AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 333-00808
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
BRISTOL HOTEL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7011 75-2584227
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
</TABLE>
BRISTOL HOTEL ASSET COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7011 75-2621624
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
</TABLE>
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14285 MIDWAY ROAD, SUITE 300
DALLAS, TEXAS 75244
(214) 788-0001
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
-------------------
JOEL M. EASTMAN
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
14285 MIDWAY ROAD, SUITE 300
DALLAS, TEXAS 75244
(214) 788-0001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copies to:
ROBERT A. PROFUSEK, ESQ.
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 326-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
BRISTOL HOTEL COMPANY
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404
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<CAPTION>
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus................................. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus........................ Inside Front and Outside Back Cover Pages
of Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information... Summary; Risk Factors; Selected Historical
and Pro Forma Financial Data; Selected
Historical Financial Data; Other Data
4. Terms of the Transaction............... Summary; The Exchange Offer; Description of
Notes; Certain Federal Income Tax
Considerations
5. Pro Forma Financial Information........ *
6. Material Contracts with the Company
Being Acquired............................. *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.................. *
8. Interests of Named Experts and
Counsel.................................... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
10. Information with Respect to S-3
Registrants................................ *
11. Incorporation of Certain Information
by Reference.......................... *
12. Information with Respect to S-2 or S-3
Registrants................................ *
13. Incorporation of Certain Information
by Reference.......................... *
14. Information with Respect to
Registrants other than S-3 or S-2
Registrants................................ Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Summary; Risk Factors; Business and
Properties; Formation of the Company;
Capitalization; Selected Historical and
Pro Forma Financial Data; Selected
Historical Financial Data; Other Data;
Management's Discussion and Analysis of
Pro Forma Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
15. Information with Respect to S-3
Companies.................................. *
16. Information with Respect to S-2 or S-3
Companies.................................. *
17. Information with Respect to Companies
other than S-2 or S-3 Companies............ *
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... *
19. Information if Proxies, Consents or
Authorization are not to be Solicited,
or in an Exchange Offer.................... Summary; The Company; Management; Ownership
of Common Stock
</TABLE>
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* Omitted from Prospectus because the item is inapplicable or the answer is in
the negative.
<PAGE>
PROSPECTUS
BRISTOL HOTEL COMPANY
OFFER TO EXCHANGE ITS 11.22% SENIOR SECURED NOTES DUE 2000, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ALL OF ITS OUTSTANDING 11.22% SENIOR
SECURED NOTES DUE 2000
THESE NOTES ARE GUARANTEED ON AN UNSECURED, SUBORDINATED BASIS BY
BRISTOL HOTEL ASSET COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 9,
1996, UNLESS EXTENDED.
Bristol Hotel Company, a Delaware corporation (the "Company"), hereby offers
to exchange an aggregate principal amount of up to $70,000,000 of its 11.22%
Senior Secured Notes due 2000 (the "New Notes") for an equal principal amount of
its 11.22% Senior Secured Notes due 2000 (the "Old Notes") outstanding on the
date hereof upon the terms and subject to the conditions set forth in this
Prospectus (as amended hereby, the "Prospectus") and in the accompanying Letter
of Transmittal (as amended, the "Letter of Transmittal") (which together
constitute the "Exchange Offer"). The New Notes and Old Notes are collectively
hereinafter referred to as the "Notes." The terms of the New Notes are identical
in all material respects to those of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes. The New Notes
will be issued pursuant to, and entitled to the benefits of, the Indenture (as
defined) governing the Old Notes.
The New Notes will be secured by a first-priority pledge of all of the
outstanding shares of capital stock of Bristol Hotel Asset Company, a Delaware
corporation and wholly owned subsidiary of the Company (the "Guarantor" or
"Opco"), and will be guaranteed as to payment of principal and interest on an
unsecured, subordinated basis by Opco. The New Notes will rank pari passu with
all other existing and future senior debt of the Company and senior to all
existing and future subordinated debt of the Company. The Company is a holding
company that conducts substantially all of its operations through its
subsidiaries. As indebtedness of a holding company, the New Notes will be
effectively subordinated to all existing and future obligations of the Company's
subsidiaries. At March 31, 1996, the aggregate amount of indebtedness of the
Company's subsidiaries (exclusive of unused commitments of $109.2 million under
the Senior Term Facility (as defined)) was $111.4 million. At March 31, 1996,
Bristol Hotel Company had no indebtedness outstanding except for the Old Notes.
The New Notes will bear interest from and including the date of consummation
of the Exchange Offer. Interest on the New Notes will be payable semi-annually
on June 15 and December 15 of each year, commencing June 15, 1996. Additionally,
interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Old Notes surrendered in exchange therefor or, if
no interest has been paid on the Old Notes, from the date of original issue of
the Old Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated December 18, 1995 (the "Exchange Agreement") among the Company,
Opco and the Participants (as defined) entered into at the time of issuance of
the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all of the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date (as defined) for the Exchange Offer. In the event the
Company terminates the Exchange Offer and does not accept for exchange any Old
Notes with respect to the Exchange Offer, the Company will promply return such
Old Notes to the holders thereof.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities.
Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could trade
at a discount from their principal amount. The Company currently does not intend
to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system, and no active public market
for the New Notes is currently anticipated. There can be no assurance that an
active public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is June 21, 1996.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto contained elsewhere
in this Prospectus. Unless otherwise indicated or the context otherwise
requires, (i) references in this Prospectus to "Bristol" or the "Company" for
periods prior to the January Acquisitions (as defined below) are to Harvey Hotel
Company, Ltd., its affiliated businesses and their predecessors ("Harvey Hotel
Company"), and (ii) all statistics in this Prospectus relating to the lodging
industry generally (other than Company statistics) are from, or have been
derived from, information published or provided by Smith Travel Research, an
independent industry research organization. Smith Travel Research has not
provided any form of consultation, advice or counsel regarding any aspect of the
Exchange Offer, and Smith Travel Research is in no way associated with the
Exchange Offer.
THE COMPANY
Bristol Hotel Company (together with its subsidiaries, the "Company") is a
leading owner/operator of hotels in the southern United States, with 38 hotels
(36 of which are owned by the Company) containing a total of 10,020 rooms. The
Company's properties are primarily full-service hotels that operate in the
upscale and mid-priced segments of the lodging industry under the Company's own
brand names, including Bristol SuitesTM, Harvey HotelTM and Harvey SuitesTM, and
under franchise agreements with national hotel chains, including Holiday InnTM,
Hampton InnTM and MarriottTM. The Company's hotels are located in seven states,
with 28 hotels strategically concentrated in the rapidly growing Dallas, Houston
and Atlanta markets. Over the last 15 years, the Company's senior management
achieved a superior record of operating hotels for Harvey Hotel Company in the
Dallas and Houston markets. The Company expects to generate substantial growth
in the near future primarily by redeveloping and applying the proven operating
strategies described below to a substantial number of hotels acquired by the
Company earlier this year and also from continued improvements in the
performance of its existing hotels.
The Company was formed for the purpose of acquiring Harvey Hotel Company and
United Inns, Inc. ("United Inns") in January 1995. Following the acquisitions
(collectively, the "January Acquisitions"), the senior management team of Harvey
Hotel Company assumed management of the Company. Harvey Hotel Company commenced
operations in 1980 and became a leading owner/operator of full-service hotels in
the Dallas and Houston markets, with ten hotels containing approximately 3,350
rooms (eight of which are owned hotels, collectively, the "Original Hotels", and
two of which are managed hotels). The Company has had nearly 15 years of
leadership from the same senior management team, whose innovative strategies
have enabled the Original Hotels regularly to outperform their local competition
and to record strong operating results in comparison to both local and national
industry averages. For the four-year period ended December 31, 1994, seven of
the eight Original Hotels owned by the Company for the full period achieved an
average annual occupancy rate of 72.8%, compared to 65.7% for the other
full-service hotels in the Dallas and Houston markets for such period, and
average annual gross operating profits per room of $10,010 and an average annual
gross operating margin of 36.4%, compared to the national averages of $7,725 and
27.3% for full-service hotels for such period. Management attributes the
superior performance of the Original Hotels to an operating strategy focused on
controlling all aspects of its hotel operations, concentrating assets within
select geographic markets, utilizing aggressive direct, local sales and
marketing techniques and maintaining a distinct management culture. As a result
of substantial management equity ownership, the Company has a strong
entrepreneurial orientation that emphasizes talent, innovation and teamwork
throughout the organization. Senior management beneficially owns 13.3% of the
Common Stock, excluding options granted by the Company.
1
<PAGE>
In 1995, in addition to the Original Hotels, the Company added 28 hotels
(the "Acquired Hotels") to its portfolio, including 26 hotels as a result of the
acquisition of United Inns and two hotels acquired thereafter. The Company
believes that a significant opportunity exists to enhance the value of the
Acquired Hotels through redevelopment, recognizing that many of the Acquired
Hotels could benefit from improved management and are in need of substantial
capital improvements and, in some cases, almost complete refurbishment. The
Company believes that the Acquired Hotels either have strategically desirable
locations in the Company's existing markets or offer attractive expansion
opportunities in new markets, including Atlanta, Georgia and Jackson,
Mississippi. Immediately following the January Acquisitions, the Company
initiated a comprehensive redevelopment program (the "Redevelopment Program")
that includes extensive exterior and interior reconstruction and renovations to
20 of the Acquired Hotels, as well as the strategic repositioning of the
redeveloped hotels within their local markets. As of December 31, 1995,
reconstruction and renovation had been substantially completed at seven (six
full-service and one limited-service) hotels for an estimated $43 million. The
Company expects that redevelopment of an additional five (four full-service and
one limited-service) hotels will be completed by June 30, 1996 for an additional
estimated $42 million and that the remaining eight (four full-service and four
limited-service) hotels in the Redevelopment Program will be completed by the
end of 1996 for an additional estimated $34 million, resulting in an aggregate
program budget of $119 million, or approximately $22,250 per room. As a result
of the borrowings available under the Senior Term Facility (as defined below)
and cash from operations, the Company expects to have sufficient capital to
complete the Redevelopment Program. Upon completion of the Redevelopment
Program, the Company believes that it effectively will have added 20 newly
constructed hotels to its portfolio having a total acquisition and redevelopment
cost substantially less than the cost to develop and construct new hotels of the
same type and quality under current market and financial conditions. Despite
disruptions to the operations of seven hotels (representing approximately 20% of
the rooms in the Company's 36 owned hotels) as a result of redevelopment
activity, the Company's pro forma operating income for the year ended December
31, 1995 improved as compared to the same period in 1994. As a result of the
Redevelopment Program and generally favorable industry conditions, the Company
expects substantial improvements in the operating performance of the hotels
being redeveloped, which improvements are not yet reflected in the Company's
current results of operations.
The Company believes it will be able to generate substantial growth by
replicating the success achieved at the Original Hotels through application of
the Company's management talent and operating strategies to the Acquired Hotels
and also from continued improvements in the operating performance of the
Original Hotels. The Company believes that its hotels are well positioned in
attractive markets and will benefit from the favorable conditions now prevailing
in the lodging industry. The Company expects to acquire additional hotels in its
existing markets, as well as in new geographic markets with attractive economic
prospects that are suitable for implementing the Company's operating strategy.
The Company believes that there will continue to be acquisition and
redevelopment opportunities for full-service hotels in the near future as a
result of the aging of a significant portion of the nation's hotel supply and
the recent imposition of capital expenditure and other modernization
requirements by certain national hotel franchisors on the owners of the
franchised hotels, many of which are small independent hotel companies or
private hotel owners that may be unwilling or unable to satisfy such
requirements.
The Company has substantial capital with which to fund its operations and to
generate growth as a result of cash from operations and the net proceeds of its
recent initial public offering (the "IPO") of 4,887,500 shares of its common
stock, par value $0.01 per share ("Common Stock"), a $120 million secured senior
credit facility (the "Senior Term Facility") and from the private issuance of
$70 million aggregate principal amount of the Old Notes. The net proceeds of the
Offering and the Old Notes were used to refinance approximately $138 million of
mortgage indebtedness in respect of 26 of the Company's hotels (the
"Refinancing"). The Senior Term Facility provides up to $60 million for capital
improvements in connection with the Redevelopment Program. The Senior Term
Facility also provides
2
<PAGE>
up to an additional $60 million (as the Company's mortgaged properties achieve
certain financial thresholds) with which to pursue acquisitions and to make
related capital improvements.
In contemplation of the IPO, the Company entered into the following
transactions (collectively, the "Pre-IPO Transactions"): (i) the Company issued
1,768,000 shares of Common Stock to United/Harvey Holdings, L.P. ("Holdings"),
the Company's principal stockholder, in exchange for the contribution by
Holdings to the Company of approximately $18.75 million in working capital
advances and $1.15 million of reimbursable expenses; (ii) the Company sold to a
partnership formed by Holdings and certain senior executive officers of the
Company certain non-hotel properties for $87,000 and the assumption of
approximately $318,000 of indebtedness and all related environmental
liabilities; and (iii) the Company effected certain amendments to its
Certificate of Incorporation and By-Laws to, among other things, increase the
number of authorized shares of Common Stock from 80,000 to 75,000,000 in order
to effect a 200-for-1 stock split. See "Formation of the Company" and the pro
forma financial information included elsewhere in this Prospectus. The Company's
principal executive offices are located at 14285 Midway Road, Suite 300, Dallas,
Texas 75244, and its telephone number is (214) 788-0001.
THE EXCHANGE OFFER
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The Exchange Offer................. The Company is offering to exchange up to $70,000,000
aggregate principal amount of its 11.22% Senior
Secured Notes due 2000 (the "New Notes") for an equal
principal amount of its outstanding 11.22% Senior
Secured Notes due 2000 (the "Old Notes"). The terms of
the New Notes are identical in all material respects
to those of the Old Notes, except for certain transfer
restrictions and registration rights relating to the
Old Notes. The New Notes and Old Notes are
collectively referred to herein as the "Notes."
Purpose of the Exchange Offer...... The New Notes are being offered to satisfy certain
obligations of the Company under the Exchange and
Registration Rights Agreement dated December 18, 1995
(the "Exchange Agreement") among the Company, Bristol
Hotel Asset Company, a Delaware corporation and wholly
owned subsidiary of the Company (the "Guarantor" or
"Opco"), and certain institutional investors (the
"Participants") entered into at the time of issuance
of the Old Notes.
Expiration Date; Withdrawal of
Tender............................. The Exchange Offer will expire at 5:00 p.m., New York
City time, on July 9, 1996, or such later date and
time to which it is extended by the Company (the
"Expiration Date"). The tender of Old Notes pursuant
to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Procedures for Tendering Old
Notes.............................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal in accordance with the instructions
contained herein and
</TABLE>
3
<PAGE>
<TABLE>
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therein, and mail or otherwise deliver such Letter of
Transmittal, together with such Old Notes and any
other required documents, to the Exchange Agent (as
defined below) at the address set forth therein. See
"The Exchange Offer--Procedures for Tendering Old
Notes."
Conditions to the Exchange Offer... The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered
for exchange. The Exchange Offer is subject to certain
customary conditions, which may be waived by the
Company. The Company currently expects that each of
the conditions will be satisfied and that no waivers
will be necessary. See "The Exchange Offer--Conditions
to the Exchange Offer."
Exchange Agent..................... The Bank of New York.
Federal Income Tax Consequences.... An exchange of Old Notes for New Notes pursuant to the
Exchange Offer should not be treated as a sale,
exchange or other taxable event for federal income tax
purposes because the New Notes should not be
considered to differ materially in kind or extent from
the Old Notes. As a result, no material federal income
tax consequences should result from an exchange of Old
Notes for New Notes pursuant to the Exchange Offer.
For federal income tax purposes, a New Note received
by a beneficial owner of an Old Note should be treated
as a continuation of the Old Note in the hands of such
owner. See "Certain Federal Income Tax
Considerations."
Consequences of Exchanging Old
Notes Pursuant to the Exchange
Offer.............................. Based on certain interpretive letters issued by the
staff of the Securities and Exchange Commission (the
"Commission") to third parties in unrelated
transactions, holders of Old Notes (other than any
holder who is an "affiliate" of the Company or Opco
within the meaning of Rule 405 under the Securities
Act) who exchange their Old Notes for New Notes
pursuant to the Exchange Offer generally may offer
such New Notes for resale, resell such New Notes and
otherwise transfer such New Notes without compliance
with the registration and prospectus delivery
provisions of the Securities Act of 1933, as amended
(the "Securities Act"), provided that such New Notes
are acquired in the ordinary course of the holders'
business and such holders are not participating in,
and have no arrangement or understanding with any
person to participate in, a distribution of such New
Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such
Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Notes. See "Plan of Distribution." In addition, to
comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be
offered or sold unless they have
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
been registered or qualified for sale in such
jurisdiction or an exemption from registration or
qualification is available and is complied with. The
Company has agreed, pursuant to the Exchange Agreement
and subject to certain specified limitations therein,
to register or qualify the New Notes for offer or sale
under the securities or blue sky laws of such
jurisdictions as any holders of the Notes request in
writing. If a holder of Old Notes does not exchange
such Old Notes for New Notes pursuant to the Exchange
Offer, such Old Notes will continue to be subject to
the restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws.
</TABLE>
THE NEW NOTES
The terms of the New Notes are identical in all material respects to those
of the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes.
<TABLE>
<S> <C>
Issuer............................. Bristol Hotel Company.
Securities Offered................. $70,000,000 principal amount of 11.22% Senior Secured
Notes due 2000.
Ranking............................ The New Notes will be senior obligations of the
Company and will rank pari passu with all other
existing and future senior debt of the Company and
senior to all existing and future subordinated debt of
the Company. The Company is a holding company that
conducts substantially all of its operations through
its subsidiaries. As indebtedness of a holding
company, the New Notes will be effectively
subordinated to all existing and future obligations of
the Company's subsidiaries. At March 31, 1996, the
aggregate amount of indebtedness of the Company's
subsidiaries (exclusive of unused commitments of
$109.2 million under the Senior Term Facility) was
$111.4 million. At March 31, 1996, Bristol Hotel
Company had no indebtedness outstanding except for the
Old Notes.
Maturity........................... December 18, 2000.
Interest Payment Dates............. June 15 and December 15 of each year, commencing on
June 15, 1996. Interest on the New Notes will accrue
from the last interest payment date on which interest
was paid on the Old Notes surrendered in exchange
therefor or, if no interest has been paid on the Old
Notes, from the date of original issuance of the Old
Notes.
Guarantee.......................... The New Notes will be guaranteed as to payment of
principal and interest on an unsecured, subordinated
basis by Opco. See "Description of Notes--Guarantee of
the Notes."
</TABLE>
5
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<S> <C>
Optional Redemption................ Except as described below, the Company may not redeem
the New Notes prior to June 15, 1997. Thereafter, the
Company may redeem the New Notes, in whole or in part,
at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the date
of redemption. See "Description of Notes--Optional
Redemption."
Change of Control.................. Upon a Change of Control (as defined in "Description
of Notes--Change of Control"), the Company will be
required to make an offer to repurchase the New Notes
at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if
any, to the date of purchase. See "Description of
Notes--Change of Control."
Restrictive Covenants.............. The indenture under which the New Notes will be issued
(the "Indenture") restricts, among other things, (i)
the incurrence of additional indebtedness by the
Company, (ii) the payment of dividends on, and
redemption of, capital stock of the Company and the
prepayment of certain subordinated obligations of the
Company, (iii) investments, (iv) sales of assets and
subsidiary stock, (v) transactions with affiliates,
(vi) the creation of liens, (vii) the lines of
business in which the Company may operate and (viii)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. The
Indenture also prohibits certain restrictions on
distributions from subsidiaries. However, these
restrictions are subject to a number of important
qualifications and exceptions. See "Description of
Notes-- Certain Covenants."
Security........................... The New Notes will be secured by a first-priority
pledge of all of the outstanding shares of capital
stock of Opco.
Absence of a Public Market for the
New Notes.......................... The New Notes will be new securities, and there is
currently no established market for the New Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Company does not intend to apply for
listing of the New Notes on any securities quotation
service or exchange.
</TABLE>
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" in connection with the Exchange Offer.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION AND OTHER DATA
The Company was formed for the purpose of acquiring Harvey Hotel Company and
United Inns in January 1995. Accordingly, the historical financial information
presented in this Prospectus includes historical and pro forma historical
financial information for the Company and historical combined financial
information for Harvey Hotel Company and historical consolidated financial
information for United Inns. The following tables set forth summary unaudited
pro forma and historical financial data for the Company for the years ended
December 31, 1994 and 1995, the eleven months ended December 31, 1995, the three
months ended March 31, 1996, the two months ended March 31, 1995 and the three
months ended March 31, 1995. The unaudited pro forma financial data for the
Company give effect to the January Acquisitions, the Refinancing, the Pre-IPO
Transactions and the Offering as if they had been consummated at the beginning
of the periods presented and, for the three months ended March 31, 1995 and the
year ended December 31, 1995, include one additional month of operations and/or
management of the 38 hotels currently owned or managed by the Company. The
selected balance sheet data for the Company is presented as of December 31, 1995
and as of March 31, 1996. The pro forma financial information presented is not
necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the periods indicated,
nor does it purport to represent the Company's future financial position and
results of operations. The following tables also set forth summary historical
combined financial data for Harvey Hotel Company as of and for the four years
ended December 31, 1994 and for the month ended January 31, 1995 and summary
consolidated financial data for United Inns as of and for the four years ended
December 31, 1994. The summary financial information should be read in
conjunction with "Management's Discussion and Analysis of Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and notes thereto included
elsewhere in this Prospectus. See "Index to Financial Statements."
BRISTOL HOTEL COMPANY
SUMMARY PRO FORMA AND HISTORICAL FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
(UNAUDITED) PRO FORMA PRO FORMA (UNAUDITED)
--------------------- (UNAUDITED) -------------------------
THREE TWO THREE HISTORICAL
MONTHS MONTHS MONTHS YEAR ENDED DECEMBER 31, ELEVEN
ENDED ENDED ENDED ------------------------- MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, 1995* DECEMBER 31,
1996 1995 1995 (1) 1994 (1) (2) (1) 1995*
--------- --------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms................................ $35,454 $21,354 $32,138 $121,682 $127,670 $115,771
Food and beverage.................... 10,599 6,324 9,586 36,830 39,635 36,070
Other................................ 3,624 2,232 2,879 10,448 14,377 13,354
--------- --------- ----------- ------------ -------- ------------
Total revenue.................... 49,677 29,910 44,603 168,960 181,682 165,195
--------- --------- ----------- ------------ -------- ------------
Operating costs and expenses:
Departmental expenses:
Rooms................................ 8,574 5,276 8,757 35,095 36,240 32,692
Food and beverage.................... 7,193 4,576 6,821 27,256 29,790 27,118
Other operating departments.......... 1,146 471 660 2,905 4,522 4,258
Undistributed operating expenses:
Administration and general,
marketing............................. 8,363 4,931 6,654 26,713 30,504 28,254
Property operating costs............. 7,133 4,605 6,392 27,695 26,804 24,738
Depreciation and amortization........ 3,988 2,254 3,328 12,324 14,387 13,505
Corporate expense.................... 2,962 1,576 2,008 8,034 8,691 8,035
--------- --------- ----------- ------------ -------- ------------
Operating income................. 10,318 6,221 9,983 28,938 30,744 26,595
--------- --------- ----------- ------------ -------- ------------
Other expenses:
Interest expense (4)................. 4,206 2,777 3,765 14,759 16,133 18,374
Other non-operating expenses (income)
and minority interest (2) (3)...... -- (100) (89) (589) 93 430
Income taxes......................... 2,249 1,276 2,271 5,316 5,226 2,822
--------- --------- ----------- ------------ -------- ------------
Net income before extraordinary
item.................................. 3,863 2,268 4,036 9,452 9,292 4,969
Extraordinary loss on early
extinguishment of debt, net of income
taxes................................. -- -- -- -- -- (1,908)
--------- --------- ----------- ------------ -------- ------------
Net income............................ $ 3,863 $ 2,268 $ 4,036 $ 9,452 $ 9,292 $ 3,061
--------- --------- ----------- ------------ -------- ------------
--------- --------- ----------- ------------ -------- ------------
Pro forma earnings per common share... -- -- $ .24 $ .56 $ .55 --
----------- ------------ --------
----------- ------------ --------
Pro forma common shares
outstanding**......................... -- -- 16,872 16,872 16,880 --
----------- ------------ --------
----------- ------------ --------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
(UNAUDITED) PRO FORMA PRO FORMA (UNAUDITED)
--------------------- (UNAUDITED) -------------------------
THREE TWO THREE HISTORICAL
MONTHS MONTHS MONTHS YEAR ENDED DECEMBER 31, ELEVEN
ENDED ENDED ENDED ------------------------- MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, 1995* DECEMBER 31,
1996 1995 1995 (1) 1994 (1) (2) (1) 1995*
--------- --------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per common and common
equivalent share:
Net income before extraordinary
item.................................. $ 0.23 $ 0.19 -- -- -- $ 0.42
Extraordinary item, net of income
taxes................................. -- -- -- -- -- (0.16)
--------- --------- ------------
Net income........................... $ 0.23 $ 0.19 -- -- -- $ 0.26
--------- --------- ------------
--------- --------- ------------
Weighted average number of common and
common equivalent shares
outstanding........................... 17,006 11,640 -- -- -- 11,939
--------- --------- ------------
--------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 3,144 $ 7,906
Property and equipment, net..................................... 493,760 470,705
Total assets.................................................... 533,081 512,901
Long-term debt including current portion........................ 179,410 170,544
Equity.......................................................... 240,119 236,122
</TABLE>
- ------------
<TABLE>
<C> <S>
* During 1995, there were disruptions to the operations of seven of the Company's hotels
(representing approximately 20% of the rooms in the Company's 36 owned hotels) as a
result of redevelopment activity. See "Management's Discussion and Analysis of Pro
Forma Financial Information."
** Includes an additional number of shares to reflect the dilutive effect of outstanding
options.
(1) Pro forma operating results for the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1995 include the operations of the Sheraton-Atlanta, a 368
room hotel purchased by the Company in June 1995 and exclude the operations of the
Holiday Inn-West Loop which was sold by the Company in July 1995.
(2) Pro forma 1994 other non-operating expenses have been reduced by $6.6 million
representing a loss on sale of property recorded by United Inns for a hotel it sold to
Harvey Hotel Company in August 1994.
(3) Pro forma 1994 other non-operating expenses have been reduced by $5.1 million related
to environmental costs which had been accrued by United Inns as of December 31, 1994.
(4) Pro forma interest expense for 1994 and 1995 has been reduced by $2.8 million and $3.2
million, respectively, related primarily to the Refinancing.
</TABLE>
8
<PAGE>
HARVEY HOTEL COMPANY
SUMMARY HISTORICAL COMBINED FINANCIAL DATA (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MONTH ENDED YEAR ENDED DECEMBER 31,
JANUARY 31, -------------------------------------------
1995 1994 1993 1992 1991
--------------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms............................. $ 4,006 $ 44,972 $39,968 $38,289 $34,952
Food, beverage and other.......... 1,937 25,379 24,054 22,384 21,537
------- -------- ------- -------- --------
Total revenue................... 5,943 70,351 64,022 60,673 56,489
------- -------- ------- -------- --------
Operating costs and expenses:
Departmental expenses:
Rooms............................. 1,124 10,344 9,469 9,065 8,183
Food, beverage and other.......... 1,055 14,835 14,600 14,690 14,423
Undistributed operating expenses:
Administrative and general,
marketing........................... 579 11,369 10,285 10,075 9,816
Property operating costs.......... 629 10,563 10,086 9,774 9,545
Depreciation...................... 309 4,041 3,963 4,320 4,407
Corporate expense................. 315 3,761 2,827 2,321 2,724
------- -------- ------- -------- --------
Operating income................ 1,932 15,438 12,792 10,428 7,391
------- -------- ------- -------- --------
Other expenses:
Interest expense, net............. 652 7,631 7,737 8,944 10,447
Other non-operating income........ -- (337) (241) (311) (350)
------- -------- ------- -------- --------
Net income (loss) before
extraordinary item.................. $ 1,280 $ 8,144 $ 5,296 $ 1,795 $ (2,706)
------- -------- ------- -------- --------
------- -------- ------- -------- --------
<CAPTION>
DECEMBER 31,
-------------------------------------------
1994 1993 1992 1991
-------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 4,118 $ 395 $ 1,975 $ 4,404
Property and equipment, net......... 80,635 72,387 74,523 77,609
Total assets........................ 109,874 99,635 103,052 104,264
Long-term debt, including current
portion............................. 114,054 112,963 119,509 121,601
Owners' deficit..................... 11,988 20,604 24,241 24,271
</TABLE>
9
<PAGE>
UNITED INNS
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms.......................................... $ 72,701 $ 70,574 $ 69,851 $ 77,737
Food, beverage and other....................... 19,917 20,138 21,904 25,359
-------- -------- -------- --------
Total revenue.............................. 92,618 90,712 91,755 103,096
-------- -------- -------- --------
Operating costs and expenses:
Departmental expenses:
Rooms.......................................... 23,461 22,949 23,696 27,125
Food, beverage and other....................... 13,808 14,703 15,960 18,924
Undistributed operating expenses:
Administrative and general, marketing.......... 14,462 14,150 14,927 15,567
Property operating costs....................... 16,670 17,532 17,993 21,188
Depreciation................................... 8,876 8,966 9,471 10,429
Corporate expense.............................. 5,544 3,983 4,294 4,502
-------- -------- -------- --------
Operating income........................... 9,797 8,429 5,414 5,361
-------- -------- -------- --------
Other expenses:
Interest expense, net.......................... 9,932 9,911 9,088 13,115
Other non-operating expenses (income) and
minority interest................................ 9,689 (1,280) 549 (536)
-------- -------- -------- --------
Net income (loss) before extraordinary item...... $ (9,824) $ (202) $ (4,223) $ (7,218)
-------- -------- -------- --------
-------- -------- -------- --------
<CAPTION>
DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 5,094 $ 2,217 $ 1,719 $ 1,831
Property and equipment, net...................... 89,251 115,641 119,842 134,540
Total assets..................................... 123,617 143,114 148,173 160,692
Long-term debt, including current portion........ 93,526 104,167 106,137 110,915
Stockholders' equity............................. 10,008 19,675 19,877 22,193
</TABLE>
10
<PAGE>
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANY
UNITED INNS
OTHER DATA (1)
(DOLLARS IN THOUSANDS)
The following table sets forth unaudited pro forma and historical data for
the Company for the years ended December 31, 1995 and 1994 and for the three
months ended March 31, 1996 and March 31, 1995. The unaudited pro forma data
give effect to the January Acquisitions, the Refinancing, the Pre-IPO
Transactions and the IPO as if they occurred as of the beginning of the periods
presented and, for the three months ended March 31, 1995 and the year ended
December 31, 1995, include one additional month of operations and/or management
of the 38 hotels currently owned or managed by the Company. The unaudited pro
forma financial information presented is not necessarily indicative of what the
actual financial position and results of operations of the Company would have
been for the periods indicated, nor does it purport to represent the Company's
future financial position and results of operations. The following table also
sets forth summary historical financial information for each of Harvey Hotel
Company and United Inns for the four years ended December 31, 1994. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Pro Forma Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus. See "Index
to Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -----------------------------------------------
1996 1995 1995* 1994 1993 1992 1991
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Average occupancy
percentage (2):
Bristol (Historical).......... 67.4% -- -- -- -- -- --
Bristol (Pro forma)........... -- 64.2% 64.1% 63.20% -- -- --
Harvey (Historical)........... -- -- -- 75.30% 75.76% 73.32% 63.88%
United (Historical)........... -- -- -- 54.64% 51.89% 48.71% 47.90%
Average daily room rate (3):
Bristol (Historical).......... $68.26 -- -- -- -- -- --
Bristol (Pro forma)........... -- $63.25 $62.67 $59.57 -- -- --
Harvey (Historical)........... -- -- -- $68.33 $63.68 $62.85 $66.05
United (Historical)........... -- -- -- $55.42 $52.29 $50.32 $51.50
REVPAR (4):
Bristol (Historical).......... $46.03 -- -- -- -- -- --
Bristol (Pro forma)........... -- $40.63 $40.20 $37.62 -- -- --
Harvey (Historical)........... -- -- -- $51.45 $48.23 $46.10 $42.18
United (Historical)........... -- -- -- $30.31 $27.13 $24.86 $25.08
Number of rooms at end of
period:
Bristol (Historical).......... 9,258 -- -- -- -- -- --
Bristol (Pro forma)........... -- 8,781 9,258 8,516 -- -- --
Harvey (Historical)........... -- -- -- 2,477 2,268 2,268 2,268
United (Historical)........... -- -- -- 6,039 6,586 7,489 8,629
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -----------------------------------------------
1996 1995 1995* 1994 1993 1992 1991
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Average number of available
rooms during period:
Bristol (Historical).......... 8,465 -- -- -- -- -- --
Bristol (Pro forma)........... -- 8,781 8,737 8,663 -- -- --
Harvey (Historical)........... -- -- -- 2,395 2,270 2,270 2,270
United (Historical)........... -- -- -- 6,576 7,127 7,808 8,632
Gross operating margin (5):
Bristol (Historical).......... 34.8% -- -- -- -- -- --
Bristol (Pro forma)........... -- 34.3% 29.62% 29.17% -- -- --
Harvey (Historical)........... -- -- -- 33.03% 30.59% 28.13% 25.71%
United (Historical)........... -- -- -- 26.15% 23.57% 20.90% 19.68%
Rooms margin (6):
Bristol (Historical).......... 75.8% -- -- -- -- -- --
Bristol (Pro forma)........... -- 72.8% 71.61% 71.16% -- -- --
Harvey (Historical)........... -- -- -- 77.00% 76.31% 76.32% 76.59%
United (Historical)........... -- -- -- 67.73% 67.48% 66.08% 65.11%
Food and beverage margin (7):
Bristol (Historical).......... 32.1% -- -- -- -- -- --
Bristol (Pro forma)........... -- 28.8% 24.84% 26.00% -- -- --
Harvey (Historical)........... -- -- -- 32.28% 30.41% 27.30% 27.51%
United (Historical)........... -- -- -- 17.45% 17.39% 17.50% 15.46%
</TABLE>
- ------------
NOTES TO SUMMARY FINANCIAL INFORMATION AND OTHER DATA
* During 1995, there were disruptions to the operations of seven of the
Company's hotels (representing approximately 20% of the rooms in the
Company's 36 owned hotels) as a result of redevelopment activities. See
"Management's Discussion and Analysis of Pro Forma Financial
Information--Disruption of Operations."
(1) Certain historical financial data for Harvey Hotel Company and United Inns
have been reclassified to conform to the presentation of the financial
statements of the Company.
(2) Calculated on a per available room per year basis.
(3) Calculated as rooms revenue divided by occupied rooms.
(4) Represents revenue per available room, calculated as rooms revenue divided
by average available rooms.
(5) Represents total revenues less departmental expenses, administrative and
general expenses, marketing expenses, property operating costs and property
taxes, rent and insurance as a percentage of revenue.
(6) Represents gross rooms departmental operating profit as a percentage of room
revenue.
(7) Represents gross food and beverage departmental operating profit as a
percentage of food and beverage revenue.
12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for New Notes, holders of Old Notes should consider
carefully the following factors:
FAILURE TO SUCCESSFULLY INTEGRATE ACQUIRED HOTELS
To implement its growth strategy successfully, the Company must integrate
the Acquired Hotels and any other subsequently acquired hotels into its existing
operations. With the addition of the Acquired Hotels to the Company's portfolio,
the total number of hotels operated by the Company increased from ten to 38, and
the total number of the Company's employees increased from approximately 2,000
to approximately 4,000. The Company also entered geographic markets where it
previously did not have any properties and began managing hotels operating under
national franchises, which it had only limited previous experience doing. As a
result, the consolidation of functions and integration of departments, systems
and procedures of the Acquired Hotels with the Company's existing operations
presents a significant management challenge, and the failure to integrate the
Acquired Hotels into the Company's management and operating structures could
have a material adverse effect on the results of operations and financial
condition of the Company. There can be no assurance that the Company will be
able to achieve operating results in the Acquired Hotels comparable to the
historical performance of the Original Hotels. See "Business and
Properties--Growth Strategy" and "Formation of the Company."
HOTEL REDEVELOPMENT AND RENOVATION RISKS
The redevelopment of the hotels in the Redevelopment Program and any other
subsequently acquired hotels involves risks associated with construction and
renovation of real property, including the possibility of construction cost
overruns and delays due to various factors (including receipt of regulatory
approvals, inclement weather and labor or material shortages and the continued
availability of construction and permanent financing) and market or site
deterioration after acquisition or renovation. The Company expects that the
redevelopment of each hotel will take up to six months to complete. As of
December 31, 1995, reconstruction and renovation had been substantially
completed at seven hotels. The Company expects that redevelopment of an
additional five hotels will be completed by June 30, 1996 and that the remaining
eight hotels in the Redevelopment Program will be completed by the end of 1996.
Many of the hotels under redevelopment will be closed, or operations at the
hotels substantially curtailed, during portions of redevelopment activity. Any
unanticipated delays, expenses or disturbances of hotels being redeveloped could
have an adverse effect on the results of operations and financial condition of
the Company. See "Business and Properties--Growth Strategy."
RESTRICTIVE LOAN COVENANTS
The Indenture and the Senior Term Facility contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to: acquire or dispose of assets or businesses, incur additional
indebtedness, make capital expenditures, pay dividends, create liens on assets,
enter into leases, investments or acquisitions, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates, and otherwise restrict corporate activities of the Company
(including its ability to acquire additional hotels, hotel businesses or assets,
certain changes of control and asset sale transactions) without the consent of
the lenders or the noteholders. In addition, the Company is required to maintain
specified financial ratios and comply with tests, including minimum interest
coverage ratios, maximum leverage ratios, minimum net worth and minimum equity
capitalization requirements.
The ability of the Company and its subsidiaries to comply with the covenants
contained in the Indenture and the Senior Term Facility and their other debt
instruments may be affected by events beyond their control, including prevailing
economic, financial and industry conditions. The breach of
13
<PAGE>
any of such covenants or restrictions could permit acceleration of the debt
thereunder and acceleration of debt under other instruments of the Company or
its subsidiaries that contain cross-acceleration or cross-default provisions. In
addition, the commitments of the lenders to make further extensions of credit
under the Senior Term Facility could be terminated. If the Company or any of its
subsidiaries were unable to repay its indebtedness, its lenders could proceed
against the collateral securing such indebtedness. Substantially all of the
Company's hotels are pledged to secure indebtedness of the Company's
subsidiaries, and the capital stock of Opco is pledged to secure the Notes. In
the event of any such default, the Company's ability to make payments of
principal of, or interest on, and the market value and marketability of, the New
Notes could be substantially impaired.
HOLDING COMPANY STRUCTURE
The Company is a holding company and, as such, conducts its business
operations principally through Opco, its sole direct subsidiary, and through
Opco's direct and indirect subsidiaries. As indebtedness of a holding company,
the New Notes will be effectively subordinated to all existing and future
obligations of the Company's subsidiaries. At March 31, 1996, the Company's
subsidiaries had an aggregate of $111.4 million of indebtedness outstanding
(exclusive of unused commitments of $109.2 million available under the Senior
Term Facility). Although the New Notes will be guaranteed as to payment of
principal and interest by Opco, such guarantee will be expressly subordinated to
all Senior Debt (as defined in "Description of Notes--Certain Definitions"), of
which there was $10.8 million outstanding at March 31, 1996 (exclusive of unused
commitments under the Senior Term Facility).
As a holding company, the Company's ability to service its indebtedness,
including the New Notes, is dependent upon the operating cash flow of its
subsidiaries and the payment of funds by such subsidiaries to the Company in the
form of loans, dividends or otherwise. The ability of the Company's subsidiaries
to make such disbursements will be subject to applicable law and, under certain
circumstances, restrictions contained in agreements entered into, or debt
instruments issued, by the Company and its subsidiaries. Under the terms of the
Senior Term Facility, Opco may declare and pay dividends to the Company to
enable it to pay, among other things, amounts owing under the New Notes when
such amounts become due and payable under the Indenture. See "Description of
Certain Other Indebtedness of the Company--Senior Term Facility."
RISK OF SUBSTANTIAL LEVERAGE
As of March 31, 1996, the Company's long-term consolidated debt (including
current portion) was $179.4 million and its stockholders' equity was $240.1
million. Subject to limitations in its debt instruments, including those under
the Senior Term Facility and the Indenture, the Company expects to incur
additional debt in the future to finance, among other things, up to $49.2
million of remaining costs associated with the Redevelopment Program and to
finance future acquisitions. See "Capitalization," "Pro Forma Financial Data,"
"Other Data" and "Description of Notes." Among other consequences, the Company's
continuing substantial indebtedness could increase the Company's vulnerability
to adverse general economic and lodging industry conditions (including increases
in interest rates) and could impair the Company's ability to obtain additional
financing in the future and to take advantage of significant business
opportunities that may arise. See "Management's Discussion and Analysis of Pro
Forma Financial Information--Liquidity and Capital Resources."
RISK OF UNENFORCEABILITY OF OPCO'S GUARANTEE
The New Notes will be an obligation of the Company and guaranteed by Opco.
To the extent that a court were to find that (i) the guarantee of the New Notes
was incurred by Opco with actual intent to hinder, delay or defraud any present
or future creditor of Opco or (ii) Opco did not receive fair consideration or
reasonably equivalent value in exchange for issuing its guarantee and Opco (a)
was insolvent on the date that such guarantee was issued, (b) was rendered
insolvent by reason of the
14
<PAGE>
issuance of such guarantee, (c) was engaged in business or a transaction or was
about to engage in business or a transaction for which the remaining assets of
Opco constituted unreasonably small capital or (d) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid the obligation incurred by Opco pursuant to such
guarantee or potentially subordinate such guarantee to the obligations owed by
Opco to its other creditors. There can be no assurance as to what standard a
court would apply in order to determine solvency. Any legal challenge of the
guarantee on fradulent conveyance grounds would likely involve, among other
things, consideration of the benefits, if any, realized by Opco as a result of
the issuance by the Company of the New Notes. To the extent the guarantee were
avoided as a fraudulent conveyance or held to be unenforceable for any other
reason, holders of the New Notes would cease to have any claim against Opco in
respect of such guarantee and would continue to be creditors of the Company.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
A Change of Control (as defined in "Description of Notes--Change of
Control") could require the Company to refinance substantial amounts of
indebtedness. Upon the occurrence of a Change of Control, the holders of the New
Notes would be entitled to require the Company to repurchase the New Notes at a
purchase price equal to 101% of the principal amount of such Notes, plus accrued
and unpaid interest, if any, to the date of purchase. However, the Senior Term
Facility prohibits the purchase of the New Notes by the Company in the event of
a Change of Control, unless and until such time as all indebtedness under the
Senior Term Facility is repaid in full. The Company's failure to purchase the
New Notes would result in a default under the Indenture and the Senior Term
Facility. The inability to repay the indebtedness under the Senior Term
Facility, if accelerated, would also constitute an event of default under the
Indenture, which could have adverse consequences to the Company and the holders
of the New Notes. In the event of a Change of Control, there can be no assurance
that the Company would have sufficient assets to satisfy all of its obligations
under the Senior Term Facility and the New Notes. See "Description of
Notes--Change of Control."
ABSENCE OF PUBLIC MARKET FOR NEW NOTES
The Company does not intend to apply for listing of the New Notes on a
securities exchange or on a securities quotation service. There is currently no
established market for the New Notes and there can be no assurance as to the
liquidity of markets that may develop for the New Notes, the ability of the
holders of the New Notes to sell their New Notes or the price at which such
holders would be able to sell their New Notes. The New Notes could trade at
prices that may be lower than the initial market values thereof depending on
many factors, including prevailing interest rates and the markets for similar
securities.
The New Notes may be characterized as "high yield" bonds. Historically, the
market for high yield bonds, such as the New Notes, has had fewer participants
and involved a smaller amount of securities than certain other capital markets.
It has historically, and particularly in recent periods, been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the New Notes.
The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
No prediction can be made as to the effect, if any, that future sales of New
Notes, or the availability of New Notes for future sale, will have on the market
price of the New Notes prevailing from time to time. Sales of substantial
amounts of New Notes, or the perception that such sales could occur, could
adversely affect prevailing market prices for the New Notes. The Old Notes are
currently owned by two institutional investors. Neither of such holders has
agreed to restrict or otherwise limit in any way such holder's ability to
dispose of such Old Notes or New Notes received in exchange therefor.
15
<PAGE>
No assurance can be given that sales of substantial amounts of New Notes will
not occur in the foreseeable future or as to the effect that any such sales, or
the perception that such sales may occur, will have on the market or the market
price of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Old Notes Registration Rights."
Upon consummation of the Exchange Offer, due to the restrictions on transfer
of the Old Notes and the absence of such restrictions applicable to the New
Notes, it is likely that the market, if any, for Old Notes will be relatively
less liquid than the market for New Notes. Consequently, holders of Old Notes
who do not participate in the Exchange Offer could experience significant
diminution in the value of their Old Notes, compared to the value of the New
Notes.
GEOGRAPHIC CONCENTRATION OF THE COMPANY'S HOTELS
Of the Company's 38 hotels, ten hotels, representing 44.4% of the Company's
pro forma revenues for the year ended December 31, 1995, are located in Dallas;
ten hotels, representing 23.6% of the Company's pro forma revenues for the year
ended December 31, 1995, are located in Atlanta; eight hotels, representing
14.8% of the Company's pro forma revenues for the year ended December 31, 1995,
are located in Houston; and four hotels, representing 7.4% of the Company's pro
forma revenues for the year ended December 31, 1995, are located in Jackson,
Mississippi. As a result, the Company's results of operations and financial
condition are largely dependent on economic conditions in these four
metropolitan areas and could be adversely affected by a decline in economic
conditions in any of these areas. See "Business and Properties--Geographic
Concentration."
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
Operating Risks. The Company's business is subject to all of the operating
risks inherent in the lodging industry. These risks include changes in general
and local economic conditions, cyclical over-building in the lodging industry,
varying levels of demand for rooms and related services, competition from other
hotels, motels and recreational properties, changes in travel patterns, the
recurring need for renovations, refurbishment and improvements of hotel
properties, changes in governmental regulations that influence or determine
wages, prices and construction and maintenance costs and changes in interest
rates and the availability of credit. In addition, due to the level of fixed
costs required to operate full-service hotels, certain significant expenditures
necessary for the operation of hotels generally can not be reduced when
circumstances cause a reduction in revenue.
Competition in the Lodging Industry. The lodging industry is highly
competitive. There is no single competitor or small number of competitors of the
Company that are dominant in the industry. The Company's hotels operate in areas
that contain numerous competitors, many of which have substantially greater
resources than the Company. Competition in the lodging industry is based
generally on convenience of location, room rates and range and quality of
services and guest amenities offered. The Company considers the location of its
hotels and the services and guest amenities provided by it to be among the most
important factors in its business. Demographic, geographic or other changes in
one or more of the Company's markets could impact the convenience or
desirability of the sites of
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certain hotels, which would in turn affect the operations of those hotels. In
addition, new or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities or significantly expand, improve or
introduce new facilities in markets in which the Company's hotels compete,
thereby adversely affecting the Company's operations. See "Business and
Properties-- Competition."
Seasonality. The lodging industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues of the Company. Quarterly earnings also may be
adversely affected by events beyond the Company's control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
See "Management's Discussion and Analysis of Pro Forma Financial Information."
Competition for Expansion Opportunities. The Company may compete for the
acquisition of hotels with entities that have substantially greater financial
resources than the Company. In addition, the Company believes that, as a result
of the downturn experienced by the lodging industry from the late 1980's through
the early 1990's and the significant number of foreclosures and bankruptcies
created thereby, the prices for many hotels recently have been at historically
low levels and often well below the cost to build new hotels. Accordingly, the
recent economic recovery in the lodging industry and the resulting increase in
funds available for hotel acquisitions may cause additional investors to enter
the hotel acquisition market, which may in turn cause hotel acquisition costs to
increase and the number of attractive hotel acquisition opportunities to
decrease. See "Business and Properties--The Lodging Industry."
RISKS ASSOCIATED WITH OWNING REAL ESTATE
The Company owns 36 of its 38 hotels. Accordingly, the Company will be
subject to varying degrees of risk generally incident to the ownership of real
estate. These risks include, among others, changes in national, regional and
local economic conditions, local real estate market conditions, changes in
interest rates and in the availability, cost and terms of financing, the
potential for uninsured casualty and other losses, the impact of present or
future environmental legislation and compliance with environmental laws and
adverse changes in zoning laws and other regulations, many of which are beyond
the control of the Company. In addition, real estate investments are relatively
illiquid, which means that the ability of the Company to vary its portfolio of
hotels in response to changes in economic and other conditions may be limited.
POTENTIAL LIMITATIONS ON USE OF HARVEY NAME
Twelve of the Company's hotels, located primarily in Dallas, Houston,
Atlanta and Jackson, currently operate under the Harvey Hotel or Harvey Suites
brand name. None of the Company's brand names have been registered with the
United States Patent and Trademark Office. The Company has been notified by
another owner/operator of hotels that it has used and applied for several
registrations of trademarks incorporating the word "Harveys" with the United
States Patent and Trademark Office. As a result of these applications, the
Company may be unable to use the Harvey name in markets where it does not
currently have rights under common law to exclusively use the name. The Company
believes that it has acquired such common law rights in the states of Texas and
Kansas as a result of its previous use of the Harvey name in those markets.
However, there can be no assurance that the Company's use of the Harvey name in
any market will not be challenged or as to the possible effects thereof. See
"Business and Properties--Trademarks."
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CONTROLLING STOCKHOLDER
Holdings, which is controlled by The Hampstead Group, L.L.C. ("Hampstead"),
a private investment firm, beneficially owns 56.6% of the issued and outstanding
shares of Common Stock. See "Ownership of Common Stock." So long as Holdings
beneficially owns a majority of the outstanding Common Stock, it will have the
ability to elect or remove members of the Board of Directors of the Company (the
"Board"), and thereby control the management and affairs of the Company, and
will have the power to approve or block most actions requiring approval of the
stockholders of the Company. Certain provisions of the Company's Certificate of
Incorporation, By-Laws and applicable law also facilitate Holdings' ability to
exercise control of the Company. See "Ownership of Common Stock."
POTENTIAL FOR CONFLICTS OF INTEREST INVOLVING CERTAIN BOARD MEMBERS
Five members of the Board are employed by, or are principals of, Hampstead,
which has an interest in a hotel company that in the past has competed, and in
the future may compete, with the Company for both guests and hotel acquisitions.
Hampstead is an investment firm and may from time to time acquire interests in
other hotel companies or assets. The members of the Board who are employed by or
principals of Hampstead may have conflicts of interest with respect to certain
matters potentially or actually involving or affecting the Company and such
other hotel-related investments, such as acquisition, development, financing and
other corporate opportunities that may be suitable for the Company and such
other hotel companies. In addition, such directors may also have conflicts of
interests with respect to corporate opportunities suitable for both the Company
and Hampstead. To the extent such opportunities arise, such directors will
consult with independent financial and legal advisors and make a determination
after consideration of a number of factors, including whether such opportunity
is presented to any such director in his capacity as a director of the Company
or as an affiliate of such other hotel company or of Hampstead, whether such
opportunity is within the Company's line of business or consistent with its
strategic objectives and whether the Company will be able to undertake or
benefit from such opportunity. It is expected that Hampstead will follow similar
procedures to the extent that Hampstead or any principal or affiliate of
Hampstead that is not a director of the Company is presented with such an
opportunity. In addition, determinations will be made by the Board of Directors
when appropriate by the vote of the disinterested directors only.
Notwithstanding the foregoing, no assurance can be given that all conflicts will
be resolved in favor of the Company and its stockholders.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The Company will place substantial reliance on the lodging industry
knowledge and experience and the continued services of its senior management,
led by J. Peter Kline, John A. Beckert, Richard N. Beckert, Robert L. Miars and
Edward J. Rohling. The Company's future success and its ability to manage future
growth depends in large part upon the efforts of these persons and on the
Company's ability to attract and retain other highly qualified personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel. The
loss of services of Messrs. Kline, J. Beckert, R. Beckert, Miars or Rohling or
the Company's inability to attract and retain other highly qualified personnel
may adversely affect the results of operations and financial condition of the
Company.
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of contamination from
hazardous or toxic substances, or the
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failure to remediate such contaminated property properly, may adversely affect
the owner's ability to sell or rent such real property or to borrow using such
real property as collateral. Persons who arrange for the disposal or treatment
of hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether or
not such facility is or ever was owned or operated by such person. The operation
and removal of certain underground storage tanks also are regulated by federal
and state laws. In connection with the ownership and operation of its hotel and
other properties, the Company could be held liable for the costs of remedial
action with respect to such regulated substances and storage tanks and claims
related thereto. Remediation activities have been undertaken to address
potential contamination from storage tanks located on certain properties
currently and previously owned by the Company. The Company recently sold several
of such properties to an entity formed by Holdings and the Harvey Management
Equity Holders (as defined in "Formation of the Company"), which expressly
assumed all environmental liabilities, and agreed to indemnify the Company
against any environmental claims, relating to the ownership or operation of such
properties. See "Formation of the Company--Disposition of Non-Hotel Properties."
Notwithstanding such indemnity, there can be no assurance that the Company will
not be required to investigate or remediate any contamination from such storage
tanks or drums or that there are no additional environmental liabilities or
claims of which the Company is unaware. Federal, state and local environmental
laws, ordinances and regulations also require abatement or removal of certain
asbestos-containing materials ("ACMs") and govern emissions of and exposure to
asbestos fibers in the air. Limited quantities of ACMs are present in various
building materials such as sprayed on ceiling treatments, roofing materials or
floor tiles at certain of the Company's hotels. Operations and maintenance
programs for maintaining ACMs have been, or are in the process of being,
designed and implemented at several of the Company's hotels. Any liability
resulting from non-compliance or other claims relating to environmental matters
could have a material adverse effect on the Company's results of operations and
financial condition. See "Business and Properties--Environmental Matters."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy certain of its
obligations under the Exchange Agreement. The Exchange Agreement requires the
Company to use its best efforts to (i) file with the Commission a registration
statement (the "Exchange Offer Registration Statement") under the Securities Act
with respect to the New Notes within 45 days after the issuance of the Old Notes
(the "Issue Date"), (ii) cause the Exchange Offer Registration Statement to
become effective on or before the 120th day following the Issue Date, (iii) keep
the Exchange Offer open for acceptance for at least 90 days (or longer if
required by applicable law) after the date that notice of the Exchange Offer is
mailed to holders of the Old Notes and (iv) consummate the Exchange Offer on or
prior to the 211th day following the Issue Date. Notwithstanding clause (iii)
above, the Letter of Transmittal provides that, by signing and returning the
Letter of Transmittal, each tendering holder of the Old Notes will have agreed
to amend the Exchange Agreement, mutatis mutandis, to shorten the period during
which the Company is required to keep the Exchange Offer open for acceptance to
July 9, 1996 (or such later date as may be required by law). In the event that
the Company fails to satisfy these or certain other of its obligations under the
Exchange Agreement, the interest rate on the Old Notes will be increased. See
"Old Notes Registration Rights."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (which together constitute the Exchange Offer), New Notes for an
equal principal amount of Old Notes. The terms of the New Notes are identical in
all material respects to those of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes. The New Notes
will be entitled to the benefits of the Indenture. See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. As of the date of
this Prospectus, $70 million aggregate principal amount of the Old Notes is
outstanding.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, holders of Old Notes (other than any
holder who is an "affiliate" of the Company or Opco within the meaning of Rule
405 under the Securities Act) who exchange their Old Notes for New Notes
pursuant to the Exchange Offer generally may offer such New Notes for resale,
resell such New Notes and otherwise transfer such New Notes without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of the holders'
business and such holders are not participating in, and have no arrangement or
understanding with any person to participate in, a distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and complied with. The Company has agreed, pursuant to the Exchange
Agreement and subject to certain specified limitations therein, to register or
qualify the New Notes for offer or sale under the securities or blue sky laws of
such jurisdictions as any holders of the New Notes request in writing. If a
holder of Old Notes does not exchange such Old Notes for New Notes pursuant to
the Exchange Offer, such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except
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pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on July 9, 1996 unless the Company in
its sole discretion extends the period during which the Exchange Offer is open,
in which event the term "Expiration Date" means the latest time and date on
which the Exchange Offer, as so extended by the Company, expires. The Company
reserves the right to extend the Exchange Offer at any time and from time to
time prior to the Expiration Date by giving written notice to The Bank of New
York (the "Exchange Agent") and by public announcement communicated by no later
than 9:00 a.m. on the next business day following the previously scheduled
Expiration Date, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer
will remain subject to the Exchange Offer.
The initial "Exchange Date" will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Notes for any reason,
including if any of the events set forth below under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Old Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the Old
Notes as promptly as practicable. Unless the Company terminates the Exchange
Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the
Company will exchange the New Notes for the Old Notes on the Exchange Date.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of Old Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof pursuant to any
one of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Old Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Old Notes being tendered and any
required signature guarantees, to the Exchange Agent at its address set forth in
the Letter of Transmittal on or prior to the Expiration Date or (ii) complying
with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder, the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office or correspondent in the United States or by a member firm of a
national securities exchange or of the National Association of Securities
Dealers, Inc. or by a
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participant in a recognized medallion program (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the New Notes and/or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature on the
Letter of Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Old Notes should contact such holder promptly and instruct such holder to tender
Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to
tender such Old Notes itself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take considerable
time.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PRIOR INSURANCE OBTAINED AND
THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. AS AN
ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Guarantee Delivery Procedures. If a holder desires to tender Old Notes
pursuant to the Exchange Offer, but time will not permit a Letter of
Transmittal, the Old Notes or other required documents to reach the Exchange
Agent on or before the Expiration Date, a tender may be effected if the Exchange
Agent has received at its office a letter or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering holder,
the names in which the Old Notes are registered, the principal amount of the Old
Notes being tendered and, if possible, the certificate numbers of the Old Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange trading days after the
Expiration Date, the Old Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal and any other
required documents, will be delivered by such Eligible Institution to the
Exchange Agent. Unless Old Notes being tendered by the above-described method
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes is received by the Exchange Agent or (ii) a Notice
of Guaranteed Delivery or letter or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a Notice
of Guaranteed Delivery or letter or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal, the tendered Old Notes and any other required
documents.
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. None of the Company, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or will incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") thereby
exchanges, assigns and transfers the Old Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
New Notes issuable upon the exchange of such tendered Old Notes and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of tendered Old
Notes. The Transferor further agrees that acceptance of any tendered Old Notes
by the Company and the issuance of New Notes in exchange therefor will
constitute performance in full by the Company of its obligations under the
Exchange Agreement and that the Company will have no further obligations or
liabilities thereunder (except in certain limited circumstances). All authority
conferred by the Transferor will survive the death, bankruptcy or incapacity of
the Transferor and every obligation of the Transferor will be binding upon the
heirs, legal representatives, successors, assigns, executors, administrators and
trustees in bankruptcy of such Transferor.
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies that (i) it is not an affiliate of either the Company or
Opco or, if the Transferor is an affiliate of the Company or Opco, it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable, (ii) the New Notes are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the holder, (iii) the Transferor has not entered into an arrangement
or understanding with any other person to participate in the distribution of the
New Notes, (iv) the Transferor is not a broker-dealer who purchased the Notes
for resale pursuant to an exemption under the Securities Act, and (v) the
Transferor will be able to trade the New Notes acquired in the Exchange Offer
without restriction under the Securities Act.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
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WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written letter or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth in the Letter of Transmittal not later than the close of business on the
Expiration Date. Any such notice of withdrawal must specify the person named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
certificate numbers and principal amount of Old Notes to be withdrawn, that such
holder is withdrawing its election to have such Old Notes exchanged and the name
of the registered holder of such Old Notes, and must be signed by the holder in
the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Old Notes being withdrawn. The Exchange Agent
will return the properly withdrawn Old Notes promptly following receipt of
notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Company, and
such determination will be final and binding on all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and the
issuance of the New Notes will be made on the Exchange Date. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted for exchange
validly tendered Old Notes when, as and if the Company has given written notice
thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of receiving New Notes from the Company and causing the Old
Notes to be assigned, transferred and exchanged. Upon the terms and subject to
the conditions of the Exchange Offer, delivery of New Notes to be issued in
exchange for accepted Old Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Old Notes. Old Notes not accepted for exchange
by the Company will be returned without expense to the tendering holders
promptly following the Expiration Date or, if the Company terminates the
Exchange Offer prior to the Expiration Date, promptly after the Exchange Offer
is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue New Notes in
exchange for any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News Service)
or, at its option, modify or otherwise amend the Exchange Offer, if (i) there
shall be threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree shall have been issued by, any court or
governmental agency or other governmental regulatory or administrative agency or
commission (a) seeking to restrain or prohibit the making or consummation of the
Exchange Offer or any other transaction contemplated by the Exchange Offer, (b)
assessing or seeking any damages as a result thereof or (c) resulting in a
material delay in the ability of the Company to accept for exchange or exchange
some or all of the Old Notes pursuant to the Exchange Offer; or (ii) the
Exchange Offer shall violate any applicable law or any applicable interpretation
of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action
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or inaction by the Company) giving rise to such condition or may be waived by
the Company in whole or in part at any time or from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, and each right
will be deemed an ongoing right which may be asserted at any time or from time
to time. In addition, the Company has reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Company concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Questions relating to the procedure for tendering, as well as
requests for additional copies of this Prospectus or the Letter of Transmittal
and requests for Notices of Guaranteed Delivery, should be directed to the
Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Facsimile Transmission Number: By Hand/Overnight Delivery:
Mail: (212) 571-3080 The Bank of New York
The Bank of New York (For Eligible Institutions 101 Barclay Street
101 Barclay Street (7 East) Only) Corporate Trust
New York, New York 10286 Confirm by Telephone: Services Window
Attn: Reorganization Section (212) 815-2742 Ground Level
For Information Call: Attn: Reorganization Section
(212) 815-6333
</TABLE>
Delivery of the Letter of Transmittal to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
The Bank of New York also acts as Trustee under the Indenture.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The expenses to be incurred in connection with the
Exchange Offer, including the fees and expenses of the Exchange Agent and
printing, accounting and legal fees, will be paid by the Company and are
estimated at approximately $150,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of
25
<PAGE>
such jurisdiction. However, the Company may, at its discretion, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction and
extend the Exchange Offer to holders of Old Notes in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the Exchange
Offer to be made by a licensed broker or dealer, the Exchange Offer is being
made on behalf of the Company by one or more registered brokers or dealers which
are licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
Holders of Old Notes will not have dissenters' rights or appraisal rights in
connection with the Exchange Offer.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Old Notes as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Old Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith except that holders who instruct the
Company to register New Notes in the name of, or request Old Notes not tendered
or not accepted in the Exchange Offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
FEDERAL INCOME TAX CONSEQUENCES
An exchange of Old Notes for New Notes pursuant to the Exchange Offer should
not be treated as a sale, exchange or other taxable event for federal income tax
purposes because the New Notes should not be considered to differ materially in
kind or extent from the Old Notes. As a result, no material federal income tax
consequences should result from an exchange of Old Notes for New Notes pursuant
to the Exchange Offer. For federal income tax purposes, a New Note received by a
beneficial owner of an Old Note should be treated as a continuation of the Old
Note in the hands of such owner. See "Certain Federal Income Tax
Considerations."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange Old Notes for New Notes pursuant to
the Exchange Offer will continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend thereon as a consequence of the
offer or sale of the Old Notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. See "Old Notes
Registration Rights."
Upon consummation of the Exchange Offer, due to the restrictions on transfer
of the Old Notes and the absence of such restrictions applicable to the New
Notes, it is likely that the market, if any, for Old Notes will be relatively
less liquid than the market for New Notes. Consequently, holders of Old Notes
who do not participate in the Exchange Offer could experience significant
diminition in the value of their Old Notes, compared to the value of the New
Notes.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996. The information below should be read in conjunction with "Management's
Discussion and Analysis of Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the pro forma consolidated financial information and the financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
<S> <C>
(IN THOUSANDS)
Current portion of long-term debt............................................ $ 6,806
Total long-term debt, excluding current portion.............................. 172,604
Stockholders' equity:
Common stock ($.01 par value, 75,000,000 shares authorized, 16,565,840
shares issued and outstanding)........................................... 166
Additional paid-in capital................................................. 232,661
Unrealized gain on marketable securities, net.............................. 368
Retained earnings.......................................................... 6,924
--------------
Total stockholders' equity............................................. 240,119
--------------
Total capitalization............................................... $419,529
--------------
--------------
</TABLE>
27
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected pro forma and historical financial
data for the Company for the years ended December 31, 1995 and 1994 and for the
eleven months ended December 31, 1995, the three months ended March 31, 1996,
the two months ended March 31, 1995 and the three months ended March 31, 1995.
The unaudited pro forma financial information for the Company gives effect to
the January Acquisitions, the Refinancing, the Pre-IPO Transactions and the IPO
as if they had been consummated at the beginning of the periods presented and,
for the three months ended March 31, 1995 and the year ended December 31, 1995,
includes one additional month of operations and/or management of the 38 hotels
currently owned or managed by the Company. The selected balance sheet data for
the Company is presented as of December 31, 1995 and as of March 31, 1996. The
pro forma financial information presented is not necessarily indicative of what
the actual financial position and results of operations of the Company would
have been as of and for the periods indicated, nor does it purport to represent
the Company's future financial position and results of operations. The financial
data set forth below are qualified in their entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Pro Forma Financial
Information" and the financial statements and notes thereto included elsewhere
in this Prospectus.
BRISTOL HOTEL COMPANY
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
(UNAUDITED) PRO FORMA PRO FORMA (UNAUDITED)
--------------------- (UNAUDITED) ------------------------
THREE TWO THREE HISTORICAL
MONTHS MONTHS MONTHS YEAR ENDED ELEVEN
ENDED ENDED ENDED DECEMBER 31, MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, ------------------------ DECEMBER 31,
1996 1995 1995 (1) 1994 (1) (2) 1995* (1) 1995*
--------- --------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms............................ $35,454 $21,354 $32,138 $121,682 $ 127,670 $115,771
Food and beverage................ 10,599 6,324 9,586 36,830 39,635 36,070
Other............................ 3,624 2,232 2,879 10,448 14,377 13,354
--------- --------- ----------- ------------ --------- ------------
Total revenue................ 49,677 29,910 44,603 168,960 181,682 165,195
--------- --------- ----------- ------------ --------- ------------
Operating costs and expenses:
Departmental expenses:
Rooms............................ 8,574 5,276 8,757 35,095 36,240 32,692
Food and beverage................ 7,193 4,576 6,821 27,256 29,790 27,118
Other operating departments...... 1,146 471 660 2,905 4,522 4,258
Undistributed operating expenses:
Administration and general,
marketing......................... 8,363 4,931 6,654 26,713 30,504 28,254
Property operating costs......... 7,133 4,605 6,392 27,695 26,804 24,738
Depreciation and amortization.... 3,988 2,254 3,328 12,324 14,387 13,505
Corporate expense................ 2,962 1,576 2,008 8,034 8,691 8,035
--------- --------- ----------- ------------ --------- ------------
Operating income............. 10,318 6,221 9,983 28,938 30,744 26,595
--------- --------- ----------- ------------ --------- ------------
Other expenses:
Interest expense (4)............. 4,206 2,777 3,765 14,759 16,133 18,374
Other non-operating expenses
(income) and minority interest
(2) (3)........................... -- (100) (89) (589) 93 430
Income taxes..................... 2,249 1,276 2,271 5,316 5,226 2,822
--------- --------- ----------- ------------ --------- ------------
Net income before extraordinary
item.............................. 3,863 2,268 4,036 9,452 9,292 4,969
Extraordinary loss on early
extinguishment of debt, net of
income taxes..................... -- -- -- -- (1,908)
--------- --------- ----------- ------------ --------- ------------
Net income........................ $ 3,863 $ 2,268 $ 4,036 $ 9,452 $ 9,292 $ 3,061
--------- --------- ----------- ------------ --------- ------------
--------- --------- ----------- ------------ --------- ------------
Pro forma earnings per common
share............................. -- -- $ .24 $ .56 $ .55 --
----------- ------------ ---------
----------- ------------ ---------
Pro forma common shares
outstanding**..................... -- -- 16,872 16,871 16,880 --
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
(UNAUDITED) PRO FORMA PRO FORMA (UNAUDITED)
--------------------- (UNAUDITED) ------------------------
THREE TWO THREE HISTORICAL
MONTHS MONTHS MONTHS YEAR ENDED ELEVEN
ENDED ENDED ENDED DECEMBER 31, MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, ------------------------ DECEMBER 31,
1996 1995 1995 (1) 1994 (1) (2) 1995* (1) 1995*
--------- --------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per common and common
equivalent share:
Net income before extraordinary
item........................... $ 0.23 $ 0.19 -- -- -- $ 0.42
Extraordinary item, net of income
taxes............................. -- -- -- -- -- (0.16)
--------- --------- ------
Net income....................... $ 0.23 $ 0.19 -- -- -- $ 0.26
--------- --------- ------
--------- --------- ------
Weighted average number of common
and common equivalent shares
outstanding.................... 17,006 11,640 -- -- -- 11,939
--------- --------- ------
--------- --------- ------
Ratio of earnings to fixed
charges........................... 2.24 2.21 2.58 1.95 1.84 1.40
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 3,144 $ 7,906
Property and equipment, net.................................. 493,760 470,705
Total assets................................................. 533,081 512,901
Long-term debt including current portion..................... 179,410 170,544
Equity....................................................... 240,119 236,122
</TABLE>
- ------------
<TABLE>
<C> <S>
* During 1995, there were disruptions to the operations of seven of the Company's hotels
(representing approximately 20% of the rooms in the Company's 36 owned hotels) as a
result of redevelopment activity. See "Management's Discussion and Analysis of Pro
Forma Financial Information."
** Includes an additional number of shares to reflect the dilutive effect of outstanding
options.
(1) Pro forma operating results for the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1995 include the operations of the Sheraton-Atlanta, a 368
room hotel purchased by the Company in June 1995 and exclude the operations of the
Holiday Inn-West Loop which was sold by the Company in July 1995.
(2) Pro forma 1994 other non-operating expenses have been reduced by $6.6 million
representing a loss on sale of property recorded by United Inns for a hotel it sold to
Harvey Hotel Company in August 1994.
(3) Pro forma 1994 other non-operating expenses have been reduced by $5.1 million related
to environmental costs which had been accrued by United Inns as of December 31, 1994.
(4) Pro forma interest expense for 1994 and 1995 has been reduced by $2.8 million and $3.2
million, respectively, related primarily to the Refinancing.
</TABLE>
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical financial data for Harvey
Hotel Company and United Inns as of and for the four years ended December 31,
1994. The following table also sets forth the income statement for Harvey Hotel
Company for the one month ended January 31, 1995. The income statements for the
three years ended December 31, 1994 and the balance sheets as of December 31,
1994 and 1993 have been derived from financial statements audited by Price
Waterhouse LLP, independent accountants, with respect to Harvey Hotel Company,
and by Frazee, Tate & Associates, independent accountants, with respect to
United Inns, each of which financial statements is included elsewhere in this
Prospectus. The selected financial data set forth below are qualified in their
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus.
HARVEY HOTEL COMPANY
SELECTED HISTORICAL COMBINED FINANCIAL DATA (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
MONTH ENDED
JANUARY 31, 1995 1994 1993 1992 1991
---------------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms................................ $4,006 $ 44,972 $39,968 $ 38,289 $ 34,952
Food, beverage and other............. 1,937 25,379 24,054 22,384 21,537
------ -------- ------- -------- --------
Total revenue...................... 5,943 70,351 64,022 60,673 56,489
------ -------- ------- -------- --------
Operating costs and expenses:
Departmental expenses:
Rooms................................ 1,124 10,344 9,469 9,065 8,183
Food, beverage and other............. 1,055 14,835 14,600 14,690 14,423
Undistributed operating expenses:
Administrative and general,
marketing.............................. 579 11,369 10,285 10,075 9,816
Property operating costs............. 629 10,563 10,086 9,774 9,545
Depreciation......................... 309 4,041 3,963 4,320 4,407
Corporate expense.................... 315 3,761 2,827 2,321 2,724
------ -------- ------- -------- --------
Operating income................... 1,932 15,438 12,792 10,428 7,391
------ -------- ------- -------- --------
Other expenses:
Interest expense, net................ 652 7,631 7,737 8,944 10,447
Other non-operating income........... -- (337) (241) (311) (350)
------ -------- ------- -------- --------
Net income (loss) before extraordinary
item................................. $1,280 $ 8,144 $ 5,296 $ 1,795 $ (2,706)
------ -------- ------- -------- --------
------ -------- ------- -------- --------
<CAPTION>
DECEMBER 31,
-------------------------------------------
1994 1993 1992 1991
-------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 4,118 $ 395 $ 1,975 $ 4,404
Property and equipment, net............ 80,635 72,387 74,523 77,609
Total assets........................... 109,874 99,635 103,052 104,264
Long-term debt, including current
portion................................ 114,054 112,963 119,509 121,601
Owners' deficit........................ 11,988 20,604 24,241 24,271
</TABLE>
30
<PAGE>
UNITED INNS
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992 1991
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms...................................... $ 72,701 $ 70,574 $ 69,851 $ 77,737
Food, beverage and other................... 19,917 20,138 21,904 25,359
-------- -------- -------- --------
Total revenue............................ 92,618 90,712 91,755 103,096
-------- -------- -------- --------
Operating costs and expenses:
Rooms...................................... 23,461 22,949 23,696 27,125
Food, beverage and other................... 13,808 14,703 15,960 18,924
Administrative and general, marketing...... 14,462 14,150 14,927 15,567
Property operating costs................... 16,670 17,532 17,993 21,188
Depreciation............................... 8,876 8,966 9,471 10,429
Corporate expense.......................... 5,544 3,983 4,294 4,502
-------- -------- -------- --------
Operating income......................... 9,797 8,429 5,414 5,361
-------- -------- -------- --------
Other expenses:
Interest expense, net...................... 9,932 9,911 9,088 13,115
Other non-operating expenses (income) and
minority interest............................ 9,689 (1,280) 549 (536)
-------- -------- -------- --------
Net income (loss) before extraordinary
item......................................... $ (9,824) $ (202) $ (4,223) $ (7,218)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1994 1993 1992 1991
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 5,094 $ 2,217 $ 1,719 $ 1,831
Property and equipment, net.................. 89,251 115,641 119,842 134,540
Total assets................................. 123,617 143,114 148,173 160,692
Long-term debt, including current portion.... 93,526 104,167 106,137 110,915
Stockholders' equity......................... 10,008 19,675 19,877 22,193
</TABLE>
31
<PAGE>
OTHER DATA (1)
(DOLLARS IN THOUSANDS)
The following table sets forth unaudited pro forma and historical data for
the Company for the years ended December 31, 1995 and 1994 and for the three
months ended March 31, 1996, and March 31, 1995. The unaudited pro forma data
give effect to the January Acquisitions, the Refinancing, the Pre-IPO
Transactions and the IPO as if they occurred as of the beginning of the periods
presented and, for the three months ended March 31, 1995 and the year ended
December 31, 1995, include one additional month of operations and/or management
of the 38 hotels currently owned or managed by the Company. The unaudited pro
forma financial information presented is not necessarily indicative of what the
actual financial position and results of operations of the Company would have
been for the periods indicated, nor does it purport to represent the Company's
future financial position and results of operations. The following table also
sets forth summary historical financial information for each of Harvey Hotel
Company and United Inns for the four years ended December 31, 1994. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Pro Forma Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and the financial
statements and notes thereto included elsewhere in this Prospectus. See "Index
to Financial Statements."
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANY
UNITED INNS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
1996 1995 1995* 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Average occupancy percentage (2):
Bristol (Historical)............. 67.4% -- -- -- -- -- --
Bristol (Pro forma).............. -- 64.2% 64.1% 63.20% -- -- --
Harvey (Historical).............. -- -- -- 75.30% 75.76% 73.32% 63.88%
United (Historical).............. -- -- -- 54.64% 51.89% 48.71% 47.90%
Average daily room rate (3):
Bristol (Historical)............. $68.26 -- -- -- -- -- --
Bristol (Pro forma).............. -- $63.25 $62.67 $59.57 -- -- --
Harvey (Historical).............. -- -- -- $68.33 $63.68 $62.85 $66.05
United (Historical).............. -- -- -- $55.42 $52.29 $50.32 $51.50
REVPAR (4):
Bristol (Historical)............. $46.03 -- -- -- -- -- --
Bristol (Pro forma).............. -- $40.63 $40.20 $37.62 -- -- --
Harvey (Historical).............. -- -- -- $51.45 $48.23 $46.10 $42.18
United (Historical).............. -- -- -- $30.31 $27.13 $24.86 $25.08
Number of rooms at end of period:
Bristol (Historical)............. 9,258 -- -- -- -- -- --
Bristol (Pro forma).............. -- 8,781 9,258 8,516 -- -- --
Harvey (Historical).............. -- -- -- 2,477 2,268 2,268 2,268
United (Historical).............. -- -- -- 6,039 6,586 7,489 8,629
Average number of available rooms
during period:
Bristol (Historical)............. 8,465 -- -- -- -- -- --
Bristol (Pro forma).............. -- 8,781 8,737 8,663 -- -- --
Harvey (Historical).............. -- -- -- 2,395 2,270 2,270 2,270
United (Historical).............. -- -- -- 6,576 7,127 7,808 8,632
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
1996 1995 1995* 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross operating margin (5):
Bristol (Historical)............. 34.8% -- -- -- -- -- --
Bristol (Pro forma).............. -- 34.3% 29.62% 29.17% -- -- --
Harvey (Historical).............. -- -- -- 33.03% 30.59% 28.13% 25.71%
United (Historical).............. -- -- -- 26.15% 23.57% 20.90% 19.68%
Rooms margin (6):
Bristol (Historical)............. 75.8% -- -- -- -- -- --
Bristol (Pro forma).............. -- 72.8% 71.61% 71.16% -- -- --
Harvey (Historical).............. -- -- -- 77.00% 76.31% 76.32% 76.59%
United (Historical).............. -- -- -- 67.73% 67.48% 66.08% 65.11%
Food and beverage margin (7):
Bristol (Historical)............. 32.1% -- -- -- -- -- --
Bristol (Pro forma).............. -- 28.8% 24.84% 26.00% -- -- --
Harvey (Historical).............. -- -- -- 32.28% 30.41% 27.30% 27.51%
United (Historical).............. -- -- -- 17.45% 17.39% 17.50% 15.46%
</TABLE>
- ------------
NOTES TO SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER DATA
* During 1995, there were disruptions to the operations of seven of the
Company's hotels (representing approximately 20% of the rooms in the
Company's 36 owned hotels) as a result of redevelopment activity. See
"Management's Discussion and Analysis of Pro Forma Financial
Information--Disruption of Operations."
(1) Certain historical financial data for Harvey Hotel Company and United Inns
have been reclassified to conform to the presentation of the financial
statements of the Company.
(2) Calculated on a per available room per year basis.
(3) Calculated as rooms revenue divided by occupied rooms.
(4) Represents revenue per available room, calculated as rooms revenue divided
by average available rooms.
(5) Represents total revenues less departmental expenses, administrative and
general expenses, marketing expenses, property operating costs and property
taxes, rent and insurance as a percentage of revenues.
(6) Represents gross rooms departmental operating profit as a percentage of room
revenues.
(7) Represents gross food and beverage departmental operating profit as a
percentage of food and beverage revenues.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PRO FORMA FINANCIAL INFORMATION
OVERVIEW
Because the Company began operations in February, 1995, historical results
for the quarter ended March 31, 1995 and the year ended December 31, 1995
include only two months and eleven months, respectively, of operations and/or
management of the original 36 hotels. The pro forma results for the quarter
ended March 31, 1995 and the year ended December 31, 1995 reflect three months
and twelve months, respectively, of operations and/or management of the 38
hotels currently owned or managed by the Company. Management believes that due
to the substantial difference in comparability between the Company's first
quarter historical results for 1995 and 1996 and the Company's annual historical
results for 1994 and 1995, the use of the pro forma results for the quarter
ended March 31, 1995 and the year ended December 31, 1995, respectively,
provides a more meaningful basis for comparison.
RESULTS OF OPERATIONS--QUARTER ENDED MARCH 31, 1996, COMPARED WITH QUARTER ENDED
MARCH 31, 1995
Revenues increased $5.1 million, or 11.4%, to $49.7 million for the quarter
ended March 31, 1996, reflecting increases in all revenue categories, as
discussed below.
Room revenues were $35.5 million for the quarter ended March 31, 1996, an
increase of $3.3 million, or 10.3%, from the comparable period in 1995, due
primarily to improved occupancy and average daily room rates of 67.4% and
$68.26, respectively, for the quarter ended March 31, 1996, as compared to 64.2%
and $63.25, respectively, for the same pro forma period in 1995. Room revenues
increased despite extensive disruptions caused by renovations at several of the
Company's hotels. Approximately 15% of the Company's rooms portfolio were out of
service during the first quarter of 1996. The occupancy and revenue gains were
partially attributable to the Holiday Inn--Select Greenway Plaza hotel
("Greenway Plaza") whose first quarter results were impacted significantly by
renovations from the date of its acquisition by the Company in August 1994
through the date of completion of its renovation in March 1995.
Food and beverage revenues improved by $1.0 million to $10.6 million for the
quarter ended March 31, 1996, from $9.6 million for the pro forma quarter ended
March 31, 1995, due primarily to the higher occupancy levels in the Company's
hotels and increased sales effort in the banquet and catering departments of the
26 hotels formerly owned by United Inns. Other operating revenues increased
25.8% or by $0.7 million, to $3.6 million for the quarter ended March 31, 1996,
due primarily to improved occupancy and an increased emphasis on maximizing
telephone revenue for the former United Inns hotels.
Gross operating margin (consisting of total revenues less departmental
expenses, administrative and general expenses, marketing expenses and property
occupancy costs as a percentage of total revenues) for the quarter ended March
31, 1996 was 34.8% compared to 34.3% for the pro forma quarter ended March 31,
1995. The 0.5% increase is due primarily to increased operating efficiencies in
the rooms and food and beverage departments offset by increases in
administrative and general expenses, marketing expenses and property occupancy
costs. The increases in the administrative and general and marketing expenses
reflect the restaffing and increased direct sales effort for the former United
Inns hotels and the impact on costs of having partially closed hotels during
periods of renovations. Property occupancy cost increases are due to increases
in property taxes as a result of capital improvements and increases in land
rentals calculated as a percentage of revenues.
Depreciation increased $0.7 million for the quarter ended March 31, 1996
compared to the pro forma quarter ended March 31, 1995, primarily as a result of
the significant capital improvements at several of the former United Inn hotels
and renovations completed at the Greenway Plaza hotel.
34
<PAGE>
Corporate expenses increased $1.0 million for the quarter ended March 31,
1996 compared to the pro forma quarter ended March 31, 1995, primarily as a
result of the acquisition activities and costs incurred to establish the Company
as a public entity.
Interest expense increased by $0.4 million to $4.2 million in the quarter
ended March 31, 1996, from the pro forma quarter ended March 31, 1995. This
increase was due primarily to increased borrowings during 1996.
As a result of the factors described above, net income decreased slightly to
$3.9 million for the quarter ended March 31, 1996, from $4.0 million for the pro
forma quarter ended March 31, 1995, a decrease of 2.5%.
PRO FORMA RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1995, COMPARED WITH
YEAR ENDED DECEMBER 31, 1994
Pro forma revenues increased from $169.0 million for 1994 to $181.7 million,
an increase of $12.7 million, or 7.5%, for 1995, reflecting increases in all
revenue categories, as discussed below.
Hotel room revenues were $127.7 million for the year ended December 31,
1995, an increase of $6.0 million, or 4.9%, from the comparable period in 1994,
due primarily to improved occupancy and average daily room rates of 64.1% and
$62.67, respectively, for the year ended December 31, 1995, as compared to 62.3%
and $59.57, respectively, for the same period in 1994. Hotel room revenues
improved despite a reduction in the number of available room nights. The eight
Original Hotels had an average occupancy rate of 71.9% for the year ended
December 31, 1995, a 0.5 percentage point increase from 71.4% for the same
period in 1994, and an increase in the average daily room rate to $75.15 for the
year ended December 31, 1995, from $68.01 for the same period in the prior year,
a 10.5% increase. The Acquired Hotels had an average occupancy rate of 60.8%
during the year ended December 31, 1995, as compared to 58.5% for the same
period in 1994, while the average daily room rate improved to $56.34 from
$55.19. The occupancy and revenue gains were partially offset by the lower
occupancy at the Greenway Plaza hotel which underwent renovation from the date
of its acquisition by the Company in August 1994 through the date of completion
of its renovation in March 1995, resulting in a 56.0% occupancy rate for the
year ended December 31, 1995.
Pro forma food and beverage revenues improved by $2.8 million to $39.6
million for the year ended December 31, 1995, from $36.8 million for the year
ended December 31, 1994, due primarily to the higher occupancy levels in the
Company's hotels and increased focus on banquet and catering revenues for the
Acquired Hotels. Other operating revenues increased 38.5%, or by $4.0 million,
to $14.4 million for the year ended December 31, 1995, due primarily to improved
occupancy, a $.9 million increase in management fees earned, higher telephone
department revenues and increases in miscellaneous income. Management fees
increased due to the addition in November 1994 of a management contract for the
497-room Harvey Hotel--Downtown Dallas but were partially offset by the
discontinuation in October 1994 of the Company's management of a 265-room hotel
in Amarillo, Texas.
Pro forma gross operating income (consisting of total revenues less rooms,
food, beverage and departmental expenses) was $111.1 million, a $7.4 million
improvement for the year ended December 31, 1995, as compared to the year ended
December 31, 1994. Overall operating margins for the year ended December 31,
1995, were 61.2% as compared to 61.4% for the same period in 1994. Pro forma
rooms department operating margins increased to 71.6% from 71.2%, benefiting
from higher number of occupied rooms but offset primarily from the number of
unavailable rooms undergoing renovation. Food and beverage department margins
decreased to 24.8% from 26.0%. The other operating departments' margins declined
to 68.5% from 72.2%, primarily as a result of the mix of revenue items, but the
total other operating departments' profits increased by $2.3 million.
Pro forma operating income increased to $30.7 million for the year ended
December 31, 1995, from $28.9 million for the year ended December 31, 1994. This
$1.8 million, or 6.2%, increase was due primarily to improvements in gross
operating income and lower hotel operating costs offset by increases in hotel
administrative and general marketing costs ($3.8 million), and corporate
expenses ($0.7
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million). The increases in the administrative and general, marketing and
corporate expenses reflect the restaffing and increased direct sales efforts at
the Acquired Hotels.
Pro forma interest expense increased by $1.4 million to $16.1 million in the
year ended December 31, 1995, compared to the year ended December 31, 1994. This
increase was due primarily to increased borrowings during 1995.
As a result of the factors described above, pro forma net income decreased
to $9.3 million for the year ended December 31, 1995, from $9.5 million for the
year ended December 31, 1994, a decrease of 2.1%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has two principal sources of capital to fund its operational and
capital needs: cash flow from operations, which it typically measures in terms
of EBITDA (Earnings before interest, taxes, depreciation and amortization), and
the Senior Term Facility. EBITDA is considered to be principally used to pay
income taxes, fund routine capital maintenance and to pay debt service, both
interest and principal. Management believes that EBITDA is an effective measure
of operating performance because it is industry practice to evaluate hotel
properties. EBITDA is unaffected by the debt and equity structure of the
property owner. EBITDA does not represent cash flow from operations as defined
by GAAP, and is not necessarily indicative of cash available to fund all cash
flow needs and should not be considered as an alternative to net income for
purposes of evaluating the Company's operating performance.
Current payments of income taxes will be tied to the Company's profitability
and the impact of timing differences with overall tax rates approximating 37%.
As of December 31, 1995, the Company also has available $21 million in net
operating loss ("NOL") carryforwards which can be used to offset taxable income
generated from certain sources.
Under various credit agreements the Company is required to spend, or place
into escrow accounts, three to four percent of hotel revenues to be used for the
routine maintenance and replacement of the hotel's furniture, fixtures and
equipment. As many of the Company's hotels have recently been, or are in the
process of major refurbishment programs, this level of ongoing spending should
be adequate to maintain the competitive position of the hotel.
Interest on the Company's debt is principally charged at fixed rates with
payment varying from monthly to semi-annually. Required principal amortization
on the Company's debts is limited to $6.6 million for 1996 and $15.1 million for
1997. EBITDA totaled $14.3 million for the quarter ended March 31, 1996 compared
to $8.5 million for the two months ended March 31, 1995. EBITDA was also $0.9
million (6.5%) over the pro forma first quarter 1995 amount primarily due to
improved property operating performance. EBITDA for the year ended December 31,
1996 is expected to grow from 1995 pro forma levels of $45.1 million due both to
continuing improvements in the Original Hotels and growth from Acquired Hotels
as they benefit from (i) better management and rebranding, (ii) the effects of
the 1995 redevelopment programs and (iii) the completion of the redevelopment
program during 1996. The Company anticipates EBITDA over the near term to be
more than adequate to fully fund the costs of routine hotel maintenance
requirements, income taxes and all debt service while providing additional funds
to partially fund the ongoing redevelopment of the Acquired Hotels. Cash
provided from operating activities was $13.9 million for the quarter ended March
31, 1996, as a result of net income before depreciation and amortization and the
receipt of approximately $5.0 million in advance deposits received during the
quarter. The advanced deposits resulted primarily from reservations for
Olympics-related business scheduled for the second and third quarters of 1996 in
our various Atlanta hotels. This cash was combined with cash available at the
start of the year and borrowings under the Senior Term Facility to fund over $27
million in renovation costs for properties in the second and third phases of the
Company's redevelopment program. Cash provided from operating activities for the
quarter ended March 31, 1996 exceeded the amount for the pro forma quarter ended
March 31, 1995 due to the advance deposits and the fact that the quarter ended
March 31, 1996 contained one
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additional month of operating activities. The increase in negative working
capital as of March 31, 1996 as compared to December 31, 1995 is due primarily
to timing differences between the payment of renovation costs and borrowings
under the Senior Term Facility. On a pro forma basis, cash provided by operating
activities for the year ended December 31, 1995 was $24 million resulting
primarily from operating income and increases in accounts payable and accrued
taxes offset by decreases in other accrued expenses and increases in restricted
cash and other assets. Net cash used for investing activities in 1995 on a pro
forma basis approximated $73 million and consisted principally of the costs of
the redevelopment program.
The Company expects to expend approximately $72 million during 1996 to
complete the planned redevelopment and renovation of 13 Acquired Hotels. The
Term Credit Agreement, $10,000,000 of which had been drawn as of March 31, 1996,
provides $60 million to fund the cost of these programs. Together with cash on
hand at the beginning of the year and the excess EBITDA provided as discussed
above, the Company believes it has adequate funds available to meet the costs of
the renovations.
The Company plans to pursue acquisitions of hotel properties which are
suitable for implementing the Company's growth and operating strategy. The
Company also has the ability to borrow up to $60 million under the Senior Term
Facility for the purpose of acquiring full or partial ownership interests in
hotels and related refurbishments. The availability of the full $60 million for
acquisitions is dependent on the attainment of certain EBITDA targets which the
Company expects to exceed during the year. Additional funds for acquisitions are
expected to be provided from excess cash flow from operations after meeting
operational and capital needs. On May 31, 1996, the Company acquired a 159-room
hotel in Dallas (Plano), Texas which was funded by a borrowing under the Senior
Term Facility. In addition, the Company may dispose of certain properties if
they are determined to be no longer suitable for the Company's portfolio. In all
cases, such sales could provide additional funds which could be used to reduce
indebtedness or to fund acquisitions.
SEASONALITY
The lodging industry is affected by normally recurring seasonal patterns. At
most of the Company's hotels, demand is higher in the third quarter than during
the remainder of the year. While the Company's redevelopment program is ongoing,
guest rooms representing approximately 15%, 10%, 3% and 1% of total owned rooms,
will be out of service for the first through fourth quarters of 1996,
respectively. These disruptions are expected to impact revenues and
profitability during each quarter.
ENVIRONMENTAL MATTERS
All of the hotels owned by the Company have undergone Phase I environmental
assessments (which generally provide a physical inspection and data base search
but not soil or groundwater analyses) within the last 18 months. In addition,
most of the Company's hotels have been inspected to determine the presence of
asbestos. While asbestos-containing materials ("ACMs") are present in certain of
the Company's properties, operations and maintenance programs for maintaining
such ACMs have been, or are in the process of being, designed and implemented,
or the ACMs have been scheduled to be or have been abated, at such hotels.
Management has estimated a range of remediation costs of between $0.4 million
and $1.5 million which could occur over a period of several years, and the
Company has reserved $0.8 million for amounts related to environmental
liabilities associated primarily with asbestos remediation. The Company does not
anticipate that recurring costs associated with managing ACMs will have a
material impact on the Company's results of operations or financial condition.
IMPACT OF INFLATION
The Company is impacted by inflation in both the general price movement of
certain costs of the operations of its hotels and in the ability to increase the
rates charged to its guests for rooms, food and beverage and other services.
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Many of the costs of operating the hotels can be fixed for certain periods
of time reducing the short-term effects of changes in the rate of inflation.
Room rates, which are set on a daily basis, can be rapidly changed to meet
changes in inflation rates (as well as other changing market conditions). The
Company believes that given the favorable demand/supply balance in the hotel
segments in which it operates, increases in inflation from today's relatively
low rates would not have an adverse impact on profits generated by the Company's
hotels.
Changes in the rate of inflation could also impact the level of short-term
interest rates. Of the $170.5 million of long-term debt at December 31, 1995,
approximately $16 million carries interest at floating rates based on various
short-term indices. The Company does not anticipate a significant increase or
decrease in the level of short-term interest rates, and, based on the limited
amount of floating rate debt currently outstanding, the Company does not believe
that it has any significant exposure should a rise in market interest rates
occur.
ACQUISITIONS AND DISPOSITIONS
Since January 1, 1994, the Company and its predecessors, Harvey Hotel
Companies and United Inns, have acquired and disposed of a number of hotels, as
set forth below:
<TABLE>
<CAPTION>
HARVEY
HOTEL UNITED HOTELS THE
COMPANIES INNS MANAGED COMPANY
--------- ------ ------- -------
<S> <C> <C> <C> <C>
Hotels at January 1, 1994....................... 7 28 2 37
Leases/contracts terminated..................... -- (2) (1) (3)
Hotels acquired................................. 1 -- 1 2
Hotels sold..................................... -- (1) -- (1)
--- ------ ------- -------
Hotels at December 31, 1994..................... 8 25 2 35
Hotels reconfigured............................. -- 2 -- 2
Hotels acquired................................. 2 -- 2
Hotels sold..................................... -- (1) -- (1)
--- ------ ------- -------
Hotels at December 31, 1995..................... 10 26 2 38
--- ------ ------- -------
Hotels reconfigured............................. -- -- -- --
Hotels acquired................................. -- -- -- --
Hotels sold..................................... -- -- -- --
Hotels at March 31, 1996........................ 10 26 2 38
--- ------ ------- -------
--- ------ ------- -------
</TABLE>
On May 31, 1996, the Company acquired a 159-room hotel in Dallas (Plano),
Texas which was funded by a borrowing under the Senior Term Facility.
The Company will continue to follow a strategy of acquiring hotel properties
which are suitable for implementing the Company's operating strategy and
disposing of such properties that are not suitable for the Company's portfolio.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Harvey Hotel Companies
The following discussion relates to the combined accounts of Harvey Hotel
Company, Harvey Hotel Management Corporation, Harvey Hotel Corporation, Harvey
BHP, Inc., Parkway Hotel Management Co., Inc., Endlease, Inc. and PHM Co. of
Kansas, Inc. (collectively referred to as "Harvey Hotel Companies"). Revenues
were $70.4 million, an increase for the year ended December 31, 1994 of
approximately $6.4 million, or 10.0%, as compared to revenues in the prior year
of $64.0 million. Hotel rooms revenue of $45.0 million increased by $5.0
million, or 12.5%, primarily due to an increase in average daily room rates of
8.3%, or $5.29 for the year ended December 31, 1994, as compared to the average
daily room rate for 1993. This was partially offset by a decrease in average
occupancy from 75.8% in 1993 to 75.3% in 1994. The average rate gains are due to
improvements in overall customer demand for hotel rooms and the Company's
continuing sales and marketing efforts. The increase in revenues is also related
to the addition of Greenway Plaza in August 1994; however the hotel being under
renovation led to the slight decrease in overall occupancy. Occupancy for the
Original Hotels other than Greenway Plaza increased to 78.2% in 1994 from 75.8%
in 1993. Food and beverage revenues also improved by $0.8 million from the prior
year to $20.3 million for the year ended December 31, 1994, primarily due to
higher banquet revenues. Other operating revenues increased by $0.6 million to
$5.1 million for the year ended December 31, 1994, primarily due to increases in
management fees resulting from greater revenue gains at the managed properties
and the addition of a large hotel management contract at the end of 1994.
Direct departmental expenses for the year ended December 31, 1994 increased
by $1.1 million, or 4.6%, to $25.2 million from $24.1 million. The increases
were due primarily to the addition of Greenway Plaza and normal increases in the
cost of food purchases.
Overall gross operating margins increased to 33.03% from 30.59% for the
prior year, an improvement of 2.4 percentage points. The rooms gross operating
margins improved to 77.0% from 76.3%, due principally to operating volume
efficiencies. The food and beverage departmental margins improved to 32.3% from
30.4%, also primarily due to operating volume efficiencies.
Operating income increased to $15.4 million from $12.8 million in the year
ended December 31, 1993. This $2.7 million, or 16.1%, increase was due to the
higher hotel rates, the addition of Greenway Plaza and improvements in the hotel
departmental margins, but was offset by increases in general and administrative
costs ($2.2 million) and normal increases in property operating and occupancy
costs, including taxes, rent and insurance ($0.4 million). The increase in the
administrative and general costs was primarily due to costs associated with the
sale of the partnership interests in connection with the January Acquisitions.
Interest expense decreased by $0.1 million to $7.6 million in the year ended
December 31, 1994 from $7.7 million in the year ended December 31, 1993.
Net income was $10.1 million for the year ended December 31, 1994 as
compared to net income for 1993 of $5.3 million, an increase of $4.8 million.
This increase was due to the combination of factors mentioned above and a $2.0
million extraordinary gain on the settlement of a debt agreement.
United Inns
Revenues were $93.4 million, an increase for the year ended December 31,
1994 of approximately $1.5 million, as compared to the prior year. The year to
year comparison, however, includes hotels which had been disposed of or which
had expiring leases during the periods, as well as disposed car wash
39
<PAGE>
operations. These operations accounted for a decrease in rooms revenues of $3.3
million during the period while continuing operating hotel rooms revenue
increased by $5.4 million to $68.4 million, an increase of 8.6%, which was due
to improved occupancy and average daily room rates resulting from favorable
market conditions for hotel operations in 1994 as compared to 1993 as increased
demand outpaces incremental supply.
Operating costs and expenses, which include direct departmental expenses,
marketing, administrative and general costs and depreciation, were $83.6 million
for both years. The reduction in expenses for the disposed operations was
partially offset by increased costs due to the higher occupancies for the
continuing operating hotels. Marketing, administrative and general costs
increased $2.1 million primarily due to expenses associated with the planned
relocation of United Inns' corporate offices and legal and other expenses
associated with the planned sale of United Inns' stock.
Net operating income increased to $9.8 million from $8.4 million in the year
ended December 31, 1993. This $1.4 million, or 16.7%, increase was primarily due
to the improvements in the continuing operating hotels profits and the
disposition of unprofitable operations.
Gain (loss) on disposition of assets for 1994 was a loss of $6.3 million as
compared to a gain of $1.3 million for the year ended December 31, 1993. An
operating hotel in Houston, Texas was sold at a loss of $6.6 million and the
sales of three non-operating assets netted a gain on sale of $0.3 million in
1994. The 1993 gain on disposition of assets was the result of the sale of one
of United Inns' hotels.
A net loss of $9.8 million was reported for the year ended December 31,
1994, as compared to a net loss for 1993 of $0.2 million. This increased loss
was primarily attributable to the $6.3 million loss recorded on the disposition
of assets for 1994, as compared to the $1.3 million disposition gain in 1993 and
a loss contingency recorded in 1994 of $7.0 million for impairments to the
valuation of one of United Inns' properties and an accrual for environmental
costs associated with United Inns' car wash and other operations. These were
partially offset by income tax credits for these losses and improvements in the
operations of United Inns' continuing operating hotels.
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BUSINESS AND PROPERTIES
The Company is a leading owner/operator of hotels in the southern United
States, with 38 hotels (36 of which are owned by the Company) containing a total
of 10,020 rooms. The Company's properties are primarily full-service hotels that
operate in the upscale and mid-priced segments of the lodging industry under the
Company's own brand names, including Bristol SuitesTM, Harvey HotelTM and Harvey
SuitesTM, and under franchise agreements with national hotel chains, including
Holiday InnTM, Hampton InnTM and MarriottTM. The Company's hotels are located in
seven states, with 28 hotels strategically concentrated in the rapidly growing
Dallas, Houston and Atlanta markets. Over the last 15 years, the Company's
senior management achieved a superior record of operating hotels for Harvey
Hotel Company in the Dallas and Houston markets. The Company expects to generate
substantial growth in the near future primarily by redeveloping and applying
proven operating strategies to a substantial number of hotels acquired by the
Company earlier this year and also from continued improvements in the
performance of its existing hotels.
The Company was formed for the purpose of acquiring Harvey Hotel Company and
United Inns in January 1995. Following these acquisitions, the senior management
team of Harvey Hotel Company assumed management of the Company. Harvey Hotel
Company commenced operations in 1980 and became a leading owner/operator of
full-service hotels in the Dallas and Houston markets, with ten hotels
containing approximately 3,350 rooms (eight of which are owned hotels,
collectively, the "Original Hotels", and two of which are managed hotels). The
Company has had nearly 15 years of leadership from the same senior management
team, whose innovative strategies have enabled the Original Hotels regularly to
outperform their local competition and to record strong operating results in
comparison to both local and national industry averages. For the four-year
period ended December 31, 1994, seven of the eight Original Hotels owned by the
Company for the full period achieved an average annual occupancy rate of 72.8%,
compared to 65.7% for the other full-service hotels in the Dallas and Houston
markets for such period, and average annual gross operating profits per room of
$10,010 and an average annual gross operating margin of 36.4%, compared to the
national averages of $7,725 and 27.3% for full-service hotels for such period.
Management attributes the superior performance of the Original Hotels to an
operating strategy focused on controlling all aspects of its hotel operations,
concentrating assets within select geographic markets, utilizing aggressive
direct, local sales and marketing techniques and maintaining a distinct
management culture. As a result of substantial management equity ownership, the
Company has a strong entrepreneurial orientation that emphasizes talent,
innovation and teamwork throughout the organization. Senior management
beneficially owns 13.3% of the Common Stock, excluding options granted by the
Company.
THE LODGING INDUSTRY
The lodging industry has shown significant improvement in profitability
during recent years. With consistent demand growth and limited new supply,
industry-wide economic conditions have recovered from the severe supply and
demand disparity that characterized the industry throughout the late 1980's and
early 1990's. Since 1992, room demand has increased at an average annual rate of
approximately 3.6%, nearly three times the average annual increase in supply of
new rooms of 1.3% over the same period of time. This excess of demand growth
over supply growth raised industry-wide occupancy to 65.5% in 1995, up from
60.9% in 1991, and has given the lodging industry an increasing ability to raise
room rates. The annual growth in average daily rates ("ADR") accelerated from
1.4% in 1992 to 4.8% in 1995.
Although demand for hotel rooms historically has been dependent on the
overall health of the national economy, room demand has increased every year in
the last ten years. Unique circumstances in the early 1980's, such as changes in
the regulation of banks and savings and loan institutions and certain tax
incentives, resulted in building that was not necessarily motivated by the
ultimate financial success of the underlying assets, and favorable projections
for industry and national economic expansion led to
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<PAGE>
vast overbuilding of hotels. From 1980 to 1991, total room supply (as measured
by average daily rooms available for the year) in the United States increased by
approximately 750,000 rooms, or 32%, while room demand increased by only
approximately 14%.
Between 1991 and 1995, the addition of new rooms was limited to 1.7% per
annum and occurred predominantly in the gaming and, more recently, in the
limited-service segments of the lodging industry. Twenty-six of the Company's 38
hotels, representing over 88% of the Company's pro forma revenue during 1995,
operate in the full-service segment, which generally consists of the midscale,
upscale and luxury price points and comprises approximately 65% of the lodging
industry's 3.2 million total rooms. The Company believes that the lodging
industry's ability to raise room rates is likely to be strongest and most
sustainable in the full-service segment due to lower consumer price sensitivity
in this segment as a result of customer emphasis on service and an expected
absence of significant additions to the full-service hotel room base over the
next few years. No significant increase in the full-service segment's room base
is projected because (i) the cost of constructing hotels in this segment is
substantially higher than in other industry segments, (ii) financing available
for full-service hotel construction projects is generally higher in cost and
more limited in nature, (iii) construction of full-service hotels involves
longer lead times and (iv) construction costs for new hotels, in most cases,
cannot be justified by economic returns under current market conditions. In
addition, the Company believes that, as compared to limited-service hotels,
full-service hotels have a higher fixed cost base and therefore may experience
greater improvements in operating margins as revenues increase and that superior
management represents more of a competitive advantage in the operation of
full-service hotels. The Company believes that it is well-positioned within the
improving lodging industry and particularly within the full-service segment to
implement successfully its operating and growth strategies.
OPERATING STRATEGY
The Company believes that it has developed a successful operating strategy
which has enabled it to achieve strong operating and financial results during
periods of industry weakness, as was experienced from the late 1980's through
the early 1990's, and in times of industry strength, such as the industry
recovery currently being experienced. The Company's operating strategy is
focused on improving the performance of the Acquired Hotels as well as
maintaining and improving the performance of the Original Hotels. The key
elements of the Company's operating strategy are summarized below:
Maintaining a Unique Management Culture. The Company has a unique corporate
culture and management style which has evolved out of nearly 15 years of
leadership from the same group of senior executives. Since its inception, senior
management has had substantial equity stakes in the Company, which has resulted
in an entrepreneurial and team-oriented environment throughout the organization.
Senior management beneficially owns approximately 13.3% of the Company's
outstanding Common Stock. Unlike many hotel companies in the 1980's and 1990's,
the Company's management has consistently taken an owner's approach to the hotel
business, rather than that of a fee manager, which has no responsibility for
debt service and return on investment. The depth and tenure of the Company's
management has enabled it to maintain a results-driven management team that is
encouraged to adopt innovative strategies and solutions in the operation of the
Company's business.
Control over Hotel Operations. As the exclusive operator of each of its
hotels, the Company believes that it is able to manage its hotels more
effectively than many of its competitors, with regional and centralized support
services that allow it to control costs, allocate resources efficiently and
maintain consistently high product quality and service. As the owner/operator of
all but two of its hotels, the Company also has the ability optimally to
position its hotels within their local markets by offering new services, setting
prices and making other marketing and strategic decisions on a portfolio-wide or
local basis as conditions dictate, without the need to consult third-party
owners or managers.
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Concentration of Assets in Select Geographic Markets. The operation of
several hotels within a single market results in significant management and
operational efficiencies and strategic flexibility. Twenty-eight of the
Company's hotels are concentrated in Dallas, Houston and Atlanta, which are
among the fastest growing markets in the country. The Company believes that
these markets have strong economic prospects and that the Company will continue
to focus its expansion activities in these markets. The Company also expects to
expand into other growing geographic markets in which ownership concentrations
can be achieved.
Direct Sales and Marketing. The Company believes that reservation decisions
are often made by persons in the local market, particularly with respect to
business travelers and groups. Accordingly, the Company's marketing strategy is
focused on generating business at the local level by targeting local businesses,
groups, associations and individuals with sales teams from each hotel. The
Company relies less on national promotional activities and advertising than many
of its competitors and, as a result, is able to allocate more resources to its
direct sales and marketing efforts, which the Company believes have a greater
impact on its operating results.
Flexible Use of Brand Names. By retaining operating control over its hotels,
the Company has the flexibility to operate its hotels under its own brand names
or under national franchises. Based upon management's assessment of local market
conditions and the unique characteristics of the individual hotel, the Company
will use the brand name or franchise that it believes will maximize the
long-term value and profitability of each of its hotels.
Emphasis on Food and Beverage Services. The Company emphasizes its
restaurant and catering services in order to strengthen its group and convention
business and to attract local clientele to establish each hotel's reputation and
name recognition in the community. Unlike many of its competitors, the Company's
food and beverage operations are expected to contribute to the profitability of
each hotel. For the five-year period ended December 31, 1994, food and beverage
profits constituted 27.6% of the average annual food and beverage revenues of
the seven Original Hotels owned by the Company for the full period compared to
the national average for full-service hotels of 16.2% over the same period.
GROWTH STRATEGY
The Company believes that it has excellent potential for growth through the
implementation of the Redevelopment Program and the application of its operating
strategy to the Acquired Hotels, further enhancements to the operating
performance of the Original Hotels and future acquisitions of additional hotels.
Redevelopment Program and Integration of Acquired Hotels. Immediately
following the January Acquisitions, the Company initiated the Redevelopment
Program, which entails exterior and interior reconstruction of and renovations
to 20 of the Acquired Hotels, the strategic repositioning of the redeveloped
hotels within their local markets and restaffing of those hotels with the
Company's managers. The Company believes that a significant opportunity exists
to enhance the value of the Acquired Hotels through redevelopment, recognizing
that many of the hotels could benefit from improved management and are in need
of substantial capital improvements and, in some cases, almost complete
refurbishment. As of December 31, 1995, reconstruction and renovation had been
substantially completed at seven hotels for an estimated $43 million. The
Company expects that redevelopment of an additional five hotels will be
completed by June 30, 1996 for an additional estimated $42 million and that the
remaining eight hotels in the Redevelopment Program will be completed by the end
of 1996 for an additional estimated $34 million, resulting in an aggregate
program budget of $119 million, or approximately $22,250 per room. Upon
completion, the Redevelopment Program will include extensive interior and
exterior renovations, enabling the 20 redeveloped hotels to effectively compete
as newly constructed properties in strong markets. In addition, the Company
expects to complete $3.2 million of other refurbishments to eight other Acquired
Hotels.
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The Redevelopment Program has been designed to maximize the economic
potential of each asset, and it involves four basic strategies, which are
summarized below:
Harvey Hotels. Five hotels, with 1,605 rooms, were selected for
repositioning as upscale, full-service Harvey Hotels. Each of these hotels is
located in a strong corporate market and has extensive meeting space to attract
local functions. The renovation scope of work includes extensive exterior work
(including a completely new exterior on one hotel) and the total reconstruction
of interior spaces. Upon completion, all of the newly converted Harvey Hotels
will be effectively new hotels comparable to Marriott or Hyatt hotels. A total
of $34.3 million ($21,500 per room) will be spent to redevelop these hotels.
Marriott Hotels. Five hotels, with 1,351 rooms, have been selected for
redevelopment as seven Marriott-affiliated hotels. In general, these hotels have
outstanding locations, but limited meeting space, and a portion of the guest
rooms have exterior corridors. Following an investment of $37.2 million ($27,600
per room) and approval by Marriott International, Inc. of franchise agreements,
the seven hotels will include five Fairfield Inns with refurbished exteriors and
standard Fairfield Inn furniture packages and two Courtyards by Marriott with
completely new building exteriors, interior corridors and either newly
constructed or completely reconfigured public space and standard Courtyard
furniture packages.
Holiday Inn Hotels. Seven Holiday Inn hotels, with 2,107 rooms, will undergo
extensive renovations to bring the hotels into full compliance with Holiday Inn
Worldwide's Core Modernization Program. In most cases, these hotels are located
in markets which rely heavily on individual transient travelers to fill rooms.
They generally have scored poorly in franchise inspections and require extensive
renovations in order to be effective competitors in the local markets. A total
of $39.7 million ($18,900 per room) will be spent to redevelop these hotels,
making them among the highest quality Holiday Inn hotels in the country.
Hampton Inn Hotel. One 311-room hotel will be redeveloped into one of the
largest Hampton Inn hotels in the United States. This former Holiday Inn,
located in downtown Dallas, is uniquely situated to benefit from the city's
central corporate market, the city-wide convention market and the Dallas
downtown tourist market. The planned $6.4 million ($20,800 per room) renovation
will encompass extensive modifications to the street level building facade and
the total renovation of all guestrooms to create, in effect, a brand new Hampton
Inn.
Information Regarding Redevelopment Program. The table on the following page
sets forth certain information with respect to the Redevelopment Program.
44
<PAGE>
REDEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
SCOPE OF REDEVELOPMENT WORK
------------------------------------------------------------------------------
ROOMS RENOVATION
REPLACE/ ---------------------------------------- NEW
COMPLETION REFINISH SOFT NEW REPLACE GUEST BATH RESTAURANT RESTAURANT
LOCATION ROOMS DATE EXTERIOR GOODS FURNITURE HVAC RENOVATION CONCEPT LOBBY
----- ---------- --------- ----- --------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HARVEY HOTEL CONVERSIONS
Atlanta Airport............... 377 May 1996 X X X
Atlanta Powers Ferry.......... 296 Aug. 1995 X X X X X X
Dallas Brookhollow............ 354 Nov. 1995 X X X X X
Jackson Downtown.............. 354 July 1995 X X X X X X X
Jackson North................. 224 Aug. 1995 X X X X X X X
-----
Subtotal..................... 1,605
-----
MARRIOTT CONVERSIONS
Atlanta Downtown
Courtyard.................... 211 May 1996 X X X X X X X
Fairfield Inn................ 242 May 1996 X X X X X X
Dallas Fairfield Inn.......... 204 June 1996 X X X X X X
Houston East Fairfield Inn.... 160 Sept. 1996 X X X X X X
Houston Galleria
Courtyard.................... 209 Oct. 1995 X X X X X X X
Fairfield Inn................ 107 Sept. 1995 X X X X X X
Scottsdale Fairfield Inn...... 218 Sept. 1996 X X X X X X
-----
Subtotal................... 1,351
-----
HOLIDAY INN CORE MODERNIZATIONS
Atlanta Airport North......... 493 May 1996 X X X X X X X
Atlanta Perimeter............. 250 Sept. 1995 X X X X X
Colorado Springs North........ 220 Dec. 1996 X X X X X X
Houston Intercontinental...... 401 June 1996 X X X X X X
Houston Medical Center........ 297 June 1996 X X X
Jackson Southwest............. 289 June 1996 X X X X X X
Santa Barbara................. 160 June 1996 X X X X X X
-----
Subtotal................... 2,110
-----
HAMPTON INN CONVERSION
Dallas Downtown............... 311 Aug. 1996 X X X X X X
-----
REDEVELOPMENT TOTALS....... 5,377
-----
-----
<CAPTION>
ADD/UPGRADE
MEETING
LOCATION SPACE
-----------
<S> <C>
HARVEY HOTEL CONVERSIONS
Atlanta Airport............... X
Atlanta Powers Ferry.......... X
Dallas Brookhollow............ X
Jackson Downtown.............. X
Jackson North................. X
Subtotal.....................
MARRIOTT CONVERSIONS
Atlanta Downtown
Courtyard.................... X
Fairfield Inn................
Dallas Fairfield Inn..........
Houston East Fairfield Inn....
Houston Galleria
Courtyard.................... X
Fairfield Inn................
Scottsdale Fairfield Inn......
Subtotal...................
HOLIDAY INN CORE MODERNIZATION
Atlanta Airport North......... X
Atlanta Perimeter............. X
Colorado Springs North........ X
Houston Intercontinental...... X
Houston Medical Center........ X
Jackson Southwest............. X
Santa Barbara................. X
Subtotal...................
HAMPTON INN CONVERSION
Dallas Downtown............... X
REDEVELOPMENT TOTALS.......
</TABLE>
45
<PAGE>
Enhanced Operating Performance of Original Hotels. In addition to the
implementation of the Redevelopment Program, the Company expects to achieve
growth from continued improvement in the operating performance of the Original
Hotels. Under the Company's existing management, the Original Hotels have
achieved strong operating and financial results over a wide range of industry
conditions. The following chart demonstrates the strong performance that has
been achieved by seven of the eight Original Hotels owned by the Company for the
years shown:
<TABLE>
<CAPTION>
FOUR YEAR
1991 1992 1993 1994 AVERAGE 1995
------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
OCCUPANCY:
The Company................................. 63.9% 73.3% 75.8% 78.2% 72.8% 76.6%
Dallas/Houston Industry Average............. 63.9% 64.9% 66.0% 68.1% 65.7% N/A
TOTAL HOTEL REVENUE PER AVAILABLE ROOM:
The Company................................. $24,674 $26,593 $27,851 $30,330 $27,362 $32,316
Dallas/Houston Industry Average............. $22,052 $22,763 $27,843 $30,113 $25,693 N/A
FOOD AND BEVERAGE PROFIT MARGIN:
The Company................................. 27.6% 28.4% 30.5% 32.5% 29.8% 32.4%
National Industry Average................... 18.7% 16.2% 15.8% 17.8% 17.1% N/A
GROSS OPERATING PROFIT PER AVAILABLE ROOM:
The Company................................. $ 8,206 $ 9,629 $10,119 $12,084 $10,010 $14,460
National Industry Average................... $ 6,285 $ 7,187 $ 7,890 $ 9,537 $ 7,725 N/A
GROSS OPERATING PROFIT MARGIN:
The Company................................. 33.3% 36.2% 36.3% 39.8% 36.4% 44.7%
National Industry Average................... 24.4% 26.5% 27.4% 30.8% 27.3% N/A
</TABLE>
The Company believes that the Original Hotels are well-positioned to benefit
from the favorable conditions currently prevailing in the lodging industry and
to contribute to the Company's future growth.
Future Acquisitions. The Company also expects to achieve growth through the
acquisition of hotels with attractive economic prospects and which are suitable
for implementing the Company's operating strategy. In particular, the Company
will look to acquire full-service hotels capable of offering a full range of
meeting and conference facilities and which are located in the Company's
existing geographic markets or in new markets which could support multiple
Company-owned hotels.
The Company believes that the full-service segment is the most attractive
segment in which to own, operate and acquire hotels due to lower customer price
sensitivity in that segment and an expectation by industry experts that no
significant additions to the full-service room base will occur over the next few
years. In addition, the Company believes that, as compared to limited-service
hotels, full-service hotels have a higher fixed cost base and therefore may
experience greater improvements in operating margins as revenues increase and
that superior management represents more of a competitive advantage in the
operation of full-service hotels. The Company believes that a number of
acquisition opportunities exist in the full-service segment for hotels which
have been overleveraged or otherwise present the opportunity for significant
performance turnaround and are available at attractive initial yields or a
significant discount to replacement cost. The Company believes that a number of
opportunities will arise over the next few years for the acquisition of such
hotels as a result of the aging of a significant portion of the nation's hotel
supply and the recent imposition of capital expenditure and other modernization
requirements by certain national hotel franchisors on the owners of the
franchised hotels, many of which are small independent hotel companies or
private hotel owners which may be unwilling or unable to satisfy such
requirements.
THE COMPANY'S HOTELS
The table on the following page sets forth certain information with respect
to each of the Company's hotels.
46
<PAGE>
THE COMPANY'S HOTELS
<TABLE>
<CAPTION>
METROPOLITAN # OF YEAR OPENED/
HOTEL AREA ROOMS RENOVATED
- ------------------------------------------------ --------------------- ------ ------------
<S> <C> <C> <C>
FULL SERVICE:
ORIGINAL HOTELS
- ------------------------------------------------
Owned
Bristol Suites (1).............................. Dallas, TX 295 1988
Harvey Hotel - Addison.......................... Dallas, TX 429 1985
Harvey Hotel - Dallas (1)....................... Dallas, TX 313 1981/1995
Harvey Hotel - DFW Airport (1).................. Dallas, TX 506 1987
Harvey Hotel - Plano............................ Dallas, TX 279 1983/1993
Harvey Suites - DFW Airport..................... Dallas, TX 164 1989
Harvey Suites - Medical Center (1).............. Houston, TX 282 1984/1990
Holiday Inn - Greenway Plaza (3)................ Houston, TX 355 1984/1995
Managed
Harvey Hotel - Downtown (2)..................... Dallas, TX 502 1959/1995
Harvey Hotel - Wichita (4)...................... Wichita, KS 260 1974/1994
------
SUBTOTAL.................................... 3,385
------
<CAPTION>
ACQUIRED HOTELS
- ------------------------------------------------
<S> <C> <C> <C>
Courtyard by Marriott (5)....................... Atlanta, GA 211 1963/1995
Harvey Hotel - Atlanta Airport (1)(6)........... Atlanta, GA 377 1975/1996
Holiday Inn - Airport North (1)................. Atlanta, GA 493 1967/1996
Harvey Hotel - Powers Ferry..................... Atlanta, GA 296 1981/1995
Holiday Inn - Perimeter......................... Atlanta, GA 250 1985/1995
Holiday Inn - Jonesboro......................... Atlanta, GA 180 1973/1994
Holiday Inn - Colorado Springs.................. Colorado Springs, CO 220 1973/1996
Harvey Hotel - Brookhollow...................... Dallas, TX 354 1983/1995
Days Inn - Flagstaff............................ Flagstaff, AZ 157 1964
Courtyard by Marriott (7)....................... Houston, TX 209 1968/1995
Holiday Inn Intercontinental Airport............ Houston, TX 401 1971/1996
Holiday Inn - Medical Center.................... Houston, TX 297 1973/1996
Harvey Hotel - Downtown......................... Jackson, MS 354 1975/1995
Harvey Hotel - North............................ Jackson, MS 224 1957/1995
Holiday Inn - Southwest......................... Jackson, MS 289 1962/1996
Holiday Inn - Santa Barbara..................... Santa Barbara, CA 160 1969/1996
------
SUBTOTAL.................................... 4,472
------
LIMITED SERVICE:
<CAPTION>
ACQUIRED HOTELS
- ------------------------------------------------
<S> <C> <C> <C>
Fairfield Inn (5)............................... Atlanta, GA 242 1963/1995
Hampton Inn - Marietta.......................... Atlanta, GA 140 1986
Holiday Inn Express - I-20 East................. Atlanta, GA 167 1973/1991
Holiday Inn Express - Northeast................. Atlanta, GA 198 1966/1991
Holiday Inn Express - Colorado Springs.......... Colorado Springs, CO 207 1966/1991
Fairfield Inn - Regal Row (8)................... Dallas, TX 204 1969/1996
Hampton Inn - Downtown (9)...................... Dallas, TX 311 1969/1996
Fairfield Inn - I-10 East (8)................... Houston, TX 160 1969/1996
Hampton Inn - I-10 East......................... Houston, TX 90 1969/1991
Fairfield Inn (7)............................... Houston, TX 107 1968/1995
Hampton Inn - Briarwood (10).................... Jackson, MS 119 1985
Fairfield Inn (1)(11)........................... Scottsdale, AZ 218 1970/1996
------
SUBTOTAL.................................... 2,163
------
TOTAL....................................... 10,020
------
------
</TABLE>
(Footnotes on following page)
47
<PAGE>
(Footnotes for preceding page)
- ------------
(1) The parcel of land on which this hotel is located is subject to a ground
lease. The ground leases generally have remaining terms in excess of 30
years, except that one ground lease expires in nine years, but has a
20-year renewal option.
(2) The Company has operated this hotel since November 1994 pursuant to a
management agreement. See "--Management Agreements."
(3) This hotel was acquired by the Company in August 1994 and was under
substantial renovation from September 1994 through March 1995.
(4) The Company has operated this hotel since January 1992 pursuant to a
management agreement. See "--Management Agreements." The hotel was under
substantial renovation from April 1994 through September 1994.
(5) This hotel currently is operated as part of a 473-room Ramada Hotel. As
part of the Redevelopment Program, the Company plans to terminate the
franchise agreement with Ramada, Inc. and divide the hotel into two
separate properties. Marriott International, Inc. has advised the Company
that it has approved the Company's applications for franchise agreements
under which the Company would operate the separated hotels as a Courtyard
by Marriott and a Fairfield Inn. The division, renovation and rebranding
are expected to be completed by May 1996.
(6) This hotel was acquired on June 30, 1995 and was operated as a Sheraton
Hotel until February 14, 1996, at which time the hotel was rebranded as a
Harvey Hotel.
(7) This hotel previously was operated as part of a 317-room Holiday Inn. As
part of the Redevelopment Program, the Company terminated the franchise
agreement with Holiday Inns, Inc., divided the property into two separate
hotels and entered into franchise agreements with Marriott International,
Inc. under which the Company currently operates the separate hotels as a
Courtyard by Marriott and a Fairfield Inn.
(8) Application for a Fairfield Inn franchise is pending. Submission of an
application does not ensure that the franchise will be granted.
(9) The Company purchased this hotel in November 1995.
(10) The Company also owns 0.948 acres of surplus vacant land adjacent to this
hotel for future development.
(11) This hotel currently is operated under the Howard Johnson trade name and
will be renovated and converted following the 1995-96 winter season.
Application for a Fairfield Inn franchise is pending. Submission of an
application does not ensure that the franchise will be granted.
48
<PAGE>
GEOGRAPHIC CONCENTRATION
The geographic distribution of the Company's hotels reflects the Company's
strategy of concentrating its properties within selected markets in order to
achieve significant management and operational efficiencies and strategic
flexibility. See "Risk Factors--Geographic Concentration of the Company's
Hotels." The following table summarizes certain information with respect to the
geographic concentration of the Company's hotels and includes revenues of
managed properties (which revenues are not reflected in the financial statements
included elsewhere in this Prospectus):
<TABLE>
<CAPTION>
PRO FORMA PERCENT
REVENUES FOR THE OF PRO
NUMBER NUMBER YEAR ENDED FORMA CUMULATIVE
REGION OF HOTELS OF ROOMS DECEMBER 31, 1995 REVENUES TOTAL
- ------------------- --------- -------- ----------------- --------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Dallas............. 10 3,357 $ 85,279 44.4% 44.4%
Atlanta............ 10 2,554 45,315 23.6% 68.0%
Houston............ 8 1,901 28,366 14.8% 82.8%
Jackson............ 4 986 14,320 7.4% 90.2%
Western............ 6 1,222 18,920 9.8% 100.0%
--
-------- ----------------- ---------
Totals......... 38 10,020 $ 192,200 100.0%
--
--
-------- ----------------- ---------
-------- ----------------- ---------
</TABLE>
BRAND AFFILIATION
As a result of having operating control over its hotels, the Company has the
flexibility either to use its own brand names or to operate its hotels under
national franchises, based upon management's perception of the hotel's local
market conditions and the unique characteristics of the individual hotel. The
following chart summarizes certain information with respect to the brand
affiliations of the Company's hotels and includes revenues of managed properties
(which revenues are not reflected in the financial statements included elsewhere
in this Prospectus):
<TABLE>
<CAPTION>
PRO FORMA PERCENT
REVENUES FOR THE OF
NUMBER NUMBER YEAR ENDED PRO FORMA
BRAND (1) OF HOTELS OF ROOMS DECEMBER 31, 1995 REVENUES
- ------------------------------------ --------- --------- ----------------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
FULL-SERVICE:
Bristol Suites, Harvey Hotel
and Harvey Suites................. 14 4,635 $ 119,245 62.0%
Holiday Inn......................... 9 2,645 44,158 23.0%
Courtyard by Marriott............... 2 420 4,776 2.5%
Days Inn............................ 1 157 2,072 1.1%
--
--------- ----------------- ---------
Subtotals..................... 26 7,857 170,251 88.6%
LIMITED-SERVICE:
Fairfield Inn....................... 5 931 9,670 5.0%
Hampton Inn......................... 4 660 6,459 3.4%
Holiday Inn Express................. 3 572 5,820 3.0%
--
--------- ----------------- ---------
Subtotals..................... 12 2,163 21,949 11.4%
--
--------- ----------------- ---------
Totals...................... 38 10,020 $ 192,200 100.0%
--
--
--------- ----------------- ---------
--------- ----------------- ---------
</TABLE>
- ------------
(1) Reflects brand affiliations upon completion of the Redevelopment Program.
See "--The Company's Hotels."
Although the focus of the Company's operating and growth strategies is on
the operation and acquisition of full-service hotels, the Company believes that
the limited-service hotels acquired as a result of the January Acquisitions are
in attractive locations and have recorded strong operating results.
49
<PAGE>
SALES AND MARKETING
The Company attributes its operating success to a non-traditional approach
to hotel sales and marketing, which includes the following components:
Individual Selling Goals and Incentive Compensation. All sales personnel are
assigned specific individual sales goals, and their performance against these
goals is published Company-wide on a weekly basis. Sales personnel also
participate in an incentive compensation plan which awards cash bonuses based on
the achievement of individual goals, and special recognition programs, including
an annual incentive trip, reward sustained performance. This system is designed
to recognize high producers and to maintain a competitive environment that is
appealing to top sales people.
Segmented Sales Focus. The focus of the Company's sales force is segmented
between group and transient business. To attract group business, sales and
marketing efforts focus separately on base contractual business, corporate
meetings, conventions and local banquet and catering events. To attract
transient business, sales and marketing efforts focus separately on primarily
corporate demand periods (i.e., Monday through Thursday) and primarily
non-corporate demand periods (i.e., weekends and holidays).
In-house Marketing Support. The Company's sales and marketing effort is
supported by a full-service, in-house advertising agency, with a staff of 18
people. The agency provides quality promotional material and customized bid
proposals for the Company's sales force and support for special events. In
addition, sales managers have direct access to all corporate executives for the
development of selling strategies, assistance with sales calls and closing of
sales contracts.
Flexible Branding Strategy. The Company considers a hotel brand to be a
tool, not a substitute, for an overall marketing effort. In the future, the
Company intends to use both its own brand names, as well as national trade names
pursuant to licensing agreements with national franchisors, in its efforts to
maximize the results of each hotel in its portfolio and to execute its strategy
of geographic concentration. The brand used by each of the Company's hotels is
based on the particular hotel's local market environment and the hotel's unique
characteristics, such as its scope of meeting facilities.
MANAGEMENT
The Company has a distinct corporate culture and management style, which has
evolved out of nearly 15 years of continued leadership by the same group of
senior executives. The Company's management seeks to maintain a unique blend of
centralized control over strategic issues while encouraging decentralized
decision-making with respect to operational issues. Management believes that it
is impossible to manage the guest experience from the home office and that only
on-site personnel can manage the operational details which determine the quality
of a guest's hotel stay.
The Company has maintained a longstanding commitment to the internal
development of management talent. Since 1984, the Company has conducted an
aggressive campus recruiting program at Cornell University's School of Hotel
Administration, becoming one of the most successful recruiters of Cornell
graduates. The Company's recruiting program has been expanded over the years to
include six universities with four-year hotel management programs, and the
Company successfully recruited 45 graduates from the June 1995 class. New campus
recruits start their careers with a four-week intensive orientation in Dallas
and are then assigned to permanent placements in the Company's hotels. The
Company also offers formal classroom training programs for all general managers
and sales personnel.
Each of the Company's hotels is managed by a general manager, who receives
support and guidance from regional managers and home office directors who
supervise core departments such as accounting, management information systems,
marketing, central purchasing and human resources. The home office utilizes
information systems that track each hotel's daily occupancy, average room rate
50
<PAGE>
and revenues from rooms and food and beverage operations. By having the latest
information available at all times, management believes it is better able to
respond to changes in each market and control variable expenses to maximize the
profitability of each hotel. Five of the Company's seven operational executive
officers have been with the Company for more than 12 years. See "Risk
Factors--Substantial Reliance on Key Personnel."
The Company has five regional managers, covering the Atlanta, Dallas,
Houston, Jackson and western United States regions. Each regional manager
oversees the hotels in his or her respective region to ensure that the Company's
high level of operating standards are being met and also provides an additional
source of expertise to the general managers. Four of the regional managers have
an average length of service with the Company of ten years, and the fifth
regional manager joined the Company in January 1995 in connection with the
January Acquisitions.
The Company's general managers are responsible for supervising the
day-to-day operations of the Company's hotels. General managers are compensated
largely based on the quality of service and operating performance at the hotels
they manage. Of the general managers, 18 have been with the Company an average
of five years, ten joined the Company in connection with the January
Acquisitions and six were recently recruited from outside of the Company.
By virtue of its management of 38 hotels, the Company achieves significant
economies of scale not available to individual hotels or smaller hotel operating
companies. All personnel, labor, cash management and other policies are
formulated at the Company's home office and provided to each of the hotels. The
Company's central management also provides all accounting, legal, insurance and
finance functions, implements management information systems and coordinates the
preparation of budgets. This allows the individual hotels to be operated with
fewer employees and frees the general managers and their management teams to
focus on matters that have the greatest impact on hotel performance.
FRANCHISE AGREEMENTS
As of March 31, 1996, the Company had franchise agreements (collectively,
the "Franchise Agreements") with Holiday Inns, Inc., Holiday Inns Franchising,
Inc., Howard Johnson Franchise Systems, Inc., Hampton Inn (a division of Promus
Hotels, Inc.), Days Inns of America Franchising, Inc. and Marriott
International, Inc. (collectively, the "Franchisors"). Although the terms of the
Franchise Agreements differ, each requires the Company to pay a monthly royalty
fee based on gross revenues attributable to room rentals, plus marketing and
reservation contributions, which are also based on gross revenues. The terms of
the Franchise Agreements generally are between 10 and 20 years, with a
substantial penalty for early termination by the Company. As a result of
negotiations with Holiday Inns, Inc., the Company will not pay any franchise
termination fees, subject to certain conditions, in connection with the
conversion of four Acquired Hotels previously operated as Holiday Inns to the
Harvey Hotel brand name and the conversion of one Acquired Hotel previously
operated as a Holiday Inn into two separate hotels bearing the Courtyard by
Marriott and Fairfield Inn trade names. The Company paid an aggregate of
approximately $600,000 in franchise termination fees in March 1996 in connection
with the conversions of the Ramada Inn - Atlanta into two separate hotels
bearing the Courtyard by Marriott and Fairfield Inn trade names and the Days
Inn - Houston I-10 East and Days Inn - Dallas Regal Row to the Fairfield Inn
trade name. The Company terminated its one agreement with Sheraton Franchise
Corporation and converted that hotel to the Harvey brand in February 1996 for no
fee. The Company anticipates no further changes in the brands used for its
hotels which would require the payment of franchise termination fees.
MANAGEMENT AGREEMENTS
The management agreement pursuant to which the Company manages the Harvey
Hotel - Wichita (the "Harvey Wichita Management Agreement") provides that the
Company will receive a base
51
<PAGE>
management fee equal to 2% of gross income to the extent that excess cash flow
is sufficient to pay such base management fee and after the owner receives a
priority distribution (as defined in the Harvey Wichita Management Agreement).
In addition, the Company is entitled to an annual incentive fee equal to 25% of
excess cash flow plus 25% of the amount by which net operating income exceeds
projected net operating income. The Harvey Wichita Management Agreement has a
five-year term expiring on December 20, 1998, subject to earlier termination or
extension under certain circumstances.
The management agreement pursuant to which the Company manages the Harvey
Hotel - Downtown Dallas (the "Harvey Downtown Dallas Management Agreement")
provides that the Company will receive a license and base management fee equal
to 4% of gross monthly revenues, payable monthly after the owner has received
its initial return (as such term is defined in the Harvey Downtown Dallas
Management Agreement) and an incentive management fee to be paid annually based
on hotel performance. In addition, under the Harvey Downtown Dallas Management
Agreement, the Company received a monthly transition fee equal to 2.5% of gross
revenues from November 1, 1994 to December 31, 1994 and 1% of gross revenues
from January 1, 1995 to December 31, 1995. The Harvey Downtown Dallas Management
Agreement has a term of approximately three years and expires on December 31,
1997, provided that the owner of the hotel may earlier terminate the agreement,
or the Company may extend the agreement term for two years, in each case under
certain circumstances.
COMPETITION
The Company competes primarily in the upscale and mid-priced sectors of the
full-service segment of the lodging industry. Hotel chains such as Marriott,
Hyatt and Embassy Suites are direct competitors of the Company, and in each
geographic market in which the Company's hotels are located, there are other
limited- and full-service hotels that compete with the Company's hotels. In
addition, the Company's food and beverage operations compete with local
free-standing restaurants and bars. Some of the Company's competitors have
larger networks of locations and greater financial resources than the Company.
Competition in the United States lodging industry is based generally on
convenience of location, price, range of services and guest amenities offered
and quality of customer service and overall product. See "Risk Factors--Risks
Associated with the Lodging Industry."
EMPLOYEES
As of March 31, 1996, the Company employed approximately 4,200 persons, of
whom approximately 81% were compensated on an hourly basis. Approximately 150
employees work at the Company's corporate headquarters.
Seventeen employees at one of the Company's hotels are represented by a
labor union. Management believes that its ongoing labor relations are good.
TRADEMARKS
The Company employs a flexible branding strategy based on a particular
hotel's market environment and the hotel's unique characteristics. Accordingly,
the Company uses both its own brand names, as well as national trade names
pursuant to licensing arrangements with national franchisors. Twelve of the
Company's hotels, located primarily in Dallas, Houston, Atlanta and Jackson,
currently operate under the Harvey Hotel or Harvey Suites brand name. The
Company has been notified by Harvey's Resort Hotel & Casino ("HRHC"), an
owner/operator of hotels with properties located in Nevada, Colorado and Iowa,
that it has applied for several registrations of trademarks incorporating the
word "Harveys" with the United States Patent and Trademark Office. As a result
of HRHC's applications for these registrations, the Company may be unable to use
the Harvey name in markets where it does not currently have the right under
common law to exclusively use the name. The Company believes that
52
<PAGE>
it has acquired such common law rights in the states of Texas and Kansas as a
result of the Company's previous use of the Harvey name in those markets.
However, there can be no assurance that HRHC will not challenge the Company's
use of the Harvey name in those markets. The Company believes that, while the
Harvey name is important to its business, the potential loss of the ability to
use the Harvey name would not have a material adverse effect on the Company's
results of operations or financial condition. In September 1995, the Company
changed its name from Harvey Hotel Holdings, Inc. to Bristol Hotel Company.
The Company has applied for registration of the "Bristol" and "Bristol
Suites" trademarks, which the Company considers important to its business, with
the United States Patent and Trademark Office. The Company knows of
approximately 15 lodging establishments located in the United States that use
"Bristol" in their trade names, but which have no existing or historical
relationship with the Company. Some of these establishments are located in areas
where the Company has not previously used the Bristol name. Accordingly, others
may be able to restrict the Company's use of the name in those markets. The
Company has not registered or applied for any other trademarks in connection
with any other hotel brand names that the Company utilitizes.
Below are national trade names utilized by the Company pursuant to license
arrangements with national franchisors:
HOLIDAY INNS(R) IS A REGISTERED TRADEMARK OF HOLIDAY INNS, INC. ("HII").
HII, HOLIDAY INNS FRANCHISING, INC., NOR THEIR PARENT, SUBSIDIARIES, DIVISIONS
OR AFFILIATES HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HOLIDAY
INN LICENSE AGREEMENT FOR A CERTAIN HOTEL BY HOLIDAY INNS FRANCHISING, INC. IS
NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED
APPROVAL OR ENDORSEMENT BY HII, HOLIDAY INNS FRANCHISING, INC. (NOR THEIR
PARENT, SUBSIDIARIES, DIVISIONS OR AFFILIATES) OF THE COMPANY UNDER THE TERMS OF
THE OFFERING.
HAMPTON INN(R) IS A REGISTERED TRADEMARK OF HAMPTON INNS, INC. HAMPTON INNS,
INC. HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HAMPTON INN
FRANCHISE LICENSE FOR CERTAIN OF THE ADDITIONAL HOTELS IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY
HAMPTON INNS, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE
COMPANY OR THE SECURITIES OFFERED HEREBY.
MARRIOTT(R) IS A REGISTERED TRADEMARK OF MARRIOTT INTERNATIONAL, INC., WHICH
HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE
HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A MARRIOTT FRANCHISE LICENSE FOR
CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY MARRIOTT INTERNATIONAL, INC. (OR
ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE
SECURITIES OFFERED HEREBY.
HOWARD JOHNSON(R) IS A REGISTERED TRADEMARK OF HOWARD JOHNSON FRANCHISE
SYSTEMS, INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE
FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
HOWARD JOHNSON FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS,
AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT
BY HOWARD JOHNSON FRANCHISE SYSTEMS, INC. (OR ANY OF ITS AFFILIATES,
SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE SECURITIES OFFERED HEREBY.
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DAYS INN(R) IS A REGISTERED TRADEMARK OF DAYS INN OF AMERICA FRANCHISING,
INC., WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL
RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A DAYS INN
FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT
BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY DAYS INN OF
AMERICA FRANCHISING, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS)
OF THE COMPANY OR THE SECURITIES OFFERED HEREBY.
The Company considers the Marriott, Holiday Inn and Hampton Inn trade names
to be important to its business. The Company's franchise agreements to use these
trade names expire at varying times ranging from 1998 to 2016.
LEGAL PROCEEDINGS
In connection with the administration in Dallas County Probate Court of the
estate (the "Huie Estate") of the deceased wife of H.K. Huie, Jr., the founder
of the Harvey Hotels business, one of Mr. Huie's daughters (the "Plaintiff")
alleged self-dealing and breach of duty and trust by Mr. Huie, as executor and
testamentary trustee under his wife's will and in connection with his actions as
the managing general partner of Harvey Hotel Company and related partnerships
and ventures (the "Probate Proceeding"). J. Peter Kline, John A. Beckert,
Richard N. Beckert, Robert L. Miars, Edward J. Rohling and Harvey Hotel
Corporation, the Company's subsidiary which owns the Holiday Inn - Greenway
Plaza hotel, also were named defendants in the Probate Proceeding. None of
Holdings, the Company, Harvey Hotel Company or any of their subsidiaries are
currently named defendants in the Probate Proceeding. The Plaintiff sought,
among other things, (i) avoidance and rescission of the Huie Land Ventures (as
defined in "Formation of the Company--Huie Ground Leases and Related
Agreements"), the Huie Ground Leases (as defined in "Formation of the
Company--Huie Ground Leases and Related Agreements") and the transactions
effected in connection with the January Acquisitions, (ii) partition of the Huie
Land Ventures' properties and (iii) the imposition of a constructive trust and
equitable lien upon the shares in the Company owned by the defendants (including
certain members of senior management of the Company). The Plaintiff also filed
lis pendens with respect to eight of the Company's hotels.
Mr. Huie has agreed to indemnify the Company and Holdings and their
respective partners, officers, directors, employees, agents and affiliates
against any loss, expense or liability, up to an aggregate of approximately
$27.7 million, resulting from the Probate Proceeding. Such indemnification
includes the costs of attorneys' fees incurred by such indemnified persons in
connection with the Probate Proceeding, provided that such persons employ
counsel approved by Mr. Huie. Mr. Huie further has agreed to provide to the
Company and Holdings, until final resolution of the Probate Proceeding,
certified semi-annual financial statements, copies of all federal tax returns
filed by Mr. Huie and such additional information regarding Mr. Huie's financial
affairs as the Company or Holdings reasonably requests.
As of November 30, 1995, the Company and the Plaintiff entered into a
settlement agreement and release (the "Settlement Agreement") pursuant to which
the Plaintiff agreed to release the Company (including Harvey Hotel Company)
from all claims and causes of action which were or could be asserted against the
Company and its assets, property or business interests in connection with the
Probate Proceeding and to release and cancel all notices of lis pendens filed
against the Company's properties. Messrs. Kline, J. Beckert, R. Beckert, Miars
and Rohling remain defendants in the Probate Proceeding. Pursuant to the
Settlement Agreement, the Company paid to the Plaintiff an aggregate of $2.4
million for the Plaintiff's 1% interest in Harvey Hotel Company and a full
release. See "Formation of the Company--The January Acquisitions and the
Acquisition Agreement."
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The Tennessee Department of Revenue (the "TDR") has asserted that United
Inns may be liable for franchise and excise taxes as a result of commercial
activities conducted in the state of Tennessee from 1971 through earlier this
year. From 1956 until 1971, United Inns was incorporated under the laws of the
state of Tennessee. In March 1971, United Inns was reincorporated under the laws
of the state of Delaware. Thereafter, United Inns did not pay any franchise or
excise taxes in the state of Tennessee, contending that it did not conduct the
types of activities that would cause it to incur such liability in that state.
The TDR recently audited the activities of United Inns during the period October
1987 through September 1993 and, on the basis of such audit, determined that
United Inns owes approximately $1 million in taxes, penalties and interest
thereon for that period. The Company is cooperating with the TDR and providing
information with respect to the TDR's assertions for the audited period and will
continue to do so with respect to any amounts that may be asserted with respect
to any other periods.
In addition to the above proceedings, the Company is involved in various
lawsuits arising in the normal course of business. The Company believes that the
ultimate outcome of such lawsuits and proceedings will not, individually or in
the aggregate, have a material adverse effect on the results of operations or
financial condition of the Company; however, there can be no assurance that this
will be the case.
INSURANCE
Each of the Company's hotels is covered by comprehensive policies of
insurance, including liability, fire and extended coverage. The Company believes
such coverage is of the type and amount customarily obtained by owners of
hotels. However, there are certain types of losses, generally of a catastrophic
nature, such as those caused by earthquakes, hurricanes and floods, that may be
uninsurable or not economically insurable. The Board will use its discretion in
determining the amounts, coverage limits and deductibility provisions of
insurance, with a view to maintaining appropriate insurance coverage on the
Company's hotels at a reasonable cost and on suitable terms. This may result in
insurance coverage that, in the event of a substantial loss, would not be
sufficient to pay the full current market value or current replacement cost of
damaged property. Inflation, changes in building codes and ordinances,
environmental considerations and other factors also might make it impractical to
use insurance proceeds to replace a damaged or destroyed hotel. Under such
circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to such property.
ENVIRONMENTAL MATTERS
Various federal, state and local environmental laws, ordinances and
regulations regulate the removal and remediation of hazardous or toxic
substances, including asbestos-containing materials ("ACMs") located on, under
or in real property, as well as the operation and regulation of certain
underground storage tanks. See "Risk Factors--Environmental Risks." Several
properties currently or previously owned by the Company are undergoing various
stages of remediation to address some contamination from storage tanks or drums
located on such properties. The Company recently sold several of such properties
to an entity formed by Holdings and the Harvey Management Equity Holders (as
defined in "Formation of the Company"), which expressly assumed all
environmental liabilities, and agreed to indemnify the Company against any
environmental claims, relating to the ownership or operation of such properties.
See "Formation of the Company--Disposition of Non-Hotel Properties."
Notwithstanding such indemnity, there can be no assurance that the Company will
not be required to investigate or remediate any contamination from such storage
tanks or drums or that there are no additional environmental liabilities or
claims of which the Company is unaware. To the extent that such indemnity is
unavailable or limited, any liability the Company may incur in connection with
such storage tanks and drums could have a material adverse effect on the
Company's results of operations or financial condition.
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All of the hotels owned by the Company have undergone Phase I environmental
assessments (which generally provide a physical inspection and database search
but not soil or groundwater analyses) within the last 18 months. In addition,
most of the Company's hotels have been inspected to determine the presence of
asbestos. While ACMs are present in certain of the Company's properties,
operations and maintenance programs for maintaining such ACMs have been or are
in the process of being designed and implemented, or the ACMs have been
scheduled to be or have been abated, at such hotels. Based on third party
environmental assessments and due diligence investigations recently conducted by
Holdings, the Company and many of its lenders, the Company believes that the
presence of ACMs in its hotels will not have a material adverse effect on the
Company's results of operations or financial condition; however, there can be no
assurance that this will be the case.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Under the Americans with Disabilities Act ("ADA"), all public accommodations
are required to meet certain technical requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA-required
upgrades to its hotels, a determination that the Company is not in compliance
with the ADA could result in a judicial order requiring compliance, imposition
of fines or an award of damages to private litigants. The Company is likely to
incur additional costs of complying with the ADA; however, such costs are not
expected to have a material adverse effect on the Company's results of
operations or financial condition.
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FORMATION OF THE COMPANY
The Company, a Delaware corporation, was formed in November 1994 to effect
the January Acquisitions. Prior thereto, Harvey Hotel Company, a Texas limited
partnership, was owned by (i) H.K. Huie, Jr., the founder of the Harvey Hotels
business, (ii) Mr. Huie's three daughters (collectively, the "Huie Daughters")
and (iii) J. Peter Kline, Robert L. Miars, John A. Beckert, Richard N. Beckert
and Edward J. Rohling, who comprised the senior management of Harvey Hotel
Company (collectively, the "Harvey Management Equity Holders" and, together with
Mr. Huie, the "Harvey Equity Holders"). Prior to the January Acquisitions,
United Inns was a publicly held Delaware corporation, with its common stock
listed on the New York Stock Exchange. In order to effect the January
Acquisitions, Holdings entered into a merger agreement with United Inns (the
"United Merger Agreement"), pursuant to which Holdings purchased most of United
Inns' then-outstanding shares of common stock pursuant to a tender offer and
thereafter acquired United Inns' remaining equity by means of a cash merger (the
"United Merger"). The United Merger became effective on January 27, 1995,
whereupon Holdings became the sole stockholder of United Inns.
The January Acquisitions were effected pursuant to an agreement among
Holdings, Harvey Hotel Company, the Harvey Equity Holders and the other parties
thereto (as amended, the "Acquisition Agreement"), effective as of January 31,
1995 (the "Acquisition Effective Date"). In connection with the Acquisition
Agreement, the Company, Holdings, Harvey Hotel Company, the Harvey Equity
Holders and certain affiliates of Mr. Huie entered into several other related
agreements. Mr. Huie was elected a director of the Company in connection with
the January Acquisitions, but resigned from the Board prior to the consummation
of the IPO. In connection with the IPO, the Acquisition Agreement and certain
agreements related thereto were amended. The Acquisition Agreement and such
related agreements, as amended, are described below. In addition, in
contemplation of the IPO, the Company, Holdings and the Harvey Equity Holders
and their affiliates effected, individually or between or among themselves, the
following transactions (collectively, the "Pre-IPO Transactions"): (i) the
Holdings Contributions (as defined below); (ii) the Non-Hotel Properties
Disposition (as defined below); and (iii) the amendments of the Company's
Certificate of Incorporation and By-Laws to, among other things, increase the
number of authorized shares of Common Stock from 80,000 to 75,000,000 in order
to effect a 200-for-1 stock split of the Common Stock.
THE JANUARY ACQUISITIONS AND THE ACQUISITION AGREEMENT
Initial Contributions. Pursuant to the Acquisition Agreement, (i) Holdings
contributed to the Company all of the outstanding capital stock of United Inns,
approximately $15.1 million in cash and certain cash advances previously made
for the benefit of Harvey Hotel Company in exchange for an aggregate of 68.1% of
the Company's Common Stock and (ii) the Harvey Equity Holders collectively
contributed to the Company 71.7% of the outstanding partnership interests in
Harvey Hotel Company and all of the outstanding capital stock of Endlease, Inc.,
a corporation which leases the land on which one of the Original Hotels is
located from an unrelated third party and subleases such real property to Harvey
Hotel Company, in exchange for an aggregate of 31.9% of the Company's Common
Stock. In addition, effective as of the Acquisition Effective Date, Mr. Huie and
two of the Huie Daughters sold to the Company approximately 27.3% of the
outstanding partnership interests in Harvey Hotel Company for approximately
$15.1 million in cash plus interest. As a result of these transactions, (a)
Holdings and the Harvey Equity Holders (collectively, the "Original
Stockholders") became the stockholders of the Company, (b) the Company became
the sole stockholder of United Inns and Endlease, Inc., (c) the Company became
the indirect owner of 99% of the outstanding partnership interests in Harvey
Hotel Company, and, in connection therewith, a wholly owned subsidiary of the
Company became the managing general partner of Harvey Hotel Company and (d) one
of the Huie Daughters, who did not participate in the January Acquisitions,
continued to own a 1.0% limited partnership interest in Harvey Hotel Company.
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Working Capital Contributions. Through December 13, 1995, Holdings made
working capital advances to the Company totaling $24.15 million. Of these
advances, $18.75 million, together with $1.15 million of reimbursable expenses
owed by the Company to Holdings, were exchanged for 1,768,000 shares of Common
Stock prior to the consummation of the IPO, and the remaining $5.4 million of
working capital advances were repaid with proceeds from the IPO.
Additional Contributions by the Harvey Management Equity Holders. In
connection with the January Acquisitions, each of the Harvey Management Equity
Holders contributed, without any additional consideration therefor, all of his
outstanding shares of capital stock of Harvey Hotel DFW, Inc., constituting all
of the outstanding shares of such corporation. Harvey Hotel DFW, Inc. holds the
liquor licenses for several of the Original Hotels and, through a wholly owned
subsidiary, holds the liquor licenses for the Acquired Hotels located in
Houston.
Working Capital Adjustments and Related Matters. In connection with the
January Acquisitions, Harvey Hotel Company distributed to the Harvey Equity
Holders an aggregate of $8.1 million, the estimated amount by which current
assets of Harvey Hotel Company exceeded current liabilities of Harvey Hotel
Company as of the Acquisition Effective Date (the "Estimated Effective Date WC
Amount"). Under the Acquisition Agreement, the designated representative of the
Harvey Equity Holders (the "Representative") will prepare a statement setting
forth the amount by which the current assets of Harvey Hotel Company exceeded
the current liabilities of Harvey Hotel Company on the Acquisition Effective
Date, adjusted for certain specified items (the "Effective Date WC Amount"). The
Acquisition Agreement provides that, after such statement becomes final and
binding in accordance with the terms of the Acquisition Agreement, the Company
will cause Harvey Hotel Company to distribute to the Representative the amount,
if any, by which the Effective Date WC Amount exceeds the Estimated Effective
Date WC Amount or, conversely, the Harvey Equity Holders will contribute to
Harvey Hotel Company, without any additional consideration therefor, an amount
in cash equal to the amount by which the Estimated Effective Date WC Amount
exceeds the Effective Date WC Amount.
In addition, in connection with the January Acquisitions, Harvey Hotel
Company reserved on its books $450,000 in respect of specified litigation
matters (the "Contingent Liability Book Amount"). The Acquisition Agreement
provides generally that, in the event and to the extent that actual liabilities
incurred by Harvey Hotel Company in respect of such litigation matters in the
aggregate exceed the Contingent Liability Book Amount by $50,000 or more, the
Harvey Equity Holders, upon demand by the Company, will make contributions to
Harvey Hotel Company equal to such excess in proportion to their respective
pre-Acquisition ownership percentages in Harvey Hotel Company. Following any
such demand, the Harvey Equity Holders will be required to make additional
contributions to the Company in connection with such liabilities only to the
extent that any additional demands by the Company exceed $25,000, provided that
the Company may demand less than $25,000 in connection with a final settlement.
Under the Acquisition Agreement, upon a determination by the executive committee
of the Board (the "Executive Committee") that the actual liability of Harvey
Hotel Company with respect to such specified litigation matters has been fixed
and is no longer contingent, Harvey Hotel Company will distribute to the
Representative cash equal to the amount by which the Contingent Liability Book
Amount exceeds the actual liability of Harvey Hotel Company in respect of the
specified litigation matters.
Indemnification. Pursuant to the Acquisition Agreement, the Company has
agreed to indemnify and hold harmless the Harvey Equity Holders from and against
any and all personal liability in respect of certain specified indebtedness of
Harvey Hotel Company. The Company has not received any request for
indemnification from any of the Harvey Equity Holders. The Acquisition Agreement
further provides that, subject to certain limitations, Mr. Huie will indemnify
and hold harmless Holdings and the Company and their respective partners,
officers, directors, employees, agents and affiliates from and against losses
suffered by any such indemnified party as a result of any loss, damage, expense
or liability resulting from the litigation initiated by Mr. Huie's daughter. See
"Business and Properties--Legal Proceedings."
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Tax Loans for Harvey Management Equity Holders. Pursuant to the Acquisition
Agreement, Holdings and Harvey Hotel Company agreed to use commercially
reasonable efforts to assist the Harvey Management Equity Holders in their
efforts to obtain from a commercial or investment bank loans in amounts
necessary to fund such persons' tax liabilities resulting from the January
Acquisitions, subject to certain limitations. The Acquisition Agreement provides
that, in the event any such person is unable to obtain such a loan in an amount
sufficient to fund the full amount of such tax liabilities, the Company will,
subject to certain conditions, loan to, or arrange (by providing credit support)
for a loan to, such person, on terms mutually acceptable to the Company and such
person, the additional amount necessary to permit such person to fund the full
amount of such tax liabilities. Pursuant to this provision, the Company has
advanced $228,000 to Edward J. Rohling, which was repaid in January 1996.
Acquisition of the Daughter's Interest in Harvey Hotel Company. Prior to the
effective date of the January Acquisitions, Mr. Huie's daughter who chose not to
participate in the January Acquisitions was given the opportunity to contribute
her partnership interest (the "Daughter's Interest") in Harvey Hotel Company to
the Company in exchange for shares of the Company's Common Stock on the same
terms as the exchanges made by other holders of Harvey Hotel Company partnership
interests. In addition, Holdings and the Company offered to purchase the
Daughter's Interest on the same terms as the sale by Mr. Huie and his other two
daughters of their Harvey Hotel Company partnership interests. Mr. Huie's
daughter chose not to exchange her partnership interest for shares of Common
Stock or to sell her partnership interest to Holdings or the Company, however.
After the January Acquisitions, the offers of Holdings and the Company to
purchase the Daughter's Interest were rescinded. Pursuant to the Acquisition
Agreement, if any Original Stockholder purchased or otherwise obtained the
Daughter's Interest, the Company, at its option, could purchase from such
Original Stockholder the Daughter's Interest for the same consideration that
such Original Stockholder paid to acquire the Daughter's Interest. In connection
with the Settlement Agreement, the Company purchased the Daughter's Interest for
$550,000 as of November 20, 1995. See "Business and Properties--Legal
Proceedings."
Expenses in Connection with the January Acquisitions. The Acquisition
Agreement provides that all of the fees, costs and expenses incurred by the
Original Stockholders in connection with the Acquisition Agreement, the United
Merger Agreement or the transactions contemplated thereby are to be borne by the
Company or promptly reimbursed by the Company upon written request. The Company
has reimbursed the Original Stockholders in full the aggregate amount of
$136,779 of such fees, costs and expenses.
REGISTRATION RIGHTS AGREEMENT
In connection with the January Acquisitions, the Company entered into a
registration rights agreement (the "Registration Rights Agreement") pursuant to
which the Company has agreed, subject to certain limitations and under certain
circumstances, to register for sale any shares of capital stock of the Company
(and other securities of the Company that are exercisable to purchase,
convertible into or exchangeable for shares of capital stock of the Company)
that are held by the Original Stockholders and certain transferees
(collectively, "Registrable Securities"). Pursuant to the Registration Rights
Agreement, holders of Registrable Securities constituting at least 10% of the
total number of Registrable Securities then outstanding may require the Company
upon written notice to register for sale not less than 5% of the total number of
Registrable Securities then outstanding (a "Demand Registration"), provided that
such notice may not be given prior to four months after the effective date of
the previous Demand Registration, the number of Demand Registrations may not
exceed three on behalf of Holdings and three on behalf of each Harvey Equity
Holder, and the Company may postpone the filing period or suspend the
effectiveness of any Demand Registration for up to 90 days under certain
circumstances. The Registration Rights Agreement also provides that, subject to
certain exceptions, in the event the Company files a registration statement with
respect to an offering of any class of equity
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securities, the Company will offer the holders of Registrable Securities the
opportunity to register such number of Registrable Securities as such holders
may request to include, subject to certain limitations.
The rights of the Original Stockholders to sell Registrable Securities
pursuant to the Registration Rights Agreement are subject to the restrictions on
sales of the Company's capital stock and rights to acquire shares of the
Company's capital stock set forth in the Stockholders' Agreement (as defined
below).
STOCKHOLDERS' AGREEMENT; CERTAIN RESTRICTIONS ON THE ORIGINAL STOCKHOLDERS
In connection with the January Acquisitions, the Company, Holdings and the
Harvey Equity Holders entered into a Stockholders' Agreement (the "Stockholders'
Agreement"), pursuant to which Holdings has agreed (i) to use its best efforts
to elect each of J. Peter Kline and John A. Beckert to the Board so long as he
is an officer and full-time employee of the Company and (ii) that, during such
periods, Messrs. Kline and Beckert may only be removed from the Board for cause.
Pursuant to the Stockholders' Agreement, each of the Original Stockholders
has agreed not to sell, transfer, pledge or otherwise dispose of ("Transfer")
all or any portion of the capital stock of the Company or rights to acquire
capital stock of the Company owned by such Original Stockholder from time to
time otherwise than as permitted by or in accordance with the provisions of the
Acquisition Agreement. The Acquisition Agreement provides that the Board may
establish limitations on the number of shares of Common Stock which may be
transferred at one time or over a specified period of time by the Original
Stockholders. No such limitations have been established as of the date hereof.
In addition, the Harvey Management Equity Holders have agreed pursuant to the
Acquisition Agreement not to Transfer any shares of Common Stock or securities
convertible into, or exchangeable for, shares of Common Stock or rights to
purchase shares of Common Stock (the "Common Stock Derivatives") prior to
February 27, 1997, subject to certain limited exceptions. The Acquisition
Agreement permits Transfer of shares of Common Stock or Common Stock
Derivatives, however, under the following circumstances: (i) the pledge of such
shares by the Harvey Management Equity Holders as expressly contemplated
therein; (ii) the Transfer of such shares to affiliates and certain other
related persons that agree to be bound by the provisions of the Acquisition
Agreement; (iii) the Transfer of such shares by Mr. Huie to Holdings and the
Harvey Management Equity Holders pursuant to the Huie Put/Call Option Agreement
and the Put/Call Amendment (as described below); (iv) any Transfer made with the
prior written consent of each Original Stockholder; and (v) sales, the net after
tax proceeds of which are used by the Harvey Management Equity Holders to repay
their tax loans or to make any debt service payments under any financing put in
place to acquire shares of Common Stock from Mr. Huie upon exercise of their
portion of the Call Option (as defined below in "--Huie Put/Call Option
Agreement") or any other sales consented to by Holdings (except that any such
permitted sales will still be subject to the Original Stockholders' rights of
first offer).
Under the Acquisition Agreement, subject to certain exceptions, if the
Company makes an offering to holders of its Common Stock of rights ("Rights") to
acquire additional shares of capital stock of the Company or warrants to acquire
additional shares of capital stock of the Company, any Original Stockholder that
does not intend fully to exercise his or its Rights must so notify the other
Original Stockholders, which shall then have the right, upon the advancement of
the purchase price therefor and on other terms set forth in the Acquisition
Agreement, to require such Original Stockholder fully to exercise his or its
Rights and thereafter to transfer to the other Original Stockholders (or any of
them, as the case may be) the shares of capital stock or warrants purchased upon
exercise of the Rights that would not otherwise have been exercised.
The Acquisition Agreement provides that any Original Stockholder may sell
any or all shares of Common Stock or Common Stock Derivatives owned by such
Original Stockholder to an unaffiliated third party in a bona fide sale
transaction for consideration consisting solely of cash, provided that, prior to
commencing any such sale, such Original Stockholder gives notice of such
proposed sale to each other Original Stockholder, which will then have the right
to purchase such shares of Common Stock or
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Common Stock Derivatives at the price and on the other terms of such proposed
third-party sale. If no other Original Stockholder exercises its right to
purchase such shares of Common Stock or Common Stock Derivatives, the Original
Stockholder desiring to sell such shares in such third-party sale will be free
to do so on the terms and subject to the conditions set forth in the Acquisition
Agreement (and, under certain circumstances, will be required to allow one or
more of the other Original Stockholders to participate in such sale). In the
event that any Harvey Management Equity Holder determines to sell all or
substantially all of his shares of Common Stock through a series of
transactions, such Harvey Management Equity Holder will notify the other
Original Stockholders of such determination and will offer to sell such shares
to the other Original Stockholders that desire to purchase such shares.
The transfer restrictions and rights of first offer set forth in the
Stockholders' Agreement and the Acquisition Agreement do not apply to the 68,574
shares of Common Stock owned by Mr. Huie that are not subject to the Call
Option.
The provisions of the Acquisition Agreement relating to restrictions on
Transfer of shares will terminate on February 27, 2000 or earlier upon
dissolution or bankruptcy of the Company or in the event that the Original
Stockholders cease to own in the aggregate at least 30% of the then-outstanding
voting stock of the Company.
HUIE GROUND LEASES AND RELATED AGREEMENTS
Each of the parcels of real property on which the Harvey Hotel - Dallas,
Bristol Suites and Harvey Hotel - DFW Airport are located is owned by a separate
joint venture (collectively, the "Huie Land Ventures") in which Mr. Huie owns a
significant interest with the remaining interests being owned by real estate
trusts for the benefit of the Huie Daughters or by the Huie Estate, or both.
Harvey Hotel Company has entered into a ground lease with each of the Huie Land
Ventures (collectively, the "Huie Ground Leases"). The Huie Ground Lease
relating to the real property on which the HarveyHotel - Dallas is located has a
term of 50 years and expires on September 14, 2030. Under this ground lease,
Harvey Hotel Company pays monthly ground rent in an amount equal to base rent of
$15,000 until recalculated on January 1, 2000 based on the consumer price index
(as recalculated, the monthly minimum fixed sum amount may not be less than
$20,000 nor more than $40,000) and again on January 1, 2020 (as recalculated,
the monthly minimum fixed sum amount may not be less than $50,000 nor more than
$150,000), plus percentage rent of 4% of gross monthly revenues in excess of the
minimum fixed sum amount. The Huie Ground Lease relating to the real property on
which Bristol Suites is located has a term of 50 years and expires April 30,
2035. Under this ground lease, Harvey Hotel Company pays monthly ground rent in
an amount equal to base rent of $49,356 plus percentage rent of 6% of gross
monthly revenue in excess of $49,356. The Huie Ground Lease relating to the real
property on which the Harvey Hotel - DFW Airport is located has a term of 50
years and expires on December 31, 2037. Under this ground lease, Harvey Hotel
Company pays monthly ground rent in an amount equal to base rent of $49,880 plus
percentage rent of 6% of the gross monthly rental revenue in excess of $49,880.
Total ground rents paid to the Huie Land Ventures were $2,152,621, $2,040,274
and $1,932,101 in 1995, 1994 and 1993, respectively.
In connection with the January Acquisitions, Harvey Hotel Company entered
into an agreement with each Huie Land Venture (collectively, the "Land Purchase
Option Agreements") providing that during the period (the "On-Sale Call Option
Period") between January 31, 1995 and June 30, 2001, in the case of the Land
Purchase Option Agreement relating to the Harvey Hotel - Dallas, and December
31, 2002, in the case of the other two Land Purchase Option Agreements, Harvey
Hotel Company will have the option to purchase fee title to the real estate
owned by the Huie Land Venture party thereto for a specified price (the "Land
Purchase Option Price"). The Land Purchase Option Price is approximately $2.4
million for the real property on which the Harvey Hotel - Dallas is located,
approximately $5.6 million for the real property on which Bristol Suites is
located and approximately $9.9 million for the real property on which the Harvey
Hotel - DFW Airport is located, as reduced in each case by the allocated share
of debt outstanding with respect to each such property. Each of the
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<PAGE>
Land Purchase Option Agreements further provides that, during the period (the
"Call Option Period") between (i) the earlier to occur of (a) the expiration of
the On-Sale Call Option Period, (b) the death, incapacity or bankruptcy of Mr.
Huie and (c) the loss of control of the Huie Land Venture by Mr. Huie and (ii)
January 31, 2005, Harvey Hotel Company will have the option to purchase fee
title to the real estate owned by the Huie Land Venture party thereto at the
Land Purchase Option Price. Each Land Purchase Option Agreement also provides
that, during the period between January 1, 1997 and January 31, 2005, the Huie
Land Venture party thereto may require Harvey Hotel Company to purchase the real
estate owned by such Huie Land Venture for the applicable purchase price.
Pursuant to each Land Purchase Option Agreement, in the event that at any time
prior to the expiration of the Call Option Period the Huie Land Venture party
thereto receives an offer from any party to purchase the real estate owned by
such Huie Land Venture and the Huie Land Venture desires to accept such offer,
the Huie Land Venture must give Harvey Hotel Company written notice thereof,
whereupon Harvey Hotel Company will have the right to purchase such real estate
on the terms proposed by the other party.
In connection with the January Acquisitions, Harvey Hotel Company also
entered into a debt allocation agreement with each Huie Land Venture providing
that each of Harvey Hotel Company and the Huie Land Venture party thereto will
be responsible for its allocable share of the indebtedness incurred jointly by
Harvey Hotel Company and such Huie Land Venture in connection with the
applicable hotel and underlying real property. Pursuant to these debt allocation
agreements, Harvey Hotel Company makes all installment payments in respect of
the indebtedness and deducts the Huie Land Venture's portion of such payment
from the ground rents due to the Huie Land Venture, with any remaining amounts
due from or to the Huie Land Venture being paid by the obligated party to the
other. In the event that any such debt is refinanced and proceeds are generated
in excess of the existing indebtedness (after deducting certain costs in
connection with the refinancing), the Huie Land Venture may either elect to
receive a proportionate share of the excess proceeds and be responsible for its
proportionate share of the new debt or forgo the excess proceeds and continue to
make payments based upon the terms of the original debt. As of December 31,
1995, total debt outstanding with respect to these hotels was approximately
$57.5 million, of which an aggregate of approximately $13.3 million had been
allocated to the Huie Land Ventures. The Company is jointly and severally liable
for the allocated amounts in the event of non-payment.
HUIE HOTEL AND HOTEL SITE OPTION AGREEMENT
In connection with the January Acquisitions, Harvey Hotel Company entered
into an agreement (the "Huie Hotel and Hotel Site Option Agreement") with a land
venture controlled by Mr. Huie (the "Huie Hotel Venture") relating to a parcel
of real property (the "Hotel Site") adjacent to the Bristol Suites. The Huie
Hotel and Hotel Site Option Agreement provides that, during the period
commencing on January 31, 1995 and ending on December 31, 1996, the Huie Hotel
Venture will have the right to develop a limited-service suite hotel (the "Huie
Hotel") on the Hotel Site, and Harvey Hotel Company will have the option to
purchase from the Huie Hotel Venture, and the Huie Hotel Venture will have the
option to require Harvey Hotel Company to purchase, the Huie Hotel, but not the
Hotel Site (which would be leased to Harvey Hotel Company on terms specified in
the Huie Hotel and Hotel Site Option Agreement) for a price equal to the cost of
development as approved by Harvey Hotel Company plus a development fee equal to
5% of such cost. The Huie Hotel and Hotel Site Option Agreement provides further
that, during the period between (i) the earlier of (a) January 1, 1997 and (b)
the death of Mr. Huie and (ii) January 31, 2005, Harvey Hotel Company will have
the option to purchase from the Huie Hotel Venture, and the Huie Hotel Venture
will have the option to require Harvey Hotel Company to purchase, the Hotel Site
for a purchase price of $10.80 per square foot, subject to certain limitations.
HUIE CONSULTING AGREEMENT
In connection with the January Acquisitions, Harvey Hotel Company entered
into a consulting services agreement with Mr. Huie (the "Huie Consulting
Agreement"), which was terminated as of
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November 16, 1995. Under the Huie Consulting Agreement, Mr. Huie received from
the Company a total of $112,500.
TRANSACTIONS WITH HUIE PROPERTIES AND HUIE MIARS CONSTRUCTION CORPORATION
In 1992, Harvey Hotel Company advanced $1,500,000 to an affiliate of Mr.
Huie, evidenced by a note bearing interest at the prime rate, payable monthly,
and due on demand. Interest income for Harvey Hotel Company in respect of that
advance was $107,000 and $90,000 for 1994 and 1993, respectively. No interest
income was recorded for 1992. The advance was repaid in full in connection with
the January Acquisitions.
Until April 1995, the Company had its principal executive offices located in
space that the Company leased from Mr. Huie d/b/a Huie Properties until December
31, 1995 and paid monthly rent to Huie Properties equal to the Company's
proportionate share of the operating expenses of such offices. In April 1995,
the Company moved its principal executive offices to a location owned by
Huie-Miars Midway Atriums J.V. (which is owned 75% by Mr. Huie and 25% by Robert
L. Miars, an executive officer of the Company) and executed a five-year lease.
Rental payments under these leases totaled $783,023, $491,000 and $467,000
during 1995, 1994 and 1993, respectively. The Company believes that the terms of
such leases are at least as favorable to the Company as those it could have
obtained from unaffiliated persons.
Huie Properties and Huie Miars Construction Corporation (which is owned 51%
by Mr. Huie and 49% by Mr. Miars) has provided maintenance and construction
services to Harvey Hotel Company and its subsidiaries, including construction of
new hotels and renovation of existing properties. Harvey Hotel Company paid to
these entities approximately $34,000, $336,000 and $410,000 for routine
maintenance and approximately $119,000, $99,000 and $119,000 for construction
and renovation during 1995, 1994 and 1993, respectively. Beginning in February
1995, the Company began performing these services internally or obtained such
services from unaffiliated persons.
HUIE PUT/CALL OPTION AGREEMENT
In connection with the January Acquisitions, the Company and Mr. Huie
entered into a put/call option agreement (the "Huie Put/Call Option Agreement")
with respect to shares of Common Stock issued to Mr. Huie pursuant to the
Acquisition Agreement (together with shares of Common Stock issued in respect of
such shares as a result of any stock split, reverse stock split or similar
transactions, the "Huie Shares"). The Huie Put/Call Option Agreement provided
that, during the period commencing on the second anniversary of the date on
which the litigation initiated by Mr. Huie's daughter is dismissed with
prejudice or a judgment with respect to such litigation removing the possibility
of any relief (other than monetary damages against persons other than Holdings
and its affiliates) has been entered and becomes final and non-appealable (the
"Resolution Date") and ending on the third anniversary of the Resolution Date,
Mr. Huie would have the option (the "Initial Put Option") to require the Company
to repurchase one-half of the Huie Shares owned by Mr. Huie on the date such
option is exercised for a purchase price (the "Per Share Purchase Price") equal
to $12.50 per share (subject to equitable adjustment in the event of any stock
split, reverse stock split or similar transaction involving the Common Stock)
plus a return factor ranging between 12% and 15% per annum. The Huie Put/Call
Option Agreement further provided that, during the period commencing on the
third anniversary of the Resolution Date and ending on the fourth anniversary
thereof, Mr. Huie would have the option (the "Extended Put Option") to require
the Company to repurchase all of the Huie Shares owned by Mr. Huie on the date
such option is exercised at the Per Share Purchase Price.
In addition, the Huie Put/Call Option Agreement provided that during the
period commencing on February 27, 1995 and ending on February 27, 2000, the
Company would have the option (the "Call Option") to require Mr. Huie to sell to
the Company all of the Huie Shares owned by Mr. Huie on the date such option is
exercised. Under the Acquisition Agreement, if the Company determined to
exercise the Call Option and did not have sufficient excess working capital to
repurchase the Huie Shares, the
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Company would agree to issue to Holdings, in exchange for Holdings' contribution
of the amount necessary to fund such repurchase, a number of additional shares
of Common Stock computed based on the Per Share Purchase Price (the "Holdings
Funding Right"). The Huie Put/Call Option Agreement was subsequently amended,
effective as of January 31, 1995, to substitute Holdings and each of the Harvey
Management Equity Holders in the place of the Company (the "Put/Call
Amendment"). As a result of the Put/Call Amendment, the Company no longer has
the obligation to purchase, or the right to require Mr. Huie to sell to the
Company, any of the Huie Shares, and Holdings relinquished the Holdings Funding
Right. Pursuant to the Put/Call Amendment, Holdings, J. Peter Kline, John A.
Beckert, Richard N. Beckert and Edward J. Rohling assumed the Company's
obligations with respect to the put rights held by Mr. Huie under the Huie
Put/Call Option Agreement, and each acquired a portion of the Call Option to
purchase from Mr. Huie a maximum of 895,194, 75,988, 44,480, 12,974 and 12,974
shares of Common Stock, respectively. Immediately prior to the IPO, Messrs.
Kline, J. Beckert, R. Beckert and Rohling exercised their call rights in full.
Commencing with January 1996, Holdings is required to make monthly payments to
Mr. Huie of an amount equal to a return factor on the purchase price ranging
between 12% and 15% per annum (in lieu of the purchase price being further
adjusted to include such amount).
The Huie Put/Call Option Agreement provides that Mr. Huie will not transfer
to any person any of the Huie Shares owned by Mr. Huie unless such person has
agreed in writing to be bound by the provisions of the Huie Put/Call Option
Agreement as though a party thereto. The Huie Put/Call Option Agreement
terminates upon the later of (i) February 27, 2000 and (ii) the fourth
anniversary of the Resolution Date, or earlier upon dissolution or bankruptcy of
the Company.
DISPOSITION OF NON-HOTEL PROPERTIES
In September 1995, the Company disposed of certain of its non-hotel
properties, which management believed were not integral to the Company's
operations (the "Non-Hotel Properties Disposition"). To effect the Non-Hotel
Properties Disposition, Holdings and the Harvey Equity Holders formed HH Land
Company, L.P. ("HH Land Company"), which acquired six parcels of real property
and all of the capital stock of certain subsidiaries of United Inns which owned
or had owned certain non-hotel properties and other assets (mainly two car wash
operations and undeveloped tracts of land) for $87,000 and the assumption of all
environmental liabilities relating to the acquired properties. Based on the
Company's experience in the real estate area and valuations conducted with
respect to such assets in connection with the January Acquisitions, the Company
believes that the terms of such sales approximated the fair market value of the
assets sold.
In connection with the Non-Hotel Properties Disposition, HH Land Company has
agreed to indemnify the Company, United Inns and their respective affiliates and
subsidiaries from all losses incurred by them arising out of any environmental
liabilities relating to the acquired properties or any non-hotel properties
previously owned by the acquired subsidiaries; nevertheless, under certain
environmental laws, the Company remains liable for certain environmental costs
associated with the transferred properties.
OFFICER NOTES
In connection with the acquisition of their partnership interests in Harvey
Hotel Company in 1991, Harvey Hotel Company issued notes to Richard N. Beckert
and Edward J. Rohling in the amounts of $286,676 and $299,429, respectively. In
1994, Harvey Hotel Company issued Mr. Rohling an additional note in the amount
of $105,099. All of these notes were repaid in full, including interest, in
connection with the January Acquisitions.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's directors and executive officers, and their ages and positions
with the Company as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------
<S> <C> <C>
Donald J. McNamara 43 Chairman of the Board; Director
Robert A. Whitman 42 Vice Chairman of the Board; Director
J. Peter Kline 48 President and Chief Executive Officer;
Director
John A. Beckert 42 Chief Operating Officer and Executive
Vice President; Director
Richard N. Beckert 39 Vice President--Administration
Robert L. Miars 45 Vice President--Design and Construction
Edward J. Rohling 41 Senior Vice President--Development
Joel M. Eastman 45 Vice President, Secretary and General
Counsel
Jeffrey P. Mayer 40 Vice President and Chief Financial
Officer
Daniel A. Decker 43 Director
Richard M. FitzPatrick 42 Director
David A. Dittman 50 Director
Robert H. Lutz, Jr. 46 Director
Paul Novak 50 Director
</TABLE>
Donald J. McNamara has been a Director and Chairman of the Board of the
Company since November 1994. Mr. McNamara is the founder and Chairman of The
Hampstead Group, Inc. ("Hampstead") a privately-held real estate investment
company with substantial activities in the hospitality and retirement housing
industries. Prior to forming Hampstead in September 1988, Mr. McNamara was
responsible for real estate investments for the Bass family of Fort Worth,
Texas, and in that capacity served as Chairman and Chief Executive Officer of
Americana Hotels Corporation from 1985 to 1987, and as President and Chief
Financial Officer for Americana Hotels & Realty Corporation, a New York Stock
Exchange listed real estate investment trust, from 1985 to 1986. Between 1982
and 1984, Mr. McNamara was a vice president in the treasury group at Marriott
Corporation. Mr. McNamara also was the Chairman of the Board of Forum
Retirement, Inc., the general partner of Forum Retirement Partners, L.P., a
master limited partnership, and a director of FelCor Suite Hotels, Inc. and,
from May 1991 to September 1995, was a director of La Quinta Inns, Inc.
Robert A. Whitman has been a Director and Vice Chairman of the Board of the
Company since November 1994 and President and Co-Chief Executive Officer of
Hampstead since 1991. Prior to 1991, Mr. Whitman served as Managing Partner and
Chief Executive Officer of Trammell Crow Ventures, the real estate investment,
banking and investment management unit of the Trammell Crow Company and, from
prior to 1990 to 1992, was Chief Financial Officer for the Trammell Crow
Company. Mr. Whitman was a director of Forum Group, Inc., a company engaged in
the ownership and operation of senior living facilities ("Forum Group") from
June 1993 to March 1996. Mr. Whitman served as the Chairman of the Board of
Forum Group from June 1993 until September 1995, and as the interim President
and Chief Executive Officer of Forum Group from June 1993 until October 1994.
J. Peter Kline has been the President and Chief Executive Officer of the
Company (and, prior to the January Acquisitions, Harvey Hotel Company) since
1981 and a Director of the Company since
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February 1995. He has been President, Chief Executive Officer and a Director of
Opco since its inception in November 1995. Mr. Kline has led the development and
expansion of the Company's operating organization since its inception and has
been intimately involved in the financing, design and construction of the
Company's hotels. Prior to 1981, Mr. Kline was a partner in Laventhol & Horwath
("L&H"), an international public accounting firm which specialized in services
to the hospitality industry. From 1976 to 1980, Mr. Kline was in charge of L&H's
Management Advisory Services division in Texas, which provided both operational
and financial consulting services from offices in Dallas and Houston. From 1971
to 1976, Mr. Kline was based in Philadelphia, specializing in operational and
financial systems consulting to national clients of L&H. Mr. Kline serves on the
Board of the North Texas Commission and the Administrative Board of the Cornell
University Council.
John A. Beckert has been Chief Operating Officer and Executive Vice
President of the Company (and, prior to the January Acquisitions, Harvey Hotel
Company) since 1985 and a Director of the Company since February 1995. He has
been Chief Operating Officer, Executive Vice President and a Director of Opco
since its inception in November 1995. Mr. Beckert joined the Company in 1981 and
served as General Manager of the Harvey Hotel - Dallas and the Harvey Hotel -
Plano before assuming responsibility for multi-property operations in 1985.
Prior to joining the Company, Mr. Beckert managed Der Deli, a family restaurant
and catering business in Dallas, and, before that, was employed by Marriott
Corporation in its Theme Park Division. Mr. Beckert serves on the board of
directors of the North Texas Food Bank. John A. Beckert is the brother of
Richard N. Beckert.
Richard N. Beckert has been Vice President--Administration of the Company
(and, prior to the January Acquistions, Harvey Hotel Company) since September
1994. Prior thereto, Mr. Beckert served as Vice President--Development from 1992
to 1994, Regional Vice President from 1986 to 1992 and General Manager for a
Company hotel from 1983 to 1986.
Robert L. Miars has been Vice President--Design and Construction of the
Company since February 1995. Prior to joining the Company, Mr. Miars was
President of Huie Miars Custom Homes from 1989 to February 1995 and President of
Huie Miars Construction Company from 1989 to 1995. Mr. Miars has been associated
with various entities owned by Mr. Huie, the founder of the Harvey Hotels
business, since 1975 and was responsible for supervising the construction of the
seven Original Hotels owned by the Company since before August 1994.
Edward J. Rohling has been Senior Vice President--Development of the Company
since May 1, 1996 and Vice President of Opco since its inception in November
1995. Prior thereto, he had been Senior Vice President--Sales and Marketing of
the Company since February 1996. From 1988 to February 1996, Mr. Rohling served
as Vice President--Marketing of the Company (and prior to the January
Acquisitions, Harvey Hotel Company) and from 1982 to 1988, Mr. Rohling served as
General Manager of various of the Company's hotels. Prior to joining the
Company, Mr. Rohling was employed by the Theme Park Division of Marriott
Corporation.
Joel M. Eastman has been Vice President, Secretary and General Counsel of
the Company since October 1995 and of Opco since its inception in November 1995.
From 1991 until joining the Company, Mr. Eastman was a partner in the law firm
of Munsch Hardt Kopf Harr & Dinan, P.C. From 1978 to 1991, Mr. Eastman was
associated with, and became a partner of, the law firm of Stollenwerck, Moore &
Silverberg, P.C.
Jeffrey P. Mayer has been Vice President and Chief Financial Officer of the
Company and of Opco since January 1996. Prior to joining the Company and Opco,
Mr. Mayer served as Senior Vice President, Corporate Controller and Chief
Accounting Officer of Host Marriott Corporation (formerly Marriott Corporation)
("Marriott") from 1993 to 1996, as Vice President--Project Finance of Marriott
from 1991 to 1993 and in various positions with Marriott's finance department
from 1986 to 1991. Prior to joining Marriott, Mr. Mayer was an Audit Manager
with Arthur Andersen & Co. in Atlanta, Georgia.
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<PAGE>
Daniel A. Decker has been a Director of the Company since November 1994. Mr.
Decker has been a partner of Hampstead since 1990. Prior to 1990, Mr. Decker was
a partner in the law firm of Decker, Hardt, Kopf, Harr, Munsch & Dinan, P.C. Mr.
Decker was a director of Forum Group from June 1993 to March 1996.
Richard M. FitzPatrick has been a Director of the Company since February
1995 and Vice President of Hampstead since 1989. Prior to joining Hampstead, Mr.
FitzPatrick served as Vice President and Chief Accounting Officer of Americana
Hotels Corporation from 1984 to 1988.
David A. Dittman has been a Director of the Company since December 1995.
Since 1990, Mr. Dittman has been the Dean of the Cornell University School of
Hotel Administration and an E.M. Statler Professor.
Robert H. Lutz, Jr. has been a Director of the Company since December 1995.
Since 1994, Mr. Lutz has been the Chairman and Chief Executive Officer of, and
is a member of the executive committee of, Amresco, Inc., a financial services
company. From 1991 to 1994, Mr. Lutz served as President and Chief Operating
Officer of Balcor/Allegiance Realty Group, a subsidiary of American Express
Company engaged in real estate ownership and management.
Paul Novak has been a Director of the Company since December 1995. Since
1994, Mr. Novak has served as President and Chief Executive Officer of Bedrock
Partners, a hotel investment division of Hampstead. Prior to joining Hampstead,
Mr. Novak owned a consulting firm, directing real estate development,
acquisition and marketing for various types of companies, and, from 1981 to
1992, served as Senior Vice President of Development for Marriott Corporation of
Washington, D.C.
DIRECTORS AND EXECUTIVE OFFICERS OF OPCO
Opco's directors and executive officers, and their ages and positions with
Opco as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------
<S> <C> <C>
J. Peter Kline 48 President and Chief Executive Officer;
Director
John A. Beckert 42 Chief Operating Officer and Executive
Vice President; Director
Edward J. Rohling 41 Vice President
Joel M. Eastman 44 Vice President, Secretary and General
Counsel
Jeffrey P. Mayer 40 Vice President and Chief Financial
Officer
</TABLE>
For biographical information on each of the above-listed persons, see
"--Directors and Executive Officers of the Company."
Terms. The Company's Certificate of Incorporation and By-Laws provide that,
from and after the Company's 1996 annual meeting of stockholders, the directors
of the Company are to be classified into three classes with the directors in
each class serving for three-year terms and until their successors are elected,
except that the initial terms of the initial directors of the Company will
expire at the 1997, 1998 or 1999 annual meeting of the stockholders of the
Company, depending upon the particular class in which each such director is
placed. The terms of the persons presently serving on the Board will expire at
the annual meeting of stockholders for the years indicated: Messrs. Kline and
Decker--1997; Messrs. Whitman and FitzPatrick--1998; and Messrs. McNamara and
Beckert--1999. Any additional person selected to the Board will be added to a
particular class of directors to be determined at the time of such election; in
accordance with the Company's Certificate of Incorporation and By-Laws, the
number of directors in each class will be identical, or as nearly as practicable
thereto, based on the total number of directors then serving as such. The term
of each director of Opco ends when his successor has been elected at the next
following annual meeting of stockholders and qualified or upon his removal or
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<PAGE>
resignation. Officers of the Company and Opco serve at the pleasure of their
respective Boards of Directors.
Board Committees. The Board has established five committees--the Executive
Committee, a finance committee (the "Finance Committee"), an audit review
committee (the "Audit Review Committee"), a compensation committee (the
"Compensation Committee") and a director plan committee (the "Director Plan
Committee"). Between regular meetings of the full Board, the Executive Committee
has the authority, consistent with the General Corporation Law of the State of
Delaware (the "DGCL"), to exercise all of the powers of the Board in the
oversight of the management of the business and affairs of the Company. The
Executive Committee also is responsible for considering and making
recommendations to the Board regarding nominees for election to the Board and
Board committee assignments. Between regular meetings of the full Board, the
Finance Committee has the authority, consistent with the DGCL, to exercise all
of the powers of the Board in the oversight of the financial affairs of the
Company. The Audit Review Committee reviews the professional services provided
by the Company's independent auditors and the independence of such auditors from
management of the Company. The Audit Review Committee also reviews the scope of
the audit by the Company's independent auditors, the annual financial statements
of the Company, the Company's system of internal accounting controls and such
other matters with respect to the accounting, auditing and financial reporting
practices and procedures of the Company as it finds appropriate or as are
brought to its attention, and meets from time to time with members of the
Company's internal audit staff. At least two members of the Audit Review
Committee must be directors who are not employed by the Company, Holdings or any
of their respective affiliates ("Unaffiliated Directors"). Members of the
Compensation Committee must be persons who are not full-time employees of the
Company and are not eligible to receive options or other rights under any
employee stock or other benefit plan (other than plans in which only directors
may participate). The Compensation Committee reviews executive salaries,
administer the bonus, incentive compensation and stock option plans of the
Company and approves the salaries and other benefits of the executive officers
of the Company. In addition, the Compensation Committee consults with the
Company's management regarding pension and other benefit plans and compensation
policies and practices of the Company. The sole function of the Director Plan
Committee is to administer the Company's Stock Option Plan for Non-Employee
Directors. See "--Executive Compensation."
Director Nomination Procedures. Nominations for election of directors of the
Company may be made by the Board as described above or by any stockholder
entitled to vote in the election of directors generally. The Company's By-Laws
require that stockholders intending to nominate candidates for election as
directors deliver written notice thereof to the Secretary of the Company not
later than 60 days in advance of the meeting of stockholders; provided, however,
that in the event that the date of the meeting is not publicly announced by the
Company by inclusion in a report filed with the Commission or furnished to
stockholders, or by mail, press release or otherwise more than 75 days prior to
the meeting, notice by the stockholder to be timely must be delivered to the
Secretary of the Company not later than the close of business on the tenth day
following the day on which such announcement of the date of the meeting was so
communicated. The Company's By-Laws further require that the notice by the
stockholder set forth certain information concerning such stockholder and the
stockholder's nominees, including their names and addresses, a representation
that the stockholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice, the class and number of shares of the Company's stock owned or
beneficially owned by such stockholder, a description of all arrangements or
understandings between the stockholder and each nominee, such other information
as would be required to be included in a proxy statement soliciting proxies for
the election of the nominees of such stockholder and the consent of each nominee
to serve as a director of the Company if so elected. The chairman of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with these requirements.
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<PAGE>
Director Compensation. For his or her services as a member of the Board and
of any committee thereof, each director who is not a full-time employee of the
Company or an employee of a 10% beneficial owner or an affiliate thereof
automatically is granted annually a non-qualified option to purchase 5,000
shares of Common Stock at an exercise price equal to the then-current market
price of the Common Stock. In addition, all directors are reimbursed for their
out-of-pocket expenses incurred in connection with attendance at meetings of the
Board and Board committees and other activities relating thereto. Members of the
Board of Directors of Opco receive no compensation for their services in such
capacity.
EXECUTIVE COMPENSATION
Prior to the January Acquisitions, the executive officers of Bristol Hotel
Company (other than Mr. Miars) were executive officers of Harvey Hotel Company.
The following table sets forth certain information regarding the compensation
paid to the Chief Executive Officer and each of the other most highly
compensated executive officers of Harvey Hotel Company who earned at least
$100,000 in total salary and bonus in 1994 and the compensation paid to the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers in 1995 and two former officers of the
Company who would have been part of the four highly compensated executive
officers but for their termination of employment during 1995 (collectively, with
the Chief Executive Officer, the "Named Executive Officers"). Executive officers
of Opco receive no compensation for their services in such capacity.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (1) COMPENSATION (2)
- ------------------------------------------ ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
J. Peter Kline............................ 1995 $231,353 $ 63,521(5) 150,000 $2,073
President and Chief Executive Officer 1994 146,400 130,254 -- 3,429
John A. Beckert........................... 1995 231,353 64,062(5) 150,000 3,310
Chief Operating Officer and 1994 146,400 121,571 --
Executive Vice President
Richard N. Beckert........................ 1995 150,461 66,678(5) 133,000 2,314
Vice President 1994 120,000 108,545 --
Edward J. Rohling......................... 1995 163,576 71,687(5) 144,000 2,711
Vice President 1994 120,000 130,254 --
Robert L. Miars........................... 1995 126,422 74,282 33,000 --
Vice President 1994 -- -- --
Augustus Randle(3)........................ 1995 91,261 243,749 -- --
Vice President 1994 N/A N/A N/A N/A
J. Don Miller(4).......................... 1995 91,261 243,749 -- --
Vice President 1994 N/A N/A N/A N/A
</TABLE>
- ------------
(1) Reflects options to acquire shares of Common Stock granted pursuant to the
Company's 1995 Equity Incentive Plan.
(2) Consists entirely of contributions by the Company to the Company's 401(k)
plan.
(3) A. Randle left Company's employ on 11/30/95. $215,669 of bonus was paid in
March of 1995 as part of an employment contract with United Inns.
(4) J.D. Miller left Company's employ on 10/19/95. $219,086 of bonus was paid in
March of 1995 as part of an employment contract with United Inns.
(Footnotes continued on following page)
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<PAGE>
(Footnotes continued from preceding page)
(5) Bonus calculations for the 4th quarter of 1995 have not been completed as of
this date, accordingly no amount has been included as earned for the 4th
quarter. When completed the bonus amount will not exceed 50% of the
officer's salary for the 4th quarter.
STOCK OPTION GRANTS
The following table sets forth certain information with respect to the
options granted to the Named Executive Officers during 1995.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1995
POTENTIAL REALIZED
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN OR MARKET EXPIRATION --------------------------------
NAME GRANTED 1995 FISCAL YEAR BASE PRICE PRICE DATE 0% 5% 10%
- -------------------- ---------- ---------------- ---------- ------ ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Peter Kline...... 100,000(1) 12.8% $12.50 2/27/05 $ 0 $786,118 $1,992,178
50,000(2) 6.4 12.50 $14.00 9/29/05 75,000 515,226 1,190,620
John A. Beckert..... 100,000(1) 12.8 12.50 2/27/05 0 786,118 1,992,178
50,000(2) 6.4 12.50 14.00 9/29/05 75,000 515,226 1,190,620
Richard N.
Beckert............. 100,000(1) 12.8 12.50 2/27/05 0 786,118 1,992,178
33,000(2) 4.2 12.50 14.00 9/29/05 49,500 340,049 785,809
Edward J. Rohling... 100,000(1) 12.8 12.50 2/27/05 0 786,118 1,992,178
44,000(2) 5.6 12.50 14.00 9/29/05 66,000 453,399 1,047,745
Robert L. Miars..... 33,000(2) 4.2 12.50 14.00 9/29/05 49,500 340,049 785,809
Augustus Randle..... -- -- -- -- -- -- -- --
J. Don Miller....... -- -- -- -- -- -- -- --
</TABLE>
- ------------
(1) This option becomes exercisable with respect to 100% of the shares covered
thereby on February 27, 1998. The exercise price is equal to the fair market
value per share of Common Stock on the date of grant.
(2) This option becomes exercisable with respect to 100% of the shares covered
thereby on September 29, 2000.
The following table sets forth certain information with respect to options
held at December 31, 1995 by the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION VALUES AT DECEMBER 31, 1995
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
NAME DECEMBER 31, 1995 (1) AT DECEMBER 31, 1995 (1)(2)
- ---------------------------------------- ---------------------- ---------------------------
<S> <C> <C>
J. Peter Kline.......................... 150,000 $ 1,781,250
John A. Beckert......................... 150,000 1,781,250
Richard N. Beckert...................... 133,000 1,579,375
Edward J. Rohling....................... 144,000 1,710,000
Robert L. Miars......................... 33,000 391,875
</TABLE>
- ------------------------
(1) All options held by the Named Executive Officers at December 31, 1995 were
unexercisable.
(2) The closing price per share of Common Stock as reported by the New York
Stock Exchange on December 29, 1995 was $24.375. Value is calculated on the
basis of the difference between the option exercise price and $24.375
multiplied by the number of shares of Common Stock covered by the option.
70
<PAGE>
COMPENSATION PLANS AND ARRANGEMENTS
Management Bonus Plan. The Company has established a Management Bonus Plan,
pursuant to which key management employees of the Company are eligible to
receive cash bonuses based upon the achievement of specified targets and goals
for the Company and for the particular employees. Each officer of the Company is
eligible to receive annual bonus awards based on the achievement of performance
criteria established by a bonus review committee consisting of the officers of
the Company and its director of finance.
401(k) Plan. The Company maintains and offers to its employees, including
its executive officers, a profit sharing plan with a 401(k) feature (the "401(k)
Plan"). Eligible employees may contribute to the 401(k) Plan through salary
deferral elections of not less than 1% nor more than 16% of the employee's
salary. Contributions of up to 6% of a participant's salary are eligible for
matching contributions from the Company. Such matching contributions are
discretionary with the Company and are subject to change as authorized by the
Board, provided that aggregate matching contributions by the Company do not
exceed certain statutory limitations. Contributions by participants are always
100% vested and contributions by the Company vest over a period of years,
becoming fully vested after seven years of continuous employment. The 401(k)
Plan is intended to qualify under Section 401 of the Internal Revenue Code of
1986, as amended (the "Code"), so that contributions by participants or by the
Company to the 401(k) Plan, and income earned on such contributions, are not
taxable to the participants until withdrawn from the 401(k) Plan.
Equity Incentive Plan. In connection with the January Acquisitions, the
Company adopted the 1995 Equity Incentive Plan, which was amended prior to
consummation of the Offering (as amended, the "Equity Incentive Plan") and which
is designed to attract and retain qualified officers and other key employees of
the Company. The Equity Incentive Plan authorizes the grant of options to
purchase shares of Common Stock ("Option Rights"), stock appreciation rights
("Appreciation Rights"), restricted shares ("Restricted Shares"), deferred
shares ("Deferred Shares"), performance shares ("Performance Shares") and
performance units ("Performance Units").
The Compensation Committee administers the Equity Incentive Plan and
determines to whom Option Rights, Appreciation Rights, Restricted Shares,
Deferred Shares, Performance Shares and Performance Units are to be granted and
the terms and conditions, including the number of shares and the period of
exercisability, thereof.
Shares and Performance Units Available under the Equity Incentive Plan.
-----------------------------------------------------------------------
Subject to adjustment as provided in the Equity Incentive Plan, the number of
shares of Common Stock that may be issued or transferred and covered by
outstanding awards granted under the Equity Incentive Plan shall not in the
aggregate exceed 1,300,000 shares, which may be shares of original issuance or
treasury shares or a combination thereof. Officers, including officers who are
members of the Board, and other key employees of and consultants to the Company
and its subsidiaries may be selected by the Compensation Committee to receive
benefits under the Equity Incentive Plan.
Option Rights. The Compensation Committee may grant Option Rights that
-------------
entitle the optionee to purchase shares of Common Stock at a price equal to or
greater or less than market value on the date of grant, and the Option Rights
may be conditioned on the achievement of specified performance objectives
("Management Objectives"). Subject to adjustment as provided in the Equity
Incentive Plan, no participant shall be granted Option Rights and Appreciation
Rights, in the aggregate, for more than 100,000 shares during any calendar year.
The Compensation Committee may provide that the option price is payable at the
time of exercise (i) in cash, (ii) by the transfer to the Company of
nonforfeitable, unrestricted shares of Common Stock that are already owned by
the optionee, (iii) with any other legal consideration the Compensation
Committee may deem appropriate or (iv) by any combination of the foregoing
methods of payment. Any grant may provide for deferred payment of the option
price from the proceeds of sale through a broker on the date of exercise of some
or all of the shares of Common Stock to which the exercise relates. Any grant
may provide for automatic grant of reload option rights
71
<PAGE>
upon the exercise of Option Rights, including reload option rights, for shares
of Common Stock or any other noncash consideration authorized under the Equity
Incentive Plan; provided, however, that the term of any reload option right
shall not extend beyond the term of the Option Right originally exercised. The
Compensation Committee has the authority to specify at the time Option Rights
are granted that shares of Common Stock will not be accepted in payment of the
option price until they have been owned by the optionee for a specified period;
however, the Equity Incentive Plan does not require any such holding period and
would permit immediate sequential exchanges of shares of Common Stock at the
time of exercise of Option Rights.
Option Rights granted under the Equity Incentive Plan may be Option Rights
that are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code, or Option Rights that are not intended to so qualify.
Any grant may provide for the payment of dividend equivalents to the optionee on
a current, deferred or contingent basis or may provide that dividend equivalents
be credited against the option price.
No Option Right may be exercised more than ten years from the date of grant.
Each grant must specify the period of continuous employment with, or continuous
engagement of consulting services by, the Company or any subsidiary that is
necessary before the Option Rights will become exercisable and may provide for
the earlier exercise of the Option Rights in the event of a change of control of
the Company or other similar transaction or event. Successive grants may be made
to the same optionee regardless of whether Option Rights previously granted to
him or her remain unexercised.
Appreciation Rights. Appreciation Rights granted under the Equity Incentive
-------------------
Plan may be either free-standing Appreciation Rights or Appreciation Rights that
are granted in tandem with Option Rights or any similar rights granted under any
other plan of the Company. An Appreciation Right represents the right to receive
from the Company the difference (the "Spread"), or a percentage thereof not in
excess of 100%, between the base price per share of Common Stock in the case of
a free-standing Appreciation Right, or the option price of the related Option
Right or similar right in the case of a tandem Appreciation Right, and the
market value of the Common Stock on the date of exercise of the Appreciation
Right. Tandem Appreciation Rights may only be exercised at a time when the
related Option Right or similar right is exercisable and the Spread is positive,
and the exercise of a tandem Appreciation Right requires the surrender of the
related Option Right for cancellation. A free-standing Appreciation Right must
specify a base price, which may be equal to or greater or less than the fair
market value of a share of Common Stock on the date of grant, must specify the
period of continuous employment, or continuous engagement of consulting
services, that is necessary before the Appreciation Right becomes exercisable
(except that it may provide for its earlier exercise in the event of a change in
control of the Company or other similar transaction or event) and may not be
exercised more than 10 years from the date of grant. Successive grants of
free-standing Appreciation Rights may be made to the same participant regardless
of whether any free-standing Appreciation Rights previously granted to the
participant remain unexercised. Any grant of Appreciation Rights may specify
that the amount payable by the Company upon exercise may be paid in cash, Common
Stock or a combination thereof and may (i) either grant to the recipient or
retain in the Compensation Committee the right to elect among those alternatives
or (ii) preclude the right of the participant to receive, and the Company to
issue, Common Stock or other equity securities in lieu of cash. In addition, any
grant may specify that the Appreciation Right may be exercised only in the event
of a change in control of the Company. Subject to adjustment as provided in the
Equity Incentive Plan, no participant shall be granted Option Rights and
Appreciation Rights, in the aggregate, for more than 100,000 shares during any
calendar year. The Compensation Committee may condition the award of
Appreciation Rights on the achievement of one or more Management Objectives and
may provide with respect to any grant of Appreciation Rights for the payment of
dividend equivalents thereon in cash or Common Stock on a current, deferred or
contingent basis.
Restricted Shares. An award of Restricted Shares involves the immediate
-----------------
transfer by the Company to a participant of ownership of a specific number of
shares of Common Stock in consideration of the
72
<PAGE>
performance of services. The participant is entitled immediately to voting,
dividend and other ownership rights in the shares. The transfer may be made
without additional consideration or for consideration in an amount that is less
than the market value of the shares on the date of grant, as the Compensation
Committee may determine. The Compensation Committee may condition the award on
the achievement of specified Management Objectives.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Compensation Committee. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as an
officer or other salaried employee during a specified period of years. In order
to enforce these forfeiture provisions, the transferability of Restricted Shares
will be prohibited or restricted in a manner and to the extent prescribed by the
Compensation Committee on the date of grant. The Compensation Committee may
provide for a shorter period during which the forfeiture provisions are to apply
in the event of a change in control of the Company or other similar transaction
or event.
Deferred Shares. An award of Deferred Shares constitutes an agreement by the
---------------
Company to deliver shares of Common Stock to the participant in the future in
consideration of the performance of services, subject to the fulfillment of such
conditions during the Deferral Period (as defined in the Equity Incentive Plan)
as the Compensation Committee may specify. During the Deferral Period, the
participant has no right to transfer any rights covered by the award and no
right to vote the shares covered by the award. On or after the date of any grant
of Deferred Shares, the Committee may authorize the payment of dividend
equivalents thereon on a current, deferred or contingent basis in either cash or
additional shares of Common Stock. Grants of Deferred Shares may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant. Deferred Shares must be subject
to a Deferral Period, as determined by the Compensation Committee on the date of
grant, except that the Compensation Committee may provide for a shorter Deferral
Period in the event of a change in control of the Company or other similar
transaction or event. The Compensation Committee may condition the award of
Deferred Shares on the achievement of one or more Management Objectives.
Performance Shares and Performance Units. A Performance Share is the
----------------------------------------
equivalent of one share of Common Stock, and a Performance Unit is the
equivalent of $1.00. A participant may be granted any number of Performance
Shares or Performance Units, which shall be specified in any such grant. The
participant will be given one or more Management Objectives to meet within a
specified period (the "Performance Period"). The specified Performance Period
may be subject to earlier termination in the event of a change in control of the
Company or other similar transaction or event. A minimum level of acceptable
achievement will also be established by the Compensation Committee. If the
participant has not achieved the Management Objectives but has attained or
exceeded the predetermined minimum level of acceptable achievement, the
participant will be deemed to have partly earned the Performance Shares or
Performance Units in accordance with a predetermined formula. To the extent
earned, the Performance Shares or Performance Units will be paid to the
participant at the time and in the manner determined by the Compensation
Committee in cash, shares of Common Stock or any combination thereof.
Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of the division,
subsidiary, department or function within the Company or a subsidiary in which
the participant is employed or with respect to which the participant provides
consulting services. The Compensation Committee may adjust any Management
Objectives and the related minimum level of acceptable achievement if, in its
judgment, transactions or events have occurred after the date of grant that are
unrelated to the participant's performance and result in distortion of the
Management Objectives or the related minimum level of acceptable achievement.
Transferability. No Option Right, Appreciation Right or other "derivative
---------------
security" within the meaning of Rule 16b-3 under the Exchange Act ("Rule 16b-3")
is transferable by a participant except
73
<PAGE>
by will or the laws of descent and distribution. Option Rights and Appreciation
Rights may not be exercised during a participant's lifetime except by the
participant or, in the event of the participant's incapacity, by the
participant's guardian or legal representative acting in a fiduciary capacity on
behalf of the participant under state law and court supervision. Notwithstanding
the foregoing, the Compensation Committee, in its sole discretion, may provide
for the transferability of particular awards under the Equity Incentive Plan so
long as such provisions will not disqualify the exemption for other awards under
Rule 16b-3, if such rule is then applicable to awards under the plan.
The Compensation Committee may specify at the date of grant that all or any
part of the shares of Common Stock that are to be issued or transferred by the
Company upon the exercise of Option Rights or Appreciation Rights, upon the
termination of the Deferral Period applicable to Deferred Shares or upon payment
under any grant of Performance Shares or Performance Units, or are to be no
longer subject to the substantial risk of forfeiture and restrictions on
transfer referred to in the Equity Incentive Plan with respect to Restricted
Shares, shall be subject to further restrictions on transfer.
Adjustments. The maximum number of shares that may be issued or transferred
-----------
under the Equity Incentive Plan, the number of shares covered by outstanding
Option Rights or Appreciation Rights and the option prices or base prices per
share applicable thereto, and the number of shares covered by outstanding grants
of Deferred Shares and Performance Shares, are subject to adjustment in the
event of stock dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar transactions or
events. In the event of any such transaction or event, the Compensation
Committee may in its discretion provide in substitution for any or all
outstanding awards under the Equity Incentive Plan such alternative
consideration as it may in good faith determine to be equitable in the
circumstances and may require the surrender of all awards so replaced. The
Compensation Committee may also, as it determines to be appropriate in order to
reflect any such transaction or event, make or provide for such adjustments in
the number of shares that may be issued or transferred and covered by
outstanding awards granted under the Equity Incentive Plan and the number of
shares permitted to be covered by awards granted under the plan to any one
participant during any calendar year.
Administration and Amendments. The Compensation Committee must consist of
-----------------------------
not less than two nonemployee directors who are "disinterested persons" within
the meaning of Rule 16b-3. In connection with its administration of the Equity
Incentive Plan, the Compensation Committee is authorized to interpret the Equity
Incentive Plan and related agreements and other documents. The Compensation
Committee may make grants to participants under any or a combination of all of
the various categories of awards that are authorized under the Equity Incentive
Plan and may condition the grant of awards on the surrender or deferral by the
participant of the participant's right to receive a cash bonus or other
compensation otherwise payable by the Company or a subsidiary to the
participant.
The Equity Incentive Plan may be amended from time to time by the
Compensation Committee, but without further approval by the stockholders of the
Company, no such amendment may (i) increase the aggregate number of shares of
Common Stock that may be issued or transferred and covered by outstanding awards
or increase the number of shares which may be granted to any participant in any
calendar year, or (ii) otherwise cause Rule 16b-3 to cease to be applicable to
the Equity Incentive Plan.
Federal Income Tax Consequences. The following is a brief summary of certain
-------------------------------
of the federal income tax consequences of certain transactions under the Equity
Incentive Plan based on federal income tax laws in effect on the date of this
Prospectus. This summary is not intended to be exhaustive and does not describe
state or local tax consequences.
Nonqualified Option Rights. In general: (i) no income will be recognized by
an optionee at the time a nonqualified Option Right is granted; (ii) at the time
of exercise of a nonqualified Option Right, ordinary income will be recognized
by the optionee in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares if they are
nonrestricted on the date of exercise; and (iii) at the time of sale of shares
acquired pursuant to the exercise of a nonqualified Option Right, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held.
74
<PAGE>
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to an optionee pursuant to the exercise of an incentive
stock option and no disqualifying disposition of the shares is made by the
optionee within two years after the date of grant or within one year after the
transfer of the shares to the optionee, then upon the sale of the shares any
amount realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to any excess of the fair market value of
the shares at the time of exercise (or, if less, the amount realized on the
disposition of the shares in a sale or exchange) over the option price paid for
the shares. Any further gain (or loss) realized by the optionee generally will
be taxed as short-term or long-term gain (or loss) depending on the holding
period.
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right. When the Appreciation Right
is exercised, the participant normally will be required to include as taxable
ordinary income in the year of exercise an amount equal to the amount of any
cash, and the fair market value of any nonrestricted shares of Common Stock,
received pursuant to the exercise.
Restricted Shares. A recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a substantial risk of forfeiture or
restrictions on transfer for purposes of Section 83 of the Code. However, a
recipient who so elects under Section 83(b) of the Code within 30 days of the
date of transfer of the shares will have taxable ordinary income on the date of
transfer of the shares equal to the excess of the fair market value of the
shares (determined without regard to the risk of forfeiture or restrictions on
transfer) over any purchase price paid for the shares. If a Section 83(b)
election has not been made, any dividends received with respect to Restricted
Shares that are subject at that time to a substantial risk of forfeiture and
restrictions on transfer generally will be treated as compensation that is
taxable as ordinary income to the recipient.
Deferred Shares. No income generally will be recognized upon the grant of
Deferred Shares. The recipient of a grant of Deferred Shares generally will be
subject to tax at ordinary income rates on the fair market value of
nonrestricted shares of Common Stock on the date that the Deferred Shares are
transferred to him or her, reduced by any amount paid by him or her, and the
capital gains or loss holding period for the Deferred Shares will also commence
on that date.
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.
Special Rules Applicable to Officers and Directors. In limited circumstances
where the sale of stock that is received as the result of a grant of an award
could subject an officer or director to suit under Section 16(b) of the Exchange
Act, the tax consequences to the officer or director may differ from the tax
consequences described above. In these circumstances, unless a special election
has been made, the principal difference usually will be to postpone valuation
and taxation of the stock received so long as the sale of the stock received
could subject the officer or director to suit under Section 16(b) of the
Exchange Act, but not longer than six months.
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, (i) the income meets the test of
reasonableness, is an
75
<PAGE>
ordinary and necessary business expense and is not an "excess parachute payment"
within the meaning of Section 280G of the Code and is not disallowed by the $1.0
million limitation on certain executive compensation and (ii) any applicable
reporting obligations are satisfied.
Outstanding Options. Pursuant to the Equity Incentive Plan, the Company has
granted stock options to purchase an aggregate of 883,843 shares of Common
Stock. On February 27, 1995, the Company granted a nonqualified stock option to
purchase 100,000 shares of Common Stock at an exercise price of $12.50 per share
to each of J. Peter Kline, John A. Beckert, Richard N. Beckert and Edward J.
Rohling. Each of these options has a term of ten years and vests on February 27,
1998 as to 100% of the shares of Common Stock covered thereby, unless the
optionee dies or becomes disabled prior to such date, in which event the
optionee's option will vest and become exercisable to the extent of 2.77% of
shares of Common Stock covered thereby for each full calendar month since the
date of grant. As of September 29, 1995, the Company granted an additional
option to purchase 50,000 shares of Common Stock at an exercise price of $12.50
per share to each of J. Peter Kline and John A. Beckert, an option to purchase
44,000 shares to Edward J. Rohling and an option to purchase 33,000 shares to
each of Robert L. Miars and Richard N. Beckert. These options have the same
terms as the options issued on February 27, 1995, except that the later-issued
options vest as to 100% of the shares of Common Stock covered thereby on
September 29, 2000, unless the optionee dies or becomes disabled prior to such
date, in which event the optionee's option will vest and become exercisable to
the extent of 1.67% of shares of Common Stock covered thereby for each full
calendar month since the date of grant.
It is the present intention of the Board that additional Option Rights or
other awards will not be awarded until decisions are made regarding compensation
levels for 1997, except in connection with new hires, promotions or awards to
Unaffiliated Directors. Decisions as to the awarding of Option Rights or other
awards are within the discretion of the Compensation Committee.
Set forth in the table below are the total numbers of shares of Common Stock
underlying stock options that have been granted under the Equity Incentive Plan
to date to (i) the Named Executive Officers, (ii) all current executive officers
as a group, (iii) all current directors who are not executive officers as a
group and (iv) all employees, including all current officers who are not
executive officers, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
----------------- ------------------
<S> <C>
J. Peter Kline...................................... 150,000
President and Chief Executive Officer
John A. Beckert..................................... 150,000
Chief Operating Officer
and Executive Vice President
Edward J. Rohling................................... 144,000
Vice President
Richard N. Beckert.................................. 133,000
Vice President
Robert L. Miars..................................... 33,000
Vice President
Augustus Randle..................................... --
Secretary and General Counsel
J. Don Miller....................................... --
Vice President
Executive Group..................................... 757,500
Non-Executive Director Group........................ --
Non-Executive Officer Employee Group................ 126,343
</TABLE>
76
<PAGE>
The total number of stock options or other awards that will be granted under
the Equity Incentive Plan to the above-named individuals and groups in the
future is not determinable at this time. The Equity Incentive Plan is not
intended to be the exclusive means by which the Company may grant equity-based
incentive awards, and the adoption thereof will in no way limit the ability of
the Company to grant equity-based awards outside the Equity Incentive Plan.
Director Plan. The Stock Option Plan for Non-Employee Directors (the
"Director Plan") is intended to encourage outside directors of the Company to
own shares of the Company's stock and thereby to align their interests more
closely with the interests of the other stockholders of the Company, to
encourage the highest level of outside director performance by providing such
directors with a direct interest in the Company's attainment of its financial
goals and to provide financial incentives that will help attract and retain the
most qualified outside directors. Only members of the Board who are not
employees of the Company or an employee of a 10% beneficial owner or an
affiliate thereof (each an "Eligible Director") are eligible to participate in
the Director Plan. For purposes of the Director Plan, an "employee" is a person
whose compensation from the Company or such 10% beneficial owner, or an
affiliate thereof, as the case may be, is subject to withholding under the Code.
David A. Dittman and Robert H. Lutz, Jr. currently qualify as Eligible Directors
under the Director Plan.
The Director Plan is administered by the Director Plan Committee. The
Director Plan Committee has the power to interpret the Director Plan, to
determine all questions thereunder and to adopt and amend rules and regulations
for the administration of the Director Plan. Any interpretation, determination
or other action made or taken by the Director Plan Committee shall be final,
binding and conclusive. Notwithstanding the foregoing, the Director Plan
Committee has no authority, discretion or power to determine the terms or timing
of options to be granted under the Director Plan. The members of the Director
Plan Committee may not be held personally liable for any good faith
interpretation, determination or other action with respect to the Director Plan.
Subject to adjustment as described below, the number of shares of Common
Stock issued or transferred, plus the number of shares covered by outstanding
options, under the Director Plan may not exceed 100,000. Shares of Common Stock
covered by an option which is cancelled or terminated will again be available to
be issued or to be the subject of a stock option granted under the Director
Plan. The Director Plan Committee will make or provide for adjustments to the
maximum number of shares issuable pursuant to the Director Plan, the number and
kind of shares of Common Stock or other securities that are covered by
outstanding options, and the exercise price applicable to outstanding options as
the Director Plan Committee will in good faith determine to be equitably
required to prevent dilution or expansion of the rights of optionees which would
otherwise result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, any
merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization,
partial or complete liquidation or other distribution of assets, issuance of
warrants or other rights to purchase securities or any other corporate
transaction or event having an effect similar to any of the foregoing.
Any person who becomes an Eligible Director will automatically receive at
such time an option to purchase 5,000 shares of Common Stock at an exercise
price per share equal to the market value of a share of Common Stock on the date
the individual becomes a director (the options described in this sentence are
hereinafter referred to as "Initial Options"). For purposes of the Director
Plan, "fair market value" is the closing price of the shares of Common Stock as
reported on the Composite Transactions tape of the New York Stock Exchange on
the date an Initial Option is granted or, if there were no sales on such date,
on the most recent preceding date on which sales occurred. Initial Options
become exercisable to the extent of 34% of the shares covered thereby after the
optionee continuously has served as a director through the next annual
stockholders' meeting immediately following such grant date, and to the extent
of an additional 33% of the shares covered thereby in each of the next two
successive years if the optionee has continuously served as a director in such
years. Notwithstanding the foregoing, if an optionee dies or becomes disabled,
all Initial Options held by such optionee will become immediately exercisable in
full to the extent the Initial Options would have been exercisable had the
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optionee remained a director through the date of the Company's next annual
stockholders' meeting. To the extent exercisable, each Initial Option is
exercisable in whole or in part.
On the date of the annual meeting of the Company's stockholders in each
year, commencing with the 1996 annual meeting, each Eligible Director elected at
or continuing his or her term after such meeting automatically will be granted a
non-qualified option to purchase 5,000 shares of Common Stock at an exercise
price per share equal to the fair market value of a share of Common Stock on
such date ("Annual Option"). Annual Options become exercisable to the extent of
100% of the shares covered thereby on the date of the next annual stockholders'
meeting. Notwithstanding the foregoing, if an optionee dies or becomes disabled,
all Annual Options held by such optionee will become exercisable in full. To the
extent exercisable, each Annual Option is exercisable in whole or in part.
The exercise price of stock options granted under the Director Plan may be
paid in cash, shares of Common Stock held by the optionee for at least six
months, or a combination thereof. The requirement of payment in cash will be
deemed to be satisfied if the optionee provides for a broker who is a member of
the National Association of Securities Dealers, Inc. to sell a sufficient number
of shares of Common Stock being purchased so that the net sales proceeds equal,
at least, the exercise price, and such broker agrees to deliver the exercise
price to the Company not later than the settlement date of the sale. Shares of
Common Stock issued pursuant to the Director Plan may be authorized but unissued
shares or treasury stock. Fractional shares will not be issued in connection
with the exercise of a stock option, and cash in lieu thereof will be paid by
the Company. Each Initial Option and Annual Option (each an "Option") will
terminate on the earliest to occur of (i) three months after the optionee ceases
to serve as a director of the Company for a reason other than the optionee's
death or disability, (ii) one year following the optionee's death or disability,
or (iii) five years from the date of grant of the Option. Options will not be
transferable other than by will or the laws of descent or distribution and will
be exercisable during the lifetime of the optionee only by the optionee or, in
the event of the optionee's incapacity, by the optionee's guardian or legal
representative acting in a fiduciary capacity.
The Board may at any time amend or terminate the Director Plan.
Notwithstanding the foregoing, (i) except for the adjustments described above,
without the approval of the stockholders of the Company, no such amendment will
increase the maximum number of shares covered by the Director Plan, materially
modify the requirements as to eligibility for participation in the Director
Plan, or otherwise cause the Director Plan or any grant made pursuant thereto to
cease to satisfy any applicable condition of Rule 16b-3; (ii) no such amendment
will cause any director to fail to qualify as a "disinterested person" within
the meaning of Rule 16b-3; (iii) provisions relating to the amount and price of
securities to be awarded and the timing of awards under the Director Plan will
not be amended more than once every six months, other than to comport with
changes in the Code, the Employment Retirement Income Security Act, or the rules
promulgated thereunder; and (iv) no amendment or termination will adversely
affect any outstanding award without the consent of the director holding such
award.
No Options may be granted under the Director Plan after November 2005.
Federal Income Tax Consequences. The following is a brief summary of certain
-------------------------------
of the federal income tax consequences of certain transactions under the
Director Plan based on federal income tax laws in effect on December 31, 1995.
This summary is not intended to be exhaustive and does not describe state or
local tax consequences.
In general, (i) no income will be recognized by an optionee at the time an
Option is granted, and (ii) at the time of exercise of an Option, ordinary
income will be recognized by the optionee in an amount equal to the difference
between the option price paid for the shares and the fair market value of the
shares on the date of exercise.
To the extent that an optionee recognizes ordinary income in the
circumstances described above, the Company will be entitled to a corresponding
deduction provided that, among other things, the
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income meets the test of reasonableness, is an ordinary and necessary business
expense and is not an "excess parachute payment" within the meaning of Section
280G of the Code.
Director Plan Benefits. Options under the Director Plan will be granted
----------------------
automatically. The number of Initial Options and Annual Options to be granted
will depend on the number of Eligible Directors elected to the Board and the
timing of any such election.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Donald J. McNamara, Robert A. Whitman
and Robert H. Lutz, none of whom has ever served as an officer of the Company.
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OWNERSHIP OF COMMON STOCK
All of Opco's issued and outstanding capital stock is owned by the Company.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock at March 15, 1996 by (i) each person
that owns beneficially more than 5% of the Common Stock, (ii) each director and
executive officer of the Company and (iii) all directors and executive officers
of the Company as a group. The address for each of the individuals named in the
table is 14285 Midway Road, Suite 300, Dallas, Texas 75244. For purposes of the
table, a person or group of persons is deemed to have "beneficial ownership" of
any shares as of a given date which such person has the right to acquire within
60 days after such date.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES OWNED OUTSTANDING SHARES
------------ ------------------
<S> <C> <C>
United/Harvey Holdings, L.P. (1)............................... 9,373,118 56.6%
4200 Texas Commerce Tower West
2200 Ross Avenue
Dallas, Texas 75201
Donald J. McNamara (2)......................................... -- --
Robert A. Whitman (2).......................................... -- --
J. Peter Kline................................................. 795,634 4.8
John A. Beckert................................................ 465,736 2.8
Robert L. Miars................................................ 649,436 3.9
Richard N. Beckert............................................. 135,840 *
Edward J. Rohling.............................................. 150,840 *
Joel M. Eastman................................................ 1,500 *
Jeffrey P. Mayer............................................... -- --
Daniel A. Decker (2)........................................... -- --
Richard M. FitzPatrick......................................... -- --
David A. Dittman............................................... -- --
Robert H. Lutz................................................. 1,000 *
Paul Novak..................................................... -- --
Augustus Randle................................................ -- --
J. Don Miller.................................................. -- --
H.K. Huie, Jr. (3)............................................. 963,768 5.8
All directors and executive officers
as a group (14 persons) (2).................................. 2,199,986 13.3%
</TABLE>
- ------------
* Less than 1%.
(1) Includes 895,194 shares which may be purchased from Mr. Huie upon exercise
of Holdings' portion of the Call Option.
(2) By reason of various relationships among Messrs. McNamara, Whitman and
Decker and various entities having control relationships with Holdings, each
of Messrs. McNamara, Whitman and Decker may be deemed to own beneficially
the shares of Common Stock owned of record by Holdings. Messrs. McNamara,
Whitman and Decker disclaim beneficial ownership of all shares held of
record by Holdings, and, accordingly, such shares are excluded from the
table with respect to those persons.
(3) All but 68,574 shares are subject to the Call Option, pursuant to which
Holdings has an immediately exercisable right to purchase such shares. See
"Formation of the Company--Huie Put/Call Option Agreement."
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued pursuant to the
Indenture (the "Indenture") by and among The Bank of New York, as trustee (the
"Trustee"), the Company, as issuer, and Bristol Hotel Asset Company (the
"Guarantor" or "Opco"), as guarantor. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes
are subject to all such terms, and holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Indenture, including the definitions
therein of certain terms used below, does not purport to be complete and is
qualified in its entirety by reference to the Indenture, a copy of which is
available upon request from the Company or the Trustee and has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Certain of such defined terms are set forth below under "--Certain Definitions."
The New Notes will be senior obligations of the Company ranking pari passu
with all other existing and future senior debt of the Company and will rank
senior to all existing and future subordinated debt of the Company. The Company
is a holding company that conducts substantially all of its operations through
its subsidiaries. As indebtedness of a holding company, the New Notes will be
effectively subordinated to all existing and future obligations of the Company's
subsidiaries. At March 31, 1996, the aggregate amount of indebtedness of the
Company's subsidiaries (exclusive of unused commitments of $109.2 million under
the Senior Term Facility) was $111.4 million. The Guarantee (described below)
will rank pari passu with all other existing and future senior subordinated debt
of Opco. At March 31, 1996, Bristol Hotel Company had no indebtedness
outstanding except for the Old Notes.
The New Notes will be unconditionally and irrevocably guaranteed as to
payment of principal and interest by Opco pursuant to the terms of its
Guarantee.
The New Notes will not be entitled to the benefit of any sinking fund.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be issued in an aggregate principal amount equal to
$70,000,000 and will mature on December 18, 2000. Interest on the New Notes will
accrue at a rate of 11.22% per annum, from and including the date of
consummation of the Exchange Offer. Interest on the New Notes will be payable
semi-annually on June 15 and December 15 of each year (each, an "Interest
Payment Date"), commencing June 15, 1996. Additionally, interest on the New
Notes will accrue from the last interest payment date on which interest was paid
on the Old Notes surrendered in exchange therefor or, if no interest has been
paid on the Old Notes, from the date of original issue of the Old Notes.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will be issued in the form of one
or more registered notes in global form without coupons (each a "Global Note").
Upon issuance, each Global Note will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of DTC.
If a holder tendering Old Notes so requests, such holder's New Notes will be
issued as described below under "Certificated Securities" in registered form
without coupons (the "Certificated Securities").
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve System, (iii) a "clearing
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corporation" within the meaning of the Uniform Commercial Code, as amended, and
(iv) a "Clearing Agency" registered pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). DTC was created to hold
securities for its participants (collectively, "participants") and facilitates
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical transfer and delivery of certificates.
DTC's participants include securities brokers and dealers, banks and trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies (collectively, "indirect participants") that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of participants who
elect to exchange Old Notes with an interest in the Global Note and (ii)
ownership of the New Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interest of participants), the participants and the indirect
participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or Holder
of the New Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have New Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Securities, and will not be considered the owners or
Holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instruction or approval to the Trustee thereunder.
As a result, the ability of a person having a beneficial interest in New Notes
represented by a Global Note to pledge such interest to persons or entities that
do not participate in DTC's system or to otherwise take action with respect to
such interest may be affected by the lack of a physical certificate evidencing
such interest.
The Company understands that under existing industry practice, in the event
the Company requests any action of Holders or a Person that is an owner of a
beneficial interest in a Global Note desires to take any action that DTC, as the
Holder of such Global Note, is entitled to take, DTC would authorize the
participants to take such action and the participant would authorize Persons
owning through such participants to take such action or would otherwise act upon
the instruction of such Persons. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by DTC or for maintaining, supervising or
reviewing any records of DTC relating to such New Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered Holder of
the Global Note representing such New Notes under the Indenture. Under the terms
of the Indenture, the Company and the Trustee may treat the persons in whose
names the New Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payment and for any and all other
purposes whatsoever. Consequently, neither the Company nor the Trustee has or
will have any responsibility or liability for the payment of such amounts to
beneficial owners of New Notes (including principal, premium, if any, and
interest) or to immediately credit the accounts of the relevant participants
with such payment in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of DTC. Payments by the participants and the indirect participants to
the beneficial owners of New Notes will be
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governed by standing instructions and customary practice and will be the
responsibility of the participants or the indirect participants.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by DTC of its Global
Note, Certificated Securities will be issued to each person that DTC identifies
as the beneficial owner of the New Notes represented by the Global Note.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners of
the related New Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the New Notes to be issued).
GUARANTEE OF THE NOTES
The Guarantor will unconditionally and irrevocably guarantee, as a primary
obligor and not merely as a surety, to each Holder of Notes, that:
(a) the principal of and interest on the Notes will be duly and
punctually paid in full when due, whether at maturity, by acceleration or
otherwise (including without limitation the failure to make a payment to
purchase Notes tendered pursuant to a Change of Control Offer or an Asset
Sale or Issuance Offer), and interest on the overdue principal and (to the
extent permitted by law) interest, if any, on the Notes and all other
Obligations on the Notes and all other amounts due under the Indenture or
under the Transaction Agreements, the Pledge Agreement or the Exchange
Agreement will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and
(b) in case of any extension of time of payment or renewal of any Notes
or any of such other Obligations on the Notes, the same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at final stated maturity, by acceleration or
otherwise.
Failing payment when due of any amount so guaranteed, for whatever reason, the
Guarantor will be obligated to pay the same immediately. An Event of Default
under the Indenture or the Notes shall constitute an event of default under the
Guarantee, and shall entitle the Holders of Notes to accelerate the obligations
of the Guarantor in the same manner and to the same extent as the Obligations of
the Company on the Notes. The Guarantor also will agree to pay any and all costs
and expenses (including reasonable legal fees and expenses) incurred by the
Trustee or any Holder in enforcing any rights under the Guarantee.
The payment by the Guarantor of any amounts in respect of the Guarantee is
expressly subordinated and junior, except as provided in the Indenture, in right
and time of payment to the prior indefeasible payment in full of all Senior Debt
in accordance with the terms thereof to the extent and in the manner provided in
the Indenture, and the Guarantee is subordinated as a claim against the
Guarantor or any of its assets to the prior indefeasible payment in full of the
Senior Debt in accordance with the terms thereof, whether such a claim be (i) in
the ordinary course of business of the Guarantor or (ii) in the event of any
distribution of the assets of the Guarantor upon any voluntary or involuntary
dissolution, winding-up, total or partial liquidation or Reorganization of the
Guarantor.
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If (1) any default in the payment when due, whether upon acceleration or
otherwise, of the principal of, or premium (if any) or interest on, any Senior
Debt occurs and is continuing, (2) any other default on any Senior Debt occurs
and the maturity of such Senior Debt is accelerated in accordance with its terms
unless in either case, (x) the default has been cured or waived and any such
acceleration has been rescinded or (y) such Senior Debt has been paid in full or
(3) a Payment Blockage Period has occurred and is continuing (any such event
referred to in the preceding clauses (1), (2) and (3) being referred to herein
as a "Trigger Event"), (i) no payment or distribution of assets of the Guarantor
of any kind or character, whether in cash, property or securities or by way of
conversion, exchange, set-off or otherwise, shall be made in respect of the
Guarantee, and the Trustee and any Holder of Notes shall not accept or receive
any such payment or distribution in respect of the Guarantee except pursuant to
such proceeding, and no such payment or distribution shall be due or payable,
(ii) the Guarantor shall not purchase any of the Notes or any interest therein
or with respect thereto and (iii) the Guarantor shall not purchase, repurchase
or redeem any of the shares of the Capital Stock of Opco collateralizing the
Notes or any interest therein or with respect thereto (any action taken by the
Guarantor described in clauses (i), (ii) and (iii) above being referred to
herein as a "paying the Notes"); provided, however, that the Guarantor may pay
the Notes if the Company and the Trustee receive written notice approving such
action from the Representative of the Senior Debt with respect to which such
Trigger Event has occurred and is continuing. The term "Payment Blockage Period"
means the period (x) commencing upon the receipt by the Guarantor and the
Trustee of written notice (a "Blockage Notice") from the Representative of such
Senior Debt stating that there has occurred and is then continuing a default
(other than a default described in clause (1) or (2) of the preceding sentence)
with respect to any Senior Debt pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or upon the expiration of any applicable
grace periods and specifying an election to effect a Payment Blockage Period and
(y) ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Guarantor from the
Person or Persons who gave such Blockage Notice, (ii) by repayment in full of
such Senior Debt or (iii) because the default giving rise to such Blockage
Notice is no longer continuing). Subject to the provisions contained in clauses
(1) and (2) in the first sentence of this paragraph, the Guarantor may pay the
Notes after any Payment Blockage Period. The number of Blockage Notices that may
be given within a consecutive 360-day period and the defaults or events of
default that may give rise to a Payment Blockage Period are subject to
additional restrictions, as set forth in the Indenture.
If a Trigger Event shall have occurred and be continuing, any payment or
distribution of assets of the Guarantor of any kind or character to which the
Holders of the Notes or the Trustee under the Indenture would be entitled (other
than Reorganization Securities of Opco), except for the provisions hereof, shall
be paid by the Guarantor or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Holders of the Notes or by the Trustee under the Indenture if received by them,
directly to the holders of Senior Debt (pro rata to such holders on the basis of
the respective amounts of such Senior Debt held by such holders) or their
respective Representatives, as their respective interests may appear, for
application to the payment of all Senior Debt remaining unpaid until all such
Senior Debt shall have been indefeasibly paid in full (or payment thereof shall
have been duly provided to the satisfaction of the holders of the Senior Debt,
in their sole discretion), after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Debt.
If all Senior Debt shall not have been indefeasibly paid in full in
accordance with the terms thereof (or payment thereof shall not have been duly
provided for to the satisfaction of the holders of the Senior Debt, in their
sole discretion), neither the Trustee nor any Holder of any Notes shall, without
the prior written consent of the holders of the Senior Debt or their respective
Representatives, institute proceedings or take any other action to enforce the
Guarantee or exercise any right or remedy with respect thereto, except that the
Trustee and Holders of the Notes may present proofs of claim in any proceedings
with respect to the Reorganization of the Guarantor and vote the Notes with
respect to the
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Guarantee in matters arising in such proceedings. Without limiting the
generality of the foregoing, neither the Trustee nor any Holder of Notes shall,
in its capacity as a creditor of the Guarantor, without the prior written
consent of the holders of the Senior Debt or their respective Representatives,
commence or join with any other creditor or creditors of the Guarantor in
commencing any proceeding seeking to effect a Reorganization with respect to the
Guarantor or any of its Subsidiaries. Nothing in these provisions has any effect
on the right of the Holders or the Trustee to accelerate the maturity of the
Notes, to institute proceedings against the Company or to take any other action
to enforce any rights or remedies with respect to the Notes or any assets
securing the payment thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to June 15,
1997. Thereafter, the Notes will be subject to redemption at the option of the
Company on any Interest Payment Date, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon to the applicable redemption date, as indicated below:
REDEMPTION REDEMPTION
DATE PRICE
- ---------- ----------
June 15, 1997................................................... 108.0%
December 15, 1997............................................... 106.0%
June 15, 1998................................................... 104.0%
December 15, 1998............................................... 103.2%
June 15, 1999................................................... 102.4%
December 15, 1999............................................... 101.6%
June 15, 2000................................................... 100.8%
Thereafter...................................................... 100.0%
SELECTION AND NOTICE
If fewer than all of the Notes are to be redeemed, selection of the Notes or
portions thereof for redemption shall be made by the Trustee by lot, pro rata or
in such manner as it shall deem appropriate and fair and in such manner as
complies with any applicable legal requirements; provided that Notes of
denominations of $1,000 may be redeemed only in whole. Notices of redemption
shall be mailed by first class mail at least 30 days but not more than 60 days
before a Redemption Date to each Holder whose Notes are to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder can require the
Company to repurchase all or a portion (equal to $1,000 or an integral multiple
thereof) of the outstanding Notes held by such Holder pursuant to the offer
described below (the "Change of Control Offer"), at a purchase price equal to
101% of the principal amount thereof plus accrued interest, if any, to the date
of repurchase. Within 30 days of any Change of Control, (the "Change of Control
Date"), the Company shall send, by first class mail, a Change of Control Offer
notice to all Holders.
"Change of Control" means the occurrence of one or more of the following
events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more members of the Control Group, is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether
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such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 25% of the Company's Voting Stock;
provided, however, that the Control Group beneficially owns (as so defined),
directly or indirectly, in the aggregate a lesser percentage of the
Company's Voting Stock than such other person and does not have the right or
ability by voting power, contract or otherwise, to elect or designate for
election a majority of the Company's Board of Directors;
(ii) the Company ceases for any reason to own, beneficially and legally,
100% of the outstanding Capital Stock of Opco (excluding any required
directors' qualifying shares);
(iii) the sale or transfer of all or substantially all of the Company's
interest, whether direct or indirect, in the Hotels and their related
properties taken as a whole in a single transaction or series of related
transactions; or
(iv) during any period of two consecutive calendar years, individuals
who at the beginning of such period constituted the Board of Directors of
the Company or Opco (together with any new directors whose election or
nomination for election by the Company's stockholders was approved by a vote
of a majority of such directors then still in office, who either were
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the directors of the Company or Opco then in office.
ASSET SALE AND ISSUANCE OF EQUITY INTERESTS
The Indenture provides that the Company will not effect an Issuance or an
Asset Sale, and will not permit any Bristol Subsidiary to effect an Asset Sale
unless:
(i) the Company or the applicable Bristol Subsidiary receives
consideration at the time of such Asset Sale or Issuance at least equal to
the fair market value of the assets or shares sold, issued or otherwise
disposed of, as applicable (which, in the case of any Asset Sale or Issuance
involving shares or assets having a fair market value in excess of $5
million (including the value of all non-cash consideration), shall be
determined in good faith by the Company's Board of Directors); and
(ii) at least 75% of the consideration received by the Company or such
Bristol Subsidiary, as the case may be, from such Asset Sale or Issuance
shall be (w) cash, (x) Cash Equivalents, (y) other Hotel properties or (z)
Capital Stock of a Person owning Hotel properties, in each case, received at
the time of such sale or Issuance; provided, that any Asset Sale pursuant to
a condemnation, appropriation or other taking shall not be required to
satisfy the conditions set forth in clauses (i) and (ii) above.
Within 180 days after the receipt of Net Available Cash from an Asset Sale
or Issuance, the Company shall apply, or shall cause the applicable Bristol
Subsidiary to apply, the Net Available Cash to invest in the Hotel Business (the
"Hotel Business Application"). Pending the final application of any such Net
Available Cash, the Company may temporarily invest such Net Available Cash in
any manner that is not prohibited by the Indenture. Any Net Available Cash from
an Asset Sale or Issuance that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
Such Excess Proceeds shall be applied by the Company or such Bristol Subsidiary
within 30 days from the earlier of (x) the 181st day after an Asset Sale or
Issuance or (y) the date the Board of Directors of the Company or the Board of
Directors or General Partner, as applicable, of such Bristol Subsidiary
determines not to apply any or all of the Net Available Cash to a Hotel Business
Application, as follows: (A) first, whether pursuant to the requirements of the
Indebtedness described in clauses (i) through (iii) below or at the election of
the Company, to prepay or repay permanently or purchase (the "Opco Debt
Reduction Amount") any of (i) the Opco Senior Term Facility, (ii) additional
Recourse Indebtedness of Opco permitted to be incurred under the covenant
entitled "Limitation on Incurrence of Additional Indebtedness" and (iii)
Permitted Refinancing Indebtedness
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incurred to refinance any Indebtedness set forth in clause (i) or clause (ii)
above; (B) second, to the extent Excess Proceeds remain after application in
accordance with clause (A) above, to make an offer (the "Asset Sale or Issuance
Offer") to all Holders to purchase the maximum principal amount (subject to
appropriate rounding) of Notes that may be purchased out of the amount obtained
from subtracting the Opco Debt Reduction Amount, if any, from Excess Proceeds
(the "Offer Amount") at an offer price in cash equal to 100% of the principal
amount of such Notes, plus accrued and unpaid interest thereon, to the date of
purchase. If an Asset Sale or Issuance Offer is made and the aggregate principal
amount of Notes validly tendered pursuant to the Asset Sale or Issuance Offer is
less than the Offer Amount, the Company may use any remaining portion of such
Offer Amount for general corporate purposes.
If prior to or following the time of a Hotel Business Application but prior
to an Excess Proceeds Application, the Net Available Cash or Excess Proceeds, as
the case may be, shall not exceed $5 million, then the Hotel Business
Application or the Excess Proceeds Application, as the case may be, may be
deferred until such time as the aggregate cumulative amount of all Net Available
Cash from Asset Sales or Issuances plus all Excess Proceeds (which have not
heretofore been applied) exceeds $5 million.
CERTAIN COVENANTS
Restricted Payments. The Company will not, and will not cause or permit any
of the Bristol Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock) on or in
respect of shares of its Capital Stock to holders of such Capital Stock
other than dividends or distributions made to the Company or a Bristol
Subsidiary;
(b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock;
(c) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes ("Subordinated Indebtedness"), except for any payment
consisting solely of Qualified Capital Stock or Permitted Refinancing
Indebtedness of the Company, or proceeds of such Indebtedness; or
(d) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), unless, at the time of and after giving
immediate effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable period, be able to incur at least $1.00
of Permitted Ratio Debt; and
(iii) such Restricted Payment, together with all other Restricted
Payments made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such
property as determined by the Board of Directors of the Company in good
faith) shall not exceed the sum of:
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(w) 50% of the cumulative Consolidated Adjusted Net Income (or if
cumulative Consolidated Adjusted Net Income shall be a loss, minus 100%
of such loss) of the Company earned for the period from the first day of
the fiscal quarter containing the Issue Date to and including the last
day of the fiscal quarter (for which financial statements are available)
immediately preceding the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period);
plus
(x) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Bristol Subsidiary) from the sale or
issuance subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company or warrants or options or
any other Notes exercisable or convertible into Qualified Capital Stock
of the Company; plus
(y) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Bristol Subsidiary) subsequent to the Issue
Date and on or prior to the Reference Date upon the exercise or
conversion of warrants, options or any other Notes exercisable or
convertible into Qualified Capital Stock of the Company; plus
(z) without duplication of any amounts included in clause (iii)(x)
and (y) above, 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Bristol Subsidiary) subsequent to
the Issue Date and on or prior to the Reference Date from the conversion
into Qualified Capital Stock of convertible Indebtedness of the Company
or convertible Preferred Stock of the Company issued after the Issue
Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration or notice (in which event such dividend shall be
deemed to have been paid on such date of declaration thereof for purposes of
the foregoing paragraph); provided, however, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing (or
result therefrom); provided, further, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(2) the repurchase or redemption in the ordinary course of stock
options, warrants or rights granted to officers and employees pursuant to
the Company's employee compensation plans; provided, however, that such
repurchases or redemptions shall be included in the calculation of the
amount of Restricted Payments; or
(3) the repurchase, redemption or other acquisition of any shares of
Capital Stock of the Company or any Indebtedness of the Company that is
subordinate, junior or pari passu in right of payment to the Notes, in
exchange for or through the application of the net cash proceeds of a
substantially concurrent issue and sale for cash (other than to a Bristol
Subsidiary) of shares of Qualified Capital Stock of the Company or warrants,
options or other rights to acquire such Qualified Capital Stock; provided
that the net cash proceeds of any such issuance are excluded from clauses
(iii)(x), (y) and (z) of the foregoing paragraph for all subsequent
calculations thereunder; or
(4) the repurchase, redemption or other acquisition of Indebtedness of
the Company that is subordinate, junior or pari passu in right of payment to
the Notes, either in exchange for or through the application of the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; or
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(5) the payment of any dividend or distribution by a Bristol Subsidiary
to holders of its Capital Stock on a pro rata basis (other than to the
Company or a Bristol Subsidiary); provided that (x) such dividend or
distribution does not exceed such holder's proportionate share of the
cumulative Consolidated Adjusted Net Income of such Bristol Subsidiary and
the aggregate capital contribution of such holder to such Bristol Subsidiary
and (y) such Bristol Subsidiary shall have no Indebtedness other than
Nonrecourse Indebtedness.
Incurrence of Indebtedness. The Company will not, and will not permit any of
the Bristol Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, acquire, become liable, contingently or otherwise, with respect to,
or otherwise become responsible for payment of (collectively, "incur") any
Indebtedness (including Acquired Indebtedness), whether recourse or nonrecourse,
if:
(i) the Consolidated Fixed Charge Coverage Ratio for the last four full
fiscal quarters for which financial statements are available immediately
preceding such event (or, until financial statements for the fiscal period
ending December 31, 1995 are available, the last two fiscal quarters ending
September 30, 1995, and thereafter for the last three fiscal quarters ending
December 31, 1995 until the financial statements for the fiscal quarter
ended March 31, 1996 are available) (the "Measurement Period"), calculated
on a pro forma basis as described in the Indenture, would have been less
than (x) 2.0, if the date on which such Indebtedness (the "Proposed
Indebtedness") is to be incurred (the "Incurrence Date") shall occur prior
to July 1, 1997, (y) 2.4, if the Incurrence Date shall occur during the
period from July 1, 1997 through June 30, 1998 and (z) 2.7, if the
Incurrence Date shall occur after June 30, 1998; or
(ii) the ratio of Consolidated Debt to Total Capitalization on the last
day of the Measurement Period, calculated on a pro forma basis as described
in the Indenture, would have exceeded 60%.
For purposes of calculating whether Indebtedness to be incurred is Permitted
Ratio Debt, the Existing West End Loan shall be deemed to be outstanding at an
interest rate of 9% per annum until the earlier of (x) such time as the Company
shall have disposed of the West End Hotel and (y) the actual incurrence of
Indebtedness by the Company or a Bristol Subsidiary which is secured by or
encumbers the West End Hotel.
In addition to Indebtedness incurred pursuant to the ratio tests as
described above, the Company and the Bristol Subsidiaries may incur Permitted
Indebtedness.
Contingent Obligations. The Company shall not and shall not permit any of
the Bristol Subsidiaries to, directly or indirectly, create or become or remain
liable with respect to any Contingent Obligation, except;
(i) the Company may become and remain liable with respect to the
Contingent Obligations in respect of its guarantee of the Opco Senior Term
Facility (as defined in the Indenture);
(ii) Opco may become and remain liable with respect to the Guarantee;
(iii) the Company and the Bristol Subsidiaries may remain liable with
respect to Contingent Obligations described in Schedule 4.22 annexed to the
Transaction Agreements;
(iv) the Bristol Subsidiaries may become and remain liable with respect
to Contingent Obligations in respect of subsidiary guarantees delivered
pursuant to the Bank Credit Agreement (as defined in the Indenture);
(v) the Company and the Bristol Subsidiaries may become and remain
liable with respect to environmental and "bad-deed" indemnities and other
ordinary course, non-recourse indemnities in connection with any Permitted
Refinancing Indebtedness; and
(vi) the Company and the Bristol Subsidiaries may become and remain
liable with respect to other Contingent Obligations in an aggregate amount
not to exceed at any time $10,000,000; provided, however, that,
notwithstanding the foregoing, the Company and the Bristol Subsidiaries may
not become or remain liable with respect to Currency Agreements.
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Liens. The Company will not, and will not permit any of the Bristol
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, or
assign or convey any right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company
will not, and will not permit any Bristol Subsidiary to, directly or indirectly,
create or otherwise cause or permit to exist or become effective any encumbrance
or restriction on the ability of any Bristol Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other distributions
on or in respect of its Capital Stock;
(b) pay any Indebtedness or other obligation owed to the Company or any
Bristol Subsidiary;
(c) make loans or advances to the Company or any Bristol Subsidiary; or
(d) transfer any of its property or assets to the Company or any Bristol
Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(1) applicable law or governmental order provided that the Company has
used its reasonable efforts to have such order removed;
(2) the Indenture;
(3) an agreement in effect on the Issue Date, including without
limitation, the Bank Credit Agreement (including amendments, modifications
and extensions thereto); provided that the terms and conditions of any
encumbrance or restriction contained in any such amendment or modification
are not materially less favorable to the Holders than those under the
agreement being amended or modified;
(4) any agreement or instrument with respect to a Person that is not a
Bristol Subsidiary on the Issue Date, which agreement or instrument was in
effect prior to the time such Person became a Bristol Subsidiary and which
encumbrance or restriction contained in such agreement or instrument is not
applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person that becomes a
Bristol Subsidiary and is not contained in the terms of any Indebtedness
incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
transactions pursuant to which such Bristol Subsidiary became a Bristol
Subsidiary;
(5) customary non-assignment provisions of any contract, franchise
agreement or any lease entered into in compliance with the Indenture;
(6) any agreement (other than the Bank Credit Agreement) relating to
Permitted Ratio Debt, provided that for purposes of calculating the
Consolidated Fixed Charge Coverage Ratio set forth in the Indenture; (x) if
such Permitted Ratio Debt is Recourse Indebtedness (but for Indebtedness
which is Recourse Indebtedness solely by reason of the application of clause
(2)(B) of the definition of "Nonrecourse Indebtedness," which Recourse
Indebtedness shall for purposes of this paragraph (6) be deemed to be
Nonrecourse Indebtedness), the income of any Hotel property acquired with or
encumbered with respect to such Indebtedness shall not be taken into account
and (y) if such Permitted Ratio Debt is Nonrecourse Indebtedness, in
addition to such income of the Hotel property, Indebtedness and interest
thereon shall also not be taken into account; and
(7) any agreement relating to Permitted Refinancing Indebtedness,
provided that the terms and conditions of any such encumbrance or
restriction are not materially less favorable than those under or pursuant
to the agreement relating to the Refinanced Indebtedness.
Merger, Consolidation or Sale of Assets. The Indenture provides that the
Company will not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to, another
Person or Persons or adopt a Plan of Liquidation unless:
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(i) either (A) the Company shall be the survivor of such merger or
consolidation or (B) the surviving or transferee Person is a corporation
organized and existing under the laws of the United States, any state
thereof or the District of Columbia and such surviving or transferee Person
shall expressly assume all the obligations of the Company under the Notes
and the Indenture pursuant to a supplemental indenture;
(ii) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be
incurred in connection with such transaction), no Default or Event of
Default exists;
(iii) immediately after giving effect to such transaction, on a pro
forma basis, the Consolidated Net Worth of the Company or the surviving
Person is equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction;
(iv) immediately after giving effect to such transaction (on a pro forma
basis, including any Indebtedness incurred or anticipated to be incurred in
connection with such transaction), the Company or the surviving Person is
able to incur at least $1.00 of additional Permitted Ratio Debt; and
(v) the Company has delivered to the Trustee an Officers' Certificate
stating that (A) such consolidation, merger or transfer complies with the
Indenture and that the surviving or transferee Person agrees pursuant to a
supplemental indenture to be bound thereby and (B) all conditions precedent
in the Indenture relating to such transaction have been satisfied and an
Opinion of Counsel with respect to the matters referred to in the foregoing
clause (A).
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Limitation on Business Activities. The Company will not, and will not permit
any of the Bristol Subsidiaries to, engage in any business other than (i)
ownership, leasing, management, operation, maintenance and franchising of hotels
in the United States of America and such business activities incidental or
related thereto, including without limitation, room, food, beverage, retail,
administrative, travel reservations, telephone services or similar services
related to the hotel business, and (ii) such other businesses in which the
Company or the Bristol Subsidiaries are engaged on the Issue Date, but the
operation of such businesses shall be limited to the extent of business activity
conducted on the Issue Date or to the extent appropriate to manage businesses
held for sale until the date of sale; provided that an Acquisition Subsidiary
may manage an asset incidentally acquired as the result of a Hotel acquisition
but only for so long as and to the extent necessary to dispose of such asset as
promptly as practicable after the acquisition thereof. The Company shall conduct
all of its business, and own all of its properties and other assets, through
Opco and the direct and indirect Subsidiaries of Opco. The Company shall have no
direct Subsidiary other than Opco and the Company shall at all times be the
legal and beneficial owner of 100% of the Capital Stock of Opco. Opco shall at
all times remain a Wholly Owned Subsidiary of the Company.
Limitation on Investments. The Company will not, and will not permit any of
the Bristol Subsidiaries to, make any Investments other than (x) Permitted
Investments and (y) such Investments that satisfy the requirements set forth in
the first paragraph of the covenant captioned "Limitation of Restricted Payment"
of the Indenture.
Transactions with Affiliates. The Indenture will provide that the Company
will not, and will not permit any Bristol Subsidiary to, directly or indirectly,
conduct any business or enter into or permit to exist any transaction or series
of related transactions (including, without limitation, the purchase, sale,
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transfer, lease or exchange of any assets or property or the rendering of any
service) with, or for the benefit of, any Affiliate of the Company (an
"Affiliate Transaction"), other than:
(x) Affiliate Transactions permitted under the paragraph below; and
(y) Affiliate Transactions on terms that are no less favorable than
those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an
Affiliate;
provided, however, that for a transaction or series of related transactions with
an aggregate value of more than $5 million, the determination described in
clause (y) above shall be made (and if involving a lesser amount may be made) in
good faith by a majority of the disinterested members of the Board of Directors
of the Company who shall be entitled in their discretion to rely conclusively
upon the opinion of a nationally recognized investment banking firm that such
Affiliate Transaction is either (i) fair to the Company or the Bristol
Subsidiary party thereto, as the case may be, or (ii) on terms no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate.
The restrictions set forth in the preceding paragraph shall not apply to:
(1) reasonable fees and compensation paid to and indemnities provided on
behalf of, officers, directors, employees or consultants of the Company or
any Bristol Subsidiary or any reasonable compensation paid to an officer,
director or employee of any Affiliate of the Company or any Bristol
Subsidiary for services rendered to the Company, in each case as determined
in good faith by the Company's or such Bristol Subsidiary's Board of
Directors or senior management;
(2) transactions between or among the Company and any one or more
Bristol Subsidiaries, or between or among Bristol Subsidiaries constituting
Permitted Investments;
(3) certain agreements as in effect as of the Issue Date or any
transaction contemplated thereby (including pursuant to any amendment
thereto) or in any replacement agreement thereto so long as any such
amendment or replacement agreement is determined in good faith by the Board
of Directors of the Company or the Bristol Subsidiary not to be more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date;
(4) Restricted Payments permitted by the Indenture; and
(5) Permitted Investments.
Other Restrictions. The Indenture also restricts (i) the ability of the
Bristol Subsidiaries to issue, and the ability of any Person to own, Preferred
Stock of the Bristol Subsidiaries unless the Company's direct and indirect
percentage interest in such Preferred Stock is equal to or greater than the
Company's percentage interest in the common equity of the applicable Bristol
Subsidiary and (ii) the ability of the Bristol Subsidiaries to enter into any
agreement (or any amendment or modification of any existing agreement) that
would create or allow any encumbrance or restriction on (x) the right of the
Company to make principal payments on the Securities or to refinance the
Indebtedness represented by the Securities at the stated maturity thereof or
(ii) the right of the Guarantor to make distributions to the Company sufficient
to make principal payments on the Securities at the stated maturity thereof.
Reports. Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall promptly furnish to the
Trustee and to all Holders promptly upon their becoming available (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and the Bristol Subsidiaries,
and, with respect to the annual information only, a report thereon by the
Company's independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Items 1 through 5 of Form 8-K if the
Company were required to file such reports. Whether
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or not required by the rules and regulations of the SEC, the Company shall file
a copy of all such information with the SEC for public availability (unless the
SEC will not accept such a filing). In addition to the foregoing, the Company
shall promptly provide to the Trustee and to all Holders all other reports that
the Company shall mail or otherwise make available generally to its
securityholders, including without limitation proxy statements.
Rating. The Company will use its best efforts to cause the Notes to be rated
by Standard & Poor's Rating Services or Moody's Investor Service, Inc. as
promptly as practicable after the Issue Date.
SECURITY
The Notes will be secured by a continuing first priority and perfected
security interest in the following (the "Pledged Collateral"):
(i) all shares of Capital Stock of Opco held by the Company (the
"Pledged Shares") and the certificates representing the Pledged Shares and
all proceeds of any of the Pledged Shares including all dividends, cash,
instruments, subscriptions, warrants and any other rights and options and
other property from time to time received, receivable or otherwise
distributed or declared in respect of or in exchange for, any or all of the
Pledged Shares, and all rights and privileges of the Company with respect
thereto; and
(ii) all additional shares of stock of, or equity interest in, Opco from
time to time acquired by the Company in any manner, and the certificates and
other instruments representing such additional shares, and all proceeds of
any of such additional Pledged Shares, including all dividends, interest,
cash, instruments, subscriptions, warrants and any other rights and options
and other property from time to time received, receivable or otherwise
distributed or declared in respect of or in exchange for any or all of such
additional Pledged Shares, and all rights and privileges of the Company with
respect thereto.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(2) the failure to pay the principal of any Notes when the same becomes
due and payable, at maturity, upon acceleration, optional redemption,
required repurchase or otherwise (including the failure to make a payment to
repurchase Notes tendered pursuant to a Change of Control Offer or an Asset
Sale or Issuance Offer);
(3) a default in the observance or performance of any covenant or
agreement contained in the Indenture (other than the agreements specified in
paragraphs (1) and (2) above and clause (8) below), which default continues
for a period of more than 60 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the Trustee or the Holders of at least 25% of the outstanding principal
amount of the Notes;
(4) the failure to pay at final stated maturity (giving effect to any
extensions thereof) the principal amount of any Recourse Indebtedness of (A)
the Company or (B) any Significant Subsidiary, or the acceleration of the
maturity of any such Indebtedness if, in either case, the aggregate
principal amount of such Indebtedness, together with the principal amount of
any other such Indebtedness concurrently in default for failure to pay
principal at final stated maturity or which has been accelerated, aggregates
more than $10 million at any time; provided, however, that if the defaulting
Significant Subsidiary is an Acquisition Subsidiary, the amount of such
defaulted Indebtedness shall not be included for purposes of calculating
whether an Event of Default has occurred under this clause (4) until such
default would result in a default under Section 7.1(D) of the Bank Credit
Agreement (without giving effect to any waiver or amendment thereof), at
which
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time the aggregate principal amount of all Recourse Indebtedness of
Acquisition Subsidiaries then in default for failure to pay principal at
final stated maturity or which has been accelerated shall be included for
purposes of determining whether such $10 million threshold has been
exceeded;
(5) the Company, Opco or any other Significant Subsidiary (A) commences
a voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (B) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy Law,
(C) consents to the appointment of a Custodian of it or for substantially
all of its property, (D) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (E) makes a general
assignment for the benefit of its creditors or (F) generally is not paying
its debts as they become due;
(6) a court of competent jurisdiction enters a judgment, decree or order
for relief in respect of the Company, Opco or any other Significant
Subsidiary in an involuntary case or proceeding under any Bankruptcy Law,
which shall (A) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company, Opco or
any such Significant Subsidiary, (B) appoint a Custodian of the Company,
Opco or any such Significant Subsidiary or for substantially all of its
property or (C) order the winding-up or liquidation of its affairs; and such
judgment, decree or order shall remain unstayed and in effect for a period
of 60 consecutive days;
(7) one or more judgments or decrees in an aggregate amount in excess of
$10 million shall have been rendered against the Company or any Significant
Subsidiary (other than with respect to the Nonrecourse Indebtedness of such
Significant Subsidiary) and such judgments or orders remain undischarged or
unpaid and either (x) any creditor shall have commenced an enforcement
proceeding upon such judgment or order, which enforcement proceeding shall
have remained unstayed for a period of 10 days or (y) a period of 60 days
during which a stay of enforcement shall not be in effect shall have elapsed
following the date on which any period for appeal has expired;
(8) a default in the performance or a breach of the provisions contained
in the Successor Corporation provisions of the Indenture; and
(9) an ERISA Event shall have occurred that, in the opinion of the
Trustee, when taken together with all other such ERISA Events, could
reasonably be expected to result in liability of the Company, the Guarantor
and their respective ERISA Affiliates in an aggregate amount exceeding
$2,500,000 or requiring payments exceeding $1,000,000 in any year; and
(10) any security interest purported to be created by the Pledge
Agreement or any document executed and delivered pursuant to the Pledge
Agreement shall cease to be, or shall be asserted by the Company or any
Bristol Subsidiary not to be, a valid, perfected, first priority security
interest in the Pledged Collateral.
If an Event of Default (other than an Event of Default specified in
paragraph (5) or (6) above with respect to the Company or the Guarantor) occurs
and is continuing, the Trustee may, or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding and the Trustee shall, upon the
request of such Holders, declare the aggregate principal amount of the Notes
outstanding, together with accrued but unpaid interest, if any, on all Notes to
be due and payable immediately. If an Event of Default specified in paragraph
(5) or (6) above occurs with respect to either the Company or the Guarantor and
is continuing, all unpaid principal and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of Notes.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Notes or to enforce the performance of any
provision of the Notes or the Indenture.
The Holders of a majority in principal amount of the outstanding Notes by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the
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payment of principal of or interest on any Note as specified in paragraphs (1)
and (2) above. Upon any such waiver, such Default or Event of Default will be
deemed to have been cured for every purpose of the Indenture, but no such waiver
will extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon. The Indenture requires the Company to certify
annually, within 120 days after the end of its fiscal year, as to whether any
Default or Event of Default occurred during such year.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS OR
STOCKHOLDERS
No past, present or future director, officer, employee, stockholder or
incorporator, as such, of the Company shall have any liability for any
obligations of the Company under the Notes, the Indenture or the Pledge
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creations. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option at any time, elect to have all of its
Obligations discharged with respect to all outstanding Notes ("Legal
Defeasance") upon compliance with the conditions described below except for the
following provisions which shall survive until otherwise terminated or
discharged:
(a) the rights of Holders of outstanding Notes to receive solely from
the trust fund described below, payments in respect of the principal of and
interest, if any, on such Notes when such payments are due;
(b) the Company's obligations with respect to outstanding Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency
for payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and
(d) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option, after satisfying the conditions
described below, elect to have its obligations under certain covenants described
in the Indenture released and the Guarantor shall also be released from its
obligations under Article X of the Indenture ("Covenant Defeasance"), and the
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit, with the Trustee, in trust,
for the benefit of the Holders pursuant to an irrevocable trust and security
agreement, in form and substance reasonably satisfactory to the Trustee,
U.S. Legal Tender, U.S. Government Obligations or a combination thereof, in
such amounts as will be sufficient in the opinion of a nationally recognized
firm of independent accountants to pay the principal of and interest on the
Notes then outstanding in accordance with the terms of the Indenture;
(b) no Default or Event of Default shall have occurred or be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st calendar day after the date of deposit, and such deposit will not
result in a Default or Event of Default under the Indenture or a breach or
violation of, or constitute a default under, any other instrument to which
the Company or any Bristol Subsidiary is a party or by which it or its
property is bound;
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(c) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an Opinion of Counsel satisfactory to the Trustee confirming
that: (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (ii) since the Issue Date, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax in the same amounts and in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(d) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel from independent counsel satisfactory
to the Trustee confirming that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax in the
same amounts and in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(e) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, such
money or the proceeds of such U.S. Government Obligations will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
(g) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each in form and substance satisfactory to the
Trustee, each stating that all conditions precedent relating to the Legal
Defeasance or Covenant Defeasance have been complied with; and
(h) the Company has delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Trustee, stating that the trust arising from
the deposit of U.S. Legal Tender or U.S. Government Obligations under the
Indenture shall not constitute an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the terms set
forth in the Indenture. The Registrar or co-Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company is not required to transfer or
exchange any Notes selected for redemption. Also, the Company is not required to
transfer or exchange any Notes for a period of 15 days before the mailing of a
notice of redemption.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holder or Holders of at least a
majority in principal amount of the outstanding Notes, without notice to any
other Holders.
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Note held by a non-consenting Holder):
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or, except with respect to the matters below,
change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of the Indenture protecting the right
of each Holder of a Note to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment;
(6) modify the provisions of the Indenture concerning limitation and
subordination of the Guarantee to adversely affect the Holders of Notes; or
(7) make any change in the foregoing amendment and waiver provisions.
In addition, without the consent of the Holders of at least 66.66% in the
aggregate principal amount of the then outstanding Securities issued under the
Indenture, no amendment, modification or waiver may amend, change or modify the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control that has been consummated or to comply with the
provisions of Section 4.15 of the Indenture with respect to any Asset Sale or
Issuance that has been consummated or modify any of the provisions or
definitions with respect thereto.
Notwithstanding the foregoing, without notice to or consent of any Holder,
the Company and the Guarantor, when authorized by a Board Resolution, and the
Trustee, together, may amend or supplement the Indenture or the Notes to cure
any ambiguity, defect or inconsistency, to provide for the assumption of the
Company's obligations to Holders of the Notes in the case of a merger or
consolidation, to comply with the waiver of subrogation provisions of the
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide security for the Notes, to make any other change
that does not adversely affect the rights of any Holder of Notes or to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the laws of the State of New York, as applied to contracts made and performed
within the State of New York, without regard to principles of conflict of laws.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person:
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into such specified Person or a Subsidiary thereof
or becomes a Subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation
of, such other Person's merging with or into or becoming a Subsidiary of
such specified Person; and
(ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" means with respect to any specified Person, (1) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person (except in cases where substantially
all of the control that would ordinarily be exercisable by virtue of ownership
of stock, other than the election of directors, has been eliminated by
applicable regulatory authorities) or (2) for the purposes of provisions in the
Indenture concerning limitations on transactions with Affiliates only, any other
Person that owns, directly or indirectly, 10% or more of such Person's Capital
Stock or any officer or director of any such Person or other Person or with
respect to any natural Person, any Person having a relationship with such Person
by blood, marriage or adoption not more remote than first cousin. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of Voting Stock, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings consistent with the foregoing.
"Asset Sale" means any sale, lease, transfer or other disposition (or series
of related sales, leases, transfers or dispositions) of previously issued and
outstanding shares of Capital Stock or any securities convertible into or
warrants, rights or options to subscribe for Capital Stock of a Bristol
Subsidiary that owns or manages a Hotel (other than directors' qualifying
shares) or any property or other assets of the Company or a Bristol Subsidiary
(each referred to for the purposes of this definition as a "disposition") by the
Company or any Bristol Subsidiary, including any disposition by means of a
merger, consolidation or similar transaction (other than a merger or
consolidation of the Company) other than (i) a disposition by a Bristol
Subsidiary to the Company or by the Company or a Bristol Subsidiary to a Wholly
Owned Subsidiary, (ii) a disposition of property or assets at fair market value
in the ordinary course of business, including, without limitation, a sale by a
Bristol Subsidiary of any of its Investments constituting a portion of its
investment portfolio in the ordinary course of business, (iii) a disposition in
the ordinary course of business of assets which are obsolete or no longer useful
in its business provided that the determination of obsolescence or uselessness
of any material asset shall be determined by the senior management of the
Company or (iv) a pledge of all or any part of the Capital Stock of any Bristol
Subsidiary or a Lien on any other property or asset of a Bristol Subsidiary.
"Bank Credit Agreement" means the Term Credit Agreement dated as of December
12, 1995, among Opco, Bankers Trust Company, as agent and lender and the other
lenders party thereto from time to time, together with the related agreements
and other documents thereto (including, without limitation, the Renovation Loan
Agreement referred to therein and any guarantee agreements, pledge, security and
indemnity documents), in each case as such agreements and other documents may be
amended (including any amendment and restatement thereof), renewed, supplemented
or otherwise modified from time to time (including, without limitation, for the
purpose of extending the time for payment of or increasing the amount of any
Indebtedness which may arise thereunder, without any restriction as to the
amount, tenor or terms of any such extension or increase) and any successor to
or replacement of such Bank Credit Agreement or any such related agreement or
document or any
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successor Bank Credit Agreement or other agreement or other document (designated
as such a successor or replacement in a resolution adopted by the Board of
Directors of Opco), as each such successor or replacement may be amended
(including any amendment and restatement thereof), renewed, supplemented or
otherwise modified from time to time.
"Bankruptcy Law" means Title 11, United States Code or any similar federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the Board of Directors of such
Person or any duly authorized committee thereof.
"Bristol Subsidiary" means any Subsidiary of the Company, and shall include
the Guarantor.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of corporate stock, including each class of common stock and
Preferred Stock of such Person, and (ii) with respect to any Person that is not
a corporation, any and all partnership or other equity interests of such Person.
"Cash Equivalents" means:
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.;
(iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Ratings Group or at least P-1 from Moody's
Investors Service, Inc.;
(iv) time deposits, overnight deposits, certificates of deposit or
bankers' acceptances (or, with respect to foreign banks, similar
instruments) maturing or subject to withdrawal without significant penalty
within one year from the date of acquisition thereof issued by any bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of
not less than $200 million;
(v) repurchase agreements and reverse repurchase agreements maturing
within one year from the date of acquisition thereof, relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
government or issued by any agency thereof;
(vi) investments in money market funds substantially all of whose assets
are comprised of securities of the types described in clauses (i) through
(v) above; and
(vii) demand deposits maintained in the ordinary course of business.
"Consolidated Adjusted Net Income (Loss)" of any Person means, for any
period, the consolidated net income (loss) of such Person and its consolidated
Subsidiaries for such period as determined in accordance with GAAP and prior to
the payment of any dividends on any outstanding shares of such Person's
Preferred Stock, adjusted by excluding:
(1) net after-tax extraordinary gains or extraordinary losses;
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(2) net after-tax gains or losses attributable to Asset Sales;
(3) the net income of any Person (other than such Person or a
consolidated Subsidiary) in which such Person or any consolidated Subsidiary
has an ownership interest, except to the extent of the amount of dividends
or other distributions actually paid to such Person or a consolidated
Subsidiary in cash by such other Person during such period;
(4) net income (or net loss) of any Person combined with such Person or
any consolidated Subsidiary in a "pooling of interests" basis attributable
to any period prior to the date of combination;
(5) the net income of any Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by that Subsidiary of the
net income is not at the date of determination permitted without prior
governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
judgment, statute, rule or governmental regulation; and
(6) non-cash charges of such Person and its consolidated Subsidiaries
resulting from the application of Statement of Financial Accounting
Standards No. 106 ("SFAS 106") to the extent such charges exceed the cash
payments for benefits covered by SFAS 106 for the relevant period.
"Consolidated Debt" of any Person means, as of any date of determination,
the Indebtedness for borrowed money of such Person and its Subsidiaries
outstanding as of such date, as determined in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of
(1) the sum of
(a) Consolidated Adjusted Net Income (Loss),
(b) Consolidated Interest Expense (to the extent deducted in
computing Consolidated Adjusted Net Income (Loss)),
(c) Consolidated Tax Expense, plus
(d) Consolidated Non-Cash Charges deducted in computing Consolidated
Adjusted Net Income (Loss),
in each case, for such period, of such Person and its Subsidiaries on a
consolidated basis, all determined in accordance with GAAP,
to
(2) Consolidated Interest Expense for such period.
"Consolidated Interest Expense" of any Person means, for any period, the
consolidated interest expense in respect of Indebtedness of such Person for such
period, whether paid or accrued (including amortization of original issue
discount, non-cash interest payments and the interest component of Capital Lease
Obligations) plus the product of (x) the aggregate amount of dividends on any
Disqualified Capital Stock of such Person and its Subsidiaries declared or paid
in such period and (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state,
local and foreign statutory tax rate, expressed as a decimal.
"Consolidated Net Worth" of a Person, as of any date of determination, means
the stockholders' equity of such Person, as determined on a consolidated basis
in accordance with GAAP, less, to the extent included therein, all amounts, if
any, attributable to Disqualified Capital Stock of such Person.
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"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person which has not been
(or to the extent that it has not been) paid or otherwise discharged (i) with
respect to any Indebtedness, lease, dividend or other obligation of another if
the primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings, (iii) under Interest Rate Agreements and Currency Agreements, or (iv)
with respect to any indemnification to unrelated third parties other than in
connection with (x) the acquisition or disposition of Hotels, (y) the issuance
of securities by the Company and (z) transactions entered into in the ordinary
course of business. Contingent Obligations shall include, without limitation,
(a) the direct or indirect guaranty, endorsement (otherwise than for collection
or deposit in the ordinary course of business), co-making, discounting with
recourse or sale with recourse by such Person of the obligation of another, (b)
the obligation to make take-or-pay or similar payments if required regardless of
non-performance by any other party or parties to an agreement, and (c) any
liability of such Person for the obligation of another through any agreement
(contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such
obligations or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise) or (Y) to maintain the solvency
or any balance sheet item, level of income or financial condition of another if,
in the case of any agreement described under subclauses (X) and (Y) of this
sentence, the primary purpose or intent thereof is as described in the preceding
sentence. The amount of any Contingent Obligation shall be equal to the amount
of the obligation so guaranteed or otherwise supported or, if less, the amount
to which such Contingent Obligation is specifically limited. Contingent
Obligations shall not include any of the foregoing to the extent they constitute
Indebtedness or are Contingent Obligations with respect to the Indebtedness of
the Company or any Bristol Subsidiary.
"Control Group" means and includes (i) The Hampstead Group, L.L.C. and any
Person that is an Affiliate thereof as of the Issue Date and (ii) the Company's
officers, directors and employees as of the Issue Date, or (iii) any combination
of the foregoing.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that, together with the Company or the Guarantor, is treated as a single
employer under Section 414(b) or (c) of the Internal Revenue Code (the "Code"),
or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is
treated as a single employer under Section 414 of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing West End Loan" means the loan in a principal amount of
$7,234,603.56 to Bristol Dallas Downtown held by N & N Real Estate Investments,
Inc., which loan is secured by a Deed of Trust encumbering the West End Hotel.
"HHC" means Harvey Hotel Co., Ltd.
"Holder" or "Holder of Notes" means the Person in whose name a Note is
registered on the Registrar's books.
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"Hotel" means any of the hotels owned by the Company or the Bristol
Subsidiaries from time to time.
"Improvements" means all buildings, structures, fixtures, tenant
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to any real property, including all
building materials, water, sanitary and storm sewers, drainage, electricity,
steam, gas, telephone and other utility facilities, parking areas, roads,
driveways, walks and other site improvements; and all additions and betterments
thereto and all renewals, substitutions and replacements thereof.
"Indebtedness" means with respect to any Person, without duplication,
(i) all obligations of such Person for borrowed money or for the
deferred purchase price of property or services (excluding any trade
payables and other accrued current liabilities incurred in the ordinary
course of business) but including, without limitation, all obligations of
such Person in connection with any letters of credit, acceptance facilities
or other similar facilities, if, and to the extent, any of the foregoing
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP,
(ii) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments (excluding any trade payables and
other accrued current liabilities incurred in the ordinary course of
business), if any of the foregoing would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP,
(iii) all obligations created or arising under any conditional sale
agreement with respect to property acquired by such Person (excluding trade
accounts payable arising in the ordinary course of business),
(iv) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of sale and leaseback transactions entered into by such
Person,
(v) all Indebtedness referred to in (but not excluded from) clause (i),
(ii), (iii) or (iv) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right to be secured by) any Lien upon or in
property owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness, provided that, if the
Indebtedness referred to in this clause (v) is without recourse to such
Person, the amount of such Indebtedness shall be calculated at the lesser of
(A) the aggregate outstanding principal amount of such Indebtedness and (B)
the fair market value of the assets securing such Indebtedness,
(vi) all Disqualified Capital Stock issued by such Person valued at the
maximum mandatory redemption price plus accrued and unpaid dividends,
(vii) any amendment, extension or refunding of any liability of the
types referred to in clauses (i) through (vi) above.
"Indenture" means the Indenture, as amended or supplemented from time to
time in accordance with the terms hereof.
"Investment" means, with respect to any Person, all investments by such
Person or other Persons (including Affiliates) in the forms of direct or
indirect loans or other extensions of credit (excluding guarantees but including
any net payments or advances thereunder) or capital contributions to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others but excluding commission, travel
and similar advances to officers, employees and others made in the ordinary
course of business), purchases or acquisitions of Capital Stock, bonds, notes,
debentures, warrants, options or other securities or evidences of Indebtedness
and all other items
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that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. "Investment" shall exclude extensions of trade credit by
the Company and the Bristol Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company and the Bristol
Subsidiaries.
"Issuance" means (i) the issuance or sale of Capital Stock or securities
convertible or exercisable into Capital Stock, or rights, warrants or options to
subscribe for Capital Stock of the Company or (ii) the issuance or sale (other
than to the Company or a Wholly Owned Subsidiary of the Company) of Capital
Stock or securities convertible or exercisable into Capital Stock, or rights,
warrants or options to subscribe for Capital Stock of a Bristol Subsidiary.
"Issue Date" means December 18, 1995.
"Lien" means, with respect to any asset, any lien, mortgage, deed of trust,
pledge, security interest, charge or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give any
security interest in and any filing of an agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction, but excluding any operating lease of real or personal property).
"Net Available Cash" means cash and Cash Equivalents received by the Company
or a Bristol Subsidiary from any Asset Sale or Issuance (including any cash
payments received by way of fees, expense reimbursements, refunds, rebates and
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when such deferred payment is received), in each case
net of: (1) all accounting, appraisal, legal, title, recording tax and similar
expenses, (2) the amount of any Obligation secured by the property or assets
being sold and/or required to be repaid on the occasion of such sale, (3) the
amount of accrued employee benefits required to be paid on the occasion of such
sale, (4) commissions and other fees and expenses incurred and any taxes
required to be accrued as a liability under GAAP (after giving effect to any
estimated credit, deduction or loss carryforward) as a consequence of such sale,
lease, transfer or other disposition, (5) all distributions and other payments
made to holders of minority interests in Bristol Subsidiaries as a result of
such sale, lease, transfer or other disposition, and (6) reasonable reserves for
any contractual indemnity or related obligations and other reserves determined
in accordance with GAAP for future or contingent liabilities, pending their
ultimate release.
"Nonrecourse Indebtedness" of the Company or a Bristol Subsidiary, as the
case may be, means Indebtedness or that portion of Indebtedness that satisfies
either or both of the following conditions:
(1) (A) no personal recourse could be had against the Company or such
Bristol Subsidiary, as the case may be, for the payment of the principal of
or interest or other amounts with respect to such Indebtedness (B) neither
the Company nor such Bristol Subsidiary (i) provides any credit support for
such Indebtedness (including any undertaking, agreement or instrument which
would constitute Indebtedness or a Contingent Obligation) or (ii)
constitutes the lender, and (C) the enforcement of obligations on such
Indebtedness is limited solely to recourse against interests in specified
assets, except in each case that any such Indebtedness shall not be deemed
to be "recourse" solely by reason of the inclusion in any document
evidencing, governing or securing such Indebtedness of customary
environmental and "bad deed" carve-outs or indemnities, and
(2) (A) each of the Bristol Subsidiaries obligated with respect to such
Indebtedness or which shall have other Indebtedness outstanding that (upon
notice, lapse of time or both) may be accelerated prior to its stated
maturity upon the occurrence and continuation of any default or event of
default with respect to such Indebtedness (which Bristol Subsidiary shall
not be the Guarantor) is a corporation, limited liability company or other
entity the creditors of which do not as a matter of law, in general, have
personal recourse against the holders of equity securities of
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such Bristol Subsidiary in their capacities as such (a "limited liability
entity") or is a partnership the equity interest in which are owned directly
by one or more other Bristol Subsidiaries (other than the Guarantor) that
are limited liability entities, (B) none of such limited liability entities
is a Significant Subsidiary, (C) substantially all the material assets of
each such limited liability entity (other than equity interests in other
such limited liability entities obligated with respect to such indebtedness)
are subject to a Lien or Liens securing the payment of such Indebtedness,
(D) none of such limited liability entities obligated with respect to such
Indebtedness shall have acquired any assets (other than cash) directly or
indirectly from the Company or any other Bristol Subsidiary after the date
of the Indenture, (E) no personal recourse could be had under any guarantee
or other contractual or consensual obligation against the Company or any
other Bristol Subsidiary for the payment of the principal of or interest or
other amounts with respect to such Indebtedness, (F) neither the Company nor
any other such Bristol Subsidiary (i) provides any credit support for such
Indebtedness (including any undertaking, agreement or instrument which would
constitute Indebtedness or a Contingent Obligation) or (ii) constitutes the
lender, except in each case that any Indebtedness shall not be deemed to be
"recourse" solely by reason of the inclusion in any document evidencing,
governing or securing such Indebtedness of customary environmental and "bad
deed" carve-outs or indemnities.
"Obligations" means all obligations (whether in existence on the date hereof
or arising hereafter) for, or guaranteeing the payment of, principal, premium,
interest (including, without limitation, all interest accrued or accruing after
the commencement of any Reorganization of any Person obligated with respect
thereto in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any such Indebtedness, whether or
not, pursuant to applicable law or otherwise, the claim for such interest is
allowed as a claim in such case or proceeding), penalties, fees,
indemnifications, reimbursements, and other amounts, and any amendment,
extension or refunding of any of the foregoing, without duplication.
"Permitted Indebtedness" means, without duplication,
(i) the Notes,
(ii) the Guarantee,
(iii) Indebtedness incurred pursuant to the Opco Senior Term Facility up
to $120,000,000,
(iv) Permitted Refinancing Indebtedness,
(v) Indebtedness of (a) the Company owing to and held by any wholly
Owned Subsidiary or (b) any Subsidiary owing to and held by the Company or
any Wholly Owned Subsidiary, provided that in the case of Indebtedness
representing Investments by a Subsidiary in its direct or indirect parent,
that such Indebtedness be subordinated to the Notes and the Guarantee on
terms at least as favorable to the Noteholders as are applicable to the
Senior Debt under the Indenture; provided, further, that, in the case of
clause (a) or (b) above, in the event of any subsequent Issuance of any
Capital Stock or any other event which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another Wholly
Owned Subsidiary), such Indebtedness shall, in each case, cease to
constitute Permitted Indebtedness;
(vi) Indebtedness of any Bristol Subsidiary in existence, or incurred
pursuant to certain agreements in existence on the Issue Date,
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(vii) Indebtedness of any Bristol Subsidiary assumed in connection with
the transfer of encumbered assets or properties between Bristol
Subsidiaries; provided that (1) (A) such transferee Subsidiary shall have
been, prior to the time of such transfer, a guarantor of the entire amount
of the Indebtedness secured by the transferred assets or properties and (B)
such guarantee had not been incurred in contemplation of the transfer or (2)
such transferee Subsidiary shall be a Subsidiary of the Bristol Subsidiary
transferring the asset or property; provided that such transferring
Subsidiary is not the Guarantor; and
(viii) additional Indebtedness in an aggregate principal amount not to
exceed $10 million at any one time outstanding.
"Permitted Investments" means
(i) any Investment in any HHC or in any Bristol Subsidiary or in any
Person as a result of which such Person becomes a Bristol Subsidiary (in
each case, other than a non-Wholly Owned Subsidiary in which any other
equity interest therein is owned by an Affiliate of the Company other than a
Wholly Owned Subsidiary);
(ii) Investments by (x) any Bristol Subsidiary in existence on the Issue
Date, or (y) made pursuant to certain legally binding written commitments in
existence on the Issue Date;
(iii) Investments in Cash Equivalents;
(iv) loans or advances to employees made in the ordinary course of
business;
(v) receivables owing to any Bristol Subsidiary in the ordinary course
of business; and
(vi) repurchase agreements and reverse repurchase agreements, maturing
within one year from the date of acquisition thereof, relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
government or issued by any agency thereof.
"Permitted Liens" means the following types of Liens:
(i) Liens in favor of the Company, HHC or any Wholly Owned Subsidiary of
the Company;
(ii) Liens on the property or assets of a Person existing at the time
such Person is merged into or consolidated with the Company or any Bristol
Subsidiary or becomes a Bristol Subsidiary; provided that such Liens were in
existence prior to the consummation of such merger or consolidation or such
Person becoming a Bristol Subsidiary, do not extend to any property or
assets other than those of such Person and were not incurred in
contemplation of such transaction;
(iii) Liens incurred in the ordinary course of business in connection
with workers' compensation and similar statutory obligations, performance
bonds, surety or appeal bonds or other obligations of like nature;
(iv) Certain liens existing on the Issue Date including the Liens
securing the Notes, the Opco Senior Term Facility and the Nomura
Refinancing;
(v) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently pursued, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;
(vi) Liens securing Permitted Ratio Debt or Permitted Refinancing Debt
provided that the Liens securing Permitted Refinancing Indebtedness shall
not extend to property or assets other than that pledged under the Liens
securing the Refinanced Indebtedness;
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(vii) mechanic's, materialmen's and other customary Liens incurred in
the ordinary course of business;
(viii) covenants, easements, rights-of-way, restrictions, encroachments
or other similar encumbrances not materially impairing the marketability of
the property encumbered thereby and not materially interfering with the use
of such property or with the ordinary conduct of the business of the Company
or any Bristol Subsidiary; and
(ix) all exceptions contained in the title policies delivered to the
agent and the lenders under the Bank Credit Agreement on or prior to the
Issue Date or contained in any title policy approved by the agent or lenders
under the Bank Credit Agreement with respect to any Hotel acquired by any
Bristol Subsidiary after the Issue Date..
"Permitted Ratio Debt" has the meaning provided in the Limitation on
Incurrence of Additional Indebtedness provision in the Indenture.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company or
any Bristol Subsidiary incurred in exchange for, or the proceeds of which are
used substantially concurrently to refinance, replace or refund Permitted
Indebtedness or Permitted Ratio Debt provided that the Existing West End Loan
shall be deemed to be outstanding for purposes of the definition of Refinanced
Indebtedness, ("Refinanced Indebtedness") provided that:
(w) the aggregate amount (or if incurred with original issue discount,
the aggregate issue price) of such Permitted Refinancing Indebtedness does
not exceed the aggregate principal amount (or if incurred with the original
issue discount, the aggregate accreted value) of the Refinanced Indebtedness
(i.e., exclusive of any accrued and unpaid interest thereon);
(x) such Permitted Refinancing Indebtedness has a final maturity equal
to or greater than, and a Weighted Average Life to Maturity, equal to or
greater than, the final maturity and Weighted Average Life to Maturity of
the Refinanced Indebtedness;
(y) such Permitted Refinancing Indebtedness ranks no higher and gives no
greater recourse relative to the obligor or any property given as security
therefor than the Refinanced Indebtedness; and
(z) the obligor of such Permitted Refinancing Indebtedness shall be (i)
the obligor under the Refinanced Indebtedness, (ii) a Subsidiary of the
obligor under the Refinanced Indebtedness or (iii) a Bristol Subsidiary that
was, prior to the time of the refinancing, a guarantor of the entire amount
of the Refinanced Indebtedness provided that such guarantee shall not have
been incurred in contemplation of such refinancing; provided however, that
in no event shall a Subsidiary of the Guarantor refinance the Indebtedness
of the Company or the Guarantor.
"Person" means any individual, partnership, corporation, company, voluntary
association, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
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"Pledge Agreement" means the pledge agreement between the Company and the
Trustee providing for the pledge by the Company of the Capital Stock of Opco and
all Indebtedness of Opco held by the Company.
"principal" of any Indebtedness (including the Notes) means the principal
amount of such Indebtedness plus the premium, if any, on such Indebtedness.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Redemption Date" means, with respect to any Notes, the Maturity Date of
such Note or the earlier date on which such Note is to be redeemed by the
Company pursuant to the terms of the Notes.
"Recourse Indebtedness" of any person means any Indebtedness of such person
which is not Nonrecourse Indebtedness.
"Refinanced Indebtedness" has the meaning set forth in the definition
"Permitted Refinancing Indebtedness."
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement, dated as of the date hereof, among the Company, Opco, Bankers Trust
Company and New England Cayman Corporation.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
"Senior Debt" means:
(a) Obligations of a Bristol Subsidiary with respect to Indebtedness
under the Bank Credit Agreement, the aggregate principal amount of which
Indebtedness at the time of determination shall not exceed an amount equal
to the sum of (i) the greatest of (A) Indebtedness outstanding pursuant to
the Opco Senior Term Facility up to $120,000,000, (B) Permitted Refinancing
Indebtedness of the Bristol Subsidiaries incurred to refinance, replace or
refund Indebtedness referred to in clause (A), unless such Permitted
Refinancing Indebtedness is subordinated by its terms to any other
Indebtedness of a Bristol Subsidiary, and (C) the aggregate principal amount
of the Indebtedness of the Bristol Subsidiaries that would be outstanding if
a Bristol Subsidiary were then to incur the maximum additional Indebtedness
then permitted to be incurred in accordance with the Indenture and (ii) up
to $6,000,000 in aggregate principal amount of additional Indebtedness under
the Bank Credit Agreement that is incurred in order to pay Property
Protection Expenses;
(b) Obligations of a Bristol Subsidiary with respect to Permitted
Refinancing Indebtedness incurred to refinance, replace or refund any
Indebtedness set forth in clause (a) above, unless such Permitted
Refinancing Indebtedness is subordinated by its terms to any other
Indebtedness of a Bristol Subsidiary; and
(c) Obligations with respect to debt securities issued by any Person to
a holder of any Indebtedness referred to in clause (a) or (b) above on
account of such Indebtedness pursuant to an order or decree of a court of
competent jurisdiction.
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"Significant Subsidiary" means (a) any Bristol Subsidiary which at the time
of determination had, as of the date of the Company's most recent quarterly
consolidated balance sheet, Consolidated Net Worth of at least $10,000,000 or
(b) any Bristol Subsidiary which, if merged with all Defaulting Subsidiaries,
would at the time of determination have had, as of the date of the Company's
most recent quarterly consolidated balance sheet, Consolidated Net Worth of at
least $15,000,000. "Defaulting Subsidiary", when applied with respect to the
matters subject to paragraphs (4), (5), (6) and (7) of the section relating to
Events of Default herein, means any Bristol Subsidiary which, at the time of
determination, (a) with respect to matters subject to said paragraph (4), shall
have failed to pay at stated maturity or upon acceleration any Indebtedness that
would be Nonrecourse Indebtedness but for the application of clause (2)(B) of
the definition of "Nonrecourse Indebtedness", (b) with respect to matters
subject to said paragraph (5), shall have taken any action with respect to
itself that is referred to in said paragraph, (c) with respect to matters
subject to said paragraph (6), shall have suffered with respect to itself the
entry of any judgment, decree or order for relief referred to in said paragraph
and (d) with respect to matters subject to paragraph (7), shall have suffered
the entry against itself any judgment or decree referred to in said paragraph,
each such judgment or order shall remain undischarged or unpaid and either or
both of the conditions stated in clauses (x) and (y) of such paragraph shall be
satisfied.
"Subsidiary", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person, (ii) any partnership
(A) the sole general partner or managing general partner of which is such Person
or a Subsidiary of such Person or (B) the only general partners of which are
such Person or one or more Subsidiaries of such Person or (iii) any other Person
of which at least a majority of the voting interest under ordinary circumstances
is at the time, directly or indirectly, owned by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or "Subsidiaries" in the Indenture
shall refer to a Subsidiary or Subsidiaries of the Company.
"Total Capitalization" of a Person, means, as of any date of determination,
an amount equal to the sum of (i) the Consolidated Debt of such Person plus (ii)
the Consolidated Net Worth of such Person, determined in accordance with GAAP.
"Transfer Restricted Securities" means securities that bear or are required
to bear the legend set forth in the Transfer and Exchange provision of the
Indenture.
"U.S. Government Obligations" means direct obligations of, and obligations
guaranteed by, the United States of America for the payment of which the full
faith and credit of the United States of America is pledged and which were not
callable at the Company's option.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors or others exercising similar functions.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS OF THE COMPANY
The following is a summary of the terms of the Senior Term Facility, which
is qualified in its entirety by reference to the definitive agreements and
instruments establishing such terms.
SENIOR TERM FACILITY
General. The Senior Term Facility provides for up to $120 million of term
loan borrowings, of which $85 million in aggregate principal amount was made
available at the initial closing of the Senior Term Facility on December 18,
1995, and, if certain financial tests are satisfied, up to an additional $35
million in aggregate principal amount will be available over time. The Senior
Term Facility will be used to refinance certain indebtedness, to renovate
certain hotel properties and to acquire and redevelop certain hotel properties.
The Senior Term Facility matures on December 18, 1998 and bears interest at a
rate equal to, at the election of Opco, one-, two-, three- or six-month LIBOR
plus 2.25%, payable monthly in arrears. Opco pays customary fees in connection
with the Senior Term Facility and an unused commitment fee equal to 0.375% per
annum of the unused permitted borrowing amount under the Senior Term Facility,
payable quarterly in arrears.
Amortization and Prepayment. The Senior Term Facility does not have any
scheduled amortization of principal prior to maturity. Amounts outstanding under
the Senior Term Facility must be mandatorily prepaid in amounts equal to
specified release prices upon the disposition or condemnation of, or casualty
to, any of the hotel properties mortgaged to the lenders and certain other hotel
properties. Opco may make voluntary prepayments of amounts outstanding under the
Senior Term Facility at any time without penalty or premium.
Security and Guarantees. Opco's obligations under the Senior Term Facility
are secured principally by (i) a pledge by Opco of all of the outstanding
capital stock owned by it in each of its subsidiaries and (ii) first-priority
mortgages on 25 hotel properties owned directly or indirectly or leased by Opco.
Such obligations also are guaranteed by an unsecured, subordinated guarantee of
the Company and, with respect to certain obligations, are guaranteed by certain
subsidiaries of the Company. The foregoing mortgages will be released as to an
individual property upon Opco's compliance with certain conditions, including
mandatory prepayment of the Senior Term Facility in an amount equal to the
applicable release price. The applicable release price with respect to an
individual property will be the greatest of (a) 125% of the outstanding
principal amount allocated to the property in a manner consistent with an annual
appraisal for such property, (b) 75% of the sales price of the property, (c) the
amount necessary for Opco to maintain compliance with specific financial
covenants under the Senior Term Facility, or (d) in the case of a release as a
result of a casualty or condemnation, the insurance proceeds or condemnation
award resulting therefrom (provided that partial releases of an individual
property will be permitted in any case of casualty or condemnation). Certain
other mandatory prepayments are required in the event a hotel property that is
not mortgaged to secure the Senior Term Facility is sold.
Covenants. The Senior Term Facility contains covenants which, among other
things, (i) require the Company and Opco to satisfy certain financial tests and
ratios, including maximum leverage, minimum equity capitalization, minimum net
worth and minimum interest coverage requirements and (ii) impose certain
limitations on the right of the Company and Opco and their respective
subsidiaries in respect of (a) the payment of dividends and other distributions,
(b) the making of investments in subsidiaries or otherwise, (c) the creation or
incurrence of liens, (d) transactions with affiliates, (e) management or similar
agreements delegating to another person substantial authority over the operation
or maintenance of hotel properties of Opco and its subsidiaries, (f) the
incurrence of indebtedness, lease obligations and contingent liabilities, (g)
mergers, acquisitions, joint ventures, partnerships, divestitures or
reorganizations, and (h) the issuance of certain preferred stock. In addition,
the Senior Term Facility requires Opco to establish a cash management system
regarding
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hotel properties of Opco, which requires all receipts to be swept daily into an
account under the control of Bankers Trust and restricts distributions to
subsidiaries and affiliates.
EVENTS OF DEFAULT
The Senior Term Facility contains events of default customary for
transactions similar to those contemplated by the Senior Term Facility,
including (i) the nonpayment of principal, interest or other amounts due under
the Senior Term Facility when due, (ii) the failure to observe certain covenants
under the Senior Term Facility, subject to applicable grace periods, (iii) a
material adverse change in the business, operations or condition, financial or
otherwise, of the Company or Opco, (iv) breaches of representations and
warranties, subject to applicable cure periods, (v) a judgment for the payment
of money exceeding $1,000,000 in the aggregate being rendered against Opco or
any of its subsidiaries and not being discharged and enforcement proceedings
being commenced and remaining unstayed for a period of 60 days, (vi) the
occurrence of certain events of bankruptcy or insolvency, (vii) certain
transactions resulting in a Change of Control (as defined below) of the Company
or Opco, (viii) certain executive officers ceasing to be employed by the Company
(except for cause) in a senior position, (ix) the nonpayment of principal or
interest on certain other indebtedness and (x) certain defaults under the ground
leases, management agreements and franchise agreements of the Company, as
described in "Business and Properties" and "Formation of the Company." With
respect to the Senior Term Facility, Change of Control means the occurrence of
any one of the following: (a) Holdings and the management of the Company cease
to own, through 1997, 50%, and for 1998, 35%, of the shares of the capital stock
of the Company which they collectively owned immediately following the closing
of the IPO, (b) a majority of the Board of Directors of the Company shall not
consist of principals of Hampstead or members of the Company's senior management
or Hampstead or representatives of the limited partners of Holdings, (c) any two
of Robert Whitman, Donald McNamara and Daniel Decker do not control, directly or
indirectly, Holdings, (d) the principals of Hampstead cease to own at least 80%
of the beneficial interest in Holdings which they owned immediately following
the closing of the IPO and (e) the Company ceases to own all of the capital
stock of Opco.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Material federal income tax consequences that may be relevant to holders of
Old Notes generally are set forth below. The following discussion does not
discuss all aspects of federal income taxation that may be relevant to a
particular holder in light of personal investment circumstances or to certain
types of investors subject to special treatment under the federal income tax
laws (for example, life insurance companies, tax-exempt organizations, taxpayers
subject to the alternative minimum tax, and foreign taxpayers), nor does such
discussion address any aspects of state, local or foreign tax laws. The
following discussion is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), regulations, rulings and judicial decisions
now in effect, all of which are subject to change.
CONSEQUENCES OF EXCHANGE OF NOTES TO THE HOLDERS
Although the matter is not free from doubt, an exchange of Old Notes for New
Notes pursuant to the Exchange Offer should not be treated as a sale, exchange
or other taxable event for federal income tax purposes because the New Notes
should not be considered to differ materially in kind or extent from the Old
Notes. As a result, no material federal income tax consequences should result
from an exchange of Old Notes for New Notes pursuant to the Exchange Offer. For
federal income tax purposes, a New Note received by a beneficial owner of an Old
Note should be treated as a continuation of the Old Note in the hands of such
owner.
OTHER FEDERAL INCOME TAX CONSIDERATIONS
Interest Income. Interest payments on a New Note will be includable in a
holder's gross income as ordinary interest income in accordance with such
holder's regular method of accounting for tax purposes. For cash basis holders,
such payments will be includable in income when received (or when made available
for receipt, if earlier). For accrual basis holders, such payments will be
includable in income when all events necessary to establish the right to receive
such payments have occurred. In addition, because the Old Notes were issued at a
discount to their face amount, holders of the Notes will be required to include
such discount as additional interest income on an economic accrual basis over
the life of the Notes under the original issue discount rules.
Amortizable Bond Premium. If a holder of a New Note acquires it at a cost
that is in excess of the amount payable on maturity (which will be determined by
reference to an earlier call date if the call price would reduce the amount of
premium recovered), the excess cost may be treated as "amortizable bond premium"
that is allocated among the interest payments on the Note using a constant
interest rate method over the Note's remaining term. Except as may be provided
in future Treasury Regulations, the amount allocated to each interest payment
would be applied against and offset a portion of the income from such interest
payment (with a corresponding reduction in the holder's basis). This interest
offset would be available only if an election under Section 171 of the Code is
made or is in effect and if the acquired Note is held as a capital asset. This
election would apply to all debt instruments held or subsequently acquired by
the electing holder on or after the first day of the first taxable year to which
the election applies and may not be revoked without the consent of the Internal
Revenue Service.
Gain or Loss on Disposition of New Notes. If a New Note is sold, exchanged,
or otherwise disposed of, the selling holder will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange or other
disposition and its adjusted basis in such New Note. Subject to the discussion
of market discount below, any such gain or loss will be capital gain or loss if
the New Note was held as a capital asset.
Market Discount. The market discount rules generally provide that if a
holder purchases the New Note at a "market discount" and thereafter recognizes
gain upon a disposition or a retirement of the New Note, the lesser of such gain
or the portion of the market discount that accrued on a straight-line
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basis (or on an economic accrual basis, if such basis of accrual has been
properly elected by the holder under Section 1276(b) of the Code) while the New
Note was held by such holder will be treated as ordinary interest income at the
time of the disposition. In general, "market discount" will equal the excess (if
any) of the stated redemption price over the price paid for the New Note by the
subsequent holder. Under a de minimis exception, if the market discount is less
than 1/4 of one percent of the stated redemption price at maturity multiplied by
the number of complete years to maturity, market discount is deemed to be zero.
The market discount rules also provide that a holder who acquires a New Note at
a market discount may be required to defer a portion of any interest expense
that may otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such New Note until the holder disposes of the New Note in a
taxable transaction. The New Notes provide that they may be redeemed, in whole
or in part, prior to maturity under certain circumstances. If these securities
were redeemed in part, a holder with market discount would be required to
include in gross income (as ordinary income) the portion of the principal
payment attributable to accrued market discount on the New Notes.
Backup Withholding. In general, information reporting requirements will
apply to certain payments of principal, interest and premium paid on New Notes
and to the proceeds of sale of a New Note made to holders other than certain
exempt recipients (such as corporations). A 31% backup withholding tax will
apply to such payments if the Holder fails to provide a taxpayer identification
number or certification of foreign or other exempt status upon request or fails
to report in full dividend and interest income. Any amounts withheld under the
backup withholding rules from a payment to a holder will be allowed as a refund
or credit against such holder's United States federal income tax, provided that
the required information is furnished to the Internal Revenue Service.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE BASED ON THE CODE,
THE REGULATIONS PROMULGATED THEREUNDER BY THE TREASURY DEPARTMENT AND THE
INTERPRETATIONS OF THE CODE AND REGULATIONS BY THE COURTS AND THE INTERNAL
REVENUE SERVICE, ALL AS THEY EXIST AS OF THE DATE HEREOF. THE FOREGOING
DISCUSSION DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS INDIVIDUAL INVESTMENT
CIRCUMSTANCES OR TO CERTAIN TYPES OF HOLDERS SUBJECT TO SPECIAL TREATMENT UNDER
THE FEDERAL INCOME TAX LAWS NOR DOES SUCH DISCUSSION ADDRESS ANY ASPECTS OF
STATE, LOCAL OR FOREIGN TAX LAWS. ACCORDINGLY, HOLDERS OF OLD NOTES ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF NEW NOTES, INCLUDING THE
APPLICATION OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE
FUTURE CHANGES IN SUCH TAX LAWS.
OLD NOTES REGISTRATION RIGHTS
On December 18, 1995, the Company entered into the Exchange Agreement,
pursuant to which the Company agreed to use its best efforts to (i) within 45
days after the Issue Date, file an Exchange Offer Registration Statement
pursuant to which the Old Notes will be exchanged for the New Notes, (ii) cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act within 120 days from the Issue Date, (iii) keep the Exchange
Offer open for acceptance for at least 90 days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is mailed to
holders of Old Notes and (iv) consummate the Exchange Offer on or prior to the
211th day following the Issue Date. Notwithstanding clause (iii) above, the
Letter of Transmittal provides that, by signing and returning the Letter of
Transmittal, each tendering holder of the Old Notes will have agreed to amend
the Exchange Agreement, mutatis mutandis, to shorten the period during which the
Company is
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required to keep the Exchange Offer open for acceptance to July 9, 1996 (or such
later date as may be required by law).
If (i) prior to the consummation of the Exchange Offer, the Company
reasonably determines in good faith that (a) the New Notes would not, upon
receipt, be tradable by the holders of the Old Notes which are not affiliates of
either the Company or Opco without restriction under the Securities Act or
applicable state securities or blue sky laws or (b) the Commission is unlikely
to permit the consummation of the Exchange Offer prior to the 211th day
following the Issue Date, (ii) the Exchange Offer is commenced and not
consummated within 211 days after the Issue Date for any reason, (iii) the
Company reasonably determines in good faith that (x) the New Notes would not,
upon consummation of any resale thereof by a Restricted Person to any person
other than another Restricted Person, be tradable by such holder thereof without
restriction under the Securities Act, the Exchange Act and applicable state
securities or blue sky laws or (y) the Commission is unlikely to permit the
Exchange Offer Registration Statement to become effective prior to the 120th day
after the Issue Date solely because such Exchange Offer Registration Statement
covers resales of the Exchange Securities by Restricted Persons or (iv) any
holder of Notes determines that it is not eligible to participate in the
Exchange Offer or does not receive New Notes in the Exchange Offer which are
tradable without restriction under the Securities Act and applicable state
securities or blue sky laws and so advises the Company within ten business days
following consummation of the Exchange Offer, then the Company will promptly
(and, in the event of (i) or (ii) above, within three business days thereafter)
deliver to the holders and the Trustee written notice (the "Shelf Notice")
thereof. The Company must then use its best efforts to (1) file with the
Commission a registration statement (the "Shelf Registration Statement") on or
prior to the 45th day after the date the Shelf Notice is delivered, (2) cause
the Shelf Registration Statement to be declared effective on or before the 90th
day following delivery of the Shelf Notice and (3) keep the Shelf Registration
Statement effective until 12 months after its effective date or such shorter
period ending when (A) all Old Notes covered by the Shelf Registration Statement
have been sold in the manner set forth and as contemplated therein, (B) a
subsequent Shelf Registration Statement covering all unregistered Old Notes has
been declared effective or (C) all Old Notes may be sold pursuant to subsection
(k) of Rule 144 under the Securities Act. The Company will, in the event of the
filing of a Shelf Registration Statement, provide to each holder of the Old
Notes copies of the Prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Old Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Old Notes. A holder of Old Notes that sells
such Old Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Exchange Agreement which are applicable
to such holder (including certain indemnification obligations). In addition,
each holder of the Old Notes will be required to deliver information to be used
in connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Exchange Agreement in order to have its Old Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding additional
interest set forth in the following paragraph.
Additional interest ("Additional Interest") will be paid to holders of Old
Notes on each day during the first 120-day period immediately following the
occurrence of any of the following: (i) if the Exchange Offer Registration
Statement has not been declared effective within 120 days from the Issue Date,
(ii) if the Exchange Offer has not been consummated within 211 days after the
Issue Date, (iii) if a Shelf Registration Statement has not been (a) filed on or
prior to the 45th day after delivery of a Shelf Notice by the Holders to the
Company or (b) declared effective within 90 days following delivery of the Shelf
Notice, or (iv) (x) if the Exchange Offer Registration Statement ceases to be
effective for a period of ten consecutive days at any time prior to the time
that the Exchange Offer is consummated or (y) the initial Shelf Registration
Statement or any subsequent Shelf Registration Statement ceases to be
113
<PAGE>
effective for a period of ten consecutive days (each such event referred to in
clauses (i), (ii), (iii) and (iv), a "Registration Default"). The Additional
Interest will accrue at a rate equal to .50% per annum for the first 120-day
period, subject to increase by up to an additional .50% per annum during each
subsequent 120-day period until the earlier of (i) the second anniversary of the
Issue Date or (ii) the date on which there shall no longer be a Registration
Default; provided, however, that in no event will Additional Interest exceed
1.0% per annum. If a Registration Default shall have occurred and be continuing
on the second anniversary of the Issue Date, the interest rate borne by the Old
Notes will be permanently increased by the amount of any Additional Interest
incurred as described above.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Notes. This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company acknowledges and each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, does not intend to
engage in, and has no arrangement or understanding with any person to
participate in a distribution of New Notes.
The Company will not receive any proceeds from any use of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchaser of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act.
By tendering Old Notes and executing the Letter of Transmittal, a party
tendering Old Notes for exchange (the "Transferor") certifies that (i) it is not
an affiliate of either the Company or Opco or, if the Transferor is an affiliate
of the Company or Opco, it will comply with the registration and prospectus
requirements of the Securities Act to the extent applicable, (ii) the New Notes
are being acquired in the ordinary course of business of the person receiving
such New Notes, whether or not such person is the holder, (iii) the Transferor
has not entered into an arrangement or understanding with any other person to
participate in the distribution of the New Notes, (iv) the Transferor is not a
broker-dealer who purchased the Old Notes for resale pursuant to an exemption
under the Securities Act and (v) the Transferor will be able to trade the New
Notes acquired in the Exchange Offer without restriction under the Securities
Act. The Letter of Transmittal further states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
and will indemnify the holders against certain liabilities, including
liabilities under the Securities Act.
114
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes and the
Guarantee have been passed upon for the Company by Jones, Day, Reavis & Pogue,
New York, New York.
EXPERTS
The financial statements of the Company and Opco as of and for the eleven
months ended December 31, 1995 and the balance sheets as of December 31, 1994
and 1993 and the income statements for the one month ended January 31, 1995 and
the years ended December 31, 1994, 1993 and 1992 of Harvey Hotel Companies
included herein have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, and the balance sheets as of December
31, 1994 and 1993 and the income statements for the years ended December 31,
1994, 1993 and 1992 of United Inns included herein have been so included in
reliance on the report of Frazee, Tate & Associates, independent accountants,
such reports given on the authority of said firms as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company and Opco have filed with the Commission a Registration Statement
on Form S-4 under the Securities Act with respect to the New Notes. This
Prospectus, which is a part of the Registration Statement, omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information with
respect to the Company, Opco and the New Notes. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its entirety
by such reference.
The Company is subject to the periodic reporting and other informational
requirements of the Exchange Act. The Registration Statement, as well as such
periodic reports, proxy statements and other information filed by the Company
with the Commission, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regioinal offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Company upon request. The Company's Common Stock is listed
on the New York Stock Exchange. Periodic reports, proxy statements and other
information filed by the Company can be inspected at the offices of the New York
Stock Exchange, 11 Wall Street, New York, New York 10005.
The Company is required by the terms of the Indenture to furnish the Trustee
with annual reports containing consolidated financial statements audited by its
independent accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
115
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BRISTOL HOTEL COMPANY - PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Statements of Income for the years ended
December 31, 1995 and 1994......................................................... F-3
Notes to Unaudited Pro Forma Consolidated Statements of Income....................... F-6
BRISTOL HOTEL COMPANY - HISTORICAL
Report of Independent Accountants.................................................... F-9
Consolidated Balance Sheet as of December 31, 1995................................... F-10
Consolidated Statement of Income for the eleven months ended December 31, 1995....... F-11
Consolidated Statement of Changes in Stockholders' Equity for the eleven months
ended December 31, 1995............................................................ F-12
Consolidated Statement of Cash Flows for the eleven months ended December 31, 1995... F-13
Notes to Consolidated Financial Statements........................................... F-14
BRISTOL HOTEL COMPANY - INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of March 31, 1996............................ F-26
Condensed Consolidated Statements of Income for the three months ended
March 31, 1996, the two months ended March 31, 1995 and the
pro forma three months ended March 31, 1995........................................ F-27
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1996 and the two months ended March 31, 1995............................. F-28
Notes to Condensed Consolidated Financial Statements................................. F-29
BRISTOL HOTEL ASSET COMPANY - ANNUAL FINANCIAL STATEMENTS
Report of Independent Accountants.................................................... F-30
Consolidated Balance Sheet as of December 31, 1995................................... F-31
Consolidated Statement of Income for the eleven months ended December 31, 1995....... F-32
Consolidated Statement of Changes in Stockholder's Equity for the eleven months ended
December 31, 1995.................................................................... F-33
Consolidated Statement of Cash Flows for the eleven months ended December 31, 1995... F-34
Notes to Consolidated Financial Statements........................................... F-35
BRISTOL HOTEL ASSET COMPANY - INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of March 31, 1996............................ F-47
Condensed Consolidated Statements of Income for the three months ended
March 31, 1996, the two months ended March 31, 1995 and the
pro forma three months ended March 31, 1995........................................ F-48
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1996 and the two months ended March 31, 1995............................. F-49
Notes to Condensed Consolidated Financial Statements................................. F-50
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
HARVEY HOTEL COMPANIES
Report of Independent Accountants.................................................... F-51
Combined Balance Sheets as of December 31, 1994 and 1993............................. F-52
Combined Statements of Income for the month ended January 31, 1995 and the
three years ended December 31, 1994................................................ F-53
Combined Statements of Changes in Owners' Deficit for the three years
ended December 31, 1994............................................................ F-54
Combined Statements of Cash Flows for the month ended January 31, 1995 and the
three years ended December 31, 1994................................................ F-55
Notes to Combined Financial Statements............................................... F-56
UNITED INNS, INC. AND SUBSIDIARIES
Report of Independent Accountants.................................................... F-64
Consolidated Balance Sheets as of December 31, 1994 and 1993......................... F-65
Consolidated Statements of Operations for the three years ended December 31, 1994.... F-67
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1994.................................................................. F-68
Consolidated Statements of Cash Flows for the three years ended December 31, 1994.... F-69
Notes to Consolidated Financial Statements........................................... F-71
</TABLE>
F-2
<PAGE>
BRISTOL HOTEL COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
The following Unaudited Pro Forma Consolidated Statements of Income are
presented as if the acquisitions of Harvey Hotel Company, Ltd. ("Harvey Hotel
Company") and United Inns, Inc., (the "January Acquisitions"), the IPO, the
Refinancing, the Holdings Contributions, the Non-Hotel Properties Disposition
(as defined below), the disposition of the Holiday Inn - Silber hotel (the
"Silber Hotel"), the acquisition of the Dallas Downtown Hotel, the Mid-Atlanta
Purchase, the Charter Amendments and the purchase of the Harvey Hotel - Atlanta
Airport hotel (the "Harvey - Atlanta Hotel") had all occurred at the beginning
of the periods presented.
On September 30, 1995, the Company disposed of certain of its non-hotel
properties (the "Non-Hotel Properties Disposition") through the exchange of such
properties and $87,000 for the assumption of all environmental liabilities
related to the properties. The operating results of the Harvey - Atlanta Hotel,
which was acquired on June 30, 1995 for $12.8 million, have been added for each
period for pro forma presentation. The operating results of the Silber Hotel,
which was sold in July 1995 for $4.2 million, have been removed for each period
for pro forma presentation. The purchase of the Dallas Downtown Hotel,
reflecting the assumption of $7.3 million in debt and related acquisition costs
of $250,000, did not have a signficant impact on the pro forma results of
operations because the hotel had been out of operation during 1994 and 1995.
The Unaudited Pro Forma Consolidated Statements of Income should be read in
conjunction with the Consolidated Historical Financial Statements of Bristol
Hotel Company, Harvey Hotel Company and its subsidiaries (together, "Harvey
Hotel Companies") and United Inns, Inc. and its subsidiaries (together, "United
Inns") and notes thereto, which are included elsewhere in this Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of the
January Acquisitions, the IPO and certain additional transactions as described
above have been made.
The Unaudited Pro Forma Consolidated Statements of Income are not
necessarily indicative of what actual results of operations of the Company would
have been nor do they purport to represent the Company's results of operations
for future periods.
F-3
<PAGE>
BRISTOL HOTEL COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
THE HARVEY HOTEL UNITED PRO FORMA THE COMPANY
COMPANY (A) COMPANIES (B) INNS (C) TOTAL ADJUSTMENTS PRO FORMA
----------- ------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rooms....................... $ 115,771 $ 4,006 $5,590 $125,367 $ 2,303(F) $ 127,670
Food and beverage........... 36,070 1,505 1,209 38,784 851(F) 39,635
Other operating
departments.................. 13,354 432 400 14,186 191(F) 14,377
----------- ------ -------- -------- ----------- -----------
Total revenue........... 165,195 5,943 7,199 178,337 3,345 181,682
----------- ------ -------- -------- ----------- -----------
Operating costs and expenses:
Departmental expenses:
Rooms..................... 32,692 1,124 1,730 35,546 694(F) 36,240
Food and beverage......... 27,118 1,006 1,069 29,193 597(F) 29,790
Other operating
departments.................. 4,258 49 115 4,422 100(F) 4,522
Undistributed operating
expenses:
Administrative and
general...................... 16,184 186 840 17,210 259(F) 17,469
Marketing................. 12,070 393 376 12,839 196(F) 13,035
Property operating
costs........................ 16,313 360 979 17,652 236(F) 17,888
Property taxes, rent and
insurance.................... 8,425 269 342 9,036 (120)(F) 8,916
Depreciation.............. 13,505 309 672 14,486 (99)(I) 14,387
Corporate expense......... 8,035 315 585 8,935 (244)(G) 8,691
----------- ------ -------- -------- ----------- -----------
Operating income........ 26,595 1,932 491 29,018 1,726 30,744
----------- ------ -------- -------- ----------- -----------
Other expenses:
Interest expense............ 18,374 652 737 19,763 (3,630)(H) 16,133
Other expenses.............. 257 -- (6) 251 (158)(J) 93
----------- ------ -------- -------- ----------- -----------
Net income (loss) before
minority interest, income
taxes and extraordinary
item......................... 7,964 1,280 (240) 9,004 5,514 14,518
Minority interest............ 173 -- -- 173 (173)(L) 0
----------- ------ -------- -------- ----------- -----------
Net income (loss) before
income taxes and
extraordinary item........... 7,791 1,280 (240) 8,831 5,687 14,518
Income taxes (credit)........ 2,822 -- (71) 2,751 2,475(M) 5,226
----------- ------ -------- -------- ----------- -----------
Net income (loss) before
extraordinary item........... $ 4,969 $ 1,280 $ (169) $ 6,080 $ 2,423 $ 9,292
----------- ------ -------- -------- ----------- -----------
----------- ------ -------- -------- ----------- -----------
Pro Forma Earnings Per
Common Share.............. $ .55
-----------
-----------
Pro Forma Common Shares..... 16,880,294 (N)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
statement of income.
F-4
<PAGE>
BRISTOL HOTEL COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
<S> <C> <C> <C> <C> <C>
HARVEY HOTEL UNITED PRO FORMA THE COMPANY
COMPANIES (D) INNS (E) TOTAL ADJUSTMENTS PRO FORMA
------------- -------- -------- ----------- -----------
Revenue:
Rooms........................... $44,972 $ 72,701 $117,673 $ 4,009(F) $ 121,682
Food and beverage............... 20,298 14,839 35,137 1,693(F) 36,830
Other operating departments..... 5,081 5,078 10,159 289(F) 10,448
------------- -------- -------- ----------- -----------
Total revenue............... 70,351 92,618 162,969 5,991 168,960
------------- -------- -------- ----------- -----------
Operating costs and expenses:
Departmental expenses:
Rooms......................... 10,344 23,461 33,805 1,290(F) 35,095
Food and beverage............. 13,746 12,249 25,995 1,261(F) 27,256
Other operating departments... 1,089 1,559 2,648 257(F) 2,905
Undistributed operating
expenses:
Administrative and general.... 6,238 9,642 15,880 572(F) 16,452
Marketing..................... 5,131 4,820 9,951 310(F) 10,261
Property operating costs...... 5,872 12,498 18,370 446(F) 18,816
Property taxes, rent and
insurance........................ 4,691 4,172 8,863 16(F) 8,879
Depreciation.................. 4,041 8,876 12,917 (593)(I) 12,324
Corporate expense............. 3,761 5,544 9,305 (1,271)(G) 8,034
------------- -------- -------- ----------- -----------
Operating income............ 15,438 9,797 25,235 3,703 28,938
------------- -------- -------- ----------- -----------
Other expenses
Interest expense................ 7,631 9,932 17,563 (2,804)(H) 14,759
Other income.................... (337) -- (337) -- (337 )
Other expenses.................. -- 7,042 7,042 (7,042)(J) --
Loss (gain) on disposition of
assets........................... -- 6,266 6,266 (6,599)(K) (333 )
------------- -------- -------- ----------- -----------
Net income (loss) before minority
interest, income taxes and
extraordinary gain............... 8,144 (13,443) (5,299) 20,148 14,849
Minority interest................ -- 73 73 8(L) 81
------------- -------- -------- ----------- -----------
Net income (loss) before income
taxes and extraordinary gain.... 8,144 (13,516) (5,372) 20,140 14,768
Income taxes (credit)............ -- (3,692) (3,692) 9,008(M) 5,316
------------- -------- -------- ----------- -----------
Net income (loss) before
extraordinary
gain............................ $ 8,144 $ (9,824) $ (1,680) $ 11,132 $ 9,452
------------- -------- -------- ----------- -----------
------------- -------- -------- ----------- -----------
Pro Forma Earnings Per Common
Share............................ $ .56
-----------
-----------
Pro Forma Common Shares......... 16,871,730 (N)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
statement of income.
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<C> <S>
(A) Reflects the historical consolidated statement of income of the Company for the eleven
months ended December 31, 1995.
(B) Reflects the audited historical combined statement of income for Harvey Hotel Companies
for the one month ended January 31, 1995.
(C) Reflects the unaudited historical consolidated statement of operations for United Inns
for the one month ended January 31, 1995. Certain items have been reclassified to
conform with the presentation in the Company's financial statements.
(D) Reflects the historical combined statements of operations for Harvey Hotel Company for
the year ended December 31, 1994.
(E) Reflects the historical consolidated statements of operations for United Inns for the
year ended December 31, 1994. Certain items have been reclassified to conform with the
presentation in the Company financial statements.
(F) Reflects the addition of operating results (unaudited) for the Harvey - Atlanta Hotel
and the removal of operating results for the Silber Hotel.
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1995
-----------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
HARVEY- SILBER
ATLANTA HOTEL NET
------- ------ ------
<S> <C> <C> <C>
Revenue:
Rooms................................... $ 3,326 $1,023 $2,303
Food and beverage....................... 1,126 275 851
Other operating departments............. 241 50 191
Departmental expenses:
Rooms................................... 991 297 694
Food and beverage....................... 816 219 597
Other operating departments............. 157 57 100
Administrative and general................ 448 189 259
Marketing................................. 290 94 196
Property operating........................ 461 225 236
Property taxes, rent and insurance........ 129 58 71
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1994
-----------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
HARVEY- SILBER
ATLANTA HOTEL NET
------- ------ ------
<S> <C> <C> <C>
Revenue:
Rooms................................... $ 5,826 $1,817 $4,009
Food and beverage....................... 2,168 475 1,693
Other operating departments............. 396 107 289
Departmental expenses:
Rooms................................... 1,851 561 1,290
Food and beverage....................... 1,678 417 1,261
Other operating departments............. 311 54 257
Administrative and general................ 932 360 572
Marketing................................. 477 167 310
Property operating........................ 884 438 446
Property taxes, rent and insurance........ 366 121 245
</TABLE>
F-6
<PAGE>
<TABLE>
<C> <S>
Additionally, property taxes, rent and insurance have been reduced by $191,000 and
$229,000 for the years ended December 31, 1995 and 1994, respectively, to reflect an
adjustment for property taxes, rent and insurance expense related to the Non-Hotel
Properties which have been sold.
</TABLE>
<TABLE>
<C> <S>
(G) Reflects the following adjustments to corporate expenses (in thousands):
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
To eliminate expenses recorded by the Company related to the
Refinancing and Holdings Contributions......................... $ (116) $ --
To eliminate investment banking, legal and other expenses
recorded by United Inns related to the January
Acquisitions................................................... (214) (1,386)
To recognize compensation expense for options granted at an
exercise price of $12.50 per share as of September 29, 1995
with a fair market value of $14.00 per share. Such options
vest 100% on September 29, 2000.............................. 86 115
------- -------
$ (244) $(1,271)
------- -------
------- -------
</TABLE>
<TABLE>
<C> <S>
(H) Pro forma interest expense consists of the following (in thousands):
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Interest expense on debt not refinanced........................ $ 5,831 $ 4,037
Interest expense on the Senior Notes........................... 7,770 7,770
Amortization of Original Issue Discount........................ 420 420
Interest expense on Harvey-Atlanta Hotel
($12,183 principal at 10.013%)............................... 610 1,220
Removal of interest expense for the sale of the Silber hotel
($2,138 principal at 11%).................................... (118) (235)
Amortization of deferred financing costs....................... 1,547 1,547
Other.......................................................... 73 --
------- -------
Total pro forma interest expense........................... $16,133 $14,759
------- -------
------- -------
Pro forma adjustment consists of:
Pro forma interest expense..................................... $16,133 $14,759
Less total historical combined interest expense................ 19,763 17,563
------- -------
Net reduction.............................................. $(3,630) $(2,804)
------- -------
------- -------
</TABLE>
<TABLE>
<C> <S>
Pro forma interest on the Senior Notes was calculated using an assumed interest rate of
11.10%. The assumed interest rate was based on the U.S. Treasury Bond rate as of
December 7, 1995 plus 5.6% for the Senior Notes. Financing costs of $6.0 million were
incurred in connection with the Refinancing and have been amortized to interest expense
over the term of the respective notes for purposes of pro forma presentation. The
interest rate on the Senior Notes is fixed.
</TABLE>
<TABLE>
<S> <S>
(I) Pro forma depreciation expense has been adjusted to reflect the impact of adjustments
in property and equipment balances resulting from the step up in the basis of the
assets as a result of the acquisitions of Harvey Hotel Company and United Inns (net
increase in depreciable assets of $89 million as a result of purchase accounting)
offset by adjustments to depreciation expense resulting from changes in the estimated
lives of the assets upon acquisition and redevelopment by the Company (from an average
of 19.4 years to 31.8 years). Additional adjustments have been made for the purchases
of two hotels and the sale of one of the Company's hotels. The change in estimated
useful lives was made to align building lives with actual and expected experience due
to the Redevelopment Program and common industry practices. Additional redevelopment
costs anticipated to be incurred in future years will cause future depreciation expense
to increase over the amounts reflected in the historical and pro forma financial
information.
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <S>
The adjustment for pro forma depreciation expense consists of the following (in
thousands):
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Increase in property depreciable basis resulting from purchase
accounting adjustments......................................... $ 292 $ 3,504
Increase in estimated life of property assets acquired (35 year
lives)......................................................... (22) (269)
Increase in estimated life of property assets upon
redevelopment (relates to 7 hotels where redevelopment has
been completed)................................................ (265) (312)
Decrease in equipment depreciable basis and lives resulting
from purchase accounting adjustments (6 year lives).......... (323) (3,876)
Increase in depreciation due to acquisition of the
Harvey-Atlanta Hotel......................................... 153 306
Increase in depreciation due to acquisition of the Dallas
Downtown Hotel............................................... 114 151
Reduction in depreciation due to the sale of Silber............ (48) (97)
------- -------
Net pro forma depreciation adjustment...................... $ (99) $ (593)
------- -------
------- -------
</TABLE>
<TABLE>
<C> <S>
(J) Reflects a reversal of provision for loss on assets sold in the Non-Hotel Properties
Disposition.
(K) Reflects the elimination of the loss on disposition recorded by United Inns with
respect to the Holiday Inn - Greenway hotel that was sold by United Inns to Harvey
Hotel Company during 1994.
(L) Reflects the purchase of minority interest in net income resulting from the Mid-Atlanta
Purchase and the purchase of the minority interest from Melissa Huie in Harvey Hotel
Companies.
(M) Reflects an effective tax rate of 36%.
(N) Includes 16,565,840 shares outstanding after the IPO plus an additional number of
shares to reflect the dilutive effect of outstanding options.
</TABLE>
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Bristol Hotel Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Bristol Hotel Company and its subsidiaries at December 31, 1995, and the results
of their operations and their cash flows for the eleven months ended December
31, 1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
February 23, 1996
F-9
<PAGE>
BRISTOL HOTEL COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 7,906
Marketable securities.......................................................... 726
Accounts receivable, net (including affiliate receivables of $2) (Note 2)...... 10,959
Inventory...................................................................... 2,880
Deposits....................................................................... 7,604
Other current assets........................................................... 2,057
--------
Total current assets....................................................... 32,132
Property and equipment, net (including capitalized construction management fees
paid to an affiliate of $119) (Note 3)......................................... 470,705
Other assets:
Restricted cash................................................................ 620
Deferred charges and other noncurrent assets................................... 9,444
--------
Total assets............................................................... $512,901
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 6,582
Accounts payable (including affiliate payables of $556)........................ 5,064
Accrued property, sales and use taxes.......................................... 6,110
Accrued insurance.............................................................. 6,014
Other accrued expenses (Note 6)................................................ 16,788
--------
Total current liabilities.................................................. 40,558
Long-term debt, excluding current portion........................................ 163,962
Deferred income taxes............................................................ 69,448
Other liabilities................................................................ 2,811
Commitments and contingencies (Note 9)........................................... --
--------
Total liabilities.......................................................... 276,779
--------
Common stock ($.01 par value, 75,000,000 shares authorized, 16,565,840 shares
issued and outstanding at December 31, 1995)................................... 166
Additional paid-in capital....................................................... 232,633
Unrealized gain on marketable securities, net (Note 2)........................... 262
Retained earnings................................................................ 3,061
--------
Total stockholders' equity................................................. 236,122
--------
Total liabilities and stockholders' equity................................. $512,901
--------
--------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Revenue:
Rooms......................................................................... $ 115,771
Food and beverage............................................................. 36,070
Other operating departments................................................... 13,354
---------
Total revenue............................................................... 165,195
---------
Operating costs and expenses:
Departmental expenses:
Rooms....................................................................... 32,692
Food and beverage........................................................... 27,118
Other operating departments................................................. 4,258
Undistributed operating expenses:
Administrative and general.................................................. 16,184
Marketing................................................................... 12,070
Property operating costs.................................................... 16,313
Property taxes, rent and insurance (including rent paid to affiliates in the
amount of $2,664)......................................................... 8,425
Depreciation and Amortization............................................... 13,505
Corporate expense........................................................... 8,035
---------
Operating income................................................................ 26,595
---------
Other expenses:
Interest expense.............................................................. 18,374
Other expense................................................................. 257
---------
Net income before minority interest, income taxes, and extraordinary item... 7,964
Minority interest............................................................... 173
---------
Net income before income taxes and extraordinary item....................... 7,791
Income taxes.................................................................... 2,822
---------
Net income before extraordinary item............................................ 4,969
Extraordinary loss on early extinguishment of debt, net of tax (Note 5)....... (1,908)
---------
Net income.................................................................... $ 3,061
---------
---------
Earnings per common and common equivalent share:
Net income before extraordinary item.......................................... $ 0.42
Extraordinary item, net of income taxes....................................... $ (0.16)
---------
Net income.................................................................... $ 0.26
---------
---------
Weighted average number of common and common equivalent shares outstanding.... 11,939,304
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
-------------------- PAID-IN GAIN ON RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
---------- ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, at January 31, 1995... 9,856,178 $ 99 $ 123,104 $ 0 $ 0 $123,203
Unrealized gain on
securities, net............ -- -- -- 262 -- 262
Issuance of Common Stock..... 6,709,662 67 109,529 -- -- 109,596
Net income................... -- -- -- -- 3,061 3,061
---------- ------ ---------- ----- -------- --------
Balance, at December 31,
1995........................... 16,565,840 $166 $ 232,633 $262 $3,061 $236,122
---------- ------ ---------- ----- -------- --------
---------- ------ ---------- ----- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $ 3,061
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................... 13,505
Other....................................................................... 602
Extraordinary loss on early extinguishment of debt, net of tax.............. 1,908
Changes in assets and liabilities
Increase in accounts receivable............................................. (3,534)
Increase in inventory....................................................... (593)
Increase in deposits........................................................ (458)
Increase in other current assets............................................ (1,529)
Decrease in restricted cash................................................. 2,860
Increase in accounts payable................................................ 1,241
Increase in accrued property, sales and use taxes........................... 3,545
Increase in accrued insurance............................................... 614
Decrease in other accrued expenses and other liabilities.................... (4,260)
Decrease in deferred income taxes........................................... (326)
---------
Net cash provided by operating activities................................. 16,636
---------
Cash flows from investing activities:
Purchases of property and equipment......................................... (80,941)
Sales of property and equipment (including $87 received from an
affiliate)...................................................................... 4,711
---------
Net cash used in investing activities..................................... (76,230)
---------
Cash flows from financing activities:
Distributions to predecessor equity holder.................................. (4,140)
Principal payments and extinguishment on long-term debt..................... (156,612)
Proceeds from issuance of long-term debt.................................... 123,387
Decrease in accounts receivable--affiliate.................................. 542
Proceeds from offering, net of offering costs............................... 88,557
Dividend paid to minority partner........................................... (335)
Proceeds from affiliate..................................................... 19,900
Increase in deferred charges and other noncurrent assets.................... (9,212)
---------
Net cash provided by financing activities................................. 62,087
---------
Net increase in cash and cash equivalents....................................... 2,493
Cash and cash equivalents at beginning of period................................ 5,413
---------
Cash and cash equivalents at end of period...................................... $ 7,906
---------
---------
Supplemental cash flow information:
Interest paid............................................................... $ 17,111
---------
---------
Taxes paid.................................................................. $ 2,685
---------
---------
Non-cash investing and financing activities:
Debt assumed to acquire property and equipment.............................. $ 12,100
---------
---------
Sale of non-hotel properties for assumption of liabilities.................. $ 4,723
---------
---------
Purchase of minority interest for common stock.............................. $ 1,110
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Bristol Hotel Company (the "Company") owns and/or operates 38 hotels located
in the southern United States. The 36 owned hotels range in size from 89 to 506
rooms and suites and offer services to both businesses and transient travelers.
In addition, the Company manages two hotels containing a total of 757 rooms and
suites. The Company is a Delaware corporation which began operations in February
1995 to act as a holding company in connection with the acquisitions of Harvey
Hotel Company, Ltd. and its subsidiaries (together, "Harvey Hotel Companies" or
"Predecessor") and United Inns, Inc. ("United Inns") ("January Acquisitions")
(See Note 3).
Under the acquisition agreement between United/Harvey Holdings L.P. (a
private investment firm) ("Holdings"), Harvey Hotel Companies, H.K. Huie, Jr.,
the Harvey Management Equity Holders and the other parties thereto, the
following occurred: (1) Holdings contributed to the Company all of the
outstanding capital stock of United Inns, approximately $15.1 million in cash
and certain cash advances previously made for the benefit of Harvey Hotel
Companies in exchange for an aggregate of 68.1% of the Company's Common Stock,
(2) the Harvey Management Equity Holders collectively contributed to the Company
46.4% of the outstanding partnership interests in Harvey Hotel Companies in
exchange for an aggregate of 20.6% of the Company's Common Stock and (3) Mr.
Huie contributed 25.3% of his 50.6% outstanding partnership interest in Harvey
Hotel Companies for 11.3% of the Company's Common Stock. In addition, Mr. Huie
and two of his daughters sold to the Company approximately 27.3% of the
outstanding partnership interests in Harvey Hotel Companies for approximately
$15.1 million in cash plus interest.
As a result of these transactions, (1) Holdings, Mr. Huie and the Harvey
Management Equity Holders became the stockholders of the Company, (2) the
Company became the sole stockholder of United Inns, (3) the Company became the
indirect owner of 99% of the outstanding partnership interests in Harvey Hotel
Companies, and in connection therewith, a wholly owned subsidiary of the Company
became the managing general partner of Harvey Hotel Companies. Subsequently one
of Mr. Huie's daughters, who did not participate in the January Acquisitions,
sold her 1.0% limited partnership interest in Harvey Hotel Companies (See Note
12).
The aggregate purchase price of Harvey Hotel Companies of $55 million in
stock and cash including the interests contributed by the Harvey Management
Equity Holders and Mr. Huie has been allocated, along with acquisition costs of
$1 million, to the net assets acquired. The net assets contributed were valued
at their estimated fair value on the basis of an independent valuation performed
by Holdings and as a result of the cash paid for the 27.3% owned by Mr. Huie and
his two daughters. The excess of the purchase price over the net assets acquired
in the amount of $71.5 million was principally allocated to land and buildings
in accordance with the purchase method of accounting.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. The accounts of United Inns and its
subsidiaries are included from the date of acquisition, February 1, 1995. All
significant interentity accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company's wholly owned subsidiaries, including United Inns, a 75%-owned
subsidiary, which owns an Atlanta hotel, and a
F-14
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
99% partnership interest in Harvey Hotel Company. All significant intercompany
transactions and accounts have been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
in banks and cash on hand. Liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of equity securities in Starwood Lodging Trust
and Starwood Lodging Corporation. The equity securities have been classified as
available for sale and are reported at fair value, with net unrealized gains and
losses excluded from earnings and reported as a separate component of changes in
stockholders' equity. Upon the sale of the securities, realized gains and losses
are reported in earnings.
ACCOUNTS RECEIVABLE
Accounts receivable in the consolidated balance sheet are expected to be
collected within one year and are net of an estimated uncollectible amount of
$620,000 at December 31, 1995.
Valuation and qualifying accounts consist of allowance for doubtful accounts
as follows (in thousands):
<TABLE>
<CAPTION>
WRITE OFF OF
BALANCE AT CHARGED TO AMOUNTS BALANCE AT
BEGINNING COSTS AND PREVIOUSLY END OF
OF PERIOD EXPENSES RESERVED PERIOD
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Eleven months ended December 31, 1995............ $221 $796 $ (397) $620
</TABLE>
INVENTORY
Inventory, consisting primarily of food and beverage products as well as
consumable supplies, is carried at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS
Deferred charges and other noncurrent assets consist primarily of financing
costs which are amortized over the life of the loan using the effective interest
method. The amount reported in the balance sheet at December 31, 1995 is net of
accumulated amortization of $82,000.
PROPERTY AND EQUIPMENT
The Company recorded the January Acquisitions on the basis of an allocation
of the purchase price based on the fair market value of the assets acquired at
the date of acquisition. Subsequent additions and improvements are capitalized
at their cost, including interest costs associated with the renovation of
certain hotels. Interest capitalized during the eleven months ended December 31,
1995 was $128,000.
F-15
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cost of normal repairs and maintenance that does not significantly
extend the life of the property and equipment is expensed as incurred.
Depreciation is computed on a straight-line method over the estimated useful
lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings........................................ 28-40 years
Furniture, fixtures and equipment................ 5-7 years
Automobiles and trucks........................... 3 years
Leasehold improvements........................... Lease term or useful life,
whichever is less
</TABLE>
Depreciation expense recorded for the eleven months ended December 31, 1995
was $13.5 million.
Of the Company's 38 hotels, ten hotels are located in Dallas; ten hotels are
located in Atlanta; eight hotels are located in Houston; and four hotels are
located in Jackson, Mississippi. As a result, the Company's results of
operations and financial condition are largely dependent on economic conditions
in these four metropolitan areas and could be adversely affected by a
significant decline in economic conditions in any of these areas.
The Company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"). Under SFAS 121, the Company recognizes impairment losses on
property and equipment whenever events or changes in circumstances indicate that
the carrying amount of long-lived assets, on an individual property basis, may
not be recoverable through undiscounted future cash flows. Such losses are
determined by comparing the sum of the expected future discounted net cash flows
to the carrying amount of the asset. Impairment losses are recognized in
operating income as they are determined. As of September 30, 1995, no impairment
losses were incurred.
RESTRICTED CASH
Restricted cash consists of funds placed in reserve for the replacement of
furniture, fixtures and equipment. The Company is required to deposit with
various lenders amounts of three percent to four percent of hotel revenues.
Deposits are made on either a monthly or quarterly basis. As improvements are
completed, the Company is reimbursed from the replacement reserve.
EARNINGS PER SHARE
Earnings per share is determined by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year. Weighted average shares outstanding has been calculated as if Holdings'
shares of 1,768,000 (see Note 8) had been outstanding since February 1, 1995.
The common equivalent shares include officer and director stock options which
have been deemed exercised at the issue date using the treasury method for the
purposes of computing earnings per share. The Company has no other potentially
dilutive securities.
USE OF ESTIMATES
The Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
F-16
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using currently enacted tax
rates in effect for the years in which the differences are expected to reverse.
3. ACQUISITION
In January 1995, Holdings entered into a merger agreement with United Inns.
Under this merger agreement, Holdings purchased most of United Inns'
then-outstanding shares of common stock pursuant to a tender offer and therefore
acquired United Inns' remaining equity by means of a cash merger effective
January 27, 1995.
The aggregate purchase price of United Inns was $67 million in cash plus the
assumption of United Inns' liabilities. Holdings recorded the acquisition of
United Inns using the purchase method of accounting. The purchase price was
allocated, along with acquisition costs of $5.1 million, to the net assets
acquired. The excess of the purchase price over the net assets acquired in the
amount of $58.4 million was principally allocated to land and buildings in
accordance with the purchase method of accounting.
Holdings then contributed to the Company all of the outstanding capital
stock of United Inns on January 31, 1995, as part of the January Acquisitions.
The Company recorded the contribution of the capital stock of United Inns by
Holdings at Holdings' historical cost due to Holdings' ongoing controlling
common stock ownership. The consolidated statement of income for the Company
includes the results of operations for United Inns from February 1, 1995.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Land............................................................ $ 55,484
Building........................................................ 354,887
Furniture, fixtures and equipment............................... 36,951
--------
447,322
Less: accumulated depreciation................................ (13,462)
--------
433,860
Construction in progress........................................ 36,845
--------
$470,705
--------
--------
</TABLE>
In June 1995, the Company acquired a 368 room hotel (the "Sheraton-Atlanta")
in Atlanta, Georgia, from Northeast Hotel Associates for $12.7 million. The
Company financed the acquisition of the Sheraton-Atlanta (which was converted to
the Harvey Hotel brand) with a mortgage note payable of $12.1 million. In
November 1995, the Company acquired the Dallas Downtown Hotel ("Dallas
Downtown") for the assumption of $7.3 million in outstanding debt and
acquisition costs. The mortgages on both hotels were repaid with proceeds from
the Offering. These acquisitions were accounted for using the purchase method of
accounting; accordingly, the purchase price was allocated based upon the
estimated fair value of the individual assets. Revenues and expenses for
Sheraton-
F-17
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Atlanta and Dallas Downtown have been included with revenues and expenses of the
Company since the date of their respective acquisition.
5. LONG-TERM DEBT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Term debt
11.22% due December 18, 2000............................... $ 67,900
Mortgage loans
Fixed rate:
8% due December 31, 2002................................... 44,436
7% due September 1, 1997................................... 10,916
8.55% due January 11, 2016................................. 14,926
Non-interest bearing due December 31, 2002................. 10,600
Other various.............................................. 3,298
Variable rate:
10.56% due January 31, 2000................................ 9,450
10.5% due April 20, 1998................................... 7,021
Capital leases............................................... 1,997
------------
170,544
Less current portion........................................... (6,582)
------------
Long-term debt, excluding current portion...................... $163,962
------------
------------
</TABLE>
The mortgages are amortized using varying methods as outlined in the
individual debt agreements. Variable rate mortgages are indexed to prime, LIBOR
or the GECC composite commercial paper rate, which were 8.5%, 5.53% and 5.81% at
December 31, 1995, respectively. Substantially all of the Company's properties
and equipment are pledged as collateral on mortgage obligations.
On December 18, 1995, concurrent with the initial public offering (See Note
8), the Company entered into a Term Credit Agreement with Bankers Trust Company
("Bankers Trust") pursuant to which Bankers Trust provided for a secured senior
credit facility (the "Senior Term Facility") in the maximum principal amount of
$120 million and issued $70 million aggregate principal amount of senior secured
notes (the "Senior Notes"). The Senior Notes, which bear interest at 11.22% and
mature on December 18, 2000, were issued at 97% of their stated principal
resulting in net proceeds to the Company of $67.9 million. The debt discount of
$2.1 million is being amortized over the life of the Senior Notes using the
effective interest method.
Under the terms of the Exchange and Registration Rights Agreement dated
December 18, 1995, the Company is required to file a registration statement on
Form S-4 with the Securities and Exchange Commission whereby the Company will
exchange the $70 million of Senior Notes for new notes (the "New Notes"). The
New Notes will have an equal principal amount, rate and maturity date; $70
million, 11.22% and December 18, 2000, respectively. The New Notes will be
secured by a first-priority pledge of all outstanding shares of capital stock of
Bristol Hotel Asset Company, a Delaware corporation and wholly owned subsidiary
of the Company.
Pursuant to the Senior Term Facility, the Company may borrow $60 million to
fund the renovation of certain of the Acquired Properties. In addition, the
Company may borrow up to $60 million for the acquisition and related
refurbishment of additional hotel assets to the extent the Company satisfies
certain financial tests. The Senior Term Facility imposes certain restrictions
on the Company and certain of its subsidiaries to incur additional debt, impose
liens or mortgages on their properties, extend new guarantees, pay dividends,
repurchase their common stock, make investments and incur capital expenditures.
The Senior Term Facility matures December 18, 1998, and advances thereunder bear
F-18
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest at a rate equal to, at the election of the Company, one-, two-, three-
or six-month LIBOR plus 2.25%, payable monthly in arrears. Additionally, the
Company is required to pay an administration fee of $120,000 per annum, and a
quarterly commitment fee equal to .375% per annum of any unused portion of the
Senior Term Facility. As of December 31, 1995, there were no amounts outstanding
on the Senior Term Facility.
Concurrent with the Offering and funding of the Senior Notes, the Company
retired approximately $138 million of outstanding debt resulting in an
extraordinary loss of $1.9 million ($.16 per share), net of a tax benefit of $1
million.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
- ----------------------------------------------------------------
<S> <C>
1996............................................................ 6,582
1997............................................................ 15,099
1998............................................................ 5,930
1999............................................................ 20,454
2000............................................................ 75,236
Thereafter...................................................... 47,243
--------
$170,544
--------
--------
</TABLE>
6. INCOME TAXES
Components of income tax expense for the eleven months ended December 31,
1995 consist of the following (in thousands):
<TABLE>
<S> <C>
Federal:
Current......................................................... $3,245
Deferred........................................................ (579)
State:
Current......................................................... 190
Deferred........................................................ (34)
------
$2,822
------
------
</TABLE>
The Company estimates that its effective tax rate for 1995 will be
approximately 36.2%. The actual income tax expense for the eleven months ended
December 31, 1995 is computed by applying the federal statutory income tax rate
as a result of the following:
<TABLE>
<S> <C>
Income tax expense at the federal statutory rate..................... 34.0%
State income taxes, net of federal benefit........................... 2.2
----
36.2%
----
----
</TABLE>
Deferred income tax benefit results principally from temporary differences
relating to accelerated depreciation, capitalized interest and taxes and
utilization of net operating losses ("NOL's").
F-19
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 are as
follows (in thousands):
<TABLE>
<S> <C>
Purchase accounting adjustments to land and building............. $81,118
Other............................................................ 278
-------
Gross deferred tax liabilities................................... 81,396
-------
Tax credit and NOL carryforwards................................. 8,200
Accrued reserves................................................. 2,779
Other............................................................ 969
-------
Gross deferred tax assets........................................ 11,948
Valuation allowance.............................................. --
-------
Deferred tax asset............................................... 11,948
-------
Net deferred tax liability....................................... $69,448
-------
-------
</TABLE>
The gross deferred tax liabilities relate principally to the temporary
differences caused by the purchase accounting adjustments recorded at the
acquisition of United Inns. For financial reporting purposes, the transaction
was recorded under the principles of purchase accounting and, accordingly, the
basis of the assets have been adjusted to fair market value. For tax reporting
purposes, the transaction resulted in the bases of the assets and liabilities
being carried forward at their adjusted bases with some adjustment for certain
gains recognized on the acquisition. This differing treatment has created book
bases in excess of tax bases and, accordingly, the related deferred tax
liabilities associated with these differences have been recorded. As the Company
depreciates and amortizes the bases of its assets for book and tax purposes, it
will record an expense for depreciation and amortization in excess of that
claimed for tax purposes. This reversal of the temporary differences established
through purchase accounting will result in the Company recording a reversal of
deferred tax expense for the tax effect of these differences.
The remaining deferred tax assets are expected to be realized in future
periods through the reversal of existing taxable temporary differences.
For federal tax reporting purposes, net operating losses of $21.0 million
and tax credits of $657,000 generated by United Inns in prior years are
available to be carried forward to periods expiring as follows:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION FEDERAL NOL TAX CREDITS
- ------------------------------------------ ----------- -----------
<S> <C> <C>
2001...................................... $ 405 $ 142
2002...................................... 5,374 154
2003...................................... 4,059 158
2004...................................... 0 103
2005...................................... 7,557 58
2006 to 2010.............................. 3,623 42
----------- -----
$21,018 $ 657
----------- -----
----------- -----
</TABLE>
The losses are subject to the loss limitation rules due to the change in
ownership of United Inns. Net operating losses generated by United Inns and its
subsidiaries are further limited as they were incurred prior to their ownership
by the Company. Accordingly, these losses are available only to offset the
income generated by United Inns and its subsidiaries and will be limited to $4.6
million annually.
F-20
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Accrued construction costs....................................... $ 4,457
Accrued payroll and payroll taxes................................ 2,963
Accrued interest................................................. 1,945
Other............................................................ 7,423
-------
$16,788
-------
-------
</TABLE>
8. EQUITY
Immediately prior to the consummation of the Offering, the Board of
Directors authorized a 200-for-1 common stock split, increasing the number of
authorized shares from 80,000 to 75,000,000. In the accompanying financial
statements, all per share amounts and number of shares reflect the stock split.
On December 13, 1995, the Company completed its Offering of 4,887,500 shares
of its common stock at a price to the public of $20.50. The net proceeds to the
Company, after expenses of the Offering and giving effect to the underwriter's
discount, were approximately $88.6 million. The proceeds were primarily used for
repayment of outstanding debt and to provide working capital to the Company.
Concurrent with the Offering, Holdings exchanged $19.9 million in working
capital advances made to the Company for 1,768,000 shares of common stock.
Additional advances from Holdings of approximately $2.2 million were repaid with
proceeds from the Offering. Additionally, the Company purchased the 25% minority
interest in Mid-Atlanta Investment Co., the owner of the Company's Courtyard by
Marriott and Fairfield Inn hotels in Atlanta, for 54,162 shares of common stock
and $656,000 in cash.
On February 27, 1995, the Company granted options to purchase 400,000 shares
of common stock at an exercise price of $12.50 per share, representing fair
market value at the date of grant, to certain officers of the Company. Each of
these options has a term of ten years, which vests fully in the year 1998. If
the optionee dies or becomes disabled prior to such vesting date, the optionee's
option will vest and become exercisable to the extent of 2.77% of shares of
common stock covered thereby for each full calendar month since the date of
grant. Effective as of September 29, 1995, the Company granted additional
options to purchase an aggregate of 383,843 shares of common stock at an
exercise price of $12.50 per share to certain officers and directors of the
Company. The Company estimated the fair market value at the date of grant to be
$14.00 per share. The difference between the grant price and the fair market
value is recognized as compensation expense over the vesting period of the
options. As of December 31, 1995, no options were exercisable.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning after December
15, 1995. This statement defines a fair value method of accounting for employee
stock options and encourages entities to adopt that method of accounting for its
stock compensation plans. SFAS 123 allows an entity to continue to measure
compensation costs for those plans using the intrinsic value based method of
accounting prescribed by Accounting Pronouncement Bulletin Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company has elected
to continue to account for its employee stock compensation plans as prescribed
under APB 25 and will make the pro forma disclosures of net income and earnings
per share required by SFAS 123 beginning with its financial statements for the
year ended December 31, 1996. The
F-21
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company, therefore, does not anticipate the implementation of SFAS 123 to have a
material adverse impact on the Company's financial position or results of
operations.
9. OPERATING LEASES
The Company leases certain land (see Note 13), office space and equipment
under noncancellable operating lease commitments. Minimum rentals due under
these agreements for the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
- -----------------------------------------------------------------
<S> <C>
1996............................................................. 1,852
1997............................................................. 1,852
1998............................................................. 1,867
1999............................................................. 1,875
2000............................................................. 1,697
Thereafter....................................................... 59,086
-------
$68,229
-------
-------
</TABLE>
The Company leases certain hotel space to third party vendors. Future
minimum rentals to be received under noncancellable operating leases that have
initial or remaining lease terms in excess of one year as of December 31, 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------------
<S> <C>
1996.............................................................. 1,307
1997.............................................................. 1,141
1998.............................................................. 60
1999.............................................................. 48
2000.............................................................. 46
Thereafter........................................................ 176
------
$2,778
------
------
</TABLE>
10. MANAGEMENT CONTRACTS
The Company has contracted to manage two hotels owned by others. Harvey
Hotel Wichita is owned by Starwood Lodging Trust and Starwood Lodging
Corporation, a publicly traded real estate investment trust, of which the
Company owns 24,826 shares out of approximately 18 million shares outstanding.
These shares are accounted for as marketable securities as described in Note 2.
The management agreement provides that for years ending after December 31, 1994,
the Company will receive a base management fee equal to 2% of gross income to
the extent that excess cash flow (as defined in the management agreement) is
sufficient to pay such base management fee. In addition, the Company is entitled
to an annual incentive fee equal to 25% of excess cash flow plus 25% of the
amount by which net operating income exceeds projected net operating income. The
management agreement has a five-year term and expires on December 20, 1998,
subject to earlier termination or extension under certain circumstances. Both
the base management fee and the incentive management fee are subordinate to a
preference fee that is paid to the owners. The Company accrues management fee
revenue to the extent that the preference fee has been fully paid to the owners.
Management fees for the eleven months ended December 31, 1995 were $396,000.
F-22
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 1, 1994, Harvey Hotel Management Corporation began operating the
Harvey Hotel Downtown Dallas. The management agreement with the owner provides
for a monthly management fee of 4% of gross monthly revenues, as defined in the
agreement. The agreement also provides for an incentive management fee to be
paid annually based on hotel performance. The agreement will terminate on
December 31, 1997. Management fees received under this contract were $986,000
for the eleven months ended December 31, 1995.
11. BENEFITS
Health (including fully insured term life and accidental death and
dismemberment), dental and disability coverage is provided to the Company's
employees through a Welfare Benefit Trust. The Company maintains varying levels
of stop loss and umbrella insurance policies to limit the Company's per
occurrence and aggregate liability in any given year. Actual claims and premiums
on stop-loss insurance, medical and disability policies are paid from the trust.
The trust is funded through a combination of employer and employee
contributions. The trust also pays work related injury claims for its employees
in Texas which are funded by the employer. Since April 1, 1995, all employees
have been eligible for participation in the benefits provided through the
Welfare Benefit Trust. The Company provided $2.3 million related to these
benefits as of December 31, 1995.
The Company offers a Profit Sharing Plan and Trust ("401(k) Plan") to
certain employees. The 401(k) Plan is designed to be a qualified trust under
section 401(a) of the Internal Revenue Code. Under the 401(k) Plan, eligible
employees are allowed to defer up to 16% of their income on a pretax basis
through contributions to the Plan; however, only the first 6% of pretax income
is subject to matching by the Company. The Company may elect to make matching
contributions of up to 50% of the employees' matchable contributions subject to
certain performance measures of the Company. The Company has provided for
matching contributions for the eleven months ended December 31, 1995 totaling
$343,000.
12. COMMITMENTS AND CONTINGENCIES
Under the terms of the hotel franchise agreements expiring at various dates
through 2016, the Company is obligated to pay certain fees for franchising
royalties, reservation and advertising services. Franchise fees paid for the
eleven months ended December 31, 1995, were $3.3 million.
The Company is currently involved in certain guest and customer claims,
employee wage claims and other disputed amounts arising in the ordinary course
of business. In the opinion of management, the pending litigation will not have
a materially adverse effect on the Company's business, assets, or results of
operations.
As of November 30, 1995, the Company acquired for cash of $550,000 the
remaining 1% limited partnership interest in Harvey Hotel Company from the
daughter of Mr. Huie who did not participate in the January Acquisitions. In
addition, the Company agreed to pay $1.9 million to the daughter for release
from certain claims.
United Inns is presently under examination by the Tennessee Department of
Revenue. It is expected that resolution of this matter will be lengthy and may
require litigation. The Company has determined and provided for an estimated
liability. Management does not feel that the outcome of this litigation will
have a materially adverse effect on the Company's business, assets, or results
of operations.
All of the owned hotels of the Company have undergone Phase I environmental
assessments which generally provide a physical inspection and data base search
but not soil or groundwater analysis, within
F-23
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the last 18 months. In addition, most of the Company's hotels have been
inspected to determine the presence of asbestos-containing materials ("ACM's").
While ACM's are present in certain of the Company's properties, operations and
maintenance programs for maintaining such ACM's have been or are in process of
being designed and implemented, or the ACM's have been scheduled to be or have
been abated, at such hotels.
Although it is difficult to quantify the potential financial impact of
completing the remediation of all properties containing environmental
contaminants, management has developed an estimated range of remediation costs
of between $0.4 million and $1.5 million which could occur over a period of
several years. These estimates consider, among other things, currently available
technological solutions, risk-based assessments of the contamination and, as
applicable, an estimation of its proportionate share of remediation costs. As of
December 31, 1995, the Company had accrued $0.8 million in "other liabilities"
on the balance sheet for estimated environmental remediation costs, representing
its best estimate of the ultimate remediation costs. None of the environmental
assessments conducted to date has revealed any environmental condition that
management believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is management aware of any such
condition. However, it is possible that these assessments have not revealed all
potential environmental liabilities or that there are material environmental
liabilities of which management is not aware.
As discussed further in Note 13, the Company disposed of certain of its
non-hotel properties to HH Land Company, L.P. ("HH Land Company"), a related
party. Upon acquisition of the non-hotel properties, HH Land Company assumed all
liabilities associated with the non-hotel properties through a formal
indemnification agreement, including environmental liabilities associated with
the properties. The Company remains contingently liable for the environmental
costs associated with the properties. At such time that the Company determines
that it is not probable that HH Land Company will fully pay the remediation
costs related to the disposed properties, the Company will recognize such
liabilities.
13. TRANSACTIONS WITH RELATED PARTIES
In September 1995, the Company disposed of certain of its non-hotel
properties which management believed were not integral to the Company's
operations. To effect this disposition, Holdings and Harvey Management Equity
Holders formed HH Land Company, which acquired six parcels of real property and
all of the capital stock of certain subsidiaries of United Inns which owned or
had owned certain non-hotel properties and other assets. The assets mainly
consisted of two car wash operations and undeveloped tracts of land. The
aggregate purchase price was $87,000 and the assumption of all liabilities
(including environmental liabilities) and risk relating to those acquired
properties. The Company believes that the terms of such sales approximated the
fair market value of assets sold.
The Company leases its home office space from Huie-Miars Midway Atriums
J.V., which is owned 75% by Mr. Huie and 25% by Robert L. Miars (one of the
Harvey Management Equity Holders), on a five year lease. Rent expense reflected
in the financial statements for the eleven months ended December 31, 1995 is
$282,000.
Huie Miars Construction Corporation, which is owned 50% by Huie and 50% by
Robert L. Miars, supervised the construction and renovation of the Harvey
Hotel - Houston. The Company incurred $119,000 for construction management fees
during the eleven months ended December 31, 1995.
Harvey Hotel Company and Mr. Huie, representing various land ventures, are
co-borrowers of funds secured by Harvey Hotel -] DFW Airport, Harvey
Hotel - Dallas and Bristol Suites and the various related land parcels. Harvey
Hotel Company and Mr. Huie agreed to an assignment of the debt to the various
unrelated land ventures resulting in the assignment of 23.73%, 24.24% and 22.18%
of the
F-24
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
debt associated with the borrowings for each property, respectively. The related
land parcels underlying each hotel are owned by Mr. Huie through the land
ventures. At December, 1995, the total debt and the amount allocated to Mr. Huie
are as follows (in thousands):
<TABLE>
<CAPTION>
TOTAL ALLOCATED
DEBT TO HUIE
------- ---------
<S> <C> <C>
Harvey Hotel - DFW Airport.............................. $27,225 $ 6,462
Harvey Hotel - Dallas................................... 7,756 1,880
Bristol Suites.......................................... 22,532 4,998
</TABLE>
Harvey Hotel Company is jointly and severably liable in the event of
nonpayment by Mr. Huie of the debt allocated.
The land leases for the Harvey Hotel - DFW Airport, the Harvey
Hotel - Dallas and the Bristol Suites expire on December 31, 2037, September 14,
2030 and April 30, 2035, respectively. Harvey Hotel - DFW Airport pays monthly
land rent in the amount of the greater of (i) 6% of gross monthly revenue or
(ii) approximately $50,000 per month. Harvey Hotel - Dallas pays monthly land
rent in the amount of the greater of (i) 4% of gross revenues or (ii) $15,000.
Effective January 1, 2000, the rent will be recalculated based upon the consumer
price index; however, it will not be less than $20,000 per month nor more than
$40,000 per month. Bristol Suites pays monthly land rent in the amount of the
greater of (i) 6% of gross monthly rental revenue or (ii) $49,000 per month.
Total land rentals for the above properties for the eleven months ended December
31, 1995 were $2.0 million.
14. FAIR VALUE
The Company has estimated the fair value of its financial instruments at
December 31, 1995 as required by Statement of Financial Accounting Standards No.
107. The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
values. Marketable securities are carried at fair value, which is determined
based upon quoted market prices. The carrying values of variable and fixed rate
debt are reasonable estimates of their fair values.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The unaudited consolidated quarterly results of operations for the Company
and the unaudited combined quarterly results of operations for the Predecessor
are as follows (in thousands):
<TABLE>
<CAPTION>
1995
------------------------------------------------------
BRISTOL HOTEL COMPANY
HARVEY HOTEL ------------------------------------------------------
COMPANIES FEBRUARY TO SECOND THIRD FOURTH
JANUARY 1995 MARCH QUARTER QUARTER QUARTER
------------ ------------ ---------- ---------- ----------
Revenues.................... $5,943 $ 29,910 $ 43,040 $ 46,205 $ 46,040
<S> <C> <C> <C> <C> <C>
Operating income............ 1,932 6,221 8,016 5,484 6,874
Income (loss) before
extraordinary item.......... 1,280 2,268 2,056 (290) 935
Net income (loss)........... 1,280 2,268 2,056 (290) (973)
Earnings per common share:..
Income (loss) before
extraordinary item.......... -- $ 0.19 $ 0.18 $ (0.02) $ 0.07
Net income (loss)....... -- $ 0.19 $ 0.18 $ (0.02) $ (0.08)
Weighted average number of
common and common
equivalent shares........... -- 11,640,135 11,652,707 11,653,302 12,700,645
</TABLE>
The sum of the earnings (loss) per common share for the four quarters in
1995 differs from the annual earnings per common share due to the required
method of computing the weighted average number of shares in the respective
periods.
F-25
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 3,144
Marketable securities.......................................................... 832
Accounts receivable, net....................................................... 9,918
Inventory...................................................................... 2,891
Deposits and other current assets.............................................. 10,038
--------
Total current assets....................................................... 26,823
Property and equipment, net...................................................... 493,760
Other assets:
Restricted cash................................................................ 2,579
Deferred charges and other non-current assets, net............................. 9,919
--------
Total assets............................................................... $533,081
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 6,806
Accounts payable and accrued expenses.......................................... 15,886
Accrued construction costs..................................................... 7,800
Accrued property, sales and use taxes.......................................... 4,887
Accrued insurance reserves..................................................... 5,917
Advance deposits............................................................... 5,350
--------
Total current liabilities.................................................. 46,646
Long-term debt, excluding current portion........................................ 172,604
Deferred income taxes............................................................ 70,941
Other liabilities................................................................ 2,771
--------
Total liabilities.......................................................... 292,962
--------
Common stock ($.01 par value; 75,000,000 shares authorized, 16,565,840 shares
issued and outstanding)........................................................ 166
Additional paid-in capital....................................................... 232,661
Unrealized gain on marketable securities, net.................................... 368
Retained earnings................................................................ 6,924
--------
Total stockholders' equity................................................. 240,119
--------
Total liabilities and stockholders' equity................................. $533,081
--------
--------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
F-26
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- ---------------
THREE MONTHS TWO MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31,
1996 1995 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue:
Rooms....................................... $35,454 $21,354 $32,138
Food and beverage........................... 10,599 6,324 9,586
Other operating departments................. 3,624 2,232 2,879
--------------- --------------- ---------------
Total revenue............................. 49,677 29,910 44,603
--------------- --------------- ---------------
Operating costs and expenses:
Departmental expenses:
Rooms..................................... 8,574 5,276 8,757
Food and beverage......................... 7,193 4,576 6,821
Other operating departments............... 1,146 471 660
Undistributed operating expenses:
Administrative and general................ 4,633 3,163 3,906
Marketing................................. 3,730 1,768 2,748
Property occupancy costs.................. 7,133 4,605 6,392
Depreciation and amortization............. 3,988 2,254 3,328
Corporate expense......................... 2,962 1,576 2,008
--------------- --------------- ---------------
Operating income.............................. 10,318 6,221 9,983
Other expenses (income):
Interest expense............................ 4,206 2,777 3,765
Other....................................... -- (100) (89)
--------------- --------------- ---------------
Net income before income taxes............ 6,112 3,544 6,307
Income taxes.................................. 2,249 1,276 2,271
--------------- --------------- ---------------
Net income.................................. $ 3,863 $ 2,268 $ 4,036
--------------- --------------- ---------------
--------------- --------------- ---------------
Net income per common share................. $ 0.23 $ 0.19 $ 0.24
--------------- --------------- ---------------
--------------- --------------- ---------------
Weighted average number of common and common
equivalent shares outstanding................. 17,006 11,640 16,872
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
F-27
<PAGE>
BRISTOL HOTEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS TWO MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 3,863 $ 2,268
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................ 3,988 2,254
Other................................................ 28 20
Changes in working capital................................. 1,471 (119)
Increase in advance deposits............................... 5,046 --
Increase in restricted cash................................ (1,959) (146)
Increase in deferred income taxes.......................... 1,493 1,570
Decrease in other liabilities.............................. (40) --
--------------- -------
Cash provided by operating activities.................. 13,890 5,847
--------------- -------
Cash flows from investing activities:
Improvements to property and equipment..................... (27,043) (5,407)
Property acquisition costs and deposits.................... -- (355)
Additions to investment in affiliate....................... -- (3)
--------------- -------
Cash used in investing activities...................... (27,043) (5,765)
--------------- -------
Cash flows from financing activities:
Proceeds from short-term loan from affiliate............... -- 3,000
Repayments of long-term debt............................... (1,963) (497)
Proceeds from issuance of long-term debt................... 10,829 1,806
Increase in deferred charges and other non-current
assets....................................................... (475) (812)
Payment of accrued transaction costs....................... -- (823)
Decrease in distributions payable.......................... -- (1,613)
--------------- -------
Cash provided by financing activities.................. 8,391 1,061
--------------- -------
Net increase (decrease) in cash and cash equivalents......... (4,762) 1,143
Cash and cash equivalents at beginning of period............. 7,906 5,413
--------------- -------
Cash and cash equivalents at end of period................... $ 3,144 $ 6,556
--------------- -------
--------------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
F-28
<PAGE>
BRISTOL HOTEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Bristol Hotel Company (the "Company") began operations in February 1995 to
act as a holding company in connection with the acquisitions of Harvey Hotel
Company, Ltd. and its subsidiaries (together, "Harvey Hotel Companies") and
United Inns, Inc. ("United Inns"). The Company owns and/or operates 38 hotels
located primarily in the southern United States. Prior to February 1995, ten of
the hotels had been owned or operated by Harvey Hotel Companies and 26 hotels
had been owned by United Inns. The remaining two hotels were acquired by the
Company subsequent to June 1995. In December 1995, the Company completed an
initial public offering of its common stock (the "Offering") raising
approximately $88.6 million in net proceeds. Concurrently, the Company
refinanced approximately $138 million of mortgage indebtedness with proceeds of
the Offering and the private issuance of $70 million aggregate principal amount
of senior secured notes ("Senior Notes"). The condensed pro forma statement of
income for the quarter ended March 31, 1995 reflects the operations and/or
management of all 38 hotels for the full three-month period and excludes the
operations of the Holiday Inn-Silber which was sold by the Company in July 1995.
Interest expense in the pro forma income statement reflects the refinancing of
the mortgage indebtedness.
The condensed consolidated balance sheet at March 31, 1996 and the condensed
consolidated statements of income and cash flows for the quarter ended March 31,
1996, and the two months ended March 31, 1995, have been prepared by the Company
and are unaudited. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1996 and the periods
presented have been made. Interim results are not necessarily indicative of
fiscal year performance because of seasonal and short-term variations.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
the Prospectus.
2. EARNINGS PER SHARE
Earnings per share is determined by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year. The common equivalent shares include employee stock options which have
been deemed exercised at the issue date using the treasury method for the
purposes of computing earnings per share. The Company has no other potentially
dilutive securities.
3. LONG-TERM DEBT
On April 16, 1996, in accordance with the terms of the Exchange and
Registration Rights Agreement dated December 18, 1995, the Company filed a
registration statement on Form S-4 with the Securities and Exchange Commission
whereby the Company will exchange the Senior Notes for new notes (the "New
Notes"). The New Notes will have an equal principal amount, rate and maturity
date, $70 million, 11.22% and December 18, 2000, respectively. The New Notes
will be secured by a first-priority pledge of all outstanding shares of capital
stock of Bristol Hotel Asset Company, a Delaware corporation and wholly owned
subsidiary of the Company.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Bristol Hotel Asset Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholder's equity and of
cash flows present fairly, in all material respects, the financial position of
Bristol Hotel Asset Company and its subsidiaries at December 31, 1995, and the
results of their operations and their cash flows for the eleven months ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
February 23, 1996
F-30
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 7,906
Marketable securities.......................................................... 726
Accounts receivable, net (Note 2).............................................. 10,959
Inventory...................................................................... 2,880
Deposits....................................................................... 7,604
Other current assets........................................................... 2,057
--------
Total current assets......................................................... 32,132
Property and equipment, net (Note 4)............................................. 470,705
Other assets:
Restricted cash................................................................ 620
Deferred charges and other noncurrent assets, net (Note 2)..................... 9,444
--------
Total assets................................................................. $512,901
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 6,582
Accounts payable............................................................... 5,064
Accrued property, sales and use taxes.......................................... 6,110
Accrued insurance.............................................................. 6,014
Other accrued expenses (Note 7)................................................ 16,608
--------
Total current liabilities.................................................... 40,378
Long-term debt, excluding current portion........................................ 96,062
Deferred income taxes............................................................ 69,448
Other liabilities................................................................ 2,811
--------
Total liabilities............................................................ 208,699
Commitments and contingencies (Note 12).......................................... --
Common stock ($.01 par value, 1,000 shares authorized, 1,000 shares issued and
outstanding at December 31, 1995)................................................ --
Additional paid-in capital....................................................... 300,699
Unrealized gain on marketable securities, net (Note 2)........................... 262
Retained earnings................................................................ 3,241
Total stockholder's equity..................................................... 304,202
--------
Total liabilities and stockholder's equity..................................... $512,901
--------
--------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONSOLIDATED STATEMENT OF INCOME
ELEVEN MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Revenue:
Rooms.......................................................................... $115,771
Food and beverage.............................................................. 36,070
Other operating departments.................................................... 13,354
--------
Total revenue................................................................ 165,195
--------
Operating costs and expenses:
Departmental expenses:
Rooms........................................................................ 32,692
Food and beverage............................................................ 27,118
Other operating departments.................................................. 4,258
Undistributed operating expenses:
Administrative and general................................................... 16,184
Marketing.................................................................... 12,070
Property operating costs..................................................... 16,313
Property taxes, rent and insurance (including rent paid to affiliates of $2.6
million)......................................................................... 8,425
Depreciation and amortization................................................ 13,505
Corporate expense............................................................ 8,035
--------
Operating income................................................................. 26,595
--------
Other expenses:
Interest expense............................................................... 18,095
Other.......................................................................... 257
--------
Net income before minority interest, income taxes and extraordinary item......... 8,243
Minority interest................................................................ 173
--------
Net income before income taxes and extraordinary item............................ 8,070
Income taxes..................................................................... 2,921
--------
Net income before extraordinary item............................................. 5,149
Extraordinary loss on early extinguishment of debt, net of taxes (Note 5)........ 1,908
--------
Net income....................................................................... $ 3,241
--------
--------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED
---------------- PAID-IN GAIN ON RETAINED
SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
------ ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, at January 31, 1995........ -- -- $ 0 $ 0 $ 0 $ 0
Unrealized gain on securities,
net................................. -- -- -- 262 -- 262
Issuance of Common Stock.......... 1,000 -- -- -- -- --
Equity contributions by Parent
Company............................. -- -- 300,699 -- -- 300,699
Net income........................ -- -- -- -- 3,241 3,241
------ ------ ---------- ----- -------- --------
Balance, at December 31, 1995....... 1,000 -- $ 300,699 $262 $3,241 $304,202
------ ------ ---------- ----- -------- --------
------ ------ ---------- ----- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income....................................................................... $ 3,241
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................................. 13,505
Other.......................................................................... 602
Extraordinary loss on early extinguishment
of debt, net of tax.......................................................... 1,908
Changes in assets and liabilities................................................
Increase in accounts receivable................................................ (3,534)
Increase in inventory.......................................................... (593)
Increase in deposits........................................................... (458)
Increase in other current assets............................................... (1,529)
Decrease in restricted cash.................................................... 2,860
Increase in accounts payable................................................... 1,241
Increase in accrued property,
sales and use taxes.......................................................... 3,545
Increase in accrued insurance.................................................. 614
Decrease in other accrued expenses
and other liabilities........................................................ (4,440)
Decrease in deferred income taxes.............................................. (326)
---------
Net cash provided by operating activities.................................. 16,636
---------
Cash flows from investing activities:
Purchases of property and equipment............................................ (80,941)
Sales of property and equipment................................................ 4,711
---------
Net cash used in investing activities...................................... (76,230)
---------
Cash flows from financing activities:
Distributions to predecessor equity holders.................................... (4,140)
Principal payments and extinguishment of
long-term debt............................................................... (156,612)
Proceeds from issuance of long-term debt....................................... 55,487
Proceeds from Parent Company................................................... 67,900
Proceeds from affiliate........................................................ 19,900
Proceeds from offering, net of offering costs.................................. 88,557
Dividend paid to minority partner.............................................. (335)
Decrease in accounts receivable affiliate...................................... 542
Decrease (increase) in deferred charges and other non-current assets........... (9,212)
---------
Net cash provided by financing activities.................................. 62,087
---------
Net increase in cash and cash equivalents........................................ 2,493
Cash and cash equivalents at beginning of period................................. 5,413
---------
Cash and cash equivalents at end of period....................................... $ 7,906
---------
---------
Supplemental cash flow information:
Interest paid.................................................................. $ 17,390
---------
---------
Taxes paid..................................................................... $ 2,685
---------
---------
Non-cash investing and financing activities:
Debt assumed to acquire property and equipment................................. $ 12,100
---------
---------
Sale of non-hotel properties for assumption of liabilities..................... $ 4,723
---------
---------
Purchase of minority interest for common stock................................. $ 1,110
---------
---------
Contribution by Parent Company................................................. $ 232,799
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Bristol Hotel Asset Company (the "Asset Company") was formed on December 18,
1995 by issuing 1,000 shares of common stock ($.01 par value) to Bristol Hotel
Company (the "Parent Company") at $1.00 per share in exchange for the Parent
Company's investment in certain subsidiaries. In addition, 15 entities
(previously owned by United Inns, Inc.), owning 24 hotels were merged into the
Asset Company on December 18, 1995.
Prior to December 18, 1995, the Asset Company was not a legal entity, but
rather, a combination of entities that were under common control of the Parent
Company. The operating results reflect the operations of the Asset Company,
which are substantially those operations of the Parent Company for the eleven
months ended December 31, 1995.
The Parent Company owns and/or operates 38 hotels located in the southern
United States. The 36 owned hotels range in size from 89 to 506 rooms and suites
and offer services to both businesses and transient travelers. In addition, the
Parent Company manages two hotels containing a total of 757 rooms and suites.
The Parent Company is a Delaware corporation which began operations in February
1995 to act as a holding company in connection with the acquisitions of Harvey
Hotel Company, Ltd. and its subsidiaries (together, "Harvey Hotel Companies" or
"Predecessor") and United Inns, Inc. ("United Inns") ("January Acquisitions")
(See Note 3).
Under the acquisition agreement between United/Harvey Holdings L.P. (a
private investment firm) ("Holdings"), Harvey Hotel Companies, H.K. Huie, Jr.,
the Harvey Management Equity Holders and the other parties thereto, the
following occurred: (1) Holdings contributed to the Parent Company all of the
outstanding capital stock of United Inns, approximately $15.1 million in cash
and certain cash advances previously made for the benefit of Harvey Hotel
Companies in exchange for an aggregate of 68.1% of the Parent Company's Common
Stock, (2) the Harvey Management Equity Holders collectively contributed to the
Parent Company 46.4% of the outstanding partnership interests in Harvey Hotel
Companies in exchange for an aggregate of 20.6% of the Parent Company's Common
Stock and (3) Mr. Huie contributed 25.3% of his 50.6% outstanding partnership
interest in Harvey Hotel Companies for 11.3% of the Parent Company's Common
Stock. In addition, Mr. Huie and two of his daughters sold to the Parent Company
approximately 27.3% of the outstanding partnership interests in Harvey Hotel
Companies for approximately $15.1 million in cash plus interest.
As a result of these transactions, (1) Holdings, Mr. Huie and the Harvey
Management Equity Holders became the stockholders of the Parent Company, (2) the
Parent Company became the sole stockholder of United Inns, (3) the Parent
Company became the indirect owner of 99% of the outstanding partnership
interests in Harvey Hotel Companies, and, in connection therewith, a wholly
owned subsidiary of the Parent Company became the managing general partner of
Harvey Hotel Companies. Subsequently one of Mr. Huie's daughters, who did not
participate in the January Acquisitions, sold her 1.0% limited partnership
interest in Harvey Hotel Companies (See Note 12).
The aggregate purchase price of Harvey Hotel Companies of $55 million in
stock and cash including the interests contributed by the Harvey Management
Equity Holders and Mr. Huie has been allocated, along with acquisition costs of
$1 million, to the net assets acquired. The net assets contributed were valued
at the fair value of the net assets contributed on the basis of an independent
valuation performed by Holdings and as a result of the cash paid for the 27.3%
owned by Mr. Huie and his two daughters. The excess of the purchase price over
the net assets acquired in the amount of $71.5 million was principally allocated
to land and buildings in accordance with the purchase method of accounting.
F-35
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accompanying consolidated financial statements include the accounts of
the Asset Company and its subsidiaries. The accounts of United Inns and its
subsidiaries are included from the date of acquisition, February 1, 1995. All
significant interentity accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
in banks and cash on hand. Liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist primarily of equity securities in Starwood
Lodging Trust and Starwood Lodging Corporation. Equity securities have been
classified as available-for-sale and are reported at fair value, with net
unrealized gains and losses excluded from earnings and reported as a separate
component of changes in equity. Upon sale, realized gains and losses are
reported in earnings using the specific identification method.
ACCOUNTS RECEIVABLE
Accounts receivable in the balance sheet are expected to be collected within
one year and are net of estimated uncollectible amounts of $620,000 at December
31, 1995.
INVENTORY
Inventory, consisting primarily of food and beverage products as well as
consumable supplies, is carried at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS
Deferred charges and other noncurrent assets consist primarily of financing
costs which are amortized over the life of the loan using the effective interest
method. The amounts reported in the balance sheet at December 31, 1995, are net
of accumulated amortization of $82,000.
PROPERTY AND EQUIPMENT
The Parent Company recorded the January Acquisitions on the basis of an
allocation of the purchase price based on the fair market value of the assets
acquired at the date of acquisition. Subsequent additions and improvements are
capitalized at their cost, including interest costs associated with the
renovation of certain hotels. Interest capitalized during the eleven months
ended December 31, 1995, was $128,000.
F-36
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cost of normal repairs and maintenance that does not significantly
extend the life of the property and equipment is expensed as incurred.
Depreciation is computed on a straight-line method over the estimated useful
lives of the assets, as follows:
<TABLE>
<S> <C>
Building........................... 28-40 years
Furniture, fixtures and 5-7 years
equipment..........................
Automobiles and trucks............. 3 years
Leasehold improvements............. Lease term or useful life,
whichever is less
</TABLE>
Depreciation expense recorded for the eleven months ended December 31, 1995,
was $13.5 million.
The Asset Company has adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed of " ("SFAS 121"). Under SFAS 121, the Asset Company recognizes
impairment losses on property and equipment whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets, on an
individual property basis, may not be recoverable through undiscounted future
cash flows. Such losses are determined by comparing the sum of the expected
future discounted net cash flows to the carrying amount of the asset. Impairment
losses are recognized in operating income as they are determined. As of December
31, 1995, no impairment losses have been incurred.
Of the Asset Company's 38 hotels, ten hotels are located in Dallas; ten
hotels are located in Atlanta; eight hotels in Houston; and four hotels are
located in Jackson, Mississippi. As a result, the Asset Company's results of
operations and financial condition are largely dependent on economic conditions
in these four metropolitan areas and could be adversely affected by a decline in
economic conditions in any of these areas.
RESTRICTED CASH
Restricted cash consists of funds placed in reserve for the replacement of
furniture, fixtures and equipment. The Asset Company is required to deposit with
various lenders amounts of three percent to four percent of hotel revenues.
Deposits are made on either a monthly or quarterly basis. As improvements are
completed, the Asset Company is reimbursed from the replacement reserve.
INCOME TAXES
The Asset Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using currently enacted tax
rates in effect for the years in which the differences are expected to reverse.
USE OF ESTIMATES
The Asset Company has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
F-37
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION
In January 1995, Holdings entered into a merger agreement with United Inns.
Under this merger agreement, Holdings purchased most of United Inns'
then-outstanding shares of common stock pursuant to a tender offer and therefore
acquired United Inns' remaining equity by means of a cash merger effective
January 27, 1995.
The aggregate purchase price of United Inns was $67 million in cash plus the
assumption of United Inns' liabilities. Holdings recorded the acquisition of
United Inns using the purchase method of accounting. The purchase price was
allocated, along with acquisition costs of $5.1 million, to the net assets
acquired. The excess of the purchase price over the net assets acquired in the
amount of $58.4 million was principally allocated to land and buildings in
accordance with the purchase method of accounting.
Holdings then contributed to the Parent Company all of the outstanding
capital stock of United Inns on January 31, 1995, as part of the January
Acquisitions. The Parent Company recorded the contribution of the capital stock
of United Inns by Holdings at Holdings' historical cost due to Holdings' ongoing
controlling common stock ownership. The consolidated statement of income for the
Parent Company includes the results of operations for United Inns from February
1, 1995.
The following unaudited pro forma summary presents the combined results of
Harvey Hotel Companies as if United Inns had been acquired at the beginning of
1994. The pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations that would actually
have resulted had the acquisition been in effect on the date indicated (in
thousands):
<TABLE>
<CAPTION>
(UNAUDITED)
MONTH ENDED JANUARY 31, 1995
----------------------------
<S> <C>
Total revenues................................... $ 13,142
Net loss after extraordinary gain and pro forma
income tax expense............................... $ 1,111
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Land............................................. $ 55,484
Buildings........................................ 354,887
Furniture, fixtures and equipment................ 36,951
----------
447,322
Less: accumulated depreciation............... (13,462)
----------
433,860
Construction in progress......................... 36,845
----------
$470,705
----------
----------
</TABLE>
In June 1995, the Asset Company acquired a 368 room hotel (the
"Sheraton-Atlanta") in Atlanta, Georgia, from Northeast Hotel Associates for
$12.7 million. The Asset Company financed the acquisition of the
Sheraton-Atlanta (which was converted to the Harvey Hotel brand) with a mortgage
note payable of $12.1 million. In November 1995, the Asset Company acquired the
Dallas Downtown Hotel
F-38
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
("Dallas Downtown") for the assumption of $7.3 million in outstanding debt and
acquisition costs. The mortgages on both hotels were repaid with proceeds from
the Offering. These acquisitions were accounted for using the purchase method of
accounting; accordingly, the purchase price was allocated based upon the
estimated fair value of the individual assets. Revenues and expenses for
Sheraton-Atlanta and Dallas Downtown have been included with revenues and
expenses of the Asset Company since the date of their respective acquisition.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Mortgage loans
Fixed rate:
8% due December 31, 2002.................................... $ 44,436
8.55% due January 11, 2016.................................. 14,926
7% due September 1, 1997.................................... 10,916
10% due September 30, 1999..................................
Non-interest bearing due December 31, 2002.................. 10,600
Other various............................................... 3,298
Variable rate (as of December 31, 1995):
10.56% due January 31, 2000................................. 9,450
10.5% due December 1, 1999.................................. 7,021
Capital leases.................................................. 1,997
--------
102,644
Less current portion............................................ (6,582)
--------
Long-term debt, excluding current portion....................... $ 96,062
--------
--------
</TABLE>
The mortgages are amortized using varying methods as outlined in the
individual debt agreements. Variable rate mortgages are indexed to prime, LIBOR
or the GECC composite commercial paper rate, which were 8.5%, 5.53% and 5.81% at
December 31, 1995, respectively. Substantially all of the Asset Company's
properties and equipment are pledged as collateral on mortgage obligations.
On December 18, 1995, Bankers Trust provided for a secured senior credit
facility (the "Senior Term Facility") in the maximum principal amount of $120
million. Pursuant to the Senior Term Facility, the Asset Company may borrow $60
million to fund the renovation of certain of the Acquired Properties. In
addition, the Asset Company may borrow up to $60 million for the acquisition and
related refurbishment of additional hotel assets to the extent the Asset Company
satisfies certain financial tests. The Senior Term Facility imposes certain
restrictions on the Asset Company and certain of its subsidiaries to incur
additional debt, impose liens or mortgages on their properties, extend new
guarantees, pay dividends, repurchase their common stock, make investments and
incur capital expenditures. The Senior Term Facility matures December 18, 1998,
and advances thereunder bear interest at a rate equal to, at the election of the
Asset Company, one-, two-, three- or six-month LIBOR plus 2.25%, payable monthly
in arrears. Additionally, the Asset Company is required to pay an administration
fee of $120,000 per annum, and a quarterly commitment fee equal to .375% per
annum of any unused portion of the Senior Term Facility. As of December 31,
1995, there were no amounts outstanding on the Senior Term Facility.
F-39
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Asset Company retired approximately $138 million of outstanding debt
with proceeds from the initial public offering (the "Offering") and funding of
$70 million in senior debt which was contributed by the Parent Company. The
extinguishment of debt resulted in an extraordinary loss of $2 million, net of
tax benefit of $1 million.
As discussed in Note 14, portions of the mortgage loans associated with
three of the Asset Company's properties have been allocated to a related party.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------
<S> <C>
1996............................................................ $ 6,582
1997............................................................ 15,099
1998............................................................ 5,930
1999............................................................ 20,454
2000............................................................ 7,336
Thereafter...................................................... 47,243
--------
$102,644
--------
--------
</TABLE>
6. INCOME TAXES
Components of income tax expense for the eleven months ended December 31,
1995, consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Federal:
Current......................................................... $3,338
Deferred........................................................ (579)
State:
Current......................................................... 196
Deferred........................................................ (34)
------
$2,921
------
------
</TABLE>
The Asset Company estimates that its effective tax rate for 1995 will be
approximately 36.2%. The actual income tax expense for the eleven months ended
December 31, 1995, is computed by applying the federal statutory income tax rate
as a result of the following:
<TABLE>
<CAPTION>
<S> <C>
Income tax expense at the federal statutory rate..................... 34.0%
State income taxes, net of federal benefit........................... 2.2
----
36.2%
----
----
</TABLE>
F-40
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995, are as
follows (in thousands):
<TABLE>
<S> <C>
Purchase accounting adjustments to land and building............. $81,118
Other............................................................ 278
-------
Gross deferred tax liabilities................................... 81,396
-------
Tax credits and NOL carryforwards................................ 8,200
Accrued reserves................................................. 2,779
Other............................................................ 969
-------
Gross deferred tax asset......................................... 11,948
Valuation allowance.............................................. --
-------
Deferred tax asset............................................... 11,948
-------
Net deferred tax liability....................................... $69,448
-------
-------
</TABLE>
The gross deferred tax liabilities relate principally to the temporary
differences caused by the purchase accounting adjustments recorded as a result
of the January Acquisitions. For financial reporting purposes, the transactions
were recorded under the principles of purchase accounting and, accordingly, the
basis of the assets have been adjusted to fair market value. For tax reporting
purposes, the transactions resulted in the bases of the assets and liabilities
being carried forward at their adjusted bases with some adjustment for certain
gains recognized on the acquisition. This differing treatment has created book
bases in excess of tax bases and, accordingly, the related deferred tax
liabilities associated with these differences have been recorded. As the Asset
Company depreciates and amortizes the bases of its assets for book and tax
purposes, it will record an expense for depreciation and amortization in excess
of that claimed for tax purposes. This reversal of the temporary differences
established through purchase accounting will result in the Asset Company
recording a credit to deferred tax expense for the tax effect of these
differences.
The remaining deferred tax assets are expected to be realized in future
periods through the reversal of existing taxable temporary differences.
For federal tax reporting purposes, net operating losses of $21.0 million
and tax credits of $657,000 generated by United Inns in prior years are
available to be carried forward to periods expiring as follows (in thousands):
<TABLE>
<CAPTION>
YEAR OF EXPIRATION FEDERAL NOL TAX CREDITS
- --------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
2001................................................................. $ 405 $ 142
2002................................................................. 5,374 154
2003................................................................. 4,059 158
2004................................................................. 0 103
2005................................................................. 7,557 58
2006 to 2010......................................................... 3,623 42
----------- -----
$21,018 $ 657
----------- -----
----------- -----
</TABLE>
The losses are subject to the loss limitation rules due to the change in
ownership of United Inns. Net operating losses generated by United Inns and its
subsidiaries are further limited as they were incurred prior to their ownership
by the Asset Company. Accordingly, these losses are available only to
F-41
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
offset the income generated by United Inns and its subsidiaries and will be
limited to $4.6 million annually.
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<S> <C>
Accrued construction costs....................................... $ 4,457
Accrued payroll and payroll taxes................................ 2,963
Accrued interest................................................. 1,666
Other............................................................ 7,522
-------
$16,608
-------
-------
</TABLE>
8. STOCKHOLDER'S EQUITY
On December 18, 1995, the Asset Company was capitalized by issuing 1,000
shares of common stock ($.01 par value) for $1.00 per share. Concurrent with the
issuance of common stock, the Parent Company contributed approximately $301
million in equity from the proceeds of the debt refinancing and the Offering to
the Asset Company. These proceeds were used by the Asset Company to extinguish
outstanding debt.
9. OPERATING LEASES
The Asset Company leases certain land (see Note 13), office space and
equipment under noncancellable operating lease commitments. Minimum rentals due
under these agreements for the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------
<S> <C>
1996............................................................. $ 1,852
1997............................................................. 1,852
1998............................................................. 1,867
1999............................................................. 1,875
2000............................................................. 1,697
Thereafter....................................................... 59,086
-------
$68,229
-------
-------
</TABLE>
F-42
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Asset Company leases certain hotel space to third party vendors. Future
minimum rentals to be received under noncancellable operating leases that have
initial or remaining lease terms in excess of one year are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------
<S> <C>
1996.............................................................. $1,307
1997.............................................................. 1,141
1998.............................................................. 60
1999.............................................................. 48
2000.............................................................. 46
Thereafter........................................................ 176
------
$2,778
------
------
</TABLE>
10. MANAGEMENT CONTRACTS
The Asset Company has contracted to manage two hotels owned by others.
Harvey Hotel Wichita is owned by Starwood Lodging Trust and Starwood Lodging
Corporation, a publicly traded real estate investment trust, of which the Asset
Company beneficially owns 24,826 shares out of approximately 18 million shares
outstanding (see Note 2). The management agreement provides that for years
ending after December 31, 1994, the Asset Company will receive a base management
fee equal to 2% of gross income to the extent that excess cash flow (as defined
in the management agreement) is sufficient to pay such base management fee. In
addition, the Asset Company is entitled to an annual incentive fee equal to 25%
of excess cash flow plus 25% of the amount by which net operating income exceeds
projected net operating income. The management agreement has a five-year term
expiring on December 20, 1998, subject to earlier termination or extension under
certain circumstances. Both the base management fee and the incentive management
fee are subordinate to a preference fee that is paid to the owners. The Asset
Company accrues management fee revenue to the extent that the preference fee has
been fully paid to the owners. Management fees for the eleven months ended
December 31, 1995 were $396,000.
On November 1, 1994, Harvey Hotel Management Corporation began operating the
Harvey Hotel Downtown Dallas. The management agreement with the owner provides
for a monthly management fee of 4% of gross monthly revenues, as defined in the
agreement. The agreement also provides for an incentive management fee to be
paid annually based on hotel performance. The agreement expires on December 31,
1997. Management fees received under this contract for the eleven months ended
December 31, 1995, were $986,000.
11. BENEFITS
Health (including fully insured term life and accidental death and
dismemberment), dental and disability coverage is provided to the Asset
Company's employees through a Welfare Benefit Trust. The Asset Company maintains
varying levels of stop-loss and umbrella insurance policies to limit the Asset
Company's per occurrence and aggregate liability in any given year. Actual
claims and premiums on stop-loss insurance, medical and disability policies are
paid from the trust. The trust is funded through a combination of employer and
employee contributions. The trust also pays work-related injury claims which are
funded by the employer for its employees in Texas. Since April 1, 1995, all
employees have been eligible for participation in the benefits provided through
the Welfare Benefit Trust. The Company provided $2.3 million related to these
benefits as of December 31, 1995.
F-43
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Asset Company offers a Profit Sharing Plan and Trust ("401(k) Plan") to
certain employees. The 401(k) Plan is designed to be a qualified trust under
section 401(a) of the Internal Revenue Code. Under the 401(k) Plan, eligible
employees are allowed to defer up to 16% of their income on a pretax basis
through contributions to the Plan; however, only the first 6% of pretax income
is subject to matching by the Asset Company. The Asset Company may elect to make
matching contributions of up to 50% of the employees' matchable contributions
subject to certain performance measures of the Asset Company. The Asset Company
provided for matching contributions for the eleven months ended December 31,
1995, totaling $343,000.
12. COMMITMENTS AND CONTINGENCIES
Under the terms of the hotel franchise agreements expiring at various dates
through 2015, the Asset Company is obligated to pay certain fees for franchising
royalties, reservation and advertising services. Franchise fees paid for the
eleven months ended December 31, 1995, were $3.3 million.
The Asset Company is currently involved in certain guest and customer
claims, employee wage claims and other disputed amounts arising in the ordinary
course of business. In the opinion of management, the pending litigation will
not have a materially adverse effect on the Asset Company's business, assets or
results of operations.
In November 1995, as part of a settlement agreement, the Asset Company
acquired for cash of $550,000 the remaining 1% limited partnership interest in
Harvey Hotel Company from the daughter of Mr. Huie who did not participate in
the January Acquisitions. In addition, the Asset Company agreed to pay $1.9
million to the daughter for release from certain claims.
United Inns is presently under examination by the Tennessee Department of
Revenue. It is expected that resolution of this matter will be lengthy and may
require litigation. The Asset Company has determined and provided for an
estimated liability. In the opinion of management, the outcome of this
litigation will not have a material adverse effect on the Asset Company's
business, assets or results of operations.
All of the owned hotels of the Asset Company have undergone Phase I
environmental assessments which generally provide a physical inspection and data
base search but not soil or groundwater analysis within the last 18 months. In
addition, most of the Asset Company's hotels have been inspected to determine
the presence of asbestos-containing materials ("ACM's"). While ACM's are present
in certain of the Asset Company's properties, operations and maintenance
programs for maintaining such ACM's have been or are in process of being
designed and implemented, or the ACM's have been scheduled to be or have been
abated, at such hotels.
Although it is difficult to quantify the potential financial impact of
completing the remediation of all properties containing environmental
contaminants, management has developed an estimated range of remediation costs
of between $0.4 million and $1.5 million which could occur over a period of
several years. These estimates consider, among other things, currently available
technological solutions, risk-based assessments of the contamination and, as
applicable, an estimation of its proportionate share of remediation costs. As of
December 31, 1995, the Asset Company had accrued $0.8 million in "other
liabilities" on the balance sheet for estimated environmental remediation costs,
representing its best estimate of the ultimate remediation costs. None of the
environmental assessments conducted to date has revealed any environmental
condition that management believes would have a material adverse effect on the
Asset Company's business, assets or results of operations, nor is management
aware of any
F-44
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
such condition. However, it is possible that these assessments have not revealed
all potential environmental liabilities or that there are material environmental
liabilities of which management is not aware.
As discussed further in Note 13, the Asset Company disposed of certain of
its non-hotel properties to HH Land Company, L.P. ("HH Land Company"), a related
party. Upon acquisition of the non-hotel properties, HH Land Company assumed all
liabilities associated with the non-hotel properties through a formal
indemnification agreement, including environmental liabilities associated with
the properties. The Asset Company remains contingently liable for the
environmental costs associated with the properties. At such time that the Asset
Company determines that it is not probable that HH Land Company will fully pay
the remediation costs related to the disposed properties, the Asset Company will
recognize such liabilities.
13. TRANSACTIONS WITH RELATED PARTIES
In September 1995, the Asset Company disposed of certain of its non-hotel
properties which management believed were not integral to the Company's
operations. To effect this disposition, Holdings and Harvey Management Equity
Holders formed HH Land Company, which acquired six parcels of real property and
all of the capital stock of certain subsidiaries of United Inns which owned or
had owned certain non-hotel properties and other assets. The assets mainly
consisted of two car wash operations and undeveloped tracts of land. The
aggregate purchase price was $87,000 and the assumption of all liabilities
(including environmental liabilities) and risk relating to those acquired
properties. The Company believes that the terms of such sales approximated the
fair market value of assets sold.
The Asset Company leases its home office space from Huie-Miars Midway
Atriums J.V., which is owned 75% by Mr. Huie and 25% by Robert L. Miars (one of
the Harvey Management Equity Holders), on a five-year lease. Rent expense
reflected in the financial statements for the eleven months ended December 31,
1995, is $282,000. Prior to April 1995, the Asset Company leased its home office
space from Huie Properties on a month-to-month basis by sharing the pro rata
cost of the facility. Expenses for such leases reflected in these financial
statements were $346,000 for the eleven months ended December 31, 1995.
Huie Properties and Huie Miars Construction Corporation, which is owned 50%
by Huie and 50% by Robert L. Miars, provided maintenance and construction
services to the Asset Company on a routine basis, including the construction of
new hotels and the renovation of existing properties. The Asset Company incurred
$119,000 for construction management fees during the eleven months ended
December 31, 1995.
Harvey Hotel Company and Mr. Huie, representing various land ventures, are
co-borrowers of funds secured by Harvey Hotel--DFW Airport, Harvey Hotel--Dallas
and Bristol Suites and the various related land parcels. Harvey Hotel Company
and Mr. Huie agreed to an assignment of the debt to the various unrelated land
ventures resulting in the assignment of 23.73%, 24.24% and 22.18% of the debt
associated with the borrowings for each property, respectively. The related land
parcels underlying
F-45
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
each hotel are own ed by Mr. Huie through the land ventures. The total debt and
the amount allocated to Mr. Huie are as follows (in thousands):
<TABLE>
<CAPTION>
1995
--------------------
<S> <C> <C>
TOTAL ALLOCATED
DEBT TO HUIE
------- ---------
Harvey Hotel--DFW Airport............................... $27,225 $ 6,462
Harvey Hotel--Dallas.................................... 7,756 1,880
Bristol Suites.......................................... 22,532 4,998
</TABLE>
Harvey Hotel Company is jointly and severably liable in the event of
nonpayment by Mr. Huie of the debt allocated. The allocated debt totaling $13.3
million at December 31, 1995, has not been reflected in these consolidated
financial statements.
The land leases for the Harvey Hotel--DFW Airport, the Harvey Hotel--Dallas
and the Bristol Suites expire on December 31, 2037, September 14, 2030 and April
30, 2035, respectively. Harvey Hotel--DFW Airport pays monthly land rent in the
amount of the greater of (i) 6% of gross monthly revenue or (ii) approximately
$50,000 per month. Harvey Hotel--Dallas pays monthly land rent in the amount of
the greater of (i) 4% of gross revenues or (ii) $15,000. Effective January 1,
2000, the rent will be recalculated based upon the consumer price index;
however, it will not be less than $20,000 per month nor more than $40,000 per
month. Bristol Suites pays monthly land rent in the amount of the greater of (i)
6% of gross monthly rental revenue or (ii) $49,000 per month. Total land rentals
for the above properties for the eleven months ended December 31, 1995, were
$2.0 million.
14. FAIR VALUE
The Asset Company has estimated the fair value of its financial instruments
at December 31, 1995, as required by Statement of Financial Accounting Standards
No. 107, "Disclosure about Fair Value of Financial Instruments." The carrying
values of cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are reasonable estimates of their fair values. Marketable
securities are carried at fair value, which is determined based upon quoted
market prices. The carrying values of variable and fixed rate debt are
reasonable estimates of their fair values.
F-46
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 3,144
Marketable securities.......................................................... 832
Accounts receivable, net....................................................... 9,918
Inventory...................................................................... 2,891
Deposits and other current assets.............................................. 10,038
--------
Total current assets......................................................... 26,823
Property and equipment, net...................................................... 493,760
Other assets:
Restricted cash................................................................ 2,579
Deferred charges and other non-current assets, net............................. 9,919
--------
Total assets................................................................. $533,081
--------
--------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 6,806
Accounts payable and accrued expenses.......................................... 14,472
Accrued construction costs..................................................... 7,800
Accrued property, sales and use taxes.......................................... 4,887
Accrued insurance reserves..................................................... 5,917
Advance deposits............................................................... 5,350
--------
Total current liabilities.................................................... 45,232
Long-term debt, excluding current portion........................................ 104,704
Deferred income taxes............................................................ 70,941
Other liabilities................................................................ 2,771
--------
Total liabilities............................................................ 223,648
--------
Common stock ($.01 par value; 1,000 shares authorized, 1,000 shares issued and
outstanding)..................................................................... --
Additional paid-in capital....................................................... 300,727
Unrealized gain on marketable securities, net.................................... 368
Retained earnings................................................................ 8,338
--------
Total stockholder's equity..................................................... 309,433
--------
Total liabilities and stockholder's equity..................................... $533,081
--------
--------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
F-47
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS TWO MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Revenue:
Rooms...................................................... $ 35,454 $ 21,354
Food and beverage.......................................... 10,599 6,324
Other operating departments................................ 3,624 2,232
------- -------
Total revenue............................................ 49,677 29,910
------- -------
Operating costs and expenses:
Departmental expenses:
Rooms.................................................... 8,574 5,276
Food and beverage........................................ 7,193 4,576
Other operating departments.............................. 1,146 471
Undistributed operating expenses:
Administrative and general............................... 4,633 3,163
Marketing................................................ 3,730 1,768
Property occupancy costs................................. 7,133 4,605
Depreciation and amortization............................ 3,988 2,254
Corporate expense........................................ 2,962 1,576
------- -------
Operating income............................................. 10,318 6,221
Other expenses (income):
Interest expense........................................... 2,253 2,777
Other...................................................... -- (100)
------- -------
Net income before income taxes............................... 8,065 3,544
Income taxes................................................. 2,968 1,276
------- -------
Net income................................................... $ 5,097 $ 2,268
------- -------
------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Finanacial Statements
F-48
<PAGE>
BRISTOL HOTEL ASSET COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS TWO MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 5,097 $ 2,268
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 3,988 2,254
Other.................................................. 28 20
Changes in working capital............................... 237 (119)
Increase in advance deposits............................. 5,046 --
Increase in restricted cash.............................. (1,959) (146)
Increase in deferred income taxes........................ 1,493 1,570
Decrease in other liabilities............................ (40) --
--------------- -------
Cash provided by operating activities 13,890 5,847
--------------- -------
Cash flows from investing activities:
Improvements to property and equipment................... (27,043) (5,407)
Property acquisition costs and deposits.................. -- (355)
Additions to investment in affiliate..................... -- (3)
Cash used in investing activities (27,043) (5,765)
--------------- -------
Cash flows from financing activities:
Proceeds from short-term loan from affiliate............. -- 3,000
Payments of long-term debt............................... (1,963) (497)
Proceeds from issuance of long-term debt................. 10,829 1,806
Increase in deferred charges and other non-current
assets....................................................... (475) (812)
Payment of accrued transaction costs..................... -- (823)
Decrease in distributions payable........................ -- (1,613)
--------------- -------
Cash provided by financing activities 8,391 1,061
--------------- -------
Net increase (decrease) in cash and cash equivalents......... (4,762) 1,143
Cash and cash equivalents at beginning of period............. 7,906 5,413
--------------- -------
Cash and cash equivalents at end of period................... $ 3,144 $ 6,556
--------------- -------
--------------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
F-49
<PAGE>
BRISTOL HOTEL ASSET COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Bristol Hotel Asset Company (the "Asset Company") was formed in November
1995 as a wholly owned subsidiary of Bristol Hotel Company (the "Parent
Company"). Upon formation, the equity interests of several entities owned by, or
under common control with, the Parent Company, were contributed to the Asset
Company. In December 1995, 15 entities (previously owned by United Inns, Inc.),
owning 24 hotels were merged into the Asset Company. The operating results of
the Asset Company are substantially the operating results of the Parent Company.
However, the Parent Company rather than the Asset Company, is the obligor on the
$70 million Senior Notes as discussed in Note 2 below.
The condensed consolidated balance sheet at March 31, 1996 and the condensed
consolidated statements of income and cash flows for the quarter ended March 31,
1996, and the two months ended March 31, 1995, have been prepared by the Asset
Company and are unaudited. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1996 and
the periods presented have been made. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus.
2. COMMITMENTS AND CONTINGENCIES
The Asset Company is guarantor of the $70 million Senior Notes of the Parent
Company, which are also secured by a first-priority pledge of all outstanding
shares of capital stock of Asset Company. See Note 3 of the Parent Company's
Notes to Consolidated Condensed Financial Statements included elsewhere in this
Prospectus.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Harvey Hotel Companies
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of changes in owners' deficit and of cash flows
present fairly, in all material respects, the financial position of the combined
Harvey Hotel Companies at December 31, 1994 and 1993, and the results of their
operations and their cash flows for the one month period ended January 31, 1995
and for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Harvey Hotel Companies' management; our
responsibility is to express an opinion on these combined financial statements
based on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
September 11, 1995
F-51
<PAGE>
HARVEY HOTEL COMPANIES
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1993
-------- --------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 4,118 $ 395
Marketable securities................................................ 1,928 3,230
Accounts receivable, net............................................. 3,628 3,459
Inventory............................................................ 1,533 1,535
Other current assets................................................. 1,376 1,258
Due from affiliates.................................................. 2,186 2,095
-------- --------
Total current assets............................................. 14,769 11,972
Property and equipment, net.......................................... 80,635 72,387
Other assets:
Restricted cash...................................................... 328 595
Deferred charges and other noncurrent assets......................... 14,142 14,681
-------- --------
Total assets..................................................... $109,874 $ 99,635
-------- --------
-------- --------
LIABILITIES AND OWNERS' DEFICIT
Current liabilities:
Mortgage loans payable............................................... $ -- $ 17,948
Current portion of long-term debt.................................... 3,715 4,160
Accounts payable..................................................... 1,306 940
Accrued property, sales and use taxes................................ 3,318 3,234
Other accrued expenses............................................... 3,184 3,102
-------- --------
Total current liabilities........................................ 11,523 29,384
Long-term debt, excluding current portion.............................. 110,339 90,855
-------- --------
Total liabilities................................................ 121,862 120,239
-------- --------
Owners' deficit........................................................ (11,500) (20,250)
Notes receivable - partners............................................ (488) (354)
-------- --------
Total owners' deficit............................................ (11,988) (20,604)
-------- --------
Total liabilities and owners' deficit............................ $109,874 $ 99,635
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE>
HARVEY HOTEL COMPANIES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MONTH ENDED DECEMBER 31,
JANUARY 31, -----------------------------
1995 1994 1993 1992
----------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Rooms............................................ $ 4,006 $44,972 $39,968 $38,289
Food and beverage................................ 1,505 20,298 19,539 18,737
Other operating departments...................... 432 5,081 4,515 3,647
----------- ------- ------- -------
Total revenue................................ 5,943 70,351 64,022 60,673
----------- ------- ------- -------
Operating costs and expenses
Departmental expenses:
Rooms.......................................... 1,124 10,344 9,469 9,065
Food and beverage.............................. 1,006 13,746 13,597 13,622
Other operating departments.................... 49 1,089 1,003 1,068
Undistributed operating expenses:
Administrative and general..................... 501 9,999 7,832 7,544
Marketing...................................... 393 5,131 5,280 4,852
Property operating costs....................... 360 5,872 5,693 5,591
Property taxes, rent and insurance............. 269 4,691 4,393 4,183
Depreciation and amortization.................. 309 4,041 3,963 4,320
----------- ------- ------- -------
Operating income............................. 1,932 15,438 12,792 10,428
Other expense (income):
Interest......................................... 652 7,631 7,737 8,944
Investment income................................ -- (337) (241) (311)
----------- ------- ------- -------
Net income before extraordinary gain on debt
forgiveness........................................ 1,280 8,144 5,296 1,795
Extraordinary gain on debt forgiveness............. -- 1,989 -- --
----------- ------- ------- -------
Net income before pro forma income tax expense..... 1,280 10,133 5,296 1,795
Pro forma income tax expense (Note 1)
(Unaudited)........................................ 435 3,445 1,801 610
----------- ------- ------- -------
Net income after pro forma income tax expense
(Unaudited)........................................ $ 845 $ 6,688 $ 3,495 $ 1,185
----------- ------- ------- -------
----------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE>
HARVEY HOTEL COMPANIES
COMBINED STATEMENTS OF CHANGES IN OWNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
OWNERS' DEFICIT AT DECEMBER 31, 1991............................................. $(24,271)
Unrealized net gain on marketable securities..................................... 66
Payments on notes receivable - partners.......................................... 117
Capital contributions............................................................ 1
Distributions to partners........................................................ (1,949)
Net income....................................................................... 1,795
--------
OWNERS' DEFICIT AT DECEMBER 31, 1992............................................. (24,241)
Unrealized net gain on marketable securities..................................... 66
Payments on notes receivable - partners.......................................... 75
Distributions to partners........................................................ (1,800)
Net income....................................................................... 5,296
--------
OWNERS' DEFICIT AT DECEMBER 31, 1993............................................. (20,604)
Unrealized net loss on marketable securities..................................... (383)
Distributions to partners........................................................ (1,000)
Additions to note receivable - partners.......................................... (134)
Net income....................................................................... 10,133
--------
OWNERS' DEFICIT AT DECEMBER 31, 1994............................................. $(11,988)
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE>
HARVEY HOTEL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MONTH ENDED DECEMBER 31,
JANUARY 31, ---------------------------
1995 1994 1993 1992
---------------- ------- ------ ------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 1,280 $10,133 $5,296 $1,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 309 4,041 3,963 4,320
Extraordinary gain on debt forgiveness........ -- (1,989) -- --
Change in assets and liabilities
Increase in accounts receivable............... (144) (169) (660) (958)
Decrease (increase) in due from affiliates.... 1,717 (91) (101) (1,954)
Decrease (increase) in inventories............ 2 2 20 (8)
Decrease (increase) in other current assets... 221 (91) 112 139
Decrease (increase) in cash restricted as to
use............................................... (84) 267 (75) (15)
Increase (decrease) in accounts payable....... 99 366 254 (576)
Increase (decrease) in accrued property, sales
and use taxes..................................... (1,254) 84 15 107
Increase (decrease) in other accrued
expenses.......................................... 421 82 (191) 732
------- ------- ------ ------
Net cash provided by operating
activities........................................ 2,567 12,635 8,633 3,582
Cash flows from investing activities:
Purchases of property and equipment............. (721) (4,264) (1,721) (1,034)
Purchases of marketable securities.............. -- (92) (1,136) (1,501)
Sale of marketable securities................... 1,928 1,011 -- --
------- ------- ------ ------
Net cash used in (provided by) investing
activities........................................ 1,207 (3,345) (2,857) (2,535)
------- ------- ------ ------
Cash flows from financing activities:
Distributions to partners....................... (8,009) (944) (2,286) (1,275)
Reductions in (additions to) notes receivable -
partners.......................................... 488 (189) (26) 29
Contributed capital............................. -- -- -- 1
Principal payments on long-term debt............ (121) (4,301) (4,148) (2,092)
Decrease (increase) in deferred charges and
other current assets.......................... 316 (133) (377) (153)
------- ------- ------ ------
Net cash used in financing activities..... (7,326) (5,567) (6,837) (3,490)
------- ------- ------ ------
Net increase (decrease) in cash and cash
equivalents....................................... (3,552) 3,723 (1,061) (2,443)
Cash and cash equivalents at beginning of year.... 4,118 395 1,456 3,899
------- ------- ------ ------
Cash and cash equivalents at end of year.......... $ 566 $ 4,118 $ 395 $1,456
------- ------- ------ ------
------- ------- ------ ------
Supplemental cash flow information:
Interest paid................................... $ 330 $ 9,650 $7,656 $8,700
------- ------- ------ ------
------- ------- ------ ------
Non-cash investing and financing activities:
Debt to acquire property and equipment.......... $ 7,960
-------
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The accompanying combined financial statements have been prepared on the
accrual basis of accounting. The combined accounts are those of Harvey Hotel
Company ("Harvey Hotel Company"), including its division known as Huie
Advertising; Harvey Hotel Management Corporation, including its division known
as Hospitality Telecom Solutions; Harvey Hotel Corporation; Harvey BHP, Inc.;
Parkway Hotel Management Co., Inc.; Endlease, Inc.; and PHM Co. of Kansas, Inc.
In addition, all entities in the combined financial statements are under common
control. The owners of these entities combined their interests for purposes of
forming a new entity, which was acquired by Bristol Hotel Company ("Bristol")
(see Note 13). The combined entity is referred to as "Harvey Hotel Companies" in
these financial statements.
Harvey Hotel Company is a Texas limited partnership formed as a Texas
general partnership in 1987 for the purpose of owning and operating the Harvey
Hotel - DFW Airport. On January 1, 1989, Harvey Hotel Company merged with four
other related partnerships which owned the following hotels:
<TABLE>
<S> <C>
Harvey Hotel - Dallas..................... LBJ Freeway, Dallas, Texas
Harvey Hotel - Plano...................... Central Expressway, Plano, Texas
Harvey Hotel - Addison.................... Midway Road, Addison, Texas
Bristol Suites............................ LBJ Freeway, Dallas, Texas
</TABLE>
The Harvey Suites - DFW, which is located in Irving, Texas, was acquired by
Harvey Hotel Company on February 5, 1989; the Harvey Suites - Houston Medical
Center was acquired by Harvey Hotel Company on October 1, 1989; and the Harvey
Hotel - Houston was acquired on August 2, 1994 by Harvey Hotel Corporation.
The original partners in the acquired hotel ventures received partnership
interests in Harvey Hotel Company in accordance with the relative fair market
values of their interests in the individual hotel ventures. Since the ownership
interests of Harvey Hotel Company were the same as the ownership interests of
the respective hotels acquired in these transactions, Harvey Hotel Company
accounted for the merger transactions by transferring the assets and liabilities
of the acquired hotel partnerships at historical book values.
Harvey Hotel Management Corporation was formed to manage hotels owned by
others (see Note 5). In addition, it has managed the Holiday Inn - Greenway
Plaza since the date the hotel was acquired. Harvey Hotel Corporation owns the
Holiday Inn - Greenway Plaza. All other hotels are owned and operated by Harvey
Hotel Company. Harvey BHP, Inc. is a dormant shell corporation which sold all of
its stock to Harvey Hotel Company on November 17, 1994. Parkway Hotel
Management, Co. was established to employ the staff and to manage the operations
of the Amarillo Harvey Hotel (see Note 5) and is currently the employer of all
of the Harvey Wichita Hotel employees. PHM Co. of Kansas, Inc. holds the Harvey
Wichita Hotel liquor license. Endlease, Inc. is a corporation which leases the
land under the Harvey Suites - Houston Medical Center from a third party and
subleases the land to Harvey Hotel Company.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
in banks and cash on hand. Liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
F-56
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
MARKETABLE SECURITIES
Marketable securities consist primarily of equity securities and mutual fund
shares. Equity securities have been classified as available-for-sale and are
reported at fair value, with net unrealized gains and losses excluded from
earnings and reported as a separate component of changes in owners' deficit.
Upon sale, realized gains and losses are reported in earnings using the specific
identification method. Prior to the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" in the year ended December 31, 1993, marketable
securities were carried at the lower of aggregate cost or aggregate market
value, in accordance with SFAS No. 12 "Accounting for Certain Marketable
Securities."
INVENTORY
Inventory, consisting of food, beverages, linens, china, glassware and
supplies, is carried at the lower of cost or market. Cost is determined on the
first-in, first-out basis.
INTERHOTEL AND INTERCOMPANY ACCOUNTS
All significant interhotel and intercompany accounts and transactions have
been eliminated in the combination.
PROPERTY AND EQUIPMENT
Harvey Hotel Companies recognize impairment losses on property and equipment
whenever events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable through undiscounted cash flows. Such
losses are determined by comparing the sum of the expected future discounted net
cash flows to the carrying amount of the asset. The costs of repairs and minor
renewals that do not significantly extend the life of the property and equipment
are expensed as incurred. The costs of major renovation projects are capitalized
and depreciated over the related period of benefit. Depreciation is provided
using a straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<S> <C>
Buildings........................................ 31-35 years
Furniture, fixtures and equipment................ 7 years
Automobiles and trucks........................... 3 years
Leasehold improvements........................... Lease term or useful life,
whichever is less
</TABLE>
INCOME TAXES
Harvey Hotel Company is a partnership. The income or loss of the partnership
for federal income tax purposes is included in the tax returns of the individual
partners. Harvey Hotel Management Corporation is an S Corporation. Income from
the S Corporation is included in the individual tax returns of the shareholders.
Parkway Hotel Management Co. is the corporation which serves as the employer of
all of the Harvey Wichita Hotel employees. The corporation has had no taxable
income or loss during each of the three years ended December 31, 1994. PHM Co.
of Kansas, Inc. is a corporation formed to hold the liquor license for the
Harvey Wichita Hotel. This corporation had no other activity, and thus, no
taxable income or loss. Harvey Hotel Corporation accounts for the tax effect of
net income or loss in accordance with SFAS 109. However, because of anticipated
changes in ownership (see Note 11), realization of the benefit of the
accumulated losses is uncertain and, therefore, has not been recorded in the
combined financial statements. Accordingly, no recognition has been given to
income
F-57
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
taxes in these financial statements. However, pro forma income tax expense, at
an effective rate of 34%, has been included in the combined statements of income
in order to reflect the impact on the income of Harvey Hotel Companies.
2. RESTRICTED CASH
Under the terms of a restructured loan agreement with the lender on the
Harvey Hotel - Dallas and Harvey Hotel - Plano (see Note 7), Harvey Hotel
Company is required to deposit with the lender, on a monthly basis effective
July 1, 1994, 3% of gross income of these hotels as a funded reserve for
replacement of furniture, fixtures, and equipment. Prior to July 1, 1994, the
requirement was 2% of gross income. As improvements or replacements are
undertaken, the lender disburses the funds.
3. NOTES RECEIVABLE - PARTNERS
Notes receivable - partners consist of notes due from certain current
partners of Harvey Hotel Company that are related to the acquisition of their
partnership interests in Harvey Hotel Company. Two notes accrue interest at the
Banc One - Dallas prime rate and one note accrues interest at the prime rate
plus 1%. The notes are paid down from future partnership distributions, but are
due upon demand. The notes receivable have been recorded as an increase to
owners' deficit.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist primarily of financing costs which
are amortized over the life of the loan using the effective interest method. The
amounts reported in the balance sheet at December 31, 1994 and December 31, 1993
are net of accumulated amortization of $176,000 and $684,000, respectively.
5. MANAGEMENT CONTRACTS
Harvey Hotel Management Corporation also contracts to manage hotels owned by
others.
Starwood Wichita Investors, L.P., which owns the Harvey Hotel Wichita,
signed a management agreement with Harvey Hotel Management Corporation. Harvey
Hotel Companies have an approximately 8% limited partnership interest in
Starwood Wichita Investors, L.P. which is accounted for using the cost method of
accounting due to Harvey Hotel Company's lack of influence over the operating
and financial policies of the partnership. For the period from December 20, 1993
(the date the hotel was acquired by Starwood Wichita Investors, L.P.) to
December 31, 1994, the agreement provided an incentive fee equal to 20% of the
"net operating income" (as defined in the agreement to exclude depreciation,
amortization, interest, capital expenditures and management fees). The incentive
fee is subordinate to distributions to owners. For years ending after December
31, 1994, the Company will receive a base management fee equal to 2% of gross
income to the extent that excess cash flow (as defined) is sufficient to pay
such base management fee. In addition, the Company is entitled to an annual
incentive fee equal to 25% of excess cash flow plus 25% of the amount by which
net operating income exceeds projected net operating income. Harvey Hotel
Management Corporation managed the operations of the hotel for the previous
owners. Harvey Hotel Management Corporation accrues management fees to the
extent excess cash flows are sufficient to pay such management fees. Management
fees received by Harvey Hotel Management Corporation were $0, $143,000 and
$21,000 in 1994, 1993 and 1992, respectively, under this agreement. This
agreement has a five-year term and expires December 20, 1998.
F-58
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
The management agreement also contains a preference fee payable upon the
sale or refinancing of the hotel. The agreement states that net sale (or
refinancing) proceeds will be distributed to the owners until they have received
a return of their capital contributions, plus an internal rate of return of 15%
(as defined) on those contributions. After such time, Harvey Hotel Management
Corporation will receive a preference fee equal to 20% of the remaining
proceeds.
On November 1, 1994, Harvey Hotel Management Corporation began operating the
Southland Center Hotel in Dallas. The management agreement with the owner
provides for a base monthly management fee of 2% of gross monthly revenues, as
defined in the agreement. The agreement also provides for an incentive
management fee to be paid annually based on hotel performance. Additionally, a
transition fee equal to 2 1/2% of gross revenues was paid from November 1, 1994
to December 31, 1994. Base monthly management fees are accrued as earned under
the terms of the contract. The agreement will terminate on December 31, 1997;
however, it can be extended for a two year period. Management fees received
under this contract were $38,000 in 1994.
From November 1988 to March 1994, The Travelers Insurance Company contracted
with Harvey Hotel Management Corporation to manage a hotel located in Amarillo,
Texas. The hotel, known as the Harvey Hotel - Amarillo, was sold by The
Travelers Insurance Company to Amarillo Westview Hotel, Ltd., which also signed
a six-month management contract with Harvey Hotel Management Corporation
commencing on July 1, 1994. Harvey Hotel Management Corporation continued to
manage the hotel through October 25, 1994. Management fees received under this
contract were $279,000, $345,000 and $317,000 in 1994, 1993 and 1992,
respectively.
6. PROPERTY AND EQUIPMENT
Harvey Hotel Corporation acquired the Holiday Inn - Greenway Plaza in August
1994. The purchase price of $8.6 million was allocated based on the estimated
relative fair value of the individual assets. The acquisition was accounted for
as a purchase and, accordingly, operations of the hotel have been included in
the combined financial statements from the date of acquisition.
Depreciation expense was $4.0 million, $3.8 million and $4.1 million for the
years ending December 31, 1994, 1993 and 1992, respectively.
7. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 consisted of mortgage loans
secured by properties as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Harvey Hotel - Plano and Harvey Hotel - Dallas: Interest
at 8%. Monthly payments of principal and interest totaling
$129,000 with unpaid principal and interest due in full on June 30,
2001................................................................... $ 17,156 $ 19,946
Holiday Inn - Greenway Plaza: Interest at 4.75% in excess
of GECC Composite Commercial Paper Rate; quarterly payments
of $50,000 are due in 1995 and of $100,000 are due beginning in 1996,
applied to principal; unpaid principal and interest are due in full
on January 31, 2000.................................................. 7,961 --
Harvey Suites - DFW Airport: Interest at 4.35% in excess
of London Interbank Offered Rate (LIBOR); monthly payments of
principal and interest are based upon a 27-year amortization with
unpaid principal and interest due in full on April 20, 1998.......... 7,800 7,883
</TABLE>
F-59
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Harvey Suites - Houston Medical Center: Interest at 10%;
quarterly payments are determined based on excess cash flow
applied to principal; unpaid principal and interest are
due in full on September 30, 1999.................................... 10,249 10,260
Harvey Hotel - DFW Airport, Harvey Hotel - Addison, Bristol Suites:
First and second mortgages with stated interest rates in each year
ranging from 6.5% to 8%; principal and interest payments totaling
$1.8 million are due quarterly with unpaid principal and interest due
in full on December 31, 2002......................................... 70,888 74,874
-------- --------
114,054 112,963
Less: current portion of long-term debt................................ 3,715 22,108
-------- --------
Long-term debt......................................................... $110,339 $ 90,855
-------- --------
-------- --------
</TABLE>
The GECC Composite Commercial Paper Rate was 5.73% at December 31, 1994.
LIBOR was 7.75% and 3.81% at December 31, 1994 and 1993, respectively.
Effective July 1, 1994, Harvey Hotel - Plano restructured its debt, lowering
the interest rate from 10.75% and extending the maturity from May 1, 1994.
Effective July 1, 1994, additional interest of 1/2% (formerly 2%) of gross room
revenue is payable to the lender. Additionally, 3% (formerly 2%) of total
revenue is deposited into a funded reserve for replacement of furniture,
fixtures and equipment. Concurrent with the restructuring of the mortgage loan,
$50,000 was paid into the reserve account (see Note 10). Prior to July 1, 1994,
100% of the remaining annual cash flow, as defined, was paid to reduce accrued
interest and principal; effective July 1, 1994, this requirement was eliminated.
The restructured mortgage loan contains an equity participation agreement with a
2% participation in the net value of the property due upon sale or refinancing.
Harvey Hotel - Dallas and its controlling general partner, as co-borrowers,
restructured its mortgage loan in 1994, reducing the principal balance of the
loan and resulting in a net gain on forgiveness of debt of $1.9 million. The
terms of the restructured loan (including interest rate, additional interest,
replacement reserve ($150,000), cash flow payments and maturity dates) are the
same as those of the Harvey Hotel - Plano mortgage loan discussed above. In
addition, in connection with such restructuring, Harvey Hotel - Dallas assigned
the underlying land and 24.24% of the debt to its controlling general partner
(see Note 10).
The Holiday Inn - Greenway Plaza mortgage loan has a net profit
participation which requires that 25% of the "net cash flow" (as defined) and
25% of the "net sales proceeds" (as defined) be paid to the lender. Because the
hotel was purchased from a third party on August 2, 1994 and had a loss for the
two-month period then ended, Harvey Hotel Companies estimate that there is no
liability for appreciation or cash flow through December 31, 1994. The formation
of a new entity for the purpose of acquiring United Inns and the transfer of
these assets into the new entity did not cause the equity participation
provision of this agreement to take effect (see Note 13), and therefore, no
additional liability exists at December 31, 1994.
Harvey Hotel - DFW and Bristol Suites assigned 23.73% of the related debt to
H.K. Huie, Jr., Harvey Hotel Company's controlling general partner and
co-borrower (see Note 10). Bristol Suites signed a ground lease with Mr. Huie
and assigned 22.18% of the related debt to Mr. Huie, as co-borrower (see Note
10).
F-60
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
The approximate aggregate maturities of long-term debt for the five years
subsequent to December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995............................................................ $ 3,915
1996............................................................ 5,454
1997............................................................ 13,274
1998............................................................ 5,909
1999............................................................ 6,215
Harvey Suites - Houston Medical Center -
repayment based on cash flow.................................. 10,249
Thereafter...................................................... 69,038
--------
$114,054
--------
--------
</TABLE>
8. BENEFITS
Health, dental, and disability coverage is provided to the employees of
Harvey Hotel Companies through an Employee Benefit Trust. Actual claims and
premiums on stop-loss, medical, and disability policies are paid from the trust.
The trust is funded through a combination of employer and employee
contributions. For medical claims, losses in excess of $60,000 per covered
individual per year and aggregate losses in excess of $1.2 million are covered
by insurance. Medical claims were approximately $559,000, $615,000 and $639,000
during 1994, 1993 and 1992, respectively. The trust also pays worker related
injury claims, which are funded by the employer.
Harvey Hotel Companies offer a Profit Sharing Plan and Trust ("401(k) Plan")
to certain employees. The 401(k) Plan is designed to be a qualified trust under
Section 401(a) of the Internal Revenue Code. Under the 401(k) Plan, eligible
employees are allowed to defer up to 16% of their income on a pretax basis
through contributions to the Plan; however, only the first 6% of pretax income
is subject to matching by Harvey Hotel Companies. Harvey Hotel Companies may
elect to make matching contributions of up to 50% of the employees' matchable
contributions, subject to certain performance measures of Harvey Hotel
Companies.
9. OPERATING LEASES
Harvey Hotel Companies lease certain land (see Note 10), office space and
equipment under noncancellable operating lease commitments that have initial or
remaining lease terms in excess of one year. Future minimum rentals payable
under such leases as of December 31, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................. $ 1,654
1996............................................................. 1,819
1997............................................................. 1,819
1998............................................................. 1,834
1999............................................................. 1,842
Thereafter....................................................... 57,178
-------
$66,146
-------
-------
</TABLE>
F-61
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Harvey Hotel Companies lease certain hotel space to third party vendors.
Future minimum rentals to be received under noncancellable operating leases that
have initial or remaining lease terms in excess of one year as of December 31,
1994, are as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................. $ 168
1996............................................................. 121
1997............................................................. 76
1998............................................................. 56
1999............................................................. 45
Thereafter....................................................... 222
-------
$ 688
-------
-------
</TABLE>
10. TRANSACTIONS WITH RELATED PARTIES
In 1992, Harvey Hotel Company advanced $1.5 million to an affiliate of Huie
Properties, a related party. The note receivable bears interest at prime,
payable monthly, and is due on demand. No principal repayments have been made
since the inception of the note. Interest income recorded was $107,000 and
$90,000 for the years ended December 31, 1994, and 1993, respectively. No
interest income was recorded in 1992.
Harvey Hotel Company leases its home office space from Huie Properties on a
month-to-month basis by sharing the pro rata cost of the facility. Expense for
such lease reflected in these financial statements was $491,000, $467,000 and
$545,000 during the years ended December 31, 1994, 1993 and 1992, respectively.
Huie Properties and Huie Miars Construction Corporation (also wholly owned
by Mr. Huie) provide maintenance and construction services to Harvey Hotel
Companies on a routine basis, including the construction of new hotels and the
renovation of existing properties. Harvey Hotel Companies incurred approximately
$336,000, $410,000 and $648,000 for routine maintenance and approximately
$99,000, $119,000 and $131,000 in construction and renovation fees during the
years ended December 31, 1994, 1993 and 1992, respectively.
Each of the parcels of real property on which the Harvey Hotel - Dallas,
Bristol Suites and Harvey Hotel - DFW Airport are located is owned by a separate
joint venture (collectively, the Huie Land Ventures") in which Mr. Huie owns a
significant interest with the remaining interests being owned by real estate
trusts for the benefit of Mr. Huie's daughters or by the estate of Mr. Huie's
deceased wife, or by both. Harvey Hotel Company has entered into a ground lease
with each of the Huie Land Ventures (collectively, the "Huie Ground Leases").
The Huie Ground Lease relating to the real property on which the Harvey
Hotel - Dallas is located has a term of 50 years and expires on September 14,
2030. Under this ground lease, Harvey Hotel Company pays monthly ground rent in
an amount equal to the greater of (i) a minimum fixed sum amount of $15,000 or
(ii) 4% of gross monthly revenues in excess of the minimum fixed sum amount,
until recalculated on January 1, 2000 based on the consumer price index (as
recalculated, the monthly minimum fixed sum amount may not be less than $20,000
nor more than $40,000) and again on January 1, 2020 (as recalculated, the
monthly minimum fixed sum amount may not be less than $50,000 nor more than
$150,000). The Huie Ground Lease relating to the real property on which Bristol
Suites is located has a term of 50 years and expires April 30, 2035. Under this
ground lease, Harvey Hotel Company pays monthly ground rent in an amount equal
to the greater of (i) $49,356 or (ii) 6% of gross monthly revenue in excess of
$49,356. The Huie Ground Lease relating to the real property on which the Harvey
Hotel - DFW Airport is located has a term of 50 years and
F-62
<PAGE>
HARVEY HOTEL COMPANIES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
expires on December 31, 2037. Under this ground lease, Harvey Hotel Company pays
monthly ground rent in an amount equal to the greater of (i) $49,880 or (ii) 6%
of the gross monthly rental revenue in excess of $49,880. Total ground rents
paid to the Huie Land Ventures were $2.0 million, $1.9 million and $1.7 million
in 1994, 1993 and 1992, respectively.
11. COMMITMENTS AND CONTINGENCIES
Harvey Hotel Company and its controlling general partner, as co-borrowers,
borrowed funds for Harvey Hotel - DFW, Harvey Hotel - Dallas and Bristol Suites,
which are secured by the land parcels and buildings. Harvey Hotel Company signed
a land lease with Mr. Huie and assigned 23.73%, 24.24% and 22.18% of the debt
associated with the borrowing for each hotel, respectively, and the related land
parcels for each hotel to such partner. At December 31, 1994, the total debt and
the amount allocated to Mr. Huie are as follows (in thousands):
<TABLE>
<CAPTION>
ALLOCATED TO
TOTAL CONTROLLING
DEBT PARTNER
------- ------------
<S> <C> <C>
Harvey Hotel - DFW.................................... $28,769 $6,827
Harvey Hotel - Dallas................................. 7,917 1,919
Bristol Suites........................................ 24,243 5,377
</TABLE>
In the aggregate, Harvey Hotel Company, as the co-borrower, is jointly and
severally, liable in the event of nonpayment by Mr. Huie for the additional debt
totaling $14.1 million, which is included in these financial statements. The
land parcels at the respective hotels are security for the additional liability.
Harvey Hotel Companies are party to certain litigation arising in the normal
course of business. In the opinion of management, the results of this litigation
will not have a material impact on Harvey Hotel Companies' financial condition
or results of operations.
12. FAIR VALUE
Harvey Hotel Companies have estimated the fair value of their financial
instruments at December 31, 1994 as required by SFAS No. 107. The carrying
values of cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are reasonable estimates of their fair values. Marketable
securities are carried at fair value, which is determined based upon quoted
market prices. The carrying values of variable and fixed rate debt are
reasonable estimates of their fair values.
13. SUBSEQUENT EVENT
Effective January 31, 1995, Mr. Huie and two of his daughters sold their
27.3% interest in Harvey Hotel Company for $15.1 million in cash. Mr. Huie then
contributed his remaining 25.3% interest for an 11.3% interest in Bristol. The
remaining Harvey Hotel Companies partners contributed their 46.4% interest for a
20.6% interest in Bristol.
F-63
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
United Inns, Inc.
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of United Inns,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United Inns,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
/S/ FRAZEE, TATE & ASSOCIATES
FRAZEE, TATE & ASSOCIATES
Memphis, Tennessee
August 29, 1995
F-64
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 5,094 $ 2,217
Current portion of long-term receivables............................. 1,082 1,022
Accounts receivable - net of allowance for bad debts of $120 in 1994
and $78 in 1993
Trade.............................................................. 2,314 2,568
Other.............................................................. 766 696
Inventories (Note 1)................................................. 814 908
Prepaid expenses..................................................... 6,373 5,736
Property held for sale............................................... 4,330 888
-------- --------
Total current assets............................................. 20,773 14,035
-------- --------
Investments (Note 1)
Long-term receivables less current maturities........................ 206 262
Land not in use - at cost............................................ 8,019 8,019
Other investments.................................................... 10 10
-------- --------
8,235 8,291
-------- --------
Property and equipment - at cost (Notes 1 and 3)
Land................................................................. 11,746 13,697
Buildings and improvements........................................... 126,005 154,269
Furnishings and equipment............................................ 24,424 30,154
Leased property under capital leases (Note 4)........................ -- 4,608
-------- --------
162,175 202,728
Less accumulated depreciation........................................ 75,571 92,588
-------- --------
86,604 110,140
Construction-in-progress............................................. 679 1,450
Property held for sale............................................... 1,968 4,051
-------- --------
89,251 115,641
-------- --------
Other assets (Note 1)
Franchises........................................................... 624 685
Deposits and prepaid expenses........................................ 1,343 1,581
Restricted cash...................................................... 3,391 2,881
-------- --------
5,358 5,147
-------- --------
$123,617 $143,114
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Current liabilities:
Long-term debt due within one year................................... $ 6,227 $ 3,330
Note payable......................................................... 17 --
Accounts payable..................................................... 1,898 2,182
Sales and occupancy taxes............................................ 667 971
Accrued expenses:
Payroll and payroll taxes.......................................... 1,725 1,494
Rent and property taxes............................................ 2,196 2,740
Insurance.......................................................... 3,290 3,095
Interest and other................................................. 7,360 1,840
Income taxes payable (Notes 1 and 2)................................. 997 20
-------- --------
Total current liabilities........................................ 24,377 15,672
-------- --------
Long-term debt (Note 3)
First mortgages...................................................... 91,213 102,289
Capitalized lease obligations........................................ -- 429
Chattel mortgages.................................................... 2,010 1,138
Installment loans and other.......................................... 303 311
-------- --------
93,526 104,167
Less amounts due within one year..................................... 6,227 3,330
-------- --------
87,299 100,837
-------- --------
Minority interest...................................................... 531 532
-------- --------
Deferred other......................................................... 965 1,312
-------- --------
Deferred income taxes (Notes 1 and 2).................................. 437 5,086
-------- --------
Commitments and contingencies (Notes 4 and 6)
Stockholders' equity:
Common stock - $1.00 par value - 10,000,000 shares authorized,
4,117,813 shares issued............................................ 4,118 4,118
Paid-in capital...................................................... 14,613 14,613
Retained earnings.................................................... 34,365 45,032
-------- --------
53,096 63,763
Less treasury shares at cost - 1,447,914 in 1994 and 1,476,904 in
1993................................................................... 43,088 44,088
-------- --------
Total stockholders' equity....................................... 10,008 19,675
-------- --------
$123,617 $143,114
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-66
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
<S> <C> <C> <C>
1994 1993 1992
-------- ------- -------
Revenues
Rooms....................................................... $ 72,701 $70,574 $69,851
Restaurants................................................. 14,839 15,668 17,063
Car washes.................................................. 777 1,180 4,107
Telephone and sundry........................................ 5,078 4,470 4,838
-------- ------- -------
93,395 91,892 95,859
-------- ------- -------
Operating costs and expenses:
Direct:
Rooms..................................................... 46,030 46,624 47,845
Restaurants............................................... 14,906 15,713 17,150
Car washes................................................ 821 1,192 3,643
Telephone and sundry...................................... 1,663 1,897 2,013
Marketing, administrative and general....................... 11,345 9,210 10,371
Depreciation................................................ 8,876 8,966 9,471
Other....................................................... 6,999 -- (388)
-------- ------- -------
90,640 83,602 90,105
-------- ------- -------
Operating income.............................................. 2,755 8,290 5,754
Interest expense (net of capitalized interest).............. (9,932) (9,911) (9,088)
Minority interest........................................... (73) (63) (39)
Gain (loss) on disposition of assets........................ (6,266) 1,251 (3,633)
-------- ------- -------
Loss before income taxes...................................... (13,516) (433) (7,006)
Income taxes (credit)......................................... (3,692) (231) (2,783)
-------- ------- -------
Loss before extraordinary item................................ (9,824) (202) (4,223)
Extraordinary item-gain on settlement of debt
(net of income taxes of $1,092)............................. -- -- 1,907
-------- ------- -------
Net loss...................................................... $ (9,824) $ (202) $(2,316)
-------- ------- -------
-------- ------- -------
Earnings per common share:
Income (loss) before extraordinary item..................... $ (3.71) $ (0.08) $ (1.60)
Income from extraordinary item.............................. 0.00 0.00 0.72
-------- ------- -------
Net loss...................................................... $ (3.71) $ (0.08) $ (0.88)
-------- ------- -------
-------- ------- -------
Weighted average shares of common stock....................... 2,651 2,641 2,641
-------- ------- -------
-------- ------- -------
Cash dividends per share...................................... $ 0.00 $ 0.00 $ 0.00
-------- ------- -------
-------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-67
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1991...................... 4,118 $4,118 $14,613 $ 47,550 $(44,088)
Net loss for year............................ -- -- -- (2,316) --
------ ------ ------- -------- --------
Balance December 31, 1992...................... 4,118 4,118 14,613 45,234 (44,088)
Net loss for year............................ -- -- -- (202) --
------ ------ ------- -------- --------
Balance December 31, 1993...................... 4,118 4,118 14,613 45,032 (44,088)
Reissue of 25,000 treasury shares............ -- -- -- (764) 870
Reissue of 4,000 treasury shares............. -- -- -- (79) 130
Net loss for year............................ -- -- -- (9,824) --
------ ------ ------- -------- --------
Balance December 31, 1994...................... 4,118 $4,118 $14,613 $ 34,365 $(43,088)
------ ------ ------- -------- --------
------ ------ ------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-68
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
<S> <C> <C> <C>
1994 1993 1992
------- ------- -------
Operating activities:
Net loss...................................................... $(9,824) $ (202) $(2,316)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 9,385 9,412 9,690
Loss (gain) from properties sold............................ 6,214 (1,302) 254
Write-down of hotel property................................ 1,847 -- --
Deferred income taxes....................................... (4,649) (530) (2,019)
Minority interest........................................... (2) 13 4
Debt reduction.............................................. (434) -- --
Non-cash compensation....................................... 158 -- --
Changes to operating assets and liabilities:
Accounts receivable......................................... 185 (238) 1
Inventories................................................. 70 68 265
Prepaid expenses............................................ (620) (521) (599)
Accounts payable............................................ (254) (419) (795)
Accrued expenses............................................ 5,146 (960) (488)
Income taxes payable........................................ 977 (156) 108
------- ------- -------
Net cash provided by operating activities................. 8,199 5,165 4,105
------- ------- -------
Investing activities:
Payments on settlement of car wash assets..................... -- -- (1,200)
Purchase of property, plant and equipment..................... (3,650) (3,337) (3,348)
Proceeds from sales of fixed assets........................... 2,842 2,263 6,223
Payments received on notes receivable......................... 54 554 19
Other investing activities.................................... (1,253) (805) (1,909)
------- ------- -------
Net cash used for investing activities.................... (2,007) (1,325) (215)
------- ------- -------
Financing activities:
Payments on long-term debt.................................... (3,295) (3,300) (4,237)
Other financing activities.................................... (20) (41) 235
------- ------- -------
Net cash used for financing activities.................... (3,315) (3,341) (4,002)
------- ------- -------
Increase (decrease) in cash and cash equivalents................ 2,877 499 (112)
Cash and cash equivalents at beginning of year.................. 2,217 1,718 1,830
------- ------- -------
Cash and cash equivalents at end of year........................ $ 5,094 $ 2,217 $ 1,718
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-69
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1994 1993 1992
------ ------ -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized......................... $9,628 $9,897 $ 7,574
Income taxes................................................. 367 478 230
Supplemental schedule of non-cash investing and financing
activities:
Debt to acquire property, plant and equipment.................. 1,197 1,431 --
Restricted cash used to purchase property, plant and
equipment........................................................ 590 1,704 540
Write-down of fixed assets..................................... 1,847 -- 1,169
Debt to acquire partnership interest........................... -- -- 1,699
Note received in exchange for property......................... -- -- 1,300
Property disposition under debt settlement agreement........... -- -- 15,819
Other property dispositions.................................... -- -- 1,952
Debt reduction................................................. 434 -- --
Debt payment from fixed asset sales proceeds................... 8,573 -- --
Compensation paid with treasury stock.......................... 158 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the results of operations,
account balances and cash flows of the United Inns, Inc. and its wholly owned
subsidiaries (together, "United Inns"), and a 75%-owned subsidiary. During 1992,
a 50%-owned joint venture which was previously consolidated was acquired in
full. All material intercompany transactions and accounts have been eliminated
in consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to classify the operations and
property sales of United Inns' car wash division as continuing operations rather
than discontinued operations as previously reported. From 1990 through the
present year, United Inns has been in the process of selling car wash properties
and withdrawing from the car wash business. At present, United Inns has disposed
of or closed all locations except for one unit operating under a lease which
expires October 31, 1995. Certain other reclassifications have been made to
prior year amounts. These reclassifications have no effect on net income (loss)
or stockholders' equity as previously reported.
CASH EQUIVALENTS
United Inns considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. United Inns places its
temporary cash investments with high credit quality financial institutions. At
times such investments may be in excess of the insurance limit of the Federal
Deposit Insurance Corporation.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method.
INVESTMENTS
Classified as land not in use are various parcels of land held for possible
future development or sale. This cost is not in excess of net realizable value.
PROPERTY HELD FOR SALE
Properties classified as current have an approved contract to sell or were
sold before issuance of the financial statements. Noncurrent properties are
either operating properties that management is actively seeking to sell or idle
properties which are no longer operating. Both current and noncurrent are stated
at the lower of cost or estimated net realizable value.
F-71
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment are depreciated on the straight line method over the
estimated useful life of the property. The cost of replacements and improvements
are capitalized. Estimated useful lives utilized for computation of depreciation
on property and equipment are as follows:
<TABLE>
<S> <C>
Buildings and improvements................................. 10 to 40 years
Furnishings and equipment.................................. 3 to 10 years
Capitalized leases......................................... 25 years
</TABLE>
Interest costs of $76,000 for 1992 were capitalized on major renovation
projects. No interest was capitalized for 1994 or 1993.
OTHER ASSETS
Franchise costs and deferred mortgage, loan and other expenses exclusive of
security deposits are recorded at cost and amortized on a straight line basis
over the terms of the related agreements. These are presented net of accumulated
amortization of $2.5 million and $2.3 million at December 31, 1994 and 1993,
respectively. Restricted cash is held for capital improvements on six of the
United Inns' properties.
EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of shares
outstanding during the period plus (in periods in which they have a dilutive
effect) the effect of common shares contingently issuable from stock options.
SELF INSURANCE
United Inns is self insured for various levels of general liability,
workers' compensation and employee medical coverages. Accrued insurance includes
the accrual of estimated settlements from known and anticipated claims.
INCOME TAXES
Effective October 1, 1993, United Inns changed its method of accounting for
income taxes from the deferred method of Accounting Principles Board Opinion No.
11 to the asset and liability method required by Statement of Financial
Accounting Standards No. 109. Prior year financial statements were not restated.
The cumulative effect of adopting this accounting statement was immaterial. The
effect of the adoption on income before income taxes was not significant.
2. FEDERAL AND STATE INCOME TAXES
United Inns files a consolidated federal income tax return. Deferred income
taxes and benefits are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
F-72
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The statutory federal income tax rate and the effective tax rate are
reconciled below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
<S> <C> <C> <C>
1994 1993 1992
----- ----- -----
Statutory tax rate................................................. (34.0%) (34.0%) (34.0%)
Increases (decreases) in tax resulting from:
Change in valuation allowance.................................... 1.8 -- --
State taxes net of U. S. federal benefit......................... 3.1 21.0 0.6
Minimum tax...................................................... 0.4 10.1 3.4
Other............................................................ 1.4 (50.4) (12.2)
----- ----- -----
Effective tax rate................................................. (27.3%) (53.3%) (42.2%)
----- ----- -----
----- ----- -----
</TABLE>
The income tax provision (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1994 1993 1992
------- ----- -------
Current:
Federal......................................................... $ 233 $ 146 $ 181
State........................................................... 724 153 147
------- ----- -------
957 299 328
------- ----- -------
Deferred:
Federal......................................................... (4,569) (514) (1,909)
State........................................................... (80) (16) (110)
------- ----- -------
(4,649) (530) (2,019)
------- ----- -------
$(3,692) $(231) $(1,691)
------- ----- -------
------- ----- -------
</TABLE>
The deferred tax provisions are summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C> <C>
1994 1993 1992
------- ----- -------
Accelerated depreciation.......................................... $(3,042) $(319) $(3,985)
Write down of assets.............................................. (628) -- --
Liability accruals................................................ (2,214) -- --
Effect of net operating loss carryforwards........................ 1,173 (429) 1,812
Other............................................................. 62 218 154
------- ----- -------
$(4,649) $(530) $(2,019)
------- ----- -------
------- ----- -------
</TABLE>
For federal tax reporting purposes, net operating losses of $20.4 million
and tax credits of $0.6 million are available to be carried forward to future
periods and expire in fiscal years 2002 through 2009. A valuation allowance of
$3.3 million at December 31, 1994 has been recognized to offset the deferred tax
assets related to these items.
F-73
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the significant components of United Inns'
deferred tax assets (and liabilities) (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C>
1994 1993
------- --------
Depreciation......................................... $(7,636) $(11,306)
Other................................................ (262) (328)
------- --------
Gross deferred tax liabilities....................... (7,898) (11,634)
------- --------
Tax credit and net operating loss carryforwards...... 7,855 8,870
Liability accruals................................... 2,214 --
Other................................................ 668 796
------- --------
Gross deferred tax assets............................ 10,737 9,666
------- --------
Valuation allowance.................................. (3,276) (3,118)
------- --------
Net deferred tax liability........................... $ (437) $ (5,086)
------- --------
------- --------
</TABLE>
United Inns presently is under examination by a state revenue department.
United Inns has determined and provided for an estimated liability. It is
expected that resolution of this matter will be lengthy and may require
litigation.
3. LONG-TERM DEBT
The range of interest rates and maturities of the long-term debt at December
31, 1994 are summarized below:
First mortgages - 7.25% to prime + 2%, due 1995 to 2007
Chattel mortgages - 11% to 12.77%, due 1995 to 1999
Installment loans and others - 6.5% to 10%, due 1995 to 2000
Long-term debt, including capitalized leases, matures as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
<S> <C> <C>
1994 1993
------- --------
1994................................................ $ -- $ 3,330
1995................................................ 6,227 10,266
1996................................................ 34,392 38,205
1997................................................ 34,635 40,722
1998................................................ 2,461 1,799
1999................................................ 7,333 --
Thereafter.......................................... 8,478 9,845
------- --------
$93,526 $104,167
------- --------
------- --------
</TABLE>
The major portion of United Inns' property and equipment is pledged as
collateral on mortgage and lease obligations. United Inns is guarantor of the
major portion of the debt of its subsidiaries.
Under terms of a debt renewal agreement completed on December 22, 1992 with
one of its major lenders, United Inns refinanced $42.3 million of debt, on which
United Inns gave an unlimited guarantee for a period of one year. Stock of one
of United Inns' subsidiaries is pledged for the debt. The lender retained a
first mortgage on previously secured assets and obtained a second mortgage on
F-74
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
additional property which was owned by such subsidiary. The agreement contains
certain covenants, including limitations on dividend distributions and fixed
charge ratios of a subsidiary. The debt matures September 30, 1997.
4. LEASES
United Inns is obligated under long-term leases, primarily for the lease of
various hotel properties and equipment. In addition to specified minimum annual
rentals, some of the leases provide for contingent rentals based on percentages
of revenue, and most require payment by United Inns of property taxes, insurance
and maintenance. The leases extend for varying periods; some contain renewal
options. Rentals to be received from noncancelable subleases are not material.
United Inns' property held under capital leases, included in property, plant,
and equipment in the balance sheet in 1993, consisted of real estate of $4.6
million. Accumulated depreciation was $4.5 million.
Lease payments included in the accompanying consolidated statements of
income were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
<S> <C> <C> <C>
1994 1993 1992
------ ------ ------
Capital leases:
Minimum............................................ $ 418 $ 628 $ 656
Contingent......................................... 296 486 618
------ ------ ------
714 1,114 1,274
------ ------ ------
Operating leases:
Minimum............................................ 839 1,004 1,267
Contingent......................................... 897 699 322
------ ------ ------
1,736 1,703 1,589
------ ------ ------
$2,450 $2,817 $2,863
------ ------ ------
------ ------ ------
</TABLE>
The future minimum rental commitments for all noncancelable leases at
December 31, 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1995............................................................. $ 720
1996............................................................. 599
1997............................................................. 599
1998............................................................. 599
1999............................................................. 551
Thereafter....................................................... 1,764
---------
Total minimum rentals............................................ $ 4,832
---------
---------
</TABLE>
F-75
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PENSION, POSTEMPLOYMENT AND BONUS PLANS
United Inns' 1993 Stock Incentive Plan for key employees and directors
provides for the issuance of stock options at not less than fair market value on
the date of grant. Options are exercisable from one to five years after the
grant date. No options may be granted after October 1, 2003. At December 31,
1994, 296,000 shares were available for the granting of additional options.
United Inns issues treasury shares to fulfill its obligations under the stock
option plans.
Transactions since inception are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE
--------- -------
<S> <C> <C>
Options granted........................................ 4,000 $12.875
Options exercised...................................... (4,000) 12.875
--------- -------
Outstanding at December 31, 1994....................... -- $ --
--------- -------
--------- -------
</TABLE>
United Inns granted 25,000 shares and an option for 35,000 shares to a
consultant outside of the plan in 1994. The fair market value of $4.25 per share
at contract date was used to measure consulting expense of $106,000. The
35,000-share option is exercisable up to 1999.
United Inns adopted in 1994 a severance pay policy concerning termination of
employment due to elimination of an employee's position as a result of a
reduction in force, merger with another entity, sale of United Inns assets or
other similar events. United Inns pays for unused vacation plus severance pay
based on years of service.
United Inns has an executive bonus plan which covers full time executive
officers of United Inns. This plan provides for a distribution of 1% to 3% of
consolidated income before taxes and unusual items. No amounts were approved for
distribution in 1994, 1993 or 1992.
Effective January 1992, United Inns adopted a Retirement Savings 401(k)
Plan. This plan is available to all employees with one year of service who are
not covered by a collective bargaining agreement and who have attained age 21.
United Inns deposits elective deferral contributions which have been withheld
from employee compensation. United Inns may also make a discretionary
contribution in such amount it deems advisable. No discretionary contributions
have been made by United Inns. In addition, United Inns matches a portion of
employee contributions, up to 4% of their annual earnings. United Inns'
contributions were $282,000, $289,000 and $251,000 for 1994, 1993 and 1992,
respectively. All contributions to this plan, other than discretionary
contributions, are 100% non-forfeitable.
6. COMMITMENTS AND CONTINGENCIES
Under the terms of the Holiday Inn, Hampton Inn, Ramada, Howard Johnson,
Super 8 and Days Inn franchises, United Inns is committed to make annual
payments for franchise fees, reservation service, and advertising. The amounts
due under the agreements were $5.7 million for 1994 and $5.8 million for 1993
and for 1992.
There are a number of guest and customer claims, employee wage claims, and
other disputed amounts outstanding against United Inns, all of which occurred in
the ordinary course of business. Counsel has advised that there is no material
exposure to United Inns in these matters. In addition, a suit has been filed
against United Inns regarding the termination of a lease of a hotel property.
F-76
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management does not feel that the outcome of this litigation will have a
material adverse effect on United Inns' financial condition.
7. (UNAUDITED) QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the (unaudited) quarterly results of
operations for the years ended December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
QUARTERS
----------------------------------------
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
1994:
Revenues............................................ $23,424 $23,998 $25,338 $20,635
Net income (loss)................................... 585 (4,236) (559) (5,614)
Earnings per share.................................. 0.22 (1.60) (0.21) (2.12)
1993:
Revenues............................................ 22,881 24,401 24,240 20,370
Net income (loss)................................... 564 (64) 593 (1,295)
Earnings per share.................................. 0.21 (0.02) 0.22 (0.49)
</TABLE>
8. SEGMENT INFORMATION
United Inns has one primary business segment, the operation of hotel
properties. This segment represents more than 90% of consolidated revenue,
operating profit and identifiable assets. All revenues were derived from
domestic operations. There are no major customers and no government contracts.
9. GAIN (LOSS) FROM ASSET DISPOSITIONS
Loss from disposition in 1994 includes a $6.6 million loss on the sale of an
operating hotel and a loss of $548,000 on the sale of a closed hotel. Gains of
$775,000 and $111,000 were recognized on the sales of an unimproved tract of
land and a former car wash unit, respectively.
Gain on asset dispositions in 1993 include gain of $1.3 million on the sale
of one property, recognition of a deferred gain of $184,000 on a property sold
in 1992 and a loss of $191,000 on termination of a lease.
Included in 1992 property dispositions were the sale of two operating
properties for a net gain of $482,000, the demolition and write off of a closed
hotel for a loss of $1.2 million, and a loss of $431,000 resulting from the
exercise of a purchase option for the joint venture partner's 50% interest in a
hotel. Additionally, the termination of a lease on an operating property
resulted in a loss of $464,000. A $2.0 million loss resulting from the sale and
write down of car wash properties was also recognized in 1992.
10. OTHER OPERATING COSTS AND EXPENSES
In March 1992, United Inns conveyed two hotels to the mortgage holder,
resulting in a debt deficiency of $4.2 million. This deficiency was settled for
a cash payment of $1.2 million, resulting in a net tax gain of $1.9 million on
the debt settlement. An estimated loss contingency of $1.7 million recorded in
1991 on the property conveyance was settled at $1.3 million in March 1992,
resulting in a loss recovery credit of $0.4 million.
F-77
<PAGE>
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1994, in accordance with Company policy, United Inns recorded a $1.8
million charge for the write-down of an operating hotel property to net
realizable value. The property, which is included in property held for sale in
current assets on the Company's balance sheet, was sold on July 28, 1995.
All of the owned hotels have been subject to Phase I environmental
assessments within the last 18 months. A Phase I environmental assessment is
intended to evaluate the potential for environmental liability associated with a
property and does not include more detailed testing such as soil samples,
subsurface testing or other testing for potentially hazardous materials. The
Phase I environmental assessments were performed to detect the presence of
asbestos in the hotels. Substantial amounts of asbestos-containing material are
present in certain of the owned hotels. However, these materials either have
been adequately contained or are in the process of being contained by United
Inns. United Inns currently is developing and implementing an operations and
maintenance program that will establish standard operating procedures with
respect to asbestos-containing materials. Underground storage tanks are also
located on several properties owned by United Inns and previously used by United
Inns to operate car washes.
Water has been contaminated by the underground storage tanks located on five
of the car wash properties. United Inns is in the process of removing or
replacing these underground storage tanks and, when necessary, remediating the
surrounding soil and water. In addition, the Tennessee Department of Environment
notified United Inns in November 1994 that it had been identified as a
"potentially responsible party" in connection with the dumping of 33 or 34 rusty
drums containing potentially hazardous materials on a rural site in Tennessee
where United Inns once operated a furniture finishing company. Leakage from the
drums of diesel, paint and solvents has occurred.
Although it is difficult to quantify the potential financial impact of
completing the remediation of all properties containing environmental
contaminants, management has developed an estimated range of remediation costs
of between $2.2 million and $5.9 million, which could arise over a period of
several years. These estimates consider, among other things, currently available
technological solutions, risk-based assessments of the contamination and, as
applicable, an estimation of United Inns' proportionate share of remediation
costs. As of December 31, 1994, United Inns had accrued $5.1 million for
estimated environmental remediation costs. None of the environmental assessments
conducted to date has revealed any environmental condition that management
believes would have a material adverse effect on United Inns' business, assets
or results of operations, nor is management aware of any such condition.
However, it is possible that these assessments have not revealed all potential
environmental liabilities or that there are material environmental liabilities
of which management is not aware.
11. SUBSEQUENT EVENTS
On November 14, 1994, United Inns entered into a merger agreement with
United/Harvey Holdings, L.P. ("Holdings") whereby Holdings tendered an offer to
acquire all of the outstanding shares of United Inns at $25 per share. At
November 14, 1994, United Inns had 2,665,899 shares issued and outstanding and
35,000 shares subject to outstanding options. Holdings acquired all of United
Inns' outstanding stock, and, upon the contribution by Holdings of such stock to
Bristol Hotel Company effective January 31, 1995, United Inns became a wholly
owned subsidiary of Bristol Hotel Company.
F-78
<PAGE>
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT ------------------------
CONSTITUTE AN OFFER TO SELL OR THE PROSPECTUS
SOLICITATION OF AN OFFER TO BUY ANY ------------------------
SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH [LOGO]
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY BRISTOL HOTEL
IMPLICATION THAT THERE HAS BEEN BRISTOL COMPANY
HOTEL NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS
CORRECT COMPANY AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
PAGE
----
Summary.......................... 1
Risk Factors..................... 13
The Exchange Offer............... 20
Capitalization................... 27
Selected Historical and Pro Forma
Financial Data................. 28
Selected Historical Financial OFFER TO EXCHANGE ITS
Data........................... 30 11.22% SENIOR SECURED NOTES
Other Data....................... 32 DUE 2000, WHICH HAVE
Management's Discussion and BEEN REGISTERED UNDER
Analysis of Pro Forma Financial THE SECURITIES ACT OF 1933,
Information.................... 34 FOR ITS OUTSTANDING 11.22%
Analysis of Financial Condition SENIOR SECURED NOTES DUE 2000
and Results of Operations...... 39
Business and Properties.......... 41
Formation of the Company......... 57
Management....................... 65
Ownership of Common Stock........ 80
Description of Notes............. 81 THESE NOTES ARE GUARANTEED
Description of Certain Other ON AN UNSECURED,
Indebtedness of the Company....109 SUBORDINATED BASIS BY
Certain Federal Income Tax
Considerations.................111
Old Notes Registration Rights....112
Plan of Distribution.............114
Legal Matters....................115
Experts..........................115 BRISTOL HOTEL
Available Information............115 ASSET COMPANY
Index to Financial Statements....F-1
-------------------
UNTIL SEPTEMBER 19, 1996 (90 DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE
NOTES, WHETHER OR NOT PARTICIPATING IN
THE ORIGINAL DISTRIBUTION, MAY BE JUNE 21, 1996
REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's and Opco's Certificates of Incorporation (collectively, the
"Certificates of Incorporation") provide that the personal liability of
directors of the Company and Opco to their respective companies is eliminated to
the maximum extent permitted by Delaware law. The Certificates of Incorporation
and the Company's By-Laws provide for the indemnification of the directors,
officers, employees, and agents of the Company and Opco and their subsidiaries
to the fullest extent that may be permitted by Delaware law from time to time,
and the Company's By-Laws provide for various procedures relating thereto.
Certain provisions of the Certificates of Incorporation protect the companies'
directors against personal liability for monetary damages resulting from
breaches of their fiduciary duty of care, except as set forth below. Under
Delaware law, absent these provisions, directors could be held liable for gross
negligence in the performance of their duty of care, but not for simple
negligence. The Certificates of Incorporation absolve directors of liability for
negligence in the performance of their duties, including gross negligence.
However, the Company's and Opco's directors remain liable for breaches of their
duty of loyalty to their respective companies and their companies' stockholders,
as well as for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law and transactions from which a director
derives improper personal benefit. The Certificates of Incorporation also do not
absolve directors of liability under Section 174 of the DGCL, which makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions in certain circumstances and expressly sets forth a negligence
standard with respect to such liability.
Under Delaware law, directors, officers, employees, and other individuals
may be indemnified against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement in connection with specified actions,
suits or proceedings, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation--a "derivative
action") if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the Company or Opco and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in the case
of a derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such an action and Delaware law requires court approval before there can be any
indemnification of expenses where the person seeking indemnification has been
found liable to the Company or Opco.
As authorized by the Company's Certificate of Incorporation, the Company
entered into indemnification agreements with each of its directors. These
indemnification agreements provide for, among other things, (i) the
indemnification by the Company of the indemnitees thereunder to the extent
described above, (ii) the advancement of attorneys' fees and other expenses, and
(iii) the establishment, upon approval by the Board, of trusts or other funding
mechanisms to fund the Company's indemnification obligations thereunder.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ------------------------------------------------------------------------------------
<C> <S>
2.1 Combination Agreement, dated as of November 14, 1994 and amended and restated
effective as of January 31, 1995, among United/Harvey Holdings, L.P., Bristol
Hotel Company (f/k/a Harvey Hotel Holdings, Inc. (the "Company")), Harvey Hotel
Company, Ltd., Harvey Hotel Management Corporation, Endlease, Inc., Harvey Hotel
DFW, Inc., and the other persons signatory thereto (incorporated herein by
reference to Exhibit 2.1 of the Company's Registration Statement on Form S-1 (File
No. 33-97916), as amended (the "Registration Statement")).
3.1 Third Amended and Restated Certificate of Incorporation of the Company.
3.2 Certificate of Incorporation of Bristol Hotel Asset Company.
3.3 Amended and Restated By-Laws of the Company.
3.4 By-Laws of Bristol Hotel Asset Company.
4.1 Indenture (the "Indenture"), dated as of December 18, 1995, among the Company, as
issuer, Bristol Hotel Asset Company, as guarantor, and The Bank of New York, as
trustee. (incorporated herein by reference to Exhibit 4.1 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)
4.2 Form of Old Notes (included in Exhibit 4.1). (incorporated herein by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
4.3 Form of New Notes (included in Exhibit 4.1). (incorporated herein by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
4.4 Exchange and Registration Rights Agreement, dated as of December 18, 1995, among the
Company, Bristol Hotel Asset Company, Bankers Trust Company and New England Cayman
Corporation.
4.5 Term Credit Agreement, dated December 12, 1995, among Bristol Hotel Asset Company,
the Lenders thereto and Bankers Trust Company.
5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality of the securities being
registered hereby.
10.1 Form of Indemnification Agreement among the Company and each of its directors
(incorporated herein by reference to Exhibit 10.1 of the Registration Statement).
10.2 Purchase Agreement, dated February 27, 1995 and effective January 31, 1995, between
the Company and H.K. Huie, Jr. (incorporated herein by reference to Exhibit 10.2
of the Registration Statement).
10.3 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and United/Harvey Holdings, L.P. (incorporated herein by
reference to Exhibit 10.3 of the Registration Statement).
10.4 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and H.K. Huie, Jr. (incorporated herein by reference to
Exhibit 10.4 of the Registration Statement).
10.5 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and J. Peter Kline (incorporated herein by reference to
Exhibit 10.5 of the Registration Statement).
10.6 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and Robert L. Miars (incorporated herein by reference to
Exhibit 10.6 of the Registration Statement).
10.7 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and John A. Beckert (incorporated herein by reference to
Exhibit 10.7 of the Registration Statement).
10.8 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and Richard N. Beckert (incorporated herein by reference to
Exhibit 10.8 of the Registration Statement).
10.9 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and Edward J. Rohling (incorporated herein by reference to
Exhibit 10.9 of the Registration Statement).
10.10 Registration Rights Agreement, dated as of February 27, 1995, among the Company,
United/Harvey Holdings, L.P. and the other parties signatory thereto (incorporated
herein by reference to Exhibit 10.10 of the Registration Statement).
10.11 Stockholders' Agreement, dated as of February 27, 1995, among the Company,
United/Harvey Holdings, L.P. and the other parties signatory thereto (incorporated
herein by reference to Exhibit 10.11 of the Registration Statement).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ------------------------------------------------------------------------------------
<C> <S>
10.12 Put/Call Option Agreement, dated as of February 27, 1995, between the Company and
H.K. Huie, Jr. (incorporated herein by reference to Exhibit 10.12 of the
Registration Statement).
10.13 Renovation Loan Agreement, dated December 18, 1995, among Bristol Hotel Asset
Company, the Lenders thereto and Bankers Trust Company.
10.14 Management Bonus Plan (incorporated herein by reference to Exhibit 10.16 of the
Registration Statement).
10.15 Amended and Restated 1995 Equity Incentive Plan.
10.16 Stock Option Plan for Non-Employee Directors.
10.17 Amended and Restated Put/Call Option Agreement, Amendment to Combination Agreement,
Stockholders' Agreement, and Registration Rights Agreement and Termination of
Consulting Agreement, dated as of November 16, 1995, among the Company,
United/Harvey Holdings, L.P., J. Peter Kline, John A. Beckert, Richard N. Beckert,
Edward J. Rohling, Robert L. Miars, Harvey Hotel Company, Ltd., Harvey HTS, Inc.,
Endlease, Inc. and Harvey Hotel DFW, Inc. (incorporated herein by reference to
Exhibit 10.19 of the Registration Statement).
* 12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries of the Company (incorporated herein by reference to Exhibit
21.1 of the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
* 23.1 Consent of Price Waterhouse LLP.
* 23.2 Consent of Frazee, Tate & Associates.
23.3 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
24.1 Powers of Attorney executed by the Company, J. Peter Kline, Jeffrey P. Mayer, John
A. Beckert, Donald J. McNamara, Robert A. Whitman, Daniel A. Decker, David A.
Dittman and Robert H. Lutz, Jr.
24.2 Powers of Attorney executed by Bristol Hotel Asset Company, J. Peter Kline, Jeffrey
P. Mayer and John A. Beckert.
24.3 Powers of Attorney executed by Richard M. Fitzatrick and Paul Novak.
25.1 Statement on Form T-1 of Eligibility of Trustee.
* 99.1 Form of Letter of Transmittal.
* 99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------
* Filed herewith (all other exhibits have been filed previously).
(B) FINANCIAL STATEMENT SCHEDULES.
No schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are required under the related
instructions or are applicable or the information is contained in the financial
statements and therefore have been omitted.
ITEM 22. UNDERTAKINGS.
The Registrants hereby undertake:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of a prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
II-3
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Company's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated
by reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bristol Hotel
Company has duly caused this Post-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas, in the State of Texas, on June 21, 1996.
BRISTOL HOTEL COMPANY
By: /s/ JOEL M. EASTMAN
..................................
Joel M. Eastman
Vice President, Secretary and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement on Form S-4 has been
signed below by the following persons in the capacities indicated on June 21,
1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* President, Chief Executive Officer and
............................................. Director
J. Peter Kline
* Chief Financial Officer
............................................. (Principal Financial and Accounting Officer)
Jeffrey P. Mayer
* Director
.............................................
Donald J. McNamara
* Director
.............................................
Robert A. Whitman
* Director
.............................................
John A. Beckert
* Director
.............................................
Daniel A. Decker
* Director
.............................................
Richard M. FitzPatrick
* Director
.............................................
David A. Dittman
* Director
.............................................
Robert H. Lutz, Jr.
* Director
.............................................
Paul Novak
</TABLE>
*By /s/ JOEL M. EASTMAN
..................................
Joel M. Eastman
Pursuant to Powers of Attorney
filed herewith or previously with
the
Securities and Exchange Commission
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bristol Hotel
Asset Company has duly caused this Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, in the State of
Texas, on June 21, 1996.
BRISTOL HOTEL ASSET COMPANY
By: /s/ JOEL M. EASTMAN
..................................
Joel M. Eastman
Vice President, Secretary and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement on Form S-4 has been
signed below by the following persons in the capacities indicated on June 21,
1996:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* President, Chief Executive Officer and
............................................. Director
J. Peter Kline
* Chief Financial Officer
............................................. (Principal Financial and Accounting Officer)
Jeffrey P. Mayer
* Director
.............................................
John A. Beckert
</TABLE>
*By /s/ JOEL M. EASTMAN
..................................
Joel M. Eastman
Pursuant to Powers of Attorney
filed previously with the
Securities and Exchange Commission
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------- ----
<C> <S> <C>
2.1 Combination Agreement, dated as of November 14, 1994 and amended and restated
effective as of January 31, 1995, among United/Harvey Holdings, L.P., Bristol
Hotel Company (f/k/a Harvey Hotel Holdings, Inc. (the "Company")), Harvey
Hotel Company, Ltd., Harvey Hotel Management Corporation, Endlease, Inc.,
Harvey Hotel DFW, Inc., and the other persons signatory thereto (incorporated
herein by reference to Exhibit 2.1 of the Company's Registration Statement on
Form S-1 (File No. 33-97916), as amended (the "Registration Statement")).
3.1 Third Amended and Restated Certificate of Incorporation of the Company.
3.2 Certificate of Incorporation of Bristol Hotel Asset Company.
3.3 Amended and Restated By-Laws of the Company.
3.4 By-Laws of Bristol Hotel Asset Company.
4.1 Indenture (the "Indenture"), dated as of December 18, 1995, among the Company,
as issuer, Bristol Hotel Asset Company, as guarantor, and The Bank of New
York, as trustee (incorporated herein by reference to Exhibit 4.1 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
4.2 Form of Old Notes (included in Exhibit 4.1) (incorporated herein by reference
to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.3 Form of New Notes (included in Exhibit 4.1) (incorporated herein by reference
to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.4 Exchange and Registration Rights Agreement, dated as of December 18, 1995,
among the Company, Bristol Hotel Asset Company, Bankers Trust Company and New
England Cayman Corporation.
4.5 Term Credit Agreement, dated December 12, 1995, among Bristol Hotel Asset
Company, the Lenders thereto and Bankers Trust Company.
5.1 Opinion of Jones, Day, Reavis & Pogue regarding the legality of the securities
being registered hereby.
10.1 Form of Indemnification Agreement among the Company and each of its directors
(incorporated herein by reference to Exhibit 10.1 of the Registration
Statement).
10.2 Purchase Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and H.K. Huie, Jr. (incorporated herein by reference to
Exhibit 10.2 of the Registration Statement).
10.3 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and United/Harvey Holdings, L.P. (incorporated herein by
reference to Exhibit 10.3 of the Registration Statement).
10.4 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and H.K. Huie, Jr. (incorporated herein by reference to
Exhibit 10.4 of the Registration Statement).
10.5 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and J. Peter Kline (incorporated herein by reference to
Exhibit 10.5 of the Registration Statement).
10.6 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and Robert L. Miars (incorporated herein by reference to
Exhibit 10.6 of the Registration Statement).
10.7 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and John A. Beckert (incorporated herein by reference to
Exhibit 10.7 of the Registration Statement).
10.8 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and Richard N. Beckert (incorporated herein by reference
to Exhibit 10.8 of the Registration Statement).
10.9 Contribution Agreement, dated February 27, 1995 and effective January 31, 1995,
between the Company and Edward J. Rohling (incorporated herein by reference
to Exhibit 10.9 of the Registration Statement).
10.10 Registration Rights Agreement, dated as of February 27, 1995, among the
Company, United/Harvey Holdings, L.P. and the other parties signatory thereto
(incorporated herein by reference to Exhibit 10.10 of the Registration
Statement).
10.11 Stockholders' Agreement, dated as of February 27, 1995, among the Company,
United/Harvey Holdings, L.P. and the other parties signatory thereto
(incorporated herein by reference to Exhibit 10.11 of the Registration
Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------- ----
<C> <S> <C>
10.12 Put/Call Option Agreement, dated as of February 27, 1995, between the Company
and H.K. Huie, Jr. (incorporated herein by reference to Exhibit 10.12 of the
Registration Statement).
10.13 Renovation Loan Agreement, dated December 18, 1995, among Bristol Hotel Asset
Company, the Lenders thereto and Bankers Trust Company.
10.14 Management Bonus Plan (incorporated herein by reference to Exhibit 10.16 of the
Registration Statement).
10.15 Amended and Restated 1995 Equity Incentive Plan.
10.16 Stock Option Plan for Non-Employee Directors.
10.17 Amended and Restated Put/Call Option Agreement, Amendment to Combination
Agreement, Stockholders' Agreement, and Registration Rights Agreement and
Termination of Consulting Agreement, dated as of November 16, 1995, among the
Company, United/Harvey Holdings, L.P., J. Peter Kline, John A. Beckert,
Richard N. Beckert, Edward J. Rohling, Robert L. Miars, Harvey Hotel Company,
Ltd., Harvey HTS, Inc., Endlease, Inc. and Harvey Hotel DFW, Inc.
(incorporated herein by reference to Exhibit 10.19 of the Registration
Statement).
*12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries of the Company (incorporated herein by reference to
Exhibit 21.1 of the Company bonus/Report on Form 10-K for the year ended
December 31, 1995).
*23.1 Consent of Price Waterhouse LLP.
*23.2 Consent of Frazee, Tate & Associates.
23.3 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1).
24.1 Powers of Attorney executed by the Company, J. Peter Kline, Jeffrey P. Mayer,
John A. Beckert, Donald J. McNamara, Robert A. Whitman, Daniel A. Decker,
David A. Dittman and Robert H. Lutz, Jr.
24.2 Powers of Attorney executed by Bristol Hotel Asset Company, J. Peter Kline,
Jeffrey P. Mayer and John A. Beckert.
24.3 Powers of Attorney executed by Richard M. Fitzpatrick and Paul Novak.
25.1 Statement on Form T-1 of Eligibility of Trustee.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------
* Filed herewith (all other exhibits have been filed previously).
EXHIBIT 12.1
BRISTOL HOTEL COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA HISTORICAL
------------------------------ -------------- ----------------- -----------------
THREE MONTHS TWO MONTHS THREE MONTHS YEAR ENDED ELEVEN MONTHS
ENDED ENDED ENDED DECEMBER 31, ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1995 1994 1995 DECEMBER 31, 1995
-------------- -------------- -------------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes and
extraordinary item. $ 6,112 $3,544 $ 6,307 $14,768 $14,518 $ 7,791
Fixed charges,
excluding
capitalized
interest........... 4,479 2,940 4,004 15,577 17,040 19,214
------- ------ ------- ------- ------- -------
Earnings, as
adjusted....... $ 10,591 $6,484 $ 10,311 $30,345 $31,558 $27,005
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
Fixed charges:
Interest expense..... $ 3,616 $2,777 $ 3,378 $13,312 $14,586 $18,281
Capitalized
interest........... 239 0 0 0 128 128
Amortization of
financing costs.... 590 0 387 1,547 1,547 93
Portion of rents
representative of
the interest
factor............. 273 163 240 818 907 840
------- ------ ------- ------- ------- -------
Fixed charges.... $ 4,718 $2,940 $ 4,004 $15,577 $17,168 $19,342
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
Ratio of earnings
to fixed
charges......... 2.24 2.21 2.58 1.95 1.84 1.40
------- ------ ------- ------- ------- -------
------- ------ ------- ------- ------- -------
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 of
Bristol Hotel Company of our reports dated February 23, 1996 relating to Bristol
Hotel Company and Bristol Hotel Asset Company and our report dated September 11,
1995 relating to Harvey Hotel Companies, which appear in such Prospectus. We
also consent to the references to us under the headings "Experts" and "Selected
Historical Financial Data" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Selected Historical
Financial Data."
PRICE WATERHOUSE LLP
Dallas, Texas
June 18, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on From S-4 of our reports dated August 29, 1995,
relating to the financial statements of United Inns, Inc. which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Historical Financial and Other Data" in such Prospectus. However,
it should be noted that Frazee, Tate & Associates has not prepared or certified
such "Selected Historical Financial and Other Data".
FRAZEE, TATE & ASSOCIATES
Memphis, Tennessee
June 17, 1996
EXHIBIT-99.1
LETTER OF TRANSMITTAL
BRISTOL HOTEL COMPANY
OFFER FOR ALL OUTSTANDING
11.22% SENIOR SECURED NOTES DUE 2000
IN EXCHANGE FOR
11.22% SENIOR SECURED NOTES DUE 2000
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS, DATED JUNE 21, 1996
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 9, 1996
OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE
"EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE.
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Facsimile Transmission By Hand/Overnight Delivery:
Mail: Number:
The Bank of New York (212) 571-3080 The Bank of New York
101 Barclay Street--7E 101 Barclay Street
New York, New York 10286 (For Eligible Institutions Corporate Trust Services
Attn: Reorganization Section Only) Window
Confirm by Telephone: Ground Level
(212) 815-2742 Attn: Reorganization Section
For Information Call:
(212) 815-6333
</TABLE>
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
The undersigned acknowledges that he or she has received the amended
Prospectus, dated June 21, 1996 (the "Prospectus"), of Bristol Hotel Company, a
Delaware corporation (the "Company"), and this Letter of Transmittal, as amended
hereby (this "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange up to $70,000,000 aggregate principal amount of
11.22% Senior Secured Notes due 2000 (the "New Notes") of the Company, for an
equal principal amount of the Company's issued and outstanding 11.22% Senior
Secured Notes due 2000 (collectively, the "Old Notes"). The terms of the New
Notes are identical in all material respects (including principal amount,
interest rate and maturity) to those of the Old Notes, except that the New Notes
will be registered under the Securities Act of 1933, as amended (the "Securities
Act").
This Letter is to be completed by holders of Old Notes pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer -- Procedures
for Tendering Old Notes." Delivery of this Letter and any other required
documents should be made to the Exchange Agent.
If a Holder desires to tender Old Notes pursuant to the Exchange Offer but
time will not permit this Letter, certificates representing Old Notes or other
required documents to reach the Exchange Agent on or before the Expiration Date,
such Holder may effect a tender of such Notes in accordance with the guaranteed
delivery procedures set forth in the Prospectus under "Exchange
Offer--Procedures for Tendering Old Notes." See Instruction 2.
<PAGE>
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate schedule affixed hereto.
I. TENDER OF OLD NOTES
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES (1) (2) (3)
AGGREGATE PRINCIPAL AMOUNT
PRINCIPAL OF OLD NOTES
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDERS(S) CERTIFICATE AMOUNT OF TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S) OLD NOTES (IF LESS THAN ALL)*
* Unless otherwise indicated in this column, a holder will be deemed to have
tendered the full aggregate principal amount of the Old Notes represented by
the Old Notes indicated in column 2.
</TABLE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Name of Eligible Institution that Guaranteed
Delivery ___________________________________________________________________
Date of Execution of Notice of Guaranteed
Delivery ___________________________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
II. CONSENT TO AMENDMENT TO EXCHANGE AGREEMENT
As the holder of the Old Notes described above, the undersigned hereby
/ / CONSENTS
/ / DOES NOT CONSENT
to the amendment (the "Amendment") of the Exchange and Registration Rights
Agreement dated December 18, 1995 (the "Exchange Agreement"), mutatis mutandis,
to shorten the period during which the Company is required to keep the Exchange
Offer open for acceptance to July 9, 1996 (or such later date as may be required
by law).
Effectiveness of the Amendment is subject to the receipt by the Exchange
Agent, prior to the Expiration Date, of properly completed consents from the
holders of at least 66 2/3% of the Old Notes.
This letter will be binding on the holder of the Old Notes executing such
Letter, and on any transferee (whether by sale or otherwise) of such holder,
subject only to the right of any holder to deliver a written revocation of such
Letter as described in the Prospectus) to the Exchange Agent at its address set
forth above, prior to the Expiration Date.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Company) with respect to the tendered Old
Notes with the full power of substitution to (i) deliver certificates for such
Old Notes to the Company and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such Old
Notes for transfer on the books of the Company and receive all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all in
accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the exchange, assignment and transfer of the Old Notes tendered hereby.
The undersigned agrees that acceptance of any tendered Old Notes by the
Company and the issuance of New Notes in exchange therefor will constitute
performance in full by the Company of its obligations under the Exchange
Agreement (as defined in the Prospectus) and that the Company will have no
further obligations or liabilities thereunder (except in limited circumstances).
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on certain interpretive letters by the staff of the Securities and
Exchange Commission (the "SEC") to third parties in unrelated transactions. On
the basis thereof, the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended (the "Securities Act")) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders are not participating in, and have no arrangement or
understanding with any person to participate in, the distribution of such New
Notes. THE UNDERSIGNED ACKNOWLEDGES THAT ANY HOLDER OF OLD NOTES USING THE
EXCHANGE OFFER TO PARTICIPATE IN A DISTRIBUTION OF THE NEW NOTES (I) CANNOT RELY
ON THE POSITION OF THE STAFF OF THE SEC ENUNCIATED IN ITS INTERPRETIVE LETTER
WITH RESPECT TO EXXON CAPITAL HOLDINGS CORPORATION (AVAILABLE APRIL 13, 1989) OR
SIMILAR LETTERS AND (II) MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH A SECONDARY RESALE
TRANSACTION. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned represents that (i) it is not an affiliate of either the
Company or Bristol Hotel Asset Company, a Delaware corporation and wholly owned
subsidiary of the Company ("Opco") or, if the undersigned is an affiliate of the
Company or Opco, it will comply with the registration and prospectus
requirements of the Securities Act to the extent applicable, (ii) the New Notes
are being acquired in the ordinary course of business of the person receiving
such New Notes, whether or not such person is the holder, (iii) the undersigned
has not entered into an arrangement or understanding with any other person to
participate in the distribution of the New Notes, (iv) the undersigned is not a
broker-dealer who purchased the Notes for resale pursuant to an exemption under
the Securities Act and (v) the undersigned will be able to trade New Notes
acquired in the Exchange Offer without restriction under the Securities Act.
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder will be binding upon the heirs, legal
representatives, successors, assigns, executors, administrators and trustees in
bankruptcy of the undersigned and shall not be affected by, and will survive,
the death, bankruptcy or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the Instructions
contained in this Letter.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Prospectus and in the Instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Prospectus.
<PAGE>
The undersigned recognizes that under certain circumstances set forth in the
Prospectus under "The Exchange Offer -- Conditions to the Exchange Offer" the
Company will not be required to accept for exchange any of the Old Notes
tendered. Old Notes not accepted for exchange or withdrawn will be returned to
the undersigned at the address set forth below unless otherwise indicated under
"Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the certificates or electronic transfers
representing the New Notes issued in exchange for the Old Notes accepted for
exchange (and, if applicable, any substitute certificates or electronic
transfers representing Old Notes not exchanged) in the name(s) of the
undersigned. Similarly, unless otherwise indicated in the box entitled "Special
Delivery Instructions" below, please deliver certificates representing the New
Notes issued in exchange for the Old Notes accepted for exchange (and, if
applicable, any substitute certificates representing Old Notes for any Old Notes
not exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER TO THE
EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN
SUCH BOX ABOVE.
IN ADDITION, THE UNDERSIGNED, BY SIGNING THIS LETTER AND COMPLETING THE BOX
ENTITLED "CONSENTS" WITH RESPECT TO THE AMENDMENT, WILL BE DEEMED TO HAVE AGREED
TO THE AMENDMENT.
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of and sent to someone other than the person
or persons whose signature(s) appear(s) on this Letter above.
Issue: New Notes and/or Old Notes to:
Name(s): .......................................................................
(Please Type or Print)
...............................................................................
(Please Type or Print)
Address: .......................................................................
...............................................................................
(Zip Code)
...............................................................................
(Complete Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box above entitled "Description of Old Notes."
Deliver: New Notes and/or Old Notes to:
Name(s):........................................................................
(Please Type or Print)
...............................................................................
(Please Type or Print)
Address:........................................................................
...............................................................................
(Zip Code)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OLD NOTES AND
ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
X Date: , 1996
------------------------------------------- ---
X Date: , 1996
------------------------------------------- ---
Signature(s) of Owner
Area Code and Telephone Number
--------------------------------
The above lines must be signed by the registered holder(s)
exactly as their name(s) appear(s) on the Old Notes, or by
person(s) authorized to become registered holder(s) by a properly
completed bond power from the registered holder(s), a copy of
which must be transmitted with this Letter. If Old Notes to which
this Letter relate are held of record by two or more joint
holders, then all such holders must sign this. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, then please set forth full title. See
Instruction 4.
Name(s): ______________________________________________________________
________________________________________________________________________
(Please Type or Print)
Capacity:
______________________________________________________________
Address: _______________________________________________________________
________________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 4)
Signatures Guaranteed
by an Eligible
Institution: _______________________________________________
(Authorized Signature)
________________________________________________________________________
(Title)
________________________________________________________________________
(Name of Firm)
________________________________________________________________________
(Address and Telephone Number)
Dated: ________________, 1996
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND OLD NOTES. This Letter is to be used to
forward, and must accompany, all certificates representing Old Notes tendered
pursuant to the Exchange Offer. Certificates representing the Old Notes in
proper form for transfer as well as a properly completed and duly executed copy
of this Letter (or facsimile thereof), a Substitute Form W-9 (or facsimile
thereof) and any other documents required by this Letter must be received by the
Exchange Agent at its address set forth herein on or before the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If such delivery is by mail, it is recommended that registered mail
properly insured, with return receipt requested, be used. In all cases,
sufficient time should be allowed to permit timely delivery.
2. GUARANTEED DELIVERY PROCEDURES. If a holder desires to tender Old Notes,
but time will not permit such holder's Letter of Transmittal, Old Notes or other
required documents to reach the Exchange Agent on or before the Expiration Date,
such holder's tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) on or before to the Expiration Date, the Exchange Agent has received
a letter or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from such Eligible
Institution setting forth the name and address of the holder of such Old
Notes, the name(s) in which the Old Notes are registered and the principal
amount of Old Notes tendered and stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange trading
days after the Expiration Date, the Old Notes, together with a duly executed
Letter of Transmittal and any other documents required by this Letter and
the Instructions hereto, will be deposited by such Eligible Institution with
the Exchange Agent; and
(c) this Letter, or a facsimile thereof, and Old Notes in proper form
for transfer and all other required documents are received by the Exchange
Agent within three business days after the Expiration Date.
3. WITHDRAWALS. Any holder who has tendered Old Notes may withdraw the
tender by delivering written notice of withdrawal (which may be sent by
facsimile) to the Exchange Agent at its address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must specify (i) the person named
in the Letter of Transmittal as having tendered the Old Notes to be withdrawn,
(ii) the certificate numbers of the Old Notes to be withdrawn, (iii) the
principal amount of Old Notes to be withdrawn, (iv) a statement that such holder
is withdrawing its election to have such Old Notes exchanged and (v) the name of
the registered holder of such Old Notes and must be signed by the holder in the
same manner as the original signature on the Letter of Transmittal (including
any required signature guarantees) by which such Old Notes were tendered, or be
accompanied by evidence satisfactory to the Company that the person withdrawing
the tender has succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Notes
promptly following receipt of notice of withdrawal. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determinations will be final and binding on
all parties.
4. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES. If this Letter is signed by the registered holder of the Old Notes
tendered herewith, the signature must correspond exactly with the name as
written on the face of the certificates without any alteration, enlargement or
change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter. If any tendered Old Notes are registered
in different names on several certificates, it
<PAGE>
will be necessary to complete, sign and submit as many separate copies of this
Letter as there are names in which tendered Old Notes are registered.
If this Letter is signed by the registered holder, and New Notes are to be
issued and any untendered or unaccepted principal amount of Old Notes are to be
reissued or returned to the registered holder, then the registered holder need
not and should not endorse any tendered Old Notes nor provide a separate bond
power. In any other case, the registered holder must either properly endorse the
Old Notes tendered or transmit a properly completed separate bond power with
this Letter (in either case, executed exactly as the name of the registered
holder appears on such Old Notes, with the signature on the endorsement or bond
power guaranteed by an Eligible Institution, unless such certificates or bond
powers are signed by an Eligible Institution.
If this Letter or any Old Notes or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and submit with this Letter evidence
satisfactory to the Company of their authority to so act.
The signatures on this Letter or a notice of withdrawal, as the case may be,
must be guaranteed unless the Old Notes surrendered for exchange pursuant
thereto are tendered (i) by a registered holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" in this Letter or (ii) for the account of an Eligible Institution.
In the event that the signatures in this Letter or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
commercial bank or trust company located or having an office or correspondent in
the United States, or by a member firm of a national securities exchange or the
National Association of Securities Dealers, Inc., or by a member of a signature
medallion program such as "STAMP" (any of the foregoing being referred to herein
as an "Eligible Institution"). If Old Notes are registered in the name of a
person other than the signer of this Letter, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old
Notes should indicate in the applicable box the name and address or account at
DTC in which New Notes issued pursuant to the Exchange Offer and/or substitute
Old Notes for principal amounts not tendered or not accepted for exchange are to
be issued, sent or deposited if different from the name and address or account
of the person signing this Letter. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated, and the tendering holder should complete the applicable
box. If no such instructions are given, any New Notes will be issued in the name
of, and delivered to, the name or address of the person signing this Letter, and
any Old Notes not accepted for exchange will be returned to the name or address
of the person signing this Letter.
6. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
federal income tax laws, payments that may be made by the Company on account of
New Notes issued pursuant to the Exchange Offer may be subject to backup
withholding at the rate of 31%. In order to avoid such backup withholding, each
tendering holder should complete and sign the Substitute Form W-9 included in
this Letter and either (a) provide the correct taxpayer identification number
("TIN") and certify, under penalties of perjury, that the TIN provided is
correct and that (i) the holder has not been notified by the Internal Revenue
Service (the "IRS") that the holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii) the IRS has notified the
holder that the holder is no longer subject to backup withholding; or (b)
provide an adequate basis for exemption. If the tendering holder has not been
issued a TIN and has applied for one, or intends to apply for one in the near
future, such holder should write "Applied For" in the space provided for the TIN
in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and
sign the Certificate of Payee Awaiting Taxpayer Identification Number. If
"Applied For" is written in Part I, the Company (or the Paying Agent under the
Indenture governing the New Notes) will retain 31% of payments made to the
tendering holder during the 60-day period following the date of the Substitute
Form W-9. If the holder furnishes the
<PAGE>
Exchange Agent or the Company with its TIN within 60 days after the date of the
Substitute Form W-9, the Company (or the Paying Agent) will remit such amounts
retained during the 60-day period to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent or the Company with its TIN
within such 60-day period, the Company (or the Paying Agent) will remit such
previously retained amounts to the IRS as backup withholding. In general, if a
holder is an individual, the taxpayer identification number is the Social
Security Number of such individual. If the Exchange Agent or the Company is not
provided with the correct taxpayer identification number, the holder may be
subject to a $50 penalty imposed by the IRS. Certain holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, such holder must submit a
statement (generally, IRS Form W-8), signed under penalties of perjury,
attesting to that individual's exempt status. Such statements can be obtained
from the Exchange Agent. For further information concerning backup withholding
and instructions for completing the Substitute Form W-9 (including how to obtain
a taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Old Notes are registered in more than one name), consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute From W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the New Notes. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered herewith, or
if tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
in whole or in part, any of the conditions to the Exchange Offer set forth in
the Prospectus.
9. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders of Old Notes or transmittals of this Letter will be accepted.
All tendering holders of Old Notes, by execution of this Letter, shall waive any
right to receive notice of the acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of defects or irregularities in any tender, nor shall any of them
incur any liability for failure to give any such notice.
10. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of Old Notes being tendered and the certificate
number or numbers (if applicable) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign this
Letter.
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. If any certificate has
been lost, mutilated, destroyed or stolen, the holder should promptly notify The
Bank of New York at 101 Barclay Street (7 East), New York, New York 10286,
telephone (212) 815-2742. The holder will then be instructed as
<PAGE>
to the steps that must be taken to replace the certificate. This Letter and
related documents cannot be processed until the Old Notes have been replaced.
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter may be directed to the Exchange Agent at the address
and telephone number indicated above.
13. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of tendered Old Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any and all Old
Notes not validly tendered or any Old Notes, the Company's acceptance of which
would, in the opinion of the Company, be unlawful. The Company also reserves the
right to waive any conditions of the Exchange offer or defects or irregularities
in tenders of Old Notes as to any ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer. The interpretation of the terms and
conditions of the Exchange offer (including this Letter and the Instructions
hereto) by the Company shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. The Company will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of Old Notes, but shall not incur any liability for failure
to give such notification.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN OF
OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue New Notes therefor as soon
as practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted tendered Old Notes when, as and if the Company has
given written and oral notice thereof to the Exchange Agent. If any tendered Old
Notes are not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged Old Notes will be returned, without expense, to the name and address
shown above or at a different address as may be indicated under "Special
Delivery Instructions."
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 6)
PAYOR'S NAME: BRISTOL HOTEL COMPANY
<TABLE><CAPTION>
SUBSTITUTE PART I--TAXPAYER INDENTIFICATION
FORM W-9 NUMBER
<S> <C> <C>
Department of the Treasury Enter your taxpayer identifica- ____________________________
Internal Revenue Service tion number in the appropriate Social Security Number
box. For most individuals, this
Payor's Request for Taxpayer is your social security number. OR
Identification Number (TIN) If you do not have a number, see ____________________________
Certification how to obtain a "TIN" in the and Employer idenification Number
enclosed Guidelines.
NOTE: If the account is in more
than one name, see the chart on
page 2 of the enclosed
lines to determine what number
to give.
PART II-- FOR PAYEES EXEMPT FROM BACKUP
WITHHOLDING (SEE ENCLOSED GUIDELINES)
CERTIFICATION--UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT:
(1) the number shown on this form is my
correct Taxpayer Identification Number (or
I am waiting for a number to be issued to
me), and
(2) I am not subject to backup withholding
either because I have not been notified by
the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as
a result of a failure to report all
interest or dividends or the IRS has
notified me that I am no longer subject to
backup withholding.
SIGNATURE_______________________ DATE___________________
</TABLE>
Certificate Guidelines--You must cross out Item (2) of the above
certification if you have been notified by the IRS that you are subject to
backup withholding because of underreporting of interest or dividends on
your tax return. However, if after being notified by the IRS that you were
subject to backup withholding, you received another notification from the
IRS that you are no longer subject to backup withholding, do not cross out
Item (2).
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification Number
has not been issued to me and that I mailed or delivered an application to
receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payor, 31% of all payments made
to me on account of the New Notes shall be retained until I provide a Taxpayer
Identification Number to the payor and that, if I do not provide my Taxpayer
Identification Number within 60 days, such retained amounts shall be remitted to
the Internal Revenue Service as a backup withholding and 31% of all reportable
payments made to me thereafter will be withheld and remitted to the Internal
Revenue Service until I provide a Taxpayer Identification Number.
SIGNATURE________________________________________________________ DATE_________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW NOTES.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
11.22% SENIOR SECURED NOTES
DUE 2000
IN EXCHANGE FOR
11.22% SENIOR SECURED NOTES DUE 2000
OF
BRISTOL HOTEL COMPANY
Registered holders of outstanding 11.22% Senior Secured Notes due 2000 of
Bristol Hotel Company (the "Old Notes") who wish to tender their Old Notes in
exchange for an equal principal amount of 11.22% Senior Secured Notes due 2000
of Bristol Hotel Company that have been registered under the Securities Act of
1933, as amended (the "New Notes") and who cannot deliver their Old Notes and a
Letter of Transmittal (and any other documents required by the Letter of
Transmittal) to The Bank of New York (the "Exchange Agent") prior to the
Expiration Date may use this Notice of Guaranteed Delivery or one substantially
equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand
or sent by facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight delivery) or mailed to the Exchange
Agent. See "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus. Capitalized terms not defined herein have the meanings ascribed to
them in the Prospectus.
The Exchange Agent for the Exchange Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmission Number: By Hand/Overnight Delivery:
(212) 571-3080
101 Barclay Street--7E (For Eligible Institutions Only) 101 Barclay Street
New York, New York Confirm by Telephone: Corporate Trust Services Window
Attn: Reorganization Section (212) 815-2742 Ground Level
New York, New York 10286
Attn: Reorganization Section
</TABLE>
For Information Call:
(212) 815-6333
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus and the
Letter of Transmittal), such signature guarantee must appear in the applicable
space provided on the Letter of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions contained in the Prospectus dated June 21, 1996 of Bristol Hotel
Company and the related Letter of Transmittal, receipt of which is hereby
acknowledged, the principal amount of Old Notes indicated below pursuant to the
guaranteed delivery procedures set forth in the Prospectus and in Instruction 2
of the Letter of Transmittal.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
Name and address of
registered holder as
it appears on the Old Certificate Aggregate Principal
Notes Number(s) of Amount Represented Principal Amount of
(Please print) Old Notes Tendered by Old Notes Old Notes Tendered
<S> <C> <C> <C>
- -------------------- ------------------- -------------------- --------------------
- -------------------- ------------------- -------------------- --------------------
- -------------------- ------------------- -------------------- --------------------
- -------------------- ------------------- -------------------- --------------------
- -------------------- ------------------- -------------------- --------------------
- -------------------- ------------------- -------------------- --------------------
</TABLE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _____________________________________________ Date: _________________, 1996
X _____________________________________________ Date: _________________, 1996
Signature(s) of Owner or Authorized Signatory
Area Code and Telephone Number:____________________________
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s)
on certificates for Old Notes, or by person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below.
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PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Capacity: ____________________________________________________________________
Address(es):__________________________________________________________________
____________________________________________________________________________
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or is a
commercial bank or trust company having an office, branch, agency or
correspondent in the United States, hereby guarantees to deliver to the Exchange
Agent at its address set forth above the certificates representing the Old Notes
tendered hereby in proper form for transfer, together with a properly completed
and duly executed Letter of Transmittal and any other required documents, all by
5:00 p.m., New York City time, on the third New York Stock Exchange trading day
following the Expiration Date.
Name of Firm: _____________________ ___________________________________________
(Authorized Signature)
Address: __________________________ Title: ____________________________________
___________________________________ Name: _____________________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date: _____________________________________
___________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD NOTES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
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