Exhibit 10.9
FORWARD STOCK CONTRACT
To: Patriot American Hospitality, Inc.
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Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ III
To: Patriot American Hospitality Operating Company
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Attn.: ▇▇▇▇▇▇ ▇▇
From: Union Bank of Switzerland, London Branch
c/o UBS Securities LLC, as agent
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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:
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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.
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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.
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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
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$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.
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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
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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.
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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
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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:
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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).
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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
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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.
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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
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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
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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.
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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 ▇▇▇▇▇▇ 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.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ for the REIT
and
▇▇▇▇▇▇ ▇▇ for OPCO
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FORWARD STOCK CONTRACT
VII. Delivery Instructions:
Party A: Chase NYC
UBS Securities LLC
ABA ▇▇▇▇▇▇▇▇▇
A/C No. ###-##-####
Attn: GED
Party B: The Chase Manhattan Bank
ABA ▇▇▇▇▇▇▇▇▇
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 ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇, 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