any of their respective Subsidiaries incur any Recourse Secured Indebtedness after the Restatement Effective Date where the loan to value ratio for any property or group of related properties subject to a single financing (based on the value shown in the most recent Approved Appraisal of the assets secured thereby) relating thereto exceeds 65%. 9.12 Derivatives Obligations. Each Borrower will not, and will not permit any Guarantor or any of their respective Subsidiaries to, contract, create, incur, assume or suffer to exist any Derivatives Obligations, except: (i) Interest Rate Protection Agreements may be entered into by the Borrowers, the Guarantors and their respective Subsidiaries; (ii) Other Hedging Agreements may be entered into by the Borrowers, the Guarantors and their respective Subsidiaries, so long as such Other Hedging Agreements are for bona fide foreign exchange currency hedging purposes and are not speculative in nature; and (iii) Permitted Equity Swaps; provided that with respect to the Permitted Equity Swaps in existence on the Restatement Effective Date, Patriot REIT may exercise its option to settle no more than $200,000,000 in the aggregate of such Permitted Equity Swaps in cash. 9.13 Limitation on Certain Restrictions. Each Borrower will not, and will not permit any Guarantor or any of their respective Subsidiaries or any Unconsolidated Entity to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by any Borrower or any Guarantor or any of their respective Subsidiaries, or pay any Indebtedness owed to any Borrower, any Guarantor or any of their respective Subsidiaries, (b) make loans or advances to any Borrower or Guarantor or any of their respective Subsidiaries or (c) transfer any -57- of its properties or assets to any Borrower or Guarantor or any of their respective Subsidiaries or grant liens or security interests thereon, except in each case for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) customary provisions relating to Indebtedness or lease obligations to the extent restricting (A) the transfer, assignability or the granting of liens, (B) the making of loans or advances or (C) the paying of Dividends or the making of other distributions, (iv) commercially reasonable restrictions in the organizational documents of any such entity which do not prohibit such entity from disposing or realizing the value of, any Hotel owned by it, or the Stock or other form of ownership of any kind, and which (A) limit generally the amount of Indebtedness which may be incurred by such entity, (B) limit the amounts of obligations secured by Liens or (C) limit the transferability or assignability of assets, (v) restrictions on transferability or assignability in respect to ground leases, and (vi) restrictions created in connection with the issuance of the preferred stock for the benefit of the holders thereof in connection with the CHC Acquisition (or similar restrictions (or restrictions which are more favorable to the Lenders) relating to preferred stock issued in connection with other acquisitions). It is understood and agreed that any asset that is Unencumbered shall be deemed not in violation of this Section 9.14. 9.14 Limitation on Creation of Subsidiaries. The Borrowers will not, and will not permit any Guarantor or any of their respective Subsidiaries to, establish, create or acquire any additional Subsidiaries, except that the Borrowers, the Guarantors and their respective Subsidiaries shall be permitted to establish, create or acquire Subsidiaries, so long as (i) 100% of the capital stock, partnership interests or limited liability company interests of any new Domestic Subsidiary which is owned by any Pledgor Credit Party (or all capital stock, partnership interests or limited liability company interests of any new Foreign Subsidiary which is owned by any Pledgor Credit Party, except that not more than 65% of the voting stock or interests of any such Foreign Subsidiary shall be required to be so pledged) is, upon the creation, establishment or acquisition of any such new Subsidiary, pledged pursuant to the Pledge Agreement and the certificates representing such stock, partnership interests or limited liability company interests, together with undated stock or other powers duly executed in blank, are delivered to the Collateral Agent, (ii) any new Domestic Subsidiary (other than any such new Domestic Subsidiary which is reasonably designated by the Arrangers, at the time of the creation, establishment or acquisition of such new Subsidiary, as a Non-Credit Party Subsidiary) executes a counterpart of the Guaranty and (iii) there is delivered to the Administrative Agent upon the creation, establishment or acquisition of any such new Subsidiary (other than any such new Subsidiary which is reasonably designated by the Arrangers, at the time of the creation, establishment or acquisition of such new Subsidiary, as a Non-Credit Party Subsidiary) such certificates and documents in respect of such new Subsidiary as would be required under Section 5.04 had such Subsidiary been a Credit Party in existence on the Restatement Effective Date. SECTION 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"): 10.01 Payments. The Borrowers shall (i) default in the payment when due of any principal of any Loan or any Note or (ii) default, and such default shall continue unremedied for three or more Business Days, in the payment when due of any Unpaid Drawings or interest -58- on any Loan or Note, or any Fees or any other amounts owing hereunder or under any other Credit Document; or 10.02 Representations, etc. Any representation, warranty or statement made by any Credit Party herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 10.03 Covenants. Any Credit Party shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.01(e)(i), Section 8.08 or Section 9 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement (other than as provided in Section 10.01) and such default shall continue unremedied for a period of 30 days after written notice to any Borrower by the Administrative Agent or the Required Lenders; or 10.04 Default Under Other Agreements. (i) Any Borrower, any Guarantor, or any of their respective Subsidiaries shall (x) default in any payment of any Indebtedness (other than the Obligations or any Non-Recourse Indebtedness) beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (y) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Obligations or any Non-Recourse Indebtedness) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity or (ii) any Indebtedness (other than the Obligations or any Non-Recourse Indebtedness) of any Borrower, any Guarantor, or any of their respective Subsidiaries shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; provided that it shall not be a Default or an Event of Default under clauses (i) or (ii) of this Section 10.04 unless the aggregate outstanding principal amount of all such Indebtedness as described in such clauses (i) and (ii) is at least $10,000,000; or 10.05 Bankruptcy, etc. Any Borrower, any Guarantor or any of their respective Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against any Borrower, any Guarantor, or any of their respective Subsidiaries and the petition is not controverted within 60 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of any Borrower, any Guarantor or any of their respective Subsidiaries or any Borrower, any Guarantor or any of their respective Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to any Borrower, any Guarantor or any of their respective Subsidiaries, or there is commenced against -59- any Borrower, any Guarantor or any of their respective Subsidiaries any such proceeding which remains undismissed for a period of 60 days, or any Borrower, any Guarantor or any of their respective Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered and is not vacated or stayed within 60 days; or any Borrower, any Guarantor or any of their respective Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; any Borrower, any Guarantor or any of their respective Subsidiaries makes a general assignment for the benefit of creditors; or any trust, partnership and/or corporate action is taken by any Borrower, any Guarantor or any of their respective Subsidiaries for the purpose of effecting any of the foregoing; or 10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 or PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan shall have had or is likely to have a trustee appointed to administer such Plan, any Plan is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made by any Borrower, any of its Subsidiaries or any ERISA Affiliate to a Plan or a Foreign Pension Plan has not been timely made, any Borrower or any of its Subsidiaries or ERISA Affiliates has incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or any Borrower or any of its Subsidiaries or ERISA Affiliates has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or employee pension benefit plans (as defined in Section 3(2) of ERISA) or Foreign Pension Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) such lien, security interest or liability, individually and/or in the aggregate, will have a Material Adverse Effect; or 10.07 REIT Status. Patriot REIT shall cease, for any reason, to maintain its status as a real estate investment trust under Sections 856 through 860 of the Code; or 10.08 Guaranties. The Amended and Restated Affiliate Guaranty shall cease to be in full force or effect as to any Guarantor (except as expressly provided in the Amended and Restated Affiliate Guaranty), or any Guarantor or Person acting by or on behalf of such -60- Guarantor shall deny or disaffirm such Guarantor's obligations under its Guaranty or any Guarantor Event of Default shall occur; or 10.09 Judgments. One or more judgments or decrees shall be entered against the Borrower, any of the Guarantors or any of their respective Subsidiaries involving in the aggregate for the Borrower, the Guarantors and their respective Subsidiaries a liability (not paid or not fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of 60 consecutive days, and the aggregate amount not covered by a reputable and solvent insurance company of all such judgments exceeds $10,000,000; or 10.10 Change of Control. A Change of Control shall occur; or 10.11 General Partner Status. Patriot REIT or a Wholly-Owned Subsidiary of Patriot REIT shall cease at any time to be the sole general partner of Patriot OP; or 10.12 Security Documents. (a) The Pledge Agreement shall cease to be in full force and effect in all material respects, or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 9.06), and subject to no other Liens (except as permitted by Section 9.06), or (b) any Credit Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Pledge Agreement and such default shall continue beyond any cure or grace period specifically applicable thereto pursuant to the terms of the Pledge Agreement; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Lenders, shall by written notice to either Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Lender or the holder of any Note to enforce its claims against any Credit Party (provided, that, if an Event of Default specified in Section 10.05 shall occur with respect to either Borrower, the result which would occur upon the giving of written notice by the Administrative Agent to either Borrower as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitments terminated, whereupon all of the Commitments of each Lender shall forthwith terminate immediately and any Commitment Fee shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; (iii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any or all of the Liens and security interests created pursuant to the Pledge Agreement; (iv) terminate any Letter of Credit which may be terminated in accordance with its terms; and (v) apply any cash collateral held pursuant to this agreement to the payment of Obligations. -61- SECTION 11. Definitions and Accounting Terms. 11.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acceptable Financial Information" shall mean financial information which is audited, reviewed by accountants or in a form which is acceptable to the Administrative Agent. "Adjusted Funds From Operations" shall mean, for any period, Patriot REIT Net Income plus (a) the sum of the following amounts for such period to the extent and on the same basis included in the determination of Patriot REIT Net Income: (i) depreciation expense, (ii) amortization expense and other non-cash charges with respect to real estate assets for such period, (iii) losses from Asset Sales, losses resulting from restructuring of Indebtedness and other extraordinary losses, and (iv) minority interests attributable to Patriot OP Units; less (b) the sum of the following amounts for such period to the extent and on the same basis included in the determination of Patriot REIT Net Income: (i) gains from sales or dispositions of assets, gains resulting from restructuring of Indebtedness and other extraordinary gains, and (ii) the applicable shares of net income of Patriot REIT's and its Subsidiaries' Unconsolidated Entities; plus (c) Patriot REIT's and its Subsidiaries' Allocation Percentage of funds from operations (determined in a manner consistent with this definition of Adjusted Funds From Operations) of Patriot REIT's and its Subsidiaries' Unconsolidated Entities. "Adjusted RL Percentage" shall mean (x) at a time when no Lender Default exists, for each Lender, such Lender's RL Percentage and (y) at a time when a Lender Default exists (i) for each Lender that is a Defaulting Lender, zero and (ii) for each Lender that is a Non-Defaulting Lender, the percentage determined by dividing such Lender's Revolving Loan Commitment at such time by the Adjusted Total Revolving Loan Commitment at such time, it being understood that all references herein to Revolving Loan Commitments and the Adjusted Total Revolving Loan Commitment at a time when the Total Revolving Loan Commitment or Adjusted Total Revolving Loan Commitment, as the case may be, has been terminated shall be references to the Revolving Loan Commitments or Adjusted Total Revolving Loan Commitment, as the case may be, in effect immediately prior to such termination, provided that (A) no Lender's Adjusted RL Percentage shall change upon the occurrence of a Lender Default from that in effect immediately prior to such Lender Default if after giving effect to such Lender Default, and any repayment of Revolving Loans and Swingline Loans at such time pursuant to Section 4.02(a) or otherwise, the sum of (i) the aggregate outstanding principal amount of Revolving Loans of all Non-Defaulting Lenders plus (ii) the aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter of Credit Outstandings, exceed the Adjusted Total Revolving Loan Commitment; (B) the changes to the Adjusted RL Percentage that would have become effective upon the occurrence of a Lender Default but that did not become effective as a result of the preceding clause (A) shall become effective on the first date after the occurrence of the relevant Lender Default on which the sum of (i) the aggregate outstanding principal amount of the Revolving Loans of all Non-Defaulting Lenders plus (ii) the aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter of Credit Outstandings is equal to or -62- less than the Adjusted Total Revolving Loan Commitment; and (C) if (i) a Non-Defaulting Bank's Adjusted RL Percentage is changed pursuant to the preceding clause (B) and (ii) any repayment of such Lender's Revolving Loans, or of Unpaid Drawings with respect to Letters of Credit or of Swingline Loans, that were made during the period commencing after the date of the relevant Lender Default and ending on the date of such change to its Adjusted RL Percentage must be returned to the Borrower as a preferential or similar payment in any bankruptcy or similar proceeding of the Borrower, then the change to such Non-Defaulting Lender's Adjusted RL Percentage effected pursuant to said clause (B) shall be reduced to that positive change, if any, as would have been made to its Adjusted Percentage if (x) such repayments had not been made and (y) the maximum change to its Adjusted Percentage would have resulted in the sum of the outstanding principal of Revolving Loans made by such Lender plus such Lender's new Adjusted Percentage of the outstanding principal amount of Swingline Loans and of Letter of Credit Outstandings equaling such Lender's Revolving Loan Commitment at such time. "Adjusted Total Revolving Loan Commitment" shall mean at any time the Total Revolving Loan Commitment less the aggregate Revolving Loan Commitments of all Defaulting Lenders. "Administrative Agent" shall mean Chase, in its capacity as Administrative Agent for the Lenders hereunder, and shall include any successor to the Administrative Agent appointed pursuant to Section 12.09. "Affected Eurodollar Loans" shall have the meaning provided in Section 4.02(f). "Affiliate" shall mean, with respect to any Person, any other Person (i) directly or indirectly controlling (including, but not limited to, all directors, officers and partners of such Person) controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of any class of the voting securities or capital stock of or equity interests in such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Affiliated Operating Lease" shall mean an Operating Lease with an Affiliated Operator substantially in the form delivered to, and found acceptable by, the Administrative Agent. "Affiliated Operator" shall mean a lessee under an Operating Lease which is (i) Wyndham or (ii) a Subsidiary of Patriot REIT or Wyndham. "Agents" shall have the meaning set forth in Section 12.01 of this Agreement. "Agreement" shall mean this Credit Agreement, as amended, modified or supplemented from time to time. -63- "Allocation Percentage" shall mean, (i) with respect to any Borrower or any Wholly-Owned Subsidiary of any Borrower, 100% and (ii) for any other Person, with respect to such Person's Subsidiaries and Unconsolidated Entities, the percentage ownership interest of such Person in such Subsidiary or Unconsolidated Entity, respectively, provided that, for purposes of determining any Person's Allocation Percentage of the Indebtedness of a Subsidiary or Unconsolidated Entity for which such Person is a general partner, such Person's Allocation Percentage with respect to such Subsidiary or Unconsolidated Entity shall be the percentage of the general partner interests owned by such Person in such Subsidiary or Unconsolidated Entity with respect to any Indebtedness for which recourse may be made against any general partner of such Subsidiary or Unconsolidated Entity. "Amended and Restated Affiliate Guaranty" shall have the meaning provided in Section 5.05. "Applicable Margin" shall mean, with respect to each Tranche I Term Loan, Tranche II Term Loan, Tranche III Term Loan, Tranche B Term Loan, Revolving Loan, Swingline Loan and Commitment Fee at any date, the applicable percentage per annum set forth below based upon the Status then in effect, it being understood that (x)(A) from the Restatement Effective Date through May 15, 1998, the Applicable Margin shall be based on the Status applicable on the Restatement Effective Date, (B) if on any date Level I Status through Level IV Status is then in effect, the Applicable Margin for all Loans except Tranche B Term Loans (for which the Applicable Margin shall always be based upon Level V Status through Level IX Status without regard to clause (x) in the definitions of each such Status) shall be based on the Status in effect on such date, (C) if Level I Status through Level IV Status is not then in effect, and in any event in the case of Tranche B Term Loans, the Applicable Margin shall be based on the Status in effect on the 45th day following the end of each Fiscal Quarter, and such Applicable Margin shall be set until the Status is redetermined pursuant to this clause (C) or, with respect to all Loans other than Tranche B Term Loans, until Level I Status through Level IV Status is in existence, and (D) from November 1, 1998 until the Tranche I Term Loan Maturity Date, the Applicable Margin for Tranche I Term Loans shall be (a) the applicable percentage per annum set forth below based upon the Status then in effect, plus (b) 0.25% and (y) the Applicable Margin for (i) Base Rate Loans shall be the percentage set forth under the column "Base Rate Loans", (ii) Eurodollar Rate Loans shall be the percentage set forth under the column "Eurodollar Rate Loans", and (iii) the Commitment Fee shall be the percentage set forth under the column "Commitment Fee": -64-
Revolving Loans, Swingline Loans and Tranche I, II, III Term Loans Tranche B Term Loans ----------------------------- -------------------- Base Rate Eurodollar Base Rate Eurodollar Loans Rate Loans Loans Rate Loans Commitment Fee ----- ---------- ----- ---------- -------------- Level I 0% 1.00% -- -- 0.125% Status Level II 0% 1.125% -- -- 0.15% Status Level III 0% 1.25% -- -- 0.15% Status Level IV 0% 1.375% -- -- 0.20% Status Level V 0% 1.50% 0.50% 2.00% 0.20% Status Level VI 0.20% 1.70% 0.50% 2.00% 0.25% Status Level VII 0.35% 1.85% 0.75% 2.25% 0.30% Status Level VIII 0.50% 2.00% 0.75% 2.25% 0.35% Status Level IX 0.75% 2.25% 1.00% 2.50% 0.40% Status
"Applicable Prepayment Percentage" shall mean, at any time, (i) 100%, provided that if at any time the Leverage Ratio is equal to or less than 4.50:1.00, the Applicable Prepayment Percentage shall instead be 0%. Notwithstanding anything to the contrary in this definition, at any time an Event of Default is then in existence, the Applicable Prepayment Percentage shall be 100%. "Approved Appraisal" shall mean a FIRREA appraisal prepared by an MAI `ppraiser reasonably satisfactory to the Administrative Agent. "Approved Fund" shall mean any fund that invests in commercial loans and has total assets under management in excess of $100,000,000. "Approved Lender" shall have the meaning provided in the definition of "Cash Equivalents." "Appurtenant Rights" shall mean (i) all easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and -65- benefits at any time belonging or pertaining to each Hotel or the improvements thereon, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to such Hotel and (ii) all permits, licenses and rights, whether or not of record, appurtenant to such Hotel. "Arranger" shall mean each of Paine Webber Real Estate Securities Inc. and Chase Securities Inc. "Asset Encumbrance" shall mean the placement of any Lien, claim or encumbrance on any Hotel or any other assets, or group of related assets of any Borrower, any Guarantor or any of their respective Subsidiaries or Unconsolidated Entities. "Asset Sale" shall mean any sale, conveyance, transfer, assignment, lease or other disposition (including, without limitation, by merger or consolidation, and dispositions or transfers arising out of, or in connection with, a Recovery Event) by any Borrower, any Guarantor or any of their respective Subsidiaries or Unconsolidated Entities to any Person (other than to any Borrower, any Guarantor or any of their respective Subsidiaries or Unconsolidated Entities) of any Stock (other than new issuances of Stock) of any of its Subsidiaries, any Stock Equivalents (other than new issuances of Stock Equivalents) of any of its Subsidiaries or any Hotel or any other assets, or group of related assets, in each case other than (i) sales, dispositions and transfers of obsolete personal property and FF&E, and (ii) other sales, dispositions and transfers which generate net proceeds and/or other consideration the fair market value of which is less than $1,000,000 in the aggregate in any Fiscal Year of the Borrowers. "Assignment and Assumption Agreement" shall mean an Assignment and Assumption Agreement substantially in the form of Exhibit K (appropriately completed). "Authorized Financial Officer" of any Credit Party shall mean any of the Chairman, President, Chief Financial Officer, the Treasurer or the Chief Accounting Officer of such Credit Party, or in the case of Patriot OP, the Authorized Financial Officer of the general partner of Patriot OP. "Authorized Officer" of any Credit Party shall mean any of the President, any Authorized Financial Officer or any Vice-President of such Credit Party or any other officer of such Credit Party which is designated in writing to the Administrative Agent by any of the foregoing officers of such Credit Party as being authorized to give such notices under this Agreement. "Bankruptcy Code" shall have the meaning provided in Section 10.05. "Base Rate" at any time shall mean the higher of (i) the rate of interest announced publicly by Chase at its principal office, from time to time, as Chase's base rate and (ii) the sum (adjusted to the nearest 1/8 of 1% or, if there is no nearest 1/8 of 1%, to the next higher 1/8 of 1%) of (x) 1/2 of 1% per annum plus (y) the Federal Funds Rate. -66- "Base Rate Loan" shall mean each Loan designated or deemed designated as such by the Borrower at the time of the incurrence thereof or conversion thereto. "Best Knowledge" shall mean, with respect to any Person, the actual knowledge of any member of the Senior Management of such Person. "Borrower" shall have the meaning set forth in the first paragraph of this Agreement. "Borrowing" shall mean the borrowing of one Type of Loan of a single Tranche from all the Lenders (other than any Lender which has not funded its share of a Borrowing in accordance with this Agreement) having Commitments of the respective Tranche (or from the Swingline Lender in the case of Swingline Loans) on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans. It is understood that there may be more than one Borrowing outstanding pursuant to a given Tranche. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the New York interbank Eurodollar market. "Calculation Period" shall mean the period of four consecutive Fiscal Quarters last ended before the date of the respective event or incurrence which requires calculations to be made on a Pro Forma Basis. "Capital Lease", as applied to any Person, shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capitalized Lease Obligations" of any Person shall mean all obligations under Capital Leases of such Person or any of its Subsidiaries, in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Cash Available for Distribution" shall mean, for any period (i) Adjusted Funds From Operations less (ii) the FF&E Reserves with respect to Patriot REIT, its Subsidiaries and Unconsolidated Entities, multiplied by the applicable Allocation Percentage. "Cash Equivalents" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) U.S. -67- dollar denominated time deposits, certificates of deposit and bankers acceptances of (x) any Lender or (y) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank or Lender, an "Approved Lender"), in each case with maturities of not more than six months from the date of acquisition, (iii) commercial paper issued by any Approved Lender or by the parent company of any Approved Lender and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within six months after the date of acquisition, (iv) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's, (v) proceeds from the sale of any asset of any Borrower, any Guarantor or any of their respective Subsidiaries held in trust by any Approved Lender or other Person satisfactory to the Administrative Agent for not more than six months in connection with a proposed like-kind transaction under Section 1031 of the Code and (vi) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (i) through (iv) above. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.CA. Section 9601 et seq. "Change of Control" shall mean any of the following events: (i) the failure of Patriot REIT, or a Wholly-Owned Subsidiary of Patriot REIT, to be the sole general partner of Patriot OP; (ii) the acquisition, directly or indirectly, by any one "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) of more than 30% of the common stock of Patriot REIT; or (iii) during any period of 24 consecutive calendar months after the Restatement Effective Date, individuals who at the beginning of such period constituted the Board of Directors of Patriot REIT (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders or members, as the case may be, of Patriot REIT was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors then in office; provided, that no Change of Control shall be deemed to have occurred as a result of the Interstate Transaction. "Chase" shall mean The Chase Manhattan Bank, in its individual capacity. "CHC Acquisition" shall mean the acquisition by Patriot REIT and its Affiliates of Carnival Hotel Corporation, Inc. and its Affiliates, including without limitation the transactions contemplated pursuant to a certain Agreement and Plan of Merger by and among Patriot REIT, Patriot OP and CHC International, Inc. -68- "Claims" shall have the meaning provided in the definition of "Environmental Claims." "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provision of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all of the Collateral as defined in the Pledge Agreement. "Collateral Agent" shall mean the Administrative Agent acting as collateral agent for the Secured Creditors. "Commitment" shall mean any of the commitments of any Lender, i.e., whether the Tranche II Term Loan Commitment, Tranche III Term Loan Commitment, Tranche B Term Loan Commitment or Revolving Loan Commitment. "Commitment Fee" shall have the meaning provided in Section 3.01(a). "Company Combined Basis" shall mean, with respect to any financial statement, that such statement is calculated on a consolidated basis for each of Patriot REIT and its Subsidiaries and Wyndham and its Subsidiaries and that such calculations are then combined in accordance with GAAP. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee (including, without limitation, as a result of such Person being a general partner of the other Person, unless the underlying obligation is expressly made non-recourse as to such general partner) any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof in the manner of a guaranty; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. -69- "Credit Documents" shall mean this Agreement, each Note, the Amended and Restated Affiliate Guaranty and the Pledge Agreement. "Credit Event" shall mean the making of any Loan (other than a Revolving Loan made pursuant to a Mandatory Borrowing) or the issuance of any Letter of Credit. "Credit Party" shall mean each Borrower and each Guarantor. "CSI" shall mean Chase Securities Inc., in its individual capacity. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Lender" shall mean any Lender with respect to which a Lender Default is in effect. "Determination Date" shall have the meaning provided in the definition of Pro Forma Basis. "Derivatives Obligations" of any Person means all Interest Rate Protection Agreements and all other obligations of such Person in respect of any interest rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Dividends" with respect to any Person shall mean that such Person has declared or paid a dividend or returned any equity capital to its stockholders or partners or authorized or made any other distribution, payment or delivery of property (other than common stock of such Person) or cash to its stockholders or partners as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock or any partnership interests outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock or partnership interest), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock or any partnership interests of such Person outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock or partnership interest). "Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States. -70- "Domestic Subsidiary" shall mean each Subsidiary of Patriot REIT or Wyndham, as the case may be, incorporated or organized in the United States or any State or territory thereof. "Drawing" shall have the meaning provided in Section 2.04(a). "EBITDA" shall mean, for any Person for any period, the net income of such Person for such period, plus (a) the sum of the following amounts of such Person for such period determined in conformity with GAAP to the extent included in the determination of such net income: (i) depreciation expense, (ii) amortization expense and other non-cash charges, (iii) interest expense, (iv) income tax expense, (v) extraordinary losses (and other losses on Asset Sales not otherwise included in extraordinary losses determined in conformity with GAAP) and (vi) minority interests attributable to the OP Units, less (b) extraordinary gains of such Person determined in conformity with GAAP to the extent included in the determination of such net income (and other gains on sales or other dispositions or assets not otherwise included in extraordinary gains determined in conformity with GAAP). "Eligible Transferee" shall mean (i) a commercial bank or Federal savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $5,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD or the Cayman Islands; (iii) the central bank of any country which is a member of the OECD; corporation organized under the laws of the United States, or any State thereof, and having total assets in excess of $3,000,000,000; (iv) an insurance company organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (v) any Lender; (vi) any Affiliate of any Lender or any Approved Fund; and (vii) any Person other than an Affiliate of a Credit Party, in each case acceptable (a) to the Administrative Agent, and (b) provided no Default or Event of Default exists, to the Borrower, which acceptance will not be unreasonably withheld, conditioned or delayed. "Environmental Claims" shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations or proceedings relating in any way to any Environmental Law (hereafter "Claims") or any permit issued under any such law, including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Law" shall mean any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy and rule of common law now or hereafter in effect and in each case as -71- amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.CA. Section 2601 et seq., the Clean Air Act, 42 U.S.CA. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.CA. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.CA. Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.CA. Section 11001 et seq., the Hazardous Material Transportation Act, 49 U.S.CA. Section 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.CA. Section 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); and any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with any Borrower, any Guarantor or any Subsidiary of any such Person would be deemed to be a "single employer" within the meaning of Section 414(b),(c), (m) or (o) of the Code. "Eurodollar Loan" shall mean each Loan designated as such by the respective Borrower at the time of the incurrence thereof or conversion thereto. "Eurodollar Rate" means, for any Interest Period, an interest rate per annum equal to the rate per annum obtained by multiplying (a) a rate per annum equal to the rate for U.S. dollar deposits with maturities comparable to such Interest Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, provided, however, that if such rate does not appear on Telerate Page 3750, the "Eurodollar Rate" applicable to a particular Interest Period shall mean a rate per annum equal to the rate at which U.S. dollar deposits in an amount approximately equal to the Principal Balance (or the portion thereof which will bear interest at a rate determined by reference to the Eurodollar Rate during the Interest Period to which such Eurodollar Rate is applicable in accordance with the provisions hereof), and with maturities comparable to the last day of the Interest Period with respect to which such Eurodollar Rate is applicable, are offered in immediately available funds in the London Interbank Market to the London office of Chase by leading banks in the Eurodollar market at 11:00 a.m., London time, two (2) Business Days prior to the commencement of the Interest Period to which such Eurodollar Rate is applicable, by (b) a fraction (expressed as a decimal) the numerator of which shall be the number one and the denominator of which shall be the number one minus the Eurodollar Rate Reserve Percentage for such Interest Period. "Eurodollar Rate Reserve Percentage" for any Interest Period means the aggregate reserve percentages (expressed as a decimal) from time to time established by the Board of -72- Governors of the Federal Reserve System of the United States and any other banking authority to which any of the Lenders are now or hereafter subject, including, but not limited to any reserve on Eurocurrency Liabilities as defined in Regulation D of the Board of Governors of the Federal Reserve System of the United States at the ratios provided in such Regulation from time to time, it being agreed that any portion of the Principal Balance bearing interest at a rate determined by reference to the Eurodollar Rate shall be deemed to constitute Eurocurrency Liabilities, as defined by such Regulation, and it being further agreed that such Eurocurrency Liabilities shall be deemed to be subject to such reserve requirements without benefit of or credit for prorations, exceptions or offsets that may be available to any of the Lenders from time to time under such Regulation and irrespective of whether such Lender actually maintains all or any portion of such reserve. "Event of Default" shall have the meaning provided in Section 10. "Excluded Unconsolidated Entity" shall mean any Person which would be an Unconsolidated Entity (without giving effect to the parenthetical in the definition thereof) designated as an Excluded Unconsolidated Entity by written notice from either Borrower to the Administrative Agent so long as (i) the maximum liability of the Borrowers, the Guarantors, their respective Subsidiaries and the Unconsolidated Entities to or on the behalf of such Excluded Unconsolidated Entity is limited to the Investments made, or to be made by such Person in compliance with all the limitations on such Investments under this Agreement, in such Excluded Unconsolidated Entity and (ii) the obligations of such Excluded Unconsolidated Entity are otherwise without recourse (other than claims in respect of customary indemnities and non-recourse covenants) to the Borrowers, the Guarantors, their respective Subsidiaries and the Unconsolidated Entities, and/or any of their respective assets. "Existing Indebtedness" shall have the meaning provided in Section 7.19. "Extended-Stay Hotel" shall mean a Hotel which may reasonably be categorized as one which (i) primarily services guests needing accommodations for a period of five days or longer, (ii) offers limited or no food or beverage facilities or meeting space, (iii) offers services and facilities designed to appeal to longer-term residents, such as grocery shopping and laundry services, (iv) offers some type of kitchen facility, and (v) quotes rates on a weekly or monthly basis (e.g., hotels operated as Residence Inns by Marriott, Homewood Suites, Candlewood Suites and Suburban Lodges). "Facing Fee" shall have the meaning provided in Section 3.01(c). "Federal Funds Rate" shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent. -73- "Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01. "FF&E" shall mean, with respect to any Hotel, any furniture, fixtures and equipment, including any beds, lamps, bedding, tables, chairs, sofas, curtains, carpeting, smoke detectors, mini bars, paintings, decorations, televisions, telephones, radios, desks, dressers, towels, bathroom equipment, heating, cooling, lighting, laundry, incinerating, loading, swimming pool, landscaping, garage and power equipment, machinery, engines, vehicles, fire prevention, refrigerating, ventilating and communications apparatus, carts, dollies, elevators, escalators, kitchen appliances, restaurant equipment, computers, reservation systems, software, cash registers, switchboards, cleaning equipment or any other items of furniture, fixtures and equipment typically used in hotel properties (including furniture, fixtures and equipment used in guest rooms, lobbies and common areas). "FF&E Reserve" shall mean, with respect to any Hotel for any period, the actual reserve required under the Operating Lease for such Hotel, provided that if the Operating Lease does not create contractual FF&E obligations, or such Hotel is not subject to an Operating Lease, the FF&E Reserve for such Hotel shall be a reserve equal to 4% of Gross Revenues from such Hotel for such period. "Fiscal Quarter" shall mean each fiscal quarter of the respective Borrower ending on March 31, June 30, September 30 and December 31 of each calendar year. "Fiscal Year" shall mean each fiscal year of the respective Borrower ending on December 31 of each calendar year. "Fixed Charge Coverage Ratio" shall mean, for any Test Period, the ratio of (i) Total Adjusted EBITDA for such Test Period plus EBITDA of each Excluded Unconsolidated Entity multiplied by the applicable Allocation Percentage to (ii) the sum of (v) Total Interest Expense for such Test Period, (w) all scheduled principal amortization payments (excluding final payments due at maturity) on Total Indebtedness made during such Test Period, (x) preferred stock dividends (excluding dividends in respect of preferred stock issued in connection with the CHC Acquisition or other acquisitions to the extent such dividends are paid on a non-fixed basis which is the functional equivalent of paying dividends in respect of the common stock of Patriot REIT (or on a basis which is more favorable to the Lenders)) accrued by Patriot REIT or Wyndham during such Test Period, (y) interest expense (including capitalized interest) and scheduled principal amortization payments (excluding final payments due at maturity) on Indebtedness of Excluded Unconsolidated Entities multiplied by the applicable Allocation Percentage and (z) 4% of Gross Revenues during such Test Period received from each Hotel owned or leased pursuant to a ground lease by any Borrower, any Guarantor or any of their respective Subsidiaries. "Foreign Pension Plan" means any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by any Borrower or any one or more of its Affiliates primarily for the benefit of employees of any Borrower or such Affiliates residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of -74- income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code, and as to which plan any Borrower or any Guarantor has any material liability. "Foreign Subsidiary" shall mean each Subsidiary of any Borrower or Guarantor other than a Domestic Subsidiary. "Forward Purchase Obligations" shall mean obligations to purchase Hotels and related property upon the completion of construction or renovation thereof, or upon the occurrence of another future contingency (excluding obligations under purchase, sale and acquisition agreements entered into in the ordinary course of business). "Full-Service Hotel" shall mean a Hotel (including an all-suites Hotel) which may reasonably be categorized as one which offers customary food and beverage facilities and room service. "GAAP" shall have the meaning provided in Section 13.07(a). "Gross Revenues" shall mean all revenues derived from the operation of Hospitality/Leisure-Related Businesses. "Guaranteed Obligations" shall mean all obligations of each Borrower to each Lender for the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of the principal and interest on each Note issued by any Borrower to such Lender, and Loans made, under this Agreement and all reimbursement obligations and Unpaid Drawings with respect to Letters of Credit, together with all the other obligations and liabilities (including, without limitation, indemnities, fees and interest thereon) of any Borrower to such Lender now existing or hereafter incurred under, arising out of or in connection with the Agreement or any other Credit Document and the due performance and compliance with all the terms, conditions and agreements contained in the Credit Documents by the Borrower. "Guarantor" shall mean (i) on the Restatement Effective Date, each Domestic Subsidiary of Patriot REIT in existence on the Restatement Effective Date other than Patriot OP and any other Subsidiary listed on Schedule VIII and designated a "Non-Credit Party Subsidiary" therein, (ii) on the Restatement Effective Date, Wyndham and each of its Domestic Subsidiaries in existence on the Restatement Effective Date other than any Subsidiary listed on Schedule VIII and designated a "Non-Credit Party Subsidiary" therein and (iii) at any time, any other Domestic Subsidiary of Patriot REIT or Wyndham created or acquired after the Restatement Effective Date excluding any Subsidiary reasonably designated by the Arrangers to be a Non-Credit Party Subsidiary. "Guarantor Event of Default" shall have the meaning provided in the Amended and Restated Affiliate Guaranty. "Guaranty" shall mean the Amended and Restated Affiliate Guaranty. -75- "Hazardous Materials" shall mean (a) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; and (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous wastes," "restrictive hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar meaning and regulatory effect under any applicable Environmental Law. "Hospitality/Leisure-Related Business" shall mean the hotel, resort, extended stay lodging, other hospitality, vacation or timeshare business or any casino (but only if part of a Hotel and not as a stand-alone or primary business), senior living (excluding congregate care) or recreational business and other businesses incidental to, or in support of such business, including without limitation, (i) developing, managing, operating, improving or acquiring lodging facilities, restaurants and other food-service facilities, golf facilities or other entertainment facilities or club, convention or meeting facilities and marketing services or reservation systems related thereto, and (ii) acquiring, developing, managing or improving any real estate ancillary or connected to any hotel, resort, extended stay lodging, other hospitality-related business, casino (but only if a part of a Hotel and not as a stand-alone or primary business), senior living (excluding congregate care) or recreational business or reservation system constructed, leased, owned, managed or operated (or proposed to be constructed, leased, owned, managed or operated) by the Borrowers, the Guarantors or any of their Subsidiaries at any time; provided, that the operation of a horse racing facility and pari-mutuel wagering in the manner so operated on the Restatement Effective Date shall be permitted. "Hotel" shall mean any Real Property (including Improvements thereon and any retail, golf, tennis, spa or other resort amenities appurtenant thereto) comprising an operating facility offering hotel or lodging services. "Improvements" shall mean all buildings, structures, fixtures, tenant improvements and other improvements of every kind and description now or hereafter located in or on or attached to any Real Property, including all building materials, water, sanitary and storm sewers, drainage, electricity, steam, gas, telephone and other utility facilities, parking areas, roads, driveways, walks and other site improvements; and all additions and betterments thereto and all renewals, substitutions and replacements thereof. "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property (including Forward Purchase Obligations) or services, (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (iv) the aggregate amount required to be capitalized in accordance with GAAP under leases under which such Person is the lessee, (v) all obligations of -76- such person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person, and (vii) all obligations under any Interest Rate Protection Agreement or under any similar type of agreement or arrangement; provided, that Indebtedness shall not include (a) trade payables incurred in the ordinary course of business, (b) operating lease obligations (including, without limitation, the lessee's obligations under (i) the eleven (11) Lease Agreements dated as of May 2, 1996 and/or May 3, 1996 originally between HPTWN Corporation, as lessor, and Garden Hotel Associates Two LP, as lessee (subsequently assigned to GHALP Corporation, as lessee), (ii) the Lease dated as of January 8, 1997 originally between HPTSLC Corporation, as lessor, and WHC Salt Lake City Corporation, as lessee, and (iii) any other operating lease pursuant to which any Borrower, any Guarantor or any of their respective Subsidiaries or Unconsolidated Entities, as lessee, leases all or any portion of a Hotel from the holder of a superior interest in such Hotel, as lessor), (c) short term notes evidencing earnest money deposits until delivered to the payee and (d) at the time of determination of outstanding Indebtedness at any time, the aggregate amount of Forward Purchase Obligations not in excess of $400,000,000 then outstanding. "Independent Hotel" shall mean a Hotel which is not associated or designated to become associated within six months of such designation with a nationally or regionally recognized hotel or resort brand or franchise or hotel membership organization encompassing at least 5 Hotels, provided, that notwithstanding the foregoing, Hotels operating under any of the names of Grand Heritage, Carefree, and to the extent the right to use or ownership is acquired, West Coast, Homegate, Club House, Grand Bay, Registry and Carnival shall not be considered Independent Hotels. "Intangible Asset" shall mean, with respect to any Person, a long-lived asset that is useful in the operations of such Person, that is not directly used in revenue generation and is not held for sale, and is without physical qualities, including but not limited to patents, copyrights and goodwill, but excluding capitalized costs associated with the acquisition of brand names, franchises and trademarks, franchise agreements and management agreements. "Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan. "Interest Period" shall have the meaning provided in Section 1.09. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement, interest rate floor agreement or other similar agreement or arrangement. "Interstate Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of December 2, 1997, by and among Interstate Hotels Company, Patriot REIT and Patriot American Hospitality Operating Company. "Interstate Transaction" shall mean the transaction by which the Interstate Hotels Company will merge with and into Patriot REIT with Patriot REIT being the surviving entity -77- pursuant to the Interstate Merger Agreement and related stockholders agreement entered into by Patriot REIT dated December 2, 1997. "Interstate Transaction Documents" shall mean the Interstate Merger Agreement and all other documents and agreements entered into in connection with the consummation of the Interstate Transaction. "Investment" shall have the meaning provided in Section 9.04. "Issuing Lender" shall mean the Administrative Agent and any Lender which at the request of the respective Borrower and with the consent of the Administrative Agent agrees, in such Lender's sole discretion, to become an Issuing Lender for the purpose of issuing Letter of Credit pursuant to Section 2. "Joint Venture" shall mean any Person, other than an individual or a Wholly-Owned Subsidiary of Patriot REIT or Wyndham, in which Patriot REIT or Wyndham or a Subsidiary of Patriot REIT or Wyndham holds or acquires an ownership interest (whether by way of capital stock, partnership or limited liability company interest, or other evidence of ownership). "L/C Supportable Obligations" shall mean (i) obligations of the Borrowers, the Guarantors, or any of their respective Subsidiaries or of any Joint Venture incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations, (ii) earnest money or performance obligations in respect of acquisitions permitted pursuant to the terms of this Agreement and (iii) such other obligations of the Borrowers, the Guarantors, or any of their respective Subsidiaries or of any Joint Venture as are permitted to exist pursuant to the terms of this Agreement. "Leasehold" of any Person shall mean all of the right, title and interest of such Person as lessee or licensee in, to and under any lease or license of land, improvements and/or fixture. "Legal Requirements" shall mean all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting each Hotel, the improvements on such Hotel or the demolition, construction, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to such Hotel or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 et seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances affecting such Hotel, the Appurtenant Rights and any easements, licenses or other agreements entered respect to such Hotel. -78- "Lender" shall mean each financial institution listed on Schedule I and any Person which becomes a "Lender" hereunder pursuant to Sections 1.13 and/or 13.04(b). "Lender Default" shall mean (i) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under Section 2.03(c) or (ii) a Lender having notified in writing any Borrower and/or the Administrative Agent that it does not intend to comply with its obligations under Section 1.01 or Section 2, in each case for any reason including, without limitation, as a result of any takeover of such Lender by any regulatory authority or agency. "Letter of Credit" shall have the meaning provided in Section 2.01(a). "Letter of Credit Fee" shall have the meaning provided in Section 3.01(b). "Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the amount of all Unpaid Drawings. "Letter of Credit Request" shall have the meaning provided in Section 2.02(a). "Leverage Ratio" shall mean, on any date, the ratio of (i) Total Indebtedness on such date to (ii) Total Adjusted EBITDA for the Test Period most recently ended on or prior to such date. All calculation of the Leverage Ratio shall be made on a Pro Forma Basis. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other) or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing and excluding any equipment operating leases and any precautionary filings related thereto). "Limited-Service Hotel" shall mean a Hotel which may reasonably be categorized as one which (i) offers either no, or very limited, meeting space and food and beverage facilities such as restaurants, lounges and catering facilities, (ii) may be described as a "rooms-only" property, and (iii) does not have amenities such as bell-service, health spas or entertainment facilities (e.g., hotels operated as Hampton Inns, Comfort Inns, La Quinta Inns and Red Roof Inns). For the purpose of this agreement, Limited-Service Hotels shall not include Hotels where the majority of rentable rooms are suites and the average daily room rate over the preceding 12 months was $80 or more. "Loan" shall mean each Tranche I Term Loan, each Tranche II Term Loan, each Tranche III Term Loan, each Tranche B Term Loan, each Revolving Loan and each Swingline Loan. -79- "Majority Lenders" of any Tranche shall mean those Non-Defaulting Lenders which constitute the Required Lenders under, and as defined in, this Agreement if all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated. "Management Agreement" shall mean any agreement pursuant to which any Hotel is managed, operated, franchised or licensed and which (i) with respect to the management or operation of such Hotel, is between any Borrower, any Guarantor or any of their respective Subsidiaries on one hand and the Operator of such Hotel on the other hand, and (ii) with respect to the franchising or licensing of such Hotel, is in favor of any Borrower, any Guarantor or the Operator of such Hotel and which permits the use of hotel system trademarks, trade names and any related rights in connection with the ownership or operation of such Hotel. "Mandatory Borrowing" shall have the meaning provided in Section 1.01(g) of this Agreement. "Margin Stock" shall have the meaning provided in Regulation U. "Material Adverse Effect" shall mean a material adverse effect on the business, operations, property or condition (financial or otherwise) of the Borrowers, the Guarantors, and their respective Subsidiaries, taken as a whole. "Maturity Date" shall mean, with respect to any Tranche of Loans, the Tranche I Term Loan Maturity Date, the Tranche II Term Loan Maturity Date, the Tranche III Term Loan Maturity Date, the Tranche B Term Loan Maturity Date, the Revolving Loan Maturity Date or the Swingline Expiry Date, as the case may be. "Maximum Swingline Amount" shall mean $10,000,000. "Minimum Borrowing Amount" shall mean, (i) for Revolving Loans, $1,000,000, (ii) for Term Loans, $1,000,000, and (iii) for Swingline Loans, $500,000. "Minimum Tangible Net Worth" shall mean, at any time, the sum of (a) 75% of Tangible Net Worth as of the Restatement Effective Date plus (b) 60% of the aggregate net proceeds received by any Borrower or any Guarantor after the Restatement Effective Date in connection with any issuance of Stock, Stock Equivalents or any OP Units, in each case to any Person other than any Borrower or any Guarantor. "Moody's" shall mean Moody's Investors Service, Inc. "Mortgage Note" shall mean a duly authorized, executed and delivered promissory note, which promissory note (i) is secured by a first priority mortgage lien encumbering a Hotel that is owned or leased pursuant to a ground lease by the obligor under such promissory note, (ii) is not in default beyond applicable notice and cure periods, (iii) bears cash interest after the Restatement Effective Date at minimum rate of at least 7% per annum and is -80- payable at least quarterly and (iv) is not an obligation of the Borrower, any Guarantor, any of their Subsidiaries or any Unconsolidated Entity. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA subject to Title IV of ERISA. "Net Cash Proceeds" shall mean for any event requiring a reduction of the Total Revolving Loan Commitment and/or repayment of Term Loans pursuant to Section 3.03 or 4.02, as the case may be, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such event, net of reasonable transaction costs (including, as applicable, any underwriting, brokerage or other customary commissions and reasonable legal, advisory and other fees and expenses associated therewith) received from any such event. "Net Sale Proceeds" shall mean for any Asset Sale, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from any Asset Sale, net of (i) reasonable transaction costs (including, without limitation, any underwriting, brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses, including title and recording expenses, associated therewith) and payments of unassumed liabilities relating to the assets sold at the time of, or within 90 days after, the date of such sale, (ii) the amount of such gross cash proceeds required to be used to repay any Indebtedness (other than Indebtedness of the Lenders pursuant to this Agreement) which is secured by any of the respective assets which were sold, and (iii) the estimated marginal increase in income taxes which will be payable by Patriot REIT's or Wyndham's consolidated group with respect to the fiscal year in which the sale occurs or deferred payment is received as a result of such sale; provided, however, that such gross proceeds shall not include any portion of such gross cash proceeds which the Borrowers determine in good faith should be reserved for post-closing adjustments (including indemnification payments) (to the extent the Borrower delivers to the Lenders a certificate signed by an Authorized Financial Officer of such Borrower officer as to such determination), it being understood and agreed that on the day that all such post-closing adjustments have been determined (which shall not be later than one year following the date of the respective Asset Sale), the amount (if any) by which the reserved amount in respect of such sale or disposition exceeds the actual post-closing adjustments payable by any Borrower, any Guarantor or any of their respective Subsidiaries shall constitute Net Sale Proceeds on such date received by any Borrower, any Guarantor and/or any of their respective Subsidiaries from such sale, lease, transfer or other disposition. The parties hereto acknowledge and agree that Net Sale Proceeds shall not include any trade-in-credits or purchase price reductions received by any Borrower, any Guarantor or any of their respective Subsidiaries in connection with an exchange of equipment for replacement equipment that is the functional equivalent of such exchanged equipment. "New Construction" shall mean any of the following: (i) the construction of any new Hotels, (ii) any conversion of any property to Hotel use, or (iii) the addition of rooms to any -81- Hotel which requires such Hotel to shut down for any period of time or which increases the number of rooms of such Hotel by 50% or more. "New Lender" shall mean each of the Persons Listed on Schedule I that is not an Original Lender. "Non-Credit Party Subsidiary" shall mean, (i) with respect to any Subsidiary of the Borrowers or the Guarantors in existence on the Restatement Effective Date, each Subsidiary listed on Schedule VIII hereto and designated as a Non-Credit Party Subsidiary therein, and (ii) with respect to any Subsidiary of the Borrowers or Guarantors acquired or created after the Restatement Effective Date, each Subsidiary which the Arrangers reasonably determine, at the time of such acquisition or creation, to be excluded from the requirement of becoming a Guarantor under Section 9.14. "Non-Defaulting Lender" shall mean and include each Lender other than a Defaulting Lender. "Non-Pledgor Credit Party Subsidiary" shall mean (i) with respect to any Subsidiary of the Borrowers or the Guarantors in existence on the Restatement Effective Date, each Subsidiary listed on Schedule VIII hereto and designated as a Non-Pledgor Credit Party Subsidiary therein, and (ii) with respect to any Subsidiary acquired or created after the Restatement Effective Date, each Subsidiary which the Arrangers reasonably determine at the time of such acquisition, to be excluded from the requirement of becoming a Pledgor Credit Party under Section 9.14. "Non-Recourse Indebtedness" shall mean Indebtedness with respect to which no portion is guaranteed by, and no recourse claim (other than claims in respect of customary indemnities and non-recourse carveouts) can be made against, any Borrower, any Guarantor or any of their respective Subsidiaries. "Non-Strategic Assets" shall mean any Hotel which is not branded under a proprietary brand of Patriot REIT or Wyndham, except that the Wyndham Franklin Plaza shall be included in this definition of Non-Strategic Assets. "Note" shall mean each Tranche I Term Note, each Tranche II Term Note, each Tranche III Term Note, each Tranche B Term Note, each Revolving Note and the Swingline Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03(a). "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Administrative Agent located at 380 Madison Avenue, 10th Floor, New York, New York 10017, Attention: Fred Hammer, with a copy to One Chase Manhattan Plaza, Agency Plus, 8th Floor, New York, New York 10081, Attention: -82- Daniella Cassognol, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Obligations" shall mean all amounts owing to the Administrative Agent, any Arranger or any Lender pursuant to the terms of this Agreement or any other Credit Document. "OECD" shall mean the Organization for Economic Cooperation and Development. "OP Units" shall mean and include Patriot OP Units and Wyndham Partnership OP Units. "Operating Account" shall have the meaning provided in Section 8.14. "Operating Lease" shall mean a lease or sublease relating to all or substantially all of any Hotel, between any Borrower, any Guarantor or any of their respective Subsidiaries or Unconsolidated Entities, as lessor, and an Operator, substantially in the form approved by the Administrative Agent. "Operator" shall mean and include each Affiliated Operator and each Third Party Operator. "Original Credit Agreements" shall have the meaning provided in the second WHEREAS clause of this Agreement. "Original Lenders" shall mean the Original Revolver Lenders and the Original Term Lenders. "Original Letters of Credit" shall mean the letters of credit previously issued under the Original Revolving Credit Agreement and listed on Schedule IX hereto. "Original Loans" shall mean the "Loans" under, and as defined in, the Original Credit Agreements. "Original Revolver Effective Date" shall mean the Effective Date under, and as defined in, the Original Revolving Credit Agreement. "Original Revolver Lenders" shall mean each Person which was a Lender under, and as defined in, the Original Revolving Credit Agreement. "Original Revolving Credit Agreement" shall have the meaning provided in the first WHEREAS clause of this Agreement. "Original Term Lenders" shall mean each Person which was a Lender under, and as defined in, the Original Term Loan Agreement. -83- "Original Term Loan Agreement" shall have the meaning provided in the second WHEREAS clause of this Agreement. "Original Term Loans" shall mean the Loans under, and as defined in, the Original Term Loan Agreement. "Other Hedging Agreement" shall mean foreign exchange contracts, currency swap agreements, commodity agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency values. "Paine Webber" shall mean Paine Webber Real Estate Securities Inc. in its individual capacity. "Participant" shall have the meaning provided in Section 2.03(a). "Patriot OP" shall have the meaning set forth in the first paragraph of this Agreement. "Patriot OP Units" shall mean the partnership units of Patriot OP. "Patriot REIT" shall have the meaning set forth in the first paragraph of this Agreement. "Patriot REIT Net Income" shall mean (i) net income of Patriot REIT, determined on a consolidated basis in accordance with GAAP, plus (ii) to the extent not accounted for in clause (i), net income of each of Patriot REIT's Unconsolidated Entities times the applicable Allocation Percentage. "Payment Office" shall mean the office of the Administrative Agent located at 380 Madison Avenue, New York, New York 10017, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Encumbrances" shall mean (i) those liens, encumbrances and other matters affecting title to any Real Property and found reasonably acceptable by the Administrative Agent, (ii) as to any particular Real Property at any time, such easements, encroachments, covenants, rights of way, minor defects, irregularities or encumbrances on title which could not reasonably be expected to materially impair such Real Property for the purpose for which it is held by the mortgagor thereof, or the lien held by the Collateral Agent, (iii) zoning and other municipal ordinances which are not violated in any material respect by the existing improvements and the present use made by the mortgagor thereof of the premises, (iv) general real estate taxes and assessments not yet delinquent, and (v) such other similar items as the Administrative Agent may consent to (such consent not to be unreasonably withheld). -84- "Permitted Equity Swaps" shall mean all agreements which are satisfactory to each of the Arrangers and are substantially similar to the equity stock agreements to which Patriot REIT is a party on the Restatement Effective Date, copies of which have been provided to the Administrative Agent; provided, that all such equity stock agreements entered into after the Restatement Effective Date shall be Permitted Equity Swaps only to the extent such agreements by their terms may only be settled in stock. "Permitted Liens" shall have the meaning provided in Section 9.06. "Person" shall mean any individual, partnership, limited liability company, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or any of its Subsidiaries or ERISA Affiliates, and each such plan for the five-year period immediately following the latest date on which the Borrower or any of its Subsidiaries or ERISA Affiliates maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" shall have the meaning as provided in Section 5.06 of this Agreement. "Pledgor Credit Party" shall mean (i) on the Restatement Effective Date, Patriot REIT and each of its Domestic Subsidiaries in existence on the Restatement Effective Date other than any Subsidiary listed on Schedule VIII and designated a "Non-Pledgor Credit Party Subsidiary" therein, (ii) on the Restatement Effective Date, Wyndham and each of its Domestic Subsidiaries in existence on the Restatement Effective Date other than any Subsidiary listed on Schedule VIII and designated a "Non-Pledgor Credit Party Subsidiary" therein, and (iii) at any time, any other Domestic Subsidiary of Patriot REIT or Wyndham created or acquired after the Restatement Effective Date excluding any Subsidiary reasonably designated by the Arrangers to be a Non-Pledgor Credit Party Subsidiary. "Pricing Leverage Ratio" shall mean the ratio, for any Test Period, of (i) the Total Indebtedness for such Test Period to (ii) Total Adjusted EBITDA for such Test Period, calculated on a Pro Forma Basis. "Principal Balance" shall mean the outstanding principal amount of the Loans. "Pro Forma Basis" shall mean, with respect to any incurrence of Indebtedness, issuance of preferred stock by Patriot REIT or Wyndham or acquisition of a Hotel (or the equity interest of the Person or Persons owning such Hotel), the calculation of the consolidated results of the Borrowers, the Guarantors and their respective Subsidiaries otherwise determined in accordance with this Agreement as if the respective Indebtedness, issuance of preferred stock or acquisition (and all other Indebtedness incurred, other preferred stock issued or other such acquisition effected during the respective Calculation Period or thereafter and on or prior to the date of determination) (each such date, a "Determination Date") had been effected on the first -85- day of the respective Calculation Period; provided that all such calculations shall take into account the following assumptions: (i) pro forma effect shall be given to (1) any Indebtedness incurred or preferred stock issued subsequent to the end of the Calculation Period and prior to the date of determination, (2) any Indebtedness incurred or preferred stock issued during such period to the extent such Indebtedness or preferred stock is outstanding at the date of determination and (3) any Indebtedness to be incurred or preferred stock to be issued on the date of determination, in each case as if such Indebtedness had been incurred or such preferred stock had been issued on the first day of such Calculation Period and after giving effect to the application of the proceeds thereof; (ii) interest expense attributable to interest on any Indebtedness (whether existing or being incurred) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term in excess of 12 months) had been the applicable rate for the entire period; (iii) except as provided in preceding clause (ii), there shall be excluded from interest expense any interest expense related to any amount of Indebtedness that was outstanding during such Calculation Period or thereafter but that is not outstanding or is to be permanently repaid on the date of determination; (iv) there shall be excluded from preferred stock dividends any preferred stock dividends related to any preferred stock issued or outstanding during such Calculation Period or thereafter but that is not outstanding or is to be redeemed on the date of determination; and (v) pro forma effect shall be given to all sales and acquisitions of Hotels that occur during such Calculation Period or thereafter and on or prior to the Determination Date (including any Indebtedness assumed or acquired in connection therewith) as if they had occurred on the first day of such Calculation Period, provided that in connection with any such acquisitions, pro forma effect (for periods prior to such acquisition) shall be given to the management fees payable pursuant to the respective Management Agreement as if such management fees had been payable throughout the Calculation Period. "Projections" shall have the meaning provided in Section 5.11. "RCRA" shall mean the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq. "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recourse Secured Indebtedness" shall mean Indebtedness which is secured or collateralized by any asset of, and all or a portion of which is guaranteed by, or for which a recourse claim (other than claims in respect of customary indemnities and non-recourse -86- carveouts) may be made against, any Borrower, any Guarantor or any of their respective Subsidiaries or Unconsolidated Entities, excluding any such Indebtedness existing on the Restatement Effective Date not to exceed $100,000,000 in aggregate principal amount . "Recovery Event" shall mean the receipt by any Borrower, any Guarantor or any of their respective Subsidiaries of any insurance or condemnation proceeds payable (i) by reason of theft, physical destruction or damage or any other similar event with respect to any properties or assets of any Borrower, any Guarantor or any of their respective Subsidiaries, (ii) by reason of any condemnation, taking, seizing or similar event with respect to any properties or assets of any Borrower, any Guarantor or any of their respective Subsidiaries and (iii) under any policy of insurance required to be maintained under Section 8.03. "Register" shall have the meaning provided in Section 13.16. "Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and X, respectively, of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing or migration into the environment. "Replaced Lender" shall have the meaning provided in Section 1.13. "Replacement Lender" shall have the meaning provided in Section 1.13. "Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Single Employer Plan other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "Required Lenders" shall mean Non-Defaulting Lenders, the sum of whose outstanding Term Loans (or, if prior to the Restatement Effective Date, Term Loan Commitments) and Revolving Loan Commitments (or after the termination thereof, outstanding Revolving Loans and Adjusted RL Percentage of Swingline Loans and Letter of Credit Outstandings) represent an amount greater than 50% of the sum of all outstanding Term Loans (or, if prior to the Restatement Effective Date, Term Loan Commitments) of Non-Defaulting Lenders and the Adjusted Total Revolving Loan Commitment (or after the termination thereof, the sum of the then total outstanding Revolving Loans of Non-Defaulting Lenders and the aggregate Adjusted RL Percentages of all Non-Defaulting Lenders of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time). "Restatement Effective Date" shall have the meaning provided in Section 13.10 "Returns" shall have the meaning provided in Section 7.09. "Revolving Loan" shall have the meaning provided in Section 1.01(a). -87- "Revolving Loan Commitment" shall mean, for each RL Lender, the amount set forth opposite such Lender's name in Schedule I hereto directly below the column entitled "Revolving Loan Commitment," as same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Revolving Loan Maturity Date" shall mean July 18, 2000. "Revolving Note" shall have the meaning provided in Section 1.05(a). "RL Lender" shall mean at any time each Lender with a Revolving Loan Commitment or with outstanding Revolving Loans. "RL Percentage" of any Lender at any time shall mean a fraction (expressed as a percentage) the numerator of which is the Revolving Loan Commitment of such Lender at such time and the denominator of which is the Total Revolving Loan Commitment at such time, provided that if the RL Percentage of any Lender is to be determined after the Total Revolving Loan Commitment has been terminated, then the RL Percentages of the Lenders shall be determined immediately prior (and without giving effect) to such termination. "S&P" shall mean Standard & Poor's Ratings Services. "Scheduled Repayment" shall have the meaning provided in Section 4.02(b). "SEC" shall have the meaning provided in Section 8.01(g). "Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b). "Secured Creditors" shall have the meaning provided in the Pledge Agreement. "Secured Indebtedness Ratio" shall mean, on any date, the ratio of (i) Total Secured Indebtedness on such date to (ii) Total Adjusted EBITDA for the Test Period most recently ended on or prior to such date. All calculations of the Secured Indebtedness Ratio shall be made on a Pro Forma Basis. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Management" shall mean with respect to any Person, any of the Chairman of the Board of Directors, the President, the Chief Financial Officer and the Treasurer of such Person, provided, that the Senior Management of the Borrowers and Wyndham shall in any event include Paul A. Nussbaum, James D. Carreker, William W. Evans, III and Lawrence Jones for so long as such individuals are employed by any Borrower or any Guarantor. "Single Employer Plan" shall have the meaning set forth in Section 7.10. -88- "Stated Amount" of each Letter of Credit shall, at any time, mean the maximum amount available to be drawn thereunder (in each case determined without regard to whether any conditions to drawing could then be met). "Status" shall mean the existence of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status, Level VI Status, Level VII Status, Level VIII Status or Level IX Status, as the case may be; "Level I Status" exists on any date if, on such date, Patriot REIT has received and maintained a long-term senior unsecured actual or implied debt rating of A- or better from S&P or A3 or better from Moody's; "Level II Status" exists on any date if, on such date, Patriot REIT has received and maintained a long-term senior unsecured actual or implied debt rating of BBB+ from S&P or Baa1 from Moody's; and "Level III Status" exists on any date if, on such date, Patriot REIT has received and maintained a long-term senior unsecured actual or implied debt rating of BBB from S&P or Baa2 from Moody's; "Level IV Status" exists on any date if, on such date, Patriot REIT has received and maintained a long-term senior unsecured actual or implied debt rating of BBB- from S&P or Baa3 from Moody's; "Level V Status" exists on any date if, on such date (x) none of Level I Status through Level IV Status exist and (y) the Pricing Leverage Ratio is less than 3.5:1.0; "Level VI Status" exists on any date if, on such date (x) none of Level I Status through Level IV Status exist and (y) the Pricing Leverage Ratio is equal to or greater than 3.5:1.0 but less than 4.0:1.0; "Level VII Status" exists on any date if, on such date (x) none of Level I Status through Level IV Status exist and (y) the Pricing Leverage Ratio is equal to or greater than 4.0:1.0 but less than 4.5:1.0; "Level VIII Status" exists on any date if, on such date (x) none of Level I Status through Level IV Status exist and (y) the Pricing Leverage Ratio is equal to or greater than 4.5:1.0 but less than 5.0:1.0; "Level IX Status" exists on any date if, on such date (x) none of Level I Status through Level IV Status exist and (y) the Pricing Leverage Ratio is equal to or greater than 5.0:1.0; provided that (i) if S&P and/or Moody's shall cease to issue ratings of debt securities of real estate investment trusts generally, then the Administrative Agent and the Borrowers shall negotiate in good faith to agree upon a substitute rating agency or agencies (and to correlate the -89- system of ratings of each substitute rating agency with that of the rating agency for which it is substituting) and (a) until such substitute rating agency or agencies are agreed upon, Status shall be determined on the basis of the rating assigned by the other rating agency (or, if both S&P and Moody's shall have so ceased to issue such ratings, on the basis of the Status in effect immediately prior thereto) and (b) after such substitute rating agency or agencies are agreed upon, Status shall be determined on the basis of the rating assigned by the other rating agency and such substitute rating agency or the two substitute rating agencies, as the case may be; (ii) if the long term senior unsecured actual or implied debt ratings of Patriot REIT by S&P and Moody's are not equivalent, the higher rating will apply for the purposes of determining Status; and (iii) if the long term senior unsecured actual or implied debt ratings of Patriot REIT by S&P and Moody's are two or more Levels apart, the rating one Level below the higher rating will apply for the purposes of determining Status. "Stock" shall mean shares of capital stock, beneficial or partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or non-voting, and includes, without limitation, common stock and preferred stock. "Stock Equivalents" shall mean all securities (other than Stock) convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any stock, whether or not presently convertible, exchangeable or exercisable. "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. "Syndication Agent" shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Syndication Agent appointed pursuant to Section 12.09. "Syndication Date" shall mean that date upon which the Administrative Agent determines in its sole discretion (and notifies the Borrowers) that the primary syndication (and resultant addition of institutions as Lenders pursuant to Section 13.04) has been completed. "Swingline Expiry Date" shall mean the date which is two Business Days prior to the Revolving Loan Maturity Date. "Swingline Lender" shall mean Chase. "Swingline Loan" shall have the meaning provided in Section 1.01(f). -90- "Swingline Note" shall have the meaning provided in Section 1.05(a). "Tangible Net Worth" shall mean, without duplication, (a) the sum of (i) the shareholders' equity of Patriot REIT and Wyndham on a combined basis in accordance with GAAP, and (ii) the value of all OP Units owned by Persons other than Patriot REIT or Wyndham, or Wholly-Owned Subsidiaries thereof minus (b) the sum of all Intangible Assets (net of accumulated amortization) of the Borrowers and the Guarantors, each as shown on the balance sheets of Patriot REIT and Wyndham on a Company Combined Basis as of such date. "Taxes" shall have the meaning provided in Section 4.04(a). "Term Loan" shall mean each Tranche I Term Loan, Tranche II Term Loan, Tranche III Term Loan and Tranche B Term Loan. "Term Loan Commitment" shall mean each Tranche II Term Loan Commitment, Tranche III Term Loan Commitment and Tranche B Term Loan Commitment, with the Term Loan Commitment of any Lender at any time to equal the sum of its Tranche II Term Loan Commitment, Tranche III Term Loan Commitment and Tranche B Term Loan Commitment as then in effect. "Test Period" shall mean (i) for any determination (other than a determination of the Total Interest Coverage Ratio or the Fixed Charge Coverage Ratio, which determinations shall in all cases be made pursuant to clause (ii) of this definition) made on and prior to March 31, 1999, the four consecutive Fiscal Quarters then last ended calculated on a Pro Forma Basis on the last day of such Test Period (in each case taken as one accounting period), and (ii) for any determination made thereafter, the four consecutive Fiscal Quarters then last ended, in each case taken as one accounting period. "Third Party Operating Lease" shall mean an Operating Lease with a Third Party Operator or an Affiliate of such Person and which Operating Lease is satisfactory to the Administrative Agent with respect to (i) the term thereof, (ii) the rent and fees payable thereunder, (iii) the termination rights thereunder and (iv) the lessee thereunder (including the ability of such Person to assign its obligations). "Third Party Operator" shall mean either a lessee under an Operating Lease or an Affiliate of such Person which operates the respective Hotel, which is not Patriot REIT, Wyndham or any of their respective Subsidiaries. "Total Adjusted EBITDA" shall mean, for any period, the product of (a) EBITDA of Patriot REIT and its Subsidiaries and Unconsolidated Entities and Joint Ventures, Wyndham and its Subsidiaries and Unconsolidated Entities and Joint Ventures, all on a combined basis in accordance with GAAP for such period (b) multiplied, in the case of each such Person, by the Allocation Percentage applicable to such Person; provided, that if the Allocation Percentage applicable to such Person is less than 20%, then, notwithstanding anything to the contrary contained in this definition, the portion of Total Adjusted EBITDA attributable to such Person -91- shall be the amount of such Person's EBITDA actually received by a Credit Party during such period. "Total Commitment" shall mean, at any time, the sum of the Commitments of each of the Lenders. "Total Indebtedness" shall mean the sum (without duplication) of all Indebtedness of the Borrowers and the Guarantors, plus the Allocation Percentage of Indebtedness of all of the respective Subsidiaries and Unconsolidated Entities of such Persons, determined on a Company Combined Basis (adjusted to exclude the portion of Indebtedness of Subsidiaries and Unconsolidated Entities in excess of the Allocation Percentages of such Persons' Indebtedness); provided, that if the Allocation Percentage applicable to such Subsidiary or Unconsolidated Entity is less than 20%, then, notwithstanding anything to the contrary contained in this definition, none of the Indebtedness of such Subsidiary or Unconsolidated Entity which is non-recourse to any Borrower or Guarantor shall be included in Total Indebtedness. "Total Interest Coverage Ratio" shall mean, for any Test Period, the ratio of (i) Total Adjusted EBITDA for such Test Period to (ii) Total Interest Expense for such Test Period. "Total Interest Expense" shall mean the sum of the total interest expense in respect of Total Indebtedness for such period determined in conformity with GAAP. "Total New Commitments" shall mean, at any time, the sum of the Tranche II Term Loan Commitments, the Tranche III Term Loan Commitments and the Tranche B Term Loan Commitments of each of the Lenders. "Total Recourse Secured Indebtedness" shall mean any portion of Total Secured Indebtedness all or any portion of which is guaranteed by, or for which a recourse claim (other than claims in respect of customary indemnities and non-recourse carveouts) can be made against the Borrowers, the Guarantors and their respective Subsidiaries and Unconsolidated Entities. "Total Revolving Loan Commitment" shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Lenders. "Total Secured Indebtedness" shall mean for any period any portion of Total Indebtedness, excluding the Obligations under this Agreement, which is secured or collateralized by any asset of the obligor thereunder. "Total Term Loan Commitment" shall mean, at any time, the sum of the Total Tranche II Term Loan Commitment, Total Tranche III Term Loan Commitment and Total Tranche B Term Loan Commitment. "Total Tranche II Term Loan Commitment" shall mean, at any time, the sum of the Tranche II Term Loan Commitments of each of the Lenders. -92- "Total Tranche III Term Loan Commitment" shall mean, at any time, the sum of the Tranche III Term Loan Commitments of each of the Lenders. "Total Tranche B Term Loan Commitment" shall mean, at any time, the sum of the Tranche B Term Loan Commitments of each of the Lenders. "Total Unutilized Revolving Loan Commitment" shall mean, at any time, an amount equal to the remainder of (x) the then Total Revolving Loan Commitment, less (y) the sum of the aggregate principal amount of Revolving Loans and Swingline Loans then outstanding plus the then aggregate amount of Letter of Credit Outstandings. "Tranche" shall mean the respective facility and commitments utilized in making Loans hereunder, with there being six separate Tranches, i.e., Tranche I Term Loans, Tranche II Term Loans, Tranche III Term Loans, Tranche B Term Loans, Revolving Loans and Swingline Loans. "Tranche I Term Lenders" shall mean (i) on or prior to the Restatement Effective Date, the Original Term Lenders, and (ii) after the Restatement Effective Date, each Lender with Tranche I Term Loans outstanding hereunder. "Tranche I Term Loan" shall have the meaning provided in Section 1.01(b). "Tranche I Term Loan Maturity Date" shall mean January 31, 1999. "Tranche I Term Note" shall have the meaning provided in Section 1.05(a). "Tranche II Term Loan" shall have the meaning provided in Section 1.01(c). "Tranche II Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I hereto directly below the column entitled "Tranche II Term Loan Commitment", as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Tranche II Term Loan Maturity Date" shall mean March 31, 1999. "Tranche II Term Note" shall have the meaning provided in Section 1.05(a). "Tranche III Term Loan" shall have the meaning provided in Section 1.01(d). "Tranche III Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I hereto directly below the column entitled "Tranche III Term Loan Commitment", as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 1.13 or 13.04(b). "Trance III Term Loan Maturity Date" shall mean March 31, 2000. -93- "Tranche III Term Note" shall have the meaning provided in Section 1.05(a). "Tranche B Term Loan" shall have the meaning provided in Section 1.01(e). "Tranche B Term Loan Commitment" shall mean, for each Lender, the amount set forth opposite such Lender's name in Schedule I hereto directly below the column entitled "Tranche B Term Loan Commitment", as same may be (x) reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.13 or 13.04(b). "Tranche B Term Loan Maturity Date" shall mean March 31, 2003. "Tranche B Term Note" shall have the meaning provided in Section 1.05(a). "Treasury Regulation" shall mean regulations promulgated under the Code. "Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unconsolidated Entity" shall mean, with respect to any Person, at any date, any other Person (excluding any Excluded Unconsolidated Entity) in whom such Person holds an Investment, and whose financial results would not be consolidated under GAAP with the financial results of such Person on the consolidated financial statements of such Person, if such statements were prepared as of such date. "Unencumbered" shall mean, with respect to any Hotel, Operating Lease or to Management Agreements, other management agreements, franchise agreements or time share agreements, at any date of determination, the circumstance that such Hotel or such agreement, as the case may be, on such date: (a) is not subject to any Liens (including restrictions on transferability or assignability, other than commercially reasonable restrictions in the organizational documents of any Subsidiary of a Borrower or Guarantor which do not prohibit such Subsidiary from disposing or realizing the value of, any Hotel owned by it, or the Stock or other form of ownership of any kind (including any such Lien or restriction imposed by (i) any agreement governing Indebtedness, and (ii) the organizational documents of any Borrower, any Guarantor or any of their respective Subsidiaries)) other than Permitted Liens, and, in the case of any ground lease (to the extent permitted by the definition thereof), restrictions on transferability or assignability in respect of such ground lease; (b) (x) is not subject to any agreement (including (i) any agreement governing Indebtedness, and (ii) if applicable, the organizational documents of any Borrower, any -94- Guarantor or any of their respective Subsidiaries) which prohibits or limits the ability of such Person to create, incur, assume or suffer to exist any Lien upon such Hotel or such agreement, as the case may be, other than Permitted Liens (excluding any agreement or organizational document (x) which limits generally the amount of Indebtedness which may be incurred by such Person or (y) which limits the amount of obligations secured by Liens upon such Hotel in a manner which would not prohibit a Lien securing Obligations in an amount equal to such Person's pro rata share of the value of such Hotel); and (c) is not subject to any agreement (including any agreement governing Indebtedness) which entitles any Person to the benefit of any Lien, other than Permitted Liens, on such Hotel or such agreement, as the case may be, or would entitle any Person to the benefit of any such Lien upon the occurrence of any contingency (including, without limitation, pursuant to an "equal and ratable" clause). For the purposes of this Agreement, any Hotel owned by a Guarantor or a Subsidiary of a Borrower or Guarantor shall not be deemed to be Unencumbered unless both (i) such Hotel and (ii) all Stock or other form of ownership owned directly or indirectly by either Borrower in such Subsidiary or Guarantor, is Unencumbered. "Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "United States" and "U.S." shall each mean the United States of America. "Unpaid Drawing" shall have the meaning provided in Section 2.04(a). "Unutilized Revolving Loan Commitment" with respect to any RL Lender, at any time, shall mean such RL Lender's Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of Revolving Loans made by such RL Lender and (ii) such RL Lender's Adjusted RL Percentage of the Letter of Credit Outstandings in respect of Letters of Credit issued under this Agreement. "W/C Loans" shall have the meaning provided in Section 1.01(a). "Wholly-Owned Domestic Subsidiary" shall mean, as to any Person, any Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary. "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time -95- and (iii) any Subsidiary of Patriot REIT or Wyndham shall also be considered a Wholly-Owned Subsidiary of each such Person if (x) 100% of such Subsidiary's capital stock (other than director's qualifying shares) is at the time owned by both such Persons and/or one or more Wholly-Owned Subsidiaries of such Persons and (y) if such Subsidiary is a partnership, limited liability company, association, joint venture or any other noncorporate entity, both such Persons and/or one or more Wholly-Owned Subsidiaries of such Persons have a 100% equity interest in such Subsidiary at such time. "Wyndham" shall mean Wyndham International, Inc., a Delaware corporation. "Wyndham Partnership" shall mean Patriot American Hospitality Operating Partnership, L.P., a Delaware limited partnership. "Wyndham Partnership OP Units" shall mean the partnership units of Wyndham Partnership. SECTION 12. The Agents. 12.01 Appointment. The Lenders hereby designate Chase as Administrative Agent to act as specified herein and in the other Credit Documents (for purposes of this Section 12, the term "Administrative Agent" shall mean Chase in its capacity as Administrative Agent hereunder and Collateral Agent pursuant to the Pledge Agreement). The Lenders hereby designate Paine Webber as Syndication Agent to act as specified herein and in the other Credit Documents. Chase and Paine Webber are together referred to in such capacities as the Agents (which for purposes hereof shall also include CSI and Paine Webber in their capacity as Arrangers). Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, any Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. Each Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. 12.02 Nature of Duties. No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and in the other Credit Documents. Neither any Agent nor any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. -96- 12.03 Lack of Reliance on the Agents. Independently and without reliance upon any Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent in vestigation of the financial condition and affairs of each Credit Party and each of their Subsidiaries in connection with the making and the continuance of the Loans, participation in Letters of Credit and the taking or not taking of any action in con nection herewith and (ii) its own appraisal of the creditworthiness of each Credit Party and each of their Subsidiaries and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or issuance of Letters of Credit or at any time or times thereafter. No Agent shall be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of any Credit Party or any of its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of any Credit Party or any of its Subsidiaries or the existence or possible existence of any Default or Event of Default. 12.04 Certain Rights of the Agents. If any Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and such Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender or the holder of any Note shall have any right of action whatsoever against any Agent as a result of such Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders. 12.05 Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent (which may be counsel for the Borrowers or any other Credit Party). 12.06 Indemnification. To the extent any Agent is not reimbursed and indemnified by the Borrowers, the Lenders will reimburse and indemnify such Agent, in proportion to their respective "percentages" as used in determining the Required Lenders, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other -97- Credit Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. 12.07 Each Agent in its Individual Capacity. With respect to its obligation to make Loans under this Agreement, each Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if they were not performing the duties specified herein, and may accept fees and other consideration from the Borrowers or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 12.08 Holders. Each Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with such Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 12.09 Removal of or Resignation by Either of the Agents. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 20 Business Days' prior written notice to the Borrowers and the Lenders. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. Furthermore, in the event that at any time the Administrative Agent assigns its entire interest as a Lender hereunder to an Eligible Transferee as permitted by Section 13.04(b) hereof, which Eligible Transferee is not an Affiliate of the Administrative Agent, then the Administrative Agent shall offer to resign as Administrative Agent, which resignation shall become effective only if (i) the Required Lenders accept such resignation in writing within 20 Business Days after it has been tendered by the Administrative Agent, and (ii) so long as there exists no Event of Default at such time, any Borrower has given its consent with respect to the proposed successor Administrative Agent. If the Required Lenders do not timely accept such resignation, then the resignation offer shall be deemed withdrawn and the Administrative Agent shall continue as the Administrative Agent pursuant to the terms hereof unless the Administrative Agent has indicated in its notice that said resignation is intended to be irrevocable, in which case such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. Each Agent may resign from the performance of all of its other functions and duties hereunder and/or under the other Credit Documents at any time by giving notice to any Borrower, the Administrative Agent and the Lenders. Such resignation shall take effect upon delivery of such notice. Furthermore, the Administrative Agent may be removed by the Required Lenders in the event that it has -98- committed a willful breach of, or was grossly negligent in the performance of, its material obligations hereunder. (b) Upon any such notice of resignation by the Administrative Agent, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrowers. (c) If a successor Administrative Agent shall not have been so appointed within such 20 Business Day period, the Administrative Agent, with the consent of the Borrower, shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 25th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Agents (if one or more so agrees), or if there are no Agents or no Agent so agrees, then the Required Lenders, shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. SECTION 13. Miscellaneous. 13.01 Payment of Expenses, etc. (a) Each Borrower agrees that it shall, on a joint and several basis: (i) whether or not the transactions contemplated herein are consummated, and subject to the obligations of the Lender or the Arrangers to pay their own costs and expenses set forth in Section 8.02, pay all reasonable out-of-pocket costs and expenses of the Arrangers (including, without limitation, the reasonable fees and disbursements of White & Case LLP and, to the extent reasonably necessary, local counsel and environmental, engineering, real estate and insurance independent consultants retained by the Administrative Agent) in connection with the preparation, exe cution, delivery and performance of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein, any amendment, waiver or consent relating hereto or thereto, of the Arrangers in connection with their primary syndication efforts with respect to this Agreement (except to the extent the Borrowers and the Arrangers otherwise agree) and, upon the occurrence and during the continuance of an Event of Default, the reasonable costs and expenses of each of the Lenders in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for the Arrangers and, following an Event of Default, for each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Agent, each Arranger, the Collateral Agent, each Issuing Lender and each Lender, and each of their respective officers, directors, -99- employees, representatives and agents from and hold each of them harmless against any and all liabilities, obligations (including removal or remedial actions), losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements (including reasonable attorneys' and consultants' fees and disbursements) incurred by, imposed on or assessed against any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not such Arranger or any Lender is a party thereto) related to the entering into and/or performance of this Agreement or any other Credit Document or the use of any Letter of Credit or the proceeds of any Loans hereunder or the consummation of any transactions contemplated herein or in any other Credit Document or the exercise of any of their rights or remedies provided herein or in the other Credit Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned or at any time operated by any Credit Party or any of its Subsidiaries, the Release, generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by any Credit Party or any of its Subsidiaries, the non-compliance of any Real Property with foreign, federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to any Real Property, or any Environmental Claim asserted against any Credit Party, any of its Subsidiaries or any Real Property owned or at any time operated by any Credit Party or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding (but excluding any losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). To the extent that the undertaking to indemnify, pay or hold harmless any Arranger or any Lender set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrowers shall jointly and severally make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. (b) Notwithstanding anything in paragraph (a) to the contrary, promptly after receipt by an indemnified person of notice of any loss, claim, damage or liability or the commencement or threat of any action or proceeding, such indemnified person shall, if a claim in respect thereof is to be made by such indemnified person against either Borrower pursuant to this Section 13.01, notify either Borrower in writing of the loss, claim, damage or liability or the commencement or threat of the action or proceeding; provided, however, that the failure to notify either Borrower shall not relieve either Borrower from any liability which it may have under this paragraph except to the extent that it has been materially prejudiced by such failure and, provided further, that the failure to notify either Borrower shall not relieve it from any liability which it may have to an indemnified person otherwise than under the indemnification provisions of this Section 13.01. If any such claim, action or proceeding shall be brought or threatened against an indemnified person, and such indemnified person shall notify either Borrower thereof, the Borrowers shall be entitled to participate therein and, to the extent that the Borrowers wish, to assume the defense thereof with counsel reasonably satisfactory to such indemnified person. In the event the Borrowers assume the defense of an indemnified person, neither Borrower may thereafter dispute its liability hereunder for any liability the defense of which the Borrowers have assumed which may be imposed upon an indemnified person in connection with such claim, -100- action or proceeding; provided, however, the Borrowers shall give prompt notice of any election to assume or not assume the defense of any claim, action or proceeding. After notice from such Borrower to such indemnified person of its election to assume the defense of such claim, action or proceeding, the Borrowers shall not be liable to such indemnified person under this Section 13.01 for any legal or other expenses subsequently incurred by such indemnified person in connection with the defense thereof except as provided in the following sentence. The indemnified person shall have the right to employ separate counsel with respect to any such claim, action or proceeding and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified person unless: (i) the employment thereof has been specifically authorized by a Borrower in writing; or (ii) with respect to such claim, action or proceeding there is, in the reasonable opinion of the Arrangers, a material issue relevant to the business of the Arrangers or there is in the opinion of independent counsel, a conflict concerning any material issue between the position of the Borrowers and such indemnified person, in which case if such indemnified person notifies a Borrower in writing that such indemnified person elects to employ separate counsel at the expense of the Borrowers, the Borrowers shall not have the right to assume the defense of such claim, action or proceeding on behalf of such indemnified person; provided, however, that unless an actual or potential conflict exists between two or more indemnified persons, the Borrowers shall not be required to pay the fees and disbursements of more than one separate counsel for all indemnified persons. Nothing set forth herein is intended to or shall impair the right of any indemnified person to retain separate counsel at its own expense. Without the prior written consent of such indemnified person, neither the Borrowers nor any of their affiliates will settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification may be sought hereunder (whether or not any indemnified person is an actual or potential party to such claim, action or proceeding) the defense of which has been assumed by the Borrowers in accordance with the terms of this Section 13.01 unless (a) the Borrowers shall have given each such indemnified person reasonable prior written notice thereof and used all reasonable efforts, after consultation with such indemnified person, to obtain an unconditional release of such indemnified person and each other indemnified person from all liability arising out of such claim, action, suit or proceedings, or (b) the Borrowers reaffirm in writing their indemnity obligations hereunder. As long as the Borrowers have complied with their obligations to defend and indemnify hereunder, they shall not be liable hereunder for any settlement made by such indemnified person or any other indemnified person without the Borrowers' consent. 13.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of such Credit Party to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all -101- interests in Obligations purchased by such Lender pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to any Borrower, at such Borrower's address specified opposite its signature below; if to any Arranger or Lender, at its address specified opposite its name on Schedule II; if to the Administrative Agent, at its Notice Office; and if to the Syndication Agent, at its address specified opposite its name below; or, as to any Borrower or any Arranger, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Lender, at such other address as shall be designated by such Lender in a written notice to either Borrower and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Arrangers and the Borrowers shall not be effective until received by the Arrangers or the Borrowers, as the case may be. 13.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, each Borrower may not assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of the Lenders and, provided further, that, although any Lender may transfer, assign or grant participations in its rights hereunder, such Lender shall remain a "Lender" for all purposes hereunder (and may not transfer or assign all or any portion of its Commitments hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Lender" hereunder and, provided further, that no Lender shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment or of a mandatory repayment of Loans shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof) or (ii) consent to the assignment or transfer by either Borrower of any of its rights and obligations under this Agreement. In the case of any such participation, the participant shall not -102- have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrowers hereunder shall be determined as if such Lender had not sold such participation. (b) Notwithstanding the foregoing, any Lender (or any Lender together with one or more other Lenders) may (x) assign all or a portion of its Revolving Loan Commitment (and related outstanding Obligations hereunder) and/or its outstanding Term Loans to its parent company and/or any affiliate of such Lender which is at least 50% owned by such Lender or its parent company or to one or more Lenders and (y) assign a constant, and not a varying, ratable percentage of all of the assigning Lender's Revolving Loan Commitment (and related outstanding Obligations hereunder) and outstanding principal amount of Term Loans, and all of its rights and obligations under this Agreement, to an Eligible Transferee, and, in the case of a partial assignment of such Revolving Loan Commitment and/or outstanding Term Loans, shall be in a minimum amount of $5,000,000 (and the assignor shall maintain a minimum amount of $5,000,000 for its own account unless the assignor shall assign its entire interest), and all assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Assumption Agreement substantially in the form of Exhibit K, provided that (i) at such time Schedule I shall be deemed modified to reflect the Commitments and/or outstanding Term Loans, as the case may be, of such new Lender and of the existing Lenders, (ii) upon surrender of the old Notes, new Notes will be issued to such new Lender and to the assigning Lender, such new Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Commitments and/or Term Loans, (iii) the consent of the Administrative Agent shall be required in connection with any such assignment pursuant to clause (y) above (which consent shall not be unreasonably withheld), (iv) the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $3,500, and (v) upon the occurrence and continuance of an Event of Default, none of the restrictions on assignments contained in clause (y) above shall apply, provided, however, that while an Event of Default (other than an Event of Default that shall have required that the Administrative Agent shall have delivered a notice of the underlying Default) shall be continuing but prior to acceleration of the Loans, the applicable Lender shall give the Borrowers five (5) days' written notice by telecopy of its intention to assign any or all of its interest in this Agreement and, provided further, that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Register pursuant to Section 13.16. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitments and/or outstanding Term Loans. At the time of each assignment pursuant to this Section 13.04(b) to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrowers and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an assignment of all or any portion of a Lender's Commitments and related outstanding Obligations pursuant to Section 1.13 or this Section 13.04(b) would, at the time of such assignment, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective assigning -103- Lender prior to such assignment, then the Borrowers shall not be obligated to pay or reimburse such increased costs (although the Borrowers shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). Notwithstanding anything to the contrary contained above, at any time after the termination of the Total Revolving Loan Commitment, if any Revolving Loans or Letters of Credit remain outstanding, assignments may be made as provided above, except that the respective assignment shall be of a portion of the outstanding Revolving Loans of the respective RL Lender and its participation in Letters of Credit and its obligation to make Mandatory Borrowings, although any such assignment effected after the termination of the Total Revolving Loan Commitment shall not release the assigning RL Lender from its obligations as a Participant with respect to outstanding Letters of Credit or to fund its share of any Mandatory Borrowing (although the respective assignee may agree, as between itself and the respective assigning RL Lender, that it shall be responsible for such amounts). (c) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans and Note hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with the consent of the Administrative Agent, any Lender which is a fund may pledge all or any portion of its Notes or Loans to its trustee in support of its obligations to its trustee. No pledge pursuant to this clause (c) shall release the transferor Lender from any of its obligations hereunder. 13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or Arranger or any Lender or any holder of any Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Borrower or any other Credit Party and any Agent or Arranger or any Lender or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which any Agent or Arranger or any Lender or the holder of any Note would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Agent or Arranger or any Lender or the holder of any Note to any other or further action in any circumstances without notice or demand. 13.06 Payments Pro Rata. (a) Except as otherwise provided in this Agreement, the Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrowers in respect of any Obligations hereunder, it shall distribute such payment to the Lenders (other than any Lender that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit -104- Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings, Commitment Fees or Letter of Credit Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all the Lenders in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. (c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 13.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders. 13.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrowers to the Lenders) ("GAAP"); provided that, (i) except as otherwise specifically provided herein, all computations determining compliance with Sections 9.08 through 9.12, inclusive, shall utilize accounting principles and policies in conformity with those used to prepare the annual financial statements first delivered to the Lenders pursuant to Section 8.01(b) and (ii) PAH Ravinia, Inc. and PAH Windwatch, L.L.C. shall be treated as Subsidiaries. (b) All computations of interest, Commitment Fees, and other Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, Commitment Fees or other Fees are payable; provided, that the computation of interest payable on Base Rate Loans shall be made on the basis of a year of 365 days. 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY -105- CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER SUCH CREDIT PARTY. EACH BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY AGENT OR ARRANGER UNDER THIS AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION. (b) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 13.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrowers and the Administrative Agent. 13.10 Effectiveness. This Agreement shall become effective on the date (the "Restatement Effective Date") on which (i) each Borrower, each Arranger, each New Lender, the Required Lenders (determined immediately before the occurrence of the Restatement Effective -106- Date and without giving effect thereto), the Administrative Agent and the Syndication Agent shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that the same has been signed and mailed to it and (ii) the conditions contained in Sections 5, 6 and 13.17 are met to the satisfaction of the Agents and the Required Lenders (determined immediately after the occurrence of the Restatement Effective Date). Unless the Administrative Agent has received actual notice from any Lender that the conditions described in clause (ii) of the preceding sentence have not been met to its satisfaction, upon the satisfaction of the condition described in clause (i) of the immediately preceding sentence and upon the Arrangers' good faith determination that the conditions described in clause (ii) of the immediately preceding sentence have been met, then the Restatement Effective Date shall have deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto had not been met (although the occurrence of the Restatement Effective Date shall not release any Borrower from any liability for failure to satisfy one or more of the applicable conditions contained in Sections 5, 6 and 13.17). The Administrative Agent will give any Borrower, each Arranger and each Lender prompt written notice of the occurrence of the Restatement Effective Date. 13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) with Obligations being directly modified thereby, (i) extend the final scheduled maturity of any Loan or Note or extend the stated maturity of any Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date), or reduce the rate or extend the time of payment of interest (except in connection with a waiver of applicability of any post-default increase in interest rates) or Fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 13.12, (iii) reduce the percentage specified in the definition of Required Lenders (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date), (iv) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement or (v) release any of Wyndham or Wyndham Partnership from its obligations as a Guarantor under this Agreement or any other Credit Document; provided further, that no such change, waiver, discharge or termination shall (x) increase the Commitments of any Lender over the amount thereof then in effect without the consent of such Lender (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a -107- mandatory reduction in the Total Commitment shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender), (y) without the consent of each Agent affected thereby, amend, modify or waive any provision of Section 12 as same applies to such Agent or any other provision as same relates to the rights or obligations of such Agent, and (z) without the consent of Chase or the respective Issuing Lender, amend, modify or waive any provision of Section 2 or alter its rights or obligations with respect to Letters of Credit. (b) If, in connection with any proposed change, waiver, discharge or termination with respect to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a), or by clause (i) of Section 13.12(c), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrowers shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described below, to replace each such non-consenting Lender or Lenders (or, at the option of the Borrowers if the respective Lender's consent is required with respect to less than all Tranches of Loans (or related Commitments), to replace only the Revolving Loan Commitments and/or Loans of the respective nonconsenting Lender which gave rise to the need to obtain such Lender's individual consent) with one or more Replacement Lenders pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination, provided, that in any event the Borrowers shall not have the right to replace a Lender solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) pursuant to the second proviso to Section 13.12(a). (c) In addition to the provisions of Section 13.12(a) above, no change, waiver, discharge or termination outlined therein shall, (i) without the consent of each Lender (other than a Defaulting Lender) with Obligations being directly modified thereby, release all or substantially all of the Collateral (except as expressly provided in the Pledge Agreement) under the Pledge Agreement, (ii) without the consent of Chase or the respective Swingline Lender, alter its rights or obligations with respect to Swingline Loans, (iii) without the consent of the Collateral Agent, amend modify or waive any provision relating to the rights or obligations of the Collateral Agent, (iv) without the consent of the Majority Lenders of each Tranche which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below, alter the required application of any prepayments or repayments (or commitment reductions), as between the various Tranches, pursuant to Section 4.01 or 4.02 (excluding Section 4.02(b)) (although (x) the Majority Lenders of any Tranche may waive, in whole or in part, any portion of such prepayment, repayment or commitment reduction applicable to such Tranche, so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered, (y) if additional Tranches of Term Loans are extended after the Restatement Effective Date with the consent of the Required Lenders as required above, such Tranches may be included on a pro rata basis (as is originally done with the Tranche I Term Loans, Tranche II Term Loans, Tranche III Term Loans and Tranche B Term Loans) in the various prepayments or repayments required pursuant to Sections 4.01 and 4.02 (excluding Section 4.02(b) and any section providing -108- Scheduled Repayments for any new Tranche of Term Loans)) or (v) without the consent of the Majority Lenders of the respective Tranche, reduce the amount of, or extend the date of, any Scheduled Repayment applicable to such Tranche or, without the consent of the Majority Lenders of each Tranche, amend the definition of Majority Lenders (it being understood that, with the consent of the Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Majority Lenders on substantially the same basis as the extensions of Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date). 13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.05, 4.04, 12.06, 13.01 and 13.06 shall survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans. 13.14 Domicile of Loans. Each Lender may transfer and carry its Loans and/or Commitments at, to or for the account of any office, Subsidiary or Affiliate of such Lender. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 13.14 would, at the time of such transfer, result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective Lender prior to such transfer, then the Borrowers shall not be obligated to pay such increased costs (although the Borrowers shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer). 13.15 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 13.15, each Lender agrees that it will use its reasonable efforts not to disclose without the prior consent of the Borrowers (other than to its employees, auditors, advisors or counsel or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section 13.15 to the same extent as such Lender) any information with respect to any Credit Party or any of its Subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Credit Document, provided that any Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Lender, (e) to any Agent or Arranger, (f) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or any interest therein by such Lender, and (g) to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or such professional advisor agrees to be bound by the provisions of this Section 13.15), provided that such prospective transferee agrees with such Lender to be subject to the provisions of this Section 13.15(a). -109- (b) Each Borrower hereby acknowledges and agrees that each Lender may share with any of its affiliates any information related to Credit Parties or any of their respective Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of the Credit Parties and their respective Subsidiaries, provided such Persons shall be subject to the provisions of this Section 13.15 to the same extent as such Lender), it being understood that for purposes of this Section 13.15(b) the term "affiliate" shall mean any direct or indirect holding company of a Lender as well as any direct or indirect Subsidiary of such holding company. 13.16 Register. Each Borrower hereby designates the Administrative Agent to serve as such Borrower's agent, solely for purposes of this Section 13.16, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect any Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Commitment and/or Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Note evidencing such Commitment and/or Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Lender and/or the new Lender. Each Borrower agrees, on a joint and several basis to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 13.16, provided that the Borrowers shall have no obligation to indemnify the Administrative Agent for any loss, claim, damage, liability or expense to the extent resulting solely from the gross negligence, willful misconduct or breach of agreement of the Administrative Agent. 13.17 Addition of New Lenders, Amendment and Restatement of Original Credit Agreement. On and as of the occurrence of the Restatement Effective Date in accordance with Section 13.10, (a) each New Lender shall become a "Lender" under, and for all purposes of, this Agreement and the other Credit Documents, and (b) the Original Credit Agreements shall each be deemed to be amended and restated in their entirety, and superseded by to this Agreement. -110- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Address: 1950 Stemmons Freeway PATRIOT AMERICAN Suite 6001 HOSPITALITY, INC. Dallas, Texas 75207 Telephone No.: (214) 863-1000 Telecopier No.: (214) 863-1527 Attention: Lawrence Jones By ---------------------------- Name: Title: 1950 Stemmons Freeway PATRIOT AMERICAN HOSPITALITY Suite 6001 PARTNERSHIP, L.P., Dallas, Texas 75207 Telephone No.: (214) 863-1000 Telecopier No.: (214) 863-1527 By: PAH GP, INC., its General Partner Attention: Lawrence Jones By ---------------------------- Name: Title: CHASE SECURITIES INC., as an Arranger By ---------------------------- Name: Title: THE CHASE MANHATTAN BANK Individually and as the Administrative Agent By ---------------------------- Name: Title: PAINE WEBBER REAL ESTATE SECURITIES INC., Individually, as an Arranger and as the Syndication Agent By ---------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH Individually and as Documentation Agent By ---------------------------- Name: Title: CITIBANK, N..A., Individually and as Documentation Agent By ---------------------------- Name: Title: BANKERS TRUST COMPANY By ---------------------------- Name: Title: NATIONSBANK OF TEXAS, N.A. By ---------------------------- Name: Title: BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AKTIENGESELLSCHAFT By ---------------------------- Name: Title: By ---------------------------- Name: Title: SOCIETE GENERALE, SOUTHWEST AGENCY By ---------------------------- Name: Title: BANKBOSTON, N.A. By ---------------------------- Name: Title: BARCLAYS BANK PLC By ---------------------------- Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE By ---------------------------- Name: Title: By ---------------------------- Name: Title: FIRST UNION NATIONAL BANK By ---------------------------- Name: Title: THE TRAVELERS INSURANCE COMPANY By ---------------------------- Name: Title: THE BANK OF NOVA SCOTIA By ---------------------------- Name: Title: PACIFIC LIFE INSURANCE COMPANY formerly known as Pacific Mutual Life Insurance Company By ---------------------------- Name: Title: By ---------------------------- Name: Title: CIBC INC. By ---------------------------- Name: Title: DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By ---------------------------- Name: Title: By ---------------------------- Name: Title: BANK ONE TEXAS, N.A. By ---------------------------- Name: Title: BANK UNITED By ---------------------------- Name: Title: FIRST AMERICAN BANK TEXAS, SSB By ---------------------------- Name: Title: THE SUMITOMO BANK, LIMITED By ---------------------------- Name: Title: THE LONG-TERM CREDIT BANK OF JAPAN, LTD., NEW YORK BRANCH By ---------------------------- Name: Title: THE TOYO TRUST & BANKING COMPANY, LTD. By ---------------------------- Name: Title: BANK HAPOALIM B.M. By ---------------------------- Name: Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ---------------------------- Name: Title: SUMMIT BANK By ---------------------------- Name: Title: HIBERNIA NATIONAL BANK By ---------------------------- Name: Title: ALLIED IRISH BANKS PLC By ---------------------------- Name: Title: FIRST NATIONAL BANK OF COMMERCE By ---------------------------- Name: Title: SIAM COMMERCIAL BANK PUBLIC COMPANY LIMITED NEW YORK AGENCY By ---------------------------- Name: Title: By ---------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH By ---------------------------- Name: Title: HARTFORD LIFE AND ANNUITY INSURANCE COMPANY By: Hartford Investment Services, Inc., its Agent and Attorney-in-fact By ---------------------------- Name: Title: BHF-BANK AKTIENGESELLSCHAFT By ---------------------------- Name: Title: By ---------------------------- Name: Title: BANK OF HAWAII By ---------------------------- Name: Title: COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By ---------------------------- Name: Title: By ---------------------------- Name: Title: ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN By ---------------------------- Name: Title: By ---------------------------- Name: Title: DEUTSCHE BANK A.G. NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By ---------------------------- Name: Title: ARAB BANK PLC, GRAND CAYMAN BRANCH By ---------------------------- Name: Title: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By ---------------------------- Name: Title: DEBT STRATEGIES FUND II, INC. By ---------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By ---------------------------- Name: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By ---------------------------- Name: Title: OAK HILL SECURITIES FUND, L.P. By: Oak Hill Securities GenPar, L.P. its General Partner By: Oak Hill Securities MGP, Inc., its General Partner By ---------------------------- Name: Title: ING HIGH INCOME PRINCIPAL PRESERVATION FUND HOLDINGS, LDC By: ING Capital Advisors, Inc., as Investment Advisor By ---------------------------- Name: Title: KZH-ING-2 CORPORATION By ---------------------------- Name: Title: PRIME INCOME TRUST By ---------------------------- Name: Title: OCTAGON LOAN TRUST By: Octagon Credit Investors, as manager. By ---------------------------- Name: Title: TORONTO DOMINION (TEXAS), INC. By ---------------------------- Name: Title: FLOATING RATE PORTFOLIO By: Chancellor LGT Senior Secured Management, Inc., as Attorney-in-fact By ---------------------------- Name: Title: PILGRIM AMERICA PRIME RATE TRUST By: Pilgrim America Investments, Inc., as its Investment Manager By ---------------------------- Name: Title: CRESCENT/MACH I PARTNERS, L.P. By: TCW Asset Management Company, its Investment Manager By ---------------------------- Name: Title: ALLSTATE INSURANCE COMPANY By ---------------------------- Name: Title: By ---------------------------- Name: Title: ALLSTATE LIFE INSURANCE COMPANY By ---------------------------- Name: Title: By ---------------------------- Name: Title: BANKERS LIFE & CASUALTY INSURANCE COMPANY By ---------------------------- Name: Title: ARES LEVERAGED INVESTMENT FUND, LP By: Ares Management, L.P., its General Partner By ---------------------------- Name: Title: THE BANK OF NEW YORK as Trustee on behalf of NATS Loan Trust 10 and not in its individual capacity By ---------------------------- Name: Title: BALANCED HIGH-YIELD FUND I LTD., By: BHF-BANK Aktiengesellschaft, acting through its New York Branch, as attorney-in-fact By ---------------------------- Name: Title: By ---------------------------- Name: Title: SCHEDULE I COMMITMENTS
Revolving Tranche II Tranche III Tranche B Loan Original Term Loan Term Loan Term Loan Lender Commitment Term Loans Commitment Commitment Commitment - ------ ---------- ---------- ---------- ---------- ---------- The Chase Manhattan Bank 60,000,000.00 39,500,000.00 96,509,803.95 108,573,529.38 340,166,666.67 Paine Webber Real Estate 60,000,000.00 39,500,000.00 25,372,549.02 28,544,117.65 44,833,333.33 Securities Inc. Credit Lyonnais New York 16,000,000.00 18,000,000.00 Branch Citibank, N.A. 60,000,000.00 38,000,000.00 16,000,000.00 18,000,000.00 Bankers Trust Company 47,755,102.04 30,244,897.96 16,000,000.00 18,000,000.00 NationsBank of Texas, N.A. 58,000,000.00 37,000,000.00 13,647,058.82 15,352,941.18 Bayerische Hypotheken-Und 58,000,000.00 37,000,000.00 13,647,058.82 15,352,941.18 Wechsel-Bank Aktiengesellschaft Societe Generale, 58,000,000.00 37,000,000.00 13,647,058.82 15,352,941.18 Southwest Agency BankBoston, N.A. 58,000,000.00 37,000,000.00 13,647,058.82 15,352,941.18 Barclays Bank PLC 13,647,058.82 15,352.941.18 Westdeutsche Landesbank 13,647,058.82 15,352,941.18 Girozentrale First Union National Bank 11,764,705.88 13,235,294.12 The Travelers Insurance 11,764,705.88 13,235,294.12 Company The Bank of Nova Scotia 12,244,897.96 7,755,102.04 11,764,705.88 13,235.294.12 Pacific Life Insurance 73,000,000.00 17,000,000.00 Company CIBC Inc. 55,000,000.00 20,000,000.00 9,411,764.71 10,588,235.29 Dresdner Bank AG, New York 40,000,000.00 10,000,000.00 Branch and Grand Cayman Branch Bank One Texas, N.A. 35,000,000.00 Bank United 35,000,000.00 First American Inc. Bank 25,000,000.00 Texas, SSB The Sumitomo Bank, Limited 20,000,000.00 The Long-Term Credit Bank 20,000,000.00 of Japan, Ltd., New York Branch The Toyo Trust & Banking 20,000,000.00 Company, Ltd. Bank Hapoalim B.M. 20,000,000.00 Merrill Lynch, Pierce, 20,000,000.00 Fenner & Smith Incorporated Summit Bank 20,000,000.00 Hibernia National Bank 20,000,000.00 Allied Irish Banks PLC, 10,000,000.00 Cayman Islands Branch First National Bank of 10,000,000.00 Commerce Siam Commercial Bank 5,000,000.00 Public Company Limited, New York Agency The Industrial Bank of 9,411,764.71 10,588,235.29 Japan, Limited, New York Branch Hartford Life and Annuity 9,411,764.71 10,588.235.29 Insurance Company BHF-Bank Aktiengesellschaft 7,058,823.53 7,941,176.47
Schedule I Page 2
Revolving Tranche II Tranche III Tranche B Loan Original Term Loan Term Loan Term Loan Lender Commitment Term Loans Commitment Commitment Commitment - ------ ---------- ---------- ---------- ---------- ---------- Bank of Hawaii 4,705,882.35 5,294,117.65 Compagnie Financiere de 9,411,764.71 10,588,235.29 CIC et de L'Union Europeenne Erste Bank Der 7,058,823.53 7,941,176.47 Oesterreichischen Sparkassen Deutsche Bank A.G., New 9,411,764.71 10,588,235.29 York and/or Cayman Islands Branches Arab Bank PLC, Grand 4,705,882.35 5,294,117.65 Cayman Branch Massachusetts Mutual Life 9,411,764.71 10,588,235.29 Insurance Company Debt Strategies Fund II, 15,000,000.00 Inc. Merrill Lynch Senior 20,000,000.00 Floating Rate Fund, Inc. Van Kampen American 5,882,352.94 6,617,647.06 25,000,000.00 Capital Prime Rate Income Trust Oak Hill Securities Fund, 40,000,000.00 L.P. ING High Income Principal 2,352,941.18 2,647,058.83 10,000,000.00 Preservation Fund Holdings, LDC KZH-ING-2 Corporation 2,352,941.17 2,647,058.82 10,000,000.00 Prime Income Trust 3,529,411.76 3,970,588.24 15,000,000.00 Octagon Loan Trust 3,529,411.76 3,970,588.24 15,000,000.00 Toronto Dominion (Texas), 2,205,882.35 2,481,617.65 9,375,000.00 Inc. Floating Rate Portfolio 1,323,529.41 1,488,970.59 5,625,000.00 Pilgrim America Prime Rate 4,705,882.35 5,294,117.65 10,000,000.00 Trust Crescent/Mach I Partners, 5,000,000.00 L.P. Allstate Insurance Company 5,000,000.00 Allstate Life Insurance 5,000,000.00 Company Bankers Life & Casualty 10,000,000.00 Insurance Company Ares Leveraged Investment 10,000,000.00 Fund, L.P. The Bank of New York, as 7,058,823.53 7,941,176.47 Trustee on behalf of Nats Loan Trust 10 Balanced High-Yield Fund I 5,000,000.00 Ltd. ____________ ____________ _____________ _____________ _____________ Total $900,000,000.00 $350,000,000.00 $400,000,000.00 $450,000,000.00 $600,000,000.00
SCHEDULE II The Chase Manhattan Bank 380 Madison Avenue New York, New York 10017 Telephone No.: (212) 622-3250 Telecopier No.: (212) 622-3395 Attention: Mr. Fred Hammer Paine Webber Real Estate 1285 Avenue of the Americas Securities Inc. 19th Floor New York, New York 10019 Telephone No.: (212) 713-2000 Telecopier No.: (212) 713-7949 Attention: Mr. Christopher S. Johnson Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 Telephone No.: (212) 261-7743 Telecopier No.: (212) 261-7532 Attention: Ms. Judy Greenlee Citibank, N.A. 399 Park Avenue New York, New York 10043 Telephone No.: (212) 559-6635 Telecopier No.: (212) 935-2019 Attention: Mr. Jeff Warner with a copy to: Citicorp Real Estate Legal 599 Lexington Avenue New York, New York 10044 Attention: Group General Counsel Bankers Trust Company 130 Liberty Street New York, New York 10006 Telephone No.: (212) 250-2550 Telecopier No.: (212) 669-0743 Attention: Mr. Garrett Thelander Schedule II Page 2 NationsBank of Texas, N.A. 901 Main Street, 51st Plaza Dallas, Texas 75202-3714 Telephone No.: (214) 508-1562 Telecopier No.: (214) 508-0085 Attention: Mr. Anthony Fertitta Bayerische Hypotheken-Und HYPO Bank Wechsel-Bank Aktiengesellschaft 32 Old Slip New York, NY 10005 Telephone No.: (212) 440-0848 Telecopier No.: (212) 440-0824 Attention: Ms. Margaret Boomers Societe Generale, Southwest Agency Trammell Crow Center, Suite 4900 2001 Ross Avenue Dallas, Texas 75201 Telephone No.: (214) 979-2774 Telecopier No.: (214) 979-2727 Attention: Mr. Thomas K. Day BankBoston, N.A. 115 Perimeter Center Place, N.E., Suite 500 Atlanta, Georgia 30346 Telephone No.: (770) 390-6583 Telecopier No.: (770) 390-8434 Attention: Mr. John T. Pearson Barclays Bank PLC 222 Broadway 8th Floor New York, NY 10038 Telephone No.: (212) 412-2620 Telecopier No.: (212) 412-7600 Attention: Ms. Jessica Donahue Schedule II Page 3 Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas 25th Floor New York, NY 10036-8701 Telephone No.: (212) 852-6135 Telecopier No.: (212) 921-5947 Attention: Mr. Mark Lanspa First Union National Bank 301 South College Street, TW10 One First Union Center Charlotte, NC 28288 Telephone No.: (704) 383-0530 Telecopier No.: (704) 383-0202 Attention: Mr. Charles Edmondson The Travelers Insurance Company One Tower Square, 9PB 205 Columbus Blvd. Hartford, CT 06183 Telephone No.: (860) 277-1877 Telecopier No.: (860) 954-1186 Attention: Ms. Susan E.D. Neuberg and 388 Greenwich Street New York, NY 10013 Telephone No.: (212) 816-7199 Telecopier No.: (212) 816-8577 Attention: Ms. Carmen Somarriba The Bank of Nova Scotia One Liberty Plaza New York, NY 10006 Telephone No.: (212) 225-5158 Telecopier No.: (212) 225-5166 Attention: Mr. Bruce Ferguson Pacific Life Insurance Company 700 Newport Center Drive Newport Beach, California 92660 Telephone No.: (714)721-5447 Telecopier No.: (714) 721-5174 Attention: Mr. T. Anthony Premer Schedule II Page 4 CIBC INC. CIBC Oppenheimer Corp. 425 Lexington Avenue, 8th Floor New York, New York 10017 Telephone No.: (212) 856-3564 Telecopier No.: (212) 856-3991 Attention: Ms. Cheryl Root with a copy to: CIBC Oppenheimer Corp. 350 South Grand Avenue, Suite 2600 Two California Plaza Los Angeles, California 90071 Telephone No.: (213) 617-6245 Telecopier No.: (213) 346-0157 Attention: Mr. Dean J. Decker Dresdner Bank AG, New York Branch 75 Wall Street and Grand Cayman Branch New York, NY 10005-2889 Telephone No.: (212) 429-2657 Telecopier No.: (212) 429-2781 Attention: Mr. Neil Crawford Bank One Texas, N.A. 1717 Main Street Dallas, Texas 75201 Telephone No.: (214) 290-3146 Telecopier No.: (214) 290-2275 Attention: Mr. Eddie V. Hodges, Jr. Bank United 3200 Southwest Freeway, Suite 1900 Houston, Texas 77027 Telephone No.: (713) 543-6954 Telecopier No.: (713) 543-7927 Attention: Mr. Mario Chiodetti First American Bank Texas, SSB 14651 Dallas Parkway, Suite 400 Dallas, Texas 75240-7479 Schedule II Page 5 Telephone No.: (972) 419-3414 Telecopier No.: (972) 419-3308 Attention: Mr. Jeffrey C. Schultz The Sumitomo Bank, Limited 233 South Wacker Drive, Suite 4800 Chicago, Illinois 60606-6448 Telephone No.: (312) 876-7796 Telecopier No.: (312)876-6436 Attention: Mr. James Horvath The Long-Term Credit Bank 165 Broadway, 50th Floor of Japan, Ltd., New York New York, New York 10006 Branch Telephone No.: (212) 335-4562 Telecopier No.: (212) 608-3058 Attention: Mr. Kenji Kondo The Toyo Trust & Banking Company, 444 South Flower Street Ltd. Suite 2550 Los Angeles, California 90071 Telephone No.: (213) 236-1543 Telecopier No.: (213) 624-5874 Attention: Mr. Jeff Dragovich Bank Hapoalim B.M. 1177 Avenue of the Americas New York, New York 10036 Telephone No.: (212) 782-2177 Telecopier No.: (212) 782-2187 Attention: Ms. Laura Anne Raffa Merrill Lynch, Pierce, Fenner & World Financial Center Smith Incorporated North Tower New York, New York 10281 Telephone No.: (212) 449-1000 Telecopier No.: (212) 449-8230 Attention: Mr. Brian O'Callahan Summit Bank 750 Walnut Avenue Schedule II Page 6 Cranford, New Jersey 07016 Telephone No.: (732) 709-6079 Telecopier No.: (732) 709-6435 Attention: Mr. Gregory Haines Hibernia National Bank 313 Carondelet Street, 14th Floor New Orleans, Louisiana 70130 Telephone No.: (504) 533-5742 Telecopier No.: (504) 533-2042 Attention: Mr. Randy Crochet Allied Irish Banks PLC, Cayman 405 Park Avenue Islands Branch New York, New York 10022 Telephone No.: (212) 339-8018 Telecopier No.: (212) 339-8008 Attention: Ms. Marcia Meeker with a copy to: Rogers & Wells 200 Park Avenue New York, NY 10166 Telephone No.: (212) 878-8020 Telecopier No.: (212) 878-8375 Attention: Ms. Barbara Goodstein, Esq. First National Bank of Commerce 201 St. Charles Avenue New Orleans, LA 70170 Telephone No.: (504) 561-1493 Telecopier No.: (504) 561-1738 Attention: Honore Aschaffenburg Siam Commercial Bank One Exchange Plaza Public Company Limited, 55 Broadway, 8th Floor New York Agency New York, NY 10006 Telephone No.: (212) 208-9303 Telecopier No.: (212) 747-0106 Attention: Mr. John Bishop The Industrial Bank of Japan, 1251 Avenue of the Americas Limited, New York Branch 32nd Floor New York, NY 10020-1104 Telephone No.: (212) 282-3440 Schedule II Page 7 Telecopier No.: (212) 282-4488 Attention: Mr. John Veltri Hartford Life and Annuity Insurance Hartford Investment Services, Inc. Company 55 Farmington Avenue Hartford, CT 06105 Telephone No.: (860) 297-6727 Telecopier No.: (860) 297-8884 Attention: Mr. Rick Conway BHF-Bank Aktiengesellschaft New York Branch 590 Madison Avenue New York, NY 10022-2540 Telephone No.: (212) 756-5937 Telecopier No.: (212) 756-5536 Attention: Ms. Catherine Hickey Bank of Hawaii 1850 North Central Avenue Suite 400 Phoenix, AZ 85004 Telephone No.: (602) 257-2235 Telecopier No.: (602) 257-2489 Attention: Ms. Brenda Testerman Compagnie Financiere de CIC et de 520 Madison Avenue L'Union Europeenne 37th Floor New York, NY 10022 Telephone No.: (212) 715-4427 Telecopier No.: (212) 715-4535 Attention: Mr. Marcus Edwards Erste Bank der Oesterreichischen 280 Park Avenue Sparkassen West Building New York, NY 10017 Telephone No.: (212) 984-5630 Telecopier No.: (212) 984-5627 Attention: Mr. John Runnion Deutsche Bank A.G., New York and/or 31 West 52nd Street Schedule II Page 8 Cayman Islands Branches New York, NY 10019 Telephone No.: (212) 474-8205 Telecopier No.: (212) 474-8212 Attention: Mr. Thomas Foley Arab Bank PLC 520 Madison Avenue 2nd Floor New York, NY 10022 Telephone No.: (212) 715-9712 Telecopier No.: (212) 593-4632 Attention: Mr. Khanh Vuong Massachusetts Mutual Life Insurance 1295 State Street Company Springfield, MA 01111-0001 Telephone No.: (413) 744-7601 Telecopier No.: (413) 744-6123 Attention: Mr. Robert Little Debt Strategies Fund II, Inc. 800 Scudders Mill Road c/o Merrill Lynch Asset Management Plainsboro, NJ 08536 Telephone No.: (609) 282-2059 Telecopier No.: (609) 282-2756 Attention: Mr. Douglas Henderson Merrill Lynch Senior Floating Rate 800 Scudders Mill Road Fund, Inc. Plainsboro, NJ 08536 c/o Merrill Lynch Asset Management Telephone No.: (609) 282-2059 Telecopier No.: (609) 282-2756 Attention: Mr. Douglas Henderson Van Kampen American Capital Prime One Parkview Plaza Rate Income Trust 5th Floor Oakbrook Terrace, IL 60181 Telephone No.: (630) 684-6438 Telecopier No.: (630) 684-6740 Attention: Mr. Jeffrey Maillet Oak Hill Securities Fund, L.P. 65 East 55th Street Park Avenue Towers New York, NY 10022 Telephone No.: (212) 326-1551 Schedule II Page 9 Telecopier No.: (212) 593-3596 Attention: Mr. Scott Krase ING High Income Principal 333 South Grand Avenue Preservation Fund Holdings, LDC Suite 4250 c/o ING Capital Advisors Los Angeles, CA 90071 Telephone No.: (213) 346-3975 Telecopier No.: (213) 626-6552 Attention: Ms. Beth Digati KZH-ING-2 Corporation 333 South Grand Avenue c/o ING Capital Advisors Suite 4250 Los Angeles, CA 90071 Telephone No.: (213) 346-3975 Telecopier No.: (213) 626-6552 Attention: Ms. Beth Digati Prime Income Trust Dean Witter InterCapital Two World Trade Center 72nd Floor New York, NY 10048 Telephone No.: (212) 392-9034 Telecopier No.: (212) 392-5345 Attention: Mr. Peter Gewirtz Octagon Loan Trust Octagon Credit Investors 380 Madison Avenue 12th Floor New York, NY 10017 Telephone No.: (212) 622-3070 Telecopier No.: (212) 622-3797 Attention: Mr. James Ferguson Toronto Dominion (Texas), Inc. 909 Fannin Road Suite 1700 Houston, TX 77010 Telephone No.: (713) 653-8248 Telecopier No.: (713) 951-9921 Attention: Mr. David G. Parker Schedule II Page 10 Floating Rate Portfolio 1166 Avenue of the Americas c/o Chancellor LGT Asset Management 27th Floor New York, NY 10036 Telephone No.: (212) 278-9870 Telecopier No.: (212) 278-9619 Attention: Mr. Anthony Clemente Pilgrim America Prime Rate Trust Two Renaissance Square 40 North Central Avenue Phoenix, AZ 85004-4424 Telephone No.: (602) 417-8259 Telecopier No.: (602) 417-8327 Attention: Mr. Howard Tiffen Crescent/Mach I Partners, L.P. 200 Park Avenue c/o The Trust Company of the West Suite 2200 New York, NY 10166 Telephone No.: (212) 297-4137 Telecopier No.: (212) 297-4159 Attention: Mr. Justin Driscoll Allstate Insurance Company 3075 Sanders Road Suite G3a Northbrook, IL 60062-7127 Telephone No.: (847) 402-3095 Telecopier No.: (847) 402-3092 Attention: Chris Georgen Allstate Life Insurance Company 3075 Sanders Road Suite G3a Northbrook, IL 60062-7127 Telephone No.: (847) 402-3095 Telecopier No.: (847) 402-3092 Attention: Chris Georgen Bankers Life & Casualty Insurance 11825 North Pennsylvania Street Company Carmel, IN 46032 c/o Conseco Capital Management, Inc. Telephone No.: (317) 574-5640 Telecopier No.: (317) 817-2763 Attention: Mr. Peter Sakon Schedule II Page 11 Ares Leveraged Investment Fund, L.P. 1999 Avenue of the Stars c/o Ares Management, Inc. Suite 1900 Los Angeles, CA 90067 Telephone No.: (310) 201-4172 Telecopier No.: (310) 201-4170 Attention: Mr. Will Morton The Bank of New York, as Trustee on Corporate Trust Administration behalf of Nats Loan Trust 10 101 Barclays Street 12-East New York, NY 10286 Telephone No.: (212) 815-5366 Telecopier No.: (212) 815-7157 Attention: Ms. Betty A. Cocozza Balanced High-Yield Fund I Ltd. c/o BHF-Bank, New York Branch 590 Madison Avenue New York, NY 10022-2540 Telephone No.: (212) 756-5937 Telecopier No.: (212) 756-5536 Attention: Ms. Catherine Hickey SCHEDULE II
TABLE OF CONTENTS Page ---- SECTION 1. Amount and Terms of Credit ................................... 1 1.01 The Commitments .............................................. 1 1.02 Minimum Borrowing Amounts .................................... 6 1.03 Notice of Borrowing .......................................... 6 1.04 Disbursement of Funds ........................................ 7 1.05 Notes ........................................................ 8 1.06 Conversions .................................................. 10 1.07 Pro Rata Borrowings .......................................... 11 1.08 Interest ..................................................... 11 1.09 Interest Periods ............................................. 11 1.10 Increased Costs, Illegality, etc ............................. 13 1.11 Compensation ................................................. 15 1.12 Change of Lending Office ..................................... 15 1.13 Replacement of Lenders ....................................... 15 SECTION 2. Letters of Credit ............................................ 17 2.01 Letters of Credit ............................................ 17 2.02 Letter of Credit Requests .................................... 18 2.03 Letter of Credit Participations .............................. 19 2.04 Agreement to Repay Letter of Credit Drawings ................. 20 2.05 Increased Costs .............................................. 21 SECTION 3. Fees; Reductions of Commitment ............................... 22 3.01 Fees ......................................................... 22 3.02 Voluntary Termination of Commitments ......................... 23 3.03 Mandatory Termination and Reduction of Commitments ........... 23 SECTION 4. Prepayments; Payments; Taxes ................................. 24 4.01 Voluntary Prepayments ........................................ 24 4.02 Mandatory Repayments and Cash Collateralization .............. 25 4.03 Method and Place of Payment .................................. 28 4.04 Net Payments; Taxes .......................................... 28 SECTION 5. Conditions Precedent to Restatement Effective Date ........... 30 5.01 Execution of Agreement; Notes ................................ 30 5.02 Fees, etc .................................................... 30 5.03 Opinions of Counsel .......................................... 30 5.04 Trust, Corporate, Limited Liability Company and Partnership Documents; Proceedings; etc ...................... 30
Page ---- 5.05 Amended and Restated Affiliate Guaranty ...................... 31 5.06 Pledge Agreement ............................................. 31 5.07 Adverse Change; Approvals .................................... 31 5.08 Litigation ................................................... 32 5.09 Consummation of Interstate Transaction ....................... 32 5.10 Solvency Certificate; Insurance Certificates ................. 32 5.11 Pro Forma Balance Sheets; Projections ........................ 33 5.12 Original Credit Agreements; etc .............................. 33 SECTION 6. Conditions Precedent to All Credit Events .................... 33 6.01 No Default; Representations and Warranties ................... 33 6.02 Notice of Borrowing; Letter of Credit Request ................ 33 SECTION 7. Representations and Warranties ............................... 34 7.01 Trust, Corporate, Limited Liability Company and Partnership Status ........................................... 34 7.02 Trust, Corporate, Limited Liability Company or Partnership Power and Authority .............................. 34 7.03 No Violation ................................................. 35 7.04 Governmental Approvals ....................................... 35 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc .................... 35 7.06 Litigation ................................................... 37 7.07 True and Complete Disclosure ................................. 37 7.08 Use of Proceeds; Margin Regulations .......................... 37 7.09 Tax Returns and Payments ..................................... 37 7.10 Compliance with ERISA ........................................ 38 7.11 Real Properties .............................................. 39 7.12 Subsidiaries ................................................. 39 7.13 Compliance with Statutes, etc ................................ 39 7.14 Investment Company Act ....................................... 40 7.15 Public Utility Holding Company Act ........................... 40 7.16 Environmental Matters ........................................ 40 7.17 Labor Relations .............................................. 41 7.18 Intellectual Property ........................................ 41 7.19 Indebtedness ................................................. 41 7.20 Ground Leases ................................................ 41 7.21 Status as REIT ............................................... 41 7.22 Operators .................................................... 41 7.23 Security Interests ........................................... 42
(ii)
Page ---- SECTION 8. Affirmative Covenants ....................................... 42 8.01 Information Covenants ........................................ 42 8.02 Books, Records and Inspections ............................... 45 8.03 Maintenance of Property; Insurance ........................... 45 8.04 Corporate Franchises ......................................... 45 8.05 Compliance with Statutes, etc ................................ 46 8.06 Compliance with Environmental Laws ........................... 46 8.07 ERISA ........................................................ 46 8.08 End of Fiscal Years; Fiscal Quarters ......................... 47 8.09 Performance of Obligations ................................... 48 8.10 Payment of Taxes ............................................. 48 8.11 Further Assurances ........................................... 48 8.12 FF&E Reserves ................................................ 48 8.13 REIT Requirements ............................................ 49 8.14 Maintenance of Operating Account ............................. 49 8.15 Interest Rate Protection ..................................... 49 8.16 Foreign Subsidiaries Security ................................ 49 SECTION 9. Negative Covenants .......................................... 50 9.01 Line of Business ............................................. 50 9.02 Consolidation, Merger, etc ................................... 50 9.03 Dividends .................................................... 50 9.04 Investments .................................................. 51 9.05 Certain Indebtedness Obligations ............................. 52 9.06 Liens ........................................................ 52 9.07 Transactions with Affiliates ................................. 54 9.08 Total Interest Coverage ...................................... 55 9.09 Fixed Charge Coverage ........................................ 55 9.10 Tangible Net Worth ........................................... 55 9.11 Limitations on Indebtedness .................................. 55 9.12 Derivatives Obligations ...................................... 55 9.13 Limitation on Certain Restrictions ........................... 56 9.14 Limitation on Creation of Subsidiaries ....................... 56 SECTION 10. Events of Default ........................................... 57 10.01 Payments ..................................................... 57 10.02 Representations, etc ......................................... 57 10.03 Covenants .................................................... 57 10.04 Default Under Other Agreements ............................... 57 10.05 Bankruptcy, etc .............................................. 57 10.06 ERISA ........................................................ 58 10.07 REIT Status .................................................. 59 10.08 Guaranties ................................................... 59 10.09 Judgments .................................................... 59
(iii)
Page ---- Page ---- 10.10 Change of Control ............................................ 59 10.11 General Partner Status ....................................... 59 10.12 Security Documents ........................................... 59 SECTION 11. Definitions and Accounting Terms ............................ 60 11.01 Defined Terms ................................................ 60 SECTION 12. The Agents .................................................. 93 12.02 Nature of Duties ............................................. 94 12.03 Lack of Reliance on the Agents ............................... 94 12.04 Certain Rights of the Agents ................................. 94 12.05 Reliance ..................................................... 95 12.06 Indemnification .............................................. 95 12.07 Each Agent in its Individual Capacity ........................ 95 12.08 Holders ...................................................... 95 12.09 Removal of or Resignation by Either of the Agents ............ 95
(v) SCHEDULE I Commitments on the Effective Date SCHEDULE II Lender Addresses SCHEDULE III Litigation SCHEDULE IV Initial Hotels and Real Property SCHEDULE V Subsidiaries SCHEDULE VI Existing Indebtedness SCHEDULE VII Existing Liens SCHEDULE VIII Non-Credit Party and Non-Pledgor Credit Party Subsidiaries SCHEDULE IX Original Letters of Credit EXHIBIT A Notice of Borrowing EXHIBIT B-1 Form of Tranche I Term Note EXHIBIT B-2 Form of Tranche II Term Note EXHIBIT B-3 Form of Tranche III Term Note EXHIBIT B-4 Form of Tranche B Term Note EXHIBIT B-5 Form of Revolving Note EXHIBIT B-6 Form of Swingline Note EXHIBIT C Letter of Credit Request EXHIBIT D Section 4.04(b)(ii) Certificate EXHBIIT E Opinions of Counsel to the Credit Parties EXHIBIT F Officers' Certificate EXHIBIT G Amended and Restated Affiliate Guaranty EXHIBIT H Pledge Agreement EXHIBIT I Officer's Solvency Certificate EXHIBIT J Compliance Certificate EXHIBIT K Assignment and Assumption Agreement EX-10.3 3 PURCHASE PRICE ADJ. DTD 4/6/98 Exhibit 10.3 PURCHASE PRICE ADJUSTMENT MECHANISM AGREEMENT THIS PURCHASE PRICE ADJUSTMENT MECHANISM AGREEMENT is made as of the 6th day of April, 1998, by and between Patriot American Hospitality, Inc. (the "REIT"), Wyndham International, Inc. ("OPCO," and together with the REIT, the "Companies") and PaineWebber Financial Products Inc. ("PaineWebber") (the "Agreement"). The purpose of this Agreement is to set forth the terms and conditions of the purchase price adjustment transaction (the "Transaction") entered into between PaineWebber and the Companies. IN CONSIDERATION of the mutual representations, warranties and covenants herein contained, and on the terms and subject to the conditions herein set forth, the Companies and PaineWebber hereby agree as follows: Section 1. Definitions and Other Provisions. (a) Ability to Settle in Paired Shares. As of the date hereof, the Companies have not, and after the date hereof, the Companies will not, enter into any obligation that would contractually prohibit the Companies from delivering Paired Shares pursuant to Sections 3.2 or 5 of this Agreement. As used in this Agreement, the following terms shall have the meanings set forth below: (b) Adjustment Shares. 5,150,000 Paired Shares, as may be adjusted from time to time pursuant to Section 1(c), reduced by the number of Settlement Shares that are the subject of Settlement. (c) Certain Adjustments to Reference Price or Number of Adjustment Shares. In the event of: (i) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing holders of Paired Shares by way of bonus, capitalization or similar issue; or (ii) a distribution or dividend to all existing holders of Paired Shares of (A) additional Paired Shares or (B) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of the Companies equally or proportionally with such payments to holders of Paired Shares, an adjustment shall thereupon be effected to the Reference Price and/or the Adjustment Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. (d) Block Sale. Any one or more privately negotiated sales of the Paired Shares involving at least a block of such security (as defined in Rule 10b-18 under the Exchange Act). (e) Business Day. Any day other than Saturday, Sunday, or any other day on which banking institutions in the State of New York are not open for business. (f) Calculation Agent. PaineWebber, whose calculations and determinations shall be made in a reasonable manner and shall be binding in the absence of manifest error. (g) Closing Price. The last sale price of the Paired Shares on the Relevant Exchange on the relevant date. (h) Commission. The Securities and Exchange Commission. (i) Compounding Periods. Means each period commencing from and including: (i) in the case of the first Compounding Period, the Effective Date and to but excluding the first Reset Date, and (ii) for each period thereafter, a Reset Date and to but excluding the next following Reset Date. (j) Date of Effectiveness. Means the date a resale registration statement covering any resales of the Purchase Shares, as defined in the Purchase Agreement, is declared effective under the Securities Act by the Commission. (k) Distribution Amount. Means, on each Reset Date, an amount in U.S. Dollars equal to: (i) the sum of all cash distributions paid on a single Paired Share during the relevant Compounding Period; plus (ii) an amount representing interest that could have been earned on such distributions, at the USD LIBOR rate having a designated maturity of 1 month, plus Spread, for the period from the date that such 2 distributions are received by PaineWebber, by a holder of such number of Paired Shares until such Reset Date. (l) DRIP Distribution. Sales to any Distribution Reinvestment Plan now or hereafter established by the Companies, or to any agent acting on behalf of such Plan, for sale to participants in such Plan. (m) Effective Date. April 6, 1998. (n) Exchange Act. The Securities Exchange Act of 1934, as amended. (o) Exchange Trading Day. Each day on which the Relevant Exchange is open for trading. (p) Execution Price. $27.5625 per Paired Share. (q) Gradual Market Distribution. An offering of the Paired Shares into the existing trading market for outstanding shares of the same class, at other than a fixed price, on or through facilities of a national securities exchange or to or through a market maker otherwise than on an exchange. (r) Initial Price. Means, (i) for the first Compounding Period the Execution Price, and (ii) for each subsequent Compounding Period, the Reference Price as calculated on or adjusted as of the Reset Date in the previous Compounding Period. (s) Interim Settlement Amount. With respect to a given Reset Date or Settlement Date, means the amount (if any) by which the Reference Amount minus $5,000,000 exceeds the product of (x) the Closing Price and (y) the number of Adjustment Shares. (t) Interim Settlement Shares. The Interim Settlement Amount divided by the Closing Price on the relevant Reset Date or Settlement Date, as the case may be. (u) Maturity Date. April 6, 1999. (v) Paired Shares. Units consisting of one share of common stock, $.01 par value per share, of the REIT and one share of common stock, par value $.01 per share, of OPCO, which shares are paired and traded as a unit. (w) Reference Amount. On any date, the Reference Price multiplied by the Adjustment Shares or Settlement Shares, as applicable. 3 (x) Reference Price. On each Reset Date, the Reference Price shall be determined by: (i) compounding the Initial Price for each Compounding Period at USD LIBOR rate plus Spread for a designated maturity of 1 month (Actual/360 day count fraction) to such Reset Date and (ii) subtracting the Distribution Amount at that date. (y) Relevant Exchange. Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. (z) Reset Date. Means, through the final Settlement Date, (i) the last day of each three-month period, beginning on June 30, 1998 (provided, that if such day is not a Business Day then the Reset Date shall be the next Business Day) and (ii) as to any Settlement Shares, each Settlement Date. (aa) Securities Act. The Securities Act of 1933, as amended. (bb) Settlement. Has the meaning set forth in Sections 3.1, 4.1 or 4.2, as applicable. (cc) Settlement Amount. The net sales proceeds realized by or on behalf of PaineWebber for all sales of Paired Shares in connection with any Settlement, calculated as follows: (i) if the manner of Settlement Sale pursuant to Section 3.1 is an Underwritten Secondary Offering, the Settlement Amount will equal the gross proceeds realized, net of a negotiated underwriting discount; (ii) if the manner of Settlement Sale pursuant to Section 3.1 is a Block Sale, the Settlement Amount will equal the gross sales proceeds realized, net of a negotiated spread; (iii) if the manner of Settlement Sale pursuant to Section 3.1 is a Gradual Market Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to the market over the period of the distribution, net of a resale spread of 50 basis points; (iv) if the manner of Settlement Sale pursuant to Section 3.1 is a DRIP Distribution, the Settlement Amount will equal the gross sales proceeds realized from sales to any Purchase Agent for a Company Distribution Reinvestment Plan, net of a resale spread of 50 basis points; 4 (dd) Settlement Date. The date on which, in accordance with standard market practice, the Paired Shares have been delivered and all funds received in respect of any Settlement in accordance with Sections 3.2, 4.1 or 4.2. (ee) Settlement Shares. The number of Adjustment Shares subject to Settlement. (ff) Spread. 140 basis points. (gg) Stock Exchange. Means the New York Stock Exchange, the American Stock Exchange or NASDAQ. (hh) Underwritten Secondary Offering. An underwritten fixed price offering of Paired Shares. (ii) USD LIBOR. The London Inter Bank Offered Rate in respect of U.S. Dollars for the designated maturity as quoted on Page 3750 on the Telerate Service (or such other page as may replace Page 3750 on that service) as of 11:00 a.m., London time, on the date on which it is to be determined. Section 2. Representations and Warranties. The representations and warranties of the Companies in Section 4 of the Purchase Agreement, dated as of April 6, 1998 (the "Purchase Agreement"), among the Companies and PaineWebber are hereby incorporated by reference herein, and the Companies hereby so represent and warrant to PaineWebber. The provisions of Section 6 of the Purchase Agreement shall also be applicable to any Paired Shares delivered to PaineWebber under this Agreement. Section 3. Settlement. 3.1 Settlement Sale. On any Reset Date, or on any other Exchange Trading Date agreed to by both parties (in which case, the related Settlement (as defined below) will include standard market interest breakage fees), up to and including the Maturity Date, the Companies may give telephonic notice to PaineWebber to settle, and PaineWebber shall settle, in a commercially reasonable manner (which may require sales over a period of more than 1 day), all or a portion of the Adjustment Shares ("Settlement"), as specified by the Companies, through the sale of not more than the number of Paired Shares, the sale of which would, based on PaineWebber's commercially reasonable judgement, result in a Settlement Amount equal to up to 105% of the Reference Amount with respect to the Settlement Shares on the Settlement Date, in any of the manners set forth below, as specified by the Companies (the "Settlement Sale"): 5 (i) an Underwritten Secondary Offering (for which the Companies shall provide at least 21 Business Days prior notice to PaineWebber); (ii) a Block Sale (for which the Companies shall provide at least 3 Business Days prior notice to PaineWebber); (iii) a Gradual Market Distribution (for which the Companies shall provide at least 2 Business Days prior notice to PaineWebber); or (iv) a DRIP Distribution (for which the Companies shall provide at least 2 Business Days prior notice to PaineWebber). Upon the Maturity Date, if the Companies do not specify a manner of sale, a Gradual Market Distribution shall be used. Notwithstanding the foregoing, if the manner of sale for any Settlement Sale is a Gradual Market Distribution and such Gradual Market Distribution is continuing three months following the Maturity Date, PaineWebber may discontinue such Gradual Market Distribution and sell such Paired Shares in any manner set forth above. Settlement procedures with respect to any Settlement shall begin as soon as commercially practicable, as determined by PaineWebber, after PaineWebber receives notice from the Companies and no later than the first Exchange Trading Day so specified in the notice from the Companies, subject to the notice requirements of Sections 3.1(i)-(iv) (unless such notice requirements have been waived by PaineWebber), unless otherwise agreed by the Companies and PaineWebber. 3.2 Settlement. (a) If, on the Settlement Date, the Settlement Amount is greater than the Reference Amount with respect to the Settlement Shares (the amount of such difference, a "Surplus"), PaineWebber will, at its option, pay the Companies an amount in cash or Paired Shares (valued on a per share basis equal to the Settlement Amount divided by the number of Paired Shares sold) equal to the Surplus; provided that the Companies may elect to apply the Surplus towards effecting Settlement of all or a portion of the number of Adjustment Shares equal to the Surplus divided by the Reference Price on the Settlement Date. (b) If the number of Paired Shares sold by PaineWebber pursuant to Section 3.1, 4.1 or 4.2 is greater than the number of Settlement Shares, the Companies shall deliver to PaineWebber, on the Settlement Date, a number of Paired Shares equal to the difference (the "Additional Shares"). If the number of Paired Shares sold by PaineWebber pursuant to Section 3.1, 4.1 or 4.2 is less than the number of Settlement Shares, PaineWebber shall deliver to the Companies, on the Settlement Date, a number of Paired Shares equal to the difference. (c) In all events, PaineWebber will pay to the Companies an amount equal to all cash distributions payable to holders of the number of Paired Shares equal to the number 6 of the Settlement Shares, which cash distributions are paid to PaineWebber after the Settlement Date, on the Business Day after the relevant distribution is made. (d) If PaineWebber, in connection with any Settlement, receives net sales proceeds, as calculated pursuant to the definition of Settlement Amount, from the sale of Paired Shares prior to the applicable Settlement Date, PaineWebber, on the Settlement Date, shall pay the Companies an amount in cash representing interest that could have been earned on such net sales proceeds at the USD LIBOR rate having a designated maturity of 1 month, plus Spread, for the period from the date that such net sales proceeds are received by PaineWebber until such Settlement Date. Section 4. Price Decline Termination Event and Cross Default Settlement. 4.1 Price Decline Termination Event Sale. If the Closing Price on any Exchange Trading Day falls below any Termination Price listed in the following schedule ("Price Decline Termination Event"), PaineWebber may settle, in a commercially reasonable manner (which may require sales over a period of more than 1 day) following notice to the Companies, up to the percentage of the Adjustment Shares indicated in the table below ("Settlement") through the sale of not more than the number of Paired Shares, the sale of which would, based on PaineWebber's commercially reasonable judgement, result in a Settlement Amount equal to up to 105% of the Reference Amount with respect to the Settlement Shares on the Settlement Date, in any manner specified in Section 3.1. The Companies shall specify a manner of sale within one (1) Business Day following notice by PaineWebber to the Companies. If the percentage of Adjustment Shares to be settled pursuant to this Section 4.1 is 100% or if the Companies do not specify a manner of sale, PaineWebber shall have the option to specify the manner of sale. PaineWebber may, at its sole discretion, waive any or all notice provisions in Section 3.1.
Percentage of Adjustment Shares to be Settled Termination Price ------------------------ ---------------------- 50% 75% of Execution Price 100% 65% of Execution Price
Settlement procedures pursuant to this Section 4.1 shall be in accordance with Section 3.2 and shall commence on the date specified by PaineWebber. 4.2 Cross Default Settlement. (a) "Cross Default" means (i) the occurrence of a default or event of default under any of the Companies' unsecured and/or recourse lending agreements involving 7 indebtedness of either Company in excess of $25 million or any other unsecured and/or recourse payment obligation of either Company in excess of $25 million (each, a "Subject Indebtedness") that has not been cured within five (5) days (in the case of a default or event of default involving a covenant of a financial nature) or fifteen (15) days (in the case of any other default or event of default) following the later of the date of occurrence of such default or event of default and the end of any cure period provided in such lending agreement, or (ii) a holder of any of the Companies' Subject Indebtedness provides notice to either of the Companies pursuant to such Subject Indebtedness to accelerate the maturity of such Subject Indebtedness. (b) Upon the occurrence of a Cross Default, PaineWebber may sell all the Adjustment Shares plus all of the Interim Settlement Shares in any manner(s) and at any time it deems appropriate (a "Settlement"). Any Settlement procedures in connection with this Section 4 shall commence on the date specified by PaineWebber and in any of the manners set forth in Section 3.1 as determined by PaineWebber at is sole discretion, and shall be in accordance with Section 3.2. Section 5. Interim Settlements. 5.1 Interim Settlement Account. Within 5 Business Days following each Reset Date or Settlement Date, the Companies shall deliver the Interim Settlement Amount in Interim Settlement Shares to PaineWebber or its agent for deposit in a collateral account in the name of the Company at PaineWebber or a custodian or depository designated by PaineWebber (the "Interim Settlement Account"). Interim Settlement Shares delivered shall be the subject of a registration statement covering any sale of such Interim Settlement Shares by PaineWebber that has been declared effective under the Securities Act by the Commission (an "Effective Registration Statement"). All Interim Settlement Shares shall be registered in the stock register of the Companies as instructed by PaineWebber and shall be held by PaineWebber or a custodian or depository designated by PaineWebber. If the Companies are unable to deliver Interim Settlement Shares in accordance with the preceding two sentences, the Companies shall deliver cash collateral in an amount equal to the Interim Settlement Amount. On any Reset Date or Settlement Date, if Interim Settlement Shares are held by PaineWebber, PaineWebber shall deliver to the Companies within five (5) Business Days after such Reset Date, the amount in cash or Interim Settlement Shares by which the value in Interim Settlement Shares held by PaineWebber (valued at the Closing Price on such Reset Date) plus any cash amounts in the collateral account exceeds the Interim Settlement Amount. Distributions on the Interim Settlement Shares will be deposited in the collateral account at PaineWebber or a custodian or depositary designated by PaineWebber. The cash amounts in the collateral account will earn interest at the USD LIBOR rate having a designated maturity of 1 month plus Spread. If the Companies shall fail to deliver sufficient Additional Shares pursuant Section 3.2(b), PaineWebber may, at its discretion, apply the Interim Settlement Shares or cash in the Interim Settlement Account to satisfy such deficiency. Upon final Settlement, PaineWebber shall immediately release all claims to cash and Interim Settlement Shares held in the collateral account (including interest 8 earned thereon) and deliver such amounts and all Interim Settlement Shares, free and clear of any security interest, lien, encumbrance or other restrictions, to the Companies. 5.2 Use of Interim Settlement Shares. The PaineWebber Parties (as defined in the Purchase Agreement) will, notwithstanding Section 9-207 of the New York Uniform Commercial Code, have the right to pledge, rehypothecate, or assign, any Interim Settlement Shares it holds, free from any claim of right of any nature whatsoever of the Companies, including any equity or right of redemption by the Companies. Section 6. Certain Covenants and Other Provisions. 6.1 Par Value. PaineWebber shall pay to the Companies $.02 par value per share for each Paired Share delivered to PaineWebber pursuant to this Agreement. 6.2 Allocation of Payments by PaineWebber. When making any payment to the Companies pursuant to this Agreement, PaineWebber shall allocate such payment between the REIT and OPCO in the manner specified by the Companies. 6.3 Purchase Price Adjustment Treatment. The Companies and PaineWebber agree, to the extent relevant to their respective business and commercial activities and in the absence of an administrative determination or judicial ruling to the contrary, to treat for United States federal income tax and financial accounting purposes payments and deliveries made under this Agreement as adjustments to the purchase price paid for the Purchase Shares pursuant to Section 2 of the Purchase Agreement. 6.4 Resale Registration Statement. Any Paired Shares delivered by the Companies to PaineWebber pursuant to this Agreement shall be the subject of a resale registration statement that has been declared effective under the Securities Act by the Commission (an "Effective Resale Registration Statement"). The Companies further agree that they will cause any resale registration statement to remain in effect until the earliest of the date on which (i) the final Settlement, or (ii) PaineWebber has advised the Companies that it no longer requires that such registration be effective. The provisions of Section 5.2 and Section 7.2 of the Purchase Agreement shall be deemed to apply to any resale registration statement filed by the Companies pursuant to this Agreement. 9 6.5 Delivery of Paired Shares. The Companies covenant and agree with PaineWebber that Paired Shares delivered by the Companies pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and nonassessable. The issuance of such Paired Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to PaineWebber in connection with any registration statement filed with respect to any Paired Shares. 6.6 Securities Law Compliance. Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Companies' Paired Shares, with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. 6.7 Regulatory Compliance. Each party agrees that if the delivery of Paired Shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel, subject to Section 6.2 of this Agreement and Section 7 of the Purchase Agreement. Each party further agrees that any sale pursuant to Section 3.1, 4.1 or 4.2 may be delayed or postponed if, in PaineWebber's judgement, such delay or postponement is necessary to comply with the requirements of applicable law or regulation. 6.8 Settlement Transfer. All settlements shall occur through The Depository Trust Company or any other mutually acceptable depository. 6.9 Trading Authorization. The following individual and/or any individual authorized in writing by the respective Treasurers of the Companies is authorized by the Companies to provide trading instructions to PaineWebber with regard to this transaction. 10 For the REIT: William W. Evans III For OPCO: William W. Evans III The address, telephone number and facsimile number of William W. Evans III: c/o Patriot American Hospitality, Inc., 590 Madison Avenue, 22nd Floor, New York, New York 10022, telephone: (212) 521-1480, and facsimile: (212) 355-7772. 6.10 Joint and Several Liability. Each of REIT and OPCO will be jointly and severally liable for all the obligations of REIT and OPCO hereunder. References in this Agreement to "a party" or words of such import, shall be deemed to refer to PaineWebber, individually, on the one hand, or to REIT and OPCO, individually and collectively, on the other hand. 6.11 Currency. All cash amounts required to be paid under this Agreement shall be in United States Dollars. 6.12 Expenses. If either the Companies, on the one hand, or PaineWebber, on the other hand, is in default of its obligations under this Agreement, such party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement in connection with any default, including, but not limited to, costs and collection. 6.13 Tax Matters. If either of the Companies merges with a non-U.S. entity, the Companies agree to enter into a standard and customary provision dealing with taxes. Section 7. General Provisions. 7.1 Specific Performance. The parties acknowledge and agree that the failure of the Companies, on the one hand, or PaineWebber, on the other hand, to deliver Paired Shares in accordance with the provisions 11 hereof would result in damage to the other party that could not be adequately compensated by a monetary award. The parties therefore agree that, if either party fails to deliver Paired Shares in accordance with the provisions hereof, the other party may, in addition to all other remedies, seek an order of specific performance from a court of appropriate jurisdiction. 7.2 Governing Law. The Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. 7.3 Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably: (a) submits to the exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City; and (b) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. 7.4 Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any Proceedings. Each party (i) certifies that no representative, agent or attorney or other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications set forth above in this Section. 7.5 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing or by facsimile and shall be deemed given if delivered to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to PaineWebber, to PaineWebber Financial Products Inc. 1285 Avenue of the Americas, 19th Floor New York, NY 10019 12 Telefax: (212) 713-7949 Attention: Terrence E. Fancher with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Telefax: (212) 474-3700 Attention: Daniel P. Cunningham, Esq. (b) if to the Companies, to Patriot American Hospitality, Inc. Wyndham International, Inc. 1950 Stemmons Freeway Suite 6001 Dallas, TX 75207 Telefax: (214) 863-1986 Attention: John Bohlmann, Esq. with a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Telefax: (617) 523-1231 Attention: Martin Carmichael III, P.C. 7.6 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7.7 Counterparts. 13 (a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. (b) This Agreement shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 7.8 Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and is not intended to confer upon any person other than the parties any rights or remedies. 7.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 7.10 Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties. 7.11 No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise of that right, power or privilege or the exercise of any other right, power or privilege. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. PATRIOT AMERICAN HOSPITALITY, INC. By:----------------------------- Name: Title: WYNDHAM INTERNATIONAL, INC. By:----------------------------- Name: Title: PAINEWEBBER FINANCIAL PRODUCTS INC. By:----------------------------- Name: Title: EX-10.4 4 PURCHASE AGMT. DTD 8/14/98 Exhibit 10.4 August 14, 1998 Patriot American Hospitality, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn.: William W. Evans III Wyndham International, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn.: Leslie Ng Ladies and Gentlemen: This letter agreement among Patriot American Hospitality, Inc. (the "REIT"), Wyndham International, Inc. (the "OPCO") (each a "Company" and collectively, the Companies") and PaineWebber Financial Products Inc. ("PaineWebber") modifies and amends, in part, certain of the terms and conditions of that certain Purchase Price Adjustment Mechanism Agreement, dated April 6, 1998 (the "Agreement") between the Companies and PaineWebber, as amended. Defined terms not otherwise defined herein shall have the meanings ascribed to them under the Agreement. Notwithstanding the terms and conditions of the Agreement, the Companies and PaineWebber agree as follows: 1. The representations, warranties and covenants of the Companies in Section 4 of the Purchase Agreement, dated as of April 6, 1998 (the "Purchase Agreement"), among the Companies and PaineWebber are hereby incorporated by reference herein, and the Companies hereby so represent, warrant and covenant to PaineWebber. The provisions of Section 6 of the Purchase Agreement shall also be applicable to any Paired Shares delivered to PaineWebber under this Agreement. Patriot American Hospitality, Inc. Wyndham International, Inc. August 14, 1998 Page 2 2. "Interim Settlement Shares," as defined in Section 1 of the Agreement, shall be deleted in its entirety and replaced as follows: (t) Interim Settlement Shares. The Interim Settlement Amount divided by the Closing Price on the relevant Reset Date or Settlement Date, as the case may be; provided however, if the Companies have not delivered to PaineWebber an effective registration statement as contemplated by Section 6.4, 125% of the Interim Settlement Amount divided by the Closing Price on the relevant Reset Date or Settlement Date, as the case may be. 3. "Maturity Date," as defined in Section 1 of the Agreement, shall be deleted in its entirety and replaced as follows: (a) Maturity Date. October 15, 1998. 4. The table in Section 4.1 of the Agreement, shall be deleted in its entirety and replaced with the following:
Percentage of Shares to be Settled Termination Price 100% $16.00
Additionally, upon the occurrence of a Price Decline Termination Event, PaineWebber, at its sole discretion, shall have the option to specify the manner of sale. Patriot American Hospitality, Inc. Wyndham International, Inc. August 14, 1998 Page 3 5. Section 5.1 shall be deleted in its entirety and replaced as follows: 5.1 Interim Settlement Account. Within 5 Business Days following each Reset Date or Settlement Date, the Companies shall deliver the Interim Settlement Amount in Interim Settlement Shares to PaineWebber or its agent for deposit in a collateral account in the name of the Company at PaineWebber or a custodian or depository designated by PaineWebber (the "Interim Settlement Account"). Interim Settlement Shares delivered shall be the subject of a registration statement covering any sale of such Interim Settlement Shares by PaineWebber that has been declared effective under the Securities Act by the Commission (an "Effective Registration Statement"); provided however, if the Companies are unable to deliver Interim Settlement Shares that are the subject of an Effective Registration Statement, the Companies shall deliver cash collateral in an amount equal to the Interim Settlement Amount or Interim Settlement Shares. All Interim Settlement Shares shall be registered in the stock register of the Companies as instructed by PaineWebber and shall be held by PaineWebber or a custodian or depository designated by PaineWebber. On any Reset Date or Settlement Date, if Interim Settlement Shares are held by PaineWebber, PaineWebber shall deliver to the Companies within five (5) Business Days after such Reset Date, the amount in cash or Interim Settlement Shares by which the value in Interim Settlement Shares held by PaineWebber (valued at the Closing Price on such Reset Date unless there is no Effective Registration Statement on such Reset Date, in which case valued at 80% of the Closing Price on such Reset Date) plus any cash amounts in the collateral account exceeds the Interim Settlement Amount. Distributions on the Interim Settlement Shares will be deposited in the collateral account at PaineWebber or a custodian or depositary designated by PaineWebber. The cash amounts in the collateral account will earn interest at the USD LIBOR rate having a designated maturity of 1 month plus Spread. If the Companies shall fail to deliver sufficient Additional Shares pursuant Section 3.2(b), PaineWebber may, at its discretion, apply the Interim Settlement Shares or cash in the Interim Settlement Account to satisfy such deficiency. Upon final Settlement, PaineWebber shall immediately release all claims to cash and Interim Settlement Shares held in the collateral account (including interest earned thereon) and deliver such amounts and all Interim Settlement Shares, free and clear of any security interest, lien, encumbrance or other restrictions, to the Companies. Notwithstanding the foregoing, if cash collateral or Interim Settlement Shares that are not the subject of an Effective Registration Statement are delivered by the Companies pursuant to this Section 5.1, then during the period between each Reset Date or between the final Reset Date and the Maturity Date, the Interim Settlement Amount shall be recalculated and the Companies or PaineWebber, as applicable, shall deliver to the other party an adjustment amount in cash or Interim Settlement Shares in accordance with such recalculated Interim Settlement Amount, on a bi-weekly (every two weeks) basis (each an "Adjustment Date"); provided, that PaineWebber shall not be obligated to, but may in its sole discretion, return to Patriot American Hospitality, Inc. Wyndham International, Inc. August 14, 1998 Page 4 the Companies Paired Shares held as collateral. For purposes of this Section 5.1 and the definitions of Interim Settlement Amount and Interim Settlement Shares, each such Adjustment Date shall be deemed a Reset Date. The Companies are hereby delivering to PaineWebber 2,347,218 shares of Paired Common Stock as collateral. 6. Following Section 4.2 the following shall be added: 4.3 Early Settlements with Respect to Other Substantially Similar Transactions: The Companies agree that (i) prior to the partial or full early settlement, unwind or liquidation of any transaction that is substantially similar to the transaction contemplated by this Agreement (an "Other Transaction" including without limitation the transactions contemplated by (i) the Forward Stock Contract, dated December 31, 1997, among the Companies and UBS AG, London Branch, as amended on August 14, 1998 and (ii) the Purchase Price Adjustment Mechanism, dated as of February 26, 1998, among the Companies and NationsBanc Mortgage Capital Corporation, as amended on August 14, 1998), the Companies shall promptly, after learning that any such event may occur, give telephone notice (confirmed in writing) of such upcoming settlement, unwind or liquidation, (ii) any such settlement, unwind or liquidation shall be treated as a Cross-Default, and (iii) PaineWebber may require all or part of the obligation hereunder to be settled coincident with an Other Transaction. 7. The modifications and amendments contemplated by this letter agreement shall be effective April 6, 1998 retroactively; PROVIDED HOWEVER, if the Companies fail to deliver to PaineWebber on or before September 30, 1998, an Effective Registration Statement the modifications and amendments contemplated by this letter agreement shall be null and void and of no effect. Patriot American Hospitality, Inc. Wyndham International, Inc. August 14, 1998 Page 5 Sincerely, PaineWebber Financial Products Inc. By: ------------------------------- Name: Title: AGREED TO AND ACCEPTED Patriot American Hospitality, Inc. Wyndham International, Inc. By: By: ------------------------------- Name: Name: Title: Title: EX-10.5 5 PURCHASE AGREEMENT Exhibit 10.5 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of the 26th day of February, 1998, by and among Patriot American Hospitality, Inc. (the "REIT"), Wyndham International, Inc. (the "OPCO") (the REIT and the OPCO, each a "Company" and collectively the "Companies"), and NMS Services, Inc., a subsidiary of NationsBank Corporation (the "Purchaser"), through its agent NationsBanc Montgomery Securities LLC. References herein to the "Companies" refer to the REIT and the OPCO, and those entities respectively owned or controlled by the REIT or the OPCO. IN CONSIDERATION of the mutual covenants contained in this Agreement, the REIT, the OPCO and the Purchaser agree as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Agreement, the REIT has authorized the issuance to the Purchaser of up to an aggregate of 4,900,000 shares of common stock, par value $0.01 per share, of the REIT (the "REIT Shares") and the OPCO has authorized the issuance to the Purchaser of up to an aggregate of 4,900,000 shares of common stock, par value $0.01 per share (the "OPCO Shares"), which REIT Shares and OPCO Shares are paired and traded as a unit consisting of one (1) REIT Share and one (1) OPCO Share (hereinafter each such paired unit is referred to as a "Paired Share" and the Paired Shares referred to in this sentence are herein called the "Purchase Shares"). In addition, the REIT and the OPCO may, pursuant to the Purchase Price Adjustment Mechanism dated as of February 26, 1998 (the "Purchase Price Adjustment Mechanism"), among the REIT, the OPCO and the Purchaser (which is incorporated by reference herein and attached hereto), issue to the Purchaser additional Paired Shares (the "Additional Shares") in settlement of certain of its obligations thereunder. The Purchase Shares and the Additional Shares are hereinafter collectively called the "Shares". For U.S. federal income tax and financial accounting purposes, the Companies and Purchaser agree, to the extent relevant to their respective business and commercial activities and in the absence of a change in applicable law or rules or an administrative determination or judicial ruling to the contrary, to treat payments and deliveries made pursuant to the Purchase Price Adjustment Mechanism as adjustments to the purchase price paid for the Purchase Shares pursuant to Section 2 hereof. SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Agreement, on the Closing Date (as defined in Section 3 hereof), the Companies will sell to the Purchaser the Purchase Shares, the number of which shall equal 4,900,000 paired shares for a per paired share purchase price of $24.8625 per Paired Share. SECTION 3. Delivery of the Shares at the Closing. (a) Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable, on such date to be agreed upon among the REIT, the OPCO and the Purchaser, but in no event later than the earlier of (i) February 27, 1998 or (ii) three business days after the execution of this Agreement (hereinafter, the "Closing Date"). (b) Conditions. At Closing, the Companies shall deliver or cause to be delivered to the Purchaser one or more stock certificates registered in the name of the Purchaser representing the number of Purchase Shares set forth in Section 2 above. The obligation of the Companies to complete the sale of the Purchase Shares and deliver such stock certificate(s) to the Purchaser at the Closing shall be subject to the following conditions, any one or more of which may be waived by both of the Companies acting together: (i) receipt by the Companies of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchase hereunder, (ii) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Purchaser herein and the fulfillment, in all material respects, as of the Closing Date, of those undertakings of the Purchaser to be fulfilled prior to the Closing, (iii) the full execution of the Purchase Price Adjustment Mechanism by the parties hereto and (iv) receipt by the Companies of a cross-receipt with respect to the Purchase Shares executed by the Purchaser. The Purchaser's obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Companies herein and the fulfillment in all material respects, as of the Closing Date, of those undertakings of the Companies to be fulfilled prior to Closing; and (ii) the receipt by the Purchaser of all opinions and certificates to be delivered by the Companies pursuant to this Agreement. SECTION 4. Representations, Warranties and Covenants of the Companies. Except as set forth in the Companies' SEC Filings (as defined below), the Companies hereby represent and warrant to, and covenant with, the Purchaser as follows: 2 (a) Organization and Qualification. The REIT has been formed as a real estate investment trust under Delaware law pursuant to a Certificate of Incorporation filed as of January 21, 1983 in the office of the Delaware Secretary of State, as amended and restated as of January 5, 1998 and filed in the office of the Delaware Secretary of State on such date. The REIT's existence has not been suspended or terminated nor have any dissolution, revocation or forfeiture proceedings regarding the REIT been commenced. The REIT has been duly qualified to do business in each jurisdiction where the failure so to qualify to do business would have a material adverse effect on the financial condition, business, operations or prospects of the Companies taken as a whole (a "Material Adverse Effect"). The OPCO has been duly organized, is validly existing and in good standing under the laws of Delaware. The OPCO's corporate existence has not been suspended or terminated, nor have any dissolution, liquidation or forfeiture proceedings involving the OPCO been commenced. The OPCO has been duly qualified to do business in each jurisdiction where the failure so to qualify to do business would have a Material Adverse Effect. (b) Authorized Capital Stock. The REIT had 1.5 billion authorized shares as of February 9, 1998, consisting of 650 million REIT Shares, par value $0.01 per share, 750 million shares of excess stock, par value $0.01 per share, and 100 million shares of preferred stock, par value $0.01 per share ("Patriot Preferred Stock"). The OPCO had authorized capital stock as of December 1, 1997 of 1.5 billion shares, consisting of 650 million OPCO Shares, par value $0.01 per share, 750 million shares of excess stock, par value $0.01 per share, and 100 million shares of preferred stock, par value $0.01 per share. As of February 9, 1998, there were 99,878,341 Paired Shares outstanding, 7,190,091 Paired Shares were reserved for issuance pursuant to equity plans filed pursuant to the Companies' SEC Filings (as defined below), and 12,701,170 Paired Shares were reserved for issuance upon the election by the Companies to acquire, in exchange for Paired Shares, units of limited partnership interest in Patriot American Hospitality Partnership, L.P. and Patriot American Hospitality Operating Partnership, L.P. tendered by redeeming unit holders. As of February 9, 1998, there were 4,860,876 shares of Patriot Preferred Stock outstanding and no preferred shares of the OPCO were outstanding. The issued and outstanding Paired Shares of the Companies have been duly authorized and validly issued are fully paid and nonassessable, have been issued in compliance in all material respects with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform in all material respects to the description thereof included in the Companies' SEC Filings. Other than as described in the Companies' SEC Filings, none of the Companies has outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, 3 shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the Companies' stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Companies' SEC Filings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. The Purchase Shares represented less than 4.7% of the total issued and outstanding Paired Shares on February 26, 1998. (c) Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Companies have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform in all material respects to the description thereof included in the Companies' SEC Filings. The Additional Shares, if and when issued pursuant to the Purchase Price Adjustment Mechanism, will be duly authorized, validly issued, fully paid and nonassessable, and will conform in all material respects to the description thereof included in the Companies' SEC Filings. None of the Purchase Shares when issued and delivered to the Purchaser shall be subject to any lien, security interest, claim, charge or encumbrance of any nature. No further approval or authority of the stockholders or the Board of Directors of the REIT or the OPCO will be required for the issuance and/or sale of the Purchase Shares to be sold by the Companies as contemplated herein or in the Purchase Price Adjustment Mechanism, except such as shall have been obtained on or before the Closing Date. The issuance and/or sale of the Purchase Shares to the Purchaser by the Companies pursuant to this Agreement or the Purchase Price Adjustment Mechanism (as the case may be), the compliance by the Companies with the other provisions of this Agreement or the Purchase Price Adjustment Mechanism and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration or qualification of or with any governmental authority, except such as shall have been obtained on or before the Closing Date or as could not prevent or adversely affect the transactions contemplated by this Agreement, other than the registration of the resale of the Shares by the Purchaser with the Securities and Exchange Commission (the "SEC") and any required Blue Sky filings with the States. The Companies meet and will continue to meet the requirements for use of Form S-3 under the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations"). The Companies have filed and will file all documents which are required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and all such documents (collectively, together with the Companies' registration statements filed under the Securities Act which have been declared effective since January 1, 1997 and have not been withdrawn, the "Companies' SEC Filings") comply in all material respects with the requirements of the Securities Act and the Rules and Regulations and the Exchange Act and the rules and regulations 4 thereunder, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statements (as defined in Section 7 below) shall, when they are filed with the SEC, conform in all material respects with the requirements of the Securities Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, as applicable. No Registration Statement filed in respect of any of the Purchase Shares or Additional Shares, when so filed, will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) Due Execution, Delivery and Performance of the Agreement. Each Company has full legal right, power and authority to enter into this Agreement and the Purchase Price Adjustment Mechanism and perform the transactions contemplated hereby and thereby. This Agreement and the Purchase Price Adjustment Mechanism have been duly authorized, executed and delivered by the Companies. The making and performance of this Agreement and the Purchase Price Adjustment Mechanism by the Companies and the consummation of the transactions herein and therein contemplated will not in any material respect violate any provision of the certificate of incorporation, bylaws, or other organizational documents, of the Companies, and will not in any material respect conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which either Company is a party or by which either Company or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to either Company or any of its respective properties. Upon the execution and delivery hereof, each of this Agreement and the Purchase Price Adjustment Mechanism will constitute the valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the enforceability of the indemnification agreements of the Companies in Section 7(e) hereof may be limited by public policy. 5 (e) Accountants. The Companies' independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the Rules and Regulations. Each Company shall cause its independent certified public accountants to deliver, on the effective date of the Registration Statement, and thereafter on any Relevant Date (as defined below) upon the request of the Purchaser (which shall be made no more frequently than once during any 30-day period), a letter stating that such accountants are independent public accountants within the meaning of the Securities Act and otherwise in customary form and covering such financial and accounting matters as are then customarily covered by "comfort letters" of independent certified public accountants delivered to underwriters in connection with secondary public offerings of equity securities pursuant to a shelf registration statement. "Relevant Date" means each of (i) each Exchange Trading Day during the Unwind Period for any Daily Sales unwind (each as defined in the Purchase Price Adjustment Mechanism), (ii) Day S for any Underwritten Sale unwind (each as defined in the Purchase Price Adjustment Mechanism), (iii) the date any Paired Shares are delivered by the Companies pursuant to Section III.E.6. of the Purchase Price Adjustment Mechanism and (iv) the date any Interim Settlement Shares (as defined in the Purchase Price Adjustment Mechanism) are delivered under the Purchase Price Adjustment Mechanism and each Exchange Trading Day during the related Interim Settlement Unwind Period. (f) No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not be material to the Companies taken as a whole, neither Company is in violation or default of any provision of its certificate of incorporation or bylaws, or other organizational documents, and is not in breach of or default with respect to any provision of any agreement judgment, decree, order, mortgage, deed of trust, lease, franchise, license indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound; and there does not exist any state of fact which constitutes an event of default on the part of the Company as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default except such defaults which individually or in the aggregate would not be material to the Companies. (g) Contracts. Neither Company, nor to the best of the knowledge of each Company, any other party is in breach of or default under any contracts to which either Company is a party except such breach or default which individually or in the aggregate would not have a Material Adverse Effect. (h) No Actions. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Companies' knowledge, threatened to 6 which either Company is or may be a part or of which property owned or leased by either Company is or may be the subject, or related to environmental or discrimination matters, which actions, suits or proceedings would be reasonably likely, individually or in the aggregate, to prevent or to adversely affect the transactions contemplated by this Agreement or result in a Material Adverse Effect, and no labor disturbance by the employees of the Companies exists or is imminent which might be expected to have a Material Adverse Effect. Except as may be described in the Companies' SEC Filings, neither Company is a party or subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body, administrative agency or other governmental body. (i) Properties. Each Company has good and marketable title to all the properties and assets reflected as owned by such Company in the financial statements included in the Most Recent Financial Statements, except for properties or assets disposed of in the ordinary course of business since the date thereof, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such financial statements or the Companies' SEC Filings, or (ii) those which are not material in amount and do not adversely affect the use made and promised to be made of such property by the Company. Each Company holds its leased properties under valid and binding lease, with such exceptions as are not materially significant in relation to the business of the Companies. Each Company owns or leases all such properties as are necessary to its operations as now conducted. The REIT is qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended, with respect to its taxable years ended December 31, 1995 and December 31, 1996, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. (j) No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Companies' SEC Filings as of the Closing Date or in writing to the Purchaser (i) neither Company has incurred any liabilities or obligations, indirect, or contingent, which will have a Material Adverse Effect or entered into any material verbal or written agreement or other material transaction which is not in the ordinary course of business (it being agreed that for purposes of this sentence the REIT's ordinary course of business shall include the acquisition or disposition, directly indirectly, of real estate properties or businesses of a type that may be owned by a "real estate investment trust" (as defined under the Internal Revenue Code) and the OPCO's ordinary course of business shall include the acquisition or disposition, directly or indirectly of assets or business related to or engaged in the hospitality industry) or 7 which could reasonably be expected to result in a material reduction in the future earnings of the Companies; (ii) neither Company has sustained any loss or interference with its businesses or properties (taken as a whole) from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance, which has had a Material Adverse Effect; (iii) there has not been any material change in the authorized capital of the Companies or material increase in the principal amount of outstanding indebtedness of the Companies (other than in the ordinary course of business); and (iv) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Companies. (k) Intellectual Property. Each Company believes it has sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations to conduct its businesses as now conducted; and neither Company has knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and no claim has been made against either Company regarding trademark, trade name, patent, copyright, license, trade secrecy or other infringement which is reasonably likely to have a Material Adverse Effect. (l) Compliance. Neither Company has been advised, nor has reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be so in compliance would not have a Material Adverse Effect. (m) Taxes. Each Company has filed all necessary material federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon (except for those taxes which are being contested in good faith through appropriate proceedings, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Companies to the Purchaser in writing), and neither Company has knowledge of any tax deficiency which has been or might be asserted or threatened against the Company which could have a Material Adverse Effect. (n) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to the Purchaser hereunder will be, or will have been, fully paid or provided for by the Companies and all laws imposing such taxes will be or will have been fully complied with in all material respects. 8 (o) Investment Company. Neither of the Companies is required to register as an "investment company" at such term is defined in the Investment Company Act of 1940, as amended. (p) Insurance. Each Company maintains insurance (or insurance is maintained on its behalf) of the types and in the amounts generally deemed adequate under customary industry standards for its business, including, but not limited to, insurance covering all real and personal property owned or leased by such Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, which insurance is in full force and effect in all material respects. (q) SEC Filings. The information contained in the following documents, which the Companies have furnished to the Purchaser, or will furnish prior to the Closing, is or will be true and correct in all material respects as of their respective filing dates: (i) Joint Annual Report on Form 10-K for the year ended December 31, 1996, which Joint Annual Report includes the REIT's and the OPCO's most recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"). (ii) Joint Quarterly Report on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (iii) The Companies' proxy statements on Form 14A relating to (i) the most recent Annual Meetings of the OPCO's and the REIT's Stockholders and (ii) any Special Meetings of the OPCO's Stockholders and the REIT's Stockholders which occurred during the 12-month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (iv) all other documents, if any, filed by or with respect to the REIT and the OPCO with the SEC since January 1, 1997 pursuant to Sections 13, 15(d) or 16(a) of the Exchange Act; and (v) a covenant compliance certification stating that none of the REIT and the OPCO and their respective subsidiaries are in default under any of its credit agreements or other financing arrangements involving at least $25 million in indebtedness. 9 (r) Legal Opinion. Prior to the Closing, counsel to the Companies will deliver their legal opinions to the Purchaser in substantially the form of Exhibit A hereto (except that such opinion shall not contain paragraph (vi) of such Exhibit). (s) ERISA. The Companies and their affiliates are in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"). Except as would not have a Material Adverse Effect: (i) neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Companies and/or their affiliates; (ii) no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years, to the Companies' knowledge no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; (iii) the Companies and their affiliates have not completely or partially withdrawn under Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); the Companies and their affiliates have met the minimum funding requirements of Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; (iv) the Companies and their affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); (v) no part of the funds to be used by the Companies in satisfaction of their obligations under this Agreement or the Purchase Price Adjustment Mechanism constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 4975(o)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described In Section 3(3) of ERISA and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. (t) Certificate. Each Company shall deliver to the Purchaser a certificate of such Company executed by an executive officer of such Company, to be dated the Closing Date in form and substance satisfactory to the Purchaser to the effect that (i) the representations and warranties of the Companies set forth in this Section 4 are true and correct as of the date of this Agreement and as of the date of such certificate, and (ii) such Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to the date of such certificate. On any Relevant Date, upon request from the Purchaser (which shall be made no more frequently than once during any 10 30-day period), each Company shall deliver a certificate of such Company executed by an executive officer of such Company to be dated the date of its delivery in form and substance satisfactory to the Purchaser to the effect set forth in the previous sentence; provided that such certificate may state exceptions to the representations and warranties of the Companies set forth in this Section 4 that do not, in the reasonable judgment of the Companies and the Purchaser, require disclosure in the Companies' SEC Filings in order that such SEC Filings will not contain a misstatement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (u) Environmental Protection. To the knowledge of the Companies, except as disclosed in the Companies' SEC Filings none of the Companies or their affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on the Companies or any affiliate that is likely to have a Material Adverse Effect or (ii) is likely to result in the imposition of a lien on any asset owned, directly or indirectly, by the Companies that would have a Material Adverse Effect. To the knowledge of the Companies, neither of the Companies nor any of their affiliates is subject to any existing, pending or threatened investigation or proceeding by any governmental agency or authority with respect or pursuant to any Environmental Law, except any which would not be reasonably likely to have a Material Adverse Effect. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311 (b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C. ss.1251 et seq; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.9601) et seq; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U. S. ss.7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the 11 Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by- products, and waste oil. SECTION 5. Representations, Warranties and Covenants of the Purchaser. (a) Investment. The Purchaser represents and warrants to, and covenants with, the Companies that: (i) the Purchaser, taking into account the personnel and resources it can practically bring to bear on the purchase of the Purchase Shares contemplated hereby, is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Companies, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Purchase Shares; (ii) the Purchaser is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares, except pursuant to a registration statement effective under, or an exemption from the registration requirements of, the Securities Act; (iii) the Purchaser will not, directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Purchase Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to an available exemption or exclusion therefrom; (iv) the Purchaser will, prior to the effectiveness of the Registration Statement, complete or cause to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix 1, for use in preparation of the Registration Statement and the answers thereto will be true and correct to the best knowledge of the Purchaser as of the date thereof and as of the effective date of the Registration Statement; (v) the Purchaser has, in connection with its decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Sections 4(e), 4(q), 4(r) and 4(t), the documents and information referred to in Sections 7(a)(iv) and 7(g) and the representations and warranties of the Company contained herein; (vi) the Purchaser is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act; (vii) the Purchaser is not a beneficial owner, as such term is defined in Rule 13d-3 under the Exchange Act, of five percent or more of the Paired Shares outstanding as shown in the Companies' Quarterly Reports on Form 10-Q for the quarter ended September 30, 1997 and (viii) the Purchaser understands that the Shares will contain a legend to the following effect: 12 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. (b) Resale. The Purchaser acknowledges and agrees that the Shares are not transferable on the books of either the REIT or the OPCO unless the certificate submitted to the transfer agent evidencing the Shares is accompanied by a separate officer's certificate: (i) in the form of Appendix II hereto, (ii) executed by an officer of, or other authorized person designated by, the Purchaser, and (iii) to the effect that (A) the Shares have been sold in accordance with the Registration Statement, the Securities Act and the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to valid exemptions or exclusions therefrom and (B) the requirement under the Securities Act of delivering a current prospectus has been satisfied. The Purchaser acknowledges that there may occasionally be times when the Companies must suspend the right of the Purchaser to effect sales of the Shares through use of the Prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Companies and declared effective by the SEC, or until such time as the Companies have filed an appropriate report with the SEC pursuant to the Exchange Act (each, a "Black-Out Period"); provided that no Black-Out Period shall exceed 90 consecutive days. The Purchaser hereby covenants that it will not sell any Shares pursuant to said Prospectus during the period commencing at the time at which the Companies give the Purchaser written notice of the suspension of the use of said Prospectus and ending at the time the Companies give the Purchaser written notice that the Purchaser may thereafter effect sales pursuant to said Prospectus. The Purchaser further covenants to notify the REIT and the OPCO promptly of the sale by the Purchaser of all of the Shares. (c) Due Execution, Delivery and Performance of this Agreement. The Purchaser further represents and warrants to, and covenants with, the Companies that (i) the Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of the Purchaser 13 enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Purchaser in Section 7(e) hereof may be legally unenforceable. (d) Residence of the Purchaser. The Purchaser is organized under the laws of Delaware and has its principal place of business outside the United States. (e) No Affiliation. The Purchaser further represents and warrants to, and covenants with, the Companies that no officer, director or affiliate of the Purchaser is an officer, director or affiliate of any Company. The term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Companies and the Purchaser herein and in the certificates for the Shares delivered pursuant hereto shall survive the execution of this Agreement, the Purchase Price Adjustment Mechanism, the delivery to the Purchaser of the Purchase Shares being purchased and the payment therefor. SECTION 7. Registration of the Shares; Compliance with the Securities Act. (a) Registration Procedures and Expenses. The Companies shall: (i) within 60 days after receipt of a demand from the Purchaser, which demand may not be made within 60 days after the Closing, prepare and file with the SEC Registration Statements (as defined below) covering the resale by the Purchaser, from time to time, of the Shares (not to exceed a number of Shares equal to 130% of the number of Purchase Shares) through the facilities of the New York Stock Exchange, the American Stock Exchange or the National Market System of The Nasdaq Stock Market or the facilities of any other national securities exchange on which the Paired Share is then traded or in privately negotiated transactions (the "Initial Registration Statements"). If the total number of Shares issued to the Purchaser hereunder and under the Purchase Price Adjustment Mechanism exceeds the number of Shares covered by the Initial Registration Statements, then the Companies shall prepare and file with the SEC such additional Registration Statements as shall be necessary to 14 cover the resale by the Purchaser of such excess Shares in the same manner as contemplated by the Initial Registration Statements for the Shares covered thereby ("Additional Registration Statements"); provided that prior to delivering certificates evidencing any such excess Shares to the Purchaser, the Companies shall cause such Registration Statements to have become effective. For purposes of this Purchase Agreement, "Registration Statement" means a registration statement under the Securities Act on Form S-3 covering the resale by the Purchaser of up to a specified number of Shares, filed and maintained effective by the Companies pursuant to the provisions of this Section 7, including the Prospectus (as defined below) contained therein, any amendments and supplements to such registration statement, including all post-effective amendments thereto, and all exhibits and all material incorporated by reference into such registration statement; (ii) use all reasonable best efforts to cause the SEC to notify the Companies of the SEC's willingness to declare the Initial Registration Statements effective within 60 days after the Registration Statements are filed by the Companies; provided that the Companies will use their reasonable best efforts to cause such Initial Registration Statements to become effective no later than 90 days after the Closing Date; (iii) prepare and file with the SEC such amendments and supplements to the Registration Statements and the prospectus used in connection therewith (the "Prospectus") as may be necessary to keep the Registration Statements effective during the period set forth in Section III. A.4 of the Purchase Price Adjustment Mechanism; (iv) furnish to the Purchaser with respect to the Shares registered under the Registration Statements (and to each underwriter, if any, of such Shares) (A) such reasonable number of copies of Prospectuses, including any supplements and amendments thereto, (B) promptly following the effectiveness of such Registration Statements and thereafter on any Relevant Date upon request of the Purchaser (which shall be made no more frequently than once during any 30-day period) an opinion from counsel to the Companies covering the matters set forth on Exhibits A and B hereto and (C) such other documents as the Purchaser may reasonably request in order to facilitate the public sale or other disposition of all or any of the Shares by the Purchaser; promptly following the effectiveness of the Registration Statement and thereafter on any Relevant Date upon request of the Purchaser (which shall be made no more frequently than once during any 30-day period) provide access by the Purchaser and its counsel to documents and personnel of the Companies necessary to allow 15 the Purchaser to perform a "due diligence" investigation of the Companies in a manner customary for underwriters in underwritten public offerings of equity securities; (v) use their reasonable best efforts to prevent the happening of any event that would cause such Registration Statements to contain an untrue statement of a material fact or an omission of a material fact necessary to make the statements therein not misleading or to be not effective and usable for resale of the Shares during the period that such Registration Statements are required to be effective and usable; provided that this paragraph 7(a)(v) shall in no way limit the Companies' right to suspend the right of the Purchaser to effect sales under the Registration Statement during any Black-Out Period as specified at Section 5(b) above; (vi) file documents required of the Companies for normal blue sky clearance in states specified in writing by the Purchaser, provided, however, that the Companies shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (vii) bear all reasonable out-of-pocket expenses in connection with the procedures in paragraphs (i) through (vi) of this Section 7(a) and the registration of the Shares pursuant to the Registration Statements, including the reasonable fees and reasonable expenses of counsel or other advisers to the Purchaser, other than underwriting discounts, brokerage fees and commissions incurred by the Purchaser, if any. (b) Covenants in Connection with Registration. (i) The Companies hereby covenant with the Purchaser that (A) the Companies shall not file any Registration Statement or Prospectus relating to the resale of the Shares or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to the Purchaser and the Purchaser did not object thereto in good faith (provided that if the Purchaser does not object within two business days of receiving any such material, they shall be deemed to have no objection thereto); (B) the Companies shall immediately notify the Purchaser of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for such purpose; (C) the Companies shall make every commercially reasonable effort to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible moment; (D) the Companies shall notify the Purchaser of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale 16 under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (E) the Companies shall as soon as practicable notify the Purchaser in writing of the existence of any fact which results in any Registration Statement, any amendment or post-effective amendment thereto, the Prospectus, any prospectus supplement or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and shall (except during a Black-Out Period) prepare a supplement or post-effective amendment to such Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this clause (E) shall in no way limit the Companies' right to suspend the right of the Purchaser to effect sales under the Registration Statement during any Black-Out Period as specified at Section 5(c) above. (ii) The Purchaser shall notify the Companies at least two business days prior to the date on which the Purchaser intends to commence effecting any resales of Shares under Registration Statement and if the Companies do not, within such two-day period, advise the Purchaser of the existence of any facts of the type referred to in Section 7(b) (i)(E) above, then the Companies shall be deemed to have certified and represented to the Purchaser that no such facts then exist and the Purchaser may rely on such certificate and representation in making such sales. The preceding sentence shall in no way limit the Companies' obligations under Section 7(b)(i) above. (c) Extension of Required Effectiveness. In the event that the Companies shall give any notice required by Section 7(b)(i)(E) hereof, the period during which the Companies are required to keep such Registration Statement effective and useable shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when the Purchaser is advised in writing by the Companies that the use of the Prospectuses may be resumed. (d) Transfer of Shares after Registration. The Purchaser agrees that it will not effect any disposition of the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue 17 sky laws except as contemplated in Registration Statements referred to in Section 7(a) or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Companies of any changes in the information set forth in any such Registration Statements regarding the Purchaser or the Plan of Distribution. (e) Indemnification. For the purpose of this Section 7(e), the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Registration Statement referred to in Section 7(a). (i) Indemnification by Companies. For purposes of this Section 7(e), the Companies agree to indemnify and hold harmless the Purchaser and as more particularly described herein. The Companies agree to indemnify and hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which the Purchaser or such controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the Companies), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of such Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the SEC pursuant to Rule 424(b) of the Regulations, or filed as part of such Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them not misleading, and will reimburse the Purchaser and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by the Purchaser or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Companies will also indemnify selling brokers, dealers and similar securities industry professionals participating in the sale or resale of the Shares, their officers, directors and partners and each 18 person who controls any such person within the meaning of the Securities Act, provided, however, that the Companies will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, such Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Companies (A) by or on behalf of the Purchaser expressly for use therein or (B) any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Purchaser prior to the pertinent sale or sales by the Purchaser and not delivered by the Purchaser in connection with such sale or sales. (ii) Indemnification by the Purchaser. The Purchaser will indemnify and hold harmless the Companies, each of their directors, each of their officers who signed any Registration Statement and each person, if any, who controls the Companies within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint and several, to which the Companies, each of their directors, each of their officers who signed any Registration Statement or any controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the Purchaser) insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in such Registration Statement, such Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, such Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Companies by or on behalf of the Purchaser expressly for use therein, and will reimburse the Companies, each of their directors, each of their officers who signed such Registration Statement and each controlling person for any legal and other expense reasonably incurred by the Companies, each of their directors, each of their officers who signed such Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. 19 (iii) Proceedings. Promptly after receipt by an indemnified party under this Section 7(e) of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7(e), notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 7(e) or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume and control the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying parties, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7(e) for any reasonable legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall be not liable for the expenses of more than one separate counsel, approved by such indemnifying party in the case of paragraph (a), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. Notwithstanding the foregoing, without the written consent of the indemnified party, the indemnifying party may not settle or agree to compromise of any such claim or action 20 for which the indemnified party intends to seek reimbursement from the indemnifying party, and the indemnified party will permit the indemnifying party to settle or compromise any such action or suit at the indemnifying party's sole cost and expense if as a result thereof the indemnified party is provided a full and unconditional release of such claim or action. (iv) Contribution. If the indemnification provided for in this Section 7(e) is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (i), (ii) or (ii) of this Section 7(e) in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein in such proportion as is appropriate to reflect the relative benefits received by the Companies and the Purchaser from the purchase and sale of the Shares and the relative fault of the Companies and the Purchaser in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Companies on the one hand and the Purchaser on the other shall be deemed to be in the same proportion as the amount paid by the Purchaser to the Companies pursuant to this Agreement for the Shares purchased by the Purchaser that were sold pursuant to any Registration Statement bears to the difference (the "Difference") between the amount the Purchaser paid for the Shares that were sold pursuant to such Registration Statement and the amount received by the Purchaser from such sale. The relative fault of the Companies and the Purchaser shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Companies or by the Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (iii) of this Section 7(e) any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (iii) of this Section 7(e) with respect to notice of commencement of any action shall apply if a claim for 21 contribution is to be made under this paragraph (iv); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under paragraph (iii) for purposes of indemnification. The Companies and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7(e) were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 7(e), the Purchaser shall not be required to contribute any amount in excess of the amount by which the aggregate proceeds received by the Purchaser from the transactions contemplated hereby exceeds the amount of any damages that the Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (v) Relationship Between the REIT and the OPCO. The obligations set forth in this Section 7(e) shall in no way limit the ability of the Companies to allocate liability between themselves. (f) Termination of Conditions and Obligations. The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares when such Shares may, in the judgment of the Purchaser, be, and in fact are, sold under Rule 144(k) promulgated under the Securities Act. Further, as to any particular number of Shares, the conditions precedent imposed by Section 5 or this Section 7 on the transferability of such Shares shall cease and terminate at such earlier time as an opinion of counsel satisfactory to the Companies and the Purchaser shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act with respect to such Shares. In each such case, the Companies' obligation to maintain effective Registration Statements with respect to such Shares which are no longer subject to the restrictions and limitations of Section 5 and this Section 7 shall cease. (g) Information Available. So long as any Registration Statement covering the resale of any Shares owned by the Purchaser is effective, the Companies will furnish to the Purchaser: (i) as soon as practicable after available, one copy of (A) its Joint Annual Report to Stockholders, (B) its Joint Annual Report on Form 10-K, (C) its joint Quarterly Reports to Stockholders, (D) its joint 22 quarterly reports on Form 10-Q, (E) a full copy of the particular Registration Statements covering the Shares (the foregoing, in each case, excluding exhibits) and (F) upon request, any or all other public filings under the Exchange Act by the Companies; and (ii) upon the reasonable request of the Purchaser, a reasonable number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Companies, upon the reasonable request of the Purchaser, will meet with the Purchaser or a representative thereof at the Companies headquarters to discuss all information relevant for disclosure in such Registration Statements covering the Shares, subject to appropriate confidentiality limitations. (h) Non-Exclusivity. The rights and remedies provided under Section 7(e) hereof shall not be in limitation or exclusion of any rights or remedies available to a party, whether by agreement, at law, in equity or otherwise, with respect to the inaccuracy of any representation or warranty by, or the breach of any covenant of, the other party made herein or in the Purchase Price Adjustment Mechanism. (i) Notice Requirement. The REIT and OPCO each covenants and agrees that it will notify the Purchaser at any time it becomes aware that as a result of a change in the REIT's and the OPCO's capital stock the Purchaser beneficially holds more than 4.9% of the REIT's and the OPCO's Paired Shares. (j) Transfer of Shares. The Companies covenant and agree to use their best efforts to cause the transfer agent to effect promptly any transfer of the Shares requested by the Purchaser and to cause the transfer agent to remove promptly the restrictive legend from the Shares upon presentation to the transfer agent of all necessary documentation. (k) Underwriting Agreement. If the Companies elect Underwritten Sale as the unwind method for a settlement under the Purchase Price Adjustment Mechanism, the Companies and the Purchaser shall enter into an underwriting agreement with the underwriters for such Underwritten Sale in customary form for an Underwritten Sale effected in the manner contemplated. SECTION 8. Registration Exemptions. For so long as the REIT and the OPCO are subject to the reporting requirements of Section 13 or 15 of the Exchange Act, the REIT and the OPCO covenant that they will file the reports required to be filed by them under the Securities Act and Section 13(a) and 15(d) 23 of the Exchange Act and the rules and the regulations adopted by the Commission thereunder. SECTION 9. Broker's Fee. Other than any fees payable under or in connection with the Purchase Price Adjustment Mechanism, each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to the Purchaser. SECTION 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) If to the Companies, to: Patriot American Hospitality, Inc. 24 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn: John P. Bohlmann Telecopier: (214) 863-1527 and Wyndham International, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn: Carla S. Moreland Telecopier: (214) 863-1527 25 with a copy so mailed to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 Attn: Gilbert G. Menna, P.C. Telecopier: 617-523-1231 26 27 28 (b) if to the Purchaser, to NMS Services, Inc. c/o NationsBanc Montgomery Securities LLC at 9 W. 57th Street, 47th Floor, New York, New York 10019, Attention: Christopher J. Innes, Telecopier: 212-583-8573 or at such other address or addresses as may have been furnished to the Companies in writing. SECTION 11. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Companies and the Purchaser. SECTION 12. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 13. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 14. Governing Law, Jurisdiction. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to the conflicts of law principles thereof) and of the federal law of the United States of America. (b) Each of the Companies (i) hereby irrevocably submits to the jurisdiction of, and agrees that any suit shall be brought in, the state and federal courts located in the City and County of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or the transactions contemplated hereby and (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding, any claim that is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such proceeding brought in one of the above-named courts is brought in an inconvenient forum, that the venue of any such proceeding brought in one of the above-named courts is improper, or that this Agreement, or the transactions contemplated hereby may not be enforced in or by such court. 29 SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the contrary, the Purchaser may transfer the Purchase Shares to any affiliate of the Purchaser, together with all of the Purchaser's rights hereunder; provided that (i) such affiliate shall assume and be subject to all of the Purchaser's obligations hereunder; (ii) such affiliate shall be an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act; (iii) such transfer shall be consistent with the investment representations set forth at Section 5 hereto and (iv) such affiliate shall assume the rights and obligations of the Purchaser under the Purchase Price Adjustment Mechanism. In the event of such an assignment, such affiliate shall in all respects be substituted for the Purchaser as a party hereto and to the Purchase Price Adjustment Mechanism. SECTION 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party and delivered to the other parties. SECTION 17. Waiver of Trial by Jury. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 30 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. PATRIOT AMERICAN HOSPITALITY, INC. By: ----------------------------- Name: Title: WYNDHAM INTERNATIONAL, INC, By: ----------------------------- Name: Title: NMS SERVICES, INC. By: ----------------------------- Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC, as agent By: ----------------------------- Name: Title: 31 APPENDIX I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 3 of the Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: ------------------------------------ 2. All relationships between the Purchaser and the Registered Holder listed in response to item 1 above: ------------------------------------ ------------------------------------ ------------------------------------ 3. The mailing address of the Registered Holder listed in response to item 1 above: ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above: ------------------------------------ 32 APPENDIX I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization will own immediately after Closing, including those Shares purchased by you or your organization pursuant to this Purchase Agreement and those shares purchased by you or your organization through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the REIT, the OPCO or any of their affiliates? _____ Yes _____ No If yes, please indicate the nature of any such relationships below: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 33 APPENDIX II Attention: HOLDER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] ______________________________________ hereby certifies that [he/she] [fill in official name of individual or institution] [said institution] is the holder of the shares evidenced by the attached certificate, and as such, sold such shares on _______ in accordance with [date] Registration Statement number ________________________________________, [fill in number or otherwise identify Registration Statement] the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the REIT and the OPCO has been complied with in connection with such sale. Print or Type: Name of Holder (Individual or Institution): _________________ Name of Individual representing Holder (if an Institution): _________________ Title of Individual representing Holder (if an Institution): _________________ Signature by: Individual Holder or Individual repre- senting Holder: _________________ 35 EXHIBIT A FORM OF OPINION OF COUNSEL [Date] NMS Services, Inc. c/o NationsBanc Montgomery Securities LLC 9 West 57th Street 47th Floor New York, NY 10019 Re: Patriot American Hospitality, Inc., a Delaware corporation (the "Corporation") and Wyndham International, Inc., a Delaware corporation (the "Operating Company" and, together with the Corporation, the "Companies") Ladies and Gentlemen: In connection with the purchase by NMS Services, Inc., a subsidiary of NationsBank Corporation (the "Purchaser"), of 4,900,000 shares of common stock, $.01 par value per share, of the Corporation ("Corporation Common Stock"), and 4,900,000 shares of common stock, $.01 par value per share, of the Operating Company ("Operating Company Common Stock"), we, as counsel for the Companies, have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. The Corporation Common Stock and Operating Company Common Stock are paired and trade as a single unit consisting of one share of Corporation Common Stock and one share of Operating Company Common Stock ("Paired Common Stock"). The shares of Paired Common Stock being purchased by the Purchaser, as described above, are herein referred to as the "Purchased Shares". With your approval, we have relied as to certain matters on information obtained from public officials, officers of the Companies and other sources believed by us to be responsible. Also with your approval, we have assumed that the certificates for the Purchased Shares conform to the specimen thereof examined by us and have been duly countersigned by the transfer agent and duly registered by the registrar of the Corporation Common Stock and the Operating Company Common Stock, and have further assumed the genuineness of all A-1 NMS Services, Inc. [Date] Page 2 signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, the authenticity of the originals of such latter documents, and the legal capacity of natural persons, assumptions which we have not independently verified. In rendering the opinions expressed below, we express no opinion other than as to the Federal laws of the United States, the laws of the Commonwealth of Massachusetts, and the General Corporation Law of Delaware. Based on and subject to the foregoing, we are of the opinion that: (i) Each of the Companies has been duly incorporated and is an existing corporation in good standing under the laws of Delaware; (ii) The Purchased Shares have been duly authorized and, when the Purchased Shares are paid for by the Purchaser in accordance with the Purchase Agreement dated as of February 26, 1998 (the "Purchase Agreement") by and among the Companies and the Purchaser, will be validly issued, fully paid and non-assessable; (iii) The Purchase Agreement has been duly authorized, executed and delivered by each of the Companies; (iv) The Purchase Price Adjustment Mechanism dated as of February 26, 1998 between the Companies and the Purchaser has been duly authorized, executed and delivered by each of the Companies; (v) The ISDA Master Agreement (including the Schedule to that Agreement) dated as of February 26, 1998 between the Companies and the Purchaser has been duly authorized, executed and delivered by each of the Companies; and (vi) The execution and delivery of the Purchase Agreement and the Purchase Price Adjustment Mechanism by the Companies and the performance by the Companies of their respective obligations thereunder (i) will not result in any violation of the provisions of the charter or by-laws of either Company or any subsidiary; (ii) will not to the best knowledge of such counsel constitute a breach of, or default under any material contracts filed as exhibits to the Companies' A-2 SEC Filings (as defined in the Purchase Agreement) except such breach, default, lien, charge or encumbrance which individually or in the aggregate would not have a material adverse effect on the condition, financial or otherwise or on the earnings, assets, business affairs or business prospects of the Companies and their respective subsidiaries considered as an enterprise (a "Material Adverse Effect"); and (iii) to the best knowledge of such counsel, will not result in any violation of any law or administrative regulation applicable to either Company or any of their respective subsidiaries the violation of which would, individually or in the aggregate, have a Material Adverse Effect. The opinions set forth herein are based upon currently existing statutes, rules and regulations and are rendered as of the date hereof, and we disclaim any obligation to advise you of any change in any of the foregoing sources of law or subsequent developments in law or changes in facts or circumstances which might affect any matters or opinions set forth herein. The opinions set forth herein are furnished by us as counsel for the Companies to you and are solely for your benefit. Very truly yours, A-3 EXHIBIT B OPINION MATTERS FOR REGISTRATION STATEMENTS [opinion paragraphs to be delivered in connection with resale registration statements] Each of the REIT and the OPCO is duly organized, validly existing and in good standing under the laws of the State of Delaware, and each of the REIT and the OPCO has the requisite corporate power and authority to own its properties and to conduct its business as presently conducted. The REIT is a real estate investment trust duly organized, validly existing and in good standing as a business REIT under the laws of the State of Delaware, and the REIT has the requisite corporate power and authority to own its properties and to conduct its business as is presently conducted. The [Additional] Shares have been duly authorized and are validly issued, nonassessable and fully paid, and are not subject to any preemptive or similar rights. The Registration Statement has been declared effective under the Securities Act; to our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Final Prospectus, and each amendment thereof or supplement thereto (except for the financial statements, schedules and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Exchange Act and the respective rules of the Commission thereunder. While we have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Final Prospectus, we have participated in reviews and discussions in connection with the preparation of the Registration Statement and Final Prospectus, and advise you that, in the course of such reviews and discussions, nothing has come to our attention which would lead us to believe (i) that the Registration Statement at the time it became effective (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading or (ii) that the Final Prospectus on the date thereof or on the date of this opinion (except for the financial statements and the notes thereto and the other financial data included or incorporated by B-1 reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. B-2 EX-10.6 6 PURCHASE PRICE ADJUSTMENT MECHANISM Exhibit 10.6 Purchase Price Adjustment Mechanism To: Patriot American Hospitality, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 To: Wyndham International, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 From: NMS Services, Inc., a subsidiary of NationsBank Corporation c/o NationsBanc Montgomery Securities LLC 9 W. 57th Street, 47th Floor New York, NY 10019 Date: February 26, 1998 Ladies and Gentlemen, The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to the "Transaction" shall be deemed to be references to a "Swap Transaction" solely for the purposes of the 1991 ISDA Definitions. This Confirmation supplements, forms a part of, and is subject to, the ISDA Master Agreement dated as of February 26, 1998, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purposes of this Transaction. I. The Transaction Patriot American Hospitality, Inc. (the "REIT") and Wyndham International, Inc. (the "OPCO") (each a "Company" and collectively, the "Companies") and NMS Services, Inc., a subsidiary of NationsBank Corporation (the "Purchaser"), through its agent NationsBanc Montgomery Securities LLC ("NMS"), hereby agree to make the payments and deliveries provided for in Sections III., IV. and V. hereof, all on the terms more particularly specified herein. The Transaction is being entered into in connection with and is incorporated by reference in the Purchase Agreement, as defined below. Purchase Price Adjustment Mechanism II. Definitions For the purposes of this Confirmation, the following terms shall have the meanings set opposite: Adjustments: In the event of: (a) a subdivision, consolidation or reclassification of the REIT Shares or the OPCO Shares, or a free distribution or dividend to all existing holders of REIT Shares or the OPCO Shares by way of bonus, capitalization or similar issue; (b) a distribution or dividend to all existing holders of REIT Shares or the OPCO Shares of (i) additional REIT Shares or OPCO Shares or (ii) other share capital or securities granting right to payment of dividends and/or the proceeds of liquidation of either Company equally or proportionally with such payments to holders of Paired Shares; or (c) a merger, consolidation, reorganization or liquidation of either Company; an adjustment shall thereupon be effected by the Calculation Agent to the Forward Price and/or the Underlying Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. Bank: NationsBank, N.A. Calculation Agent: The calculations and determinations of the Calculation Agent shall be made in a commercially reasonable manner and shall be binding absent manifest error. Collateral Release Shares: Paired Shares delivered pursuant to Section V.C. Compounding Period: Means each period commencing on and including: (i) in the case of the first Compounding Period, the Effective Date and ending on but excluding the earlier of the first Interim Settlement Date or Day S, and (ii) for each period thereafter, an Interim Settlement Date and ending on but excluding the earlier of the next following Interim Settlement Date or Day S. If there is a Partial Settlement, then (i) the Compounding Period for the Settlement Shares covered by such Partial Settlement shall end on Day S for such Partial Settlement and 2 Purchase Price Adjustment Mechanism (ii) the Compounding Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. Customer Account: The account established in favor of the Companies pursuant to the Customer Agreement dated the date hereof between the Companies and NMS. Daily Average Price: Means, for any Exchange Trading Day, the sum of (i) the dollar volume weighted average price per Paired Share for that Exchange Trading Day based on transactions executed during that Exchange Trading Day on the Relevant Exchange, excluding any transaction executed during the last one-half hour of trading, as reported on Bloomberg. Daycount Fraction: Actual/360. Day S: For Settlement pursuant to Section III. or VI., the day upon which settlement activities shall begin. Dividend Amount: A. Means, on each Interim Settlement Date or Day S, an amount in U.S. Dollars equal to the sum of all cash distributions paid on either a REIT Share or on an OPCO Share comprising part of a Paired Share during the relevant Compounding Period; and B. Separately, and not included in the Dividend Amount, the Purchaser will pay or cause to be paid to the Companies on the Business Day after the relevant dividend payment date (i) all cash dividends on Paired Shares that have gone ex- dividend, but on which dividends have not been paid, prior to the end of the final Compounding Period for any settlement, based on a number of Paired Shares equal to the number of Settlement Shares for such settlement, (ii) all cash dividends received by the Purchaser at any time, on Paired Shares delivered by the Companies pursuant to Section III.E. that have gone ex-dividend after Day S but prior to the end of the Unwind Period for any settlement, and (iii) all cash dividends paid on Paired Shares held in the Customer Account. Effective Date: February 26, 1998 Exchange Trading Day: Each day on which the Relevant Exchange is open for trading. Forward Price: On each Interim Settlement Date or Day S, the Forward Price shall be determined for such day by: a) multiplying the Initial Price for the Compounding Period by the sum of 3 Purchase Price Adjustment Mechanism 1 plus the product of (i) the appropriate Daycount Fraction and (ii) the sum of (x) LIBOR, determined as of the previous Interim Settlement Date (or in the case of the first Interim Settlement Date, as of the Effective Date), for a Designated Maturity of 3 months, and (y) the Spread; and b) subtracting the Dividend Amount at that date; PROVIDED HOWEVER that if the Companies deliver Interim Settlement Shares pursuant to Section IV. or Collateral Release Shares pursuant to Section V.C. during any Compounding Period, the Forward Price as of the preceding Interim Settlement Date for the purpose of determining the Initial Price for such Compounding Period shall be adjusted to a price equal to the Daily Average Price on the Exchange Trading Day immediately prior to the most recent Interim Settlement Date, adjusted up for any positive result or down for any negative result of the following formula: (i) the Interim Settlement Amount for the most recent Interim Settlement Date. minus, (ii) the product of (x) the number of Interim Settlement Shares or Collateral Release Shares, as the case may be, delivered during such Compounding Period and (y) the average Daily Average Price on each Exchange Trading Day during the Interim Settlement Unwind Period. then divide such result by, (iii) the number of Underlying Shares. The Forward Price will be subject to adjustment as provided in the definition of Adjustments. Initial Price: Means, a) for the Compounding Period ending on the first Interim Settlement Date, an amount in U.S. Dollars equal to $25.50, and b) for each subsequent Compounding Period, the Forward Price as calculated on or adjusted as of the preceding Interim Settlement Date. 4 Purchase Price Adjustment Mechanism Interim Settlement Dates: May 26, 1998, August 26, 1998 and November 26, 1998, subject to adjustment in accordance with the Modified Following Business Day convention. Interim Settlement Amount: On any Interim Settlement Date, the product of (a) the number of Underlying Shares, and (b) the amount by which the Forward Price exceeds the Daily Average Price on the Exchange Trading Day immediately prior to such Interim Settlement Date. Interim Settlement Shares: The Interim Settlement Amount divided by the Daily Average Price on the Exchange Trading Day immediately prior to such Interim Settlement Date, with any fractional shares rounded up to the next highest whole number. Interim Settlement Unwind Period: Means, following any delivery of Interim Settlement Shares or Collateral Release Shares hereunder, a number of consecutive Exchange Trading Days commencing on the Exchange Trading Day immediately following the date of delivery of such shares, which number shall equal the product (rounded up to the next highest whole number) of (i) 100 times (ii) the quotient of (A) the number of shares so delivered divided by (B) the number of Underlying Shares as of the date of this Confirmation. LIBOR: Means USD-LIBOR-BBA as such term is defined in the Agreement. Mandatory Unwind Date: In the case of a Mandatory Unwind Event specified in clause (i) of the Mandatory Unwind provisions of Section VI., at least three Exchange Trading Days following such Mandatory Unwind Event. In the case of a Mandatory Unwind Event specified in clause (ii) of such provisions, the date specified in the notice delivered to the Companies pursuant to such provision of Section VI.
Mandatory Unwind Thresholds: Mandatory Unwind Thresholds Unwind Share Limit ----------------- ------------------ $20.00 up to 33.0% of Underlying Shares $18.75 67.0% $17.25 100.0%
Margin Percentage: On the First Exchange Trading Day of any Unwind Period, 107%, declining ratably on each subsequent Unwind Day during the Unwind Period to 100%. 5 Purchase Price Adjustment Mechanism Maturity Date: One (1) year after the Effective Date, subject to extension upon the written approval of the Purchaser in its sole discretion. Maturity Placement Fee: 2.00%, based on the mechanics in Section III.E. The parties may agree to alter the settlement mechanics, which may result in a different Maturity Placement Fee. Paired Shares: Shares of common stock, $0.01 par value per share, of the REIT (the "REIT Shares") and shares of common stock, par value $0.01 per share, of OPCO (the "OPCO Shares"), which are paired and traded as a unit consisting of one (1) REIT Share and one (1) OPCO Share (which REIT Shares and OPCO Shares shall include the common stock of any successor issuers). Partial Settlement: A settlement effected in accordance with Section III.A. with respect to less than the full number of Underlying Shares. Purchase Agreement: The Purchase Agreement, dated as of February 26, 1998, by and among the Companies and the Purchaser. Purchase Shares: Has the meaning set forth in Section 1 of the Purchase Agreement. Relevant Exchange: Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. Settlement Amount: The product of the Settlement Price and the Settlement Shares. Settlement Disruption Event: Means an event beyond the control of the parties as a result of which The Depository Trust Company ("DTC") or any successor depositary cannot effect a transfer of the Settlement Shares or the Paired Shares. If there is a Settlement Disruption Event on a date on which a transfer of Paired Shares is required to be made hereunder, then the transfer of the Paired Shares that would otherwise be due to be made by the Purchaser or the transfer of the Paired Shares that would otherwise be due to be made by the Companies, as applicable, on that date shall take place on the first succeeding Exchange Trading Day on which settlement can take place through DTC, provided that if such a Settlement Disruption Event persists for five consecutive Business Days, then the party obliged to deliver such Settlement Shares shall use its best efforts to cause such Shares to be delivered promptly thereafter to the other party in any commercially reasonable manner. 6 Purchase Price Adjustment Mechanism Settlement Price: If Day S is an Interim Settlement Date or the Maturity Date, the Forward Price; otherwise, the Forward Price adjusted for LIBOR breakage adjustments (either positive or negative) for such Forward Price for the period from Day S to the next following Interim Settlement Date. Any breakage adjustments shall be calculated by the Calculation Agent in accordance with normal industry standards. Settlement Shares: The number of shares up to the full number of Underlying Shares subject to settlement under Section III. or VI. Spread: 1.50% per annum. Stock Exchange: Means the New York Stock Exchange, the American Stock Exchange or the National Market System of the Nasdaq Stock Exchange. Stock Settlement Unwind Price: If Daily Sales is elected as the unwind method, the weighted average Daily Average Price for the Unwind Days during the Unwind Period where the weighting of the Daily Average Price in each Unwind Day of the Unwind Period other than the last Unwind Day of the Unwind Period shall be one and the weighting of the Daily Average Price for the last Unwind Day of the Unwind Period shall be equal to the quotient obtained by dividing (i) the difference between (A) the Settlement Amount and (B) the product of (1) one less than the number of Unwind Days in the Unwind Period, (2) 1% of the number of Underlying Shares on the date of this Confirmation and (3) the average Daily Average Price for the Unwind Days in the Unwind Period excluding the last Unwind Day of the Unwind Period by (ii) the product of (x) 1% of the number of Underlying Shares on the date of this Confirmation and (y) the Daily Average Price on the last Unwind Day of the Unwind Period. If Underwritten Sale is elected as the unwind method, a price equal to the per share sale proceeds to the Purchaser in such Underwritten Sale. Trade Date: February 26, 1998. Underlying Shares: 4,900,000 Paired Shares of the Companies (NYSE ticker "PAH"), subject to adjustment in the event of Partial Settlements. Unwind Day: Each Exchange Trading Day on which (i) no Market Disruption Event has occurred and (ii) the resale registration 7 Purchase Price Adjustment Mechanism statement provided by the Company pursuant to the Purchase Agreement and Section III.A.4. is effective and the related prospectus is not unavailable (including by reason of the existence of a Black-Out Period under the Purchase Agreement) for delivery to purchasers of Paired Shares. Unwind Period: In the event of (i) Stock Settlement or Net Stock Settlement and (ii) the election of Daily Sales as the unwind method, the period beginning on Day S and ending on (and including) the first Unwind Day on which the product of (A) the Stock Settlement Unwind Price as calculated on such Unwind Day as if such Unwind Day were the final Unwind Day of the Unwind Period (provided that, for purposes of this calculation, the Stock Settlement Unwind Price shall be calculated by weighting equally each Unwind Day in the hypothetical Unwind Period), (B) the number of Unwind Days in the Unwind Period (including such Unwind Day) and (C) 1% of the number of Underlying Shares on the date of this Confirmation equals or exceeds the Settlement Amount. Valuation Date: In the case of determining any Physical Settlement value, Net Stock Settlement Shares or Stock Settlement Shares, Day S, the day preceding Day S and all Unwind Days during the Unwind Period; in the case of determining any Preliminary Stock Settlement Shares or Preliminary Net Stock Settlement Shares, the Exchange Trading Day immediately preceding Day S; in the case of determining the Interim Settlement Amount and related calculation, the day prior to the Interim Settlement Date, and the five (5) Exchange Trading Days following receipt of Interim Settlement Shares by the Purchaser. Valuation Time: 4:00 pm EST, or in the event the Relevant Exchange closes early, such closing time. III. Settlement A. Notice and Procedures 1. The Companies may on any Exchange Trading Day up to and including the Maturity Date, upon the giving of telephonic notice to the Purchaser (the "Settlement Notice") at least three (3) Business Days (or, if Underwritten Sale is elected as the unwind method and such Underwritten Sale takes the form of a fixed price underwritten public offering, 21 Business Days) prior to Day S as specified in such Settlement Notice, settle all or part of this Transaction. The Settlement Notice shall specify: (i) the Settlement Shares; 8 Purchase Price Adjustment Mechanism (ii) the settlement method, subject to change upon notice as described below in this section (Physical, Stock or Net Stock Settlement, as such methods are described below); and (iii) Day S, which must be an Exchange Trading Day; provided however, that if Physical Settlement, Stock Settlement or Net Stock Settlement is selected and in the Purchaser's reasonable judgment the delivery of the Settlement Shares would potentially violate or contravene any legal or regulatory prohibition or requirement applicable to the Purchaser or cause the Purchaser to contravene any established corporate policy or compliance policy of the Purchaser which relates to any legal or regulatory prohibition or requirement applicable to the Purchaser (other than any corporate policy limiting the amount of the Purchaser's investment in another entity) then the Purchaser shall at least three (3) Business Days prior to the proposed Day S, notify the Companies telephonically (confirmed by writing) of any such impediment and its estimate of the period during which such impediment will preclude the Purchaser's ability to settle all or part of this Transaction, in which event Day S shall be postponed until the Purchaser notifies the Companies of its ability to effect Physical Settlement, Stock Settlement or Net Stock Settlement; and (iv) the unwind method (Daily Sales or Underwritten Sale, as such methods are described below). The Settlement Notice shall be effective only if the notice requirements specified above are fulfilled; provided, that if the Settlement Notice is complete except that no settlement method is specified, then the settlement method shall be deemed to be Physical Settlement, and if the Settlement Notice is complete except that no unwind method is specified, the unwind method shall be deemed to be Daily Sales. If no Settlement Notice meeting the above requirements is received prior to five (5) Business Days prior to the Maturity Date, then a settlement shall occur with respect to which Day S shall be deemed to be one Exchange Trading Date after the Maturity Date and Settlement Shares shall be deemed to equal Underlying Shares. The Companies may upon telephonic notice to the Purchaser of at least one (1) Exchange Trading Date prior to the proposed Day S, withdraw any Settlement Notice. In the case of any Partial Settlement, the number of Underlying Shares to which this Transaction shall relate shall be adjusted, as of Day S, by subtracting the number of Settlement Shares from the number of Underlying Shares (as the same may have been adjusted prior to such Partial Settlement) immediately prior to such Day S. In the event that the Company provided notice of Stock or Net Stock Settlement, on any day during the applicable Unwind Period, upon providing one (1) Business Day's telephonic notice, the Company may elect to effect Physical Settlement for all Settlement Shares that have not already been settled, determined in the manner provided in the following sentence. The number of Settlement Shares deemed to have already been settled shall equal the product of 1% of the number of Underlying Shares on the date of this Confirmation and the number of elapsed Unwind Days in the Unwind Period. In the event that the Companies elect to effect Physical Settlement pursuant to this paragraph, 9 Purchase Price Adjustment Mechanism (i) the notice day shall become the final day of the Unwind Period with regard to the Settlement Shares that are deemed to have been settled, and (ii) the Exchange Trading Day immediately following the notice day shall become Day S for the remaining Settlement Shares and the Settlement Price for these remaining Settlement Shares shall be recalculated accordingly. 2. On Day S, the Settlement Price for the Settlement Shares and the Settlement Amount shall be determined for Day S. 3. The Settlement Amount shall be determined by the Calculation Agent and the settlement procedures shall be executed pursuant to the settlement method (B., C., or D. of this Section III.) selected by the Companies in their its sole discretion. 4. It shall be a condition precedent to any right of the Companies to elect Stock Settlement (III.C. below) or Net Stock Settlement (III.D. below) or to deliver Paired Shares in satisfaction of their obligations under Section III.E.6., that the Companies must (i) notify the Purchaser (in writing or telephonically) of such election at least five (5) Business Days prior to Day S and (ii) prior to Day S, cause to be filed with the Securities and Exchange Commission (the "Commission") and cause to become effective under the Securities Act of 1933, as amended (the "Securities Act") a registration statement that results in the Purchaser (or any affiliate of the Purchaser designated by the Purchaser) being able to resell all Paired Shares to be delivered by the Company in effecting such Stock Settlement or Net Stock Settlement without further registration under the Securities Act. Such registration statement shall include one or more preliminary prospectuses, prospectuses, and any amendments and supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. In addition, the Companies shall not deliver any Paired Shares pursuant to Section IV. below unless at the time of such delivery a registration statement has become effective under the Securities Act that result in the Purchaser (or any affiliate of the Purchaser designated by the Purchaser) being able to resell such Paired Shares without further registration under the Securities Act, such registration statement to include one or more preliminary prospectuses, prospectuses, and any amendments or supplements thereto such that any preliminary prospectuses, prospectus and any amendments or supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Companies further agree that they will cause any such Registration Statement referred to in this paragraph 5 of Section III.A. to remain in effect until the earliest of the date on which (i) all Paired Shares delivered to the Purchaser by the Companies and not required to be delivered to the Companies hereunder have been sold by the Purchaser (or an affiliate of the Purchaser), and the Purchaser agrees to notify the Companies of such fact within two (2) Business Days of its occurrence, (ii) the Purchaser is able, in the opinion of its counsel, to sell the Paired Shares subject thereto under Rule 144(k) or (iii) the Purchaser has advised the Companies that it no longer requires that such registration statement be effective; provided, however, that in no event shall the Companies be obligated to keep such Registration Statement effective for more than 10 10 Purchase Price Adjustment Mechanism Exchange Trading Days after the end of the applicable Unwind Period. Notwithstanding any other provision of this Confirmation, if the conditions set forth in this Section III.A.4 are not satisfied as of Day S, then (except as provided in Section V - Mandatory Unwind Event) the Companies shall be deemed to have elected Physical Settlement. B. Physical Settlement If the Companies elect Physical Settlement, the Companies shall settle by delivering to the Purchaser cash in an amount equal to the Settlement Amount in exchange for the Settlement Shares ("Physical Settlement") on the Exchange Trading Day immediately succeeding Day S. The Purchaser shall deliver the Settlement Shares to the Companies on the Exchange Trading Day immediately succeeding Day S upon receipt of such cash. C. Stock Settlement If the Companies elect to settle the Settlement Amount by delivering Paired Shares in exchange for the Settlement Shares ("Stock Settlement"), the Companies shall settle by delivering to the Purchaser a number of Paired Shares (the "Stock Settlement Shares") equal to (i) the Settlement Amount divided by (ii) the Stock Settlement Unwind Price. The mechanics for settlement are set forth in Section III. E. below. D. Net Stock Settlement If the Companies elect to settle the Settlement Amount on a net stock basis ("Net Stock Settlement"), the Companies shall settle by delivering to the Purchaser a number of net stock settlement shares (the "Net Stock Settlement Shares"), which shall equal; a) (i) the number of Settlement Shares, times (ii) the amount (positive or negative) equal to the Settlement Price minus the Stock Settlement Unwind Price, such product divided by, b) the Stock Settlement Unwind Price. If such calculation yields a positive number, this shall indicate the number of Paired Shares to be delivered by the Companies to the Purchaser. If such calculation yields a negative number, this shall indicate the number of Paired Shares to be delivered by the Purchaser to the Companies. The mechanics for settlement are set forth in Section III.E. below. (The mechanics set forth in Section III.E. below do not apply for purposes of Interim Net Stock Settlement pursuant to Section IV.) 11 Purchase Price Adjustment Mechanism E. Stock and Net Stock Settlement Mechanics 1. Preliminary Stock Settlement: If the Companies elect Stock Settlement and Daily Sales, the Companies shall deliver to the Customer Account (for subsequent sale for the account of the Purchaser as provided in Section VI), by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Stock Settlement Shares") equal to the product of (i) the Settlement Amount divided by the Daily Average Price on the Exchange Trading Day immediately preceding Day S, times (ii) 107% (with fractional shares rounded up to the next larger whole number). Upon delivery of the Preliminary Stock Settlement Shares to the Customer Account, the Purchaser will deliver the Settlement Shares to the Customer Account. 2. Preliminary Net Stock Settlement: If the Companies elect Net Stock Settlement and Daily Sales and if the Settlement Price exceeds the Daily Average Price on the Exchange Trading Day immediately preceding Day S, the Companies shall deliver to the Customer Account (for subsequent sale for the account of the Purchaser as provided in Section VI), by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Net Stock Settlement Shares") equal to: a) the sum of (i) the product of the number of Settlement Shares times the difference between the Settlement Price and the Daily Average Price on the Exchange Trading Day immediately preceding Day S and (ii) 7% of the Settlement Amount, and such amount divided by b) the Daily Average Price on the Exchange Trading Day immediately preceding Day S. If the Daily Average Price on the Exchange Trading Day immediately preceding Day S exceeds the Settlement Price, the Companies shall not be required to deliver any shares to the Purchaser under this subsection III.E.2. 3. If Daily Sales is elected as the unwind method, then by 11:00 a.m. on every fifth (5th) Unwind Day (other than the final Unwind Day) during the Unwind Period and on the Business Day following the final Unwind Day of the Unwind Period: (a) For Stock Settlement: Stock Settlement Shares shall be calculated as if such Unwind Day were the final Unwind Day of the Unwind Period (provided that, for purposes of this calculation, the Stock Settlement Unwind Price shall be calculated by weighting equally each Unwind Day in the hypothetical Unwind Period). (i) If (a) the Margin Percentage times Stock Settlement Shares (calculated as set forth above) is greater than (b) the sum of (x) Preliminary Stock Settlement 12 Purchase Price Adjustment Mechanism Shares plus (y) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Companies shall deliver that number of Paired Shares equal to the difference between (a) and (b) to the Customer Account (for subsequent sale for the account of the Purchaser as provided in Section VI), and (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i) above is greater than Stock Settlement Shares, then all claims of the Purchaser to such remaining shares shall be released as provided in Section III.E.5. (b) For Net Stock Settlement: Net Stock Settlement Shares shall be calculated as if such Unwind Day were the final Unwind Day of the Unwind Period (provided that, for purposes of this calculation, the Stock Settlement Unwind Price shall be calculated by weighting equally each Unwind Day in the hypothetical Unwind Period). (i) if (a) the Margin Percentage times Net Stock Settlement Shares is greater than (b) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Companies shall deliver Paired Shares equal in number to the difference between (a) and (b) to the Customer Account (for subsequent sale for the account of the Purchaser as provided in Section VI), and (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i) above is greater than (b) Net Stock Settlement Shares, then all claims of the Purchaser to such remaining shares shall be released as provided in Section III.E.5. 4. The Companies shall cause all shares delivered by it to the Customer Account pursuant to this Confirmation to be fully and effectively registered under the Securities Act for resale by the Purchaser (or an affiliate of the Purchaser) (as provided in Section III.A.4, above). 5. On the Exchange Trading Day following the final Unwind Day of the Unwind Period for any Daily Sales unwind or on or prior to the day 10 Exchange Trading Days following Day S for any Underwritten Sale unwind, as the case may be, the Purchaser shall release all claims to Paired Shares held in the Companies' Customer Account in respect of such unwind, and deliver all such Paired Shares to the Companies with the dollar value of all fractional shares settled in cash. 6. In the event of Stock Settlement or Net Stock Settlement pursuant to Section III.C or III.D. and the election of Daily Shares as the unwind method, the Companies shall pay to the Purchaser on the Business Day immediately following the last Unwind Day of the Unwind Period an unwind accretion fee, in cash or, subject to the following conditions and in the manner provided below, in Paired Shares, equal to the product of (i) the quotient of (A) the Settlement Amount divided by (B) the number of calendar days in the Unwind 13 Purchase Price Adjustment Mechanism Period times (ii) the sum of (A) 3-Month LIBOR plus (B) the Spread times (iii) the quotient of (A) the sum of all of the whole numbers beginning with one and ending with the number of calendar days in the Unwind Period divided by (B) 360. The Companies may satisfy this obligation by delivering Paired Shares to the Purchaser in an amount so that the value of such Paired Shares, calculated by reference to the Daily Average Price on the Relevant Exchange on the Exchange Trading Day immediately prior to the date of such delivery, provided that such Paired Shares have been registered for resale in the manner provided in Section III.A.4. 7. In the event of Stock Settlement or Net Stock Settlement pursuant to Section III.C. or III.D., the Companies shall pay on Day S a placement fee to an affiliate of the Purchaser designated by the Purchaser calculated as: Settlement Amount x Maturity Placement Fee. In the event that Interim Settlement Shares are delivered pursuant to Section IV. or Collateral Release Shares are delivered pursuant to Section V.C., the Companies shall pay on the date of such delivery a placement fee to an affiliate of the Purchaser designated by the Purchaser calculated as:
Number of x Daily Average Price x Maturity shares so delivered on Exchange Trading Placement Day immediately prior to Fee date of delivery
8. In the event of Stock Settlement or Net Stock Settlement and the election of Underwritten Sale as the unwind method, the Purchaser or one or more of its affiliates shall sell the Stock Settlement Shares or the Net Stock Settlement Shares and the Settlement Shares, as the case may be, in a manner agreed among the Companies and the Purchaser, which may include (i) sales to one or more institutional purchasers in transactions of the type commonly referred to as "block trades" or (ii) a fixed price underwritten public offering. 14 Purchase Price Adjustment Mechanism IV. Interim Net Stock Settlement On each Interim Settlement Date, if the Forward Price exceeds the Daily Average Price on such Interim Settlement Date, then on the Business Day following the fifth Exchange Trading Day thereafter the Companies shall, subject to the conditions stated in Section III.A.4, deliver a number of Paired Shares to the Purchaser equal to the Interim Settlement Shares; provided, however, that if the Companies are restricted by Section III.A.4., by law or regulation or self-regulatory requirements or related policies and procedures, whether or not such requirements, policies or procedures are imposed by law directly or have been voluntarily adopted by the Companies to insure compliance with applicable laws, or in their reasonable judgment are otherwise unable or unwilling to deliver registered Paired Shares, the Companies shall deliver Treasury Notes to the Purchaser as described in Section V.B. below. Paired Shares to be delivered pursuant to this Section IV. shall initially be delivered to the Customer Account as collateral for the Companies' obligations hereunder, and the Bank shall be authorized to direct its affiliates to sell such Paired Shares for the account of the Purchaser as provided in Section VI. V. Collateral Provisions A. If the Companies fail to make effective a resale registration statement as described in Section III.A.4 within 60 days of a written request by the Purchaser, then until such a resale registration statement has become effective, the Companies shall deliver United States Treasury Notes, with a maturity of three months or less, that are held through the Treasury/Reserve Automated Debt Entry System ("Treasury Notes") in an aggregate principal amount equal to the Interim Settlement Amount (calculated as if such 60th day were an Interim Settlement Date) to the Purchaser. If Treasury Notes are delivered pursuant to this Section V.A., then until the date Paired Shares could be delivered in connection with an Interim Net Stock Settlement (if such date were an Interim Settlement Date) or the Transaction is settled on a Physical Settlement basis, the Interim Settlement Amount shall be recalculated and the aggregate principal amount of Treasury Notes required to be delivered shall be adjusted (and additional Treasury Notes shall be delivered to the Bank and excess Treasury Notes shall be returned to the Companies as necessary) to equal such recalculated Interim Settlement Amount on a biweekly (every 2 weeks) basis, with the Interim Settlement Amount calculated as if the last day of such biweekly period were an Interim Settlement Date. B. In the event that the Companies do not deliver Paired Shares pursuant to Section IV. for one or more of the reasons described in the provision at the end of such paragraph, then, unless Treasury Notes have been delivered pursuant to Section V.A. above, the Companies shall deliver Treasury Notes in an amount equal to the Interim Settlement Amount to the Purchaser. C. If the Companies have delivered Treasury Notes to the Purchaser pursuant to Sections V.A. or V.B. above, at the Companies' option, the Companies may deliver Paired Shares (which Paired Shares have been registered for resale by the Purchaser (or an affiliate of the Purchaser) pursuant to a registration statement as described in Section III.A.4) to the Purchaser equal in saleable 15 Purchase Price Adjustment Mechanism market value, based on the Daily Average Price on the Exchange Trading Day prior to such delivery, to the aggregate principal amount of the Treasury Notes theretofore delivered to the Purchaser hereunder. Prior to the next Interim Settlement Date, if on any five consecutive Exchange Trading Days the Daily Average Price is above the Forward Price as of the prior Interim Settlement Date, the Purchaser shall, on the Business Day after such fifth Exchange Trading Day, release all claims to Treasury Notes theretofore delivered to the Purchaser and deliver such Treasury Notes to the Companies. On any subsequent Interim Settlement Date, if Treasury Notes are held by the Purchaser, the Purchaser shall deliver to the Companies, within five (5) Business Days after such Interim Settlement Date, Treasury Notes in an aggregate principal amount equal to the amount by which the aggregate principal amount of Treasury Notes held by the Purchaser exceeds the Interim Settlement Amount. D. Security Interest The Companies hereby pledge to the Purchaser, as security for their obligations herein, a first priority continuing security interest in, lien on and right of set-off against all Treasury Notes delivered to the Purchaser, all security entitlements in respect thereof and all proceeds in respect of the foregoing. Upon delivery to the Companies by the Purchaser of such Treasury Notes, the security interest and lien granted hereunder will be released immediately, and, to the extent possible, without any further action by either party. For purposes of this Agreement, "delivery" of Treasury Notes to any person shall mean the crediting of such Treasury Notes to an account of such person at a securities intermediary designated by such person by Federal Bank-Wire in accordance with (i) Subpart O - Book-Entry Procedure of Title 31 of the Code of Federal Regulations (31 CFR ss.ss. 306.115 et seq.) and any other regulations of the United States Treasury Department from time to time applicable to the transfer or pledge of book-entry United States Treasury Notes, including, without limitation, the regulations set forth in 31 CFR Part 357 and (ii) the Uniform Commercial Code as in effect in the State of New York. E. Representations As of the Trade Date of this Confirmation, the Companies represent to the Purchaser (which representations will be deemed to be repeated as of each date that the Companies deliver Treasury Notes to the Purchaser and each date on which Paired Shares are delivered to the Customer Account pursuant to Section III.E.) that: (i) each Company has the power to grant a security interest in and lien on any Treasury Notes it delivers to the Purchaser or Paired Shares it delivers to the Customer Account and has taken all necessary actions to authorize the granting of that security interest and lien; 16 Purchase Price Adjustment Mechanism (ii) each Company is the sole owner of or otherwise has the right to deliver all Treasury Notes to the Purchaser hereunder or Paired Shares to the Customer Account hereunder, free and clear of any security interest, lien, encumbrance or other restrictions other than the security interest and lien created hereby; (iii) upon delivery of any Treasury Notes to the Purchaser or delivery of any Paired Shares to the Customer Account under the terms of this Confirmation, the Purchaser will have a valid and perfected first priority security interest therein; (iv) the performance by each Company of its obligations under this Confirmation will not result in the creation of any security interest, lien or other encumbrance on any Treasury Notes delivered to the Purchaser or Paired Shares delivered to the Customer Account other than the security interest and lien granted hereunder; and (v) each of the Companies will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on business and all businesses in which it engages, and will have assets which will have a present fair market valuation greater than the amount of all of its liabilities. F. Other Collateral Provisions During settlement of the entire Transaction pursuant to Section III. or VI., any Treasury Notes held by the Purchaser shall be held until the end of the applicable Unwind Period and shall be released on the Business Day following the final Unwind Day for that Unwind Period or, if there is no Unwind Period, the Business Day immediately following Day S. So long as there has not occurred any Event of Default under the Agreement, any interest paid on any Treasury Notes delivered to the Purchaser in pledge hereunder shall be paid over to the Companies. G. Definitions related to Collateral Provisions "Local Business Day" means a day on which commercial banks in New York, New York are open for business (including dealings in foreign exchange). VI. Certain Covenants and Other Provisions Ability to Settle in Stock: As of the date hereof, the Companies have not, and after the date hereof, the Company will not, enter into any obligation that would contractually prohibit the Companies from Stock Settlement, Net Stock Settlement or Interim Net Stock Settlement of any shares under this Agreement. Allocation between the REIT and OPCO: As between the REIT and OPCO, (i) any delivery to or by the Companies of the REIT Share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or 17 Purchase Price Adjustment Mechanism by the REIT, (ii) any delivery to or by the Companies of the OPCO Share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by OPCO, and (iii) any delivery to or by the Companies of cash pursuant to this Confirmation shall be allocated between the REIT and OPCO between and among themselves based on the ratios that the Companies allocate proceeds of any issuance of Paired Shares pursuant to the Pairing Agreement between the Companies as amended from time to time, without effect on any obligation of the Companies to the Purchaser or on any obligation of the Purchaser to the Companies. Such allocation ratios are currently set at 95% to the REIT and 5% to the OPCO. Condition Precedent to Physical Settlement: It shall be a condition precedent to any right of the Companies to elect Physical Settlement, that the Companies must, not more than 180 days prior to such Day S, have completed the private placement or public offering of such number of Shares or any security that may be converted, exchanged or exercised into Shares, having such initial purchase price so as to provide the Companies with net cash proceeds in an amount not less than the Settlement Amount or the amount provided in clause (a) of Section III.D., as the case may be. Mandatory Unwind Event: If at any time prior to the Maturity Date: (i) the average Daily Average Price on the Relevant Exchange of the Paired Shares on any two consecutive Exchange Trading Days, other than a day on which a Market Disruption Event has occurred, is equal to or less than the highest Mandatory Unwind Threshold, then the Purchaser shall have the right, upon written notice to the Companies, to require the parties to settle all or a portion of the Transaction (up to the Unwind Share Limit for such Mandatory Unwind Threshold) on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above. Once a Mandatory Unwind Event has occurred, if the Daily Average Price on any two consecutive Exchange Trading Days is less than a lower Mandatory Unwind Threshold, the Purchaser shall have the right, upon providing notice to the Companies, to require the Parties to settle pursuant to Section III. above on the Mandatory Unwind Date, all or a portion of the Transaction, up to a number of Paired Shares that, together with any shares settled as a result of any previous Mandatory Unwind Event, equals the number of Underlying Shares (calculated, for this purpose, without regard to any previous Partial Settlement occurring as a result of a Mandatory 18 Purchase Price Adjustment Mechanism Unwind Event) multiplied by the corresponding cumulative Unwind Share Limit, on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above; or, (ii) if any of the following events occur: (1) any default or event of default under any of the Companies' unsecured and/or recourse lending agreements involving any of the Companies' Specified Indebtedness in the amount of more than $25,000,000 that has not been cured within five (5) days (in the case of a default or event of default involving a covenant of a financial nature) or fifteen (15) days (in the case of any other default or event of default) following the later of the date of occurrence of such default or event of default and the end of any cure period provided in such lending agreement; (2) a holder of any of the Companies' unsecured and/or recourse Specified Indebtedness in the amount of more than $25,000,000 provides notice to either of the Companies pursuant to such Specified Indebtedness to accelerate the maturity of such Specified Indebtedness; (3) Bankruptcy or Insolvency (as such terms are defined in the Agreement); and/or (4) any failure of the Companies to post Treasury Notes as collateral pursuant to Section V. hereof if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the Companies; then, the Purchaser may, upon providing five Business Days notice to the Companies, require all or part of the Transaction to be settled early on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. For purposes of the settlement procedures set forth in Section III., "Day S" shall be the Mandatory Unwind Date and the "Settlement Shares" shall be the number of Paired Shares to be settled pursuant to clause (i) or (ii) above. The Companies may elect the method of settlement for such early settlement in accordance with the settlement provisions set forth herein; provided however, that if Stock Settlement or Net Stock Settlement is elected, and (1) no resale Registration Statement as described in Section III.A.4. has been declared effective prior to Day S or (2) any such resale Registration Statement so declared effective becomes, on Day S or during an Unwind Period, the subject of a stop order suspending its effectiveness 19 Purchase Price Adjustment Mechanism or is the subject of any proceeding for that purpose or any such proceeding is threatened by the Commission, then the Companies at their sole option may choose to (A) collateralize 125% of the Settlement Amount with Treasury Notes in a manner similar to that described in Section V., in which event Day S will be postponed and the Unwind Period will not begin until such registration statement is effective and available for resales and Paired Shares are delivered by the Companies pursuant to a Stock Settlement or Net Stock Settlement, (B) effect Physical Settlement as to all of the Settlement Shares in accordance with Section III.B. hereof on the Exchange Trading Day immediately succeeding the occurrence of one of the events specified in (1) or (2) above or (C) effect settlement with Paired Shares that have not been registered for resale by the Purchaser or any affiliate of the Purchaser to allow the Purchaser to unwind the Transaction and liquidate any position they may hold in Paired Shares by means of negotiated private resales, to the extent and in the manner permitted by applicable federal and state securities laws. In recognition that such negotiated private resales, if any, are likely to be completed at prices reflective of a discount to the prevailing open market prices for any freely tradeable Paired Shares, the Companies agree to deliver to the Purchaser such number of supplemental Paired Shares as the Purchaser may reasonably request, to which the Purchaser shall assign a dollar price in order to approximate an aggregate amount equal to the aggregate discount accepted by the Purchaser in connection with the unregistered resale of the Paired Shares, or the Companies shall pay an amount in cash to the Purchaser equal to the aggregate discount accepted by the Purchaser in connection with the unregistered resale of the Stock Settlement Shares. Market Disruption Event: A "Market Disruption Event" is the occurrence or existence on any Exchange Trading Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trading on (i) any of the Relevant Exchanges or (ii) any of the exchanges or boards of trade or futures contract markets on which options or futures contracts on the Paired Shares are traded that, in the reasonable determination of the Calculation Agent, is material. In the event that a Market Disruption Event occurs or is continuing on a Valuation Date, any determination of the Daily Average Price shall be postponed to the first succeeding Exchange Trading day on which there is no Market Disruption Event, provided that if there is a Market Disruption Event on each of the five Exchange Trading Days immediately following the original Valuation Date that but for the Market Disruption Event would have been a day on which Daily Average Price 20 Purchase Price Adjustment Mechanism would have been determined, such fifth Exchange Trading Day shall be deemed to be the Valuation Date notwithstanding the Market Disruption Event and the Calculation Agent shall, in consultation with the Companies, determine the Daily Average Price for that Valuation Date based upon the last Daily Average Price prior to such Market Disruption Event and, if applicable, shall effect the relevant settlement by using such last Daily Average Price for the determination of the Stock Settlement Unwind Price. The Calculation Agent shall within one (1) Business Day notify the other party of the existence or occurrence of a Market Disruption Event on any day that but for the occurrence or existence of a Market Disruption Event would have been a Valuation Date. Regulatory Compliance: Each party agrees that if the delivery of shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel. Securities Law Compliance: Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Companies' Paired Shares, with the applicable provisions of the Securities Act, the Securities Exchange Act of 1934 and the rules and regulations thereunder. Settlement: All settlements shall occur through DTC or any other mutually acceptable depositary. Settlement Stock Delivery: Any Paired Shares delivered to the Customer Account pursuant to Section III.E. or Section IV. above (the "Pledged Shares") will serve as collateral for the Companies' obligations hereunder until the security interest granted therein is released in accordance with the settlement mechanics noted under III.E.5. Paired Shares held in the Companies' Customer Account shall not be voted. The Companies assign and pledge to NMS, as collateral agent of and for the benefit of the Purchaser, and grant to NMS, as collateral agent of and for the benefit of the Purchaser, as and by way of a security interest having priority over all other security interests, with power of sale, all of its right, title and interest in and to the Pledged Shares, all security entitlements in respect thereof and all income or proceeds received or 21 Purchase Price Adjustment Mechanism derived therefrom. The Companies authorize the Bank to direct NMS to sell, or cause the Purchaser or another affiliate of the Bank to sell, the Pledged Shares for the account of the Purchaser, and such shares shall, except as provided herein, be so sold. Any shares so sold shall be considered to be Stock Settlement Shares, Net Stock Settlement Shares or Interim Settlement Shares, as the case may be, delivered to the Purchaser in satisfaction of the Companies' obligations under Section III.C., Section III.D. or Section IV., as the case may be. Delivery of any Pledged Shares to the Customer Account shall be effected by delivery of stock certificates for such Pledged Shares to NMS duly endorsed to NMS or in blank or accompanied by a duly executed instrument of transfer to NMS or in blank or by crediting such Pledged Shares to an account of NMS at a securities intermediary designated by NMS. The Companies covenant and agree with the Purchaser that Paired Shares delivered by the Companies pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and non-assessable. The issuance of such Paired Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date of such Paired Shares. All references herein to Paired Shares or other securities to be transferred or delivered hereunder shall be deemed to include security entitlements in respect thereof. Settlement Volume: In the event of a settlement other than a Mandatory Unwind Event, on any Unwind Day during an Unwind Period, the Purchaser shall, pursuant to its hedging activities relating to this Transaction, not sell Paired Shares in an amount in excess of 20% of the average daily volume for the 20 Exchange Trading Days immediately preceding Day S. Trading Authorization: The following individuals and/or any individual authorized in writing by the Treasurer of the Companies are authorized by the Companies to provide trading instructions to the Purchaser with regard to this Transaction. William W. Evans III for the REIT and Leslie Ng for OPCO. VII. Delivery Instructions: 22 Purchase Price Adjustment Mechanism Party A: To be supplied by the Purchaser prior to receipt of any payment hereunder. Party B: To be supplied by the Companies prior to receipt of any payment hereunder. 23 Purchase Price Adjustment Mechanism Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to Mr. Christopher Innes, 47th Floor. Yours faithfully, - ------------------------------------ NMS SERVICES, INC. By: Name: Title: Date: ------------------------------- NATIONSBANC MONTGOMERY SECURITIES LLC, as agent By: Name: Title: Date: ------------------------------- PATRIOT AMERICAN HOSPITALITY, INC. By: Name: Title: Date: ------------------------------- WYNDHAM INTERNATIONAL, INC. By: Name: Title: Date: ------------------------------- 24 EX-10.7 7 AMENDMENT TO AGREEMENTS Exhibit 10.7 AMENDMENT TO AGREEMENTS THIS AMENDMENT TO AGREEMENTS (this "Amendment") is made and entered into as of this 14th day of August, 1998 by and among Patriot American Hospitality, Inc. (the "REIT"), Wyndham International, Inc. (the "OPCO") (the REIT and the OPCO, each a "Company" and collectively, the "Companies"), and NationsBanc Mortgage Capital Corporation (the "Purchaser"). RECITALS: A . As of February 26, 1998 the Companies and NMS Services, Inc., a subsidiary of NationsBank Corporation (the "Original Purchaser"), through its agent NationsBanc Montgomery Securities LLC, entered into (i) a Purchase Agreement (the "Purchase Agreement") pursuant to which, among other things, the Companies sold to Original Purchaser 4,900,000 paired shares of stock (referred to herein and in the Purchase Agreement as the "Purchase Shares") of the companies on February 27, 1998, and (ii) a Purchase Price Adjustment Mechanism, including an ISDA Master Agreement and the Schedules thereto (the "Purchase Price Adjustment Mechanism") which provides for, among other things, adjustments to the purchase price paid for the Purchase Shares as more particularly described therein. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given such terms in the Purchase Price Adjustment Mechanism, or, if not defined in the Purchase Price Adjustment Mechanism, in the Purchase Agreement. B. As of July 31, 1998 Original Purchaser and the Purchaser entered into a certain Transfer and Assignment Agreement pursuant to the terms of which, among other things, Original Purchaser transferred and assigned to the Purchaser all of the Purchase Shares and all of Original Purchaser's rights and obligations under the Purchase Agreement and the Purchase Price Adjustment Mechanism and Purchaser assumed all of such rights and obligations. C. The Companies have requested that the Purchaser amend the Purchase Price Adjustment Mechanism in certain respects and the Purchaser has agreed to do so on the terms and subject to the conditions set forth in this Amendment. NOW THEREFORE, in consideration of the premises, the sum of Ten Dollars ($10.00) in hand paid by the Companies and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and confessed by the Purchaser, the Companies and the Purchaser do hereby agree as follows: 1. Rights to Unwind. In consideration of the agreements made by the Companies in this Amendment, the Purchaser hereby agrees that it will not require a settlement pursuant to Section III of the Purchase Price Adjustment Mechanism as a consequence of any Mandatory Unwind Event described in paragraph (i) or subparagraph (ii)(4) of the provisions entitled "Mandatory Unwind Event" of Section VI of the Purchase Price Adjustment Agreement (any Mandatory Unwind Events described in such paragraph (i) and subparagraph (ii)(4) are collectively referred to herein as "Price Decline Unwind Event") that occurs on or before October 15, 1998. Any Price Decline Unwind Event that occurs on or after the October 15, 1998 shall be governed by the Purchase Price Adjustment Mechanism, as amended by this Amendment. The agreements in this Section 1 do not apply to any Mandatory Unwind Event other than a Price Decline Unwind Event. 2. Additional Mandatory Unwind Event. In addition to the events described in subparagraphs (1), (2), and (3) of paragraph (ii) of the provisions entitled "Mandatory Unwind Event" in Section VI of the Purchase Price Adjustment Mechanism, the following event occurring after the date of this Amendment shall also constitute a Mandatory Unwind Event under the Purchase Price Adjustment Mechanism: (5) The sale, lease, conveyance or transfer of any one or more the hotels listed on Exhibit A attached hereto and made a part hereof for all purposes (the "Listed Hotels") or the granting of a deed of trust, mortgage or other similar encumbrance securing any indebtedness covering any of the Listed Hotels, except (i) in connection with the consummation of a transaction in which the net proceeds of such transaction are being applied in whole or in part to effect a complete and final Physical Settlement in accordance with Section III.B of the Purchase Price Adjustment Mechanism, or (ii) a transaction between or among the Companies and their affiliates that does not have a material adverse effect on the assets of the Companies determined on a consolidated basis. The foregoing additional Mandatory Unwind Event is not a Price Decline Unwind Event. 3. Agreement to File Registration Statements. In consideration for the Purchaser's agreement to enter into this Amendment, the Companies hereby covenant and agree to (i) immediately commence the preparation of Registration Statements (as defined in the Purchase Agreement) that meet the requirements of Section 7 of the Purchase Agreement and Section III.A.4 of the Purchase Price Adjustment Mechanism (except that, if required by the Securities and Exchange Commission (the "SEC") such Registration Statements shall register the sale of Shares by the Companies through the Purchaser or its affiliates, as agent, rather than the resale of Shares by the Purchaser or its affiliates) and to complete such preparation and thereafter file such Registration Statements with the SEC and take all other action that is necessary or prudent to assure that the Purchaser (or any affiliate of the Purchaser designated by the Purchaser) will be able to sell all of the Shares in its possession without further registration under the Securities Act of 1933 at any time on or after the October 15, 1998 (any such registration is referred to as a "Valid Registration"), (ii) fully comply with all of their respective obligations under the Purchase Agreement and the Purchase Price Adjustment Mechanism in respect of the Registration Statements so as to permit Purchaser (or its designated affiliate) to sell the Shares any time after the October 15, 1998, and (iii) waive all requirements in the Purchase Agreement and the Purchase Price Adjustment Mechanism that the Purchaser make a written request or demand as a condition to the Companies' obligation to prepare or file a registration statement regarding the Shares and agreements that the Companies are entitled to 60 days (or any other time period) advance notice before the Companies are required to prepare or file a registration statement regarding the Shares. 4. Pending Transactions. The Companies have advised the Purchaser that the Companies and a third party (the "Third Party") are currently engaged in negotiations regarding certain transactions related to the Listed Hotels (such transactions are referred to herein collectively as the "Pending Transactions"), pursuant to which the Third Party would provide certain financing to the Companies secured by mortgages encumbering the Listed Hotels and the Companies would subsequently transfer ownership of the Listed Hotels to a business association between the Third Party and the Companies or entities affiliated with the Companies. The Companies hereby covenant and agree that contemporaneously with the consummation of any aspect of the Pending Transactions in which the Companies or either of them receives cash (in connection with any financing, transfer or otherwise), settlement of the Transaction shall occur and that the Companies shall apply proceeds from the Pending Transactions (after the payment of normal and customary closing costs and any indebtedness encumbering the Listed Hotels on the date hereof) to the extent necessary to accomplish a full and final Physical Settlement of the Transaction. The Companies shall use commercially reasonable efforts to consummate the Pending Transactions on or before October 15, 1998. 5. Pledge of Additional Shares. A. Contemporaneously with the execution and delivery of this Amendment, the Companies hereby irrevocably and unconditionally pledge, grant, assign, hypothecate and transfer to the Purchaser, a first and prior pledge and security interest in 2,375,000 Paired Shares and all proceeds thereof, and any increase and profits received therefrom and, to the extent provided Section 5D below, Dividends (as defined below), and all security entitlements in respect of the foregoing (such Paired Shares are in addition to the Purchase Shares and are hereinafter referred to as the "Collateral Shares"). This Section 5 creates a security interest in the Collateral Shares to secure the payment and performance of any and all obligations now or hereafter existing of the Companies under the Purchase Agreement, the Purchase Price Adjustment Mechanism and this Amendment (collectively, the "Obligations"). Upon the occurrence of a Default (as defined below), in addition to any and all other rights and remedies which the Purchaser may then have hereunder, under applicable laws or otherwise, the Purchaser at its option may, subject to any limitation or restriction imposed by any applicable laws, (i) foreclose or otherwise enforce its security interest in all or any part of the Collateral Shares by any available judicial procedure; (ii) sell or otherwise dispose of, at the office of the Purchaser, all or any part of the Collateral Shares, and any such sale or other disposition shall be in accordance with applicable laws, and may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Collateral Shares shall not exhaust the Purchaser's power of sale, but sales may be made from time to time until all of the Collateral Shares have been sold or until the Obligations have been performed and paid in full), and at any such sale it shall not be necessary to exhibit the Collateral Shares; (iii) at its discretion, retain the Collateral Shares in satisfaction of the Obligations whenever the circumstances are such that the Purchaser is entitled to do so under applicable laws; (iv) apply by appropriate judicial proceedings for appointment of a receiver for the Collateral Shares, or any part thereof, and the Companies hereby consent to any appointment; (v) buy the Collateral Shares at any public sale; and (vi) buy the Collateral Shares at any private sale, subject to any restrictions imposed by applicable laws. The Companies agree that, if notice is required to be given by applicable laws, two days' advance written notice shall constitute reasonable notice. The Purchaser shall apply the proceeds of any collection, sale, disposition or other realization upon any Collateral Shares as follows: First, to the payment of the reasonable costs and expenses of such collection, sale, disposition, or other realization, including reasonable out-of-pocket costs and expenses of the Purchaser and the reasonable fees and expenses of its agents and counsel; Next, to the payment of the Obligations; and Finally, to the payment to the Companies, or their respective successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. If the proceeds of collection, sale, disposition, or other realization are insufficient to cover the costs and expenses of such realization and the payment in full of the Obligations, the Companies shall remain liable for any deficiency. B. The Companies recognize that if a Default occurs prior to a Valid Registration becoming effective, the Purchaser may be unable to effect a public sale of any or all of the Collateral Shares by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act") and applicable state securities laws, and may be compelled to resort to one or more private sales thereof. The Companies acknowledge and agree that the Purchaser shall have the right to sell the Collateral Shares at a private sale and any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale. The Purchaser shall be under no obligation to delay a sale of any of the Collateral Shares until a Valid Registration is in effect. The Companies hereby agree (i) that in the event the Purchaser shall, upon any Default, sell the Collateral Shares or any portion thereof, at a private sale or sales, the Purchaser shall have the right to rely upon the advice and opinion of a member of a nationally recognized investment banking firm acceptable to the Purchaser (which may be NationsBanc Montgomery Securities LLC, an affiliate of the Purchaser), as to the best price reasonably obtainable upon such a private sale thereof, and (ii) in the absence of fraud, wilful misconduct and gross negligence, that such reliance shall be conclusive evidence that the Purchaser handled such matter in a commercially reasonable manner under the Uniform Commercial Code. C. Notwithstanding the provisions of Section IV of the Purchase Price Adjustment Mechanism entitled "Interim Net Stock Settlement", there shall be no requirement to deliver Paired Shares or Treasury Notes on the Interim Settlement Date scheduled to occur on August 26, 1998. D. All dividends and other distributions in respect of the Collateral Shares (collectively, "Dividends") that become payable during a Compliance Period (as defined below) shall belong to the Companies, and all dividends and other distributions in respect of the Collateral Shares that become payable during any period other than a Compliance Period shall be delivered to the Purchaser and held as security for the Obligations. The term "Compliance Period" means any period of time after the date hereof when (i) no Default has occurred and is continuing, and (ii) the Daily Average Price on the Relevant Exchange of all of the Purchase Shares and all of the Collateral Shares is equal to or greater than 125% of the amount that would be payable to the Purchaser on the relevant date if a final and complete Physical Settlement was occurring on such date. E. The Companies shall not be obligated to pay a placement fee to the Purchaser or an affiliate of the Purchaser with respect to the Collateral Shares. 6. Amendment of Maturity Date. The Maturity Date is hereby amended to be the date that is the first to occur of (i) the date of the consummation of the Pending Transactions, or (ii) five days after the date the Purchaser gives written notice to the Companies that a Default (as defined below) has occurred, or (iii) February 26, 1999. 7. Final Settlement. The Companies shall have the right to elect any settlement method permitted by Section III.B., III.C. or III.D. of the Purchase Price Adjustment Mechanism with respect to the final settlement to occur on the Maturity Date; provided, however, the Companies' right to elect Stock Settlement (III.C. of the Purchase Price Adjustment Mechanism) or Net Stock Settlement (III.D. of the Purchase Price Adjustment Mechanism) or to deliver Paired Shares in satisfaction of their obligations under III.E.6. of the Purchase Price Adjustment Mechanism) is conditioned upon the satisfaction of the following conditions precedent on the Maturity Date: (i) No Default shall have occurred and be continuing; (ii) The Daily Average Price on the Relevant Exchange of the Paired Shares shall be equal to or greater than the highest Mandatory Unwind Threshold; (iii) A Valid Registration shall be in effect; and (iv) All other requirements set forth in Section III.A.4. of the Purchase Price Adjustment Mechanism and Section 7 of the Purchase Agreement shall have been complied with and satisfied. If the foregoing conditions precedent have not been satisfied or waived in writing by Purchaser on the Maturity Date, the Companies will be deemed to have elected Physical Settlement (and the conditions precedent to a Physical Settlement described in Section VI of the Purchase Price Adjustment Mechanism is hereby waived as to such Physical Settlement). In the event the foregoing conditions precedent have been satisfied and the Companies elect a Stock Settlement or a Net Stock Settlement, the Companies may include some or all of the Collateral Shares in the number of Paired Shares or Net Stock Settlement Shares, as the case may be, the Companies are obligated to deliver to the Purchaser to effect such settlement. Upon a final settlement that is accomplished through any of the settlement methods described in Section III.B., III.C. and III.D. of the Purchase Price Adjustment Mechanism, the Purchaser shall return to the Companies any of the Collateral Shares that are not delivered to the Purchaser to accomplish the settlement in accordance with the applicable settlement method. 8. Default. The following events shall constitute a "Default" by the Companies: (i) The Companies shall fail to timely complete and file and cause to be effective with the SEC a Valid Registration on or before the October 15, 1998; (ii) The Companies shall fail to settle the Transaction on the Maturity Date in accordance with the Purchase Price Adjustment Mechanism, as modified by this Amendment; or (iii) The occurrence of any event described in clauses (1)(defaults involving the Companies's Specified Indebtedness), (2)(acceleration of Specified Indebtedness) or (3)(Bankruptcy or Insolvency) of the provisions entitled "Mandatory Unwind Event" of subparagraph (ii) of Section VI of the Purchase Price Adjustment Mechanism; or (iv) The occurrence of the Mandatory Unwind Event described in Section 2 above; or (v) The Third Party declares that the Companies are in default of their obligations to the Third Party in respect of the Pending Transactions and such default is not cured within any applicable notice, grace or cure periods, if any. 9. Rights of Purchaser Upon Default. If a Default occurs, the Purchaser shall have the right to pursue all remedies at law and in equity, including specifically, the right to immediately sell all of the Purchase Shares in its possession and/or to foreclose the security interest granted in Section 5 in respect of the Collateral Shares. Without limiting the generality of the foregoing, if on the date of a Default (a) there is not in effect a Valid Registration, or (b) the Companies are not in full compliance with their respective obligations and covenants in Section 7 of the Purchase Agreement, then, in such event, the Purchaser may sell the Shares in one or more negotiated private sales to the extent and in the manner permitted by applicable state and federal securities laws. In the event a Default occurs, the Companies hereby waive any requirement (and any related covenant) in the Purchase Agreement or the Purchase Price Adjustment Mechanism that (i) the Purchaser make a request or demand for the Companies to prepare, file or make effective a registration statement in respect of the Shares, (ii) entitles the Companies to any period of time after such written request or demand to make effective a resale registration statement, or (iii) requires the Purchaser to defer selling the Shares until a Registration Statement has been prepared and filed in accordance with the Securities Act of 1933; provided, however, the foregoing waivers are for the benefit of the Purchaser and such waiver shall not excuse the Companies from the obligation to perform each covenant and agreement of the Companies under the Purchase Agreement, the Purchase Price Adjustment Mechanism and this Amendment unless the Purchaser agrees otherwise in writing. If a Default occurs, the Companies shall immediately pay to the Purchaser the difference between the amount the Purchaser would have been paid upon a Physical Settlement on the Maturity Date if the Companies had fully performed their obligations relating to such Physical Settlement pursuant to the Purchase Price Adjustment Mechanism, as amended by this Amendment (the "Full Settlement Amount"), and the amount the Purchaser actually received from the sale of the Shares; provided, however, if the Purchaser is unable to sell the Shares because of any act or omission of the Companies (including without limitation, any injunction, automatic stay or other legal impediment) or because the Purchaser was unable locate a buyer for the Shares after meeting the requirements of applicable laws regarding a private sale, and the Companies shall pay to the Purchaser the Full Settlement Amount within five days after written demand by the Purchaser. If and to the extent the Purchaser is paid in full for all amounts owed to the Purchaser by the Companies under the Purchase Agreement, the Purchase Price Adjustment Mechanism and this Amendment, the Purchaser agrees to release the security interests in any of the Collateral Shares that have not been foreclosed and to deliver to the Companies any Purchase Shares not previously sold and any Dividends delivered to the Purchaser and not applied against the Obligations. If no Valid Registration is in effect on the date the Purchaser is permitted to sell the Shares the Purchaser shall have no liability to the Companies with respect to the amount realized by the Purchaser as a consequence of selling the Shares at one or more private sales or any diminution in the value of the Shares as a consequence of such private sales. 10. Reaffirmation of Representations; Indemnifications. The Companies hereby confirm and reaffirm to the Purchaser all the representations and warranties made by the Companies, or either of them, under or pursuant to the Purchase Agreement and the Purchase Price Adjustment Mechanism are true and correct on the date hereof. The indemnification obligations of the Companies under Section 7(e)(i) of the Purchase Agreement is intended to include and apply to any registration statement and related documents that are described in this Amendment. 11. Further Assurances. The Companies acknowledge that the Purchaser (i) is entering into this Amendment without the opportunity to conduct any independent investigation or due diligence with respect to the Hotels and (ii) to minimize the cost to the Companies associated with the Purchaser's agreement to take such additional collateral, is relying on the truth and accuracy of the representations and warranties of the Companies to the Purchaser regarding the Hotels. In addition, the Companies will, on request of the Purchaser, (a) execute, acknowledge, deliver, procure and record and/or file such further instruments (including, without limitation, further deeds of trust, security agreements, financing statements, and continuation statements) and do such further acts as, in Purchaser's opinion, are necessary to carry out more effectively the purposes of this Amendment; (b) execute, acknowledge, deliver, procure and file and/or record any document or instrument (including specifically any financing statement) deemed advisable by the Purchaser to protect the the security interest herein granted against the rights or interests of third persons; (c) provide such information, reports, surveys, title commitments, market studies, franchise agreements, books, ledgers and instruments and any other information relating to the use, operation or value of the Listed Hotels, permit the Purchaser and its agents and consultants to conduct such inspections and investigations as the Purchaser deems necessary or appropriate, and do such further acts as may be necessary, desirable or proper in the reasonable determination of the Purchaser to enable the Purchaser to carry out normal and customary due diligence regarding the Listed Hotels; (d) keep the Purchaser fully apprised on a regular basis as to the status of the Pending Transactions and provide to the Purchaser copies of the purchase and sale agreement and, if applicable, those other documents which contain the essential terms of the Pending Transactions; and (e) the Purchaser may notify the Third Party of the covenants and agreements of the Companies relating to the Pending Transactions contained in this Amendment. 12. Inducement. The Companies acknowledge that the covenants and undertakings of the Companies in this Amendment are material inducements to the Purchaser's agreement to enter into this Amendment and that but for such covenants and undertakings, the Purchaser would not enter into this Amendment. 13. Counterparts. This Amendment has been executed in several counterparts, all of which are identical, and all of which counterparts together shall constitute one and the same instrument. 14. Time of Essence. Time shall be of the essence in this Amendment with respect to all of the parties' obligations hereunder and under the Purchase Price Adjustment Mechanism. 15. Amendment. This Amendment amends the Purchase Agreement and the Purchase Price Adjustment Mechanism, each of which, as amended by this Amendment, is hereby ratified and reaffirmed and declared to be in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized representatives as of the day and year first above written. PATRIOT AMERICAN HOSPITALITY, INC. By: __________________________________ Name: ________________________________ Title: _______________________________ WYNDHAM INTERNATIONAL, INC. By: __________________________________ Name: ________________________________ Title: _______________________________ NATIONSBANC MORTGAGE CAPITAL CORPORATION By: __________________________________ Name: ________________________________ Title: _________________________________ DOCSC\660174.1 EX-10.8 8 PURCHASE AGREEMENT Exhibit 10.8 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT ("Agreement") is made as of the 31st day of December, 1997, by and among Patriot American Hospitality, Inc., a Delaware corporation (the "REIT"), Patriot American Hospitality Operating Company, a Delaware corporation (the "OPCO") (the REIT and the OPCO, each a "Company" and collectively the "Companies"), and UBS Limited, an English corporation ("UBS Limited") and Union Bank of Switzerland, London Branch ("UBS-LB"), acting through its agent UBS Securities LLC (UBS Limited and UBS-LB being hereinafter collectively called the "UBS Parties" and sometimes individually, a "UBS Party"). References herein to the "Companies" refer to the REIT and the OPCO, and those entities respectively owned or controlled by the REIT or the OPCO. IN CONSIDERATION of the mutual covenants contained in this Purchase Agreement, the REIT, the OPCO and the UBS Parties agree as follows: SECTION 1. Authorization of Sale of the Shares. Subject to the terms and conditions of this Agreement, the REIT has authorized the issuance to UBS Limited of up to an aggregate of 3,250,000 shares of common stock, par value $0.01 per share, of the REIT (the "REIT Shares") and the OPCO has authorized the issuance to UBS Limited of up to an aggregate of 3,250,000 shares of common stock, par value $0.01 per share (the "OPCO Shares"), which REIT Shares and OPCO Shares are paired and traded as a unit consisting of one (1) REIT Share and one (1) OPCO Share (hereinafter each such paired unit is referred to as a "Paired Share" and the Paired Shares referred to in this sentence are herein called the "Purchase Shares"). In addition, the REIT and the OPCO may issue to UBS-LB additional Paired Shares in settlement of certain of its obligations under the Forward Stock Purchase Agreement, dated December 31, 1997 (the "Forward Stock Purchase Agreement"), among the REIT, the OPCO and UBS-LB (the "Additional Shares"). The Purchase Shares and the Additional Shares are hereinafter collectively called the "Shares. " SECTION 2. Agreement to Sell and Purchase the Purchase Shares. Subject to the terms and conditions of this Agreement, on the Closing Date (as defined in Section 3 hereof), the Companies will sell to UBS Limited the Purchase Shares, the number of which shall equal 3,250,000 paired shares for a per paired share purchase price of $28.8125 per Paired Share. SECTION 3. Delivery of the Shares at the Closing. 3.1. Closing. The completion of the purchase and sale of the Purchase Shares (the "Closing") shall occur as soon as practicable, on such date to be agreed upon among the REIT, the OPCO and the UBS Parties, but in no event later than the earlier of (i) December 31, 1997 or (ii) three business days after the execution of this Agreement (hereinafter, the "Closing Date"). 3.2. Conditions. At Closing, the Companies shall deliver or cause to be delivered to UBS Limited one or more stock certificates registered in the name of UBS Limited representing the number of Purchase Shares set forth in Section 2 above. The obligation of the Companies to complete the sale of the Purchase Shares and deliver such stock certificate(s) to UBS Limited at the Closing shall be subject to the following conditions, any one or more of which may be waived by both of the Companies acting together: (i) receipt by the Companies of Federal Funds (or other mutually agreed upon form of payment) in the full amount of the purchase price for the Purchase Shares being purchased hereunder, (ii) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the UBS Parties herein and the fulfillment, in all material respects, as of the Closing Date, of those undertakings of the UBS Parties to be fulfilled prior to the Closing, (iii) the Forward Stock Purchase Agreement shall have been fully executed by the parties thereto and (iv) receipt by the Companies of a cross-receipt with respect to the Purchase Shares executed by UBS Limited. UBS Limited's obligation to accept delivery of such stock certificate(s) and to pay for the Purchase Shares evidenced thereby shall be subject to the following conditions: (i) the accuracy in all material respects, as of the Closing Date, of the representations and warranties made by the Companies herein and the fulfillment in all material respects, as of the Closing Date, of those undertakings of the Companies to be fulfilled prior to Closing; and (ii) the UBS Parties shall have received all opinions and certificates to be delivered by the Companies pursuant to this Agreement. SECTION 4. Representations, Warranties and Covenants of the Companies. The Companies hereby represent and warrant to, and covenant with, the UBS Parties as follows: 4.1. Organization and Qualification. The REIT has been formed as a real estate investment trust under Delaware law pursuant to a Certificate of Incorporation filed as of January 27, 1983 in the office of the Delaware Secretary of State, as amended and restated as of July 1, 1997 and filed in the office of the Delaware Secretary of State on such date. The REIT's existence has not been suspended or terminated nor have any dissolution, revocation or forfeiture proceedings regarding the REIT been commenced. The REIT has been duly qualified to do business in each jurisdiction (i) wherein it owns, leases or manages real property or (ii) where the failure so to qualify to do business would have a material adverse effect on the financial condition, business, operations or prospects of the Companies taken as a whole (a "Material Adverse Effect"). The OPCO has been duly organized, is validly existing and in good standing under the laws of Delaware. The OPCO's corporate existence has not been suspended or terminated, nor have any dissolution, liquidation or forfeiture proceedings involving the OPCO been commenced. The OPCO has been duly qualified to do business in each jurisdiction (i) wherein such entity owns, leases or manages real property or (ii) where the failure so to qualify to do business would have a Material Adverse Effect. 2 4.2. Authorized Capital Stock. The REIT has 1.5 billion authorized shares as of December 1, 1997, consisting of 650 million REIT Shares, par value $0.01 per share, 750 million shares of excess stock, par value $0.01 per share, and 100 million shares of preferred stock, par value $0.01 per share. The OPCO has authorized capital stock as of December 1, 1997 of 1.5 billion shares, consisting of 650 million OPCO Shares, par value $0.01 per share, 750 million shares of excess stock, par value $0.01 per share and 100 million shares of preferred stock, par value $0.01 per share. As of December 1, 1997, there were 70,120,137 Paired Shares outstanding, 7,975,970 Paired Shares were reserved for issuance pursuant to equity plans filed pursuant to the Companies' SEC Filings (as defined below), and 12,795,851 Paired Shares were reserved for issuance upon the election by the Companies to acquire, in exchange for Paired Shares, units of limited partnership interest in Patriot American Hospitality Partnership, L.P. and Patriot American Hospitality Operating Partnership, L.P. tendered by redeeming unit holders. No preferred shares of the REIT are currently outstanding. The issued and outstanding Paired Shares of the Companies have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform to the description thereof included in the Companies' SEC Filings. Other than as described in the Companies' SEC Filings, the REIT does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. The description of the REIT's stock, stock bonus and other stock plans or arrangements and the options or other rights granted and exercised thereunder in the Companies' SEC Fillings accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. 4.3. Issuance, Sale and Delivery of the Shares. The Purchase Shares to be sold by the Companies have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof included in the Companies' SEC Filings or incorporated by reference in the Registration Statements, if available. The Additional Shares, if and when issued pursuant to the Forward Stock Purchase Agreement, will be duly authorized, validly issued, fully paid and nonassessable, and will conform to the description thereof included in the Companies' SEC filings or incorporated by reference in the Registration Statements. None of the Purchase Shares when issued and delivered to the UBS Parties shall be subject to any lien, security interest, claim, charge or encumbrance of any nature. No further approval or authority of the stockholders or the Board of Directors of the REIT or the OPCO will be required for the issuance and/or sale of the Purchase Shares to be sold by the Companies as contemplated herein or in the Forward Stock Purchase Agreement, except such as shall have been obtained on or before the Closing Date. The issuance and/or sale of the Purchase Shares to the UBS Parties by the Companies pursuant to this Agreement or the Forward Stock Purchase Agreement (as the case may be), the compliance by the Companies with the other provisions of this Agreement or the Forward Stock Purchase Agreement and the consummation of the other transactions contemplated hereby or thereby do not require the consent, approval, authorization, registration 3 or qualification of or with any governmental authority, except such as shall have been obtained on or before the Closing Date other than the registration of the resale of the Shares by the UBS Parties with the Securities and Exchange Commission (the "SEC") and any required Blue Sky filings with the States. The Companies meet and will continue to meet the requirements for use of Form S-3 under the Securities Act and the rules and regulations promulgated thereunder (the "Rules and Regulations"). The Companies have filed and will file all documents which are required to file under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and all such documents (collectively, together with the Companies' registration statements filed under the Securities Act which have been declared effective since January 1, 1997 and have not been withdrawn, the "Companies' SEC Filings") comply in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, as applicable, and none of such documents, when so filed, contained or will contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and any documents so filed and incorporated by reference subsequent to the effective date of the Registration Statements (as defined in Section 7 below) shall, when they are filed with the SEC, conform in all material respects with the requirements of the Securities Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, as applicable. No Registration Statement filed in respect of any of the Purchase Shares or Additional Shares, when so filed, will contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.4. Due Execution, Delivery and Performance of the Agreement. Each Company has full legal right, power and authority to enter into the Purchase Agreement and the Forward Stock Purchase Agreement and perform the transactions contemplated hereby and thereby. The Purchase Agreement and the Forward Stock Purchase Agreement have been duly authorized, executed and delivered by the Companies. The making and performance of the Purchase Agreement and the Forward Stock Purchase Agreement by the Companies and the consummation of the transactions herein and therein contemplated will not violate any provision of the certificate of incorporation, bylaws, or other organizational documents, of the Companies, and will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which either Company is a party or by which either Company or its respective properties may be bound or affected, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental body applicable to either Company or any of its respective properties. No consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body is required by or on the part of either Company for the execution and delivery of this Agreement, the Forward Stock Purchase Agreement or the consummation of the transactions contemplated hereby or thereby, except in connection with the filing of any Registration Statements pursuant to Section 7 below or for compliance with the Blue Sky laws applicable to the offering of the Shares. Upon the execution and delivery hereof, each of this Agreement and the Forward Stock Purchase 4 Agreement will constitute the valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the enforceability of the indemnification agreements of the Companies in Section 7.5 hereof may be limited by public policy. 4.5. Accountants. The Companies' independent certified public accountants, who have expressed their opinion with respect to the Most Recent Financial Statements (as defined below) are independent accountants as required by the Securities Act and the Rules and Regulations. Each Company shall cause its independent certified public accountants to deliver, on the effective date of the Registration Statement, and thereafter upon the request of a UBS Entity (which shall be made no more frequently than once during any 30-day period), a letter stating that such accountants are independent public accountants within the meaning of the Securities Act and otherwise in customary form and covering such financial and accounting matters as are then customarily covered by letters of independent certified public accountants delivered in connection with secondary public offerings of equity securities pursuant to a shelf registration statement. 4.6. No Defaults. Except as to defaults, violations and breaches which individually or in the aggregate would not be material to the Companies taken as a whole, neither Company is in violation or default of any provision of its certificate of incorporation or bylaws, or other organizational documents, and is not in breach of or default with respect to any provision of any agreement, judgment, decree, order, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which it is a party or by which it or any of its properties are bound; and there does not exist any state of fact which constitutes an event of default on the part of the Company as defined in such documents or which, with notice or lapse of time or both, would constitute such an event of default except such defaults which individually or in the aggregate would not be material to the Companies. 4.7. Contracts. Neither Company, nor to the best of the knowledge of each Company, any other party is in breach of or default under any contracts to which the REIT is a party except such breach or default which individually or in the aggregate would not have a Material Adverse Effect. 4.8. No Actions. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Companies' knowledge, threatened to which either Company is or may be a part or of which property owned or leased by either Company is or may be the subject, or related to environmental or discrimination matters, which actions, suits or proceedings might, individually or in the aggregate, prevent or adversely affect the transactions contemplated by this Agreement or result in a material adverse change in the condition (financial or otherwise), of the properties, business, results of operations or prospects of the Company, and no labor disturbance by the employees of the Companies exists or is imminent which might be expected to affect 5 adversely such condition, properties, business, results of operations or prospects. Except as may be described in the Companies' SEC Filings, neither Company is a party or subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body administrative agency or other governmental body. 4.9. Properties. Each Company has good and marketable title to all the properties and assets reflected as owned by such Company in the financial statements included in the Most Recent Financial Statements, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if any, reflected in such financial statements or the Companies' SEC Filings, or (ii) those which are not material in amount and do not adversely affect the use made and promised to be made of such property by the Company. Each Company holds its leased properties under valid and binding leases, with such exceptions as are not materially significant in relation to the business of the Companies. Each Company owns or leases all such properties as are necessary to its operations as now conducted. The REIT is qualified as a real estate investment REIT under the Internal Revenue Code of 1986, as amended, with respect to its taxable years ended December 31, 1995 and December 31, 1996, and is organized in conformity with the requirements for qualification as a real estate investment trust, and its manner of operation has enabled it to meet the requirements for qualification as a real estate investment trust as of the date hereof, and its proposed manner of operation will enable it to meet the requirements for qualification as a real estate investment trust in the future. 4.10. No Material Change. Since the date of the Most Recent Financial Statements, and except as otherwise disclosed in the Companies' SEC Filings as of the Closing Date or in writing to the UBS Parties (i) neither Company has incurred any liabilities or obligations, indirect, or contingent, which will have a Material Adverse Effect or entered into any material verbal or written agreement or other material transaction which is not in the ordinary course of business (it being agreed that for purposes of this sentence the REIT's ordinary course of business shall include the acquisition or disposition, directly indirectly, of real estate properties or businesses of a type that may be owned by a "real estate investment trust" (as defined under the Internal Revenue Code) and the OPCO's ordinary course of business shall include the acquisition or disposition, directly or indirectly of assets or business related to or engaged in the lodging industry) or which could reasonably be expected to result in a material reduction in the future earnings of the Companies; (ii) neither Company has sustained any loss or interference with its businesses or properties (taken as a whole) from fire, flood, windstorm, accident or other calamity, whether or not covered by insurance, which has had a material adverse effect on such business or properties; (iii) neither Company is in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the authorized capital of the Companies or material increase in the principal amount of outstanding indebtedness of the Companies (other than in the ordinary course of business); and (v) there has not been any material adverse change in the condition (financial or otherwise), business, properties, results of operations or prospects of the Companies. 4.11. Intellectual Property. Each Company believes it has sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals and governmental authorizations to 6 conduct its businesses as now conducted; and neither Company has knowledge of any material infringement by it of trademark, trade name rights, patent rights, copyrights, licenses, trade secrets or other similar rights of others, and no claim has been made against either Company regarding trademark, trade name, patent, copyright, license, trade secrecy or other infringement which could have a Material Adverse Effect. 4.12. Compliance. Neither Company has been advised, nor has reason to believe, that it is conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations; except where failure to be so in compliance would not materially adversely affect the condition (financial or otherwise), business, results of operations or prospects of the Companies. 4.13. Taxes. Each Company has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon (except for those taxes which are being contested in good faith through appropriate proceedings, for which adequate reserves have been established and which are either reflected in the Most Recent Financial Statements or disclosed by the Companies to UBS in writing), and neither Company has knowledge of any tax deficiency which has been or might be asserted or threatened against the Company which could have a Material Adverse Effect. 4.14. Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) which are required to be paid in connection with the sale and transfer of the Purchase Shares to be sold to UBS Limited hereunder will be, or will have been, fully paid or provided for by the Companies and all laws imposing such taxes will be or will have been fully complied with. 4.15. Investment Company. Neither of the Companies are required to register as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 4.16. Insurance. Each Company maintains insurance (or insurance is maintained on its behalf) of the types and in the amounts generally deemed adequate under customary industry standards for its business, including, but not limited to, insurance covering all real and personal property owned or leased by such Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. 4.17. SEC Filings. The information contained in the following documents, which the Companies have furnished to the UBS Parties, or will furnish prior to the Closing, is or will be true and correct in all material respects as of their respective filing dates: (a) Joint Annual Report on Form 10-K for the year ended December 31, 1996, which Joint Annual Report includes the REIT's and the OPCO's most 7 recently available audited financial statements together with the report thereon of the independent certified public accountants (the "Most Recent Financial Statements"); (b) Joint Quarterly Report on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; (c) the Companies' proxy statements on Form 14A relating to (i) the most recent Annual Meetings of the OPCO's and the REIT's Stockholders and (ii) any Special Meetings of the OPCO's Stockholders and the REIT's Stockholders which occurred during the 12-month period prior to the date hereof or for which a meeting date has been fixed and a proxy statement distributed; (d) all other documents, if any, filed by or with respect to the REIT and the OPCO with the SEC since January 1, 1997 pursuant to Sections 13, 15(d) or 16(a) of the Exchange Act; and (e) a covenant compliance certification stating that none of the REIT and the OPCO and their respective subsidiaries are in default under any of its credit agreements or other financing arrangements. 4.18. Legal Opinion. Prior to the Closing, counsel to the Companies will deliver their legal opinions to the UBS Parties in substantially the forms of Exhibits A-1 and A-2 hereto. 4.19. ERISA. The Companies and their affiliates are in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended and the rules and regulations promulgated thereunder ("ERISA"). Neither a Reportable Event (as defined under ERISA) nor a Prohibited Transaction (as defined under ERISA) has occurred with respect to any Plan (as defined below) of the Companies and/or their affiliates; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated within the past five years; no circumstance exists which constitutes grounds under Section 402 of ERISA entitling the Pension Benefit Guaranty Corporation ("PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; the Companies and their affiliates have not completely or partially withdrawn under Sections 4201 or 4202 of ERISA from any Multiemployer Plan (as defined therein); the Companies and their affiliates have met the minimum funding requirements of Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") and Section 302 of ERISA with respect to each Plan and there is no unfunded current liability (as defined below) with respect to any Plan; the Companies and their affiliates have not incurred any liability to the PBGC under ERISA (other than for the payment of premiums under Section 4007 of ERISA); no part of the funds to be used by the Companies in satisfaction of their obligations under this Purchase Agreement or the Forward Stock Purchase Agreement constitute "plan assets" of any "employee benefit plan" within the meaning of ERISA or of any "plan" within the meaning of Section 8 4975(e)(1) of the Code, as interpreted by the Internal Revenue Service and the U.S. Department of Labor in rules, regulations, releases and bulletins or as interpreted under applicable case law. As used below, "Plan" means an "employee benefit plan" or "plan" as described in Section 3(3) of ERISA; and "unfunded current liability" has the meaning provided in Section 302(d)(8)(A) of ERISA. 4.20. Certificate. A certificate of each Company executed by the chief executive, financial or accounting officer of such Company, to be dated the Closing Date in form and substance satisfactory to the UBS Parties to the effect that the representations and warranties of the Companies set forth in this Section 4 are true and correct as of the date of this Agreement and as of the Closing Date, and such Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied on or prior to such Closing Date. 4.21. Environmental Protection. To the knowledge of the Companies, except as disclosed in the Companies' SEC Filings, none of the Companies or their affiliates' properties contain any Hazardous Materials that, under any Environmental Law, (i) would impose liability on the Companies or any affiliate that is likely to have a material adverse effect on the condition (financial or other), business, results of operations, or prospects, of the Companies or (ii) is likely to result in the imposition of a lien on any material asset owned, directly or indirectly, by the Companies. To the knowledge of the Companies, neither of the Companies nor any of their affiliates is subject to any existing, pending or threatened investigation or proceeding by any governmental agency or authority with respect or pursuant to any Environmental Law, except any which, if adversely determined, would not have a Material Adverse Effect. As used herein, "Environmental Laws" mean all federal, state, local and foreign environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, including, without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, solid, toxic or hazardous substances or wastes; and "Hazardous Material" includes, without limitation, (i) all substances which are designated pursuant to Section 311(b)(2)(A) of the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C Section 1251 et seq.; (ii) any element, compound, mixture, solution, or substance which is designated pursuant to Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq.; (iii) any hazardous waste having the characteristics which are identified under or listed pursuant to Section 3001 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.; (iv) any toxic pollutant listed under Section 307(a) of the FWPCA; (v) any hazardous air pollutant which is listed under Section 112 of the Clean Air Act, 42 U.S.C. Section 7401 et seq.; (vi) any imminently hazardous chemical substance or mixture with respect to which action has been taken pursuant to Section 7 of the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; and (vii) petroleum, petroleum products, petroleum by-products, petroleum decomposition by-products, and waste oil. 9 SECTION 5. Representations, Warranties and Covenants of the UBS Parties. 5.1. Investment. UBS Limited and/or UBS-LB represents and warrants to, and covenants with, the Companies that: (i) UBS Limited, taking into account the personnel and resources it can practically bring to bear on the purchase of the Purchase Shares contemplated hereby, is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Purchase Shares, including investments in securities issued by the Companies, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Purchase Shares; (ii) UBS Limited is acquiring the number of Purchase Shares set forth in Section 2 above in the ordinary course of its business and for its own account for investment (as defined for purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the regulations thereunder) only and with no present intention of distributing any of such Purchase Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares (this representation and warranty not limiting the rights of either UBS Party to sell pursuant to any Registration Statement); (iii) neither UBS Party will, directly or indirectly, sell or otherwise dispose of (or solicit any offers to purchase or otherwise acquire) any of the Purchase Shares except in compliance with the Securities Act, the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to an available exemption or exclusion therefrom; (iv) each UBS Party has completed or caused to be completed the Registration Statement Questionnaire and the Stock Certificate Questionnaire, both attached hereto as Appendix I, for use in preparation of the Registration Statement and the answers thereto are true and correct to the best knowledge of the UBS Parties as of the date hereof and will be true and correct as of the effective date of the Registration Statement; (v) the UBS Parties have, in connection with their decision to purchase the number of Purchase Shares set forth in Section 2 above, relied solely upon the documents identified in Section 4.17, the information referred to in Section 7.7 and the representations and warranties of the Company contained herein; (vi) each of the UBS Parties is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act and a "qualified institutional buyer" within the meaning of Rule 144A promulgated under the Securities Act; (vii) the UBS Parties do not directly or indirectly have an interest of five percent or more of the Paired Shares outstanding as shown in the Companies' Quarterly Reports on Form 10-Q for the quarter ended September 30, 1997 and (viii) the Purchaser understands that the Shares will contain a legend to the following effect: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. 10 5.2. Resale. Each UBS Party acknowledges and agrees that the Shares are not transferable on the books of either the REIT or the OPCO unless the certificate submitted to the transfer agent evidencing the Shares is accompanied by a separate officer's certificate: (i) in the form of Appendix II hereto, (ii) executed by an officer of, or other authorized person designated by, the UBS Parties, and (iii) to the effect that (A) the Shares have been sold in accordance with the Registration Statement, the Securities Act and the Rules and Regulations and any applicable state securities or blue sky laws or pursuant to valid exemptions or exclusions therefrom and (B) the requirement under the Securities Act of delivering a current prospectus has been satisfied. Each UBS Party acknowledges that there may occasionally be times when the Companies must suspend the right of the UBS Parties to effect sales of the Shares through use of the Prospectus forming a part of the Registration Statement until such time as an amendment to the Registration Statement has been filed by the Companies and declared effective by the SEC, or until such time as the Companies have filed an appropriate report with the SEC pursuant to the Exchange Act (each, a "Black-out Period"); provided that no Black-out Period shall exceed 90 consecutive days. Each UBS Party hereby covenants that it will not sell any Shares pursuant to said Prospectus during the period commencing at the time at which the Companies give the UBS Parties written notice of the suspension of the use of said Prospectus and ending at the time the Companies give the UBS Parties written notice that the UBS Parties may thereafter effect sales pursuant to said Prospectus. Each UBS Party further covenants to notify the REIT and the OPCO promptly of the sale of all of its Shares. 5.3. Due Execution, Delivery and Performance of this Agreement. The UBS Parties further represent and warrant to, and covenant with, the Companies that (i) each UBS Party has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) upon the execution and delivery of this Agreement, this Agreement shall constitute a valid and binding obligation of the UBS Parties enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the UBS Parties in Section 7.5 hereof may be legally unenforceable. 5.4. Residence of UBS Limited. UBS Limited is organized under the laws of England and has its principal place of business in London. 5.5. Beneficial Ownership of Company Common Stock. The UBS Parties further represent and warrant to, and covenant with, the Companies that (i) as of the date of this Agreement and immediately prior to the purchase and sale of the Purchase Shares, UBS Limited is not a beneficial owner, as such term is defined by Rule 13d-3 under the Exchange act of more than five (5) percent of the total number of outstanding shares of any Company, and (ii) no 11 officer, director or affiliate of UBS Limited is an officer, director or affiliate of any Company. The term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Purchase Agreement, all covenants, agreements, representations and warranties made by the Companies and the UBS Parties herein and in the certificates for the Shares delivered pursuant hereto shall survive the execution of this Purchase Agreement, the Forward Stock Purchase Agreement, the delivery to UBS Limited of the Purchase Shares being purchased and the payment therefor. SECTION 7. Registration of the Shares; Compliance with the Securities Act. 7.1. Registration Procedures and Expenses. The Companies shall: (a) within 60 days after receipt of a demand from the UBS Parties, which demand may not be made within 30 days after the Closing, prepare and file with the SEC Registration Statements (as defined below) covering the resale by the UBS Parties, from time to time, of the Shares (not to exceed a number of Shares equal to 130% of the number of Purchase Shares) through the facilities of the New York Stock Exchange, the automated quotation system of The Nasdaq Stock Market or the facilities of any other national securities exchange on which the Paired Share is then traded or in privately negotiated transactions (the "Initial Registration Statements"). If the total number of Shares issued to the UBS Parties hereunder and under the Forward Stock Purchase Agreement exceeds the number of Shares covered by the Initial Registration Statements, then the Companies shall prepare and file with the SEC such additional Registration Statements as shall be necessary to cover the resale by UBS-LB of such excess Shares in the same manner as contemplated by the Initial Registration Statements for the Shares covered thereby ("Additional Registration Statements"); provided that prior to delivering certificates evidencing any such excess Shares to UBS-LB, the Companies shall cause such Registration Statements to have become effective. For purposes of this Purchase Agreement, "Registration Statement" means a registration statement under the Securities Act on Form S-3 covering the resale by one or both UBS Parties of up to a specified number of Shares, filed and maintained effective by the Companies pursuant to the provisions of this Section 7, including the Prospectus (as defined below) contained therein, any amendments and supplements to such registration statement, including all post-effective amendments thereto, and all exhibits and all material incorporated by reference into such registration statement; (b) use all reasonable best efforts to cause the SEC to notify the Companies of the SEC's willingness to declare the Initial Registration Statements 12 effective within 60 days after the Registration Statements are filed by the Companies; provided that the Companies will use their reasonable best efforts to cause such Initial Registration Statements to become effective no later than 90 days after the Closing Date; (c) prepare and file with the SEC such amendments and supplements to the Registration Statements and the prospectus used in connection therewith (the "Prospectus") as may be necessary to keep the Registration Statements effective until the date on which the Shares may be resold by the UBS Parties without registration, by reason of Rule 144(k) under the Securities Act or any other rule of similar effect; (d) furnish to the UBS Parties with respect to the Shares registered under the Registration Statements (and to each underwriter, if any, of such Shares) such reasonable number of copies of Prospectuses, including any supplements and amendments thereto, promptly following the effectiveness of such Registration Statements an opinion from counsel to the Companies covering the matters set forth on Exhibit B hereto and such other documents as the UBS Parties may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares by the UBS Parties; (e) use their reasonable best efforts to prevent the happening of any event that would cause such Registration Statements to contain a material misstatement or omission or to be not effective and usable for resale of the Shares during the period that such Registration Statements are required to be effective and usable; provided that this paragraph (e) shall in no way limit the Companies' right to suspend the right of the UBS Parties to effect sales under the Registration Statement during any Black-out Period as specified at Section 5.2 above. (f) file documents required of the Companies for normal blue sky clearance in states specified in writing by the UBS Parties, provided, however, that the Companies shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; and (g) bear all reasonable out-of-pocket expenses in connection with the procedures in paragraphs (a) through (f) of this Section 7.1 and the registration of the Shares pursuant to the Registration Statements, including the reasonable fees and reasonable expenses of counsel or other advisers to the UBS Parties, other than underwriting discounts, brokerage fees and commissions incurred by the UBS Parties, if any. 13 7.2. Covenants in Connection With Registration. (a) The Companies hereby covenant with the UBS Parties that (i) the Companies shall not file any Registration Statement or Prospectus relating to the resale of the Shares or any amendment or supplement thereto, unless a copy thereof shall have been first submitted to the UBS Parties and the UBS Parties did not object thereto in good faith (provided that if the UBS Parties do not object within two business days of receiving any such material, they shall be deemed to have no objection thereto); (ii) the Companies shall immediately notify the UBS Parties of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for such purpose; (iii) the Companies shall make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible moment; (iv) the Companies shall notify the UBS Parties of the receipt of any notification with respect to the suspension of the qualification of the Shares for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) the Companies shall as soon as practicable notify the UBS Parties in writing of the existence of any fact which results in any Registration Statement, any amendment or post-effective amendment thereto, the Prospectus, any prospectus supplement, or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and shall (except during a Black-out Period) prepare a supplement or post-effective amendment to such Registration Statement or the Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shares, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; provided that this clause (v) shall in no way limit the Companies' right to suspend the right of the UBS Parties to effect sales under the Registration Statement during any Black-out Period as specified at Section 5.2 above. (b) The UBS Parties shall notify the Companies at least two business days prior to the date on which it intends to commence effecting any resales of Shares under Registration Statements and if the Companies do not, within such two-day period, advise the UBS Parties of the existence of any facts of the type referred to in Section 7.2(a)(v) above, then the Companies shall be deemed to have certified and represented to the UBS Parties that no such facts then exist and the UBS Parties may rely on such certificate and representation in making such sales. The preceding sentence shall in no way limit the Companies obligations under Section 7.2(a) above. 7.3. Extension of Required Effectiveness. In the event that the Companies shall give any notice required by Section 7.2(a)(v) hereof, the period during which the Companies are required to keep such Registration Statements effective and useable shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when the UBS Parties are advised in writing by the Companies that the use of the Prospectuses may be resumed. 14 7.4. Transfer of Shares After Registration. Each UBS Party agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities or blue sky laws except as contemplated in Registration Statements referred to in Section 7.1 or except pursuant to any exemption from the registration requirements of the Securities Act (including, without limitation, Rule 144 promulgated thereunder and any successor thereto) and that it will promptly notify the Company of any changes in the information set forth in any such Registration Statements regarding the UBS Parties or its Plan of Distribution. 7.5. Indemnification. For the purpose of this Section 7.5, the term "Registration Statement" shall include any final prospectus, exhibit, supplement or amendment included in or relating to any Registration Statement referred to in Section 7.1. (a) Indemnification by Companies. For purposes of this Section 7.5, the Companies agree to indemnify and hold harmless the UBS Parties and as more particularly described herein. The Companies agree to indemnify and hold harmless the UBS Parties and each person, if any, who controls either UBS Party within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint or several, to which the UBS Parties or such controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the Companies), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of such Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the SEC pursuant to Rule 424(b) of the Regulations, or filed as part of such Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in any of them not misleading, and will reimburse each UBS Party and each such controlling person for any legal and other expenses as such expenses are reasonably incurred by the UBS Parties or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Companies will also indemnify selling brokers, dealers and similar securities industry professionals participating in the sale or resale of the Shares, their officers, directors and partners and each person who controls any such person within the meaning of the Securities Act, provided, however, that the Companies will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, such Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Companies (i) by or on behalf of the UBS Parties expressly for use therein or (ii) any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered 15 to a UBS Party prior to the pertinent sale or sales by such UBS Party and not delivered by such UBS Party in connection with such sale or sales. (b) Indemnification by UBS Parties. The UBS Parties will indemnify and hold harmless the Companies, each of their directors, each of their officers who signed any Registration Statement and each person, if any, who controls the Companies within the meaning of the Securities Act, against any losses, claims, damages, liabilities or expenses, joint and several, to which the Companies, each of their directors, each of their officers who signed any Registration Statement or any controlling person may become subject (including in settlement of any litigation, if such settlement is effected with the written consent of the UBS Parties) insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in such Registration Statement, such Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such Registration Statement, such Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Companies by or on behalf of the UBS Parties expressly for use therein, and will reimburse the Companies, each of their directors, each of their officers who signed such Registration Statement and each controlling person for any legal and other expense reasonably incurred by the Companies, each of their directors, each of their officers who signed such Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. (c) Proceedings. Promptly after receipt by an indemnified party under this Section 7.5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7.5 notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 7.5 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume and control the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be a conflict between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense 16 of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7.5 for any reasonable legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall be not liable for the expenses of more than one separate counsel, approved by such indemnifying party in the case of paragraph (a), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. Notwithstanding the foregoing, without the written consent of the indemnified party, the indemnifying party may not settle or agree to compromise of any such claim or action for which the indemnified party intends to seek reimbursement from the indemnifying party, and the indemnified party will permit the indemnifying party to settle or compromise any such action or suit at the indemnifying party's sole cost and expense if as a result thereof the indemnified party is provided a full and unconditional release of such claim or action. (d) Contribution. If the indemnification provided for in this Section 7.5 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this Section 7.5 in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein in such proportion as is appropriate to reflect the relative benefits received by the Companies and the UBS Parties from the purchase and sale of the Shares and the relative fault of the Companies and the UBS Parties in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The respective relative benefits received by the Companies on the one hand and the UBS Parties on the other shall be deemed to be in the same proportion as the amount paid by the UBS Parties to the Companies pursuant to this Agreement for the Shares purchased by the UBS Parties that were sold pursuant to any Registration Statement bears to the difference (the "Difference") between the amount the UBS Parties paid for the Shares that were sold pursuant to such Registration Statement and the amount received by the UBS Parties from such sale. The relative fault of the Companies and the UBS Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Companies or by the UBS Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in 17 paragraph (c) of this Section 7.5 any reasonable legal or other fees or expenses incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in paragraph (c) of this Section 7.5 with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that no additional notice shall be required with respect to any action for which notice has been given under paragraph (c) for purposes of indemnification. The Companies and the UBS Parties agree that it would not be just and equitable if contribution pursuant to this Section 7.5 were determined solely by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 7.5, the UBS Parties shall not be required to contribute any amount in excess of the amount by which the aggregate proceeds received by the UBS Parties from the transactions contemplated hereby exceeds the amount of any damages that the UBS Parties has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) Relationship Between the REIT and the OPCO. The obligations set forth in this Section 8.5 shall in no way limit the ability of the parties to allocate liability between themselves. 7.6. Termination of Conditions and Obligations. The conditions precedent imposed by Section 6 or this Section 7 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares when such Shares may be, and in fact are, sold under Rule 144(k) promulgated under the Securities Act. Further, as to any particular number of Shares, the conditions precedent imposed by Section 5 or this Section 7 on the transferability of such Shares shall cease and terminate at such earlier time as an opinion of counsel satisfactory to the Companies and the UBS Parties shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act with respect to such Shares. In each such case, the Companies' obligation to maintain effective Registration Statements with respect to such Shares which are no longer be subject to the restrictions and limitations of Section 5 and this Section 7 shall cease. 7.7. Information Available. So long as any Registration Statement covering the resale of any Shares owned by either UBS Party is effective, the Companies will furnish to the UBS Parties: (a) as soon as practicable after available, one copy of (i) its Joint Annual Report to Stockholders, (ii) its Joint Annual Report on Form 10-K, (iii) its joint Quarterly Reports to Stockholders, (iv) its joint quarterly reports on Form 10-Q, (v) a full copy of the particular Registration Statements covering the Shares (the foregoing, in each case, excluding exhibits) and (vi) upon request, any or all other public filings under the Exchange Act by the Companies; and 18 (b) upon the reasonable request of either UBS Party, a reasonable number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and the Companies, upon the reasonable request of the UBS Parties, will meet with the UBS Parties or a representative thereof at the Companies headquarters to discuss all information relevant for disclosure in such Registration Statements covering the Shares, subject to appropriate confidentiality limitations. 7.8. Non-Exclusivity. The rights and remedies provided under Section 8.5 hereof shall not be in limitation or exclusion of any other rights or remedies available to a party, whether by agreement, at law, in equity or otherwise, with respect to the inaccuracy of any representation or warranty by, or the breach of any covenant of, the other party made herein or in the Forward Stock Purchase Agreement. 7.9. Notice Requirement. The REIT and the OPCO each covenants and agrees that it will notify the UBS Parties at any time it becomes aware that as a result of a change in the REIT's and the OPCO's capital stock the UBS Parties beneficially hold more than 4.9% of the REIT's and the OPCO's Paired Shares. 7.10. Transfer of Shares. The Companies covenant and agree to use their best efforts to cause the transfer agent to effect promptly any transfer of the Shares requested by the UBS Parties and to cause the transfer agent to remove promptly the restrictive legend from the Shares upon presentation to the transfer agent of all necessary documentation. SECTION 8. Registration Exemptions. For so long as the REIT and the OPCO are subject to the reporting requirements of Section 13 or 15 of the Exchange Act, the REIT and the OPCO covenant that they will file the reports required to be filed by them under the Securities Act and Section 13(a) and 15(d) of the Exchange Act and the rules and regulations adopted by the Commission thereunder. SECTION 9. Broker's Fee. Other than any fees payable under or in connection with the Forward Stock Purchase Agreement, each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no brokers or finders entitled to compensation in connection with the sale or issuance of the Shares to the UBS Parties. SECTION 10. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, by telegram or telecopy or sent by nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed or for telecopies, when transmitted and receipt confirmed, and shall be delivered as addressed as follows: (a) if to the Companies, to: 19 Patriot American Hospitality, Inc. Patriot American Hospitality Operating Company 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn: John P. Bohlman Telecopier: 214-863-1527 with a copy so mailed to: Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 Attn: Gilbert G. Menna, P.C. Telecopier: 617-523-1231 or to such other person at such other place as the Companies shall designate to the UBS Parties in writing; and (b) if to the UBS Parties, c/o UBS Securities, LLC, 299 Park Avenue, New York, New York 10171, Telecopier: 212-223-2815 or at such other address or addresses as may have been furnished to the Companies in writing. SECTION 11. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Companies and the UBS Parties. SECTION 12. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. SECTION 13. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. SECTION 14. Governing Law; Jurisdiction. 14.1. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to the conflicts of law principles thereof) and of the federal law of the United States of America. 14.2. Each of the Companies (i) hereby irrevocably submits to the jurisdiction of, and agrees that any suit shall be brought in, the state and federal courts 20 located in the City and County of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or the transactions contemplated hereby and (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such proceeding brought in one of the above-named courts is brought in an inconvenient forum, that the venue of any such proceeding brought in one of the above-named courts is improper, or that this Agreement, or the transactions contemplated hereby may not be enforced in or by such court. SECTION 15. Transfer to Affiliate. Notwithstanding anything herein to the contrary, UBS Limited may transfer the Purchase Shares to any affiliate of UBS Limited, together with all of UBS Limited's rights hereunder; provided that (i) such affiliate shall assume and be subject to all of UBS Limited's obligations hereunder; (ii) such affiliate shall be an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act; and (iii) such transfer shall be consistent with the investment representations set forth at Section 6.1 hereto. In the event of such an assignment, such affiliate shall in all respects be substituted for UBS Limited as a party hereto. SECTION 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. SECTION 17. Waiver of Trial by Jury. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO JURY TRIAL IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. Patriot American Hospitality, Inc. By:________________________________ Name: Title: Patriot American Hospitality Operating Company By:________________________________ Name: Title: UBS Limited By:________________________________ Name: Title: By:________________________________ Name: Title: Union Bank of Switzerland London Branch By:________________________________ Name: Title: By:________________________________ Name: Title: 22 Appendix I (one of two) STOCK CERTIFICATE QUESTIONNAIRE Pursuant to Section 3 of the Agreement, please provide us with the following information: 1. The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)). You may use a nominee name if appropriate: ____________________________ 2. All relationships between each UBS Party and the Registered Holder listed in response to Item 1 above: ____________________________ ____________________________ ____________________________ 3. The mailing address of the Registered Holder listed in response to item 1 above: ____________________________ ____________________________ ____________________________ ____________________________ 4. The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above: ____________________________ Appendix I (two of two) REGISTRATION STATEMENT QUESTIONNAIRE In connection with the preparation of the Registration Statement, please provide us with the following information: 1. Pursuant to the "Selling Shareholders" section of the Registration Statement, please state your or your organization's name exactly as it should appear in the Registration Statement: 2. Please provide the number of shares that you or your organization will own immediately after Closing, including those Shares purchased by you or your organization pursuant to this Purchase Agreement and those shares purchased by you or your organization through other transactions: 3. Have you or your organization had any position, office or other material relationship within the past three years with the REIT, the OPCO or any of their affiliates? _____ Yes _____ No If yes, please indicate the nature of any such relationships below: ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- APPENDIX II Attention: PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE The undersigned, [an officer of, or other person duly authorized by] _______________________________________ hereby certifies that he/she [fill in official name of individual or institution] [said institution] is the Purchaser of the shares evidenced by the attached certificate, and as such, sold such shares on ________________ in accordance with Registration Statement [date] number ___________________________________________________________________, [fill in the number of or otherwise identify Registration Statement] the Securities Act of 1933, as amended, and any applicable state securities or blue sky laws and the requirement of delivering a current prospectus by the REIT and the OPCO has been complied with in connection with such sale. Print or Type: Name of Purchaser (Individual or Institution): ____________________________________ Name of Individual representing Purchaser (if an Institution) ____________________________________ Title of Individual representing Purchaser (if an Institution): ____________________________________ Signature by: Individual Purchaser or Individual repre- senting Purchaser: ____________________________________ EXHIBIT A-1 [Form of Closing Opinion of Counsel to the REIT and the OPCO] EXHIBIT A-2 [Form of Closing Opinion of Counsel to the REIT and the OPCO] EXHIBIT B Opinion Matters for Additional Registration Statements [opinion paragraphs to be delivered in connection with resale registration statements] Each of the REIT and the OPCO is duly organized, validly existing and in good standing under the laws of the State of Delaware, and each of the REIT and the OPCO has the requisite corporate power and authority to own its properties and to conduct is business as presently conducted. The REIT is a real estate investment trust duly organized, validly existing and in good standing as a business REIT under the laws of the State of Delaware, and the REIT has the requisite corporate power and authority to own its properties and to conduct its business as is presently conducted. The [Additional] Shares have been duly authorized and are validly issued, nonassessable and fully paid, and are not subject to any preemptive or similar rights. The Registration Statement has been declared effective under the Securities Act; to our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened; and the Registration Statement, the Final Prospectus, and each amendment thereof or supplement thereto (except for the financial statements, schedules and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Exchange Act and the respective rules of the Commission thereunder. While we have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Final Prospectus, we have participated in reviews and discussions in connection with the preparation of the Registration Statement and Final Prospectus, and advise you that, in the curse of such reviews and discussions, nothing has come tot our attention which would lead us to believe (i) that the Registration Statement at the time it became effective (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading or (ii)that the Final Prospectus on the date thereof or on the date of this opinion (except for the financial statements and the notes thereto and the other financial data included or incorporated by reference therein, as to which we express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. EX-10.9 9 FORWARD STOCK CONTRACT Exhibit 10.9 FORWARD STOCK CONTRACT To: Patriot American Hospitality, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn.: William W. Evans III To: Patriot American Hospitality Operating Company 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn.: Leslie Ng From: Union Bank of Switzerland, London Branch c/o UBS Securities LLC, as agent 299 Park Avenue New York, NY 10171 Date: 31 December 1997 Ladies and Gentlemen, The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between us on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern. References herein to the "Transaction" shall be deemed to be references to a "Swap Transaction" solely for the purposes of the 1991 ISDA Definitions. This Confirmation supplements, forms a part of, and is subject to, the ISDA Master Agreement dated as of 31 December 1997, as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. In the event of any inconsistency between the provisions of that agreement and this Confirmation, this Confirmation will prevail for the purposes of this Transaction. The Agreement and each Confirmation thereunder will be governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine. I. The Transaction Patriot American Hospitality, Inc. (the "REIT") and Patriot American Hospitality Operating Company (the "OPCO") (each a "Company" and collectively, the "Companies") and the Union Bank of Switzerland, London Branch ("UBS") acting through UBS Securities LLC as its agent for each purchase or sale of Securities ("UBS LLC"), hereby agree to make the payments and deliveries provided for in Sections III., IV. and V. hereof, all on the terms more particularly specified herein (this "Confirmation"). II. Definitions For the purpose of this Confirmation, the following terms shall have the meanings set opposite: 1 FORWARD STOCK CONTRACT Adjustments: In the event of: (a) a subdivision, consolidation or reclassification of the Paired Shares, or a free distribution or dividend of any Paired Shares to all existing, holders of Paired Shares by way of bonus, capitalization or similar issue; or (b) a distribution or dividend to all existing holders of Paired Shares of, (i) additional Paired Shares or (ii) other share capital or securities granting right to payment of dividends and/or the proceeds of' liquidation of either Company equally or proportionally with such payments to holders of' Paired Shares; an adjustment shall thereupon be effected to the Forward Price and/or the Underlying Shares at the time of such event with the intent that following such adjustment, the value of this Transaction is economically equivalent to the value immediately prior to the occurrence of the event causing the adjustment. Calculation Agent: UBS, whose calculations and determinations shall be made in a commercially reasonable manner and shall be binding absent manifest error. Calculation Period: Means each period commencing on and including: (i) in the case of the first Calculation Period, the Effective Date and ending on but excluding the earlier of the first Interim Settlement Date or Day S, and (ii) for each period thereafter, an Interim Settlement Date and ending on but excluding the earlier of the next following Interim Settlement Date or Day S. If there is a Partial Settlement, then (i) the Calculation Period for the Settlement Shares covered by such Partial Settlement shall end on Day S for such Partial Settlement and (ii) the Calculation Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. Collateral Release Shares: Paired Shares delivered pursuant to Section V.C. Collateral Valuation Date: In the event that the Companies posts cash collateral pursuant to Section V. or VI. any day upon which the amount of collateral required is calculated. Compounding Period: Means each period commencing on and including: (i) in the case of the first Compounding Period, the Effective Date and ending on but excluding the earlier of the first Interim Settlement Date or Day S, and (ii) for each period thereafter, an Interim Settlement Date and ending on but excluding the earlier of the next following Interim Settlement Date or Day S. If there is a Partial Settlement, then (i) the Compounding Period for the Settlement Shares covered by such Partial Settlement shall end on Day S for such Partial Settlement and (ii) the Compounding Period for the remaining Underlying Shares shall be determined without regard to such Partial Settlement. 2 FORWARD STOCK CONTRACT Customer Account: The account established in favor of the Companies pursuant to the Customer Agreement dated the date hereof between the Companies and UBS Securities LLC. Daycount Fraction: Actual/360. Day S: For Settlement pursuant to Section III. or VI. or Interim Net Stock Settlement pursuant to Section IV., the day upon which settlement activities shall begin. Dividend Amount: (A) Means, on each Interim Settlement Date or Day S an amount in U.S. Dollars equal to the sum of all cash distributions paid on either a REIT share or on an OPCO share comprising part of a Paired Share, during the relevant Compounding Period; and (B) Separately, and not included in Dividend Amount, UBS will cause UBS LLC to pay to the Companies on the Business Day after the relevant dividend payment date declared by the Companies' Board of Directors, (i) all cash dividends on Paired Shares that have gone ex-dividend, but on which dividends have not been paid, prior to the end of the final Compounding Period for any settlement, based on a number of Paired Shares equal to the number of Settlement Shares for such settlement, (ii) all cash dividends received by UBS at any time, on Paired Shares delivered by the Companies pursuant to Section III. E. that have gone ex-dividend after Day S but prior to the end of the Unwind Period for any settlement, and (iii) all cash dividends paid on Paired Shares held in the Customer Account. Effective Date: 31 December 1997 Exchange Trading Day: Each day on which the Relevant Exchange is open for trading. Forward Price: On each Interim Settlement Date or Day S, the Forward Price shall be determined for such day by: a) multiplying the Initial Price for the Compounding Period by the sum of 1 plus the product of (i) the appropriate Daycount Fraction and (ii) the sum of (x) LIBOR, determined as of the previous Interim Settlement Date (or in the case of the first Interim Settlement Date, as of the Effective Date) for a Designated Maturity of 3 months, and (y) the Spread; and b) subtracting the Dividend Amount at that date; PROVIDED HOWEVER that if the Companies deliver Interim Settlement Shares pursuant to Section IV. or Collateral Release Shares pursuant to Section V.C. during any Calculation Period, the Forward Price for purposes of determining the Initial Price for the first Compounding Period during such Calculation Period, shall be adjusted to a price equal to the closing price of the Paired Shares on the Exchange Trading Day immediately prior to the most recent Interim Settlement Date, adjusted up for any positive result or down for any negative result of the following formula: (i) the Interim Settlement Amount for the most recent Interim Settlement Date. 3 FORWARD STOCK CONTRACT minus, (ii) the product of (x) the number of Interim Settlement Shares or Collateral Release Shares, as the case may be, and (y) the average closing price of the Paired Shares on the five (5) Exchange Trading Days immediately following the receipt of the Interim Settlement Shares by UBS pursuant to Section IV. or the Collateral Release Shares pursuant to Section V.C. then divide such result by, (iii) the number of Underlying Shares. Initial Price: Means, a) for the Compounding Period ending on the first Interim Settlement Date, an amount in U.S. Dollars equal to $28.8125, and b) for each subsequent Compounding Period, the Forward Price as calculated on or adjusted as of the preceding Interim Settlement Date. Interim Settlement Dates: 31 March 1997, 30 June 1998, 30 September 1998, subject to adjustment in accordance with the Modified Following Business Day convention. Interim Settlement Amount: on any Interim Settlement Date, the product of (a) the number of Underlying Shares, and (b) the amount by which the Forward Price exceeds the closing price of the Paired Shares on the Exchange Trading Day immediately prior to such Interim Settlement Date. Interim Settlement Shares: The Interim Settlement Amount divided by the closing price of the Paired Shares on the Exchange Trading Day immediately prior to such Interim Settlement Date. LIBOR Means USD-LIBOR-BBA as such term in defined in the Agreement. Mandatory Unwind Date: In the case of a Mandatory Unwind Event specified in clause (i) of Mandatory Unwind provisions of Section VI., at least three Exchange Trading Days following such Mandatory Unwind Event. In the case of a Mandatory Unwind Event specified in clause (ii) of such provision, the date specified in the notice delivered to the Companies pursuant to such provision of Section VI.
Mandatory Unwind Mandatory Thresholds: Unwind Thresholds Unwind Share Limit ----------------- ------------------ $20.00 up to 33.0% of Underlying Shares $18.75 67.0% $17.25 100.0%
Maturity Date: One (1) year after the Effective Date, subject to extension upon the written approval of UBS in its sole discretion. 4 FORWARD STOCK CONTRACT Maturity Placement Fee: 0.50%, based on the mechanics in Section E. The parties may agree to alter the settlement mechanics which may result in a different Maturity Placement Fee. Paired Shares: Shares of beneficial interest, $0.01 par value per share, of the REIT (the "REIT Shares") and shares of Common Stock, par value $0.01 per share, of OPCO (the "OPCO Shares"), which are paired and traded as a unit consisting of one (1) REIT Share and one (1) OPCO Share. Relevant Exchange: Means, with respect to any Exchange Trading Day, the principal Stock Exchange on which the Paired Shares are traded on that day. Settlement Amount: The product of the Settlement Price and the Settlement Shares. Settlement Disruption Event: Means an event beyond the control of the parties as a result of which The Depository Trust Company ("DTC") or any successor depository cannot effect a transfer of the Settlement Shares or the Paired Shares. If there is a Settlement Disruption Event on a Valuation Date, then the transfer of the Paired Shares that would otherwise be due to be made by UBS LLC for the account of UBS or the transfer of the Paired Shares that would otherwise be due to be made by the succeeding Exchange Trading Day on which settlement can take place through DTC, provided that if such a Settlement Disruption Event persists for five consecutive Business Days, then the Party obliged to deliver such Settlement Shares shall use its best efforts to cause such Shares to be delivered promptly thereafter to the other Party in any commercially reasonable manner. Settlement Price: If Day S is an Interim Settlement Date or the Maturity Date, the Forward Price; otherwise the Forward Price adjusted for LIBOR breakage adjustments (either positive or negative) for the such Forward Price for the period from Day S to the next following Interim Settlement Date. Any breakage adjustments shall be calculated by the Calculation Agent in accordance with normal industry standards. Settlement Shares: The number of shares up to the full amount of Underlying Shares subject to settlement under Section III. or VI. Spread: 1.40% per annum. Stock Exchange: Means the New York Stock Exchange, the American Stock Exchange or NASDAQ. Stock Settlement Unwind Price: The daily average closing price of the Paired Shares for Exchange Trading Days during the Unwind Period. Trade Date: 31 December 1997. UBS LLC: UBS Securities LLC Unwind Period: In the event of Stock Settlement or Net Stock Settlement 100 Exchange Trading Days (or a proportionately smaller number of Exchange Trading Days for partial settlements) beginning on Day S; provided that UBS may extend such period (such extension not to exceed 20 Exchange Trading Days) and that the 5 FORWARD STOCK CONTRACT Unwind Period shall be automatically extended i) upon the occurrence of a Market Disruption Event and ii) for any day during the Unwind Period that the Company is not able to provide an updated and effective registration statement to UBS. Underlying Shares: 3,250,000 Paired Shares of the Companies (NYSE ticker "PAH"), subject to adjustment in the event of partial settlements. Valuation date: In the case of determining any Physical Settlement value, Net Stock Settlement Shares or Stock Settlement Shares, Day S, the day preceding Day S and all Exchange Trading Days during the Unwind Period; in the case of determining any Preliminary Stock Settlement Shares or Preliminary Net Stock Settlement Shares, the Exchange Trading Day immediately preceding Day S; in the case of determining the Interim Settlement Amount and related calculation, the day prior to the Interim Settlement Date, and the five (5) Exchange Trading Days following receipt of Interim Settlement Shares by UBS. Valuation Time: 4:00 pm EST, or in the event the Relevant Exchange closes early, such closing time. III. Settlement A. Notice and Procedures 1. The Companies may on any Exchange Trading Day up to and including the Maturity Date, upon the giving of at least five (5) Business Days telephonic notice to UBS (the "Settlement Notice"), settlement all or part of this Transaction. The Settlement Notice shall specify: (i) the Settlement Shares, (ii) the settlement method subject to change upon notice as described below in this section (Physical, Stock or Net Stock Settlement, as such methods are described below); and (iii) Day S, which smut be an Exchange Trading Day; provided however, that if Physical or Net Stock Settlement is selected and in UBS' reasonable judgement the settlement of the Settlement Shares would potentially violate or contravene any legal or regulatory prohibition or requirement applicable to UBS or cause UBS to contravene any established UBS corporate policy or compliance policy which relates to any legal or regulatory prohibition or requirement applicable to UBS (other than any corporate policy limiting the amount of UBS's investment in another entity) then UBS shall at least three (3) Business Days prior to proposed Day S, notify the Companies telephonically (confirmed by writing) of any such impediment and is estimate of the period during which such impediment will preclude UBS' ability to settle all or part of this Transaction. The Settlement Notice shall be effective only if the notice requirements specified above are fulfilled; provided, that if such notice is incomplete, and i) if no settlement method is specified, then the settlement method shall be deemed to be Physical Settlement and ii) if no Day S is specified, Day S shall be deemed to be one Exchange Trading Date after the Maturity Date and Settlement Shares shall be deemed to equal Underlying Shares; and provided further that the Companies may upon telephonic notice to UBS of at least one (1) Exchange Trading Day prior to the proposed Say S, withdraw any Settlement Notice. 6 FORWARD STOCK CONTRACT In the case of any partial settlement, following such settlement the number of Underlying Shares to which this Transaction shall relate shall be adjusted, as of Day S, by subtracting the number of Settlement Shares from the number of Underlying Shares (as the same may have been adjusted prior to such Partial Settlement) immediately prior to such Day S. The Settlement Shares shall not be subject to forward accretion and shall be treated separately from the remaining Underlying Shares during any Unwind Period. In the event that the Company provided notice of Stock or Net Stock Settlement, on any day during the applicable unwind period, upon providing one Business Day's telephonic notice, the Company may elect to effect Physical Settlement for all remaining Settlement Shares. The number of Settlement Shares deemed to have already been settled shall equal the Settlement Shares times a fraction, the numerator of which shall equal the number of elapsed Exchange Trading Days in the Unwind Period until the notice date and the denominator of which shall equal the total Exchange Trading Days in the Unwind period as agreed to among the parties; provided however, that the number of Settlement Shares deemed to have already been settled shall be adjusted to reflect adjustments (if any) to the Unwind Period prior to the notice date for Physical Settlement. In the event that the Companies elect to effect Physical Settlement pursuant to this paragraph, (i) the notice day shall become the final day of the Unwind Period with regard to Settlement Shares that are deemed to have been settled, and (ii) the Exchange Trading Day immediately following the notice day shall become Day S for the remaining Settlement Shares and the Settlement Price for these remaining Settlement Shares shall be recalculated accordingly. 2. On Day S, the Settlement Price for the Settlement Shares and the Settlement Amount shall be determined for Day S. 3. The Settlement Amount shall be determined and the settlement procedures executed pursuant to the settlement method (B, C, or D of this Section III.) selected by the Companies in their sole discretion. 4. It shall be a condition precedent to any right of the Companies to elect Stock Settlement (III. C. below) or Net Stock Settlement (III. D. below), that the Companies must (i) notify UBS (in writing or telephonically) of such election at least five (5) Business Days prior to Day S and (ii) prior to Day S, cause to be filed with the Securities and Exchange Commission (the "Commission") and cause to become effective under the Securities Act of 1933, as amended (the "Securities Act") a registration statement that results in UBS being able to resell all Paired Shares to be delivered by the Companies to UBS LLC for the account of UBS in effecting such Stock Settlement or Net Stock Settlement without further registration under the Securities Act. Such registration statement shall include one or more preliminary prospectuses, prospectuses, and any amendments and supplements therefor such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. In addition, the Companies shall not deliver any Paired Shares to UBS LLC for the account of UBS pursuant to Section IV. below unless at the time of such delivery a registration statement has become effective under the Securities Act that results in UBS being able to resell such Paired Shares without further registration under the Securities Act, such Registration Statement to include one or more preliminary prospectuses, prospectus and any amendments or supplements thereto such that any preliminary prospectus or prospectus, as amended or supplemented, shall not contain any untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they are made. The Companies further agree that it will cause any such Registration Statement referred to in this paragraph 5 of Section III.A. to remain in effect until the earliest of the date on which (i) all Paired Shares issued pursuant hereto and not required to be delivered to the Companies hereunder have been sold by UBS LLC for the account of UBS and UBS agrees to notify the Companies of such fact, within two (2) Business Days of its occurrence, (ii) UBS LLC for the account of UBS is able to sell the Paired Shares subject thereto under Rule 144(k), or (iii) UBS has advised the Companies that it no longer requires that such registration statement be effective; provided, however, that in no event shall the Companies be obligated to 7 FORWARD STOCK CONTRACT keep such Registration Statement effective for more than 10 Exchange Trading Days after the end of the applicable Unwind Period. B. Physical Settlement If the Companies elect Physical Settlement, the Companies shall settle by delivering cash in an amount equal to the Settlement Amount in exchange for the Settlement Shares ("Physical Settlement") on the Exchange Trading Day immediately succeeding Day S. UBS shall cause UBS LLC for the account of UBS to deliver the Settlement Shares to the Companies on the Exchange Trading Day immediately succeeding Day S upon receipt of such Physical Settlement. C. Stock Settlement If the Companies elect to settle the Settlement Amount by delivering Paired Shares in exchange for the Settlement Shares ("Stock Settlement"), the number of Paired Shares to be delivered (the "Stock Settlement Shares") shall be equal to (i) the Settlement Amount divided by (ii) the Stock Settlement Unwind Price. The mechanics for settlement are set forth in Section III. E. below. D. Net Stock Settlement If the Companies elect to settlement the Settlement Amount on a net stock basis ("Net Stock Settlement"), the number of the net stock settlement shares (the "Net Stock Settlement Shares") shall equal: a) (i) the number of Settlement Shares, times (ii) the amount (positive or negative) equal to the Settlement Price minus the Stock Settlement Unwind Price, such product divided by, b) the Stock Settlement Unwind Price. If such calculation yields a negative number, this shall indicate the number of Paired Shares to be delivered by UBS LLC for the account of UBS to the Companies. The mechanics for settlement are set forth in Section III. E. below. (This section does not apply for purposes of Interim Net Stock Settlement). E. Stock and Net Stock Settlement Mechanics 1. Preliminary Stock Settlement: If the Companies elect Stock Settlement, the Companies shall deliver to UBS LLC for the account of UBS, by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Stock Settlement Shares") equal to the product of (i) the Settlement Amount divided by the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S, times (ii) 10.5%. Upon receipt of the Preliminary Stock Settlement Shares, UBS will cause UBS LLC to deposit the Settlement Shares in the Companies' Customer Account. 2. Preliminary Net Stock Settlement: If the Companies elect Net Stock Settlement and if the Settlement Price exceeds the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S, the Companies shall deliver to UBS LLC for the account of UBS by 11:00 a.m. on Day S, that number of Paired Shares (the "Preliminary Net Stock Settlement Shares) equal to: 8 FORWARD STOCK CONTRACT a) the sum of (i) the product of the number of Settlement Shares times the difference between the Settlement Price and the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S and (ii) 5% of the Settlement Amount, and such amount divided by b) the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S. If the closing price of the Paired Shares on the Exchange Trading Day immediately preceding Day S exceeds the Settlement Price, the Companies shall not be required to deliver any shares to UBS LLC for the account of UBS under this subsection III.E.2. 3. By 11:00 a.m. on every fifth (5th) Exchange Trading Day (other than the final Exchange Trading Day) during the Unwind Period and on the Business Day following the final Exchange Trading Day of the Unwind Period: (a) For Stock Settlement: Stock Settlement Shares shall be calculated as if such Exchange Trading Day were the final Exchange Trading Day of the Unwind Period. (i) If (a) Stock Settlement Shares (calculated as set forth above) are greater than (b) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this subparagraph (i), ten the Companies shall deliver that number of Paired Shares equal to the difference between (a) and (b) to UBS LLC for the account of UBS, and (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i), above is greater than Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver that number of Paired Shares equal to the difference between (a) and (b) above to the Companies' Customer Account. (b) For Net Stock Settlement: Net Stock Settlement Shares shall be calculated as if such Exchange Trading Day were the final Exchange Trading Day of the Unwind Period. (i) if (a) Net Stock Settlement Shares are greater than (b) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under this subparagraph (i), then the Companies shall deliver Paired Shares (which Paired Shares may be delivered from its Margin Account) equal in number to the difference between (a) and (b) to UBS LLC for the account of UBS, or (ii) as of the final day of the Unwind Period, if (a) the sum of (x) Preliminary Net Stock Settlement Shares plus (y) any shares previously delivered pursuant to this settlement under subparagraph (i), above is greater than (b) net Stock Settlement Shares, then UBS LLC, for the account of UBS, shall deliver that number of Paired Shares equal to the difference between (a) and (b) above to the Companies' Customer Account. 4. The Companies shall cause all shares delivered by it to UBS LLC for the account of UBS to be fully and effectively registered under the Securities Act (as provided in Section III.A.5. above). 9 FORWARD STOCK CONTRACT 5. On the Exchange Trading Day following the final Exchange Trading Day of the Unwind Period, UBS LLC for the account of UBS shall release all claims to Paired Shares held in the Companies' Customer Account, including any Settlement Shares delivered pursuant to Preliminary Stock Settlement (Section III. E.1. above), and deliver all such Paired Shares to the Companies with the dollar value of all fractional shares settled in cash. 6. In the event of Stock or Net Stock Settlement pursuant to Section III. C. or III.D., the Companies shall pay an unwind accretion fee, in cash or stock, calculated in accordance with the following formula: Settlement Amount x (days in Unwind Period) x (1 month LIBOR + Spread) 7. In the event of Stock or Net Stock Settlement pursuant to Section III.C. or III.D., the Companies shall pay a placement fee to UBS LLC for the account of UBS calculated as: Settlement Amount x Maturity Placement Fee % IV. Interim Net Stock Settlement On each Interim Settlement Date, if the Forward Price exceeds the closing price of the Paired Shares on such interim Settlement Date, then on the Business Day following the Fifth Exchange Trading Day thereafter the Companies shall deliver a number of Paired Shares to UBS LLC for the account of UBS equal to the Interim Settlement Shares; provided however, that if the Companies are restricted by law or regulation or self-regulatory requirements or related policies and procedures, whether or not such requirements, policies or procedures are imposed by law directly or have been voluntarily adopted by the Companies to insure compliance with applicable laws, or in its reasonable judgement is otherwise unable or unwilling to deliver registered Paired Shares, the Companies shall deliver Cash Collateral to UBS as described in Section V.B. below. V. Collateral Provisions A. If the Companies fail to deliver an effective resale registration statement within 60 days of a written request by UBS for the Companies to deliver of an effective resale registration statement, then until an effective resale registration statement is provided and an Interim Net Stock Settlement can be effected, the Companies shall deliver Cash Collateral in an amount equal to the Interim Settlement Amount to UBS. If Cash Collateral is delivered pursuant to this Section V.A., then until an Interim net Settlement can be effected or the transaction is settled on a Physical Settlement basis or a registration statement becomes effective, the Interim Settlement Amount shall be recalculated and the amount of Cash Collateral shall be adjusted to equal such recalculated Interim Settlement Amount on a biweekly (every 2 weeks) basis. B. In the event that the Companies do not deliver Paired Shares pursuant to Section IV. for one or more of the reasons described in the provision at the end of such paragraph, then, unless Cash Collateral has been delivered pursuant to Section V.A. above, the Companies shall deliver Cash Collateral in an amount equal to the Interim Settlement Amount to a Cash Collateral Account at UBS. C. If the Companies have delivered Cash Collateral to UBS pursuant to Sections V.A. or V.B. above, at the Companies' option, the Companies may deliver freely salable registered Paired Shares to UBS equal in saleable market value, based on closing market prices on the Exchange Trading Day prior to such delivery, to the value of the Cash Collateral held in the Cash Collateral Account at UBS. Prior to the next Interim Settlement Date, if on any five consecutive Business Days the Market Price of the Paired Shares closes above the Forward Price as of the prior Reset Date, UBS shall deliver all cash collateral held, to the Companies. On 10 FORWARD STOCK CONTRACT the day after such Exchange Trading Date, UBS shall release all claims to Cash Collateral held in the Cash Collateral Account and deliver such amounts to the Companies. On any subsequent Interim Settlement Date, if Cash Collateral is held by UBS, UBS shall deliver to the Companies within five (5) Business Days after such Interim Settlement Date, the amount by which the amount of Cash Collateral exceeds the Interim Settlement Amount. D. Security Interest. The Companies hereby pledges to UBS, as security for its obligations herein, a first priority continuing security for its obligations herein, a first priority continuing security interest in, lien on and right of set-off against all Cash Collateral Paid to UBS, or UBS Securities LLC, as its agent. Upon release to the Companies by UBS of such Cash Collateral, the security interest and lien granted hereunder will be released immediately, and, to the extent possible, without any further action by either party. E. Representations As of the Trade Date of this Confirmation, the Companies represent to UBS (which representations will be deemed to be repeated as of each date that the Companies Pay Cash Collateral to UBS) that: (i) each Company has the power to grant a security interest in and lien on any Cash Collateral it Pays to UBS and has taken all necessary actions to authorize the granting of that security interest and lien; (ii) each Company is the sole owner of or otherwise has the right to Pay all Cash Collateral to UBS hereunder, free and clear of any security interest, lien, encumbrance or other restrictions other than the security interest and lien created hereby; (iii) upon Payment of any Cash Collateral to UBS under the terms of this Confirmation, UBS will have a valid and perfected first priority security interest therein (assuming that any third-party financial intermediary or other entity not within its control involved in the transfer of the Cash Collateral gives the notice sand takes the action required of it under applicable law for perfection of that interest); (iv) the performance by each Company of its obligations under this Confirmation will not result in the creation of any security interest, lien or other encumbrance on any Cash Collateral other than the security interest and lien granted hereunder; and (v) the Companies will be solvent and able to pay its debts as they mature, will have capital sufficient to carry on business and all business in which it engages, and will have assets which will have a present fair market valuation greater tan the amount of all of its liabilities. F. Other Collateral Provisions During settlement of the Transaction pursuant to Sections III. Or VI. Any Cash Collateral held by UBS shall be held until the end of the applicable Unwind Period and shall be released upon the final Settlement Date for that Unwind Period. G. Definitions related to Collateral Provisions "Cash Collateral" means the amount of cash denominated in USD, if any, Paid by the Companies to or for the benefit of UBS, acting through UBS Securities LLC as its agent, pursuant to Sections IV. or V. of this Confirmation. 11 FORWARD STOCK CONTRACT "Local Business Day" means a day on which commercial banks in New York, New York are open for business (including dealings in foreign exchange). "Paid", "Pays" or "Payment" means payment in same day funds in the same manner provided for payments to be made to UBS, or UBS Securities LLC as its agent under this Confirmation. VI. Certain Covenants and Other Provisions Ability to Settle in Stock: As of the date hereof, the Companies have not, and after the date hereof, the Companies will not, enter into any obligation that would contractually prohibit the Companies from Stock Settlement of any shares under this Agreement. Allocation between the REIT and OPCO: As between the _________ and OPCO, (i) any delivery to or by the Companies of the REIT Share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by the REIT, (ii) any delivery to or by the Companies of the OPCO share portion of Paired Shares pursuant to this Confirmation shall be made by delivery to or by OPCO, and (iii) any delivery to or by the Companies of cash pursuant to this Confirmation shall be allocated between the REIT and OPCO between and among themselves based on the ratios that the Companies allocate proceeds of any issuance of Paired Shares pursuant to the Pairing Agreement between the Companies as amended from time to time without effect on any obligation of the Companies to UBS or on any obligation of UBS to the Companies. Such Allocation ratios are currently set at 95% to the REIT and 5% to the OPCO. Condition Precedent to Physical Settlement: It shall be a condition precedent to any right of the Companies to elect Physical Settlement, that the Companies must, not more than 180 days prior to such Day S, have completed the private placement or public offering of such number of Shares or any security that may be converted, exchanged or exercised into Shares, having such initial purchase price so as to provide the Companies with net cash proceeds in an amount not less than the Settlement Amount. Mandatory Unwind Event: If at any time prior to the Maturity Date: (i) the average closing price on the Relevant Exchange of the Paired Shares on any two consecutive Exchange Trading Days, other than a day on which a Market Disruption Event has occurred, is equal to or less than any of the Mandatory Unwind Thresholds, then such day shall be declared an Interim Settlement Date, and UBS shall have the right upon written notice to the Companies, to require the parties to settle all or a portion of the Transaction (up to the cumulative Unwind Share Limit for the corresponding Mandatory Unwind Threshold) on the Mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. Above. Once a Mandatory Unwind Event has occurred, if the trading price of the Paired Shares is less than a lower mandatory Unwind Threshold, UBS shall have the right upon providing notice to the Companies, to require the Parties to settle pursuant to Section III above on the Mandatory Unwind Date, all or a portion of the Transaction, up to a number of Paired Shares equal to the number of Underlying Shares multiplied by the corresponding cumulative Unwind Share Limit, on the 12 FORWARD STOCK CONTRACT mandatory Unwind Date pursuant to the settlement procedures set forth in Section III. above; or, (ii) if any of the following events occur: (1) any Financial Covenant Default as more particularly described in Exhibit A attached hereto; (2) any Event of Default that has not been cured or (except for Events of Default with respect to those provisions of the REITS Credit Agreement specified in Exhibit A attached hereto) waived under the REIT's Credit Agreement and Term Loan Credit Agreement, both dated as of July 18, 1997, by and among the REIT as borrower, various lenders and The Chase Manhattan Bank as Administrative Agent; (3) any Event of Default that has not been a) cured under any other unsecured and/or recourse lending agreement involving the Companies' Specified Indebtedness in aggregate in the amount of $10,000,000, or b) waived under any other unsecured and/or recourse lending agreement involving the Companies' Specified Indebtedness in aggregate in the amount of $250,000,000; (4) Bankruptcy or Insolvency (as such terms are defined in the Agreement); and/or (5) any failure of the Companies to post Cash Collateral pursuant to Section III. or IV. herein if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the Companies. then, UBS LLC for the account of UBS may upon providing five Business Days notice to the Companies, require all or part of the Transaction to be settled early on the Mandatory unwind Date pursuant to the settlement procedures set forth in Section III. For purposes of the settlement procedures set forth in Section III, "Day S" shall be the Mandatory Unwind Date and the "Settlement Shares" shall be the number of Paired Shares to be settled pursuant to clause (i) or (ii) above. The Companies may elect the method of settlement for such early settlement in accordance with the settlement provisions set forth herein; provided however, that if Stock Settlement or Net Stock Settlement is elected, and (1) no resale Registration Statement has been provided and declared effective prior to Day S or (2) any resale Registration Statement so provided and declared effective becomes, on Day S or during an Unwind Period, the subject of a stop order suspending its effectiveness or is the subject of any proceeding for that purpose or any such proceeding is threatened by the Commission, then the Companies at their sole opinion may choose to (A) cash collateralize 125% of the obligation to UBS in a manner similar to that described in Section V., (B) effect Physical Settlement as to all of the Settlement Shares in accordance with Section III.B. hereof on the Exchange Trading Day immediately succeeding the occurrence of one of the events specified in (1) or (2) above or (C) effect settlement with unregistered Paired Shares to allow UBS to unwind the Transaction and liquidate any position it may hold in Paired Shares by means of negotiated private resales, to the extent and in the manner permitted by applicable federal and state securities laws. In 13 FORWARD STOCK CONTRACT recognition that such negotiated private resales, if any, are likely to be completed at prices reflective of a discount to the prevailing open market prices for any freely tradeable Paired Shares, the Companies agree to deliver such number of supplemental Paired Shares as UBS may reasonably request to which UBS shall assign a dollar price in order to approximate an aggregate amount equal to the aggregate discount accepted by UBS in connection with the resale of the unregistered Stock Settlement Shares or the Companies shall pay an amount to UBS equal to the aggregate discount accepted by UBS in connection with the resale of the unregistered Stock Settlement Shares. Upon completion of all settlement activities. UBS LLC for the account of UBS, will promptly return all remaining shares in the Companies' Customer Account to the Companies. Market Disruption Event: A Market Disruption Event is the occurrence or existence on any Exchange Trading Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trading on (i) any of the Relevant Exchanges or (ii) any of the exchange or boards of trade or futures contract market on which options of future contracts on the Paired Shares of the Companies are traded that, in the reasonable determination of the Calculation Agent, is material. In the event that a Market Disruption Event occurs or is continuing on a Valuation Date, any determination of the closing price of the Paired Shares shall be postponed to the first succeeding Exchange Trading Day on which there is no Market Disruption Event, provided that if there is a Market Disruption Event on each of the five Exchange Trading Days immediately following the original Valuation Date that but for the Market Disruption Event on each of the five Exchange Trading Days immediately following the original Valuation Date that but for the Market Disruption Event would have been a day on which the closing price of the Paired Shares would have been determined, such fifth Exchange Trading Day shall be deemed to be the Valuation Date notwithstanding the Market Disruption Event and the Calculation Agent shall, in consultation with the Companies, determine the closing price for the Valuation Date based upon the last closing price prior to such Market Disruption Event, and if applicable, shall effect the settlement of the Underlying Shares by using such last closing price for the determination of the Stock Settlement Unwind Price. The Calculation Agent shall within one (1) Business Day notify the other party of the existence or occurrence of a Market Disruption Event on any day that but for the occurrence or existence of a Market Disruption Event would have been a Valuation Date. Regulatory Compliance: Each party agrees that if the delivery of shares upon settlement is subject to any restriction imposed by a regulatory authority, it shall not be an event of default, and the parties will negotiate in good faith a procedure to effect settlement of such shares in a manner which complies with any relevant rules of such regulatory authority and which is satisfactory in form and substance to their respective counsel. Securities Law Compliance: Each party agrees that it will comply, in connection with this Transaction and all related or contemporaneous sales and purchases of the Companies' Paired Shares, with the applicable provisions of the Securities Act, the securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder. 14 FORWARD STOCK CONTRACT Settlement: All settlements shall occur through DTC or any other mutually acceptable depository. Settlement Stock Delivery: Pursuant to the Stock Settlement and Net Stock Settlement provision sunder Section III. above, UBS LLC for the account of UBS shall deliver all Settlement Shares to the Companies' Customer Account. Such Paired Shares will serve as collateral until released by UBS LLC for the account of UBS in accordance with the settlement mechanics noted under III.E. above, or delivered to the Companies pursuant to Section III.E.5. Paired Shares held in the Companies' Customer Account shall not be voted. The Companies covenant and agree with UBS that Paired Shares delivered by the Companies pursuant to settlement events in accordance herewith will be duly authorized, validly issued, fully paid and non-assessable. The issuance of such Paired Shares will not require the consent, approval, authorization, registration, or qualification of any government authority, except such as shall have been obtained on or before the delivery date to UBS LLC for the account of UBS in connection with any registration statement filed with respect to any share or otherwise. Settlement Volume: In the event of a settlement other than a mandatory Unwind Event, on any Exchange Trading Day during an Unwind Period, UBS, pursuant to its hedging activities relating to this Transaction, shall not sell Paired Shares in an amount in excess of 20% of the average daily volume for the 20 Exchange Trading Days immediately preceding Day S. Trading Authorization: The following individuals and/or any individual authorized in writing by the Treasurer of the Companies are authorized by the Companies to provide trading instructions to UBS LLC for the account of UBS with regard to this Transaction. William W. Evans for the REIT and Leslie NG for OPCO 15 FORWARD STOCK CONTRACT VII. Delivery Instructions: Party A: Chase NYC UBS Securities LLC ABA 021000021 A/C No. ###-##-#### Attn: GED Party B: The Chase Manhattan Bank ABA 021000021 for the account of Patriot American Revolving Credit Facility DDA# ###-##-#### Attn: Daniella Cassagnolli Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of the Confirmation enclosed for that purpose and returning it to Ms. Gale Herzing, 29th Floor. Yours faithfully, Union Bank of Switzerland, London Branch: By: ___________________________________ By: ______________________________ Name: Name: Title: Title: Date: Date: Patriot American Hospitality, Inc. By: ___________________________________ By: ______________________________ Name: Name: Title: Title: Date: Date: Patriot American Hospitality Operating Company: By: ___________________________________ By: ______________________________ Name: Name: Title: Title: Date: Date: 16 EX-10.10 10 EX-10.10 August 14, 1998 Patriot American Hospitality, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn: William W. Evans III Wyndham International, Inc. 1950 Stemmons Freeway, Suite 6001 Dallas, Texas 75207 Attn: Leslie Ng Ladies and Gentlemen: This letter agreement between Patriot American Hospitality, Inc. (the "REIT") and Wyndham International, Inc., as successor to Patriot American Hospitality Operating Company (the "OPCO") (each a "Company" and collectively, the "Companies"), and UBS AG, London Branch ("UB-LB"), as successor to UBS (as defined), acting through its agent Warburg Dillon Read LLC, modifies and amends, in part, certain of the terms and conditions of that certain Forward Stock Contract, dated December 31, 1997 (the "Forward Agreement") between the Companies and Union Bank of Switzerland, London Branch ("UBS"), as amended. Defined terms not otherwise defined herein shall have the meanings ascribed to them under the Forward Agreement. As of July 28, 1998, the average closing price of the Paired Shares was below the first Mandatory Unwind Threshold, and UBS is providing notice to the Companies that a Mandatory Unwind Event occurred. However, the amendments to the Forward Stock Contract contained herein, amend the Mandatory Unwind Thresholds retroactively to July 28, 1998 and through the Maturity Date. 1. "Mandatory Unwind Thresholds," as defined in Section II of the Forward Agreement, shall be deleted in its entirety and replaced as follows: Notwithstanding the terms and conditions of the Forward Agreement, the Companies and UBS agree as follows: Mandatory Unwind Threshold Unwind Share Limit -------------------------- ------------------ $16.00 100.0% 2. "Maturity Date" shall be October 15, 1998. 3. a) Section IV shall be deleted in its entirety and replaced as follows: IV. Interim Settlement On each Interim Settlement Date, if the Forward Price exceeds the closing price of the Paired Shares on such Interim Settlement Date, then on the Business Day following the Fifth Exchange Trading Day thereafter the Companies shall deliver Cash Collateral to UBS in an amount equal to the Interim Settlement Amount to a Cash Collateral Account of UBS; provided, however, that with the prior written consent of UBS and without affecting the Forward Price (e.g., as if Cash Collateral had been delivered), the Companies may deliver, in lieu of such Cash Collateral, Paired Shares to Warburg Dillon Read LLC for the account of UBS equal to 125% of the Interim Settlement Shares; provided, further, that no such Paired Shares may be delivered unless they are subject to a registration statement complying with Section III.A 4. above. If either Cash Collateral or Interim Settlement Shares is delivered pursuant to Section IV, then during the period between each Interim Settlement Date or between the final Interim Settlement Date and the Maturity Date, the Interim Settlement Amount shall be recalculated and the amount of Cash Collateral (or Interim Settlement Shares, as the case may be) shall be adjusted to equal such recalculated Interim Settlement Amount on a bi-weekly basis. b) Subsections A and B of Section V shall be deleted in their entirety and replaced by: A. [This subsection intentionally left blank] B. [This subsection intentionally left blank] c) The first sentence of Subsection C of Section V shall be deleted in its entirety. 4. a) After "Condition Precedent to Physical Settlement" and before "Mandatory Unwind Event" in Section VI, the following shall be added: Early Settlements with respect to Other Substantially Similar Transactions: The Companies agree that (i) prior to the early settlement, unwind or liquidation of any transaction that is substantially similar to the transaction contemplated by this Forward Stock Contract (an "Other Transaction" including without limitation the Nationsbank and Paine Webber transactions of approximately $125 million each), the Companies shall promptly, after learning that any such event may occur, give telephone notice (confirmed in writing) of such upcoming settlement, unwind or liquidation, (ii) any such settlement, unwind or liquidation shall constitute a Mandatory Unwind Event under clause (ii) of "Mandatory Unwind Event" in this Section VI, and (iii) UBS may required all or part of the Transaction to be settled at least coincident with an Other Transaction. b) To clause (ii) under "Mandatory Unwind Event" in Section VI, the following shall be added: (6) the Companies settle, unwind or liquidate any transaction that is substantially similar to this Transaction, thus giving rise to a Mandatory Unwind Event under "Early Settlements with respect to Other Substantially Similar Transactions" of this Section VI. (7) Failure to deliver to UBS on or before September 30, 1998, an effective registration statement as contemplated by Section III.A.4. above. 5. The modifications and amendments contemplated by this letter agreement shall not be effective unless this letter agreement is executed by all of the parties hereto on or before August 14, 1998. 6. The agreement of UBS to the modifications and amendments provided for herein shall not constitute or imply any agreement or undertaking to agree to any other modification or agreement with respect to the Forward Agreement. 2 Sincerely, UBS AG, London Branch By: /s/ By: /s/ --------------------------- ------------------------------- Name: Karen Hayes Name: Rob Morgan Title: Title: AGREED TO AND ACCEPTED Patriot American Hospitality, Inc. By: /s/ --------------------------- Name: Title: Wyndham International, Inc. By: /s/ --------------------------- Name: Title: 3 EX-27.1 11 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 OF PATRIOT AMERICAN HOSPITALITY, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000016343 PATRIOT AMERICAN HOSPITALITY, INC. 1,000 6-MOS 6-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 JUN-30-1998 JUN-30-1997 65,550 20,360 0 0 15,982 14,458 0 0 1,242 1,306 0 0 5,171,796 2,083,768 125,952 67,501 6,775,479 2,321,105 0 0 0 0 0 0 48 0 1,450 733 2,619,015 908,294 6,775,479 2,321,105 0 0 253,422 73,118 0 0 0 0 121,425 30,736 0 0 85,027 17,328 66,218 28,147 406 0 0 0 0 0 30,560 0 0 0 27,556 23,166 0.23 0.54 0.23 0.52
EX-27.2 12 EX-27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 OF WYNDHAM INTERNATIONAL, INC. 0000715273 WYNDHAM INTERNATIONAL, INC. 1,000 6-MOS 6-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 JUN-30-1998 JUN-30-1997 97,931 27,076 0 0 207,450 46,340 0 0 0 9,144 383,925 100,662 624,430 29,686 20,191 1,304 2,020,086 252,088 401,401 115,656 0 0 0 0 36 0 1,449 733 200,633 80,132 2,020,086 252,088 712,653 0 782,230 0 0 0 0 0 797,367 0 0 0 13,798 0 (26,921) 0 4,084 0 0 0 0 0 0 0 0 0 (40,651) 0 (0.37) 0 (0.37) 0
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