<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996
REGISTRATION STATEMENT NO. 333-06519
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
AMERIHOST PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 36-3312434
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2400 EAST DEVON AVENUE, SUITE 280
DES PLAINES, ILLINOIS 60018
(847) 298-4500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MICHAEL P. HOLTZ
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2400 EAST DEVON AVENUE, SUITE 280
DES PLAINES, ILLINOIS 60018
(847) 298-4500
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
------------------------
<TABLE>
<S> <C> <C>
Helen R. Friedli, P.C. Copies To: Jay L. Bernstein, Esq.
McDermott, Will & Emery Rogers & Wells
227 West Monroe Street 200 Park Avenue
Chicago, Illinois 60606 New York, New York 10166
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.005 per share.... 1,150,000 $7.16 $8,234,000 $2,495(2)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low sales
prices of the Common Stock on the Nasdaq National Market as of October 17,
1996.
(2) A registration fee of $10,636 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1996
PROSPECTUS
1,150,000 SHARES
AMERIHOST PROPERTIES, INC.
COMMON STOCK
------------------
[AMERIHOST INN LOGO]
All 1,150,000 shares of the Common Stock offered hereby (the "Offering")
are offered by Amerihost Properties, Inc. (the "Company"). The Company intends
to use the net proceeds of the Offering to finance the development and
construction of additional hotel properties and to reduce existing indebtedness.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "HOST." The last reported sale price for the Common Stock as quoted
on the Nasdaq National Market on October 21, 1996 was $7.468 per share. See
"Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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<TABLE>
<CAPTION>
PLACEMENT PROCEEDS TO
PRICE TO PUBLIC FEE (1) COMPANY (2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total (3)......................................... $ $ $
</TABLE>
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(1) The shares of Common Stock are being offered on an all or none basis by the
Company principally to selected institutional investors. Oppenheimer & Co.,
Inc. (the "Placement Agent") has been retained to act, on a best efforts
basis, as agent for the Company in connection with the Offering. See "Plan
of Distribution" for information concerning the compensation and
indemnification of the Placement Agent and other information.
(2) Before deduction of expenses of the Offering payable by the Company
estimated to be $587,500.
(3) The closing of the Offering is conditioned on the sale of all 1,150,000
shares of Common Stock. Prior to the closing, the investors will deposit
funds equal to the price per share multiplied by the number of shares of
Common Stock to be purchased by the investors (the "Requisite Funds") in an
escrow account to be established with The Chase Manhattan Bank, New York,
New York, as escrow agent (the "Escrow Agent"). In the event that fewer
than 1,150,000 shares of Common Stock are sold and the offering therefore
does not close, the funds deposited by investors will promptly be returned
to the investors. Upon receipt of notice from the Escrow Agent that the
investors have deposited the Requisite Funds into the escrow account, the
Company will deposit with the Depository Trust Company ("DTC") the
applicable shares of Common Stock to be credited to the DTC accounts for
the investors. Upon closing, the Escrow Agent will release the Requisite
Funds from the escrow account for distribution to the Company and the
Placement Agent, and the Placement Agent shall inform DTC that the shares
of Common Stock may be credited to the respective DTC accounts of the
investors against payment therefor by the investors. The Offering will not
continue after 120 days after the date of this Prospectus. See "Plan of
Distribution."
------------------
OPPENHEIMER & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 3
<TABLE>
<S> <C>
- -----------------------------------
[AmeriHost Inn company logo]
[Picture of outdoor
pool, whirlpool & sauna area]
[United States map
with symbols for open,
under construction and
under development hotels]
- -----------------------------------
Indoor pool, whirlpool
and sauna area
</TABLE>
AMERIHOST INN HOTELS
24 OPEN
15 UNDER CONSTRUCTION
14 UNDER DEVELOPMENT
* As of May 31, 1996
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[Exterior Picture of AmeriHost Inn located at Lancaster, Ohio]
- --------------------------------------------------------------------------------
* As of August 31, 1996, the Company had 34 AmeriHost Inn Hotels open, 10
AmeriHost Inn Hotels under construction and 13 AmeriHost Inn Hotels under
development.
---------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE PLACEMENT AGENT MAY EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Unless the context otherwise indicates,
as used herein, the defined term "Company" shall mean Amerihost Properties, Inc.
together with its consolidated subsidiaries. As used herein, "Wholly-Owned
Hotels" shall mean all hotels in which the Company has a 100% ownership or
leasehold interest, "Majority-Owned Hotels" shall mean all hotels in which the
Company has a controlling (over 50% but less than 100%) ownership or leasehold
interest and "Minority-Owned Hotels" shall mean hotels in which the Company has
a 50% or less ownership interest. All Wholly-Owned Hotels, Majority-Owned Hotels
and Minority-Owned Hotels are collectively referred to herein as "Owned Hotels."
Hotels in which the Company has no ownership or leasehold interests but manages
for unaffiliated third parties are referred to herein as "Managed Hotels." All
Owned Hotels and Managed Hotels are collectively referred to herein as "Hotels."
As used herein, "AmeriHost Inn hotels" shall mean all Hotels which are operated
or managed by the Company under its proprietary brand and "Other Owned Hotels"
shall mean all Owned Hotels which are not operated as AmeriHost Inn hotels. The
discussions in this Prospectus contain forward-looking statements with respect
to the Company's growth strategy and capital requirements. The Company's actual
experience and results could differ materially from those discussed in this
Prospectus. Factors that could cause or contribute to such differences include
those discussed in sections entitled "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
THE COMPANY
OVERVIEW
The Company is engaged in the development and construction of AmeriHost Inn
hotels, its proprietary hotel brand, and the ownership, operation and management
of both AmeriHost Inn hotels and other hotels. The AmeriHost Inn brand was
created by the Company to provide for the consistent, cost-effective development
and operation of mid-price hotels in various markets. All AmeriHost Inn hotels
are designed and developed using the Company's 60 to 80 room, interior corridor
and indoor pool prototype design and are located in tertiary and secondary
markets.
There were 57 AmeriHost Inn hotels open, under construction or under
development in 14 states as of August 31, 1996. The Company had 34 AmeriHost Inn
hotels open, 10 under construction and 13 under development. The Company also
owned, operated or managed 38 other hotels, the majority of which are affiliated
with brands such as Days Inn, Hampton Inn, Holiday Inn and Ramada Inn. In
addition, the Company provides development, construction, renovation, management
and employee leasing services.
Since 1993, the Company's growth strategy has focused on the expansion and
increased ownership of the AmeriHost Inn hotel brand through new development and
construction. The AmeriHost Inn hotels have achieved occupancy and average daily
rates ("ADRs") which are higher than those realized by the Company's Other Owned
Hotels, including those operated under national franchise affiliations. During
1995, AmeriHost Inn hotels had an average occupancy of 72.6% and an ADR of
$52.21 for hotels which had been open for at least twelve months after an
initial stabilization period of approximately 120 days. These favorable
operating results experienced by the AmeriHost Inn hotels led to the Company's
decision to focus on expanding this brand rather than acquiring or developing
hotels under other brand affiliations. The Company intends to continue this
growth strategy and to aggressively expand its development, ownership and
operation of AmeriHost Inn hotels. Implementing this strategy will allow the
Company to rely less on the one-time transactional fees associated with hotel
development and construction while generating long-term revenues and potential
profits from hotel operations. The Company's mission statement includes having
200 AmeriHost Inn hotels open or under construction by December 31, 2000.
Senior management of the Company has an average of 21 years of experience
in the lodging industry and has worked together at the Company for approximately
10 years. Senior management presently beneficially owns in the aggregate
approximately 26.3% of the outstanding Common Stock of the Company and will
beneficially own in the aggregate approximately 22.6% of the outstanding Common
Stock following the Offering.
3
<PAGE> 5
AMERIHOST INN
AmeriHost Inn hotels, the Company's proprietary brand, are designed and
constructed using the Company's 60 to 80 room, interior corridor and indoor pool
prototype design. The AmeriHost Inn hotel's amenities and services include
24-hour front desk and message service, facsimile machines, complimentary
expanded continental breakfast, 24-hour hot coffee, an indoor swimming pool,
whirlpool and sauna area, exercise room, meeting room, porte cochere entrance
and extensive exterior lighting for added security. The standard AmeriHost Inn
guest room features electronic card-key locks, in-room safes, in-room coffee
makers, telephones with data ports for personal computers, a work area and color
televisions with premium cable service or movies on demand. In addition, each
AmeriHost Inn hotel typically includes 2 to 4 whirlpool suites which, in
addition to the standard amenities, include in-room whirlpools, microwave ovens,
compact refrigerators and an expanded sitting area. AmeriHost Inn hotels do not
contain food and beverage facilities normally associated with full-service
hotels. Food service for hotel guests is generally available from adjacent or
nearby free-standing restaurants which are independently owned and operated.
The Company targets smaller communities in tertiary and secondary markets
with established demand generators such as major traffic arteries, office
complexes, industrial parks, shopping malls, colleges and universities or
tourist attractions, as the principal location for the development and
construction of AmeriHost Inn hotels. Generally, these markets have minimal
competition or a lack of recent hotel development. An AmeriHost Inn hotel is
typically positioned to attract both business and leisure travelers seeking
consistent amenities and quality rooms at reasonable rates, generally ranging
from $40 to $65 per night.
The typical AmeriHost Inn hotel is a 61-unit two-story hotel that requires
approximately 1.85 acres of land. The aggregate development and construction
costs for all AmeriHost Inn hotels which began construction in 1995 have
averaged approximately $2.3 million per hotel, or approximately $38,000 per
room. These costs include land costs and development and construction fees
payable to the Company. The Company's in-house design staff, centralized
purchasing program, strict cost controls, and low average land costs all
contribute to this low development and construction cost. Furthermore, due to
the centralization of all accounting, purchasing, payroll and other
administrative functions, each hotel is operated efficiently and effectively
with a minimal on-site staff. AmeriHost Inn hotels are not subject to franchise,
royalty and marketing fees, which generally range from 8% to 10% of a hotel's
gross room revenues. These factors contributed to a low break-even cash flow,
after debt service and reserve for replacement at an occupancy rate typically
not greater than 45%, based upon the 1995 ADR of $52.21. During 1995, the
AmeriHost Inn hotels which were open for the entire year after their initial
stabilization period produced an average cash flow of $402,000 before debt
service and reserve for replacement.
OTHER OWNED HOTELS
The Company's Other Owned Hotels were primarily acquired by the Company
through joint ventures prior to 1993, in most instances at prices below
estimated replacement costs. The Other Owned Hotels have been owned, operated
and managed by the Company as part of a national franchise system, such as Days
Inn, Hampton Inn, Holiday Inn, and Ramada Inn, or independent of any brand
affiliation. The Company does not intend to actively acquire additional hotels,
but may do so from time to time if available on favorable terms.
The Company's Other Owned Hotels typically are located in secondary and
tertiary markets, with nearby demand generators such as airports, major traffic
arteries, office complexes, industrial parks, shopping malls, colleges and
universities or tourist attractions. The Other Owned Hotels contain 53 to 209
rooms, generate ADRs ranging from $35 to $65 per night, offer a variety of
amenities and services and generally do not contain food and beverage
facilities.
4
<PAGE> 6
GROWTH STRATEGY
The Company's growth strategy is to increase revenues, earnings before
interest, leasehold rents, taxes, depreciation and amortization ("EBITDA") and
net income per share by: (i) developing, operating and owning additional
AmeriHost Inn hotels; (ii) maintaining or enhancing occupancy and ADR results at
all of its Hotels; and (iii) controlling operating and corporate overhead
expenses. The Company's mission statement includes having 200 AmeriHost Inn
hotels open or under construction by December 31, 2000.
The Company's primary growth strategy is to focus on the expansion of its
proprietary brand, the AmeriHost Inn, through continued development,
construction and operation of Wholly-Owned Hotels. The Company may also continue
the development of AmeriHost Inn hotels through a combination of majority- or
minority-owned joint ventures. The Company may also seek to increase its
ownership interest in existing AmeriHost Inn hotels in which the Company has
less than a 100% ownership interest, if available on favorable economic terms.
From time to time, the Company may also continue to provide development,
construction and, to a lesser extent, management services to unaffiliated third
parties on a fee-for-service basis.
The Company intends to develop and construct AmeriHost Inn hotels in
communities located in tertiary and secondary markets which already have
established demand for overnight accommodations and which are typically not
targeted for development by larger hotel companies. Prior to commencing
development, the Company identifies at least three demand generators. Typically,
the Company seeks communities where an active economic development program is in
place, which suggests long-term growth potential for additional lodging demand.
In most cases, the local community is interested in a new hotel because existing
facilities are dated or inconvenient. The Company provides comfortable,
professionally-managed accommodations which are typically not available in that
community.
As of August 31, 1996, the Company was constructing 10 hotels and had 13
hotels under development. Upon completion, all 23 of these hotels will be
operated as AmeriHost Inn hotels. Additionally, the Company expects that 8 of
these hotels will be Wholly-Owned Hotels, 14 will be developed as joint ventures
in which the Company will own a minority interest and one will be developed for
an unaffiliated third party. The Company anticipates that the majority of its
future hotel projects will be wholly-owned AmeriHost Inn hotels. Upon completion
of the Offering, the Company estimates that it will have the necessary equity,
when leveraged, to develop, construct and open approximately 15 additional
wholly-owned AmeriHost Inn hotels.
Additionally, the Company intends to sell certain of its Other Owned Hotels
to take advantage of attractive terms and as part of an overall plan to focus
the Company's hotel ownership primarily on AmeriHost Inn hotels. As of August
31, 1996, agreements had been entered into for the sale of 3 Other Owned Hotels,
subject to certain contingencies. The Company expects that the net proceeds of
such sales, if and when completed, will be used by the Company to develop
additional AmeriHost Inn hotels.
OPERATING STRATEGY
The Company's operating strategy is to provide its customers with a
consistent lodging experience by offering a package of amenities and services
which meet or exceed the customers' expectations during each stay. The Company
has developed uniform standards and procedures for each aspect of the
development, construction, operation and marketing of its AmeriHost Inn hotels,
from site selection to operational management.
The Company has designed a financial management system whereby all
accounting and operating information is processed in the Company's centralized
accounting office at its headquarters. The system includes cash management,
accounts payable and the generation of daily financial and operating information
and monthly financial statements which allow senior management and the regional,
area and general managers to closely monitor performance and to quickly react to
changes in operational conditions. The Company provides each Hotel with
standardized forms and procedures to ensure uniform and efficient financial
reporting. The Company's financial management system
5
<PAGE> 7
relieves certain management and reporting burdens from the individual hotel
managers enabling them to focus on the operation and marketing of the hotel. The
centralized financial management system also enhances the quality and timing of
internal financial reports. All payroll functions are also centralized at the
Company's headquarters through its employee leasing subsidiary, allowing the
Company to have greater control over payroll costs. In addition, since all of
the approximately 1,800 hotel personnel are employed by the same company, the
costs of certain payroll-related expenses are lower than if each Hotel
maintained its own employees, and the Company is able to offer a more attractive
health insurance program to its employees.
MARKETING STRATEGY
The Company believes it has a unique marketing strategy which is to
actively seek involvement in and ties to the local communities in which its
Hotels are located. The local businesses and residential community are each
Hotel's best referral source. When staying in smaller communities where the
Company's Hotels are located, visitors typically seek recommendations from
family, friends and business associates. The general managers of the Hotels are
expected to devote a majority of their time toward marketing activities with
local businesses and the community. In an effort to promote community awareness
and build strong relationships with business leaders and local residents,
general managers are very active in local civic groups and frequently sponsor
special events. The Hotels' facilities are often utilized for guest appreciation
and charitable events. In addition, the Hotels typically sponsor various local
social and community events and permit the use of their facilities by local
clubs and civic organizations. This community involvement, combined with a
professional marketing program, allows the Hotel to showcase its facilities for
both business and leisure purposes. By focusing on the local community as its
primary referral source, the Company believes that each Hotel can build a strong
sales force of local residents.
---------------
Amerihost Properties, Inc. was incorporated under the laws of the State of
Delaware on September 19, 1984. The Company's principal office is located at
2400 East Devon Avenue, Suite 280, Des Plaines, Illinois 60018 and its telephone
number is (847) 298-4500. AmeriHost Inn(R) is a registered trademark of the
Company. In addition, the Company operates certain of its Hotels through
franchise agreements with Days Inns of America, Inc., Promus Hotels, Inc.
(regarding Hampton Inns), Holiday Inns, Inc., Holiday Inns Franchising, Inc. and
Ramada Franchise Systems, Inc. See "Business - Franchise Agreements."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company......... 1,150,000 shares
Common Stock to be Outstanding
After the Offering........................ 7,173,521 shares (1)
Use of Proceeds............................. To provide capital for development and
construction of additional AmeriHost Inn
hotels, the Company's proprietary brand, and
for working capital and other general
corporate purposes. Pending such application
of the net proceeds, the Company intends to
use such net proceeds to temporarily reduce
outstanding indebtedness.
The Nasdaq National Market Symbol........... HOST
</TABLE>
- ---------------
(1) Based upon outstanding shares as of August 31, 1996. Does not include
1,852,377 shares reserved for issuance upon exercise of outstanding options
and warrants and 376,225 shares issuable upon exchange of certain limited
partnership interests held by limited partners in Joint Ventures (as
hereinafter defined) that own Minority-Owned Hotels. See "Business - Joint
Ventures" and "Shares Eligible for Future Sale." Also does not include
50,000 shares reserved for issuance under the Amerihost Properties, Inc.
1996 Stock Option Plan for Nonemployee Directors (the "Directors Plan") and
183,743 shares reserved for issuance under the Amerihost Properties, Inc.
1996 Omnibus Incentive Stock Plan (the "Incentive Stock Plan"). As of such
date, 2,000 options to purchase shares of Common Stock have been awarded
under the Directors Plan and no options had been awarded under the Incentive
Stock Plan.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information
for the Company. The summary consolidated financial information of the Company
at December 31, 1995 and for the years ended December 31, 1993, 1994 and 1995
has been derived from the audited Consolidated Financial Statements for the
Company set forth elsewhere herein. The summary consolidated financial
information for the years ended December 31, 1991 and 1992 has been derived from
the consolidated financial statements of the Company, audited by BDO Seidman,
LLP, that have not been included herein. The summary consolidated financial
information at June 30, 1996 and for each of the twelve months and the six
months ended June 30, 1995 and 1996 has been derived from the unaudited
Consolidated Financial Statements of the Company. In the opinion of management,
the consolidated financial information at June 30, 1996 and for each of the
twelve months and the six months ended June 30, 1995 and 1996 includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The summary consolidated
financial information should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included herein. The
summary consolidated financial information for the six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
-------------------------------------------------- ------------------ ------------------
1991 1992 1993 1994 1995 1995 1996 1995 1996
------ ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Hotel operations............ $ 514 $ 6,786 $ 9,092 $15,428 $24,360 $19,281 $27,677 $10,220 $13,536
Development and
construction.............. 4,449 8,367 6,971 12,037 12,238 15,677 16,652 7,777 12,191
Management services......... 1,561 2,225 2,849 2,712 3,011 2,835 2,825 1,370 1,184
Employee leasing............ - 12,033 15,362 13,170 12,353 12,508 11,827 6,077 5,551
------ ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 6,524 29,411 34,274 43,347 51,962 50,301 58,981 25,444 32,462
Expenses:
Operating costs and
expenses.................. 4,851 25,445 30,389 37,077 41,317 41,771 46,440 21,192 26,314
Depreciation and
amortization.............. 191 421 928 1,141 2,268 1,516 3,014 913 1,659
Leasehold rents - hotels.... - 1,149 1,652 1,661 1,976 1,796 1,945 996 964
Corporate general and
administrative............ 1,043 1,399 1,783 2,012 2,111 1,912 2,125 993 1,007
------ ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... 439 997 (478) 1,456 4,290 3,306 5,457 1,350 2,518
Other income (expense):
Interest expense............ (267) (455) (590) (855) (1,756) (1,175) (2,370) (670) (1,284)
Interest income............. 67 235 479 428 561 512 624 252 316
Other income................ 5 3 25 38 44 32 486 20 461
Equity in net income and
losses of affiliates...... 37 (80) 30 31 387 24 511 (87) 36
Debt acceleration charge.... - - (485) - -
------ ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interests and income
taxes....................... 281 700 (1,019) 1,098 3,526 2,699 4,708 865 2,047
Minority interests in
operations of consolidated
subsidiaries and
partnerships................ (1) (12) (38) (146) (59) (110) (40) 23 42
------ ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
tax......................... 280 688 (1,057) 952 3,467 2,589 4,668 888 2,089
Income tax expense (benefit),
net of carryforward......... - 177 (296) 381 1,329 1,008 1,859 327 857
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 280 $ 511 $ (761) $ 571 $ 2,138 $ 1,581 $ 2,809 $ 561 $ 1,232
====== ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share..... $ 0.17 $ 0.22 $ (0.15) $ 0.10 $ 0.35 $ 0.28 $ 0.43 $ 0.09 $ 0.18
====== ======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding (1)............. 1,685 2,347 5,038 5,624 6,125 5,744 6,518 5,912 6,696
OTHER INFORMATION:
EBITDA (2).................... $ 738 $ 2,713 $ 2,598 $ 4,609 $ 9,467 $ 7,076 $11,693 $ 3,467 $ 5,691
Net cash provided by (used in)
operating activities........ $ (54) $ 1,267 $ 693 $ 2,215 $ 1,918 $ 3,579 $ 4,616 $ 1,350 $ 4,048
</TABLE>
7
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<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1996
--------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents............ 341 1,279 1,885 3,026 $ 1,371 $ 2,609 $ 2,665
Total assets......................... 6,098 13,837 24,174 34,404 52,453 61,569 61,625
Long-term debt, including current
portion............................ 2,223 6,012 6,408 13,542 25,014 27,505 21,898
Shareholders' equity................. 1,708 3,856 12,781 13,672 17,267 18,674 26,069
</TABLE>
- ---------------
(1) During the first quarter of 1993, the Company issued an additional 1,718,915
shares of Common Stock in connection with the conversion and redemption of
the Company's 12% Convertible Subordinated Notes Due 1994 ("12% Subordinated
Notes"), the cashless exercise of warrants and the exercise of warrants to
purchase Common Stock. During the second quarter of 1993, the Company issued
an additional 1,550,000 shares of Common Stock in connection with a public
offering completed in May 1993.
(2) EBITDA is defined as net income (loss), adjusted to eliminate the impact of
(i) interest expense, (ii) leasehold rents for hotels, which the Company
considers to be financing costs similar to interest, (iii) income tax
expense (benefit), (iv) depreciation, and (v) amortization of intangibles.
EBITDA for the twelve months and six months ended June 30, 1996 does not
include a nonrecurring gain from the sale of land in the amount of $404,256
($305,215 net of minority interests). EBITDA should not be considered as an
alternative to net income or cash flows from operating activities as a
measure of liquidity.
(3) As adjusted to reflect the sale by the Company of 1,150,000 shares of Common
Stock offered hereby at an assumed offering price of $7.50 per share and the
application of the estimated net proceeds therefrom.
8
<PAGE> 10
OPERATING DATA
The following table sets forth certain operating data for the Owned Hotels
which had been operating, following a stabilization period of approximately 120
days after the opening or acquisition by the Company, for the entire period
indicated. The operating data shown for AmeriHost Inn hotels represents 3, 4 and
5 hotels for the years ended December 31, 1993, 1994 and 1995, respectively, and
4 and 5 hotels for the twelve months ended June 30, 1995 and 1996, respectively.
The operating data shown for Other Owned Hotels represents 24, 29 and 32 hotels
for the years ended December 31, 1993, 1994 and 1995, respectively, and 31 and
28 hotels for the twelve months ended June 30, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AVERAGE OCCUPANCY(1)
AmeriHost Inn hotels.................... 65.9% 68.6% 72.6% 70.4% 70.4%
Other Owned Hotels...................... 59.7% 59.9% 62.2% 60.5% 61.0%
Owned Hotels............................ 60.1% 60.5% 63.1% 61.1% 62.0%
AVERAGE DAILY RATE (ADR)(2)
AmeriHost Inn hotels.................... $49.01 $49.99 $52.21 $50.25 $53.66
Other Owned Hotels...................... $39.71 $44.13 $45.62 $44.46 $45.33
Owned Hotels............................ $40.37 $44.60 $46.28 $44.90 $46.27
REVENUE PER AVAILABLE
ROOM (REVPAR)(3)
AmeriHost Inn hotels.................... $32.28 $34.28 $37.90 $35.35 $37.79
Other Owned Hotels...................... $23.72 $26.41 $28.39 $26.90 $27.67
Owned Hotels............................ $24.27 $26.97 $29.22 $27.45 $28.68
GROSS OPERATING PROFIT MARGIN(4)
AmeriHost Inn hotels.................... 48.5% 48.2% 49.5% 47.7% 48.3%
Other Owned Hotels...................... 29.0% 31.4% 31.5% 30.8% 29.9%
Owned Hotels............................ 30.6% 32.8% 33.5% 32.1% 32.2%
EBITDA MARGIN(5)
AmeriHost Inn hotels.................... 44.6% 44.1% 45.6% 43.4% 44.5%
Other Owned Hotels...................... 22.1% 24.8% 25.0% 24.3% 23.1%
Owned Hotels............................ 23.9% 26.4% 27.2% 25.8% 25.8%
ROOM MARGIN(6)
AmeriHost Inn hotels.................... 80.4% 81.4% 80.8% 80.9% 80.5%
Other Owned Hotels...................... 76.0% 77.6% 77.1% 76.9% 76.1%
Owned Hotels............................ 76.4% 78.0% 77.5% 77.3% 76.7%
</TABLE>
- ---------------
(1) Calculated as occupied rooms divided by available rooms.
(2) Calculated as room revenues divided by occupied rooms.
(3) Calculated as room revenues divided by available rooms.
(4) Represents gross operating profit as a percentage of revenue.
(5) Represents EBITDA as a percentage of revenue. EBITDA is defined as net
income (loss), adjusted to eliminate the impact of (i) interest expense,
(ii) leasehold rents for hotels, which the Company considers to be financing
costs similar to interest, (iii) income tax expense (benefit), (iv)
depreciation, and (v) amortization of intangibles. EBITDA should not be
considered as an alternative to net income or cash flows from operating
activities as a measure of liquidity.
(6) Represents gross rooms operating profit (room revenues less room,
housekeeping, laundry and transportation expenses) as a percentage of room
revenues.
9
<PAGE> 11
HOTEL AND ROOM DATA
The following table sets forth hotel and room data with respect to the
Hotels which were open, as well as other hotels which were under construction,
at December 31, 1993, 1994 and 1995 and at August 31, 1996 and hotels which were
under development at August 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT AUGUST 31,
---------------------------- -------------
1993 1994 1995 1996
----- ------ ----- -------------
<S> <C> <C> <C> <C>
NUMBER OF HOTELS OPEN
Owned Hotels:
AmeriHost Inn hotels(1)..................... 4 6 13 32(2)
Other Owned Hotels.......................... 31 37 35 29(2)
Managed Hotels(3)........................... 14 10 10 11
----- ------ ----- -------------
Total..................................... 49 53 58 72
NUMBER OF ROOMS OPEN
Owned Hotels:
AmeriHost Inn hotels(1)..................... 240 360 841 2,084(2)
Other Owned Hotels.......................... 3,352 3,944 3,640 3,205(2)
Managed Hotels(3).............................. 1,790 1,296 1,283 1,383
----- ------ ----- -------------
Total..................................... 5,382 5,600 5,764 6,672
NUMBER OF HOTELS UNDER CONSTRUCTION(4)
Owned Hotels:
AmeriHost Inn hotels........................ 0 5 16 10
Other Owned Hotels.......................... 2 2 0 0
Managed Hotels................................. 0 1 1 0
----- ------ ----- -------------
Total..................................... 2 8 (5) 17 10
NUMBER OF ROOMS UNDER CONSTRUCTION(4)
Owned Hotels:
AmeriHost Inn hotels........................ 0 300 986 608
Other Owned Hotels.......................... 178 148 0 0
Managed Hotels................................. 0 60 100 0
----- ------ ----- -------------
Total..................................... 178 508 (5) 1,086 608
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 31,
1996
-----------------
HOTELS ROOMS
------ -----
<S> <C> <C> <C> <C>
NUMBER UNDER DEVELOPMENT(6)
Owned Hotels:
AmeriHost Inn hotels........................ 12 732
Other Owned Hotels.......................... 0 0
Managed Hotels................................. 1 61
------ -----
Total..................................... 13 793
</TABLE>
- ---------------
(1) Excludes two AmeriHost Inn hotels owned by unaffiliated third parties which
are Managed Hotels.
(2) Between December 31, 1995 and August 31, 1996, 5 Other Owned Hotels were
converted into AmeriHost Inn hotels.
(3) Includes two AmeriHost Inn hotels owned by unaffiliated third parties.
(4) For purposes of this Prospectus, the Company deems hotels and rooms to be
"under construction" when it has secured necessary debt financing and
received approval for all construction and zoning permits. Hotels under
construction became, or will become, Owned Hotels (either AmeriHost Inn
hotels or Other Owned Hotels) or Managed Hotels, as indicated, upon
commencement of operations.
(5) Does not include one hotel under construction at December 31, 1994 which was
constructed for an unaffiliated third party and which the Company does not
manage.
(6) For purposes of this Prospectus, the Company deems hotels and rooms to be
"under development" when it has an option or agreement to purchase the land
and a commitment for the necessary debt financing for the construction of
the hotel. Hotels under development became, or will become, Owned Hotels
(either AmeriHost Inn hotels or Other Owned Hotels) or Managed Hotels, as
indicated, upon commencement of operations.
10
<PAGE> 12
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Prospectus, such as those concerning
the Company's mission statement, the development and construction of new hotels
and the projected opening dates of hotels under development and under
construction, capital requirements and other statements regarding matters that
are not historical facts are forward-looking statements (as such term is defined
in the rules promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act")). Because such forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein under "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." The Company undertakes no
obligation to release publicly the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
RISK FACTORS
In addition to the other information set forth in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing any shares of the Common Stock offered
hereby.
LODGING INDUSTRY RISKS
The lodging industry in general may be adversely affected by such factors
as changes in national and regional economic conditions, changes in local market
conditions, oversupply of guest rooms or a reduction in local demand for rooms
and related services, competition in the lodging industry, changes in interest
rates and the availability of financing.
Cyclicality. The lodging industry is subject to periods of cyclical growth
and downturn. For example, the lodging industry suffered a downturn in the late
1980's and early 1990's due to a substantial increase in the supply of guest
rooms that significantly outpaced growth in demand coupled with poor general
economic conditions. While there has been a general recovery of the industry in
recent years, there can be no assurance that the industry will not experience a
similar downturn in the future. In addition, there can be no assurance that
downturns or prolonged adverse conditions in the lodging industry, in real
estate or capital markets or in national, regional or local economies will not
have a material adverse impact on the Company.
Operating Risks. Operating factors affecting the lodging industry include
(i) competition from other hotels and recreational properties; (ii) demographic
changes; (iii) the recurring need for renovations, refurbishment and
improvements of hotels; (iv) restrictive changes in zoning and similar land use
laws and regulations, or in health, safety, disability and environmental laws,
rules and regulations; (v) changes in government regulations that influence or
determine wages, prices or construction costs; (vi) changes in the
characteristics of hotel locations; (vii) the inability to secure property and
liability insurance to fully protect against all losses or to obtain such
insurance at reasonable costs; (viii) changes in real estate tax rates and other
operating costs; (ix) changes or cancellations in local tourist, athletic or
cultural events; (x) changes in travel patterns which may be affected by
increases in transportation costs or gasoline prices, changes in airline
schedules and fares, strikes, weather patterns or relocation or construction of
highways; and (xi) changes in brand identity and reputation. Unexpected or
adverse changes in any of the foregoing factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, to the extent that revenues decrease at Minority-Owned Hotels or
Managed Hotels, the management fees that the Company receives will be reduced
and the Company's revenues and profitability could be adversely affected.
11
<PAGE> 13
COMPETITION
There is significant competition in the lodging industry, particularly in
the mid-price hotel market. There are numerous hotel chains that operate on a
national or regional basis, as well as other hotels, motor inns and other
independent lodging establishments throughout the United States. Competition is
primarily in the areas of price, location, quality, services and amenities.
There can be no assurance that new or existing competitors will not
significantly lower their rates or offer greater convenience, services or
amenities or significantly expand or improve facilities in the Company's
markets, thereby adversely affecting the Company's results of operations. There
are also a number of companies which acquire, develop, construct and renovate
hotels. Some of these companies, which may have substantially greater financial
resources than the Company, perform these services only for their own account,
while others actively pursue contracts for these services with third-party
owners. The recent economic recovery in the lodging industry and the resulting
increase in funds available for hotel development and acquisitions may cause
additional competitors to enter the hotel market, which may in turn increase
competition for the development and acquisition of hotel properties. In
addition, there are many hotel management companies which provide management
services to hotels similar to the services provided by the Company. Many of the
Company's competitors have recognized trade names, national reservation systems,
greater resources and longer operating histories than the Company. The Company
expects that competition will increase with respect to all aspects of its
business in the future and, as a result, there can be no assurance that it will
remain competitive or be able to maintain its current profitability.
EXPANSION RISKS
The Company intends to grow primarily by developing additional AmeriHost
Inn hotels. At August 31, 1996, the Company had 34 AmeriHost Inn hotels open
(including 2 AmeriHost Inn hotels which are Managed Hotels), 10 AmeriHost Inn
hotels under construction and 13 AmeriHost Inn hotels under development. In 1994
and 1995, the Company began construction of 15 and 20 hotels, respectively. The
Company's mission statement includes having 200 AmeriHost Inn hotels open or
under construction by December 31, 2000. In order to achieve the goal set forth
in its mission statement, the Company will have to significantly increase its
annual rate of hotel development and construction so that it begins construction
on an average of 33 new hotels per year. The Company's ability to expand, and to
do so at a faster rate than it has in the past, depends on a number of factors,
including the selection and availability of suitable locations at acceptable
prices and the availability of capital at economic rates. There can be no
assurance that suitable locations for new development will be available, or if
available, will be on terms acceptable to the Company or that capital will be
available on terms acceptable to the Company. The Company must also integrate
the large number of additional AmeriHost Inn hotels and the additional
management, personnel and reporting functions accompanying such expansion into
the Company's existing infrastructure. The integration of the foregoing into the
Company's existing infrastructure presents a significant management challenge
and will require the hiring and training of sufficiently skilled management and
personnel. The failure to hire and sufficiently train the management and
personnel required to manage and operate the additional AmeriHost Inn hotels and
to effectively and efficiently integrate the planned AmeriHost Inn hotels to be
developed and constructed, including the additional management, personnel and
reporting functions, could have a material adverse effect on the results of
operations and financial condition of the Company.
New hotel development is subject to a number of risks, including site
acquisition cost and availability, construction delays and cost overruns, the
possibility that hotels will not achieve anticipated occupancy levels or sustain
expected room rate levels and commencement risks such as receipt of zoning,
occupancy and other required governmental permits and authorizations. In the
past, the Company has experienced delays in opening new hotels, primarily as a
result of inclement weather. The Company also plans to expand into geographic
markets where it currently does not have a major presence, such as Texas and
California. There can be no assurance that the Company's expansion plans will be
completed successfully or that the nature of such expansion will not be
12
<PAGE> 14
modified to reflect future events or economic conditions. The Company's
inability to successfully implement its expansion plans would limit the
Company's ability to grow its revenue base. In addition, there can be no
assurance that the Company will be able to achieve operating results in future
AmeriHost Inn hotels comparable to the historical operating results of the
existing AmeriHost Inn hotels. To the extent that future AmeriHost Inn hotels do
not achieve anticipated performance levels, the Company's results of operations
could be adversely affected.
With respect to Owned Hotels, the Company or the applicable general
partnership, limited partnership or limited liability company in which the
Company is an investor and which owns an Owned Hotel (collectively, "Joint
Ventures") typically invests between 15% and 30% of the total costs of
developing and constructing a hotel in the form of equity, with the remaining
portion of the costs typically financed through a local or regional bank. As a
result, a substantial amount of additional financing from local or regional
banks is required to develop and construct each hotel. Changes in economic
conditions in the real estate and lodging industries may limit the amount of
financing available from local or regional banks and may make it necessary for
the Company or applicable Joint Venture to contribute a greater percentage of
equity to a given development project. There can be no assurance that financing
will be available from local or regional banks, or, if available, on terms
favorable to the Company or Joint Venture or that the Company or Joint Venture
will be able to contribute any required additional equity.
REAL ESTATE INVESTMENT RISKS
The Company's ownership of hotels is subject to varying degrees of risk
generally incident to the ownership and operation of real property and, in
particular, hotels. The value of the Hotels and the Company's results of
operations may be adversely affected by a number of factors, including national,
regional or local economic conditions (which may be adversely impacted by plant
closings, industry slowdowns, inflation and other factors); existence of
competing hotels; general conditions in the construction and lodging industries;
local lodging market conditions (such as an oversupply of guest rooms); changes
in governmental regulations, zoning or tax laws; operating cost increases; labor
problems; potential environmental or other legal liabilities; and changes in
interest rate levels. There can be no assurance that demographic, geographic or
other changes in markets where the Hotels are located will not adversely affect
the convenience or desirability of the Hotels. Certain costs associated with
hotels are largely fixed, principally mortgage payments, real estate taxes,
maintenance and other operating costs, and do not decrease as a result of events
adversely affecting the revenue of a hotel. Real estate investments are
relatively illiquid limiting the ability of the Company to vary its portfolio of
hotels in response to changes in economic and other conditions. There can be no
assurance that the disposition of any Hotel, by either the Company or a Joint
Venture, can be accomplished at a price that will not result in a loss to the
Company.
SEASONALITY
The lodging industry, in general, is seasonal in nature. The Company's
hotel revenues are generally greater in the second and third calendar quarters
than in the first and fourth quarters due to weather conditions in the markets
in which Hotels are located and general business and leisure travel trends. This
seasonality can be expected to continue to cause quarterly fluctuations in the
Company's revenues. Quarterly earnings also may be adversely affected by events
beyond the Company's control, such as extreme weather conditions, economic
factors and other factors affecting travel. In addition, hotel construction is
seasonal, depending upon the geographic location of the construction projects.
At August 31, 1996, the Company had 10 AmeriHost Inn hotels under construction,
primarily in the Midwest and Southeast. Construction activity in the Midwest may
be slower in the first and fourth quarters due to weather conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
13
<PAGE> 15
GEOGRAPHIC CONCENTRATION
The Hotels are located primarily in the Midwest. As a result, the Company's
results of operations and financial condition are largely dependent on economic
and weather conditions in the Midwest and could be adversely affected by a
decline in economic conditions or inclement weather in this region.
RISK OF LEVERAGE
With few exceptions, each of the Owned Hotels is subject to mortgage
indebtedness. In addition, to the extent that the Company is a general partner
of any Joint Venture, it is secondarily liable for any recourse indebtedness
incurred by such entity. At August 31, 1996, the Owned Hotels had indebtedness
outstanding of approximately $81.8 million, with a weighted average interest
rate and remaining years to maturity of 9.48% per annum and 9.6 years,
respectively. The Company is a general partner in Joint Ventures which, at
August 31, 1996, had approximately $55.9 million in recourse indebtedness
outstanding. At August 31, 1996, the Company had guaranteed mortgage loan
obligations in the aggregate principal amount of approximately $48.3 million for
42 Owned Hotels. In certain instances, other Joint Venture partners have also
guaranteed these debts. The Company intends to use approximately $5.6 million of
the net proceeds of the Offering to repay a portion of the long-term debt,
including current portion, expected to be outstanding at the time of the
Offering and which will be secured by certain Wholly-Owned Hotels, all of which
will have been guaranteed by the Company. See "Use of Proceeds." Of the mortgage
indebtedness of the Owned Hotels that is expected to remain outstanding
following the Offering, approximately $50.4 million is subject to a floating
rate of interest. Adverse economic conditions beyond the Company's control could
result in higher interest rates on such floating rate indebtedness, increasing
the Company's or the applicable Joint Venture's debt service requirements.
A reduction in cash flows from an Owned Hotel or an increase in the
interest rate applicable to such Owned Hotel's indebtedness could result in the
inability of the Company or the applicable Joint Venture to meet the interest
payments or the principal payments of the indebtedness. Such circumstances could
require the Company and/or other Joint Venture partners to provide additional
capital to the entity that owns such hotel or satisfy guarantees of the
indebtedness. In the event the Company is liable as a general partner or as a
guarantor for the indebtedness of a Joint Venture, it may have a right to
contribution from the other Joint Venture partners. If the Company does not have
a right of contribution or is unable to obtain contribution from the other Joint
Venture partners, the Company may be required to seek additional financing from
various capital sources. There can be no assurance that the Company will be able
to obtain such additional financing on terms acceptable to it, if and when
needed. A default by either the Company or the Joint Venture that owns a Hotel
on such indebtedness could result in the commencement of foreclosure proceedings
against such Hotel, which, in turn, could result in the forfeiture of all or
substantially all of the Company's equity investment, if any, in such Hotel and
the Company being obligated to pay any balance of such indebtedness. A
significant number of such defaults would have a material adverse impact on the
financial condition of the Company.
UNINSURED AND UNDERINSURED LOSSES COULD RESULT IN LOSS OF VALUE OF HOTEL
PROPERTIES
Although the Company and each Owned Hotel maintain comprehensive insurance,
including comprehensive fire and extended coverage and liability insurance,
there can be no assurance that such insurance coverage will be sufficient to
fully protect the business and assets of the Company or an Owned Hotel from all
claims or liabilities, including environmental liabilities, or that the Company
or an Owned Hotel will be able to obtain additional insurance at commercially
reasonable rates. In addition, there are certain types of losses (generally of a
catastrophic nature or related to certain environmental liabilities) that are
either uninsurable or not insurable at a reasonably affordable price. In the
event losses or claims are beyond the limits or scope of the Company's or an
Owned Hotel's insurance coverage, the Company's business could be materially
adversely affected. In addition, should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its equity investment in some or
all of the Owned Hotels, as well as anticipated future revenues from such
14
<PAGE> 16
Owned Hotels, while remaining obligated for any mortgage indebtedness or other
financial obligations related to such Owned Hotels. If such a catastrophe
occurs, the financial and other advantages the Company had expected to receive
from the affected hotel would be lost. To the extent a significant number of
losses occur, such losses would have a material adverse impact on the Company's
financial condition.
RISKS INVOLVED IN INVESTMENTS THROUGH JOINT VENTURES
At August 31, 1996, the Company had investments in 41 Owned Hotels in which
the Company is not the sole owner. Of such 41 Owned Hotels, 8 are Majority-Owned
Hotels and 33 are Minority-Owned Hotels. Such investments may, under certain
circumstances, involve risks such as the possibility that the other Joint
Venture partners might become bankrupt and therefore, unable to fulfill their
financial and other contractual obligations, have economic or business interests
or goals that are inconsistent with the business interests or goals of the
Company or be in a position to take action contrary to the instructions or the
requests of the Company or contrary to the Company's policies or objectives. To
the extent that the other Joint Venture partners cannot fulfill their financial
and contractual obligations or have interests which are dissimilar to the
Company's, the Company's results of operations and financial condition could be
adversely affected. In certain Joint Ventures, the other Joint Venture partners
have the right to make certain decisions with respect to the operation, sale,
financing or renovation of the underlying Hotel. See "Business - Joint
Ventures."
RISKS OF OPERATING HOTELS SUBJECT TO FRANCHISE LICENSE AGREEMENTS
Of the 72 Hotels owned, operated or managed by the Company at August 31,
1996, 32 Hotels are subject to third-party franchise license agreements with
franchisors such as Days Inn of America, Inc., Promus Hotels, Inc. (regarding
Hampton Inns), Holiday Inns, Inc., Holiday Inns Franchising, Inc. and Ramada
Franchise Systems, Inc. (collectively, the "Franchisors"). The continuation of
the franchise licenses is subject to the maintenance of specified operating
standards and other terms and conditions. The Franchisors periodically inspect
their licensed hotels to confirm adherence to their maintenance and operating
standards. The Company or the applicable Joint Venture is responsible for
routine maintenance and repair expenditures with respect to such Hotels. The
failure to maintain the standards or adhere to the other terms and conditions of
the franchise license agreements could result in the loss or cancellation of
such franchise licenses. It is possible that a Franchisor could condition the
continuation of a franchise license upon the completion of substantial capital
improvements, which the Company or the applicable Joint Venture may determine to
be too expensive or otherwise unwarranted in light of general economic
conditions or the operating results or prospects of the affected Hotel. The loss
of any franchise license could have a material adverse effect upon the
operations and the underlying value of the Hotel covered by such license because
of the loss of associated name recognition, marketing support and centralized
reservation systems, provided by the Franchisor. The loss of a franchise license
for a significant number of Hotels could have a material adverse effect on the
Company's revenues.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The success of the Company is dependent to a large degree upon its senior
management, including H. Andrew Torchia, Chairman of the Board of Directors
(who, through Urban 2000 Corp., a hotel development consulting firm ("Urban"),
provides services to the Company under a consulting agreement), Michael P.
Holtz, President and Chief Executive Officer, Richard D'Onofrio, Executive Vice
President, and Russell J. Cerqua, Executive Vice President of Finance,
Secretary, Treasurer and Chief Financial Officer. Messrs. Torchia, Holtz,
D'Onofrio and Cerqua have been active in the lodging industry for an average of
21 years. The loss of any of the foregoing officers could have a material
adverse impact on the Company's operations. The Company has employment
agreements with Messrs. Holtz, D'Onofrio and Cerqua. See "Management" and
"Certain Transactions." The Company maintains "key person" life insurance
policies for the benefit of the Company on the lives of Messrs. Torchia, Holtz
and D'Onofrio.
15
<PAGE> 17
STOCK PRICE VOLATILITY
The market price of the Company's Common Stock has varied significantly in
the past. The Common Stock is listed for quotation on the Nasdaq National
Market, which market has experienced and is likely to experience in the future
significant price and volume fluctuations which could adversely affect the
market price of the Common Stock without regard to the operating performance of
affected companies. General market price declines or market volatility in the
future could affect the market price of the Common Stock. In addition, the
Company believes that factors such as quarterly fluctuations in the financial
results of the Company, the overall economy and the financial markets could
cause the price of Common Stock to fluctuate substantially. The number of shares
of Common Stock publicly traded are, and following the Offering will be,
limited. As a result, relatively small volume fluctuations could affect the
market price of the Common Stock.
ENVIRONMENTAL MATTERS
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of future legislation. Under various federal,
state and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for the costs of
removal or remediation of hazardous or toxic substances on, under or in such
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. In addition, the presence of contamination from hazardous or toxic
substances, or the failure to properly remediate such contaminated property, may
adversely affect an owner's ability to use or sell such real property or borrow
using such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is or ever was owned or operated by such person.
Certain environmental laws and common law principles could be used to impose
liability for releases of hazardous materials, including asbestos-containing
materials ("ACMs"), into the environment, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws also
may impose restrictions on the manner in which property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership of the Owned Hotels, the
Company may be potentially liable for any such costs. The cost of defending
against claims of liability or remediating contaminated property and the cost of
complying with environmental laws could materially adversely affect the
Company's results of operations and financial condition.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
AND OTHER CHANGES IN GOVERNMENTAL RULES AND REGULATIONS
Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. A determination that any of the Owned Hotels
is not in compliance with the applicable requirements of ADA could result in
imposition of fines or an award of damages to private litigants. In addition,
changes in governmental rules and regulations or enforcement policies affecting
the use and operation of the Owned Hotels, including changes to building codes
and fire and life-safety codes, may occur. If the Company were required to make
substantial modifications to the Owned Hotels to comply with ADA or other
changes in governmental rules and regulations, the Company's financial condition
and ability to develop new hotels could be adversely affected.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation, as amended (the
"Restated Certificate"), and By-Laws (the "By-Laws") contain certain provisions
that may have the effect of discouraging, delaying or making more difficult a
change in control of the Company even if some, or a majority, of the Company's
shareholders were to deem such an attempt to be in the best interest of the
Company.
16
<PAGE> 18
Among other things, the Restated Certificate allows the Board of Directors to
issue up to 100,000 shares of Preferred Stock and to fix the rights, privileges
and preferences of those shares without any further vote or action by the
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, any such issuance could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. In addition, the Company is subject to
the provisions of Section 203 of the Delaware General Corporation Law (the
"DGCL"), which could have the effect of delaying or preventing a change of
control of the Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding an
aggregate of 7,173,521 shares of Common Stock. Of these shares of Common Stock,
5,758,680 shares, including the 1,150,000 shares sold in the Offering, will be
freely tradeable by persons other than affiliates of the Company. The remaining
1,414,841 shares of Common Stock are either owned by affiliates of the Company
or were issued by the Company in private transactions not involving a public
offering and are "restricted securities" as defined in Rule 144 ("Rule 144")
under the Securities Act. Pursuant to Rule 144, such shares may be resold
subject to certain holding period requirements and volume limitations. In
addition, the Company currently has an effective registration statement on Form
S-3 registering the resale of approximately 1,360,000 shares of Common Stock
(including approximately 150,000 shares underlying outstanding options and
warrants). The Company believes that all but approximately 241,000 shares of
Common Stock (including 103,125 shares underlying outstanding options and
warrants) have been sold pursuant to such registration statement. To date, the
Company has also issued options and warrants representing the right to purchase
an aggregate of 1,854,377 shares of Common Stock, of which options and warrants
to purchase 1,556,377 shares will be exercisable by the end of 1996. In
addition, equity interests held by limited partners in 5 Joint Ventures are
exchangeable into an aggregate of 376,225 shares of Common Stock. An aggregate
of 384,350 shares of Common Stock which may be issued upon exercise of options
and warrants or upon exchange of the Joint Venture securities have certain
demand registration rights, pursuant to which the Company intends to file a
registration statement registering such shares for resale. Shares sold pursuant
to such a registration statement will be freely tradeable by the purchaser
thereof unless reacquired by an affiliate of the Company. Additionally, shares
issued upon exercise of other options or warrants may be sold pursuant to Rule
144 subject to the holding period requirements related to such shares and
certain volume limitations and certain of the shares of Common Stock to be
issued upon exercise of options and warrants will have piggyback registration
rights. Sales of substantial amounts of Common Stock by shareholders, or the
perception that such sales could occur, could adversely affect the market price
in the public market following the Offering. The Company and certain
shareholders have executed "lock-up agreements" pursuant to which they have,
subject to certain exceptions in the case of the Company, agreed not to sell, or
otherwise dispose of, directly or indirectly, or exercise any registration
rights with respect to, any shares of Common Stock, securities convertible into
or exchangeable for Common Stock or any rights to purchase or acquire Common
Stock for a period of 120 days after the date of this Prospectus, without the
prior written consent of the Placement Agent. See "Shares Eligible for Future
Sale" and "Plan of Distribution."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering (after
deducting the Placement Fee and expenses of the Offering) are estimated to be
approximately $7.4 million, assuming an offering price of $7.50 per share. The
Company intends to use the net proceeds primarily to provide capital for the
development and construction of additional hotels, particularly the Company's
proprietary brand, AmeriHost Inn hotels, and for working capital and other
general corporate purposes. Pending such application of the net proceeds, the
Company intends to use such net proceeds to temporarily reduce outstanding
indebtedness. Accordingly, the Company estimates that it will use approximately
$1.7 million of the net proceeds to repay all of the amounts outstanding under
an operating bank line of credit at the time of the Offering and to repay
approximately $5.6 million of long-term debt, including current portion,
expected to be outstanding at the time of the Offering which is secured by 4
Wholly-Owned Hotels. The Company's operating bank line of credit (the "Operating
Line of Credit") is a $5.0 million secured facility which bears interest at a
rate per annum equal to the lending bank's base rate plus 1/2% (with a minimum
interest rate of 7.5%) and which matures on May 1, 1997. The long-term loans to
be repaid have interest rates ranging from 8.0% to 10.0% and an average of 5.9
years remaining to maturity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and "- Capital Requirements Following the Offering."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "HOST." As of September 30, 1996, there were 1,538 holders of record
of the Company's Common Stock. The last reported sale price for the Common Stock
as quoted on the Nasdaq National Market on October 21, 1996 was $7.47 per share.
The following table sets forth, for the periods indicated, the range of high and
low sales prices per share of the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- ------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1994
First quarter............................................................... $6.75 $ 4.88
Second quarter.............................................................. 5.38 3.50
Third quarter............................................................... 4.88 3.50
Fourth quarter.............................................................. 5.50 3.50
FISCAL YEAR ENDED DECEMBER 31, 1995
First quarter............................................................... $5.00 $ 3.56
Second quarter.............................................................. 6.00 4.25
Third quarter............................................................... 7.56 5.50
Fourth quarter.............................................................. 7.38 6.13
FISCAL YEAR ENDED DECEMBER 31, 1996
First quarter............................................................... $8.50 $ 6.25
Second quarter.............................................................. 10.25 6.63
Third quarter............................................................... 8.63 5.88
Fourth quarter (through October 21, 1996)................................... 7.63 7.00
</TABLE>
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to give effect to the sale of 1,150,000 shares of
Common Stock offered hereby at an assumed offering price of $7.50 per share and
the application of the estimated net proceeds therefrom. The information set
forth in the following table should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. See also "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(dollars in thousands)
<S> <C> <C>
Current liabilities:
Bank line of credit................................................ $ 1,732 $--
Current portion of long-term debt.................................. 1,130 891
Long-term debt, net of current portion............................... 26,375 21,007
Shareholders' equity:
Common Stock, $.005 par value, 15,000,000 shares authorized,
6,023,521 shares issued and outstanding at June 30, 1996;
7,173,521 issued and outstanding, as adjusted (1)............... 30 36
Additional paid-in capital......................................... 17,095 24,484
Retained earnings.................................................. 2,942 2,942
------- -------
20,067 27,462
Less stock subscription receivable................................. (437) (437)
Less notes receivable (2).......................................... (956) (956)
------- -------
Total shareholders' equity...................................... 18,674 26,069
------- -------
Total capitalization............................................ $47,911 $47,967
======= =======
</TABLE>
- ---------------
(1) Does not include 1,852,377 shares reserved for issuance upon exercise of
outstanding options and warrants and 376,225 shares issuable upon exchange
of certain limited partnership interests held by limited partners in Joint
Ventures that own Minority-Owned Hotels. See "Business - Joint Ventures" and
"Shares Eligible for Future Sale." Also does not include 50,000 shares
reserved for issuance under the Company's Directors Plan and 183,743 shares
reserved for issuance under the Company's Incentive Stock Plan. As of August
31, 1996, 2,000 options to purchase shares of Common Stock have been awarded
under the Directors Plan and no options had been awarded under the Incentive
Stock Plan.
(2) See "Certain Transactions" for a description of the notes.
DIVIDEND POLICY
Historically, the Company has not declared or paid any cash dividends on
its Common Stock. The Company currently intends to retain any earnings for use
in its business, including the financing of future hotel development and
construction, and therefore does not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be made
by the Board of Directors in light of the Company's earnings, financial
position, capital requirements and such other factors as the Board of Directors
deems relevant. In addition, pursuant to the terms of the Company's 7%
subordinated notes due 1999 (the "7% Subordinated Notes"), of which, at June 30,
1996, $2.25 million in principal amount were outstanding, no dividends may be
paid on any capital stock of the Company until the 7% Subordinated Notes have
been paid in full. At the Company's sole discretion, the 7% Subordinated Notes
may be prepaid at any time without prepayment penalty.
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
for the Company. The selected consolidated financial information of the Company
at December 31, 1995 and for the years ended December 31, 1993, 1994 and 1995
has been derived from the audited Consolidated Financial Statements for the
Company set forth elsewhere herein. The selected consolidated financial
information for the years ended December 31, 1991 and 1992 has been derived from
the consolidated financial statements of the Company, audited by BDO Seidman,
LLP, that have not been included herein. The selected consolidated financial
information at June 30, 1996 and for each of the twelve months and six months
ended June 30, 1995 and 1996 has been derived from the unaudited Consolidated
Financial Statements of the Company. In the opinion of management, the
consolidated financial information at June 30, 1996 and for each of the twelve
months and six months ended June 30, 1995 and 1996 includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The selected consolidated financial
information should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included herein and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
consolidated financial information for the six-months ended June 30, 1996 is not
necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
-------------------------------------------------- ------------------ ------------------
1991 1992 1993 1994 1995 1995 1996 1995 1996
------ ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Hotel operations............ $ 514 $ 6,786 $ 9,092 $15,428 $24,360 $19,281 $27,677 $10,220 $13,536
Development and
construction.............. 4,449 8,367 6,971 12,037 12,238 15,677 16,652 7,777 12,191
Management services......... 1,561 2,225 2,849 2,712 3,011 2,835 2,825 1,370 1,184
Employee leasing............ - 12,033 15,362 13,170 12,353 12,508 11,827 6,077 5,551
------ ------- ------- ------- ------- ------- ------- ------- -------
Total revenue........... 6,524 29,411 34,274 43,347 51,962 50,301 58,981 25,444 32,462
------ ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Operating costs and
expenses:
Hotel operations.......... 327 4,851 6,779 10,457 17,065 13,160 19,387 7,410 9,732
Development and
construction............ 3,514 6,671 6,112 11,316 10,118 14,020 13,594 6,836 10,311
Management services....... 1,010 2,038 2,297 2,289 2,003 2,269 1,907 966 869
Employee leasing.......... - 11,885 15,201 13,015 12,131 12,322 11,552 5,980 5,402
------ ------- ------- ------- ------- ------- ------- ------- -------
Total operating costs
and expenses.......... 4,851 25,445 30,389 37,077 41,317 41,771 46,440 21,192 26,314
------ ------- ------- ------- ------- ------- ------- ------- -------
1,673 3,966 3,885 6,270 10,645 8,530 12,541 4,252 6,148
Depreciation and
amortization.............. 191 421 928 1,141 2,268 1,516 3,014 913 1,659
Leasehold rents -- hotels... - 1,149 1,652 1,661 1,976 1,796 1,945 996 964
Corporate general and
administrative............ 1,043 1,399 1,783 2,012 2,111 1,912 2,125 993 1,007
------ ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... 439 997 (478) 1,456 4,290 3,306 5,457 1,350 2,518
Other income (expense):
Interest expense............ (267) (455) (590) (855) (1,756) (1,175) (2,370) (670) (1,284)
Interest income............. 67 235 479 428 561 512 624 252 316
Other income................ 5 3 25 38 44 32 486 20 461
Equity in net income and
losses of affiliates...... 37 (80) 30 31 387 24 511 (87) 36
Debt acceleration charge.... - - (485) - -
------ ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interests and income
taxes....................... 281 700 (1,019) 1,098 3,526 2,699 4,708 865 2,047
Minority interests in
operations of consolidated
subsidiaries and
partnerships................ (1) (12) (38) (146) (59) (110) (40) 23 42
------ ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
tax......................... 280 688 (1,057) 952 3,467 2,589 4,668 888 2,089
Income tax expense (benefit),
net of carryforward......... - 177 (296) 381 1,329 1,008 1,859 327 857
------ ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 280 $ 511 $ (761) $ 571 $ 2,138 $ 1,581 $ 2,809 $ 561 $ 1,232
====== ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share..... $ 0.17 $ 0.22 $ (0.15) $ 0.10 $ 0.35 $ 0.28 $ 0.43 $ 0.09 $ 0.18
====== ======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding (1)............. 1,685 2,347 5,038 5,624 6,125 5,744 6,518 5,912 6,696
OTHER INFORMATION:
EBITDA(2)..................... $ 738 $ 2,713 $ 2,598 $ 4,609 $ 9,467 $ 7,076 $11,693 $ 3,467 $ 5,691
Net cash provided by (used in)
operating activities........ $ (54) $ 1,267 $ 693 $ 2,215 $ 1,918 $ 3,579 $ 4,616 $ 1,350 $ 4,048
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1996
--------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents............ 341 1,279 1,885 3,026 $ 1,371 $ 2,609 $ 2,665
Total assets......................... 6,098 13,837 24,174 34,404 52,453 61,569 61,625
Long-term debt, including current
portion............................ 2,223 6,012 6,408 13,542 25,014 27,505 21,898
Shareholders' equity................. 1,708 3,856 12,781 13,672 17,267 18,674 26,069
</TABLE>
- ---------------
(1) During the first quarter of 1993, the Company issued an additional 1,718,915
shares of Common Stock in connection with the conversion and redemption of
the Company's 12% Subordinated Notes, the cashless exercise of warrants and
the exercise of warrants to purchase Common Stock. During the second quarter
of 1993, the Company issued an additional 1,550,000 shares of Common Stock
in connection with a public offering completed in May 1993.
(2) EBITDA is defined as net income (loss), adjusted to eliminate the impact of
(i) interest expense, (ii) leasehold rents for hotels, which the Company
considers to be financing costs similar to interest, (iii) income tax
expense (benefit), (iv) depreciation, and (v) amortization of intangibles.
EBITDA for the twelve months and six months ended June 30, 1996 does not
include a nonrecurring gain from the sale of land in the amount of $404,256
($305,215 net of minority interests). EBITDA should not be considered as an
alternative to net income or cash flows from operating activities as a
measure of liquidity.
(3) As adjusted to reflect the sale by the Company of 1,150,000 shares of Common
Stock offered hereby at an assumed offering price of $7.50 per share and the
application of the estimated net proceeds therefrom.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that include risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include
those discussed below, as well as those discussed elsewhere in this Prospectus.
The Company undertakes no obligation to release publicly any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
The Company is engaged in the development of AmeriHost Inn hotels, its
proprietary brand, and the ownership, operation and management of AmeriHost Inn
hotels and other hotels. As of August 31, 1996, there were 34 AmeriHost Inn
hotels, of which 12 were Wholly-Owned Hotels, one was a Majority-Owned Hotel, 19
were Minority-Owned Hotels and 2 were Managed Hotels. The Company intends to use
primarily the AmeriHost Inn brand when expanding its hotel operations segment.
All but one of the hotels which began construction in 1995 were AmeriHost Inn
hotels and all of the Company's hotels currently under development or
construction will be AmeriHost Inn hotels. The Company expects that 3 of the
AmeriHost Inn hotels under construction and 5 of the AmeriHost Inn hotels under
development as of August 31, 1996 will be Wholly-Owned Hotels with the remainder
being Minority-Owned Hotels or, in one instance, a hotel owned by an
unaffiliated third party.
Revenues from hotel operations consist of revenues from all Wholly-Owned
Hotels and Majority-Owned Hotels (collectively, "Consolidated Hotels"). As a
result of the Company's focus on increasing the number of Consolidated Hotels,
the Company expects that revenues from the hotel operations segment will
increase over time as a percentage of the Company's overall revenues.
Development and construction revenues consist of one-time fees for new
construction, acquisition and renovation activities performed by the Company for
Minority-Owned Hotels, Managed Hotels and unaffiliated third parties. The
Company also receives management services revenues for management services
provided to Minority-Owned Hotels and Managed Hotels. Employee leasing revenues
consist of revenues the Company receives for leasing its employees to
Minority-Owned Hotels and Managed Hotels. All revenues attributable to
development, construction, management and employee leasing services with respect
to Consolidated Hotels have been eliminated in consolidation.
The Company's business is seasonal in nature. The Company's revenues are
generally higher in the second and third calendar quarters due to weather
conditions in the markets in which Hotels are located and general business and
leisure travel trends. For the year ended December 31, 1995, 19.4%, 26.3%, 31.9%
and 22.4% of the total revenues from Owned Hotels which had been open for at
least twelve months following an initial stabilization period (approximately 120
days) were earned in the first, second, third and fourth quarters, respectively.
For the year ended December 31, 1994, 18.9%, 26.5%, 32.4% and 22.2% of the total
revenues from Owned Hotels which had been open for at least twelve months
following an initial stabilization period (approximately 120 days) were earned
in the first, second, third and fourth quarters, respectively. This seasonality
can be expected to continue to cause quarterly fluctuations in the Company's
revenues. In addition, hotel construction is seasonal, depending upon the
geographic location of the construction projects. At August 31, 1996, the
Company had 10 AmeriHost Inn hotels under construction, primarily in the Midwest
and Southeast. Construction activity in the Midwest may be slower in the first
and fourth quarters.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table sets forth the percentages of revenues of the Company
represented by components of the statement of operations for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and
1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses............... 88.7 85.5 79.5 83.3 81.1
----- ----- ----- ----- -----
11.3 14.5 20.5 16.7 18.9
Depreciation and amortization.............. 2.7 2.6 4.4 3.6 5.1
Leasehold rents -- hotels.................. 4.8 3.8 3.8 3.9 3.0
Corporate general and administrative....... 5.2 4.7 4.0 3.9 3.1
----- ----- ----- ----- -----
Operating income (loss).................... (1.4) 3.4 8.3 5.3 7.7
Interest expense........................... (1.7) (2.0) (3.4) (2.6) (3.9)
Interest and other income.................. 1.5 1.1 1.2 1.1 2.4
Equity in income (loss) of affiliates...... 0.1 - 0.7 (.4) .1
Debt acceleration charge................... (1.4) - - - -
----- ----- ----- ----- -----
Income (loss) before minority interest..... (2.9) 2.5 6.8 3.4 6.3
Minority interests in operations of
consolidated subsidiaries and
partnerships............................. (0.1) (0.3) (0.1) .1 .1
----- ----- ----- ----- -----
Income (loss) before taxes................. (3.0) 2.2 6.7 3.5 6.4
Income tax expense (benefit)............... (0.8) 0.9 2.6 1.3 2.6
----- ----- ----- ----- -----
Net income (loss).......................... (2.2)% 1.3% 4.1% 2.2% 3.8%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1995
Revenue
Revenues increased 61.3% and 27.6% to $19.8 million and $32.5 million
during the three and six months ended June 30, 1996, respectively, from revenues
of $12.3 million and $25.4 million during the three and six months ended June
30, 1995. These increases were due primarily to significant increases in the
Company's hotel development and hotel operations segments.
Hotel operations revenue increased 30.3% and 32.5% to $8.0 million and
$13.5 million during the three and six months ended June 30, 1996, respectively,
as compared to $6.1 million and $10.2 million during the three and six months
ended June 30, 1995. This increase was primarily attributable to the addition of
7 Consolidated Hotels to the hotel operations segment from July 1, 1995 through
June 30, 1996. The Company held a minority ownership position in one of these 7
hotels prior to it becoming a Consolidated Hotel in the fourth quarter of 1995
when additional ownership interests were acquired. The hotel operations segment
included the operations of 25 Consolidated Hotels comprising 2,570 rooms at June
30, 1996, compared to 18 Consolidated Hotels comprising 2,109 rooms at June 30,
1995, or an increase of 21.9% in total rooms. After considering the Company's
ownership interest in the majority-owned Consolidated Hotels, this translates to
2,197 and 1,751 equivalent owned rooms as of June 30, 1996 and 1995,
respectively, or an increase of 25.5%.
Hotel development revenue increased 261% and 56.8% to $8.2 million and
$12.2 million during the three and six months ended June 30, 1996, respectively,
from $2.3 million and $7.8 million during the three and six months ended June
30, 1995. These increases were due primarily to the significant increase in
hotel development activity performed for entities in which the Company holds a
minority ownership interest. The Company was constructing 14 and 16 hotels
during the second quarter and first six months of 1996, compared to 7 hotels
during the three and six months ended June 30, 1995,
23
<PAGE> 25
including 5 which were opened during the 1995 second quarter resulting in the
recognition of revenues for only a portion of the quarter. In addition, the
Company was able to make significant progress on certain projects which were
hampered by severe weather conditions in the first quarter of 1996. The Company
also had several projects in various stages of pre-construction development
during both six month periods.
Hotel management revenue decreased 13.8% and 13.6% to $694,148 and $1.2
million during the three and six months ended June 30, 1996, respectively, from
$805,619 and $1.4 million during the three and six months ended June 30, 1995.
While the number of hotels managed for third parties and minority-owned entities
increased from 37 hotels at June 30, 1995 to 39 hotels at June 30, 1996, the
total number of rooms managed decreased by 73. The addition of 6 management
contracts (426 rooms) from July 1, 1995 to June 30, 1996 was offset by the
termination of 3 management contracts (397 rooms) with minority-owned entities
as a result of a hotel sale or temporary closing during renovation, and the one
minority-owned hotel (102 rooms) which became a Consolidated Hotel in the fourth
quarter of 1995 due to the Company acquiring additional ownership interests in
such hotel. The Company does not recognize management fees from Consolidated
Hotels. The total management fee revenues generated during the three and six
months ended June 30, 1996 from the 6 management contracts added since July 1,
1995 were lower than the management fee revenues generated during the three and
six months ended June 30, 1995 from the 4 minority-owned hotels terminated as
discussed above. In addition, same room revenues decreased for all hotels
managed for third parties.
Employee leasing revenue decreased 4.7% and 8.7% to $3.0 million and $5.6
million during the three and six months ended June 30, 1996, respectively, from
$3.1 million and $6.1 million during the three and six months ended June 30,
1995, as the 6 hotels added from July 1, 1995 through June 30, 1996,
representing 426 rooms, incurred lower payroll costs than the 4 hotels
representing 499 rooms which were terminated as discussed above.
Operating costs and expenses
Total operating costs and expenses increased 69.5% and 24.2% to $15.6
million (78.5% of total revenues) and $26.3 million (81.1% of total revenues)
during the three and six months ended June 30, 1996, respectively, from $9.2
million (74.7% of total revenues) and $21.2 million (83.3% of total revenues)
during the three and six months ended June 30, 1995. Operating costs and
expenses in the hotel operations segment increased 26.3% and 31.3% to $5.0
million and $9.7 million during the three and six months ended June 30, 1996,
respectively, from $4.0 million and $7.4 million during the three and six months
ended June 30, 1995, resulting primarily from the addition of 7 Consolidated
Hotels to this segment and are directly related to the 30.3% and 32.5% increase
in segment revenue during the three and six months ended June 30, 1996. Hotel
operations segment operating costs and expenses as a percentage of segment
revenue decreased to 62.8% and 71.9% during the three and six months ended June
30, 1996, respectively, from 64.7% and 72.5% during the three and six months
ended June 30, 1995, due primarily to improvements in operating efficiency and
the increase in newly constructed AmeriHost Inn hotels, whose operating costs
are typically lower than the older, acquired hotels. Operating costs and
expenses from hotels other than AmeriHost Inn hotels increased to 66.2% and
76.4% of hotel revenues during the three and six months ended June 30, 1996 from
65.2% and 72.9% of hotel revenues during the three and six months ended June 30,
1995, due primarily to the conversion of 3 Consolidated Hotels to AmeriHost Inn
hotels and higher expenses associated with the severe weather conditions in the
first quarter of 1996. Operating costs and expenses for the hotel development
segment increased 331% and 50.9% to $7.2 million and $10.3 million during the
three and six months ended June 30, 1996, respectively, from $1.7 million and
$6.8 million during the three and six months ended June 30, 1995, consistent
with the increase in hotel development revenues. Operating costs and expenses in
the hotel development segment as a percentage of segment revenue increased to
87.7% during the three months ended June 30, 1996 from 73.6% during the three
months ended June 30, 1995. The second quarter of 1996 contained a significant
level of construction activity which has higher operating costs than
pre-construction development activity. The second quarter of 1995 contained a
relatively higher portion of pre-construction development activity which has
lower
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associated operating costs. Operating costs and expenses in the hotel
development segment as a percentage of segment revenue decreased to 84.6% from
87.9% during the six months ended June 30, 1996, due primarily to the timing of
the pre-construction development activity as well as the construction activity.
Hotel management segment operating costs and expenses decreased 2.4% and 10.0%
to $496,384 and $869,035 during the three and six months ended June 30, 1996,
respectively, from $508,755 and $1.0 million during the three and six months
ended June 30, 1995 due to an increase in capitalized pre-opening costs
associated with new hotels and management contracts, and efficiencies achieved
in the management of all hotels operated and/or managed. Employee leasing
operating costs and expenses decreased 5.7% and 9.7% to $2.9 million and $5.4
million during the three and six months ended June 30, 1996, respectively, from
$3.0 million and $6.0 million during the three and six months ended June 30,
1995, and is consistent with the 4.7% and 8.7% decrease in segment revenue
during the three and six month periods.
Depreciation and amortization expense increased 79.2% and 81.7% to $856,357
and $1.7 million during the three and six months ended June 30, 1996,
respectively, from $478,007 and $912,926 during the three and six months ended
June 30, 1995. This increase was primarily attributable to the addition of 7
Consolidated Hotels to the hotel operations segment and the resulting
depreciation and amortization therefrom.
Leasehold rents -- hotels decreased 4.7% and 3.1% to $518,172 and $964,302
during the three and six months ended June 30, 1996, respectively, from $543,941
and $1.0 million during the three and six months ended June 30, 1995. The
decrease was due to the termination of one leased Consolidated Hotel in the
second quarter of 1995 as a result of the sale of such hotel, partially offset
by the addition of one leased Consolidated Hotel to the hotel operations segment
in the fourth quarter of 1995 (the Company had held a minority ownership
position in this hotel prior to acquiring additional ownership interests which
resulted in a majority ownership position).
Corporate general and administrative expense remained relatively stable,
decreasing 0.6% to $521,994 in the second quarter of 1996 from $525,289 in the
second quarter of 1995. During the six month period, corporate general and
administrative expense increased slightly by 1.4% to $1,006,646 in the 1996
period from $993,047 in the 1995 period.
Operating income
The Company's operating income increased $800,856 and $1.2 million, or
51.4% and 86.4%, to $2.4 million and $2.5 million during the three and six
months ended June 30, 1996, respectively, from $1.6 million and $1.3 million
during the three and six months ended June 30, 1995. Operating income from the
hotel operations segment increased to $1.7 million and $1.4 million during the
three and six months ended June 30, 1996, respectively, from $1.2 million and
$1.1 million during the three and six months ended June 30, 1995, respectively,
resulting primarily from the addition of 7 Consolidated Hotels from July 1, 1995
to June 30, 1996. Operating income from the hotel development segment increased
to $1.0 million and $1.8 million during the three and six months ended June 30,
1996, respectively, compared to $597,799 and $935,298 during the three and six
months ended June 30, 1995, respectively, due to the significant level of hotel
development and construction activity. The hotel management segment generated
operating income of $136,163 and $197,542 during the three and six months ended
June 30, 1996, respectively, compared to $235,981 and $291,447 during the three
and six months ended June 30, 1995. These decreases were due primarily to the
net reduction in total rooms managed for minority-owned entities and unrelated
third parties as well as the elimination of management fees from Consolidated
Hotels. Employee leasing operating income increased slightly during the second
quarter, to $81,805 in 1996 from $52,463 in 1995. During the six month period,
employee leasing operating income increased to $145,910 in 1996 from $93,060 in
1995.
Interest expense
Interest expense was $619,124 and $1.3 million during the three and six
months ended June 30, 1996, respectively, as compared to $362,007 and $669,726
during the three and six months ended
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<PAGE> 27
June 30, 1995. These increases are primarily attributable to the increase in
mortgage financing for Consolidated Hotels.
Equity in income (loss) of affiliates
The Company's share of equity in income (loss) of affiliates increased
87.3% to $181,028 in the second quarter of 1996 from $96,651 in the same quarter
of 1995. Equity in income (loss) of affiliates increased to $36,389 during the
six months ended June 30, 1996 compared to ($86,877) during the same period in
1995. These improvements are primarily due to the sale of one hotel in the
second quarter of 1996 and the acquisition of additional ownership interests in
another hotel causing it to become a Consolidated Hotel, both of which had been
accounted for by the equity method. Distributions from affiliates decreased
slightly to $152,756 in the second quarter of 1996 from $184,943 in the second
quarter of 1995. Distributions from affiliates increased to $259,800 during the
six months ended June 30, 1996, compared to $204,162 during the same period in
1995.
1995 COMPARED TO 1994
Revenue
Record revenues of $52.0 million in 1995 increased 19.9% from revenues of
$43.3 million in 1994. This increase was due primarily to a significant increase
in revenues from hotel operations.
Hotel operations revenues increased 57.9% to $24.4 million in 1995 from
$15.4 million in 1994. This increase was attributable to the net addition of 10
Consolidated Hotels to the hotel operations segment during 1995 and a 2.4%
increase in same room revenues realized by the Consolidated Hotels. The Company
held a minority ownership position in 5 of these 10 hotels prior to these hotels
becoming Consolidated Hotels in 1995 when additional ownership interests were
acquired. The hotel operations segment included 24 Consolidated Hotels
comprising 2,510 rooms at the end of 1995, compared to 14 Consolidated Hotels
comprising 1,543 rooms at the end of 1994, or an increase of 62.7% in total
rooms. Same room occupancy for all Consolidated Hotels increased 2.8% in 1995,
while same room ADR increased $1.19, or 2.5%.
Hotel development revenues increased 1.7% to $12.2 million in 1995 from
$12.0 million in 1994. Excluding the Consolidated Hotels, the Company had 20
hotels under construction during 1995 versus 10 hotels in 1994 for unaffiliated
third parties and entities in which the Company holds a minority ownership
interest. In addition, the Company had several projects in various stages of
development at the end of 1994 and 1995. Although the number of hotels under
construction was significantly greater in 1995, total segment revenues did not
increase accordingly since 12 of the 14 hotels which began construction in 1995
were not started until the fourth quarter, resulting in the recognition of only
a minor portion of the total contracted revenues on these projects.
Hotel management revenues increased 11.0% to $3.0 million in 1995 from $2.7
million in 1994. While the number of Consolidated Hotels increased from 14 to
24, the number of Minority-Owned Hotels and Managed Hotels decreased to 34
hotels at the end of 1995 from 39 hotels at the end of 1994. The addition of 4
management contracts in 1995 was offset by the loss of one management contract
with an unaffiliated third party, 3 management contracts with Minority-Owned
Hotels as a result of a hotel/investment sale or temporary closing during
renovation, and 5 Minority-Owned Hotels which became Consolidated Hotels in 1995
due to the Company acquiring additional ownership interests in these hotels. The
decrease resulting from the changes noted above were more than offset by an
increase in same room revenues for Minority-Owned Hotels and Managed Hotels and
incentive management fees received in 1995 which were not present in 1994 from
certain Minority-Owned Hotels. Employee leasing revenues, which are based on
actual employee costs, decreased 6.2% to $12.4 million in 1995 from $13.2
million in 1994 as a result of the decrease in employee leasing contracts with
minority-owned entities and an unaffiliated third party as noted above.
Operating costs and expenses
Operating costs and expenses increased 11.4% to $41.3 million (79.5% of
total revenues) in 1995 from $37.1 million (85.5% of total revenues) in 1994.
Operating costs and expenses in the hotel
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<PAGE> 28
operations segment increased 63.2% to $17.1 million in 1995 from $10.5 million
in 1994, resulting primarily from the net addition of 10 Consolidated Hotels to
this segment and are directly related to the 57.9% increase in segment revenue.
Operating costs and expenses in the hotel development segment decreased to $10.1
million in 1995 from $11.3 million in 1994, due to the lower level of
construction costs recognized in 1995 relative to 1994, as the Company had
started construction on a significant number of hotels in the fourth quarter of
1995 which had not yet incurred significant construction costs in 1995. Hotel
management segment operating costs and expenses decreased 12.5% to $2.0 million
in 1995 from $2.3 million in 1994, primarily due to the write-off of a contract
termination fee note receivable in 1994. Employee leasing operating costs and
expenses decreased 6.8% to $12.1 million in 1995 from $13.0 million in 1994.
This decrease is attributable to the decrease in segment revenues as well as
operational efficiencies.
Depreciation and amortization expense increased 98.8% to $2.3 million in
1995 compared to $1.1 million in 1994. This increase was primarily attributable
to the addition of 10 Consolidated Hotels to the hotel operations segment and
the resulting depreciation and amortization therefrom.
Leasehold rents-hotels increased 19.0% to $2.0 million in 1995 from $1.7
million in 1994. This increase was due to the addition of 3 leased Consolidated
Hotels to the hotel operations segment (the Company had held a minority
ownership position in these hotels prior to 1995 when additional ownership
interests were acquired), partially offset by the termination of a lease
agreement for one Hotel.
Corporate general and administrative expenses increased 4.9% to $2.1
million in 1995 from $2.0 million in 1994, and can be attributed to the
Company's overall growth.
Operating income
The Company's operating income increased 194.7% to $4.3 million in 1995
from $1.5 million in 1994, or an increase of $2.8 million. Operating income from
the hotel operations segment increased 36.8% to $3.4 million in 1995, from $2.5
million in 1994, resulting primarily from an increase in the number of
Consolidated Hotels from 14 at December 31, 1994 to 24 at December 31, 1995.
Operating income from the hotel operations segment as a percentage of segment
revenues decreased during 1995 compared to 1994 due to a greater number of newly
constructed Consolidated Hotels operating during their initial stabilization
period, when revenues are generally lower. The hotel development segment
operating income increased 194.2% to $2.1 million in 1995 from $711,032 in 1994
as operating income as a percentage of segment revenues also increased due to a
higher level of development activity realized in 1995 which has lower revenues
and a higher gross margin than construction activity. Hotel management segment
operating income increased to $831,007 in 1995 from $250,118 in 1994, due
primarily to the increase in same room revenues for Minority-Owned Hotels and
Managed Hotels, incentive management fees received in 1995, and the write-off of
a contract termination fee note receivable in 1994. Employee leasing operating
income increased to $216,075 in 1995, from $149,305 in 1994, or $66,770, due
primarily to operational efficiencies. EBITDA increased $4.9 million to a record
$9.5 million in 1995 compared to $4.6 million in 1994, or an increase of 105.4%.
Interest expense
Interest expense increased to $1.8 million in 1995 from $854,880 in 1994,
primarily attributable to an increase in the number of Consolidated Hotels with
mortgage financing.
Equity in income (loss) of affiliates
The Company's share of equity in the operating results of affiliates
increased to $387,439 in 1995 from $31,511 in 1994. This increase was due
primarily to a 10.2% increase in same room revenues for all Minority Owned
Hotels and the gain on the sale of one Hotel, which translated into a 392%
increase in net income for these hotels. Distributions from Minority-Owned
Hotels increased 32.2% to $505,410 in 1995 from $382,229 in 1994.
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<PAGE> 29
1994 COMPARED WITH 1993
Revenue
Revenues increased 26.5% in 1994 to $43.3 million from $34.3 million in
1993. This increase was attributable to the Company's hotel operations and hotel
development segments.
Hotel operations revenues increased 69.7% to $15.4 million in 1994 compared
to $9.1 million in 1993. This increase was attributable to a significant
increase in ADRs and the addition of 5 Consolidated Hotels to this segment.
Hotel operations included 14 Consolidated Hotels comprising 1,543 rooms at the
end of 1994 versus 9 Consolidated Hotels comprising 1,100 rooms at the end of
1993, or an increase of 40.3% in total rooms. Same room ADRs for Consolidated
Hotels increased $5.37 to $44.16 in 1994 from $38.79 in 1993.
Hotel development revenues increased 72.7% to $12.0 million in 1994
compared to $7.0 million in 1993. This increase was attributable to a
significant level of hotel development and construction activity during 1994.
The Company began construction on 15 hotels in 1994 while completing
construction on 8 hotels, including 2 hotels which began construction in 1993.
Ten of these construction starts were pursuant to contracts with unaffiliated
third parties (4) and entities in which the Company has a minority ownership
interest (6) whereby the Company recognized revenues from their development and
construction. The remaining 5 construction starts were for Consolidated Hotels.
In 1993, the Company completed construction on 2 Minority-Owned Hotels which
began construction in 1992, started construction on 2 Consolidated Hotels which
were completed in 1994, and substantially completed the development phase of 4
projects for entities in which the Company has a minority ownership interest and
for unaffiliated third parties which were also completed in 1994.
The increases in hotel operations and hotel development revenues were
partially offset by decreases in hotel management and employee leasing revenues.
The revenues generated from these segments are directly related to the number of
hotels managed for unaffiliated third parties and entities in which the Company
has a minority interest. Although the number of Minority-Owned Hotels increased
to 29 at the end of 1994 from 26 at the end of 1993, the number of Managed
Hotels decreased to 10 from 14 during this same period, more than offsetting the
increase in Minority-Owned Hotels. As a result, management fee revenues, which
are based on the revenues of Minority-Owned Hotels and Managed Hotels decreased
4.8% in 1994 to $2.7 million, compared to $2.8 million in 1993. Employee leasing
revenues, which are based on actual employee costs, decreased 14.3% to $13.2
million in 1994 from $15.4 million in 1993 due to the decrease in hotels managed
for unaffiliated third parties and contract revisions for hotels located in one
state which resulted in a more favorable tax treatment.
Operating costs and expenses
Operating costs and expenses increased 22.0% in 1994 to $37.1 million in
1994 from $30.4 million in 1993, and is directly related to the 26.5% increase
in total revenues. Total operating costs and expenses for the Company as a
percentage of total revenues decreased to 85.5% in 1994 from 88.7% in 1993.
Operating costs and expenses for the hotel operations segment increased to $10.5
million in 1994 from $6.8 million in 1993, or 54.3%, primarily attributable to
the addition of 5 Consolidated Hotels in 1994. Hotel development operating costs
and expenses increased 85.1% to $11.3 million in 1994 from $6.1 million in 1993
due to the significant level of new construction activity. Hotel management
segment operating costs and expenses remained consistent at $2.3 million in both
1994 and 1993 as the total number of Minority-Owned Hotels and Managed Hotels
remained relatively constant. Employee leasing segment operating costs and
expenses decreased 14.4% to $13.0 million in 1994 from $15.2 million in 1993 as
a result of contract revisions for hotels located in one state.
Depreciation and amortization increased 23.0% to $1.1 million in 1994 from
$927,527 in 1993, primarily attributable to the addition of 5 Consolidated
Hotels, partially offset by a decrease in the amortization of management
contracts acquired. Depreciation and amortization in the hotel operations
segment increased to $854,743 in 1994 from $308,384 in 1993, an increase of
177.2%,
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<PAGE> 30
resulting from the additional Consolidated Hotels. Depreciation and amortization
decreased by 64.1% in the hotel management segment in 1994 to $172,753 in 1994
from $480,855 in 1993 due to the amortization in 1993 of the remaining
acquisition costs associated with the termination of certain management
contracts.
Leasehold rents-hotels remained stable at $1.7 million in 1994 and 1993.
Leasehold rents-hotels was increased by the acquisition of a 100% leasehold
interest in a hotel during the first quarter of 1994. This increase was offset
by a decrease in leasehold rents for 5 Hotels pursuant to a lease amendment
which extended the termination date to December 31, 1999 and provided for
reduced lease payments.
Corporate general and administrative expenses increased to $2.0 million in
1994 from $1.8 million in 1993, or 12.9%. This increase was primarily
attributable to the overall growth of the Company as evidenced by the 26.5%
increase in total revenues.
Operating income (loss)
The Company had $1.5 million in operating income in 1994 compared to an
operating loss of ($477,636) in 1993, or an increase of $1.9 million. Operating
income from the hotel operations segment increased nearly seven-fold to $2.5
million in 1994 from $352,309 in 1993, resulting primarily from the addition of
5 Consolidated Hotels as well as a significant increase in same room revenues
for the existing Consolidated Hotels. Hotel development operating income
decreased to $711,032 in 1994 from $851,903 in 1993. Hotel development activity
reached significant levels in 1994, however a significant portion of this
development was for Consolidated Hotels whereby revenues and profits are not
recognized by the Company. In addition, 1994 consisted of a larger volume of
construction activity which has a lower gross profit margin than development
activity. In 1993, the Company completed a significant portion of the
development phase on 4 projects built in 1994 for unaffiliated third parties and
Minority-Owned Hotels. Operating income in the hotel management segment
increased to $250,118 in 1994 from $72,229 in 1993, due primarily to the
decrease in amortization of management contract acquisition costs. Operating
income in the employee leasing segment was approximately $150,000 in 1994 and
1993. EBITDA for 1994 was $4.6 million compared to $2.6 million in 1993. EBITDA
for 1993 does not include a non-cash debt acceleration charge of $485,411
related to the prepayment of subordinated notes.
Interest expense
Interest expense was $854,880 in 1994 compared to $589,945 in 1993. This
increase is primarily attributable to an increase in mortgage financing of newly
constructed Consolidated Hotels. This increase was partially offset by a
decrease in interest expense relating to the Company's 7% Subordinated Notes, a
portion of which were repaid in 1993.
Equity in income (loss) of affiliates
The Company's share of equity in net income of affiliates increased to
$31,511 in 1994 from $29,836 in 1993. Excluding a non-operational distribution
resulting from the refinancing of one Hotel in 1993, distributions from
Minority-Owned Hotels decreased slightly to $382,229 in 1994 from $417,486 in
1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company has four main sources of cash from operating activities: (i)
revenues from hotel operations; (ii) fees from development, construction and
renovation projects; (iii) fees from management contracts; and (iv) fees from
employee leasing services. Cash from hotel operations is typically received at
the time the guest checks out of the hotel. A portion of the Company's hotel
operations revenues is generated through other businesses and contracts and is
usually paid within 30 to 45 days from billing. Fees from development,
construction and renovation projects are typically received within 15 to 45 days
from billing. Due to the procedures in place for processing its construction
draws, the Company typically does not pay its contractors until the Company
receives its draw from the equity or lending source. Management fee revenues are
typically received by the
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<PAGE> 31
Company within 5 working days from the end of each month. Cash from the
Company's employee leasing segment is typically received 24 to 48 hours prior to
the pay date.
During 1995, the Company received cash flow from operations of $1.9 million
compared to $2.2 million in 1994. The decrease in cash flow from operations
during 1995, when compared to 1994, can be attributed to the significant level
of hotel construction activity in 1994. Although a greater number of hotels
began construction in 1995, a significant number of projects were started during
the fourth quarter, and the majority portion of the construction fees will not
be received until 1996 when the hotels are completed. This decrease was
partially offset by an increase in hotel ownership and operation activity and
improvements in occupancy and ADRs.
The Company invests cash in three principal areas: (i) the purchase of
property and equipment through the construction and renovation of Consolidated
Hotels; (ii) the purchase of minority equity interests in hotels; and (iii)
loans to Minority-Owned Hotels and Managed Hotels for the purpose of
construction, renovation and working capital. During 1995, the Company used
$13.5 million in investing activities compared to $8.8 million during 1994. In
1995, the Company used $12.5 million to purchase property and equipment for
Consolidated Hotels, used $332,800 for the purchase of minority equity interests
in hotels, and used $946,857 for loans to Minority-Owned Hotels, net of loan
collections. In 1994, the Company used $7.9 million to purchase property and
equipment for Consolidated Hotels, used $349,015 for the purchase of minority
equity interests in hotels, and used $607,225 for loans to Minority-Owned
Hotels, net of loan collections. In addition, the Company received distributions
from investments in Minority-Owned Hotels of $505,410 in 1995 compared to
$382,229 in 1994.
Cash received from financing activities was $9.9 million in 1995 compared
to $7.7 million in 1994. In 1995, the primary factors were proceeds of $7.8
million from the mortgage financing of Consolidated Hotels, net of principal
repayments, and $2.3 million in net proceeds from the Operating Line of Credit.
In 1994, the primary contributing factor was proceeds of $7.1 million from the
mortgage financing of Consolidated Hotels, net of principal repayments. Cash
received from financing activities was $2.0 million in the first six months of
1996 compared to $2.5 million in the first six months of 1995. In the first six
months of 1996, the primary factors were proceeds of $2.5 million from the
mortgage financing of Consolidated Hotels, net of principal repayments, and
$585,233 in net reductions to the Operating Line of Credit. In the first six
months of 1995, the contributing factors were proceeds of $1.8 million from the
mortgage financing of Consolidated Hotels, net of principal repayments, and
$744,147 in net proceeds from the Company's then-existing operating line of
credit.
At June 30, 1996, the Company had $1.7 million outstanding under the
Operating Line of Credit. The Operating Line of Credit (i) is collateralized by
a security interest in certain of the Company's assets, including its interests
in various Joint Ventures; (ii) bears interest at a rate per annum equal to the
lending bank's base rate plus 1/2% (with a minimum interest rate of 7.5%); and
(iii) matures May 1, 1997. The same bank which provides the Operating Line of
Credit provides a $7.5 million line of credit to be used for construction
financing of hotel projects, of which $5.0 million must be used for contracts
which have firm commitments for permanent mortgage financing when the
construction is completed. At June 30, 1996, the Company also had outstanding
$2.25 million of its 7% Subordinated Notes which are unsecured obligations due
October 9, 1999 and which pay interest quarterly. Pursuant to the terms of the
7% Subordinated Notes, no dividends may be paid on any capital stock of the
Company until the 7% Subordinated Notes have been paid in full. At the Company's
sole discretion, the 7% Subordinated Notes may be prepaid at any time without
prepayment penalty.
At August 31, 1996, the Owned Hotels had mortgage indebtedness outstanding
of approximately $81.8 million, with a weighted average interest rate and
remaining years to maturity of 9.48% per annum and 9.6 years, respectively. The
Company is general partner in Joint Ventures which, at August 31, 1996, had
approximately $55.9 million recourse indebtedness outstanding. At August 31,
1996, the Company had guaranteed mortgage loan obligations in the aggregate
principal amount of
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<PAGE> 32
approximately $56.3 million for 42 of its Owned Hotels. In certain instances,
other Joint Venture partners have also guaranteed these debts.
The Company expects to use approximately $1.7 million of the net proceeds
of the Offering to repay all amounts outstanding under the Operating Line of
Credit at the time of the Offering and approximately $5.6 million of such net
proceeds to repay long-term debt, including current portion, which will be
secured by certain Wholly-Owned Hotels, all of which have been guaranteed by the
Company. See "Use of Proceeds."
CAPITAL REQUIREMENTS FOLLOWING THE OFFERING
Upon completion of the Offering, the Company expects that its principal
short-term liquidity requirements will include development and construction
costs associated with new AmeriHost Inn hotels, capital expenditures related to
its existing Wholly-Owned Hotels and Majority-Owned Hotels and interest expense
payments on the Company's existing and future borrowings. For the year ended
December 31, 1996, the Company has budgeted $1.5 million for capital
expenditures for its existing Wholly-Owned Hotels and Majority-Owned Hotels and
expects that, assuming completion of the Offering, its interest expense payments
for such year will aggregate approximately $2.6 million.
Upon completion of the Offering, the Company's principal long-term
liquidity requirements will be related to the continued and additional
development and construction of AmeriHost Inn hotels. At August 31, 1996, the
Company had 23 AmeriHost Inn hotels under development or construction. For the
26 AmeriHost Inn hotels for which construction began in 1995 and through August
31, 1996, the average cost of construction per hotel, including land and
development and construction fees payable to the Company, was $2.3 million, of
which the Company, alone or with Joint Venture partners, provided equity capital
averaging $630,000 per hotel, with the remainder of the cost being financed by
local or regional bank debt. Historically, the Company has financed construction
and development of new hotels either as Wholly-Owned Hotels, by providing all of
the equity capital, or as Majority-Owned Hotels or Minority-Owned Hotels, with
third-party investors providing a portion of the equity capital. With regard to
the 10 AmeriHost Inn hotels under construction as of August 31, 1996, the
Company expects 3 to be Wholly-Owned Hotels and 7 to be Minority-Owned Hotels.
Following the completion of the Offering and the application of the net
proceeds therefrom, the Company's capital resources will be expanded. The
Company will pay down a portion of its mortgage indebtedness which will result
in 4 of its Wholly-Owned Hotels being substantially unencumbered. The Company
expects to utilize these unencumbered assets as collateral for future
borrowings, the proceeds of which may be used for the development of additional
AmeriHost Inn hotels. The Company expects that it will rely less on third-party
investors to provide the equity component of its hotel development and
construction activity and more on the application of its own capital. The
balance of the costs of construction will be funded through long-term debt
financing. The Company currently has financial commitments from banks to provide
financing with respect to all such AmeriHost Inn hotels under development in
which it will have an ownership interest. The continued availability of such
financing will affect the pace of the Company's future development and
construction projects.
SEASONALITY
The lodging industry, in general, is seasonal in nature. The Company's
hotel revenues are generally greater in the second and third calendar quarters
than in the first and fourth quarters due to weather conditions in the markets
in which Hotels are located and general business and leisure travel trends. This
seasonality can be expected to continue to cause quarterly fluctuations in the
Company's revenues. Quarterly earnings may also be adversely affected by events
beyond the Company's control such as extreme weather conditions, economic
factors and other factors affecting travel. In addition, hotel construction is
seasonal, depending upon the geographic location of the construction projects.
At August 31, 1996, the Company had 10 AmeriHost Inn hotels under construction,
primarily in the Midwest and Southeast. Construction activity in the Midwest may
be slower in the first and fourth quarters due to weather conditions.
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INFLATION
Management does not believe that inflation has had, or is expected to have,
any significant adverse impact on the Company's financial condition or results
of operations for the periods presented.
IMPACT OF NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. The Company adopted this standard on January 1, 1996, the impact
of which was not material.
In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages a new method of recognizing stock-based
compensation expense using an option pricing model measurement of the estimated
fair value of employee stock options. Alternatively, companies may choose to
retain the current approach set forth in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and provide expanded footnote
disclosure as to what the effects of utilizing the option pricing model
measurement would have been. Statement 123 is effective for fiscal years
beginning in 1996. The Company does not plan to use the option pricing model
measurement of Statement 123 and will provide the required footnote disclosure.
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<PAGE> 34
BUSINESS
OVERVIEW
The Company is engaged in the development and construction of AmeriHost Inn
hotels, its proprietary hotel brand, and the ownership, operation and management
of both AmeriHost Inn hotels and other hotels. The AmeriHost Inn brand was
created by the Company to provide for the consistent, cost-effective development
and operation of mid-price hotels in various markets. All AmeriHost Inn hotels
are designed and developed using the Company's 60 to 80 room, interior corridor
and indoor pool prototype design and are located in tertiary and secondary
markets. Historically, each AmeriHost Inn has generated positive cash flow,
after debt service, for the first twelve months of operation following a
stabilization period of approximately 120 days.
As of August 31, 1996, the Company owned, operated or managed 72 Hotels
located in 15 states. Of these Hotels, 34 Hotels are operated or managed under
the Company's proprietary brand, the AmeriHost Inn. Of the 72 Hotels, the
Company owns a 100% or a majority interest in 28 Hotels and a participating
equity interest, ranging from 5% to 50%, in 33 Hotels. Of the 61 Owned Hotels,
32 are AmeriHost Inn hotels and 29 are Other Owned Hotels, which in most cases
were acquired, renovated and repositioned in their respective marketplaces
between 1987 and 1993. The majority of the Other Owned Hotels are affiliated
with brands such as Days Inn, Hampton Inn, Holiday Inn and Ramada Inn. The
Company also manages 11 Hotels, in which it has no ownership interest, for
unaffiliated third parties. Two of the Managed Hotels operate under the
AmeriHost Inn brand.
The table below sets forth information regarding the Hotels at August 31,
1996.
<TABLE>
<CAPTION>
HOTELS ROOMS
------ -----
<S> <C> <C>
Owned Hotels:
AmeriHost Inn hotels.......................................... 32 2,084
Other Owned Hotels............................................ 29 3,205
Managed Hotels(1).................................................. 11 1,383
-----
--
Total.............................................................. 6,672
72
=====
==
</TABLE>
- ---------------
(1) Includes two AmeriHost Inn hotels owned by unaffiliated third parties.
Since 1993, the Company's growth strategy has focused on the expansion and
increased ownership of the AmeriHost Inn hotel brand through new development and
construction. The AmeriHost Inn hotels have achieved occupancy and ADRs which
are higher than those realized by the Company's Other Owned Hotels, including
those operated under national franchise affiliations. These favorable operating
results experienced by the AmeriHost Inn hotels led to the Company's decision to
focus on expanding this brand rather than acquiring or developing hotels under
other brand affiliations. The Company intends to continue this growth strategy
and to aggressively expand its development, ownership and operation of AmeriHost
Inn hotels. Implementing this strategy will allow the Company to rely less on
the one-time transactional fees associated with hotel development and
construction while generating long-term revenues and potential profits from
hotel operations. At August 31, 1996, the Company had 10 AmeriHost Inn hotels
under construction and 13 AmeriHost Inn hotels under development. The Company's
mission statement includes having 200 AmeriHost Inn hotels open or under
construction by December 31, 2000.
In addition to the development, construction and operation of its
Wholly-Owned Hotels and Majority-Owned Hotels, the Company provides development,
construction and renovation services to Minority-Owned Hotels, Managed Hotels
and unaffiliated third parties. For new construction projects, the Company
offers "turn-key" development services, having the in-house expertise to manage
a project from conception through completion, including market research, site
selection, architectural services, the securing of financing and construction
management. The construction contracts entered into between the Company and the
ownership entity of a hotel have generally been one of two types,
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<PAGE> 35
providing either for the Company to receive costs plus developers' and
construction overhead fees or a fixed fee.
The Company also provides management services to Minority-Owned Hotels and
Managed Hotels. Under its management contracts with such hotels, the Company
typically provides complete operational and financial management services,
including sales, marketing, quality control, training, purchasing and
accounting. However, under certain management contracts, the Company's Joint
Venture partners are responsible for the day-to-day operational management,
while the Company provides full financial management and operational consulting
and assistance. The Company is currently managing or co-managing with its Joint
Venture partners all of its Minority-Owned Hotels and is also managing 11
Managed Hotels for unaffiliated third parties. These Hotels are managed under
contracts ranging from 1 to 10 years, with optional renewal periods of equal
length, and containing provisions under which the Company is paid fees equal to
a percentage of total gross revenues for its services and, in some instances,
additional incentive fees based upon the Hotel's performance. The Company has
developed centralized systems and procedures which it believes allow it to
manage the Hotels effectively and efficiently. While the Company does not intend
to actively pursue management contracts with third parties, it does intend to
continue managing hotels for third parties under its current management
contracts and may manage additional hotels for third parties if the terms are
favorable.
The Company also provides employee leasing services to Minority-Owned
Hotels and Managed Hotels. Under its employee leasing program, the Company
employs all of the personnel working at the participating hotels and leases them
to the hotels pursuant to written agreements. Employee leasing affords the
Company greater control over payroll costs and allows the participating hotels
to benefit from economies of scale on personnel-related costs. Similar to the
Company's management contracts, the Company's employee leasing agreements
contain terms of 1 to 10 years, with optional renewal periods of equal length.
The Company generally receives fees from each participating hotel in an amount
equal to the gross payroll costs for the leased employees, including all related
taxes and benefits, plus a percentage of the gross payroll.
The Company's Chairman of the Board and the three top executive officers
have an average of 21 years of experience in the lodging industry and have
worked together at the Company for approximately 10 years. Such individuals
presently beneficially own in the aggregate approximately 26.3% of the
outstanding Common Stock of the Company and will beneficially own in the
aggregate approximately 22.6% of the outstanding Common Stock following the
Offering.
AMERIHOST INN
AmeriHost Inn hotels, the Company's proprietary brand, are designed and
constructed using the Company's 60 to 80 room, interior corridor and indoor pool
prototype design. The AmeriHost Inn hotel's amenities and services include
24-hour front desk and message service, facsimile machines, complimentary
expanded continental breakfast, 24-hour hot coffee, an indoor swimming pool,
whirlpool and sauna area, exercise room, meeting room, porte cochere entrance
and extensive exterior lighting for added security. The standard AmeriHost Inn
guest room features electronic card-key locks, in-room safes, in-room coffee
makers, telephones with data ports for personal computers, a work area and color
televisions with premium cable service or movies on demand. In addition, each
AmeriHost Inn hotel typically includes 2 to 4 whirlpool suites which, in
addition to the standard amenities, include in-room whirlpools, microwave ovens,
compact refrigerators and an expanded sitting area. AmeriHost Inn hotels do not
contain food and beverage facilities normally associated with full-service
hotels. Food service for hotel guests is generally available from adjacent or
nearby free-standing restaurants which are independently owned and operated.
All AmeriHost Inn hotels are operated or managed by the Company in
accordance with strict guidelines designed to provide guests with a consistent
lodging experience. The Company believes the quality and consistency of the
amenities and services provided by its AmeriHost Inn hotels increase guest
satisfaction and repeat business. Further, through its use of the AmeriHost Inn
prototype
34
<PAGE> 36
design, the Company believes that it is able to operate profitable hotels while
offering an excellent value to its guests.
The Company targets smaller communities in tertiary and secondary markets
with established demand generators such as major traffic arteries, office
complexes, industrial parks, shopping malls, colleges and universities or
tourist attractions, as the principal location for the development and
construction of AmeriHost Inn hotels. Generally, these markets have minimal
competition or a lack of recent hotel development. An AmeriHost Inn hotel is
typically positioned to attract both business and leisure travelers seeking
consistent amenities and quality rooms at reasonable rates, generally ranging
from $40 to $65 per night.
The aggregate development and construction costs for all AmeriHost Inn
hotels which began construction in 1995 and through August 31, 1996 have
averaged approximately $2.3 million per hotel, or approximately $38,000 per
room. These costs include land costs and development and construction fees
payable to the Company. The Company's in-house design staff, centralized
purchasing program, strict cost controls, and low average land costs all
contribute to this low development and construction cost. Furthermore, due to
the centralization of all accounting, purchasing, payroll and other
administrative functions, each hotel is operated efficiently and effectively
with a minimal on-site staff. AmeriHost Inn hotels are not subject to franchise,
royalty and marketing fees, which generally range from 8% to 10% of a hotel's
gross room revenues. These factors contributed to a low break-even cash flow
after debt service and reserve for replacement at an occupancy rate typically
not greater than 45%, based upon the 1995 ADR of $52.21. During 1995, the
AmeriHost Inn hotels which were open for the entire year after their initial
stabilization period produced an average cash flow of $402,000 before debt
service and reserve for replacement.
OTHER OWNED HOTELS
The Company's Other Owned Hotels were primarily acquired by the Company
through Joint Ventures prior to 1993, in most instances at prices below
estimated replacement costs. The Other Owned Hotels have been owned, operated
and managed by the Company as part of a national franchise system, such as Days
Inn, Hampton Inn, Holiday Inn, and Ramada Inn, or independent of any brand
affiliation. The Company believes that franchises in certain locations are
important in maintaining occupancy levels, which are supported by the
Franchisor's national reservation systems and marketing efforts and brand name
recognition. See "-- Franchise Agreements."
The Company's Other Owned Hotels typically are located in secondary and
tertiary markets, with nearby demand generators such as airports, major traffic
arteries, office complexes, industrial parks, shopping malls, colleges and
universities or tourist attractions. The Other Owned Hotels contain 53 to 209
rooms, generate ADRs ranging from $35 to $65 per night, offer a variety of
amenities and services and generally do not contain food and beverage
facilities.
The Company believes that the number of existing hotels which can be
profitably acquired and renovated has declined significantly in recent years, as
many hotels were sold at depressed prices in the late 1980's and early 1990's
during a difficult period in the lodging industry. The Company does not intend
to actively acquire additional hotels, but may do so from time to time if
available on favorable terms. Additionally, as part of the Company's strategy to
realign its hotel portfolio, the Company may consider selective sales of certain
of the Other Owned Hotels, if and when attractive terms are available. As of
August 31, 1996, agreements had been entered into for the sale of 3 Other Owned
Hotels, subject to certain contingencies.
35
<PAGE> 37
THE HOTELS
The following is a list of the open Hotels at August 31, 1996:
<TABLE>
<CAPTION>
COMMENCEMENT
OWNERSHIP OF OPERATIONS BY
STATE AFFILIATION LOCATION ROOMS INTEREST(1) THE COMPANY
- -------------- ---------------------- ----------------------- ----- ------------- ----------------
<S> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Florida Hampton Inn Ft. Myers 123 20% 09/92
Georgia AmeriHost Inn Eagles Landing 60 100% 08/95
AmeriHost Inn LaGrange 59 100% 03/95(2)
AmeriHost Inn Smyrna 60 100% 12/95
Days Inn Atlanta 107 Managed Only 11/91
Days Inn Atlanta 142 Managed Only 11/91
Days Inn Dalton 152 Managed Only 11/91
Days Inn Jekyll Island 162 Managed Only 11/91
Jekyll Estates Motel Jekyll Island 37 Managed Only 11/91
Illinois AmeriHost Inn Harvard 60 30% 06/96
AmeriHost Inn Jacksonville 60 30% 06/96
AmeriHost Inn Macomb 60 25% 05/95
AmeriHost Inn Players Metropolis 120 55% 02/94(2)
AmeriHost Inn Sycamore 60 100% 05/96
AmeriHost Inn Tuscola 59 100% 08/94(2)
Days Inn Elgin 96 100% 12/93
Days Inn Elk Grove 120 50% 04/93
Days Inn Melrose Park 123 25% 07/88
Days Inn Niles 153 100%(3)(4) 12/91
Days Inn Schiller Park 145 100%(3)(4) 12/91
Days Inn Shorewood 182 100%(3)(4) 12/91
Palwaukee Motor Inn Wheeling 138 Managed Only 11/89
Indiana AmeriHost Inn Hammond 86 18% 03/96
AmeriHost Inn Muncie 60 Managed Only 04/95
AmeriHost Inn(5) Plainfield 60 25% 09/92
Days Inn(5) Cloverdale 60 25% 11/88
Days Inn(5) Crawfordsville 60 25% 01/89
Days Inn(5) Plainfield 64 25% 05/90
Days Inn Portage 120 100%(3)(4) 12/91
Days Inn Sullivan 60 56% 08/87
Ramada Inn Lafayette 145 100%(3) 02/94
Iowa AmeriHost Inn Waverly 60 100% 08/96
Louisiana Days Inn Kenner 324 Managed Only 11/91
Michigan AmeriHost Inn Coopersville 60 100% 12/95
AmeriHost Inn Grand Blanc 60 25% 07/96
AmeriHost Inn Walker 60 100% 07/95
Mississippi AmeriHost Inn Batesville 60 30% 04/96
Days Inn Vicksburg 89 50% 05/95
Ohio AmeriHost Inn Ashland 62 25% 08/96
AmeriHost Inn(5) Athens 102 20% 11/89
AmeriHost Inn(5) Jeffersonville (North) 60 15% 07/96
AmeriHost Inn(5) Jeffersonville (South) 60 22% 10/94
AmeriHost Inn(5) Kenton 60 26% 08/96
AmeriHost Inn(5) Lancaster 60 25% 09/92
AmeriHost Inn(5) Logan 60 23% 04/93
AmeriHost Inn(5) Marysville 79 25% 06/90(6)
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
COMMENCEMENT
OWNERSHIP OF OPERATIONS BY
STATE AFFILIATION LOCATION ROOMS INTEREST(1) THE COMPANY
- -------------- ---------------------- ----------------------- ----- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Ohio AmeriHost Inn Oxford 61 Managed Only 02/91(2)
(cont'd) AmeriHost Inn Upper Sandusky 60 100% 12/94
AmeriHost Inn Wooster (East) 60 100% 10/95
AmeriHost Inn Wooster (North) 58 100% 01/94(2)
AmeriHost Inn(5) Zanesville 60 15% 07/96
Days Inn(5) Athens 60 13% 01/88
Days Inn Bowling Green 100 64% 09/90
Days Inn(5) Brimfield 67 10% 08/89
Days Inn Dayton 209 62%(3) 01/92
Days Inn Findlay 115 57%(3) 05/91
Days Inn Mansfield 60 40% 11/94
Days Inn(5) New Philadelphia 102 51%(3) 06/92
Oakbrook Inn Middletown 120 34% 07/92
Oregon Wildhorse Hotel Pendleton 100 Managed Only 03/96
Pennsylvania AmeriHost Inn Shippensburg 60 100% 08/96
Holiday Inn Altoona 143 63% 08/92
Holiday Inn Oil City 106 28% 12/92
Texas AmeriHost Inn Allen 60 30% 07/96
Ramada Inn Euless 150 25% 02/94
Vermont Holiday Inn White River Junction 140 83% 06/93
West Virginia AmeriHost Inn(5) New Martinsville 60 20% 05/96
AmeriHost Inn(5) Parkersburg 79 15% 06/95
Wisconsin Days Inn Kenosha 96 50% 02/93
Days Inn Mosinee 53 100% 04/93
Oakbrook Inn Menomonee Falls 144 100%(3) 08/92
Menominee Hotel Keshena 100 Managed Only 09/94
</TABLE>
- ---------------
(1) For a description of the Company's ownership interests, see "- Joint
Ventures."
(2) Converted to an AmeriHost Inn hotel in the first quarter of 1996.
(3) Represents leasehold ownership interests by the Company pursuant to leases
with an average remaining term of 3.9 years.
(4) These hotels are leased from partnerships in which the Company owns general
partner interests ranging from 5% to 16.3%.
(5) Indicates hotels which are co-managed with third parties.
(6) Converted to an AmeriHost Inn hotel in April 1996.
LODGING INDUSTRY
The United States lodging industry's performance is strongly correlated to
economic activity, with changes in gross national product growth affecting both
room supply and demand, resulting in cyclical changes in average occupancy
rates, ADR and REVPAR. The general downturn in the economy and the oversupply of
rooms during the late 1980's and early 1990's resulted in decreased economic
performance in the lodging industry.
Since the early 1990's, the United States lodging industry has shown
significant improvement. The primary element contributing to the industry's
improved performance has been increased economic activity, which has resulted in
growth in the demand for hotel rooms exceeding the growth in the available
supply of hotel rooms. The more rapid growth in hotel room demand, compared to
growth in hotel room supply, has resulted in positive trends industry-wide for
occupancy and ADR. According to Coopers & Lybrand L.L.P., United States hotel
occupancy reached 65.7% in 1995, its highest level since 1980 and industry-wide
ADR growth was 4.6% in 1995.
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<PAGE> 39
GROWTH STRATEGY
The Company's growth strategy is to increase revenues, EBITDA and net
income per share by: (i) developing, operating and owning additional AmeriHost
Inn hotels; (ii) maintaining or enhancing occupancy and ADR results at all of
its Hotels; and (iii) controlling operating and corporate overhead expenses. The
Company's mission statement includes having 200 AmeriHost Inn hotels open or
under construction by December 31, 2000.
The Company's primary growth strategy is to focus on the expansion of its
proprietary brand, the AmeriHost Inn, through continued development,
construction and operation of Wholly-Owned Hotels. The Company may also continue
the development of AmeriHost Inn hotels through a combination of majority- or
minority-owned Joint Ventures. The Company may also seek to increase its
ownership interest in existing AmeriHost Inn hotels in which the Company has
less than a 100% ownership interest, if available on favorable economic terms.
From time to time, the Company may also continue to provide development,
construction and, to a lesser extent, management services to unaffiliated third
parties on a fee-for-service basis.
The Company intends to develop and construct AmeriHost Inn hotels in
communities located in tertiary and secondary markets which already have
established demand for overnight accommodations and which are typically not
targeted for development by larger hotel companies. Prior to commencing
development, the Company identifies at least three demand generators, such as
major traffic arteries, office complexes, industrial parks, shopping malls,
colleges and universities or tourist attractions. Typically, the Company seeks
communities where an active economic development program is in place, which
suggests long-term growth potential for additional lodging demand. In most
cases, the local community is interested in a new hotel because existing
facilities are dated or inconvenient. The Company provides comfortable,
professionally-managed accommodations which are typically not available in that
community.
The Company believes that it has the in-house capabilities which, together
with additional personnel, will enable it to implement each aspect of its growth
strategy. The Company has an in-house development staff dedicated to identifying
and evaluating new development opportunities. Once a market has been identified
and a site has been selected, the Company initiates its due diligence process
prior to the construction of one of its hotels. Such due diligence typically
consists of environmental surveys, feasibility and engineering studies and the
securing of zoning and building permits. The Company also maintains an in-house
construction and design department, which enables it to manage all phases of
construction. The Company's in-house architects and design personnel prepare the
blueprints for each AmeriHost Inn hotel through the use of computer assisted
drafting equipment, thereby reducing architectural fees. In most cases, the
Company hires a general contractor to construct the hotel for a fixed price,
eliminating much of the risk typically associated with construction. The
Company's project managers oversee the general contractor through each phase of
construction in order to assure the quality and timing of the construction. With
few exceptions, such as the interior color scheme, each AmeriHost Inn hotel is
the same in every detail, including the overall layout, the room sizes and the
indoor pool area. The replication of its prototype design allows accurate
budgeting of its construction and overhead costs.
As of August 31, 1996, the Company was constructing 10 hotels and had 13
hotels under development. Upon completion, all 23 of these hotels will be
operated as AmeriHost Inn hotels. Additionally, the Company expects that 8 of
these hotels will be Wholly-Owned Hotels, 14 will be developed as Joint Ventures
in which the Company will own a minority interest and one will be developed for
an unaffiliated third party. The Company anticipates that the majority of its
future hotel projects will be wholly-owned AmeriHost Inn hotels.
The following table presents information regarding the Company's hotels
under construction or development at August 31, 1996. The Company deems hotels
to be "under construction" when it has secured necessary debt financing and
received approval for all construction and zoning permits and "under
development" when it has an option or agreement to purchase the land and a
commitment for the necessary debt financing for the construction of the hotel.
38
<PAGE> 40
HOTELS UNDER CONSTRUCTION
<TABLE>
<CAPTION>
OWNERSHIP PROJECTED
STATE AFFILIATION LOCATION ROOMS INTEREST(1) OPENING(2)
- ------------------ ------------- ------------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C>
California AmeriHost Inn Anderson 61 100% December 1996
Illinois AmeriHost Inn Rochelle 61 100% January 1997
AmeriHost Inn Effingham 61 25% February 1997
Kentucky AmeriHost Inn Murray 60 25% October 1996
Michigan AmeriHost Inn Muskegon 61 25% November 1996
Ohio AmeriHost Inn Wilmington 61 20% January 1997
Texas AmeriHost Inn San Marcos 61 25% February 1997
AmeriHost Inn McKinney 61 100% December 1996
West Virginia AmeriHost Inn Mineral Wells 61 15% November 1996
Wisconsin AmeriHost Inn Green Bay 60 25% October 1996
</TABLE>
- ---------------
(1) The hotels are under construction and, therefore, while the Company
anticipates that it will hold the ownership interests indicated upon
completion of construction, there can be no assurance that such ownership
interests will not be different than currently anticipated. See "Cautionary
Statement Regarding Forward-Looking Information."
(2) The Company expects to open the hotels on the projected date indicated;
however, there can be no assurance that the hotel will be opened according
to such schedule. See "Cautionary Statement Regarding Forward-Looking
Information."
HOTELS UNDER DEVELOPMENT
<TABLE>
<CAPTION>
PROJECTED
OWNERSHIP PROJECTED
STATE AFFILIATION LOCATION ROOMS INTEREST(1) OPENING(2)
- ------------------- ------------- ------------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C>
California AmeriHost Inn Redding 61 100% 1997
Iowa AmeriHost Inn Mt. Pleasant 61 100% 1997
AmeriHost Inn Storm Lake 61 100% 1997
Michigan AmeriHost Inn Grand Rapids 61 25% 1997
AmeriHost Inn Marshall 61 25% 1997
AmeriHost Inn Monroe 61 25% 1997
AmeriHost Inn Port Huron 61 25% 1997
Missouri AmeriHost Inn Mexico 61 100% 1997
Ohio AmeriHost Inn Delaware 61 17% 1997
AmeriHost Inn Ironton 61 20% 1997
AmeriHost Inn Norwalk 61 0% 1997
Pennsylvania AmeriHost Inn Grove City 61 25% 1997
AmeriHost Inn Lebanon 61 100% 1997
</TABLE>
- ---------------
(1) The hotels are under development and, therefore, while the Company
anticipates that it will hold the ownership interests indicated upon
completion of development and construction, there can be no assurance that
such ownership interests will not be different than currently anticipated.
See "Cautionary Statement Regarding Forward-Looking Information."
(2) The Company expects to begin construction of these hotels in 1996 and to
open the hotels during 1997; however, there can be no assurance that
construction will commence or that the hotel will be opened according to
such schedule. See "Cautionary Statement Regarding Forward-Looking
Information."
39
<PAGE> 41
Historically, the Company has financed its hotel development and
construction through a combination of equity and debt financing, with the equity
financing typically provided by the Company and/or its Joint Venture partners
and the debt financing typically provided by local or regional banks. All of the
AmeriHost Inn hotels currently under construction are being financed in this
manner. Following the completion of the Offering, the Company's capital
resources will be expanded and, as a part of its growth strategy, the Company
expects to be able to rely to a greater extent on its own funds to provide the
equity component for its development projects and to rely less on Joint Venture
partners. Upon completion of this Offering, the Company estimates that it will
have the necessary equity, when leveraged, to develop, construct and open
approximately 15 additional wholly-owned AmeriHost Inn hotels.
Additionally, the Company intends to sell certain of its Other Owned Hotels
to take advantage of attractive terms and as part of an overall plan to focus
the Company's hotel ownership primarily on AmeriHost Inn hotels. As of August
31, 1996, agreements had been entered into for the sale of 3 Other Owned Hotels,
subject to certain contingencies. The Company expects that the net proceeds of
such sales, if and when completed, will be used by the Company to develop
additional AmeriHost Inn hotels.
To date, the Company has been able to implement its operating and marketing
strategies to increase occupancies, ADR and REVPAR at its AmeriHost Inn hotels
and its Other Owned Hotels. Occupancies, ADR and REVPAR in AmeriHost Inns open
for at least twelve months after their stabilization periods (approximately 120
days) have increased from 68.6%, $49.99 and $34.28, respectively, in 1994, to
72.6%, $52.21 and $37.90, respectively, in 1995. Operating results at the Other
Owned Hotels have also improved, although at a slower pace. Occupancy, ADR and
REVPAR at the Other Owned Hotels open for at least twelve months after their
stabilization periods (approximately 120 days) have increased from 59.9%, $44.13
and $26.41, respectively, in 1994 to 62.2%, $45.62 and $28.39, respectively, in
1995.
The Company intends to increase its revenue, EBITDA and net income per
share through the continued development of its AmeriHost Inn brand hotel and the
continued implementation of its operating and marketing strategies. The Company
believes that it can develop and operate additional AmeriHost Inn hotels having
occupancies, ADRs and REVPAR similar to those the Company has achieved at its
existing AmeriHost Inn hotels. Moreover, the Company believes that the
development of additional AmeriHost Inn hotels and expanded geographic diversity
will continue to enhance the awareness of the AmeriHost Inn brand and thus
improve revenues at existing, as well as future, AmeriHost Inn hotels.
OPERATING STRATEGY
The Company's operating strategy is to provide its customers with a
consistent lodging experience by offering a package of amenities and services
which meet or exceed the customers' expectations during each stay. The Company
has developed uniform standards and procedures for each aspect of the
development, construction, operation and marketing of its AmeriHost Inn hotels,
from site selection to operational management.
The Company's operational management activities are overseen by two Vice
Presidents of Operations who supervise regional and area managers, who in turn
oversee the general manager at each Hotel. Each regional manager is responsible
for 6 to 10 Hotels, depending on each Hotel's size and location. In addition to
having responsibilities as the general manager of a specific Hotel, each area
manager is responsible for overseeing the general managers at 1 to 2 additional
Hotels. In addition to these managers, the Company has centralized sales and
marketing personnel who assist and direct the general managers and other on-site
personnel in their marketing efforts. The Company also has internal auditors who
perform audits of each Hotel at least two times each year, including tests of
financial items such as cash and receivables, as well as operational, security
and ADA compliance matters, and who are also responsible for developing and
conducting a variety of educational and training seminars for general managers
and other on-site personnel.
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<PAGE> 42
The Company has designed a financial management system whereby all
accounting and operating information is processed in the Company's centralized
accounting office at its headquarters. The system includes cash management,
accounts payable and the generation of daily financial and operating information
and monthly financial statements which allow senior management and the regional,
area and general managers to closely monitor performance and to quickly react to
changes in operational conditions. The Company provides each Hotel with
standardized forms and procedures to ensure uniform and efficient financial
reporting. The Company's financial management system relieves certain management
and reporting burdens from the individual hotel managers enabling them to focus
on the operation and marketing of the hotel. The centralized financial
management system also enhances the quality and timing of internal financial
reports. All payroll functions are also centralized at the Company's
headquarters through its employee leasing subsidiary, allowing the Company to
have greater control over payroll costs. In addition, since all of the
approximately 1,800 hotel personnel are employed by the same company, the costs
of certain payroll-related expenses are lower than if each Hotel maintained its
own employees, and the Company is able to offer a more attractive health
insurance program to its employees.
MARKETING STRATEGY
The Company believes it has a unique marketing strategy which is to
actively seek involvement in and ties to the local communities in which its
Hotels are located. The local businesses and residential community are each
Hotel's best referral source. When staying in smaller communities where the
Company's Hotels are located, visitors typically seek recommendations from
family, friends and business associates. The general managers of the Hotels are
expected to devote a majority of their time toward marketing activities with
local businesses and the community. In an effort to promote community awareness
and build strong relationships with business leaders and local residents,
general managers are very active in local civic groups and frequently sponsor
special events. The Hotels' facilities are often utilized for guest appreciation
and charitable events. In addition, the Hotels typically sponsor various local
social and community events and permit the use of their facilities by local
clubs and civic organizations. This community involvement, combined with a
professional marketing program, allows the Hotel to showcase its facilities for
both business and leisure purposes. By focusing on the local community as its
primary referral source, the Company believes that each Hotel can build a strong
sales force of local residents.
With respect to AmeriHost Inn hotels, the Company's primary marketing
strategy is to consistently develop and operate AmeriHost Inn hotels using its
prototype design under the trademarked AmeriHost Inn diamond-shaped logo. The
Company believes that a consistent product offering, including the same design
features, amenities and quality guest services will promote guest loyalty,
referrals and repeat business. The amenities and services featured in the
AmeriHost Inn prototype design are not consistently found in the hotels of
competitors in the markets in which the Company targets. By providing amenities
and services on a consistent basis, along with centralized administrative and
financial reporting systems, the Company believes it is able to operate
profitable hotels while offering an excellent value to its guests.
JOINT VENTURES
The Company continues to develop new hotels through Joint Ventures in which
the Company and other investors agree to jointly undertake the development,
construction, acquisition or renovation of a hotel property. As of August 31,
1996, the Company had 41 projects with Joint Venture partners, including
multiple projects with certain Joint Venture partners.
The Company's Joint Ventures have taken various forms, including limited
partnerships, general partnerships and limited liability companies. Each Joint
Venture has been formed with respect to a particular hotel project and reflects
the characteristics of that project, including the relative contributions, in
cash, property or services, of its partners. In most instances, the Joint
Venture has taken the form of a limited partnership, with a wholly-owned
subsidiary of the Company as a general partner with sole or primary management
authority. The Company's subsidiary, as general partner,
41
<PAGE> 43
has typically made a minimal cash contribution and received a partnership
interest typically ranging from 15% to 30%. The limited partners (which includes
the Company or its affiliates in some instances) have typically contributed cash
and received interests proportionate to their contributions. A typical Joint
Venture agreement provides that the profits and losses of the entities will be
allocated among the partners in proportion to their respective interests.
However, the distribution of operating cash flow and asset sale proceeds to the
Company in proportion to its ownership interest is often subordinate to the
prior return of capital and other distributions payable to the other Joint
Venture partners. In addition, in 5 of its recent Joint Venture arrangements,
the equity interests held by the Joint Venture partners are exchangeable into
shares of the Company's Common Stock and the Company has guaranteed a minimum
annual distribution to the Joint Venture partners.
As the general partner, the Company's subsidiary generally has the sole or
primary management authority with respect to the Joint Venture. However, in some
instances, the Joint Venture agreement or applicable law may provide to the
other Joint Venture partners the right to amend the Joint Venture agreement,
approve a transfer of the general partner's partnership interest, remove the
general partner for cause, or dissolve the Joint Venture. The Joint Venture
agreements do not typically restrict the right of the Company or its affiliates
to engage in related or competitive business activities.
COMPETITION
There is significant competition in the mid-price lodging industry. There
are numerous hotel chains that operate on a national or regional basis, as well
as other hotels, motor inns and other independent lodging establishments
throughout the United States. Competition is primarily in the areas of price,
location, quality, services and amenities. Many of the Company's competitors
have recognized trade names, national reservation systems, greater resources and
longer operating histories than the Company. However, the Company believes that
its management is sufficiently experienced, and the markets which the Company
targets for development typically contain minimal competition, enabling the
Company to compete successfully.
Additionally, the Company believes that its use of a well-developed
prototype, significant experience (the Company has managed the development and
construction of more than 50 hotels) and volume purchasing of furniture and
amenities result in development costs which are lower than those experienced by
many competitors building comparable hotels. The typical AmeriHost Inn hotel is
a 61-unit two-story hotel that requires approximately 1.85 acres of land. The
aggregate development and construction costs, including land and development and
construction fees payable to the Company, for all AmeriHost Inn hotels for which
construction began in 1995 and through August 31, 1996 have averaged
approximately $2.3 million per hotel, or approximately $38,000 per room. The
Company believes that the relationship between such development and construction
costs and the ADR of $52.21 achieved by AmeriHost Inn hotels which were open for
all of 1995 following a stabilization period (approximately 120 days) is more
favorable than that experienced by many of the Company's competitors. In
addition, a significant portion of the purchasing and accounting functions
related to the Hotels is handled in the Company's headquarters, thus enabling
the local general managers and their staffs to focus their efforts on marketing
and sales. The centralization of many functions also assists in keeping costs
lower due to certain economies of scale. This allows the AmeriHost Inn hotels to
achieve a break-even cash flow after debt service and reserve for replacement at
approximately a 45% occupancy rate, which the Company believes is significantly
lower than the industry average.
FRANCHISE AGREEMENTS
At August 31, 1996, the Company had franchise agreements (collectively, the
"Franchise Agreements") with Days Inns of America, Inc., Promus Hotels, Inc.
(regarding Hampton Inns), Holiday Inns, Inc., Holiday Inns Franchising, Inc. and
Ramada Franchise Systems, Inc. Although the terms of the various Franchise
Agreements differ, each requires the Company to pay a monthly royalty fee for
the right to operate the Hotel under the "flag" of that Franchisor and to have
access to the
42
<PAGE> 44
other benefits provided by such Franchisor, including access to reservation
systems, marketing plans and use of trademarks. The royalty fees are typically
based on gross revenues attributable to room rentals, plus marketing and
reservation contributions, and typically range between 8% to 10% of gross room
revenues. In addition, the Company and/or the Joint Venture which owns a Hotel
operated pursuant to a Franchise Agreement will have ongoing obligations to
maintain the quality and condition of the Hotel to the standards required by the
Franchisor. The term of a Franchise Agreement typically is between 10 and 20
years, with a substantial penalty for early termination by the Company with
either party typically having the right to terminate after 5 years. The Company
believes that it is generally in compliance with its Franchise Agreements.
DAYS INN(R) IS A REGISTERED TRADEMARK OF DAYS INN OF AMERICA, INC., WHICH
HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A DAYS INN FRANCHISE
LICENSE FOR A CERTAIN HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED
AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY DAYS INN OF AMERICA
FRANCHISING, INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE
COMPANY OR THE SHARES OF COMMON STOCK OFFERED HEREBY.
HAMPTON INN(R) IS A REGISTERED TRADEMARK OF PROMUS HOTELS, INC. PROMUS
HOTELS, INC. HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A HAMPTON INN
FRANCHISE LICENSE FOR A CERTAIN HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY HAMPTON INNS,
INC. (OR ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE
SHARES OF COMMON STOCK OFFERED HEREBY.
HOLIDAY INNS(R) IS A REGISTERED TRADEMARK OF HOLIDAY INNS, INC. ("HII").
NEITHER HII, HOLIDAY INNS FRANCHISING, INC., NOR THEIR PARENT, SUBSIDIARIES,
DIVISIONS OR AFFILIATES HAS ENDORSED OR APPROVED THE OFFERING. A GRANT OF A
HOLIDAY INN LICENSE AGREEMENT FOR A CERTAIN HOTEL BY HOLIDAY INNS FRANCHISING,
INC. IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED
APPROVAL OR ENDORSEMENT BY HII OR HOLIDAY INNS FRANCHISING, INC. (NOR THEIR
PARENT, SUBSIDIARIES, DIVISIONS OR AFFILIATES) OF THE COMPANY OR THE SHARES OF
COMMON STOCK OFFERED HEREBY.
RAMADA(R) IS A REGISTERED TRADEMARK OF RAMADA FRANCHISE SYSTEM, INC., WHICH
HAS NOT ENDORSED OR APPROVED THE OFFERING. A GRANT OF A RAMADA FRANCHISE LICENSE
FOR A CERTAIN HOTEL IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY RAMADA, INC. (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE SHARES OF COMMON
STOCK OFFERED HEREBY.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, the Company
and the Joint Ventures, as owners of real estate, may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on their
property. Such laws often impose liability without regard to whether the owner
knew of, or was responsible for, the presence of hazardous or toxic substances.
Furthermore, a person that arranges for the disposal or transport for disposal
or treatment of a hazardous substance at property owned by another may be liable
for the costs of removal or remediation of hazardous substances released into
the environment at that property. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the
Company's ability to use or sell such real property or borrow using such real
property as collateral. In connection with the ownership and operation of its
properties, the Company or the Joint Ventures, as the case may be, may be
potentially liable for any such costs.
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<PAGE> 45
The Company believes that the properties in which it has an ownership
interest are in compliance in all material respects with all federal, state and
local ordinances and regulations regarding hazardous or toxic substances and
other environmental matters. In certain circumstances, the Company has Phase One
environmental studies conducted with respect to its hotel properties. The
Company has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental matters in connection with its hotel properties.
EMPLOYEES
As of August 31, 1996, the Company and its subsidiaries had approximately
1,800 full- and part-time employees:
<TABLE>
<S> <C>
Hotel Operations............................................ 725
Hotel Development........................................... 16
Hotel Management:
Operations................................................ 24
Accounting and finance.................................... 15
Property general managers................................. 72
Employee Leasing:
General and administrative................................ 5
Operations(1)............................................. 952
Corporate:
General and administrative................................ 10
Officers.................................................. 4
-----
Total.................................................. 1,823
=====
</TABLE>
- ---------------
(1) Does not include 799 employees who are employed by Amerihost Staffing, Inc.
and leased to other subsidiaries of the Company. These employees are
reflected in the table under hotel operations and hotel management.
The Company believes that its relationship with its employees is good.
Collective bargaining agreements cover approximately 20 of the Company's
employees.
PROPERTIES
The Company's corporate offices and the offices of its wholly-owned
subsidiaries are located in approximately 17,085 square feet of space in Des
Plaines, Illinois. These offices are occupied under a lease that expires on
December 31, 2000. Each of the Hotels is covered by comprehensive policies of
insurance, including liability, fire and extended coverage. The Company believes
that such coverage is of the type and amount customarily obtained by owners of
hotels. See "Risk Factors - Risk of Uninsured and Underinsured Losses Could
Result in Loss in Value of Hotel Properties."
At August 31, 1996, the Company had a controlling ownership or leasehold
interest in 28 operating hotels and 3 hotels under construction, located in 11
states. See " - The Hotels." Except for 7 leased hotels, these hotels are
subject to first mortgage liens securing related long-term mortgage debt. For
information regarding the land, building, furniture, fixtures and equipment and
construction in progress for the Company's hotels, see the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
LITIGATION
The Company is subject to claims and suits in the ordinary course of
business. In management's opinion, currently pending legal proceedings and
claims against the Company will not, individually or in the aggregate, have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------------
<S> <C> <C>
H. Andrew Torchia............. 53 Chairman of the Board
Michael P. Holtz.............. 40 President, Chief Executive Officer and Director
Richard A. D'Onofrio.......... 52 Executive Vice President and Director
Russell J. Cerqua............. 40 Executive Vice President of Finance, Secretary,
Treasurer, Chief Financial Officer and Director
Reno J. Bernardo.............. 64 Director
Salomon J. Dayan.............. 50 Director
</TABLE>
H. Andrew Torchia, a co-founder of the Company, has been a director of the
Company since its inception in 1984. Mr. Torchia was President and Chief
Executive Officer of the Company from 1985 until 1989, when he became Chairman
of the Board. As Chairman, Mr. Torchia's primary areas of responsibility include
business development, corporate finance and strategic and financial planning.
Mr. Torchia is also the President and 51% shareholder of Urban, a hotel
development consulting firm, which was initially the sole shareholder of the
Company. See "Certain Transactions." Mr. Torchia also owns a 50% interest in
American International Hotel Corporation which leases the Best Western at
O'Hare. Mr. Torchia has 30 years of experience in hotel development, operations
and franchising. Prior to founding the Company, Mr. Torchia served as head of
regional development for Best Western International and as head of independent
franchise sales organizations for Quality Inns International and Days Inns.
Michael P. Holtz has been a director of the Company since August 1985. From
1985 to 1989, Mr. Holtz served as the Company's Treasurer and Secretary. In
1986, Mr. Holtz was promoted to Chief Operating Officer of the Company with
direct responsibility for the Company's day-to-day operations. In 1989, Mr.
Holtz was elected President and Chief Executive Officer of the Company. Mr.
Holtz is responsible for development and implementation of all Company
operations including development, finance and management. Mr. Holtz has over 20
years experience in the operation and management of hotel properties.
Richard A. D'Onofrio, a co-founder of the Company, has been a director of
the Company since its inception in 1984. From 1985 to 1989, Mr. D'Onofrio served
as Vice President of the Company responsible for investor relations, external
financing and development activities. In 1989, Mr. D'Onofrio was promoted to
Executive Vice President. His principal areas of responsibility include
corporate finance and corporate marketing and the management of the Company's
relationship with members of the financial community. Prior to founding the
Company, Mr. D'Onofrio had been involved in various capacities within the hotel
and related industries, including the development of franchised restaurants. In
addition, Mr. D'Onofrio owned and operated the Quality Inn in Youngstown, Ohio
through 1987. During 1994, Mr. D'Onofrio acquired 49% of Urban.
Russell J. Cerqua has been the Executive Vice President of Finance and
Chief Financial Officer of the Company since 1987, and Treasurer and a director
of the Company since 1988. In 1989, in addition to his other responsibilities,
Mr. Cerqua was elected Secretary of the Company. His primary responsibilities
include internal and external financial reporting, corporate and property
financing, development of financial management systems, hotel accounting for
managed properties and financial analysis. Prior to joining the Company, Mr.
Cerqua was an audit manager with Laventhol & Horwath, the Company's former
independent certified public accountants, and was responsible for the Company's
annual audits. Mr. Cerqua was involved in public accounting for over 9 years,
with experience in auditing, financial reporting and taxation. Mr. Cerqua is a
Certified Public Accountant and a member of the American Institute of Certified
Public Accountants and the Illinois CPA Society.
45
<PAGE> 47
Reno J. Bernardo served as the Senior Vice President of Construction of the
Company from 1987 through March 1994, when he retired. His primary
responsibilities included managing construction of new properties and directing
renovation projects. In 1989, Mr. Bernardo became a director of the Company and
continues to serve in this capacity. From 1985 to 1986, Mr. Bernardo was Vice
President of Construction with Devcon Corporation, a hotel construction company.
From 1982 to 1985, Mr. Bernardo was Project Superintendent with J.R. Trueman and
Associates, a hotel construction company and a subsidiary of Red Roof Inns,
where his responsibilities included supervision of the development and
construction of several Red Roof Inns.
Salomon J. Dayan, M.D. has been a director of the Company since August
1996. Since 1980, Dr. Dayan, a physician certified in internal and geriatric
medicine, has been the Chief Executive Officer of Salomon J. Dayan, Ltd., a
multi-specialty medical group which he founded and which is dedicated to the
care of the elderly in hospital and nursing home settings. Since 1986, Dr. Dayan
has been the Medical Director and Executive Director of Healthfirst, a
corporation which operates multiple medical ambulatory facilities in the
Chicago, Illinois area, and since 1994 he has also been an assistant professor
at Rush Medical Center in Chicago. Dr. Dayan is currently the Chairman of the
Board of Directors of Greater Chicago Financial Corporation, a bank holding
company owning interests in two banks. Dr. Dayan also has numerous investments
in residential and commercial real estate.
TERM OF OFFICE
Each member of the Board of Directors of the Company is elected annually.
All officers serve at the pleasure of the Board of Directors. There are no
family relationships among any of the directors or officers of the Company.
INDEMNIFICATION
The Company's Restated Articles and By-Laws each provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the DGCL.
BOARD COMMITTEES
The Board of Directors of the Company has established two standing
committees: the Audit Committee and the Compensation Committee. The Audit
Committee meets with the Company's independent accountants to review the scope
and results of the independent accountants' audit and to review the Company's
system of internal accounting and financial controls. The Compensation Committee
determines the salaries, bonuses, stock compensation, stock options and other
direct and indirect compensation for all of the Company's officers. Mr. Bernardo
and Dr. Dayan currently comprise each of the Audit Committee and the
Compensation Committee.
DIRECTOR COMPENSATION
Each director of the Company receives an annual retainer fee of $9,000
($750 per month). Each director of the Company also receives $250 for each Board
of Directors meeting attended in person, $150 for each Board of Directors
meeting conducted by telephone and $150 for each committee meeting. In addition,
each director is reimbursed for all out-of-pocket expenses related to attendance
at Board meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual
and long-term compensation for services as officers to the Company for the
fiscal years ended December 31, 1995, 1994 and 1993, of those persons who were,
at December 31, 1995 (i) the Chairman of the Board, (ii) the chief executive
officer, and (iii) the other two most highly compensated executive officers of
the Company (the "Named Officers").
46
<PAGE> 48
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(#)(1) COMPENSATION(2)
- ------------------------------------- ----- --------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
H. Andrew Torchia(3)................. 1995 $ 0 $ 0 $ 0 120,000 $15,000
Chairman of the Board 1994 0 0 0 30,000 15,000
1993 0 0 0 0 15,000
Michael P. Holtz..................... 1995 322,115 0 196,927 360,000 10,000
President and Chief Executive 1994 244,913 75,000 75,000 60,000 10,000
Officer 1993 117,741 177,759 0 0 10,000
Russell J. Cerqua.................... 1995 149,423 0 56,690 153,333 10,000
Executive Vice President of 1994 132,692 15,000 15,000 30,000 10,000
Finance, 1993 75,000 43,900 0 0 10,000
Secretary, Treasurer and Chief
Financial Officer
Richard A. D'Onofrio(3).............. 1995 137,500 27,500 0 120,000 15,000
Executive Vice President 1994 162,528 0 0 30,000 15,000
1993 99,010 15,000 0 0 15,000
</TABLE>
- ---------------
(1) Options for the purchase of 100,000, 320,000, 133,333 and 100,000 shares of
Common Stock granted to Messrs. Torchia, Holtz, Cerqua and D'Onofrio,
respectively, were vested as of August 31, 1996. Options for the purchase of
50,000, 100,000, 50,000 and 50,000 shares of Common Stock granted to Messrs.
Torchia, Holtz, Cerqua and D'Onofrio, respectively, will vest as of January
1, 1997.
(2) Represents life insurance premiums paid by the Company on behalf of the
Named Officers.
(3) Mr. Torchia received no annual compensation from the Company in 1993, 1994
or 1995. For a discussion of the fees paid to Urban, a hotel development
consulting firm in which Mr. Torchia owns a 51% interest and Mr. D'Onofrio
owns a 49% interest, pursuant to a consulting agreement between the Company
and Urban, see "Certain Transactions."
OPTIONS
The options described in the following tables have been granted other than
pursuant to the Incentive Stock Plan or Directors Plan. There were no options
exercised by the Named Officers in 1995.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR OPTION
GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- ----------------------- -------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
H. Andrew Torchia...... 120,000(1) 12.92% $3.56 Jan. 2007 $ 310,198 $ 815,308
Michael P. Holtz....... 260,000(1) 27.99% $3.56 Jan. 2007 666,657 1,748,790
100,000(2) 10.77% $6.50 Dec. 2005 388,420 1,003,511
-------- ----- ---------- ----------
360,000 38.76% 1,055,077 2,752,301
======== ===== ========== ==========
Russell J. Cerqua...... 120,000(1) 12.92% $3.56 Jan. 2007 310,198 815,308
33,333(2) 3.59% $6.50 Dec. 2005 129,472 334,500
-------- ----- ---------- ----------
153,333 16.51% 439,670 1,149,808
======== ===== ========== ==========
Richard A. D'Onofrio... 120,000(1) 12.92% $3.56 Jan. 2007 310,198 815,308
</TABLE>
- ---------------
(1) Options granted January 1, 1995.
(2) Options granted December 1, 1995.
47
<PAGE> 49
YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
HELD AT DECEMBER 31, 1995 OPTIONS AT DECEMBER 31, 1995(1)
------------------------------ ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
H. Andrew Torchia............... 190,688 103,000 $ 379,789 $ 245,125
Michael P. Holtz................ 332,000 198,000 501,313 500,438
Russell J. Cerqua............... 132,833 94,875 219,125 243,094
Richard A. D'Onofrio............ 190,688 103,000 379,789 245,125
</TABLE>
- ---------------
(1) The closing sale price of the Company's Common Stock on the Nasdaq National
Market on December 31, 1995 was $6.25.
EMPLOYMENT AGREEMENTS
Effective January 1, 1995, the Company entered into employment agreements
with Messrs. Holtz, D'Onofrio and Cerqua. The employment agreements are each for
a three-year term, with Mr. Holtz's agreement providing for automatic renewal
for an additional three years at his option. Pursuant to his employment
agreement, Mr. Holtz is to receive cash compensation equal to $375,000 and
$425,000 in 1996 and 1997, respectively, and, if certain performance criteria
are satisfied, compensation in the form of 30,000 and 40,000 shares of Common
Stock in 1996 and 1997, respectively. In addition, in 1995, Mr. Holtz received
warrants exercisable into an aggregate of 260,000 shares of Common Stock. In the
event that Mr. Holtz chooses to renew his employment agreement for a second
three-year term, each element of his compensation (cash, shares of Common Stock
and warrants) shall be increased annually by the greater of a factor of 10% or
the then current rate of inflation. Pursuant to his employment agreement, Mr.
D'Onofrio is to receive base cash compensation equal to $144,000 and $151,700 in
1996 and 1997, respectively, and, if certain performance criteria are satisfied,
incentive cash compensation equal to $36,000 and $43,300 in 1996 and 1997,
respectively. In addition, in 1995, Mr. D'Onofrio received warrants exercisable
into an aggregate of 120,000 shares of Common Stock. Pursuant to his employment
agreement, Mr. Cerqua is to receive cash compensation equal to $160,000 and
$175,000 in 1996 and 1997, respectively, and, if certain performance criteria
are satisfied, compensation in the form of 10,000 and 12,500 shares of Common
Stock in 1996 and 1997, respectively. In addition, in 1995, Mr. Cerqua received
warrants exercisable into an aggregate of 120,000 shares of Common Stock. In
1995, the Company modified the employment agreements of Messrs. Holtz and Cerqua
in order to allow them to receive, in 1995, incentive compensation in the form
of options to purchase shares of Common Stock rather than the shares of Common
Stock to be received by them in 1996.
Each employment agreement entitles the executive officers to receive
severance payments, equal to two years' compensation with regard to Mr. Holtz
and one year's compensation with regard to Messrs. D'Onofrio and Cerqua, if his
employment is terminated by the Company without cause or if he elects to
terminate such employment for a "good reason," including a change of control of
the Company. For purposes of the employment agreements, a change of control
means (i) any change in the Company's Board of Directors such that a majority of
the Board of Directors is composed of members who were not members of the Board
of Directors on the date the employment agreements were made or (ii) removal of
the executive officer from membership on the Board of Directors by a vote of a
majority of the shareholders of the Company or failure of the Board of Directors
to nominate the executive for re-election to Board membership. Each executive
officer is also entitled to severance payments, equal to one year's compensation
with regard to Mr. Holtz and six months' compensation with regard to Messrs.
D'Onofrio and Cerqua, if he voluntarily terminates his employment with the
Company for other than a "good reason" and provides appropriate notice of such
resignation.
48
<PAGE> 50
CERTAIN TRANSACTIONS
Urban is owned 51% by Mr. Torchia, the Chairman of the Board of Directors
of the Company, and 49% by Mr. D'Onofrio, the Executive Vice President and a
director of the Company. Urban, a hotel development consulting firm, and Mr.
Torchia provide business development and consulting services to the Company
under a consulting agreement (the "Consulting Agreement") with Urban which
commenced in January 1994. Urban, pursuant to the Consulting Agreement, has
agreed to not engage in business activities that directly compete with the
business activities of the Company; provided, however, that Urban may pursue
business opportunities which the Company decides not to pursue. Under the terms
of the Consulting Agreement, Urban receives (i) a monthly consulting fee of
$20,000, (ii) a residual fee based on the management fees the Company receives
from management arrangements or relationships which resulted from contacts
initiated for the Company by Urban and (iii) transaction fees, based on an
established fee schedule and consistent with industry practice, for transactions
introduced by Urban. The Company also provides Urban with use of the Company's
telephone system. No additional amounts are paid to Urban for reimbursement of
expenses. As part of this arrangement, Mr. Torchia no longer receives
compensation for the services he provides to the Company, other than warrants
and other non-cash compensation for his services as Chairman. Mr. D'Onofrio
continues to receive compensation from the Company. See "Management - Executive
Compensation." During 1993, 1994 and 1995, Urban received an annual consulting
fee of $240,000 plus aggregate additional fees of $352,082, $289,915 and
$236,138, respectively, from the Company and received $28,200 and $82,400, in
1994 and 1995, respectively, in other transactional fees directly from Joint
Ventures in which the Company is a general partner.
The Consulting Agreement may be terminated by Urban, upon, among other
things, a breach by the Company of the agreement's terms, Mr. Torchia's death or
permanent disability, changes in the composition of the Board of Directors
whereby the current employee directors (which includes Mr. Torchia) no longer
constitute a majority of the Board, Mr. Torchia's failure to serve as a director
for any reason, including his resignation or failure to be elected by the
shareholders, or a change of control of the Company due to a merger or sale of
substantially all of the Company's assets. In addition, either Urban or the
Company may terminate the Consulting Agreement at any time after December 31,
1999. If the Consulting Agreement is terminated for any of these reasons, the
Company shall pay to Urban a severance fee equal to $600,000. Additionally, upon
the termination of the Consulting Agreement for any reason, including any of the
reasons described above, the Company shall purchase from Urban all of Urban's
rights to the residual fee described above for a purchase price equal to 6 times
the aggregate residual fee paid to Urban over the preceding twelve-month period.
As part of the fees described above, Urban received an aggregate residual fee of
$68,571 in 1995.
The Company currently has a note receivable outstanding from each of Mr.
Holtz, a director and the President and Chief Executive Officer of the Company,
and Mr. Cerqua, a director and the Chief Financial Officer, Executive Vice
President of Finance, Secretary and Treasurer of the Company. These notes (the
"Officer Notes") arose initially when, in 1992, the Company entered into
agreements with Grand American Hotel Management, Inc. ("Grand"), its
shareholders and certain other entities owned by the shareholders of Grand to
acquire 7 management contracts for, among other consideration, a loan of
$800,000 to the shareholders of Grand (the "Original Note"). The Original Note
was collateralized by 165,784 shares of the Company's Common Stock and bore
interest at a rate of 10.5% per annum. During 1993, the Company and Grand agreed
to revise the terms of the Original Note to, among other things, reduce its
interest rate. The Company did not receive any payments of principal or interest
in 1994.
Due to this default by Grand, in November 1994, the Company notified Grand
of its intention to take the 165,784 shares of Common Stock in lieu of the
Original Note and related receivables. In December 1994, and prior to the
Company's taking possession of such shares, Messrs. Holtz and Cerqua executed
notes in the amounts of $756,292 and $200,000, respectively, to the Company for
the purchase of the Original Note and related receivables and the 165,784 shares
of the Common Stock held as collateral on the Original Note. Following the
purchase, each of Messrs. Holtz and Cerqua
49
<PAGE> 51
pledged as collateral for the Officer Notes the shares of Common Stock received
upon purchase of the Original Note together with additional shares of the
Company's Common Stock which each individually owned. As originally drafted, the
Officer Notes provided for annual payments of interest at 8% per annum
commencing on December 31, 1995, with the principal balance due December 31,
1997, and were collateralized by an aggregate of 273,369 shares of the Company's
Common Stock. The Company and Messrs. Holtz and Cerqua have amended the terms of
the Officer Notes to provide that the annual payments of interest shall be
payable commencing April 1, 1997. Messrs. Holtz and Cerqua each have the option
to pay interest and principal with shares of the Company's Common Stock, with
the shares tendered being valued at the fair market value at time of payment.
The Officer Notes receivable have been classified as a reduction of
shareholders' equity on the Company's Consolidated Financial Statements.
In the past, certain of the Company's directors and executive officers
have, directly or indirectly, invested in Joint Ventures with the Company. For
example, Messrs. Torchia and D'Onofrio, through Urban, have invested an
aggregate of approximately $144,000 as limited partners and approximately
$49,000 as a general partner in 3 Joint Ventures since 1991. In addition, Dr.
Dayan, a director of the Company, has invested approximately $1.6 million in 7
Joint Ventures since 1988. Dr. Dayan and each of the Company's directors and
executive officers who have made such investments have done so on the same terms
as all other investors in such Joint Ventures. In addition to his investments in
certain Joint Ventures, Dr. Dayan also holds an interest in a mortgage on one of
the Minority-Owned Hotels. The mortgage, which has been in place since 1989, (i)
has a current outstanding balance of approximately $470,000, (ii) bears interest
at an annual rate of prime plus 4% (with a minimum annual interest rate of 12%),
and (iii) is payable in monthly installments through 1999.
50
<PAGE> 52
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at August 31, 1996, by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Officers and (iv) all directors and executive officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. Except as set
forth below, the address of each of the shareholders named below is the
Company's headquarters.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------- -----------------------
NAME NUMBER PERCENT(1) NUMBER PERCENT(1)
- --------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Michael P. Holtz (2)......................... 727,091 11.3% 727,091 9.6%
H. Andrew Torchia (2)(3)..................... 671,658 10.7 671,658 9.0
Richard A. D'Onofrio (2)(3).................. 671,658 10.7 671,658 9.0
Wellington Management Company (4)............ 568,300 9.4 568,300 7.9
Massachusetts Financial Services Company
(5)........................................ 516,500 8.6 516,500 7.2
Russell J. Cerqua (2)........................ 250,680 4.0 250,680 3.4
Salomon J. Dayan(2).......................... 184,983 3.1 184,983 2.6
Reno J. Bernardo (2)......................... 91,641 1.5 91,641 1.3
All directors and executive officers as a
group (6 persons)(2)(3).................... 2,145,453 29.8 2,145,453 25.7
</TABLE>
- ---------------
(1) Percentage of beneficial ownership is based on 6,023,521 shares of Common
Stock outstanding at August 31, 1996, and 7,173,521 shares of Common Stock
outstanding after completion of the Offering, plus, in the case of each of
Messrs. Holtz, Torchia, D'Onofrio, Cerqua and Bernardo and Dr. Dayan, the
amount of shares subject to options beneficially held by such individual
which are exercisable presently or within 60 days.
(2) Includes shares subject to options granted to the individuals directly which
are exercisable on or within 60 days of August 31, 1996 as follows: Mr.
Holtz, 430,000 shares; Mr. Torchia, 210,000 shares; Mr. D'Onofrio, 210,000
shares; Mr. Cerqua, 177,708 shares; Mr. Bernardo, 44,375 shares; and Dr.
Dayan, 30,000 shares.
(3) Includes 375,832 shares owned by Urban, options exercisable into 68,750
shares owned by Urban which are exercisable presently or within 60 days and
7,676 shares owned by Urban Niles 1290 Corp., a wholly-owned subsidiary of
Urban. Mr. Torchia is the President and 51% shareholder of Urban and Mr.
D'Onofrio is a 49% shareholder in Urban. Mr. Torchia disclaims beneficial
ownership of all but an aggregate of 195,589 shares and options exercisable
into 35,063 shares owned, directly or indirectly, by Urban and Mr. D'Onofrio
disclaims beneficial ownership of all but an aggregate of 187,919 shares and
options exercisable into 33,687 shares owned, directly or indirectly, by
Urban.
(4) Based upon information provided in its Schedule 13G dated January 26, 1996,
Wellington Management Company ("WMC"), in its capacity as investment
advisor, may be deemed beneficial owner of 568,300 shares of the Company
which are owned by numerous investment counselling clients. Of the shares
shown above, WMC has shared voting power for 314,000 shares and shared
investment power for 568,300 shares. WMC's address is 75 State Street,
Boston, MA 02109.
(5) Based upon information provided in its Schedule 13G dated February 12, 1996,
Massachusetts Financial Services Company ("MFS"), in its capacity as
investment manager, may be deemed beneficial owner of 516,500 shares of the
Company which are also beneficially owned by MFS Series Trust II -- MFS
Emerging Growth Stock Fund, shares of which are owned by numerous investors.
MFS has sole voting and investment power for the 516,500 shares. MFS's
address is 500 Boylston Street, Boston, MA 02116.
51
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
The following statements are subject to the detailed provisions of the
Company's Restated Certificate and By-Laws, do not purport to be complete, and
are qualified in their entirety by reference thereto.
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.005 par value, 6,023,521 of which were outstanding at August
31, 1996, and 100,000 shares of Preferred Stock, no par value, none of which is
currently outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share on all
matters voted upon by common shareholders and have no preemptive or other rights
to subscribe for additional securities of the Company. Each share of Common
Stock has an equal and ratable right to receive dividends when, as and if
declared by the Board of Directors out of assets legally available therefor and
subject to the dividend obligations of the Company to the holders of any
Preferred Stock then outstanding. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock will be entitled to share equally and ratably in the assets available for
distribution after the payment of liabilities, subject to any prior rights of
any holders of Preferred Stock that at the time may be outstanding. Holders of
Common Stock have no cumulative voting rights and no rights to convert their
Common Stock into any other securities and there are no redemption or sinking
fund provisions with respect to the Common Stock.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 100,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued shares of
Preferred Stock, including without limitation, dividend rates, conversion
rights, voting rights, redemption and sinking fund provisions, and liquidation
provisions, and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
shareholders. The Board of Directors, without shareholder approval, may issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plans to issue any Preferred Stock.
CERTAIN STATUTORY PROVISIONS
The Company is subject to Section 203 of the DGCL ("Section 203"). Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested shareholder" for a period of three years after
the time of the transaction in which the person became an interested
shareholder, unless (i) prior to the time of such transaction, either the
business combination or the transaction is approved by the board of directors of
the corporation, (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder owns
at least 85% of the outstanding voting stock, or (iii) on or after the time of
the business combination, such business combination is approved by the board of
directors and by the affirmative vote, at an annual or special meeting of
shareholders, of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested shareholder. For purposes of Section 203, a "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested shareholder, and an "interested shareholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock. Under Section
203, the restrictions described above also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the
corporation and a person who
52
<PAGE> 54
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors and which transaction is approved or not opposed by a
majority of the board of directors then in office.
TRANSFER AGENT AND REGISTER
Affiliated Stock Transfer Co., Inc. acts as transfer agent and registrar
for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
7,173,521 shares of Common Stock. Of these shares, 5,758,680 shares, including
the 1,150,000 shares sold in the Offering, will be freely tradeable by persons
other than "affiliates" of the Company without restriction or registration under
the Securities Act. The remaining 1,414,841 shares of Common Stock are either
owned by affiliates of the Company or were acquired by existing shareholders
without registration under the Securities Act and are "restricted securities"
for purposes of the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption contained in Rule 144. Of such amount,
executive officers and directors of the Company currently hold 974,620 shares of
Common Stock. The Company currently has an effective registration statement on
Form S-3 on file with the Commission which the Company believes covers
approximately 241,000 shares described above as "restricted securities." See
"-- Registration Rights."
To date, the Company has also issued options and warrants (the "Options and
Warrants") to purchase an aggregate of 1,854,377 shares of Common Stock. These
Options and Warrants have a weighted average exercise price of $4.57 per share.
Options and Warrants for an aggregate of 1,556,377 shares of Common Stock will
be exercisable by the end of 1996. Of the total outstanding Options and
Warrants, 1,422,833 have been issued to the Company's current executive officers
and directors, 1,170,833 of which will be exercisable by the end of 1996. In
addition, equity interests held by limited partners in 5 Joint Ventures
("Exchangeable Securities") are exchangeable into an aggregate of 376,225 shares
of Common Stock. Exchangeable Securities exchangeable into an aggregate of
126,875 shares of Common Stock are currently exchangeable. Of the total
outstanding Exchangeable Securities, 124,675 are held by Dr. Dayan, a director
of the Company, none of which are currently exchangeable. Shares issued upon
exercise of the Options and Warrants or upon exchange of the Exchangeable
Securities will be "restricted securities" for purposes of the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemption
contained in Rule 144. Holders of certain of the Options and Warrants and
holders of certain of the Exchangeable Securities have registration rights
covering the shares of Common Stock to be received by the holders upon exercise
or exchange. See "- Registration Rights."
In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares which are issued and sold in reliance upon
exemptions from registration under the Securities Act ("Restricted Shares") for
at least two years is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the filing of a notice of intent to sell. Sales
under Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not deemed to have been an "affiliate" of the
Company at any time during the three months preceding a sale, and who has
beneficially owned Restricted Shares for at least three years, would be entitled
to sell such shares under Rule 144 without regard to volume limitations,
manner-of-sale provisions, notice requirements or the availability of current
public information about the Company.
53
<PAGE> 55
Of the Restricted Shares outstanding following the Offering, approximately
1,480,000 shares will have been held for at least two years and, subject to the
agreed-upon holding period described in the following paragraph, are eligible
for sale, subject to the volume and other limitations of Rule 144. In addition,
the Commission has proposed reducing the holding period required under Rule 144
from two years to one year. Of the Restricted Shares outstanding following the
Offering, approximately 440,000 additional shares have been held for at least
one year and therefore, if the holding period is reduced to one year, such
shares will, subject to the agreed-upon holding period described in the
following paragraph, be eligible for sale, subject to the volume and other
limitations of Rule 144.
The Company's executive officers and directors, holding an aggregate of
2,145,453 shares and currently exercisable Options and Warrants, have agreed
that for a period of 120 days after the date hereof they will not sell, or
otherwise dispose of, directly or indirectly, any Common Stock, any securities
convertible into or exchangeable for Common Stock or any rights to purchase or
acquire Common Stock or any securities of the Company without the prior written
consent of the Placement Agent.
REGISTRATION RIGHTS
The Company currently has an effective registration statement on Form S-3
on file with the Commission registering the resale of approximately 1,360,000
shares of Common Stock (including approximately 150,000 shares underlying
outstanding Options and Warrants). The Company believes that all but
approximately 241,000 shares of Common Stock (including 103,125 shares
underlying Options and Warrants) have been sold pursuant to such registration
statement.
In addition, holders of Exchangeable Securities which are exchangeable into
an aggregate of 249,350 shares of Common Stock have the right, upon exchange of
such Exchangeable Securities for such shares, to require the Company to file a
registration statement with the Commission to register such shares for resale,
as do holders of Options and Warrants which are exercisable into an aggregate of
135,000 shares of Common Stock. The Company intends to file with the Commission,
before the end of the fourth quarter of 1996, an additional registration
statement on Form S-3 to register all of the shares issuable upon exchange of
the Exchangeable Securities and upon exercise of such Options and Warrants.
Shares sold pursuant to either of such registration statements will be freely
tradeable by persons other than affiliates of the Company without further
registration under the Securities Act.
In addition to the above-described registration rights, holders of Options
and Warrants which will be exercisable into an aggregate of 1,355,083 shares of
Common Stock by the end of 1996 have certain piggyback registration rights with
respect to their underlying shares. Subject to certain conditions and
limitations, holders of such shares (after exercise of the Options and Warrants)
have the right to require the Company to include their shares of Common Stock in
any registered offering by the Company. None of the shares underlying the
Options and Warrants have been approved for inclusion in this Offering.
54
<PAGE> 56
PLAN OF DISTRIBUTION
The Common Stock is being offered for sale by the Company on a best efforts
basis principally to selected institutional investors. Oppenheimer & Co., Inc.
(the "Placement Agent") has been retained pursuant to a placement agency
agreement (the "Placement Agent Agreement") to act as the exclusive agent for
the Company in connection with the Offering.
The Company has agreed to pay the Placement Agent the placement fee set
forth on the front cover of this Prospectus and $ for non-accountable
expenses incurred in connection with the Offering. In addition, the Company has
agreed to reimburse the Placement Agent for certain other expenses incurred in
connection with the Offering.
The closing of the Offering is conditioned upon the sale of all of the
shares of Common Stock offered hereby.
The Placement Agent is not obligated and does not intend to take (or
purchase) any of the shares of Common Stock. The Placement Agent may purchase
shares of Common Stock in the Offering for immediate resale to certain investors
to accommodate the administrative requirements of such investors. It is
anticipated that the Placement Agent will obtain indications of interest from
potential investors for the amount of the Offering and the effectiveness of the
Registration Statement will not be requested and no investor funds will be
accepted until indications of interest have been received by the Placement Agent
for the full amount of the Offering. Confirmations and definitive prospectuses
will be distributed to all investors at the time of pricing, informing investors
of the closing date. No investor funds will be accepted prior to effectiveness
of the Registration Statement. Prior to the closing, the investors will deposit
funds in an amount equal to the Requisite Funds in escrow with the Escrow Agent.
In the event that fewer than 1,150,000 shares of Common Stock are sold and the
Offering therefore does not close, the funds deposited by investors will be
promptly returned to the investors. The Requisite Funds will be invested in
accordance with Rule 15c2-4 promulgated under the Exchange Act. Upon receipt of
notice from the Escrow Agent that the investors have deposited the Requisite
Funds into the escrow account, the Company will deposit the applicable number of
shares of Common Stock to be credited to DTC accounts of the investors. Upon
closing, the Escrow Agent will release the Requisite Funds for distribution to
the Company and the Placement Agent, and the Placement Agent shall inform DTC
that the shares of Common Stock may be credited to the respective DTC accounts
of the investors against payment therefor by the investors. The Offering will
not continue after 120 days after the date of this Prospectus.
The Company and its executive officers and directors have agreed that for a
period of 120 days after the date hereof they will not sell, or otherwise
dispose of, directly or indirectly, or exercise any registration rights with
respect to, any Common Stock, any securities convertible into or exchangeable
for Common Stock or any rights to purchase or acquire Common Stock without the
prior written consent of the Placement Agent (other than the issuance of stock
options pursuant to the Company's stock option plans and the issuance of Common
Stock upon the exercise of stock options and warrants previously granted by the
Company).
The Company has agreed to indemnify the Placement Agent against certain
liabilities, loss and expenses, including under the Securities Act, or to
contribute to payments that the Placement Agent may be required to make in
respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares and certain other legal matters
will be passed upon for the Company by McDermott, Will & Emery, Chicago,
Illinois. Certain legal matters in connection with the Offering will be passed
upon for the Placement Agent by Rogers & Wells, New York, New York.
55
<PAGE> 57
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (File No. 2-90939C)
with the Commission are incorporated herein by reference: (i) the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 and (ii) the
Company's Quarterly Report on Form 10-Q for the quarters ended March 31, and
June 30, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in this Prospectus, or in a document
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any subsequently filed document that also is,
or is deemed to be, incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to: Secretary, Amerihost Properties, Inc., 2400 East Devon Avenue,
Suite 280, Des Plaines, Illinois 60018.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Company's registration statement on Form
S-2 (together with all amendments, the "Registration Statement"), the exhibits
and schedules forming a part thereof and the reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of
the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Suite 1400, 500 West Madison, Chicago, Illinois 60661. Copies of such material
can also be obtained from the public reference section of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy statements and other information filed by the Company.
In addition, the Company furnishes holders of its Common Stock with (i) annual
reports containing audited financial statements and an opinion thereon expressed
by an independent certified public accounting firm and (ii) quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
financial information.
This Prospectus constitutes a part of the Registration Statement filed with
the Commission under the Securities Act with respect to the Offering. Statements
made in this Prospectus as to the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission, and each such statement shall be deemed qualified in its entirety by
such reference. Reference is made to the Registration Statement for further
information with respect to the Company and the Common Stock offered hereby.
56
<PAGE> 58
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants................................... F-2
Financial Statements:
Consolidated Balance Sheets at December 31, 1994 and 1995.......................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995........................................................................ F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1993, 1994 and 1995............................................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995........................................................................ F-7
Notes to Consolidated Financial Statements........................................... F-9
Financial Statements (Unaudited):
Consolidated Balance Sheets at December 31, 1995 and June 30, 1996 (unaudited)..... F-29
Consolidated Statements of Operations for the three months and six months ended
June 30, 1995 and 1996 (unaudited).............................................. F-31
Consolidated Statements of Cash Flows for the three months and six months ended
June 30, 1995 and 1996 (unaudited).............................................. F-32
Notes to Unaudited Consolidated Financial Statements................................. F-34
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Amerihost Properties, Inc.
We have audited the accompanying consolidated balance sheets of Amerihost
Properties, Inc. and subsidiaries as of December 31, 1994 and 1995 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amerihost
Properties, Inc. and subsidiaries at December 31, 1994 and 1995, and the results
of their operations and their cash flows, for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Chicago, Illinois
February 29, 1996
F-2
<PAGE> 60
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 3,026,029 $ 1,371,278
Accounts receivable (including $703,465 and $802,164 from
related parties) (Note 12).............................. 2,457,233 3,270,094
Notes receivable (including $1,687,178 and $1,752,126 from
related parties) (Note 3)............................... 1,834,908 1,965,048
Prepaid expenses and other current assets.................. 370,471 188,163
Refundable income taxes.................................... -- 230,530
Costs and estimated earnings in excess of billings on
uncompleted contracts (including $1,315,707 and
$3,574,939 from related parties) (Notes 4 and 12)....... 2,005,274 3,900,879
----------- -----------
Total current assets............................... 9,693,915 10,925,992
----------- -----------
Investments (Notes 5 and 7).................................. 2,995,234 2,388,999
----------- -----------
Property and equipment (Notes 8, 9 and 15):
Land....................................................... 2,240,952 4,236,309
Buildings.................................................. 9,124,901 22,075,629
Furniture, fixtures and equipment.......................... 3,784,608 9,204,377
Construction in progress................................... 2,253,456 662,159
Leasehold improvements..................................... 791,800 2,050,654
----------- -----------
18,195,717 38,229,128
Less accumulated depreciation and amortization............. 1,729,611 5,404,102
----------- -----------
16,466,106 32,825,026
----------- -----------
Long-term notes receivable (including $1,272,612 and
$1,450,616 from related parties) (Note 3).................. 2,737,882 2,863,580
Costs of management contracts acquired, net of accumulated
amortization of $768,324 and $913,393 (Note 2)............. 492,253 664,110
Other assets (including deferred taxes of $487,000 and
$383,000), net of accumulated amortization of $769,669 and
$1,451,715 (Notes 6 and 11)................................ 2,018,192 2,785,595
----------- -----------
5,248,327 6,313,285
----------- -----------
$34,403,582 $52,453,302
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 61
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 3,224,973 $ 3,751,097
Bank line-of-credit (Note 7)............................... -- 2,317,036
Accrued payroll and related expenses....................... 679,971 688,648
Accrued real estate and other taxes........................ 362,409 606,468
Other accrued expenses and current liabilities............. 262,331 666,352
Current portion of long-term debt (Note 8)................. 566,808 1,042,847
Income taxes payable....................................... 415,197 --
----------- -----------
Total current liabilities............................... 5,511,689 9,072,448
----------- -----------
Long-term debt, net of current portion (Notes 8 and 10)...... 12,975,226 23,971,481
----------- -----------
Deferred income.............................................. 1,051,457 686,388
----------- -----------
Commitments (Notes 9, 14 and 15)
Minority interests........................................... 1,192,925 1,456,226
----------- -----------
Shareholders' equity (Notes 9, 12, 14 and 16):
Preferred stock, no par value; authorized 100,000 shares;
none issued............................................. -- --
Common stock, $.005 par value; authorized 15,000,000
shares;
issued 5,570,013 shares at December 31, 1994, and
5,977,213 shares at December 31, 1995................... 27,850 29,886
Additional paid-in capital................................. 15,465,891 16,920,237
Retained earnings (deficit)................................ (428,289) 1,709,803
----------- -----------
15,065,452 18,659,926
Less:
Stock subscriptions receivable (Note 3)................. (436,875) (436,875)
Notes receivable (Note 2)............................... (956,292) (956,292)
----------- -----------
13,672,285 17,266,759
----------- -----------
$34,403,582 $52,453,302
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 62
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Hotel operations.............................. $ 9,091,778 $15,428,022 $24,359,999
Development and construction.................. 6,970,709 12,036,918 12,238,128
Management services........................... 2,849,673 2,711,637 3,010,935
Employee leasing.............................. 15,361,940 13,169,942 12,353,355
----------- ----------- -----------
34,274,100 43,346,519 51,962,417
----------- ----------- -----------
Operating costs and expenses:
Hotel operations.............................. 6,779,306 10,457,154 17,065,041
Development and construction.................. 6,112,327 11,315,973 10,117,782
Management services........................... 2,296,589 2,288,765 2,003,310
Employee leasing.............................. 15,201,158 13,014,542 12,131,262
----------- ----------- -----------
30,389,380 37,076,434 41,317,395
----------- ----------- -----------
3,884,720 6,270,085 10,645,022
Depreciation and amortization................. 927,527 1,140,801 2,268,181
Leasehold rents -- hotels..................... 1,651,778 1,660,903 1,976,154
Corporate general and administrative.......... 1,783,051 2,012,710 2,110,939
----------- ----------- -----------
Operating income (loss)......................... (477,636) 1,455,671 4,289,748
Other income (expense):
Interest expense.............................. (589,945) (854,880) (1,755,745)
Interest income............................... 479,405 428,353 560,724
Other income.................................. 24,518 37,836 44,099
Equity in net income and losses of
affiliates................................. 29,836 31,511 387,439
Debt acceleration charge...................... (485,411) -- --
----------- ----------- -----------
Income (loss) before minority interests and
income taxes.................................. (1,019,233) 1,098,491 3,526,265
Minority interests in operations of consolidated
subsidiaries and partnerships................. (37,660) (146,070) (59,173)
----------- ----------- -----------
Income (loss) before income tax................. (1,056,893) 952,421 3,467,092
Income tax expense (benefit).................... (295,600) 381,000 1,329,000
----------- ----------- -----------
Net income (loss)............................... $ (761,293) $ 571,421 $ 2,138,092
=========== =========== ===========
Net income (loss) per share..................... $ (0.15) $ 0.10 $ 0.35
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 63
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
STOCK
COMMON STOCK ADDITIONAL RETAINED SUBSCRIPTIONS TOTAL
--------------------- PAID-IN EARNINGS AND NOTES SHAREHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) RECEIVABLE EQUITY
--------- -------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1993.................. 2,193,646 $10,968 $ 4,083,430 $ (238,417) $ -- $ 3,855,981
Authorized shares issued upon note
conversion....................... 278,125 1,391 1,039,429 1,040,820
Authorized shares issued upon
warrant exercise (Notes 9 and
14).............................. 1,440,790 7,204 430,296 (436,875) 625
Authorized shares issued in public
offering (Note 9)................ 1,550,000 7,750 9,564,794 9,572,544
Authorized shares issued for
compensation and investment...... 13,143 66 62,010 62,076
Reclassification of note receivable
(Note 2)......................... (990,000) (990,000)
Net loss for the year ended
December 31, 1993................ (761,293) (761,293)
--------- -------- ----------- ---------- ------------- -------------
BALANCE AT
DECEMBER 31, 1993................ 5,475,704 27,379 15,179,959 (999,710) (1,426,875) 12,780,753
Authorized shares issued for
compensation and investment...... 94,309 471 285,932 286,403
Sale of note and receivables to
officers (Note 2)................ 990,000 990,000
Collateralized notes receivable
from officers (Note 2)........... (956,292) (956,292)
Net income for the year ended
December 31, 1994................ 571,421 571,421
--------- -------- ----------- ---------- ------------- -------------
BALANCE AT
DECEMBER 31, 1994................ 5,570,013 27,850 15,465,891 (428,289) (1,393,167) 13,672,285
Authorized shares issued for
compensation and investment...... 407,200 2,036 1,454,346 1,456,382
Net income for the year ended
December 31, 1995................ 2,138,092 2,138,092
--------- -------- ----------- ---------- ------------- -------------
BALANCE AT
DECEMBER 31, 1995................ 5,977,213 $29,886 $16,920,237 $1,709,803 $(1,393,167) $17,266,759
========= ======== =========== ========== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 64
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers............. $ 34,422,093 $ 42,775,919 $ 49,673,144
Cash paid to suppliers and employees..... (32,953,736) (40,282,468) (44,715,078)
Interest received........................ 386,833 313,128 491,749
Interest paid............................ (623,684) (803,054) (1,660,803)
Income taxes (paid) refunded............. (538,172) 211,197 (1,870,727)
------------ ------------ ------------
Net cash provided by operating
activities............................... 693,334 2,214,722 1,918,285
------------ ------------ ------------
Cash flows from investing activities:
Distributions from affiliates............ 548,882 382,229 505,410
Purchase of property and equipment....... (8,291,502) (7,872,269) (12,539,148)
Purchase of investments.................. (1,005,600) (349,015) (332,800)
Increase in notes receivable............. (2,794,345) (1,568,266) (2,332,472)
Collections on notes receivable.......... 927,174 961,041 1,385,615
Preopening and management contract
costs................................. (55,000) (279,000) (316,926)
Sale of investments...................... 25,000 25,000 55,000
Other.................................... (91,889) (63,938) 69,124
------------ ------------ ------------
Net cash used in investing activities.... (10,737,280) (8,764,218) (13,506,197)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt.................................. 3,447,587 7,444,998 8,478,903
Principal payments of long-term debt..... (2,405,865) (388,844) (724,709)
Proceeds from line of credit............. 1,275,000 1,290,000 4,461,182
Repayment on line of credit.............. (1,275,000) (1,290,000) (2,144,146)
Increase (decrease) in minority
interests............................. 327,125 634,036 (138,069)
Proceeds from issuance of common stock... 9,614,577 -- --
Increase in deferred offering costs...... (82,738) -- --
Principal payments of notes payable...... (250,000) -- --
------------ ------------ ------------
Net cash provided from financing
activities............................... 10,650,686 7,690,190 9,933,161
------------ ------------ ------------
Net increase (decrease) in cash............ 606,740 1,140,694 (1,654,751)
Cash and cash equivalents, beginning of
year..................................... 1,278,595 1,885,335 3,026,029
------------ ------------ ------------
Cash and cash equivalents, end of year..... $ 1,885,335 $ 3,026,029 $ 1,371,278
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 65
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Reconciliation of net (loss) income to net cash
provided by operating activities:
Net (loss) income................................. $ (761,293) $ 571,421 $ 2,138,092
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation.................................... 315,317 796,702 1,787,080
Amortization.................................... 612,210 344,099 481,101
Debt acceleration charge........................ 485,411 -- --
(Increase) decrease in deferred taxes, net of
valuation allowance.......................... (108,000) (199,000) 104,000
Equity in net loss (income) of affiliates before
amortization of deferred income.............. 40,372 47,322 (214,884)
Minority interests in operations of
subsidiaries................................. 37,660 146,070 59,173
Amortization of deferred income................. (70,208) (78,833) (172,555)
Amortization of deferred interest............... (15,000) (8,571) (5,633)
Amortization of loan discount................... 73,602 45,393 45,393
Compensation paid through issuance of common
stock........................................ 26,655 98,832 212,843
(Gain) loss on sale of investments and
equipment.................................... (24,490) (24,572) 18,585
Partnership interests received in lieu of
cash......................................... (100,000) -- --
Write-off of note receivable.................... -- 190,000 --
Changes in assets and liabilities, net of
effects of acquisitions:
Decrease (increase) in accounts receivable... 263,432 72,554 (519,695)
(Increase) decrease in prepaid expenses and
other current assets....................... (160,935) (197,373) 251,305
(Increase) decrease in refundable income
taxes...................................... (376,000) 376,000 (230,530)
Increase in costs and estimated earnings in
excess of billings......................... (237,748) (907,658) (1,895,605)
Increase in other assets..................... (293,281) (467,661) (547,318)
Increase in accounts payable................. 897,038 278,059 471,881
(Decrease) increase in income taxes
payable.................................... (349,800) 415,197 (415,197)
Increase in accrued payroll and other accrued
expenses and current liabilities........... 400,997 565,292 300,700
(Decrease) increase in accrued interest...... (107,342) 6,433 49,549
Increase in deferred income.................. 144,737 145,016 --
---------- ---------- -----------
Net cash provided by operating activities......... $ 693,334 $2,214,722 $ 1,918,285
========= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 66
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Chicagoland Concessions, Inc. (the "Company") was incorporated under the
laws of Delaware on September 19, 1984, to operate concession stands in the
Chicago metropolitan area. On September 19, 1985, the Company changed its name
to America Pop, Inc.
In December, 1986, the Company ceased its operations of all concession
stand facilities and during 1987, repositioned itself into hotel/motel
development, construction and ownership/operation. In order to more
appropriately reflect the nature of the Company's business, on August 21, 1987,
the Company changed its name to Amerihost Properties, Inc. ("API").
Principles of consolidation:
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and partnerships in which the Company has a
controlling ownership interest. Significant intercompany accounts and
transactions have been eliminated.
Construction accounting:
Development fee revenue from construction/renovation projects is recognized
using the percentage-of-completion method over the period beginning with the
execution of contracts and ending with the commencement of
construction/renovation.
Construction fee revenue from construction/renovation projects is
recognized on the percentage-of-completion method, generally based on the ratio
of costs incurred to estimated total contract costs. Revenue from contract
change orders is recognized to the extent costs incurred are recoverable. Profit
recognition begins when construction reaches a progress level sufficient to
estimate the probable outcome. Provision is made for anticipated future losses
in full at the time they are identified.
Construction period interest in the amount of $37,222 and $119,749 was
capitalized in 1994 and 1995, respectively, and included in property and
equipment.
Cash equivalents:
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
Concentration of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments,
accounts receivable and notes receivable. The Company invests temporary cash
balances in financial instruments of highly rated financial institutions
generally with maturities of less than three months. A substantial portion of
accounts receivable are from hotels located in the midwestern United States,
where collateral is generally not required, and from hotel operators for the
development and construction of hotels pursuant to written contracts. Notes
receivable are primarily from hotel operating entities generally located in the
midwestern and southern United States, and two of the Company's officers.
Fair value of financial instruments:
The carrying values reflected in the consolidated balance sheet at December
31, 1995 reasonably approximate the fair values for cash and cash equivalents,
accounts and contracts receivable and payable, and variable rate long-term debt.
The majority of the notes receivable are collateralized by shares of the
Company's common stock, investments in hotels, a second mortgage on a hotel
property, and personal guarantees. Construction/renovation and working capital
notes are repaid to the
F-9
<PAGE> 67
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Company within a relatively short period after their origination. The notes
receivable bear interest at rates approximating the current market rates and the
carrying value approximates their fair value. The Company estimates that the
fair value of its fixed rate long-term debt at December 31, 1995 approximates
the carrying value considering the property specific nature of the notes and in
certain cases, the subordinated nature of the debt. In making such assessments,
the Company considered the current rate at which the Company could borrow funds
with similar remaining maturities and discounted cash flow analysis as
appropriate.
Investments:
Investments are accounted for using the equity method, under which method
the original investment is increased (decreased) by the Company's share of
earnings (losses), and is reduced by dividends or distributions when received.
Other investments are recorded at cost.
Property and equipment:
Property and equipment are stated at cost. Depreciation is being provided
for assets placed in service by use of the straight-line and accelerated methods
over their estimated useful lives. Leasehold improvements are being amortized by
use of the straight-line method over the term of the lease.
For each classification of property and equipment, depreciable periods are
as follows:
<TABLE>
<S> <C>
Building........................................... 31.5-39 years
Furniture, fixtures and equipment.................. 5-7 years
Leasehold improvements............................. 3-10 years
</TABLE>
Costs of management contracts acquired:
The costs of management contracts acquired includes amounts paid to acquire
management contracts and pre-opening costs incurred in connection with new
management contracts. These amounts are being amortized by use of the
straight-line method over periods ranging from two to five years.
Other assets:
Cost in excess of net assets of subsidiaries: Cost in excess of net assets of
subsidiaries are amortized on a straight-line basis over a period of 31.5 years.
Organization costs: Organization costs are being amortized by use of the
straight-line method over a period of five years.
Investment in leases: Investment in leases represents the amounts paid for the
acquisition of leasehold interests for certain hotels. These costs are being
amortized by use of the straight-line method over the terms of the leases.
Deferred subordinated note costs: Deferred subordinated note costs represent
the costs incurred in issuing the 7% subordinated notes. These costs are being
amortized by use of the straight-line method over the life of the debt.
Franchise fees: Franchise fees represent the initial franchise fees paid to
franchisors for certain hotels and are being amortized by use of the
straight-line method over the term of the franchise licenses, ranging from 10 to
20 years.
Deferred income:
Deferred income represents that portion of fees earned from entities in
which the Company holds an ownership interest, which is equal to the Company's
proportional ownership interest in the entity.
F-10
<PAGE> 68
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The balance of the fees are recorded in income as earned. The deferred income is
being amortized over the life of the operating assets owned by the affiliated
entity.
Also included in deferred income is the unamortized portion of loan points
collected from a loan made to an unaffiliated party in connection with the
acquisition of management contracts. These are being amortized into interest
income over the life of the loan. (Note 2)
Income taxes:
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities determined for tax and financial reporting
purposes.
Earnings (loss) per share:
Computations of earnings per share of common stock are computed by dividing
net income by the weighted average number of shares of common stock and dilutive
common stock equivalents. Net loss per share is computed by dividing the net
loss by the weighted average number of shares of common stock. Common stock
equivalents include stock options and warrants. The weighted average number of
shares used in the computations were equal to 5,037,918, 5,624,478 and 6,124,750
for the years ended December 31, 1993, 1994 and 1995, respectively.
Advertising:
The costs of advertising, promotion and marketing programs are charged to
operations in the year incurred. These costs were approximately $167,000,
$218,000 and $462,000 for the years ended December 31, 1993, 1994 and 1995,
respectively.
Estimates:
The accompanying consolidated financial statements include estimated
amounts and disclosures based on management's assumptions about future events.
Actual results may differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the 1993 and 1994 financial
statements in order to conform to the 1995 presentation.
2. MANAGEMENT CONTRACTS:
Diversified:
On November 9, 1991, the Company entered into agreements with Diversified
Innkeepers, Inc., its shareholders and various affiliates ("Diversified") to
acquire management contracts for eleven properties in the Southeastern United
States for cash and stock in the total amount of $548,772, which is being
amortized over the term of the management contracts which have been renewed
through September 30, 2000. In addition, the Company issued warrants to acquire
125,000 shares of the Company's Common Stock, and agreed to loan Diversified a
total of $1,500,000. (Note 3)
Grand:
On May 21, 1992, the Company entered into agreements with Grand American
Hotel Management, Inc. ("Grand"), its shareholders and certain other entities
owned by the shareholders of Grand to acquire seven management contracts for
cash and stock in the amount of $401,676. In addition, the Company issued
warrants to acquire 210,050 shares of the Company's Common Stock, which were
subsequently exercised, and agreed to loan the shareholders of Grand a total of
$800,000
F-11
<PAGE> 69
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(the "Original Note") with interest at the rate of 10.5% per annum. The note was
collateralized by 165,784 shares of the Company's Common Stock.
During 1993, the Company and Grand agreed to terminate the Company's
management of the seven properties. In connection with the termination
agreement, the terms of the Original Note were revised as of June 1, 1993
providing for an additional $190,000 note (the "Termination Note") due to the
Company for a management contract termination fee, a reduced interest rate on
the Original Note, and monthly principal payments on both notes through April
1995 with a final payment of $736,000 on May 31, 1995. The Company did not
receive any payments for principal or interest in 1994. The Termination Note was
written off in 1994.
In November 1994, the Company notified Grand of its intention to take the
165,784 shares of common stock in lieu of the $800,000 note and $156,292 in
related receivables. Prior to taking possession of the stock, in December 1994,
two of the Company's officers executed notes in the amount of $956,292 to the
Company for the purchase of the Original Note and related receivables, and the
165,784 shares of the Company's stock held as collateral on the Original Note.
The officer notes provide for annual payments of interest only at 8% per annum,
with the principal balance due December 31, 1997 and are collateralized by a
total of 273,369 shares of the Company's Common Stock. The officers have the
option to pay interest and principal with shares of the Company's Common Stock,
whereby the number of shares offered must have a fair market value at time of
payment equal to the amount then due. These notes receivable have been
classified as a reduction of shareholders' equity on the accompanying balance
sheets.
3. NOTES RECEIVABLE:
Related parties:
On June 20, 1990, the Company loaned $150,000 to the Hammond, Indiana 490
Partnership, which leases and operates the Ramada Inn Hammond. The note is due
on demand and provides for interest at the rate of 10% per annum. The balance of
this note was $122,493 at December 31, 1994 and 1995. During 1995, the Hammond,
Indiana 490 Partnership contributed its leasehold interests and other assets to
a newly formed LLC in exchange for a 35.0% interest. The LLC has since closed
the Ramada Inn, razed a portion of the building and begun renovation of the 86
remaining rooms. This new hotel is scheduled to open in March 1996 as an
AmeriHost Inn. In March 1996, the Company exchanged the note receivable for an
additional 49% ownership interest in the Hammond, Indiana 490 Partnership.
During 1993 the Company loaned $723,843, with interest at the rate of 10%
per annum, to Euless, TX 1192 General Partnership to be used for the
acquisition, renovation and operation of the Ramada Inn Euless, Texas. The loan
and interest are to be paid from priority distributions from the partnership.
Additional amounts of $318,769 and $120,348 were loaned during 1994 and 1995,
respectively.
During 1994 the Company loaned $525,000, with interest at a rate of 10%, to
Macomb, IL 994 Limited Partnership to be used for the development and
construction of the AmeriHost Inn Macomb, Illinois. The entire loan and accrued
interest were repaid during 1995 using the proceeds from the syndication of the
limited partnership interests.
The Company has advanced a total of $1,220,184 and $1,832,788 at December
31, 1994 and 1995, respectively, to other partnerships in which the Company has
a minority ownership interest for working capital and construction purposes. The
advances bear interest rates ranging from 10% to prime plus 3% and are due on
demand. The Company expects the partnerships to repay these advances through
cash flow generated from hotel operations and mortgage financings.
F-12
<PAGE> 70
Other:
As part of the purchase of management contracts from Diversified
Innkeepers, Inc. in November, 1991, the Company entered into a financing
agreement whereby the Company provided financing to the shareholders of
Diversified in the total amount of $1,500,000, collateralized by 125,000 shares
of the Company's common stock, a limited partnership interest in a hotel, a
second mortgage on another hotel property, and a personal guarantee by the
shareholders. The loan provided for interest only payments to be made at the
rate of 12% per annum for a period of two years ending January 1995. Beginning
February 6, 1995, the note provided for monthly payments of principal and
interest in accordance with a fifteen-year amortization schedule, with all
remaining principal and accrued interest due on December 31, 1999. In October,
1995, the note was modified to reduce the interest rate to 10% per annum and
extend the term to the earlier of the termination of the related management
contracts or September 30, 2000. The monthly payments of principal and interest
were also modified to $16,250 per month. The balance of the note at December 31,
1995 was $1,467,886. The Company received a $60,000 financing fee which is being
amortized into interest income over the life of the loan.
In connection with the Diversified transaction, the Company also issued
125,000 stock options which were exercised in January 1993, in consideration for
a secured promissory note in the amount of $436,875 with interest at 6.5% per
annum. The total principal balance is due April 30, 1997, unless the stock is
sold, and is collateralized by limited partnership interests. This note
receivable has been classified as a reduction of shareholders' equity on the
accompanying balance sheets.
During 1993 and 1994 the Company loaned $100,000 and $13,000 to a
co-partner in ten partnerships. The loans provide for interest rates ranging
from prime to prime plus 2% per annum and are due on demand. The $100,000 loan
is secured by the co-partner's shares of partnership interests in two hotels.
4. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS:
Information regarding contracts-in-progress is as follows at December 31,
1994 and 1995:
[CAPTION]
<TABLE>
<S> <C> <C>
1994 1995
---------- ----------
Costs incurred on uncompleted contracts...................... $3,392,795 $3,637,650
Estimated earnings........................................... 1,020,607 2,360,089
---------- ----------
4,413,402 5,997,739
Less billings to date........................................ 2,408,128 2,096,860
---------- ----------
Costs and estimated earnings in excess of billings on
uncompleted contracts....................................... $2,005,274 $3,900,879
========== ==========
</TABLE>
5. INVESTMENTS:
Investments at December 31, 1994 and 1995, are comprised of the following,
including the name of the investee, the nature of the investment and the
property owned by the investee:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
ACCOUNTED FOR AT COST:
Richmond Investors, Inc. (a)...................................... $ 450 $ --
15% of outstanding shares of common stock
2% general partner in the Richmond 688 Limited Partnership
Ashland Motel Associates (b)...................................... 135,000 --
11% limited partner
Days Inn Ashland, Ohio
Venture South Hospitalities One Pass Christian LLC (b)............ 10,000 --
1% limited partner
Days Inn Pass Christian, Mississippi
</TABLE>
F-13
<PAGE> 71
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
ACCOUNTED FOR USING THE EQUITY METHOD:
Athens Motel Associates Limited Partnership....................... $ 47,925 $ 46,454
12.5% general partner
Days Inn Athens, Ohio
Cloverdale, Indiana 588-1 Partnership............................. 5,435 24,572
25% general partner
Days Inn Cloverdale, Indiana
Crawfordsville, Indiana 888-2 Partnership......................... (23,506) (37,921)
25% general partner
Days Inn Crawfordsville, Indiana
Richmond 688 Limited Partnership (a).............................. 105,134 --
14.7% limited partner
Days Inn Richmond, Illinois
Bravanni Enterprises, Inc. & Melrose Park Trust................... 12,841 (2,229)
25% interest
Days Inn Melrose Park, Illinois
Schiller Park 1288 Limited Partnership............................ 3,840 (11,094)
5% general partner
Days Inn O'Hare South, Schiller Park, Illinois
Athens Motel Associates Limited Partnership II.................... 120,834 140,451
20% general partner
AmeriHost Inn Athens, Ohio
Kent 2-89 Partnership............................................. (26,317) (27,101)
10% general partner
Days Inn Brimfield, Ohio
Shorewood 689 Limited Partnership................................. 192,368 187,764
10% general partner
Days Inn Shorewood, Illinois
Marysville, Ohio 589-3 Partnership................................ (106,268) (96,672)
25% general partner
Days Inn Marysville, Ohio
Plainfield, Indiana 989-4 Partnership............................. 88,828 92,774
25% general partner
Days Inn Plainfield, Indiana
Hammond, Indiana 490 Partnership.................................. (96,186) 113,012
1% general partner
Ramada Inn Hammond, Indiana
Bowling Green, Ohio 590 Limited Partnership (c)................... 196,021 --
39.17% limited & 25% general partner
Days Inn Bowling Green, Ohio
Niles, Illinois 1290 Hotel Partnership............................ 63,873 57,980
16.33% general partner
Days Inn Niles, Illinois
Host Venture Group................................................ 16,500 16,250
25% general partner
Joint venture with The R.R.A. Group of Ohio
Findlay, Ohio 391 Limited Partnership (c)......................... 114,401 --
15% general & 41.67% limited partner
Days Inn Findlay, Ohio
</TABLE>
F-14
<PAGE> 72
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Portage 691 Limited Partnership................................... $ 40,755 $ 36,187
10% general partner
Days Inn Portage, Indiana
Zanesville, Ohio 1190 Limited Partnership......................... (561) (2,619)
10% general partner
Days Inn Zanesville, Ohio
Dayton, Ohio 1291 Limited Partnership (c)......................... 9,008 --
15% general & 46.5% limited partner
Days Inn Dayton, Ohio
New Philadelphia, Ohio 592 Ltd Partnership (c).................... 299,579 --
24.65% general & 25.7% limited partner
Days Inn New Philadelphia, Ohio
Middletown, Ohio 592 Limited Partnership.......................... 6,832 (55,094)
25% general & 8.59% limited partner
Oakbrook Inn Middletown, Ohio
Lancaster, Ohio 1191 Limited Partnership.......................... 134,705 189,725
15% general & 10% limited partner
AmeriHost Inn Lancaster, Ohio
Plainfield II Indiana 192-5 Partnership........................... 50,040 38,409
25% general partner
AmeriHost Inn Plainfield, Indiana
Altoona, Pennsylvania 792 Limited Partnership (c)................. 22,831 --
20% general & 42.78% limited partner
Holiday Inn Altoona, Pennsylvania
Ft. Myers, Florida 992 Limited Partnership........................ 132,189 109,896
20% general partner
Hampton Inn Ft. Myers, Florida
Oil City, PA 1192 Limited Partnership............................. (69,502) (75,662)
25% general & 3.05% limited partner
Holiday Inn Oil City, Pennsylvania
Mosinee Airport Inn............................................... 41,189 52,964
16.7% general partner
Days Inn Mosinee, Wisconsin
Logan, Ohio 692 Limited Partnership............................... 86,437 87,489
15% general & 7.94% limited partner
AmeriHost Inn Logan, Ohio
Elk Grove, Illinois 1292 General Partnership...................... 246,480 171,882
50% general partner
Days Inn Elk Grove, Illinois
Kenosha, Wisconsin 193 General Partnership........................ 536,246 555,948
50% general partner
Days Inn Kenosha, Wisconsin
Ann Arbor, Michigan 193 Limited Partnership....................... 98,014 163,813
25% general & 14.17% limited partner
Days Inn Ann Arbor, Michigan
Euless, Texas 1192 General Partnership............................ 221,714 174,018
25% general partner
Ramada Inn Euless, Texas
Mansfield, Ohio 993 General Partnership........................... 162,400 151,745
40% general partner
Days Inn Mansfield, Ohio
Washington C.H., Ohio 194 Limited Partnership..................... 102,580 154,821
15% general & 6.9% limited partner
AmeriHost Inn Jeffersonville, Ohio
</TABLE>
F-15
<PAGE> 73
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Vicksburg, MS 694-711 Partnership................................. $ 13,125 $ 17,224
50% general partner
Days Inn Rainbow Park, Mississippi
Began operations May 1995
Macomb, IL 994 Limited Partnership................................ -- (6,079)
25% general partner
AmeriHost Inn Macomb, Illinois
Began operations May 1995
Parkersburg, WVA 894 Limited Partnership.......................... -- (798)
15% general partner
AmeriHost Inn Parkersburg, West Virginia
Began operations June 1995
New Martinsville, WVA 695 Limited Partnership..................... -- 75,000
20% general & 6.31% limited partner
AmeriHost Inn New Martinsville, West Virginia
Kenton, OH 1095 Limited Partnership............................... -- 45,890
20% general & 6.25% limited partner
AmeriHost Inn Kenton, Ohio
---------- ----------
$2,995,234 $2,388,999
========== ==========
</TABLE>
- ---------------
(a) The hotel was sold during 1995 and the partnership was terminated.
(b) These investments were sold in 1995 at book value.
(c) In 1995, the Company acquired additional interest in these partnerships,
which resulted in the Company owning a majority interest in the
partnerships. These investment account balances have been eliminated in
consolidation.
During 1995, the Company acquired additional partnership interests in five
hotels for a total of 278,081 shares of the Company's common stock. In
conjunction with the acquisitions, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired......................... $6,952,183
Issuance of common stock.............................. (932,306)
----------
Liabilities assumed.............................. $6,019,877
==========
</TABLE>
The following represents tax basis unaudited condensed financial
information for all of the Company's investments in affiliated companies
accounted for under the equity method at December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current assets................................ $ 2,617,457 $ 4,020,792 $ 3,135,884
Noncurrent assets............................. 45,603,946 55,480,430 55,760,025
Current liabilities........................... 4,149,309 5,295,653 5,137,164
Noncurrent liabilities........................ 37,260,939 42,329,384 39,676,033
Equity........................................ 6,811,155 11,876,185 14,082,712
Gross revenue................................. 25,703,226 30,386,457 31,128,888
Gross operating profit........................ 8,484,395 10,655,515 12,137,897
Depreciation and amortization................. 3,528,056 3,446,013 3,591,929
Net income (loss)............................. (700,806) (412,375) 2,337,969
</TABLE>
F-16
<PAGE> 74
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
6. OTHER ASSETS:
Other assets, net of accumulated amortization, at December 31, 1994 and
1995 are comprised of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred loan costs........................................ $ 267,740 $ 434,342
Franchise fees and other assets............................ 840,679 1,257,975
Investment in leases....................................... 422,773 710,278
Deferred taxes (Note 11)................................... 487,000 383,000
---------- ----------
Total.................................................... $2,018,192 $2,785,595
========== ==========
</TABLE>
7. NOTES PAYABLE:
The Company has a $3,500,000 bank operating line-of-credit that expires May
1, 1996. Interest is payable at the bank's base lending rate (8.5% at December
31, 1995) plus three-quarters of one percent with a floor of 7.5%. This line is
collateralized by a security interest in the Company's assets, including its
interests in various partnerships. In December 1995, the bank providing the
operating line-of-credit approved a $7.5 million line-of-credit to be used for
construction financing on projects which have firm commitments for permanent
mortgage financing when the construction is completed. Interest is payable at
the bank's base lending rate plus one percent. There was no outstanding balance
on the construction line-of-credit as of December 31, 1995. An additional
$1,500,000 bank line-of-credit was obtained on February 1, 1996 under the same
terms and conditions as the operating line-of-credit with the exception of the
interest rate which is 1% over the bank's base lending rate.
8. LONG-TERM DEBT:
Long-term debt consists of:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
7% Subordinated Notes ($2,250,000 face amount) due Octo-
ber 1999, with an effective interest rate of 9% payable
quarterly, net of unamortized discount of $170,223
(Note 10).............................................. $ 2,034,384 $ 2,079,777
Mortgage payable - Sullivan State Bank, variable monthly
payments with interest at 1.5% over prime (10.5% at
December 31, 1995) adjusted quarterly to maturity in
March 2007, collateralized by a first mortgage on the
Days Inn Sullivan, Indiana and a guarantee by the
Company................................................ 886,357 842,448
Mortgage Payable - Green Mountain Bank, monthly payments
of $22,733 with interest at the lowest New York Bank
Prime Rate plus two points (10.75% at December 31,
1995), with a balloon payment due August 26, 1998
collateralized by a first mortgage on the Holiday Inn
White River Junction, Vermont and guarantees by the
general partners....................................... 2,194,451 2,155,328
Mortgage Payable - First of America Bank, monthly pay-
ments of $10,150 with interest at a rate of 8.5% with a
balloon payment due December 30, 1998, collateralized
by a first mortgage on the Days Inn Elgin, Illinois and
a guarantee by the Company............................. 721,184 918,631
</TABLE>
F-17
<PAGE> 75
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Mortgage Payable - Tuscola National Bank, monthly pay-
ments of $15,523 with interest initially at 8.0% to be
adjusted every three years beginning March 1997 to two
points above Bank of America's prime lending rate, with
a balloon payment due February 17, 2009, collateralized
by a first mortgage on the Holiday Inn Express Tuscola,
Illinois and a guarantee by the Company................ $ 1,500,000 $ 1,431,240
Mortgage Payable - First of America Bank, monthly pay-
ments of $14,438 with interest at a rate of 9.0%, with
a balloon payment due July 1, 1999, collateralized by a
first mortgage on the Holiday Inn Express Wooster,
Ohio, a guarantee by the Company and
cross-collateralized with the AmeriHost Inn Wooster,
Ohio................................................... 1,372,976 1,322,926
Mortgage Payable - Community National Bank and Downstate
National Bank, monthly payments totalling $21,053 with
interest at 8.25% per annum, adjusting in July 1996 to
the Southwest Bank of St. Louis' prime rate plus 2
1/4%, with balloon payments due July 2, 1998,
collateralized by a first mortgage on the Players
Riverboat Hotel in Metropolis, Illinois and a guarantee
by the Company......................................... 2,112,294 2,032,531
Mortgage Payable - Community National Bank and Downstate
National Bank, monthly payments totalling $5,971 with
interest at Southwest Bank of St. Louis' prime rate
plus 2 1/4% (10.0% at December 31, 1995) adjusted
annually, with balloon payments due July 2, 1998,
collateralized by a first mortgage on the Players
Riverboat Hotel in Metropolis, Illinois and a guarantee
by the Company......................................... 355,206 311,303
Mortgage Payable - The First Citizens National Bank,
monthly payments of $13,697 with interest initially at
7.25% to be adjusted every five years beginning May 1,
1999 to two points over the weekly average yield on
U.S. Treasury Securities, with a balloon payment due
November 1, 2009, collateralized by a first mortgage on
the AmeriHost Inn Upper Sandusky, Ohio and a guarantee
by the Company......................................... 1,334,206 1,423,041
Note Payable - General Innkeeping Acceptance Corporation,
monthly principal payments of $5,833 plus interest at
the Citibank, N.A. (New York) Prime Rate plus 300 basis
points (11.75% at December 31, 1995), due the earlier
of the end of the lease term (scheduled to terminate
September 30, 1997, but subject to renewal - Note 15)
or December 1, 1998, collateralized by a security
agreement on the furniture, fixtures and equipment of
the Holiday Inn Milwaukee NW, Wisconsin and a guarantee
by the Company......................................... 274,166 204,167
Mortgage Payable - First Federal Savings Bank of
LaGrange, monthly payments of $12,926 with interest
initially at a rate of 8.5% through February 15, 1998,
adjusting to a rate of two percent above the prime rate
with monthly payments adjusted based on a maturity date
of August 15, 2014, collateralized by a first mortgage
on the Holiday Inn Express LaGrange, Georgia and a
guarantee by the Company............................... 427,212 1,446,945
</TABLE>
F-18
<PAGE> 76
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Mortgage Payable - First of America Bank, monthly pay-
ments of $15,438 with interest at a rate of 9.25% with
a balloon payment due June 2000, collateralized by a
first mortgage on the AmeriHost Inn Walker, Michigan
and a guarantee by the Company......................... $ 192,103 $ 1,410,819
Mortgage Payable - Southern Crescent Bank, monthly pay-
ments of $15,271 with interest at the highest Wall
Street Journal Prime Rate plus two points (10.5% at
December 31, 1995) with a balloon payment due November
15, 1999, collateralized by a first mortgage on the
AmeriHost Inn Eagles Landing, Georgia and a guarantee
by the Company......................................... -- 1,597,645
Mortgage Payable - First of America Bank, monthly pay-
ments of $17,439 with interest at a rate of 10.0%, with
a balloon payment due November 15, 2000, collateralized
by a first mortgage on the AmeriHost Inn Wooster, Ohio,
a guarantee by the Company and cross-collateralized
with the Holiday Inn Express Wooster, Ohio............. -- 1,541,167
Mortgage Payable - Dollar Bank, monthly principal
payments of $3,275 plus interest at a rate equal to the
weekly average yield on U.S. Treasury Securities
adjusted to a constant maturity of one year plus 325
basis points adjusted annually (8.72% at December 31,
1995) with a floor of 7.0% and a ceiling of 12.0%, with
a balloon payment due August 31, 2002, collateralized
by a first mortgage on the Holiday Inn Altoona,
Pennsylvania........................................... -- 2,415,854
Mortgage Payable - MidAm National Bank, monthly payments
of $14,088, with interest at a rate based on the moving
monthly average of auction rates for six-month U.S.
Treasury Bills, adjusted annually (9.68% at December
31, 1995) with a final payment of all principal and
interest due September 10, 2005, collateralized by a
first mortgage on the Days Inn Bowling Green, Ohio..... -- 1,037,361
Construction Loan Payable - MidAm National Bank, monthly
payments of interest only, with interest at the Wall
Street Journal Prime Rate plus 1% (9.5% at December 31,
1995) with the principal balance due July 7, 1996,
collateralized by a first mortgage on the Days Inn
Bowling Green, Ohio and a guarantee by the Company..... -- 396,642
Construction Loan Payable - Empire Financial Services,
Inc., monthly payments of interest only at an annual
rate of 10.5% during construction until March 15, 1996,
at which time monthly payments of principal and
interest commence based upon a 15-year amortization,
with interest at the Wall Street Journal Prime Rate
plus 1.5%, with annual adjustments to the interest rate
and monthly payment, with a balloon payment due March
1, 2001, collateralized by a first mortgage on the
AmeriHost Inn Smyrna, Georgia and a guarantee by the
Company................................................ -- 1,240,196
</TABLE>
F-19
<PAGE> 77
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Construction Loan Payable - Kent City State Bank, monthly
payments of interest only at an annual rate of 10.5%
during construction until May 8, 1996, at which time
monthly payments of principal and interest commence in
the amount of $15,725, with interest at 10.5% per
annum, with a balloon payment due May 8, 2001,
collateralized by a first mortgage on the AmeriHost Inn
Coopersville, Michigan and a guarantee by the
Company................................................ $ -- $ 693,707
Other notes and capitalized leases....................... 137,495 512,600
----------- -----------
13,542,034 25,014,328
Less current portion 566,808 1,042,847
----------- -----------
$12,975,226 $23,971,481
=========== ===========
</TABLE>
The aggregate maturities of long-term debt, excluding construction loans
payable in the amount of $2,330,545 at December 31, 1995, are approximately as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ -----------
<S> <C> <C>
1996.......................................................... $ 1,043,000
1997.......................................................... 942,000
1998.......................................................... 5,649,000
1999.......................................................... 6,548,000
2000.......................................................... 2,845,000
Thereafter.................................................... 5,657,000
-----------
$22,684,000
===========
</TABLE>
9. SHAREHOLDERS' EQUITY:
Reverse stock split:
During 1989, the Company effected a 1-for-50 reverse stock split. Each
holder of the Company's Common Stock was entitled to receive one new share for
every 50 shares held as of the close of business on August 22, 1989. Any
fractional shares resulting from the reverse split were acquired by the Company
and retired.
Authorized shares:
The Company's corporate charter authorizes 15,000,000 shares of Common
Stock and 100,000 shares of Preferred Stock without par value. The Preferred
Stock may be issued in series and the Board of Directors shall determine the
voting powers, designations, preferences and relative participating optional or
other special rights and the qualifications, limitations or restrictions
thereof.
Dividend restrictions:
Pursuant to the terms of the Company's subordinated notes (Note 10), no
dividends may be paid on any capital stock of the Company until such notes have
been paid in full.
Limited partnership conversion:
The Company is a general partner in three partnerships where the limited
partners have the right at certain times and under certain conditions to convert
their limited partnership interests into 243,750 shares of the Company's Common
Stock.
F-20
<PAGE> 78
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Public offering:
In May 1993, the Company completed a public offering of 1,550,000 shares of
the Company's Common Stock at an offering price of $7.125 per share led by the
underwriting of Rodman & Renshaw, Inc. The proceeds less underwriting discounts
and all other costs amounted to $9,572,544. A portion of the proceeds were used
to pay the required prepayment of the 7% subordinated notes (Note 10) and repay
the outstanding balance of the Company's line of credit.
Warrant net exercise:
In 1993, the Company offered to all of its holders of warrants to purchase
its shares of Common Stock, a right to exercise their warrants on a cash-free
basis (the "Cashless Exercise"). Under the terms of the Cashless Exercise, the
holder of the warrant would receive shares of the Company's Common Stock in an
amount equal to a percentage of the number of warrants they held without payment
of any cash to the Company. The percentage was computed by dividing the spread
(defined as the difference between the "ask" price for the Company's Common
Stock on January 14, 1993 (the "market price") and the exercise price of the
warrant held by the investor) by the market price. The number of shares subject
to the warrant was multiplied by this percentage. The result was the number of
shares to be issued to each warrantholder.
The holders of warrants to purchase 1,973,800 shares of the Company's
Common Stock exercised this right and the Company issued 1,315,790 shares of its
Common Stock in exchange for the warrants. (See Note 14 for further discussion
of Stock Options and Warrants).
10. SUBORDINATED DEBENTURES:
In 1992, the Company issued $4,500,000 of unsecured 7% subordinated notes
due October 9, 1999, with interest payable quarterly. In connection with a
public offering of the Company's Common Stock completed in 1993, the Company was
required to make prepayments of 50% of the outstanding principal balance plus
accrued interest thereon. As a result, the Company incurred a debt acceleration
charge of $485,411 in 1993, representing a pro-rata portion of the unamortized
note discount and other deferred note issuance costs.
For each $1,000 principal amount loaned to the Company, the noteholder also
received 375 common stock purchase warrants, representing the right to purchase
375 shares of the Company's Common Stock at an exercise price of $4.00 per share
for a period of five years from the date of issuance of the warrants. Warrants
to purchase a total of 1,687,500 shares were issued, of which 46,875 are
outstanding at December 31, 1995.
11. TAXES ON INCOME:
The provision for (benefit from) income taxes in the consolidated
statements of operations is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current........................................ $ (187,600) $ 580,000 $1,225,000
Deferred....................................... (246,000) (155,000) 220,000
Valuation allowance (decrease) increase........ 138,000 (44,000) (116,000)
---------- ---------- ----------
Total taxes (benefit) on income (loss)......... $ (295,600) $ 381,000 $1,329,000
========= ========= ==========
</TABLE>
F-21
<PAGE> 79
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to a net deferred tax asset
relate to the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred income, recognized currently for tax purposes....... $ 420,000 $ 264,000
Property, primarily due to majority owned partnerships
consolidated for financial reporting purposes but not tax
purposes................................................... 519,000 654,000
Accumulated depreciation differences......................... (208,000) (407,000)
Valuation allowance.......................................... (244,000) (128,000)
---------- ----------
$ 487,000 $ 383,000
========= =========
</TABLE>
Deferred income tax assets of $731,000 and $511,000, less a valuation
allowance of $244,000 and $128,000, are included in other assets in the
accompanying consolidated balance sheets at December 31, 1994 and 1995,
respectively.
The following reconciles income tax expense (benefit) at the federal
statutory tax rate with the effective rate:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ ------
<S> <C> <C> <C>
Income taxes (benefit) at the federal statutory rate..... (34.0%) 34.0% 34.0%
State taxes (benefits), net of federal taxes (benefit)... (6.8%) 10.6% 7.6%
Increase (decrease) in valuation allowance............... 13.1% (4.6%) (3.3%)
------- ------ ------
Effective tax rate....................................... (27.7%) 40.0% 38.3%
======= ====== ======
</TABLE>
12. RELATED PARTY TRANSACTIONS:
The following table summarizes related party revenue from various
unconsolidated partnerships in which the Company has an ownership interest:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Development/acquisition revenue.............. $2,623,431 $6,126,781 $9,316,810
Renovation revenue........................... 3,782,626 519,626 83,925
Hotel management revenue..................... 1,342,243 1,782,033 1,825,202
Employee leasing revenue..................... 6,833,535 6,708,462 5,979,522
</TABLE>
In January 1991, the Company entered into an agreement with Urban 2000
Corp. ("Urban"), a company owned by the Chairman and another Officer/Director of
the Company. This agreement provides for the payment to Urban of $20,000 per
month for business development consulting services. No additional amounts are
paid to Urban for reimbursement of expenses. Consistent with its standard
industry practice, the Company will pay additional fees for transactions brought
to the Company by Urban. Urban received $352,082, $289,915, and $236,138 from
the Company in 1993, 1994 and 1995, respectively, and also received $28,200 and
$82,400 in 1994 and 1995, respectively in other transactional fees directly from
partnerships in which the Company is a general partner. The Chairman is not
compensated by the Company in his capacity as an officer.
13. BUSINESS SEGMENTS:
The Company's business is primarily involved in four segments: (1) hotel
operations, consisting of the operations of all hotels in which the Company has
a controlling ownership or leasehold interest, (2) hotel development, consisting
of development, construction and renovation activities, (3) hotel management,
consisting of hotel management activities and (4) employee leasing, consisting
of the leasing of employees to various hotels.
F-22
<PAGE> 80
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Results of operations of the Company's business segments are reported in
the consolidated statements of operations. The following represents revenues,
operating costs and expenses, operating income, identifiable assets, capital
expenditures and depreciation and amortization for each business segment:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Hotel operations............................ $ 9,091,778 $15,428,022 $24,359,999
Hotel development........................... 6,970,709 12,036,918 12,238,128
Hotel management............................ 2,849,673 2,711,637 3,010,935
Employee leasing............................ 15,361,940 13,169,942 12,353,355
----------- ----------- -----------
$34,274,100 $43,346,519 $51,962,417
=========== =========== ===========
Operating costs and expenses:
Hotel operations............................ $ 6,779,306 $10,457,154 $17,065,041
Hotel development........................... 6,112,327 11,315,973 10,117,782
Hotel management............................ 2,296,589 2,288,765 2,003,310
Employee leasing............................ 15,201,158 13,014,542 12,131,262
----------- ----------- -----------
$30,389,380 $37,076,434 $41,317,395
=========== =========== ===========
Operating income:
Hotel operations............................ $ 352,309 $ 2,455,221 $ 3,359,383
Hotel development........................... 851,903 711,032 2,091,480
Hotel management............................ 72,229 250,118 831,007
Employee leasing............................ 156,190 149,305 216,075
Corporate................................... (1,910,267) (2,110,005) (2,208,197)
----------- ----------- -----------
$ (477,636) $ 1,455,671 $ 4,289,748
=========== =========== ===========
Identifiable assets:
Hotel operations............................ $15,648,994 $25,056,800 $41,835,019
Hotel development........................... 2,614,337 2,583,355 5,447,715
Hotel management............................ 946,787 1,082,978 1,163,671
Employee leasing............................ 658,435 690,265 825,468
Corporate................................... 4,305,555 4,990,184 3,181,429
----------- ----------- -----------
$24,174,108 $34,403,582 $52,453,302
=========== =========== ===========
Capital expenditures:
Hotel operations............................ $ 8,136,484 $ 7,804,040 $12,065,286
Hotel development........................... 21,531 4,572 377,296
Hotel management............................ 46,554 29,582 29,634
Employee leasing............................ 879 6,461 1,602
Corporate................................... 86,954 27,614 65,330
----------- ----------- -----------
$ 8,292,402 $ 7,872,269 $12,539,148
=========== =========== ===========
Depreciation/Amortization:
Hotel operations............................ $ 308,384 $ 854,743 $ 1,959,421
Hotel development........................... 6,479 9,915 28,866
Hotel management............................ 480,855 172,753 176,618
Employee leasing............................ 4,593 6,095 6,018
Corporate................................... 127,216 97,295 97,258
----------- ----------- -----------
$ 927,527 $ 1,140,801 $ 2,268,181
=========== =========== ===========
</TABLE>
F-23
<PAGE> 81
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
14. STOCK OPTIONS AND WARRANTS:
On January 2, 1992, the Board of Directors authorized the issuance of
200,000 stock options to certain employees of the Company. These options are
exercisable by the employees at any time during the five years ending January 2,
1997, at an option price of $3.00 per share. The shares issued upon exercise of
the options are Rule 144 restricted common stock.
On June 1, 1992, the Board of Directors authorized the issuance of 103,125
stock options to Urban and a former director in connection with loans made to
the Company. These options are exercisable at any time prior to October 9, 1999
at an option price of $4.375 per share. The shares issued upon exercise of the
options are Rule 144 restricted common stock.
On February 12, 1992, in connection with a financial advisory agreement
executed in 1992 with a former director, the Board of Directors authorized the
issuance of 75,000 stock options at an option price of $3.521 per share
exercisable at any time prior to February 12, 1997. The option holder has the
right to require the Company to file a registration statement with the
Securities and Exchange Commission to register the underlying shares, up to a
maximum of four times during the seven-year period commencing August 15, 1992.
Any such registration must be for a minimum of 10,000 shares.
On December 16, 1992, the Board of Directors authorized the issuance of
268,750 stock options to certain employees of the Company. The options are
exercisable at any time through September 16, 1997. These options vest and are
exercisable by the employees in accordance with the following schedule:
<TABLE>
<CAPTION>
DATE VESTED NUMBER OF OPTIONS EXERCISE PRICE
------------------------------------ ----------------- --------------
<S> <C> <C>
December 16, 1992................... 53,750 $ 5.00
September 16, 1993.................. 53,750 6.00
September 16, 1994.................. 53,750 6.00
September 16, 1995.................. 53,750 6.00
September 16, 1996.................. 53,750 6.00
</TABLE>
On March 22, 1993, the Board of Directors authorized the issuance of 40,419
stock options to certain shareholders who executed agreements not to sell their
shares of common stock in connection with the public offering completed by the
Company in May 1993 (Note 9). These options are exercisable by the holder at any
time during the five years ending March 22, 1998, at an exercise price of
$6.875.
On October 5, 1994, the Board of Directors authorized the issuance of
150,000 stock options to certain employees of the Company. These options are
exercisable by the employees at any time during the ten years ending October 5,
2004, at an option price of $4.125 per share. The shares issued upon exercise of
the options are Rule 144 restricted common stock.
F-24
<PAGE> 82
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
On October 5, 1994, the Board of Directors authorized the issuance of
33,500 stock options to certain employees of the Company. These options are
exercisable by the employees at any time during the five years ending October 5,
1999, at an option price of $4.75 per share. The shares issued upon exercise of
the options are Rule 144 restricted common stock.
On January 1, 1995, the Board of Directors authorized the issuance of
620,000 stock options to officers of the Company. The options are exercisable at
any time over a ten-year period beginning on the vesting date, expiring January
1, 2005 through January 1, 2007. The shares issued upon exercise of the options
are Rule 144 restricted common stock. These options vest and are exercisable by
the employees in accordance with the following schedule:
<TABLE>
<CAPTION>
DATE VESTED NUMBER OF OPTIONS EXERCISE PRICE
-------------------------------- ----------------- --------------
<S> <C> <C>
January 1, 1995................. 165,000 $3.5625
January 1, 1996................. 205,000 3.5625
January 1, 1997................. 250,000 3.5625
</TABLE>
On January 1, 1995, the Board of Directors authorized the issuance of
20,000 stock options to a co-partner in seven of the Company's hotel
investments. These options are exercisable by the holder at any time during the
three years ended January 1, 1998, at an option price of $7.125 per share. The
shares issued upon exercise of the options are Rule 144 restricted common stock.
On January 6, 1995, the Board of Directors authorized the issuance of
10,000 stock options to a co-partner in four of the Company's hotel investments.
These options are exercisable by the holder at any time during the five years
ended January 6, 2000, at an option price of $3.56 per share. The shares issued
upon exercise of the options are Rule 144 restricted common stock.
On September 27, 1995, the Board of Directors authorized the issuance of
145,500 stock options to certain employees of the Company. The options are
exercisable at any time through September 27, 2005. The shares issued upon
exercise of the options are Rule 144 restricted common stock. These options vest
and are exercisable by the employee in accordance with the following schedule:
<TABLE>
<CAPTION>
DATE VESTED NUMBER OF OPTIONS EXERCISE PRICE
-------------------------------- ----------------- --------------
<S> <C> <C>
September 27, 1995.............. 48,500 $6.375
September 27, 1996.............. 48,500 6.375
September 27, 1997.............. 48,500 6.375
</TABLE>
On December 1, 1995, the Board of Directors authorized the issuance of
133,333 stock options to certain employees of the Company. These options are
exercisable by the holder at any time during the ten years ended December 31,
2005, at an option price of $6.50 per share. The shares issued upon exercise of
the options are Rule 144 restricted common stock.
F-25
<PAGE> 83
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The following table summarizes the shares granted, exercised and options
outstanding:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding January 1, 1993........................ 2,792,550 $ 3.00-6.00
Options granted............................................ 40,419 6.875
Options exercised.......................................... (2,098,800) 3.00-4.65
---------- --------------
Options outstanding December 31, 1993...................... 734,169 3.00-6.875
Options granted............................................ 183,500 4.125-4.75
---------- --------------
Options outstanding December 31, 1994...................... 917,669 3.00-6.875
Options granted............................................ 928,833 3.56-7.125
---------- --------------
Options outstanding December 31, 1995...................... 1,846,502 $ 3.00-7.125
========== ============
</TABLE>
At December 31, 1995, 605,750 of the options were not vested.
In July 1990, the Company adopted an Incentive Option Plan and a
Non-Qualified Stock Option Plan. A total of 125,000 shares of Common Stock have
been reserved for issuance under each of the plans. No options have been granted
under either plan as of December 31, 1995.
15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Key-person life insurance:
The Company maintains term life insurance on three key officers of the
Company. Each policy provides for a death benefit of $1,000,000 for which the
Company is the beneficiary. The Company paid annual premiums of $14,314 for the
policy periods ending April 24, 1994, 1995 and 1996.
Office lease:
The Company entered into an operating lease for its existing office
facilities which commenced in October 1994 and expires December 2000. The
Company may cancel the lease effective December 1, 1998 with a 180-day notice
and payment of a $67,230 cancellation penalty. Rent expense, including real
estate taxes, insurance and repair costs associated with the operating lease was
approximately $111,800, $145,000 and $180,700 in 1993, 1994 and 1995,
respectively. Total future minimum rent due under the operating lease is
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1996............................................................ $182,000
1997............................................................ 188,000
1998............................................................ 190,000
--------
$560,000
========
</TABLE>
Hotel leases:
On December 1, 1992, the Company renewed agreements to lease or sub-lease
five hotels which it had been managing in Schiller Park, Shorewood, Niles and
Richmond, Illinois and Portage, Indiana. The Company leases or sub-leases the
hotels from five partnerships which currently own the hotels or lease the hotels
from unrelated third parties. The Company owns an equity interest in these
partnerships, ranging from 5% to 16.33%. The leases and sub-leases are triple
net leases which were scheduled to expire December 31, 1996. During 1994, the
leases were amended providing for reduced rent payments and extending the terms
through December 31, 1999.
In July 1992, the Company entered into a lease agreement for a Holiday Inn
in Menomonee Falls, Wisconsin. The lease is a triple net lease expiring
September 30, 1997. The rent payments are based
F-26
<PAGE> 84
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
upon percentages of gross room revenues ranging from 15% to 20%, with a monthly
minimum of $14,583.
The Company entered into an agreement to lease a hotel in Lafayette,
Indiana, effective February 1, 1994. The lease expires on December 31, 1998.
Monthly lease payments are 15% of gross guest room revenues, with a monthly
minimum of $10,000 beginning January 1, 1995.
In connection with the purchase of limited partnership interests in certain
hotels during 1995, the Company obtained a majority ownership position in three
hotels which held leasehold interests as follows:
The Days Inn Findlay operates under a triple net lease calling for
payments of $7,500 per month expiring March 31, 1996. The Company
exercised its five year renewal option, extending the termination date
to March 31, 2001. The lease provides for monthly payments of $8,500 for
the first three years of the renewal term, increasing to $10,000 for the
final two years, plus additional rent payments of 5% of annual guest
room revenues in excess of $750,000.
On January 1, 1995, the Days Inn Dayton amended its triple net lease
providing for an additional term of ten years expiring December 31,
2004. The lease provides for monthly payments ranging from $17,000 to
$23,000 through December 31, 1998. Beginning in 1999, monthly payments
are the greater of $23,000 or 15% of room revenue. The Company has
agreed to guarantee the hotel's performance under the lease up to
$50,000.
The Days Inn New Philadelphia operates under a triple net lease expiring
June 3, 1997 which provides for minimum monthly payments of $6,000, plus
additional rent of 12.5% of annual gross room revenue in excess of
$550,000.
Minimum rent payments under hotel leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C>
1996........................................................... $1,786,000
1997........................................................... 1,739,000
1998........................................................... 1,596,000
1999........................................................... 1,490,000
2000........................................................... 396,000
----------
$7,007,000
==========
</TABLE>
Guarantees:
The Company has provided approximately $9.9 million in guarantees on
mortgage loan obligations and operating leases for nineteen of its affiliated
partnerships. Other partners have also guaranteed portions of the same
obligations. The partners of two of the partnerships have entered into cross
indemnity agreements whereby each partner has agreed to indemnify the others for
any payments made by any partner in relation to these guarantees in excess of
their ownership interest.
On February 4, 1993, the Company began management of a 383 room hotel in
Daytona Beach, Florida. As part of the management contract, the Company was to
receive 10% of all cash distributions from the hotel and the Company guaranteed
a $500,000 note payable to Hospitality Franchise Systems, Inc. In July 1993, the
Company ceased managing this property and, in 1995 the Company received a final
termination settlement of $27,000. The balance of the note which continues to be
guaranteed by the Company is approximately $154,000.
The Company is secondarily liable for the obligations and liabilities of
the limited partnerships in which it holds general partnership interests as
described in Note 5.
F-27
<PAGE> 85
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Construction in progress:
At December 31, 1995, the Company had approximately $13.1 million remaining
to pay contractors for the completion of fourteen hotels, a portion of which is
included in accounts payable. These commitments will be funded through
construction and long-term mortgage financing currently in place.
Employment agreements:
The Company entered into three year employment agreements with the
executive officers effective January 1, 1995, one of which includes an automatic
three year renewal option. The agreements provide for base salaries totaling
$679,000 in 1996 and $751,700 in 1997, plus shares of the Company's common stock
based on the attainment of certain financial performance criteria totaling
40,000 shares in 1996 and 52,500 shares in 1997, if all the objectives are met.
The employment agreements provide for severance pay should the officer be
terminated without cause.
Legal matters:
The Company and certain of its subsidiaries are defendants in various
litigation matters arising in the ordinary course of business. In the opinion of
management, the ultimate resolution of all such litigation matters is not likely
to have a material effect on the Company's financial condition, results of
operation or liquidity.
16. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the years ended December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Purchase of investments and other assets
through issuance of common stock; issuance
of notes payable; and reduction of notes
receivable.................................. $ 443,753 $ 369,571 $1,010,188
========== ========== ==========
Exchange of limited partnership interests and
note receivable............................. $ -- $ -- $ 90,000
========== ========== ==========
Reduction of accounts and note payable through
issuance of common stock and warrants....... $1,050,000 $ -- $ 233,351
========== ========== ==========
Increase of stock subscription receivable
through issuance of common stock............ $ 436,875 $ -- $ --
========== ========== ==========
</TABLE>
17. SELECTED FOURTH QUARTER FINANCIAL DATA (UNAUDITED):
A summary of selected fourth quarter information for 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER
31,
----------------------
1994 1995
-------- --------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales........................................................ $ 11,554 $ 11,992
Operating income................................................. 270 214
Net income....................................................... 3 14
Net income per common share...................................... -- --
</TABLE>
F-28
<PAGE> 86
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 1,371,278 $ 2,609,268
Accounts receivable (including $802,164 and $1,146,030 from
related parties)............................................ 3,270,094 3,448,601
Notes receivable (including $1,752,126 and $1,839,444 from
related parties)............................................ 1,965,048 2,052,362
Prepaid expenses and other current assets...................... 188,163 260,774
Refundable income taxes........................................ 230,530 --
Costs and estimated earnings in excess of billings on
uncompleted contracts (including $3,574,939 and $8,137,130
from
related parties)............................................ 3,900,879 8,258,944
----------- -----------
Total current assets................................... 10,925,992 16,629,949
----------- -----------
Investments...................................................... 2,388,999 2,388,456
----------- -----------
Property and equipment:
Land........................................................... 4,236,309 4,445,693
Buildings...................................................... 22,075,629 23,776,472
Furniture, fixtures and equipment.............................. 9,204,377 10,111,316
Construction in progress....................................... 662,159 1,560,119
Leasehold improvements......................................... 2,050,654 2,136,925
----------- -----------
38,229,128 42,030,525
Less accumulated depreciation and amortization................. 5,404,102 6,697,538
----------- -----------
32,825,026 35,332,987
----------- -----------
Long-term notes receivable (including $1,450,616 and $2,149,082
from related parties).......................................... 2,863,580 3,541,621
Costs of management contracts acquired, net of accumulated
amortization of $913,393 and $1,011,446........................ 664,110 859,026
Other assets (including deferred taxes of $383,000), net of
accumulated amortization of $1,451,715 and $1,719,399.......... 2,785,595 2,816,821
----------- -----------
6,313,285 7,217,468
----------- -----------
$52,453,302 $61,568,860
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
F-29
<PAGE> 87
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 3,751,097 $ 9,026,420
Bank line-of-credit............................................ 2,317,036 1,731,803
Accrued payroll and related expenses........................... 688,648 794,597
Accrued real estate and other taxes............................ 606,468 846,377
Other accrued expenses and current liabilities................. 666,352 814,757
Current portion of long-term debt.............................. 1,042,847 1,129,544
Income taxes payable........................................... -- 307,491
------------ -----------
Total current liabilities................................... 9,072,448 14,650,989
------------ -----------
Long-term debt, net of current portion........................... 23,971,481 26,375,235
------------ -----------
Deferred income.................................................. 686,388 747,114
------------ -----------
Commitments
Minority interests............................................... 1,456,226 1,121,970
------------ -----------
Shareholders' equity:
Preferred stock, no par value; authorized 100,000 shares; none
issued...................................................... -- --
Common stock, $.005 par value; authorized 15,000,000 shares;
issued 5,977,213 shares at December 31, 1995 and 6,023,521
shares at June 30, 1996..................................... 29,886 30,118
Additional paid-in capital..................................... 16,920,237 17,094,877
Retained earnings.............................................. 1,709,803 2,941,724
------------ -----------
18,659,926 20,066,719
Less:
Stock subscriptions receivable.............................. (436,875 ) (436,875)
Notes receivable............................................ (956,292 ) (956,292)
------------ -----------
17,266,759 18,673,552
------------ -----------
$52,453,302 $61,568,860
============ ===========
</TABLE>
See notes to unaudited consolidated financial statements
F-30
<PAGE> 88
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Hotel operations:
AmeriHost Inn hotels.............. $ 136,341 $ 2,187,659 $ 136,341 $ 3,493,797
Other hotels...................... 5,968,660 5,765,426 10,083,385 10,042,784
Development and construction......... 2,272,540 8,211,296 7,777,364 12,191,098
Management services.................. 805,619 694,148 1,370,073 1,183,830
Employee leasing..................... 3,103,470 2,959,210 6,076,828 5,550,799
----------- ----------- ----------- -----------
12,286,630 19,817,739 25,443,991 32,462,308
----------- ----------- ----------- -----------
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels.............. 63,174 1,176,762 63,174 2,062,528
Other hotels...................... 3,889,327 3,816,470 7,346,858 7,669,555
Development and construction......... 1,671,697 7,197,907 6,835,826 10,311,585
Management services.................. 508,755 496,384 965,578 869,035
Employee leasing..................... 3,049,433 2,875,830 5,980,619 5,401,739
----------- ----------- ----------- -----------
9,182,386 15,563,353 21,192,055 26,314,442
----------- ----------- ----------- -----------
3,104,244 4,254,386 4,251,936 6,147,866
Depreciation and amortization........ 478,007 856,357 912,926 1,659,172
Leasehold rents -- hotels............ 543,941 518,172 995,546 964,302
Corporate general and
administrative.................... 525,289 521,994 993,047 1,006,646
----------- ----------- ----------- -----------
Operating income....................... 1,557,007 2,357,863 1,350,417 2,517,746
Other income (expense):
Interest expense..................... (362,007) (619,124) (669,726) (1,284,298)
Interest income...................... 160,367 161,276 251,903 315,635
Other income (expense)............... (677) 15,077 19,482 56,986
Gain on sale of land................. -- 404,256 -- 404,256
Equity in net income and losses of
affiliates........................ 96,651 181,028 (86,877) 36,389
----------- ----------- ----------- -----------
Income before minority interests and
income taxes......................... 1,451,341 2,500,376 865,199 2,046,714
Minority interests in (income) loss of
consolidated subsidiaries and
partnerships......................... (90,131) (161,794) 22,478 42,207
----------- ----------- ----------- -----------
Income before income tax............... 1,361,210 2,338,582 887,677 2,088,921
Income tax expense..................... 517,000 959,000 327,000 857,000
----------- ----------- ----------- -----------
Net income............................. $ 844,210 $ 1,379,582 $ 560,677 $ 1,231,921
=========== =========== =========== ===========
Earnings per share..................... $ 0.14 $ 0.20 $ 0.09 $ 0.18
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 89
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers................................ $ 25,881,307 $ 28,223,649
Cash paid to suppliers and employees........................ (23,323,406) (22,704,610)
Interest received........................................... 145,148 93,950
Interest paid............................................... (665,120) (1,246,185)
Income taxes paid........................................... (687,731) (318,979)
------------ ------------
Net cash provided by operating activities..................... 1,350,198 4,047,825
------------ ------------
Cash flows from investing activities:
Distributions from affiliates............................... 204,162 259,800
Purchase of property and equipment.......................... (5,252,999) (3,937,049)
Purchase of investments..................................... (225,050) (350,200)
Increase in notes receivable................................ (351,550) (2,537,964)
Collections on notes receivable............................. 780,744 1,633,652
Pre-opening and management contract costs................... (213,016) (292,968)
Sale of investments......................................... 10,000 --
Sale of land................................................ -- 524,377
Acquisition of leasehold interest........................... (5,000) (94,000)
Increase in organization costs.............................. (1,455) --
------------ ------------
Net cash used in investing activities......................... (5,054,164) (4,794,352)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................... 2,170,794 3,339,047
Increase in deferred offering costs......................... -- (74,456)
Principal payments of long-term debt........................ (352,158) (871,292)
Proceeds from issuance of common stock...................... -- 202,969
Proceeds from line-of-credit................................ 744,147 5,045,931
Payments on line-of-credit.................................. -- (5,631,164)
Distributions to minority interests......................... (53,030) (26,518)
------------ ------------
Net cash provided from financing activities................... 2,509,753 1,984,517
------------ ------------
Net (decrease) increase in cash............................... (1,194,213) 1,237,990
Cash and cash equivalents, beginning of period................ 3,026,029 1,371,278
------------ ------------
Cash and cash equivalents, end of period...................... $ 1,831,816 $ 2,609,268
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
F-32
<PAGE> 90
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating
activities:
Net income....................................................... $ 560,677 $ 1,231,921
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 912,926 1,659,172
Equity in net loss (income) of affiliates before amortization
of deferred income.......................................... 147,073 (19,931)
Minority interests in net income of subsidiaries............... (22,478) (42,207)
Amortization of deferred income................................ (60,196) (16,458)
Amortization of deferred interest.............................. (4,286) (2,816)
Amortization of loan discount.................................. 22,696 22,696
Increase in deferred income.................................... -- 80,000
Gain on sale of land........................................... -- (404,256)
Increase in deferred tax asset................................. (30,000) --
Compensation paid through issuance of common stock............. 213,991 29,676
Changes in assets and liabilities, net of effects of
acquisitions:
Increase in accounts receivable............................. (301,578) (17,470)
Increase in interest receivable............................. (102,469) (218,869)
Increase in prepaid expenses and other current assets....... (44,998) (72,611)
Decrease (increase) in costs and estimated earnings in
excess of billings on uncompleted contracts............... 694,793 (4,358,065)
Increase in other assets.................................... (232,843) (130,454)
Decrease in refundable income taxes......................... -- 230,530
(Decrease) increase in accounts payable..................... (429,967) 5,275,213
Increase in accrued expenses and other current
liabilities............................................... 375,677 478,846
(Decrease) increase in accrued income taxes................. (330,731) 307,491
(Decrease) increase in accrued interest..................... (18,089) 15,417
---------- ----------
Net cash provided by operating activities........................ $1,350,198 $ 4,047,825
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements
F-33
<PAGE> 91
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
1. BASIS OF PREPARATION:
The financial statements included herein have been prepared by the Company,
without audit. In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments, which consist only of recurring
adjustments necessary to present fairly the financial position of Amerihost
Properties, Inc. and subsidiaries as of December 31, 1995 and June 30, 1996 and
the results of its operations and cash flows for the three and six months ended
June 30, 1995 and 1996. The results of operations for the three and six months
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the full year. It is suggested that the accompanying financial statements be
read in conjunction with the audited financial statements and the notes thereto
included elsewhere in this Prospectus.
2. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and partnerships in which the Company has a
controlling ownership interest. There were no AmeriHost Inn hotels in operation
during the first quarter of 1995 in which the Company had a controlling
ownership interest. Significant intercompany accounts and transactions have been
eliminated.
3. INCOME TAXES:
Deferred income taxes are provided on the differences in the bases of the
Company's assets and liabilities determined for tax and financial reporting
purposes.
The income tax expense for the three and six months ended June 30, 1995 and
1996 were based on the Company's estimate of the effective tax rate expected to
be applicable for the full year. The Company expects the effective tax rate to
approximate the federal and state statutory rates.
4. EARNINGS PER SHARE:
Earnings per share is computed by dividing the net income by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding. The weighted average number of shares used in the computations were
6,058,603 and 5,911,803 for the three and six months ended June 30, 1995 and
6,764,415 and 6,695,726 for the three and six months ended June 30, 1996,
respectively.
5. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the six months ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Purchase of investments through issuance of common stock and
decrease in notes and accrued interest receivable.................. $755,692 $143,929
======== ========
Reduction of accounts payable through issuance of common stock....... $233,351 $ --
======== ========
</TABLE>
F-34
<PAGE> 92
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
During the first six months of 1995, the Company acquired additional partnership
interests in four hotels for 244,015 shares of the Company's Common Stock. In
conjunction with the acquisitions, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........................... $6,070,768
Issuance of common stock................................ (818,345)
----------
Liabilities assumed..................................... $5,252,423
==========
</TABLE>
Pro forma financial information has not been given reflecting the
acquisitions since it is not considered material to the overall financial
statement presentation.
6. HOTEL LEASES:
The Company, through its subsidiaries and consolidated partnerships, has
leasehold interests ranging from 50.35% to 100% in nine hotels, the operations
of which are included in the Company's consolidated financial statements. All of
these leases provide for an option to purchase the hotel. Some of the purchase
prices are based upon a multiple of gross room revenues for the preceding twelve
months and the others are based upon a fixed amount, typically with annual
increases based upon the change in the consumer price index. At June 30, 1996,
the aggregate purchase price for these nine hotels was approximately
$25,750,000.
F-35
<PAGE> 93
<TABLE>
<S> <C>
- ---------------------------------------------------- ----------------------------------------------------
[Picture of Indoor Pool Area] [Picture of Whirlpool Suite]
- ---------------------------------------------------- ----------------------------------------------------
Indoor pool, whirlpool and sauna area Whirlpool Suite
</TABLE>
Amenities Available
at Every AmeriHost Inn(R) Hotel
Clock radios and remote control TV
VIP upgrades in all suites, such as
microfridge, ironing board and hair dryers
Complimentary expanded continental breakfast
Large indoor pool area adjacent to lobby with sauna and
whirlpool, and outdoor patio off pool area
Interior corridor guest room access
Recliners in all king-bedded rooms
Well lit exterior for added safety
Individual whirlpool suites
In-room coffee service
Electronic door locks
Data ports on phones
Exercise room
In-room safes
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
[Exterior Picture of
AmeriHost Inn
[Picture of the Meeting Room] located at Wooster, Ohio]
- --------------------------------------------- ---------------------------------------------
Meeting Room Wooster, Ohio
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------------ ------------------------------------ ------------------------------------
[Picture of a King Room] [Picture of a Lobby Area] [Picture of a Double Room]
- ------------------------------------ ------------------------------------ ------------------------------------
King Room Lobby Double Room
</TABLE>
<PAGE> 94
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE PLACEMENT AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Cautionary Statement Regarding
Forward-Looking Information........... 11
Risk Factors............................ 11
Use of Proceeds......................... 18
Price Range of Common Stock............. 18
Capitalization.......................... 19
Dividend Policy......................... 19
Selected Consolidated Financial
Information........................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 22
Business................................ 33
Management.............................. 45
Certain Transactions.................... 49
Principal Shareholders.................. 51
Description of Capital Stock............ 52
Shares Eligible for Future Sale......... 53
Plan of Distribution.................... 55
Legal Matters........................... 55
Experts................................. 56
Incorporation of Certain Documents by
Reference............................. 56
Additional Information.................. 56
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
================================================================================
================================================================================
1,150,000 SHARES
[AMERIHOST INN LOGO]
AMERIHOST
PROPERTIES, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
OPPENHEIMER & CO., INC.
, 1996
================================================================================
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee, NASD filing fee and the Nasdaq National Market listing fee) of the issuance
and distribution of the securities being registered, all of which will be paid
by the Company.
<TABLE>
<S> <C>
SEC registration fee........................................................... $ 10,636
NASD filing fee................................................................ 3,585
Nasdaq National Market listing fee............................................. 17,500
Printing expenses.............................................................. 150,000
Fees and expenses of counsel................................................... 140,000
Fees and expenses of accountants............................................... 44,500
Transfer agent and registrar fees.............................................. 5,000
Blue sky fees and expenses..................................................... 35,000
Miscellaneous.................................................................. 181,279
--------
Total..................................................................... $587,500
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
shareholders. The General Corporation Law of the State of Delaware also provides
for mandatory indemnification of any director, officer, employee or agent
against Expenses to the extent such person has been successful in any proceeding
covered by the statute. In addition, the General Corporation Law of the State of
Delaware provides the general authorization of advancement of a director's or
officer's litigation expenses in lieu of requiring the authorization of such
advancement by the board of directors in specific cases, and that
indemnification and advancement of expenses provided by the statute shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement or otherwise.
The Company's Restated Certificate and By-Laws provide for indemnification
of the Company's directors, officers, employees and other agents to the fullest
extent not prohibited by the Delaware law.
II-1
<PAGE> 96
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Placement Agency Agreement.
1.2 Form of Escrow Agreement.
4.1 Specimen Common Stock Purchase Warrant for Employees, incorporated herein by
reference to exhibit number to the Company's Annual Report on Form 10-K filed on
March 26, 1993.
4.2 Specimen 7% Subordinated Note, incorporated herein by reference to exhibit number
4.3 to the Company's Annual Report on Form 10-K filed on March 26, 1993.
4.3 Specimen Common Stock Purchase Warrant for 7% Subordinated Noteholders,
incorporated herein by reference to exhibit number 4.4 to the Company's Annual
Report on Form 10-K filed on March 26, 1993.
4.4 Form of Registration Rights Agreement for 7% Subordinated Noteholders,
incorporated herein by reference to exhibit number 4.5 to the Company's Annual
Report on Form 10-K filed on March 26, 1993.
5.1 Opinion of McDermott, Will & Emery regarding legality.
10.1 Urban 2000 Corp. Consulting Agreement, incorporated herein by reference to
exhibit number 10.4 to the Company's Annual Report on Form 10-K filed on March
25, 1994.
10.2 1996 Omnibus Incentive Stock Plan, incorporated by reference to Annex A to the
Company's Proxy Statement for Annual Meeting of Shareholders filed on July 25,
1996 (File No. 000-15291).
10.3 1996 Stock Option Plan for Nonemployee Directors, incorporated by reference to
Annex B to the Company's Proxy Statement for Annual Meeting of Shareholders filed
on July 25, 1996 (File No. 000-15291).
10.4+ Employment Agreement between Amerihost Properties, Inc. and Michael P. Holtz.
10.5+ Employment Agreement between Amerihost Properties, Inc. and Richard A. D'Onofrio.
10.6+ Employment Agreement between Amerihost Properties, Inc. and Russell J. Cerqua.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of McDermott, Will & Emery (included in Exhibit 5.1).
24.1+ Power of Attorney (included with the signature page to the Registration
Statement).
</TABLE>
- ---------------
+ Previously filed.
II-2
<PAGE> 97
ITEM 17. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officer and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(2) For the purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered.
ITEM 18. FINANCIAL STATEMENTS AND SCHEDULES.
Not applicable.
II-3
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Des Plaines, State of Illinois, on the 21st day
of October, 1996.
Amerihost Properties, Inc.
By: /s/ MICHAEL P. HOLTZ
Michael P. Holtz
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ ------------------
<S> <C> <C>
*
- -------------------------------------
H. Andrew Torchia Chairman of the Board of Directors October 21, 1996
/s/ MICHAEL P. HOLTZ President, Chief Executive Officer October 21, 1996
- ------------------------------------- and Director
Michael P. Holtz (Principal Executive Officer)
* Executive Vice President October 21, 1996
- ------------------------------------- and Director
Richard A. D'Onofrio
* Senior Vice President of Finance, October 21, 1996
- ------------------------------------- Secretary, Treasurer, Chief
Russell J. Cerqua Financial Officer and Director
(Principal Financial Officer)
* Controller October 21, 1996
- ------------------------------------- (Principal Accounting Officer)
James B. Dale
* Director October 21, 1996
- -------------------------------------
Reno J. Bernardo
/s/ SALOMON J. DAYAN Director October 21, 1996
- -------------------------------------
Salomon J. Dayan
* By Power of Attorney
/s/ MICHAEL P. HOLTZ
- -------------------------------------
Michael P. Holtz
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 99
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- -----------
<C> <S> <C>
1.1 Form of Placement Agency Agreement.
1.2 Form of Escrow Agreement.
4.1 Specimen Common Stock Purchase Warrant for Employees, incorporated herein
by reference to exhibit number to the Company's Annual Report on Form
10-K filed on March 26, 1993.
4.2 Specimen 7% Subordinated Note, incorporated herein by reference to
exhibit number 4.3 to the Company's Annual Report on Form 10-K filed on
March 26, 1993.
4.3 Specimen Common Stock Purchase Warrant for 7% Subordinated Noteholders,
incorporated herein by reference to exhibit number 4.4 to the Company's
Annual Report on Form 10-K filed on March 26, 1993.
4.4 Form of Registration Rights Agreement for 7% Subordinated Noteholders,
incorporated herein by reference to exhibit number 4.5 to the Company's
Annual Report on Form 10-K filed on March 26, 1993.
5.1 Opinion of McDermott, Will & Emery regarding legality.
10.1 Urban 2000 Corp. Consulting Agreement, incorporated herein by reference
to exhibit number 10.4 to the Company's Annual Report on Form 10-K filed
on March 25, 1994.
10.2 1996 Omnibus Incentive Stock Plan, incorporated by reference to Annex A
to the Company's Proxy Statement for Annual Meeting of Shareholders filed
on July 25, 1996 (File No. 000-15291).
10.3 1996 Stock Option Plan for Nonemployee Directors, incorporated by
reference to Annex B to the Company's Proxy Statement for Annual Meeting
of Shareholders filed on July 25, 1996 (File No. 000-15291).
10.4+ Employment Agreement between Amerihost Properties, Inc. and Michael P.
Holtz.
10.5+ Employment Agreement between Amerihost Properties, Inc. and Richard A.
D'Onofrio.
10.6+ Employment Agreement between Amerihost Properties, Inc. and Russell J.
Cerqua.
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of McDermott, Will & Emery (included in Exhibit 5.1).
24.1+ Power of Attorney (included with the signature page to the Registration
Statement).
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
1,150,000 Shares
AMERIHOST PROPERTIES, INC.
Common Stock
PLACEMENT AGENCY AGREEMENT
October __, 1996
Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Amerihost Properties, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell (the "Offering") an aggregate of
1,150,000 shares (the "Shares") of common stock, $0.005 par value (the "Common
Stock") principally to selected institutional investors (collectively, and
together with all other purchasers of the Shares, the "Investors"). The
Company desires to engage you as its placement agent (the "Placement Agent") in
connection with the Offering. The closing of the Offering shall be conditioned
upon the sale of all the Shares.
The Company hereby confirms its agreements with the Placement
Agent as follows:
1. Agreement to Act As Placement Agent. On the basis of
the representations, warranties and agreements of the Company herein contained
and subject to all the terms and conditions of this Agreement, the Placement
Agent agrees to act as the Company's exclusive placement agent, on a best
efforts basis, in connection with the issuance and sale by the Company of the
Shares to the Investors. On the Closing Date (as defined below), the Company
shall pay to the Placement Agent in the aggregate ___% of the gross proceeds
received by the Company from the sale of the Shares in the Offering. In
addition, on the Closing Date, the Company shall pay to the Placement Agent
$________ for non-accountable expenses incurred in connection with the
Offering.
<PAGE> 2
2. Delivery and Payment. On or prior to the Effective
Date (as defined below), the Company, the Placement Agent and The Chase
Manhattan Bank, as escrow agent (the "Escrow Agent"), shall enter into an
escrow agreement in customary form mutually acceptable to the Company, the
Placement Agent, and the Escrow Agent (the "Escrow Agreement"), pursuant to
which an escrow account will be established, at the Company's expense, for the
benefit of the Investors (the "Escrow Account"). The Escrow Agreement will
provide that, (i) on or prior to the Closing Date, an amount equal to the price
per Share multiplied by the aggregate number of Shares to be purchased by the
Investors shall be deposited in the Escrow Account and (ii) on or prior to the
Closing Date, the Escrow Agent will notify the Company and the Placement Agent
in writing whether an amount equal to the proceeds of the sale of 1,150,000
Shares offered in the Offering (the "Requisite Funds") has been deposited in
the Escrow Account. At such time and on such date as may be agreed upon by the
Company and the Placement Agent (the "Closing Date"), but in no event prior to
the date on which the Escrow Agent shall have received all of the Requisite
Funds, the Escrow Agent will release the Requisite Funds from the Escrow
Account for collection by the Company and the Placement Agent as provided in
the Escrow Agreement and the Company shall inform The Depository Trust Company
("DTC") that the Shares may and shall be delivered to the Investors, which
delivery will be made through the facilities of DTC. The closing of the
Offering (the "Closing") shall take place at the offices of McDermott, Will &
Emery, 227 West Monroe Street, Chicago, Illinois, at 10:00 a.m. Chicago time on
October __, 1996. All actions taken at the Closing shall be deemed to have
occurred simultaneously.
3. Registration Statement and Prospectus; Public
Offering. The Company has prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-2
(No. 333-6519), including a preliminary prospectus relating to the Shares, as
amended, and has filed with the Commission the Registration Statement (as
hereinafter defined) and such amendments thereto as may have been required to
the date of this Agreement and will file such additional amendments thereto as
may hereafter be required. Copies of such Registration Statement (including
all amendments thereto) and of the related preliminary prospectus, as amended,
have heretofore been delivered by the Company to you. The Registration
Statement described above at the time and on the date it becomes effective (the
"Effective Date"), including all exhibits thereto and the documents
incorporated by reference therein and information, if any, deemed to be part of
the Registration Statement pursuant to Rule 424(b) and Rule 430A of the Rules
as such Registration Statement may from time to time be amended or supplemented
pursuant to the Rules is referred to herein as the Registration Statement. The
term "preliminary prospectus" means any preliminary prospectus (as described in
Rule 430 of the Rules) included at any time as part of the Registration
Statement. The term "Prospectus" means the prospectus relating to the Shares
in the form first used to confirm sales of the Shares (whether such prospectus
was included in the Registration Statement at the time of effectiveness or was
subsequently filed with the Commission pursuant to Rule 424(b) of the Rules) or
the preliminary prospectus forming part of the Registration Statement at the
time it was declared effective together with the term sheet permitted under
Rule 434(b) and filed with the Commission pursuant to Rule 424(b), as
applicable.
2
<PAGE> 3
4. Representations and Warranties of the Company. The
Company represents and warrants to the Placement Agent as follows:
4.1 On the Effective Date, the Registration Statement
complied and, on the date any post-effective amendment to the
Registration Statement shall become effective, the Registration
Statement or any amendment or supplement thereto will comply, in all
material respects, with the applicable provisions of the Securities
Act and the Rules and did not or will not, as the case may be, contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading. On the date of the Prospectus, on
the date any amendment or supplement to the Prospectus is filed with
the Commission and on the Closing Date, neither the Prospectus nor any
amendment thereof or supplement thereto will contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. On the date that any preliminary
prospectus was first filed with the Commission, each preliminary
prospectus complied, and, on the date that any amendment or supplement
to any preliminary prospectus is filed with the Commission (whether
filed as part of the Registration Statement or any amendment thereto
or pursuant to Rule 424(a) of the Rules), each preliminary prospectus
will comply, in all material respects, with the applicable provisions
of the Securities Act and the Rules; on the date that any preliminary
prospectus was first filed with the Commission, each preliminary
prospectus did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and, on the
date that any amendment or supplement to any preliminary prospectus is
filed with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of the
Rules), such preliminary prospectus as amended or supplemented will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. On the date that each of
the documents incorporated by reference in the Prospectus became
effective or was filed with the Commission, as the case may be, such
documents complied, in all material respects, with the applicable
provisions of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder; and, on such applicable date, none of such documents
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. The Company makes no
representation or warranty as to information contained in any
preliminary prospectus, the Registration Statement, the Prospectus or
any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by the Placement
Agent specifically for use in the preparation thereof. The Company
acknowledges that, for purposes of this Agreement, the statements set
forth in the paragraph with respect to stabilization on the inside
front cover page of the Prospectus and the statements contained under
the caption "Plan of Distribution" in the Prospectus constitute the
only information furnished in writing by the
3
<PAGE> 4
Placement Agent specifically for inclusion in the Registration
Statement, the Prospectus or any preliminary prospectus.
4.2 The financial statements (including all notes and
schedules thereto) included in the Registration Statement and the
Prospectus fairly present the consolidated financial condition, the
consolidated results of operations and, cash flows and, for the fiscal
years ended December 31, 1995 and 1996, the consolidated stockholders'
equity of the Company at the respective dates and for the respective
periods to which they apply, in conformity with generally accepted
accounting principles, consistently applied throughout the periods
involved, and, with regard to the financial information at June 30,
1996 and for the 3 months and 6 months ended June 30, 1995 and 1996,
all adjustments necessary for a fair presentation of the results for
such periods have been made. The summary financial and statistical
information included in the Registration Statement and the Prospectus
fairly present the information shown therein and, to the extent based
upon or derived from the financial statements, have been compiled on a
basis consistent with the financial statements presented therein.
4.3 BDO Seidman, LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during
the periods covered by their reports, were independent public
accountants as required by the Securities Act and the Rules.
4.4 The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware. The Company is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its assets or real properties (owned, leased or licensed)
or the nature of its business makes such qualification necessary
(including every jurisdiction in which it owns or leases real
property) except for such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets or real
properties, business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise. Except as disclosed in the Registration Statement and the
Prospectus, the Company does not own, lease or license any asset or
real property or conduct any business outside the United States of
America. The Company has all requisite corporate power and authority,
and all necessary authorizations, approvals, consents, orders,
licenses, certificates and permits of and from all governmental or
regulatory bodies or any other person or entity, to own, lease,
license and operate its assets and real properties and conduct its
business as now being conducted and as described in the Registration
Statement and the Prospectus except for such authorizations,
approvals, consents, orders, licenses, certificates and permits the
absence of which would not have a material adverse effect upon the
assets or real properties, business, results of operations or
condition (financial or otherwise) of the Company; and no such
authorization, approval, consent, order, license, certificate or
permit contains a materially burdensome restriction other than as
disclosed in the Registration Statement and the Prospectus.
4.5 Each corporate subsidiary of the Company and its
subsidiaries, each of which is named in Schedule I to this Agreement
(each, a "Corporate Subsidiary"), has
4
<PAGE> 5
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation.
Each Corporate Subsidiary is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the character or
location of its assets or real properties (owned, leased or licensed)
or the nature of its business makes such qualification necessary
(including every jurisdiction in which it owns or leases real
property) except for such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets or real
properties, business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise. Each Corporate Subsidiary has all requisite corporate
power and authority, and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits of and from all
governmental or regulatory bodies or any other person or entity, to
own, lease, license and operate its assets and real properties and
conduct its business as now being conducted except for such
authorizations, approvals, consents, orders, licenses, certificates
and permits the absence of which would not have a material adverse
effect upon the assets or real properties, business, results of
operations or condition (financial or otherwise) of the Company and
its subsidiaries considered as one enterprise; and no such
authorization, approval, consent, order, license, certificate or
permit contains a materially burdensome restriction other than as
disclosed in the Registration Statement and the Prospectus. All of
the issued and outstanding capital stock of each Corporate Subsidiary
has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim.
4.6 Each partnership in which the Company or its
subsidiaries owns a general or limited partnership interest, each of
which is named in Schedule II to this Agreement (each, a "Partnership
Subsidiary"), has been duly formed and is validly existing as a
limited or general partnership in good standing under the laws of the
jurisdiction of its formation. Each Partnership Subsidiary is duly
qualified and in good standing as a foreign partnership in each
jurisdiction in which the character or location of its assets or real
properties (owned, leased or licensed) or the nature of its business
makes such qualification necessary (including every jurisdiction in
which it owns or leases real property) except for such jurisdictions
where the failure to so qualify would not have a material adverse
effect on the assets or real properties, business, results of
operations or condition (financial or otherwise) of the Company and
its subsidiaries considered as one enterprise. Each Partnership
Subsidiary has all requisite partnership power and authority, and all
necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory
bodies or any other person or entity, to own, lease, license and
operate its assets and real properties and conduct its business as now
being conducted except for such authorizations, approvals, consents,
orders, licenses, certificates and permits the absence of which would
not have a material adverse effect upon the assets or real properties,
business, results of operations or condition (financial or otherwise)
of the Company and its subsidiaries considered as one enterprise; and
no such authorization, approval, consent, order, license, certificate
or permit contains a materially burdensome restriction other than as
disclosed in the Registration Statement and the Prospectus. The
partnership agreement of each Partnership Subsidiary
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is in full force and effect and all partnership interests in each such
Partnership Subsidiary held by the Company, directly or through
subsidiaries, are owned as described in the Prospectus, in each case,
except for security interests granted to support the Company's
operating line of credit or requests for additional capital pursuant
to any partnership agreement, free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim.
4.7 Each limited liability company in which the Company
or its subsidiaries owns a member interest, each of which is named in
Schedule III to this Agreement (each, a "Limited Liability
Subsidiary"), has been duly formed and is validly existing as a
limited liability company in good standing under the laws of the
jurisdiction of its formation. Each Limited Liability Subsidiary is
duly qualified and in good standing as a foreign limited liability
company in each jurisdiction in which the character or location of its
assets or real properties (owned, leased or licensed) or the nature of
its business makes such qualification necessary (including every
jurisdiction in which it owns or leases real property) except for such
jurisdictions where the failure to so qualify would not have a
material adverse effect on the assets or real properties, business,
results of operations or condition (financial or otherwise) of the
Company and its subsidiaries considered as one enterprise. Each
Limited Liability Subsidiary has all requisite organizational power
and authority, and all necessary authorizations, approvals, consents,
orders, licenses, certificates and permits of and from all
governmental or regulatory bodies or any other person or entity, to
own, lease, license and operate its assets and real properties and
conduct its business as now being conducted except for such
authorizations, approvals, consents, orders, licenses, certificates
and permits the absence of which would not have a material adverse
effect upon the assets or real properties, business, results of
operations or condition (financial or otherwise) of the Company and
its subsidiaries considered as one enterprise; and no such
authorization, approval, consent, order, license, certificate or
permit contains a materially burdensome restriction other than as
disclosed in the Registration Statement and the Prospectus. The
limited liability company agreement of each Limited Liability
Subsidiary is in full force and effect and all member interests in
each such Limited Liability Subsidiary held by the Company, directly
or through subsidiaries, are owned as described in the Prospectus, in
each case, except for security interests granted to support the
Company's operating line of credit, free and clear of any security
interest, mortgage, pledge, lien, encumbrance or claim.
4.8 The Company and its subsidiaries own or possess
adequate rights to use the AmeriHost Inn trademark and trade name and
all other trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, licenses, know-how and
other similar rights (collectively, "Intangibles") necessary for the
conduct of their businesses as now being conducted and as described in
the Registration Statement and the Prospectus. Neither the Company
nor any of its subsidiaries has infringed, is infringing or has
received any notice of infringement on any Intangible of any other
person that will have a material adverse effect upon the assets or
real properties, business, results of operations or condition
(financial or otherwise) of the Company and
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its subsidiaries considered as one enterprise and the Company does not
know of any basis therefor.
4.9 The Company and its subsidiaries have good title to
each of the items of personal property which are reflected in the
financial statements referred to in Section 4.2 or are referred to in
the Registration Statement and the Prospectus as being owned by the
Company and valid and enforceable leasehold interests in each of the
items of real and personal property which are referred to in the
Registration Statement and the Prospectus as being leased by the
Company, in each case free and clear of all liens, encumbrances,
claims, security interests and defects, other than those described in
the Registration Statement and the Prospectus and those which do not
and will not have a material adverse effect upon the assets or real
properties, business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise.
4.10 The Company and its subsidiaries have good and
marketable title to, or valid and enforceable leasehold interests in,
all hotels and the properties on which they are located, as described
in the Registration Statement and the Prospectus, owned by the Company
and its subsidiaries, free and clear of all liens, charges,
encumbrances or restrictions, other than those described in the
Registration Statement and the Prospectus and those which do not and
will not have a material adverse effect upon the assets or real
properties, business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise; the use and occupancy of each of the hotels owned by the
Company and its subsidiaries comply in all material respects with all
applicable codes and zoning laws and regulations other than those the
noncompliance with which would not have a material adverse effect upon
the assets or real properties, business, results of operations or
condition (financial or otherwise) of the Company; neither the Company
nor any of its subsidiaries has any knowledge of any pending or
threatened condemnation or zoning change that will in any material
manner affect the size of, use of, improvements on, construction on,
or access to any of the hotels owned by the Company or any of its
subsidiaries or which would have a material adverse effect upon the
proposed use of such hotel; and neither the Company nor any of its
subsidiaries has any knowledge of any pending or threatened proceeding
or action that will in any material respect affect the size of, use
of, improvement of, construction on, or access to any of the hotels
owned by the Company or any of its subsidiaries.
4.11 Title insurance in favor of the mortgagee and the
Company is maintained with respect to each of the hotels owned by the
Company and its subsidiaries, other than those hotels held through
leasehold interests, in an amount at least equal to the greater of (i)
the cost of acquisition of such real property and (ii) the cost of
construction of the improvements located on such real property
(measured at the time of such construction).
4.12 The mortgages and deeds of trust encumbering the real
properties and assets described in the Prospectus are not convertible
into shares of Common Stock or other equity interest in the Company
nor does the Company hold a participating interest therein.
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4.13 For each hotel described in the Prospectus as "under
development," the Company has an option or an agreement to purchase
the underlying real property and has a commitment for the debt
financing necessary to effect the construction of the hotel; and, to
the Company's knowledge, the Company and its subsidiaries will upon
acquisition of the underlying real property receive good and
marketable title to such real property, free and clear of all liens,
charges, encumbrances or restrictions, other than the mortgages
obtained by the Company or any of its subsidiaries to finance the
purchase of such hotel and those that would not be material in
relation to the business of the Company and its subsidiaries
considered as one enterprise. For each hotel described in the
Prospectus as "under construction," the Company has secured the debt
financing necessary to effect the construction of the hotel and has
received approval of all governmental or regulatory bodies for all
requisite construction and zoning permits; and the Company and its
subsidiaries have, or, to the Company's knowledge, will upon
acquisition of the underlying real property to such hotel receive,
good and marketable title to such real property, free and clear of all
liens, charges, encumbrances or restrictions, other than the mortgages
obtained by the Company or any of its subsidiaries to finance the
purchase of such hotel and those that would not be material in
relation to the business of the Company and its subsidiaries
considered as one enterprise. The Company has obtained, or will
obtain, and will maintain title insurance in favor of the Company and
its subsidiaries on the underlying real property to each hotel under
development or under construction, not later than the time that debt
financing necessary to effect the construction of such hotel is
secured, in an amount at least equal to the cost of the acquisition of
such real property. To the knowledge of the Company: (i) the intended
use and occupancy of each hotel described in the Prospectus as under
development or under construction complies with all applicable codes
and zoning laws and regulations, except for such failures to comply
which would not individually or in the aggregate have a material
adverse effect on the ability of the Company to develop, construct and
own each such hotel; and (ii) there is no pending or threatened
condemnation, zoning change, environmental or other proceeding or
action that will in any material respect adversely affect the size of,
use of, improvements on, construction on, or access to each such hotel
under development or under construction.
4.14 There is no litigation or governmental or other
proceeding or investigation before any court or before or by any
public body or board pending or, to the Company's knowledge,
threatened (and the Company does not know of any basis therefor)
against, or involving the assets, real properties or business of, the
Company or any of its subsidiaries which would materially adversely
affect the business, results of operations or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise.
4.15 Except as disclosed in the Prospectus, to the
Company's knowledge, after due inquiry, (i) there are not present on
any of the real properties owned, or under development or under
construction, by the Company any hazardous substances, hazardous
materials, toxic substances, asbestos or waste materials
(collectively, "Hazardous Materials"), (ii) there have not occurred or
are presently occurring from any of such real properties any unlawful
spills, releases, discharges or disposal of Hazardous
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<PAGE> 9
Materials, and (iii) all such real properties are in compliance with
all applicable local, state and federal environmental laws,
regulations, ordinances and administrative and judicial orders
relating to the generation, recycling, reuse, sale, storage, handling,
transport and disposal of any Hazardous Materials, which presence,
occurrence or failure would not have a material adverse effect on the
business, results of operations or condition (financial or otherwise)
of the Company and its subsidiaries considered as one enterprise. The
Company has caused Phase I Environmental Surveys to be completed with
respect to each of the real properties owned by the Company and its
subsidiaries or listed on Schedule IV to this Agreement and has
delivered copies of all such Environmental Surveys to the Placement
Agent.
4.16 Property and casualty insurance in favor of the
Company is maintained with respect to each of the real properties
owned by the Company and its subsidiaries, and will be obtained and
maintained with respect to each of the real properties containing a
hotel under development or under construction, in an amount and on
such terms as are reasonable and customary for businesses of this
type.
4.17 Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as described therein, (i) there has not been any material
adverse change in the assets or real properties, business, results of
operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries considered as one enterprise, whether or
not arising from transactions in the ordinary course of business; (ii)
neither the Company nor any of its subsidiaries has sustained any
material loss or interference with its assets, businesses or real
properties (whether owned or leased) from any labor dispute or any
court or legislative or other governmental action, order or decree;
and (iii) since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, except as reflected
therein, neither the Company nor any of its subsidiaries has
undertaken any material liability or obligation, direct or contingent,
except such liabilities or obligations undertaken in the ordinary
course of business.
4.18 There is no document or contract of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed as required. Each such contract of
the Company or any of its subsidiaries described in the Prospectus or
listed as exhibits to the Registration Statement is in full force and
effect and is valid and enforceable by and against the Company or any
of its subsidiaries, as the case may be, in accordance with its terms,
assuming the due authorization, execution and delivery thereof by each
of the other parties thereto. Neither the Company or any of its
subsidiaries nor, to the Company's knowledge, any other party is in
material default in the observance or performance of any term or
obligation to be performed by it under any such agreement, and no
event has occurred which with notice or lapse of time or both would
constitute such a default, in any such case which default or event
would have a material adverse effect on the assets or real properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise. No default exists, and no event has occurred which with
notice or lapse of
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<PAGE> 10
time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company or any
of its subsidiaries of any other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which they or
their real properties or businesses may be bound or affected, which
default or event would have a material adverse effect on the assets or
real properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company and its subsidiaries
considered as one enterprise.
4.19 Neither the Company nor any of its subsidiaries is in
violation of any term or provision of their respective charters,
by-laws, partnership agreements or limited liability company
agreements or of any franchise, license, permit, judgment, decree,
order, statute, rule or regulation, where the consequences of such
violation would have a material adverse effect on the assets or real
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries
considered as one enterprise.
4.20 Neither the execution, delivery and performance of
this Agreement or the Escrow Agreement by the Company nor the
consummation of any of the transactions contemplated hereby or thereby
(including, without limitation, the issuance and sale by the Company
of the Shares) will give rise to a right to terminate or accelerate
the due date of any payment due under, or conflict with or result in
the breach of any term or provision of, or constitute a default (or an
event which with notice or lapse of time or both would constitute a
default) under, or require any consent or waiver under, or result in
the execution or imposition of any lien, charge or encumbrance upon
any real properties or assets of the Company or any of its
subsidiaries pursuant to the terms of, any indenture, mortgage, deed
of trust or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which they or any of their real
properties or businesses is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to the
Company or any of its subsidiaries or violate any provision of the
charter, by-laws, partnership agreement or limited liability company
agreement of the Company or any of its subsidiaries, as applicable,
except for such consents or waivers which have already been obtained
and are in full force and effect.
4.21 The Company has an authorized, issued and outstanding
capital stock as set forth under the caption "Description of Capital
Stock" in the Prospectus. All of the outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid
and nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Shares, when issued and sold
pursuant to this Agreement, will be duly authorized and validly
issued, fully paid and nonassessable and none of them will be issued
in violation of any preemptive or other similar right. Except as
disclosed in the Registration Statement and the Prospectus, there is
no outstanding option, warrant or other right calling for the issuance
of, and there is no commitment, plan or arrangement to issue, any
share of capital stock of the Company or any security convertible
into, or exercisable or exchangeable for, such capital stock. The
Common
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Stock and the Shares conform in all material respects to all
statements in relation thereto contained in the Registration Statement
and the Prospectus.
4.22 Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as described or referred to therein, the Company has not (i)
issued any securities or incurred any material liability or
obligation, direct or contingent, except such liabilities or
obligations incurred in the ordinary course of business, including,
without limitation, debt financing to acquire real properties and to
construct hotels thereon; (ii) entered into any material transaction
not in the ordinary course of business; or (iii) declared or paid any
dividend or made any distribution on any shares of its capital stock
or redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or otherwise acquire any shares of its capital stock.
4.23 Except as disclosed in the Prospectus, no holder of
any security of the Company has the right to have any security owned
by such holder included in the Registration Statement or to demand
registration of any security owned by such holder during the period
ending 180 days after the date of this Agreement. The Company and
each of its executive officers and directors have delivered to the
Placement Agent their enforceable written agreement that, for a period
of 120 days after the date of this Agreement, each such party will
not, except for grants or issuances by the Company of stock options
pursuant to its stock option plans, and transfers to the Company of
Common Stock in payment for any indebtedness collaterized by such
Common Stock issuances by the Company of Common Stock upon the
exercise of stock options and warrants previously granted by the
Company or upon the exchange of outstanding equity interests in
certain Partnership Subsidiaries and transfers to the Company of
Common Stock in payment for any indebtedness collaterized by such
Common Stock, without the prior written consent of the Placement
Agent, sell, or otherwise dispose of, directly or indirectly, or
exercise any registration rights with respect to, any shares of Common
Stock (or any securities convertible into or exchangeable for any
shares of Common Stock or any rights to purchase or acquire shares of
Common Stock) owned by them.
4.24 All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement and the Escrow Agreement and the
issuance and sale of the Shares by the Company. This Agreement has
been duly and validly authorized, executed and delivered by the
Company and constitutes and will constitute the legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with its terms.
4.25 Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
issuance and sale of the Shares by the Company (except such as may be
required under the Securities Act, such as may be necessary to qualify
the Shares for inclusion in the Offering by the Placement Agent under
state securities laws or such additional steps as may be required by
the National Association of Securities Dealers, Inc. (the "NASD") or
by the National Association of Securities Dealers Automated Quotation
("Nasdaq")
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National Market, if any) has been obtained or made and is in full
force and effect. The Shares are included for quotation on the Nasdaq
National Market.
4.26 Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or
its subsidiaries, is any such dispute threatened, which dispute would
have a material adverse effect on the assets or real properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company and its subsidiaries considered as one
enterprise.
4.27 No transaction has occurred between or among the
Company and any of its officers or directors or any affiliate or
affiliates of any such officer or director that is required to be
described in and is not described in the Registration Statement and
the Prospectus.
4.28 The Company has not taken, nor will it take, directly
or indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of any of the Shares.
4.29 The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns which are required to be
filed through the date hereof, or have received extensions thereof,
and have paid all taxes shown on such returns to be due on or prior to
the date hereof and all assessments received by them to the extent
that the same are material and have become due.
4.30 The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
4.31 The Company has complied with all of the requirements
and filed the required forms as specified in Florida Statutes Section
517.075.
5. Conditions of the Placement Agent's Obligations. The
obligations of the Placement Agent under this Agreement are subject to each of
the following terms and conditions:
5.1 The Prospectus shall have been timely filed with the
Commission in accordance with Section 6.1.1 of this Agreement.
5.2 No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be
in effect and no order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the Commission, and
any requests for additional information on the part of the Commission
(to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Placement Agent.
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5.3 The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
aspects when made and on and as of the Closing Date as if made on such
date and the Company shall have performed all covenants and agreements
and satisfied all the conditions contained in this Agreement required
to be performed or satisfied by it at or before the Closing Date.
5.4 The Placement Agent shall have received on the
Closing Date a certificate, addressed to the Placement Agent and dated
the Closing Date, of the chief executive officer or the chief
financial officer of the Company, to the effect that such person has
carefully examined the Registration Statement, the Prospectus, this
Agreement and the Escrow Agreement and that the representations and
warranties of the Company in this Agreement are true and correct in
all material respects on and as of the Closing Date with the same
effect as if made on the Closing Date and the Company has performed
all covenants and agreements and satisfied all conditions contained in
this Agreement required to be performed or satisfied by it at or prior
to the Closing Date.
5.5 The Placement Agent shall have received on the
Effective Date, at the time this Agreement is executed and on the
Closing Date, a letter or letters signed by BDO Seidman, LLP,
addressed to the Placement Agent and dated, respectively, the
Effective Date, the date of this Agreement and the Closing Date, in
form and substance reasonably satisfactory to the Placement Agent, as
to their status as independent accountants within the meaning of the
Securities Act and the Rules, the information in the Registration
Statement in response to Item 10 of Form S-2 under the Securities Act
and matters relating to the financial statements and other financial
and statistical information included in the Registration Statement and
the Prospectus.
5.6 The Placement Agent shall have received on the
Closing Date from McDermott, Will & Emery, counsel for the Company, an
opinion, addressed to the Placement Agent and dated the Closing Date,
and stating in effect that:
5.6.1 The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware; the Company is duly qualified
and in good standing as a foreign corporation in each
jurisdiction listed on Schedule V to this Agreement; and the
Company has all requisite corporate power to own, lease,
license and operate its assets and real properties and conduct
its business as now being conducted and as described in the
Registration Statement and the Prospectus.
5.6.2 Each Corporate Subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation; each Corporate Subsidiary is duly qualified and
in good standing as a foreign corporation in each jurisdiction
listed on Schedule I to this Agreement; each Corporate
Subsidiary has all requisite corporate power and authority to
own, lease, license and operate its assets and real properties
and conduct its business as now being conducted; and all of
the issued and outstanding capital stock of each Corporate
Subsidiary has been duly authorized and validly
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issued, is fully paid and nonassessable and is owned by the
Company, directly or through subsidiaries.
5.6.3 Each Partnership Subsidiary has been duly
formed and is validly existing as a limited or general
partnership in good standing under the laws of the
jurisdiction of its formation; each Partnership Subsidiary is
duly qualified and in good standing as a foreign partnership
in each jurisdiction listed on Schedule II to this Agreement;
the partnership agreement of each Partnership Subsidiary is in
full force and effect; each Partnership Subsidiary has all
requisite partnership power and authority to own, lease,
license and operate its assets and real properties and conduct
its business as now being conducted; and all partnership
interests in each such Partnership Subsidiary held by the
Company, directly or through subsidiaries, are owned as
described in the Prospectus.
5.6.4 Each Limited Liability Subsidiary has been
duly formed and is validly existing as a limited liability
company in good standing under the laws of the jurisdiction of
its formation; each Limited Liability Subsidiary is duly
qualified and in good standing as a foreign limited liability
company in each jurisdiction listed on Schedule III to this
Agreement; the limited liability company agreement of each
Limited Liability Subsidiary is in full force and effect; each
Limited Liability Subsidiary has all requisite organizational
power and authority to own, lease, license and operate its
assets and real properties and conduct its business as now
being conducted; and all member interests in any such Limited
Liability Subsidiary held by the Company, directly or through
subsidiaries, are owned as described in the Prospectus.
5.6.5 The Company has authorized and issued capital
stock as set forth under the caption "Description of Capital
Stock" in the Prospectus; the certificates evidencing the
Shares are in due and proper legal form; all of the
outstanding shares of Common Stock have been duly and validly
authorized and have been duly and validly issued; and all of
the outstanding shares of Common Stock are fully paid and
nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Shares when issued and
sold pursuant to this Agreement will be duly and validly
issued, fully paid and nonassessable and none of them will
have been issued in violation of any preemptive or other
similar right. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option,
warrant or other right issued by the Company calling for the
issuance of, and, to the knowledge of such counsel, no
commitment, plan or arrangement to issue, any share of capital
stock of the Company or any security convertible into,
exercisable for, or exchangeable for capital stock of the
Company. The descriptions of the Common Stock and the Shares
contained in the Registration Statement and the Prospectus
conform to the Company's Restated Certificate of
Incorporation, as amended.
5.6.6 All contracts, instruments or other documents
referred to in the Registration Statement and the Prospectus
are fairly summarized or disclosed
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therein, and filed as exhibits thereto or incorporated by
reference therein as required, and, to such counsel's
knowledge, after due inquiry, no contract, instrument or
other document required to be so summarized, disclosed, filed
or incorporated, in whole or in part, by reference therein has
not been so summarized, disclosed, filed or incorporated by
reference therein. All statutes, legal or governmental
proceedings, and all agreements and other documents required
to be described in the Registration Statement (or incorporated
by reference therein) have been so described.
5.6.7 The agreement of the Company that for a
period of 120 days from the date of this Agreement the Company
will not, except for grants or issuances by the Company of
stock options pursuant to its stock option plans and issuances
by the Company of Common Stock upon the exercise of stock
options and warrants previously granted by the Company or upon
the exchange of outstanding equity interests in certain
Partnership Subsidiaries, without the Placement Agent's prior
written consent, sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any securities
convertible into or exchangeable for any shares of Common
Stock or any rights to purchase or acquire shares of Common
Stock) has been duly and validly executed and delivered by the
Company and constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles.
5.6.8 All necessary corporate action has been duly
and validly taken by the Company to authorize the execution,
delivery and performance of this Agreement and the Escrow
Agreement and the issuance and sale of the Shares.
5.6.9 Neither the execution, delivery and
performance of this Agreement or the Escrow Agreement by the
Company nor the consummation of any of the transactions
contemplated hereby or thereby (including, without limitation,
the issuance and sale by the Company of the Shares) will give
rise to a right to terminate or accelerate the due date of any
payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or any
event which with notice or lapse of time, or both, would
constitute a default) under, or require consent or waiver
under, or result in the execution or imposition of any lien,
charge or encumbrance upon any real properties or assets of
the Company or any of its subsidiaries pursuant to the terms
of any indenture, mortgage, deed of trust, note, franchise,
license, permit, or other agreement or instrument known to
such counsel and to which the Company or any of its
subsidiaries is a party or by which it or any of their
respective real properties or businesses is bound, or any
judgment, decree, order, statute, rule or regulation
applicable to the business or assets of the Company or any of
its subsidiaries (other than blue sky) or violate any
provision of their respective
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<PAGE> 16
charters, by-laws, partnership agreements or limited liability
company agreements.
5.6.10 No consent, approval, authorization or order
of any court or governmental agency or body is required for
the performance by the Company of this Agreement or the Escrow
Agreement or the consummation of the transactions contemplated
hereby or thereby, except such as have been obtained under the
Securities Act and from the NASD and such as may be required
under state securities laws in connection with the purchase
and distribution of the Shares by the Placement Agent (as to
which such counsel need express no opinion).
5.6.11 To such counsel's knowledge, there is no
litigation or governmental or other proceeding or
investigation, before any court or before or by any public
body or board pending against the Company or any of its
subsidiaries which would have a material adverse effect upon
the assets or real properties, business, results of
operations, prospects or condition (financial or otherwise) of
the Company and its subsidiaries considered as one enterprise.
5.6.12 The Registration Statement, the Prospectus,
each of the documents incorporated by reference in the
Prospectus at the time filed and each amendment or supplement
thereto (except for the financial statements and notes and
schedules and other financial and statistical information
included or incorporated by reference therein, as to which
such counsel expresses no opinion) comply as to form in all
material respects with the requirements of the Securities Act
and the Rules and the Exchange Act and the rules and
regulations of the Commission thereunder, as the case may be.
5.6.13 The Registration Statement has become
effective under the Securities Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are threatened or pending.
5.6.14 The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
To the extent deemed advisable by such counsel, they may rely
as to matters of fact on certificates of responsible officers of the
Company and public officials and on the opinions of other counsel
satisfactory to the Placement Agent as to matters which are governed
by laws other than the laws of the State of Illinois, the laws of the
State of New York, the General Corporation Law of the State of
Delaware and the federal laws of the United States; provided, however,
that such counsel shall state that in their opinion that they believe
the Placement Agent and they are justified in relying on such other
opinions. Copies of such certificates and other opinions shall be
furnished to the Placement Agent and counsel for the Placement Agent.
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<PAGE> 17
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company, representatives of the Placement Agent and
representatives of the independent certified public accountants of the
Company, at which conferences the contents of the Registration
Statement and the Prospectus and related matters were discussed and,
although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained or incorporated by reference in the Registration
Statement and the Prospectus, on the basis of the foregoing, no facts
have come to the attention of such counsel which cause such counsel to
believe that (i) the Registration Statement or any post-effective
amendment thereto at the time it became effective contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and (ii) the Prospectus as of its date, on the
date any amendment or supplement to the Prospectus is filed with the
Commission and on the Closing Date contained any untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that
such counsel need not express any belief with respect to the financial
statements and schedules and other financial and statistical
information included or incorporated by reference in the Registration
Statement or the Prospectus).
5.7 All proceedings taken in connection with the sale of
the Shares as herein contemplated shall be reasonably satisfactory in
form and substance to the Placement Agent and its counsel and the
Placement Agent shall have received from Rogers & Wells a favorable
opinion, addressed to the Placement Agent and dated the Closing Date,
with respect to the Shares, the Registration Statement and the
Prospectus, and such other related matters, as the Placement Agent may
reasonably request, and the Company shall have furnished to Rogers &
Wells such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
5.8 The Placement Agent shall have received on the
Closing Date a certificate, including exhibits thereto, addressed to
the Placement Agent and dated on the Closing Date, of the Secretary or
an Assistant Secretary of the Company, signed in such officer's
capacity as such officer, as to the (i) certificate of incorporation
and by-laws of the Company; (ii) resolutions authorizing the execution
and delivery of the Registration Statement, this Agreement, the Escrow
Agreement and the performance of the transactions contemplated by this
Agreement, the Escrow Agreement, the Registration Statement, the
Prospectus and the Offering; and (iii) incumbency of the person or
persons authorized to execute and deliver the Registration Statement,
this Agreement, the Escrow Agreement and any other documents
contemplated by the Offering.
5.9 The Placement Agent shall have received on the
Closing Date certificates of the Secretaries of State (or comparable
officials) where each of the Company, the Corporate Subsidiaries, the
Partnership Subsidiaries and the Limited Liability Subsidiaries are
incorporated or organized (as the case may be) and those states listed
in Schedules I, II, III and V, as to the good standing of each of the
foregoing entities. In addition, the Placement Agent shall have
received on the Closing Date a certificate, dated
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<PAGE> 18
such Closing Date, of an executive officer of the Company to the
effect that the signer of such certificate has reviewed and
understands the provisions of Section 517.075 of the Florida Statutes,
and represents that the Company has complied, and at all times will
comply, with all provisions of Section 517.075 and further, that as of
the Closing Date, neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba.
5.10 The Placement Agent shall have received on the
Effective Date from the Company and each of its executive officers and
directors their enforceable written agreement that, for a period of
120 days after the date of this Agreement, each such party will not,
except for grants or issuances by the Company of stock options
pursuant to its stock option plans, and transfers to the Company of
Common Stock in payment for any indebtedness collaterized by such
Common Stock issuances by the Company of Common Stock upon the
exercise of stock options and warrants previously granted by the
Company or upon the exchange of outstanding equity interests in
certain Partnership Subsidiaries and transfers to the Company of
Common Stock in payment for any indebtedness collaterized by such
Common Stock, without the prior written consent of the Placement
Agent, sell, or otherwise dispose of, directly or indirectly, or
exercise any registration rights with respect to, any shares of Common
Stock (or any securities convertible into or exchangeable for any
shares of Common Stock or any rights to purchase or acquire shares of
Common Stock) owned by them.
5.11 The Placement Agent and the Company shall have
received on or prior to the Closing Date the written notification of
the Escrow Agent that the Requisite Funds have been deposited in the
Escrow Account.
6. Covenants of the Company.
6.1 The Company covenants and agrees as follows:
6.1.1 The Company shall prepare the Prospectus in a
form approved by the Placement Agent and file the Prospectus
pursuant to Rule 424(b) under the Securities Act not later
than the Commission's close of business on the second business
day following the execution and delivery of this Agreement,
or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Securities Act, and shall promptly
advise the Placement Agent (i) when any amendment to the
Registration Statement shall have become effective; (ii) of
any request by the Commission for any amendment of the
Registration Statement or the Prospectus or for any additional
information; (iii) of the prevention or suspension of the use
of any preliminary prospectus or the Prospectus or of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution
or threatening of any proceeding for that purpose; and (iv) of
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company shall not file any
amendment of the Registration Statement or amendment or
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<PAGE> 19
supplement to the Prospectus unless the Company has furnished
the Placement Agent a copy for its review prior to filing and
shall not file any such proposed amendment or supplement
to which the Placement Agent reasonably objects. The Company
shall use every reasonable effort to prevent the issuance of
any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
6.1.2 If, at any time when a prospectus relating to
the Shares is required to be delivered under the Securities
Act and the Rules, any event occurs as a result of which the
Prospectus as then amended or supplemented would include any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, or if it shall be necessary to amend or supplement
the Prospectus to comply with the Securities Act or the Rules,
the Company promptly shall prepare and file with the
Commission, subject to the second sentence of Section 6.1.1,
an amendment or supplement which shall correct such statement
or omission or an amendment which shall effect such
compliance.
6.1.3 The Company shall make generally available to
its security holders and to the Placement Agent as soon as
practicable, but not later than 90 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date occurs, an
earnings statement (which need not be audited) of the Company,
covering such 12-month period, which shall satisfy the
provisions of Section 11(a) of the Securities Act or Rule 158
of the Rules.
6.1.4 The Company shall furnish to the Placement
Agent and counsel for the Placement Agent, without charge,
signed copies of the Registration Statement (including all
exhibits thereto and amendments thereof) and all amendments
thereof and, so long as delivery of a prospectus by a
Placement Agent or dealer may be required by the Securities
Act or the Rules, as many copies of any preliminary prospectus
and the Prospectus and any amendments thereof and supplements
thereto as the Placement Agent may reasonably request.
6.1.5 The Company shall cooperate with the
Placement Agent and counsel for the Placement Agent in
endeavoring to qualify the Shares for offer and sale under the
laws of such jurisdictions as the Placement Agent may
designate and shall maintain such qualifications in effect so
long as required for the distribution of the Shares; provided,
however, that the Company shall not be required in connection
therewith, or as a condition thereof, to qualify as a foreign
corporation or to execute a general consent to service of
process in any jurisdiction or subject itself to taxation as
doing business in any jurisdiction.
6.1.6 For a period of five years after the date of
this Agreement, the Company shall supply to the Placement
Agent copies of such financial statements and other periodic
and special reports as the Company may from time to time
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<PAGE> 20
distribute generally to the holders of any class of its
capital stock and furnish to the Placement Agent a copy of
each annual or other report it shall be required to file with
the Commission.
6.1.7 Without the prior written consent of the
Placement Agent, for a period of 120 days after the date of
this Agreement, the Company shall not, directly or indirectly,
issue, offer, sell or register with the Commission, or
otherwise encumber or dispose of, directly or indirectly, any
equity securities of the Company (or any securities
convertible into or exercisable or exchangeable for equity
securities of the Company), except for (i) the issuance of the
Shares pursuant to the Registration Statement; (ii) the grant
or issuance of stock options pursuant to the Company's stock
option plans; (iii) the issuance of Common Stock pursuant to
the exercise of outstanding stock options or warrants
previously granted by the Company; or (iv) the issuance of
Common Stock pursuant to the exchange of outstanding equity
interests in certain Partnership Subsidiaries.
6.2 The Company agrees to pay, or reimburse if paid by
the Placement Agent, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated, all costs and
expenses incident to the Offering and the performance of the
obligations of the Company under this Agreement, including, but not
limited to, those relating to: (i) the preparation, printing, filing
and distribution of the Registration Statement including all exhibits
thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and
the printing, filing and distribution of this Agreement; (ii) the
preparation and delivery of certificates for the Shares to the
Placement Agent; (iii) the registration or qualification of the Shares
for offer and sale under the securities laws of the various
jurisdictions referred to in Section 6.1.5, including the reasonable
fees and disbursements of counsel for the Placement Agent in
connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary securities memoranda; (iv) the furnishing (including
cost of shipping and mailing) to the Placement Agent of copies of each
preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required
by this Section to be so furnished, as may be reasonably requested for
use in connection with the Offering and the sale of the Shares by the
Placement Agent; (v) the filing fees of the NASD in connection with
its review of the terms of the Offering; (vi) the furnishing
(including costs of shipping and mailing) to the Placement Agent of
copies of all reports and information required by Section 6.1.6; (vii)
inclusion of the Shares for quotation on the Nasdaq National Market;
(viii) all transfer taxes, if any, with respect to the sale and
delivery of the Shares by the Company; and (ix) the fees of the Escrow
Agent. In addition, on the Closing Date, the Company shall pay the
Placement Agent $________ for non-accountable expenses incurred in
connection with the Offering.
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7. Indemnification.
7.1 The Company agrees to indemnify and hold harmless the
Placement Agent and each person, if any, who controls the Placement
Agent within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding
or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or
state law or regulation, at common law or otherwise, insofar as such
claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto, or
arise out of or are based upon any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that such indemnity shall not inure to the benefit of the
Placement Agent (or any person controlling the Placement Agent) on
account of any losses, claims, damages or liabilities arising from the
sale of the Shares to any person by the Placement Agent if such untrue
statement or omission or alleged untrue statement or omission was made
in such preliminary prospectus, the Registration Statement or the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Placement Agent specifically for use therein. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
7.2 The Placement Agent agrees to indemnify and hold
harmless the Company, each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, each director of the Company, and each officer of
the Company who signs the Registration Statement, to the same extent
as the foregoing indemnity from the Company to the Placement Agent,
but only insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any preliminary
prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, contained in the paragraphs
relating to stabilization on the inside front cover page of the
Prospectus and the statements contained under the caption "Plan of
Distribution" in the Prospectus; provided, however, that the
obligation of the Placement Agent to indemnify the Company
(including any controlling person, director or officer thereof) shall
be limited to the net proceeds received by the Company from the
Offering.
7.3 Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party
in respect of which a claim is to be made against an indemnifying
party or parties under this Section, notify each such indemnifying
party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided
for in Section 7.1 or 7.2 shall be available to any
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<PAGE> 22
party who shall fail to give notice as provided in this Section 7.3 if
the party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was prejudiced by the
failure to give such notice but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not
relieve it from any liability that it may have to any indemnified
party for contribution or otherwise than under this Section. In case
any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and
the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses, except as provided below and except for
the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the
indemnifying parties and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of
the indemnified party) or (iii) the indemnifying parties shall not
have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of
which cases the fees and expenses of counsel shall be at the expense
of the indemnifying parties. An indemnifying party shall not be
liable for any settlement of any action, suit, proceeding or claim
effected without its written consent.
8. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnification provided
for in Section 7.1 is due in accordance with its terms but for any reason is
held to be unavailable from the Company, the Company and the Placement Agent
shall contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting any contribution
received by the Company from persons other than the Placement Agent, such as
persons who control the Company within the meaning of the Securities Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who may also be liable for contribution) to which the Company and
the Placement Agent may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Placement Agent on the other from the Offering or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company on the
one hand and the Placement Agent on the other in connection with the statements
or omissions which resulted in such losses, claims, damages,
22
<PAGE> 23
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Placement Agent shall be deemed to be in the same proportion as (i) the total
proceeds from the Offering (net of the placement fee but before deducting
expenses) received by the Company, as set forth in the table on the cover page
of the Prospectus, bear to (ii) the placement fee received by the Placement
Agent, as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company or the Placement Agent shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company or
the Placement Agent and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall the Placement Agent be
liable or responsible for any amount in excess of the placement fee received by
it in connection with the Offering and (ii) the Company shall be liable and
responsible for any amount in excess of such placement fee; provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person, if any, who controls the Placement Agent within
the meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as the Placement Agent,
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed the Registration Statement and each director
of the Company (including the director nominee) shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) in
the immediately preceding sentence of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be
sought shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise
than under this Section. No party shall be liable for contribution with
respect to any action, suit, proceeding or claim settled without its written
consent.
9. Termination.
9.1 This Agreement may be terminated with respect to the
Offering by the Placement Agent by notifying the Company at any time,
(i) in the absolute discretion of the Placement
Agent at or before the Closing Date: (a) if on or prior to
such date, any domestic or international event or act or
occurrence has materially disrupted, or in the opinion of the
Placement Agent will in the future materially disrupt, the
securities markets; (b) if there has occurred any new outbreak
or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the
United
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<PAGE> 24
States is such as to make it, in the judgment of the Placement
Agent, inadvisable to proceed with the Offering; (c) if there
shall be such a material adverse change in general financial,
political or economic conditions or the effect of
international conditions on the financial markets in the
United States is such as to make it, in the judgment of the
Placement Agent, inadvisable or impracticable to market the
Shares; (d) if trading in the Shares has been suspended by the
Commission or trading generally on the New York Stock
Exchange, Inc. or on the American Stock Exchange, Inc. has
been suspended or limited, or minimum or maximum ranges for
prices for securities shall have been fixed, or maximum ranges
for prices for securities have been required, by said
exchanges or by order of the Commission, the NASD, or any
other governmental or regulatory authority; or (e) if a
banking moratorium has been declared by any state or federal
authority, or
(ii) at the Closing Date, that any of the
conditions specified in Section 5 shall not have been
fulfilled when and as required by this Agreement.
9.2 If this Agreement is terminated pursuant to any of
its provisions, the Company shall not be under any liability to the
Placement Agent, and the Placement Agent shall not be under any
liability to the Company, except that if this Agreement is terminated
by the Placement Agent because of any failure, refusal or inability on
the part of the Company to comply with the terms or to fulfill any of
the conditions of this Agreement, the Company will reimburse the
Placement Agent for all out-of-pocket expenses (including the
reasonable fees and disbursements of its counsel up to $____________)
incurred by it in connection with the proposed purchase and sale of
the Shares or in contemplation of performing their obligations
hereunder.
9.3 If this Agreement is terminated pursuant to any of
its provisions, then all funds deposited in the Escrow Account shall
be returned promptly to the Investors. In the event the Closing does
not take place within 120 days of the Effective Date, this Agreement
shall automatically terminate, and all funds deposited into the Escrow
Account by the Investors shall be promptly returned to such Investors.
10. Miscellaneous. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Placement Agent set forth in or made pursuant to this
Agreement shall remain in full force and effect, regardless of any
indemnification made by or on behalf of the Placement Agent or the Company or
any of the officers, directors or controlling persons referred to in Sections 7
and 8 hereof, and shall survive the Closing. The provisions of Sections 6.2,
7, 8 and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Placement Agent and the Company and their respective successors and assigns,
and, to the extent expressed herein, for the benefit of persons controlling the
Placement Agent or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
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<PAGE> 25
assigns" shall not include any purchaser of Shares from the Placement Agent
merely because of such purchase.
All notices and communications hereunder shall be in writing
and mailed or delivered or by telephone or telegraph if subsequently confirmed
in writing, (a) if to the Placement Agent, c/o Oppenheimer & Co., Inc.,
Oppenheimer Tower, World Financial Center, New York, New York 10281,
Attention: Stephen Blank, and (b) if to the Company, to its agent for service
as such agent's address appears on the cover page of the Registration
Statement.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among us.
Very truly yours,
AMERIHOST PROPERTIES, INC.
By
-------------------------------
Name:
Title:
Confirmed:
PLACEMENT AGENT
By: OPPENHEIMER & CO., INC.
By
------------------------------
Name:
Title:
25
<PAGE> 26
SCHEDULE I
LIST OF CORPORATE SUBSIDIARIES OF THE COMPANY
Amerihost Development, Inc.
AmeriHost Inns of Illinois, Inc.
AmeriHost Inns of Michigan, Inc.
AmeriHost Inns of Ohio, Inc.
Amerihost International, Inc.
Amerihost Lodging Group, Inc.
Amerihost Management, Inc.
Amerihost Renovations, Inc.
Amerihost Staffing, Inc.
AP Equities of Arkansas, Inc.
AP Equities of Florida, Inc.
A.P. Equities of Indiana, Inc.
AP Equities of Ohio, Inc.
AP Hotels of California, Inc.
AP Hotels of Georgia, Inc.
AP Hotels of Illinois, Inc.
AP Hotels of Iowa, Inc.
AP Hotels of Kansas, Inc.
AP Hotels of Kentucky, Inc.
AP Hotels of Michigan, Inc.
AP Hotels of Mississippi, Inc.
AP Hotels of Missouri, Inc.
AP Hotels of Ohio, Inc.
AP Hotels of Pennsylvania, Inc.
AP Hotels of Texas, Inc.
AP Hotels of Vermont, Inc. (DE)
AP Hotels of Vermont, Inc. (VT)
AP Hotels of West Virginia, Inc.
AP Hotels of Wisconsin, Inc.
AP Lodging of Ohio, Inc.
AP Properties of Ohio, Inc.
API/Cloverdale, Inc.
API/Crawfordsville, Inc.
API/Marysville, Inc.
API/Plainfield, Inc.
API of Indiana, Inc.
API of Wisconsin, Inc.
Hammond Investors, Inc.
Niles, Illinois Hotel Corporation
Schiller Park Investors, Inc.
Shorewood Hotel Investments, Inc.
Shorewood Investors, Inc.
<PAGE> 27
SCHEDULE II
LIST OF PARTNERSHIP SUBSIDIARIES OF THE COMPANY
Allen, TX 196 Limited Partnership
Altoona, PA 792 Limited Partnership
Amerihost De Mexico, S.A.
Amerihost Inn Hotel Investors L.P.I
Ann Arbor, MI 193 Limited Partnership
Athens Motel Association Limited Partnership
Athens Motel Association Limited Partnership II
Batesville, MS 595 Limited Partnership
Bowling Green, OH 590 Limited Partnership
Cloverdale, IN 588-1 Partnership (GP)
Crawfordsville, IN 888-2 Partnership (GP)
Dayton, OH 1291 Limited Partnership
Delaware, OH 296 Limited Partnership
Elk Grove, IL 1292 General Partnership (GP)
Euless, TX 1192 General Partnership (GP)
Findlay, OH 391 Limited Partnership
Fort Myers, FL 992 Limited Partnership
Grand Blanc, MI 295 Limited Partnership
Grand Rapids, MI 896, Limited Partnership
Grove City, PA 896, L.P.
Hammond, IN 490 Partnership (GP)
Jacksonville, IL 995 Limited Partnership
Kenosha, WI 193 General Partnership (GP)
Kent 2-89 Partnership (GP)
Kenton, OH 1095 Limited Partnership
Lancaster, OH 1191 Limited Partnership
Logan, OH 692 Limited Partnership
Macomb, IL 994 Limited Partnership
Mansfield, OH 993 General Partnership (GP)
Marysville, OH 589-3 Partnership (GP)
Metropolis, IL 1292 Limited Partnership
Middletown, OH 592 Limited Partnership
Mineral Wells, WVA 196 Limited Partnership
Monroe, MI 896, Limited Partnership
Mosinee Airport Inn General Partnership (GP)
Murray, KY 695 Limited Partnership
New Martinsville, WVA 695 Limited Partnership
New Philadelphia, OH 1092 Limited Partnership
Niles 1290 Hotel Partnership (GP)
Oil City, PA 1192 Limited Partnership
Plainfield, IN 989-4 Partnership (GP)
Plainfield II IN 192-5 Partnership (GP)
<PAGE> 28
Port Huron, MI 896, Limited Partnership
Portage 691 Limited Partnership
San Marcos, TX 896 L.P.
Schiller Park 1288 Limited Partnership
Shorewood 689 Limited Partnership
Sullivan Motel Associates, Ltd.
Tuscola, IL 593 Limited Partnership
Vicksburg, MS 694-711 Partnership (GP)
Washington C.H., OH 194 Limited Partnership
White River Junction, VT 393 Limited Partnership
Zanesville, OH 695 Limited Partnership
Zanesville, OH 1190 Partnership (GP)
<PAGE> 29
SCHEDULE III
LIST OF LIMITED LIABILITY SUBSIDIARIES OF THE COMPANY
Ashland, OH 1095 Ltd.
AMALP II 696 Ltd.
Effingham, IL 796 L.L.C.
Green Bay, WI 1195 L.L.C.
Grove City, PA 696 LLC
Hammond Hotel L.L.C.
Jeffersonville, OH 695 Ltd.
Marshall, MI 196 L.L.C.
Muskegon, MI 596 L.L.C.
<PAGE> 30
SCHEDULE IV
LIST OF CERTAIN PROPERTIES SUBJECT TO PHASE I ENVIRONMENTAL SURVEYS
<PAGE> 31
SCHEDULE V
LIST OF FOREIGN JURISDICTIONS OF THE COMPANY
<PAGE> 1
EXHIBIT 1.2
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of October ___, 1996, by and among
Amerihost Properties, Inc., a Delaware corporation (the "Company"), Oppenheimer
& Co., Inc. (the "Placement Agent") and The Chase Manhattan Bank, a New York
State chartered bank duly formed and existing under the laws of the United
States of America (the "Escrow Agent").
WHEREAS, the Company proposes to sell to certain investors
(the "Investors") an aggregate of 1,150,000 shares of Common Stock, $0.005 par
value (the "Shares"), at a purchase price of $____ per share and as otherwise
described in the Company's Registration Statement on Form S-2 (which, together
with all amendments or supplements thereto is referred to herein as the
"Registration Statement");
WHEREAS, the offering of the Shares will terminate on February
__, 1997 (the "Termination Date") and, if acceptable orders for all of the
Shares have not been received by the Company on or before the Termination Date,
no Shares will be sold and all payments made by Investors will be refunded by
the Escrow Agent with interest earned thereon, if any; and
WHEREAS, with respect to all funds received in connection with
the offering of the Shares, the Company and the Placement Agent propose to
establish an escrow account with the Escrow Agent at its office at 450 West
33rd Street, New York, New York 10001.
NOW, THEREFORE, it is agreed as follows:
1. Establishment of Escrow. The Escrow Agent hereby
agrees to the establishment of an escrow account and to receive and disburse
the proceeds deposited in such account from the offering of the Shares and any
interest earned thereon in accordance herewith.
2. Deposit of Escrowed Property. All funds to be
delivered in payment for the Shares (the "Escrowed Property") shall be wired
to, or deposited with, the Escrow Agent on or prior to the Closing Date (as
hereinafter defined). Any checks delivered to the Escrow Agent pursuant to the
terms hereof shall be made payable to or endorsed to the order of "Chase
Manhattan Bank-Escrow Agent." The Escrow Agent upon receipt of such checks
shall present such checks for payment to the drawee-bank under such checks.
The Escrow Agent shall not be required to accept any amounts representing
payments for the Shares, whether by check or by wire transfer, except during
the Escrow Agent's regular banking hours. Any checks not honored by the
drawee-bank thereunder after the first presentment for payment shall be
returned to the Placement Agent in the same manner notices are delivered
pursuant to Section 6. Upon receipt of funds, the Escrow Agent shall credit
such funds to a non-interest-bearing account (the "Escrow Account") held by the
Escrow Agent. If following the credit of the amount of any check to the Escrow
Account such check is dishonored, the Escrow Agent, if such dishonored check
amount shall have been invested pursuant to Section 3, shall liquidate to the
extent of such dishonored check amount such investments and debit the Escrow
Account for the amount of such
<PAGE> 2
dishonored check plus, if any, the amount of interest and other income earned
with respect to any investment of such dishonored check amount.
3. Investment of Escrowed Property. The Escrow Agent on
the second business day ("business day" defined for purposes of this Escrow
Agreement as any day which is not a Saturday, a Sunday or a day on which banks
or trust companies in the City and State of New York are authorized or
obligated by law, regulation or executive order to remain closed) succeeding
(unless such deposit is made in federal or other immediately available or "same
day" funds, in which case, on the business day next succeeding) the credit of
any proceeds to the Escrow Account pursuant to Section 2 and until release of
such proceeds in accordance with the terms hereof, shall deposit such proceeds
in a Chase Manhattan Bank Mutual Fund known as the Vista Funds, pursuant to
Rule 15c2-4 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. The Escrow Agent shall in no
event be liable for any loss resulting from any change in interest rates
applicable to proceeds invested pursuant to this Section. Interest on proceeds
invested pursuant to this Section shall accrue from the date of investment of
such proceeds until the termination of such investment pursuant to the terms
hereof and shall be paid as set forth in Section 5.
4. List of Depositors. Simultaneously with the deposit
into the Escrow Account of amounts in payment for the Shares, the Placement
Agent shall inform the Escrow Agent, in writing, of the name, address, and
taxpayer Identification Number of the person credited for depositing such
amounts (a "Depositor") and the number of Shares and the aggregate dollar
amount relating to such deposited amounts (collectively, the "Investment
Information"). The Escrow Agent shall not be required to accept for deposit
into the Escrow Account checks which are not accompanied by the appropriate
Investment Information required in connection with such payment. A wire
transfer representing payment shall not be deemed deposited in the Escrow
Account until the Escrow Agent has received, in writing, the Investment
Information required in connection with such payment. Each check received from
a Depositor shall be deposited by the Placement Agent into the Escrow Account
by noon of the business day next following receipt by the Placement Agent of
such check, together with all appropriate Investment Information relating to
each such check. The Placement Agent shall immediately provide the applicable
Investment Information upon notice of a wire transfer from an Investor to the
Escrow Agent. The Escrow Agent understands that, for the administrative
convenience of the Placement Agent, the Placement Agent may designate itself as
a Depositor for some or all of the deposited funds.
5. Withdrawal of Deposited Amounts.
(a) If the Escrow Agent shall receive a joint
notice, substantially in the form of Exhibit A hereto (the "Offering
Termination Notice"), from the Company and the Placement Agent, the Escrow
Agent shall (i) promptly after receipt of such Offering Termination Notice and
the clearance of all checks received by the Escrow Agent as Escrowed Property,
liquidate any investments that shall have been made pursuant to Section 3 and
send to each Depositor on the list established by the Escrow Agent from the
Investment Information provided pursuant to Section 4 whose total deposited
amount shall not have been released pursuant to paragraph (b) or (c) of this
Section 5, in the manner set forth in paragraph (e) of this Section 5,
2
<PAGE> 3
a check to the order of such Depositor in the amount of the remaining deposited
amount held by the Escrow Agent as set forth on such list held by the Escrow
Agent, and (ii) promptly after the fourth business day of the month immediately
following the month in which the investments made pursuant to Section 3 were
terminated pursuant to this paragraph, or as soon as possible prior to, send,
in the manner set forth in paragraph (e) of this Section 5, a check to the
order of each such Depositor in the amount of interest and other income earned
and not yet paid with respect to any investment of such Depositor's funds. The
Escrow Agent shall notify the Company and the Placement Agent of the
distribution of such funds to the Depositors.
(b) In the event that (i) funds in respect of all
of the Shares shall have been deposited with the Escrow Agent on or before the
Termination Date and (ii) no Offering Termination Notice shall have been
delivered to the Escrow Agent, the Company and the Placement Agent shall
deliver to the Escrow Agent a joint notice, substantially in the form of
Exhibit B hereto (the "Closing Notice"), designating the date on which the
Shares are to be sold and delivered to the Depositors (the "Closing Date"),
which date shall not be earlier than the clearance of any checks received by
the Escrow Agent as Escrowed Property, the proceeds of which are to be
distributed on the Closing Date, and identifying the Depositors and the number
of Shares to be sold to each thereof on the Closing Date. The Closing Notice
shall be received by the Escrow Agent not less than one (1) nor more than seven
(7) business days prior to the Closing Date. The Escrow Agent, after receipt
of such Closing Notice and the clearance of such checks:
(i) on or prior to the Closing Date
shall liquidate any investments that shall have been made
pursuant to Section 3 to the extent of the deposited amount to
be distributed pursuant to the immediately succeeding clause
(ii);
(ii) on the Closing Date, shall pay to
the Company and the Placement Agent, in federal or other
immediately available funds and otherwise in the manner
specified in the Closing Notice, an amount equal to the
aggregate of the amounts paid by the Depositors identified in
the Closing Notice for the Shares to be sold on the Closing
Date; and
(iii) promptly after the fourth business
day of the month immediately following the month in which the
investments made pursuant to Section 3 were terminated
pursuant to the Closing Notice, shall send, in the manner set
forth in paragraph (e) of this Section 5, a check to the order
of each Depositor identified in the Closing Notice in the
amount of interest and other income earned and not yet paid
with respect to any investment of each such Depositor's funds
distributed on the Closing Date. At the time of such
transfer, the Escrow Agent shall identify in writing to the
Company and the Placement Agent the amount of the interest
earned for the account of each Depositor and the date such
order was received.
(c) If at any time and from time to time prior to
the release of any Depositor's total deposited amount pursuant to paragraph
(a) or (b) of this Section 5 from
3
<PAGE> 4
escrow, the Company or the Placement Agent shall deliver to the Escrow Agent a
notice, substantially in the form of Exhibit C hereto (a "Order Termination
Notice"), to the effect that any or all of the orders of such Depositor
(including, without limitation, in the case of the Placement Agent being the
Depositor) have been rejected by the Company (a "Rejected Order"), the Escrow
Agent (i) promptly after receipt of such Order Termination Notice and, if such
Depositor delivered a check in payment of its Rejected Order, after the
clearance of such check, shall liquidate, to the extent of the sum of such
Depositor's Rejected Order amount as set forth in the Order Termination Notice,
any investments that shall have been made pursuant to Section 3 and send to
such Depositor, in the manner set forth in paragraph (e) of this Section 5, a
check to the order of such Depositor in the amount of such Rejected Order
amount, and (ii) promptly after the fourth business day of the month
immediately following the month in which the investments made pursuant to
Section 3 were terminated pursuant to this paragraph, or as soon as possible
prior to, shall send to such Depositor, in the manner set forth in paragraph
(e) of this Section 5, a check to the order of such Depositor in the amount of
interest and other income earned and not yet paid with respect to any
investment of such Depositor's Rejected Order amount. At the time of such
transfer, the Escrow Agent shall identify in writing to the Company and the
Placement Agent the amount of the interest earned for the account of each
Depositor and the date such order was received.
(d) As soon as practicable following the transfer
of any interest earned for the account of each Depositor pursuant to Section
5(a), (b) or (c), but not later than January 31, 1997, the Escrow Agent shall
provide each Depositor with tax form 1099 setting forth the amount of such
interest.
(e) For the purposes of this Section 5, any check
that the Escrow Agent shall be required to send to any Depositor shall be sent
to such Depositor by first class mail, postage prepaid, at such Depositor's
address furnished to the Escrow Agent pursuant to Section 4.
(f) In the event funds transfer instructions are
given (other than in writing at the time of execution of the Escrow Agreement)
whether in writing, by telecopier or otherwise, the Escrow Agent is authorized
to seek confirmation of such instructions by telephone call-back to the person
or persons designated on Exhibit D hereto and the Escrow Agent may rely upon
the confirmations of anyone purporting to be the person or persons so
designated. The persons and telephone numbers for call-backs may be changed
only in writing actually received and acknowledged by the Escrow Agent. The
parties to this Escrow Agreement acknowledge that such security procedure is
commercially reasonable.
(g) It is understood that in any funds transfer
the Escrow Agent and the beneficiary's bank may rely solely upon any account
numbers or similar identifying numbers provided by either of the parties hereto
to identify (i) the beneficiary, (ii) the beneficiary's bank, or (iii) an
intermediary bank. The Escrow Agent may apply any of the Escrowed Property for
any payment order it executes using any such identifying number, even where
such number's use may result in a person other than the beneficiary being paid,
or the transfer of funds to a bank other than the beneficiary's bank or the
intermediary bank intended to be designated.
4
<PAGE> 5
6. Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be (a)
delivered by hand, (b) sent by facsimile transmission or (c) sent by mail,
registered or certified, with proper postage prepaid, and addressed as follows:
if to the Company, to:
Amerihost Properties, Inc.
2400 East Devon Avenue, Suite 280
Des Plaines, Illinois 60018
Attention: Michael P. Holtz
Facsimile: (847) 298-4505
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Helen R. Friedli, Esq.
Facsimile: (312) 984-3669
if to the Placement Agent, to:
Oppenheimer & Co., Inc.
One World Financial Center
200 Liberty Street
New York, New York 10281
Attention: Stephen Blank
Facsimile: (212) 667-5851
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: Jay Bernstein, Esq.
Facsimile: (212) 878-8375
if to the Escrow Agent, to:
The Chase Manhattan Bank
Escrow Administration
450 West 33rd Street
New York, New York 10001
Attention: Escrow Administration
Facsimile: (212) 946-7682
5
<PAGE> 6
or to such other address or telecopier number as the person to whom notice is
to be given may have previously furnished to the others in the above-referenced
manner. All such notices and communications delivered by hand or by facsimile
shall be effective upon delivery or transmission, and if mailed, shall be
effective when deposited in the mails, except that notices and communications
to the Escrow Agent and notices of changes of address shall not be effective
until received.
7. Rights, Duties and Responsibilities of Escrow Agent.
It is understood and agreed that the duties of the Escrow Agent are purely
ministerial in nature and that:
(a) The Escrow Agent shall not be responsible for
or be required to enforce any of the terms or conditions of the Placement
Agency Agreement, dated the date hereof between the Company and the Placement
Agent, or any other agreement between the Placement Agent and the Company, nor
shall the Escrow Agent be responsible for the performance by the Placement
Agent or the Company of their respective obligations under this Escrow
Agreement.
(b) The Escrow Agent shall not be required to
accept from the Placement Agent any Investment Information pertaining to
Depositors unless such Investment Information is accompanied by checks or wire
transfers representing the payment of money. In addition, if there is any
discrepancy between the amount set forth in any Investment Information and the
amount delivered to the Escrow Agent therewith, such amount need not be
accepted by the Escrow Agent for deposit in the Escrow Account until such
discrepancy has been resolved.
(c) The Escrow Agent shall be under no duty or
responsibility to enforce collection of any check delivered to it hereunder.
The Escrow Agent shall return to the Placement Agent any check received which
is dishonored, together with the Investment Information, if any, which
accompanied such check.
(d) The Escrow Agent shall be entitled to rely
upon the accuracy of, act in reliance upon the contents of, and assume the
genuineness of, any notice, instruction, certificate, signature, instrument, or
other document which is given to the Escrow Agent without verifying the truth
or accuracy thereof. The Escrow Agent shall not be obligated to make any
inquiry as to the authority, capacity, existence or identity of any person
purporting to give any such notice or instructions, or as to the execution of
any such certificate, instrument or other document.
(e) If the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions with respect to
the Escrow Account or the Escrowed Property which it, in its sole judgment,
deems in conflict either with other instructions received by it or with any
provision of this Escrow Agreement, it shall be entitled to hold the Escrowed
Property, or a portion thereof, in the Escrow Account pending the resolution of
such uncertainty to the Escrow Agent's sole satisfaction, by final judgment of
a court or courts of competent jurisdiction or otherwise, or the Escrow Agent,
at its sole option, may deposit the Escrowed
6
<PAGE> 7
Property (and any other amounts that thereafter become a part of the Escrowed
Property) with the clerk of a court of competent jurisdiction in a proceeding
to which all parties in interest are joined. Upon the deposit by the Escrow
Agent of the Escrowed Property with the clerk of any court, the Escrow Agent
shall be relieved of all further obligations and released from all liability
hereunder.
(f) The Escrow Agent shall not be liable for any
action taken or omitted hereunder, or for the misconduct of any employee,
agent, or attorney appointed by it, except in the case of willful misconduct or
gross negligence. The Escrow Agent shall be entitled to consult with the
counsel of its own choosing and shall not be liable for any action taken,
suffered, or omitted by it in accordance with the advice of such counsel.
(g) The Escrow Agent shall have no responsibility
at any time to ascertain whether any security interest exists in the Escrowed
Property or any part thereof, or to file any financing statement under the
Uniform Commercial Code with respect to the Escrowed Property or any part
thereof.
8. Amendment and Resignation. This Escrow Agreement may
be altered or amended only with the written consent of the Company, the
Placement Agent and the Escrow Agent. The Escrow Agent may resign for any
reason upon five (5) business days' written notice to the Company and the
Placement Agent. If the Escrow Agent resigns as herein provided, following
such resignation it shall not be required to accept any deposit, make any
disbursement, or otherwise dispose of the Escrowed Property; provided, however,
it shall be required to hold the Escrowed Property for a period of not more
than five (5) business days following the effective date of such resignation,
at which time (a) if a successor escrow agent has been appointed and written
notice thereof (including the name and address of such successor escrow agent)
signed by the Company, the Placement Agent, and such successor escrow agent,
has been given to the resigning Escrow Agent by the Company, the Placement
Agent, and such successor escrow agent, then the resigning Escrow Agent shall
pay over to the successor escrow agent the Escrowed Property, less any portion
thereof previously paid out in accordance with this Escrow Agreement or (b) if
the resigning Escrow Agent shall not have received written notice signed by the
Company, the Placement Agent, and a successor escrow agent, then the resigning
Escrow Agent shall promptly refund the Escrowed Property to each Depositor,
without deduction therefrom, and the resigning Escrow Agent shall notify the
Company and the Placement Agent, in writing, of its liquidation and
distribution of the Escrowed Property. In either case, the Escrow Agent shall
be relieved of all further obligations and released from all liability under
this Escrow Agreement.
9. Representations and Warranties. The Company and the
Placement Agent hereby jointly and severally represent and warrant to the
Escrow Agent that:
(a) No party, other than the parties hereto and
the Depositors, has or shall have any lien, claim, or security interest in the
Escrowed Property or any part thereof.
7
<PAGE> 8
(b) No financing statement under the Uniform
Commercial Code is on file in any jurisdiction claiming a security interest in
or describing (whether specifically or generally) the Escrowed Property or any
part thereof.
(c) The Investment Information submitted with
each deposit, at the time of submission and at the time of the disbursement of
the Escrowed Property, shall be deemed a representation and warranty that such
deposit represents a bona fide sale to the Depositor described therein of the
amount of Shares set forth in such Investment Information.
10. Fees and Expenses. The Escrow Agent shall be
entitled to a non-refundable fee of $5,000, payable upon the execution of this
Escrow Agreement. In addition, the Company agrees to reimburse the Escrow
Agent for any reasonable expenses incurred in connection with this Escrow
Agreement, including, but not limited to, reasonable counsel fees for counsel
of its own choosing.
11. Indemnification and Contribution.
(a) The Company and the Placement Agent
(collectively, the "Indemnitors") jointly and severally agree to indemnify the
Escrow Agent and its officers, directors, employees, agents and shareholders
(jointly and severally, the "Indemnitees") against, and hold them harmless of
and from, any and all losses, liabilities, costs, damages, and expenses,
including, but not limited to, reasonable counsel fees for counsel of its own
choosing, which the Indemnitees may suffer or incur by reason of any action,
claim, or proceeding brought against the Indemnitees, and which arise out of or
relate to the Escrow Agreement or any transactions to which this Escrow
Agreement relates, unless such action, claim or proceeding is the result of the
willful misconduct or gross negligence of the Indemnitees. Anything in this
Escrow Agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for special, indirect and consequential loss or damages of any
kind whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.
(b) If the indemnification provided for in this
Section 11 is applicable but is held to be unavailable, the Indemnitors shall
contribute such amounts as are just and equitable to pay or to reimburse the
Indemnitees for the aggregate of any and all losses, liabilities, costs,
damages, and expenses, including counsel fees, actually incurred by the
Indemnities as a result of or in connection with any amount paid in settlement
of any action, claim, or proceeding arising out of or relating in any way to
any actions or omissions of the Indemnitors.
(c) The provisions of this Section 11 shall
survive any termination of this Escrow Agreement, whether by disbursement of
the Escrowed Property, resignation of the Escrow Agent, or otherwise.
12. Governing Law and Assignments. This Escrow Agreement
shall be construed in accordance with and governed by the laws of the State of
New York, and shall be binding upon the parties and their respective successors
and assigns; provided, however, any
8
<PAGE> 9
assignment or transfer by any party of its rights under this Escrow Agreement
or with respect to the Escrowed Property shall be void as against the Escrow
Agent unless (i) written notice thereof shall be given to the Escrow Agent, and
(ii) the Escrow Agent has consented in writing to such assignment or transfer.
13. Execution in Several Counterparts. This Agreement
may be executed in several counterparts or by separate instruments and all of
such counterparts and instruments shall constitute one agreement which is
binding on all of the parties hereto.
14. Entire Agreement. This Escrow Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings (written
or oral) of the parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Escrow
Agreement as of the day and year first above written.
THE CHASE MANHATTAN BANK
By:
_____________________________
Name:
Title:
AMERIHOST PROPERTIES, INC.
By:
_____________________________
Name:
Title:
OPPENHEIMER & CO., INC.
By:
_____________________________
Name:
Title:
9
<PAGE> 10
EXHIBIT A
[Form of Offering Termination Notice]
______________, 199_
The Chase Manhattan Bank
Escrow Administration
450 West 33rd Street
New York, New York 10001
Attention: _________________________
Senior Trust Officer
Dear :
Pursuant to Section 5(a) of the Escrow Agreement dated as of
_______________, 1996 (the "Escrow Agreement") among Amerihost Properties,
Inc., a Delaware corporation (the "Company), Oppenheimer & Co., Inc. (the
"Placement Agent") and you, the Company and the Placement Agent hereby notify
you of the termination of the offering of the Shares (as that term is defined
in the Escrow Agreement) and directs you to make payments, as provided for in
Section 5(a) of the Escrow Agreement, to all persons who deposited funds in the
Escrow Account (as that term is defined in the Escrow Agreement).
Very truly yours,
AMERIHOST PROPERTIES, INC.
By:
_________________________________
Name:
Title:
OPPENHEIMER & CO., INC.
By:
_________________________________
Name:
Title:
A-1
<PAGE> 11
EXHIBIT B
[Form of Closing Notice]
_____________, 199_
The Chase Manhattan Bank
Escrow Administration
450 West 33rd Street
New York, New York 10001
Attention: _________________________
Senior Trust Officer
Ladies and Gentlemen:
Pursuant to Section 5(b) of the Escrow Agreement dated as of
____________, 1996, (the "Escrow Agreement") among Amerihost Properties, Inc.,
a Delaware corporation (the "Company"), Oppenheimer & Co., Inc. (the "Placement
Agent") and you, the Company and the Placement Agent hereby certify that they
have received orders for the Shares (as that term is defined in the Escrow
Agreement) and the Company will sell and deliver the Shares to the purchasers
thereof at a closing to be held on ___________, 1996 (the "Closing Date"). The
names of the purchasers concerned, the number of Shares ordered by each of such
purchasers and the related purchase amounts are set forth on Schedule I annexed
hereto.
Please accept these instructions as standing instructions for
the closing to be held on the Closing Date. The parties hereto certify that
they do not wish to have a call-back regarding these instructions.
We hereby request that the aggregate amounts paid by
Depositors for the Shares be paid as follows:
1. To the Amerihost Properties, Inc., $_________; and
2. To Oppenheimer & Co., Inc., $__________;
B-1
<PAGE> 12
These instructions may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
AMERIHOST PROPERTIES, INC.
By:
____________________________
Name:
Title:
OPPENHEIMER & CO., INC.
By:
____________________________
Name:
Title:
B-2
<PAGE> 13
SCHEDULE I
<TABLE>
<CAPTION>
Name of Number of Purchase
Purchaser Shares Amount
--------- --------- --------
<S> <C> <C>
</TABLE>
<PAGE> 14
EXHIBIT C
[Form of Order Termination Notice]
____________, 199_
The Chase Manhattan Bank
Escrow Administration
450 West 33rd Street
New York, New York 10001
Attention: _________________________
Senior Trust Officer
Dear :
Pursuant to Section 5(a) of the Escrow Agreement dated as of
_______________, 1996 (the "Escrow Agreement") among Amerihost Properties,
Inc., a Delaware corporation (the "Company"), Oppenheimer & Co., Inc. (the
"Placement Agent") and you, notice is hereby given that the following order(s)
have been rejected:
<TABLE>
<CAPTION>
Name of Amount of Dollar Amount
Purchaser Shares Rejected of Rejected Order
--------- --------------- -----------------
<S> <C> <C>
</TABLE>
Very truly yours,
[Signature of Amerihost or Oppenheimer
to be added as appropriate]
C-1
<PAGE> 15
EXHIBIT D
Telephone Number(s) for Call-Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
If to Company:
Name Telephone Number
---- ----------------
1.
2.
3.
If to Placement Agent:
Name Telephone Number
---- ----------------
1.
2.
3.
Telephone call-backs shall be made to Company and Placement Agent if joint
instructions are required pursuant to the Escrow Agreement.
D-1
<PAGE> 1
EXHIBIT 5.1
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
October 21, 1996
Amerihost Properties, Inc.
2400 East Devon Avenue, Suite 280
Diamond Plaza
Des Plaines, Illinois 60018
Re: Registration Statement on Form S-2
File No. 333-6519
Ladies and Gentlemen:
You have requested our opinion in connection with the
above-referenced registration statement (the "Registration Statement"), under
which Amerihost Properties, Inc. (the "Company") intends to issue and sell in a
public offering 1,150,000 shares (the "Shares") of Common Stock, par value
$.005 per share, of the Company ("Common Stock").
In arriving at the opinion expressed below, we have examined
the Registration Statement and such other documents as we have deemed necessary
to enable us to express the opinion hereinafter set forth. In addition, we
have examined and relied, to the extent we deem proper, on certificates of
officers of the Company as to factual matters, and on the originals or copies
certified or otherwise identified to our satisfaction, of all such corporate
records of the Company and such other instruments and certificates of public
officials and other persons as we have deemed appropriate. In our examination,
we have assumed the authenticity of all documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
copies, the genuineness of all signatures on documents reviewed by us and the
legal capacity of natural persons.
Based upon and subject to the foregoing, we are of the opinion
that the Shares have been duly authorized and, when issued in accordance with
the terms and conditions set forth in the Registration Statement, will be
validly issued, fully paid and non-assessable.
<PAGE> 2
Amerihost Properties, Inc.
October 21, 1996
Page 2
We hereby consent to the references to our firm under the
caption "Legal Matters" in the Registration Statement and to the use of this
opinion as an exhibit to the Registration Statement. In giving this consent,
we do not hereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Amerihost Properties, Inc.
Des Plaines, Illinois
We hereby consent to the use in the Prospectus constituting a part of
this Registration Statement of our report dated February 29, 1996, relating to
the consolidated financial statements of Amerihost Properties, Inc., which is
contatined in that Prospectus.
We also consent to the reference to us under the captions "Financial
Information" and "Experts" in the Prospectus.
BDO Seidman, LLP
BDO SEIDMAN, LLP
Chicago, Illinois
October 21, 1996
