Steven M. Pesner, P.C. Stephen M. Baldini, Esq. Nancy Chung, Esq. Sean E. O'donnell, Esq. AKIN, GUMP, STRAUSS, HAUER & F

Steven M. Pesner, P.C. Stephen M. Baldini, Esq. Nancy Chung, Esq. Sean E. O’Donnell, Esq. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. 590 Madison Avenue New York, New York 10022 (2 12) 872- 1070

Laurence A. Weiss, Esq. (Cal. BarNo. 64638) HELLER EHRMAN WHITE & McAULIFFE L.L.P. 333 Bush Street San Francisco, CA 941 04

Attorney for Defendants Patriot American Hospitality, Inc., Wyndham International, Inc., Paul A. Nussbaum and JamesD. Carreker

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION

) MDL No. 1300 1 In Re PATRIOT,4MERIC. JOSPITALITY ) AFFIDAVIT OF SEAN E. O’DONNELL INC., SECURITIES LITIGATION. ) (“OPEN MARKET ACTION”)

This Document Relates To:

), ), NO. 3-99-CV1866-D

Levitch v. Patriot American Hospitality. Inc. NO.99-CV 14 16-D

;NO. 99-CV1429-L

Meisenburg v. Patriot American Hospitality. Inc. No. 3-99-CV1686-X 1

3 SEAN E. O’DONNELL, being duly sworn, deposes and says: 4

5 1. I am an attorney and a member in good standing of the bar of the State of New York. I 6 am an associate of the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for Defendants 7 Patriot American Hospitality, Inc., Wyndham International, Inc., Paul A. Nussbaum and James D. 8 Carreker. 9

11 2. I submit this affidavit in support of Defendants’ Motion to Dismiss Plaintiffs’ First

12 Amended Consolidated Complaint filed September 22,2000 (the “Open Market Action”).

14 3. Annexed hereto as Exhibit A is a summary chart of forward-looking statements from the

15 challenged press releases, along with the accompanying cautionary warnings.

17 4. Annexed hereto as Exhibit B are excerpts from SEC filings containing Patriot’s 18 disclosures. 19

20 5. Annexed hereto as Exhibit C are articles discussing the Asian financial crisis and the 21 impact on credit markets specifically for REITs, as reported in the Washington Post, The Kansas City 22 Star, and Housing Economics. 23

AKIN, GUMP, STRAUSS, HAUER& FELD, MOTION TO DISMISS(OPEN MARKETACTION): MDL NO. 1300 2 LLP J w

1 6. Annexed hereto as Exhibit D are articles discussing the IRS Restructuring Bill, as

2 reported in The Baltimore Sun, The Washington Post, The New York Times, The Dallas Morning News

3 TheStreet.com, The Boston Herald, and the Los Angeles Times.

5 declare under penalty of perjury that the foregoing is true and correct. 6

7 Dated: October 19, 2000 8

11 Sean E. O'Donnell

14 Sworn to before me this

15 19'h day of October, 2000.

AKIN, GUMP, STRAUSS, HAUER& FELD, ~OTIONTo DISMISS (OPEN MARKET ACTION): MDLNo. 1300 3 LLP

SUMMARY CHART OF FORWARD-LOOKING STATEMENTS AND ACCOMPANYING CAUTIONARY WARNINGS FROM THE CHALLENGED PRESS RELEASES

OPEN MARKET COMPLAINTDATE TITLE

030 January 5,1998 PAH Completes Acquisition of Wyndham Hotel Corp.

03 5 February 12, 1998 PAH and Wyndham Announce Fourth Quarter and Year-End Operating Results

138 February 27, 1998 PAH and Wyndham Announce Private Placement of Equity With One YearPrice Adjustment Agreement

141 March 27, 1998 PAH Says Pending Transactions Unaffected by IRS Restructuring Proposal

May 4,1998 PAH and Wyndham Announce First Quarter Results

July 29, 1998 PAH and Wyndham Announce Second Quarter Results

September 16, 1998 PAH and Wyndham Announce Boards of Directors Have Reached Decision Regarding Restructuring

164 November 9,1998 PAH and Wyndham Announce Third Quarter Results

073 December 16, 1998 Patriot Announces $1 Billion Equity Investment by Investor Group DA TE TITLE CAUTIONARYWARNINGS TITLE DATE

1/5/98 PAH Completes Acquisition Certain matter discussed in this press release may constitute forward-looking of Wyndham Hotel Corp. statements within the meaning of the federal securities laws. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the foreword-looking statements due to a number of factors, including general economics conditions, competition for hotel services in a given market, the availability of equity and debt financing, interest rates and other risks detailed from time to time in the filings of Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, Wyndham Hotel Corporation and Interstate Hotels with the Securities and Exchange Commission, including quarterly reports on Form, 10-Q, reports on Form 8-K and annual reports on Form 10-K. Reference is hereby made tothe “Risk Factors” set forth in the Form 10-K for the fiscal year ended December 3 1, 1996 filed by Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, Wyndham Hotel Corporation and Interstate Hotels.

0319890001 NY Doc 213390~2 2 OPENFORWARD-LOOKING STATEMENTS:"The closing ofour acquisition of Wyndham marks the culmination of months MARKET of strategic planning and painstaking attention to the long-term vision of this company," said [defendant] COMPLAINT Nussbaum. "Through this transaction, we have acquired one of the best hotel operating companies in the country, 730 and a leading upscale brand with extraordinary potentialfor growth through conversions ofsome of our existing hotels, theconversion of certain of theMarriott hotels we will own through our acquisition of Interstate Hotel Company, and future acquisitions, as well as through new construction and adaptive reuse programs that we will announce in the near future. "While theclosing process has been a lengthy one, we were focused on putting the companies together in a way that would enable us to immediately implement our growth strategies upon completion of the merger, rather than closing the transaction quickly and subsequently trying to assimilate cultures, set objectives and define responsibilities. I'm pleased to say that the time waswell spent, and that we now have a multi-branded company operating as Wyndham International which will manage the growth not only of theWyndham brand, but our other brands which currently include Carefree Resorts. Club House. Grand Bay. Re2istry and Grand Heritage. With this acquisition completed, we will proceed with the closing of ouracquisitions of WHG Resorts & Casinos (NYSE: WHG) later this month and Interstate Hotels Company (NYSE: IHC) at the end of the first quarter," [defendant] Nussbaum said. According to [defendant] Carreker, the necessary components are in place to facilitate rapid growth of the companies' multiple brands. "Since we announced the merger agreement last April, we have worked closely with Patriot American to ensure that we were developing the best possible infrastructure to manage our growth and to increase shareholder value over the long term. What we have created is an operating company, now called Wyndham International, comprised of several different division responsible for our brands, as well as our third- party management business, which will be assimilated into Interstate upon completion of that transaction. Similar to consumerproducts companies, where each brand is supported by an entire division, we will shepherd the 2rowth of ourbranded and non-branded hotel management business while the REIT continues to focus on mergers, acquisitions and asset management. With an excellent management team in place. as well as an outstanding portfolio of upscale properties, we areready to move forward as a truly world-class hotel company," Carreker said. "While Patriot will continue to evolve as we complete future acquisitions, we are confident that the operational structure and systems we've taken time to create will enable us to make a relatively seamless transition as a significantly larger company with unparalleled growth potential,'' [Defendant] Nussbaum said. "We're excited about the prospects of another dynamic year and look forward topursuing opportunities facilitated by the size and financial strength of ourcompanies."

0319890001 NY Doc 213390~2 3 DATETITLE CAUTIONARY WARNINGS

211 2/98 PAH and Wyndham Certain matter discussed in this press release may constitute forward-looking Announce 4'hQuarter and statements within the meaning of the federal securities laws. Actual results and Year-End Operating Results the timing of certain events could differ materially from those projected in or contemplated by the foreword-looking statements due to a number of factors, including general economics conditions, competition for hotel services in a given market, the availability of equity and debt financing, interest rates and other risks detailed from time to time in the filings of Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, Wyndham Hotel Corporation and Interstate Hotels with the Securities and Exchange Commission, including quarterly reports on Form, 10-Q, reports on Form 8-K and annual reports on Form 10-0. Reference is hereby made to the "Risk Factors'' set forth in the Form 10-K for the fiscal year ended December 3 1, 1996 filed by Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, Wyndham Hotel Corporation and Interstate Hotels.

OPENFORWARD-LOOKING STATEMENTS: [According to defendant Nussbaum,] "The fourth quarter marked aperiod of MARKET significant transitionfor Patriot American, as we worked to complete our acquisitions of Wyndham Hotel COMPLAINT Corporation and WHG Resorts and Casinos, Inc., both of which were completed in January ... In the months prior to a35 the consummation of the merger.patriot American and Wyndham Hotel Corporation worked closely together such that, when we closed the Wyndham merger on January 5, the integration process was well under way." [According to defendant Carreker,] In 1998, the Company expect earnings growth to be driven Principally by internal factors, including growth in average daily rate (ADR) revenues per available room (RevPAR) and operating margins at the Company's owned and leased hotels, as well as at the Company's properties under management." In this regard, we are pleased that the combined portfolio operating performance for the quarter was in line with our expectations.. ."

0319890001 NY Doc 213390~2 4 DATECAUTIONARYWARNINGS TITLE

2/27/98 PAH and Wyndham Certain matters discussed in this press release may constitute forward-looking Announce Private statements within the meaning of the federal securities laws. Actual results and Placement of Equity With the timing of certain events could differ materially from those projected in or One Year Price Adjustment contemplated by the foreword-looking statements due to a number of factors, Agreement including general economics conditions, competition for hotel services in a given market, the availability of equity and debt financing, interest rates and other risks detailed from time to time in the filings of Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, Wyndham Hotel Corporation and Interstate Hotels with the Securities and Exchange Commission, including quarterly reports on Form, 10-Q, reports on Form 8-K and annual reports on Form 10-K. Reference is hereby made to the “Risk Factors” set forth in the Form 10-K for the fiscal year ended December 3 1, 1996 filed by Patriot American Hospitality, Inc., Patriot American Hospitality Operating Company, Wyndham Hotel Corporation and Interstate Hotels.

OPENFORWARD-LOOKING STATEMENTS: “The terms of this placement reflect our belief that paired sharesare MARKET significantly undervalued today. Through the price adjustment mechanism, weare able to issue equity today, COMPLAINT enhancing our financial flexibility, while also retaining the ability to re-price the equity issuance during the coming 438 twelve months.’’

0319890001 NY Doc 213390~2 5 DATE TITLE CAUTIONARY WARNINGS

3/27/98 PAH Says Pending This press release contains forward-looking statements within the meaning of Transactions Unaffected by Section 27A of the Securities Act of 1933 and Section 21E of the Securities IRS Restructuring Proposal Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include competition for guests from other hotels, dependence upon business and commercial travelers and tourism, the seasonality of the hotel industry, availability of equity or debt financing at terms and conditions favorable to the Companies and the status of proposed tax legislation regarding the paired-share structure.

OPENFORWARD-LOOKING STATEMENTS: The provisions in the IRS reform legislation resemble proposals contained in MARKET the Clinton Administration's FY99 Revenue Proposals as well as companion bills introduced yesterday by Senate COMPLAINT Finance Committee Chairman William Roth (R-DE) and Senate Finance Committee Ranking Democrat Daniel 741 Patrick Moynihan (D- NY),and House Waysand Means Chairman Bill Archer (R-TX). The proposed legislation would subject paired-share REITs, whose current structure was grandfathered in the Deficit Reduction Act of 1984, to rules similar to those in the 1984Act that precluded other companies from adopting the paired-share tax structure but only with respect to properties acquired after March 26, 1998. We are pleased that congressional leaders recognized our commitment to pending transactions by including appropriate transition language that allows us to closethese transactions as originally announced within our existing structure. We have confirmed with outside counsel that each of the Interstate.. ., as well as certain other pending acquisitions, are protected by the transition relief. We remain convinced that the paired-share structure is a legitimate and efficient vehicle for providing continued and long-term value to shareholders. Patriot will continue to work with our industry partners, as well as congressional leaders, to evaluate the potential long-term implications of the proposed legislation. This proposed legislation will not deter Patriot from continuing its proven internal and external growth strategies which, in 1997, drove Patriot's market capitalization from $1.1 billion to more than $5 billion.

0319890001 NYDoc 213390~2 6 DATECAUTIONARYWARNINGS TITLE

5/4/98 PAH and Wyndham This press release contains forward-looking statements within the meaning of Announce First Quarter Section 27A of the Securities Act of 1933 and Section 21E of the Securities Results Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include competition for guests from other hotels, dependence upon business and commercial travelers and tourism, the seasonality of the hotel industry, availability of equity or debt financing at terms and conditions favorable to the Companies, and the status of proposed tax legislation regarding the paired-share structure.

OPENFORWARD-LOOKING STATEMENTS: "With our strong first quarter performance this year, Patriot American's MARKET profitability reflects our progress in both internal operations, the successful integration of several completed COMPLAINT acquisitions, including Wyndham, our core upscale brand, and our seasonally strong first quarter ... During the first 445 quarter, we completed $1.4 billion in acquisitions and invested approximately $25 million to renovate or re-brand a total of 21 properties. We are proud to report that while we've spent a great deal oftime and effort integrating our newly acquired companies, we've also remained focused on driving FFO growth which, in the first quarter, rose 47% per diluted share. Looking ahead, the ongoing integration of our acquired properties and companies, coupled with the application of these companies' best practices and collective management expertise, create theopportunity for further improvements in profitability over last year's levels," [defendant Nussbaum stated.] "The excellent first quarter performance of the Company's owned portfolio underscores our commitment to operational excellence and best-of-class practices ... In addition to very positive industry conditions, the integration of ourrecent acquisitions is on track and is providing opportunities to implement proven, successful business practices throughout our portfolio," [said defendant Carreker].

0319890001 NYDoc 213390~2 7 DATETITLE CAUTIONARY WARNINGS

7/29/98 PAH and Wyndham This press release contains forward-looking statements within the meaning of Announce 2"d Quarter Section 27A of the Securities Act of 1933 and Section 21E of the Securities Results Exchange Act of 1934. The company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include competition for guests from other hotels, dependence upon business and commercial travelers and tourism, the seasonality of the hotel industry, and the availability of equity or debt financing at terns and conditions favorable to the Companies.

OPEN MARKET FORWARD-LOOKING STATEMENTS:According to [defendant] Nussbaum. "We are pleased with our second-quarter COMPLAINT results, which we believe illustrate our ability to achieve operational excellence amidst the intense completion of 760 several key corporate acquisitions including Interstate Hotels.Arcadian International and Summerfield Hotel Corporation. These three transactions, representing an aggregate investment of approximately $2.7 billion, strategically substantiate our position as a fully integrated, multiple- branded hotel company by providing us upscale hotel assets in major metropolitan markets, both domestically and internationally, that we can convert to our core Wyndham brand.. ." [Defendant Nussbaum continued,] "We continue to work diligently on theeffective integration of our newlyacquired companies with remaining focused on driving FFO growth which, in the second quarter, increased by 260.4%, or 34.8% per share (diluted). Finally, with retard to the passage of the IRS Restructuring Bill, we expect to enjoy significant internal and external growth, sometime in the third quarter. We are proud of our dynamicprogress and expect that the continued application of ouracquired companies' best practices will further enhance our profitability in the coming quarters." (

0319890001 NYhc 213390~2 8 DATE TITLE CAUTIONARYWARNINGS

911 6/98 PAH and Wyndham This press release contains forward-looking statements within the meaning of Announce Boards of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Directors Have Reached Exchange Act of 1934. The company’s actual results could differ materially Decision Regarding from those set forth in the forward-looking statements. Certain factors that Restructuring might cause such a difference include competition for guests fkom other hotels, dependence upon business and commercial travelers and tourism, the seasonality of thehotel industry, and the availability of equity or debtfinancing at terms and conditions favorable to the Companies.

0319890001 NY Doc 213390~2 9 r

OPEN MARKET FORWARD-LOOKINGSTATEMENTS: ...the decision to maintain the paired-share structure is consistent with Patriot CoMPLAlNT American's and Wyndham International's priority of maximizing the Company's internal growth potential. "AS we 761 were reviewing several well-conceived alternatives, we couldnot ignore the simple factthat the acquisitions we've completed thus far are protected withinthe language of the IRS Restructuring Bill. Our investment of $4.5 billion in nine corporate acquisitions increased the size of ourportfolio by 105 owned assets, 258 management contracts, 136 leases and nine franchises, representing a total of 91,3 15 rooms, in a one-year period. This amassed portfolio will continue to provide us withsignificant internal growth opportunities. We believe very strongly in the viability of our internal growth strategy, which focuses on broadening the distribution among ourexisting assets of our core Wyndham and Grand Bay proprietary brands, continuing to realize economies of scale through the integration of all of our acquired companies, and managing our properties so as to continue to enjoy one ofthe highest operating improvements in the industry. The decision to maintain the paired-share structure is consistent with achieving our internal growth goals." [According to defendant Carreker,] maintaining the current structure underscores the boards of directors' confidence in the Company's management expertise and enables the company to continue with its aggressive brand distribution strategies. "We are proud of ouraccomplishments as a paired-share REIT, not the least of which has been amassing the most experienced and highly regarded hospitality management team in the industry. Given our status as a fully integrated, multiple-branded operating company with the management expertise of nine proven operating companies in one, and given our operational achievements - including impressive and consistent growth in RevPAR and the highest GOP margin in the industry -- we believe that we are well-poised to reap continued benefits from our aggressive acquisition pace over the past 12 months while increasing the distribution and elevating the status of our proprietary brands. Today's announcement marks a pivotal moment for our companies, one that represents an inordinate amount of time, analysis and deliberation, but one that also reiterates our confidence in the Company's . fundamental strengths," he said. With regard to future development and acquisitions, [defendant] Nussbaum said, "Clearly, we are now in a position where we are not dependent on future acquisitions to grow. However, we expect to continue to explore development and acquisition opportunities that may prove strategic for the company in broadening the distribution of our core ( Wyndham and Grand Bay brands, and we will make these acquisitions in a manner that does not violate the recently passed anti-paired- share legislation. That is, we would proceed with future development and acquisition opportunities through joint ventures or byestablishing taxable subsidiaries on an as-needed basis. [Nussbaum continued] "As a responsible company focused on the long term, we and our boards regularly review our strategies and our objectives in order to ensure that we continue to maximize shareholder value. To that end, our boards will continue to evaluate these strategies and objectives, and will entertain structural and operational modifications as deemed necessary and in the strategic best interests of the Company.

031989OOOlNYDof 213390~2 10 "In total, we are confident that electing to maintain our existing structure provides us with a clear and efficient path to continued internal growth. Similarly, we continue to believe that maintaining the paired-share REIT structure enables us to maintain our financial flexibility, protecting both our funds from operations and our dividend stream and thereby, continuing to provide shareholders the best possible return on their investment," [defendant] Nussbaum said. Goldman, Sachs & Co. and PaineWebber Inc. served as advisers to Patriot American through the analysis of structural alternatives.

031989M)OI NY Doc 213390~2 11 DAT E TITLE CAUTIONARYWARNINGS TITLE DATE

1 1/9/98 PAH and Wyndham This press release contains forward-looking statements within the meaning of Announce 3rdQuarter Section 27A of the Securities Act of 1933 and Section 2 1E of the Securities Results Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include competition for guests from other hotels, dependence upon business and commercial travelers and tourism, the seasonality of the hotel industry, and availability of equity or debt financing at terms and conditions favorable to the Companies and other factors detailed in the i Companies Quarterly Report on Form 10-Q dated June 30,1998, Current Report on Form 8-K dated November 9, 1998, Registration Statement on Form S-3 (File No. 333-58705) and Registration Statement on Form S-3 (File No. 333-65339)

0319890001 NYhc 213390~2 12 OPEN MARKET FORWARD-LOOKINGSTATEMENTS: According to defendant] Nussbaum, "While many of our accomplishments this COMPLAINT quarter related to integration. property conversions, operating improvements and broadened visibility for our core 764 brands have been greatly diminished by significant world events, including a global credit crunch that has crippled the world's debt markets and temporarily delayed certain of ourdebt transactions planned for the third and fourth quarters, we have remained and will continue to be focused on our industry-leading operational excellence. Building a global company that can survive the inevitable real estate and lodging cycles, as well as the inherently dynamic nature of Wall Street, will continue to be our foremost priority, and I believe that in this year's third quarter, we made significant progress toward that end. Having endured hurricanes, floods and other severe weather, as well as experiencing the normal and predictable, third-quarter contraction that reflects the seasonality of ourbusiness, we still posted respectable gains in revenues per available room (RevPAR) of 5.1 % . . .well ahead of the industry average for upscale i hotels of 2.5%. Finally, while this has been the most challenging quarter in our company's history, we realized a substantial increase of 89% in funds from operations over last year's comparable period; however, due to income recognition issues related to certain management agreements, we reported FFO per share of 34 cents, rather than the 40 cents we expected to announce, in the third quarter. Assuming acceptable resolution of these issues and given the excellent results submitted for the month of October, we expect to reach consensus FFO per share estimates, in aggregate, for the second half of 1998. In total, while this quarter has not been our most successful due to the delay of certain transactions we expected to occur in the third quarter, we remain convinced that we are building a powerhouse company for the long term." According to [defendant] Carreker, "Overall, we are pleased with our operational performance this quarter and attribute the significant RevPAR increases of many of our converted properties to the strength of ourdramatically growing brand.. ..Wealso are extremely proud of theperformance of ourEuropean Properties that we acquired earlier this year as part of the Arcadian International transaction: the 11 Arcadian properties which we expect to re-brand next year collectively achieved an impressive RevPAR increase of 9.3%, with the Malmaison properties reporting a 15.2% increase. We look forward to achieving even greater improvements once these properties are added to our central reservations system."

0319890001 NYDoc 213390~2 13 DATECAUTIONARYWARNINGS TITLE

12/16/98 Patriot Announces $1 This press release contains forward-looking statements within the meaning of Billion Equity Investment Section 27A of the Securities Act of 1933 and Section 21E ofthe Securities by Investor Group Exchange Act of 1934. The Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include competition for guests from other hotels, dependence upon business and commercial travelers and tourism, the seasonality of the hotel industry, and availability of equity or debt financing at terms and conditions favorable to the Company and other factors detailed in the Company’s Quarterly Report on Form 10-Q dated September 30, 1998 (File No. 001 -093 19), Current Report on Form 8-K dated November 9, 1998, Registration Statement on Form S-3 (File No. 333-58705) and Registration Statement on Form S-3 (File No. 333-65339)

0319890001 NY Doc 213390~2 14 OPEN MARKET FORWARD-LOOKING STATEMENTS:"[Patriot] today announced that it has entered into a letter of intent with a group COMPLAINT of investors to make a $ 1 billion equity investment in the Company. The investor group is comprised of Apollo Real 773 Estate Advisors, L.P., Apollo Management, L.P., Thomas H. Lee Company, Beacon Capital Partners, Inc. andRosen Consulting Group (together, the "Investors"). "We are very pleased to have these outstanding firms proposing this substantial equity investment in Patriot," said Paul A. Nussbaum, Chairman, and Chief Executive Officer of Patriot American Hospitality, Inc. "This investment will provide the foundation for our recapitalization plan which will include the repayment of maturing debt and settlement of forward equity obligations. In addition, the investment will enable Patriot to reduce leverage, improve liquidity and allow the Company to continue to implement its business plan. The infusion of new equity capital will increase the Company's financial alternatives, all of which will be focused on maximizing long-term shareholder value." James D. Carreker, Chairman and Chief Executive Officer of Wyndham International, Inc. added, "This investment represents a strong vote of confidence from the investment (1 community in Patriot's hotel operating capabilities and the strategic growth of its proprietary brands." Pursuant to the letter of intent, the Investors would purchase $1 billion of Convertible Preferred Stock (the "Preferred Stock"). In addition, the letter of intent allows the Company to replace up to $400 million of thePreferred Stock with alternative financing, including a rights offering to Patriot's existing shareholders. The Preferred Stock, when issued, will be convertible into common shares at the lesser of $10.00 or 122.5% of Patriot's average closing price for the 20 trading days ending 10 days immediately preceding the date of theshareholder vote to approve the investment, but not less than the closing bid price as of December 15, 1998. The Preferred Stock will be entitled to a 9.75% dividend, payable quarterly, and a pro rata share of dividends paid on Patriot's fully diluted common stock, determined on an as converted basis .... If the Company enters into an alternative transaction with a third party, the Company will be obligated to pay the Investors $30 million and reimburse the Investors for certain expenses.

. .

. ‘d

RISK DISCLOSURES FROM PATRIOT SEC FILINGS

Risk Disclosures re: Patriot’s Rapid Growth and its Ability to Service its Debt ...... 2

Risk Disclosures re: Patriot’s REIT Status ...... 20

Risk Disclosures re: The Forward Equity Contracts ...... 43 RISK DISCLOSURES RE: PATRIOT'S RAPID GROWTH AND ITS ABILITY TO SERVICE ITS DEBT

JUNE2,1997, SCHEDULE14A

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER. Patriot is currently experiencing a period of rapid growth. Assuming all of the Proposed Acquisitions are consummated, New Patriot REIT's hotel portfolio will include 70 hotels, aggregating 16,833 rooms, representing a 300% increase in the size of New Patriot REIT's room portfolio since Patriot's Initial Offering. In connection with the Merger and the Related Transactions, New Patriot Operating Company will be responsible for the horse racing operations of Bay Meadows and the hotel management operations of certain of New Patriot REIT's hotels. If the Proposed Wyndham Transactions are consummated, New Patriot REIT will acquire an additional 34 owned and leased hotels with an aggregate of 7,949 rooms as well as Wyndham's 64 managed and franchised properties throughout North America and management and franchise agreements that have been executed for 15 properties that are currently closed for renovation or construction or are in the process of being converted to the Wyndham brand. The integration of departments, systems and procedures of Patriot with those being acquired in connection with the Merger and the Related Transactions and the Proposed Wyndham Transactions presents a significant management challenge, and the failure to integrate such companies and properties into Patriot's management and operating structures could have a material adverse effect on the results of operations and financial condition of New Patriot REIT and New Patriot Operating Company. (p.44-5)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS. Subsequent to the consummation of the Merger and the Related Transactions, the amount of pro forma combined debt New Patriot REIT and New Patriot Operating Company will assume is approximately $579.9 million as compared to no indebtedness of Bay Meadows and Cal Jockey (excluding the $2,900,000 Loan payable to Patriot under certain circumstances). The pro forma ratio of combined debt to total market capitalization' of New Patriot REIT and New Patriot Operating Company assuming an aggregate indebtedness of approximately $579.9 million will be approximately 29.6%. The calculation of the pro forma ratio of combined debt to total market capitalization is based on a $41 1/2 closing price of the Paired Shares of Cal Jockey Common Stock and Bay Meadows Common Stock on May 28, 1997. New Patriot REIT and New Patriot Operating Company also may borrow additional amounts from the same or other lenders in the future, or may issue corporate debt securities in public or private offerings. In this regard, (i) PaineWebber Real Estate has agreed to increase Patriot's availability under the Line of Credit from $475 million to $625 million (as of May 28, 1997, $471.2 million was outstanding under the Line of Credit) and (ii) Patriot has entered into a commitment letter with PaineWebber Real Estate and Chase concerning replacing the Line of Credit with the New Credit Facility which will have availability of up to $1.2 billion. Neither the Restated Charters northe Restated Bylaws limit the amount of indebtedness New Patriot REIT or New Patriot Operating Company may incur. See "The Companies--Surviving Companies.'' There can be no assurance that New Patriot REIT and New Patriot Operating Company, following consummation of the Merger and

2 the Proposed Acquisitions, will be able to meet their debt service obligations and, to the extent that they cannot, New Patriot REIT and New Patriot Operating Company risk the loss of some or all of their assets, including their hotels, to foreclosure. Adverse economic conditions could cause the terms on which borrowings become available tobe unfavorable. In such circumstances, if New Patriot REIT or New Patriot Operating Company is in need of capital to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or moreinvestments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of New Patriot REIT and New Patriot Operating Company may adversely affect the market price of the paired shares of New Patriot REIT Common Stock and New Patriot Operating Company Common Stock following the Merger and may inhibit the ability of New Patriot REIT and New Patriot Operating Company to raise capital in both the public and private markets following the consummation of the Merger and the Related Transactions. (p. 45)

LACK OF EXPERIENCE IN HOTEL MANAGEMENT BUSINESS. Following consummation of the Merger, New Patriot Operating Company will manage certain newly acquired hotels as well as certain of Patriot's existing hotels that will be re-leased to New Patriot Operating Company. Although certain executives of Patriot have hotel management experience, neither New Patriot Operating Company nor Bay Meadows has any prior experience in the hotel management business. The future success of New Patriot Operating Company and its ability to operate hotels as well as manage future growth depend in large part on its ability to attract and retain key executive officers and other highly qualified personnel, especially in the area of hotel operations. There can be no assurance that New Patriot Operating Company will be able to attract and retain qualified personnel and the inability to do so could have a material adverse effect on the results of operations and financial condition of New Patriot Operating Company and New Patriot REIT. (p. 45)

NOVEMBER 3,1997,S-3 REGISTRATIONSTATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES. The Corporation is currently experiencing a period of rapid growth. The Companies areor will be responsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of the operations of theCorporation's predecessor, Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"). In addition, the Companies may acquire other new businesses in the future. The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions into existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.6)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. As of September 30, 1997, the Companies' combined debt was approximately $727.2 million and the Companies' ratio of combined debt to total market capitalization was approximately 21.7%. The Companies also may borrow additional amounts from the same or

3 other lenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securitiesin public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, ifthe Corporation orthe Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (p.6-7)

LACK OF EXPERIENCE IN HOTEL MANAGEMENT BUSINESS. The Corporation leases certain existing hotels and intends to lease other existing hotels and a significant portion of its newly-acquired hotels to the Operating Company. Although certain executivesof the Corporation have hotel management experience, the Operating Company has no prior experience in the hotel management business. The future success of the Operating Company and its ability to operate hotels as well asmanage future growth depend in large part on its abilityto attract and retain key executive officers and other highly qualified personnel, especially in the area of hotel operations. There can be no assurance that the Operating Company will be able to attract and retain qualified personnel and the inability to do so could have a material adverse effect on the results of operations and financial condition of the Companies. (p.7)

NOVEMBER10,1997, S-4 REGISTRATIONSTATEMENT

FAILURE TOMANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER. Patriot REIT is currently experiencing a period of rapid growth. Based upon the respective portfolios of the Patriot Companies and Wyndham at November 3,1997, after giving effect to the Merger and the Related Transactions and the Crow Assets Acquisition, the Patriot Companies will have an aggregate hotel portfolio, including owned, managed, leased and franchised hotels, consisting of 190 hotels in operation, with an aggregate of over 45,700 rooms. Such portfolio will consist of 113 owned hotels, 13 hotels leased from independent third parties, 56 managed hotels and 8 franchised hotels. The Patriot Companies' aggregate portfolio following the Merger would represent an increase in the Patriot Companies' rooms portfolio of over 41,500 rooms since the Initial Offering. The integration of departments, systems and procedures of the Patriot Companies with those being acquired in connection with the Merger and the Related Transactions, the Crow Assets Acquisition, and those that may be acquired in connection with the CHCI Merger and the WHG Merger, presents a significant management challenge, and any failure to successfully integrate such companies and properties into the Patriot Companies' management and operating structures could have a material adverse effect on the results of operations and financial condition of thePatriot Companies. (p. 58)

4 SUBSTANTIAL DEBT OBLIGATIONS. Subsequent to the consummation of the Merger and the Related Transactions and the Crow Assets Acquisition, the Patriot Companies will have approximately $1.5 billion of pro forma combined total indebtedness as of June 30, 1997(including the $100 million of Cash Consideration to be paid by Patriot REIT pursuant to Cash Elections), as compared to pro forma combined total indebtedness of the Patriot Companies of $766.4 million as of June 30, 1997. The pro forma ratio of combined debt to total market capitalization of the Patriot Companies, assuming an aggregate indebtedness of approximately $1.5 billion, will be approximately 28.7%. The calculation of the pro forma ratio of combined debt to total market capitalization is based on a $31 1/2 closing price of the Paired Shares on November 3, 1997. The Patriot Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions or may issue corporate debt securities in public or private offerings. Substantially all ofthe Patriot Companies' combined debt bears interest at a variable rate and Patriot REIT currently expects that the Term Loan, if consummated, will bear interest at a variable rate. Neither the Restated Charters nor the Restated Bylaws limit the amount of indebtedness Patriot REIT or Wyndham International may incur. See "The Companies--Surviving Companies." There can be no assurance that the Patriot Companies, following consummation of the Merger and the Related Transactions, and the Crow Assets Acquisition, will be able to meet their debt service obligations and, to the extent that they cannot, the Patriot Companies risk the loss of some or all of their assets, including their hotels, to foreclosure. Adverse economic conditions could cause the terms on which borrowings becomeavailable to be unfavorable. In such circumstances, if Patriot REIT or Wyndham International is in need of capital to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Patriot Companies may adversely affect the market price of the Paired Shares following the Merger and may inhibit the ability of the Patriot Companies to raise capital in both the public and private markets following the consummation of the Merger and the Related Transactions. (p. 59)

ACQUISITION AND DEVELOPMENT RISKS. The Patriot Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companieswill fail to perform in accordance with expectations and that estimates of the costof improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement riskssuch as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that Patriot REIT generally is required to distribute 95%of its ordinary taxableincome in order to maintain its qualification as a REIT may limit Patriot REIT's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or Patriot REIT's cash available for distribution might be adversely affected. (p.61)

5 NOVEMBER12,1997, S-4 REGISTRATION STATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER. The Patriot Companies are currently experiencing a period of rapid growth. Based upon the respective portfolios of the Patriot Companies and WHG and the assets being acquired in the Other Transactions, at November 7, 1997, after giving effect to the Merger and the Other Transactions, the Patriot Companies would have had an aggregate hotel portfolio, including owned, managed, leased and franchised hotels, consisting of 194 hotels, with an aggregate of over 47,975 guest rooms. Such portfolio would have consisted of 116 owned hotels, 13 hotels leased from independent third parties, 56 managed hotels and 8 franchised hotels. Assuming all of the Other Transactions are consummated, the Patriot Companies' aggregate portfolio following the Merger would include a total of 193 hotels, totaling over 47,975 guest rooms, which would represent an increase in the Patriot Companies' rooms portfolio of over 43,375 rooms sincethe Initial Offering. The integration of departments, systems and procedures of the Patriot Companies with those being acquired in connection with the Merger and the Other Transactions presents a management challenge, and any failure to successfully integrate such companies and properties into the Patriot Companies' management and operating structures could have a material adverse effect on the results of operations and financial condition of the Patriot Companies. (p.39)

SUBSTANTIAL DEBT OBLIGATIONS. Subsequent to the consummation of the Merger and the Other Transactions, the Patriot Companies will have approximately $1.5 billion of pro forma combined total indebtedness as of June30, 1997, (approximately $23.5 million attributable to the Merger)as compared to pro forma combined total indebtedness ofthe Patriot Companies, without giving effect to the Merger and the Other Transactions, of $766.4 million as of June 30, 1997. The pro forma ratio of combined debt to total market capitalization of the Patriot Companies, assuming an aggregate indebtedness of approximately $1.5 billion, will be approximately 28.7%. The calculation of the pro forma ratio of combined debt to total market capitalization is based on the $30.50 closing price of thePaired Shares on theNYSE on October 27, 1997. The Patriot Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions or may issue corporate debt securities in public orprivate offerings. Substantially all ofthe Patriot Companies' combined debt bears interest at variable rates and Patriot currently expects that the Term Loan, if consummated, will bear interest at a variable rate. There can be no assurance that the Patriot Companies, following consummation of the Merger and the Other Transactions, will be able to meet their debt service obligations and, to the extent that they cannot, the Patriot Companies risk the loss of some or all of their assets, including their hotels, to foreclosure. Adverse economic conditions could cause the terms on which borrowing becomes available to be unfavorable. In such circumstances, if the Patriot Companies are in need of capital to repay indebtedness in accordance with its terms orotherwise, they could be required to liquidate oneor more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Patriot Companies may adversely affect the market price of thePaired Shares following the Merger and may inhibit

6 the ability of the Patriot Companies to raise capital in both the public and private markets following the consummation of the Merger and the Other Transactions. (p.39-40)

ACQUISITION AND DEVELOPMENT RISKS. The Patriot Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operatingcompany acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that Patriot generally is required to distribute 95% of its ordinary taxable income in order to maintain its qualification as a REIT may limit Patriot's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or Patriot's cash available for distribution might be adversely affected. (p.45)

DECEMBER16,1997 S-4 REGISTRATIONSTATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER AND THE OTHER TRANSACTIONS. The Patriot Companies currently are experiencing a period of rapid growth. Since the Initial Offering in October 1995, the Patriot Companies have consummated acquisitions of Cal Jockey and Bay Meadows, Carefree Resorts, Grand Heritage Hotels and Gencom, and have entered into definitive agreements relating to the acquisition of Wyndham, the Crow Assets, CHCI, WHG and IHC. Based upon the respective portfolios of the Patriot Companies, Wyndham and IHC at December 1, 1997, the Patriot Companies' aggregate rooms portfolio after giving effect to the Other Transactions will be approximately 103,000 rooms, representing an increase in the Patriot Companies' rooms portfolio of over 98,800 since Patriot's Initial Offering. Failure of the Patriot Companies to expand their operations to satisfy the needs of a rapidly growing asset base in a functionally and economically efficient manner, or the failure ofthe Patriot Companies to successfully integrate their operations with those being acquired could have a material adverse effect on the results of operations and financial condition of the Patriot Companies, and could result in the Patriot Companies' failure to recognize the anticipated benefits of these acquisitions. (P.42)

SUBSTANTIAL DEBT OBLIGATIONS Subsequent to the consummation of the Merger and the Other Transactions, the Patriot Companies will have approximately $2.8 billion of pro forma combined total indebtedness (approximately $22.4 million attributable to the Merger) as compared to pro forma combined total indebtedness of the Patriot Companies, without giving effect to the Merger, the PatriotAHC Merger and the Wyndham Transactions, of $790 million. The pro forma ratio of combined debt to total market capitalization of the Patriot Companies,

7 assuming an aggregate indebtedness of approximately $2.8 billion, will be approximately 39.6%. The calculation of the pro forma ratio of combined debt to total market capitalization is based on the $28.50 closing price of the Paired Shares on the NYSE on December 12, 1997. The Patriot Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions or may issue corporate debt securities in public or private offerings. Substantially all of the Patriot Companies' combined debt bears interest at variable rates and Patriot currently expects that the Term Loan will bear interest at a variable rate. The interest rate of the Revolving Credit Facility bears interest at a variable rate based, in part, on the Patriot Companies' leverage ratio. The Patriot Companies anticipate that the Term Loan will bear interest on similar terms. Consequently, the incurrence of indebtedness in connection with the Patriot/IHC Merger, and the resulting increase in the Patriot Companies' leverage ratio, may result in increased interest expense under the Revolving Credit Facility and a higher interest rate on the Term Loan, ifconsummated. The Patriot Companies may issue additional equity securities in an attempt to lower their debt to market capitalization ratio. There can be no assurance that the Patriot Companies, following consummation of the Merger and the Other Transactions, will be able to meet their debt service obligations and, to the extent that they cannot, the Patriot Companies risk the loss of some or all of their assets, including their hotels, to foreclosure. Adverse economic conditions could cause the terms on which borrowing becomes available to be unfavorable. In such circumstances, if the Patriot Companies are in need of capital to repay indebtedness in accordance with its terms or otherwise, they could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Patriot Companies may adversely affect the market price of the Paired Shares following the Merger and may inhibit the ability of the Patriot Companies to raise capital in both the public and private markets following the consummation of the Merger, and the Other Transactions. (p.42-43)

ACQUISITION AND DEVELOPMENT RISKS.The Patriot Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that Patriot generally is required to distribute 95% of itsordinary taxable income in order to maintain its qualification as a REIT may limit Patriot's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or Patriot's cash available for distribution might be adversely affected. (p.45)

8 JANUARY 13,1998, S-4 REGISTRATION STATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS. The Patriot Companies are currently experiencing a period of rapid growth. Since the Initial Offering in October 1995, the Patriot Companies have consummated the acquisitions of, among others, Cal Jockey and Bay Meadows, Carefree Resorts, Grand Heritage Hotels, Gencom, Old Wyndham and the Crow Assets and have entered into definitive agreements relating to the acquisitions of CHCI, WHG and Interstate. Based upon the respective portfolios of the Patriot Companies and Interstate at January 6, 1998, the Patriot Companies' aggregate rooms portfolio after giving effect to the Merger, the Other Transactions and the acquisition of the Holiday Inn Beachwood Hotel, will be approximately 103,700 rooms, representing an increase in the Patriot Companies' rooms portfolio of approximately95,500 since the Initial Offering. Failure of the Patriot Companies to expand their operations to satisfy the needs of a rapidly growingasset base in a functionally and economicallyefficient manner, or thefailure of the Patriot Companies to integratetheir operations successfully with those being acquired, could have a material adverse effect on the results of operations and financial condition of the Patriot Companies, and could result in the Patriot Companies' failure to recognize theanticipated benefits of these acquisitions. (p.25)

SUBSTANTIAL DEBT OBLIGATIONS Subsequent to the consummation of the Merger and the Other Transactions, the Patriot Companieswill have approximately $2.9 billion of pro forma combined total indebtedness (approximately$1.2 billion attributable to the Merger), as compared to pro forma combined total indebtedness of the Patriot Companies, without giving effect to the Merger and the Other Transactions, of $1.7 billion. The pro forma ratio of combined debt to total market capitalization of the Patriot Companies, assuming an aggregate indebtedness of approximately $2.9 billion, will be approximately41.2%. The calculation of the pro forma ratio of combined debt to total market capitalization isbased on a $27.06 closing price for the Paired Shares on the NYSE on January 6, 1998. The Patriot Companies may issue additional equity securities in an attempt to lower their debt to market capitalization ratio. No assurance can be given, however, that the Patriot Companies will be able to issue any such equity securities, or that any such issuance will be on terms favorable to the Patriot Companies. Substantially all of thePatriot Companies' combined debt bears interest at variablerates, although the Patriot Companies have entered into hedging transactions with respect to approximately$375 million of suchvariable rate debt, effectively converting the variable rate obligations to fixed rate obligations. The interest rates on the Patriot Companies' Revolving Credit Facility and Term Loan bear interest at variable rates based, in part, on the Patriot Companies' leverage ratio. Consequently, the incurrence of indebtedness in connection with the Merger, and the resulting increase in the Patriot Companies' leverage ratio, may resultin increased interest expense under the Revolving Credit Facility and a higherinterest rate on the Term Loan. In addition, increases in market interest rates will also result in increased borrowing cost for the Patriot Companies, which would adversely affect the Patriot Companies' cash flow and the amounts available for distributions to theirstockholders. There can be no assurance that the PatriotCompanies, following consummation of the Merger and the Other Transactions, will be able to meet their debt service obligations and, to theextent that they cannot, the Patriot Companies risk the loss of some or all of their assets, including their hotels, to foreclosure. Adverse economic conditions could cause the terms on whichborrowings become available to be unfavorable. In such circumstances,if the PatriotCompanies are in need of capitalto repay indebtedness in

9 accordance with its terms or otherwise, they could be required to liquidate oneor more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with the debt obligations ofthe Patriot Companies may adversely affect the market prices for the Paired Shares following the Merger and may inhibit the ability of thePatriot Companies to raise capital in both the public and private markets following the consummation of the Merger and the Other Transactions. (p.25-26)

ACQUISITION AND DEVELOPMENT RISKS. The Patriot Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companieswill fail to perform in accordance with expectations and that estimates ofthe cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks suchas receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that Patriot generally is required to distribute 95% ofits ordinary taxable income in order to maintain its qualification as a REIT may limit Patriot's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or Patriot's cash available for distribution might be adversely affected. (p.33)

JANUARY26,1998,424B3 PRXYMATERIALS

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES. The Corporation is currently experiencing a period of rapid growth. The Companies areor will beresponsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of theoperations of the Corporation's predecessor, Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"). In addition, the Companies may acquire other new businesses in the future, The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions into existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.6)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. The Companies have obtained an unsecured revolving line of credit that expires on July 18, 2000 (the "Revolving Credit Facility") and a term loan that expires on January 31, 1999 (the "Term Loan") from certain lenders. As of January 7, 1998 the Companies' combined debt was approximately $793.4 million and the Companies' ratioof combined debt to total market capitalization was approximately 32.71%. The Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with

10 acquisitions, or may issue corporate debt securities in public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if the Corporation or the Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. (p.6-7)

LACK OF EXPERIENCE IN HOTEL MANAGEMENT BUSINESS. The Corporation leases certain existing hotels and intends to lease other existing hotels and a significant portion of its newly-acquired hotels to the Operating Company. Although certain executives of the Corporation have hotel management experience, the Operating Company has no prior experience in the hotel management business. The future success of the Operating Company and its ability to operate hotels as well as manage future growth depend in large parton its ability to attract and retain key executive officers and other highly qualified personnel, especially in the area of hotel operations. There can be no assurance that the Operating Company will be able to attract and retain qualified personnel and the inability to do so could have a material adverse effect on the results of operations and financial condition of the Companies. (p.7)

ACQUISITION AND DEVELOPMENT RISKS. The Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operatingcompany acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that the Corporation generally must distribute 95% of its ordinary taxable income in order to maintain its qualification as aREIT may limit the Corporation's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p. 12)

FEBRUARY 13,1998,S-3 REGISTRATIONSTATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES.The Corporation iscurrently experiencing a period of rapid growth. The

11 Companies areor will be responsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of the operationsof the Corporation's predecessor, Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"). In addition, the Companies may acquire other new businesses in the future. The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions into existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.7)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. The Companies have obtained an unsecured revolving line of credit that expires on July 18, 2000 (the "Revolving Credit Facility") and a term loan that expires on January 31, 1999 (the "Term Loan") from certain lenders. Asof February 1 1 , 1998 the Companies' combined debt was approximately $1,652.4 million and the Companies' ratio of combined debt to total market capitalization was approximately 34.2%. The Companies alsomay borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securities in public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some orall of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if the Corporation or the Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (p.7)

The Patriot Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, maypursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that Patriot generally is required to distribute 95% of its ordinary taxable income in order to maintain its qualification as a REIT may limit Patriot's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further

12 acquisitions or development activities might be curtailed or Patriot's cash available for distribution might be adversely affected. (p.35)

APRIL29,1998, S-3 REGISTRATIONSTATEMENT

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. The Companies have obtained an unsecured revolving line of credit that expires on July 18, 2000 (the "Revolving Credit Facility") and a term loan that expires on January 31, 1999 (the "Term Loan") from certain lenders. As of April 24, 1998 the Companies' combined debt was approximately $2.0 billion and the Companies' ratio of combined debt to total market capitalization was approximately 38.0%. The Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securities in public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, ifthe Corporation or the Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (p.8)

ACQUISITION AND DEVELOPMENT RISKS. The Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operatingcompanies will fail to perform in accordance with expectations and that estimates ofthe cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that the Corporation generally must distribute 95% of its ordinarytaxable income in order to maintain its qualification as a REIT may limit the Corporation's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p. 12)

13 MAY 4,1998,S-3 REGISTRATIONSTATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES. The Corporation is currently experiencing a period of rapid growth. The Companies are or will be responsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of the operations of Patriot. In addition, the Companies may acquire other new businesses in the future. The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions into existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.7)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. The Companies have obtained an unsecured revolving line of credit that expires on July 18, 2000 (the "Revolving Credit Facility") and a term loan that expires on January 31, 1999 (the "Term Loan") from certain lenders. As of April 24, 1998 the Companies' combined debt was approximately $2.0 billion and the Companies' ratio of combined debt to total market capitalization was approximately 38.0%. The Companies also may borrow additional amounts from the same or otherlenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securities in public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, ifthe Corporation or the Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (p.7-8)

JULY 8,1998,S-3 REGISTRATIONSTATEMENT

14 project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that the Corporation generally must distribute 95% of itsordinary taxable income in order to maintain its qualification as aREIT may limit the Corporation's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p. 12)

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES. The Corporation is currently experiencing a period of rapid growth. The Companies areor will be responsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of the operations of Patriot. In addition, the Companies may acquire other new businesses in the future. The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions into existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.5)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. The Companies have obtained an unsecured revolving line of credit that expires onJuly 18, 2000 (the "Revolving Credit Facility") and a series of term loans that expire beginning January 3 1, 1999 through March 3 1, 2003 (the "Term Loans") from certain lenders. As of June 23, 1998, the Companies' combined debt was approximately $3.6 billion and the Companies' ratio of combined debt to total market capitalization was approximately 49.1 %. The Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securities in public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if the Corporation orthe Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (P.6)

15 acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates ofthe cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion.The fact that the Corporation generally must distribute 95% of its ordinary taxable income in order to maintain its qualification as a REIT may limit the Corporation's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p.9)

SEPTEMBER25,1998, S-3 REGISTRATIONSTATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES The Corporation is currently experiencing a period of rapid growth. The Companies are responsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of the operations of Patriot. In addition, the Companies may acquire other new businesses in the future. The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions into existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.5)

SUBSTANTIAL DEBT OBLIGATIONS; NO LIMITS ON INDEBTEDNESS; VARIABLE RATE DEBT. The Companies have obtained an unsecured revolving line of credit that expires on July18, 2000 (the "Revolving Credit Facility") and a series of term loans that expire beginning January 3 1, 1999 through March 3 1, 2003 (the "Term Loans") from certain lenders. As of September 22, 1998, the Companies' combined debt was approximately $3.8 billion and the Companies' ratio of combined debt to total market capitalization (without taking into account any shares of Paired Common Stock or cash deposited as collateral with the counterparties to the Price Adjustment Mechanisms (as defined below)) was approximately 59%. The Companies also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securities in public or private offerings. The Companies' organizational documents do not limit the amount of indebtedness the Companies may incur. Further, substantially all of the Companies' combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, ifthe Corporation orthe Operating Company is in need of funds to repay

16 indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximumreturn on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (P.5-6)

ACQUISITION AND DEVELOPMENT RISKS. The Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement riskssuch as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that the Corporation generally must distribute 95% ofits ordinary taxable income in order to maintain its qualification as a REIT may limit the Corporation's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p. 1 1)

OCTOBER5,1998, S-3 REGISTRATION STATEMENT

WE HAVE SUBSTANTIAL DEBT OBLIGATIONS; THERE ARE NO LIMITS ON INDEBTEDNESS WE MAY INCUR; MOST OF OURDEBT BEARS INTEREST AT A VARIABLE RATE. We have obtained an unsecured revolving line of credit that expires on July 18, 2000 (the "Revolving Credit Facility") and a series of term loans that expire beginning January 3 1, 1999through March 3 1,2003 (the "Term Loans") from certain lenders. As of, 1998, our combined debt was approximately $ billion and our ratio of combined debt to total market capitalization (without adjustment for any shares of Paired Common Stock or cash currently on deposit as collateral with the counterparties to the Price Adjustment Mechanisms (as defined below)) was approximately %. We also may borrow additional amounts from the same or other lenders in the future, may assume debt in connection with acquisitions, or may issue corporate debt securities in public or private offerings. Our organizational documents do not limit the amount of indebtedness we may incur. Further, substantially all of our combined debt bears interest at a variable rate. Economic conditions could result in higher interest rates, which could increase debt service requirements on variable rate debt and could adversely affect our ability to make distributions. There can be no assurance that we will be able to meet our debt service obligations and, to the extent that we cannot, we may lose some or all of our assets, including the hotels: Adverse economic conditions could cause the terms on which we borrow to worsen. In such circumstances, if the Corporation or the Operating Company is in need of funds to repay indebtedness, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing

17 risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (p.6)

ACQUISITION AND DEVELOPMENT RISKS. We currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companies will fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement risks such as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that the Corporation generally must distribute 95% of its ordinary taxable income in order to maintain its qualification as a REIT may limit the Corporation's ability to rely upon lease income from its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p. 1 1)

OCTOBER8,1998, POS AM AMENDMENT TO REGISTRATIONSTATEMENT

FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS; NEW BUSINESSES. The Companies have recently experienced a period of rapid growth. The Companies are responsible for the management and operation of several new businesses, including direct hotel management, branding and franchising and thoroughbred racing, which were previously not part of the operations of Patriot. In addition, the Companies may acquire other new businesses in the future. The integration of departments, systems and procedures presents a significant management challenge, and the failure to integrate new acquisitions in to existing management and operating structures could have a material adverse effect on the results of operations and financial condition of the Corporation and the Operating Company. (p.5)

18 which could increase debt service requirements on variable rate debt and could adversely affect the Companies' ability to make distributions. There can be no assurance that the Companies will be able to meet their debt service obligations and, to the extent that they cannot, the Companies risk the loss of some or all of their assets, including the hotels. Adverse economic conditions could cause the terms on which borrowings become available to be unfavorable. In such circumstances, if the Corporation orthe Operating Company is in need of funds to repay indebtedness in accordance with its terms or otherwise, it could be required to liquidate one or more investments in properties at times which may not permit realization of the maximum return on such investments. The foregoing risks associated with debt obligations of the Companies may inhibit the ability of the Companies to raise capital in both the public and private markets. (P.5-6)

ACQUISITION AND DEVELOPMENT RISKS. The Companies currently intend to pursue acquisitions of additional hotels and hotel operating companies and, under appropriate circumstances, may pursue development opportunities. Acquisitions entail risks that such acquired hotels or hotel operating companieswill fail to perform in accordance with expectations and that estimates of the cost of improvements necessary to market, acquire and operate properties will prove inaccurate as well as general risks associated with any new real estate or operating company acquisition. In addition, hotel development is subject to numerous risks, including risks of construction delays or cost overruns that may increase project costs, new project commencement riskssuch as receipt of zoning, occupancy and other required governmental approvals and permits and the incurrence of development costs in connection with projects that are not pursued to completion. The fact that the Corporation generally must distribute 95% of itsordinary taxable income in order to maintain its qualification as a REIT may limit the Corporation's ability to rely upon lease income ffom its hotels or subsequently acquired properties to finance acquisitions or new developments. As a result, if debt or equity financing were not available on acceptable terms, further acquisitions or development activities might be curtailed or the Corporation's cash available for distribution might be adversely affected. (p. 1 1)

NOVEMBER17,1998, NT 10-Q QUARTERLYREPORT

No assurances can be made regarding theavailability or terms of additional sources ofcapital for the Companies in the future and no assurances can be given regarding the Companies' ability to successfully refinance or extend the maturity of existing indebtedness. No assurances can be given regarding the Companies' success in securing any amendments to the Revolving Credit Facility. Additionally, in the absence of such amendments, no assurances can be given that the Companies will continue to meet the reduced EBITDA coverage ratio requirements which go into effect in December under the Revolving Credit Facility. If the Companies are unable to secure additional sources of financing in the future, are unable to successfully refinance existing indebtedness, or are unable to obtain amendments to existing covenants under the Revolving Credit Facility, no assurance can be made that the Companies will be able to meet their financial obligations as they come due or that the lack of future financing sources would not have a material adverse effect on the Companies' financial condition and results of operations. (p.2)

19 RISK DISCLOSURES RE: PATRIOT'S REIT STATUS

JUNE2,1997, SCHEDULE14A

DEPENDENCE ON QUALIFICATION AS A REIT. New Patriot REIT will operate in a manner designed to permit it to qualify as a REIT for federal income tax purposes, but no assurance can be given that New Patriot REIT will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to a corporation with which its stock is paired. Qualification asa REIT also involves the determination of various factual matters and circumstances not entirely within New Patriot REIT's control. In addition, New Patriot REIT's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT ifits stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as New Patriot Operating Company. The "grandfathering" rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a paired REIT ifthe REIT and its paired operating companywere paired on June 30, 1983. There are, however, no judicialor administrative authorities interpreting this "grandfathering" rule in the context of a merger or otherwise. Moreover, if for any reason Cal Jockey failed to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would not be available to Cal Jockey or New Patriot REIT, in which case neither Cal Jockey nor New Patriot REIT would qualify as a REIT for any taxable year. In addition, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT (includingthe "grandfathering" rules of Section 269B) orthe federal income tax consequences of such qualification. If New Patriot REIT fails to qualify as a REIT, New Patriot REIT will be subject to federal income tax (including any applicable alternative minimum tax) on its taxableincome at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion above regarding the impact if Cal Jockey failed to qualify as a REIT in 1983, New Patriot REIT also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of New Patriot REIT available for distribution to stockholders because of the additional tax liability to New Patriot REIT for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to stockholders would have been made in anticipation of New Patriot REIT's qualifying as a REIT, New Patriot REIT might be required to borrow hnds or to liquidate certain of its investments to pay the applicable tax. The failure to qualifyas a REIT would also constitute a default under certain debt obligations of New Patriot REIT. Qualification of New Patriot REIT as a REIT for periods following the Merger also generally depends on the REIT qualification of each of Cal Jockey and Patriot for periods prior to the Merger. Moreover, if either of Cal Jockey or Patriot has failed to qualify as a REIT in any year in which it elected to qualify and consequently becomes liable to pay taxes as a regular non-REIT corporation, the

20 1

liabilities of New Patriot REIT will include any such tax liability. Each of Cal Jockey and Patriot believes that it has operated and will operate through the Merger in a manner that permits it to qualify as a REIT under the Code for each taxable year since its formation. In connection with the mailing of this Joint Proxy StatementProspectus, Goodwin, Procter & Hoar llp has rendered an opinion regarding (i) Patriot's qualification asa REIT for periods prior to the Merger, (ii) Cal Jockey's qualification as a REIT for periods prior to the Merger and (iii) New Patriot REIT's qualification asa REIT following the Merger. Cal Jockey's acquisition of Patriot's general and limited partner interests in the Patriot Partnership and Patriot's indirect interests in the subsidiary partnerships ofthe Patriot Partnership involves special tax considerations which may adversely impact New Patriot REIT's ability to qualify as a REIT following the Merger. See "Certain Federal Income Tax Considerations--Tax Aspects of New Patriot REIT's Investment in the Patriot Partnership and New Patriot Operating Company's Investment in the New Patriot Operating Partnership.'' In order for New Patriot REIT to maintain its qualification as a REIT, not more than 50% in value of its outstanding stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code). In addition, rents paid by New Patriot Operating Company to New Patriot REIT will not constitute qualifying income for purposes of the REIT income tests if anyperson actually or constructively owns 10% or more of the outstanding paired shares of New Patriot REIT Common Stock and New Patriot Operating Company Common Stock. See "Certain Federal Income Tax Considerations." For the purpose of preserving New Patriot REIT's qualification as a REIT, the Restated Charters will prohibit actual or constructive ownership of more than 9.8% of each company's outstanding common stock by any person. The constructive ownership rules are complex and may cause common stock owned, actually or constructively, by a group of related or unrelated individuals and/or entities to be deemed to be constructively owned byone individual or entity. As a result, the acquisition of less than 9.8% of the outstanding paired shares of New Patriot REIT Common Stock and New Patriot Operating Company Common Stock (or the acquisition of an interest in an entity which owns paired shares of New Patriot REIT Common Stock and New Patriot Operating Company Common Stock) by an individual or entity could cause that individual or entity (or another individual or entity) to own constructively in excess of 9.8% of the outstanding paired shares of NewPatriot REIT Common Stock and New Patriot Operating Company Common Stock, and thus subject such common stock to the Ownership Limit. Actual or constructive ownership of paired shares of New Patriot REIT Common Stock and New Patriot Operating Company Common Stock in excess of theownership limit would cause the violative transfer or ownership to be void or cause such shares to be transferred to a charitable trust and then sold to a person or entity who can own such shares without violating the ownership limit. In addition, because the relevant constructive ownership rules are broad and it is not possible to monitor continually direct and indirect transfers of shares, no absolute assurance can be given that the foregoing provisions will be effective to prevent a violation of the Ownership Limit and the consequent failure of New Patriot REIT to qualify as a REIT. (p.42-3)

NOVEMBER 10,1997,S-4 REGISTRATIONSTATEMENT

DEPENDENCE ON QUALIFICATION AS A REIT. Patriot REIT has operated, and following the Merger, Patriot REIT will operate, in a manner designed to permit it to qualify as a REIT for

21 federal income tax purposes, but no assurance can be given that Patriot REIT has operated or will be ableto continue to operate in amanner so asto qualify or remain so qualified. Qualificationas a REIT involves the application of highly technical and complexCode provisions for which thereare only limited judicial or administrativeinterpretations. The complexity of these provisions is greaterin the case of a REIT that owns hotels and leases them to an operating company with which its stock is paired. Qualification as a REIT also involves the determination of various factual mattersand circumstances not entirely within Patriot REIT's control. In addition, Patriot REIT's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporationfrom qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistentwith REIT status, such as Patriot Operating Company and, following the Merger, Wyndham International. The "grandfathering" rulesgoverning Section 269B generally provide, however, that Section269B(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 judicialoradministrative authorities interpreting this "grandfathering" rule in the context of a merger or otherwise. Moreover, if for any reason Cal Jockey failed to qualify as a REITin 1983, the benefitof the "grandfathering" rule would not be available to Patriot REIT, in which case Patriot REIT would not qualify as a REIT for any taxable year. On November 5,1997, Representative WilliamArcher, Chairman of the Ways and Means Committee of the United States House of Representatives, publicly announced that he plans to review this "grandfathering" rule to determine whether there shouldbe future restrictions on companies that are grandfathered. While Representative Archer stated he does not plan to eliminate the grandfathering rule, no assurancecan be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT (including the "grandfathering" rules of Section 269B) or the federal income tax consequences of such qualification. The adoption of any such legislation, regulations or administrative interpretationscould have a material adverse effect on the results of operations, financial condition and prospects of the Patriot Companies. Qualification of Patriot REIT asa REIT forperiods following the Mergeralso generally depends on theREIT qualification of Patriot REIT for periods prior to the Merger and the REIT qualification of Old Patriot REIT for periods prior to the Cal Jockey Merger. If Patriot REIT fails to qualify as a REIT, Patriot REIT will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable incomeat corporate rates. In addition, unless entitled to reliefunder certain statutory provisions and subject to the discussion above regarding the impact if Patriot REIT failed to qualify as a REITin 1983, PatriotREIT also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualifyas a REIT would reducethe net earningsof Patriot REIT available for distribution to stockholders because ofthe additional tax liability to PatriotREIT for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributionsto stockholders would have been made in anticipationof Patriot REIT's qualifying as a REIT, Patriot REIT might be required to borrow funds or to liquidate certain of its investments topay the applicable tax. The failure to qualify as aREIT would also constitute a default under certain debt obligations of Patriot REIT. Patriot REIT believes that it has operated (and that prior to the Cal Jockey Merger, Old Patriot REIT operated), and will operate through the Merger, in a manner that permits Patriot REIT to qualify as a REIT under the Code for each taxable year since its formation. Goodwin, Procter & Hoar LLP, counsel for Patriot REIT, has

22 rendered an opinion regarding (i) Patriot REIT's qualification as a REIT for periods prior to the Merger and (ii) Patriot REIT's ability to qualify as a REIT following the Merger. (p.60-1)

NOVEMBER12,1997 S-4 REGISTRATION STATEMENT

Dependence on Qualification as a REIT Patriot has operated, and following the Merger, Patriot will operate, in a manner designed to permit it to qualify as a REIT for federal income tax purposes, but no assurance can be given that Patriot has operated or will be able to continue to operate in a manner as to so qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating company with which its stock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within Patriot's control. In addition, Patriot's ability to qualify as a REIT is dependent upon its continued exemption from the anti- pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) 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 PAHOC. The "grandfathering" rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a paired REIT if the REIT and its paired operating company were paired on June 30,1983. There are, however, no judicial or administrative authorities interpreting this "grandfathering" rule in the context of a merger or otherwise. Moreover, if for any reason Cal Jockey failed to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would not be available to Patriot, in which case Patriot would not qualify as aREIT for any taxable year. On November 5, 1997, Representative William Archer, Chairman of the Ways and Means Committee of the House of Representatives, publicly announced that the plans to review this "grandfathering" rule. While Representative Archer stated that he does not plan to eliminate the "grandfathering" rule, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as aREIT (including the "grandfathering" rules of Section 269B) orthe federal income tax consequences of such qualification. Qualification of Patriot as a REIT for periods following the Merger also generally depends on the REIT qualification of Patriot for periods prior to the Merger and the REIT qualification of Old Patriot for periods prior to the Cal Jockey Merger. If Patriot fails to qualify as a REIT, Patriot will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion above regarding the impact if Patriot failed to qualify as a REIT in 1983, Patriot also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of Patriot available for distribution to stockholders because of the additional tax liability to Patriot for the year or years involved. In addition, distributions would no longer be required to be made. Tothe extent that distributions to stockholders would have been made in anticipation of Patriot's qualifying as a REIT, Patriot might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify asa REIT would also constitute a default under certain debt obligations of Patriot. Patriot believes that it has operated (and that prior to the Cal Jockey

23 Merger, Old Patriot operated), and will operate through the Merger, in a manner that permits Patriot to qualify as REITa under the Code foreach taxable year since its formation. (p.41)

DECEMBER16,1997, S-4 REGISTRATION STAMEMENT

Dependence on Qualification as a REIT Patriot has operated, and following the Merger, Patriot will operate, in a manner designed to permit it to qualify as a REIT for federal income tax purposes, but no assurance can be given that Patriot has operated or will be able to continue to operate in a manner as toso qualify or remain so qualified. Qualification as a REIT involvesthe application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating company with which itsstock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within Patriot's control. In addition, Patriot's ability to qualify as a REITis dependent upon itscontinued exemption from the anti- pairingrules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent withREIT status, such as PAHOC. The 'grandfathering' rules governing Section 269B generallyprovide, however, that Section 269B(a)(3) doesnot apply to a pairedREIT if the REIT and its paired operating company were paired on June 30, 1983. There are, however, no judicial or administrative authorities interpreting this 'grandfathering' rule in the context of a merger or otherwise. Moreover, if for any reason Cal Jockeyfailed to qualify as a REITin 1983, the benefit of the 'grandfathering' rule would not be available to Patriot, in which case Patriot would not qualifyas a REIT forany taxable year. On November 5, 1997,Representative William Archer, Chairman of the Ways and Means Committee ofthe House of Representatives, publiclyannounced that heplans to review this'grandfathering' rule. While Representative Archer stated that he does not plan to eliminate the 'grandfathering' rule, no assurance can be given that new legislation, new regulations, administrative interpretations or court decisionswill not change the tax laws with respect to qualification as a REIT (including the 'grandfathering' rules of Section 269B) orthe federal income tax consequences of suchqualification. Qualification of Patriot as a REIT also generally depends on the REIT qualification of Old Patriot for periods prior to the Cal Jockey Merger. If Patriot fails to qualify as a REIT, Patriot will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion above regarding theimpact if Patriot failed to qualifyas a REIT in 1983, Patriot alsowill be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reducethe net earningsof Patriot available for distribution to stockholders because of the additional tax liability to Patriot for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to stockholders would have been made in anticipation of Patriot's qualifying as a REIT, Patriot might be required to borrow funds or to liquidate certainof its investments to pay the applicable tax. The failure to qualifyas a REIT would also constitute a defaultunder certain debt obligations of Patriot. (p.41)

24 JANUARY 13,1998, S-4 REGISTRATIONSTATEMENT

Dependence on Qualification as a REIT Patriot has operated, and following the Merger, Patriot will continue to operate, in a manner designed to permit it to qualify as a REIT for federal income tax purposes, but no assurance can be given that Patriot has operated or will be able to continue to operate in a manner as to so qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating company with which its stock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirelywithin Patriot's control. In addition,Patriot's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent acorporation from qualifyingas a REIT if itsstock is paired withthe stock ofa corporation whose activities are inconsistent with REIT status, such as Wyndham International. The "grandfathering" rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a paired REIT if the REIT and its paired operating company were paired onJune 30, 1983.There are, however, no judicialor administrative authorities interpreting this "grandfathering" rule in the context of a merger or otherwise. Moreover, if for any reason Cal Jockey failed to qualify as a REIT in 1983, the benefit of the "grandfathering" rule would not be available to Patriot,in which case Patriotwould not qualify as a REIT for any taxable year. On November 5, 1997, Representative WilliamArcher, Chairman of the Ways and Means Committee of the United States House of Representatives, publicly announced that he plans to review this "grandfathering" rule to determine whether there shouldbe future restrictions on companies that are grandfathered. While Representative Archer stated that he does not plan toeliminate the "grandfathering"rule, no assurancecan be given that new legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT (including the "grandfathering" rules of Section 269B) or the federal income tax consequences of such qualification. Qualification of Patriot as a REIT also generally depends on the REIT qualification of Old Patriot for periods prior to the Cal Jockey Merger. If Patriotfails to qualify as a REIT, Patriot will be subject tofederal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates. In addition, unless entitled to reliefunder certain statutory provisions and subject to the discussion above regarding the impact if Cal Jockey failed to qualify asREIT a in 1983, Patriot alsowill be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REITwould reduce the net earnings of Patriot available for distribution to stockholders because ofthe additional tax liability to Patriot for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to stockholders would have been made in anticipation of Patriot's qualifying as a REIT, Patriot might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of Patriot. Patriot believes that it has operated (and that prior to the Cal Jockey Merger, Old Patriot operated), and will operate through the Merger, in a manner that permits Patriot to qualify as a REIT under the Code for each taxable year since its formation. In connection with the mailing of this Joint Proxy Statemenflrospectus, Goodwin, Procter & Hoar llp will render an opinion to the effectthat (i) for periods ending on or before the

25 date of such opinion, Patriot hasqualified to be treated as a REIT and (ii) for subsequent periods, including periods followingthe Merger, Patriot willbe organized in conformity with the requirements for qualification as a REIT and the proposed manner of operations of Patriot will enable Patriotto continue to qualifyas a REIT. (p. 28)

JANUARY 26,1998, 424B3 PROXY MATERIALS

Dependence on Qualification as aReal Estate Investment Trust The Corporation will operate in. a manner designed to permit it to qualify as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, asamended (the "Code"), but no assurance can be giventhat the Corporation will beable to continue to operate in amanner so asto qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases themto an operating company with which its stock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within the Corporation's control. In addition, the Corporation's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistentwith REIT status,such as theOperating Company. The"grandfathering" rules governing Section 269B generally provide, however,that Section 269B(a)(3) doesnot 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. Moreover, if for any reason the Corporation had failed toqualify as REITa in 1983,the benefit of the "grandfathering" rule would not be available to it, in which case the Corporation would not qualify as a REIT for any taxable year. On November 5, 1997, Representative William Archer, Chairman ofthe Ways and Means Committee of the House of Representatives,publicly announced that heplans to review this"grandfathering" rule. While Representative Archer stated that he does not plan to eliminatethe "grandfathering" rule,no assurance can begiven that new legislation, new regulations, administrative interpretationsor court decisions willnot change the tax laws with respect to qualification as a REIT (including the "grandfathering" rules of Section 269B) or the federal income taxes of such qualification. If the Corporation fails to qualify as aREIT, the Corporation will be subjectto federal income tax (includingany applicable alternative minimum tax)on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisionsand subject to the discussion above regarding the impact if the Corporation failed to qualify as a REIT in 1983, the Corporation also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of the Corporation available for distributionto stockholders becauseof the additional tax liability to the Corporation for the year oryears involved. In addition,distributions would nolonger be required to be made. To the extent that distributions to stockholders would have been made in anticipation of the Corporation's qualifying as a REIT, the Corporation might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to

26 qualify as a REIT would alsoconstitute a default under certain debt obligationsof the Corporation.(p.6)

FEBRUARY 13,1998,S-3 REGISTRATIONSTATEMENT

The Corporation has been and will continue to be operated in a manner intended to allow it to qualify as a REIT. The Corporation intends to operate in the future in a manner so that the Corporation will continue to qualify as a REIT. If the Corporation fails to qualify as a REIT in any taxable year, the Corporation will be subject to federal income taxation as if it were a domestic corporation, and the Corporation's stockholders will be taxed in the same manner as stockholders of ordinarycorporations. In thisevent, the Corporation could be subject to potentiallysignificant tax liabilities, and the amount of cashavailable for distributionto stockholders would be reduced and possibly eliminated. Unless entitled to relief under certain Code provisions, and subject to the discussionbelow regarding Section 269B(a)(3) of theCode, the Corporation also would be disqualified from re-electing REIT status for the four taxable years following the year duringwhich qualification was lost. Failure of the Corporation's predecessor,Patriot, to have qualified as a REIT alsocould cause the Corporation to be disqualified as a REIT and/or subject the Corporation to significant tax liabilities. Goodwin, Procter & Hoar, LLP, special tax counsel to the Corporation, has rendered an opinion to the Corporation to the effect that commencing with the taxable year ending December 31, 1983, the Corporationhas been organized and operated in conformity with therequirements for qualification and taxation as a REIT under the Code, and the Corporation's proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code. Investors should be aware, however, that opinions of counsel are not binding upon the IRS or any court. Goodwin, Procter& Hoar LLP's opinion is based on various assumptions and is conditioned upon certain representations madeby the Corporation regarding the Corporation's and Patriot'scompliance with the requirements for REIT qualification. Counsel hasnot verified and will not verify the Corporation'sand Patriot's compliance with these tests. Any inaccuracyin such assumptions and representations could adverselyaffect this opinion. Qualification and taxation as a REIT depends upon the Corporation's having met and continuingto meet, through actual annual operating results, the distributionlevels, stock ownership, and other various qualification tests imposed under the Code. Goodwin, Procter & Hoar LLP has not reviewed and will not review the Corporation's compliancewith those tests on acontinuing basis. Moreover,qualification as a REIT involves the applicationof highly technical and complexCode provisions for which thereare only limited judicial or administrative interpretationsand the determination of variousfactual matters and circumstances not entirely within the Corporation's control. The complexityof these provisions is greater in the case of a REIT that owns hotels and leases them to a corporation with which its stock is paired. Accordingly, no assurancecan be given that the Corporation will satisfysuch tests on a continuing basis. As mentioned above, the opinion of Goodwin, Procter& Hoar LLP is based on current law and changes in the applicable law could adversely affect the Corporation's ability to qualify as a REIT. (p. 7)

IMPACT OF PROPOSEDTAX LEGISLATION. The Corporation's exemption of the anti- pairing rules and its ability to utilize the paired structure could be revoked or limited as a result

27 J offuture legislation. In that regard,on November 5, 1997, RepresentativeWilliam Archer, Chairmanof the Ways and MeansCommittee of theHouse of Representatives,publicly announced that he plans to review the grandfathering rule to determine whether thereshould be future restrictions on companies that are grandfathered. In addition, on February 2, 1998, the Clinton Administration released a description of the Tax Proposals included in its 1999 budget proposals. If enacted, the Tax Proposals would impose a freeze on the grandfathered status of paired share REITs such as the Corporation and a prohibition on REITs acquiring, after the effective date of the legislation, common stock of a corporation representing morethan 10% of the vote or value of all classes of stock of the corporation. There can be no assurance that such legislation or other legislation affecting REIT qualification or operationswill not be enacted, and anysuch legislation could havea material effect on theoperation of theCompanies. For example, the Tax Proposals, if enacted,would prevent the Operating Company from leasing and operating real estate assets such as hotelsacquired by the Corporation after the effectivedate of the legislation. In addition, undercurrent law, to the extent that the Corporation acquires certain management or other assets that cannot be directly held by a REIT the Operating Company generallymay contribute such assets to a taxable corporate subsidiary controlled by the Operating Company, subjectto the asset teststhat limit the valueof non-real estate assetsheld by a REIT and subject to the requirements that a REIT may not hold more than 10% of the voting stock of a single corporation. The Tax Proposals would generally prohibit the use of such a structure for assets contributed to such a corporate subsidiary aft& the effective date of the legislation, unless the Corporation held 10% or less of the value, as well as the vote, of the corporation. See the applicable Prospectus Supplement for further discussion of this issue and any recent developments relating thereto. (p.1 1)

MARCH31,1998,lO-K

PROPOSED LEGISLATION AFFECTING THE PAIREDSHARE STRUCTURE. Patriot's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section269B(a)(3) of the Code. Section 269B(a)(3) would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired withthe stock of acorporation whose activitiesareinconsistent with REIT status, such as Wyndham International.The "grandfathering"rules governing Section 296B generally provide, however, that Section 296B(a)(3) does not apply to a paired REIT if theREIT and the paired operating company were paired on June 30, 1983. Patriot's and Wyndham International's respective precedessors, Cal Jockey and Bay Meadows, were paired on June 30, 1983. There are, however, no judicial or administrative authorities interpreting this "grandfathering" rule in the context of a merger or otherwise. Patriot's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation. In this regard, on February 2, 1998,the Department of Treasury released an explanationof the revenue proposals included in the Clinton Administration's fiscal 1999 budget (the"Tax Proposals"). The Tax Proposals, among other things, include a freeze on the grandfathered status of paired share REITs such as Patriot. Under the Tax Proposals, Patriot and Wyndham International would be treated as oneentity with respectto properties acquired on or afterthe date of the first Congressional committee action with respect to such proposal and with respect to activities or services relatingto such properties that are undertaken or performed by one of thepaired entities

28 on or after such date. The Tax Proposals would also prohibit REITs from holding stock of a corporation possessing more than 10%of the vote or value of all classes of stock ofthe corporation. This proposal would be effective with respect to the stock acquired on or after the date of first Congressional committee action with respect to the proposal; provided that the proposal would not apply to stock acquired before such effective date if, on or after such date, the subsidiary corporation engaged in a new trade or business or acquired substantial new assets. On March 26, 1998, William Archer, Chairman of the Ways and Means Committee of the United States House of Representatives and William V. Roth, Jr., Chairman of the Finance Committee of the United States Senate, introduced identical legislation (the "Proposed Legislation") in both theHouse of Representatives and the Senate to limit this "grandfathering rule." Under the Proposed Legislation, the anti-pairing rules provided in the Code would apply to real property interests acquired after March 26, 1998 by Patriot and Wyndham International, or a subsidiary or partnership in which 10% or greater interest is owned by Patriot or Wyndham International (collectively, the "REIT Group"), unless (1) the real property interests are acquired pursuant to a written agreement which is binding on March 26, 1998 and all times thereafter or (2)the acquisition of such real property interests were described in a public announcement or in a filing with the Securities and Exchange Commission on or before March 26, 1998. In addition, the Proposed Legislation also provides that a property held by Patriot or Wyndham International that is not subject to the anti-pairing rules would become subject to such rules in the event of an improvement placed in service after December 3 1, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (x) the undepreciated cost of the property (prior to the improvement) or (y) in the case of property acquired where there is a substantial basis, the fair market value ofthe property on theday it was acquired by Patriot and Wyndham International. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect as of December 3 1, 1999 and at all times thereafter. The above discussion is based solely on the Tax Proposals and the Proposed Legislation. The Proposed Legislation will not become effective unless it is duly passed by Congress and signed by the President. It is impossible at this time to determine all of the ramifications which could result from enactment of the Proposed Legislation. However, Patriot believes that the previously announced and pending acquisitions of Interstate, Arcadian and Summerfield are unaffected by the Proposed Legislation and expects that such acquisitions will be completed as currently scheduled. (p.9)

APRIL29,1998, S-3 REGISTRATIONSTATEMENT

REAL ESTATE INVESTMENT TRUST TAX RISKS. The Corporation operates in a manner designed to permit it to qualify as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the Todell), but no assurance can be given that the Corporation has operated or will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating company with which its stock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within the Corporation's control. Qualification ofthe Corporation as a REIT also generally

29 depends on the REIT qualification of Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"), for periods prior to July 1, 1997, at which time the Corporation (formerly known as California Jockey Club) merged with Patriot, with the Corporation being the surviving corporation (the Tal Jockey Merger"). If the Corporation fails to qualify asa REIT, the Corporation will be subject to federal income tax (including any applicable alternative minimum tax)on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion below regarding the impact if the Corporation failed to qualify as a REIT in 1983, the Corporation also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of the Corporation available for distribution to stockholders because of the additional tax liability to the Corporation for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to stockholders would have been made in anticipation of the Corporation's qualifying as a REIT, the Corporation might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of the Corporation. Exemption from Anti-Pairing Rules; Risks of Adverse Legislation The Corporation's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as the Operating Company. The "grandfathering" rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a paired REIT if the REIT and its paired operating company were paired on June 30, 1983. There are, however, no judicial or administrative authorities interpreting the application of this grandfathering rule in the context of a merger into a grandfathered REIT or otherwise. Moreover, although the Corporation's and the Operating Company's respective predecessors, California Jockey Club (Tal Jockey") and Bay Meadows Operating Company ("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 grandfathering rule would not be available to the Corporation and the Corporation would not qualify as a REIT for any taxable year. The Corporation's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation. In this regard, on February 2, 1998, the Department of Treasury released an explanation of the revenue proposals included in the Clinton Administration's fiscal 1999 budget (the "President's Tax Proposals"). The President's Tax Proposals, among other things, include a freeze on the grandfathered status of paired share WITS such as the Corporation. Under the President's Tax Proposals, the Corporation and the Operating Company would be treated as one entity with respect to properties acquired on or after the date of the first Congressional committee action with respect to such proposal and with respect to activities or services relating to such properties that are undertaken or performed by oneof the paired entities onor after such date. The President's Tax Proposals would also prohibit REITs from holding stock of a corporation possessing more than 10% of the vote or value of all classes of stock of the corporation. This proposal would be effective with respect to the stock acquired on or after the date of first Congressional committee action with respect to the proposal; provided that the proposal would not apply to stock acquired before such effective date if, on or after such date, the subsidiary corporation engaged in a new trade or business or acquired substantial new assets. On March 26, 1998, William Archer, Chairman of the Ways

30 Ir

and Means Committee of the United States House of Representatives and William V. Roth, Jr., Chairman of the Finance Committee of theUnited States Senate, introduced identical legislation (the "Proposed Legislation") in both the House of Representatives and the Senate to limit the existing grandfathering rule of Section 269B(a)(3).Under the Proposed Legislation, the anti- pairing rules provided in the Code generally would apply for certain of the REIT qualification requirements to real property interests acquired directly or indirectly afterMarch 26, 1998 by the Corporation or the Operating Company, or a subsidiaryor partnership in which a10% or greater interestis owned by theCorporation or the OperatingCompany (collectively, the "REIT Group"), unless (i) thereal property interests are acquired pursuant to a written agreement which is binding onMarch 26, 1998 and all timesthereafter or (ii) the acquisition of such real property interests was described in a public announcementor in a filing with the Commission on or before March 26, 1998. In addition, the Proposed Legislation also provides that a property held by the Corporation or the Operating Company that is not subject to the anti-pairing ruleswould become subject to such rules in the event of an improvement placed in service after December 3 1, 1999 that changes the use of the property and thecost 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 thereis a substitutedbasis, the fair market value of the propertyon the day it was acquired by the Corporationand the Operating Company. There is an exceptionfor improvements placed in service before January1,2004 pursuant to a binding contract in effect as of December3 1, 1999 and at alltimes thereafter. On April 23, 1998, theSenate Finance Committee reported favorably on the Internal Revenue Service Restructuringand Reform Act of 1998, incorporating language substantially identical to the Proposed Legislation. In addition, immediately prior to the introduction of the Proposed Legislation, Representative Mac Collins introduced legislation that would simply terminate the existing grandfathering rule. The above discussion is based solely on the President's Tax Proposals and the Proposed Legislation. It is impossible at this time to determine all of the ramificationswhich could result from enactment of the Proposed Legislation or the President's Tax Proposals. However, the Corporation believes that its ability to close pending acquisitions pursuant to binding agreements entered into or announced on or before March 26, 1998 will be unaffected by the Proposed Legislation. The Corporation is evaluating the impact of theProposed Legislation (if enacted in its current form) onthe Corporation's proposedmethod of operations and future acquisitions, as well as the Corporation's response to such legislation if enacted, and investors should be aware that the Proposed Legislation couldhave an adverse impact onthe Corporation. In addition,if the Proposed Legislation were modified prior to enactment, it is possible that action taken by the Corporation since March 26, 1998 in reliance on the Proposed Legislation as currently drafted, could adversely affect the Corporation's abilityto qualify as a REIT. (p.5)

MAY4,1998, S-3 REGISTRATIONSTATEMENT

31 interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating company with which its stock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely withinthe Corporation's control. Qualification of the Corporation as a REIT alsogenerally depends on the REIT qualification of Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"), for periods prior to July 1, 1997, at which time the Corporation (formerly known as CaliforniaJockey Club) merged with Patriot, with the Corporation being thesurviving corporation(the Tal JockeyMerger"). If the Corporationfails to qualify as a REIT, the Corporation will be subject to federal income tax (including any applicable alternativeminimum tax)on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussionbelow regarding the impact if the Corporation failed to qualify as a REIT in 1983, the Corporation also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of the Corporation available for distribution to stockholders becauseof the additional tax liability to the Corporationfor the year or years involved. In addition, distributions would no longer be required to be made. To the extent thatdistributions to stockholders would have been made in anticipationof the Corporation's qualifying as a REIT, the Corporation might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of the Corporation. Exemption from Anti-Pairing Rules; Risks of Adverse Legislation The Corporation's ability to qualify as a REIT is dependent upon itscontinued exemption from theanti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as the Operating Company. The "grandfathering" rules governing Section 269B generally provide, however,that Section 269B(a)(3) doesnot apply to a paired REIT if the REIT and its paired operating company were pairedon June 30, 1983. There are,however, no judicialor administrative authorities interpreting the application ofthis grandfatheringrule in the context of a merger intoa grandfathered REIT or otherwise. Moreover, although the Corporation's and the Operating Company's respective predecessors, CaliforniaJockey Club (Tal Jockey") and Bay MeadowsOperating Company ("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 grandfathering rule would not be available to the Corporation and theCorporation would not qualifyas a REIT forany taxable year. The Corporation's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation.In this regard, on February 2, 1998, the Department of Treasury released an explanation of the revenue proposals included in the Clinton Administration's fiscal 1999 budget (the "President's Tax Proposals"). The President's Tax Proposals, among other things, include a freeze on the grandfathered status of paired share REITs such as the Corporation. Under the President's Tax Proposals, the Corporation and the Operating Companywould be treated as one entity with respect to propertiesacquired on or after the date of the first Congressional committee action with respect to such proposal and with respect to activities or services relating to such properties that are undertaken or performed by oneof the paired entitieson or after such date. The President's Tax Proposals would also prohibit REITs from holding stock of a corporation possessing more than 10% of the vote or value of all classes ofstock of the corporation. This proposal would be effective with respect to

. the stock acquired on or afterthe date of first Congressional committee action with respect to the proposal; provided that the proposal would not apply to stock acquired before such effective date if, on orafter such date, the subsidiary corporation engaged in a new tradeor business or acquired substantial new assets. On March 26, 1998, William Archer, Chairman of the Ways and Means Committee of the United States House of Representatives and William V. Roth, Jr., Chairman of the Finance Committee of the United States Senate, introduced identical legislation (the "Proposed Legislation") in both the House of Representatives and the Senate to limit the existing grandfathering rule of Section 269B(a)(3).Under the Proposed Legislation, the anti- pairing rules provided in the Code generally would apply for certain of the REIT qualification requirements toreal property interests acquired directlyor indirectly after March 26, 1998 by the Corporation or the Operating Company, or a subsidiary or partnership in which a10% or greater interestis owned bythe Corporation or theOperating Company (collectively, the "REIT Group"), unless (i) thereal property interests areacquired pursuant to a written agreementwhich is binding on March 26, 1998 and all times thereafteror (ii) the acquisition of suchreal property interests was describedin a public announcement orin a filingwith the Commission onor before March 26, 1998. In addition, the Proposed Legislation also provides that a property held by the Corporation or the Operating Companythat is not subject to the anti-pairing ruleswould become subject to such rules in the event of an improvement placed in service after December 3 1, 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, thefair market value of the property on the dayit was acquired by the Corporation and theOperating Company. There is an exceptionfor improvements placed in service before January1,2004 pursuant to a binding contractin effect as ofDecember 31, 1999 and at alltimes thereafter. On April 23,1998, the Senate Finance Committee reported favorablyon the Internal Revenue Service Restructuring and ReformAct of 1998, incorporating language substantially identical to the Proposed Legislation. In addition, immediately prior to the introduction of the Proposed Legislation, Representative Mac Collins introduced legislation that would simply terminate the existing grandfathering rule. The above discussion is based solely on the President's Tax Proposals and the Proposed Legislation. It is impossible at this time to determine allof the ramificationswhich could result from enactment of the Proposed Legislation or the President's Tax Proposals. However, the Corporation believes that its ability to close pending acquisitions pursuant to binding agreements entered into or announced on or before March 26, 1998 will be unaffected by the Proposed Legislation. The Corporation is evaluating the impact of the Proposed Legislation (if enactedin its current form) onthe Corporation's proposed method ofoperations and futureacquisitions, as well as the Corporation's response to such legislation if enacted, and investors should be aware that the Proposed Legislation could havean adverse impact on the Corporation. In addition,if the Proposed Legislation were modified prior to enactment, it is possible that action taken by the Corporation since March 26, 1998 in reliance on the Proposed Legislation as currently drafted, could adversely affect the Corporation's abilityto qualify as aREIT. (p.5)

JULY8,1998, S-3 REGISTRATION STATEMENT

REAL ESTATE INVESTMENT TRUST TAX RISKS. The Corporation operates in a manner designed to permit it to qualify as a real estate investment trust (a ''REIT'') under the Internal

33 Revenue Codeof 1986, as amended (the "Code"), but no assurance can begiven that the Corporation has operated or will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating companywith which its stock is paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely withinthe Corporation's control. Qualification of theCorporation as a REIT alsogenerally depends on the REIT qualification of Patriot American Hospitality, Inc., a Virginia corporation ("Patriot"), for periods prior to July 1, 1997, at which time the Corporation (formerly known as CaliforniaJockey Club) merged with Patriot, with the Corporation being the surviving corporation(the "Cal JockeyMerger"). If theCorporation fails to qualify as a REIT, the Corporation will be subject to federal income tax (including any applicable alternativeminimum tax)on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion below regarding theimpact if the Corporation failed to qualify as a REIT in 1983, the Corporation also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of the Corporation available for distribution to stockholders because of the additionaltax liability to the Corporation for theyear or years involved. In addition, distributions would no longer be required to be made. To the extent that distributionsto stockholders would have been made in anticipation of the Corporation's qualifying as a REIT, the Corporation might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of the Corporation. Exemption from Anti-Pairing Rules; Risks of Adverse Legislation The Corporation's ability to qualify as a REIT is dependent upon its continued exemption from theanti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as the Operating Company. The "grandfathering" rules governing Section 269B generally provide, however,that Section 269B(a)(3) doesnot apply to a paired REIT if the REIT and its paired operating company werepaired on June 30, 1983. There are, however, no judicial or administrativeauthorities interpreting the application of this grandfatheringrule in thecontext of a merger intoa grandfathered REIT or otherwise. Moreover, although the Corporation's and the Operating Company's respective predecessors, CaliforniaJockey Club (Tal Jockey") and BayMeadows Operating Company ("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 grandfathering rule would not be available to the Corporation and the Corporation would notqualify as a REIT forany taxable year. TheCorporation's exemption from the anti-pairing rules could be lost, or its ability to utilize the paired structure could be revoked or limited, as a result of future legislation. In this regard, on March 26, 1998, William Archer, Chairman of the Ways and Means Committee of the Finance Committee of the United States House of Representatives, and William W. Roth, Jr., Chairman of the Finance Committee of the United States Senate, introduced identical legislation in both the House of Representatives and the Senate that would freeze the grandfathered statusof paired share REITs such as Patriot. In June 1998, the respective Committees of the House of Representatives and the Senate recommended including substantially similar legislation (the "Proposed Legislation")

34 in the final version of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "IRS Reform Act"). It is anticipated that the President will sign the IRS Reform Act if presented to him in its present form. Under the Proposed Legislation, the anti-pairing rules providedin the Code generally would apply for certain of the REIT qualification requirements to real property interests acquired directly or indirectly afterMarch 26, 1998 by the Corporation orthe Operating Company, or a subsidiary or partnership in which a 10% or greater interest is owned by the Corporation or the Operating Company (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 was described in a public announcement or in a filing with the Commission on or before March 26, 1998. In addition, the ProposedLegislation provides that aproperty held bythe Corporation or the Operating Company 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 December3 1, 1999 that changes the use of the property and the cost of whichis greater than 200 percent of (x) the undepreciatedcost of the property (priorto the improvement) or(y) in the case of property acquired where there is a substitutedbasis, the fair market value of the property on the day it wasacquired by the Corporation and the Operating Company. There is an exception for improvements placed in service before January 1, 2004 pursuantto a binding contract in effect as of December 31, 1999 and at all times thereafter. The enactment of the Proposed Legislation would generally permit the Corporation to continue its current method of operations with respect to its existing assets, including the assets acquired in the Interstate Merger, the Arcadian Acquisition and the CHCI 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 restructuringof its operations, in response to the legislative proposals. Patriot intends to take steps to minimize the impact of any legislation that is enacted. However, if Patriot fails to or is unable totake such steps, the legislation couldhave a material adverse effect on the Companies. (p.3-4)

SEPTEMBER 25,1998, s-3 REGISTRATION STATEMENT

REAL ESTATE INVESTMENT TRUST TAX RISKS. The Corporation operates in a manner designed to permit it to qualify as a real estate investment trust (a WEIT") under the Internal RevenueCode of 1986, as amended (the "Code"), but no assurancecan be given that the Corporation has operated or will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a REIT that owns hotels and leases them to an operating companywith which its stockis paired. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within the Corporation'scontrol or not susceptibleto legal opinion. Qualification of the Corporation as a REIT also generally depends on the REIT qualification of Patriot American Hospitality, Inc., a Virginia corporation("Patriot"), for periods prior to July 1, 1997, at which time Patriot merged with the Corporation (formerly known as California Jockey Club), with the Corporation being the surviving corporation (the Tal Jockey Merger"). See "Certain Federal Income Tax Considerations--REIT Qualification." If the Corporation fails to qualify as a REIT,

35 the Corporation will be subject to federal income tax (including any applicable alternative minimum tax)on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and subject to the discussion below regarding the impact if the Corporation failed to qualify as a REIT in 1983, the Corporation also will be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reduce the net earnings of the Corporation available for distribution to stockholders because of the additional tax liability to the Corporation for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to stockholders would have been made in anticipation ofthe Corporation's qualifying as a REIT, the Corporation might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations of the Corporation.

EXEMPTION FROM ANTI-PAIRING RULES; RECENT LEGISLATION LIMITS USE OF PAIRED SHARE STRUCTURE The Corporation's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistent with REIT status, such as the Operating Company. Subject to the discussion below regarding recent legislation, the "grandfathering" rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a paired REIT ifthe REIT and its paired operating company were paired on June 30, 1983. There are, however, no judicial or administrative authorities interpreting the application of this grandfathering rule in the context of a merger into a grandfathered REIT or otherwise. Moreover, although the Corporation's and the Operating Company's respective predecessors, California Jockey Club (Tal Jockey") and Bay Meadows Operating Company ("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 grandfathering rule would not be available to the Corporation and the Corporation would not qualify as a REIT for any taxable year. The Corporation's ability to utilize the paired structure is limited as a result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "Reform Act"), which was signed into law by the President on July 22, 1998. Included in the Reform Act is a freeze on the grandfathered status of paired share REITs such as the Corporation. Under this legislation, the anti-pairing rules provided in the Code apply to real property interests acquired after March 26, 1998 by the Companies, or by a subsidiary or partnership in which a ten percent or greater interest is owned by the Companies (a "10-percent subsidiary"), unless (1) the real property interests are acquired pursuant to a written agreement that was binding onMarch 26, 1998 and at all times thereafter or (2) the acquisition ofsuch real property interests was described in a public announcement or in a filing with the SEC on or before March 26, 1998. Under an exception to the foregoing rule, a corporation subject to federal income taxation will not be treated as a10- percent subsidiary of the Corporation, although it may nevertheless be treated as a 10-percent subsidiary of the Operating Company. In addition, the grandfathered status of any property under the foregoing rules will be lost if a lease or renewal with respect to such property is determined to exceed an arm's length rate. The Reform Act also provides that a property held by the Companies that is not subject to the anti-pairing rules will become subject to such rules in the event of an improvement placed in service after December 3 1, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (A) the undepreciated cost of the

36 property (prior to the improvement)or (B) in the case of property acquired where there is a substituted basis, the fair market valueof the property on the date it was acquired by the Companies. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect on December 31, 1999 and at all times thereafter. The Reform Act generally permits the Corporation to continue its current method of operations with respect to its existing assets. However, the legislation restricts the ability of the Companies to operate newly acquired assets within the paired share structure. After passage of the Reform Act, the Companies considered various alternatives, including a possible recapitalization or restructuring of their operations, in response to the legislation. On September 16, 1998, the Companies announced that their respective Boards of Directors had elected to maintain the Companies' paired share structure. The Companies will therefore remain subject to the constraints of the paired share legislation, which will limit the Companies' ability to acquire new assets or make substantial improvements to existing properties that do not fall within the grandfathering rules described above. The Companies intend to monitor their activities and operations on an ongoing basis for purposes of complying with the new legislation and maintaining the Company's REIT qualification. However, issues may arise under the legislation with respect to which there is little or no authority or other guidance. Because certain corporate subsidiaries of a REIT are not treated as 10-percent subsidiaries, the legislation permits the Companies to hold newly acquired assets in taxable subsidiaries, and the Companies intend to proceed with future acquisition opportunities by establishing taxable subsidiaries on an as- needed basis. The use of such a structure is subject to REIT income and asset test limitations. Those income and asset test limitations could prevent the Companies from making acquisitions or dispositions that might otherwise be beneficial to the Companies, or could require the Companies to sell or otherwise dispose of assets in unfavorable market conditionsor in a transaction subject to income tax, including the tax on built-in gains inherited from a C- corporation. See "Federal Income Tax Considerations--REIT Qualification--Built-In Gain Tax.'' Moreover, because the Corporation may not hold 10% or more of the voting securities of a corporate issuer, voting control of such subsidiaries will generally be held by the Operating Company or by individual officers and/or directors of the Companies. In addition, the taxable income generated by taxable subsidiaries would be subject to income taxes. See Tertain Federal Income Tax Considerations--Effects of Compliance with REIT Requirements." There can beno assurance that the constraints imposed by the new legislation and the REIT qualification requirements will not have an adverse effect on the Companies. (p.3-4)

OCTOBER5,1998, S-3 REGISTRATIONSTATEMENT

THERE ARE TAX RISKS RELATING TO THE CORPORATION'S QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST. We operate the Corporation in a manner designed to permit it to qualify as a real estate investment trust (a 'REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), but no assurance can be given that the Corporation has operated or will be able to continue to operate in a manner so as to qualify or remain so qualified. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicialor administrative interpretations. The complexity of these provisions is greater in the case of a REITthat owns hotels and leases them to an operating company with which its stock is paired. Qualification as a REIT also involves

37 the determination of various factual matters and circumstances not entirely within our control or not susceptibleto legal opinion.Qualification of the Corporation as a REIT also gmerally depends on the REIT qualification of Patriot American Hospitality, Inc., a Virginia corporation ("Patriot'l), for periods prior to July 1, 1997, at which time Patriot merged with the Corporation (formerly known asCalifornia Jockey Club), with the Corporation being the surviving corporation (the Tal Jockey Merger"). See "Certain Federal Income Tax Considerations--REIT Qualification." If the Corporation fails to qualify as a REIT, the Corporation will be subject to federal income tax (including any applicable alternative minimum tax)on its taxable income at corporaterates. In addition,unless entitled to relief under certain statutory provisions and subject to the discussion below regarding the impact if the Corporation failed to qualify as a REIT in 1983, the Corporation also willbe disqualified from re-electing REIT statusfor the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would reducethe net earningsof the Corporation available for distributionto stockholders because of the additional tax liability to the Corporation for the year or years involved. In addition, distributions would no longer be required to be made. To the extent that distributions to stockholders would have been made in anticipation of the Corporation's qualifying as aREIT, the Corporation might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. The failure to qualify as a REIT would also constitute a default under certain debt obligations ofthe Corporation.

EXEMPTION FROM ANTI-PAIRING RULES; RECENT LEGISLATION LIMITS USE OF PAIRED SHARE STRUCTURE The Corporation's ability to qualify as a REIT is dependent upon its continued exemption from the anti-pairing rules of Section 269B(a)(3) of the Code. Section 269B(a)(3) of the Code would ordinarily prevent a corporation &om qualifying as a REIT if its stock is paired with the stock of a corporation whose activities are inconsistentwith REIT status, such as the Operating Company. Subject to the discussion below regarding recent legislation, the "grandfathering" rules governing Section 269B generally provide, however, that Section269B(a)(3) does not applyto a paired REITif the REIT and its paired operating companywere paired on June 30, 1983.There are, however, no judicialor administrative authorities interpreting the application of this grandfathering rulein the context of a merger into a grandfathered REIT or otherwise. Moreover, although the Corporation's and the Operating Company's respective predecessors, California Jockey Club (Tal Jockey") and Bay Meadows Operating Company ("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 grandfathering rule would not be available to the Corporation and the Corporation would not qualify as a REIT for any taxable year. Our ability to utilize the paired structure is limited as a result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "Reform Act"), which was signed into law by the President on July 22, 1998. Included in the Reform Act is a freeze on the grandfathered status of paired share REITs such as the Corporation. Under this legislation, the anti-pairing rules provided in the Code apply to real property interests acquired after March 26, 1998 by the Companies, or by a subsidiary or partnership in which a ten percent or greater interest isowned by the Companies (a "10-percent subsidiary"), unless(1) the real property interests are acquired pursuant to a written agreementthat was binding on March 26, 1998and at all times thereafteror (2) the acquisition of suchreal property interests was described in a public announcement or in a filing with the SEC on or before March 26, 1998. Under an exception to the foregoing rule, a corporation subject to federal income taxation will not be treated as a 10-percent subsidiary of

38 the Corporation, although it may nevertheless be treated as 10-percent subsidiary of the Operating Company. In addition, the grandfathered status of any property under the foregoing rules will be lost if a lease or renewal with respect to such property is determined to exceed an arm's length rate. The Reform Act also provides that a property held by the Companies that is not subject to the anti-pairing rules will become subject to such rules in the event of an improvement placed in service after December 3 1, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (A) the undepreciated cost of the property (prior to the improvement) or (B) in the case of property acquired where there is a substituted basis, the fair market value of the property on the date it was acquired by the Companies. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect on December 3 1, 1999 and at all times thereafter. The Reform Act generally permits us to continue our current method of operations with respect to our existing assets. However, the legislation restricts our ability to operate newly acquired assets within our paired share structure. After passage of the Reform Act, we considered various alternatives, including a possible recapitalization or restructuring of our operations, in response to the legislation. On September 16, 1998, we announced that our respective Boards of Directors had elected to maintain our paired-share structure. We will therefore remain subject to the constraints of the paired share legislation, which will limit our ability to acquire new assets or make substantial improvements to existing properties that do not fall within the grandfathering rules described above. We intend to monitor our activities and operations on an ongoing basis for purposes of complying with the new legislation and maintaining the Corporation's REIT qualification. However, issues may arise under the legislation with respect to which there is little or no authority or other guidance. Because certain corporate subsidiaries of a REIT are not treated as 10-percent subsidiaries, the legislation permits usto hold newly acquired assets in taxable subsidiaries, and we intend to proceed with future acquisition opportunities by establishing taxable subsidiaries on an as-needed basis. Our use of such a structure is subject to REIT income and assets test limitations. Those income and asset test limitations could prevent us from making acquisitions or dispositions that might otherwise be beneficial, or could require us to sell or otherwise dispose ofassets in unfavorable market conditions or in a transaction subject to income tax, including the tax on built-in gains inherited from a C corporation. See "Federal Income Tax Considerations--REIT Qualification--Built-In Gain Tax." Moreover, becausethe Corporation, as a REIT, may not hold 10% or more of thevoting securities of a corporate issuer, voting control of such subsidiaries will generally be held by the Operating Company or by individual officers andor directors of the Companies. In addition, the taxable income generated by taxable subsidiaries would be subject to income taxes. See "Certain Federal Income Tax Considerations--Effects of Compliance with REIT Requirements.'' There can be no assurance that the constraints imposed by the new legislation and 7 the REIT qualification requirements will not have an adverse effect on the Companies. (p.3-4)

OCTOBER8,1998, POS AM AMENDMENT To REGISTRATIONSTATEMENT

39 REIT if its stock is paired with the stock of a corporation whose activities are inconsistentwith REIT status, such as the Operating Company. Subject to the discussion below regarding recent legislation, the "grandfathering" rules governing Section 269B generally provide, however, that Section269B(a)(3) does not applyto a paired REIT ifthe REIT and its paired operating company were paired onJune 30, 1983. There are, however, no judicialor administrative authorities interpreting the application of this grandfathering rulein the context of a merger into a grandfathered REIT or otherwise. Moreover, although the Corporation's and the Operating Company's respective predecessors, California Jockey Club (Tal Jockey") and Bay Meadows Operating Company ("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 grandfathering rule would not be available to the Corporation and the Corporation would not qualify as a REIT for any taxable year. The Corporation's ability to utilize the paired structure is limited as aresult of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "Reform Act"), which was signed into law by the President on July 22, 1998. Included in the Reform Act is a freeze on the grandfathered status of paired share REITs such as the Corporation. Under this legislation, the anti-pairing rules provided in the Code apply to real property interests acquired after March 26, 1998 by the Companies, or by a subsidiary or partnership in which a ten percent or greater interest is owned by the Companies (a "10-percent subsidiary"), unless (1) the real property interests are acquired pursuant to a writtenagreement that was binding on March 26, 1998and at all times thereafter or (2) the acquisition of suchreal property interests was described in a public announcement or in a filing with the SEC on or before March 26, 1998. Under an exception to the foregoing rule, a corporation subject to federal income taxation will not be treated as a 10- percent subsidiary of the Corporation, although it may neverthe€ess be treated as 10-percent subsidiary of the Operating Company. In addition, the grandfathered status of any property under the foregoing rules will be lost if a lease or renewal with respect to such property is determined to exceed an arm's length rate. The Reform Act also provides that a property held by the Companiesthat is not subject to the anti-pairing rules will become subject to such inrules the event of an improvement placed in service after December 3 1, 1999 that changes the use of the property and the cost of which is greater than 200 percent of (A) the undepreciated cost of the property (prior to the improvement) or (B) in the case of property acquired where there is a substitutedbasis, the fair market value of the property on the date it was acquired by the Companies. There is an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect on December 3 1, 1999 and at all times thereafter. The Reform Act generally permits the Corporation to continue its currentmethod of operations with respect to its existing assets. However, the legislation restricts the ability of the Companies to operate newly acquired assets within the paired share structure. After passage of the Reform Act,the Companies consideredvarious alternatives, including a possible recapitalization or restructuringof its operations, in responseto the legislation. On September 16, 1998,the Companies announced that their respective Boards of Directors had elected to maintain the Companies'paired-share structure. The Companies will therefore remain subject to the constraints of the paired share legislation, whichwill limit the Companies' ability to acquirenew assetsor make substantialimprovements to existing properties that donot fall withinthe grandfatheringrules described above. The Companies intend to monitor theiractivities and operations on an ongoingbasis for purposes of complying with the new legislation and maintaining the Company's REIT qualification. However, issues may arise under the legislation with respect to which there is little or no authority or other guidance. Because certain corporate

40 subsidiaries of a REIT are not treated as 10-percent subsidiaries, the legislation permits the Companies to hold newly acquired assets in taxable subsidiaries, and the Companies intend to proceed with futureacquisition opportunities by establishingtaxable subsidiaries on an as- needed basis. The use of such a structure is subject to REIT income and assets test limitations. Those income and asset test limitations could prevent the Companies from making acquisitions ordispositions that might otherwisebe beneficial to the Companies,or could require the Companiesto sell or otherwise dispose of assets in unfavorablemarket conditions or in a transactionsubject to incometax, including the tax on built-ingains inherited from a C- corporation. See "Federal Income Tax Considerations--REIT Qualification--Built-In Gain Tax." Moreover, because the Corporation may not hold 10% or more of the voting securities of a corporate issuer, voting control of such subsidiaries will generally be held by the Operating Company or by individual officers and/or directors of the Companies. In addition, the taxable income generated bytaxable subsidiaries would be subject toincome taxes. See Tertain Federal Income Tax Considerations--Effects of Compliance with REIT Requirements." There can be no assurance that the constraints imposed by the new legislation and the REIT qualification requirementswill not have an adverse effect on the Companies. (p.3-4)

NOVEMBER20,1998, 10-Q QUARTERLYREPORT

ISSUES REGARDING REIT STATUS In general, if Patriot ceases or fails to quality as REITa in any year, Patriot will be subject to federal incometax on its taxable income forthe entire year of disqualification, and for future taxable years, at regular corporate rates. In such case, Patriot would no longerbe required tomake distributions to stockholders, and the amount ofits distributions might be reduced. The failure to qualify as a REIT would also constitute a default under certain debt obligations of Patriot. Notwithstandingthe Companies' decision toretain their paired structure,Patriot will not qualifyas a REIT for 1998 orsubsequent years unless it operates in accordance with the variousREIT qualification requirements imposed bythe Internal Revenue Code. These requirements impose numerous restrictions on the Companies' activities and could preclude the Companiesfrom engaging in activities that might otherwise be beneficial. Moreover, compliance with those requirements is more difficult in the case of a paired REIT such as Patriot, is further complicated by the additional requirements of theIRS Reform Act of 1998, and could be impacted by future legislation. Patriot faces a greater risk than most REITs of failing one or more ofthe requirements for REIT qualification. First, the Companies could,in the future, pursue, or be forced to adopt, business strategies that are inconsistent with one or more of the REIT requirements. For example, management's most recent valuation of Patriot's assets concluded that slightly more than 75% of the value of its assets is represented by "real estate assets" within the meaning of the Code. Sufficient variations in the value of its assets or sufficient sales of hotels could cause Patriot to fail the REIT asset tests. Second, as discussed above under "Legislation Affecting the Paired Share Structure," a determination that Patriot's leases to Wyndham entered into or renewed after March 26, 1998(which includes a substantial portion of the Companies' leases) provide for rent in excess of an armk length rate could cause Patriot to fail the requirements for REIT qualification. Finally, Patriot is currently negotiating the renewal of a number of recently expired leases with Wyndham. The ability of payments under anysuch renewed leaseto qualify as ''rents from real property" under the Code will

41 depend on the terms of each such renewal. In view of the foregoing uncertainties, no assurance can be given that Patriot will quality as a REIT for the current year or subsequent years. (p.60-1)

42 RISK DISCLOSURES RE: THE FORWARD EQUITY CONTRACTS

JANUARY 13,1998, S-4 REGISTRATION STATEMENT

On December 3 1, 1997, the Patriot Companiesentered into two transactions with affiliates of Union Bank of Switzerland("UBS"). In one transaction, the Patriot Companies sold3,250,000 Paired Shares at $28.8125 per share to UBS Limited. In the other transaction, the Patriot Companies entered into a forward share purchase agreement withUnion Bank of Switzerland, London Branch ("UBS-LB") which provides that the Company will purchase3,250,000 Paired Shares from UBS-LB within one year. The purchase pricewill be determined on the datethe Patriot Companies settle theagreement and will include a forward accretion component,minus an adjustment to reflect distributions on thePaired Shares duringthe transaction period.The Patriot Companies may complete the settlementfor cash or Paired Sharesat their option.The net proceeds wereused to repay borrowingsunder the Revolving Credit Facility.(p.41)

FEBRUARY 13,1998,S-3 REGISTRATION STATEMENT

Risks of Locating Additional Financing The Companies havereceived "highly confident" letters from both PaineWebber Real Estate Securities, Inc. and The Chase Manhattan Bank in order to address the financingof the cash portion of the merger consideration to bepaid in the Interstate transaction. The Companiesare exploring various alternative means by whichto obtain financing prior to the closing ofthe transaction. Such financing may consistof public or private offerings of equity or debt, or a combination thereof. No assurance can be given, however,that the Companies will successfully obtain the financing necessary to consummate the Interstate merger or, if obtained, that such financing will be on terms and conditions favorable to the Companies.The Companies' obligations under theInterstate merger agreement are not conditioned on the obtaining of financing.(p.8)

On December 3 1, 1997, the Patriot Companies entered into two transactions with affiliates of Union Bank of Switzerland ('UBS'). In one transaction, the Patriot Companies sold 3,250,000 Paired Shares at $28.8125 per Paired Share to UBS Limited. In the other transaction, thePatriot Companies entered into a. forward share purchase agreement with Union Bank of Switzerland, London Branch ('UBS-LB') which provides that the Company will purchase 3,250,000 Paired Shares from UBS-LB within one year. The purchase price will be determined on the date the Patriot Companies settle the agreement and will include a forward accretion component, minus an adjustment to reflect distributions on the Paired Shares during the transaction period. The Patriot Companies may complete the settlement for cash or Paired Sharesat their option. In the event that the Patriot Companies elect a Paired Share settlement, the number of Paired Shares required will depend primarily on the market price of Paired Shares at the time of settlement. The net proceeds were used to repay borrowingsunder the Revolving Credit Facility. (p.12)

43 MARCH 31,1998, 10-K ANNUAL REPORT

On December 31, 1997, the Companies sold 3,250,'OOO unregistered Paired Shares to UBS Limited, an English corporation, for a purchase price per Paired Share of $28.8125, or aggregate consideration of approximately $93.6 million. In connection with this private placement, the Companies also entered into an agreement with Union Bank of Switzerland, London Branch (YJBS") which provides for an adjustment of the purchase price of the Paired Shares as of a specific date. Because the Companies must periodically increase their equity base to maintain financial flexibility and continue with their growth strategy, management may utilize private placements of equity, in conjunction with a price adjustment mechanism, as a means for the Companies to raise capital, while also retaining the opportunity to adjust the pricing of theequity issuance during the term of the agreement. The price adjustment agreement with UBS provides that if the aggregate return on the 3,250,000 Paired Shares issued does not exceed the calculated forward yield (which is based upon the three-month LIBOR rate plus 1.40%) as measured fkom time to time, the Companies will be required to issue to UBS additional Paired Share with a market value equivalent to the yield deficiency. Conversely, if the aggregate return on the issued shares is in excess of the calculated forward yield, a portion of the Paired Shares originally issued by the Companies will be returned. In addition, the Companies are required to register Paired Shares with the Securities and Exchange Commission to settle its obligations under the agreement. Under certain market conditions, UBS has the right to accelerate the settlement of all or a portion of the transaction. The final settlement date is December 3 1, 1998. As of December 31, 1997, the private placement of Paired Shares is accounted for as equity and any subsequent adjustments in theshare price will be reflected as an adjustment to equity. Such early settlements may force the Companies to issue Paired Shares at a depressed price to satisfy their obligation under the Forward Contract. UBS-LB may also accelerate the settlement of the entire transaction upon certain events of default under the Companies' indebtedness. Additionally, in connection with a private placement of 4,900,000 Paired Shares to NMS Services, Inc. ('NMS''), an affiliate of NationsBanc Montgomery Securities LLC, the Companies entered into a Purchase Price Adjustment Mechanism Agreement, dated as of February 26, 1998, with NMS (the "Price Adjustment Agreement"), pursuant to which the parties agreed to adjust the purchase price of the 4,900,000 Paired Shares on or prior to February 26, 1999 by the difference between (i) the market price for the Paired Shares at the time of the settlement and (ii) a reference price (the "Reference Price") based on the closing price for the Paired Shares on February 25, 1998 plus a forward accretion, minus an adjustment to reflect distributions on the Paired Shares during the transaction period (such difference, the "Price Difference"). If the Price Difference is positive, NMS agrees to deliver Paired Shares to the Companies equal in value to the aggregate Price Difference. If the Price Difference is negative, the Companies agree to deliver cash or additional Paired Shares equal in value to the aggregate Price Difference to NMS. In the event that the market price for the Paired Shares at the time of settlement is lower than the Reference Price, the Companies will have to deliver cash or additional Paired Shares to NMS, which would have diluting effects on theequity stock ofthe Companies. Additionally, under certain adverse market conditions, NMS has the right to accelerate the settlement of all or a portion of the obligation under thePrice Adjustment Agreement. Suchearly settlements may forcethe Companies to issue Paired Shares at a depressed price, which may heighten the diluting effects. NMS may also accelerate the settlement of the entire transaction upon certain events of default under the Companies indebtedness. Management believes that the Paired Shares have been

44 undervalued in the public markets since late 1997, primarily because of concerns regarding the integration of the Companies' various acquisitions and possible legislative action which may affect the paired share structure. Accordingly, management of Patriot and Wyndham International has been generally unwilling to publicly issue common equity at current price levels. Because the Companies must periodically increase their equity base to maintain financial flexibility and continue their growth strategy, management has utilized private placements of Paired Shares coupled with price adjustment mechanisms as a means for the Companies to raise needed equity capital, while also retaining the opportunity to re-price the equity issuance during the term of the price adjustment agreement. Asof March 25, 1998, the Companies had approximately $815 million outstanding under the Revolving Credit Facility and $350 million outstanding on the Term Loan. As of such date, Patriot also had over $400 million of mortgage debt outstanding that encumbered 23 hotels, resulting in total indebtedness of approximately $1.6 billion. As of March 25, 1998, the availability of funds, under the Revolving Credit Facility is approximately $75 million. The Companies have obtained a commitment to amend the existing Revolving Credit Facility to, among other things, provide approx. $1.45 billion in additional financing. In addition, the Companies are evaluating other permanent sourcesof capital, including the issuance of equity and long-term debt. It is expected that additional common or preferred equity offerings will be used both to acquire hotel properties and to limit the Companies' overall debt to market capitalization ratio. (p.32-33)

MAY14,1998,lO-Q QUARTERLYREPORT

Private Placement of Equity - On April 6, 1998, the Companies completed a private placement of Paired Shares coupled with a one-year price adjustment agreement with PaineWebber Incorporated and a PaineWebber affiliate. Under the terms ofthe agreement, Patriot and Wyndham International privately issued 5,150,000 Paired Shares at a price of $27.5625 per Paired Share, resulting in gross proceeds of approximately $141.9 million. During the term of the price adjustment agreement, Patriot will deliver or receive Paired Shares, based on the market price of the Paired Shares at the time of the adjustment. Proceeds from the private placement were used to reduce outstanding indebtedness under the Companies' revolving credit facility.

AUGUST14,1998,lO-Q QUARTERLYREPORT

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 $27.01 125 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 $1 39,100. 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

45 October 15, 1998, PWFS may agree with the Companies at anytime (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 theInitial 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 ofa negotiated resale spread or underwriting discount, as the casemay be) to the aggregate PW Price Difference to PWFS. The PaineWebber Price Adjustment Agreement provides that shares may be delivered in settlement only ifthe 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 andor 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 anytransaction similar to the transaction with PWFS, or (iii) fail to deliver to PWFS on or before September 30, 1998, an effective registration statement covering thesale of the shares of Paired Common Stock delivered to PWFS. UBS TRANSACTION. On December 3 1, 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 ofa Purchase Agreement dated as of

46 December 3 1, 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 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 Agreementor 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 numberof shares so held will

47 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). If the average closing price ofthe 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 hasthe 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 ofthe 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, onor before September 30, 1998, an effective registration statement covering the sale ofthe shares of Paired Common Stock delivered to UBS. (p.26-29)

OCTOBER5,1998, S-3 REGISTRATION STATEMENT

POTENTIAL DILUTIONAND LIQUIDITY EFFECTS OF THE PRICE ADJUSTMENT MECHANISMS Because we must periodically increase our equity base to maintain financial flexibility and continue with our growth strategy, we have utilized private placements of equity in conjunction with a price adjustment mechanism as a means to raise capital. We 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 in "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms." Settlement under one or more of the Price Adjustment Mechanisms could have adverse effects on our liquidity or dilative effects on our capital stock. As of October 5, 1998, the counterparties to two of the Price Adjustment Mechanisms were entitled to require settlement of transactions. See "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms--PWFS Transaction" and "--UBS Transaction." If the reset price or unwind price (in the case of the UBS and Nations 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, we must deliver cash or additional shares of Paired Common Stock to effect such settlement, interim settlement or reset. Delivery of cash would adversely affect our liquidity, and delivery of shares would have dilutive effects on our capital stock. Moreover, settlement(whether by reason of a drop in the price of the Paired Common Stock or otherwise) may force us to issue shares of Paired Common Stock at a depressed price, which may heighten the dilutive effects on our capital stock. The dilutive effect of a stock settlement and the adverse liquidity effect of a cash settlement increase significantly as the market price of thePaired Common Stock declines below the applicable forward price or reference price. Furthermore, under certain circumstances, we may settle in shares of Paired Common Stock only if a registration statement covering such shares is effective. There can be no assurance that a registration statement with respect to any such shares will be d.eclared and remain effective. If we settled all three transactions in cash on , 1998, we would be obligated to deliver to the counterparties a total of approximately $ million (without application of the cash currently held as collateral by the counterparties) and would

48 receive from the counter parties a total of 13.3 million shares of Paired Common Stock plus all shares of Paired Common Stock then held as collateral by them. See "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms." (p.7)

SALES OF PAIRED COMMON STOCK WITH PRICE ADJUSTMENT MECHANISMS We have entered into transactions with three counterparties involving the sale of an aggregate of 13.3 million shares of Paired Common Stock, with related Price Adjustment Mechanisms, as described below. NATIONS TRANSACTION. On February 26, 1998, the Companies entered into transactions with a subsidiary of NationsBank Corporation (together with NationsBanc Mortgage Capital Corporation, ''Nations''). Pursuant to the terms of a Purchase Agreement dated as of February 26, 1998 (the "Nations Purchase Agreement"), Nations purchased 4,900,000 shares of Paired Common Stock (the "Initial Nations 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. The net proceeds were used by the Companies to repay existing indebtedness. The Initial Nations Shares represent approximately 3.2% of the outstanding shares of Paired Common Stock as of the date of this Prospectus. In connection with the issuance of the Initial Nations Shares, the Companies entered into a Purchase Price Adjustment Mechanism, dated as of February 26,1998, with Nations (as amended on August 4, 1998, effective February 26, 1998, the "Nations Price Adjustment Mechanism"). Pursuant tothe Nations Price Adjustment Mechanism, the Companies have agreed to effect certain purchase price adjustments on or before February 25, 1999, in one or more transactions (each a "Nations Settlement"), with respect to a number of shares of Paired Common Stock equal to the number of Initial Nations Shares, by reference to 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 "Nations Forward Price"). The shares of Paired Common Stock to be delivered to or by Nations may consist of shares of Paired Common Stock acquired under the Nations Purchase Agreement or otherwise. The Companies may effect a Nations Settlement by (i) delivering to Nations shares of Paired Common Stock (the "Nations Settlement Shares") equal in value(va1ued at the dollar volume weighted average price for shares ofthe Paired Common Stock (as calculated pursuant to theNations Price Adjustment Mechanism)over a specific period of time (the "Nations Unwind Price")) to the Nations Forward Price at the time of such NationsSettlement times the number of shares subject to such Nations Settlement (the "Nations Settlement Amount") in exchange for the number of shares subject to such Nations Settlement, (ii) delivering to(or, in the event the Nations Unwind Price is greater than the Nations Forward Price, receiving from) Nations a number of shares of Paired Common Stock equal to the difference between the number of Nations Settlement Shares and the number of shares subject to such Nations Settlement, or (iii) delivering to Nations cash equal to the Nations Settlement Amount in exchange for a number of shares of Paired Common Stock equal to the number of shares subject to such Nations Settlement. If the Companies effect a settlement pursuant to clause (i) or (ii)above, they must also pay a placement fee equal to 2% of the Nations Settlement Amount. The Nations Price Adjustment Mechanism provides that shares may be delivered in settlement onlyif (i) the Companies have on file with the SEC an effective registration statement covering the sale byNations of the shares to be delivered, (ii) the Nations Unwind Price on the date of such settlement is greater than or equal to $20.00 and (iii) no Mandatory Nations Unwind Event (as defined below) has occurred and is continuing. There can

49 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 "Risk. Factors-- Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." If such conditions are not met, the Companies generally must deliver cash equal to the Nations Settlement Amount. Under the Nations Price Adjustment Mechanism, on November 26, 1998 (the "Nations Interim Settlement Date"), if the dollar volume weighted average price for shares of the Paired Common Stock on the trading day immediately preceding the Nations Interim Settlement Date (the "Nations Reset Price") is lower than the Nations Forward Price calculated as of the Nations Interim Settlement Date, the Companies must deliver to Nations a number of shares of Paired Common Stock(the "Nations Interim Settlement Shares") equal in value (valued at the NationsReset Price) to the product of (i) the difference between the Nations Forward Price and the Nations Reset Price times (ii) the number of the shares then subject to the Nations Price Adjustment Mechanism (the "Nations Interim Settlement Amount"). If Nations Interim Settlement Shares are delivered by the Companies to Nations (other than as collateral), then (i) the Companies must pay a placement fee equal to 2% of theproduct of the NationsUnwind Price and the number of shares so delivered, and (ii) the Nations Forward Price will be reduced in accordance with a formula set forth in the Nations Price Adjustment Mechanism. The Nations Price Adjustment Mechanism provides that Nations Interim Settlement Shares may be delivered only if the Companies have an effective registration statement on file with the SEC covering the sale by Nations 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 Nations Interim Settlement Amount. There can be no assurance that a registration statement with respect to such shares will be declared and remain effective. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." As of the date of this Prospectus, the Companies have delivered an aggregate of 2,375,000 shares of Paired Common Stock and $179,000 as collateral to Nations. 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 "Nations Unwind Thresholds"), Nations has the right to force a partial or complete settlement under the Nations Price Adjustment Mechanism. The Nations Unwind Thresholds are $20.00 (33% settlement), $18.75(67%) and $17.25 (100%). Moreover, Nations has the right to force a complete settlement under the Nations Price Adjustment Mechanism at any timeupon the occurrence of any of the following (each a "Mandatory Nations 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 coveringthe resale of the shares of Paired Common Stock received by Nations under the Nations Purchase Agreement and Nations 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 Nations Price Adjustment Mechanism. Finally, the Nations 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 Nations Price Adjustment Mechanism. The Companies have agreed to use all commercially reasonable efforts to effect such a sale or refinancing.

50 PWFS 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 asof 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 $27.01 125 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. The net proceeds were used by the Companies to repay existing indebtedness. The Initial PaineWebber Shares represent approximately 3.5% of the outstanding shares of Paired Common Stock as of the date ofthis Prospectus. 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, the "PaineWebber Price Adjustment Agreement"). Pursuant to the PaineWebber Price Adjustment Agreement, before October 15, 1998 (or April 6, 1999 if there is no effective registration statement as described below on or before September 30, 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 oneor 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 fiom 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 PWPrice 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 theresale by PWFS of the sharesto be delivered. There can be no assurance that a registration statement with respect to such shares will be declared and remain effective. See "Risk Factors--Potential Dilution and Liquidity Effects of the 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 ofshares 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, at their option, must 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

51 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 "Risk Factors-- Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." As of the date of this Prospectus, the Companies have delivered an aggregate of 8,071,658 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 thePaineWebber Price Adjustment Agreement. On August 25, 1998, the closing price of the Paired Common Stock was $15.75; however, PWFS has not required any settlement under the PaineWebber Price Adjustment Agreement to date. 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 anytransaction similar to the transaction with PWFS, or (iii) fail to deliver to PWFS on orbefore September 30, 1998, an effective registration statement covering the saleof the shares of Paired Common Stock delivered to PWFS. UBS TRANSACTION. On December 3 1, 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 "UBS Parties"). Pursuant to the terms of a Purchase Agreement dated as of December 3 1, 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 $91.8 million innet proceeds. The net proceeds were used by the Companies to repay existing indebtedness. The Initial UBS Shares represent approximately 2.1 % of the outstanding shares of Paired Common Stock as of the date of this Prospectus. 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 3 1, 1997, with UBS (as amended on August 14, 1998 and September 1 1, 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 UBSmay 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 the number of shares subject to such UBS Settlement, (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 Companiesmake a UBS

52 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 plus140 basis points over the period designated for suchUBS 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. A registration statement covering up to 4,000,000 shares to be sold by UBS was declared effective on September 30, 1998. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." The Forward Stock Contract provides that on each of March 3 1, 1998, June 30,1998 and September 30, 1998 (each a "UBS Interim Settlement Date"), if the closing pricefor 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 UBSReset 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. In connection with the September 11 amendment to the Forward Stock Contract, the Companies paid down $45,627,725 under the Forward Stock Contract through the application of cash collateral that had previously been delivered to UBS pursuant to the Forward Stock Contract. In addition, the Companies have delivered an additional $8,252,274 to UBS as collateral. If the average closing price of the Paired Common Stock for any two consecutive trading daysdoes not equal or exceed $1 1.OO (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 and notice 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, (vi) fail to settlethe transaction in cash simultaneously with thesale by the Companies of certain property, or (vii) 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. A registration statement covering up to 4,000,000 shares to be sold by UBS was declared effective on September30, 1998. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." Settlement under the Purchase Price Adjustment Mechanisms could have adverse effects on the Companies' liquidity andor dilutive effects on the Companies' capital stock. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." USE OF PROCEEDS The net proceeds fiom the sale of Securities by PaineWebber and Nations will be used to settle the PaineWebber and Nations transactions, as more specifically described in the Prospectus Supplement relating to the offer and sale of any such Securities. Any proceeds in excess of the amount required to effect any such settlement will be used by the Companies as working capital or to pay down indebtedness (although such excess amounts are not expected to be material). The net proceeds

53 to the Companies from the sale of theshares of Paired Common Stock, after deducting discounts and offering expenses, in the PaineWebber and Nations transactions referred to under "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms" were approximately $260.9 million. The Companies used the net proceeds to repay outstanding indebtedness under their then existing $900 million revolving credit facility. The Companies' $900 million revolving credit facility was due to expire in July 2000 and bore interest at LIBOR plus 100 to 200 basis points (depending on the Companies' leverage ratio or investment grade ratings received from the rating agencies) or a customary alternate base rate announced from time to time plus 0 to 50 basis points (depending on the Companies' leverage ratio). Borrowings had been made under the credit facility to repay borrowings by the Corporation's predecessor under a previous line of credit. (p. 13-1 7)

NOVEMBER20,1998,lO-Q QUARTERLYREPORT

COMMITMENTS AND CONTINGENCIES: The Companies are parties to transactions with three counter parties involving the sale of an aggregate of 13.3 million shares of Paired Common Stock, with related Price Adjustment Mechanisms, as described below. UBS TRANSACTION. On December 3 1, 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 "UBS Parties"). Pursuant to the terms of a Purchase Agreement dated as ofDecember 3 1, 1997 (the "UBS Purchase Agreement"), UBS Limited purchased 3,250,000 Paired Shares (the "Initial UBS Shares") from the Companies at a purchase price of $28.8125 per share (the last reported saleprice of the Paired Shares on December 30, 1997) for approximately $91,800 in net proceeds. The net proceeds were used by the Companies to repay existing indebtedness. The Initial UBS Shares represent approximately 1.8% of the outstanding Paired Shares as of the date of this filing. 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 asof December 3 1, 1997, with UBS (as amended on August 14, 1998 and September 1 1, 1998, the "Forward Stock Contract"). Pursuant to the Forward Stock Contract, the Companies have agreed to effect a settlement, in one or more transactions (each a "UBS Settlement"), with respect to a number of Paired Shares 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 the Paired Shares (the "UBS Forward Price"). The forward accretion component represents a guaranteed rate of return to UBS. The Paired Shares to be delivered to or byUBS may consist of Paired Shares acquired under the UBS Purchase Agreement or otherwise. The Companies may effect a UBS Settlement by (i) delivering to UBS Paired Shares (the "UBS Settlement Shares") equal in value (valued at the daily average closing price for the Paired Shares over a specific period of time (the "UBS Unwind Price")) to the UBS Forward Price at the time of such UBSSettlement times the number of Paired Shares subject to such UBS Settlement (the "UBS Settlement Amount") in exchange for the number of shares subject to such UBS Settlement, (ii) delivering to (or, in the event the UBS Unwind Price is greater than the UBS Forward Price, receiving from) UBS a number of Paired Shares 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

54 UBS Settlement Amount in exchange for the shares subject tosuch UBS Settlement. If the Companies make a UBS Settlement in Paired Shares, 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 ofLIBOR plus 140 basis points over the period designated forsuch 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. A registration statement covering up to 4,000,000 shares to be sold by UBS was declared effective (as amended) on October 15, 1998. A registration statement covering up to an additional 40,000,000 shares to be sold by PWFS, Nations and UBS was declared effective on October 15, 1998. In connection with the September 11, 1998 amendment to the Forward Stock Contract, the Companies paid down $45,628 under the Forward Stock Contract through the application of cash collateral that had previously been delivered to UBS pursuant to the Forward Stock Contract. In addition, the Companies have delivered an additional 2,474,359 Paired Shares and $8,252 to UBS as collateral pursuant to the Forward Stock Contract. The cash collateral held by UBS is subject to adjustment every two weeks such that the amount of cash collateral is equal to the number of shares subject to the Forward Stock Contract times the amount by which the UBS Forward Price exceeds the closing price for the Paired Shares on the trading day immediately preceding the adjustment date (such closing price the "UBS Reset Price" and such product the "UBS Interim Settlement Amount"). With the prior written consent of UBS, the Companies may elect to deliver to UBS a number of Paired Shares (the "UBS Interim Settlement Shares") equal in value (valued at the UBS Reset Price) to 125% of the UBS Interim Settlement Amount. The Forward Stock Contract provides that if the average closing price of the Paired Shares for any two consecutive trading days does not equal or exceed $1 1.OO (the "UBS Unwind Threshold"), UBS has the right to force a complete settlement under the Forward Stock Contract. As a result of the failure of the average closing price of the Paired Shares for October 2 and October 5, 1998 to equal or exceed $1 1.00, UBS became entitled to force a complete settlement pursuant to the terms of the Forward Stock Contract and continues to be so entitled. In addition, the Forward Stock Contract reached maturity on October 15, 1998. UBS has asserted that the Companies are in default under the terms ofthe Forward Stock Contract as the result of the Companies not delivering certain cash collateral and not making final settlement of the Forward Stock Contract in cash, although the Companies have disputed this assertion. See "Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms" below. 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 and notice 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 topost sufficient cash collateral, (v) effect an early settlement, unwind or liquidation of any transaction similar to the transaction with UBS or (vi) fail to settle the transaction in cash simultaneously with the sale by the Companies of certain property. A registration statement covering the sale of up to 4,000,000 shares by UBS was declared effective (as amended) on October 15, 1998. Also, a registration statement covering the sale of up to an additional 40,000,000 shares by PWFS, Nations and UBS was declared effective on October 15, 1998. However, there can be no assurance that such registration statements will remain effective or that the Companies will not be required to register more Paired Shares in connection with the Forward Stock Contract.

55 NATIONS TRANSACTION. On February 26, 1998, the Companies entered into transactions with a subsidiary of NationsBank Corporation (together with NationsBanc Mortgage Capital Corporation, "Nations"). Pursuant to the terms of a Purchase Agreement dated as of February 26, 1998 (the "Nations Purchase Agreement"), Nations purchased 4,900,000 Paired Shares (the "Initial Nations 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 Shares on February 25, 1998) for net proceeds of approximately $12 1,800. The net proceeds were used by the Companies to repay existing indebtedness. The Initial Nations Shares represent approximately 2.7% of the outstanding Paired Shares as of the date of this filing. In connection with the issuance of the Initial Nations Shares, the Companies entered into a Purchase Price Adjustment Mechanism, dated as of February 26,1998, with Nations (as amended on August 14, 1998, the "Nations Price Adjustment Mechanism"). Pursuant to the Nations Price Adjustment Mechanism, the Companies have agreed to effect certain purchase price adjustments on orbefore February 26, 1999, in one or more transactions (each a "Nations Settlement"), with respect to a number of Paired Shares equal to the number of Initial Nations Shares, by reference to 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 the Paired Shares (the "Nations Forward Price"). The Paired Shares to be delivered to or by Nations may consist of Paired Shares acquired under the Nations Purchase Agreement or otherwise. The Companies may effect a Nations Settlement by(i) delivering to Nations Paired Shares(the "Nations Settlement Shares") equal in value (valued at the dollar volume weighted average price for the Paired Shares (as calculated pursuant to theNations Price Adjustment Mechanism) over a specific period of time (the"Nations Unwind Price")) to the Nations Forward Price at the time of such Nations Settlement times the number of shares subject to such Nations Settlement (the "Nations Settlement Amount") in exchange for the number of shares subject to such Nations Settlement, (ii) delivering to (or, in the event the Nations Unwind Price is greater than the Nations Forward Price, receiving from) Nations a number of Paired Shares equal to the difference between the number of Nations Settlement Shares and the number of shares subject to such Nations Settlement, or (iii) delivering to Nations cash equal to the Nations Settlement Amount in exchange for a number of Paired Shares equal to the number of shares subject to such Nations Settlement. If the Companies effect a settlement pursuant to clause (i) or (ii) above, they must also pay a placement fee equal to 2% ofthe Nations Settlement Amount. The Nations Price Adjustment Mechanism provides that shares may be delivered in settlement onlyif (i) the Companies have on file with the SEC an effective registration statement covering the sale by Nations of the shares to be delivered, (ii) for settlement at maturity, the dollar volume weighted average price of the Paired Shares (as calculated pursuant to the Nations Price Adjustment Mechanism) on thedate of such settlement is greater than or equal to $20.00 and (iii) for settlement at maturity, no Mandatory Nations Unwind Event (as defined below) has occurred and is continuing. If the above conditions are not met when they apply, the Companies generally must deliver cash equal to the Nations Settlement Amount. The Nations Price Adjustment Mechanism provides that on or after October 15,1998, if the dollar volume weighted average price of the Paired Shares for any two consecutive trading days does not equal or exceed certain amounts (the "Nations Unwind Thresholds"), Nations has the right to force a partial or complete settlement under the Nations Price Adjustment Mechanism. The Nations Unwind Thresholds are $20.00 (33% settlement), $18.75 (67%) and $17.25 (100%). As a result of failure of the price of the Paired Shares to exceed the Nations Unwind Thresholds, pursuant to the terms of the Nations

56 Price Adjustment Mechanism, Nations became entitled to force a complete settlement under the Nations Price Adjustment Mechanism on October 16, 1998, and continues to be so entitled. Nations has not required any settlement under the Nations Price Adjustment Mechanism to date. See "Potential Dilution and Liquidity Effects of thePrice Adjustment Mechanism" below. Nations also has the right to force a complete settlement under the Nations Price Adjustment Mechanism at any time upon the occurrence of any of the following (each a "Mandatory Nations Unwind Event"): (i) default ofthe Companies with respect to certain indebtedness, (ii) declaration by the Companies of bankruptcy or insolvency or failure to post sufficient cash collateral or (iii) 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 Nations Price Adjustment Mechanism. The Nations Price Adjustment Mechanism also 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 Nations Price Adjustment Mechanism. The Companies have agreed to use all commercially reasonable efforts to effect such a sale or refinancing. The Companies' planned sale of assets to PaineWebber Real Estate(as described in Note 13 below) would give rise to a Mandatory Nations Unwind Event absent a waiver by Nations. The Companies are seeking such a waiver, but no assurance can be given as towhether or on what terms it will be obtained. In addition, the Companies' bank group has indicated its belief that consent under the credit facility would be required in connection with such sale. No assurance can be given as to whether or onwhat terms such consent, if required, will be obtained. Under the terms of the Nations Price Adjustment Mechanism, upon the occurrence of a Mandatory Nations Unwind Event, if the Daily Average Price (as defined) of the Paired Shares does not exceed $20.00, the Companies would be deemed to have elected to settle the Nations Price Adjustment Mechanism in cash (and the Companies would not be entitled to elect to settle in stock). The Daily Average Price of the Paired Shares on November 19, 1998 was $7.46. As of the date of this filing, the Companies have delivered an aggregate of 13,886,547 Paired Shares and $179.2 to Nationsas collateral to secure the Companies' obligations under the Nations Price Adjustment Mechanism. A registration statement covering the sale by PWFS, Nations and UBS of up to 40,000,000 Paired Shares in connection with the Price Adjustment Mechanisms has been declared effective; however there can be no assurance that such registration statement will remain effective or that the Companies will not be required to register more Paired Shares in connection with the Price Adjustment Mechanisms. PWFS 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 asof April 6,1998 (the "PaineWebber Purchase Agreement"), PaineWebber purchased 5,150,000 Paired Shares (the "Initial PaineWebber Shares") from the Companies at a purchase price of $27.01 125 per share, which reflected a 2% discount to the last reported sale price of the Paired Shares on April 3, 1998, for net proceeds of approximately $1 39,100. The net proceeds were used by the Companies to repay existing indebtedness. The Initial PaineWebber Shares represent approximately 2.9% of the outstanding Paired Shares as of the date of this filing. 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, September 30, 1998 and October 22,

57 1998,the "PaineWebber Price Adjustment Agreement"). Upon any settlement under the PaineWebber Price Adjustment Agreement (a "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 Paired Shares and (ii) a reference price (the "Reference Price") equal to the closing price for a Paired Shares 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 must deliver Paired Shares or cash to the Companies equal in value tothe aggregate PWPrice Difference. Ifthe PW Price Difference is negative, the Companies must deliver to PWFS additional Paired Shares equal in value (net of a negotiated resale spread or underwriting discount, as the case may be) to the aggregate PW Price Difference. 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. Although a registration statement covering the sale of up to 40,000,000 Paired Shares by PWFS, Nations and UE3S in connection withthe Price Adjustment Mechanisms has been declared effective, there can be no assurance that such registration statement will remain effective or that the Companies will not be required to register more Paired Shares in connection with the Price Adjustment Mechanisms. Pursuant tothe PaineWebber Price Adjustment Agreement, the Companies have to date delivered 17,816,281 Paired Shares to PWFS as collateral ("Collateral Shares") and have paid cash dividends totaling $192.3 on the Collateral Shares, which amount is held by PWFS as collateral. Such number of shares is subject to adjustment every two weeks such that the value of the Collateral Shares plus the Initial PaineWebber Shares that have not been settled (valued at the closing price of the Paired Shares on the adjustment date) is equal to the amount by which the Reference Price times the number of shares subject to the PaineWebber Price Adjustment Agreement (i.e., the number of Initial PaineWebber Shares that have not been settled) exceeds $5,000 (such excess amount, the "Collateral Amount"). The PaineWebber Price Adjustment Agreement provides, that if there sale by PWFS of the shares to be so delivered is not covered by an effective registration statement, then the Companies, at their option, must deliver to PWFS either (i) a number of Collateral Shares equal in value to 125% of theCollateral Amount or (ii) cash collateral equal to the Collateral Amount. Although a registration statement covering the sale of up to 40,000,000 Paired Shares by PWFS, Nations and UBS in connection with the Price Adjustment Agreements has been declared effective, there can be no assurance that such registration statement will remain effective or that the Companies will not be required to register more Paired Shares in connection with the Price Adjustment Mechanisms. The PaineWebber Price Adjustment Agreement provides that if the closing priceof the Paired Shares 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 through any commercially reasonable manner of sale specified by PWFS. As a result of the failure of the closing price of the Paired Shares to equal or exceed $16.00 on August 25, 1998, pursuant to the terms of the PaineWebber Price Adjustment Agreement, PWFS became entitled to force a complete settlement under the PaineWebber Price Adjustment Agreement and continues to be so entitled. In addition, the PaineWebber Price Adjustment Agreement reached maturity on October 15, 1998.PWFS has not required any settlement under the PaineWebber Price Adjustment Agreement to date although it has reserved its right to do so. See "Potential Dilution and

58 Liquidity Effects of thePrice Adjustment Mechanisms" below. 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 or (ii) effect an early settlement, unwind or liquidation of any transaction similar to the transaction with PWFS.

POTENTIAL DILUTION AND LIQUIDITY EFFECTS OF THE PRICE ADJUSTMENT MECHANISMS. Settlement under one or more of the PriceAdjustment Mechanisms described above could have adverse effects onthe Companies' liquidity ordilutive effects on the Companies' capital stock. Asof the date of this filing, all three counterparties to the Price Adjustment Mechanisms were, pursuant to the terms of the Price Adjustment Mechanisms, entitled to require settlement of their transactions. If upon settlement the reset price or unwind price (in the case of the UBS and Nations transactions) or the market price (in the case of the PWFS transaction) of the Paired Shares is less than the applicable forward price or reference price, the Companies must deliver cash or additional Paired Shares to effect such settlement. Delivery of cash would adversely affect the Companies' liquidity, and delivery of shares would have dilutive effects on the Companies' capital stock. Moreover, to settle in stock under any of the Price Adjustment Mechanisms, the Companies may be required to issue Paired Shares at a depressed price, which would heighten the dilutive effects on the Companies' capital stock. The dilutive effects of a stock settlement increase significantly as the market price of the Paired Shares declines below the applicable forward priceor reference price. Furthermore, under certain circumstances, the Companies may settle in Paired Shares only if aregistration statement covering such shares is effective. Although to date registration statements covering the sale of up to 44,000,000 Paired Shares in connection with the Price Adjustment Mechanisms have been declared effective, there can be no assurance that such registration statements will remain effective or that the Companies will not be required to register more Paired Shares in connection with the Price Adjustment Mechanisms. The market price of the Paired Shares has dropped significantly below the applicable forward price or reference price under each of the Price Adjustment Mechanisms. As a result, the Companies have to date made cash payments (including cash dividends on collateral shares) totaling $54,252 (including a partial settlement of $45,628 in cash under the UBS Forward Stock Contract) and delivered an aggregate of 34,177,187 additional Paired Shares as collateral pursuant to the Price Adjustment Mechanisms. If the Companies settled all three transactions in cash on November 12, 1998, they would be obligated to deliver to the counterparties a total of approximately $314,369 (assuming application of the cashcurrently held as collateral by the counterparties) and would receive from the counterparties a total of 13.3 million Paired Shares plus all Paired Shares then held as collateral by them. The terms of the Price Adjustment Mechanisms provide that all three counterparties currently have the right to require the Companies to settle their transactions. Moreover, UBS has asserted that the Companies are in default under the terms of the Forward Stock Contract as the result of the Companies not delivering certain cash collateral and not making final settlement of the Forward Stock Contract in cash, although the Companies have disputed this assertion. The Companies are currently in discussions regarding possible resolutions of the Price Adjustment Mechanisms to provide the Companies with the opportunity to resolve the Price Adjustment Mechanisms through payments of cash orother forms of consideration, and thus to avoid the need to settle in shares. There can be no assurance that such discussions will be successful. Moreover, any such resolutions may require the consent of the lenders under the Companies' credit facility. No assurances can be given that any such consent,

59 if required and sought, would be obtained, or that the Companies would be able to meet their obligations under any such settlement arrangement. (p.25-29)

NOVEMBER17,1998, NT 10-Q QUARTERLYREPORT

FORWARD CONTRACTS.The Companies are partiesto forward equity transactions with three counterparties involving thesale of an aggregate of 13.3 million shares (the "Initial Shares") of paired common stock of the Companies with related purchase price adjustment mechanisms (the "Forward Contracts"). The Forward Contracts require the Companies from time to time to issue additional shares of paired common stock or pay cash based upon the difference between the respective forward prices and the market price of the Companies' paired common stock. The Companies' aggregate exposure under the Forward Contracts asof November 1, 1998 was approximately $313.6 million (assuming the Forward Contracts are settled in cash). The Companies have registered the sale of up to 44,000,000 shares of paired common stock in connection with the Forward Contracts; however, to date no sales have been made under such registration statements. There can be no assurance that such registration statements will remain effective or that the Companies will not be required to register additional shares for delivery under the Forward Contracts. Settlement under one or more of the Forward Contracts could have adverse effects on the Companies' liquidity or dilutive effects onthe Companies' capital stock. Delivery of cash would adversely affect the Companies' liquidity, and delivery of shares would have dilutive effects onthe Companies' capital stock. Moreover, settlement (whether by reason of a drop in the market price of the paired shares or otherwise) may force the Companies to issue paired shares at a depressed price, which may heighten the dilutive effects on the Companies' capital stock. 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 sharesdeclines below the applicable forward price or reference price. Under each Forward Contract, at settlement the Companies must deliver to thecounterparty paired shares or, under certain circumstances, cash, with respect to the number of shares of paired common stock initially sold to such counterparty, based upon the difference between the applicable forward price and the market price of the paired common stock at the time of settlement. The forward price is determined by reference to the purchase price of the Initial Shares plus an imputed return based upon LIBOR plus an applicable spread between 140 and 150 basis points. The Initial Shares were issued at the following share prices: $24.8625 (4,900,000 shares, with NationsBanc Capital Corporation ("Nations") as counterparty); $27.01 125 (5,150,000 shares, with PaineWebber Financial Products, Inc. ("PaineWebber") as counterparty); and $28.8 125 (3,250,000 shares, with UBS AG, London Branch (WBS") as counterparty). The market price of the paired common stock has dropped significantly below the respective forward prices under the Forward Contracts. As a result, the Companies to date have made cash payments totaling approximately $54.3 million and have delivered an aggregate of 25,258,163 additional shares of paired common stock as collateral to the counterparties. The Companies' forward contracts with PaineWebber and UBS, representing a total obligation of approximately $192 million, reached maturity on October 15, 1998 without final settlement by the Companies. UBS has asserted that the Companies are in default under the terms of its forward contract asthe result ofthe Companies not delivering certain cash collateral and not mailing a final settlement of the contract in cash although the Companies have disputed this. In addition, because the market price of the

60 paired common stock is below applicable unwind thresholds under the forward contract with Nations (which represents an obligation of approximately $128 million), Nations has alleged the right to require acomplete settlement of its transaction. The Companies are currently in discussions regarding possible resolutions of the respective Forward Contracts to provide the Companies with the opportunity to resolve the Forward Contracts through payments of cash or other forms of consideration, and thus to avoid the need to settle in shares. There can be no assurance that such discussions will be successful. Moreover, any such resolutions may require the consent of the lenders under the Companies' credit facility. No assurances can be given that any such consent, if required and sought, would be obtained. (p.2-3)

OCTOBER 8,1998 POS AM AMENDMENT TO REGISTRATION STATEMENT

POTENTIAL DILUTION AND LIQUIDITY EFFECTS OF THE PRICE ADJUSTMENT MECHANISMS. Because the Companies must periodically increase their equity base to maintain financial flexibility and continue with their growth strategy, the Companies have utilized private placements of equity in conjunction with a price adjustment mechanism as a means to raise capital. 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 in "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms." Settlement under one or more of the Price Adjustment Mechanisms could have adverse effects on the Companies' liquidity or dilutive effects on the Companies' capital stock. As of October 7, 1998, the counterparties to two of the Price Adjustment Mechanisms were entitled to require settlement of their transactions. See "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms--PWFS Transaction" and "--UBS Transaction." If the reset price or unwind price (in the caseof the UBS and Nations 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 cashor 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 effectson the capital stock ofthe Companies. Moreover, settlement (whether by reason of a dropin the market price of thePaired Common Stock or otherwise) may force the Companies to issue shares of Paired Common Stock at a depressed price, whichmay 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 themarket price of the Paired Common Stock declines below the applicable forward price or reference price. Furthermore, under certain circumstances, the Companies may settle in sharesof Paired Common Stock only if a registration statement covering such shares is effective. Although to date registration statements covering 39,000,000 shares of Paired Common Stock have been declared effective, there can be no assurance that such registration statements will remain effective or that we will not be required to register more shares of Paired Common Stock in connection with the Price Adjustment Mechanisms. The market price of the Paired Common Stock has dropped significantly below the applicable forward price or reference price under each of the Price Adjustment Mechanisms. As a result, we have to date delivered cash collateral (including cash dividends on collateral shares) totaling

61 $8,623,788 andan aggregate of 10,446,658 additional shares of Paired Common Stock as collateral pursuant to the Price Adjustment Mechanisms. All such collateral shares are deemed to be outstanding for purposes of our per share calculations. We have also to date settled $45,627,725 in cash under one of the Price Adjustment Mechanisms. If the Companies settled all three transactions in cash on September 30, 1998, they would be obligated to deliver to the counterparties a total of approximately $320.6 million (without application of the 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. See "The Companies--Sales of Paired Common Stock with Price Adjustment Mechanisms." (p.7)

NATIONS TRANSACTION. On February 26, 1998, the Companies entered into transactions with a subsidiary of NationsBank Corporation (together with NationsBanc Mortgage Capital Corporation, "Nations"). Pursuant to the terms of a Purchase Agreement dated as of February 26, 1998 (the "Nations Purchase Agreement"), Nations purchased 4,900,000 shares of Paired Common Stock (the "Initial Nations 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. The net proceeds were used by the Companies to repay existing indebtedness. The Initial Nations Shares represent approximately 3.2%of the outstanding shares of Paired Common Stock as of the date of this Prospectus. In connection with the issuance of the Initial Nations Shares, the Companies entered into a Purchase Price Adjustment Mechanism, dated as of February 26,1998, with Nations (as amended on August 4, 1998, effective February 26, 1998, the "Nations Price Adjustment Mechanism"). Pursuant to the Nations Price Adjustment Mechanism, the Companies haveagreed to effect certain purchase price adjustments on or before February 25, 1999, in one or more transactions (each a "Nations Settlement"), with respect to a number of shares of Paired Common Stock equal to the number of Initial Nations Shares, by reference to 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 "Nations Forward Price"). The shares of Paired Common Stock to be delivered to or by Nations may consist of shares of Paired Common Stock acquired under the Nations Purchase Agreement or otherwise. The Companies may effect a Nations Settlement by (i) delivering to Nations shares of Paired Common Stock (the "Nations 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 Nations Price Adjustment Mechanism) over a specific period of time (the "Nations Unwind Price")) to the Nations Forward Price at the time of such Nations Settlement times the number of shares subject to such Nations Settlement (the "Nations Settlement Amount") in exchange for the number of shares subject to such Nations Settlement, (ii) delivering to(or, in the event the Nations Unwind Price is greater than the Nations Forward Price, receiving from) Nations a number of shares of Paired Common Stock equal to the difference between the number of Nations Settlement Shares and the number of shares subject to such Nations Settlement, or (iii) delivering to Nations cash equal to the Nations Settlement Amount in exchange for a number of shares of Paired Common Stock equal to the number of shares subject to such Nations Settlement. If the Companies effect a settlement pursuant to clause (i) or (ii) above, they must also pay a placement fee equal to 2% of the Nations Settlement Amount.The Nations Price Adjustment Mechanism provides that shares

62 may be delivered in settlement only if (i) the Companies have on file with the SEC an effective registration statement covering thesale by Nations ofthe shares tobe delivered, (ii) for settlement at maturity, the dollar volume weighted average price forshares of the Paired Common Stock (as calculated pursuant to the Nations Price Adjustment Mechanism) on the date of such settlement is greater than or equal to $20.00 and (iii) for settlement at maturity, no Mandatory Nations Unwind Event (as defined below) has occurred and is continuing. See "Risk Factors-- Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." If the above conditions arenot met when they apply, the Companies generally must deliver cash equal to theNations Settlement Amount. Under the Nations Price Adjustment Mechanism, on November 26, 1998 (the "Nations Interim Settlement Date"), if thedollar volume weighted average price for shares of the Paired Common Stock on the trading day immediately preceding theNations Interim Settlement Date (the "Nations Reset Price") is lower than the Nations Forward Price calculated as of the Nations Interim Settlement Date, the Companies must deliver to Nations a number of shares of Paired Common Stock (the "Nations Interim Settlement Shares") equal in value(va1ued at the Nations Reset Price) to the product of (i) the difference between the Nations Forward Price and the Nations Reset Price times (ii) the number of the shares then subject to the Nations Price Adjustment Mechanism (the "Nations Interim Settlement Amount"). If Nations Interim Settlement Shares are delivered by the Companies to Nations (other than as collateral), then (i) the Companies must pay a placement fee equal to 2% of the product of theNations Unwind Price and the number of shares so delivered, and (ii) the Nations Forward Price will be reduced in accordance with a formula set forth in the Nations Price Adjustment Mechanism. The NationsPrice Adjustment Mechanism provides that Nations Interim Settlement Shares may be delivered only if the Companies have an effective registration statement on file with the SEC covering the sale by Nations 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 Nations Interim Settlement Amount. Although to date registration statements covering 39,000,000 shares of Paired Common Stock in connection with the Price Adjustment Mechanisms have been declared effective, there can beno assurance that such registration statements will remain effective or that we will not be required to register more shares of Paired Common Stock in connection with the Price Adjustment Mechanisms. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." As of the dateof this Prospectus, the Companieshave delivered an aggregate of 2,375,000 shares of Paired Common Stock and $179,208 as collateral to Nations. On or after October 15, 1998, if the dollar volume weighted average price of the Paired Common Stock for any two consecutive trading daysdoes not equal or exceed certain amounts (the "Nations Unwind Thresholds"), Nations has the right to force a partial or complete settlement under the Nations Price Adjustment Mechanism. TheNations Unwind Thresholds are $20.00 (33% settlement), $18.75(67%) and $17.25 (100%). Moreover, Nations has the right to force a complete settlement under the Nations Price Adjustment Mechanism at any time upon the occurrence of any of the following (each a "Mandatory Nations Unwind Event"): (i) default of the Companies with respect to certain indebtedness, (ii) declaration by the Companies of bankruptcy orinsolvency or failure to post sufficient cashcollateral, (iii) failure ofthe Companies to have caused a registration statement covering the resale of the shares of Paired Common Stock received by Nations under the Nations Purchase Agreement and Nations 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 NationsPrice Adjustment Mechanism. Finally,the Nations Price Adjustment Mechanism provides that, upon the consummation of the sale or refinancing of certain properties by the Companies with athird party, the Companies must apply thenet proceeds to the extent necessary to effect acomplete cash settlement under theNations Price Adjustment Mechanism. The Companieshave agreed to use all commerciallyreasonable efforts to effectsuch a sale or refinancing.PWFS TRANSACTION. On April 6, 1998, the Companiesentered into transactions with PaineWebber Incorporated ("PaineWebber'') and PaineWebberFinancial 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 $27.01 125 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. The net proceeds were used by the Companiestorepay existing indebtedness. The Initial PaineWebber Shares represent approximately 3.5% of the outstanding shares of Paired Common Stock as of the date of this Prospectus. In connection with the issuance of the Initial PaineWebber Shares, the Companies entered into a Purchase PriceAdjustment Mechanism Agreement,dated as ofApril 6, 1998,with PWFS(as amended on August 14, 1998 and September 30,1998, the"PaineWebber Price Adjustment Agreement"). Pursuant to the PaineWebber Price Adjustment Agreement, before October 15, 1998 (or April 6,1999 if there is no effective registration statement as described below on or before October 15, 1998), PWFS may agree with the Companies at any time 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 priceof the Initial PaineWebber Sharessubject to the PW Settlement is adjusted based upon the differencebetween (i) the proceeds (net of a negotiated resalespread or underwriting discount) receivedby 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 LBOR 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 equalin value to the aggregate PW Price Difference. If the PW Price Difference is negative, the Companies are obligatedto 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 Differenceto PWFS. The PW Price Adjustment Agreementprovides that sharesmay be delivered in settlement only if the Companies have on file withthe SEC an effective registration statementcovering the resaleby PWFS of the sharesto be delivered. Although todate registration statements covering 39,000,000 sharesof Paired Common Stock in connection with the Price Adjustment Mechanisms have been declared effective, there can be no assurance that such registration statementswill remain effective or that we will not be required to register more shares of Paired Common Stock in connection with the Price Adjustment Mechanisms. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." Pursuant to the PaineWebber Price Adjustment Agreement, the Companies haft date delivered 8,071,658 shares ofPaired Common Stock to PWFS as collateral ("Collateral Shares")and have paid cash dividends totaling $192,305 on the Collateral Shares,which amount is held by PWFS

64 as collateral. Such number of shares is subject to adjustment every two weeks such that the value of the Collateral Shares (valued at the closing price of the Paired Common Stock on the adjustment date) is equal to the amount by whichthe Reference Price times the number of shares subject to the PaineWebber Price Adjustment Agreement exceeds $5,000,000 (such excess amount, the "Collateral Amount"). ThePaineWebber Price Adjustment Agreement provides that, that if the resale by PWFS of the shares to be so delivered is not covered by an effective registration statement, then the Companies, at their option, must deliver to PWFS either (i) a numberof Collateral Shares equal in value to 125% of the Collateral Amountor (ii) cash collateral equal to the Collateral Amount. Although to date registration statements covering 39,000,000 shares of Paired Common Stock in connection with the Price Adjustment Mechanisms have been declared effective, there can be no assurance that such registration statements will remain effective or that we will not be required to register more shares of Paired Common Stock in connection with the Price Adjustment Mechanisms. See "Risk Factors-- Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." 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. The closing price of the Paired Common Stock fell below $16.00 on August 25, 1998; however, PWFS has not required any settlement under the PaineWebber Price Adjustment Agreement to date. 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 orbefore October 15, 1998, an effective registration statement covering the sale of the shares of Paired Common Stock delivered to PWFS. UBS TRANSACTION. On December 3 1, 1997, the Companies entered into transactions with UBS Limitedand Union Bank of Switzerland, London Branch (together with its successor, UBS AG, LondonBranch, "UBS" and, together with Warburg Dillon Read, LLC, the "UBS Parties"). Pursuant to the terms of a Purchase Agreement dated as of December 3 1, 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 $91.8 million in net proceeds. The net proceeds were used by the Companies to repay existing indebtedness. The Initial UBS Shares represent approximately 2.1% of the outstanding shares of Paired Common Stock as of the date of this Prospectus. UBS received from the Companies a placement fee of2%, 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 and September 11, 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 byUBS may consist of shares of Paired Common Stock acquired under the UBS Purchase Agreementor otherwise. The Companies may effect a UBS Settlement by (i) delivering to UBS shares of Paired Common

65 as collateral. Such number of shares is subject to adjustment every two weeks such that the value of the Collateral Shares (valued at the closing price of the Paired Common Stock on the adjustment date) is equal to the amount by whichthe Reference Price times the number of shares subject to the PaineWebber Price Adjustment Agreement exceeds $5,000,000 (such excess amount, the "Collateral Amount"). ThePaineWebber Price Adjustment Agreement provides that, that if the resale by PWFS of the shares to be so delivered is not covered by an effective registration statement, then the Companies, at their option, must deliver to PWFS either (i) a numberof Collateral Shares equal in value to 125% of the Collateral Amountor (ii) cash collateral equal to the Collateral Amount. Although to date registration statements covering 39,000,000 shares of Paired Common Stock in connection with the Price Adjustment Mechanisms have been declared effective, there can be no assurance that such registration statements will remain effective or that we will not be required to register more shares of Paired Common Stock in connection with the Price Adjustment Mechanisms. See "Risk Factors-- Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." 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. The closing price of the Paired Common Stock fell below $16.00 on August 25, 1998; however, PWFS has not required any settlement under the PaineWebber Price Adjustment Agreement to date. 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, unwindor liquidation of any transaction similar to the transaction with PWFS, or (iii) fail to deliver to PWFS on orbefore October 15, 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 Limitedand Union Bank of Switzerland, London Branch (together with its successor, UBS AG, LondonBranch, "UBS" and, together with Warburg Dillon Read, LLC, the "UBS Parties"). Pursuant to the terms of a Purchase Agreement dated as of December 3 1, 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 $91.8 million in net proceeds. The net proceeds were used by the Companies to repay existing indebtedness. The Initial UBS Shares represent approximately 2.1% of the outstanding shares of Paired Common Stock as of the date of this Prospectus. UBS received from the Companies a placement feeof 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 and September 11, 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 byUBS may consist of shares of Paired Common Stock acquired under the UBS Purchase Agreementor otherwise. The Companies may effect a UBS Settlement by (i) delivering to UBS shares of Paired Common

65 Stock (the "UBS Settlement Shares") equal in value (valued at the daily average closingprice for shares of the Paired Common Stock over a specificperiod of time (the"UBS Unwind Price")) to the UBS Forward Price at the time of suchUBS Settlement times the numberof shares of Paired Common Stock subject to suchUBS Settlement (the "UBS Settlement Amount") in exchange for the number of shares subject to suchUBS Settlement, (ii) deliveringto (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 differencebetween 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 suchUBS 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 (payablein cash or shares) equal to50% of the UBS Settlement Amount times the imputed return ofLIBOR plus 140 basis points over theperiod 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. A registration statement covering up to 4,000,000 shares to be sold by UBS was declared effective on September 30, 1998. See "Risk Factors--Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." In connection with the September 11 amendment to the Forward Stock Contract, the Companies paid down $45,627,725 under the Forward Stock Contract through the application of cash collateral that had previously been delivered to UBS pursuant to the Forward Stock Contract. In addition, the Companies have delivered an additional $8,252,274 to UBS as collateral pursuantto the Forward Stock Contract. Such amount is subject to adjustment every two weeks such that the amount of cash collateralis equal to the numberof shares subject to theForward Stock Contract times theamount by which the UBS Forward Price exceeds the closing price for shares of the paired Common Stock on the trading day immediately preceding the adjustment date (such closing price the "UBS Reset Price" and such product 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 InterimSettlement Amount. If the averageclosing price of the Paired Common Stock for any two consecutive tradingdays does not equal or exceed $11.OO (the "UBS Unwind Threshold"), UBS has the right toforce a complete settlement under theForward Stock Contract. The average closing price of the Paired Common Stock for October 2 and October 5, 1998 was less than $1 1.OO; however, UBS has not required any further settlement under the Forward Stock Contract to date. UBS also has the right to force a complete settlementunder the Forward Stock Contract if the Companies (i) are in default with respect to certain financial and notice 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) effectan early settlement, unwind or liquidation of any transaction similar to the transaction withUBS, (vi) fail to settle the transaction in cash simultaneously with the sale by the Companies of certain property, or (vii) 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. A registration statement covering up to 4,000,000 shares to be sold by UBS was declaredeffective on September 30, 1998.However, there can be no assurance that such registration statementwill remain effective or that we will not be required to

66 -

register more shares of Paired Common Stock in connection with the Forward Stock Contract. See "Risk Factors--Potential Dilution and Liquidity Effects of thePrice Adjustment Mechanisms." Settlement under the Purchase Price-Adjustment Mechanisms could have adverse effects on the Companies' liquidity and/or dilutive effects on the Companies' capital stock. See "Risk Factors-Potential Dilution and Liquidity Effects of the Price Adjustment Mechanisms." USE OF PROCEEDS The net proceeds from the sale of Securities by UBS will be used to settle the UBS transaction, as more specifically described in the Prospectus Supplement relating to the offer and sale of any such Securities. Any proceeds in excess of the amount required to effect anysuch settlement will be used by the Companies as working capital or to pay down indebtedness (although such excess amounts are not expected to be material). The net proceeds to the Companies from the sale of the3,250,000 shares of Paired Common Stock, after deducting discounts and offering expenses, in the UBS transaction referred to under "The Companies-- Sales of Paired Common Stock with Price Adjustment Mechanisms--UBS Transaction" were approximately $91.8 million. The Companies used the net proceeds to repay outstanding indebtedness under their then existing $900 million revolving credit facility. The Companies' $900 million revolving credit facility was due to expire in July 2000 and bore interest at LIBOR plus 100 to 200 basis points (depending on the Companies' leverage ratio or investment grade ratings received from the rating agencies) or a customary alternate base rate announced from time to time plus 0 to 50 basis points (depending on the Companies' leverage ratio). Borrowings had been made under the credit facility to repay borrowings by the Corporation's predecessor under a previous line of credit. We have entered into transactions with three counterparties involving the sale of an aggregate of 13.3 million shares of Paired Common Stock, with related Price Adjustment Mechanisms, as described below. (p. 13-1 8)

SEPTEMBER25,1998 S-3 REGISTRATION STATEMENT

67 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 cashsettlement 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 a registration statement covering such shares is effective. 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 in cash on September 22, 1998, they would be obligated to deliver to the counterparties a total of approximately $320 million (without application of the 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. (p. 33)

Page 3

1ST STORY of Level1 printed in FULL format.

October 09, 1998, Friday, Final Edition

SECTION: FINANCIAL; Pg. GO1

LENGTH: 1276 words

HEADLINE: Investment Firms Reassess Risk

BYLINE: Ianthe Jeanne Dugan, Washington Post Staff Writer

DATELINE: NEW YORK, Oct.8

BODY :

Wall Street is suffering froma credit crunch so broad and so sudden that it is imperiling the profits of investment firms and affecting trading in many financial markets.

Rather than take chances on high-profitability business, boards of directors are handing down marching orders to eliminate as much risk as possible, limit the inventory of bonds, stocks and other securities on hand, and cut ties to shaky borrowers. Though most firms are wary of discussing company's their specific strategies, many Wall Street executives acknowledge the sweeping trend.

"People are reviewing and refining their credit practices and their credit standards," said Mark Brickell, a managing directorJ.P. at Morgan. "As they raise the bar, credit may become less available and more expensive for enterprises like hedgefunds, emerging market countries, or highly-leveraged corporations.

The scramble to reduce risk comes at the enda long of stretch of huge profitability in the banking and brokerage industry, a time when big capital cushions and reserves were built up. For many firms, the losses suffered in the current turmoil will reduce profits but not endanger their overall health.

But the near-collapse two weeks ago of the highflying Long-Term Capital Management L.P. hedge fund has focused widespread attentionon the huge leverage and risky trading strategies that had become favoredon Wall Street. Even before the Long-Term Capital debacle became public, virtually every major firm had suffered big trading losses in overseas markets and exotic securities.

Recently, many began to publicly document theirrisk, to offset rumors and allay uncertainty. Salomon Smith Barney, a ofunit the newly formed Citigroup and the nation's third-largest securitiesfirm, reported today that it lost about $ 700 million in global trading from July to September.July, In the firm .I I

- Page 4 The Washington Post, October 09, 1998

vowed to stop making bets with ownits capital in theU.S. bond market.

Hedge funds -- unregulated investment vehicles for wealthy individuals and businesses -- and many brokerage houses have investments they are unable or unwilling to sell at the current depressed market prices, such as debt from Russia and other troubled countries. But they are often now being forced to sell to raise cash to meet margin calls and new risk-exposure guidelines.

'IEverybody suddenly is getting out of the risk business,I1 said Hunt a Taylor, partner with Tass Management, a hedge fund advisory firm in New York.

Investment banking firms have sent out teams of credit managers to comb through the books of its hedge funds clients and other trading partners."We got calls saying, 'We need to see your whole portfolio rightaway,' one hedge fund manager said. Io 'We want to see how much leverage you have and it.'reduce I'

Those balance sheets were worrisome. With economic turmoil throwingof€ the traditional relationships between currencies, debt and equities around the globe, the funds' asset bases in many cases were way off peak levels.

Several hedge funds were cutoff and either scrambled to find financing elsewhere or shut their doors. Reports abound about Wall Street financial institutions whose credit lines have been pulled. For those that still get loans, collateral requirements are being raised-- in many cases doubled-- and interest rates are going up.

"Banks extended credit too easily for too long,I1 one hedge fund manager said. NOW, they're getting extreme in the opposite direction. Credit departments were asleep for seven or eight years. Now they're waking up and saying 'Wow, look at all this exposure we have out there.'

Lehman Brothers HoldingsInc., aninvestment bank that wound up with relatively minimal exposure to Long-Term Capital, has four people on staff entirely devoted to analyzing its lending and trading relationships with hedge funds, according to Maureen Miskovic, global risk manager. The company has dealings with 54 funds now. "Throughout the market, collateral requirements are increasing,'I she said.

"In recent months, we've seen unprecedented moves in markets,"global a Merrill Lynch & Co. spokesman said. "Risk assessment procedures, stress simulation models and hedging strategies are being evaluated and updated throughout the industry."

Wall Street got into trouble partly because firms had relied on sophisticated computer models to assess risk and many of the assumptions that were built into those models areno longer valid.

"There wereso many assumptions that were reasonable in the past that are not reasonable anymore,I1 saida risk manager ata major firm. "It used to be that having investments in many countries would reduce the risk.Now, when equity markets fall, they fall around the world.I1

Models to assess risk are loaded with historical data. None of that data had the sharply widened spreads of August in which the corporate and junk bond ~ .~ Page 5 The Washington Post, October 09, 1998 markets moved in one direction and U.S. the Treasury bond market moved ain different direction. "Going forward,ll one Wall Street executive said, "you work that into your models." Models generally measure the normal rate of fluctuation in prices, currencies and interest rates. As one Wall Street executive put it: "None of us has models that measure.panic.I1 But panic is what ensued when Long-Term Capital teetered on the edge of failing,a result of global economic strife throughout the summer and Russia's devaluation of the ruble and defaulton its government debt on Aug. 17.

The Federal Reserve noted ain recent report that some largeU.S. banks have sharply tightened lending standards to large corporate borrowers during the past month, indicating an aversion to risk and concerns about slower economic growth. Lending standards have not yet been tightened for consumers or small businesses, the report said.

The Federal Reserve has criticized lenders for becoming too So, lax. too has the Office of the Comptroller of the Currency, which regulates national banks. The Fed said in its recent report that banks may sobecome risk-averse that even creditworthy borrowers could suffer.

Many investors worry aloud thata growing credit crunch among financial institutions is exacerbating the tumult in world markets.so Withfew firms willing to commit their capital to trading, big orders to sell or buy securities cause larger price moves than they otherwise would.

Firms are also less willing to underwrite corporate stock and bond offerings, making it difficult for companies to raise capital to invest in plants and equipment.

"The heightened perception of risk will inevitably alter behavior in ways that will curbgrowth," said Maureen Allyn, chief economist at Scudder Kemper Investments. I1Low-cost capital was supporting the capital spending boom. Capital costs are now rising, as investors become more skjttish about funding new equity offerings and are demanding higher interest rates on corporate debt."

Salomon was among the first to crack ondown risk, shutting down the bond arbitrage unit set up years ago by Long-Term CapitalJohn chief W. Meriwether. In September, several hedge-fund directors and Wall Street executives said, Salomon began aggressively pushing to raise collateral levels for loans and began severing ties with several hedge funds. Salomon would not comment.

Meanwhile, ING Barings sharply cut back its emerging markets trading operation, while some executives at CIBC Oppenheimer Corp. emerging-markets unit recently resigned.

"We're not even calling it emerging-market asset class anymore," one Wall Street executive quipped.

llIt's called emerging-market liability class."

LANGUAGE: ENGLISH

LOAD-DATE: October 09, 1998 Page 8

1ST STORY of Level1 printed in FULL format.

October 13, 1998 Tuesday METROPOLITAN EDITION

SECTION: TUESDAY BUSINESS; Pg. Dl

LENGTH: 785 words

HEADLINE: REIT feels aftershock of bailout NovaStar of Westwood sells assets in response to crunch on Wall Street.

BYLINE: ERIC PALMER, Kansas Business Editor

BODY : A real estate investment trust based in Johnson County is selling assets and delaying a dividend after becoming cash-strapped because of a worsening Wall Street credit crunch.

Analysts said NovaStar Financial was a victim of fallout from the recent bailout of the Long-Term Capital Management hedge fund. That $ 3.6 billion rescue - orchestrated by the Federal Reserve Bank of New York and including some of the largest Wall Street firms - has exacerbated a tightening of credit on Wall Street.

NovaStar executives said in a statement that steps they are taking to address the trust's financial needs might not be enough to restore its liquidity. The Westwood trust primarily buys mortgages made to people with impaired credit. It hedges its risk against losses using a variety of financing instruments.

The situation "continues to evolve every minute," said Mark Kohlrus, NovaStar chief financial officer.

I'People in our business typically have a number of financing facilities in place, but with what has happened in the financial services sectors, these lenders are very concerned about liquidity."

Federal Reserve Chairman Alan Greenspan recently told the House Banking Committee that he was worried by "a severe drying-up of market liquidity.It

In its statement, NovaStar said that its business remained strong and that it expected third-quarter earnings between $ 2.2 million and $ 2.4 million, or 27 cents to 29 cents a share. Having to Sell assets, however,will "produce significant fourth-quarter losses.It

@ LEXIS=NEXlS @ LEXIS=NEXlS @ LEXIS=NEXIS @A mcrnbcr of rhc Rccd Elrcwcr plc group -@A rncrnbcr of rhc Rccd Elrcvtcr plc group @A rncrnbcr of rhc Rccd tlrcvtrr plc group Page 9 THE KANSAS CITY STAR October 13, 1998 Tuesday remains sound.

He said the company was talking with its lenders, cutting costs and selling loans, mortgage securities and hedging arrangements to raise cash. The trust also is delaying payment of a third-quarter dividend of 35 cents a share until Jan. 15.

In June, the company had about 120 employees in California and80 at its Westwood headquarters. At the end of 1997, NovaStar reported assets totaling $ 1.1 billion.

Novastar's stock dropped2 3/4 to a 52-week low of4 1/2 after the company announced its situation, and closed at 4 zn . That is down from a 52-week high of21 1/8 on March 9.

One analyst said the trust had become a victim, in part, of the flmeltdownloof Long-Term Capital Management LP. That hedge fund last month was saved from failure when many of its Wall Street investors pumped in $ 3.6 billion in a bailout supervised by the Federal Reserve Bank of New York.

llNovaStaris a well-run company that is just being bulldozed by the aftershocks from Long-Term Capital Management," said Arthur Bender, an analyst with Sutro& Co. in San Francisco. "Wall Street is starting to pull back on financing for companies like NovaStar.ll

Analysts said there had been a credit crunch developing on Wall Street for several weeks as many Wall Street lenders had reassessed their risk exposure. As a result, they are curtailing some of their lending.

Bender said it was important to note that, in general, NovaStar's underlying business of buying subprime mortgages was strong. He and other analysts said that with low interest rates, there had been a big supply of these mortgages, dampening demand and depressing their value.

Stephen Moyer, an analyst with NationsBanc Montgomery Securities in San Francisco, said many participants in the subprime mortgage industry had experienced or were rumored to be experiencing liquidity problems.

"NovaStar is not unique , he said.

NovaStar opened in December 1996 and went public a year ago. Most of Novastar's subprime loans are made in California.

On average, NovaStar collects several percentage points more in interest on its loans compared with a typical mortgage.

As a real estate investment trust it escapes corporate income Page 10 THE KANSAS CITY STAR October 13, 1998 Tuesday tax, which gives it a big advantage over banks and most other businesses. But it also means NovaStar must pay out at least 95 percent of what would be taxable income to its shareholders. That leaves little money internally to bankroll NovaStar's fast growth.

The company instead raises money through the capital markets.

LOAD-DATE: October 14, 1998 Page 12

1ST STORY of Level1 printed in FULL format.

October 1998

SECTION: Vol. 46, No. 10 Pg. 1-5; ISSN: 1056-5140; CODEN: ENPYAC

LENGTH: 2487 words

HEADLINE: The outlook

BYLINE: Seiders, David F

BODY : Highlights

* Real gross domestic product (GDP) grew an at annual rate of3.3 percent in the third quarter, according to the advance report released by the Commerce Department on October30. This growth rate was close to the average for the first half of the year and exceeded the "consensus" market forecast by a wide margin. The third-quarter advance was paced 3.9 by percent a rise in personal consumption expenditures, and expenditures on housing (residential fixed investment) also made a solid contribution to GDP growth.

* Despite its overall strength, the third-quarter GDP report contained some elements that point towarda slowdown in the near future. The trade sector continued to deteriorate, subtracting0.76 percent from growth, and further deterioration is inevitable as the global crisis gets wider and deeper. Furthermore, business inventory investment was surprisingly strong in the third quarter, adding nearly1 percent to GDP growth, and inventory investment is likely to becomea drag on growthin coming quarters.

* Perhaps the most disquieting aspect of the third-quarter GDP report was further erosion of the personal saving ratea tomoden-record low of0.1 percent. Indeed, the Commerce Department has since reported that the saving rate actually turned negative in the month of September, the first red number in recorded history. The accumulation of stock market wealtha bingeand of cash-out mortgage refinancings have helped fuel consumer spending and reduce incentives to save out of current income.

* Consumer spending remained robust through September despite deterioration in key measures of consumer confidence. The confidence measures deteriorated further in October, primarily because of weakening expectations about future economic conditions, and it's likely that growth in consumer spending will slow down in the fourth quarter. Home sales and housing starts should also taper off in the fourth quarter.

* While a convincing slowdown inU.S. economic growth is still just a forecast, financial market turmoil has been a highly visible reality for months. At the September 29 meeting of the Federal Open Market Committee (FOMC), the LEXISmNEXIS @ LEXIS=NEXlS @ LEXISNEXIS g.A mcmkr of rhc Rccd Elrrv~rpic group -@A mcrnbcr of rhc Rccd Elrcvtcr pl~gmup g.4 mcmbcr of rhc Rccd Elrcv~rplc gmup Page 13 Housing Economics October 1998

Federal Reserve cut its target for the federal funds rate5.5 from to 5.25 percent, citing increasing weakness in foreign economies and less accommodative financial conditions domestically. The Fed really surprised the markets by moving again on October15, dropping both the funds rate and the discount rate by 25 basis points. This time the Fed cited growing caution by lenders and unsettled conditions in financial markets.

* The Fed'saction's clearly came in reaction a towrenching grasp for quality and liquidity in foreign and domestic financial markets,a mad scramble that threatens development ofa bona fide credit crunch in theU.S. It's noteworthy that eight of the twelve district Federal Reserve Banks had petitioned the Federal Reserve Board during the first half of October to cut their discount rates so that depository institutions would have better access to these lenders of last resort. At the same time, however, federal regulators of depository institutions (particularly the Federal Deposit Insurance Corporation) were telling lenders to focus harder on credit quality in some markets, including the markets for land acquisition, land development and construction loans.

* Potential retrenchment in consumer spending and worsening of the credit market squeeze now underway are the key threats to continuation of positive economic growth in1999 (deterioration in trade is a given). NAHB is counting on the Federal Reserve to ease monetary policy further in the months ahead, including another 25 basis point adjustment at the November17 FOMC meeting. We expect the federal funds rate to be down4.25 to percent by next spring, and the Fed couldgo even lower than thatif market conditions merit.On ahappy note, the stock market stageda nice rally in October, largely because of the Fed's two t1preemptive18policy adjustments and signs of resilience in key developed economies following theone-two punch of Asia and Russia/ Latin America. There also has been some progress on the policy front in key foreign economics; in particular, Japan has finally begun to attack its formidable banking sector problems, and the IMF is now working on a bailout program for Brazil (with the help of the funding finally approved by U.S.). the Despite these various positive factors, theU.S. stock market still appears to be aggressively valued, and another downshift certainlyisn't out of the question.

* In the midst of all the turmoil in domestic and foreign markets,U.S. the housing market sailed through the third quarter in veryshape. good Home sales retreated only modestly from the record second-quarter pace, housing starts climbed to the highest level of this long economic expansion, and the homeownership rate soared to another record(66.8 percent).

* NAHB continues to forecasta substantial slowdown in economic growth in 1999, particularly in the first half of the year, along with a of decline roughly 8 percent in total housing starts. There are substantial risks to this baseline (most probable) forecast, however, and we estimate that the probability of recession in1999 is up to aboutone-third. As Chairman Greenspan recently admitted, the current global economic and financial turmoil is a new phenomenon and the outcome is anything but clear.

The Credit Squeeze

(Graph Omitted)

Captioned as: Figure 1 Page 14 Housing Economics October 1998

The panic that hit the credit markets in September and Octobera was desperate flight to quality and liquidity that lowered the Treasury yield curve, raised spreads of all other market interest rates relative to comparable-maturity Treasuries, cut off many corporations from the bond markets, decimated the IPO market, threw various asset-backed securities markets into disarray, and tightened lending standards at depository institutions. Indeed, liquidity spreads opened up even within the Treasury market (comparing on-the-run and off-therun issues). Chairman Greenspan remarked that he had never seen anything quite like this stampede away from risk and toward quality and liquidity, as hoardsof investors simply said"1 want out".

The most visible market evidence of the sudden flight to quality and liquidity is provided by widening spreads of various market rates over the Treasury curve as well as by larger bid-ask spreads. The high-yield corporate bond market was hit hardest, as spreads to Treasuries widened 400by basisabout points through mid-October. Spreads ofAA and BAA corporates over 10-year Treasuries also widened dramatically, and AAAeven corporates moved up by about 75 basis points relative to the10-year Treasury bond. Quality and liquidity premiums have narrowed somewhat since midOctober, and the Fed moves on October 15 are largely responsible for that improvement.

The aversion of capital market investors to credit risk and illiquidity naturally has resulted ina sharp reduction in corporate bond issuance and a sharp increase in loan demand at depository institutions. Indeed, bank lending to businesses has been accelerating, and the Federal Reserve's use of open market operations to lower the federal funds rate has been bolstering the reserve positions of depository institutions.A mid-September Federal Reserve survey of bank lending officers revealed some tightening of lending standards, and some increases in loan rates over banks' costs of funds, primarily on loans to large and medium-sized firms.

(Graph Omitted)

Captioned as: Figure2

Figure 3

Figure 4

Figure 5

The credit crunch of the early1990's involved the heavy handsof federal banking/thrift regulators who warned their institutions about deteriorating credit standards, particularly on real estate loans, and sent armies of examiners to clamp downon institutions that appeared to be overexposed. Unlike the early 199Os, banks and thrifts are now well capitalized, and the uniform real estate lending standards imposed by the regulators1993 in (primarily limits on loan-to-value ratios) have prevented the kinds of lending excesses that helped bring down the Savings and Loan industry and spawned the Resolution Trust Corporation in the early1990s. Even so, regulators are sending out warning signals once again. The most frightening signal has been thrown off by the Federal Deposit Insurance Corporation which, on October8, issued a @ LEXENEXIS @ LEXISNEXIS @ LEXIS'mNEXlS @A mcmbcr of rhc Rccd Elrcvtcr plr gmup @A mcmbcr of rhc Rccd Elrcv~rrplc gmup -@A mcmbcr of chc Rccd Elrrvtcr plc group -- Page 15 Housing Economics October 1998

Financial Institution Letter entitled “Acquisition, Development, and Construction Lending.” This letter stressed the need for sound underwriting standards, it reinforced the importance of the supervisory loanto-value limits, and it cited early indications of imbalancesa innumber of real estate markets, particularly in the Southeast and Southwest portions of the country.

NAHB is now trying to assess the impactsof tightening bank lending standards, along with the credit quality alerts being sent out by regulators, on the markets for housing production loans.It’s already perfectly clear that the markets for permanent financing have taken some hits. In October, yields on jumbo home mortgages rose about20 basis points relative to loans under the Fannie/Freddie conforming loan limit (currently$ 227,150), and the budding subprime home mortgage market all but shut down. At the same time, the spread between yields on conforming home mortgages and lOyear Treasury bonds widened by more than l/2 percentage point, and even the yieldon GNMA-guaranteed securities (backed by FHA and VA loans) moved out of line. (Figures1 and 2).

Damage to the multifamily mortgage market has been even more serious, largely because of limited federal mortgage insurance and limited involvement by government agencies in the secondary markets. Market prices of shares in Real Estate Investment Trusts have contracted dramatically sincemid-July, and new issues have ground to a halt. Furthermore, many Wall Street conduits have ceased or seriously cut back multifamily loan purchases as the markets for their securities issues has vanished in the mania for quality and liquidity. The Wall Street bears have chased a lot of borrowers to lenders who may be able to sell multifamily loans to Fannie Mae and FreddieMac, but it remains to be seen how well these government sponsored enterprises will fill gap. the

Fed to the Rescue

The Federal Open Market Committee (FOMC) shifted froma restrictive to a neutral inter-meeting policy directive at its August18 meeting, in the midst of the major stock market correction that beganmid-July; in of course, the markets weredeprived of that information until Chairman Greenspan the change in a speech delivered in early September.

Financial market conditions became increasingly disorderly during September as impacts of the Russian devaluation and debt moratorium, along with the meltdown of the immense Long Term Capital Management81hedge11 fund, shook market confidence and sent investors scurrying for cover. In this environment, Chairman Greenspan virtually assured the Senate and the world a thatrate cut was likely at the September29 FOMC meeting. Unfortunately, the Fed disappointed the markets by cutting the funds rate by 25only basis points and by leaving the discount rate alone. Rather than rallying, the markets deteriorated further when presented with this baby aspirin, and corporate bond yields continued to rise rather than fall.

On October 15, the Fed surprised the markets by dropping both the funds rate and the discount rate by25 basis points, the first inter-meeting move in about 4 years (in 1994 the Fed was ina tightening mode). This time both stock and bond markets rallied as the Fed made it clear that the central bank was willing to act decisively and early, even before the financial market turmoil had done much visible damage to the llrealllu.S. economy. It was clear to the Fed thata @ LEXIS=NEXIS @) LEXIS=NEXIS @ LEXISNEXIS’ .@A mcmbcr of rhc Rcrd Elrcwcr pk group aArncrnbcr of rhc Rccd Elrcwcr plc pup a.4 rncrnbcr of rhc Rrrd Elrcr~crplc gmup Page 16 Housing Economics October 1998

mad scramble for quality and liquidity, including the beginnings of a tightening of lending standards at depository institutions, was threatening to degenerate into a real credit crunch that could sink U.S. the economy. By lowering shortterm rates and pumping reserves into banking the system, the Fed sought to boost the availability of credit and calmmarkets. the

(Graph Omitted)

Captioned as: Figure 6

Figure 7

Figure 3 shows the Federal Reserve discount rate and the federal funds rate on a quarterly-average basis. NAHB's forecast assumes that the federal funds and discount rates will both be cut by another25 basis points on November 17 and that these rates will be down 41/4 to and 4 percent, respectively, at the conclusion of the March30, 1999 meeting. We're projecting stable policy over the balance of19992000, but the Fed obviously will be poised to move (in either direction) as conditions shift.

Slowdown Coming

NAHB expects aggressive Fed action to alleviate the current credit squeeze and keep the economy out of recession1999. in However, a substantial slowdown is virtually inevitable.A serious corporate profit squeeze is still to be dealt with, and this will lead to cutbacks in capital spending and hiring plans as well as to more trouble in the stock market. Growth in household income and consumer spending is also boundto slow, and consumption could be cut back quite sharply to restore the saving rate a tomore normal level.

Figure 4 shows the pattern ofGDP growth inNAHB's baseline forecast. We expect a below-trend year in1999, with growth of only1.8 percent over the four quarters of theyear, followed by a trendlike performance(2.4 percent) over the course of the year2000. In this forecast, the unemployment rate moves up gradually from the low point in the second quarter of this year, 5 reaching percent by the end of1999 (Figure 5). The GDP price index (chain weighted) also moves up a bit in this forecast, despite the projected slowdown in economic growth, reflecting dissipation of some special factors (including falling oil prices and a rising dollar) that recently have pushed broad inflation measures toward zero (Figure 6).

Housing market activity weakens only moderately in this forecast, largely because of projected declines in bothshort-term and long-term interest rates in 1999. Residential fixed investment, which was an engine of economic growth during the first three quarters of thisyear, is expected to flatten out in the fourth quarter, to contract an at annual rate of8 percent during the first half of 1999, and to resume decent growth by late in the year (Figure7).

It certainly is possible to construct more pessimistic scenariosNAHB's, than and some forecasters (e.g.,J.P. Morgan) have incorporated mild recessions into their 1999 baseline forecasts. Indeed, NAHB now places the risk of recession at about one-third for next year.

GRAPHIC: Graphs @ LEXISaNEXlS @ LEXIS=NEXISLEXISaNEXIS .@A rncmkr of rhc Rccd Flrcr~crplc ~mup -@A mrmkr of the Rccd Elrcwcr pl~group aAmcrnbcr of rhc Rrrd Elrcvtcr plc group --

Page 17 Housing Economics October 1998

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Source: All Sources : News : News Group File, Beyond Two Years 8 Terms: date aft 1011997 and date bef 211998 and congress! WHO caps (reit or rei t or r.e.i.t. or real estate investment trust) (Edit Search) THE DALLAS MORNING NEWS, January 30, 1998

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January 30, 1998, Friday, HOME FINAL EDITION

SECTION: BUSINESS; Pg. 2D

LENGTH: 437 words

HEADLINE: REITs face limits on status; Plan would restrict paired-share groups

BYLINE: Bloomberg News

BODY: Shares of Dallas-based Patriot American Hospitality Inc. and similar real estate investment trusts fell amid concern that the government will restrict thespecial tax status thathas boosted their stock and helped them makeacquisitions.

Patriot American fell $ 1.63 to $ 26.50, Starwood Hotels & Resorts Trust fell $ 1.56 to $ 53.63, Meditrust Cos. fell $ 1.88 to $ 32.13 and First Union Real Estate fell $ 2.25 to $ 12.56.

President Clinton plans to propose restricting the so-called paired-shareREITs as part of an effort to close roughly $ 25 billion in corporate tax loopholes, according to three people familiar with the plan.

Because of their special status, investors have placed a higher value on paired-share REITs, giving them a strong currency to use in acquisitions worth billions of dollars. Competitorssay the tax status gives those companies an unfair advantage.

"There should be a level playing field," said Hilton Hotels Corp. chief executive Stephen Bollenbach, who lost to Starwood in a bidding war for IlT Corp. and has become an outspoken opponent.

While specific details of the proposal weren't available, it is likely to place restrictions on what the companies can acquire, a senior tax adviser in Congress said.

The proposal is not expected to affect acquisitions that are alreadypending, analysts said.

"The existing transactions will certainly be grandfathered," said Tom Burnett, founder of the institutional research firm Merger Insight. "The question is, will the stocks you're getting be worth what they were?"

Patriot American chief financial officer Anne Raymond saidthat she considers reports of the Clinton proposal to be speculative until she sees details of the plan.

Starwood chairman Barry SternBlicht said the government would gain little - if any - new tax revenue from restricting paired-shareREITs.

.../retrieve?-m=d4e3d8ddd44474b5fe84757a24 1 05d7&docnum=2&-fmtst~FULL&-startd1 10/19/2000 I Search - 41 Results - date aft ips (reit or re i t or r.e.i.t. or real vestmenttrust Page 2 of 2

Their earnings are taxed after being paid outas dividends, generating about as much tax revenue as profits in a traditional operating company, he said, citing a report from the consulting firm Price Waterhouse commissioned by Starwood.

Like other REITs, the paired-share variety can shelter income from taxes if they pay 95 percent of their earnings as dividends.

Most REITs are limited, however, to passive investments in commercial real estate.

In a paired-share REIT, each share of the REIT is tied to a share of an affiliated operating company and traded as a single unit. That allows the companies to operatebusinesses, such as hotels, on the land they own.

Only four paired-share REITs exist. Congress barred the creation of others in 1984.

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Source: All Sources : News : News Group File, Beyond Two Years 0 Terms: date aft 1011997 and date bef 2/1998 and congress! w/lO caps (reit or rei t or r.e.i.t. or real estate investment trust) (Ed-it Search) View: Full Datenime: Thursday, October 19,2000 - 4:OO PM EDT

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January 30, 1998, Friday, Late Edition - Final

SECTION: Section D; Page 4; Column 3; Business/Financial Desk

LENGTH: 872 words

HEADLINE: Stocks of Four REIT's Sag on Report of Threat to Status

BYLINE: By KENNETHN. GILPIN

BODY: The shares of a handful of real estate investment trusts came under heavy sellingpressure yesterday after a report that the Clinton Administration might propose to alter the way they do business significantly .

The companies -- so-called paired-share REIT's -- are Starwood Hotels and Resorts Trust, Patriot American Hospitality, Meditrust and First Union Real Estate Investments. In the last two years, such companies have become someof Wall Street's fastest-growing stocks.

But the Clinton Administration maysend to Congress next week a proposal to raise $23 billion in revenue by ending a number of corporate tax benefits-- including the advantage that pair-shared REIT's enjoy, an advantage that critics contend has fed their rapid expansion.

Pending deals -- including Starwood's acquisition of the ITT Corporation -- are expected to be allowed to go through. Congress would set the date when the limits would be effective.

"There has been lots of chatter about whether Congress would re-examine the paired-share structure,'' said Ritson Ferguson, president of CRA Real Estate Securities, a Radnor, Pa., investment firm that manages a $1.4 billion portfolio of REIT's and other public real estate companies. "But the likelihood of a dramatic change for these entities is small."

Still, shares of Starwood, which will become the world's largest hotel company when its purchases of IT and Westin Hotels are completed later this year, fell $1.5625, or 2.8 percent, to $53.625, on the New York Stock Exchange.

Patriot American, another fast-growing hotel company, fell $1.625, or 5.8 percent, to $26.50. Meditrust, a nursing home real estate investment trust that earlier this month boughtLa Quinta Inns and Cobblestone Golf Group, fell $1.875, or 5.5 percent, to $32.125. And First Union's stock plunged $2.25 a share, or 15 percent, to $12.5625.

While details of the taxproposal -- reported by The Wall Street Journal yesterday -- are sketchy, it appears that the Administrationis intent on correcting what it sees as an unfair advantage enjoyed by paired-share REIT's than on raising significant amounts of revenue.

Last year, as he struggled to gain control of In, Steven F. Bollenbach, president and chief executive of the Hilton Hotels Corporation, complained loudly and bitterly in Washington about Starwood's status as a paired-share REIT, contending that it gave the company an unfair advantage over Hilton.

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The Journal also reported yesterday that the Administration intended to propose the elimination of a number of other taxloopholes, including an effort to further limit the ability of companies, mostly commercial banks, to take out life insurance policies on their employees. Many banks have used tax-preferred policies to cover the cost of other employee benefits. Enacting the proposal would raise an estimated $2 billion over five years.

In addition, the Treasury Department may try to limit perceivedabuses in foreign-tax credits, and make it harder for American multinationals to take advantage of income generated in tax havens. These proposals, if enacted, would generate some $200 billion over five years.

Officials at the Treasury Departmentdeclined to comment.

Most real estate investment trusts pass on much of their income to investors in the form of dividends and therefore pay little or noFederal tax. But in the early1980's predecessors to this group of companies managedto affiliate themselves with active real estatemanagers, giving them greater flexibility and creating situations in which theREIT can effectively lease property back to itself.

The management company, which is considered a separate entity and is subject to Federal taxes, is paired with the REIT. Together, the two trade as one stock.

In 1984, Congress disallowed the creation of any additional paired-shareREIT's, but allowed these four to continue to operate in thisfashion.

A fifth paired-share REIT, Hollywood Park Inc., lost its status but is trying to get it back.

According to estimates, curbing future expansion of these four companies would raise only about $100 million in additional tax revenue.

"Any attempts to raise Federal revenues by placing restrictions on paired-share REIT's, while perhaps well intentioned, would be misguided," Barry S. Sternlicht, Starwood's chairman and chief executive said in a statement yesterday. "Starwood Hotels enjoys no unique tax advantages over any other taxable corporation. The advantage of the paired-share REIT is the elimination of conflicts between the ownership and management ofhotels, not the generation of additional tax savings."

Tax and budget experts on Capitol Hillsaid they would withhold judgment on the proposal until its details weredisclosed.

"Any new proposals will be put under review," Ari Fleischer, a spokesman for the House Ways and Means Committee, said. "Chairman Archer, who said last year that Congress will revisit paired-shared REIT's without prejudice, will go after all loopholes in the tax code as he sees fit. But he will not raisetaxes."

Mr. Fleischer was referring to Representative Bill Archer, the Texas Republican who is chairman of the House Ways and Means Committee.

GRAPHIC: Charts: "REIT Shares Fall" These real estate investment trust's may lose their current tax status. Charts show daily stock closing prices (in dollars for the last ten days) for FirstUnion, Patriot American, Meditrust, and Starwood Hotels. (Source: Bloomberg Financial Markets)

LANGUAGE: ENGLISH

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Source: All Sources : News : News Group File, All Terms: date aft 7/97 and date bef 10/98 and hleada reit w/lO law or legislat! or chang! or modif!) and at13 (reit) (Edit Search)

The Washington Post, February 03, 1998

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February 03, 1998, Tuesday, Final Edition

SECTION: A SECTION; Pg. A09

LENGTH: 979 words

HEADLINE: Clinton Plan Would Raise $23 Billion; Taxes Target Wall St., Insurers and the Rich

BYLINE: Judith Evans, Washington Post Staff Writer

BODY:

The Clinton administration returned to a familiar stomping ground yesterday to raise$ 23 billion in revenue over the next five years-- Wall Street, insurance companies and the wealthy.

The Clinton proposal takes several little swipes at financing strategies and investments, most notably by making it harder for well-to-do taxpayers to reduce the impact of thefederal estate tax and reducing some of the benefits of investing in annuities.It also eliminates the tax-free status of mergers between real estate investment trusts(REITs) and other corporations and levies taxes on companiesat the time theychange their corporate structure. The package "is much more moderate in tone than last year's," said Edward Kleinbard, a partner at the law firm of Cleary, Gottleib, Steen and Hamilton in New York.

"But what I'm most concerned about is what's not in this package and what's going tobe demanded of Wall Street when thetobacco settlement falls apart because the revenues for spending will have to come from someplace else."

The administration is counting on $ 9.8 billion in revenue from the proposed settlement with the tobacco industry related to treatingMedicaid patients for smoke-related illnesses.

Insurance companies warned yesterday that the Clinton proposal would make some annuities less attractive investments. An annuity is a fixed- or variable-rate contract sold by life insurance companies that allows investors toreceive payments once they retire. More than $ 85 billion in annuities weresold last year, most of which were of the fixed-rate variety.

The administration's plan targets variable-rate annuity holders, who currently can switch their investments among several different funds but avoid paying taxes on anygains. Investors pay tax on the income they receive from the annuity after they retire.The administration wants to raise$ 900 million over five years by taxing variable-annuity investors on any gains earned when they switch investment funds.

"This is inappropriate and contradictory to the thrust of the president's State of theUnion address, where retirement and security were talked aboutas very important," said Doug

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Bates, director of federal relations for the AmericanCouncil of Life Insurance.

The proposal also would tax insurance companies at a higher rate when they maintain reserves against their annuity contracts that are larger thannecessary to cover payments to investors. The change is expected to raise $ 4.6 billion over five years.

Meanwhile, Clinton, in a clear challenge to Republican lawmakers, many of whom want to eliminate the estate tax altogether, would make it harder to use insurance to pass money to heirs tax-free and touse various valuation techniques to reduce the value ofnonbusiness assets when the estate taxis assessed.

His plan would eliminate the so-called "Crummey rule," which allows taxpayers to make gifts to trusts without incurring gift tax. That change would sharply reduce the appealinsurance of trusts, a widely used estate-planning device. It would generate $ 1 billion in revenue over five years.

Clinton also would eliminate personalresidence trusts, a method of transferring a home to heirs at a reduced value, and eliminate various discounts normally appliedto assets in an estate when the dead person owneda partial interest. The three proposed measures would generate a total of $ 200 million in revenue over five years.

Another controversial administration provision is the attack on what are called "paired-share" REITs, which pay little or no federal taxesas a passive-investment entity, but unlike most REITs, these actually operate the real estate they own.Congress banned that REIT structure in 1984, but exempted four companies -- including Starwood Hotel Resorts, which recently purchased IlT Corp.

Critics have charged that the tax advantage allows theseREITs to acquire companies more easily because Wall Streets gives thema higher value and better access to cheaper financing. The proposed legislation -- which would block future tax-advantaged acquisitions by these REITs -- is expected to generate $ 100 million in revenue over the next five years.

REIT shares have fallen in stock market trading during the past few days, when word of the provisions seeped out. Several tax experts said it isn't guaranteed that Congress will pass such legislation this year. But aides to House Ways and Means Committee Chairman Bill Archer (R-Tex.) previously had said the committee would review the status of "paired-shared" REITs after the highly publicized$ 10.2 merger agreement between Starwood and IlT Corp. in October.

Business leaders also criticized another administration proposal aimedat small businesses. Currently, companies can choose to have their profits taxed at the shareholderlevel, as is the case at many smallcompanies, or at the corporatelevel, as such big companies as Coca-Cola Corp. do. Often when companies growlarger, they convert their tax status ina tax-free reorganization to one where profits are taxed at the corporatelevel.

Under the Clinton proposal, companies would have to pay taxes on the appreciated valueof their assets and shareholders would be taxed on appreciation of their stock holdingsif their business converts to the large-company status or toa REIT. Rouse Co., the Columbia-based real estate developer, has announced such plans.

Several business organizations, including the National Federation of Independent Business, plan to fight the proposedchange.

"We would like to see business convert from one type ofbusiness to another without being penalized by this provision," said Susan Eckerly, chief Senate lobbyist for the group that represents 600,0000 small businesses nationwide.

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Staff writer Albert 8. Crenshaw contributed to this report.

GRAPHIC: Photo, Susan biddle, In the White House East Room yesterday, President Clinton led a spirited defense of his budget, which includes tax proposals that business groups plan to fight.

LANGUAGE: ENGLISH

LOAD-DATE: February 03, 1998

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Source: All Sources : News : News Group File, All Terms: date aft 7/97 and datebef 10/98 and hleadB reit w/lO law or legislat! or chang! or modif!) and at13 (reit) (Edit Search) The Sun (Baltimore) February 8, 1998, Sunday,

February 8, 1998, Sunday, FINAL EDITION

SECTION: BUSINESS, Pg. 1D

LENGTH: 1107 words

HEADLINE: Industry calls REIT plan a wrong move; Clinton proposal will slow industry growth, some observers say; Changes may affect Rouse; Businesses may find way around new rules if they are enacted

BYLINE: Kevin L. McQuaid, SUN STAFF

BODY:

President Clinton's proposed $ 1.73 trillion balanced budget may have created some heat in the halls of Congress, but the real estate industryis quietly boiling over the potentialloss of some of its tax benefits.

Under a proposal by the president last week to generate more tax revenue, publicly traded real estate investment trusts would undergo their most significant structural changes in more than a decade.

Many industry analysts and executives fear that theproposed changes could represent only the beginning of a series of setbacks for thesuccessful REIT industry, which has grown from a fledgling handful of companies with less than $ 10 billion in 1990 to more than 200 companies valued at $ 150 billion today. REITS have become such a popular investment that mutual funds have been created to invest exclusively in them.

"Is this the elephant'snose under the tent? Idon't think anyone knows yet, butI don't think it's good for the industry," said Robert A. Frank, director of research at Legg Mason Wood Walker Inc. and one of the nation's foremost REIT experts.

"It would slow down the growth of the industry by virtue of the fact that fewernew REITs would be formed, it would make existing REITs more valuable and enhance potential conflicts between real estate owners and their operating contractors," Frank said. "Idon't think they're well thought out."

In all, the REIT industry estimates the changes would generate less than $ 400 million in new tax revenue over five years. REITs would still enjoy significant tax advantages, however, in that they would continue to be exempt from the corporate income tax in exchange for distributing 95 percent of their earnings to shareholders.

Although REITs have been the subject of legislation in years past -- the 1986 Tax Act brought numerous changes, for instance -- much of the current brouhaha stems from the recent fight over ITT Corp.

There, Hilton Hotels Corp. lost a bitter $ 10 billion bidding war with Starwood LodgingCorp.

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for the right to buy ITT, a loss Hilton blames on Starwood's so-called paired share or stapled structure that helps it avoid taxes. Even with the stapled structure, though, Starwood is expected to pay as much as $ 150 million in taxes this year as a result of the ITT acquisition, since In's operations will continue to be taxable.

Some analysts, in fact, have already taken to calling the Clinton proposal to eliminate stapled REIT advantages "Bollenbach's Revenge," so named for the head of Hilton, who lobbied both Congress and the administration tochange the rules in the wake of the ITTdeal.

"I don't think it's right that we have to compete against companies that get a tax break that we don't,'' Stephen Bollenbach, once chief financial officer of the former Marriott Corp. and now Hilton's president and chiefexecutive, said last week. "We shouldn't have a market economy where a chosen few get advantages -- it's not good economics, it's not good politics, it's not good business."

Unlike most trusts, paired share REITs can own both property and their corresponding operating businesses. A paired share REIT, for example, could both own a hotel as a real estate investment and control the company that runsit.

Under the Clinton proposal, existing stapled trusts would be prohibited from creating or running new operating entities. In addition to Starwood, existing publicly traded paired share REITS are Patriot American Hospitality Inc., Meditrust and First Union Real Estate Investments Inc.

In addition, Clinton's proposals would hamper the formation of new REITs by certain corporations; prevent REITs from owning or creating certainsubsidiaries; and limit the amount of REIT stock any single person or company could control. Theproposals, if enacted, would take effect in the government's 1999 fiscal year.

To counter the potential assault, the four stapled REITs whose wings would be clipped have hired top guns. Most notably, Starwood retained former U.S. Senate majority leader and presidential candidate Bob Dole to pitch its case on Capitol Hill.

The changes could have a local impact as well, if Rouse Co. is successful in acquiring a closely held, New York-based stapled trust known as Corporate Property Investors Inc.

If the anticipated $ 4 billion deal goes through and the Bollenbach-inspired changes take effect, Rouse would be prevented from using CPI's paired share structure to create or operate non-real estate businesses.

Rouse has declined to comment on anyaspect of the CPI deal -- or whether such a transaction is in the works -- but sources say that the Columbia-based company is more interested in CPI's signature shopping malls than in the stapled trust format.

For its part, the National Association of Real Estate Investment Trusts Inc., the industry's Washington-based trade group, is taking a cautious stance toward the proposedchanges.

"While we disagree with severalaspects of these proposals by the administration, we look forward to working closely with the Administration and Congress to ensure that modern REIT rules are in place which continue to make real estate investment easily and economically accessible to small investors everywhere," NAREIT President and Chief Executive Steven A. Wechsler said in a recent statement.

Even if the Clinton proposals areenacted, the industry may find creative ways around them, at least for the near term.

While Legg Mason's Frank and other industry analysts predict the paired shareREIT status

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could become a "sacrificial lamb" to appease the administration, trusts may turn to a so- called "paper clip" format rather than a stapled one. A paper clip REIT consists of two separate companies, one owning real estate and the other an operating entity, that are linked with common boards and shareholders, though traded separately.

Another avenue around the proposed rules could come from publicly traded "limited liability corporations," similar in structure to limited partnerships. Thusfar, however, only one real estate owner has adopted the LLC format.

Still, many industry watchers contend the proposals are likelyto undergo huge changes in the Republican-controlled House Ways and Means Committee and may die.

"What we're hearing is that the Republicans aren't overwhelmingly inclined to include these changes in their budget mark-ups," said Suzanne Cottraux, a vice president of Patriot American, a Dallas-based trust.

"If the proposals become law, it might alter the way we do business in the future, but right now we're proceeding with business as usual."

Pub Date: 2/08/98

GRAPHIC: PHOTO, GEORGE W.. HOLSEY : SUN STAFF, Robert A. Frank, director of research at Legg Mason Wood Walker Inc. and one of the nation's foremost REIT experts, believes proposed changes in REITs are bad for the real estate industry.

LOAD-DATE: February 11, 1998

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Source: All Sources : News : News Group File, All Terms: date aft 7/97 and date bef 10/98 and hlead9 reit wll0 law or legislat! or chang! or modif!) and at13 (reit) (Edit Search) TheStreet.com March 27, 1998 Friday

March 27, 1998 Friday

SECTION: COMMENTARY; Commentary Features

LENGTH: 1900 words

HEADLINE: REITs: Taxes, the Oppenheimer Call and Building Blocks

BYLINE: By Christopher S. Edmonds, Special To TheStreet.com Christopher S. Edmonds is the president of Resource Dynamics, a private financial consulting firm based in Topeka, Kan. At the time of publication, he held no positions in any of the stocks he reported on, though this may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he welcomes your feedback at [email protected].

DATELINE: March 27, 1998 2:37 PMET

BODY:

Can Paired-Share REITs Weather New Tax Laws?

In a surprising move tosquash the tax advantage of certain real estate investment trusts (REITs) in merger and acquisition activity, the chairmen of both the House and Senate introduced legislation Thursday night that could have significant impact on the industry.

House Ways and Means Chairman Bill Archer (R-Texas) and Senate Finance Committee Chairman William Roth (R-Del.) simultaneously introduced legislation in both chambers that would severely restrict the use of "paired-share" or "stapled-stock" REIT status in avoiding the payment of corporateincome tax on operating revenue.

Unlike other REITs, paired-share REITs are allowed to collect income from properties, such as hotels, that generate substantial non-rent revenue. They manage that by being attached to an operating company, which collects that non-rent revenue and passes it to the REIT as rent. Like any other rent income a REIT collects, that money isn't subject to corporate income taxes, as long as the REIT passes at least 95% of it to its shareholders as dividends.

The legislation, which is the result of negotiations between the White House and the Republican committee chairmen, has a good chance of being enacted this session. The Clinton administration proposed tightening the restrictions on paired-share REITs as part of its current budget plan. The administration's proposal was estimated to cost paired-share REITs about $137 million in taxes over five years.

Five paired-share REITs were grandfathered under the current tax code: Starwood Hotels & Resorts (HOT:NYSE), Patriot American Hospitality (PAH:NYSE), Meditrust (MT:NYSE) and First Union Real Estate (FUR:NYSE). In addition, a privately held paired-share REIT, Corporate

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.4' - ~~

Property Investors recently agreed to be acquired by Simon Property Group (SPG:NYSE). In Friday morning trading, investor reaction was unclear, with Starwood and Patriot trading marginally higher and Meditrust and First Union trading fractionally lower.

Reaction to the proposal is mixed. While some feel the legislation could be punitive, many feel the impact will be minimal. "The impact of this move may very wellbe minimal," said J.C. Bradford REIT analyst Steve Temple. "If paired-share REITs are forced to spin off their operating companies, they'll find creative ways to do so, leaving little impact on either company's bottom line."

Many feel the real loser will be Meditrust, a REIT that recently acquired its paired-share status through the purchase of Santa Anita Race Track in California. Many think Meditrust paid a $200 million premium for the company that may not be useful under the proposed legislation.

Conversely, companies like Starwood and Patriot have already grown through theuse of the paired-share status and are likely not to be impacted by the legislation. All acquisitions made prior to Thursday wouldbe exempt from the proposal.

REIT Calls from Wall Street

Looking to value ideas to reconstruct your portfolio?Well, so are many real estate analystsas they continue to turn positive onREITs. With the general market, as measured by the S&P 500, up over 13% for theyear, the S&P Real Estate Index has lost ground, declining 2.67% since January.

The reasons are many: oversupply of REIT securities from the burgeoning number ofIPOs and secondaries in the marketplace, uncertainty as to tax legislationproposed by the Clinton administration and a normal breather from the rapid increase in REIT prices in 1997.

However, the decline may be overdone. Last week, Eric Hemel, a REIT analyst for MerriII Lynch, provided a pulpit-like sermon on the virtues of the industry.While many of the companies recommended in the report coincidentally have banking relationships with Merrill, his call was as much a broad-based value call on the industry as hype for specific companies. While Hemel has clout with the large base of Merrill retail and institutional clients, any call from a Merrill analyst is worth noting.

It is also worth noting that not onlydoes the company have banking relationships with a number of REITs, but also that, only two days later, MerriII floated its preliminary registration for a new REIT unit investment trust. Wonder if that has anything to do with one of the most table-pounding, bullish calls the company has made in recent weeks? After all, Merill reportedly told their partner Cohen & Steers Realty that they could raise a billion dollars and more for a new REIT UIT. That really may make Eric Hemel the million-dollar man. (For a TSC report on Merrill's registration, please click here.)

To his credit, Hemel may be the trendsetter here. After silence from most REIT analysts since early January (they've most likely been busy licking their wounds and finding ways to do some "housecleaning"), another pound-the-table bull emerged Thursday morning.

Jordan Heller, a REIT strategist for CIBC Oppenheimer, initiated coverage this morning of 19 REITs with very positive comments about the sector in general."We are positive on REITs from a defensive/total return point of view relative to the broader equity market.We expect the REITs will deliver 8% to 12% total return over the next 12months,"' wrote Heller.

In the report, Heller cites Crescent Real Estate (CEI:NYSE), Excel Realty Trust (XEL:NYSE), Home Properties of New York (HMW:NYSE) and Reckson Associates Realty (RA:NYSE) as strong buys. (The company has no banking relationships with any of these firms.) Among the

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buy-rated stocks, Heller lists Bay Apartment Communities (BYA:NYSE), BRE Properties (BRE:NYSE) and Simon DeBartolo Group.

Heller starts First Washington Realty Trust(FRW:NYSE), Mills Corp. (MRR:NYSE), Meditrust and New Plan Realty Trust (NPR:NYSE) with a hold rating.

Oppenheimer has quietly been silent on the group for the past year-and-a-half, citing high valuation and a slowing of REIT growth rates. However, Heller says he is full of conviction in making this call. While growth continues to slow, he believes that values are attractive at current levels. "This is a valuation call," says Heller. "The prices are now cheap. However, the fundamentals of the industry continue to weaken." Sounds convincing to me!

Building Blocks

Simon DeBartolo Group continues to quietly remove the DeBartolo influence from the company. While Edward DeBartolo, Jr. was removed from day-to-day operations when the company's merged, yesterday's announcement that he was resigning from the SimonBoard was one more indication that "Simonsays" the Simon faithful will control the company.

DeBartolo, who also resigned as chairman of the San Francisco 49ers football late last year amid reports he would be indicted on fraud charges in Louisiana, is leaving the board to pursue other business interests, according to the company press release.

Simon's director of public relations Billi Scott confirmed DeBartolohas no other contractual relationships with the company andhas no input into the daily operations of the company.He remains a shareholder of the REIT.

The resignation leaves DeBartolo's sister, Denise DeBartolo York, as the only family member on the board. In addition, former DeBartolo President and CEO Richard Sokolov continues as a board member as well as president of Simon.

Simon is the largest publicly tradedREIT, with a market cap of $12 billion. The market cap will leap to over $17 billion when the pending merger with Corporate Property Investors, a privately-held paired-share REIT, closes later this year. *****

The FelCor Suite Hotels (FCH:NYSE) - Bristol Hotel Company (BH:NYSE) merger is playing well on the Street. On Tuesday, FelCor announced it would acquire Bristol for 31.7 million shares and the assumption of approximately$700 million in debt. The merger would create the largest independent hotel operating company as well as the largest non-paired hotel REIT. Based on Monday's close, the deal is worth $1.9 billion.

At the close on Thursday, both stocks were trading modestly higher -- FelCor up about 1/2 from the preannouncement price at 36 11/16, and Bristol up 1/8 to 27 3/4. Many analysts feel the deal will be accretive to FelCor's 1998 earnings. Prudential REIT analyst Jim Sullivan continues to like FelCor and is very upbeat about the deal. (Prudential has no banking relationship with either company).

"This is an excellent real estate transaction as well as a great opportunity to quicken thepace of FelCor's growth," Sullivan said. He has increased his 1998 estimates from $3.85 to $3.90 and his 1999 estimates from $4.25 to $4.46as well as moved his 12-month price target to $48 per share. "The estimate is conservative as at 11 times 1999 earnings, it is less than the implied annual growth rate of about 14%."

Sullivan says the big benefit to FelCor is the plan to renovate many Bristol properties, transforming several Holiday Inns into moreupscale Crowne Plaza Hotels, where renovation

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costs should be more than offset by an averageincrease in room rates of over$20 per night.

While investors seem to be taking the deal in stride, credit firms are somewhatconcerned. Standard and Poor's affirmed FelCor's BB+ credit rating and the BB- rating of the company's preferred stock. However, the unsecured debt of FelCor Suites L.P., the operating partnership for the hotels, was placed on credit watch with negative implications.S&P says the credit watch is the result of a significantincrease in the company's secured debt as a result of the pending merger. *****

The REIT IPO gravy train continues. While recent REIT IPOs have not convincingly held their offering prices, plenty of companies are still comingto the till. This week Strategic Realty Capital Corp. filed to issue 6.7 million shares of common at a price of $15.00. The deal is being underwritten by Bear Stearns. The start-up mortgage REIT will make both bridge and permanent loans to multifamily real estate developers. *****

Ihave received several comments regarding the Timberlands Growth Properties IPO. Yes, Timberlands is the first natural resources REIT specializing in timber.. Rumor has it Richard Rainwater of Bass Brothers and Crescent Realty fame is a bit miffed that hewas beaten to the punch on this one.

Timberlands is the continuation of a theme of nontraditional properties being organized and capitalized into REITs. First it was CCA: Corrections Corporation of America, (PZN:NYSE) bringing the privatization of prisons public inREIT form. From the IPO price in 1997, the stock has doubled in price. Next it was movie theatres and auto dealerships. Just last week, College Park Communities Trust, a REIT specializing in off-campus college housing, announced it would go public.

What's next? Several people on theREIT frontier suggest more natural resources deals may be in the works. Coal and other mineral operations are possibilitiesas are sanitary landfills (can anyone say garbage?). In addition, rumor has it even Charter Schools may be on the minds of REIT mavens. That's your real estate education for today!

Also, don't miss TSC columnist Herb Greenberg's insightful take on REIT mutual fund value on the site today.

LANGUAGE: ENGLISH

LOAD-DATE: August 9, 1999

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Source: All Sources : News : News Group File, All 8 Terms: date aft 7/97 anddate bef 10198 and hlead (reit wll0 law or legislat! or chang! or rnodif!) andat13 (reit) (Edit-Search) The Boston Herald, March 28, 1998 Saturday

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March 28, 1998 Saturday ALL EDITIONS

SECTION: FINANCE; Pg. 014

LENGTH: 385 words

HEADLINE: Change in REIT taxes looming

BYLINE: By COSMO MACER0 JR.

BODY: Big real estate investment trusts like Needham-based MeditrustCorp. may be forced to trade in their staples for paperclips.

With Congress and President Clinton now conferring on a plan to nix theso-called "paired- share" or "stapled" REIT structure, the best route for those who enjoy that status maybe to replicate its benefits through new operating units.

Shares of Meditrust and two other stapledREITs fell yesterday as anxiety built about the government plan tahtseeka to halt tax-advantaged companies from entering new businesses as of March 26.

Some analysts have criticized the Needham health-care REIT's rush into leisure businesses, illustrated by its recent acquisitions ofLa Quinta Hotels and the Cobblestone Golf Group.

But with Meditrust shares down 10 percent since word of the tax plan emerged inJanuary, some say the shock has already been absorbed.

"A lot of this (concern) is already in thestock," said Paul Puryear, an analyst with Raymond James & Co. "All you have to do is look at the screen today, and that's what you have."

Meditrust shares dropped 31 cents to $ 30.56 yesterday, while the stapled REITs Patriot American Hospitality and First Union also fell on Wall Street.

Starwood Hotels & Resorts headed off its own tumble by announcinga stock buyback plan yesterday. Shares of Starwood rose $ 1.50 to $ 53.56.

Meditrust Chairman AbrahamGosman and other executives also sought to ease shareholder concern.

"Meditrust has a high-quality portfolio . . . that will allow us to provide consistent returns to our shareholders," Gosman said.

While the company maintained it's "disappointed" with the REIT legislation, Meditrust President David Benson said, "the controversy . , . has diverted attention away from . . . our demonstrated ability to grow."

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Still, industry watchers said the special REITs almost certainly will change gears by creating separate operating companies. Using a so-called "paper clip" structure companies like Meditrust may continue to own and manage realestate, while the separate unitscan operate other businesses.

"(Meditrust) bought the paired-share last, and they just started buying companies to offset the huge cost," said one industry veteran. "Now they can't do anything other than the Cobblestone and La Quinta (deals)."

LOAD-DATE: March 28, 1998

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Source: All Sources : News : News Group File, All Terms: date aft 7/97 and date bef 10/98 and hleadztreit wll0 law or legislat!or chang! or modif!)and at13 (reit) (Edit Search) The New York Times, March 28, 1998

March 28, 1998, Saturday, Late Edition - Final

SECTION: Section D; Page 3; Column 3; Business/Financial Desk

LENGTH: 123 words

HEADLINE: THE MARKETS; REIT Shares Off on Sign ofNew Opposition

BYLINE: ByReuters

BODY: Shares of several real estate investment trusts fell yesterday after influential membersof Congress offered support for a bill to end a tax break that has helped someREIT's.

Hollywood Park Inc., a gambling concern that is seeking to be included among REIT's enjoying the special tax status, was down $1 a share, at $12.625. First Union Real Estate, one REIT affected by the legislation, slipped 12.5 cents, to $11.50.

On Thursday night, a bill similar to a proposal in the Clinton budget was introduced in the Senate and House that could affect REIT's that enjoy paired-share status.

Paired-share REIT's are trusts that trade togetheras a unit with the shares of an affiliate with a more aggressive investment strategy.

LANGUAGE: ENGLISH

LOAD-DATE: March 28, 1998

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Source: All Sources : News : News Group File, All fJ Terms: date aft 7/97 and date bef 10/98and hlead (reit w/lO law or legislat! or chang! or modif!)and at13 (reit) (Edit Search) Los Angeles Times March 31, 1998, Tuesday,

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March 31, 1998, Tuesday, Home Edition

SECTION: Business; Part D; Page 21; Financial Desk

LENGTH: 811 words

HEADLINE: COMMERCIAL REAL ESTATE; INVESTING; BILL COULD FORCE CHANGES IN PAIRED-SHARE REITS; LEGISLATION: MEASURE TO CURB THEIR USE OF SPECIAL TAX STATUS APPEARS HEADED FOR PASSAGE. ANALYSTS SAY THE FOUR FIRMS MAY BE CLIPPED, BUT NOT GROUNDED.

BYLINE: MELINDA FULMER, SPECIAL TO THE TIMES

BODY: New legislation seeking to rein in thepowers of so-called paired-share REITs will clip their wings but not ground them, according to analysts.

The nation's four paired-share real estate investment trusts were dealt a major blow last week when the leaders of the House and Senate tax-writing committees introduced a bill that would eliminate further use of theirspecial tax status.

The move caps months of lobbying, primarily by hotelierssuch as Hilton Hotels Corp. and Marriott International Inc., who sought to eliminate the tax breaks of rivals including Starwood Hotels & Resorts Trust and Patriot American Hospitality, claiming that theREITs' paired-share status gave them a competitive advantage in accumulating large real estate portfolios.

"We don't mind competition, but we want to ensure that we are playing on a level playing field," said Hilton Senior Vice President Marc Grossman.

The legislation would have no impact on the remaining 200-plus REITs across the country. And, says one Treasury Department official, it does not portend closer scrutiny of the REIT industry as a whole.

"We think the REIT industry in general is operating ona very sound basis and is performing a valuable service for investors," said Donald C. Lubick, the Treasury Department's assistant secretary for tax policy.

REIT analysts like Ralph Block of Bay Isle Financial and author of "The Essential REIT" says the issue has been overblown.

"It just means that hotel companies that operateas REITs are no longer going tobe able to manage their hotels in-house," Block said.

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The paired-share debate began brewing last year, when Starwood aggressively bid up the selling price of casino and hotel powerhouse In Corp., a bid it ultimately won for $ 10 billion. The heat was turned up even further in lateJanuary, when the Clinton administration announced its intention toclose the tax loophole used by these four firms, a move that would add an estimated $ 139 million to federal coffers over 10years.

Analysts and administration officials say the endorsement by high-ranking Senate and House Republicans almost ensures its adoption.

If the measure is passed, says Jon Fosheim of REIT research firm Green Street Advisors in Newport Beach, each REIT will likely spin off its operating companyas a separate entity with the same management team, and become what is commonly referred to as a "paper-clipped" REIT.

Even so, they will still have a slight advantage over ordinary companiesin making deals, he said. REITs are tax-exempt as long as they distribute 95% of their gross income to shareholders.

"It doesn't mean you've got a level playing field. Net, they still pay less taxes," Fosheim said.

Paired-share REITs consist of twocompanies, one a tax-exempt firm that owns property, and a second taxable operating company. Both trade as one stock. The taxable company pays most of its income as rent to theREIT, therefore avoiding corporate income tax.

Critics say these firms have manipulated their paired-share status, sheltering income that should be taxed, allowing them to pay higher prices for acquisitions.

Leases negotiated by the hotel operating entity and the ownership entity are not conducted at arms length, opponents say, and it is to their advantage to pay inflatedlease rates because it allows them to shelter more income.

The newly introduced bill would not completely reverse the paired-share status of these four firms, which were grandfathered when Congress originally banned their structure in 1984.

But it will prevent them from operating their ownassets in any new acquisitions. In addition to Starwood and PatriotAmerican, two other actively traded firms share this status: Meditrust Corp. and First Union Real Estate. None of them are based in California.

The stock prices of these four REITs have taken a big hit since President Clinton first announced plans to rein in theirpowers. Since January, Starwood has dropped 12% to a low of $ 50.13 before rebounding to $ 53.56 at the close of business Monday. Patriot American likewise dropped 13% to $ 24.75 earlier in the month, before recovering to$ 26.81 Monday.

Block says the drop has made these two stocks a good value for investors.

"Both companies hope to do a higher percentage of growth in 1998 and 1999 than in previous years when they were basically acquisition machines," he said. And, he says, neither are trading at a premium compared to the rest of theREIT pack.

Instead, bearing the brunt of this pending legislation are First Union and Meditrust, which have failed to fully utilize their unique structure in making acquisitions. FirstUnion, which had traded at $ 15.44 in January, has dropped to $ 11.88 a share. Meditrust also has declined, closing at $ 30.33 on Monday after trading as high as $ 34.75 in January.

LANGUAGE: English

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- 1 AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. 2 Steven M. Pesner, Esq. Stephen M. Baldini, Esq. 3 Nancy Chung, Es . Sean E. O’Donnel9 , Esq. 4 590 Madison Avenue New York, N.Y. 10022 5 (2 12) 872- 1000 -and- 6 HELLER EHRMAN WHITE & McAULIFFE LLP 7 Laurence,A. Weiss, Esq. (Cal. Bar No. 164638) 333 Bush Street 8 San Francisco, CA 94 104 (4 15) 772-6000 9 Attorneys for Defendants Patriot 10 AmericanHospitali Inc., Wyndham International, Inc., Paul A. Nussbaum 11 and James D. Carreker 12 IN THE UNITED STATES DISTRICTCOURT FOR THE NORTHERN DISTRICT OF CALIFORNIA 13 SAN FRANCISCO DIVISION 14 In re PATRIOT AMERICAN 15 HOSPITALITY NC., SECURITIES MDLNo. 1300 LITIGATION. 1) PROOF OF SERVICE 16 k‘OPEN MARKET ACTION”) 17 18 This Document Relates to the “Open Market 19 Action”: 20 Szekely v. Patriot American Hospitality. Inc. NO. 3-99-CV 1866-D 21 Levitch v. Patriot American Hospitalitv, Inc. NO. 99-CV1416-D 22 Gallagher v. Patriot American Hospitalitv, NO. 99-CV1429-L -InC. 23 Meisenburg v. Patriot Amercian Hospitalitv, NO. 3-99-CV1686-X 24 -Inc. 22 2E 27

Heller 2E Ehrman White 8 McAuliffe LI PROOF OF SERVICE 1 PROOF OF SERVICE BY MAIL 2 3 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 4 5 I, Sarah E. Strickland, declare as follows: 6 I am employed with the law firm of Heller Ehrman Whlte & McAuliffe LLP, whose 7 address is 333 Bush Street, San Francisco, California 94104. I am readily familiar with the 8 business practices of this office. At the time of transmission I was at least eighteen years of 9 age and not a party to thls action. 10 On October 20,2000, I served a copy of the within document(s): 11 NOTICE OF MOTION AND MOTION TO DISMISS (“OPEN MAR,KET ACTION”); 12 THE FIRST AMENDED COMPLAINT PURSUANT TO 15 U.S.C. §78U, F.R.C.P. 12(b)(6) and 9(b); MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT 13 THEREOF; 14 AFFIDAVIT OF SEAN E. O’DONNELL (“OPEN MARKET ACTION”); and 15 NOTICE OF ENTRY OF ORDER 16 [X] by electronic mail pursuant to Northern District of California Civil Local Rule 23-2(c); 17 18 on the following interested parties in the within action: 19 Name: Securities Class Action Email Address: eDost@,securities.stanford.edu Clearin house 20 Stanfor% University School of Law - Robert Crown Law 21 Library Crown Quadrangle 22 Stanford, CA 94305-8612 23 and 24 [X] by U.S. Mail, placing true copies thereof in sealed envelopes, addressed as shown, for 25 collection and mailing pursuant to the ordinary business practice of tlus office which is 26 that correspondence for mailing is collected and deposited with the United States 27 Postal Service on the same day in the ordinary course of business

Heller 28 Ehrrnan White 8 McAuliffe LLI PROOF OF SERVICE 1 on the following interested parties in the withm action:

c 1 SEE ATTACHED SERVICE LIST c c

4 I declare under penalty of perjury under the laws of the State of California that the R c v foregoing is true and correct and that hs

6 7 8

9 439267 dl.SF(9#XVOI!.DOC) 10/20/0025s PM (36683.0002) I( 11 1; 12

14 15 16 17 18 19 20 21 22 23 24 25 26 27

Heller 28 Ehrman White 8 McAuliffe LLf 1

. 1 SERVICE LIST 2 3 Joseph W. Cotchett, Esq. Allan Steyer, Esq. Bruce L. Simon, Es Jeffre H. Lowenthal, Esq. 4 Marie Seth Weiner, %sq. STEAR,LOWENTHAL, BOODROOKAS Mark C. Molum h Es & WALKER, L.L.P. 5 COTCHETT, PI+& AMON One California Street, Suite 2200 San Francisco mortOffice Center San Francisco, California 941 11 6 840 Malcolm Road, Suite 200 7 Counsel for Plaintiffs Gunderson et al. 0 N.D. Cal., No. C-99-3040 (service by mail and facsimile) 9 Counsel for Plaintiffs Johnson et al. 10 N.D. Cal., No. C-99-2153 11 George R. Corey, Esq. James McManis, Esq. Jeffrey D. Manos, Esq. Colleen DuY Smith, Esq. 12 Dario de Ghetaldi, Esq. McMANIS, AULKNER & MORGAN, P.C. COREY, LUZAICH, MANOS & PLISKA 160 W. Santa Clara Street, 10th Floor 13 700 El Camino Real San Jose, California 95 1 13 P.O. Box 669 14 Millbrae, California 94030-0669 15 Counsel for Plaintiffs Sola et al. N.D. Cal., No. C-99-2770 16 Counsel for Plaintiffs Ansell et al. N.D. Cal., No. C-99-2239 17 Alfred G. Yates, Jr., Es Andrew L. Barrowa Es 18 LAW OFFICE OF ALF'kE D G. YATES SCHIFFRIN & B&O%AY LLP Alle eny Building Three Bala Plaza East, Suite 400 19 429 Porbes Avenue, Suite 519 d, Pennsylvania 19004 Pittsburgh, Pennsylvania 152 19 ptr&7706 20 610 667-7056 21 Counsel for Plaintiffs Galla er et al. Counsel for Plaintiffs Levitch et al. N.D. Texas, No. 99-CV142$" -L 22 N.D. Texas, No. 99-CV1416-D 23 24 25 26 27

Heller 20 Ehrman White 8 McAuliffe LLI PROOF OF SERVICE; C-OO-1478-VRW 1 William S. Lerach, Esq. Steven G. Schulman. Esa. 2 Travis E. Downs, Esq. Samuel H. Rudman,'Es Debra J. Wyman, Es MILBERG, WEISS, BASHAD, HYNES & 3 MILBERG, WISS,%ERSHAD,HwES & LERACH, L.L.P. LERACH, L.L.P. One Pennsylvania, 49th Floor 4 New York, New York 101 19-0165 5 6 (service by mail and facsimile) 7 Marc R. Stanle , Esq. Kimberl C. Estein, Es Ro er L. Man 2el, Es 8 MILBE~G,&Iss. BE~SHAD.HYNES & ST~LEYMANDE? & IOLA, L.L.P LERACH, L.L.P. . 3 100 Monticello Avenue, Suite 750 9 100 Pine Street, Suite 2600 Texas 75205 San Francisco, CA 941 11 pall^,2 14 443-4300 10 14 15) 28t-4545 214 443-0358 (facsimile) service y mail and facsimile) 11 Marc R. Stanle , Esq. Counsel for Plaintiffs Levitch et al. Ro er L. Man cyel, Es N.D. Texas, No. 99-CV1416-D; 12 ST~LEY,MAND& & IOLA, L.L.P. Counsel for Plaintiffs Galla er et al. 3 100 Monticello Avenue, #750 N.D. Texas, No. 99-CV142!? -L; 13 Texas 75205 Counsel for Plaintiffs Szekle et al. p"i"2 14 443-4300 N.D. Texas, No. 3-99 CV18t 6-D 14 2 14 443-0358 (facsimile) 15 Howard D. Finkelstein, Esq. Jeffrey R. Krinski, Esq. 16 Arthur L. Shin ler Es FINKELSTE~&G~NsK 17 501 West Broadway, #1250 San Diego, California 92 101 18 19 Counsel for Plaintiffs Susnow et al. 20 N.D. Texas, No. 3-99 CV1354-T 21 22 23 24 25 26 27

Heller 28 Ehrrnan \Nhte 8 McAulrffe LL PROOF OF SERVICE; C-00-1478-VRW L 1 Thomas M. Melsheiner, P.C. David H. Fry, Esq. State Bar No. 13922550 MUNGER, TOLLES & OLSEN, L.L.P r L M. Brett Johnson, Es 33 New Montgome Street, 19thFloor State Bar No. 0079099i 5 San Francisco, Cali;Y ornia 94 105-978 1 < LYNN STODGHILL MELSHEIMER & TILLOTSON, L.L.P. L 750 N. St. Paul Street, Suite 1400 rally, Texas 75201 Counsel for Paine Webber .C 2 14 98 1-3802 N.D. Cal., No. C-99-2153 2 14 98 1-3839 (facsimile) N.D. Cal., No. C-99-3040 E N.D. Cal., No. C-99-2239 Joe McBride, Esq. N.D. Cal., No. C-99-2770 7 BrianMurra Es N.D. Texas, No. 3-99 CV1354-T (Susnow) RABrN & PECdL LLP a 275 Madison Avenue, 34th Floor New York, New York 100 16 9 10 Counsel for Plaintiffs Meisenber et al. 11 N.D. Texas, No. 3-99-CV1686-2 12 13 436530 @l.SF (9CT??dll!.DOC) 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Heller 28 Ehnnan White 8 McAuliffe LLI PROOF OF SERVICE; C-OO-1478-VRW