<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION STATEMENT NO. 333-06519
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO.1
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. / /
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AMERIHOST PROPERTIES, INC.
Cross Reference Sheet
Pursuant to Regulation S-K Item 501(b)
<TABLE>
<CAPTION>
FORM S-2 LOCATION IN PROSPECTUS
- -------------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page; Outside Back Cover
Page; Available Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................. Prospectus Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant................................. Outside Front Cover Page; Prospectus Sum-
mary; Risk Factors; Capitalization;
Dividend Policy; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Certain Transactions; Principal
Shareholders; Description of Capital Stock;
Shares Eligible for Future Sale; Under-
writing; Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference.................................. Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
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 JULY 3, 1996
PROSPECTUS
3,000,000 SHARES
AMERIHOST PROPERTIES, INC.
COMMON STOCK
------------------
All 3,000,000 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 reduce existing indebtedness and to
finance the development and construction of additional hotel properties.
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 July 2, 1996 was $8.50 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 PURCHASERS OF 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Share......................................... $ $ $
Total (3)......................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deduction of expenses of the Offering payable by the Company
estimated to be $590,000.
(3) The Company has granted the Underwriters an option, exercisable for 30 days
from the date hereof, to purchase up to an aggregate of 450,000 additional
shares of Common Stock at the Price to Public per share, less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares will be made
against payment on or about , 1996 at the offices of Oppenheimer &
Co., Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281.
------------------
OPPENHEIMER & CO., INC. BT SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
<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
- --------------------------------------------------------------------------------
[Exterior Picture of AmeriHost Inn located at Lancaster, Ohio]
- --------------------------------------------------------------------------------
Lancaster, Ohio
---------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR 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.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 5
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 otherwise indicated, the
information presented in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. 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 53 AmeriHost Inn hotels open, under construction or under
development in 13 states as of May 31, 1996. The Company had 24 AmeriHost Inn
hotels open, 15 under construction and 14 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 25.8% of the outstanding Common Stock of the Company and will
beneficially own in the aggregate approximately 18.1% of the outstanding Common
Stock following the Offering.
3
<PAGE> 6
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.
All AmeriHost Inn hotels built to date have generated positive cash flow
after debt service for the first twelve months of operations following an
initial stabilization period of approximately 120 days. 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> 7
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 May 31, 1996, the Company was constructing 15 hotels and had 14
hotels under development. Upon completion, all 29 of these hotels will be
operated as AmeriHost Inn hotels. Additionally, the Company expects that 10 of
these hotels will be Wholly-Owned Hotels, 18 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 50 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 May 31,
1996, agreements had been entered into for the sale of 4 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> 8
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 1,900 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......... 3,000,000 shares
Common Stock to be Outstanding
After the Offering........................ 9,021,271 shares (1)
Use of Proceeds............................. To reduce outstanding indebtedness, 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.
The Nasdaq National Market Symbol........... HOST
</TABLE>
- ---------------
(1) Based upon outstanding shares as of May 31, 1996. Does not include 1,854,627
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
125,000 shares reserved for issuance under the Company's Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") and 125,000 shares reserved for
issuance under the Company's Incentive Stock Option Plan (the "Incentive
Stock Plan"). As of such date, no options had been awarded under either the
Non-Qualified Plan or the Incentive Stock Plan.
6
<PAGE> 9
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 March 31, 1996 and for each of the twelve months and the three
months ended March 31, 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 March 31, 1996 and for each of the
twelve months and the three months ended March 31, 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 three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the full
year.
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, MARCH 31,
------------------------------------------------------ -------------------- --------------------
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 $ 17,089 $ 25,829 $ 4,115 $ 5,583
Development and
construction...... 4,449 8,367 6,971 12,037 12,238 16,939 10,713 5,505 3,980
Management
services.......... 1,561 2,225 2,849 2,712 3,011 2,740 2,936 564 490
Employee leasing.... - 12,033 15,362 13,170 12,353 12,903 11,972 2,973 2,592
------ -------- -------- -------- -------- -------- -------- -------- --------
Total revenue... 6,524 29,411 34,274 43,347 51,962 49,671 51,450 13,157 12,645
Expenses:
Operating costs and
expenses.......... 4,851 25,445 30,389 37,077 41,317 42,388 40,059 12,009 10,751
Depreciation and
amortization...... 191 421 928 1,141 2,268 1,302 2,636 435 803
Leasehold rents -
hotels............ - 1,149 1,652 1,661 1,976 1,693 1,971 452 446
Corporate general
and
administrative.... 1,043 1,399 1,783 2,012 2,111 1,834 2,128 468 485
------ -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).............. 439 997 (478) 1,456 4,290 2,454 4,656 (207) 160
Other income
(expense):
Interest expense.... (267) (455) (590) (855) (1,756) (1,013) (2,113) (308) (665)
Interest income..... 67 235 479 428 561 429 624 92 154
Other income........ 5 3 25 38 44 57 66 20 42
Equity in net income
and losses of
affiliates........ 37 (80) 30 31 387 53 426 (183) (145)
Debt acceleration
charge............ - - (485) - - - - - -
------ -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
minority interests
and income taxes.... 281 700 (1,019) 1,098 3,526 1,980 3,659 (586) (454)
Minority interests in
operations of
consolidated
subsidiaries and
partnerships........ (1) (12) (38) (146) (59) (78) 32 112 204
------ -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income tax.......... 280 688 (1,057) 952 3,467 1,902 3,691 (474) (250)
Income tax expense
(benefit), net of
carryforward........ - 177 (296) 381 1,329 760 1,417 (190) (102)
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ 280 $ 511 $ (761) $ 571 $ 2,138 $ 1,142 $ 2,274 $ (284) $ (148)
====== ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share............... $ 0.17 $ 0.22 $ (0.15) $ 0.10 $ 0.35 $ 0.20 $ 0.36 $ (0.05) $ (0.02)
====== ======= ======= ======= ======= ======= ======= ======= =======
Weighted average
shares outstanding
(1)................. 1,685 2,347 5,038 5,624 6,125 5,634 6,305 5,663 5,976
OTHER INFORMATION:
EBITDA(2)............. $ 738 $ 2,713 $ 2,598 $ 4,609 $ 9,467 $ 5,910 $ 10,411 $ 721 $ 1,665
Net cash provided by
(used in) operating
activities.......... $ (54) $ 1,267 $ 693 $ 2,215 $ 1,918 $ 3,294 $ 1,395 $ (132) $ (655)
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------------
AT DECEMBER 31, 1995 ACTUAL AS ADJUSTED(3)
-------------------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents............................ $ 1,371 $ 1,528 $ 4,126
Total assets......................................... 52,453 54,242 56,840
Long-term debt, including current portion............ 25,014 26,502 7,815
Shareholders' equity................................. 17,267 17,063 41,723
</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 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 3,000,000 shares of Common
Stock offered hereby at an assumed offering price of $9.00 per share and the
application of the estimated net proceeds therefrom.
8
<PAGE> 11
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
4 hotels for the years ended December 31, 1993, 1994 and 1995, respectively, and
4 and 5 hotels for the twelve months ended March 31, 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 30 hotels for each of the twelve months ended March 31, 1995
and 1996.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AVERAGE OCCUPANCY(1)
AmeriHost Inn hotels.................... 65.9% 68.6% 72.6% 69.6% 71.8%
Other Owned Hotels...................... 59.7% 59.9% 62.2% 59.6% 61.4%
Owned Hotels............................ 60.1% 60.5% 63.1% 60.3% 62.4%
AVERAGE DAILY RATE (ADR)(2)
AmeriHost Inn hotels.................... $49.01 $49.99 $52.21 $50.01 $52.63
Other Owned Hotels...................... $39.71 $44.13 $45.62 $44.24 $45.92
Owned Hotels............................ $40.37 $44.60 $46.28 $44.69 $46.66
REVENUE PER AVAILABLE
ROOM (REVPAR)(3)
AmeriHost Inn hotels.................... $32.28 $34.28 $37.90 $34.82 $37.79
Other Owned Hotels...................... $23.72 $26.41 $28.39 $26.35 $28.19
Owned Hotels............................ $24.27 $26.97 $29.22 $26.93 $29.11
GROSS OPERATING PROFIT MARGIN(4)
AmeriHost Inn hotels.................... 48.5% 48.2% 49.5% 47.8% 48.8%
Other Owned Hotels...................... 29.0% 31.4% 31.5% 31.2% 29.4%
Owned Hotels............................ 30.6% 32.8% 33.5% 32.6% 31.7%
EBITDA MARGIN(5)
AmeriHost Inn hotels.................... 44.6% 44.1% 45.6% 43.6% 44.9%
Other Owned Hotels...................... 22.1% 24.8% 25.0% 24.6% 22.6%
Owned Hotels............................ 23.9% 26.4% 27.2% 26.2% 25.2%
ROOM MARGIN(6)
AmeriHost Inn hotels.................... 80.4% 81.4% 80.8% 80.9% 80.7%
Other Owned Hotels...................... 76.0% 77.6% 77.1% 77.2% 76.4%
Owned Hotels............................ 76.4% 78.0% 77.5% 77.6% 76.9%
</TABLE>
- ---------------
(1) Calculated as occupied rooms divided by available rooms.
(2) Calculated as room revenues divided by occupied rooms.
(3) Calculated as ADR multiplied by average occupancy.
(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> 12
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 May 31, 1996 and hotels which were
under development at May 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MAY 31,
---------------------------- ----------
1993 1994 1995 1996
----- ------ ----- ----------
<S> <C> <C> <C> <C>
NUMBER OF HOTELS OPEN
Owned Hotels:
AmeriHost Inn hotels(1)....................... 4 6 13 22(2)
Other Owned Hotels............................ 31 37 35 29(2)
Managed Hotels(3)............................. 14 10 10 11
----- ------ ----- ----------
Total....................................... 49 53 58 62
NUMBER OF ROOMS OPEN
Owned Hotels:
AmeriHost Inn hotels(1)....................... 240 360 841 1,482(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 6,070
NUMBER OF HOTELS UNDER CONSTRUCTION(4)
Owned Hotels:
AmeriHost Inn hotels.......................... 0 5 16 15
Other Owned Hotels............................ 2 2 0 0
Managed Hotels................................... 0 1 1 0
----- ------ ----- ----------
Total....................................... 2 8 (5) 17 15
NUMBER OF ROOMS UNDER CONSTRUCTION(4)
Owned Hotels:
AmeriHost Inn hotels.......................... 0 300 986 903
Other Owned Hotels............................ 178 148 0 0
Managed Hotels................................... 0 60 100 0
----- ------ ----- ----------
Total....................................... 178 508 (5) 1,086 903
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, 1996
-----------------
HOTELS ROOMS
------ -----
<S> <C> <C>
NUMBER UNDER DEVELOPMENT(6)
Owned Hotels:
AmeriHost Inn hotels.......................... 13 793
Other Owned Hotels............................ 0 0
Managed Hotels................................... 1 61
------ -----
Total....................................... 14 854
</TABLE>
- ---------------
(1) Excludes two AmeriHost Inn hotels owned by unaffiliated third parties which
are Managed Hotels.
(2) Between December 31, 1995 and May 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> 13
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> 14
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 May 31, 1996, the Company had 24 AmeriHost Inn hotels open
(including 2 AmeriHost Inn hotels which are Managed Hotels), 15 AmeriHost Inn
hotels under construction and 14 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> 15
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 May 31, 1996, the Company had 15 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> 16
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 May 31, 1996, the Owned Hotels had indebtedness
outstanding of approximately $69.4 million, with a weighted average interest
rate and remaining years to maturity of 9.48% per annum and 9 years,
respectively. The Company is a general partner in Joint Ventures which, at May
31, 1996, had approximately $47.2 million in recourse indebtedness outstanding.
At May 31, 1996, the Company had guaranteed mortgage loan obligations in the
aggregate principal amount of approximately $37.9 million for 40 Owned Hotels.
In certain instances, other Joint Venture partners have also guaranteed these
debts. The Company intends to use approximately $18.7 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, approximately $15.1
million 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 $35.1 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> 17
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 May 31, 1996, the Company had investments in 34 Owned Hotels in which
the Company is not the sole owner. Of such 34 Owned Hotels, 8 are Majority-Owned
Hotels and 26 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 62 Hotels owned, operated or managed by the Company at May 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, Senior 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> 18
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> 19
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 9,021,271 shares of Common Stock (9,471,271 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares of
Common Stock, 7,051,238 shares, including the 3,000,000 shares (assuming the
Underwriters' over-allotment is not exercised) sold in the Offering, will be
freely tradeable by persons other than affiliates of the Company. The remaining
1,970,033 shares of Common Stock 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 260,000 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 1,854,627 shares of
Common Stock, of which options and warrants to purchase 1,558,627 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 representatives of the Underwriters.
See "Shares Eligible For Future Sale" and "Underwriting."
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering (after
deducting the underwriting discount and expenses of the Offering) are estimated
to be approximately $24.7 million, assuming an offering price of $9.00 per share
($28.4 million if the Underwriters' over-allotment option is exercised in full).
The Company estimates that it will use approximately $3.4 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 $18.7 million of
long-term debt, including current portion, expected to be outstanding at the
time of the Offering which will be secured by 13 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 7.25% to 10.5% and an average of 7.5 years remaining to
maturity. Certain of such long-term loans have floating rates of interest. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." The Company intends to use the
remaining 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 application of the net proceeds as set forth above, the
Company intends to invest the net proceeds of the Offering in short-term,
investment-grade, interest-bearing instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - 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 May 31, 1996, there were 1,565 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 July 2, 1996 was $8.50 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........................................................... 5.25 3.75
Third quarter............................................................ 4.88 3.50
Fourth quarter........................................................... 5.50 3.50
FISCAL YEAR ENDED DECEMBER 31, 1995
First quarter............................................................ $4.88 $3.56
Second quarter........................................................... 5.75 4.31
Third quarter............................................................ 7.50 5.63
Fourth quarter........................................................... 7.25 6.13
FISCAL YEAR ENDED DECEMBER 31, 1996
First quarter............................................................ $8.25 $6.25
Second quarter........................................................... 9.94 8.50
Third quarter (through July 2, 1996)..................................... 8.63 8.38
</TABLE>
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to the sale of 3,000,000 shares of
Common Stock offered hereby at an assumed offering price of $9.00 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 MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(dollars in thousands)
<S> <C> <C>
Current liabilities:
Bank line of credit............................................... $ 3,376 $ --
Current portion of long-term debt................................. 1,046 658
Long-term debt, net of current portion.............................. 25,456 7,158
Shareholders' equity:
Common Stock, $.005 par value, 15,000,000 shares authorized,
5,975,374 shares issued and outstanding at March 31, 1996;
8,975,374 issued and outstanding, as adjusted (1).............. 30 45
Additional paid-in capital........................................ 16,915 41,561
Retained earnings................................................. 1,562 1,562
-------- -----------
18,507 43,168
Less stock subscription receivable................................ (437) (437)
Less notes receivable (2)......................................... (1,008) (1,008)
-------- -----------
Total shareholders' equity..................................... 17,062 41,723
-------- -----------
Total capitalization........................................... $ 46,940 $ 49,539
======= ==========
</TABLE>
- ---------------
(1) Does not include 1,854,627 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 125,000 shares
reserved for issuance under the Company's Non-Qualified Plan and 125,000
shares reserved for issuance under the Company's Incentive Stock Plan. As of
such date, no options had been awarded under either the Non-Qualified Plan
or 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 March
31, 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> 22
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 March 31, 1996 and for each of the twelve months and three months
ended March 31, 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 March 31, 1996 and for each of the twelve
months and three months ended March 31, 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 three-months ended March 31, 1996 is
not necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31, MARCH 31,
------------------------------------------------------ -------------------- --------------------
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 $ 17,089 $ 25,829 $ 4,115 $ 5,583
Development and
construction...... 4,449 8,367 6,971 12,037 12,238 16,939 10,713 5,505 3,980
Management
services.......... 1,561 2,225 2,849 2,712 3,011 2,740 2,936 564 490
Employee leasing.... - 12,033 15,362 13,170 12,353 12,903 11,972 2,973 2,592
------ -------- -------- -------- -------- -------- -------- -------- --------
Total revenue... 6,524 29,411 34,274 43,347 51,962 49,671 51,450 13,157 12,645
------ -------- -------- -------- -------- -------- -------- -------- --------
Expenses:
Operating costs and
expenses:
Hotel
operations...... 327 4,851 6,779 10,457 17,065 11,709 18,347 3,457 4,739
Development and
construction.... 3,514 6,671 6,112 11,316 10,118 15,712 8,067 5,164 3,114
Management
services........ 1,010 2,038 2,297 2,289 2,003 2,228 1,919 457 372
Employee
leasing......... - 11,885 15,201 13,015 12,131 12,739 11,726 2,931 2,526
------ -------- -------- -------- -------- -------- -------- -------- --------
Total operating
costs and
expenses...... 4,851 25,445 30,389 37,077 41,317 42,388 40,059 12,009 10,751
------ -------- -------- -------- -------- -------- -------- -------- --------
1,673 3,966 3,885 6,270 10,645 7,283 11,391 1,148 1,894
Depreciation and
amortization...... 191 421 928 1,141 2,268 1,302 2,636 435 803
Leasehold rents --
hotels............ - 1,149 1,652 1,661 1,976 1,693 1,971 452 446
Corporate general
and
administrative.... 1,043 1,399 1,783 2,012 2,111 1,834 2,128 468 485
------ -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss).............. 439 997 (478) 1,456 4,290 2,454 4,656 (207) 160
Other income
(expense):
Interest expense.... (267) (455) (590) (855) (1,756) (1,013) (2,113) (308) (665)
Interest income..... 67 235 479 428 561 429 624 92 154
Other income........ 5 3 25 38 44 57 66 20 42
Equity in net income
and losses of
affiliates........ 37 (80) 30 31 387 53 426 (183) (145)
Debt acceleration
charge............ - - (485) - - - - - -
------ -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
minority interests
and income taxes.... 281 700 (1,019) 1,098 3,526 1,980 3,659 (586) (454)
Minority interests in
operations of
consolidated
subsidiaries and
partnerships........ (1) (12) (38) (146) (59) (78) 32 112 204
------ -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income tax.......... 280 688 (1,057) 952 3,467 1,902 3,691 (474) (250)
Income tax expense
(benefit), net of
carryforward........ - 177 (296) 381 1,329 760 1,417 (190) (102)
------ -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..... $ 280 $ 511 $ (761) $ 571 $ 2,138 $ 1,142 $ 2,274 $ (284) $ (148)
====== ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share............... $ 0.17 $ 0.22 $ (0.15) $ 0.10 $ 0.35 $ 0.20 $ 0.36 $ (0.05) $ (0.02)
====== ======= ======= ======= ======= ======= ======= ======= =======
Weighted average
shares
outstanding(1)...... 1,685 2,347 5,038 5,624 6,125 5,634 6,305 5,663 5,976
OTHER INFORMATION:
EBITDA(2)............. $ 738 $ 2,713 $ 2,598 $ 4,609 $ 9,467 $ 5,910 $ 10,411 $ 721 $ 1,665
Net cash provided by
(used in) operating
activities.......... $ (54) $ 1,267 $ 693 $ 2,215 $ 1,918 $ 3,294 $ 1,395 $ (132) $ (655)
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------------
AT DECEMBER 31, 1995 ACTUAL AS ADJUSTED(3)
-------------------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET INFORMATION:
Cash and cash equivalents............................ $ 1,371 $ 1,528 $ 4,126
Total assets......................................... 52,453 54,242 56,840
Long-term debt, including current portion............ 25,014 26,502 7,815
Shareholders' equity................................. 17,267 17,063 41,723
</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 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 3,000,000 shares of Common
Stock offered hereby at an assumed offering price of $9.00 per share and the
application of the estimated net proceeds therefrom.
21
<PAGE> 24
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 May 31, 1996, there were 24 AmeriHost Inn hotels,
of which 10 were Wholly-Owned Hotels, one was a Majority-Owned Hotel, 11 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 7 of the AmeriHost Inn hotels under
development as of May 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 May 31, 1996, the Company
had 15 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> 25
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 three months ended March 31, 1995
and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
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 91.3 85.0
----- ----- ----- ----- -----
11.3 14.5 20.5 8.7 15.0
Depreciation and amortization.............. 2.7 2.6 4.4 3.3 6.4
Leasehold rents -- hotels.................. 4.8 3.8 3.8 3.4 3.5
Corporate general and administrative....... 5.2 4.7 4.0 3.6 3.8
----- ----- ----- ----- -----
Operating income (loss).................... (1.4) 3.4 8.3 (1.6) 1.3
Interest expense........................... (1.7) (2.0) (3.4) (2.3) (5.3)
Interest and other income.................. 1.5 1.1 1.2 .8 1.5
Equity in income (loss) of affiliates...... 0.1 - 0.7 (1.4) (1.1)
Debt acceleration charge................... (1.4) - - - -
----- ----- ----- ----- -----
Income (loss) before minority interest..... (2.9) 2.5 6.8 (4.5) (3.6)
Minority interests in operations of
consolidated subsidiaries and
partnerships............................. (0.1) (0.3) (0.1) 0.9 1.6
----- ----- ----- ----- -----
Income (loss) before taxes................. (3.0) 2.2 6.7 (3.6) (2.0)
Income tax expense (benefit)............... (0.8) 0.9 2.6 (1.4) (0.8)
----- ----- ----- ----- -----
Net income (loss).......................... (2.2)% 1.3% 4.1% (2.2)% (1.2)%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenue
Revenues of $12.6 million for the three months ended March 31, 1996
decreased 3.9% from revenues of $13.2 million for the three months ended March
31, 1995. This decrease was due primarily to a significant decrease in the
Company's hotel development segment, which was primarily due to weather related
delays in hotel construction activity, as well as a smaller decrease in the
hotel management segment, partially offset by an increase in the hotel
operations segment.
Hotel operations revenues increased 35.7% to $5.6 million in the first
quarter of 1996, as compared to $4.1 million in the first quarter of 1995. This
increase was primarily attributable to the net addition of 6 Consolidated Hotels
to the hotel operations segment since March 31, 1995. The Company held a
minority ownership position in 2 of these 6 hotels prior to these hotels
becoming Consolidated Hotels in the second and fourth quarters of 1995 when
additional ownership interests were acquired. The first quarter of 1996 included
the operations of 24 Consolidated Hotels comprising 2,510 rooms compared to 18
Consolidated Hotels comprising 2,025 rooms in the first quarter of 1995, or an
increase of 24.0% in total rooms. After considering the Company's ownership
interest in these Consolidated Hotels, this translates to 2,137 and 1,697
equivalent owned rooms at March 31, 1996 and 1995, respectively, or an increase
of 25.9%.
Hotel development revenues decreased 27.7% to $4.0 million in the first
quarter of 1996 from $5.5 million in the first quarter of 1995. This decrease
was due primarily to two factors. First, although a greater number of projects
were under construction during the first quarter of 1996 versus the first
quarter of 1995, the Company was constructing 3 hotels during the first quarter
of 1996 as a construction manager whereby the Company only recognizes
construction manager fees instead of the
23
<PAGE> 26
revenues which are associated with construction contracts where the Company
functions as a general contractor. The Company may continue to develop hotels as
a construction manager in the future. There were no construction manager
projects in the first quarter of 1995. Second, the first quarter of 1996 was
affected by severe weather conditions, especially in the Midwest where the
majority of the Company's construction projects were located. Consequently, the
Company was able to make greater progress on a fewer number of projects in the
first quarter of 1995, compared to the first quarter of 1996. Excluding
Consolidated Hotels, the Company had 14 hotels under construction during the
first quarter of 1996, versus 6 hotels in the first quarter of 1995, in addition
to having several projects in various stages of development during both
quarters.
Hotel management revenues decreased 13.3% to $489,682 in the first quarter
of 1996 from $564,454 in the first quarter of 1995. The number of Minority-Owned
Hotels and Managed Hotels increased to 36 hotels at March 31, 1996 from 34
hotels at March 31, 1995. The addition of 6 management contracts during the
twelve months ended March 31, 1996 was more than offset by the loss of 2
management contracts with entities in which the Company has a minority ownership
interest as a result of a hotel sale and a temporary closing during renovation,
and the conversion of 2 Minority Owned Hotels to Consolidated Hotels in the
second and fourth quarters of 1995 due to the Company acquiring additional
ownership interests in these hotels. The Company does not recognize management
fees from Consolidated Hotels. The total management fee revenues generated in
the first quarter of 1996 from the 6 management contracts added since April 1,
1995 were lower than the management fee revenues generated in the first quarter
of 1995 from the 4 Minority-Owned Hotels which were lost as discussed above. In
addition, same room revenues decreased for all Managed Hotels.
Employee leasing revenues decreased 12.8% to $2.6 million during the first
quarter of 1996 from $3.0 million in the first quarter of 1995 as the 6 hotels
added during the twelve months ended March 31, 1996 generally incurred lower
payroll costs than the 4 hotels which were eliminated from the employee leasing
segment.
Operating costs and expenses
Total operating costs and expenses decreased 10.5% to $10.8 million (85.0%
of total revenues) in the first quarter of 1996 from $12.0 million (91.3% of
total revenues) in the first quarter of 1995. Operating costs and expenses in
the hotel operations segment increased 37.1% to $4.7 million in the first
quarter of 1996 from $3.5 million in the first quarter of 1995, resulting
primarily from the net addition of 6 Consolidated Hotels to this segment and is
directly related to the 35.7% increase in segment revenues. Operating costs and
expenses from Consolidated Hotels other than AmeriHost Inn hotels increased to
90.1% of hotel revenues in the first quarter of 1996, from 84.0% of hotel
revenues in the first quarter of 1995 due primarily to the conversion of 3
Hotels to AmeriHost Inn hotels and higher expenses associated with the severe
weather conditions. Operating costs and expenses for the hotel development
segment decreased to $3.1 million in the first quarter of 1996 from $5.2 million
in the first quarter of 1995, consistent with the decrease in hotel development
revenues. Although the Company had several projects in the early stages of
construction in the first quarter of 1996, progress was slowed by severe weather
conditions. Hotel management segment operating costs and expenses decreased
18.4% in the first quarter to $372,651 in the first quarter of 1996 from
$456,823 in the first quarter of 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 13.8% to $2.5 million in
the first quarter 1996 from $2.9 million in the first quarter of 1995, and is
consistent with the 12.8% decrease in employee leasing revenues.
Depreciation and amortization expense increased 84.6% to $802,815 in the
first quarter of 1996 from $434,919 in the first quarter of 1995. This increase
was primarily attributable to the net addition of 6 Consolidated Hotels to the
hotel operations segment and the resulting depreciation and amortization
therefrom.
24
<PAGE> 27
Leasehold rents-hotels decreased 1.2% to $446,130 in the first quarter of
1996 from $451,605 in 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 the 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 expenses increased 3.6% to $484,652 in
the first quarter of 1996 from $467,757 in the first quarter of 1995, and can be
attributed to the Company's overall growth.
Operating income (loss)
The Company's operating income increased $366,470, to operating income of
$159,881 in the first quarter of 1996 from an operating loss of ($206,589) in
the first quarter of 1995. Operating loss from the hotel operations segment
increased to a loss of $303,039 in the first quarter of 1996 from a loss of
$148,566 in the first quarter of 1995, resulting primarily from a 1.9% decrease
in same room revenues from Consolidated Hotels and a greater number of newly
constructed Consolidated Hotels operating in the first quarter of 1996 during
their initial stabilization period. The hotel development segment generated
operating income of $848,996 in the first quarter of 1996 compared to $337,499
in 1995, despite lower revenues in the first quarter of 1996. This increase is
due to a greater number of projects under construction during the first quarter
of 1996 and a larger volume of pre-construction development activity during the
first quarter of 1996 which has lower revenue and a higher gross profit margin
than construction activity. The first quarter of 1995 contained a larger portion
of construction activity. The hotel management segment generated operating
income of $61,379 in the first quarter of 1996 compared to $55,466 in 1995, due
primarily to the achievement of operational efficiencies and an increase in the
allocation of pre-opening costs associated with new hotels and management
contracts. Employee leasing operating income increased during the first quarter,
to $64,105 in 1996 from $40,597 in 1995. EBITDA for the first quarter of 1996
was a record $1.7 million as compared to $720,712 in the first quarter of 1995.
Interest expense
Interest expense was $665,173 in the first quarter of 1996 as compared to
$307,720 in the first quarter of 1995. This increase is primarily attributable
to the increase in the number of Consolidated Hotels with mortgage financing.
Equity in income (loss) of affiliates
The Company's share of equity in income (loss) of affiliates improved
$38,890 to ($144,638) in the first quarter of 1996 from ($183,528) in the same
quarter of 1995. This improvement in equity in operations of affiliates is
primarily due to the 2 hotels which had been accounted for by the equity method
in the first quarter of 1995, and became Consolidated Hotels during the second
and fourth quarters of 1995 pursuant to the acquisition of additional ownership
interests and the sale of one Hotel which had been accounted for by the equity
method. These changes were partially offset by a decrease in same room revenues
for all Minority Owned Hotels. Distributions from Minority-Owned Hotels
increased to $107,044 in the first quarter of 1996 from $19,219 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.
25
<PAGE> 28
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 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.
26
<PAGE> 29
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.
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,
27
<PAGE> 30
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 is 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%, 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
28
<PAGE> 31
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 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
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<PAGE> 32
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 $2.5 million in the first quarter of 1996
compared to $1.1 million in the first quarter of 1995. In the first quarter of
1996, the primary factors were proceeds of $1.5 million from the mortgage
financing of Consolidated Hotels, net of principal repayments, and $1.1 million
in net proceeds from the Operating Line of Credit. In the first quarter of 1995,
the contributing factor was proceeds of $1.1 million from the mortgage financing
of Consolidated Hotels, net of principal repayments.
At March 31, 1996, the Company had $3.4 million outstanding under its
then-existing $3.5 million operating line of credit. At May 1, 1996, the $3.5
million operating line of credit was renewed and modified by the Company and the
lending bank, resulting in the current $5.0 million 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 has
agreed to provide 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 March 31, 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 May 31, 1996, the Owned Hotels had mortgage indebtedness outstanding of
approximately $69.4 million, with a weighted average interest rate and remaining
years to maturity of 9.48% per annum and 9 years, respectively. The Company is
general partner in Joint Ventures which, at May 31, 1996, had approximately
$47.2 million recourse indebtedness outstanding. At May 31, 1996, the Company
had guaranteed mortgage loan obligations in the aggregate principal amount of
approximately $37.9 million for 40 of its Owned Hotels. In certain instances,
other Joint Venture partners have also guaranteed these debts.
The Company expects to use approximately $3.4 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 $18.7 million of such net
proceeds to repay long-term debt, including current portion, which will be
secured by certain Wholly-Owned Hotels, approximately $15.1 million 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 $2.1 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
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<PAGE> 33
May 31, 1996, the Company had 29 AmeriHost Inn hotels under development or
construction. For the 21 AmeriHost Inn hotels for which construction began in
1995 and through May 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 15 AmeriHost Inn hotels under construction as
of May 31, 1996, the Company expects 3 to be Wholly-Owned Hotels and 12 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 significant portion of its mortgage indebtedness which
will result in a large number 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. As a result, 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. For example, the Company expects that 7 of the 14 AmeriHost
Inn hotels under development as of May 31, 1996 will be Wholly-Owned Hotels, 6
will be Minority-Owned Hotels and one will be owned by an unaffiliated third
party. 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 May 31, 1996, the Company had 15 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.
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.
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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 May 31, 1996, the Company owned, operated or managed 62 Hotels
located in 14 states. Of these Hotels, 24 Hotels are operated or managed under
the Company's proprietary brand, the AmeriHost Inn. Of the 62 Hotels, the
Company owns a 100% or a majority interest in 25 Hotels and a participating
equity interest, ranging from 5% to 50%, in 26 Hotels. Of the 51 Owned Hotels,
22 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 May 31,
1996.
<TABLE>
<CAPTION>
HOTELS ROOMS
------ -----
<S> <C> <C>
Owned Hotels:
AmeriHost Inn hotels.......................... 22 1,482
Other Owned Hotels............................ 29 3,205
Managed Hotels(1).................................. 11 1,383
-- -----
Total.............................................. 62 6,070
== =====
</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 May 31, 1996, the Company had 15 AmeriHost Inn hotels under
construction and 14 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
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<PAGE> 35
one of two types, 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 25.8% of the
outstanding Common Stock of the Company and will beneficially own in the
aggregate approximately 18.1% 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
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<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 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.
All AmeriHost Inn hotels built to date have generated positive cash flow
after debt service for the first twelve months of operations following an
initial stabilization period (approximately 120 days). 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 May
31, 1996, agreements had been entered into for the sale of 4 Other Owned Hotels,
subject to certain contingencies.
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<PAGE> 37
THE HOTELS
The following is a list of the open Hotels at May 31, 1996:
<TABLE>
<CAPTION>
COMMENCEMENT
OWNERSHIP OF OPERATIONS BY
STATE AFFILIATION LOCATION ROOMS INTEREST(1) THE COMPANY
- -------------- ---------------------- ----------------- ----- ------------- ----------------
<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 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
Louisiana Days Inn Kenner 324 Managed Only 11/91
Michigan AmeriHost Inn Coopersville 60 100% 12/95
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(5) Athens 102 20% 11/89
AmeriHost Inn(5) Jeffersonville 60 22% 10/94
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)
AmeriHost Inn Oxford 61 Managed Only 02/91(2)
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)
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
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
COMMENCEMENT
OWNERSHIP OF OPERATIONS BY
STATE AFFILIATION LOCATION ROOMS INTEREST(1) THE COMPANY
- -------------- ---------------------- ----------------- ----- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Ohio Days Inn Mansfield 60 40% 11/94
(cont'd) 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 Holiday Inn Altoona 143 63% 08/92
Holiday Inn Oil City 106 28% 12/92
Texas Ramada Inn Euless 150 25% 02/94
Vermont Holiday Inn White River 140 83% 06/93
Junction
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 17% 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 3.6 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. As reported in the May 1996 Hospitality Directions
published by Coopers & Lybrand L.L.P., room demand growth is expected to exceed
or equal the rate of new room supply growth through 1998.
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.
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
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<PAGE> 39
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 May 31, 1996, the Company was constructing 15 hotels and had 14
hotels under development. Upon completion, all 29 of these hotels will be
operated as AmeriHost Inn hotels. Additionally, the Company expects that 10 of
these hotels will be Wholly-Owned Hotels, 18 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 May 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.
37
<PAGE> 40
HOTELS UNDER CONSTRUCTION
<TABLE>
<CAPTION>
OWNERSHIP PROJECTED
STATE AFFILIATION LOCATION ROOMS INTEREST(1) OPENING(2)
- ------------------ -------------- -------------- ----- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Illinois AmeriHost Inn Harvard 60 30% June 1996
AmeriHost Inn Jacksonville 60 30% June 1996
Iowa AmeriHost Inn Waverly 60 100% August 1996
Kentucky AmeriHost Inn Murray 60 25% September 1996
Michigan AmeriHost Inn Grand Blanc 60 33% July 1996
AmeriHost Inn Muskegon 61 25% November 1996
Ohio AmeriHost Inn Ashland 60 25% August 1996
AmeriHost Inn Jeffersonville 60 15% July 1996
AmeriHost Inn Kenton 60 26% July 1996
AmeriHost Inn Zanesville 60 15% July 1996
Pennsylvania AmeriHost Inn Shippensburg 60 100% July 1996
Texas AmeriHost Inn Allen 60 30% July 1996
AmeriHost Inn McKinney 61 100% November 1996
West Virginia AmeriHost Inn Mineral Wells 61 15% November 1996
Wisconsin AmeriHost Inn Green Bay 60 25% August 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 Anderson 61 100% 1997
AmeriHost Inn Redding 61 100% 1997
Illinois AmeriHost Inn Effingham 61 25% 1997
AmeriHost Inn Rochelle 61 100% 1997
Indiana AmeriHost Inn Troy 61 100% 1997
Iowa AmeriHost Inn Storm Lake 61 100% 1997
Michigan AmeriHost Inn Birch Run 61 25% 1997
AmeriHost Inn Marshall 61 25% 1997
Ohio AmeriHost Inn New Breman 61 25% 1997
AmeriHost Inn Norwalk 61 0% 1997
AmeriHost Inn Wilmington 61 25% 1997
Pennsylvania AmeriHost Inn Grove City 61 25% 1997
AmeriHost Inn Lebanon 61 100% 1997
Texas AmeriHost Inn San Marcos 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."
38
<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 50 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 May 31,
1996, agreements had been entered into for the sale of 4 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 1,900 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 May 31, 1996,
the Company had 34 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,
40
<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 which
began construction in 1995 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 May 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 other benefits provided by such Franchisor, including access to
reservation systems, marketing
41
<PAGE> 44
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 May 31, 1996, the Company and its subsidiaries had approximately
1,900 full- and part-time employees:
<TABLE>
<S> <C>
Hotel Operations............................................. 619
Hotel Development............................................ 16
Hotel Management:
Operations................................................. 24
Accounting and finance..................................... 17
Property general managers.................................. 65
Employee Leasing:
General and administrative................................. 4
Operations(1).............................................. 1,132
Corporate:
General and administrative................................. 10
Officers................................................... 4
-----
Total................................................... 1,891
=====
</TABLE>
- ---------------
(1) Does not include 686 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 May 31, 1996, the Company had a controlling ownership or leasehold
interest in 25 operating hotels and 3 hotels under construction, located in 9
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.
43
<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.............. 39 President, Chief Executive Officer and Director
Richard A. D'Onofrio.......... 52 Executive Vice President and Director
Russell J. Cerqua............. 39 Senior Vice President of Finance, Secretary, Treasurer,
Chief Financial Officer and Director
Reno J. Bernardo.............. 64 Director
Robert L. Barney.............. 59 Director
Salomon J. Dayan.............. 50 Director Nominee
</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 Senior 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
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<PAGE> 47
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.
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.
Robert L. Barney is currently the sole shareholder, President and Chief
Executive Officer of Rolling Meadows Golf Club & Estates in Marysville, Ohio.
Mr. Barney was a director of Wendy's International, Inc. ("Wendy's"), a
restaurant company, when it was founded in 1969. In July 1971, Mr. Barney was
appointed President and Chief Operating Officer of Wendy's and in February 1980
became the Chief Executive Officer in which capacity he served until February
1989. Mr. Barney also served as Chairman of the Board of Wendy's from September
1982 until retiring in May 1990, and continued to consult Wendy's until May
1992. Prior to his affiliation with Wendy's, Mr. Barney held positions with
Kentucky Fried Chicken and Arthur Treacher's Fish & Chips while owning several
franchises for these two restaurant chains. Since December 1991, Mr. Barney has
served as a director of Quantum Restaurant Group, Inc., owner of four restaurant
chain concepts including Mortons Steak House. Mr. Barney has been a director of
the Company since July 1995. Mr. Barney has chosen not to seek re-election as a
director of the Company at the Company's next annual meeting of shareholders,
thus his term as a director will expire.
The Board of Directors of the Company has nominated Salomon J. Dayan, M.D.
to stand for election as a director of the Company at the Company's next annual
meeting of shareholders. Dr. Dayan is a physician certified in internal and
geriatric medicine. Since 1980, Dr. Dayan 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. Messrs.
Bernardo and Barney currently
45
<PAGE> 48
comprise each of the Audit Committee and the Compensation Committee. The Company
anticipates that, upon his election as a director, Dr. Dayan will replace Mr.
Barney on both of the committees.
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").
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
Senior Vice President of Finance, 1994 132,692 15,000 15,000 30,000 10,000
Secretary, Treasurer and Chief 1993 75,000 43,900 0 0 10,000
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 May 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."
46
<PAGE> 49
OPTIONS
The options described in the following tables have been granted other than
pursuant to the Incentive Stock Plan or Non-Qualified 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.
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
47
<PAGE> 50
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.
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
48
<PAGE> 51
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, Senior 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 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, who has been nominated by the Board of Directors to stand for election as
a director of the Company at the next annual meeting of the Company's
shareholders, 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.
49
<PAGE> 52
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at May 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 and
its director nominee, (iii) each of the Named Officers and (iv) all directors
(including the director nominee) 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)......................... 714,091 11.1% 714,091 7.6%
H. Andrew Torchia (2)(3)..................... 658,658 10.5 658,658 7.1
Richard A. D'Onofrio (2)(3).................. 658,658 10.5 658,658 7.1
Wellington Management Company (4)............ 568,300 9.4 568,300 6.3
Massachusetts Financial Services Company
(5)........................................ 516,500 8.6 516,500 5.7
Russell J. Cerqua (2)........................ 245,805 4.0 245,805 2.7
Salomon J. Dayan(2)(6)....................... 187,983 3.1 187,983 2.1
Reno J. Bernardo (2)......................... 86,766 1.4 86,766 1.0
Robert L. Barney............................. -- -- -- --
All directors and executive officers as a
group (7 persons)(3)....................... 2,099,703 29.4 2,099,703 20.7
</TABLE>
- ---------------
(1) Percentage of beneficial ownership is based on 6,021,271 shares of Common
Stock outstanding at May 31, 1996, and 9,021,271 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 May 31, 1996 as follows: Mr. Holtz,
417,000 shares; Mr. Torchia, 197,000 shares; Mr. D'Onofrio, 197,000 shares;
Mr. Cerqua, 172,833 shares; Mr. Bernardo, 39,500 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.
(6) Dr. Dayan has been nominated by the Board of Directors to stand for election
as a director of the Company at the Company's next annual meeting of
shareholders.
50
<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 15,000,000 shares
of Common Stock, $.005 par value, 6,021,271 of which were outstanding at May 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
51
<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 (assuming the Underwriters'
over-allotment option is not exercised) will have outstanding 9,021,271 shares
of Common Stock. Of these shares, 7,051,238 shares, including the 3,000,000
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 1,970,033 shares of Common Stock were acquired by
existing shareholders without registration under the Securities Act, 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 (including the director nominee)
of the Company currently hold 972,969 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 160,000 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 1,854,627 shares of Common Stock. These
Options and Warrants have a weighted average exercise price of $4.578 per share.
Options and Warrants for an aggregate of 1,558,627 shares of Common Stock will
be exercisable by the end of 1996. Of the total outstanding Options and
Warrants, 1,420,833 have been issued to the Company's current executive officers
and directors (including the director nominee), 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 the Company's director nominee, 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.
52
<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 (including the director
nominee), holding an aggregate of 2,099,703 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 representatives of the
Underwriters.
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 260,000 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 third 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.
53
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company and Oppenheimer & Co., Inc. and BT
Securities Corporation, as the representatives of the Underwriters (the
"Representatives"), each of the Underwriters named below has severally agreed to
purchase from the Company, and the Company has agreed to sell to each of the
Underwriters, the respective number of shares of Common Stock set forth opposite
its name below:
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------------------- ----------------
<S> <C>
Oppenheimer & Co., Inc...................................................
BT Securities Corporation................................................
----------------
Total............................................................. 3,000,000
===============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per
share of Common Stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
selected dealers may re-allow, concessions not in excess of $ per share
to certain other dealers.
The Underwriters have been granted a 30-day over-allotment option to
purchase from the Company up to an aggregate of 450,000 additional shares of
Common Stock, exercisable at the public offering price less the underwriting
discount. If the Underwriters exercise such over-allotment option, then each of
the Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof as the number of shares of
Common Stock to be purchased by it as shown on the above table bears to the
total number of shares of Common Stock offered hereby. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), during the two business day period before commencement of
offers or sales of the Common Stock. The passive market making transactions must
comply with applicable volume and price limits and be identified as such. In
general, a passive market maker may display its bid at a price not in excess of
the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
The Company and its executive officers and directors (including the
director nominee) 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
Representatives (other than the issuance of
54
<PAGE> 57
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 Underwriters against certain
liabilities, loss and expenses, including under the Securities Act, or to
contribute to payments that the Underwriters 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 Underwriters by Rogers & Wells, New York, New York.
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 quarter ended March 31, 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.
55
<PAGE> 58
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. 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> 59
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 March 31, 1996 (unaudited).... F-29
Consolidated Statements of Operations for the three months ended March 31, 1995 and
1996 (unaudited)................................................................ F-31
Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and
1996 (unaudited)................................................................ F-32
Notes to Unaudited Consolidated Financial Statements................................. F-34
</TABLE>
F-1
<PAGE> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 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>
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> 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>
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> 74
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> 75
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> 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 - 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> 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>
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 1,371,278 $ 1,528,147
Accounts receivable (including $802,164 and $1,655,321 from
related parties)............................................ 3,270,094 4,579,842
Notes receivable (including $1,752,126 and $1,532,768 from
related parties)............................................ 1,965,048 1,745,690
Prepaid expenses and other current assets...................... 188,163 254,678
Refundable income taxes........................................ 230,530 377,412
Costs and estimated earnings in excess of billings on
uncompleted contracts (including $3,574,939 and $3,353,848
from
related parties)............................................ 3,900,879 3,475,662
------------ -----------
Total current assets................................... 10,925,992 11,961,431
------------ -----------
Investments...................................................... 2,388,999 2,268,214
------------ -----------
Property and equipment:
Land........................................................... 4,236,309 4,247,909
Buildings...................................................... 22,075,629 22,321,057
Furniture, fixtures and equipment.............................. 9,204,377 9,598,151
Construction in progress....................................... 662,159 1,299,346
Leasehold improvements......................................... 2,050,654 2,069,245
------------ -----------
38,229,128 39,535,708
Less accumulated depreciation and amortization................. 5,404,102 6,022,254
------------ -----------
32,825,026 33,513,454
------------ -----------
Long-term notes receivable (including $1,450,616 and $1,617,756
from
related parties)............................................... 2,863,580 3,014,448
Costs of management contracts acquired, net of accumulated
amortization of $913,393 and $959,444.......................... 664,110 787,886
Other assets (including deferred taxes of $383,000), net of
accumulated amortization of $1,451,715 and $1,585,282.......... 2,785,595 2,697,057
------------ -----------
6,313,285 6,499,391
------------ -----------
$52,453,302 $54,242,490
============ ===========
</TABLE>
See notes to unaudited consolidated financial statements
F-29
<PAGE> 88
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 3,751,097 $ 3,584,270
Bank line-of-credit............................................ 2,317,036 3,376,164
Accrued payroll and related expenses........................... 688,648 606,102
Accrued real estate and other taxes............................ 606,468 706,365
Other accrued expenses and current liabilities................. 666,352 754,940
Current portion of long-term debt.............................. 1,042,847 1,046,228
------------ -----------
Total current liabilities................................... 9,072,448 10,074,069
------------ -----------
Long-term debt, net of current portion........................... 23,971,481 25,455,514
------------ -----------
Deferred income.................................................. 686,388 676,751
------------ -----------
Commitments
Minority interests............................................... 1,456,226 973,435
------------ -----------
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 5,975,374
shares at March 31, 1996.................................... 29,886 29,877
Additional paid-in capital..................................... 16,920,237 16,915,333
Retained earnings.............................................. 1,709,803 1,562,142
------------ -----------
18,659,926 18,507,352
Less:
Stock subscriptions receivable.............................. (436,875 ) (436,875)
Notes receivable............................................ (956,292 ) (1,007,756)
------------ -----------
17,266,759 17,062,721
------------ -----------
$52,453,302 $54,242,490
============ ===========
</TABLE>
See notes to unaudited consolidated financial statements
F-30
<PAGE> 89
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenue:
Hotel operations:
AmeriHost Inn hotels.................................... $ -- $ 1,306,138
Other hotels............................................ 4,114,725 4,277,358
Development and construction............................... 5,504,823 3,979,802
Management services........................................ 564,454 489,682
Employee leasing........................................... 2,973,359 2,591,588
----------- -----------
13,157,361 12,644,568
----------- -----------
Operating costs and expenses:
Hotel operations:
AmeriHost Inn hotels.................................... -- 885,766
Other hotels............................................ 3,457,530 3,853,085
Development and construction............................... 5,164,129 3,113,679
Management services........................................ 456,823 372,651
Employee leasing........................................... 2,931,187 2,525,909
----------- -----------
12,009,669 10,751,090
----------- -----------
1,147,692 1,893,478
Depreciation and amortization.............................. 434,919 802,815
Leasehold rents -- hotels.................................. 451,605 446,130
Corporate general and administrative....................... 467,757 484,652
----------- -----------
Operating income (loss)...................................... (206,589) 159,881
Other income (expense):
Interest expense........................................... (307,720) (665,173)
Interest income............................................ 91,536 154,359
Other income............................................... 20,159 41,909
Equity in net income and losses of affiliates.............. (183,528) (144,638)
----------- -----------
Loss before minority interests and income taxes.............. (586,142) (453,662)
Minority interests in operations of consolidated subsidiaries
and partnerships........................................... 112,610 204,001
----------- -----------
Loss before income tax....................................... (473,532) (249,661)
Income tax benefit........................................... 190,000 102,000
----------- -----------
Net loss..................................................... $ (283,532) $ (147,661)
=========== ===========
Net loss per share........................................... $ (0.05) $ (0.02)
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
F-31
<PAGE> 90
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............................... $ 11,304,689 $ 11,839,312
Cash paid to suppliers and employees....................... (10,840,119) (11,868,154)
Interest received.......................................... 72,469 59,039
Interest paid.............................................. (310,371) (639,973)
Income taxes paid.......................................... (358,278) (44,882)
------------ ------------
Net cash used in operating activities........................ (131,610) (654,658)
------------ ------------
Cash flows from investing activities:
Distributions from affiliates.............................. 19,219 107,044
Purchase of property and equipment......................... (2,209,105) (1,327,158)
Purchase of investments.................................... (5,000) (250,000)
Increase in notes receivable............................... (206,202) (1,121,233)
Collections on notes receivable............................ 126,463 1,050,766
Preopening and management contract costs................... (114,301) (169,827)
Sale of investments........................................ 10,000 --
------------ ------------
Net cash used in investing activities...................... (2,378,926) (1,710,408)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt................... 1,224,263 1,699,638
Principal payments of long-term debt....................... (140,807) (223,572)
Proceeds from line of credit............................... -- 1,559,128
Payments on line of credit................................. -- (500,000)
Distributions to minority interests........................ -- (13,259)
------------ ------------
Net cash provided from financing activities.................. 1,083,456 2,521,935
------------ ------------
Net (decrease) increase in cash.............................. (1,427,080) 156,869
Cash and cash equivalents, beginning of period............... 3,026,029 1,371,278
------------ ------------
Cash and cash equivalents, end of period..................... $ 1,598,949 $ 1,528,147
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
F-32
<PAGE> 91
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Reconciliation of net loss to net cash used in operating
activities:
Net loss..................................................... $ (283,532) $ (147,661)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 434,919 802,815
Equity in net loss of affiliates before amortization of
deferred income......................................... 198,428 152,867
Minority interests in operations of subsidiaries........... (112,610) (204,001)
Amortization of deferred income............................ (14,900) (8,229)
Amortization of deferred interest.......................... (2,143) (1,408)
Amortization of loan discount.............................. 11,348 11,348
Compensation paid through issuance of common stock......... 364 --
Changes in assets and liabilities net of effects of
acquisitions:
Increase in accounts receivable......................... (20,298) (1,272,382)
Increase in interest receivable......................... (16,924) (93,912)
Decrease (increase) in prepaid expenses and other
current assets........................................ 24,784 (66,515)
(Increase) decrease in costs and estimated earnings in
excess of billings.................................... (1,852,533) 425,217
Increase in refundable income taxes..................... (548,278) (146,882)
Increase in other assets................................ (129,723) (45,027)
Increase (decrease) in accounts payable................. 2,019,490 (166,827)
Increase in accrued expenses and other current
liabilities........................................... 173,997 92,087
(Decrease) increase in accrued interest................. (13,999) 13,852
------------ ------------
Net cash used in operating activities........................ $ (131,610) $ (654,658)
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
F-33
<PAGE> 92
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 1996 and
the results of its operations and cash flows for the three months ended March
31, 1995 and 1996. The results of operations for the three months ended March
31, 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 benefit for the three months ended March 31, 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. NET LOSS PER SHARE:
Net loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. The weighted average
number of shares used in the computations were 5,663,443 and 5,976,293 for the
three months ended March 31, 1995 and 1996, respectively.
5. SUPPLEMENTAL CASH FLOW DATA:
The following represents the supplemental schedule of noncash investing and
financing activities for the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1995 1996
--------- ---------
<S> <C> <C>
Purchase of investments through issuance of common stock and $ 304,253 $ 143,929
decrease in notes and accrued interest receivable................ ======== ========
$ 233,351 $ --
Reduction of accounts payable through issuance of common stock..... ======== ========
</TABLE>
F-34
<PAGE> 93
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
During the first quarter of 1995, the Company acquired additional partnership
interests in three hotels for 134,400 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........................... $2,907,246
Issuance of common stock................................ (454,094)
----------
Liabilities assumed..................................... $2,453,152
==========
</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 March 31, 1996,
the aggregate purchase price for these nine hotels was approximately
$25,750,000.
F-35
<PAGE> 94
<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> 95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 ANY UNDERWRITER. 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................................ 32
Management.............................. 44
Certain Transactions.................... 48
Principal Shareholders.................. 50
Description of Capital Stock............ 51
Shares Eligible for Future Sale......... 52
Underwriting............................ 54
Legal Matters........................... 55
Experts................................. 55
Incorporation of Certain Documents by
Reference............................. 55
Additional Information.................. 56
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO]
AMERIHOST
PROPERTIES, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
OPPENHEIMER & CO., INC.
BT SECURITIES CORPORATION
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 96
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.................................................................. 183,779
--------
Total..................................................................... $590,000
========
</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> 97
The Company maintains liability insurance for the benefit of its directors
and officers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting 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 Non-Qualified Stock Option Plan, incorporated herein by reference to exhibit
number 10.1 to the Company's Annual Report on Form 10-K filed on March 26, 1993.
10.3 Incentive Stock Option Plan, incorporated herein by reference to exhibit number
10.2 to the Company's Annual Report on Form 10-K filed on March 26, 1993.
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).
99.1+ Consent of Salomon J. Dayan as director nominee.
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
II-2
<PAGE> 98
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> 99
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 Chicago, State of Illinois, on the 2nd day of
July, 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 July 2, 1996
/s/ MICHAEL P. HOLTZ President, Chief Executive Officer and July 2, 1996
- ------------------------------------- Director
Michael P. Holtz (Principal Executive Officer)
* Executive Vice President July 2, 1996
- ------------------------------------- and Director
Richard A. D'Onofrio
* Senior Vice President of Finance, July 2, 1996
- ------------------------------------- Secretary, Treasurer, Chief Financial
Russell J. Cerqua Officer and Director
(Principal Financial Officer)
* Controller July 2, 1996
- ------------------------------------- (Principal Accounting Officer)
James B. Dale
* Director July 2, 1996
- -------------------------------------
Reno J. Bernardo
* Director July 2, 1996
- -------------------------------------
Robert L. Barney
* By Power of Attorney
/s/ MICHAEL P. HOLTZ
- -------------------------------------
Michael P. Holtz
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 100
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------------------------------------------------------------------------------
<C> <S> <C>
1.1* Form of Underwriting 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 Non-Qualified Stock Option Plan, incorporated herein by reference to
exhibit number 10.1 to the Company's Annual Report on Form 10-K filed
on March 26, 1993.
10.3 Incentive Stock Option Plan, incorporated herein by reference to
exhibit number 10.2 to the Company's Annual Report on Form 10-K filed
on March 26, 1993.
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).
99.1+ Consent of Salomon J. Dayan as director nominee.
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10-4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 7th day of April, 1995 by and between Amerihost Properties, Inc.
("Company") and Michael P. Holtz ("Executive").
WITNESSETH:
WHEREAS, the Company is engaged in the business of developing
and operating hotels.
WHEREAS, pursuant to this Agreement the Executive shall be
employed by the Company as its President and Chief Executive Officer, and the
Company and Executive desire to formalize the Executive's employment with this
Agreement, and the Executive desires to continue employment on the terms and
conditions described herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the
Executive as its President and Chief Executive Officer for the Term (as
hereinafter defined) and the Executive agrees to accept such employment on the
terms and conditions set forth herein.
2. DUTIES. The Executive shall perform for the Company and
all its subsidiaries the responsibilities of the office of President and Chief
and Executive Officer and the duties consistent with such office, subject to
the direction of the Board of Directors of the Company. The Executive shall
report to the Company's Board of Directors through its Chairman.
3. TERM. The initial term of the Executive's employment
under this Agreement (the "Initial Term") shall commence January 1, 1995 and
shall continue for three calendar years, unless earlier terminated as herein
provided. This Agreement may be automatically renewed for an additional three
years ("Renewal Term") at the sole option of the Executive. The "Term"
includes the Initial Term and the Renewal Term, if any.
4. COMPENSATION AND OTHER BENEFITS.
4.1. COMPENSATION. As compensation for all services to be
rendered pursuant to this Agreement, the Company shall pay the Executive during
the Term, Cash Compensation, Stock and Warrants at a rate specified in Exhibit
A hereto ("Annual Compensation") payable, unless otherwise specified, in
accordance with the payroll policies of the Company.
<PAGE> 2
4.2. MISCELLANEOUS EMPLOYEE BENEFITS. During the Term, the
Executive shall be permitted to participate in any group life, hospitalization,
dental or disability insurance plan, health program, pension plan, similar
benefit plan or other so-called "fringe benefits" of the Company (collectively,
"Benefits"), which may be available to other executives of the Company
generally on the same terms as such other executives.
4.3. GENERAL BUSINESS EXPENSES. The Company shall pay or
reimburse the Executive for all reasonable expenses reasonably and necessarily
incurred by the Executive during the Term in the performance of the Executive's
services under this Agreement. Such payment shall be made upon presentation of
itemized expense statements or vouchers or such other supporting information as
the Company may require.
4.4. NET EXERCISE. The Executive shall be entitled to use
shares of the Company's stock owned by him to satisfy the exercise price of his
vested warrants or options in the Company's stock.
5. TERMINATION OF EMPLOYMENT.
5.1. TERMINATION UPON DEATH. If the Executive dies during
the Term, this Agreement shall terminate except that the Executive's legal
representative shall be entitled to receive and the Company shall pay all
compensation specified in Exhibit A (except Warrants and Vacation) during the
period ending one (1) year after the Executive's death. Payments will be made
in accordance with the payroll policies of the Company in effect at the time of
the Executive's death. During said one-year period, the Company shall maintain
for the Executive's dependents substantially the same Benefits the Executive
was entitled to participate in immediately preceding his death.
5.2. TERMINATION UPON DISABILITY. If during the Term, the
Executive becomes physically or mentally disabled, whether totally or
partially, so that he is unable substantially to perform any of his material
services hereunder (i) for a period of six (6) consecutive months or (ii) for
shorter periods aggregating six (6) months during any twelve month period, the
Company may terminate the Executive's employment hereunder. The determination
of a disability and the commencement date thereof shall be by the Board of
Directors of the Company or, at the election of the Executive or the Board by
two (2) qualified physicians agreed upon by Executive and Board. Upon such
termination, the Company shall be obligated to continue to pay the Executive
all compensation specified in Exhibit A (except Warrants and Vacation) for a
period ending two years after the termination date. Payments will be made in
accordance with the payroll policies of the Company in effect at the time of
such termination. In addition, during said two-year period the Company shall
maintain for Executive and his dependents the Benefits Executive was entitled
to participate in immediately preceding his employment termination. However,
the Executive dies during this two-year period, the Company shall only be
obligated to provide the compensation described in Section 5.1.
5.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company has
the right, at any time by serving notice, to terminate the Executive's
employment under this
2
<PAGE> 3
Agreement and to discharge the Executive for "Cause" (as hereinafter defined).
If such right is exercised, the Company's obligation to the Executive shall be
limited to the payment and/or satisfaction of unpaid Cash Compensation, Stock,
Warrants and Benefits accrued up to the effective date specified in the
Company's termination notice. The Executive shall also be permitted to
maintain health insurance benefits for himself and covered dependents pursuant
to COBRA commencing on the date the Executive's employment is terminated. As
used in this Section 5.3, the term "Cause" shall mean and include (i)
misappropriation of any money or other assets or properties of the Company or
any subsidiary of the Company other than an isolated, insubstantial and
unintentional misappropriation which is promptly remedied by the Executive
after receipt of written notice thereof given by the Company; (ii) willful and
material breach by the Executive of the terms of this Agreement after a written
demand for substantial performance is delivered to the Executive by the
Company's Board of Directors which specifically identifies the manner in which
the Board of Directors believes that the Executive has not substantially
perform his duties and such breach continues after receipt of such written
notice; (iii) illegal conduct which has a significant negative effect on the
reputation or business of the Company; and (iv) significantly poor financial
performance of the Company, as evidenced by net income or cash flow less than
75% of the approved budget for six consecutive quarters.
5.4. OPPORTUNITY TO RESIGN.
Prior to terminating the Executive for Cause, the Company
shall offer him an opportunity to resign. If such a resignation is tendered by
the Executive and accepted by the Company in lieu of termination for Cause, the
Executive shall receive the same compensation and benefits he would have
received if he had been terminated for cause pursuant to Section 5.3.
6. SEVERANCE UPON TERMINATION WITHOUT CAUSE. If the Company
terminates the Executive's employment without Cause, it shall continue to pay
the Executive all compensation specified in Exhibit A for a period ending two
years after the termination date. Furthermore, for said two-year period
following the Executive's termination, the Company shall maintain for the
Executive and his dependents the Benefits Executive was entitled to participate
in immediately preceding his employment termination. However, if the Executive
dies during this two-year period, the Company shall only be obligated to
provide the compensation described in Section 5.1.
7. VOLUNTARY TERMINATION BY THE EXECUTIVE
7.1. SEVERANCE FOLLOWING VOLUNTARY TERMINATION FOR GOOD
REASON. If the Executive voluntarily terminates his employment because he
makes a good faith determination that any of the Good Reasons (as hereinafter
defined) set forth in subsections (i) through (vi) of Section 7.3(a) hereof
apply, such a voluntary termination shall be deemed to be a termination by the
Company without Cause and the Executive shall be entitled to receive the
Severance and Benefits provided in Section 6.
7.2. SEVERANCE FOLLOWING OTHER VOLUNTARY TERMINATION. If the
Executive voluntarily terminates his employment for a reason other than a "Good
Reason" as that
3
<PAGE> 4
term is defined in Section 7.3(a) hereof, and provides the Company with notice
of his intent to resign at least six (6) months before its effective date, the
Executive shall be entitled to and the Company shall pay all compensation
specified in Exhibit A for a period ending one (1) year after the effective
date of the Executive's resignation. During said one (1) year period, the
Company shall maintain for the Executive and his dependents all Benefits in
which the Executive was entitled to participate immediately prior to his
resignation.
7.3. DEFINITIONS
(a) GOOD REASON. For purposes of this Agreement,
"Good Reason" shall mean:
(i) Change of Control.
(ii) the assignment to the Executive of
duties materially inconsistent with Executive's
authority, duties or responsibilities as contemplated
by Section 2, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad
faith and which is remedied by the Company promptly
after receipt of notice thereof given by the
Executive and excluding the delegation of duties and
responsibilities which do not materially diminish the
overall authority of the Executive;
(iii) Any failure by the Company to
comply with any of the provisions of Section 4, other
than an isolated, insubstantial or inadvertent
failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) the Company's requiring the
Executive to be based at any office or location
outside of the Chicago metropolitan and suburban
area;
(v) any purported termination by the
Company of the Executive's employment otherwise than
as expressly permitted by Sections 5.1, 5.2, 5.3 and
5.4 of this Agreement; or
(vi) Any failure by the Company to comply
with and satisfy Section 8.6(c), provided that such
successor has received at least ten days prior
written notice from the Company or the Executive of
the requirements of Section 8.6(c).
(b) CHANGE OF CONTROL. For purposes of this
Agreement, a "Change of Control" shall mean:
4
<PAGE> 5
(i) Any change in the Company's Board of
Directors such that a majority of the Board is
composed of members who were not members of the Board
on the date this Agreement was made; or
(ii) Removal of the Executive from
membership on the Board of Directors by the vote of a
majority of the shareholders of the Company or
failure of the Board of Directors to nominate the
Executive for reelection to Board membership.
8. OTHER PROVISIONS
8.1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "Person" means any individual, corporate,
partnership, firm, joint venture, associate, joint-stock
company, trust, incorporated organization, governmental or
regulation body or other entity.
(ii) "Cash flow" for any period means net income
plus depreciation and amortization for such period, all
determined in accordance with generally accepted accounting
principles.
8.2. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
Chairman of the Board of Directors
Amerihost Properties, Inc.
2400 East Devon Avenue
Suite 280
Des Plaines, IL 60018
with a copy to:
Helen R. Friedli, P.C.
McDermott, Will & Emery
227 W. Monroe Street
Chicago, IL 60606
5
<PAGE> 6
(ii) if to the Executive, to:
Michael P. Holtz
968 S. Marshall Drive
Des Plaines, IL 60016
Any party may change its address for notice hereunder by
notice to the other party hereto.
8.3. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
8.4. WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Nor shall any waiver on the part of any party of any such
right, power or privilege hereunder, nor any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
8.5. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Illinois
applicable to agreements made and to be performed entirely within such State.
8.6. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
6
<PAGE> 7
8.7. COUNTERPARTS. This Agreement may be executed in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.8. HEADINGS. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
EXECUTIVE AMERIHOST PROPERTIES, INC.
/s/ Michael P. Holtz By: /s/ H. Andrew Torchia
- ------------------------- ------------------------------------
Michael P. Holtz H. Andrew Torchia
Chairman of the Board
7
<PAGE> 8
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Dated as of April 7, 1995
Executive: MICHAEL P. HOLTZ
Annual Cash Compensation:
<TABLE>
<S> <C> <C>
Initial Term: 1995 - $325,000
1996 - $375,000
1997 - $425,000
</TABLE>
Renewal Term: The then current base salary shall be increased each year of
the Renewal Term by a factor or ten percent (10%) or by the
then current rate of inflation, whichever is greater. Base
salary shall be paid in 26 equal bi-weekly installments, less
such deductions as shall be required to be withheld pursuant
to applicable law and regulations.
Compensation in Stock:
Upon execution of this Agreement, the Company shall issue 25,000 shares of its
stock to the Executive. The maximum number of shares of stock the Executive
shall be entitlted to receive in 1996 and subsequent years is as follows:
<TABLE>
<S> <C> <C>
Initial Term: 1996 - 30,000 shares
1997 - 40,000 shares
</TABLE>
Renewal Term: The then current number of shares issued shall be increased
each year of the Renewal Term by a factor of ten percent (10%)
or by the then current rate of inflation, whichever is
greater. Stock shall be issued on April 1 of each contract
year.
Each year, shares for that year shall be issued to the Executive if the Company
meets or exceeds one or more of the performance criteria specified below for
the preceding year:
(1) Net income of the quarter exceeded net income for the same
quarter of the previous year.
(2) Cash flow for the quarter exceeded cash flow for the same
quarter of the previous year;
(3) Net income or cash flow for the quarter was within fifteen
percent (15%) of the budget approved by the Board of Directors
for the quarter.
<PAGE> 9
Compensation in Warrants:
The number of warrants the Executive shall be entitled to receive is as
follows:
Initial Term 1995 - 75,000
1996 - 85,000
1997 - 100,000
Renewal Term Each year of the Renewal Term, the maximum number of warrants
the Executive is entitled to receive shall increase over the
Executive's then current entitlement by a factor of ten
percent (10%) or by the then current rate of inflation,
whichever is greater.
Upon the execution of the Agreement by the parties, all warrants for the
Initial Term shall be issued for the closing price of the stock on January 1,
1995. Should the Agreement be renewed, all warrants for the Renewal Term shall
be issued on January 1, 1998 at the closing price of the stock on that day.
The number of warrants issued on January 1, 1998 shall be equal to the total
the Executive is entitled to receive during the Renewal Term based on a 10%
increase in number each year. If during the Renewal Term, the Executive is
entitled to receive additional warrants because inflation has exceeded 10%,
such additional warrants shall be issued on January 1 of the entitlement year
at the closing price of the stock on that day. The terms of the warrants shall
be substantially identical to the stock options issued by the Company to the
Executive in October, 1994.
Vacation: 4 weeks (160 hours) per year.
EXECUTIVE AMERIHOST PROPERTIES, INC.
/s/ Michael P. Holtz /s/ H. Andrew Torchia
- --------------------------- -------------------------------------
Michael P. Holtz H. Andrew Torchia
Chairman of the Board
This Exhibit A may be amended from time to time by an Exhibit A in similar form
bearing a later effective date and the signatures of the Company and Executive.
2
<PAGE> 1
EXHIBIT 10-5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 7th day of April, 1995 by and between Amerihost Properties, Inc.
("Company") and Richard A. D'Onofrio ("Executive").
WITNESSETH:
WHEREAS, the Company is engaged in the business of developing
and operating hotels.
WHEREAS, pursuant to this Agreement the Executive shall be
employed by the Company as its Executive Vice President, and the Company and
Executive desire to formalize the Executive's employment with this Agreement,
and the Executive desires to continue employment on the terms and conditions
described herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the
Executive as its Executive Vice President for the Term (as hereinafter defined)
and the Executive agrees to accept such employment on the terms and conditions
set forth herein.
2. DUTIES. The Executive shall perform for the Company and
all its subsidiaries the responsibilities of the office of Executive Vice
President and the duties consistent with such office, subject to the direction
of the Board of Directors of the Company or its designee. The Executive shall
report to the Company's Board of Directors through the Board's designee.
3. TERM. The term of the Executive's employment under this
Agreement (the "Term") shall commence January 1, 1995 and shall continue for
three calendar years, unless earlier terminated as herein provided.
4. COMPENSATION AND OTHER BENEFITS.
4.1. COMPENSATION. As compensation for all services to be
rendered pursuant to this Agreement, the Company shall pay the Executive during
the Term, Cash Compensation and Warrants at a rate specified in Exhibit A
hereto ("Annual Compensation") payable, unless otherwise specified, in
accordance with the payroll policies of the Company.
4.2. MISCELLANEOUS EMPLOYEE BENEFITS. During the Term, the
Executive shall be permitted to participate in any group life, hospitalization,
dental or disability insurance plan, health program, pension plan, similar
benefit plan or other so-called "fringe benefits" of the Company (collectively,
"Benefits"), which may be available to other executives of the Company
generally on the same terms as such other executives.
<PAGE> 2
4.3. GENERAL BUSINESS EXPENSES. The Company shall pay or
reimburse the Executive for all reasonable expenses reasonably and necessarily
incurred by the Executive during the Term in the performance of the Executive's
services under this Agreement. Such payment shall be made upon presentation of
itemized expense statements or vouchers or such other supporting information as
the Company may require.
4.4. NET EXERCISE. The Executive shall be entitled to use
shares of the Company's stock owned by him to satisfy the exercise price of his
vested warrants or options in the Company's stock.
5. TERMINATION OF EMPLOYMENT.
5.1. TERMINATION UPON DEATH. If the Executive dies during
the Term, this Agreement shall terminate except that the Executive's legal
representative shall be entitled to receive and the Company shall pay all
compensation specified in Exhibit A (except Warrants and Vacation) during the
period ending six months after the Executive's death. Payments will be made in
accordance with the payroll policies of the Company in effect at the time of
the Executive's death. During said six-month period, the Company shall
maintain for the Executive's dependents substantially the same Benefits the
Executive was entitled to participate in immediately preceding his death.
5.2. TERMINATION UPON DISABILITY. If during the Term, the
Executive becomes physically or mentally disabled, whether totally or
partially, so that he is unable substantially to perform any of his material
services hereunder (i) for a period of six (6) consecutive months or (ii) for
shorter periods aggregating six (6) months during any twelve month period, the
Company may terminate the Executive's employment hereunder. The determination
of a disability and the commencement date thereof shall be by the Board of
Directors of the Company or, at the election of the Executive or the Board by
two (2) qualified physicians agreed upon by Executive and Board. Upon such
termination, the Company shall be obligated to continue to pay the Executive
all compensation specified in Exhibit A (except Warrants and Vacation) for a
period ending one year after the termination date. Payments will be made in
accordance with the payroll policies of the Company in effect at the time of
such termination. In addition, during said one-year period the Company shall
maintain for Executive and his dependents the Benefits Executive was entitled
to participate in immediately preceding his employment termination. However,
if the Executive dies during this one-year period, the Company shall only be
obligated to provide the compensation described in Section 5.1.
5.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company has
the right, at any time by serving notice, to terminate the Executive's
employment under this Agreement and to discharge the Executive for "Cause" (as
hereinafter defined). If such right is exercised, the Company's obligation to
the Executive shall be limited to the payment and/or satisfaction of unpaid
Cash Compensation, Warrants and Benefits accrued up to the effective date
specified in the Company's termination notice. The Executive shall also be
permitted to maintain health insurance benefits for himself and covered
dependents pursuant to COBRA commencing on the date the Executive's
2
<PAGE> 3
employment is terminated. As used in this Section 5.3, the term "Cause" shall
mean and include (i) misappropriation of any money or other assets or
properties of the Company or any subsidiary of the Company other than an
isolated, insubstantial and unintentional misappropriation which is promptly
remedied by the Executive after receipt of written notice thereof given by the
Company; (ii) willful and material breach by the Executive of the terms of this
Agreement after a written demand for substantial performance is delivered to
the Executive by the Company's Board of Directors which specifically identifies
the manner in which the Board of Directors believes that the Executive has not
substantially perform his duties and such breach continues after receipt of
such written notice; (iii) illegal conduct which has a significant negative
effect on the reputation or business of the Company; and (iv) significantly
poor financial performance of the Company, as evidenced by net income or cash
flow less than 75% of the approved budget for six consecutive quarters.
5.4. OPPORTUNITY TO RESIGN.
Prior to terminating the Executive for Cause, the Company
shall offer him an opportunity to resign. If such a resignation is tendered by
the Executive and accepted by the Company in lieu of termination for Cause, the
Executive shall receive the same compensation and benefits he would have
received if he had been terminated for cause pursuant to Section 5.3.
6. SEVERANCE UPON TERMINATION WITHOUT CAUSE. If the Company
terminates the Executive's employment without Cause, it shall continue to pay
the Executive all compensation specified in Exhibit A for a period ending one
year after the termination date. Furthermore, for said one-year period
following the Executive's termination, the Company shall maintain for the
Executive and his dependents the Benefits Executive was entitled to participate
in immediately preceding his employment termination. However, if the Executive
dies during this one-year period, the Company shall only be obligated to
provide the compensation described in Section 5.1.
7. VOLUNTARY TERMINATION BY THE EXECUTIVE
7.1. SEVERANCE FOLLOWING VOLUNTARY TERMINATION FOR GOOD
REASON. If the Executive voluntarily terminates his employment because he
makes a good faith determination that any of the Good Reasons (as hereinafter
defined) set forth in subsections (i) through (vi) of Section 7.3(a) hereof
apply, such a voluntary termination shall be deemed to be a termination by the
Company without Cause and the Executive shall be entitled to receive the
Severance and Benefits provided in Section 6.
7.2. SEVERANCE FOLLOWING OTHER VOLUNTARY TERMINATION. If the
Executive voluntarily terminates his employment for a reason other than a "Good
Reason" as that term is defined in Section 7.3(a) hereof, and provides the
Company with notice of his intent to resign at least six (6) months before its
effective date, the Executive shall be entitled to and the Company shall pay
all compensation specified in Exhibit A for a period ending six months after
the effective date of the Executive's resignation. During said six-month
period, the Company shall maintain for the Executive and his dependents
3
<PAGE> 4
all Benefits in which the Executive was entitled to participate immediately
prior to his resignation.
7.3. DEFINITIONS
(a) GOOD REASON. For purposes of this Agreement,
"Good Reason" shall mean:
(i) Change of Control.
(ii) the assignment to the Executive of
duties materially inconsistent with Executive's
authority, duties or responsibilities as contemplated
by Section 2, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad
faith and which is remedied by the Company promptly
after receipt of notice thereof given by the
Executive and excluding the delegation of duties and
responsibilities which does not materially diminish
the overall authority of the Executive;
(iii) Any failure by the Company to
comply with any of the provisions of Section 4, other
than an isolated, insubstantial or inadvertent
failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) the Company's requiring the
Executive to be based at any office or location
outside of the Chicago metropolitan or suburban area;
(v) any purported termination by the
Company of the Executive's employment otherwise than
as expressly permitted by Sections 5.1, 5.2, 5.3 and
5.4 of this Agreement; or
(vi) Any failure by the Company to comply
with and satisfy Section 8.6(c), provided that such
successor has received at least ten days prior
written notice from the Company or the Executive of
the requirements of Section 8.6(c).
(b) CHANGE OF CONTROL. For purposes of this
Agreement, a "Change of Control" shall mean:
(i) Any change in the Company's Board of
Directors such that a majority of the Board is
composed of members who were not members of the Board
on the date this Agreement was made;
(ii) Removal of the Executive from
membership on the Board of Directors by the vote of a
majority of the shareholders of
4
<PAGE> 5
the Company or failure of the Board of Directors to
nominate the Executive for reelection to Board
membership.
8. OTHER PROVISIONS
8.1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "Person" means any individual, corporate,
partnership, firm, joint venture, associate, joint-stock
company, trust, incorporated organization, governmental or
regulation body or other entity.
(ii) "Cash flow" for any period means net income
plus depreciation and amortization for such period, all
determined in accordance with generally accepted accounting
principles.
8.2. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
Chairman of the Board of Directors
Amerihost Properties, Inc.
2400 East Devon Avenue
Suite 280
Des Plaines, IL 60018
with a copy to:
Helen R. Friedli, P.C.
McDermott, Will & Emery
227 W. Monroe Street
Chicago, IL 60606
(ii) if to the Executive, to:
Richard A. D'Onofrio
505 N. Lake Shore Drive #1516
Chicago, IL 60611
Any party may change its address for notice hereunder by
notice to the other party hereto.
5
<PAGE> 6
8.3. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
8.4. WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Nor shall any waiver on the part of any party of any such
right, power or privilege hereunder, nor any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
8.5. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Illinois
applicable to agreements made and to be performed entirely within such State.
8.6. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
8.7. COUNTERPARTS. This Agreement may be executed in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.8. HEADINGS. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
EXECUTIVE AMERIHOST PROPERTIES, INC.
/s/ Richard A. D'Onofrio By: /s/ H. Andrew Torchia
- ------------------------- --------------------------------
Richard A. D'Onofrio H. Andrew Torchia
Chairman of the Board
7
<PAGE> 8
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Dated as of April 7, 1995
Executive: RICHARD A. D'ONOFRIO
Annual Cash Compensation:
<TABLE>
<CAPTION>
Initial Term: Base Incentive
---- ---------
<S> <C> <C>
1995 - $137,500 $27,500
1996 - $144,000 $36,000
1997 - $151,700 $43,300
</TABLE>
Each year, the cash compensation will be paid throughout the year. The
Executive will return to the Company the "Incentive" amount unless the
Company's performance satisfied one or more of the performance criteria
specified below for the preceding year:
(1) Net income of the quarter exceeded net income for the same
quarter of the previous year.
(2) Cash flow for the quarter exceeded cash flow for the same
quarter of the previous year.
(3) Net income or cash flow for the quarter was within fifteen
percent (15%) of the budget approved by the Board of Directors
for the quarter.
Compensation in Warrants:
The number of warrants the Executive shall be entitled to receive is as
follows:
<TABLE>
<S> <C> <C>
Term 1995 - 30,000
1996 - 40,000
1997 - 50,000
</TABLE>
Upon the execution of the Agreement by the parties, all warrants for the Term
shall be issued for the closing price of the stock on January 1, 1995. The
terms of the warrants shall be substantially identical to the stock options
issued by the Company to the Executive in October, 1994.
Vacation: 4 weeks (160 hours) per year.
<PAGE> 9
EXECUTIVE AMERIHOST PROPERTIES, INC.
/s/ Richard A. D'Onofrio /s/ H. Andrew Torchia
- ------------------------- -------------------------------------
Richard A. D'Onofrio H. Andrew Torchia
Chairman of the Board
This Exhibit A may be amended from time to time by an Exhibit A in similar form
bearing a later effective date and the signatures of the Company and Executive.
2
<PAGE> 1
EXHIBIT 10-6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of the 7th day of April, 1995 by and between Amerihost Properties, Inc.
("Company") and Russell J. Cerqua ("Executive").
WITNESSETH:
WHEREAS, the Company is engaged in the business of developing
and operating hotels.
WHEREAS, pursuant to this Agreement the Executive shall be
employed by the Company as its Senior Vice President of Finance and Chief
Financial Officer, and the Company and Executive desire to formalize the
Executive's employment with this Agreement, and the Executive desires to
continue employment on the terms and conditions described herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the
Executive as its Senior Vice President of Finance and Chief Financial Officer
for the Term (as hereinafter defined) and the Executive agrees to accept such
employment on the terms and conditions set forth herein.
2. DUTIES. The Executive shall perform for the Company and
all its subsidiaries the responsibilities of the office of Senior Vice
President of Finance and Chief Financial Officer and, if requested, the offices
of Secretary and Treasurer, and the duties consistent with such offices,
subject to the direction of the Board of Directors of the Company or its
designee. The Executive shall report to the Company's Board of Directors
through the Board's designee.
3. TERM. The term of the Executive's employment under this
Agreement (the "Term") shall commence January 1, 1995 and shall continue for
three calendar years, unless earlier terminated as herein provided.
4. COMPENSATION AND OTHER BENEFITS.
4.1. COMPENSATION. As compensation for all services to be
rendered pursuant to this Agreement, the Company shall pay the Executive during
the Term, Cash Compensation, Stock and Warrants at a rate specified in Exhibit
A hereto ("Annual Compensation") payable, unless otherwise specified, in
accordance with the payroll policies of the Company.
4.2. MISCELLANEOUS EMPLOYEE BENEFITS. During the Term, the
Executive shall be permitted to participate in any group life, hospitalization,
dental or disability
<PAGE> 2
insurance plan, health program, pension plan, similar benefit plan or other
so-called "fringe benefits" of the Company (collectively, "Benefits"), which
may be available to other executives of the Company generally on the same terms
as such other executives.
4.3. GENERAL BUSINESS EXPENSES. The Company shall pay or
reimburse the Executive for all reasonable expenses reasonably and necessarily
incurred by the Executive during the Term in the performance of the Executive's
services under this Agreement. Such payment shall be made upon presentation of
itemized expense statements or vouchers or such other supporting information as
the Company may require.
4.4. NET EXERCISE. The Executive shall be entitled to use
shares of the Company's stock owned by him to satisfy the exercise price of his
vested warrants or options in the Company's stock.
5. TERMINATION OF EMPLOYMENT.
5.1. TERMINATION UPON DEATH. If the Executive dies during
the Term, this Agreement shall terminate except that the Executive's legal
representative shall be entitled to receive and the Company shall pay all
compensation specified in Exhibit A (except Warrants and Vacation) during the
period ending six months after the Executive's death. Payments will be made in
accordance with the payroll policies of the Company in effect at the time of
the Executive's death. During said six-month period, the Company shall
maintain for the Executive's dependents substantially the same Benefits the
Executive was entitled to participate in immediately preceding his death.
5.2. TERMINATION UPON DISABILITY. If during the Term, the
Executive becomes physically or mentally disabled, whether totally or
partially, so that he is unable substantially to perform any of his material
services hereunder (i) for a period of six (6) consecutive months or (ii) for
shorter periods aggregating six (6) months during any twelve month period, the
Company may terminate the Executive's employment hereunder. The determination
of a disability and the commencement date thereof shall be by the Board of
Directors of the Company or, at the election of the Executive or the Board by
two (2) qualified physicians agreed upon by Executive and Board. Upon such
termination, the Company shall be obligated to continue to pay the Executive
all compensation specified in Exhibit A (except Warrants and Vacation) for a
period ending one year after the termination date. Payments will be made in
accordance with the payroll policies of the Company in effect at the time of
such termination. In addition, during said one-year period the Company shall
maintain for Executive and his dependents the Benefits Executive was entitled
to participate in immediately preceding his employment termination. However,
if the Executive dies during this one-year period, the Company shall only be
obligated to provide the compensation described in Section 5.1.
5.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company has
the right, at any time by serving notice, to terminate the Executive's
employment under this Agreement and to discharge the Executive for "Cause" (as
hereinafter defined). If such right is exercised, the Company's obligation to
the Executive shall be limited to the
2
<PAGE> 3
payment and/or satisfaction of unpaid Cash Compensation, Stock, Warrants and
Benefits accrued up to the effective date specified in the Company's
termination notice. The Executive shall also be permitted to maintain health
insurance benefits for himself and covered dependents pursuant to COBRA
commencing on the date the Executive's employment is terminated. As used in
this Section 5.3, the term "Cause" shall mean and include (i) misappropriation
of any money or other assets or properties of the Company or any subsidiary of
the Company other than an isolated, insubstantial and unintentional
misappropriation which is promptly remedied by the Executive after receipt of
written notice thereof given by the Company; (ii) willful and material breach
by the Executive of the terms of this Agreement after a written demand for
substantial performance is delivered to the Executive by the Company's Board of
Directors which specifically identifies the manner in which the Board of
Directors believes that the Executive has not substantially perform his duties
and such breach continues after receipt of such written notice; (iii) illegal
conduct which has a significant negative effect on the reputation or business
of the Company; and (iv) significantly poor financial performance of the
Company, as evidenced by net income or cash flow less than 75% of the approved
budget for six consecutive quarters.
5.4. OPPORTUNITY TO RESIGN.
Prior to terminating the Executive for Cause, the Company
shall offer him an opportunity to resign. If such a resignation is tendered by
the Executive and accepted by the Company in lieu of termination for Cause, the
Executive shall receive the same compensation and benefits he would have
received if he had been terminated for cause pursuant to Section 5.3.
6. SEVERANCE UPON TERMINATION WITHOUT CAUSE. If the Company
terminates the Executive's employment without Cause, it shall continue to pay
the Executive all compensation specified in Exhibit A for a period ending one
year after the termination date. Furthermore, for said one-year period
following the Executive's termination, the Company shall maintain for the
Executive and his dependents the Benefits Executive was entitled to participate
in immediately preceding his employment termination. However, if the Executive
dies during this one-year period, the Company shall only be obligated to
provide the compensation described in Section 5.1.
7. VOLUNTARY TERMINATION BY THE EXECUTIVE
7.1. SEVERANCE FOLLOWING VOLUNTARY TERMINATION FOR GOOD
REASON. If the Executive voluntarily terminates his employment because he
makes a good faith determination that any of the Good Reasons (as hereinafter
defined) set forth in subsections (i) through (vi) of Section 7.3(a) hereof
apply, such a voluntary termination shall be deemed to be a termination by the
Company without Cause and the Executive shall be entitled to receive the
Severance and Benefits provided in Section 6.
7.2. SEVERANCE FOLLOWING OTHER VOLUNTARY TERMINATION. If the
Executive voluntarily terminates his employment for a reason other than a "Good
Reason" as that term is defined in Section 7.3(a) hereof, and provides the
Company with notice of his intent to resign at least six (6) months before its
effective date, the Executive shall be
3
<PAGE> 4
entitled to and the Company shall pay all compensation specified in Exhibit A
for a period ending six months after the effective date of the Executive's
resignation. During said six-month period, the Company shall maintain for the
Executive and his dependents all Benefits in which the Executive was entitled
to participate immediately prior to his resignation.
7.3. DEFINITIONS
(a) GOOD REASON. For purposes of this Agreement,
"Good Reason" shall mean:
(i) Change of Control.
(ii) the assignment to the Executive of
duties materially inconsistent with Executive's
authority, duties or responsibilities as contemplated
by Section 2, excluding for this purpose an isolated,
insubstantial or inadvertent action not taken in bad
faith and which is remedied by the Company promptly
after receipt of notice thereof given by the
Executive and excluding the delegation of duties and
responsibilities which does not materially diminish
the overall authority of the Executive;
(iii) Any failure by the Company to
comply with any of the provisions of Section 4, other
than an isolated, insubstantial or inadvertent
failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iv) the Company's requiring the
Executive to be based at any office or location
outside of the Chicago metropolitan or suburban area;
(v) any purported termination by the
Company of the Executive's employment otherwise than
as expressly permitted by Sections 5.1, 5.2, 5.3 and
5.4 of this Agreement; or
(vi) Any failure by the Company to comply
with and satisfy Section 8.6(c), provided that such
successor has received at least ten days prior
written notice from the Company or the Executive of
the requirements of Section 8.6(c).
(b) CHANGE OF CONTROL. For purposes of this
Agreement, a "Change of Control" shall mean:
(i) Any change in the Company's Board of
Directors such that a majority of the Board is
composed of members who were not members of the Board
on the date this Agreement was made;
4
<PAGE> 5
(ii) Removal of the Executive from
membership on the Board of Directors by the vote of a
majority of the shareholders of the Company or
failure of the Board of Directors to nominate the
Executive for reelection to Board membership.
8. OTHER PROVISIONS
8.1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "Person" means any individual, corporate,
partnership, firm, joint venture, associate, joint-stock
company, trust, incorporated organization, governmental or
regulation body or other entity.
(ii) "Cash flow" for any period means net income
plus depreciation and amortization for such period, all
determined in accordance with generally accepted accounting
principles.
8.2. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
Chairman of the Board of Directors
Amerihost Properties, Inc.
2400 East Devon Avenue
Suite 280
Des Plaines, IL 60018
with a copy to:
Helen R. Friedli, P.C.
McDermott, Will & Emery
227 W. Monroe Street
Chicago, IL 60606
(ii) if to the Executive, to:
Russell J. Cerqua
777 Plentywood Lane
Bensenville, IL 60106
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Any party may change its address for notice hereunder by
notice to the other party hereto.
8.3. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
8.4. WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Nor shall any waiver on the part of any party of any such
right, power or privilege hereunder, nor any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
8.5. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Illinois
applicable to agreements made and to be performed entirely within such State.
8.6. SUCCESSORS.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
8.7. COUNTERPARTS. This Agreement may be executed in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.8. HEADINGS. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
EXECUTIVE AMERIHOST PROPERTIES, INC.
/s/ Russell J. Cerqua By: /s/ H. Andrew Torchia
- -------------------------- -------------------------------
Russell J. Cerqua H. Andrew Torchia
Chairman of the Board
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EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Dated as of April 7, 1995
Executive: RUSSELL J. CERQUA
Annual Cash Compensation:
<TABLE>
<S> <C> <C>
Initial Term: 1995 - $150,000
1996 - $160,000
1997 - $175,000
</TABLE>
Compensation in Stock:
Upon execution of this Agreement, the Company shall issue 7,500 shares of its
stock to the Executive. The maximum number of shares of stock the Executive
shall be entitled to receive in 1996 and 1997 is as follows:
<TABLE>
<S> <C> <C>
Term: 1996 - 10,000 shares
1997 - 12,500 shares
</TABLE>
Each year, shares for that year shall be issued to the Executive if the Company
meets or exceeds one or more of the performance criteria specified below for
the preceding year:
(1) Net income of the quarter exceeded net income for the same
quarter of the previous year.
(2) Cash flow for the quarter exceeded cash flow for the same
quarter of the previous year;
(3) Net income or cash flow for the quarter was within fifteen
percent (15%) of the budget approved by the Board of Directors
for the quarter.
Compensation in Warrants:
The number of warrants the Executive shall be entitled to receive is as
follows:
<TABLE>
<S> <C> <C>
Term 1995 - 30,000
1996 - 40,000
1997 - 50,000
</TABLE>
Upon the execution of the Agreement by the parties, all warrants for the Term
shall be issued for the closing price of the stock on January 1, 1995. The
terms of the warrants shall be substantially identical to the stock options
issued by the Company to the Executive in October, 1994.
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Vacation: 4 weeks (160 hours) per year.
EXECUTIVE AMERIHOST PROPERTIES, INC.
/s/ Russell J. Cerqua /s/ H. Andrew Torchia
- --------------------------- ------------------------------------
Russell J. Cerqua H. Andrew Torchia
Chairman of the Board
This Exhibit A may be amended from time to time by an Exhibit A in similar form
bearing a later effective date and the signatures of the Company and Executive.
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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
contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Chicago, Illinois
July 2, 1996
