<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10/A
(AMENDMENT NO. 3)
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
BRISTOL HOTELS & RESORTS, INC.
14295 MIDWAY ROAD
DALLAS, TEXAS 75244
ATTENTION: JOEL M. EASTMAN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
TELEPHONE: (972) 391-3910
(Exact name, address and telephone number of Registrant)
INCORPORATED IN DELAWARE IRS EMPLOYER ID. NO.: 75-2754805
---------------------
Copies to:
JONES, DAY, REAVIS & POGUE
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
ATTENTION: ROBERT A. PROFUSEK, ESQ.
TELEPHONE: (212) 326-3939
---------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH CLASS
TO BE SO REGISTERED IS TO BE SO REGISTERED
------------------- ----------------------
<S> <C>
Common Stock, par New York Stock Exchange
value $0.01 per share
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
================================================================================
<PAGE> 2
INFORMATION INCLUDED IN INFORMATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION
STATEMENT AND ITEMS ON FORM 10
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
1 Business................................... "Questions and Answers about the Spin-Off
and the Company," "Summary -- Business and
Strategy of the Company," "-- Agreements
with FelCor," "-- Management" and
"-- Recent Acquisitions," "Risks Factors,"
"The Spin-Off -- Background of the
Spin-Off" and "-- The Spin-Off," "Business"
and "Management's Discussion and Analysis
of Results of Operations"
2 Financial Information...................... "Summary -- Summary Historical and
Unaudited Pro Forma Financial Data," "Pro
Forma Financial Data," "Selected Historical
and Unaudited Pro Forma Financial Data" and
"Index to Financial Information"
3 Properties................................. "Summary -- Recent Acquisitions" and
"Business -- Company Properties"
4 Security Ownership of Certain Beneficial
Owners and Management...................... "Security Ownership of Certain Beneficial
Owners and Management"
5 Directors and Executive Officers........... "Summary -- Management" and
"Management -- Directors and Executive
Officers"
6 Executive Compensation..................... "Management -- Compensation Plans and
Arrangements"
7 Certain Relationships and Related
Transactions............................... "Summary -- Redemption of a Portion of Bass
Shares," and "-- Agreements with FelCor,"
"Risk Factors -- Conflicts of Interest,"
"Business -- FelCor Leases" and
"Management -- Certain Relationships and
Related Party Transactions"
8 Legal Proceedings.......................... "Business -- Legal Proceedings"
9 Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ "Questions and Answers about the Spin-Off
and the Company," "Risk Factors -- Absence
of Prior Trading Market for Company Shares;
Potential Volatility," and
"-- Anti-Takeover Provisions,"
"Management -- Certain Relationships and
Related Party Transactions -- Preemptive
Rights" and "Description of Capital Stock"
10 Recent Sales of Unregistered Securities.... Not applicable
11 Description of Registrant's Securities to
be Registered.............................. "Questions and Answers about the Spin-Off
and the Company" and "Description of
Capital Stock"
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------------ ---------------------------------
<C> <S> <C>
12 Indemnification of Directors and
Officers................................... "Description of Capital Stock -- Additional
Corporate Governance and Takeover-Related
Matters -- Indemnification of Officers and
Directors"
13 Financial Statements and Supplementary
Data....................................... "Index to Financial Information"
14 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. Not applicable
</TABLE>
ii
<PAGE> 4
INFORMATION STATEMENT
RELATING TO THE SPIN-OFF
OF
BRISTOL HOTELS & RESORTS, INC.
We are sending you this document to describe the proposed spin-off of
Bristol Hotels & Resorts, Inc. from our parent company, Bristol Hotel Company,
and the business and financial condition of Bristol Hotels & Resorts, Inc.
following this transaction. In the spin-off, you will receive one common share
of Bristol Hotels & Resorts, Inc. for every two Bristol common shares you own at
the time the spin-off occurs.
Bristol is doing the spin-off in connection with its proposed merger with
FelCor Suite Hotels, Inc. Prior to the spin-off, Bristol will separate its hotel
operating business from the hotel properties that will be acquired by FelCor in
the merger. The Company will be one of the leading independent hotel operating
companies in the U.S., and FelCor will be the largest non-paired share lodging
REIT measured by market capitalization. Although FelCor and the Company will be
separately owned and managed, they expect to continue to work closely together
in the acquisition and leasing of hotels.
The spin-off will not occur if Bristol and FelCor stockholders do not
approve the merger and the other conditions to the merger are not met. FelCor
and Bristol have described the merger transactions in detail in the proxy
statement/prospectus that accompanies this information statement. You should
read that document and this information statement carefully, in particular, the
section captioned "Risk Factors" in the enclosed document which begins on page 9
of the information statement.
If the merger and spin-off occur, you will receive Company shares
automatically, without taking any further action. We have received approval to
list the common stock of the Company for trading on the New York Stock Exchange
upon notification of their distribution.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED IF THIS DOCUMENT IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We first mailed this Information Statement to Bristol stockholders on or
about June 19, 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF AND THE COMPANY.... 3
SUMMARY..................................................... 5
RISK FACTORS................................................ 9
Lack of Control over Hotel Properties..................... 9
Expiration or Termination of Third Party Management
Contracts.............................................. 9
Conflicts of Interest..................................... 9
Fixed Obligations under the Leases and Debt............... 10
Matters that Could Adversely Affect the Hotel Industry.... 10
Absence of Prior Trading Market for Company Shares;
Potential Volatility................................... 11
Leverage and Limited Financial Resources.................. 12
Substantial Reliance on Key Personnel..................... 12
Anti-Takeover Provisions.................................. 12
THE SPIN-OFF................................................ 13
Background of the Spin-Off................................ 13
The Spin-Off.............................................. 13
Distribution Agent........................................ 14
Federal Income Tax Consequences of the Spin-Off........... 14
BUSINESS.................................................... 15
Business and Strategy..................................... 15
Liquidity and Capital Resources........................... 16
Employees................................................. 16
Company Properties........................................ 17
Year 2000 Compliance...................................... 20
FelCor Leases............................................. 21
Government Regulation..................................... 22
Environmental Matters..................................... 23
Legal Proceedings......................................... 23
PRO FORMA FINANCIAL DATA.................................... 24
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL
DATA...................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS................................................ 33
Overview.................................................. 33
Results of Operations -- Three Months Ended March 31, 1998
Compared with Three Months Ended March 31, 1997........ 33
Results of Operations -- Year Ended December 31, 1997
Compared with Year Ended December 31, 1996............. 34
Results of Operations -- Year Ended December 31, 1996
Compared with Pro Forma Year Ended December 31, 1995... 36
Liquidity and Capital Resources........................... 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 38
MANAGEMENT.................................................. 39
Directors and Executive Officers.......................... 39
Compensation Plans and Arrangements....................... 40
Certain Relationships and Related Party Transactions...... 43
DESCRIPTION OF CAPITAL STOCK................................ 44
Capital Stock............................................. 44
Stock Exchange Listing.................................... 45
Shares Available for Resale............................... 45
Dividends................................................. 46
Additional Corporate Governance and Takeover-Related
Matters................................................ 46
WHERE YOU CAN FIND MORE INFORMATION......................... 47
FORWARD-LOOKING STATEMENTS.................................. 48
INDEX TO FINANCIAL INFORMATION.............................. F-1
</TABLE>
2
<PAGE> 6
QUESTIONS AND ANSWERS
ABOUT THE SPIN-OFF AND THE COMPANY
References to "we," "us," or the "Company" mean Bristol Hotels & Resorts,
Inc. and its subsidiaries after the spin-off, and references to "Bristol" mean
Bristol Hotel Company and its subsidiaries, which will be merged into FelCor
Suite Hotels, Inc. when Bristol's proposed merger with FelCor is completed.
Q: WHAT WILL HAPPEN IN THE SPIN-OFF?
A: In the spin-off, Bristol Hotel Company will separate its hotel operating
business from its hotel properties to create a separate publicly traded
hotel operating company. At the time of the spin-off, Bristol Hotels &
Resorts, Inc. will change its name to Bristol Hotels & Resorts.
Q: WHY WILL BRISTOL SPIN OFF ITS HOTEL OPERATING BUSINESS?
A: The spin-off is a condition to the proposed merger of Bristol and FelCor.
The spin-off will permit you to continue to own an equity stake in
Bristol's hotel operating business, which FelCor is not permitted to own
under the special limitations that apply to REITs.
Q: WHAT DO I GET IN THE SPIN-OFF?
A: You will receive one Company share for every two Bristol shares you own
when the spin-off occurs. We will not issue any fractional shares. Instead,
you will receive cash based on the market value of any fractional shares.
EXAMPLE: If you own 75 Bristol shares, then after the spin-off you will
receive 37 Company shares and a check for the market value of the
.50 fractional share.
In the FelCor-Bristol merger, you will receive 0.685 FelCor shares for each
Bristol share you own. In addition, all persons who hold FelCor shares on
the expected December 1998 record date will participate in a special
distribution of Bristol's current and accumulated earnings and profits as
of the merger date. The merger consideration is described in detail in the
accompanying proxy materials.
Q: WHEN WILL THE SPIN-OFF OCCUR?
A: If the stockholder approval and other conditions to the merger are
satisfied, the spin-off will occur on the business day before the merger.
We expect that the spin-off will occur promptly after Bristol's and
FelCor's stockholders approve the merger. If the merger is not approved or
is terminated, the spin-off will not occur.
Q: WHAT ARE MY SPIN-OFF SHARES WORTH?
A:
The Bristol board believed the value of the Company shares would be between
$5.00 and $7.00 each (or between $2.50 and $3.50 per Bristol share before
giving effect to the one-for-two distribution ratio). However, the actual
trading value of the Company shares may be higher or lower than the range
of estimated values and will depend on many factors. For purposes of its
evaluation of the fairness of the merger exchange ratio and the tax
consequences to Bristol stockholders of the distribution to them of the
Company shares, the Bristol board assigned the Company shares an estimated
value of $6.38, after giving effect to the spin-off at the distribution
ratio of one Company share for each two Bristol common shares. This equates
to a distribution in the spin-off of $3.19 in estimated value of spin-off
Company shares for each Bristol common share.
Until an orderly trading market develops, the market price for our stock
may fluctuate significantly. Please obtain current market quotations prior
to deciding whether to purchase or sell Company shares.
Q: DO I HAVE TO PAY TAXES ON THE SHARES I RECEIVE IN THE SPIN-OFF?
A: Yes. The spin-off will be treated as a dividend and the fair market value
of the shares you receive in the spin-off will be taxed to you as ordinary
income. The amount of that dividend is based on various factors. While the
Company has assigned an estimated value of $6.38 per share, the Company
believes the actual value of the spin-off dividend could be between $5.00
and $7.00 per spin-off Company share
3
<PAGE> 7
(or $2.50 to $3.50 per Bristol share giving effect to the one-for-two
spin-off distribution ratio). The final value of the spin-off dividend
cannot be determined until after the dividend is completed. We will make a
public announcement of the amount of the dividend promptly after it is
determined and will furnish you the required IRS information as promptly as
practicable. To review the tax consequences to you in more detail, see page
14.
Q: WHAT DO I HAVE TO DO TO PARTICIPATE IN THE SPIN-OFF?
A: Stockholder approval is not required for the spin-off to occur. However,
Bristol is asking you to vote to adopt the merger agreement with FelCor.
Unless the conditions to the merger are satisfied, the spin-off will not
occur. Instructions for voting your proxy in the merger are described in
the joint proxy statement/prospectus that accompanies this document.
Q: WHEN WILL I RECEIVE MY COMPANY SHARES?
A: If the spin-off occurs, Bristol will deliver the shares to which you are
entitled as quickly as possible following the spin-off. Your shares will be
either credited electronically to your brokerage account or Bristol will
mail a stock certificate to you.
Q: WHEN WILL I BE ABLE TO BUY AND SELL COMPANY SHARES?
A: You may buy and sell Company shares once the spin-off occurs. In addition,
we believe that it is likely that the Company shares will be traded on a
"when-issued" basis beginning about the time stockholders approve the
merger. While we do not control this, if when-issued trading begins, you
will in effect be entitled to sell your right to receive Company shares.
You would then have to deliver the Company shares to your broker promptly
after you receive them. You should consult your broker or financial advisor
before you attempt to sell your Company shares.
Q: WHERE WILL THE COMPANY SHARES TRADE?
A: We have received approval to list the Company shares on the New York Stock
Exchange upon notification of their distribution.
Q: WILL THE COMPANY PAY DIVIDENDS ON ITS SHARES?
A: The Company does not currently intend to pay any cash dividends, but rather
intends to reinvest available cash in its business.
Q: WILL THE COMPANY SHARES BE CLIPPED OR PAIRED TO FELCOR STOCK LIKE A NUMBER
OF OTHER REITS AND RELATED OPERATING COMPANIES?
A: Company and FelCor shares will trade separately and will not be traded
together (like "paired" shares) or permitted so to trade (like "clipped
shares"). Furthermore, the Company's business is not expected to be limited
to primarily operating hotels owned by FelCor, although at least initially
we will substantially be doing so.
Q: WHAT WILL BE THE RELATIONSHIP BETWEEN THE COMPANY AND FELCOR AFTER THE
MERGER?
A: FelCor will lease to the Company all of the Bristol hotels acquired in the
merger pursuant to leases having initial terms of five to ten years, with
renewal options on the same terms for a total of 15 years, with an
additional option for five years at then-current market terms. After the
merger, the two companies intend to work together in the acquisition and
leasing of hotels, but neither party will be contractually obligated to do
so.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have questions about the spin-off or if you would like additional
copies of this document or any document referred to, you should contact Ed
Nolan, Vice President of Corporate Finance, at Bristol at (972) 391-3231 or
by e-mail to "[email protected]".
4
<PAGE> 8
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
description of the legal terms of these transactions, you should read this
entire information statement and the joint proxy statement/prospectus
accompanying this information statement, as well as the additional documents we
refer to under the heading "Where You Can Find More Information."
THE SPIN-OFF
Bristol will distribute one Company share for every two Bristol shares you
own at the time the spin-off occurs. We expect the distribution to occur
promptly following Bristol's and FelCor's annual meetings of stockholders to
approve the merger of Bristol and FelCor. There are, however, other customary
conditions to the merger that need to be satisfied. As a result, the effective
time of the spin-off and the merger could be delayed.
REDEMPTION OF A PORTION OF BASS SHARES
Companies affiliated with Bass plc presently own approximately 31% of
Bristol's shares and will participate proportionately in the spin-off. Following
the merger and the spin-off, and based on the present ownership by the Bass
companies of Bristol, the Bass companies would own approximately 13% of FelCor
and 31% of the Company. The REIT rules prevent FelCor from leasing hotels to the
Company if the Bass companies own 10% or more of both FelCor's and the Company's
shares. To assure compliance with these REIT requirements FelCor required that
we agree to purchase, immediately after the spin-off, all of the Company shares
held by the Bass companies that exceed the 9.9% limitation. The purchase price
for these shares totals $25.8 million (or $4.86 per Company share). Because the
redemption of these shares is being funded from cash contributed by Bristol
pursuant to the spin-off agreement for this purpose, such redemption will not
result in a reduction in the Company's value. The estimated value of the Company
shares outstanding after the redemption ($5.00 to $7.00 per share) reflects the
increase in per share value as a result of the reduction in the number of
Company shares outstanding after such redemption.
CONDITIONS TO THE SPIN-OFF
The spin-off is subject to the satisfaction or waiver of the same
conditions as the merger. Accordingly, the spin-off will not occur if the merger
does not occur. Please read the joint proxy statement/prospectus that
accompanies this document for a more complete description of the merger.
BUSINESS AND STRATEGY OF THE COMPANY
After the spin-off, we will own Bristol's hotel operating business and
Bristol's employees and management will generally become our employees and
management. We will operate 124 primarily full-service hotels in the upscale and
midscale segments of the hotel market, of which 111 will be operated under
long-term leases. We will remain the franchisee of the largest number of Holiday
Hospitality branded hotels including Crowne Plaza(R), Holiday Inn(R), Holiday
Inn Select(R) and Holiday Inn Express(R) hotels. We will also operate 28 hotels
under other hotel brands, including Hampton Inn(R), Homewood Suites(R),
Courtyard by Marriott(R) and Fairfield Inn(R).
With FelCor's and the Company's substantial experience in the upscale and
midscale segments of the lodging industry, the two companies expect to work
together after the spin-off in the acquisition and leasing of additional hotels.
Both companies believe that there remain attractive opportunities for the
ownership and operation of hotels in this industry segment, especially utilizing
the Holiday Hospitality brand names. We expect to combine our reputation as one
of the premier operators of Crowne Plaza and Holiday Inn hotels and our
redevelopment skills with FelCor's acquisition skills, access to capital and
rapid growth strategy to pursue new opportunities. There is no contractual
obligation to jointly pursue these opportunities. However, we believe that our
position after the merger as the largest tenant-operator of FelCor-owned hotels,
coupled with the potential economic benefits and the alignment of interests
created by the significant common stock
5
<PAGE> 9
ownership in the two companies by Bristol's former stockholders and the FelCor
stock options held by the Company's management, will create an environment in
which we will do so.
We also intend to develop relationships with other property owners,
including other REITs, institutional investors and private investors, to lease
or manage their hotels. However, at the date of this document, we have not
entered into any material agreements or arrangements with other hotel owners. We
are considering ways in which we may offer various real estate
management-related services, including construction management, procurement and
marketing/advertising services, to FelCor and other hotel owners and
managers/operators.
At the spin-off, substantially all of Bristol's employees are expected to
become employees of the Company.
The principal office of the Company will be located at 14295 Midway Road,
Dallas, Texas 75244.
AGREEMENTS WITH FELCOR
After the spin-off and the merger, we will become one of FelCor's two major
tenants and will lease and operate all of the hotels FelCor acquires from
Bristol in the merger. The leases are for initial terms of five to ten years,
with optional renewals on the same terms that we may exercise for a total,
including the initial terms, of 15 years. If a lease has been extended to 15
years, we may renew the lease for an additional five years at then current
market rates. Each lease will provide for a monthly rent equal to the greater of
base rent or percentage rent. The percentage rent will be based on specified
percentages of certain revenue streams. Those percentages will vary within the
following ranges:
<TABLE>
<S> <C>
Room Revenues: 0% to 10% up to a revenue breakpoint amount
specified for each hotel, then 60% to 75%
above such breakpoint.
Food and Beverage Revenues: 5% to 25%.
Phone Revenues: 5% to 10%.
Other Revenues: Varying percentages depending on the nature
and source of such revenues.
</TABLE>
The base rent and the revenue breakpoint in each lease will be adjusted
annually to reflect changes in the Consumer Price Index.
As between FelCor and us, we will be responsible for the liabilities
associated with Bristol's management and leasing business and FelCor will assume
all of Bristol's other liabilities, including all of Bristol's existing
indebtedness other than trade accounts payable.
MANAGEMENT
There initially will be eight persons on our board of directors, five of
whom are currently Bristol directors. J. Peter Kline, Bristol's current
President and Chief Executive Officer, is our Chairman of the Board and Chief
Executive Officer, and John A. Beckert, Bristol's current Chief Operating
Officer, is our President and Chief Operating Officer.
RECENT ACQUISITIONS
On April 30, 1998, Bristol acquired 20 hotels with a total of 3,456 rooms
located in the midwest. Since March 31, 1998, Bristol has also acquired the
187-room Sheraton Four Points Hotel in Leominister, Massachusetts, entered into
a third-party management agreement for the operation of the Meadowlands Hilton
in Secaucus, New Jersey with 301 rooms, and leased the Hampton Inn -- Las Vegas,
which has 128 rooms. After the spin-off, the Company will operate these 23
hotels pursuant to leases.
6
<PAGE> 10
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the spin-off. The following tables set
forth summary historical financial data for Bristol for the three months ended
March 31, 1998 and 1997 and, the years ended December 31, 1997 and 1996, and the
11 months ended December 31, 1995 and for Bristol's predecessor entities for the
two years ended December 31, 1994 and 1993, and for the month ended January 31,
1995. The summary balance sheet data for Bristol is presented as of March 31,
1998 and December 31, 1997, 1996 and 1995. The summary balance sheet data for
the predecessor entities is presented as of December 31, 1994 and 1993.
The summary financial data for Bristol set forth below is qualified in its
entirety by, and should be read in conjunction with, the consolidated financial
statements and notes thereto for Bristol included elsewhere in this information
statement.
The 1996 and 1997 summary financial data for Bristol has been derived from
financial statements audited by Arthur Andersen LLP and the remainder of the
summary financial data for Bristol (other than the quarterly data, which are not
audited) and the predecessor entities has been derived from financial statements
audited by Price Waterhouse LLP, independent accountants, each of which
financial statements is included elsewhere in this information statement. The
summary financial data for the predecessor entities set forth below is qualified
in its entirety by, and should be read in conjunction with, the financial
statements included elsewhere in this information statement.
The pro forma information assumes completion of the merger, the spin-off,
the Omaha acquisition and the purchase of a portion of the Bass companies'
shares as of January 1, 1997 in the case of the Income Statement Data, and on
March 31, 1998 in the case of the Balance Sheet Data. The information is only in
summary form and you should read it in conjunction with the historical financial
data and more detailed pro forma financial information appearing elsewhere in
this document. The pro forma financial data are not necessarily indicative of
the results that actually would have occurred had the merger, the spin-off, the
Omaha acquisition and the Bass purchase been consummated on the dates indicated
or that may occur in the future.
7
<PAGE> 11
SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
FOR THE
THREE
MONTHS FOR THE
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA
Total revenues............................................ $170,410 $672,295
Operating income.......................................... 2,747 13,746
Tenant lease expense...................................... 51,754 202,501
Income before extraordinary items......................... 1,525 7,769
Diluted earnings per common share:
Income before extraordinary items....................... 0.09 0.48
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................. $15,000
Working capital........................................... 16,934
Total assets.............................................. 95,383
Long-term debt, including current portion................. 193
Total equity.............................................. 30,000
</TABLE>
<TABLE>
<CAPTION>
BRISTOL PREDECESSOR
----------------------------------------------------------------- ---------------------------------
THREE MONTHS ENDED YEAR ENDED ELEVEN MONTHS ONE MONTH YEAR ENDED
MARCH 31, DECEMBER 31, ENDED ENDED DECEMBER 31,
------------------------- --------------------- DECEMBER 31, JANUARY 31, -------------------
1998 1997 1997 1996 1995 1995 1994 1993
----------- ----------- ---------- -------- ------------- ----------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues....... $158,802 $58,261 $ 504,518 $211,840 $165,195 $5,943 $ 70,351 $ 64,022
Operating income..... 30,897 13,301 97,896 46,766 26,595 1,932 15,438 12,792
Tenant lease
expense............ -- -- -- -- -- -- -- --
Income before
extraordinary
items.............. 11,362 4,410 33,214 17,749 4,969 1,280 8,144 5,296
Earnings per common and
common equivalent
share:
Income before
extraordinary
items:
Basic.............. $ 0.26 $ 0.18 $ 0.89 $ 0.71 $ 0.28
Diluted............ $ 0.26 $ 0.17 $ 0.87 $ 0.70 $ 0.28
Weighted average number
of common and common
equivalent shares
outstanding:
Basic.............. 43,719 24,849 37,359 24,849 17,858
Diluted............ 44,535 25,797 38,332 25,526 17,909
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- ---------- -------- ------------ -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............ $ 79,649 $ 86,167 $ 4,666 $ 7,906 $ 4,118 $ 395
Working capital...................... 57,137 71,308 (20,779) (8,426) 3,246 (17,412)
Total assets......................... 1,693,167 1,666,638 592,788 512,901 109,874 99,635
Long-term debt, including current
portion............................ 714,890 717,319 232,694 170,544 114,054 112,963
Total equity......................... 661,873 648,794 252,157 236,122 (11,988) (20,604)
</TABLE>
8
<PAGE> 12
RISK FACTORS
You should carefully read and evaluate all of the information in this
document, including the risk factors listed below.
LACK OF CONTROL OVER HOTEL PROPERTIES
Following the spin-off, we will no longer own or control all matters with
respect to the hotels we lease. Our rights over the hotels we lease will be
limited to those specified in the leases with FelCor. Under the FelCor leases,
FelCor will have the right to approve and control certain key decisions relating
to each hotel, including the right to approve annual capital budgets, to sell
the hotels, to place additional debt on the hotels and to make decisions
regarding the franchise agreements for the hotels. This creates additional risks
to you if there is a dispute between us, as tenant, and FelCor, as owner of the
hotels, or if FelCor takes certain actions that are not in your best interests.
For example, FelCor could decide to delay or not make certain capital
improvements to hotels that we think appropriate, including the 51-hotel
redevelopment and rebranding program Bristol initiated toward the end of last
year. FelCor has informed us that it intends to complete this redevelopment
program, but we cannot assure you that it will do so. Moreover, many details of
the program must be agreed to by FelCor and FelCor could request changes to the
program that we may not necessarily support. Any changes to the redevelopment
program could adversely affect the leased hotels and our results of operations.
Our results of operations could also be adversely affected if FelCor
decided to sell one or more of the hotels and terminate our lease. We will not
be entitled to any damages if FelCor sells the following hotels and terminates
our leases without our consent: Days Inn -- Flagstaff, Holiday Inn
Express -- Colorado Springs Central, Ramada Inn -- Colorado Springs North,
Holiday Inn -- Orlando North/Winter Park, Holiday Inn Express -- Atlanta I-20
East, Holiday Inn Express -- Atlanta Northeast, Holiday Inn -- Spartanburg West,
and Holiday Inn -- Chattanooga Southeast I-75. If FelCor sells one of the other
hotels it acquires in the merger (other than Leominster) and terminates our
lease without our consent, our damages would be limited to monthly termination
payments during the remainder of the lease term equal to one-twelfth of 75% of
the average monthly profit and allocable overhead contribution associated with
operating the hotel for the 12 months ending on the termination date. If FelCor
sells any other hotel we lease from them and terminates our lease without our
consent, our damages would be limited to monthly termination payments during the
remainder of the lease term equal to one-twelfth of the average monthly profit
and allocable overhead contribution associated with operating the hotel for the
12 months ending on the termination date.
The leases are terminable by FelCor in certain events, including, among
others, if we breach the leases, if we fail to satisfy certain performance
tests, if the hotels are sold to a third party, if there is a change of control
of the Company without our Board's consent or if a lender forecloses on the
hotel. Certain of these events are beyond our control and, depending on the
circumstances, we may not be entitled to termination payments if the leases are
terminated. See "-- Conflicts of Interest."
EXPIRATION OR TERMINATION OF THIRD PARTY MANAGEMENT CONTRACTS
Many of the third party management agreements allow the third party owner
to terminate the contract at any time, including if the property is sold. The
Company has been advised by certain owners of their intention to sell their
properties within the next 12 months. If a property is sold, the related
management contract would likely be terminated. In addition, each of those
contracts will expire by the end of 1998 unless renewed or extended. Management
fee income for these six contracts for the pro forma 12 months ended December
31, 1997, was $2.5 million. Amortization expense related to those six contracts
was $0.8 million for the same period.
CONFLICTS OF INTEREST
All of the Bristol hotels to be acquired by FelCor in the merger will be
leased back to the Company. It is not anticipated that any person who is an
officer or director of the Company will at the same time be an officer
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<PAGE> 13
or director of FelCor. However, Donald J. McNamara, who is currently the
Chairman of the Board of Bristol, will become the Chairman of the Board of
FelCor following the merger. Mr. McNamara is a principal in a firm that, after
the spin-off and merger, will beneficially own 40% of the Company's shares and
that will be the general partner of two partnerships that will beneficially own
13% of FelCor's common shares. Richard North, who will join FelCor's Board upon
completion of the merger, is an affiliate of Bass plc, whose subsidiary, Holiday
Hospitality Franchising, Inc., will be the franchisor of most of the hotels we
will lease from FelCor and whose other subsidiaries will be the beneficial
owners of 9.9% of the Company shares and 13% of FelCor's common shares after the
spin-off and the merger. Each of these two stockholders will have the right to
nominate one director of the Company and, at the time of the merger, to nominate
two directors to serve on the FelCor Board. In addition, Messrs. Kline and
Beckert, our CEO and COO, will receive in the FelCor-Bristol merger a
substantial amount of FelCor stock and will have options to purchase FelCor
stock.
Issues may arise under our leases, franchise agreements and other
agreements, and in the allocation of acquisition and leasing opportunities,
which would present conflicts of interest due to the affiliations of these
directors and executives. For example, any increase in lease rental rates
payable by the Company may increase FelCor's profits at the expense of the
Company. Increases in franchise fees charged by Holiday Hospitality would
increase the revenues of the Bass companies at the expense of the Company. It is
anticipated that a director will abstain from voting upon issues to which he has
a conflict of interest, although directors will have no legal obligation to do
so. The Company's bylaws and charter do not require interested directors to
abstain from voting on an issue in which they have an interest, although each
director has a duty of loyalty to the Company. It is possible that a director
would vote upon an issue in which he or one of his affiliates has an interest
and that his vote would be contrary to the best interests of the Company.
Moreover, a director's participation in the meeting and discussion relating to
an issue in which he or an affiliate has an interest could influence the vote of
the other directors in respect of the matter.
FIXED OBLIGATIONS UNDER THE LEASES AND DEBT
Certain of our obligations under the FelCor leases will be fixed regardless
of the actual results of operations of the hotels and we will have to make
scheduled payments on debt we expect to incur at the time of or following the
spin-off. If our results of operations decline or flatten out, we may be forced
to reduce our overhead and other expenses, which could adversely affect our
future prospects and may not be sufficient in light of our substantial fixed
obligations under the FelCor leases and any indebtedness we may incur.
MATTERS THAT COULD ADVERSELY AFFECT THE HOTEL INDUSTRY
FEWER GROWTH OPPORTUNITIES. There has been substantial consolidation in,
and capital allocated to, the U.S. lodging industry since the early 1990s. This
has generally resulted in higher prices for hotels and fewer attractive
acquisition opportunities. An important part of the Company's growth strategy is
to work with FelCor in the acquisition and leasing of hotels, even though
neither party is contractually obligated to do so. Continued industry
consolidation and competition for acquisitions could adversely affect our and
FelCor's growth prospects. The Company and FelCor compete for hotel investment
opportunities with other companies, some of which have greater financial or
other resources. Certain competitors may be able to pay higher prices or assume
greater risks than would be appropriate for the Company.
OPERATING RISKS. The hotels to be leased by the Company from FelCor are
subject to all of the risks common to the hotel industry. These risks could
adversely affect hotel occupancy and the rates that can be charged for hotel
rooms, and generally include:
- The existence of competition from other hotels;
- The construction of more hotel rooms in a particular area than are needed
to meet demand;
- The increase in energy costs and other travel expenses that reduce
business and leisure travel;
- The adverse effects of declines in general and local economic activity;
and
- The risks generally associated with the operation of leased real estate.
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<PAGE> 14
In addition, annual adjustments (based on changes in the Consumer Price Index)
are made to the base rent and the thresholds that will be used to compute
percentage rent under the leases between us and FelCor. These adjustments,
unless offset by increases in hotel revenues, could adversely affect the
Company's results of operations.
COMPETITION. Each of our leased hotels will compete with other hotels in
its geographic area. A number of additional hotel rooms have been or may be
built in a number of the geographic areas in which the hotels are located, which
could adversely affect the results of operations of these hotels. According to
Smith Travel Research, total hotel room supply in the United States increased by
3.4%, or approximately 116,000 rooms, from 1996 to 1997. This is compared to an
average annual increase in hotel room supply in the United States of 1.1% from
1991 to 1996. We believe that most of the increase in United States hotel room
supply has been in the limited service or extended stay segments of the hotel
industry which, following the merger, will include approximately 11.3% of the
Company's hotel rooms. It is possible that a significant increase in the supply
of midscale and upscale hotel rooms could occur which, if demand fails to
increase proportionately, could have an adverse effect on the Company's
operations. In addition, the Company will compete with other hotel operating
companies for management contracts and hotel leases.
SEASONALITY. The hotel industry is seasonal in nature. Generally, hotel
revenues are highest in the second and third quarters of each year. Seasonality
causes quarterly fluctuations in our revenue. We may be able to reduce, but not
eliminate, the effects of seasonality by continuing to diversify the geographic
location and primary customer base of our hotels.
INVESTMENT CONCENTRATION IN A SINGLE INDUSTRY. Our entire business is
hotel-related. In the event of a downturn in the hotel industry, the adverse
effect on us may be greater than on a more diversified company with assets or
activities outside of the hotel industry.
REQUIREMENTS OF FRANCHISE AGREEMENTS. Most of our hotels are and, following
the proposed spin-off will be, operated under franchise licenses, predominantly
with Holiday Hospitality Franchising, Inc. Any significant decline in the
reputation of any of the Company's franchisors could adversely affect our
results of operations. Each license agreement requires that the franchised hotel
be maintained and operated in accordance with certain standards. The franchisors
also may require substantial improvements to the franchised hotels, for which
FelCor would be responsible under our leases with it, as a condition to the
renewal or continuation of these franchise licenses. Ninety-five of the Bristol
hotels being acquired by FelCor in the merger are currently operated under
franchise licenses with Holiday Hospitality or Promus. Holiday Hospitality has
consented to the transfer of its licenses to the spin-off company. Promus has
agreed, subject to the satisfaction of certain conditions, to issue new licenses
to the Company and the termination, without termination fees or penalties, of
the Promus franchise licenses currently held by Bristol. The consents of
franchisors (other than Holiday Hospitality and Promus Hotel Corporation) to the
transfer of 10 Bristol's hotels to FelCor in the merger are being sought but
have not yet been obtained. If a consent is withheld, the merger could result in
the termination of those licenses. If a franchise license terminates due, among
others, to FelCor's failure to make required improvements or to obtain necessary
consents, our results of operations could be adversely affected.
GOVERNMENTAL REGULATION. The lodging industry is subject to extensive
governmental regulation, including laws which regulate the licensing of hotels
and restaurants, the sale of liquor, the disposal of hazardous wastes and the
adaption of public accommodations for use by the disabled. Although we believe
that we are in substantial compliance with these laws, the failure to comply
with, or the imposition of liability under, these laws could impose additional
costs on us that could have an adverse effect on our business.
ABSENCE OF PRIOR TRADING MARKET FOR COMPANY SHARES; POTENTIAL VOLATILITY
There is currently no public trading market for our shares. Although we
have received approval to list our shares for trading on the New York Stock
Exchange upon notification of their distribution, we cannot be sure that our
shares will be actively traded. We also cannot predict what the market price for
our shares might be. Until an orderly trading market develops, the market price
for our shares may fluctuate significantly. You should not view the current
trading price of Bristol shares as a reflection of what the trading price of our
shares
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<PAGE> 15
will be. Following the spin-off and the merger, we will be significantly smaller
than Bristol was prior to its merger with FelCor.
In general, lenders will not make margin loans in respect of stock which
trades below $5.00 per share. Accordingly, if the Company's shares were to trade
below that level, investors' ability to finance the acquisition or maintenance
of Company shares would be adversely affected.
Some of the Bristol stockholders who receive Company shares may decide that
they do not want shares in a hotel operating company, and may sell their shares.
Our two largest stockholders will have the right under certain circumstances to
require us to register their shares for resale. Any sales of stock by these or
other stockholders could lower the trading price of our stock and delay the
development of an orderly trading market.
LEVERAGE AND LIMITED FINANCIAL RESOURCES
Following the spin-off, we may have difficulty obtaining additional
financing because our asset base will be smaller and we will no longer own the
Bristol hotels or other real estate that Bristol historically used as collateral
for prior loans. Accordingly, we will not necessarily be able to rely on
Bristol's prior relationships with lenders. If we cannot obtain financing in
amounts or on terms acceptable to us, we may not have enough capital resources
to pay our obligations under the leases, to satisfy our cash requirements or to
pursue additional opportunities. We have obtained a commitment from Bankers
Trust, as Agent, for a $40 million revolving credit facility. See
"Business -- Liquidity and Capital Resources." Further, FelCor has agreed to
provide us with a short-term loan to the extent our cash balances upon
completion of the spin-off are less than $15 million. Neither FelCor nor any
third-party financial institution is obligated to provide us with additional
funds or to assist us in obtaining additional financing in the future.
If we were to draw down the full amount under such credit facility, we
would be highly leveraged with substantial indebtedness at a floating rate of
interest. Changes in economic conditions could result in higher interest rates,
increasing our interest expense.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
We will be dependent on the efforts of our executive management team.
Although we believe that we could find replacements for these key personnel, the
loss of their services could have an adverse effect on our operations. We have
entered into employment agreements only with J. Peter Kline, Chairman of the
Board and Chief Executive Officer, and John A. Beckert, President and Chief
Operating Officer.
ANTI-TAKEOVER PROVISIONS
The leases with FelCor give FelCor the right to terminate the leases upon a
change in control of the Company that is not approved by our Board. In addition,
our Certificate of Incorporation and Bylaws contain provisions that might make
it more difficult for someone to obtain control of us or replace our management
without the approval of our Board. These include provisions that prohibit
stockholders from acquiring, other than in the spin-off, more than 9.9% of our
outstanding shares until December 31, 2000, that provide for a staggered Board,
that permit our Board to issue preferred stock without your approval, that
prohibit you from taking action other than at a stockholders meeting and that
limit the right to call a stockholders meeting generally to our Board. These
provisions could delay or prevent a change in control of our Board or
transaction in which you could receive a price for your shares that is greater
than the then current market prices or is otherwise in your best interests.
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<PAGE> 16
THE SPIN-OFF
BACKGROUND OF THE SPIN-OFF
On March 23, 1998, the Bristol Board approved the merger of Bristol into
FelCor. The Bristol Board approved the merger in part because FelCor, as a REIT,
has a lower overall cost of capital than Bristol, which is a C-corporation, and
greater financial flexibility to finance the acquisition of hotels.
FelCor is a REIT and cannot operate its owned hotels under the special
limitations that apply to REITs. Accordingly, and to provide Bristol
stockholders the opportunity to continue to have an equity stake in Bristol's
hotel operating business, prior to the merger, Bristol will separate its hotel
operating business from the hotel assets that FelCor will acquire in the merger
and spin-off this business to you.
The Bristol Board recognized that the spin-off would be taxable to you
based on the fair market value of the stock distributed to you on the date of
the spin-off. However, the Bristol Board believed that the benefits of the
merger outweighed any negative tax consequences to you from the spin-off.
The Bristol board believed the value of the Company shares would be between
$5.00 and $7.00 each (or between $2.50 and $3.50 per Bristol share before giving
effect to the one-for-two distribution ratio). For purposes of its evaluation of
the fairness of the merger exchange ratio and the tax consequences to Bristol
stockholders of the distribution to them of the Company shares, the Bristol
board assigned the Company shares an estimated value of $6.38, after giving
effect to the spin-off at the distribution ratio of one Company share for each
two Bristol common shares. This equates to a distribution in the spin-off of
$3.19 in estimated value of Company shares for each Bristol common share.
However, the actual trading value of the Company shares may be higher or lower
than the range of estimated values and will depend on many factors.
The final value of the spin-off dividend cannot be determined until after
the dividend is completed. We will make a public announcement of the amount of
the dividend promptly after it is determined and will furnish you the required
IRS information as early as we can so that you can complete your tax returns.
The actual trading value of the Company shares may be higher or lower and
will depend on many factors. Until an orderly trading market develops, the
market price for our stock may fluctuate significantly. Please obtain current
market quotations prior to deciding whether to purchase or sell Company shares.
THE SPIN-OFF
Each holder of record of Bristol shares as of the close of business on the
date of the spin-off will receive one Company share for every two Bristol shares
held by them.
The terms and conditions of the spin-off are set forth in an agreement we
entered into with Bristol and Felcor (the "Spin-Off Agreement"). FelCor will
assume Bristol's obligations under the Spin-Off Agreement in the merger. The
Spin-Off Agreement has been filed with the SEC as an exhibit to this document.
Please see "Where You Can Find More Information" for instructions on how to
obtain a copy of the Spin-Off Agreement.
Prior to the spin-off, Bristol will separate its management and operating
business from its hotel properties. Bristol will do this through a series of
mergers, asset and stock transfers and liability assumptions among Bristol, the
Company and our respective subsidiaries. We will generally acquire all assets
and assume all liabilities associated with Bristol's hotel operating business
and Bristol will retain all other assets and all other liabilities, including
all of Bristol's existing indebtedness other than trade accounts payable. Each
party will indemnify the other for losses relating to liabilities that it has
assumed, other than liabilities relating to the intentional misconduct or gross
negligence of the other that have not been previously disclosed.
Each of the Bass companies and United/Harvey Holdings, L.P. presently owns
approximately 31% of Bristol's shares and will participate proportionately in
the spin-off. Following the spin-off, we will redeem all of the Company shares
held by the Bass companies that exceed 9.9% of our outstanding shares for $25.8
million (or $4.86 per share). We are required to redeem these shares as part of
the merger transactions between Bristol and FelCor. As a result of the merger
and the spin-off, the Bass companies and United/Harvey
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<PAGE> 17
Holdings would each own approximately 13% of FelCor and 31% of the Company. The
REIT rules prohibit FelCor from leasing its hotels to the Company if a
stockholder owns 10% or more of both FelCor's and the Company's shares.
Accordingly, as a condition to the FelCor merger and FelCor leasing the hotels
it acquires from Bristol in the merger, we must redeem some of the Bass
companies' shares. This will mean that immediately following the Bass redemption
all other stockholders' percentage interest in the Company will be approximately
31% higher than it was in Bristol. To prevent United/Harvey Holdings from
holding more than 10% of both FelCor's and the Company's shares, after the
spin-off but before the merger, United/Harvey Holdings will contribute its
Bristol shares to two newly formed partnerships. As a result, none of United/
Harvey Holdings or the two new partnerships will be deemed to own more than 10%
of both FelCor's and the Company's shares for purposes of the applicable REIT
rules. No other stockholder of Bristol is expected to receive 10% or more of
FelCor's shares in the merger.
If the spin-off had occurred on May 28, 1998, based on the then 45,234,972
outstanding Bristol shares and giving effect to the Bass redemption described
above, 17,310,217 Company shares would have been distributed to Bristol
stockholders. YOU SHOULD NOT SEND CASH, CERTIFICATES OR ANY OTHER CONSIDERATION
TO THE COMPANY OR TAKE ANY OTHER ACTION TO RECEIVE YOUR COMPANY SHARES IN THE
SPIN-OFF.
We will not issue fractional shares in the spin-off. The distribution agent
will either distribute to you an amount of cash for your fractional interest
based on the market price of the Company shares at the time of the spin-off or
it will aggregate and sell in the open market promptly after the spin-off all
fractional shares at then prevailing prices and distribute to you the net
proceeds to which you are entitled. You will not have to pay any fees in
connection with such sales.
DISTRIBUTION AGENT
The distribution agent for the spin-off will be American Stock Transfer &
Trust Company, Stock Transfer Department, 40 Wall Street, 46th Floor, New York,
New York 10005, telephone (800) 937-5449. You may contact them if you have any
questions regarding delivery of your Company shares in the spin-off.
FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
Introduction. The following discussion summarizes the material federal
income tax consequences of the spin-off to you. This summary is not a complete
analysis of all of the potential tax effects of the spin-off to you or your
ownership of Company shares. We have based this summary upon current provisions
of the tax code, currently applicable Treasury regulations and judicial and
administrative decisions and rulings, all of which could change, possibly with
retroactive effect. The IRS could also disagree with our summary of these
provisions. We do not intend to obtain a ruling from the IRS.
In addition, we have not addressed tax consequences that may apply to
particular stockholders in light of their individual circumstances, such as life
insurance companies, tax-exempt organizations, regulated investment companies,
S-corporations, financial institutions, broker-dealers in securities,
stockholders who hold their shares as part of a hedge, straddle or conversion
transaction, stockholders who do not hold their shares as capital assets for
federal income tax purposes (which, in general, are assets held for investment),
stockholders who have acquired their shares upon the exercise of options or
otherwise as compensation, foreign entities and nonresident alien individuals.
Receipt of Company Shares. The spin-off will be taxable to you for federal
income tax purposes based on the fair market value of the Company shares
(including cash you receive for fractional shares) you receive as of the
spin-off date. This amount will be taxable to you as ordinary income to the
extent of your pro rata share of Bristol's current and accumulated earnings and
profits. Based on Bristol's current estimates of its accumulated earnings and
profits, we believe that the fair market value of the Company shares distributed
to you will be taxable as ordinary income. You will acquire an initial tax basis
in your shares equal to their fair market value as of the spin-off date. Your
holding period for your shares will begin on the spin-off date.
Bristol will determine the fair market value of the shares you receive as
of the spin-off date based on a number of factors, including the trading price
of the Company shares at or near the spin-off date. Bristol will report the
amount received by you to the IRS and you on IRS Form 1099-DIV. There is no
assurance that the
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<PAGE> 18
IRS or the courts will agree that the amount received by you is equal to the
amount determined by Bristol. If the IRS were to challenge the amount reportable
by you on your federal income tax return, you would have to bear the expense and
effort of defending against or otherwise resolving such challenge.
Special Rules Applicable to Corporate Stockholders -- Deduction for
Dividends Received. In computing its taxable income for the tax year in which
the spin-off occurs, a corporate holder of Bristol shares generally will be
entitled to deduct 70% of the amount of the value of the Company shares received
by that holder that constitutes a dividend. However, the availability of such
deduction may be limited based on a number of specific circumstances that may
apply to a particular corporate holder, including the length of time the
corporate holder has held its Bristol shares, certain risk-reducing arrangements
the corporate holder may have entered into with respect to its Bristol shares,
the existence of corporate indebtedness attributable to the holding of those
shares, and the applicability of alternative minimum tax rules. The corporate
taxpayer's basis in the Company shares may also be reduced with respect to such
deduction. Corporate stockholders should consult their tax advisors to ascertain
whether, under their specific circumstances, the availability or benefits of the
corporate dividends received deduction may be subject to limitation.
Backup Withholding. Bristol generally will be required to withhold 31% of
the Company shares to be distributed to you if (i) you fail to furnish or
certify a taxpayer identification number to Bristol, (ii) the IRS notifies
Bristol that the taxpayer identification number furnished by you is incorrect,
(iii) the IRS notifies Bristol that you have underreported interest and/or
dividend income, or (iv) you fail to certify to Bristol that you are not subject
to withholding for underreporting interest or dividend income. Any amounts
withheld from you under these backup withholding rules will be allowed as a
credit against your federal income tax liability or as a refund.
BUSINESS
BUSINESS AND STRATEGY
After the spin-off we will own Bristol's hotel operating business and
Bristol's employees and management will generally become our employees and
management. We will operate under long-term leases 111 hotels currently owned,
leased, or managed by Bristol containing 29,131 rooms. We will also assume all
of Bristol's obligations under Bristol's third-party management contracts,
pursuant to which we will operate an additional 13 hotels containing 3,765
rooms. The hotels are located in 27 states and Canada, with hotels clustered in
major metropolitan areas with concentrations in the South, East, Southwest and
Pacific regions of the United States.
We will operate primarily full-service hotels in the upscale and midscale
hotel segments. We will remain the franchisee of the largest number of Holiday
Hospitality's Crowne Plaza and Holiday Inn hotels and will be committed to enter
into franchise agreements with Holiday Hospitality or its affiliates for hotels
with an additional 8,700 rooms during the next five years under one or more of
their brands, including Inter-Continental(R), Crowne Plaza, Holiday Inn Select,
Holiday Inn, and Holiday Inn Express. We will also operate 28 hotels under other
hotel brands, including Hampton Inn, Homewood Suites, Courtyard by Marriott and
Fairfield Inn.
With FelCor's and the Company's substantial experience in the upscale and
midscale hotel segments, the two companies expect to work together after the
spin-off and merger in the acquisition and leasing of additional hotels. Both
companies believe that there remain attractive opportunities for the ownership
and operation of hotels in these market segments, especially utilizing the
Holiday Hospitality brand names. We expect to combine our reputation as one of
the premier operators of Crowne Plaza and Holiday Inn hotels and our
redevelopment skills with FelCor's acquisition skills, access to capital, and
rapid growth strategy to pursue new opportunities. There is no contractual
obligation to jointly pursue these opportunities. However, we believe that our
position after the merger as the largest tenant-operator of FelCor's owned
hotels, coupled with the potential economic benefits and the alignment of
interests created by the significant common stock ownership in the two companies
by Bristol's former stockholders and the FelCor stock options held by the
Company's management will create an environment in which we will do so.
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We also intend to develop relationships with other property owners,
including other REITs, institutional investors and private investors to lease
and manage their hotels. However, we have not yet entered into any material
agreements or arrangements with other hotel owners. We are also considering ways
in which we may offer various real estate management related services, including
construction management, procurement and marketing/advertising services, to
FelCor and other hotel owners and managers/operators.
We will cooperate with FelCor to continue the redevelopment and
repositioning program Bristol initiated for its hotels. We believe the
redevelopment and repositioning of those hotels will enhance the hotels'
performance. Pursuant to the leases with FelCor, FelCor will devote at least 3%
of the revenues from the hotels acquired from Bristol to fund capital
improvements to those hotels.
Our senior management team has extensive experience in the hospitality
industry, with most of them working together for over 15 years. Our executive
officers are among the largest individual owners of our shares.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are expected to be cash on hand, cash
flow from operations and borrowings under a $40 million revolving credit
facility (the "Credit Facility"), which Bankers Trust Company has committed to
provide or arrange for, and which will be effective at the time the spin-off is
completed. The borrowers under the Credit Facility (the "Borrowers") will
include the Company's primary management company and all our other subsidiaries
that own or lease hotels. The Borrowers will be jointly and severally liable for
all obligations under the Credit Facility. The Credit Facility will be secured
by essentially all of our assets, including the stock of our subsidiaries, and
all the assets of our subsidiaries, including their rights under leases with
FelCor. The Credit Facility will also be guaranteed by essentially all of our
subsidiaries that are not Borrowers. Loans under the Credit Facility will bear
interest at a rate of LIBOR plus 1.875% or Base Rate plus 0.875% and will mature
one year after the spin-off is completed, with two one-year extension options.
The $40 million of commitments under the Credit Facility may be used for working
capital and other general corporate purposes. Additionally, a sub-limit of up to
$20 million of such commitments is available to issue letters of credit to
secure our obligations under the leases with FelCor and other owners, subject to
the reduction of such sub-limit to reflect our achievement of liquid net worth
requirements related to such leases. The Credit Facility contains
representations and warranties, covenants and events of default customary for
credit facilities of this type. In particular, the Credit Facility contains
covenants requiring us to maintain a minimum consolidated net worth and to
satisfy, on a consolidated basis, certain other financial ratio tests, including
a maximum total leverage ratio test, a minimum fixed charges coverage ratio test
and a minimum debt service coverage ratio test. The Credit Facility also
contains covenants, among others, limiting our ability and the ability of our
subsidiaries to incur additional indebtedness, to place liens on assets, to pay
dividends and make distributions, to make investments, to incur contingent
obligations, to sell and acquire assets, to enter into mergers or make other
fundamental organizational changes, to engage in transactions with shareholders
and affiliates, to change the nature of our business, and to amend or otherwise
change the terms of the contractual arrangements relating to the leases. Based
on our sources of liquidity, we believe that we will have access to sufficient
capital resources to operate and manage the hotels in our portfolio for the
foreseeable future.
EMPLOYEES
We will employ most of the employees at the hotels we manage or operate as
well as those at our corporate offices. Immediately prior to the spin-off, we
expect to have 17,000 employees, 350 of whom are employed at our Dallas
headquarters. Fourteen of the properties we manage, employing approximately
1,600 workers, are subject to labor union contracts. We have not experienced any
union strikes or other material labor disruptions and believe that our ongoing
labor relations are good.
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COMPANY PROPERTIES
Executive Offices. Our principal executive offices are located in Dallas,
Texas under a lease that expires on June 30, 2004. We have the right to
terminate our lease annually beginning in the year 2000 by paying termination
fees.
The Company's Hotels. The following table sets forth certain information
with respect to each hotel Bristol operated as of June 1, 1998, which if the
spin-off had occurred on that date, would be operated by the Company:
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
BRISTOL'S OWNED HOTELS
Holiday Inn -- Montgomery................................... Montgomery, AL 213
Holiday Inn -- Texarkana I-30............................... Texarkana, AR 210
Days Inn -- Flagstaff....................................... Flagstaff, AZ 157
Fairfield Inn -- Downtown Scottsdale........................ Scottsdale, AZ 218
Holiday Inn -- Santa Barbara................................ Santa Barbara, CA 160
Holiday Inn Select -- Irvine/Orange County Airport(2)....... Irvine, CA 335
Crowne Plaza -- Pleasanton.................................. Pleasanton, CA 244
Holiday Inn -- San Diego on the Bay(2)...................... San Diego, CA 600
Holiday Inn -- San Jose North............................... San Jose, CA 305
Holiday Inn -- San Francisco Financial District(7).......... San Francisco, CA 566
Holiday Inn -- San Francisco Fisherman's Wharf.............. San Francisco, CA 584
Holiday Inn Select -- San Francisco Union Square(1)......... San Francisco, CA 400
Holiday Inn Express -- Colorado Springs Central............. Colorado Springs, CO 207
Ramada Inn -- Colorado Springs North........................ Colorado Springs, CO 220
Holiday Inn -- Hartford Downtown(1)......................... Hartford, CT 342
Holiday Inn Select -- Stamford.............................. Stamford, CT 383
Holiday Inn -- Cocoa Beach Oceanfront Resort................ Cocoa Beach, FL 500
Holiday Inn -- Nikki Bird................................... Kissimmee, FL 529
Holiday Inn Select -- Miami International Airport(1)........ Miami, FL 304
Holiday Inn Select -- Orlando International Airport......... Orlando, FL 288
Holiday Inn -- Orlando International Drive Resort........... Orlando, FL 652
Holiday Inn -- Orlando North/Winter Park.................... Orlando, FL 200
Holiday Inn -- Near Busch Gardens(R) Tampa.................. Tampa, FL 395
Courtyard by Marriott -- Downtown Atlanta................... Atlanta, GA 211
Fairfield Inn -- Downtown Atlanta........................... Atlanta, GA 242
Holiday Inn -- Atlanta Airport North........................ Atlanta, GA 493
Harvey Hotel -- Atlanta Powers Ferry(1)..................... Atlanta, GA 296
Crowne Plaza -- Atlanta Airport............................. Atlanta, GA 378
Holiday Inn Select -- Atlanta Perimeter Dunwoody............ Atlanta, GA 250
Holiday Inn Express -- Atlanta I-20 East.................... Atlanta, GA 167
Holiday Inn Express -- Atlanta Northeast.................... Atlanta, GA 199
Holiday Inn -- Atlanta South/Jonesboro...................... Atlanta, GA 180
Holiday Inn -- Columbus Airport North....................... Columbus, GA 223
Hampton Inn -- Marietta..................................... Marietta, GA 140
Allerton Hotel -- Chicago(2)................................ Chicago, IL 378
Holiday Inn -- New Orleans French Quarter................... New Orleans, LA 276
Holiday Inn Select -- Boston Government Center.............. Boston, MA 303
Holiday Inn -- Kansas City Northeast........................ Kansas City, MO 167
Holiday Inn -- Westport(2).................................. St. Louis, MO 320
Holiday Inn -- Jackson Southwest............................ Jackson, MS 289
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
Crowne Plaza -- Downtown Jackson............................ Jackson, MS 354
Hampton Inn -- Jackson...................................... Jackson, MS 119
Harvey Hotel & Suites -- Jackson North(3)................... Jackson, MS 224
Whispering Woods Hotel and Conference Center................ Olive Branch, MS 181
Holiday Inn -- Albuquerque Mountainview..................... Albuquerque, NM 360
Holiday Inn Select -- Philadelphia Center City(1)........... Philadelphia, PA 445
Holiday Inn -- Independence Mall............................ Philadelphia, PA 364
The Mills House Hotel -- Charleston Holiday Inn............. Charleston, SC 214
Holiday Inn -- Columbia Airport............................. Columbia, SC 148
Holiday Inn Select -- Greenville (Roper)(1)................. Greenville, SC 208
Holiday Inn -- Spartanburg West............................. Spartanburg, SC 224
Holiday Inn -- Chattanooga Southeast I-75................... Chattanooga, TN 230
Holiday Inn -- Knoxville West............................... Knoxville, TN 242
Holiday Inn Select -- Nashville Opryland/Airport(2)......... Nashville, TN 384
Holiday Inn -- Amarillo I-40................................ Amarillo, TX 248
Holiday Inn -- Austin Town Lake............................. Austin, TX 320
Holiday Inn -- Beaumont Midtown I-10........................ Beaumont, TX 190
Bristol House............................................... Dallas, TX 127
Fairfield Inn -- Dallas Regal Row........................... Dallas, TX 204
Harvey Hotel -- Dallas...................................... Dallas, TX 313
Harvey Hotel -- Addison(1).................................. Dallas, TX 429
Crowne Plaza Suites -- Dallas............................... Dallas, TX 295
Hampton -- Downtown Dallas/West End......................... Dallas, TX 311
Harvey Hotel -- Dallas Brookhollow(1)....................... Dallas, TX 354
Courtyard by Marriott -- Houston Near The Galleria.......... Houston, TX 209
Fairfield Inn -- Houston Near The Galleria.................. Houston, TX 107
Holiday Inn Select -- Houston Near Greenway Plaza........... Houston, TX 355
Holiday Inn -- Medical Center(1)............................ Houston, TX 297
Fairfield Inn -- Houston I-10 East.......................... Houston, TX 160
Holiday Inn -- Houston Intercontinental Airport............. Houston, TX 413
Hampton Inn -- Houston I-10 East............................ Houston, TX 90
Holiday Inn Select -- Houston I-10 West(2).................. Houston, TX 349
Harvey Suites -- Houston Medical Center(3).................. Houston, TX 285
Harvey Suites -- DFW Airport................................ Irving, TX 164
Harvey Hotel -- DFW Airport................................. Irving, TX 506
Harvey Hotel -- Plano....................................... Plano, TX 279
Holiday Inn -- Plano........................................ Plano, TX 161
Holiday Inn -- San Antonio Downtown......................... San Antonio, TX 315
Holiday Inn Select -- San Antonio International
Airport(2)................................................ San Antonio, TX 397
Holiday Inn -- Waco I-35.................................... Waco, TX 171
Holiday Inn -- Salt Lake City Airport....................... Salt Lake City, UT 191
Holiday Inn -- Cambridge.................................... Cambridge, Ontario 139
Holiday Inn Select -- Toronto Airport....................... Toronto, Ontario 444
Holiday Inn -- Kitchener Waterloo........................... Kitchener, Ontario 182
Holiday Inn -- Peterborough -- Waterfront................... Peterborough, Ontario 155
Holiday Inn -- Sarnia....................................... Sarnia, Ontario 151
Holiday Inn -- Toronto Yorkdale............................. Toronto, Ontario 370
BRISTOL'S MANAGED HOTELS
Holiday Inn -- Hollywood(4)................................. Hollywood, CA 470
Holiday Inn -- City Center(5)............................... Los Angeles, CA 195
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
Holiday Inn -- Woodland Hills............................... Woodland Hills, CA 124
Holiday Inn -- San Francisco Civic Center................... San Francisco, CA 393
Holiday Inn -- Torrance..................................... Torrance, CA 329
Holiday Inn -- South Bend University Area(4)(5)............. South Bend, IN 229
Holiday Inn -- Lexington North(4)(5)........................ Lexington, KY 303
Holiday Inn -- Cincinnati North(4)(5)....................... Cincinnati, OH 407
Holiday Inn Select -- Pittsburgh University Center.......... Pittsburgh, PA 251
Holiday Inn -- Memphis East(4)(5)........................... Memphis, TN 243
Holiday Inn -- Nashville Vanderbilt......................... Nashville, TN 300
Holiday Inn -- San Antonio Riverwalk(4)(5).................. San Antonio, TX 313
BRISTOL'S JOINT VENTURE HOTELS
Holiday Inn -- Washington D.C. Downtown(6).................. Washington, D.C. 208
Chateau LeMoyne -- New Orleans Holiday Inn.................. New Orleans, LA 171
</TABLE>
- ---------------
(1) These hotels are expected to be converted to Crowne Plaza hotels during
1998.
(2) These hotels are expected to be converted to Crowne Plaza hotels during
1999.
(3) These hotels are expected to be converted to Holiday Inn and Suites
hotels during 1998.
(4) Based on discussions with the property owner, termination of the
management contract is possible due to a pending sale of the hotel.
(5) The hotel management agreement's existing term expires during 1998.
(6) This property has been the subject of litigation which is likely to
result in termination of the joint venture.
(7) This hotel is expected to convert to a Holiday Inn Select during 1999.
The following table sets forth certain information with respect to each
hotel Bristol has acquired, leased or agreed to manage in 1998, which will be
operated by the Company after the Spin-Off.
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
BRISTOL'S OWNED/LEASED HOTELS
Holiday Inn -- Omaha Central................................ Omaha, NE 384
Hampton Inn -- Omaha Central................................ Omaha, NE 132
Homewood Suites -- Omaha.................................... Omaha, NE 108
Holiday Inn -- Old Mill..................................... Omaha, NE 213
Hampton Inn -- Omaha Southwest.............................. Omaha, NE 132
Holiday Inn Express & Suites -- Omaha Southwest............. Omaha, NE 78
Hampton Inn -- Moline....................................... Moline, IL 138
Holiday Inn Express -- Moline Airport....................... Moline, IL 111
Holiday Inn -- Moline Airport............................... Moline, IL 216
Holiday Inn Davenport....................................... Davenport, IA 287
Hampton Inn Davenport....................................... Davenport, IA 132
Holiday Inn Hays............................................ Hays, KS 190
Hampton Inn -- Hays......................................... Hays, KS 116
Holiday Inn -- Salina....................................... Salina, KS 192
Holiday Inn Express & Suites -- Salina...................... Salina, KS 93
Holiday Inn -- Great Bend................................... Great Bend, KS 175
Holiday Inn Express -- Colby(1)............................. Colby, KS 72
Holiday Inn -- Midland Country Villa........................ Midland, TX 250
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER
HOTEL NAME LOCATION OF ROOMS
---------- -------- --------
<S> <C> <C>
Holiday Inn -- Odessa Center................................ Odessa, TX 245
Holiday Inn Express -- Odessa Parkway....................... Odessa, TX 186
Sheraton Four Points -- Leominster.......................... Leominster, MA 187
BRISTOL'S MANAGED HOTEL
Meadowlands Hilton(2)....................................... Secaucus, NJ 301
BRISTOL'S LEASED HOTEL
Hampton Inn -- Las Vegas.................................... Las Vegas, NV 128
</TABLE>
- ---------------
(1) Under construction.
(2) Currently operated pursuant to a management agreement which we expect
will convert to a lease with FelCor prior to the Spin-Off.
The following tables set forth the pro forma information indicated below
concerning Bristol's owned/leased, managed and joint venture hotels.
HOTEL STATISTICS FOR THE PRO FORMA QUARTER ENDED MARCH 31, 1998(1)
<TABLE>
<CAPTION>
AVERAGE 1998
NUMBER OF PLANNED AVERAGE AVERAGE
GUEST ROOMS RENOVATIONS OCCUPANCY RATE REVPAR
----------- ------------ --------- ------- ------
<S> <C> <C> <C> <C> <C>
Owned/Leased...................... 264 $164,500,416 65.1% $ 77.29 $50.32
Managed........................... 297 -- 68.3% $ 80.68 $55.07
Joint Ventures.................... 190 -- 71.6% $106.39 $76.17
--- ------------ ----- ------- ------
Total Portfolio................... 266 $164,500,416 65.6% $ 78.09 $51.20
=== ============ ===== ======= ======
</TABLE>
- ---------------
(1) Includes statistics for properties acquired/leased in 1998 for the
entire quarter, other than Hampton Inn -- Las Vegas and Holiday Inn
Express -- Colby, which were under construction.
HOTEL STATISTICS FOR THE PRO FORMA YEAR ENDED DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
AVERAGE 1997
NUMBER OF ACTUAL AVERAGE AVERAGE
GUEST ROOMS RENOVATIONS OCCUPANCY RATE REVPAR
----------- ----------- --------- ------- ------
<S> <C> <C> <C> <C> <C>
Owned/Leased....................... 264 $27,569,380 68.7% $ 73.95 $50.82
Managed............................ 297 -- 74.1% $ 79.74 $59.11
Joint Ventures..................... 190 -- 74.8% $ 98.79 $73.91
--- ----------- ----- ------- ------
Total Portfolio.................... 266 $27,569,380 69.4% $ 75.00 $52.07
=== =========== ===== ======= ======
</TABLE>
- ---------------
(1) Includes statistics for properties acquired in 1998 for the entire 1997
year, other than Hampton Inn -- Las Vegas and Holiday Inn
Express -- Colby, which were under construction.
YEAR 2000 COMPLIANCE
The year 2000 issue relates to computer programs that were written using
two digits rather than four to define the applicable year. In those programs,
dates after December 31, 1999 may be incorrectly identified and could cause
system failures or miscalculations causing a disruption of operations, including
a temporary inability to process transactions, prepare financial statements or
engage in other normal business operations. Bristol has recently assessed its
information technology systems and believes that a majority of these systems
will properly utilize dates beyond the year 2000.
Bristol expects to cause its desktop systems to be compliant by continuing
its existing program of replacing all desktop computers every two to three
years. This desktop replacement program is expected to
20
<PAGE> 24
make all desktop computers year 2000 compliant. Bristol is also evaluating
whether to upgrade or replace various automated time clock systems to make them
year 2000 compliant. Bristol and the hotel owners expect to spend approximately
$4 million over the next 18 months on these programs.
Bristol has begun to evaluate its non-information technology systems to
determine whether they are year 2000 compliant, including embedded systems that
operate elevators, phone systems, energy management systems, security systems
and other systems. Bristol is also surveying its major vendors to determine
whether they are year 2000 compliant. The Company expects that these studies
will be completed by December 31, 1998. At that time, the Company will determine
the extent to which additional actions will be required by the Company,
including the extent to which the Company will replace non-compliant vendors.
Holiday Inns and Promus, franchisors for 106 of the Company's hotels, have
indicated to the Company that their reservation systems will be year 2000
compliant by the end of 1998. Year 2000 compliance surveys have been sent to the
Company's other franchisors. After the spin-off, the Company will work with
FelCor and the other hotel owners to continue the program initiated by Bristol
to insure that the Company's and its principal vendors' systems are year 2000
compliant. The Company anticipates that all reprogramming efforts and hardware
replacement will be implemented and tested by June 30, 1999. This gives adequate
time prior to January 1, 2000 for the Company to correct any problems that did
not surface during the implementation and testing.
FELCOR LEASES
The principal terms of the FelCor leases are summarized below, although
certain terms will vary from hotel to hotel.
TERM. The leases are for initial terms of five to ten years, with renewal
options on the same terms for a total of 15 years. If a lease has been extended
to 15 years, we may renew the lease for an additional five years at then current
market rates.
RENT. We will pay a monthly rent equal to the greater of base rent or
percentage rent. The percentage rent will be based on specified percentages of
various revenue streams. Those percentages will vary within the following
ranges:
<TABLE>
<S> <C>
Room Revenues: 0% to 10% up to a revenue breakpoint amount
specified for each hotel, then 60% to 75%
above such breakpoint.
Food and Beverage Revenues: 5% to 25%.
Phone Revenues: 5% to 10%.
Other Revenues: Varying percentages depending on the nature
and source of such revenues.
</TABLE>
The base rent and the thresholds for computing percentage rent under the
leases will be adjusted annually to reflect changes in the Consumer Price Index.
We have the right to require FelCor to renegotiate the rent for all the
hotels in a particular region if there is a material reduction in midscale hotel
occupancy rates in the U.S. and such region. If FelCor and the Company are
unable to agree on a reduction in rent, we may terminate all leases in the
region. We may also require FelCor to renegotiate the rent for a particular
hotel if there is an extended general decline in the travel or hotel business
and a material reduction in the occupancy rate of such hotel and the hotel's
competitive set. If FelCor and the Company are unable to agree on a change in
rent, we may terminate the lease for such hotel.
TERMINATION. A lease may also be terminated for the following reasons,
among others:
- By FelCor, if we fail to satisfy certain performance targets for any
one hotel and all other hotels in the aggregate during any three
consecutive years based on budgeted room revenues, unless we pay
FelCor the difference between the actual rent paid and 80% or 90% of
the budgeted rent;
21
<PAGE> 25
- By FelCor, upon a change in control of the Company (defined as the
acquisition of more than 50% of Company stock by any person or group
not approved by the Company's board or the election of a majority of
directors not supported by the Company's Board);
- By FelCor or us, if FelCor or we breach agreements under the lease
and do not cure such breach within certain specified periods;
- By FelCor, if we fail to maintain a minimum liquid net worth or
provide other credit support for our lease obligations;
- By FelCor, if a franchisor terminates our franchise license as a
result of our default under the lease; and
- By FelCor if it sells the hotel to a third party.
We will not be entitled to any damages if FelCor sells the following hotels and
terminates our leases without our consent: Days Inn -- Flagstaff, Holiday Inn
Express -- Colorado Springs Central, Ramada Inn -- Colorado Springs North,
Holiday Inn -- Orlando North/Winter Park, Holiday Inn Express -- Atlanta I-20
East, Holiday Inn Express -- Atlanta Northeast, Holiday Inn -- Spartanburg West,
and Holiday Inn -- Chattanooga Southeast I-75. If FelCor sells one of the other
hotels it acquires in the merger (other than Leominster) and terminates our
lease without our consent, our damages would be limited to monthly termination
payments during the remainder of the lease term equal to one-twelfth of 75% of
the average monthly profit and allocable overhead contribution associated with
operating the hotel for the 12 months ending on the termination date. If FelCor
sells any other hotel we lease from them and terminates our lease without our
consent, our damages would be limited to monthly termination payments during the
remainder of the lease term equal to one-twelfth of the average monthly profit
and allocable overhead contribution associated with operating the hotel for the
12 months ending on the termination date.
INDEMNIFICATION. We will indemnify FelCor for certain losses relating to
the hotels, including losses relating to any accident or injury to persons or
property at the hotel, our breach of the lease and certain environmental and tax
liabilities not assumed by FelCor. FelCor will indemnify the Company for its
breach of the lease, liability for the environmental condition of the hotel at
the time the lease commences and its acts of gross negligence or willful
misconduct.
MAINTENANCE AND CAPITAL IMPROVEMENTS. We are responsible for maintaining
the leased hotels in good order and repair and for making all repairs that do
not constitute capital improvements. We must supply and maintain the inventory
that is necessary to operate the leased hotel. FelCor is responsible for all
hotel capital improvements (including those required under applicable laws or
the applicable franchise license) and for maintaining the underground utilities
and all hotel improvements, furniture, fixtures and equipment owned by FelCor to
the extent such maintenance constitutes capital expenditures in accordance with
generally accepted accounting principles or the capital improvements policy
approved by FelCor and us. FelCor must make available at least 3% of each
hotel's gross revenues, on a cumulative basis, for approved capital
expenditures.
INSURANCE AND PROPERTY TAXES. FelCor will pay all real estate and personal
property taxes and property insurance premiums on the leased hotels (other than
with respect to our personal property). We will pay for all liability insurance
on the leased hotels, which includes extended coverage, comprehensive general
public liability, workers' compensation and other insurance appropriate and
customary for properties similar to the leased hotels.
GOVERNMENT REGULATION
The lodging industry is subject to extensive government regulations,
including laws which regulate the licensing of hotels and restaurants, the sale
of liquor and the disposal of hazardous wastes. Under the Americans with
Disabilities Act, all public accommodations are required to meet certain
technical requirements related to access and use by disabled persons. Although
Bristol has expended significant amounts in ADA required upgrades to the hotels
we will operate, a determination that such properties are not in compliance with
the ADA could result in a judicial order requiring compliance, the imposition of
fines or an
22
<PAGE> 26
award of damages to private litigants. The hotels are likely to require
additional costs in complying with the ADA, but under the leases with FelCor
these costs will be borne by the owner of the hotel and should not have a
material effect on our business.
ENVIRONMENTAL MATTERS
Various laws impose liability for the costs of removal or remediation of
hazardous or toxic substances on the properties we own or operate, regardless of
whether or not we knew of or were responsible for, the presence of such
hazardous or toxic substances. Depending on the circumstances, we could also be
liable for personal injury associated with exposure to asbestos-containing
materials. Environmental laws also may restrict the manner in which property may
be used or businesses may be operated, and these restrictions may result in
expenditures and require interruption of such businesses. The cost of defending
against, and ultimately paying or settling, claims of liability or of
remediating a contaminated property could have a material adverse effect on our
financial condition or results of operations. FelCor has agreed to assume
environmental liabilities arising from the hotels that it will acquire from
Bristol in the merger or as to which Bristol otherwise would have been
responsible prior to the merger.
LEGAL PROCEEDINGS
In the ordinary course of its hotel operations business, Bristol is named
as a defendant in legal proceedings resulting from incidents at its hotels.
Liability for pending proceedings, other than employee claims, will be assumed
by FelCor in the merger. However, the Company would be liable for proceedings
resulting from the operation of the hotels where the incidents occurred and
employee-related claims. Legal actions for which the Company is liable that are
not covered by insurance or a contractual right to indemnification from another
party could have a material adverse effect on the Company's financial condition
or results of operations.
23
<PAGE> 27
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect to Bristol's
contribution of its hotel operating business to the Company, the spin-off, the
merger and the transactions described in the Notes below as if each event had
occurred on January 1, 1998, with respect to the Unaudited Pro Forma
Consolidated Statement of Income, for the three months ended March 31, 1998; on
January 1, 1997, with respect to the Unaudited Pro Forma Consolidated Statement
of Income, year ended December 31, 1997; and on March 31, 1998 with respect to
the Unaudited Pro Forma Condensed Consolidated Balance Sheet, March 31, 1998.
The pro forma financial data are presented for illustrative purposes only and do
not purport to be indicative of the results that would have actually been
obtained had such transactions been completed as of the assumed dates and for
the periods presented or that may be obtained in the future. The pro forma
financial data should be read in conjunction with the financial information
appearing elsewhere in this document. See "Management's Discussion and Analysis
of Results of Operations" and "Index to Financial Information."
24
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
BRISTOL PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 79,649 $ (64,649)(A) $15,000
Accounts receivable, net.................................. 36,407 10,592 (B) 46,999
Inventory................................................. 8,393 -- 8,393
Deposits and other current assets......................... 10,673 (1,591)(C) 9,082
---------- ----------- -------
Total current assets............................... 135,122 (55,648) 79,474
---------- ----------- -------
Property and equipment...................................... 1,468,407 (1,459,420)(D) 8,987
Other assets:
Restricted cash........................................... 8,670 (7,000)(E) 1,670
Investments in joint ventures, net........................ 12,659 (12,659)(F) --
Goodwill, net............................................. 52,394 (52,394)(G) --
Deferred charges and other noncurrent assets, net......... 15,915 (12,531)(H) 5,252
1,868 (K)
---------- ----------- -------
Total assets....................................... $1,693,167 $(1,597,784) $95,383
========== =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 8,025 $ (7,982)(I) $ 43
Accounts payable and accrued expenses..................... 45,957 (1,429)(J) 44,528
Accrued property, sales and use taxes..................... 13,230 (6,034)(J) 7,196
Accrued insurance reserves................................ 10,773 -- 10,773
---------- ----------- -------
Total current liabilities.......................... 77,985 (15,445) 62,540
Long-term debt, excluding current portion................... 706,865 (706,715)(I) 150
Deferred income taxes....................................... 243,751 (243,751)(K) --
Other....................................................... 2,693 -- 2,693
---------- ----------- -------
Total liabilities.................................. 1,031,294 (965,911) 65,383
---------- ----------- -------
Common stock................................................ 438 (92)(L) 346
Additional paid-in capital.................................. 608,529 (64,649)(A) 29,654
63,092 (B)
(1,591)(C)
(1,459,014)(D)
(7,000)(E)
(12,659)(F)
(52,394)(G)
(12,531)(H)
714,697 (I)
7,463 (J)
245,619 (K)
92 (L)
Foreign currency translation................................ 406 (406)(D) --
Retained earnings........................................... 52,500 (52,500)(B) --
---------- ----------- -------
Total stockholders' equity......................... 661,873 (631,873) 30,000
---------- ----------- -------
Total liabilities and stockholders' equity......... $1,693,167 $(1,597,784) $95,383
========== =========== =======
</TABLE>
25
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(A) Represents the adjustment to implement the concept in the Spin-Off Agreement
providing for the Company's ending cash balance to be $15 million as of the
spin-off date.
(B) Represents working capital adjustments to implement the concept in the
Spin-Off Agreement providing for the Company's beginning equity being $30
million as of the spin-off date.
(C) Reflects deposits for property insurance for the real estate assets which
will be transferred to FelCor as a result of the merger.
(D) Reflects the real estate assets and related foreign currency translation
adjustment which will be transferred to FelCor as a result of the merger.
The remaining property and equipment relates to the Company's corporate
headquarters.
(E) Reflects deposits held by lenders for capital and replacement reserves,
guest advance deposits and ground rent pursuant to various debt agreements
transferred to FelCor as a result of the merger.
(F) Reflects the joint venture interests transferred to FelCor as a result of
the merger.
(G) Reflects the elimination of goodwill related to the real estate assets
acquired in the 1997 Holiday Acquisition with Bristol and transferred to
FelCor as a result of the merger.
(H) Reflects a reduction of $12.9 million in unamortized deferred financing and
acquisition costs related to the real estate and associated mortgage debt to
be transferred to FelCor as a result of the merger, and an increase in
deferred financing costs related to the Company's new credit facility.
(I) Reflects the principal balance of mortgage debt associated with the real
estate assets to be assumed by FelCor as a result of the merger.
(J) Relates to accrued expenses related to the real estate assets, including
accrued interest on mortgage debt ($4.3 million), ground rent payable
($679,000) and construction costs ($2.1 million) assumed by FelCor as a
result of the merger. Also includes Bristol's income tax benefit of $5.6
million.
(K) Represents deferred tax liabilities that relate to the allocation of the
purchase price of hotel assets and tax timing differences related to the
real estate assets to be transferred to FelCor as a result of the merger.
The deferred tax benefit of $1.9 million represents tax timing differences
that relate to the Company's assets.
(L) Reflects the issuance of Bristol shares as consideration for the Omaha
acquisition that included 20 hotels and was closed in the second quarter of
1998 and the purchase after the spin-off of Company shares owned by the Bass
companies to reduce their combined ownership percentage to 9.9% of the
outstanding Company shares.
26
<PAGE> 30
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRED
BRISTOL BUSINESSES PRO FORMA COMPANY
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rooms.................................... $120,372 $ 8,304 $ -- $ 128,676
Food and beverage........................ 28,050 2,767 -- 30,817
Management fees.......................... 1,516 -- -- 1,516
Construction management fee.............. -- -- 880(B) 880
Other.................................... 8,864 442 (785)(C) 8,521
-------- ------- -------- -----------
Total revenue.................... 158,802 11,513 95 170,410
-------- ------- -------- -----------
Operating costs and expenses:
Departmental expenses:
Rooms................................. 33,424 2,912 -- 36,336
Food and beverage..................... 21,239 2,059 -- 23,298
Other................................. 2,455 117 -- 2,572
Undistributed operating expenses:
Administrative and general............ 15,737 968 -- 16,705
Marketing............................. 11,380 858 -- 12,238
Property operating costs.............. 14,032 1,584 -- 15,616
Property taxes, rent and insurance.... 10,442 618 (10,233)(D) 827
Tenant lease expense.................. -- -- 51,754(E) 51,754
Depreciation and amortization......... 12,906 -- (11,509)(F) 1,397
Corporate expense..................... 6,290 -- 630(G) 6,920
-------- ------- -------- -----------
Operating income........................... 30,897 2,397 (30,547) 2,747
-------- ------- -------- -----------
Other (income) expense:
Interest expense......................... 12,513 -- (12,308)(H) 205
Equity in income of joint ventures....... (554) -- 554(I) --
-------- ------- -------- -----------
Income before income taxes and
extraordinary items...................... 18,938 2,397 (18,793) 2,542
Income taxes............................... 7,576 -- (6,559)(J) 1,017
-------- ------- -------- -----------
Income before extraordinary items.......... $ 11,362 $ 2,397 $(12,234) $ 1,525
======== ======= ======== ===========
Earnings per common and common equivalent
share:
Income before extraordinary item:
Basic.................................... $ 0.26 $ 0.09
Diluted.................................. $ 0.26 $ 0.09
Weighted average number of common and
common equivalent shares outstanding:
Basic.................................... 43,719 17,266
Diluted.................................. 44,535 17,565
</TABLE>
27
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1998
(A) Reflects the results of operations for the assets included in the Omaha
acquisition that included 20 hotels and closed in the second quarter of
1998.
(B) Represents fees to be charged to FelCor for construction management
services in connection with the renovation and rebuilding program.
(C) Represents interest income recorded by Bristol on cash assumed to be
transferred to FelCor pursuant to the merger.
(D) Represents property taxes, rent, property insurance and management fees
related to the real estate assets transferred to FelCor pursuant to the
merger, as follows (dollars in thousands):
<TABLE>
<S> <C>
Property taxes......................................... $ 5,909
Rent................................................... 3,605
Property insurance..................................... 688
Management fees........................................ 31
-------
$10,233
=======
</TABLE>
(E) Represents lease expense to be paid by the Company to FelCor under the
leases of the hotels transferred to FelCor pursuant to the merger. The
leases require the payment of rent at the greater of a base rate and
percentage rate, with percentage rent being based on specified percentages
of certain revenue categories. The leases have initial terms ranging from
five to ten years and each lease can be renewed on the same terms at the
Company's option to a total of 15 years from the beginning of the initial
term. If a lease has been extended to 15 years, we may renew the lease for
an additional five years at then current market rates.
(F) Reflects depreciation of real estate assets and the related amortization of
goodwill.
(G) Reflects the changes in corporate expenses as a result of the spin-off as
follows (dollars in thousands):
<TABLE>
<S> <C>
Design & Construction costs............................ $ 880
Transfer of corporate overhead to FelCor............... (250)
-----
$ 630
=====
</TABLE>
Design and construction costs represents costs previously capitalized by
Bristol and allocated to hotel renovations. FelCor will pay the Company for
these services pursuant to a construction services contract to be entered
into before the spin-off.
(H) Represents a reduction in interest expense for mortgages on real estate
assets being transferred to FelCor pursuant to the merger of $12.5 million,
offset by financing fees and amortization of deferred financing costs
related to the Company's credit facility.
(I) Reflects joint venture interests transferred to FelCor pursuant to the
merger.
(J) Taxes are based on Bristol's effective 1998 rate of 40.0%.
28
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRED
BRISTOL BUSINESSES PRO FORMA COMPANY
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rooms............................... $377,380 $125,719 $ -- $ 503,099
Food and beverage................... 92,596 30,170 -- 122,766
Management fees..................... 4,948 1,782 (430)(B) 6,300
Construction management fee......... -- -- 2,927 (C) 2,927
Other............................... 29,594 9,909 (2,300)(D) 37,203
-------- -------- --------- -----------
Total revenue............... 504,518 167,580 197 672,295
-------- -------- --------- -----------
Operating Costs and Expenses:
Departmental expenses:
Rooms............................ 105,063 36,695 1,013 (E) 142,771
Food and beverage................ 69,766 24,554 -- 94,320
Other............................ 9,326 4,417 -- 13,743
Undistributed operating expenses:
Administrative and general....... 44,255 16,037 -- 60,292
Marketing........................ 34,439 11,682 356 (E) 46,477
Property operating costs......... 44,303 18,460 -- 62,763
Property taxes, rent and
insurance...................... 35,330 11,622 (40,267)(F) 6,685
Tenant lease expense............. -- -- 202,501 (G) 202,501
Depreciation and amortization.... 39,690 13,659 (51,066)(H) 2,283
Corporate expense................ 24,450 3,449 (1,185)(I) 26,714
-------- -------- --------- -----------
Operating income...................... 97,896 27,005 (111,155) 13,746
-------- -------- --------- -----------
Other (income) expense:
Interest expense.................... 44,591 121 (43,893)(J) 819
Equity in income of joint
ventures......................... (1,916) (747) 2,663 (K) --
-------- -------- --------- -----------
Income before income taxes and
extraordinary items................. 55,221 27,631 (69,925) 12,927
Income taxes.......................... 22,007 7,387 (24,236)(L) 5,158
-------- -------- --------- -----------
Income before extraordinary items..... $ 33,214 $ 20,244 $ (45,689) $ 7,769
======== ======== ========= ===========
Earnings per common and common
equivalent share:
Income before extraordinary item:
Basic............................... $ 0.89 $ 0.48
Diluted............................. $ 0.87 $ 0.47
Weighted average number of common and
common equivalent shares
outstanding:
Basic............................... 37,359 16,337
Diluted............................. 38,332 16,667
</TABLE>
29
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1997
(A) Reflects the results of operations for the hotels acquired in the Holiday
Acquisition from January 1, 1997 through April 28, 1997 and 12 months of
operations excluding depreciation, amortization and interest for the assets
included in the Omaha acquisition that included 20 hotels and closed in the
second quarter of 1998, and excluding intercompany interest for the Holiday
Acquisition.
(B) Reflects management fee income and contract termination fee income for
hotels no longer managed by Bristol for terminated management contracts.
(C) Represents fees to be charged to FelCor for construction management
services in connection with the renovation and rebuilding program.
(D) Represents interest income recorded by Bristol on cash assumed to be
transferred to FelCor pursuant to the merger.
(E) Represents estimated franchise fee payments and advertising fee payments to
Holiday Hospitality in respect of the assets acquired in the Holiday
Acquisition for the period January 1, 1997 to April 28, 1997. Franchise
fees and advertising fees are generally based on 5% and 2% of room
revenues, respectively.
(F) Represents property taxes, rent, property insurance and management fees
related to the real estate assets transferred to FelCor pursuant to the
merger, as follows (dollars in thousands):
<TABLE>
<S> <C>
Property taxes............................................. 21,779
Rent....................................................... 15,472
Property insurance......................................... 2,892
Management fees............................................ 124
-------
$40,267
=======
</TABLE>
(G) Represents lease expense to be paid by the Company to FelCor under the
leases of the hotels transferred to FelCor pursuant to the merger. The
leases require the payment of rent at the greater of a base rate and
percentage rate, with percentage rent being based on specified percentages
of certain revenue categories. The leases have initial terms ranging from
five to ten years and each lease can be renewed on the same terms at the
Company's option to a total of 15 years from the beginning of the initial
term. If a lease has been extended to 15 years, we may renew the lease for
an additional five years at then current market rates.
(H) Reflects depreciation of real estate assets and the related amortization of
goodwill.
(I) Reflects the changes in corporate expenses as a result of the spin-off as
follows (dollars in thousands):
<TABLE>
<S> <C>
Design & Construction costs................................ $ 2,927
Transfer of corporate overhead to FelCor................... (1,000)
Elimination of one-time acquisition costs of Holiday
Acquisition.............................................. (3,112)
-------
$(1,185)
=======
</TABLE>
Design and construction costs represents costs previously capitalized by
Bristol and allocated to hotel renovations. FelCor will pay the Company for
these services pursuant to a construction services contract to be entered
into before the spin-off. Also reflected is a reduction in corporate
expenses for the $3.1 million of one-time costs related to the Holiday
Acquisition in April 1997.
(J) Represents a reduction in interest expense for mortgages on real estate
assets being transferred to FelCor pursuant to the merger of $55.6 million,
offset by financing fees and amortization of deferred financing costs
related to the Company's credit facility.
(K) Reflects joint venture interests transferred to FelCor pursuant to the
merger.
(L) Taxes are based on Bristol's effective 1997 rate of 39.9%.
30
<PAGE> 34
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following tables set forth our selected historical financial data for
three months ended March 31, 1998 and 1997, the years ended December 31, 1997
and 1996 and the 11 months ended December 31, 1995, unaudited pro forma
financial data for the year ended December 31, 1995 and historical combined
financial data for Harvey Hotel Companies, Bristol's predecessor, for the two
years ended December 31, 1994 and 1993, and for the month ended January 31,
1995. Although we are a new company, we have adopted Bristol's historical
financial statements in this document because we are succeeding to Bristol's
business and operations, except for its owned hotels and certain liabilities
that will be assumed by FelCor as a result of the merger, and our financial
statements are very similar to Bristol's. The historical financial information
has been derived from Bristol's audited consolidated and combined financial
statements included elsewhere in this document. The unaudited pro forma
financial data for the year ended December 31, 1995 gives effect to the February
1995 combination of Harvey Hotel Companies and United Inns, Inc., certain
financing transactions entered into in late 1995 and Bristol's December 1995
initial public offering, as if all these transactions had been completed at the
beginning of the period, but do not give pro forma effect to Bristol's
acquisition of Holiday Inn's North American Hotels in April 1997. Pro forma
operating results for 1995 include the operations of the Sheraton -- Atlanta, a
368 room hotel purchased by Bristol in June 1995 and exclude the operations of
the Holiday Inn-West Loop, which was sold by Bristol in July 1995. The selected
balance sheet data is presented as of March 31, 1998, December 31, 1997, 1996
and 1995, and for Harvey Hotel Companies as of December 31, 1994 and 1993.
The pro forma financial information presented is not necessarily indicative
of what the actual financial position and results of operations would have been
as of and for the periods indicated, nor does it purport to represent our future
financial position and results of operations.
31
<PAGE> 35
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PREDECESSOR
---------------------------------------- ------------ -----------
THREE MONTHS MONTH
ENDED YEAR ENDED ELEVEN MONTHS ENDED
MARCH 31, DECEMBER 31, ENDED YEAR ENDED JANUARY 31,
------------------ ------------------- DECEMBER 31, DECEMBER 31, -----------
1998 1997 1997 1996 1995 1995(1) 1995
-------- ------- -------- -------- ------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rooms.......................... $120,372 $41,731 $377,380 $149,794 $115,771 $127,670 $4,006
Food, beverage and other....... 38,430 16,530 127,138 62,046 49,424 54,012 1,937
-------- ------- -------- -------- -------- -------- ------
Total revenue............ 158,802 58,261 504,518 211,840 165,195 181,682 5,943
-------- ------- -------- -------- -------- -------- ------
Operating Costs and Expenses:
Departmental expenses:
Rooms........................ 33,424 9,888 105,063 37,706 32,692 36,240 1,124
Food, beverage and other..... 23,694 9,616 79,092 35,810 31,376 34,312 1,055
Undistributed operating
expenses:
Administration and general,
marketing.................. 27,117 8,954 78,694 33,821 28,254 30,504 579
Property operating costs..... 24,474 8,326 79,633 28,402 24,738 26,804 629
Depreciation and
amortization............... 12,906 5,164 39,690 18,377 13,505 14,387 309
Corporate expense............ 6,290 3,012 24,450 10,958 8,035 8,691 315
-------- ------- -------- -------- -------- -------- ------
Operating income........... 30,897 13,301 97,896 46,766 26,595 30,744 1,932
-------- ------- -------- -------- -------- -------- ------
Other (income) expenses:
Interest expense............. 12,513 6,278 44,591 18,616 18,374 16,133 652
Other non-operating (income)
expenses................... -- -- -- -- 430 93 --
Equity in income of joint
ventures................... (554) -- (1,916) -- -- -- --
Income taxes................. 7,576 2,613 22,007 10,401 2,822 5,226 --
-------- ------- -------- -------- -------- -------- ------
Income before extraordinary
item........................... 11,362 4,410 33,214 17,749 4,969 9,292 $1,280
Extraordinary loss on early
extinguishment of debt, net of
income taxes................... -- -- (12,741) -- (1,908) --
-------- ------- -------- -------- -------- -------- ------
Net income....................... $ 11,362 $ 4,410 $ 20,473 $ 17,749 $ 3,061 $ 9,292 --
======== ======= ======== ======== ======== ======== ======
Earnings per common and common
equivalent share:
Income before extraordinary
items:
Basic........................ $ 0.26 $ 0.18 $ 0.89 $ 0.71 $ 0.28 $ 0.37
Diluted...................... $ 0.26 $ 0.17 $ 0.87 $ 0.70 $ 0.28 $ 0.37
Net income
Basic........................ $ 0.26 $ 0.18 $ 0.55 $ 0.71 $ 0.17 $ 0.37
Diluted...................... $ 0.26 $ 0.17 $ 0.53 $ 0.70 $ 0.17 $ 0.37
Weighted average number of common
and common equivalent shares
outstanding:
Basic........................ 43,719 24,849 37,359 24,849 17,858 24,849
Diluted...................... 44,535 25,797 38,332 25,526 17,909 24,892
<CAPTION>
PREDECESSOR
-----------------
YEAR ENDED
DECEMBER 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
OPERATING DATA:
Revenue:
Rooms.......................... $44,972 $39,968
Food, beverage and other....... 25,379 24,054
------- -------
Total revenue............ 70,351 64,022
------- -------
Operating Costs and Expenses:
Departmental expenses:
Rooms........................ 10,344 9,469
Food, beverage and other..... 14,835 14,600
Undistributed operating
expenses:
Administration and general,
marketing.................. 11,369 10,285
Property operating costs..... 10,563 10,086
Depreciation and
amortization............... 4,041 3,963
Corporate expense............ 3,761 2,827
------- -------
Operating income........... 15,438 12,792
------- -------
Other (income) expenses:
Interest expense............. 7,631 7,737
Other non-operating (income)
expenses................... (337) (241)
Equity in income of joint
ventures................... -- --
Income taxes................. -- --
------- -------
Income before extraordinary
item........................... $ 8,144 $ 5,296
Extraordinary loss on early
extinguishment of debt, net of
income taxes...................
------- -------
Net income....................... -- --
======= =======
Earnings per common and common
equivalent share:
Income before extraordinary
items:
Basic........................
Diluted......................
Net income
Basic........................
Diluted......................
Weighted average number of common
and common equivalent shares
outstanding:
Basic........................
Diluted......................
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------
MARCH 31, DECEMBER 31, DECEMBER 31,
----------- ---------------------------------- --------------------
1998 1997 1996 1995 1994 1993
----------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 79,649 $ 86,167 $ 4,666 $ 7,906 $ 4,118 $ 395
Property and equipment -- net............. 1,468,407 1,439,167 552,564 470,705 80,635 72,387
Total assets.............................. 1,693,167 1,666,638 592,788 512,901 109,874 99,635
Long-term debt, including current
portion................................. 714,890 717,319 232,694 170,544 114,054 112,963
Total equity.............................. 661,873 648,794 252,157 236,122 (11,988) (20,604)
</TABLE>
- ---------------
(1) Pro forma results for 1995 include the operations of the Sheraton-Atlanta, a
368 room hotel purchased by Bristol in June 1995 and exclude the operations
of the Holiday Inn-West Loop, which was sold by Bristol in July 1995.
32
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
OVERVIEW
The Company is succeeding to Bristol's business and operations.
Accordingly, Bristol's historical financial statements most accurately reflect
the historical operation of the business to which the Company will succeed. The
material difference between Bristol's business and that of the Company is that
Bristol owns the hotels it operates while following the spin-off the Company
will be the tenant and manager of the same hotels that will then be owned by
others. The principal effect of this difference is that Bristol's results of
operations reflect mortgage interest and other costs and expenses associated
with the ownership of the hotels instead of the rental payments and other costs
and expenses passed through to the tenant that the Company will incur under the
leases.
Historical results for the three months ended March 31, 1998 and the year
ended December 31, 1997, include the 37 hotels owned by Bristol as of January 1,
1996 (the "Original Bristol Portfolio") and Holiday Inn -- Plano, as well as the
assets (the "Holiday Inn Assets") acquired by Bristol in the Holiday Acquisition
completed in April, 1997 (except for Holiday Inn -- San Jose) and the three
individual hotels acquired during 1997 (the "1997 Single Asset Purchases"), from
their respective acquisition dates. Historical results for the year ended
December 31, 1997, also reflect the management and the 50% joint venture
ownership of the Holiday Inn -- San Jose from the Holiday Inn Acquisition date
to November 1997 and the full ownership of the hotel for the month of December
1997. Historical results for the three months ended March 31, 1997 and the year
ended December 31, 1996, include the Original Bristol Portfolio and Holiday
Inn -- Plano (as of May 31, 1996). The 45 owned hotels included in the Holiday
Inn Assets are referred to below as the "Acquired Hotels."
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1998, COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1997
Total revenue increased 172.6% to $158.8 million for the three months ended
March 31, 1998, as compared to 1997 as a result of the inclusion of the Holiday
Inn Assets, and the 1997 Single Asset Purchases as well as the improved
operating performance of the Original Bristol Portfolio. Revenue per available
room ("RevPAR") for the Original Bristol Portfolio was $50.56 for the three
months ended March 31, 1998, compared to $48.31 for 1997, representing a 4.7%
increase. The improvement in RevPAR is primarily attributable to the successful
repositioning and/or redevelopment of several hotels in the Original Bristol
Portfolio. Occupancy and average daily room rate ("ADR") for the Original
Bristol Portfolio was 67.8% and $74.60, respectively, for the three months ended
March 31, 1998, compared to 70.3% and $68.73, respectively, for the three months
ended March 31, 1997. The 2.5 percentage point ("pp") decline in occupancy is
primarily attributable to an increase in rooms out of service as a result of the
Redevelopment and Rebranding Program. RevPar increased 8.9% for the three months
ended March 31, 1998 compared to the three months ended March 31, 1997, for the
hotels in the Original Bristol Portfolio which were not undergoing renovations
during 1998.
Rooms revenue as a percent of total revenue was 75.8% for the three months
ended March 31, 1998, as compared to 71.6% for the three months ended March 31,
1997, resulting from the Acquired Hotels having proportionally lower food and
beverage business than the Original Bristol Portfolio. This is also evidenced by
the 188.4% increase in rooms revenue for the three months ended March 31, 1998,
compared to the same period in 1997 as compared to a 124.8% increase in food and
beverage revenue.
Food and beverage revenue increased primarily due to the increase in the
number of hotels and also due to higher food and beverage revenues for the
Original Bristol Portfolio. Food and beverage revenue for the Original Bristol
Portfolio for the three months ended March 31, 1998 was $13.5 million,
representing a 7.9% increase over first quarter 1997. This increase is primarily
attributable to the effective redevelopment of several hotels in the Original
Bristol Portfolio.
33
<PAGE> 37
The increase in management fees relates primarily to the addition of the 15
management contracts acquired in the Holiday Inn Acquisition offset by the loss
of a management contract previously held by Bristol in the first half of 1997.
Gross operating margin (consisting of total revenue less department
expenses, administrative and general, marketing and property operating costs
divided by total revenue) was 31.5% for the three months ended March 31, 1998,
compared to 36.9% for the three months ended March 31, 1997. The 5.4 pp decrease
in gross operating margin is primarily attributable to declines in departmental
operating margins and higher property operating costs related to property taxes
and land rentals. Declines in departmental margins relate primarily to the
integration of the Acquired Hotels, which have had historically lower margins.
Property tax increases relate to increased valuations as a result of the
significant capital improvements for several hotels in the Original Bristol
Portfolio as well as an increase in tax rates for certain hotels. Increased land
rentals relate to the Acquired Hotels having a proportionately higher number of
ground leases than the Original Bristol Portfolio.
Depreciation and amortization increased $7.7 million for the three months
ended March 31, 1998, compared to 1997 as a result of the Holiday Inn
Acquisition and the 1997 Single Asset Purchases. Depreciation expense also
increased as a result of the substantial capital improvements at several hotels
in the Original Bristol Portfolio.
Corporate expenses for the three months ended March 31, 1998, were $6.3
million compared to $3.0 million for 1997. The increase relates primarily to the
increase in the number of corporate employees and related costs and increased
travel expenses as a result of the Holiday Inn Acquisition.
Interest expense for the three months ended March 31, 1998, increased $6.2
million to $12.5 million from $6.3 million for the three months ended March 31,
1997. The increase relates primarily to the additional debt incurred to finance
the Holiday Inn Acquisition. The increase was offset by capitalized interest on
assets under redevelopment of approximately $2.7 million during the three months
ended March 31, 1998.
Equity in income of joint ventures of $.6 million for the three months
ended March 31, 1998 represents the Company's 50% interest in the earnings of
two joint ventures acquired in the Holiday Inn Acquisition.
As a result of the factors described above, net income increased 157.6% to
$11.4 million for the three months ended March 31, 1998, compared to the three
months ended March 31, 1997 and diluted earnings per share increased 52.9% to
$.26 for the three months ended March 31, 1998, compared to $.17 for 1997.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED
DECEMBER 31, 1996
Total revenue increased 138.2% to $504.5 million for the year ended
December 31, 1997, as compared to 1996 as a result of the inclusion of the
Holiday Inn Assets and the 1997 Single Asset Purchases from their respective
acquisition dates and the improved operating performance of the Original Bristol
Portfolio. Revenue per available room ("RevPAR") for the Original Bristol
Portfolio was $47.53 for the year ended December 31, 1997, compared to $43.92
for 1996, representing an 8.2% increase. The improvement in RevPAR is primarily
attributable to the successful repositioning and/or redevelopment of several
hotels in the Original Bristol Portfolio. Occupancy and average daily room rate
("ADR") for the Original Bristol Portfolio was 70.0% and $67.91, respectively,
for the year ended December 31, 1997, compared to 64.4% and $68.21,
respectively, for 1996. The change from 1996 to 1997 was also impacted by
nonrecurring items in 1996 including the Atlanta Olympics and the renovations of
the hotels in the Original Bristol Portfolio. The Atlanta Olympics had a
positive impact on results in 1996 due to the 100% occupancy experienced by the
ten Atlanta hotels in the Original Bristol Portfolio during the 20 days of the
Olympic games. Results for 1996 were also impacted by the renovations of 13 of
the hotels in the Original Bristol Portfolio throughout the year.
Rooms revenue as a percent of total revenue was 74.8% for the year ended
December 31, 1997, as compared to 70.7% for the year ended December 31, 1996,
resulting from the Acquired Hotels having proportionally lower food and beverage
business than the Original Bristol Portfolio. This is also evidenced by the
151.9% increase in rooms revenue for the year ended December 31, 1997, compared
to the same period in 1996 as compared to a 108.8% increase in food and beverage
revenue.
34
<PAGE> 38
Food and beverage revenue increased primarily due to the increase in the
number of hotels and also due to higher food and beverage revenues for the
Original Bristol Portfolio. Food and beverage revenue for the Original Bristol
Portfolio for the year ended December 31, 1997 was $51.6 million, representing a
12% increase over 1996. This increase is primarily attributable to the
redevelopment of several hotels in the Original Bristol Portfolio.
The increase in management fees relates primarily to the addition of the 15
management contracts acquired in the Holiday Acquisition offset by the loss of
two management contracts held by Bristol in 1996.
Gross operating margin (consisting of total revenue less department
expenses, administrative and general, marketing and property operating costs,
divided by total revenue) was 32.1% for the year ended December 31, 1997,
compared to 35.9% for the year ended December 31, 1996. The 3.8 percentage point
decrease in gross operating margin is primarily attributable to declines in
departmental operating margins and higher property operating costs related to
property taxes and land rentals. Declines in departmental margins relate
primarily to the integration of the Acquired Hotels, which have had historically
lower margins. Property tax increases relate to increased valuations as a result
of the significant capital improvements for several hotels in the Original
Bristol Portfolio as well as an increase in tax rates for certain hotels.
Increased land rentals relate to the Acquired Hotels having a proportionately
higher number of ground leases than the Original Bristol Portfolio.
Depreciation and amortization increased $21.3 million for the year ended
December 31, 1997 compared to 1996 as a result of the Holiday Acquisition and
the 1997 Single Asset Purchases. Depreciation expense also increased as a result
of the substantial capital improvements at several hotels in the Original
Bristol Portfolio. Following the spin-off, the Company will not have
depreciation and amortization expense, but will have lease rental expense. See
"Pro Forma Financial Data."
Corporate expenses for the year ended December 31, 1997 were $24.5 million
compared to $11.0 million for 1996. Approximately $3.1 million of the increase
relates to one-time costs incurred during the second quarter of 1997 for the
closing and integration of the Holiday Acquisition. The remaining increase
relates primarily to the increase in the number of corporate employees and
related costs and increased travel expenses as a result of the Holiday
Acquisition.
Interest expense for the year ended December 31, 1997 increased $26.0
million to $44.6 million primarily as a result of additional debt incurred to
finance the Holiday Acquisition as well as borrowings increasing ratably in 1996
to fund acquisitions and certain redevelopment costs. Following the spin-off,
the Company's interest expense will decrease substantially. See "Pro Forma
Financial Data."
Equity in income of joint ventures of $1.9 million for the year ended
December 31, 1997 represents Bristol's 50% interest in the earnings of the three
joint ventures acquired in the Holiday Inn Acquisition (which will be acquired
by FelCor as a result of the Merger).
As a result of the factors described above, historical income before
extraordinary items increased 87.1% to $33.2 million for the year ended December
31, 1997, compared to the year ended 1996 and diluted earnings per share
increased 24.3% to $.87 for the year ended December 31, 1997, compared to $.70
for 1996. Recurring earnings for the year ended December 31, 1997 of $35.1
million, which exclude the extraordinary item of $12.7 million and the one-time
costs related to the Holiday Acquisition ($1.8 million, net of tax), represents
a 138.8% increase over recurring earnings for the year ended December 31, 1996
of $14.7 million, which excludes a one-time gain related to the sale of
marketable securities ($.3 million, net of tax), the positive impact of the
Atlanta Olympics ($2.2 million, net of tax), and the litigation settlement gain
($.6 million, net of tax). Recurring diluted earnings per share of $.92 for the
year ended December 31, 1997, represents a 58.6% improvement over 1996.
Following the Spin-off, the Company's earnings will be significantly different
by reason of the factors referred to above. See "Pro Forma Financial Data."
35
<PAGE> 39
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1996 COMPARED WITH PRO FORMA
YEAR ENDED
DECEMBER 31, 1995
Revenues increased from $181.7 million for the pro forma year ended
December 31, 1995 to $211.8 million, an increase of $30.1 million, or 16.6%, for
the year ended December 31, 1996. The increase is primarily attributable to the
addition of the Holiday Inn Plano in May 1996, the completion of the renovation
and redevelopment of 20 hotels the Original Bristol Portfolio and the
application of Bristol's operating strategies to the 26 hotels acquired in 1995.
Seven of the hotels in the Original Bristol Portfolio that had substantially
completed renovations by the end of 1995 (the "Phase I" hotels) posted gains in
total hotel revenue in excess of 60%, with only a 5.3% increase in available
rooms from 1995 to 1996. The positive impact of applying Bristol's operating
strategies to these hotels is also evidenced by the 17% increase in occupancy
for the Phase I hotels and a 16.1% increase in hotel revenue for those hotels.
(Although Bristol took over management of these hotels in February 1995, the
operating strategy integration was a several month process.) The Atlanta
Olympics also had a positive impact on 1996 results as compared to 1995.
Increases in total hotel revenues were partially offset by declines in total
revenues for 13 of the hotels in the Original Bristol Portfolio which were
undergoing renovations in 1996. The increase in total revenues reflects
increases in all revenue categories, as discussed below.
Hotel room revenues were $149.8 million for the year ended December 31,
1996, an increase of $22.1 million, or 17.3%, from the pro forma year ended
December 31, 1995, due primarily to improved occupancy and average daily room
rates of 67.4% and $68.24, respectively, for the year ended December 31, 1996,
as compared to 64.1% and $62.67, respectively, for the pro forma year ended
December 31, 1995. Rooms department operating margins increased to 74.8% from
71.6%, benefiting from a higher number of occupied rooms and the availability of
rooms in 1996 which were undergoing renovation and unavailable during 1995.
Food and beverage revenues improved by $4.7 million to $44.3 million for
the year ended December 31, 1996, from $39.6 million for the pro forma year
ended December 31, 1995, due primarily to the higher occupancy levels in Bristol
hotels and increased focus on banquet and catering business for the Original
Bristol Portfolio. Food and beverage department margins increased to 29.5% from
24.8%, primarily as a result of applying Bristol's operating strategies to these
hotels.
Other revenues increased 23.1%, or by $3.3 million, to $17.7 million for
the year ended December 31, 1996. Bristol sold marketable securities in the
third quarter of 1996, resulting in a gain of approximately $0.5 million. In
addition, Bristol recognized gains of $0.9 million and $0.5 million as a result
of the settlement of certain litigation and the early termination of a
management agreement, respectively. Other revenues also increased as a result of
improved occupancy, and the increased emphasis on maximizing telephone revenue.
Gross operating income (consisting of total revenue less rooms, food,
beverage and other expense) was $138.3 million, a $27.2 million improvement for
the year ended December 31, 1996, as compared to the pro forma year ended
December 31, 1995. Gross operating margin for the year ended December 31, 1996
was 65.3% as compared to 61.2% for the pro forma period ended December 31, 1995,
an improvement of 6.7% as a result of the factors noted above.
Operating income increased to $46.8 million for the year ended December 31,
1996, from $30.7 million for the pro forma year ended December 31, 1995. This
$16.1 million, or 52.4%, increase was due primarily to increased revenues and
the improvements in departmental performance noted above. In addition,
administration and general and marketing expenses have stabilized. Combined
administrative and general and marketing expenses increased 10.9% for the year
ended December 31, 1996, compared to the pro forma year ended December 31, 1995,
in contrast to a 14.2% increase from the pro forma year ended December 31, 1994,
as compared to 1995.
Corporate expenses increased to $10.9 million for the year ended December
31, 1996, as compared to $8.7 million for the pro forma year ended December 31,
1995. The increase of $2.2 million is primarily related to additional costs
incurred during 1996 to establish Bristol as a public entity as well as costs
incurred in connection with the establishment of an acquisition department.
36
<PAGE> 40
Depreciation expense was $18.4 million for the year ended December 31,
1996, a $3.9 million increase from the pro forma year ended December 31, 1995.
The increase is a result of the renovation costs associated with certain United
Hotels being placed in service during 1996. Following the spin-off, the Company
will not have depreciation and amortization expense, but will have lease rental
expense. See "Pro Forma Financial Data."
Interest expense increased by $2.5 million to $18.6 million for the year
ended December 31, 1996, compared to the pro forma year ended December 31, 1995.
This increase was due primarily to increased borrowings during 1996 for the
costs of the United Hotels renovations and the acquisition of the Holiday
Inn -- Plano in May 1996. Following the spin-off, the Company's interest expense
will decrease substantially. See "Pro Forma Financial Data."
As a result of the factors described above, net income increased to $17.7
million for the year ended December 31, 1996, from $9.3 million for the pro
forma year ended December 31, 1995, an increase of 91.0%. Following the
Spin-off, the Company's earnings will be significantly different by reason of
the factors referred to above. See "Pro Forma Financial Data."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are expected to be cash on
hand, cash flow from operations and borrowings under a $40 million revolving
credit facility (the "Credit Facility"), which Bankers Trust Company has
committed to provide or arrange for, and which will be effective at the time the
spin-off is completed. The borrowers under the Credit Facility (the "Borrowers")
will include the Company's primary management company and all our other
subsidiaries that own or lease hotels. The Borrowers will be jointly and
severally liable for all obligations under the Credit Facility. The Credit
Facility will be secured by essentially all of the Company's assets, including
the stock of its subsidiaries, and all the assets of the Company's subsidiaries,
including their rights under leases with FelCor and other owners. The Credit
Facility will also be guaranteed by essentially all of the Company's
subsidiaries that are not Borrowers. Loans under the Credit Facility will bear
interest at a rate of LIBOR plus 1.875% or Base Rate plus 0.875% and will mature
one year after the spin-off is completed, with two one-year extension options.
The $40 million of commitments under the Credit Facility may be used for working
capital and other general corporate purposes. Additionally, a sub-limit of up to
$20 million of such commitments is available to issue letters of credit to
secure the Company's obligations under the leases with FelCor and other owners,
subject to the reduction of such sub-limit to reflect the Company's achievement
of liquid net worth requirements related to such leases. The Credit Facility
contains representations and warranties, covenants and events of default
customary for credit facilities of this type. In particular, the Credit Facility
contains covenants requiring the Company to maintain a minimum consolidated net
worth and to satisfy, on a consolidated basis, certain other financial ratio
tests, including a maximum total leverage ratio test, a minimum fixed charges
coverage ratio test and a minimum debt service coverage ratio test. The Credit
Facility also contains covenants, among others, limiting the Company's ability
and the ability of our subsidiaries to incur additional indebtedness, to place
liens on assets, to pay dividends and make distributions, to make investments,
to incur contingent obligations, to sell and acquire assets, to enter into
mergers or make other fundamental organizational changes, to engage in
transactions with shareholders and affiliates, to change the nature of the
Company's business, and to amend or otherwise change the terms of the
contractual arrangements relating to the leases. Based on these sources of
liquidity, the Company believes that it will have access to sufficient capital
resources to operate and manage the hotels in its portfolio for the foreseeable
future.
The Company currently has no material commitments for capital expenditures.
37
<PAGE> 41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Executive officers and directors will receive Company shares in the
spin-off in respect of their Bristol shares. The following table sets forth the
number of Company common shares that will be beneficially owned immediately
following the spin-off and the subsequent purchase of the Bass companies' shares
in excess of 9.9% of the Company's total shares by each person known to us to
own beneficially more than 5% of Bristol shares, each director and Named
Executive Officer of the Company and all our directors and executive officers as
a group. The Company is considering a stock purchase plan that would permit
certain of its salaried employees and directors to purchase Company shares at a
fixed price, which may be less than the then current trading price, and possibly
with financing provided or arranged by the Company. The table does not give
effect to any such purchases. Pro forma beneficial ownership percentages are
calculated giving effect to the spin-off ratio.
Except as otherwise indicated, the address for each of the individuals
named below is 14295 Midway Road, 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, if that person has the right to acquire the
shares within 60 calendar days after such date.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF COMPANY
COMPANY COMMON SHARES
COMMON SHARES OUTSTANDING
------------- -------------
<S> <C> <C>
United/Harvey Holdings, L.P.(1)............................. 7,029,839 40.6%
4200 Texas Commerce Tower W
2200 Ross Avenue
Dallas, Texas 75201
Bass plc.................................................... 1,713,629 9.9%
20 North Audley Street
London, W1Y1WE
Baron Capital(2)............................................ 2,692,100 15.6%
767 Fifth Avenue, 24th Floor
New York, New York 10153
Cohen & Steers Capital Management, Inc.(3).................. 1,219,250 7.0%
757 Third Avenue
New York, New York 10017
John A. Beckert(4).......................................... 424,302 2.5%
Richard N. Beckert(5)....................................... 167,380 *
Reginald K. Brack, Jr.(6)................................... 4,800 *
David A. Dittman(11)........................................ 11,250 *
J. Peter Kline(4)........................................... 671,801 3.9%
Jeffrey P. Mayer(7)......................................... 34,500 *
Robert L. Miars(8).......................................... 488,577 2.8%
Thomas R. Oliver(9)......................................... -- --
James J. Pinto.............................................. -- --
Kurt C. Read(10)............................................ -- --
Robert A. Whitman(10)....................................... -- --
All directors and executives officers as a group (11
persons).................................................. 1,802,610 10.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 671,395 shares which may be purchased upon exercise of a call
option.
(2) As reported in a Schedule 13G/A filed with the SEC on February 13, 1998.
(3) As reported in a Schedule 13G/A filed with the SEC on February 12, 1998.
(4) Includes 75,000 shares which each of Messrs. Kline and J. Beckert has the
right to acquire under options.
(5) Includes 78,000 shares which Mr. R. Beckert has the right to acquire
through the exercise of options.
38
<PAGE> 42
(6) Includes 3,750 shares which Mr. Brack will have the right to acquire after
the 1998 Bristol Annual Meeting under options.
(7) Includes 34,500 shares which Mr. Mayer has the right to acquire under
options.
(8) Includes 1,500 shares which Mr. Miars has the right to acquire under
options.
(9) Mr. Oliver is a senior executive of Holiday Hospitality. He disclaims
beneficial ownership of the shares beneficially owned by Bass.
(10) Messrs. Read and Whitman are senior executives in a firm that controls
United/Harvey Holdings. They disclaim beneficial ownership of the shares
beneficially owned by that stockholder.
(11) Includes 11,250 shares which Mr. Dittman has the right to acquire under
options, including 3,750 shares which Mr. Dittman will have the right to
acquire after the 1998 Bristol Annual Meeting.
We have granted each of United/Harvey Holdings and the Bass companies
demand registration rights for offerings of at least $5 million in equity
securities and piggyback registration rights under certain circumstances. We
have also agreed to pay the expenses related to such registrations, other than
underwriting commissions, and to indemnify these stockholders for any securities
law liabilities resulting from such sales on terms that are customary for
agreements of this type.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the current
and expected future directors and executive officers. At or before the spin-off,
the composition of the Board will be changed to include the directors listed
below. The Board will be classified into three classes, with the initial members
to serve for the periods identified below. Future directors will be elected for
three-year terms. Officers serve at the discretion of the board.
<TABLE>
<CAPTION>
YEAR TERM
NAME POSITION EXPIRES
---- -------- ---------
<S> <C> <C>
J. Peter Kline....................... Chairman, Chief Executive Officer and 1999
Director
John A. Beckert...................... President, Chief Operating Officer and 1999
Director
Robert A. Whitman.................... Director (effective upon the spin-off) 1999
Reginald K. Brack, Jr. .............. Director (effective upon the spin-off) 2000
James J. Pinto....................... Director (effective upon the spin-off) 2000
David A. Dittman..................... Director (effective upon the spin-off) 2001
Thomas R. Oliver..................... Director (effective upon the spin-off) 2001
Kurt C. Read......................... Director (effective upon the spin-off) 2001
Richard N. Beckert................... Senior Vice President -- Administration
Jeffrey P. Mayer..................... Senior Vice President and Chief Financial
Officer
Robert L. Miars...................... Senior Vice President -- Design,
Construction & Engineering
</TABLE>
J. Peter Kline, 50, has been a director of the Company since we were formed
in March 1998. Since February 1995, Mr. Kline has been a Director of Bristol.
Since 1981, Mr. Kline has been the President and Chief Executive Officer of
Bristol (and its predecessor, Harvey Hotel Company).
John A. Beckert, 44, has been a director of the Company since we were
formed in March 1998. Since February 1995, Mr. Beckert has been a Director of
Bristol. Since 1981, Mr. Beckert has been the Chief Operating Officer and
Executive Vice President of Bristol (and its predecessor, Harvey Hotel Company).
Mr. Beckert is the brother of Richard N. Beckert, the Senior Vice President,
Administration of the Company.
Richard N. Beckert, 41, has been Senior Vice President -- Administration of
Bristol (and its predecessor, Harvey Hotel Company) since September 1994. Prior
thereto, Mr. Beckert served as Vice President --
39
<PAGE> 43
Development from 1992 to 1994, Regional Vice President from 1986 to 1992 and
General Manager for a Bristol hotel from 1983 to 1986. Richard N. Beckert is the
brother of John A. Beckert.
Jeffrey P. Mayer, 41, has been Senior Vice President and Chief Financial
Officer of Bristol since January 1996. Prior to joining Bristol, 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 Audit Manager with
Arthur Andersen & Company in Atlanta, Georgia.
Robert L. Miars, 48, has been Senior Vice President -- Design, Construction
& Engineering of Bristol since February 1995. Prior to joining Bristol, 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.
The following persons have consented to be elected as directors of the
Company upon consummation of the spin-off.
Robert A. Whitman, 44, has been President and Co-Chief Executive Officer of
The Hampstead Group since 1991. Prior to such period, Mr. Whitman was the
Managing Partner and Chief Executive Officer of Trammell Crow Ventures. Mr.
Whitman has served as Chairman of the Board of Malibu Entertainment Worldwide,
an AMEX-listed owner/operator of entertainment centers since 1996, and
previously served as Chairman of the Board of the Forum Group, Inc., a
Nasdaq-traded operator of retirement communities, from 1993 until the sale of
that company to Marriott International, Inc. in 1996. Mr. Whitman is a director
of Covey Leadership Center and served as a director of Wyndham Hotel Company
until the sale of Wyndham to Patriot American Hospitality, Inc. earlier this
year.
Reginald K. Brack, Jr., 60, has been a director of Bristol since May 1997.
Since July 1997, Mr. Brack has been the Chairman Emeritus of Time, Inc. From
December 1986 to July 1997, Mr. Brack was the Chairman and Chief Executive
Officer of Time, Inc.
James J. Pinto, 47, has been the President of the Private Finance Group
Corp., an investment firm, since 1990. He is also a Director of the following
public companies: Andersen Group, Inc. (electronics), Biscayne Holdings, Inc.
(apparel), Empire of Carolina, Inc. (toys) and National Capital Management Corp.
(finance). Mr. Pinto is J. Peter Kline's spouse's brother-in-law.
David A. Dittman, 52, has been a director of Bristol since December 1995.
Since 1990, Mr. Dittman is the Dean of the Cornell University School of Hotel
Administration and an E.M. Statler Professor.
Thomas R. Oliver, 57, is Chairman and Chief Executive Officer of Holiday
Hospitality. Mr. Oliver is also a member of the Bass plc Executive Committee and
Board of Directors. He previously was Chairman and CEO of AudioFAX, Inc. of
Atlanta, Georgia (a high-tech telecommunications company) and President and CEO
of VoiceCom (a supplier of large-scale messaging systems). Prior to joining
VoiceCom, Mr. Oliver held senior management positions at FedEx from 1978 to
1993, including serving as COO and Executive Vice President of Worldwide
Customer Operations for FedEx.
Kurt C. Read, 35, has been a director of Bristol since April 1997. Mr. Read
has been a Senior Vice President of The Hampstead Group since 1989, and is also
a director of Malibu Entertainment Worldwide.
COMPENSATION PLANS AND ARRANGEMENTS
The Company was formed in March 1998. None of our executive officers has
received compensation from us since we were formed. In the spin-off, we will
assume Bristol's obligations under its employment agreements with Messrs. Kline
and J. Beckert and initially will provide compensation to our executive officers
similar to that historically paid by Bristol to its executive officers.
Accordingly, the information in this section that relates to compensation paid
by Bristol is indicative of the types and amounts of compensation that the
Company initially expects to pay its executive officers. After the spin-off, the
Company's board or a compensation committee of the Board will establish
compensation policies that are appropriate for the Company's business.
40
<PAGE> 44
Bristol Executive Compensation. The following table sets forth information
regarding the principal position and compensation paid to Bristol's Chief
Executive Officer and each of the four other most highly compensated executive
officers of Bristol who are expected to be executive officers of the Company and
who earned at least $100,000 in total salary and bonus in 1997 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
--------------------------- ---- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
J. Peter Kline.................. 1997 $457,307 $91,461 30,000 $ 4,750
President and Chief 1996 250,502 69,350 -- --
Executive Officer 1995 231,353 87,183 225,000 2,073
John A. Beckert................. 1997 457,307 91,461 30,000 4,750
Chief Operating Officer and 1996 250,502 69,350 -- --
Executive Vice President 1995 231,353 79,724 225,000 2,072
Jeffrey P. Mayer(4)............. 1997 257,115 51,423 25,000 44,723
Senior Vice President and 1996 188,159 56,448 195,000 46,633
Chief Financial Officer 1995 -- -- -- --
Robert L. Miars................. 1997 229,604 68,881 20,000 4,750
Senior Vice President, 1996 144,503 35,037 15,000 --
Design, Construction &
Engineering 1995 126,422 74,282 49,500 --
Richard N. Beckert.............. 1997 220,386 44,077 20,000 3,649
Senior Vice President, 1996 160,503 44,384 30,000 --
Administration 1995 150,461 76,715 199,500 1,821
</TABLE>
- ---------------
(1) The bonus amounts for all years are based on amounts earned during the
calendar year regardless of when paid.
(2) Reflects options to acquire Bristol shares granted pursuant to Bristol's
1995 Equity Incentive Plan, adjusted to reflect the 1997 stock split, but
does not reflect the spin-off or the merger.
(3) Consists entirely of contributions by Bristol to Bristol's 401(k) plan
except for Mr. Mayer, whose 1997 other compensation consists of $3,462 of
contributions to Bristol's 401(k) and $41,261 for relocation expenses. Mr.
Mayer's 1996 other compensation consists entirely of relocation expenses.
(4) Mr. Mayer joined Bristol in January 1996.
Bristol Stock Option Grants. The following table sets forth information
with respect to options granted to the executive officers of Bristol during 1997
(without adjustment for the spin-off or merger):
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(1)
OPTIONS TO EMPLOYEES OR BASE EXPIRATION -----------------------
NAME GRANTED IN 1997 PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Kline........ 30,000 6.09% $26.00 2007 $ 490,538 $1,243,119
John A. Beckert....... 30,000 6.09% 26.00 2007 490,538 1,243,119
Jeffrey P. Mayer...... 25,000 5.07% 26.00 2007 408,782 1,035,933
Robert L. Miars....... 20,000 4.06% 26.00 2007 327,025 828,746
Richard N. Beckert.... 20,000 4.06% 26.00 2007 327,025 828,746
------- ------ ---------- ----------
125,000 25.13% $2,043,908 $5,179,663
======= ====== ========== ==========
</TABLE>
- ---------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified
41
<PAGE> 45
compounded rates of appreciation over the term of the options. These numbers do
not take into account provisions of certain options providing for termination of
the option following termination of employment, nontransferability or vesting
over periods. The use of the assumed 5% and 10% returns is established by
the SEC and is not intended by Bristol to forecast possible future
appreciation of the price of Bristol shares.
Management Bonus Plan. Our Management Bonus Plan will provide key
management employees with cash bonuses based upon the achievement of specified
targets and goals for the Company and for the particular employees. Each of our
officers will be eligible to receive annual bonus awards based on the
achievement of criteria to be established by the compensation committee of our
board of directors.
401(k) Plan. Effective as of the spin-off, we will assume the profit
sharing plan with a 401(k) feature currently offered by Bristol to its employees
and executive officers. Eligible employees may contribute to the 401(k) plan
through salary deferral elections of not less than 1% nor more than 16% of their
salary. We will match contributions with $.50 for each dollar contributed, up to
6% of a participant's salary. Our Board may, in its discretion, grant additional
matching contributions, subject to statutory limitations. Contributions by
participants are 100% vested and contributions by the Company vest over a period
of years, becoming fully vested after five years of continuous employment. The
401(k) plan is intended to qualify under Section 401 of 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 Company 401(k) plan.
1998 Equity Incentive Plan. Our 1998 Equity Incentive Plan is designed to
attract and retain our qualified officers and other key employees. The plan
authorizes the grant of options to purchase Company shares, stock appreciation
rights, restricted stock, deferred stock, performance stock and performance
units. Our Board's Compensation Committee will administer the Equity Incentive
Plan and determine to whom awards will be granted, as well as the number of
shares, the exercise period and other terms and conditions of a particular
grant. No grants will be made under the plan unless the plan is approved by
Bristol's stockholders.
Possible Stock Purchase Plan. We are considering a stock purchase plan that
would permit certain of our employees and directors, including Mr. Kline and the
other executive officers, to purchase in the aggregate up to 2,250,000 Company
shares at a fixed price, which may be less than the then-current market price,
and possibly with financing provided or arranged by the Company.
1998 Non-Employee Directors Stock Option Plan. Our 1998 Non-Employee
Directors Stock Option Plan is designed to encourage our outside directors to
own Company shares. Only directors who are not employees of the Company or any
9% affiliate of the Company will be eligible to participate in this Plan. The
persons expected to receive options under the plan are Messrs. Brack, Pinto and
Dittman. No grants will be made under the plan unless the plan is approved by
Bristol's stockholders.
Under this plan, we will automatically grant to each eligible director an
option to purchase 25,000 Company shares on the date the individual becomes a
director and at each annual meeting while that person remains a director. A
portion of the initial option will become exercisable at each of the following
three annual stockholders meetings if the director has continued to serve as a
director during that time. The annual options will be fully exercisable on the
date of the next annual stockholders meeting. The exercise price of the options
granted under the Directors Plan will generally be the market value of the
Company common shares on the day the option is granted and may be paid in cash,
Company common shares held by the eligible director for at least six months, or
a combination of cash and stock. This plan will be administered by the Directors
Plan Committee of the Company's Board.
Directors are not presently expected to receive any compensation for their
services as directors other than the options.
Employment Agreements. Messrs. Kline and J. Beckert have entered into
employment agreements with Bristol that expire in 2001 and provide for the
payment of an annual base salary of at least $450,000 and provide for certain
severance benefits on a change in control of Bristol. We will assume the
obligations under those employment agreements in the spin-off. Messrs. Kline and
J. Beckert are also eligible to receive future
42
<PAGE> 46
grants of stock-based incentive awards and other benefits provided to our senior
executives, including bonuses of up to 50% of their base pay.
In connection with the spin-off and merger, Messrs. Kline and J. Beckert
waived the rights to treat the merger as a change of control, which otherwise
would have resulted in the acceleration of the vesting Bristol options
personally granted to them and would have given them certain severance rights.
Existing Bristol Options. The following table sets forth certain
information with respect to options to purchase Bristol shares held at December
31, 1997 by Bristol's Chief Executive Officer and each of the Named Executives.
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
--------------------------- ---------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
J. Peter Kline....................... 255,000 -- $4,756,013 --
John A. Beckert...................... 255,000 -- 4,756,013 --
Jeffrey P. Mayer..................... 181,000 39,000 2,331,885 $563,831
Robert L. Miars...................... 81,500 3,000 1,223,314 33,989
Richard N. Beckert................... 243,500 6,000 4,468,693 67,977
</TABLE>
- ---------------
(1) Represents the total number of Bristol shares subject to stock options held
by the Named Executives at December 31, 1997. These options were granted on
various dates during the years 1995 through 1997.
(2) The closing price per share of Bristol shares as reported in the NYSE
Composite Transactions Report on December 31, 1997 was $29.0625. The value
of the options is calculated on the basis of the difference between the
option exercise price and $29.0625 multiplied by the number of Bristol
shares covered by the option.
Treatment of Bristol Stock Options after the Spin-Off and Merger. Upon
consummation of the spin-off, each outstanding option to purchase Bristol shares
under Bristol's stock plans will be redenominated into two options which will be
continuations of the original Bristol options. One of such options will be an
option to purchase Company shares and the other will be an option to purchase
FelCor shares. Each will have the same terms and conditions as the original
Bristol option. The Company option will be exercisable for that number of
Company shares that would have been issued had the original Bristol option been
exercised in full immediately prior to the spin-off. The FelCor option will be
exercisable for that number of FelCor shares that would have been issued had the
original Bristol option been exercised in full immediately prior to the merger.
The exercise price for the original Bristol options will be allocated between
the Company option and the FelCor option based on the relative values of the
Company and Bristol immediately following the spin-off and, in the case of the
Company option, adjusted by the ratio of shares distributed in the spin-off,
and, in the case of the FelCor option, adjusted by the merger exchange ratio.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Preemptive Rights. The Bass companies and United/Harvey Holdings will have
the right, in connection with any offering of equity securities of the Company
in excess of $10 million, to purchase on the same terms as such offering a
sufficient number of Company shares to maintain their respective percentage
ownership of Company shares immediately prior to such offering. This right does
not apply if such acquisition would violate rules which prohibit a stockholder
from owning 10% or more of the outstanding shares of a REIT and a related tenant
at the same time. This right will expire as to any stockholder who does not
exercise such right three times or as to all of those stockholders if any of
them owns less than 25% of its initial ownership of Company shares in the
spin-off, after taking into consideration the Company's redemption of the Bass
companies' Company shares that exceed 9.9% of the outstanding Company shares.
43
<PAGE> 47
Board Representation and Voting. The Bass companies and United/Harvey
Holdings will each be entitled to nominate one director for election to serve on
the Company Board for so long as it owns at least 25% of the Company shares it
owned at the time of the spin-off, after taking into consideration the Company's
redemption of the Bass companies' shares that exceed 9.9% of the outstanding
Company shares. Each of such parties agreed to vote for the other's designee for
so long as they both own at least 25% of their initial shares. Our initial Board
includes two members originally nominated to the Bristol Board by the Bass
companies and United/Harvey Holdings.
Holiday Inn Franchise Arrangements. The Company has agreed to add 8,700
Holiday-branded rooms to its portfolio of owned or operated hotels over the next
five years. If the Company fails to meet certain threshold targets for adding
rooms over that period, it will be required to pay Holiday Hospitality damages
in accordance with a specified formula unless certain exceptions apply. The
Company's obligation will terminate upon the earlier to occur of (i) six months
after notice from Holiday Hospitality of termination of its obligation to offer
us acquisition and development opportunities, as described below, and (ii)
Holiday Hospitality no longer holding a controlling equity interest in the
entity that franchises Holiday Inn Hotel brands or in the entity that directly
or indirectly holds the intellectual property rights related to the Holiday Inn,
Holiday Inn Express or Crowne Plaza brands.
Bristol has entered into franchise agreements with Holiday Hospitality
which generally require the payment of franchise fees equal to 5% of room
revenues. Bristol paid $19.5 million in franchise fees in 1997. The Company will
assume Bristol's obligations under these franchise agreements in the spin-off.
Right of First Offer for New Opportunities. Holiday Hospitality has agreed
to offer the Company any opportunity it has to acquire or develop a midscale
lodging facility located in the United States or Canada. Holiday Hospitality
will be permitted, however, to (i) terminate such obligations at any time after
October 28, 1998, upon six months' advance notice to the Company, and (ii)
acquire up to five hotels and develop an unlimited number of hotels in the
United States and Canada for research and training other than in the same
geographic markets as the Company's hotels. If Holiday Hospitality proposes to
sell any research and training hotel that it owns, it must first offer to sell
such hotel to the Company. At the time of the spin-off, the Hotel Properties
Agreement, dated April 28, 1997, between Holiday Corporation and Bristol will
terminate. The Hotel Properties Agreement required Bristol to offer Holiday
Hospitality or its affiliates franchise rights with respect to at least 85% of
Bristol's owned and managed hotel rooms.
DESCRIPTION OF CAPITAL STOCK
This summarizes the material provisions of the Company's Certificate of
Incorporation and Bylaws as they are contemplated to be in effect at the time of
the spin-off, but may not contain all of the information that is important to
you. See "Where You Can Find More Information" for information about how to
obtain a copy of the documents referred to in this section. The rights described
below are subject to any rights that may be granted to any holder of preferred
shares.
CAPITAL STOCK
We will be authorized to issue 100.0 million common shares and 25.0 million
preferred shares.
Common Stock. Holders of common shares will be entitled to receive
dividends that have been legally declared by our Board and to share ratably in
the assets of the Company that remain after we have paid our known debts and
liabilities if we liquidate or dissolve. Holders of common shares will be
entitled to one vote for each common share held by such holder on the record
date for the applicable stockholders meeting.
Preferred Stock. The preferred shares may be issued in one or more series,
with such rights and qualifications as our board of directors may determine
before such shares are issued.
Ownership Limit. Our Certificate of Incorporation will prohibit any person
from owning more than 9.9% of the outstanding shares of any class of our capital
stock before December 31, 2000 unless our Board previously approved such
ownership. Accordingly, United/Harvey Holdings and Baron Capital which will own
44
<PAGE> 48
40.6% and 15.6%, respectively, of our shares after the spin-off will be exempted
from the ownership limit. See "Security Ownership of Certain Beneficial Owners
and Management." We have the right to take any lawful action that we believe is
necessary or advisable to ensure compliance with the ownership limit, including
refusing to recognize or record any transfer of shares in violation of these
limitations. The distribution of shares in the spin-off is exempt from the
ownership limit.
The ownership limitation in our Certificate of Incorporation will be
similar in effect to the ownership limitation in FelCor's charter, which is
designed to assure its continued qualification as a REIT. The ownership limit
that will be in our Certificate of Incorporation is intended to aid in assuring
compliance by FelCor with the REIT requirements and to avoid further
concentration in the holdings of our shares. The ownership limit may have the
effect of discouraging or preventing a third party from attempting to gain
control of the Company without the approval of our Board of Directors.
Therefore, it is less likely that a change in control, even if beneficial to
stockholders, could be effected without the approval of our Board. See
"-- Additional Corporate Governance and Takeover-Related Matters."
If you hold or attempt to acquire shares in violation of the ownership
limit, any shares in excess of 9.9% of the total outstanding number of shares
will be transferred automatically and by operation of law to a charitable trust
for the benefit of a charitable beneficiary. The trustee will be entitled to
receive all dividends on, and exercise all voting rights of, the excess shares.
The trustee must sell the excess shares within 20 business days. You will have
no right or interest in such shares, except the right to receive from the
proceeds of any sale of the excess shares by the trustee the lesser of: (i) the
amount you paid for the excess shares (or the market value of the excess shares,
determined in accordance with the Company's Certificate of Incorporation, if you
received them by gift, bequest or otherwise without payment) and (ii) the amount
received by the trustee from a sale of such excess shares. Accordingly, if you
are the record owner of any excess shares you may suffer a financial loss if the
price at which the excess shares are sold by the trustee is less than what you
paid for them.
STOCK EXCHANGE LISTING
We have received approval to list our common stock for trading on the New
York Stock Exchange, subject to notice of the distribution.
There is currently no trading market for our shares. While the Company
shares were assigned an estimated value of $6.38 per share (or $3.19 per Bristol
share giving effect to the one-for-two spin-off distribution ratio) by the
Bristol board in connection with its evaluation of the merger, prices at which
our shares will trade may be higher or lower and will depend on many factors.
Until our shares are fully distributed and an orderly market develops, the
prices at which trading in our shares occur may fluctuate significantly. The
prices at which our stock trades will be determined by the marketplace and may
be influenced by many factors, including, among others, the depth and liquidity
of the market for our stock, investor perception of us and our businesses, our
dividend policy, interest rates and general economic and market conditions. See
"Risk Factors -- Absence of Prior Trading Market for Company Shares; Potential
Volatility."
SHARES AVAILABLE FOR RESALE
Company shares distributed to you in the spin-off may be traded freely and
without restriction if you are not deemed to be an "affiliate" of the Company
under the rules of the SEC. Persons who may be deemed to be affiliates of the
Company after the spin-off generally include individuals or entities that
control, are controlled by or are under common control with the Company, and may
include certain officers and directors of the Company and Bristol as well as
certain principal stockholders of the Company and Bristol. Persons who are
affiliates of the Company will be permitted to sell their Company shares only
pursuant to an effective registration statement or an exemption from the
registration requirements of the securities laws. We have granted the Bass
companies and United/Harvey Holdings, two of our major stockholders, demand and
piggyback registration rights.
45
<PAGE> 49
DIVIDENDS
Bristol did not pay any cash dividends since its initial public offering in
1995. We do not currently anticipate paying any cash dividends, but rather
intend to reinvest available cash in our business.
ADDITIONAL CORPORATE GOVERNANCE AND TAKEOVER-RELATED MATTERS
The Certificate of Incorporation and Bylaws of the Company will be amended
to change the Company's name to "Bristol Hotels & Resorts", and to provide for
the following matters:
Actions of Stockholders. Our Certificate of Incorporation, as amended, will
not permit actions to be taken by written consent. Stockholder actions may only
be taken at annual or special meetings of the stockholders called in accordance
with our Certificate of Incorporation and Bylaws. Special meetings of
stockholders may only be called by (i) the Chairman or a Vice Chairman of our
Board or the President of the Company and (ii) the Secretary of Company upon the
written request of a majority of the total number of the directors then in
office. Annual meetings may be called by a majority of the Board. Only business
that is specified in the notice of the annual or special meeting or properly
brought before the meeting by the presiding officer or by a majority of the
entire board may be discussed at any meeting.
The first annual meeting of our stockholders will be held in 1999, on a
date and at a time designated by the Board.
Board of Directors. The business and affairs of the Company are managed
under the direction of our Board, which initially will consist of eight members.
The size of our Board may be increased or decreased only by (i) a majority
of the total number of directors that the Company would have if there were no
vacancies on the Board or (ii) the holders of at least 80% of the voting stock,
voting together as a single class. The Board may not have fewer than three nor
more than 15 members.
Our Board is divided into three classes, as nearly equal in number as
possible, designated Class I, Class II, and Class III. The term for the
directors first appointed to Class I will expire at the annual meeting of
stockholders to be held in 1999, the term of the directors first appointed to
Class II will expire at the annual meeting of the stockholders to be held in
2000 and the term for the directors first appointed to Class III will expire at
the annual meeting of stockholders to be held in 2001. At any meeting of
stockholders at which directors are elected, the number of directors elected may
not exceed the largest number of directors then in office in either class who
are not standing for election at the meeting. Accordingly, it will not be
possible to change a majority of the members of the Board.
The Bylaws provide that, except as granted to the Bass companies and to
United/Harvey Holdings in the stockholders agreement, directors may be nominated
only by the Company's Board or by any stockholder who has delivered notice of
his nominee not less than 60 days prior to the annual meeting of stockholders.
If public announcement of the date of the annual meeting is not made at least 75
calendar days prior to the annual meeting, notice must be received not later
than the close of business on the tenth calendar day following the day on which
the announcement of the meeting date is made. The stockholder's notice must
contain certain information concerning the stockholder and the stockholder's
nominees, including their names and addresses, proof that the stockholder is a
stockholder of record and plans to appear in person or by proxy at the annual
meeting, the class and number of shares of Company stock owned by such
stockholder and the stockholder's nominees, any agreements between the relevant
parties pursuant to which the nomination is to be made, any other information
regarding the stockholder's nominees that would be required to be included in a
proxy statement soliciting proxies for the election of the stockholder's
nominees and the signed consent of each nominee to serve as a director of the
Company, if so elected. The presiding officer of the annual meeting may refuse
to acknowledge the nomination of any person not made in compliance with these
requirements or the requirements of the securities laws.
Directors are elected by a plurality vote of all votes cast at a meeting
and will hold office for a three-year term. Directors may be elected by the
stockholders only at an annual meeting of stockholders.
46
<PAGE> 50
Any vacancy that occurs on the Company's Board, including any vacancy that
results from an increase in the authorized number of directors, may be filled
only by a majority of the remaining directors then in office, even if less than
a quorum, or by a sole remaining director, except that any vacancy caused by the
death, removal or resignation of a director nominated by the Bass companies or
United/Harvey Holdings may only be filled by the person who nominated such
director for as long as the stockholders agreement is in effect. Any director
elected to fill a vacancy will hold office for the remainder of the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until the director's successor is elected and qualified. A decrease
in the number of the directors may not shorten the term of any director then in
office.
Any director may be removed from office with or without cause by a majority
of the entire Board or for cause by the stockholders. For the stockholders to
remove a director for cause, the notice of the annual or special meeting of the
stockholders must refer to the removal of such director and at least 80% of the
stockholders entitled to vote, voting together as a single class, must approve
such removal.
Indemnification of Officers and Directors. We have agreed to indemnify our
officers and directors to the maximum extent permitted or required under
applicable law. Delaware's corporation law permits us to indemnify our directors
and officers for liabilities, costs and expenses that such persons may incur as
a result of actions they may take in performing their duties as officers and
directors. In order to be indemnified under Delaware law, the person must have
acted in good faith and in a manner he believed was in, or not opposed to, the
best interests of the Company. In the case of any criminal proceeding, the
person must not have reasonable cause to believe that his conduct was unlawful.
In Delaware, if a person is found by a court to be liable to the corporation,
that court must approve any reimbursement of expenses to such person. The
foregoing limitations do not, however, apply to the indemnity contracts to which
all officers and directors are partners with the Company. Any amendment or
repeal of the Company's Certificate of Incorporation may not adversely affect
the rights of any person entitled to indemnification for any event occurring
prior to such amendment or repeal.
Amendment of the Bylaws. The Bylaws may be amended by the stockholders or
the Company's Board. Amendment by the stockholders must be approved at a meeting
where the notice of such meeting describes the proposed amendment. No amendment
adopted by the Board may conflict with any amendment adopted by the
stockholders.
Anti-Takeover Effects. All of the provisions discussed in this section, the
ownership limitation in our Amended Certificate of Incorporation and the ability
of FelCor to terminate the leases of the hotels might make it more difficult for
someone to obtain control of us unless the transaction is approved by our Board.
Certain of these provisions could also make it more difficult for a third party
to replace our management or Board without the approval of our Board of
Directors.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form 10 to register
the Company shares to be issued to you in the spin-off. As allowed by SEC rules,
this information statement does not contain all the information contained in the
registration statement or in the exhibits to the registration statement. For
further information you may read and copy documents at the principal office of
the SEC at 450 5th Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC at 7 World Trade Center, Suite 1300, New York, New York
10048, at Citicorp Center, Suite 1400, and 500 West Madison Street, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The SEC charges a fee for copies. Copies of this
material should also be available through the Internet by using the "Quick Forms
Lookup" at the SEC EDGAR Archive, the address of which is http://www.sec.gov. In
addition, our filings may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Following the spin-off, we will be required to file annual, quarterly and
other reports with the SEC. We will also be subject to the proxy rules and,
accordingly, will furnish audited financial statements to you in connection with
our annual meetings of stockholders.
47
<PAGE> 51
No person is authorized by Bristol or the Company to give any information
or to make any representations other than those contained in this information
statement, and, if given or made, you should not rely upon such information.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this information statement contains
forward-looking statements and information that are based on our current views
of the Company and our assumptions concerning future events. Forward-looking
statements are typically identified by the words "believe," "expect,"
"anticipate," "intend," "estimate," "project" and similar expressions. These
statements are subject to risks and uncertainties that could cause the Company's
actual operations and results of operations to differ materially from those
reflected in our forward-looking statements.
Forward-looking statements are not guarantees of future performance and are
subject to the Company achieving its business strategy and the costs and
expected benefits of that strategy and having sufficient cash flow and other
sources of cash to fund our lease payments, debt service requirements, working
capital needs and other significant expenditures. Forward-looking statements are
also based on what we anticipate future trends in the lodging industry will be
and how those will be affected by industry capacity, the seasonal nature of the
lodging industry, product demand and pricing and the other matters referred to
in the "Risk Factors" section of this document. Accordingly, you are cautioned
not to place undue reliance on our forward-looking statements.
48
<PAGE> 52
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
Pro Forma Financial Data.................................... 24
Management's Discussion and Analysis of Results of
Operations................................................ 33
Report of Independent Public Accountants.................... F-2
Report of Independent Accountants........................... F-3
Financial Statements
Consolidated Balance Sheets............................... F-4
Consolidated and Combined Statements of Income............ F-5
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-6
Consolidated and Combined Statements of Cash Flows........ F-7
Notes to Consolidated and Combined Financial Statements... F-8
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Bristol Hotel Company
We have audited the accompanying consolidated balance sheets of Bristol
Hotel Company (a Delaware corporation) as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bristol Hotel Company as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 6, 1998 (except with respect
to the matter discussed in Note 20 as
to which the date is March 25, 1998)
F-2
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Bristol Hotel Company
In our opinion, the accompanying consolidated statements of income, of
changes in stockholders' equity and of cash flows for Bristol Hotel Company and
its subsidiaries ("Company") and the combined statements of income and cash
flows for Harvey Hotel Companies ("Predecessor") present fairly, in all material
respects, the results of operations and cash flows of the Company and its
Predecessor for the eleven months ended December 31, 1995 and for the one month
ended January 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company and
its Predecessor's management; our responsibility is to express an opinion on
these 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. We have not audited the
consolidated financial statements of Bristol Hotel Company and its subsidiaries
for any period subsequent to December 31, 1995.
PRICE WATERHOUSE LLP
Dallas, Texas
February 23, 1996
F-3
<PAGE> 55
BRISTOL HOTEL COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 86,167 $ 4,666
Trading securities........................................ 103 116
Accounts receivable (net of allowance of $2,259 and
$344).................................................. 31,305 10,501
Inventory................................................. 8,286 3,320
Deposits.................................................. 7,569 5,404
Other current assets...................................... 1,626 950
---------- --------
Total current assets.............................. 135,056 24,957
---------- --------
Property and equipment (net of accumulated depreciation of
$76,172 and $31,071)...................................... 1,439,167 552,564
Other assets
Restricted cash........................................... 9,283 3,069
Investments in joint ventures, net........................ 12,396 --
Goodwill (net of accumulated amortization of $891)........ 52,773 --
Deferred charges and other noncurrent assets (net of
accumulated amortization of $1,965 and $2,144)......... 17,963 12,198
---------- --------
Total assets...................................... $1,666,638 $592,788
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 8,455 $ 15,769
Accounts payable and accrued expenses..................... 27,366 10,626
Accrued construction costs................................ 1,330 4,797
Accrued property, sales and use taxes..................... 15,911 7,346
Accrued insurance reserves................................ 9,530 6,920
Advance deposits.......................................... 1,156 278
---------- --------
Total current liabilities......................... 63,748 45,736
---------- --------
Long-term debt, excluding current portion................... 708,864 216,925
Deferred income taxes....................................... 242,530 75,619
Other liabilities........................................... 2,702 2,351
---------- --------
Total liabilities................................. 1,017,844 340,631
---------- --------
Common stock ($.01 par value; 150,000,000 shares authorized,
45,734,472 and 24,848,760 shares issued at December 31,
1997 and 1996, respectively, and 43,641,401 and 24,848,760
shares outstanding at December 31, 1997 and 1996,
respectively)............................................. 436 166
Additional paid-in capital.................................. 606,935 231,181
Cumulative translation adjustment........................... 286 --
Retained earnings........................................... 41,137 20,810
---------- --------
Total stockholders' equity........................ 648,794 252,157
---------- --------
Total liabilities and stockholders' equity........ $1,666,638 $592,788
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 56
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
HARVEY HOTEL COMPANIES (PREDECESSOR)
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HARVEY
BRISTOL HOTEL COMPANY HOTEL
------------------------------------------ COMPANIES
ELEVEN -----------
MONTHS MONTH
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUE:
Rooms..................................................... $ 377,380 $ 149,794 $ 115,771 $4,006
Food and beverage......................................... 92,596 44,344 36,070 1,505
Management fees........................................... 4,948 2,513 1,382 34
Other..................................................... 29,594 15,189 11,972 398
----------- ----------- ----------- ------
Total revenue....................................... 504,518 211,840 165,195 5,943
----------- ----------- ----------- ------
OPERATING COSTS AND EXPENSES:
Departmental expenses:
Rooms................................................... 105,063 37,706 32,692 1,124
Food and beverage....................................... 69,766 31,282 27,118 1,006
Other................................................... 9,326 4,528 4,258 49
Undistributed operating expenses:
Administrative and general.............................. 44,255 18,266 16,184 186
Marketing............................................... 34,439 15,555 12,070 393
Property operating costs................................ 44,303 17,499 16,313 360
Property taxes, rent and insurance...................... 35,330 10,903 8,425 269
Depreciation and amortization........................... 39,690 18,377 13,505 309
Corporate expense....................................... 24,450 10,958 8,035 315
----------- ----------- ----------- ------
Operating income............................................ 97,896 46,766 26,595 1,932
----------- ----------- ----------- ------
Other (income) expense:
Interest expense.......................................... 44,591 18,616 18,374 652
Equity in income of joint ventures........................ (1,916) -- -- --
Other..................................................... -- -- 257 --
----------- ----------- ----------- ------
Income before minority interest, income taxes, extraordinary
items and pro forma income taxes.......................... 55,221 28,150 7,964 1,280
Minority interest........................................... -- -- 173 --
----------- ----------- ----------- ------
Income before income taxes, extraordinary items and pro
forma income taxes........................................ 55,221 28,150 7,791 1,280
Income taxes................................................ 22,007 10,401 2,822 --
----------- ----------- ----------- ------
Income before extraordinary items and pro forma income
taxes..................................................... 33,214 17,749 4,969 1,280
Extraordinary loss on early extinguishment of debt, net of
tax....................................................... (12,741) -- (1,908) --
----------- ----------- ----------- ------
Net income before pro forma income taxes.................... $ 20,473 $ 17,749 $ 3,061 1,280
=========== =========== ===========
Pro forma income taxes (Unaudited).......................... 435
------
Net income after pro forma income tax expense (Unaudited)... $ 845
======
Earnings per common and common equivalent share:
Income before extraordinary item:
Basic................................................... $ 0.89 $ 0.71 $ 0.28 --
Diluted................................................. $ 0.87 $ 0.70 $ 0.28 --
Net income:
Basic................................................... $ 0.55 $ 0.71 $ 0.17 --
Diluted................................................. $ 0.53 $ 0.70 $ 0.17 --
Weighted average number of common and common equivalent
shares outstanding:
Basic..................................................... 37,359,364 24,848,760 17,857,936 --
Diluted................................................... 38,332,302 25,526,413 17,908,955 --
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-5
<PAGE> 57
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED CUMULATIVE RETAINED
------------------- PAID-IN GAIN (LOSS) TRANSLATION EARNINGS
SHARES AMOUNT CAPITAL ON SECURITIES ADJUSTMENT (DEFICIT) TOTAL
---------- ------ ---------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995......... 9,856,178 $ 99 $123,104 $ -- $ -- $ -- $123,203
Unrealized gain on securities,
net............................ -- -- -- 262 -- -- 262
Issuance of common stock.......... 6,709,662 67 109,529 -- -- -- 109,596
Net of income..................... -- -- -- -- -- 3,061 3,061
---------- ---- -------- ----- ---- ------- --------
Balance at December 31, 1995........ 16,565,840 166 232,633 262 -- 3,061 236,122
Reclass securities to trading..... -- -- -- (262) -- -- (262)
Employee stock options............ -- -- 216 -- -- -- 216
Adjustment to offering costs for
1995 common stock issuance..... -- -- (1,668) -- -- -- (1,668)
Net income........................ -- -- -- -- -- 17,749 17,749
---------- ---- -------- ----- ---- ------- --------
Balance at December 31, 1996........ 16,565,840 166 231,181 -- -- 20,810 252,157
Employee stock options............ -- -- 296 -- -- -- 296
Exercise of employee stock
options........................ 6,619 -- 114 -- -- -- 114
Issuance of stock in Holiday Inn
Acquisition.................... 9,361,308 93 267,874 -- -- -- 267,967
Issuance of common stock, net of
costs.......................... 3,162,500 31 107,470 -- -- -- 107,501
Stock split....................... 14,545,134 146 -- -- -- (146) --
Foreign currency translation...... -- -- -- -- 286 -- 286
Net income........................ -- -- -- -- -- 20,473 20,473
---------- ---- -------- ----- ---- ------- --------
Balance at December 31, 1997........ 43,641,401 $436 $606,935 $ -- $286 $41,137 $648,794
========== ==== ======== ===== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-6
<PAGE> 58
BRISTOL HOTEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
HARVEY HOTEL COMPANIES (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HARVEY HOTEL
BRISTOL HOTEL COMPANY COMPANIES
------------------------------------------ ------------
ELEVEN
YEAR ENDED YEAR ENDED MONTHS ENDED MONTH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 31,
1997 1996 1995 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 20,473 $ 17,749 $ 3,061 $ 1,280
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 39,690 18,377 13,505 309
Amortization of deferred financing fees................. 2,749 2,062 -- --
Other................................................... -- -- 602 --
Equity in earnings of joint ventures.................... (1,399) -- -- --
Compensation expense recognized for employee stock
options............................................... 410 216 -- --
Unrealized gain on marketable securities................ -- (378) -- --
Non-cash portion of extraordinary item, net of tax...... 11,009 -- 1,908 --
Changes in assets and liabilities:
Changes in working capital.............................. 1,645 (684) (714) 641
Decrease (increase) in restricted cash.................. (6,214) (2,449) 2,860 (84)
Distributions from joint ventures....................... 650 -- -- --
Increase (decrease) in other liabilities................ 217 (460) (4,260) 421
Deferred tax provision.................................. 5,805 6,171 (326) --
--------- -------- --------- -------
Net cash provided by operating activities........... 75,035 40,604 16,636 2,567
--------- -------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to property and equipment.................... (54,071) (93,936) (60,941) (721)
Purchases of property and equipment, net of associated
debt.................................................... (86,977) (6,300) (20,000) --
Sales of property and equipment........................... -- -- 4,711 --
Holiday Inn Acquisition, net of costs..................... (400,159) -- -- --
Sales of marketable securities............................ -- 726 -- 1,928
--------- -------- --------- -------
Net cash provided by (used in) investing
activities........................................ (541,207) (99,510) (76,230) 1,207
--------- -------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Refinancing................................. 600,000 -- -- --
Proceeds from New Credit Facility......................... 560,000 -- -- --
Repayment of New Credit Facility.......................... (560,000) -- -- --
Paydown of Senior Notes................................... (40,000) -- -- --
Proceeds from Offering, net of costs...................... 107,852 -- -- --
Early extinguishment of long-term debt.................... (133,540) -- -- --
Distributions to predecessor equity holders............... -- -- (4,140) (8,009)
Additions to notes receivable -- partners................. -- -- -- 488
Principal payments and extinguishment of long-term debt... (7,058) (4,826) (156,612) (121)
Proceeds from issuance of long-term debt.................. 43,410 66,976 123,387 --
Payment of offering costs................................. -- (1,342) -- --
Proceeds from affiliate................................... -- -- 19,900 --
Proceeds from initial public 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...................................... (22,991) (5,142) (9,212) 316
--------- -------- --------- -------
Net cash provided by (used in) financing
activities........................................ 547,673 55,666 62,087 (7,326)
--------- -------- --------- -------
Net increase (decrease) in cash and cash equivalents........ $ 81,501 $ (3,240) $ 2,493 $(3,552)
Cash and cash equivalents at beginning of period............ 4,666 7,906 5,413 4,118
--------- -------- --------- -------
Cash and cash equivalents at end of period.................. $ 86,167 $ 4,666 $ 7,906 $ 566
========= ======== ========= =======
Supplemental cash flow information:
Interest paid............................................. $ 39,706 $ 17,696 $ 17,111 $ 330
========= ======== ========= =======
Income taxes paid......................................... $ 10,942 $ 3,543 $ 2,685 $ --
========= ======== ========= =======
Non-cash investing and financing activities:
Debt assumed to acquire property and equipment............ $ 21,813 $ -- $ 12,100 $ --
========= ======== ========= =======
Sale of non-hotel properties for assumption of
liabilities............................................. $ -- $ -- $ 4,723 $ --
========= ======== ========= =======
Purchase of minority interest for common stock............ $ -- $ -- $ 1,110 $ --
========= ======== ========= =======
Common stock issued in Holiday Inn Acquisition.............. $ 267,967 $ -- $ -- $ --
========= ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated and combined
financial statements.
F-7
<PAGE> 59
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
Bristol Hotel Company (the "Company") is a Delaware corporation which was
incorporated in November 1994 and began operations after the acquisitions of
Harvey Hotel Company, Ltd. and its subsidiaries (together, "Harvey Hotel
Companies" or "Predecessor") and United Inns, Inc. ("United Inns")
(collectively, the "Combination"). The Company owns 86 hotels and manages 15
additional hotels, two of which are owned by joint ventures in which the Company
owns a 50% interest. The properties, which contain approximately 28,800 rooms,
are located in 22 states, the District of Columbia and Canada. The Company
acquired the ownership and/or management of 60 of these properties on April 28,
1997 (the "Holiday Inn Acquisition"). The Combination and the Holiday Inn
Acquisition are more fully described in Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. The combined financial statements of the
Predecessor include the accounts of Harvey Hotel Company and related entities,
all of which were under common control. The owners of these entities combined
their interests for the purpose of forming a new entity which was acquired by
the Company. The accounts of United Inns and its subsidiaries are included from
February 1, 1995, the date of acquisition. The results of operations of the
hotels acquired in the Holiday Inn Acquisition have been included in the
Company's financial statements since April 28, 1997. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include unrestricted 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.
TRADING SECURITIES
Marketable securities consist primarily of equity securities and mutual
fund shares. Equity securities have been classified as either: (i)
available-for-sale, which are reported at fair value, with net unrealized gains
and losses excluded from earnings and reported as a separate component of
changes in equity; or (ii) trading securities, which are reported at fair value,
with unrealized holding gains and losses for trading securities included in
earnings. At December 31, 1997 and 1996, all marketable securities owned by the
Company were classified as trading securities.
ACCOUNTS RECEIVABLE
Accounts receivable in the balance sheets are expected to be collected
within one year and are net of estimated uncollectible amounts of $2,259,000 and
$344,000, at December 31, 1997 and 1996, respectively.
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>
Company
Year ended December 31, 1997............ $344 $2,306 $(391) $2,259
Year ended December 31, 1996............ 620 251 (527) 344
Eleven months ended December 31, 1995... 221 796 (397) 620
</TABLE>
F-8
<PAGE> 60
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 related loan. The amounts
reported in the balance sheets at December 31, 1997 and 1996, are net of
accumulated amortization of $1,965,000 and $2,144,000, respectively.
PROPERTY AND EQUIPMENT
The Company recorded the Combination and the Holiday Inn Acquisition 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 years
ended December 31, 1997 and 1996 was $1,628,000 and $2,100,000, respectively.
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>
<CAPTION>
BRISTOL HOTEL COMPANY HARVEY HOTEL COMPANIES
----------------------- -----------------------
<S> <C> <C>
Buildings.................................. 35-40 years 31-35 years
Furniture, fixtures and equipment.......... 3-15 years 7 years
Automobiles and trucks..................... 3 years 3 years
Leasehold improvements..................... Lease term or useful Lease term or useful
life, whichever is less life, whichever is less
</TABLE>
Depreciation and amortization expense recorded for the years ended December
31, 1997 and 1996, and the eleven months ended December 31, 1995 was $39.7
million, $18.4 million, and $13.5 million, respectively.
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"). SFAS 121 requires that an entity review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Should
circumstances support the possibility of impairment, the Company will prepare a
projection of the undiscounted future cash flows, without interest charges, of
the specific hotel property and determine if the investment in the hotel
property is recoverable based on the undiscounted future cash flows. If
impairment is indicated, an adjustment will be made to the carrying value of the
hotel based on discounted future cash flows. As of December 31, 1997 and 1996,
no impairment losses have been incurred. The assets, which were classified as
available for sale as of December 31, 1996, were reclassified to held and used
in the second quarter of 1997.
RESTRICTED CASH
Restricted cash consists of (i) funds placed in reserve for the replacement
of furniture, fixtures and equipment, and (ii) tax and insurance reserves. The
Company is required to deposit monthly with various lenders amounts of three to
four percent of hotel revenues for replacement reserves plus the tax and
insurance escrow. As tax and insurance payments are made and improvements are
completed, the Company is reimbursed from the reserves.
F-9
<PAGE> 61
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued. Under SFAS 128, basic earnings per
share ("EPS") is computed by dividing net earnings by the weighted average
number of shares of common stock outstanding during the period. SFAS 128
replaces fully diluted EPS, which the Company was not previously required to
report, with EPS, assuming dilution ("diluted EPS"). The Company calculates
diluted EPS assuming all outstanding options to purchase common stock have been
exercised at the beginning of the year (or the time of issuance, if later). The
dilutive effect of the outstanding options is reflected by application of the
treasury stock method, whereby the proceeds from the exercised options are
assumed to be used to purchase common stock at the average market price during
the period. The Company adopted SFAS 128 effective December 15, 1997. All prior
period EPS data have been restated. The effect of this accounting change on
previously reported EPS data is not significant. The following table reconciles
the computation of basic EPS to diluted EPS:
<TABLE>
<CAPTION>
PER SHARE
NET EARNINGS SHARES AMOUNT
------------ ---------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
For the year ended December 31, 1997:
Income before extraordinary item per share..... $33,214 37,359,364 $0.89
Effect of options.............................. -- 972,938
------- ----------
Income before extraordinary item per share,
assuming dilution........................... $33,214 38,332,302 $0.87
======= ==========
Net income per share........................... $20,473 37,359,364 $0.55
Effect of options.............................. -- 972,938
------- ----------
Net income per share, assuming dilution........ $20,473 38,332,302 $0.53
======= ==========
For the year ended December 31, 1996:
Income before extraordinary item per share..... $17,749 24,848,760 $0.71
Effect of options.............................. -- 677,653
------- ----------
Income before extraordinary item per share,
assuming dilution........................... $17,749 25,526,413 $0.70
======= ==========
Net income per share........................... $17,749 24,848,760 $0.71
Effect of options.............................. -- 677,653
------- ----------
Net income per share, assuming dilution........ $17,749 25,526,413 $0.70
======= ==========
For the 11 months ended December 31, 1995:
Income before extraordinary item per share..... $ 4,969 17,857,936 $0.28
Effect of options.............................. -- 51,019
------- ----------
Income before extraordinary item per share,
assuming dilution........................... $ 4,969 17,908,955 $0.28
======= ==========
Net income per share........................... $ 3,061 17,857,936 $0.17
Effect of options.............................. -- 51,019
------- ----------
Net income per share, assuming dilution........ $ 3,061 17,908,955 $0.17
======= ==========
</TABLE>
Earnings per share have been retroactively adjusted for the effect of stock
splits.
F-10
<PAGE> 62
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS
As part of the Holiday Inn Acquisition, the Company acquired six hotels in
Canada. Results of operations for those hotels are maintained in Canadian
dollars and translated using average exchange rates during the period. Currency
transaction losses are included in net income and were $303,000 for the year
ended December 31, 1997. Assets and liabilities are translated to U.S. dollars
using the exchange rate in effect at the balance sheet date. Resulting
translation adjustments are reflected in stockholders' equity as a cumulative
foreign currency translation adjustment. Cumulative currency translation gains
included in stockholders' equity at December 31, 1997 were $286,000.
INCOME TAXES
Company
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.
Predecessor
Harvey Hotel Company and related entities are partnership or S-Corporation
entities, and income or loss for federal income tax purposes is allocated to the
individual partners or shareholders. Accordingly, no recognition has been given
to income taxes in the combined 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.
Harvey Hotel Corporation accounted for the tax effect of net income or loss
in accordance with SFAS 109. However, because of the changes in ownership (see
Note 1), realization of the benefit of the accumulated losses is uncertain and,
therefore, has not been recorded in the combined financial statements.
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 1995 weighted average shares outstanding has been calculated using the
treasury stock method and as if Holdings' shares of 1,768,000 (see Note 3) had
been outstanding since February 1, 1995. The 1997 and 1996 weighted average
shares is calculated using the treasury stock method, giving effect to the
common equivalent shares outstanding as of December 31, 1997 and 1996. 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.
All weighted average share and per share data presented are calculated in
accordance with SFAS 128, which calls for both basic and diluted weighted
average share presentation. All prior period amounts have been restated in
accordance with SFAS 128. The Company believes that there has been no impact on
its financial statements from the implementation of SFAS 128, as the weighted
average shares previously used in calculating earnings per share are the same as
the diluted weighted average shares calculated under SFAS 128.
F-11
<PAGE> 63
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On June 23, 1997, the Company's Board of Directors declared a three-for-two
stock split, effective in the form of a stock dividend for shareholders of
record June 30, 1997, which was distributed July 15, 1997 (the "Stock Split").
All per share data and the average common and common equivalent shares issued
and outstanding have been adjusted to reflect the Stock Split for all periods
presented.
USE OF ESTIMATES
The Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain financial statement items from the prior years for the Company and
the Predecessor have been reclassified to conform with the current presentation.
3. ACQUISITIONS
UNITED INNS ACQUISITION
On January 27, 1995, United/Harvey Holdings L.P. ("Holdings") acquired the
common stock of United Inns for an aggregate purchase price of $67 million plus
the assumption of United Inns' liabilities. The acquisition was accounted for as
a purchase and the purchase price was allocated to the net assets acquired.
Under the acquisition agreement, 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, Holdings, Mr. Huie and the Harvey
Management Equity Holders became the stockholders of the Company, the Company
became the sole stockholder of United Inns, 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 Combination, sold her 1.0%
limited partnership interest in Harvey Hotel Companies (See Note 15).
The aggregate purchase price for 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
of $71.5 million was principally allocated to land and buildings in accordance
with the purchase method of accounting.
F-12
<PAGE> 64
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated statements of income for the 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
1995. 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>
MONTH ENDED
JANUARY 31,
1995
-----------
(UNAUDITED)
<S> <C>
Total revenues.............................................. $13,142
Net income after extraordinary gain and pro forma income tax
expense................................................... $ 1,111
</TABLE>
HOLIDAY INN ACQUISITION
On April 28, 1997, the Company acquired the ownership of 45 full-service
Holiday Inns and the management of an additional 15 Holiday Inn properties,
three of which were owned by joint ventures in which the Company acquired a 50%
interest (the owned hotels, management contracts and joint venture interests,
collectively referred to as the "Holiday Inn Assets"). As consideration for the
Holiday Inn Acquisition, the Company paid $398 million in cash and issued
9,381,308 shares (pre-Stock Split) of its common stock. The acquisition has been
accounted for as a purchase and the results of operations of the Holiday Inn
Assets have been included in the consolidated financial statements since April
28, 1997. The purchase price, including liabilities assumed in the acquisition
(principally deferred tax liabilities) was allocated to the assets acquired,
based upon their fair market values. The excess of the purchase price over the
estimated fair market value of the net assets acquired was recorded as goodwill
and is being amortized over 40 years.
The following unaudited pro forma summary presents the results of the
Company as if the Holiday Inn Acquisition and related refinancing pursuant to
the New Credit Facility (see Note 6) had occurred at the beginning of the period
presented. The pro forma results have been prepared for comparative purposes
only and are not indicative of the results of operations that would have
occurred had the Holiday Inn Acquisition occurred on the date indicated.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Total revenues.......................................... $626,047 $571,876
Income before extraordinary item........................ $ 41,165 $ 31,981
Net income.............................................. $ 29,762 $ 31,981
</TABLE>
In addition to the Holiday Inn Acquisition, the Company completed the
following single-asset acquisitions in 1997 and 1996:
<TABLE>
<CAPTION>
DATE NUMBER PURCHASE MORTGAGE
ACQUIRED LOCATION OF ROOMS PRICE DEBT ASSUMED
-------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C>
December 1997 Milpitas (San Jose), CA...... 305 $ 4.25 million(1) $ --
December 1997 Philadelphia, PA............. 364 $25.50 million $13.4 million
October 1997 St. Louis, MO................ 318 $18.00 million $ 8.4 million
January 1997 Chicago, IL.................. 378 $35.00 million $ --
May 1996 Plano, TX.................... 161 $ 6.30 million $ --
</TABLE>
F-13
<PAGE> 65
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(1) The Holiday Inn -- Milpitas was previously owned by a joint venture in which
the Company owned a 50% interest. The Company purchased the remaining 50%
interest in the venture for $4.25 million and, concurrently with the
acquisition, repaid all outstanding debt associated with the property of
$25.7 million.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Land........................................................ $ 169,611 $ 50,528
Buildings................................................... 1,152,383 406,682
Furniture, fixtures and equipment........................... 162,045 74,827
---------- --------
1,484,039 532,037
Less accumulated depreciation............................. (76,172) (26,091)
---------- --------
1,407,867 505,946
Assets held for sale (net of accumulated depreciation of $0
and $4,980)............................................... -- 38,279
Construction in progress.................................... 31,300 8,339
---------- --------
$1,439,167 $552,564
========== ========
</TABLE>
The Company's properties are predominantly full-service hotels that operate
in the upscale and mid-price with food and beverage segments of the lodging
industry under franchise agreements primarily with Holiday Inn. The Company
seeks to maintain a geographically diverse portfolio of hotels to offset the
effects of regional economic cycles. The Company operates properties in 22
states, the District of Columbia and Canada, including 13 hotels in California,
11 in Georgia, 27 in Texas, seven in Florida, and six in Canada.
During fiscal year 1996, the Company classified certain limited-service
hotels as assets held for sale pursuant to the provisions of SFAS 121. During
1997, the Company reclassified these assets as held and used, therefore
recording depreciation expense on these assets. The results of operations for
these limited-service properties included in the income statement for the years
ended December 31, 1997, 1996 and 1995 were (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Total revenues........................................ $13,464 $16,398 $14,552
Operating income...................................... 2,186 5,580 4,020
</TABLE>
5. MARKETABLE SECURITIES
In 1995, the Company classified certain equity securities as
Available-for-Sale Securities (per Statement of Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity Securities").
Unrealized gains were reported as a separate component of stockholders' equity.
In May 1996, management resolved to sell the equity securities, and accordingly,
the securities were reclassified as Trading Securities and an unrealized gain of
approximately $450,000 was recorded in earnings in 1996. These securities were
sold in August 1996.
F-14
<PAGE> 66
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Senior Notes
11.22% due December 18, 2000 (net of discount).......... $ 29,469 $ 68,340
Mortgage loans
Fixed rate:
7.66% due October 27, 2009........................... 455,000 --
7.458% due November 11, 2007......................... 144,834 --
8% due December 31, 2002............................. 40,263 42,126
8.55% due January 11, 2016........................... 14,324 14,626
9% due October 1, 2005............................... 13,401 --
9.5% due August 1, 2005.............................. 8,366 --
Non-interest bearing due December 31, 2002........... 7,950 9,086
7.25% due September 30, 1997......................... -- 8,110
Variable rate:
7.75% Senior Term Facility due December 18, 1998..... -- 66,976
10.26% due January 31, 2000.......................... -- 9,300
10.25% due December 31, 1999......................... -- 6,899
8.5% due September 30, 1997.......................... -- 1,500
Other long-term debt...................................... 345 4,329
Capital leases............................................ 3,367 1,402
-------- --------
717,319 232,694
Less current portion.................................... (8,455) (15,769)
-------- --------
Long-term debt, excluding current portion....... $708,864 $216,925
======== ========
</TABLE>
The mortgages are amortized using varying methods as provided in the
individual debt agreements. Substantially all of the Company's properties and
equipment are pledged as collateral on mortgage obligations.
The Company obtained the financing for the Holiday Inn Acquisition under a
new senior term facility which provided for up to $560 million aggregate amount
of term loan borrowings (the "New Credit Facility"). The New Credit Facility was
utilized to repay existing debt of approximately $134 million, to fund the cash
portion of the Holiday Inn Acquisition and related closing costs. The Company
repaid $108 million of borrowings from the New Credit Facility in May 1997 with
proceeds from the Offering (as defined in Note 10). The treatment of the
extraordinary costs related to the repayment of debt is more fully described in
Note 8.
On October 28, 1997, the Company completed the refinancing of the existing
$560 million New Credit Facility. The new financing (the "Refinancing") has two
tranches: (a) $145 million at a fixed interest rate of 7.458%, a term of 10
years, and secured by 15 hotel properties; and, (b) $455 million at a fixed
interest rate of 7.66%, a term of 12 years, and secured by 62 hotel properties.
The Company prepaid $40 million of its 11.22% Senior Secured Notes (the
"Senior Notes") in December 1997. In conjunction with the prepayment, the
Company amended the Senior Note indenture to allow for a more flexible
prepayment schedule. In connection with the Refinancing, Bristol Hotel Operating
Company, a wholly owned subsidiary of the Company, became a joint and several
guarantor of the Senior Notes along with Bristol Hotel Asset Company.
F-15
<PAGE> 67
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 15, portions of the mortgage loans associated with
three of the Company's properties have been allocated to a third party.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31,
1998.................................................... $ 8,455
1999.................................................... 8,387
2000.................................................... 38,421
2001.................................................... 9,146
2002.................................................... 34,230
Thereafter.............................................. 618,680
--------
$717,319
========
</TABLE>
7. INCOME TAXES
Components of income tax expense from continuing operations for the years
ended December 31, 1997 and 1996 and the eleven months ended December 31, 1995,
consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Federal:
Current................................................ $12,683 $ 4,486 $3,245
Deferred............................................... 4,637 5,301 (579)
State:
Current................................................ 1,837 282 190
Deferred............................................... 509 332 (34)
Canada:
Current................................................ 1,618 -- --
Deferred............................................... 723 -- --
------- ------- ------
$22,007 $10,401 $2,822
======= ======= ======
</TABLE>
Components of income tax benefit from extraordinary items for the years
ended December 31, 1997 and 1996, consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Federal:
Current................................................... $7,358 $--
Deferred.................................................. -- --
State:
Current................................................... 1,098 --
Deferred.................................................. -- --
------ ---
$8,456 $--
====== ===
</TABLE>
F-16
<PAGE> 68
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company estimates that its effective tax rate for 1997 approximated
39.9%. The actual income tax expense for the year ended December 31, 1997, is
computed by applying the U. S. federal statutory income tax rate, adjusted as
follows:
<TABLE>
<S> <C>
Income tax expense at the U. S. federal statutory rate...... 35.0%
State income taxes, net of federal benefit.................. 3.6%
Permanent differences and effect of higher Canadian tax
rates..................................................... 1.3%
----
39.9%
====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Purchase accounting adjustments to land and building........ $248,866 $85,134
Other....................................................... 994 --
-------- -------
Gross deferred tax liabilities............................ 249,860 85,134
-------- -------
Tax credit and NOL carryforwards............................ 4,011 5,502
Accrued reserves............................................ 1,823 2,192
Other....................................................... 1,496 1,821
-------- -------
Gross deferred tax asset.................................... 7,330 9,515
Valuation allowance......................................... -- --
-------- -------
Deferred tax asset.......................................... 7,330 9,515
-------- -------
Net deferred tax liability........................ $242,530 $75,619
======== =======
</TABLE>
The gross deferred tax liabilities relate principally to the temporary
differences caused by the purchase accounting adjustments recorded as a result
of the Combination and the Holiday Inn Acquisition. 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 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 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 use of existing tax NOL and tax credit carryforwards.
F-17
<PAGE> 69
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For federal tax reporting purposes, net operating losses of $8,988,000 and
tax credits of $657,000 generated by United Inns and Harvey Hotel Corporation in
prior years are available to be carried forward to periods expiring as follows
(in thousands):
<TABLE>
<CAPTION>
FEDERAL TAX
YEAR OF EXPIRATION NOL CREDITS
------------------ ------- -------
<S> <C> <C>
2001........................................................ $ -- $142
2002........................................................ -- 154
2003........................................................ -- 158
2004........................................................ -- 103
2005........................................................ 3,924 58
2006 to 2010................................................ 5,064 42
------ ----
$8,988 $657
====== ====
</TABLE>
The losses and credits are subject to an annual loss limitation equivalent
of approximately $4.8 million due to the changes in ownership of United Inns and
Harvey Hotel Corporation which occurred in 1995. These carryforwards are further
limited as they were incurred prior to the ownership of United Inns and Harvey
Hotel Corporation by the Company. Accordingly, these carryforwards are available
only to offset income and taxes associated with the operations of the hotels
that generated them.
8. EXTRAORDINARY ITEMS
On April 28, 1997, the Company recognized an extraordinary loss of $2.2
million ($1.3 million, net of tax) related to the early extinguishment of debt
with proceeds from the New Credit Facility. The Company incurred $479,000 of
prepayment penalties and wrote off $1.7 million in deferred financing costs.
The Company refinanced the New Credit Facility in October 1997 and
recognized an extraordinary loss of $14.0 million ($8.4 million, net of tax)
related to the early extinguishment of the New Credit Facility. The loss on
extinguishment reflects the write-off of deferred financing fees related to the
New Credit Facility.
The Company prepaid a portion of its Senior Notes on December 16, 1997. The
Company prepaid $40 million of principal, and recognized an extraordinary loss
of $5.0 million ($3.0 million, net of tax). The extraordinary loss reflects the
$2.4 million in prepayment penalties paid by the Company for the Senior Notes,
as well as the write-off of approximately $2.6 million of deferred financing
fees and discount on the Senior Notes.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accounts payable............................................ $ 2,921 $ 1,689
Accrued payroll, payroll taxes and benefits................. 15,480 5,208
Accrued interest............................................ 3,738 993
Accrued hotel operating expenses............................ 1,405 858
Accrued Holiday Inn Acquisition costs/conversion costs...... 1,104 --
Other....................................................... 2,718 1,878
------- -------
$27,366 $10,626
======= =======
</TABLE>
F-18
<PAGE> 70
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY
On April 28, 1997, the Company's shareholders voted to amend the Company's
certificate of incorporation to increase the number of authorized shares of
common stock from 75,000,000 to 150,000,000. As part of the consideration for
the Holiday Inn Acquisition, the Company issued 9,381,308 shares (pre-split) of
its common stock.
On May 16, 1997, the Company issued 2,750,000 (pre-Stock Split) shares of
its common stock at a price of $36 per share (the "Offering"). The Company
issued an additional 412,500 shares (pre-Stock Split) on May 28, 1997, pursuant
to an over-allotment agreement with the underwriters of the Offering. Proceeds
from the issuances were approximately $108 million (net of costs of $6.3
million).
NON-EMPLOYEE DIRECTOR OPTIONS
The Company instituted a Stock Option Plan for Non-Employee Directors (the
"Director Plan") in 1995. Only members of the board who are not employees of the
Company or an employee of a 10% beneficial owner or an affiliate thereof will be
eligible for option grants thereunder (an "Eligible Director"). An Eligible
Director receives an option to purchase 7,500 shares of Common Stock at an
exercise price equal to the market value on the date the individual becomes a
director, and those options shall become exercisable 34% at the first next
annual shareholders' meeting at which the individual is a director, and 33% at
each of the next two consecutive years during which the individual is a
director. In addition, the Eligible Director will receive options to purchase
7,500 shares at each annual meeting during which the individual is a director,
exercisable on the date of the next annual shareholders' meeting at which the
individual is a director. As of December 31, 1997, a total of 52,500 options had
been granted to the three Eligible Directors on the board, 25,050 of which are
currently exercisable.
EMPLOYEE OPTIONS
Under the Amended and Restated 1995 Equity Incentive Plan, the Company may
award to participating officers and employees, options to purchase the Company's
stock. Employee stock options may be granted to officers and employees with an
exercise price generally not less than the fair market value of the common stock
at the date of grant. Options expire at 10 years from date of grant. Options
issued prior to December 31, 1995, have cliff vesting from 1998 -- 2000 and
options issued on or after January 1, 1996, vest ratably over a four- or
five-year period from the date of the grant. There were 2,069,441 employee
options outstanding at December 31, 1997, of which 82,800 were exercisable.
SFAS 123 DISCLOSURE
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. SFAS 123 encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Pronouncement Bulletin Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
market price of the Company's stock at the date of the grant over the amount the
employee must pay to acquire the stock. The Company, therefore, does not believe
that the implementation of SFAS 123 has had a material adverse impact on the
Company's financial position or results of operations.
F-19
<PAGE> 71
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
However, had compensation cost for these plans been determined consistent
with the method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts (dollars in
thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Income As Reported.................... $20,473 $17,749 $3,061
Pro Forma...................... 19,060 16,865 2,621
Basic EPS As Reported.................... 0.55 0.71 0.17
Pro Forma...................... 0.51 0.68 0.15
Diluted EPS As Reported.................... 0.53 0.70 0.17
Pro Forma 0.50 0.67 0.15
</TABLE>
A summary of the status of the Company's stock option plan at December 31,
1997, 1996 and 1995, (adjusted for Stock Split) and changes during the years
then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1...... 1,613,363 $10.57 1,190,766 $ 8.41 -- $ --
Options granted............... 520,400 25.06 435,000 16.39 1,190,766 8.41
Options exercised............. (6,929) 16.47 -- -- --
Options expired............... (4,893) 9.78 (12,403) 8.33 -- --
--------- ------ --------- ------ --------- -----
Options outstanding at
December 31................. 2,121,941 $14.10 1,613,363 $10.57 1,190,766 $8.41
========= ====== ========= ====== ========= =====
Options exercisable at
December 31................. 107,850 $16.60 5,100 $15.00 -- --
========= ====== ========= ====== ========= =====
Weighted average fair value of
options..................... $ 7.82 $ 5.76 $ 4.11
========= ========= =========
</TABLE>
The 2,121,941 options outstanding at December 31, 1997, have exercise
prices between $8.33 and $28.25 with a weighted average exercise price of $14.10
and a weighted average remaining contractual life of 8.1 years. At December 31,
1997, 107,850 of these options (with a weighted average exercise price of
$16.60) are exercisable.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995; risk-free interest rates
from 5.30% to 7.04%; no expected dividend yields; expected lives of one to seven
years; expected volatility of 33.37%.
F-20
<PAGE> 72
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. OPERATING LEASES
The Company leases certain land, office space and equipment under
noncancellable operating lease commitments. Minimum rentals due under these
agreements for the next five years and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31,
1998.................................................... $ 11,933
1999.................................................... 11,976
2000.................................................... 12,046
2001.................................................... 12,029
2002.................................................... 11,887
Thereafter.............................................. 216,075
--------
$275,946
========
</TABLE>
Leases include long-term ground leases for certain hotels, generally with
renewal options. Certain leases contain provisions for the payment of contingent
rentals based on a percentage of sales.
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 are as follows (in
thousands):
<TABLE>
<S> <C>
Year Ended December 31,
1998..................................................... $ 3,582
1999..................................................... 3,562
2000..................................................... 3,289
2001..................................................... 3,116
2002..................................................... 2,720
Thereafter............................................... 13,868
-------
$30,137
=======
</TABLE>
12. MANAGEMENT CONTRACTS
The Company acquired the management of 15 hotels in the Holiday Inn
Acquisition, three of which were owned by joint ventures in which the Company
owned a 50% interest. The purchase price allocated to these contracts at April
28, 1997 was $4.4 million and is being amortized on a straight-line basis over
the remaining lives of the agreements, which range from one to 11 years. The
amortization of the purchase price recorded in 1997 was $878,000. Management fee
income was $4.9 million in 1997, $2.5 million in 1996, and $1.4 million in 1995.
These management contracts may contain provisions which allow the third-party
owner to terminate the contract for such reasons as sale of the property, for
cause or without cause. Therefore, the Company cannot guarantee that it will
continue to manage these properties to the contract expiration date.
The Company acquired the remaining 50% interest in one of the joint
ventures in which it was a partner in December 1997. (See Note 13.)
13. INVESTMENTS IN JOINT VENTURES
The Company acquired 50% interests in three joint ventures in the Holiday
Inn Acquisition. The purchase price allocated to these joint ventures was
approximately $12 million and is being amortized on a straight-line basis over
the estimated life of the assets acquired. Amortization expense of $308,000 was
recorded in 1997.
F-21
<PAGE> 73
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On December 11, 1997, the Company acquired the remaining 50% interest in
the Milpitas Joint Venture for $4.25 million. Concurrently with the acquisition,
the Company paid off all outstanding debt related to the property of $25.7
million. None of the original $12 million purchase price allocated to the joint
ventures in the Holiday Inn Acquisition was attributed to the Milpitas Joint
Venture.
14. BENEFITS
Health (including fully insured term life and accidental death and
dismemberment), dental and disability coverage is provided to the Company's
employees through the Welfare Benefit Trust (the "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 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 Trust. The Company provided $6.1 million and $2.9 million related to these
benefits for the years ended December 31, 1997 and 1996, respectively.
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 provided for matching
contributions for the years ended December 31, 1997 and 1996 totaling $1.5
million and $135,000, respectively.
15. COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's hotel properties are (or will be in the
next year) operated pursuant to franchise or license agreements ("Franchise
Agreements"), primarily with Holiday Inn Franchising, Inc. or its affiliates.
The Company also operates hotels under franchise agreements with Marriott
International, Inc., Hampton Inn (a division of Promus Hotels, Inc.), Ramada
Franchise Systems, Inc. and Days Inn Inc. of America Franchising Inc. The
Franchise Agreements generally require the payment of a monthly royalty fee
based on gross room revenue and various other fees associated with certain
marketing or advertising and centralized reservation services, also generally
based on gross room revenues. The Franchise Agreements have various durations
through the year 2017, and generally may not be terminated without the payment
of substantial fees. Franchise fees of $19.5 million and $4.1 million were paid
during the years ending December 31, 1997 and 1996, respectively.
The Franchise Agreements generally contain specific standards for, and
restrictions and limitations on, the operation and maintenance of the hotels
which are established by the franchisors to maintain uniformity in the system
created by each such franchisor. Such standards generally regulate the
appearance of the hotel, quality and type of goods and services offered, signage
and protection of trademarks. Compliance with such standards may from time to
time require significant expenditures for capital improvements.
The Company is currently involved in certain guest and customer claims,
employee wage claims and other disputes 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 financial position or results of
operations.
In connection with the administration of the Dallas County Probate Court of
the estate of the deceased wife of H.K. Huie, Jr., one of Mr. Huie's daughters
(the "Plaintiff"), alleged self dealing and breach of duty
F-22
<PAGE> 74
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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").
Several of the Company's officers and certain subsidiaries were also named
defendants in the Probate Proceeding. In November 1995, the Company and the
Plaintiff entered into a settlement agreement and release (the "Settlement
Agreement") pursuant to which Plaintiff agreed to release the Company, including
its subsidiaries, from the lawsuit. Pursuant to the Settlement Agreement, the
Company paid an aggregate of $2.4 million for the Plaintiff's 1% interest in
Harvey Hotel Company and a full release from all claims and causes of action.
However, at that time, the named officers remained defendants in the Probate
Proceeding. In the summer of 1996, during continuing mediation with the
officers, the Plaintiff threatened the Company with further action, claiming
fraud and misrepresentation in the negotiation of the November 1995 Settlement
Agreement. In August 1996, there was a final resolution of the Probate
Proceeding, a result of which the Company paid an additional $0.75 million for
the full satisfaction of all claims and causes of action which could be asserted
against the Company, its subsidiaries or its officers. The Company had reserved
$1.65 million for this litigation. As a result, the Company recognized $0.9
million ($0.6 million after tax) as other income during the third quarter of
1996.
On March 28, 1997, the Company paid approximately $663,000 to the State of
Tennessee Department of Revenue in full settlement of all claims for franchise
and excise tax related to United Inns, Inc.
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. 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
implemented, or the ACM's have been scheduled to be or have been abated, at such
hotels. None of the environmental assessments conducted to date have 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.
In September 1995, the Company disposed of certain of its non-hotel
properties to HH Land Company, L.P. ("HH Land Company"). 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.
The Company leases the land underlying several of its hotels under various
long-term leases through the year 2063. Lease payments under the agreements were
$11.0 million and $2.6 million in 1997 and 1996, respectively.
The Company and Mr. Huie, representing various land ventures, are
co-borrowers of funds secured by Harvey Hotel -- DFW Airport, Harvey
Hotel -- Dallas, Bristol Suites, and the various related land parcels. The
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
F-23
<PAGE> 75
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
property, respectively. The related land parcels underlying each hotel are owned
by Mr. Huie through the land ventures. The total debt and the amount allocated
to Mr. Huie are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
TOTAL ALLOCATED TOTAL ALLOCATED
DEBT TO HUIE DEBT TO HUIE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Harvey Hotel -- DFW Airport................. $24,275 $5,762 $25,581 $6,071
Harvey Hotel -- Dallas...................... 7,442 1,802 7,600 1,843
Bristol Suites.............................. 19,378 4,298 20,756 4,604
</TABLE>
The Company is jointly and severally liable in the event of nonpayment by
Mr. Huie of the debt allocated. For December 31, 1997 and 1996, the allocated
amounts have not been reflected in the consolidated financial statements of the
Company. However, the Company does not record interest expense on the allocated
debt because payments made to Mr. Huie are appropriately recorded as rental
expense under the related land leases. The land parcels at the respective hotels
are security for the additional liability.
16. RELATED PARTY TRANSACTIONS
HOTEL PROPERTIES AGREEMENT
Concurrently with the Holiday Inn Acquisition, the Company, and Holiday
Corporation and its affiliates (collectively, "HC") entered into a hotel
properties agreement (the "Hotel Properties Agreement"). Pursuant to the Hotel
Properties Agreement, the Company will offer to HC the opportunity to enter into
a standard HC franchise agreement for each hotel that Bristol acquires, manages
or develops that meets specified criteria. The Hotel Properties Agreement
requires that 85% of the rooms in the Company's owned, leased and managed hotels
be operated under a Holiday Inn brand, subject to certain limitations and
approvals. The above provisions of the Hotel Properties Agreement will expire
the earlier of (i) the date that HC terminates its obligation at any time
following 24 months after the Holiday Inn Acquisition (the "Holiday Notice") or
(ii) the date that HC no longer holds a controlling interest in the franchisor
of the Holiday Inn brands.
Additionally, the Company has a right of first refusal on any entity or
other interest meeting certain criteria that HC wishes to acquire or develop,
subject to certain limitations. HC can terminate its obligation under this
provision in accordance with the Holiday Notice.
The Company has agreed to enter into Franchise Agreements with HC pursuant
to which certain Bristol properties will be rebranded to Holiday Inn brands,
subject to normal franchising procedures. Franchise fees for these rebranded
hotels will equal 0% of room revenue for 1997, 1% in 1998, 3% in 1999 and 5% in
2000. Amounts paid to HC pursuant to Franchise Agreements and related marketing,
advertising and reservation services were $21.8 million in 1997, including $13.1
million for franchise royalty fees and $4.5 million of franchise marketing fees.
INTERIM SERVICES AGREEMENT
The Company entered into an interim services agreement (the "ISA
Agreement") with Holiday Hospitality Corporation ("HHC") for HHC to provide
certain accounting, payroll, employee benefit, training, treasury, management
information and construction and design services to Bristol for a transition
period following the Holiday Inn Acquisition. In consideration for such
services, the Company reimbursed HHC for the estimated cost incurred in
connection with providing the services, totaling $1.3 million for the year ended
December 31, 1997. The ISA Agreement expired in October 1997.
F-24
<PAGE> 76
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
17. FAIR VALUE
The Company has estimated the fair value of its financial instruments at
December 31, 1997 and 1996, 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.
18. 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
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues..................... $5,943 $ 29,910 $ 43,040 $ 46,205 $ 46,040
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:
Basic................... -- $ 0.13 $ 0.12 $ ( 0.02) $ 0.05
Diluted................. -- $ 0.13 $ 0.12 $ ( 0.02) $ 0.05
Net income (loss):
Basic................... -- $ 0.13 $ 0.12 $ ( 0.02) $ ( 0.05)
Diluted................. -- $ 0.13 $ 0.12 $ ( 0.02) $ ( 0.05)
Weighted average number of
common and common
equivalent shares:
Basic................... -- 17,436,267 17,436,267 17,436,267 18,967,108
Diluted................. -- 17,460,202 17,479,061 17,479,953 19,050,967
</TABLE>
F-25
<PAGE> 77
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
BRISTOL HOTEL COMPANY
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $ 49,677 $ 51,237 $ 58,571 $ 52,355
Operating income...................... 10,318 11,282 16,073 9,093
Income before extraordinary item...... 3,863 4,375 6,835 2,676
Net income............................ 3,863 4,375 6,835 2,676
Earnings per common share:
Income before extraordinary item:
Basic............................ $ 0.16 $ 0.18 $ 0.28 $ 0.11
Diluted.......................... $ 0.15 $ 0.17 $ 0.27 $ 0.10
Net income:
Basic............................ $ 0.16 $ 0.18 $ 0.28 $ 0.11
Diluted.......................... $ 0.15 $ 0.17 $ 0.27 $ 0.10
Weighted average number of common and
common equivalent shares:
Basic............................... 24,848,760 24,848,760 24,848,760 24,848,760
Diluted............................. 25,511,455 25,552,515 25,530,737 25,524,361
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
BRISTOL HOTEL COMPANY
--------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................. $ 58,261 $ 131,615 $ 163,005 $ 151,637
Operating income...................... 13,301 26,909 32,252 25,434
Income before extraordinary item...... 4,410 9,622 12,066 7,116
Net income (loss)..................... 4,410 8,284 12,066 (4,287)
Earnings per common share:
Income (loss) before extraordinary
item:
Basic............................ $ 0.18 $ 0.26 $ 0.28 $ 0.16
Diluted.......................... $ 0.17 $ 0.25 $ 0.27 $ 0.16
Net income (loss):
Basic............................ $ 0.18 $ 0.22 $ 0.28 $ (0.10)
Diluted.......................... $ 0.17 $ 0.22 $ 0.27 $ (0.10)
Weighted average number of common and
common equivalent shares:
Basic............................... 24,848,760 37,041,425 43,635,401 43,636,444
Diluted............................. 25,796,808 37,997,744 44,643,133 44,629,022
</TABLE>
Earnings per common share amounts and weighted average number of common and
common equivalent shares have been retroactively adjusted to reflect the July
15, 1997 Stock Split and calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." The sum of the earnings
(loss) per common share for the four quarters 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.
19. SUBSEQUENT EVENT -- OMAHA ACQUISITION
On February 2, 1998, the Company announced that it had entered into a
definitive agreement to acquire 20 midwestern hotels. Under the transaction, the
Company will acquire by merger Omaha Hotel, Inc. and will
F-26
<PAGE> 78
BRISTOL HOTEL COMPANY
HARVEY HOTEL COMPANIES (PREDECESSOR)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
purchase an individual hotel. The total consideration for these assets is as
follows: $19.1 million in cash, $40.9 million of assumed debt and 1.43 million
shares of the Company's common stock. The portfolio consists of nine
full-service Holiday Inns, five Holiday Inns Express hotels, five Hampton Inns
and one Homewood Suites with locations in Omaha, Nebraska; Moline, Illinois;
Davenport, Iowa; central Kansas and Midland/Odessa, Texas. The acquisition is
anticipated to close in April 1998.
20. SUBSEQUENT EVENT -- PROPOSED MERGER
On March 24, 1998, the Company announced a proposed merger with FelCor
Suite Hotels, Inc.("FelCor"), subject to approval by shareholders of both
companies and final documentation. Under the terms of the proposed merger,
FelCor will acquire the real estate holdings and associated debt of the Company
in return for 31.7 million shares of newly issued FelCor stock. Prior to the
merger, the Company will spin off, as a taxable dividend, all of its non-real
estate holdings into a newly formed public company to be known as Bristol Hotels
& Resorts, Inc. ("New Bristol").
Each of the Company's outstanding common shares will be exchanged for .685
shares of FelCor common stock. In addition, Bristol shareholders will receive a
taxable distribution of one share of New Bristol common stock for each two
shares of Bristol.
The merger is expected to close by the end of July 1998.
F-27
<PAGE> 79
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
BRISTOL HOTELS & RESORTS, INC.
By: /s/ J. PETER KLINE
---------------------------
J. Peter Kline,
Chief Executive Officer
Date: June 18, 1998
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
2.1 -- Spin-Off Agreement among the Company, Bristol and Bristol
Management Corporation
3.1 -- Certificate of Incorporation
3.2 -- Form of Amended and Restated Certificate of Incorporation
contemplated to be filed in connection with the spin-off
3.3 -- Bylaws
3.4 -- Form of Amended and Restated Bylaws contemplated to be
filed in connection with the spin-off
3.5 -- Form of certificate for common shares
4.1 -- Form of Registration Rights Agreement among the Company,
Bass America Inc., Holiday Corporation and United/Harvey
Holdings
4.2 -- Form of Stockholders' Agreement among the Company,
Holiday Corporation, Bass America Inc., Bass plc and
United/Harvey Holdings
9.1 -- Voting and Cooperation Agreement among FelCor, Bristol,
Bass America Inc., Holiday Corporation and United/Harvey
Holdings
10.1 -- Master Hotel Agreement among the Company, FelCor and
FelCor Suites Limited Partnership
10.2 -- Form of Hotel Properties Agreement between Holiday
Hospitality and the Company
10.3 -- Employment Agreement between the Company and J. Peter
Kline(1)
10.4 -- Employment Agreement with John A. Beckert(2)
10.5 -- Form of 1998 Equity Incentive Plan
10.6 -- Form of 1998 Non-Employee Directors Stock Option Plan
21.1 -- Subsidiaries of the Company
99.1 -- Consent of Reginald K. Brack, Jr. to being named as a
person who is to become a director
99.2 -- Consent of David A. Dittman to being named as a person
who is to become a director
99.3 -- Consent of Thomas R. Oliver to being named as a person
who is to become a director
99.4 -- Consent of James J. Pinto to being named as a person who
is to become a director
99.5 -- Consent of Kurt C. Read to being named as a person who is
to become a director
99.6 -- Consent of Robert A. Whitman to being named as a person
who is to become a director
</TABLE>
- ---------------
All exhibits previously filed.
(1) Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K
of Bristol Hotel Company filed with the SEC on March 30, 1998.
(2) Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K
of Bristol Hotel Company filed with the SEC on March 30, 1998.
