<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997.
REGISTRATION NO. 333-27303
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
SERVICO, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<C> <C>
FLORIDA 65-0350241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1601 BELVEDERE ROAD
WEST PALM BEACH, FLORIDA 33406
(561) 689-9970
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------
DAVID A. BUDDEMEYER
CHIEF EXECUTIVE OFFICER
SERVICO, INC.
1601 BELVEDERE ROAD
WEST PALM BEACH, FLORIDA 33406
(561) 689-9970
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With Copies to:
<TABLE>
<C> <C>
ALISON W. MILLER, ESQ. J. WARREN GORRELL, JR., ESQ.
STEVEN D. RUBIN, ESQ. STEVEN A. MUSELES, ESQ.
STEARNS WEAVER MILLER WEISSLER HOGAN & HARTSON L.L.P.
ALHADEFF & SITTERSON, P.A. 555 THIRTEENTH STREET, N.W.
150 WEST FLAGLER STREET, SUITE 2200 WASHINGTON, D.C. 20004-1109
MIAMI, FLORIDA 33130 (202) 637-5600
(305) 789-3200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or reinvestment plans, please check the following box. [ ]
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, please 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........ 11,500,000 shares $14.6875 $168,906,250 $51,183.71
=======================================================================================================================
</TABLE>
(1) Includes shares of Common Stock which may be purchased by the Underwriters
pursuant to an over-allotment option.
(2) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(g) under the Securities Act of 1933.
(3) Of this amount, $42,424.24 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States offering to United States or Canadian
Persons and one to be used in a concurrent international offering to persons
other than United States or Canadian Persons. The two prospectuses are
substantially the same except for the front and back cover pages and the text
under the caption "Certain United States Federal Tax Consequences to Non-U.S.
Holders."
i
<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 June 6, 1997
PROSPECTUS
10,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
Servico, Inc. ("Servico" or the "Company") is one of the largest owners and
operators of full-service hotels in the United States. Servico currently
operates 59 hotels containing approximately 11,570 rooms, located in 22 states.
The Company's hotels include 43 wholly owned hotels, 14 partially owned hotels
and two hotels managed for third parties. The Company's objective is to maximize
shareholder value by enhancing its position within the full-service segment of
the lodging industry through the strategic acquisition of underperforming
mid-market and upscale hotels and through a focused operating strategy that
generates continued increases in occupancy and revenues. Since January 1994, the
Company has successfully completed the acquisition of 27 hotels, nearly doubling
the Company's previous portfolio of 30 hotels.
Of the 10,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby, 8,000,000 shares are initially being offered in
the United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as
defined herein) and 2,000,000 shares are being offered outside the United States
and Canada (the "International Offering") by the International Managers (as
defined herein). See "Underwriting." All of the shares of Common Stock offered
hereby are being offered by the Company.
The Common Stock is currently traded on the American Stock Exchange
("AMEX") under the symbol "SER." The Company has filed an application to list
the Common Stock on the New York Stock Exchange ("NYSE"). On June 5, 1997, the
last reported sale price of the Common Stock on the AMEX was $15 7/8. See "Price
Range of Common Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE 7.
---------------------------
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.
<TABLE>
<CAPTION>
===================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------
Total(3)...................................... $ $ $
===================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several U.S. Underwriters and
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the U.S. Underwriters and International Managers
a 30-day option to purchase up to 1,500,000 additional shares on the same
terms and conditions set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
several U.S. Underwriters, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., in
New York, New York on or about June , 1997.
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
, 1997
<PAGE> 4
[INSIDE FRONT COVER]
[FOLD OUT MAP AND PICTURES OF PROPERTIES]
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include the purchase of shares of Common Stock prior to the
pricing of the offering for the purpose of maintaining the price of the Common
Stock, the purchase of shares of Common Stock following the pricing of the
offering to cover a syndicate short position in the Common Stock or for the
purpose of maintaining the price of the Common Stock, and the imposition of
penalty bids. For a description of these activities, see "Underwriting."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus and in the
documents incorporated into this Prospectus by reference. Unless the context
indicates otherwise, "Servico" or the "Company" refers to Servico, Inc. and its
consolidated subsidiaries and partnerships. Unless otherwise indicated, all
information in this Prospectus assumes the Underwriters' over-allotment option
is not exercised. The offering by the Company of an aggregate of 10,000,000
shares of Common Stock in the U.S. Offering and the International Offering is
referred to herein as the "Offering."
THE COMPANY
Servico is one of the largest owners and operators of full-service hotels
in the United States. The Company currently operates 59 hotels containing
approximately 11,570 rooms located in 22 states. The Company's hotels are
primarily mid-sized, with an average of approximately 200 rooms per hotel, and
are primarily located in secondary metropolitan markets. The Company's
full-service hotels offer food and beverage services, meeting space and banquet
facilities. The Company's hotels include 43 wholly owned hotels, 14 partially
owned hotels and two managed hotels. Six of the hotels are subject to long-term
ground leases. All of the Company's hotels are affiliated with nationally
recognized hospitality franchisors, including Holiday Inn, Best Western,
Clarion, Crowne Plaza, Days Inn, Embassy Suites, Hampton Inn, Hilton, Howard
Johnson, Omni, Quality Inn, Radisson, Sheraton and Westin. The Company operates
37 hotels under franchise agreements with Holiday Inn, making the Company the
second largest Holiday Inn franchisee in the United States.
The Company's objective is to maximize shareholder value by enhancing its
position within the full-service segment of the lodging industry. The Company
seeks to achieve external growth through the continued acquisition of
underperforming hotels where the Company believes it can make meaningful
improvements in operating results through strategic repositioning, renovation of
physical facilities and, if appropriate, changes in franchise affiliation.
Internally, the Company seeks to achieve growth through a focused operating
strategy that generates continued increases in both revenue per available room
("RevPAR") and food and beverage revenues. The Company's success in implementing
these strategies is illustrated by the Company's rapid growth over the last
three years. Since January 1994, the Company has acquired 27 hotels and
increased revenues, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and earnings per share ("EPS"), before non-recurring and
extraordinary items, at compound annual rates of 22.9%, 43.2% and 76.5%,
respectively.
The Company's acquisition strategy is focused on the purchase of single
mid-market full-service hotels or small portfolios which management believes
have the potential for attractive returns. Management believes that such
acquisitions permit timely hotel-level improvements and generate more
predictable cash flow and earnings growth. The Company believes the mid-market
full-service segment of the lodging industry is attractive because of (i) the
large number of hotels available for acquisition, including the significant
number of older hotels in attractive locations with owners that lack the
resources to improve operating results, (ii) the positive impact of food and
beverage services, meeting space and banquet facilities on occupancy and
profitability, (iii) limited construction in this segment and (iv) acquisition
prices at substantial discounts to replacement cost. Management believes that
the Company's acquisition strategy differs from that of other owners and
operators based on the Company's willingness and capacity to purchase
substantially underperforming hotels.
The Company's operating strategy emphasizes (i) experienced management,
averaging over twelve years of industry experience, with performance-based
incentives at corporate, regional and hotel management levels, (ii) effective
centralized corporate and regional support personnel, who closely monitor hotel
level performance and provide substantial accounting, payroll, data processing,
training and other support services, (iii) the use of banquet facilities, food
and beverage operations and meeting space to maximize occupancy and improve
profitability and (iv) a commitment to reinvest capital into its owned hotels.
3
<PAGE> 6
The Company's principal executive offices are located at 1601 Belvedere
Road, West Palm Beach, Florida 33406, and its telephone number is (561)
689-9970.
RECENT DEVELOPMENTS
In April 1996, Servico successfully completed an approximately $123 million
debt refinancing which matures in 1999, subject to an option to extend the
initial maturity for an additional year. The refinancing generated net proceeds
of approximately $32.4 million which enabled the Company to continue to pursue
its acquisition strategy. Since January 1994, the Company has successfully
completed the acquisition of 27 hotels, almost doubling the Company's previous
portfolio of 30 hotels. As a result of the refinancing and rapid growth, the
Company significantly increased its overall levels of indebtedness. During the
last six months, the Company considered various alternatives for restructuring
its balance sheet with a view toward reducing debt and obtaining additional
funds for acquisitions. These alternatives included the sale by the Company of
shares of its Common Stock, conversion to, and the sale of equity in, a real
estate investment trust and the sale of certain of the Company's assets. The
Company has determined that it is in its best interest to address the high level
of its indebtedness through the sale of Common Stock in this Offering.
THE OFFERING
Common Stock Offered by the
Company 10,000,000 shares
Common Stock to be Outstanding
After the Offering.............. 19,396,405 shares(1)
Use of Proceeds................. Repayment of approximately $128 million of
indebtedness; purchase of interests in three
hotels held by certain affiliates of the
Company; and working capital, including
capital expenditures and other general
corporate purposes. See "Use of Proceeds."
AMEX Symbol..................... "SER"
Proposed NYSE Symbol............ "SER"(2)
- ---------------
(1) Does not include an aggregate of 858,700 shares of Common Stock issuable
upon the exercise of stock options granted under the Company's Stock Option
Plan as of May 6, 1997 and 244,900 additional shares reserved for future
issuance under the Company's Stock Option Plan.
(2) The Company has filed an application to list its Common Stock on the NYSE.
If approved for listing on the NYSE, the shares will no longer trade on the
AMEX.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The table below presents summary consolidated financial data derived from
the Company's historical financial statements for the years ended December 31,
1994, 1995 and 1996, and for the three months ended March 31, 1996 and 1997.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements and related notes thereto and other financial information
included and incorporated by reference in this Prospectus. Pro forma information
gives effect to the Offering and acquisitions of partnership interests and
hotels, with respect to the statements of income, as of January 1, 1996 and,
with respect to the balance sheet, as of March 31, 1997, as more fully described
in "Unaudited Pro Forma Condensed Consolidated Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Rooms.................................. $ 93,720 $113,902 $156,564 $168,163 $ 35,097 $ 41,494 $ 41,494
Food and beverage...................... 46,945 53,499 68,803 72,027 14,391 17,275 17,275
Other operating sales.................. 9,018 11,079 14,159 14,884 3,111 3,878 3,878
-------- -------- -------- -------- -------- -------- --------
149,683 178,480 239,526 255,074 52,599 62,647 62,647
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Direct:
Rooms.................................. 26,848 32,140 43,667 47,010 9,408 11,150 11,150
Food and beverage...................... 36,585 41,474 52,761 55,558 11,252 13,603 13,603
Other:
Property management.................... 11,811 13,902 17,672 19,201 3,937 5,400 5,400
Advertising and promotion.............. 8,569 9,940 12,985 13,950 2,913 3,472 3,472
Utilities.............................. 8,917 9,818 12,604 13,591 2,845 3,583 3,583
Repairs and maintenance................ 7,054 8,380 10,991 11,830 2,479 2,997 2,997
Property taxes and insurance........... 6,808 7,763 10,345 11,154 2,324 2,955 2,955
Other.................................. 8,829 9,331 11,747 12,410 3,274 3,204 3,204
Non-recurring expenses(a).............. 217 593 839 839 839 -- --
-------- -------- -------- -------- -------- -------- --------
Total other.............................. 52,205 59,727 77,183 82,975 18,611 21,611 21,611
-------- -------- -------- -------- -------- -------- --------
General and administrative............... 7,944 8,977 9,297 9,297 2,560 2,203 2,203
Depreciation and amortization............ 9,465 12,370 18,677 20,227 4,026 5,399 5,450
-------- -------- -------- -------- -------- -------- --------
133,047 154,688 201,585 215,067 45,857 53,966 54,017
-------- -------- -------- -------- -------- -------- --------
Income from operations................... 16,636 23,792 37,941 40,007 6,742 8,681 8,630
Other income (expenses):
Interest income........................ 335 1,002 1,631 1,605 179 373 373
Other income........................... -- 195 89 89 26 -- --
Non-recurring income(a)................ 529 -- 3,615 3,615 3,615 -- --
Interest expense....................... (12,693) (17,903) (29,443) (18,020) (6,001) (8,024) (4,134)
Minority interests..................... (171) (572) (2,060) (785) (835) (513) 12
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary items.................... 4,636 6,514 11,773 26,511 3,726 517 4,881
Provision for income taxes............... 1,855 2,605 3,225 9,120 1,490 207 1,953
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item......... 2,781 3,909 8,548 17,391 2,236 310 2,928
Extraordinary item, net of income tax.... 1,436 -- (348) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............................... $ 4,217 $ 3,909 $ 8,200 $ 17,391 $ 2,236 $ 310 $ 2,928
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Recurring income....................... $ .31 $ .46 $ .55 $ .72 $ .06 $ .03(1) $ .15
Non-recurring income (expense)......... .02 (.04) .32 .16 .18 -- --
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item....... .33 .42 .87 .88 .24 .03 .15
Extraordinary item..................... .17 -- (.03) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income............................. $ .50 $ .42 $ .84 $ .88 $ .24 $ .03 $ .15
======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding...... 8,415 9,319 9,763 19,763 9,526 9,926 19,926
======== ======== ======== ======== ======== ======== ========
- ---------------
(a) Non-recurring items, net of taxes,
are as follows:
Gain on litigation settlement.......... $ -- $ -- $ 3,653 $ 3,653 $ 2,169 $ -- $ --
Other non-recurring income (expense)... 193 (356) (503) (503) (503) -- --
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(2)................................ $ 26,376 $ 36,894 $ 57,915 $ 61,537 $ 11,684 $ 14,196 $ 14,196
EBITDA margin............................ 17.6% 20.7% 24.2% 24.1% 22.2% 22.7% 22.7%
Net cash provided by operating
activities............................. 11,124 20,667 30,970 45,983 6,254 10,082 15,534
Net cash used in investing activities.... (20,787) (101,678) (97,557) (97,557) 20,686 (10,308) (15,079)
Net cash provided by (used in) financing
activities............................. 18,864 79,440 74,659 74,659 19,558 (12) 3,510
Operating Data:
Number of consolidated hotels............ 32 43 56 56 46(5) 56(5) 56
Number of consolidated guest rooms (end
of period)............................. 6,464 8,340 10,819 10,819 8,991 10,819 10,819
Average occupancy:
Pre-1995 Hotels........................ 65.8% 67.8% 68.0% 68.0% 64.9% 65.3% 65.3%
1995 Acquisitions...................... -- 67.7% 71.3% 71.3% 71.9% 69.6% 69.6%
1996 Acquisitions...................... -- -- 56.8% 57.9% 54.6% 51.4% 51.4%
Average daily rate:(3)
Pre-1995 Hotels........................ $ 65.14 $ 67.95 $ 71.59 $ 71.59 $ 72.08 $ 75.21 $ 75.21
1995 Acquisitions...................... -- $ 59.40 $ 65.24 $ 65.24 $ 70.42 $ 72.76 $ 72.76
1996 Acquisitions...................... -- -- $ 64.10 $ 62.88 $ 55.26 $ 68.17 $ 68.17
RevPAR:(4)
Pre-1995 Hotels........................ $ 42.85 $ 46.09 $ 48.72 $ 48.72 $ 46.77 $ 49.15 $ 49.15
1995 Acquisitions...................... -- $ 40.23 $ 46.52 $ 46.52 $ 50.64 $ 50.64 $ 50.64
1996 Acquisitions...................... -- -- $ 36.39 $ 36.41 $ 30.17 $ 35.04 $ 35.04
EBITDA margins:
Pre-1995 Hotels........................ 24.1% 25.9% 29.1% 29.1% 27.0% 28.7% 28.7%
1995 Acquisitions...................... -- 29.2% 35.7% 35.7% 40.3% 37.2% 37.2%
1996 Acquisitions...................... -- -- 18.3% 17.7% 13.8% 13.3% 13.3%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 19,235 $ 19,548
Property and equipment, net................................. 370,179 375,852
Total assets................................................ 445,170 441,354
Other current liabilities................................... 33,044 29,558
Current portion of long-term debt........................... 23,179 18,293
Long-term debt, less current portion........................ 285,237 158,908
Stockholders' equity........................................ 75,315 212,213
</TABLE>
- ---------------
(1) Includes amortization of certain non-cash deferred loan costs of $1 million
or $.06 per share, net of taxes, which was not included in the 1996 first
quarter results.
(2) Represents earnings before interest expense, income taxes, depreciation and
amortization. Management believes that EBITDA is a useful measure of
operating performance because it is industry practice to evaluate hotel
properties based on operating income before interest, depreciation and
amortization, which is generally equivalent to EBITDA, and EBITDA is
unaffected by the debt and equity structure of the property owner. EBITDA is
not necessarily indicative of, and should not be used as an alternative to,
net income or cash flow provided by operations as specified by generally
accepted accounting principles for purposes of evaluating the Company's
results of operations.
(3) Represents total room revenues divided by the total number of rooms occupied
by hotel guests on a paid basis.
(4) Represents total room revenues divided by total available rooms, net of
rooms out of service due to significant renovations.
(5) Ten of the 13 hotel acquisitions in 1996 were acquired subsequent to March
31, 1996.
6
<PAGE> 9
RISK FACTORS
An investment in the Common Stock involves material risks. In addition to
general investment risks and those factors set forth elsewhere in this
Prospectus or incorporated by reference herein, prospective investors should
consider, among other things, the following risks before making an investment.
RISKS ASSOCIATED WITH EXPANSION
Availability of Additional Capital to Support Growth. As part of the
Company's business strategy, the Company intends to seek to pursue growth
through the identification, acquisition, repositioning and renovation of
additional hotel properties. The Company will be required to obtain additional
capital in the future to meet its expansion plans. Capital may be raised by the
issuance of additional equity or the incurrence of indebtedness. In addition, in
appropriate situations, the Company may seek financing from other sources or
enter into joint ventures and other collaborative arrangements in connection
with the acquisition of hotel properties. The Company may not be successful in
obtaining additional capital in a timely manner, on favorable terms or at all.
Insufficient capital may cause the Company to delay, scale back or abandon some
or all of its property acquisition plans or opportunities.
Competition. The Company competes for the acquisition of hotels with
numerous entities, some of which have greater financial resources than the
Company. The Company believes that, as a result of the downturn experienced by
the lodging industry from the late 1980s through the early 1990s and the
significant number of foreclosures and bankruptcies created thereby, the prices
for many hotels during the past several years have been at historically low
levels, often well below the cost to build new hotels. The recent economic
recovery in the lodging industry and the resulting increase in funds available
for hotel acquisitions has attracted additional investors to the hotel
acquisition market, which in turn has caused the cost of hotel acquisitions to
increase and the number of attractive hotel acquisition opportunities to
decrease.
Integration of Operations. To successfully implement its growth strategy,
the Company must be able to continue to successfully acquire hotels on
attractive terms and to integrate the acquired hotels into its existing
operations. The failure of the Company to consolidate the management and
operations and integrate the systems and procedures of the acquired hotels into
the Company's existing operations in a timely and profitable manner could have a
material adverse effect on the results of operations and financial condition of
the Company. There can be no assurance that the Company will be able to achieve
operating results in its newly acquired hotels comparable to the historical
performance of its hotels.
HOTEL RENOVATION RISKS
The renovation of hotels involves risks associated with construction and
renovation of real property, including the possibility of construction cost
overruns and delays due to various factors (including the inability to obtain
regulatory approvals, inclement weather, labor or material shortages and the
unavailability of construction and permanent financing) and market or site
deterioration after acquisition or renovation. Any unanticipated delays or
expenses in connection with the renovation of hotels could have an adverse
effect on the results of operations and financial condition of the Company.
RISK OF LEVERAGE
Substantially all of the Company's hotels are subject to mortgage
financing, which at March 31, 1997, totaled approximately $286 million.
Approximately $12 million of the mortgage financing collateralized by the
Company's hotels, and entered into by various subsidiaries, is guaranteed by
Servico, Inc. Servico, Inc.'s guarantees of mortgage financing generally provide
for direct recourse by the lender against Servico, Inc., without requiring the
lender to seek recourse against either the applicable subsidiary or the hotel
property securing the mortgage financing. As a consequence, if payments under
such mortgage financing guaranteed by Servico, Inc., are not timely made,
Servico, Inc. may be required to make payments in accordance with its
guarantees.
7
<PAGE> 10
The Company's leverage poses certain risks for the Company, including the
risks that the Company may not generate sufficient cash flow to service the
indebtedness; that the Company may be unable to obtain additional financing or
refinancing in the future; that, to the extent it is significantly more
leveraged than its competitors, it may be placed at a competitive disadvantage;
and that the Company's capacity to respond to market conditions and other
factors may be adversely affected. The Company's ability to service its debt
will depend on its future performance, which will be subject to prevailing
economic and competitive conditions and other specific factors discussed herein.
Additionally, certain of the mortgages and related loan documents evidencing the
Company's indebtedness contain provisions which, among other things, cross
collateralize and cross default each of the mortgages, prohibit prepayment for
certain periods of time, impose prepayment penalties for certain periods of
time, restrict the Company's ability to utilize the cash generated by the hotels
if the hotels fail to meet certain financial covenants and, in certain events
upon a change in control of the Company, may cause the termination of the
Company's management of the hotels and acceleration of the payment of each of
the loans.
Neither the Company's Articles of Incorporation nor its Bylaws limit the
amount of indebtedness that the Company may incur. Subject to limitations in its
debt instruments, the Company may incur additional debt in the future to finance
acquisitions and renovations. Substantial indebtedness could increase the
Company's vulnerability to general economic and lodging industry conditions
(including increases in interest rates) and could impair the Company's ability
to obtain additional financing in the future and to take advantage of
significant business opportunities that may arise. The Company's indebtedness
is, and will likely continue to be, secured by mortgages on all, or
substantially all, of the hotels, and by the equity of certain subsidiaries of
the Company. There can be no assurance that the Company will in the future be
able to meet its debt service obligations and, to the extent that it cannot, the
Company risks the loss of some or all of its assets, including hotels, to
foreclosure. Further, adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable. In such circumstances, if the
Company requires additional capital to repay indebtedness in accordance with its
terms or otherwise, it could be required to liquidate one or more investments in
hotels at times which may not permit realization of the maximum return on such
investments.
Upon completion of the Offering and utilization of the proceeds to repay
approximately $128 million of debt, approximately 95% of the Company's
outstanding indebtedness will bear interest at a fixed rate. To the extent that
the Company has or incurs additional debt bearing interest at variable rates,
economic conditions could result in increased debt service requirements and
could reduce the amount of cash available for various corporate purposes.
Further, the Company is currently negotiating to obtain a $100 million secured
credit facility. Any such credit facility would likely bear interest at a
variable rate and include representations, warranties and covenants with respect
to the conduct of the Company's business and require the maintenance of various
financial ratios. There is no assurance that the Company will obtain such
facility or as to the amount or terms of any such facility. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS ASSOCIATED WITH OWNING OR LEASING REAL ESTATE
The Company will be subject to varying degrees of risk generally incident
to the ownership or lease of real estate. These risks include, among other
things, changes in national, regional and local economic conditions, changes in
local real estate market conditions, changes in interest rates and in the
availability, cost and terms of financing, the potential for uninsured casualty
and other losses, the impact of present or future environmental legislation and
adverse changes in zoning laws and other regulations. Many of these risks are
beyond the control of the Company. In addition, real estate investments are
relatively illiquid, resulting in a limited ability of the Company to vary its
portfolio of hotels in response to changes in economic and other conditions.
Fourteen of the owned hotels are owned in joint ventures with other
parties. The Company does not have sole control over decisions regarding sale
and refinancing of these hotels. In addition, the Company's investments in these
joint ventures may, under certain circumstances, involve risks not otherwise
present in property ownership, including (i) the risk that the Company's partner
in a joint venture may become bankrupt, (ii) buy/sell rights that exist with
respect to certain of such hotels and (iii) the risk that the
8
<PAGE> 11
Company's partner in a joint venture might at any time have economic or other
business interests or goals that are inconsistent with the business interests or
goals of the Company, and that such partners may be in a position to veto
actions which may be consistent with the Company's objectives or policies.
LODGING INDUSTRY RISKS
Risks generally inherent in investments in hotel facilities may cause
operating results for hotels to vary more than for investments in certain other
types of properties. These factors include the following:
Operating Risks. The Company is subject to operating risks generally
incident to the lodging industry. These risks include, among other things, the
uncertainty of cash flow due to seasonal fluctuations, changes in general and
local economic conditions, periodic over-building in the hotel industry or a
specific market, varying competition from other hotels, motels and recreational
properties, changes in levels of tourism or business-related travel due to
energy costs or other factors, changes in travel patterns, labor unavailability
and disruptions, the recurring need for renovation, refurbishment and
improvement of hotel properties (including furniture, fixtures and equipment),
the availability of financing for operating or capital requirements, adverse
weather conditions and travel disruptions, taxes and governmental regulations
which influence or determine wages, prices, interest rates, construction
procedures and costs, losses due to personal injuries, fire, earthquake,
collapse or structural defects, the application of health and beverage laws and
other factors, many of which are beyond the control of the Company. In addition,
due to the level of fixed costs required to operate full-service hotels, certain
significant expenditures necessary for the operation of hotels generally cannot
be reduced when circumstances cause a reduction in revenue.
Competition. The hotel industry is highly competitive in nature. While
there is no single competitor or small number of competitors that are dominant
in the industry, competition within the industry has recently resulted in
consolidations and other ownership changes among major hotel companies. The
Company's hotels generally operate in areas that contain numerous other
competitive lodging facilities, some of which have greater financial resources
than the Company. The Company competes with such facilities on various bases,
including room rates and quality, brand name recognition, location and other
services and amenities offered. New or existing competitors could significantly
lower rates or offer greater conveniences, services or amenities or
significantly expand, improve or introduce new facilities in markets in which
the Company's hotels compete, thereby adversely affecting the Company's
operations.
Maintenance and Refurbishment. For hotels to remain competitive, they must
be maintained and refurbished on an ongoing basis. Such renovations and
refurbishments will increase the need for funds for capital improvements and
replacements (whether from reserves, current cash flow or financing). Moreover,
operating revenues may decrease as facilities are removed from service from time
to time during such renovations. See "Hotel Renovation Risks" above.
Insurance Risks. Hotels have extensive assets, require more employees,
rely more on suppliers and serve more customers than certain other types of real
estate properties. Hotels are also subject in certain states to dram shop
statutes which may give an injured person the right to recover damages from any
establishment which wrongfully served alcoholic beverages to the person who,
while intoxicated, caused the injury. As a result, hotels may have greater
exposure to liability for, among other things, theft of property and other
casualty and property loss, labor difficulties and personal injuries. In this
respect, many businesses, including those in the lodging industry, have
experienced recent increases in the cost of, and contraction in the availability
of, insurance, resulting in cost escalation and reductions in amounts of
coverage available. The continuation of this trend could render certain types of
desired coverage unavailable with the attendant possibility that certain claims
may exceed coverage.
Seasonality. The demand for accommodations is affected by normally
recurring seasonal patterns, and most Company hotels experience lower occupancy
levels in the fall and winter (November through February) which may result in
lower revenues, lower net income and less cash flow during these months.
Quarterly
9
<PAGE> 12
earnings also may be adversely affected by events beyond the Company's control,
such as extreme weather conditions, economic factors and other considerations
affecting travel.
Inflation. Inflationary pressures could have the effect of increasing
operating expenses, including labor and energy costs (and, indirectly, property
taxes) above expected levels at a time when it may not be possible to increase
room rates to offset such higher operating expenses. In addition, inflation
could have a secondary effect upon occupancy rates by increasing the expense or
decreasing the availability of travel by potential guests. Although the
inflation rate has been low recently, there is no assurance that it will not
increase in the future.
RISKS ASSOCIATED WITH FRANCHISE AGREEMENTS
The Company's hotels are all operated pursuant to franchise agreements with
national hospitality franchisors. The franchise agreements generally contain
specific standards for, and restrictions and limitations on, the operation and
maintenance of a hotel in order to maintain uniformity within the franchisor
system. Those limitations may conflict with the Company's business plans.
Further, such standards are often subject to change over time, in some cases at
the discretion of the franchisor, and may restrict a franchisee's ability to
make improvements or modifications to a hotel without the consent of the
franchisor. In addition, compliance with such standards could require a
franchisee to incur significant expenses or capital expenditures both during the
term of the franchise and upon renewal thereof. In connection with changing the
franchise affiliation of a hotel, the Company may be required to incur
additional expenses or capital expenditures. Franchise agreements are typically
terminable by the franchisor for failure of the franchisee to maintain specified
operating standards or to make payments due under the applicable agreements in a
timely fashion. In addition, such agreements may be subject to termination at
the end of their stated term. The termination of a franchise agreement relating
to a hotel may have an adverse impact on the operations or underlying value of
such hotel because of the loss of associated name recognition, marketing support
and centralized reservation systems provided by the franchisor. The average
remaining life of the Company's franchise agreements is approximately seven
years. A majority of the Company's hotels are affiliated with Holiday Inn and
any deterioration in the relationship with or the benefits associated with being
a franchisee of Holiday Inn could have a material adverse impact on the Company.
ENVIRONMENTAL RISKS
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Furthermore, a person that arranges for the
disposal of a hazardous substance at another property or transports a hazardous
substance for disposal or treatment at another property may be liable for the
costs of removal or remediation of hazardous substances at that property,
regardless whether that person owns or operates that property. The costs of any
such remediation or removal may be substantial, and the presence of any such
substance, or the failure promptly to remediate any such substance, may
adversely affect the property owner's ability to sell or lease the property, to
use the property for its intended purpose, or to borrow using the property as
collateral. Other federal, state and local laws, ordinances and regulations
require abatement or removal of certain asbestos-containing materials in
connection with demolition or certain renovations or remodeling, impose certain
worker protection and notification requirements, and govern emissions of and
exposure to asbestos fibers in the air. Additionally, federal, state and local
laws, ordinances and regulations and the common law impose on owners and
operators certain requirements regarding conditions and activities that may
affect human health or the environment. These conditions and activities include,
for example, the presence of lead in drinking water, the presence of
lead-containing paint in occupied structures, and the ownership or operation of
underground storage tanks. Failure to comply with applicable requirements could
result in difficulty in the lease or sale of any affected property or the
imposition of monetary penalties, in addition to the costs required to achieve
compliance and potential liability to third parties. Any liability resulting
from non-compliance or other claims relating to environmental matters could have
a material adverse effect on the Company's results of operations and financial
condition.
10
<PAGE> 13
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the Company's hotels and
could otherwise adversely affect the Company's results of operations and
financial condition.
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations are required to meet certain requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA required
upgrades to the Company's hotels, a determination that the Company is not in
compliance with the ADA could result in a judicial order requiring compliance,
imposition of fines or an award of damages to private litigants. The Company is
likely to incur additional costs of complying with the ADA; however, such costs
are not expected to have a material adverse effect on the Company's results of
operations and financial condition.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The Company will place substantial reliance on the hotel industry knowledge
and experience and the continued services of its senior management, led by Mr.
David Buddemeyer, the Company's President and Chief Executive Officer. The
Company's future success and its ability to manage future growth depend, in
large part, upon the efforts of these persons and on the Company's ability to
attract and retain other highly qualified personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of the services
of Mr. Buddemeyer or the Company's inability to attract and retain other highly
qualified personnel may adversely affect the results of operations and financial
condition of the Company.
CONFLICTS OF INTEREST
Energy Management Corporation ("EMC") and its affiliate, Pengo Securities
Corp. ("Pengo"), own an aggregate of 2,420,100 shares (25.8%) of the Company's
outstanding Common Stock. John W. Adams, Chairman of the Board of the Company,
is President and a director of EMC and Pengo. Subsidiaries of the Company have
entered into partnership agreements with affiliates of EMC, Pengo and Mr. Adams
(the "EMC Affiliates") in connection with the formation of partnerships for the
purpose of owning nine of the Company's partially owned hotels. Subject to the
consummation of the Offering, the Company has agreed to acquire the EMC
Affiliates' partnership interests in Lawrence Hospitality Associates, L.P.
(which owns the Holiday Inn, Lawrence, Kansas), Manhattan Hospitality
Associates, L.P. (which owns the Holiday Inn, Manhattan, Kansas) and East
Washington Hospitality Limited Partnership (which owns the Holiday Inn Select,
Phoenix, Arizona) for an aggregate purchase price of approximately $11.7
million. After such acquisition, the Company will own 100% of these hotels. The
purchase price for the partnership interests was determined by negotiations
among the Company and the EMC Affiliates and may not be indicative of the market
value of such interests. See "Use of Proceeds."
The Company has also agreed in principle, concurrently with the
above-described purchase of partnership interests, to amend the terms of the
partnership agreements relating to six other partnerships formed by subsidiaries
of the Company and various EMC Affiliates, to provide that the EMC Affiliates
each will have certain rights after May 31, 1998, to seek the sale of the hotel
property held by the partnership subject to certain rights of first refusal in
favor of the Company.
Conflicts may arise in the future between the Company and the EMC
Affiliates with respect to the management, operation and ownership of the hotels
owned by these partnerships. There is no assurance that such conflicts will be
resolved in favor of the Company. Transactions involving the EMC Affiliates and
their hotel interests will be subject to the approval of the Board of Directors.
As described under "Use of Proceeds," the Company will use approximately
90% of the net proceeds of the Offering to repay approximately $128 million of
its outstanding indebtedness. Approximately $60 million
11
<PAGE> 14
of such debt is held by Lehman Brothers Holdings, Inc. ("Lehman Holdings"), an
affiliate of Lehman Brothers Inc. ("Lehman Brothers"), and approximately $66
million is held by a trust in which an affiliate of Lehman Holdings holds
subordinate interests. Additionally, the Company will pay an exit fee of
approximately $4.9 million to Lehman Holdings in connection with the repayment
of such indebtedness. While there is no assurance that such a facility will be
obtained, the Company is currently negotiating with Lehman Brothers to obtain a
$100 million secured credit facility which would be available to fund future
acquisitions.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 19,396,405 shares of
Common Stock outstanding, all of which will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities Act")
unless held by "affiliates" of the Company as defined in the Securities Act.
Shares held by affiliates are eligible for sale in the public market subject to
the registration requirements of the Securities Act or the availability of a
valid exemption thereunder. A total of 2,420,100 shares of the Company's Common
Stock are held by EMC and Pengo, who are affiliates of the Company under the
Securities Act. Pursuant to a registration rights agreement, the Company caused
a registration statement (the "EMC Registration Statement") registering the EMC
and Pengo shares for resale to be filed and declared effective and intends,
subject to certain limitations, to maintain the continued effectiveness of the
registration statement. In the registration rights agreement, EMC and Pengo have
agreed not to sell any shares of Common Stock under the EMC Registration
Statement for a period of 90 days from the date of a public offering or such
longer period as may be reasonably required by the underwriters, which period,
in the case of the Offering, shall be 90 days. In addition, the Company has
registered under the Securities Act 1,675,000 shares of Common Stock reserved
for issuance under the Company's Stock Option Plan. Sales of substantial amounts
of shares of Common Stock in the public market following the Offering could
adversely affect the market price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation provide that certain transactions
must be approved by the holders of at least 80% of the outstanding Common Stock,
unless approved by the Company's Board of Directors. The Company's Bylaws divide
the Company's Board of Directors into three classes of directors serving
staggered three-year terms, with one class of directors to be elected at each
annual meeting of shareholders. Additionally, as a Florida corporation, the
Company is also governed by the provisions of Florida corporate law regarding
affiliated transactions and control share acquisitions, which impose
restrictions and require specific procedures to be followed with respect to
certain takeover offers and business combinations, including, but not limited
to, combinations with interested shareholders and affiliates of the Company. The
provisions in the Company's Articles of Incorporation, the classification of the
Company's Board of Directors and the anti-takeover provisions of the Florida
corporate law will tend to assist the Board of Directors and management of the
Company in retaining their existing positions and will render more difficult or
discourage unsolicited takeover attempts, even if such actions were desired by
all shareholders of the Company other than directors and management
shareholders.
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 10,000,000
shares of Common Stock by the Company in the Offering (after deducting the
estimated underwriting discounts and commissions and offering expenses) are
estimated to be approximately $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use
approximately $128 million of the net proceeds of the Offering to repay certain
outstanding indebtedness, including approximately $60 million owed to Lehman
Holdings and $66 million owed to a trust in which an affiliate of Lehman
Holdings holds subordinate interests. Approximately $11.7 million will be used
to acquire the partnership interests in three partnerships currently held by
certain EMC Affiliates. See "Risk Factors -- Conflicts of Interest." The
remaining net proceeds from this Offering are expected to be utilized for
working capital and general corporate purposes.
The indebtedness to Lehman Holdings and the trust to be repaid matures in
May 1999 and bears interest at a rate of LIBOR plus 3.5% per annum. In addition
to the indebtedness to be repaid to Lehman Holdings is an exit fee of
approximately $4.9 million. Accordingly, the effective interest rate on this
indebtedness (based on an average LIBOR rate of 5.5%,) would be approximately
12.4% if the debt is repaid on June 30, 1997. All of such indebtedness was
incurred in April 1996 in connection with the refinancing of certain long-term
obligations secured by 20 of the Company's hotels.
DIVIDEND POLICY
The Company currently intends to retain any earnings to finance the
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future. The declaration and payment
of dividends by the Company are subject to the discretion of the Board of
Directors of the Company. Any future determination to pay dividends will depend
on the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant at the
time by the Board of Directors.
PRICE RANGE OF COMMON STOCK
The following tables sets forth, for the periods indicated, the high and
low sales prices of the Common Stock as reported on the composite tape of the
AMEX for each of the quarters indicated:
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
First Quarter............................................... $111/8 $ 91/4
Second Quarter.............................................. 103/8 91/8
Third Quarter............................................... 16 93/4
Fourth Quarter.............................................. 151/2 101/8
YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................... 137/8 101/2
Second Quarter.............................................. 161/2 113/4
Third Quarter............................................... 17 131/2
Fourth Quarter.............................................. 171/4 141/2
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................... 201/2 16
Second Quarter (through June 5, 1997)....................... 175/8 133/4
</TABLE>
On June 5, 1997, the closing sale price of the Common Stock as reported on
the AMEX composite tape was $15 7/8 per share.
The Company has filed an application to list its Common Stock on the NYSE.
If approved for listing on the NYSE, the shares will no longer trade on the
AMEX.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997, as adjusted to reflect the sale of Common Stock in the Offering (and
the anticipated use of the net proceeds therefrom). See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 19,235 $ 19,548
======== ========
Long-term debt (including current portion)(1):
Mortgage notes payable.................................... $285,987 $162,163
Installment loans payable................................. 9,695 2,304
Obligations under capital leases.......................... 11,857 11,857
Other..................................................... 877 877
-------- --------
Total long-term debt.............................. $308,416 $177,201
======== ========
Stockholders' equity(2):
Common stock, $.01 par value, 25,000,000 shares
authorized, 9,402,399 shares issued and outstanding
(19,402,399 shares as adjusted to reflect the sale of
Common Stock in the Offering).......................... $ 94 $ 194
Additional paid-in capital................................ 55,403 196,053
Retained earnings......................................... 19,818 15,966
-------- --------
Total stockholders' equity................................ 75,315 212,213
-------- --------
Total capitalization.............................. $383,731 $389,414
======== ========
</TABLE>
- ---------------
(1) The Company intends to use approximately $128 million of the net proceeds of
the Offering to repay outstanding indebtedness. See "Use of Proceeds" and
Note 5 of the Notes to Consolidated Financial Statements.
(2) Excludes 858,700 shares of Common Stock reserved for issuance upon exercise
of options issued under the Company's Stock Option Plan, of which options to
acquire 617,400 shares were exercisable as of May 6, 1997.
14
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth certain unaudited pro forma condensed
consolidated financial information for the Company, after giving effect to the
Offering, the acquisition of partnership interests in three hotels and the
acquisition of 13 hotels during 1996 (the "Acquired Businesses"), as if such
Offering and acquisitions had been consummated, with respect to the statements
of income, as of January 1, 1996, and with respect to the balance sheet, as of
March 31, 1997. The historical statements of income of the Acquired Businesses
have been combined and adjusted by the Company to reflect periods comparable to
those of the Company.
The following tables are not necessarily indicative of the consolidated
results of operations and financial position of the Company as they may be in
the future or as they might have been had the Offering and the acquisitions been
consummated on the respective dates assumed. The unaudited pro forma condensed
consolidated financial information reflects various estimates and, accordingly,
is subject to change based on actual results of the Offering and the Acquired
Businesses. This information should be read in conjunction with the historical
consolidated financial statements and accompanying notes of the Company
contained elsewhere in this Prospectus.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
SERVICO,
INC. PRO FORMA
AND TRANSACTION PRO FORMA
SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rooms................................................ $41,494 $ -- $41,494
Food and beverage.................................... 17,275 -- 17,275
Other................................................ 3,878 -- 3,878
------- ------ -------
62,647 -- 62,647
Operating expenses:
Direct:
Rooms............................................. 11,150 -- 11,150
Food and beverage................................. 13,603 -- 13,603
General and administrative........................... 2,203 -- 2,203
Other................................................ 21,611 -- 21,611
Depreciation and amortization........................ 5,399 51(a) 5,450
------- ------ -------
53,966 51 54,017
------- ------ -------
Income from operations................................. 8,681 (51) 8,630
Other income (expenses):
Other income......................................... 373 -- 373
Interest expense..................................... (8,024) 3,890(b) (4,134)
Minority interests................................... (513) 525(c) 12
------- ------ -------
Income before income taxes............................. 517 4,364 4,881
Provision for income taxes............................. 207 1,746(d) 1,953
------- ------ -------
Net income............................................. $ 310 $2,618 $ 2,928
======= ====== =======
Earnings per common and common equivalent share:
Net income........................................... $ .03 $ .15
======= =======
Weighted average common shares outstanding............. 9,926 19,926
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
15
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------
HISTORICAL PRO FORMA
SERVICO, INC. ADJUSTMENTS PRO FORMA
AND ACQUIRED TRANSACTION PRO FORMA
SUBSIDIARIES BUSINESSES (E) ADJUSTMENTS CONSOLIDATED
------------- -------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Rooms....................................... $156,564 $11,599 $ -- $168,163
Food and beverage........................... 68,803 3,224 -- 72,027
Other....................................... 14,159 725 -- 14,884
-------- ------- ------- --------
239,526 15,548 -- 255,074
Operating expenses:
Direct:
Rooms.................................... 43,667 3,343 -- 47,010
Food and beverage........................ 52,761 2,797 -- 55,558
General and administrative.................. 9,297 -- -- 9,297
Other....................................... 77,183 5,792 -- 82,975
Depreciation and amortization............... 18,677 1,347 203(a) 20,227
-------- ------- ------- --------
201,585 13,279 203 215,067
-------- ------- ------- --------
Income from operations........................ 37,941 2,269 (203) 40,007
Other income (expenses):
Other income................................ 5,335 (26) -- 5,309
Interest expense............................ (29,443) (2,034) 13,457(f) (18,020)
Minority interests.......................... (2,060) 198 1,077(c) (785)
-------- ------- ------- --------
Income before income taxes and extraordinary
item........................................ 11,773 407 14,331 26,511
Provision for income taxes.................... 3,225 163 5,732(g) 9,120
-------- ------- ------- --------
Income before extraordinary item.............. $ 8,548 $ 244 $ 8,599 $ 17,391
======== ======= ======= ========
Earnings per common and common equivalent
share:
Recurring income............................ $ .55 $ .72
Non-recurring income (h).................... .32 .16
-------- --------
Income before extraordinary item............ $ .87 $ .88
======== ========
Weighted average common shares outstanding.... 9,763 19,763
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
16
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
SERVICO, INC. PRO FORMA
AND TRANSACTION PRO FORMA
SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 19,235 $ 313(i) $ 19,548
Accounts receivable, net.......................... 10,018 -- 10,018
Other current assets.............................. 11,409 -- 11,409
-------- -------- --------
Total current assets................................ 40,662 313 40,975
Property and equipment, net......................... 370,179 5,673(j) 375,852
Investment in unconsolidated entities............... 902 -- 902
Other assets, net................................... 33,427 (9,802)(k) 23,625
-------- -------- --------
$445,170 $ (3,816) $441,354
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable................................... $ 7,841 $ -- $ 7,841
Accrued liabilities............................... 25,203 (3,486)(k,m) 21,717
Current portion of long-term obligations.......... 23,179 (4,886)(l) 18,293(o)
-------- -------- --------
Total current liabilities........................... 56,223 (8,372) 47,851
Long-term obligations, less current portion......... 285,237 (126,329)(l) 158,908
Deferred income taxes............................... 8,405 -- 8,405
Commitments and contingencies
Minority interests.................................. 19,990 (6,013)(j) 13,977
Stockholders' equity:
Common stock...................................... 94 100(n) 194
Additional paid-in capital........................ 55,403 140,650(n) 196,053
Retained earnings................................. 19,818 (3,852)(k,l) 15,966
-------- -------- --------
Total stockholders' equity.......................... 75,315 136,898 212,213
-------- -------- --------
$445,170 $ (3,816) $441,354
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
17
<PAGE> 20
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the statements of
income for the three months ended March 31, 1997, (entries a-d) and the year
ended December 31, 1996, (entries a,c,e-h) as if the Offering and the
acquisition of the Acquired Businesses and partnership interests in three hotels
had taken place on January 1, 1996 and to the balance sheet (entries i-n) as if
the Offering and the acquisition of partnership interests in three hotels took
place on March 31, 1997.
<TABLE>
<C> <S>
(a) To record the additional depreciation expense relating to
the acquisition of additional partnership interests in three
hotels discussed in note (j) below.
(b) To eliminate the interest expense ($2.8 million) and
amortization of deferred loan costs ($1.1 million) relating
to the debt extinguishment discussed in note (l) below.
(c) To eliminate the minority interest expense associated with
the partnership interests in the three hotels discussed in
note (j) below.
(d) To record the provision for income taxes relating to entries
(a) through (c) using the Company's overall effective rate
of 40%.
(e) To record the statements of income of the 1996 Acquired
Businesses as derived from the books and records of the
various sellers for periods prior to their acquisitions by
the Company.
(f) To eliminate the interest expense ($10.6 million) and
amortization of deferred loan costs ($2.9 million) relating
to the debt extinguishment discussed in note (l) below.
(g) To record the provision for income taxes relating to entries
(a), (c) and (f) using the Company's overall effective rate
of 40%.
(h) Non-recurring income, net of taxes, represents gain on
litigation settlement of $3.7 million less certain severance
costs.
(i) To record the assumed cash proceeds from the issuance of
Common Stock ($150 million) net of underwriting and other
related expenses ($9.3 million), early extinguishment of
debt and exit fees ($128.7 million) and acquisition of
partnership interests in three hotels ($11.7 million).
(j) To record the purchase of partnership interests relating to
three hotels ($5.7 million) and to eliminate related
minority partnership interests ($6 million).
(k) To record the write off of the unamortized loan costs ($8.9
million) associated with the early extinguishment of debt
and reduce existing escrows ($.9 million) currently held by
the lenders in satisfaction of accrued interest of ($.9
million).
(l) To record the early extinguishment of mortgage debt and
related exit fees ($131.2 million). The Company will record
an extraordinary charge against earnings, net of taxes, of
$3.9 million relating to the write off of unamortized loan
costs associated with the early extinguishment of the
mortgage debt.
(m) To record the income tax benefits ($2.6 million) relating to
the write off of unamortized loan costs.
(n) To record the issuance of 10 million shares of Common Stock
at $15.00 per share, net of underwriting and other related
expenses, in connection with the Offering.
(o) Includes approximately $13 million of mortgage notes payable
for which refinancing commitments have been obtained
subsequent to March 31, 1997.
</TABLE>
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents selected consolidated financial data derived
from the Company's historical financial statements for the years ended December
31, 1994, 1995 and 1996 and the three months ended March 31, 1996 and 1997. This
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, related notes and other financial information included and
incorporated by reference in this Prospectus. Pro Forma information gives effect
to the Offering and acquisitions of partnership interests and Acquired
Businesses as of the beginning of each period, as more fully described in
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Rooms................................... $ 93,720 $113,902 $156,564 $168,163 $ 35,097 $ 41,494 $ 41,494
Food and beverage....................... 46,945 53,499 68,803 72,027 14,391 17,275 17,275
Other operating sales................... 9,018 11,079 14,159 14,884 3,111 3,878 3,878
-------- -------- -------- -------- -------- -------- --------
149,683 178,480 239,526 255,074 52,599 62,647 62,647
-------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Direct:
Rooms................................... 26,848 32,140 43,667 47,010 9,408 11,150 11,150
Food and beverage....................... 36,585 41,474 52,761 55,558 11,252 13,603 13,603
Other:
Property management..................... 11,811 13,902 17,672 19,201 3,937 5,400 5,400
Advertising and promotion............... 8,569 9,940 12,985 13,950 2,913 3,472 3,472
Utilities............................... 8,917 9,818 12,604 13,591 2,845 3,583 3,583
Repairs and maintenance................. 7,054 8,380 10,991 11,830 2,479 2,997 2,997
Property taxes and insurance............ 6,808 7,763 10,345 11,154 2,324 2,955 2,955
Other................................... 8,829 9,331 11,747 12,410 3,274 3,204 3,204
Non-recurring expenses(a)............... 217 593 839 839 839 -- --
-------- -------- -------- -------- -------- -------- --------
Total other............................... 52,205 59,727 77,183 82,975 18,611 21,611 21,611
-------- -------- -------- -------- -------- -------- --------
General and administrative................ 7,944 8,977 9,297 9,297 2,560 2,203 2,203
Depreciation and amortization............. 9,465 12,370 18,677 20,227 4,026 5,399 5,450
-------- -------- -------- -------- -------- -------- --------
133,047 154,688 201,585 215,067 45,857 53,966 54,017
-------- -------- -------- -------- -------- -------- --------
Income from operations.................... 16,636 23,792 37,941 40,007 6,742 8,681 8,630
OTHER INCOME (EXPENSES):
Interest income......................... 335 1,002 1,631 1,605 179 373 373
Other income............................ -- 195 89 89 26
Non-recurring income(a)................. 529 -- 3,615 3,615 3,615
Interest expense........................ (12,693) (17,903) (29,443) (18,020) (6,001) (8,024) (4,134)
Minority interests...................... (171) (572) (2,060) (785) (835) (513) 12
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary items..................... 4,636 6,514 11,773 26,511 3,726 517 4,881
Provision for income taxes................ 1,855 2,605 3,225 9,120 1,490 207 1,953
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item.......... 2,781 3,909 8,548 17,391 2,236 310 2,928
Extraordinary item, net of income tax..... 1,436 -- (348) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income................................ $ 4,217 $ 3,909 $ 8,200 $ 17,391 $ 2,236 $ 310 $ 2,928
======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE:
Recurring income........................ $ .31 $ .46 $ .55 $ .72 $ .06 $ .03 $ .15
Non-recurring income (expense).......... .02 (.04) .32 .16 .18 -- --
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item........ .33 .42 .87 .88 .24 .03 .15
Extraordinary item...................... .17 -- (.03) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ .50 $ .42 $ .84 $ .88 $ .24 $ .03 $ .15
======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding....... 8,415 9,319 9,763 19,763 9,526 9,926 19,926
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets............................ $228,900 $324,202 $439,786 $439,786 $352,943 $445,170 $441,354
Long-term obligations................... 143,830 210,242 284,880 284,880 226,812 285,237 158,908
Total stockholders' equity.............. 46,740 62,820 74,738 74,738 66,777 75,315 212,213
- ---------------
(a) Non-recurring items, net of taxes, are
as follows:
Gain on litigation settlement........... $ -- $ -- $ 3,653 $ 3,653 $ 2,169 $ -- $ --
Other non-recurring income (expense).... 193 (356) (503) (503) (503) -- --
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management believes that results of operations in the hotel industry are
best explained by four key performance measures: occupancy levels, average daily
rate, RevPAR and EBITDA margins. These measures are influenced by a variety of
factors including national, regional and local economic conditions, the degree
of competition with other hotels in the area and, in the case of occupancy
levels, changes in travel patterns. The demand for accommodations is also
affected by normally recurring seasonal patterns and most Company hotels
experience lower occupancy levels in the fall and winter (November through
February) which may result in lower revenues, lower net income and less cash
flow during these months.
The Company's growth strategy includes the acquisition of underperforming
hotels and the implementation of the Company's operational initiatives and
repositioning and renovation programs to achieve revenue and margin
improvements. Such initiatives typically require a twelve to thirty-six month
period before newly acquired hotels are repositioned and stabilized. During this
period, the revenues and earnings of newly acquired hotels may be adversely
affected and may negatively impact consolidated RevPAR, average daily rate, and
occupancy rate performance as well as consolidated earnings margins. The Company
purchased 11 hotels in 1995 (the "1995 Acquisitions") and 13 hotels during 1996
(the "1996 Acquisitions"). The Company's operating results were materially
impacted by these acquisition activities. In order to better illustrate
underlying trends of the Company's core hotel base, the Company tracks the
performance of both Stabilized and Reposition Hotels. The Stabilized Hotels
currently include hotels which were acquired by the Company through 1994 and
which, based on management's determination, have achieved normalized operations.
The Reposition Hotels currently include the 1995 Acquisitions and the 1996
Acquisitions, all of which are still the subject of management's post
acquisition repositioning and renovation initiatives. For the year ending
December 31, 1994, the Reposition Hotels included two hotels which were deemed
Stabilized Hotels during subsequent years. During the period between 1994 and
1996, consolidated RevPAR increased 23.6% while hotel EBITDA margins increased
from 22.6% to 28.3%. During the same period, Stabilized Hotels increased RevPAR
29.7% while Stabilized Hotel EBITDA margins increased from 22.6% to 29.1%.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 (the "1997 Quarter") as Compared to the
Three Months Ended March 31, 1996 (the "1996 Quarter")
During the 1997 Quarter, the Company owned 56 hotels, managed three hotels
for third-party owners and had a minority investment in one hotel, compared with
46 hotels owned, nine managed and minority investments in three hotels during
the 1996 Quarter. Occupancy and average daily rate for owned hotels for the 1997
Quarter was 62.7% and $73.45, respectively, compared with 65.6% and $70.93,
respectively, for the 1996 Quarter.
RevPAR for the Stabilized Hotels increased 5.1% during the 1997 Quarter to
$49.15 from $46.77 during the 1996 Quarter. The occupancy level and average
daily rate for the Stabilized Hotels during the 1997 Quarter was 65.3% and
$75.21 respectively, compared with 64.9% and $72.08 respectively for the 1996
Quarter. The increase in occupancy and average daily rate for the Stabilized
Hotels during the 1997 Quarter is attributable to successful yield management
and marketing strategies as well as a general improvement in the hospitality
industry.
Most of the 1995 Acquisitions were in various stages of repositioning and
major renovations during the 1997 Quarter and, as a result, occupancy for the
1995 Acquisitions during the 1997 Quarter was 69.6% as compared to 71.9% for the
1996 Quarter. The average daily rate for these hotels was $72.76 for the 1997
Quarter as compared to $70.42 for the 1996 Quarter and RevPAR was $50.64 for
both the 1997 and 1996 Quarters. RevPAR for the 1996 Acquisitions was $35.04
during the 1997 Quarter. The occupancy level and average daily rate for the 1996
Acquisitions during the 1997 Quarter was 51.4% and $68.17, respectively. These
performance measures are not comparable to the 1996 Quarter as ten of the
thirteen 1996 Acquisitions
20
<PAGE> 23
were made subsequent to March 31, 1996. The Company is currently implementing
new marketing strategies and operational improvements at both the 1995
Acquisitions and the 1996 Acquisitions and expects to complete significant
renovations at many of these hotels during 1997. In addition, the Company is
currently negotiating to obtain certain new franchise affiliations.
Revenues are comprised of room, food and beverage and other revenues. Room
revenues are derived from guest room rentals, while food and beverage revenues
primarily include sales from the Company's hotel restaurants, room service and
hotel catering. Other revenues include charges for guests' long-distance
telephone service, laundry service and use of meeting facilities and fees earned
by the Company for services rendered in conjunction with managed properties.
Revenues for the Company were $62.6 million for the 1997 Quarter, a 19.0%
increase over revenues of $52.6 million for the 1996 Quarter. Of this $10
million increase in revenues, approximately $9 million was attributable to the
Reposition Hotels, primarily the 1996 Acquisitions.
Operating expenses are comprised of direct, general and administrative,
other and depreciation and amortization. Direct expenses, including both rooms
and food and beverage operations, reflect expenses generated directly from hotel
operations. General and administrative expenses represent corporate salaries and
other corporate operating expenses. Other expenses include primarily property
level expenses from general operations such as advertising, utilities, repairs
and maintenance and other property administrative costs. Direct operating
expenses for the Company were $24.8 million for the 1997 Quarter and $20.7
million for the 1996 Quarter. This increase was fully attributable to the
Reposition Hotels. The direct operating expenses for the Stabilized Hotels were
$16.4 million (41.9% of related direct revenues) for the 1997 Quarter as
compared to $16.9 million (43.6% of related direct revenues) for the 1996
Quarter. This decrease was a result of continued cost control measures
implemented by management. Other operating expenses for the Company were $21.6
million for the 1997 Quarter and $18.6 million for the 1996 Quarter. This
increase was also attributable to the Reposition Hotels. Depreciation and
amortization expense for the Company was $5.4 million for the 1997 Quarter and
$4 million for the 1996 Quarter. Included in this $1.4 million increase is $1
million associated with the Reposition Hotels and the remaining increase related
to equipment purchases and improvements made at the Stabilized Hotels.
As a result of the above, income from operations was $8.7 million for the
1997 Quarter as compared to $6.7 million for the 1996 Quarter. Included in the
1996 Quarter was a non-recurring charge of $.8 million relating to a severance
payment.
Interest expense, net of interest income, was $7.7 million for the 1997
Quarter, a $1.9 million increase over the $5.8 million for the 1996 Quarter.
Included in this $1.9 million increase was $1 million associated with the
amortization of certain non-cash deferred loan costs relating to a $123.2
million refinancing completed in April 1996, with the balance primarily relating
to borrowings associated with the 1996 Acquisitions.
Included in other income for the 1996 Quarter was a non-recurring $3.6
million settlement (net of expenses) in connection with a 1992 lawsuit brought
on behalf of the Company against a bank group and law firm based on alleged
breaches of their duties to the Company.
After a provision for income taxes of $.2 million for the 1997 Quarter and
$1.5 million for the 1996 Quarter, the Company had net income of $.3 million
($.03 per share) for the 1997 Quarter and $2.2 million ($.24 per share) for the
1996 Quarter. Without consideration of the non-recurring items discussed above,
the Company had recurring income of $.3 million for the 1997 Quarter ($.03 per
share) and $.6 million for the 1996 Quarter ($.06 per share).
Year Ended December 31, 1996 ("1996") as Compared to the Year Ended December
31, 1995 ("1995")
At December 31, 1996, the Company owned 56 hotels, managed four hotels for
third-party owners and had a minority investment in one hotel compared with 43
hotels owned, nine managed for third-party owners and three minority investments
at December 31, 1995.
Revenues in 1996 were $239.5 million, a 34.2% increase over 1995 revenues
of $178.5 million. Of the $61 million increase, $9.3 million was attributable to
the Stabilized Hotels and $51.7 million was attributable to
21
<PAGE> 24
the Reposition Hotels. The increase for the Stabilized Hotels was primarily the
result of a 6.1% increase in RevPAR due to successful yield management and
marketing strategies as well as the continued improvement in the hospitality
industry generally. However, the increase in RevPAR for these hotels was
negatively impacted during 1996 by the loss of business associated with
hurricane and storm activity in the southeastern United States during July and
September.
Operating expenses before depreciation and amortization were $182.9 million
in 1996 (76.4% of revenue) compared with $142.3 million (79.7% of revenue) for
1995. The decrease in operating expenses as a percentage of revenues is a result
of the combined effect of strong revenue growth and a continued emphasis on cost
controls. Depreciation and amortization expense in 1996 was $18.7 million, an
increase over 1995 depreciation and amortization expense of $12.4 million. Of
this increase, $2.1 million and $4.2 million related to capital improvements
made at the Stabilized Hotels and the Reposition Hotels, respectively.
As a result of the above, income from operations for 1996 was $37.9
million, an increase of 59.2% over 1995 income from operations of $23.8 million.
Interest expense (net of interest income) was $27.8 million for 1996, a
$10.9 million increase over the $16.9 million of interest expense for 1995.
Included in the $10.9 million increase was $7 million of interest expense on
mortgages related to the Reposition Hotels. The remaining $3.9 million increase
for the Stabilized Hotels included a $1.7 million expense associated with the
amortization of certain deferred loan costs related to a $123.2 million
refinancing (see Note 5 of the Notes to Consolidated Financial Statements), with
the balance related to new borrowings.
Minority interests were $2.1 million for 1996 and $.6 million for 1995. Of
this $1.5 million increase, $1.2 million related to nine of the Reposition
Hotels which were acquired in partnership with third parties.
Other income for 1996 includes a $3.6 million net settlement of a lawsuit
received by the Company as discussed above.
The Company recognized an extraordinary charge of $.3 million, after taxes,
in 1996 which related to early extinguishment of debt associated with the
refinancing of certain hotels as more fully discussed under "-- Liquidity and
Capital Resources."
After a provision for income taxes of $3.2 million and a loss on early
extinguishment of debt of $.3 million, net of taxes, for 1996 and a provision
for income taxes of $2.6 million for 1995, the Company had net income of $8.2
million ($.84 per share) for 1996 and $3.9 million ($.42 per share) for 1995.
Without consideration of the non-recurring and extraordinary items, the Company
had net income of $5.4 million ($.55 per share) for 1996 and $4.3 million ($.46
per share) for 1995.
Year Ended December 31, 1995 as Compared to the Year Ended December 31, 1994
("1994")
At December 31, 1995, the Company owned 43 hotels, managed nine hotels for
third-party owners and had a minority investment in three hotels, compared with
32 hotels owned, ten managed for third-party owners and two minority investments
at December 31, 1994.
Revenues in 1995 were $178.5 million, a 19.2% increase over 1994 revenues
of $149.7 million. Of the $28.8 million increase, $11.1 million was generated by
the Stabilized Hotels and $17.7 million was attributable to the Reposition
Hotels. The increase for the Stabilized Hotels was primarily attributable to a
5.4% increase in RevPAR as a result of the renovations and changes in franchise
affiliations made at many of the hotels. Also contributing to the increase were
effective yield management and marketing strategies as well as continued
improvement in the hospitality industry generally.
Operating expenses before depreciation and amortization were $142.3 million
in 1995 (79.7% of revenue) compared with $123.6 million (82.6% of revenue) for
1994. The decrease in operating expenses as a percentage of revenues was
primarily a result of an emphasis on cost controls. Depreciation and
amortization expense in 1995 was $12.4 million, an increase over 1994
depreciation and amortization expense of $9.5 million. Of this increase, $1.6
million and $1.3 million related to continuing capital improvements made at the
Stabilized Hotels and the Reposition Hotels, respectively.
As a result of the above, income from operations for 1995 was $23.8
million, an increase of 43.4% over 1994 income from operations of $16.6 million.
22
<PAGE> 25
Other expenses in 1995 (primarily interest expense) of $18.5 million
increased 43.4% over 1994 other expenses of $12.9 million. Of this increase,
$2.6 million was related to interest associated with mortgages on the Reposition
Hotels purchased in 1994 and 1995 and the remaining increase was primarily
related to both the refinancing of 13 Stabilized Hotels and new borrowings for
equipment purchases.
The Company had other income (primarily interest income) of $1.2 million in
1995, an increase of 33.3% over 1994 other income of $.9 million which included
a $.5 million gain on recovery of investments.
After a provision for income taxes of $2.6 million in 1995 and $1.9 million
in 1994, the Company had income before an extraordinary item of $3.9 million
($.42 per share) for 1995 and $2.8 million ($.34 per share) for 1994, an
increase of 39.3%.
In 1994, the Company had an extraordinary gain of $1.4 million ($.17 per
share), net of income taxes of $1 million, related to a gain on discharge of
indebtedness as more fully discussed in Note 5 of the Notes to Consolidated
Financial Statements.
INCOME TAXES
As of December 31, 1996, the Company had a net operating loss carryforward
of approximately $28.8 million for federal income tax purposes. During 1996, the
Company realized a tax benefit relating to a litigation settlement which reduced
the effective tax rate for 1996 as compared to prior years. The Company does not
anticipate any similar tax benefit in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are existing cash balances and
cash flow from operations. The Company had EBITDA for the 1997 Quarter of $14.2
million, a 21.4% increase over the $11.7 million for the 1996 Quarter and EBITDA
of $57.9 million for 1996, a 56.9% increase over the $36.9 million for 1995.
EBITDA is a widely regarded industry measure of lodging performance used in the
assessment of hotel property values, although EBITDA is not indicative of and
should not be used as an alternative to net income or net cash provided by
operations as specified by generally accepted accounting principles. In March
1996, the Company received a $3.6 million settlement (net of expenses) in
connection with a 1992 lawsuit brought on behalf of Servico, against a bank
group and law firm based on alleged breaches of their duties to the Company.
At March 31, 1997, the Company's working capital deficit was $15.6 million
which included $15.3 million of mortgage notes payable which mature within
twelve months. The Company expects to refinance these mortgage notes before
their due dates. The Company's ratio of current assets to current liabilities at
March 31, 1997, was .7:1 (1:1, without consideration of the mortgages due in
1997). This compares to a working capital deficit of $14.2 million and a ratio
of current assets to current liabilities of .7:1 at December 31, 1996.
During 1996, the Company purchased eight hotels, entered into three
partnerships which purchased three hotels and increased its ownership interest
from 25% to 51% in two of its existing partnerships (which each own a hotel).
The aggregate consideration for these purchases and ownership interest increases
was $63.7 million, paid by the delivery of mortgage notes totaling $40.6 million
and cash for the balance, of which approximately $2 million was contributed by
the minority partners. These 13 hotels contain an aggregate of 2,479 guest
rooms, are operated under franchise agreements with nationally recognized
hospitality franchisors and are managed by the Company.
At March 31, 1997, the Company's long-term obligations were $285.2 million
compared to $284.9 million at December 31, 1996. During 1996, the Company
borrowed approximately $123.2 million in new variable rate mortgage notes,
satisfied approximately $84.5 million of existing obligations, paid
approximately $5.0 million in fees and expenses, escrowed approximately $1.3
million for future use by the Company and generated approximately $32.4 million
of net proceeds. In addition, the Company recorded approximately $7.4 million in
non-cash deferred loan costs which are being amortized over 36 months. These
deferred loan costs are payable in May 1999.
23
<PAGE> 26
Certain hotels which the Company owns are operated under franchise
agreements that require the Company to make certain capital improvements in
accordance with a specified time schedule. As part of the acquisition of hotels
in 1995 and 1996, certain property improvements were required by the franchisors
as a condition of granting a franchise with respect to the hotel. In addition,
other improvements were required by the mortgagees. Further, in connection with
the refinancing of other hotels, as more fully discussed in Note 5 of the Notes
to Consolidated Financial Statements, the lenders required the Company to make
additional property improvements. The Company estimates the balance remaining to
complete all of such required improvements to be approximately $17.2 million at
March 31, 1997. Approximately $14 million of these improvements are expected to
be completed in 1997 with the balance to be completed by 1999. The Company had
approximately $11.4 million escrowed for such improvements at March 31, 1997.
Upon consummation of the Offering, the Company expects to use $128 million
of the net proceeds to repay indebtedness and $11.7 million to acquire interests
in three hotels currently held by affiliates of the Company, with the balance of
approximately $.3 million available for general corporate purposes. See "Use of
Proceeds."
The Company believes that cash on hand and cash generated from operations
will be sufficient to support its capital improvement program and satisfy
working capital requirements for the foreseeable future. However, the Company
will be required to obtain additional debt or equity financings to pursue its
planned acquisition strategy. The Company is currently negotiating to obtain a
$100 million secured credit facility for the purpose of funding future
acquisitions. There is no assurance that debt or equity financing will be
available or that the Company will be successful in obtaining a credit facility
in amounts or on terms satisfactory to the Company.
INFLATION
The rate of inflation has not had a material effect on the Company's
revenues or costs and expenses in the three most recent fiscal years, and it is
not anticipated that inflation will have a material effect on the Company in the
near term.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements, including statements
regarding, among other things, (i) the Company's growth strategies, (ii)
anticipated trends in the economy and the hotel industry and (iii) the Company's
future financing plans. In addition, when used in this Prospectus, the words
"believes," "anticipates," "expects" and similar words often are intended to
identify certain forward-looking statements. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of changes in trends in the economy and the hotel industry, reductions in
the availability of financing, increases in interest rates and the other factors
described in "Risk Factors." In light of the foregoing, there is no assurance
that the forward-looking statements contained in this filing will in fact prove
correct or occur. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
24
<PAGE> 27
THE COMPANY
Servico is one of the largest owners and operators of full-service hotels
in the United States. The Company currently operates 59 hotels containing
approximately 11,570 rooms located in 22 states. The Company's hotels are
primarily mid-sized, with an average of approximately 200 rooms per hotel, and
are primarily located in secondary metropolitan markets. The Company's
full-service hotels offer food and beverage services, meeting space and banquet
facilities. The Company's hotels include 43 wholly owned hotels, 14 partially
owned hotels and two managed hotels. Six of the hotels are subject to long-term
ground leases. All of the Company's hotels are affiliated with nationally
recognized hospitality franchisors, including Holiday Inn, Best Western,
Clarion, Crowne Plaza, Days Inn, Embassy Suites, Hampton Inn, Hilton, Howard
Johnson, Omni, Quality Inn, Radisson, Sheraton and Westin. The Company operates
37 hotels under franchise agreements with Holiday Inn, making the Company the
second largest Holiday Inn franchisee in the United States.
The Company's objective is to maximize shareholder value by enhancing its
position within the full-service segment of the lodging industry. The Company
seeks to achieve external growth through the acquisition of underperforming
hotels where the Company believes it can make meaningful improvements in
operating results through strategic repositioning, renovation of physical
facilities and, if appropriate, changes in franchise affiliation. Internally,
the Company seeks to achieve growth through a focused operating strategy that
generates continued increases in RevPAR and food and beverage revenues. The
Company's success in implementing these strategies is illustrated by the
Company's rapid growth over the last three years. Since January 1994, the
Company has acquired 27 hotels and increased revenues, EBITDA and EPS, before
non-recurring and extraordinary items, to $239.5 million, $57.9 million and
$.55, respectively, at compound annual rates of 22.9%, 43.2% and 76.5%,
respectively.
BUSINESS STRATEGY
The Company seeks to capitalize on its experience and expertise in
acquiring, repositioning, renovating and operating full-service hotels by
continuing to purchase underperforming hotels in attractive markets. In
addition, the Company seeks to enhance the operating performance of its hotels
through the continued implementation of both marketing plans that uniquely
position each hotel within its respective market and management plans designed
to increase both net operating income and guest satisfaction.
ACQUISITION STRATEGY
The Company has developed an acquisition strategy based on the hotel and
market criteria described below. Since January 1994, the Company has implemented
this strategy through the acquisition of 27 hotels, and the Company intends to
continue to increase revenues and earnings through additional strategic
acquisitions. The Company will accomplish such acquisitions primarily by adding
wholly owned properties to its current portfolio and, if appropriate, by
entering into joint ventures with third parties.
Hotel Criteria
Focus on Single Hotel and Small Portfolio Acquisitions. The Company
typically targets the acquisition of single hotels or small portfolios.
Management believes such acquisitions generally (i) are more conducive to the
rapid and effective implementation of hotel-level improvements, (ii) allow for
the immediate integration of acquired properties into the Company's management
information and reporting systems, (iii) have more predictable impacts on cash
flow and earnings and (iv) allow the Company to be geographically selective.
Further, management believes that acquisitions of large portfolios are often
adversely affected by the inclusion of less attractive hotels in the portfolio.
Acquisition of Substantially Underperforming Hotels. Servico believes that
its acquisition strategy differs from that of other owners and operators based
on the Company's willingness and capacity to purchase substantially
underperforming hotels and its ability to reposition such hotels after
acquisition so as to achieve significant operating gains. The Company seeks
full-service acquisition candidates with the potential for highly
25
<PAGE> 28
attractive returns through significant strategic repositioning, operational
improvements, renovation enhancements and, if appropriate, changes in brand
affiliation. Management believes that there is less competition for such hotels
because of (i) the level of expertise, depth of management, amount of capital
and corporate scale required to effectively purchase and turnaround such hotels
and (ii) the fact that earnings and cash flows are negatively impacted during
the repositioning period. The Company believes that the upside potential can,
however, be significant.
Focus on Full-Service Hotels. The Company's acquisition strategy is
focused on full-service hotels in the mid-market and upscale segments of the
lodging industry. The Company targets hotels that have, among other things,
meeting space (or space that can be converted to meeting space), food and
beverage facilities, banquet rooms and swimming pools. The Company believes that
offering such amenities results in increased occupancy and food and beverage
revenues. The Company has recently focused on acquiring larger-sized properties
containing between 200 and 250 rooms. The Company believes this segment presents
a substantial growth opportunity because of (i) the large number of properties
available for acquisition, (ii) the significant number of owners of older
properties in attractive, well established locations that lack the resources and
capital to improve operating results, (iii) the beneficial impact of food and
beverage service and meeting space on room utilization and bottom line
profitability, (iv) attractive segment fundamentals, including limited
construction and (v) generally attractive acquisition prices. The Company
believes that many such potential acquisitions are located in superior locations
that give them a competitive advantage within their markets, particularly after
completion of renovations. The Company believes that it can purchase and
refurbish such hotels well below replacement costs and at levels comparable to
the cost of construction for many limited service hotels. Management estimates
that its average purchase price (including planned renovations and maintenance
expenditures) for hotels acquired in 1995 and 1996 was approximately $40,800 per
room, compared to a replacement cost of over $75,000 per room for similar
hotels.
Market Criteria
Focus on Markets with Attractive Fundamentals. The Company primarily
acquires hotels that are located in secondary metropolitan markets. The Company
believes that there is less competition for acquisitions in these markets and
that the hotels in these markets are generally well-positioned in their
respective markets due to their typically larger size and extensive amenities.
The Company also believes that secondary metropolitan markets will be impacted
less than hotels in major metropolitan areas during downward cycles in the
economy. The Company generally seeks to acquire hotels that are located near
multiple demand generators such as airports, business parks, tourist
attractions, universities, convention centers and major highways, with a view to
attracting a more diversified group of customers.
Supply Limitations. When possible, the Company seeks markets that present
significant barriers to entry for hotel construction. Such barriers to entry may
include the unavailability of financing for new construction, zoning
restrictions or lengthy and costly approval processes, and the continued
imbalance between the cost to construct a new hotel and the price to acquire an
existing hotel.
Opportunistic Use of Multiple Branding Strategy. Because the Company does
not affiliate exclusively with a single franchise brand, it is in a position to
strategically select, based upon the characteristics relevant to the local
market, the appropriate franchise affiliation for newly acquired hotels. At
March 31, 1997, the Company's owned and managed hotels were affiliated with 14
nationally recognized hospitality franchises. The Company believes that such
branding flexibility allows it to optimally position each hotel within its
particular market. For example, in connection with its acquisition and $3.5
million renovation of the 243-room former Marriott in Worcester, Massachusetts,
the Company changed the hotel's franchise affiliation to the Crowne Plaza brand.
In addition to signaling to the community the repositioning and renovation of
the property, the Company believes that the change to the Crowne Plaza brand
made the hotel more competitive with a nearby Marriott that relies on the same
Marriott reservation system that the Company's hotel previously utilized. The
Company also views the numerous relationships that result from the use of
multiple brands as additional sources of information concerning potential
acquisitions.
26
<PAGE> 29
OPERATING STRATEGY
Experienced and Incentivized Management Team. The Company believes that it
has assembled an experienced management team that is capable of leading the
Company as it pursues its operating strategy. The members of the Company's
senior management have an average of 18 years of experience in all segments of
the lodging industry. In addition, the Company's general managers have an
average of 12 years of experience in the lodging industry and nine years of
experience with the Company. The Company's general managers and regional
managers participate with senior management in the Company's Stock Option Plan,
and each is incentivized through compensation structured as a combination of a
base salary and performance bonus. The performance bonus, which can comprise as
much as 50% of total compensation, is payable only upon the achievement of
pre-established individual goals in the case of the general managers and
individual and corporate goals in the case of the regional and senior managers.
The Company also devotes significant time and effort to the training of
employees at all levels of the organization, with property level employees
typically receiving two weeks of training each year, including the extensive
training provided by the Company's franchisors.
Effective Centralized Controls and Support. The Company has implemented
well-defined and effective centralized controls which provide corporate and
regional support services yet promote flexibility and the entrepreneurial spirit
of its employees to develop innovative solutions. The Company's proprietary MIS
systems monitor hotel level performance in such areas as room yield utilization,
labor and cash management, expense variances and other items on a daily and
weekly basis. The Company provides centralized corporate support services and
other programs in accounting, payroll, data processing, interior design, and
sales, marketing, advertising and vendor purchases, but empowers hotel general
managers to vary from such initiatives as appropriate. Servico has also
developed a corporate sales and marketing group which assists hotel managers in
soliciting, organizing and planning major guest functions particularly for
meeting, catering and banquet business.
Emphasis on Food, Beverage and Meeting Facilities. The Company seeks to
utilize its banquet facilities and food and beverage operations to maximize room
utilization and to diversify hotel earnings with high margin business.
Management believes that these services enable it to attract increased business
traffic throughout the business week and to expand group business for
conventions, training and sales meetings, weddings and other events. Such group
business can particularly enhance occupancy on weekends and during seasonally
slow periods. In contrast to many hotel operators, the Company manages virtually
all food and beverage operations internally. During 1996, the Company's owned
hotels generated food and beverage profits of approximately $16 million on food
and beverage revenues of approximately $69 million.
Commitment to Reinvest. The Company is committed to reinvesting adequate
capital on an ongoing basis to maintain the quality of its owned hotels.
Reinvestment can include, among other things, room and facility refurbishments,
renovations and furniture and equipment replacements that are designed to
maintain attractive accommodations, updated restaurants and modern equipment.
The Company believes that these investments enhance the Company's competitive
position.
Focus on Holiday Inn Brands. With approximately 63% of the owned hotels
operating under franchise agreements with Holiday Inn, the Company is the second
largest Holiday Inn franchisee in the United States. The Company believes that
Holiday Inn Worldwide has demonstrated a strong commitment to the quality and
consistency of its hotels through the initiation of its core modernization
program in September 1994. Pursuant to the program, Holiday Inn franchisees have
spent in excess of $1 billion to upgrade the quality of their hotels based on
specific requirements designed to enhance the appearance of the exteriors, rooms
and public spaces of the hotels. The Company believes the Holiday Inn Worldwide
reservations system is among the strongest and most productive in the industry.
27
<PAGE> 30
BUSINESS AND PROPERTIES
ACQUISITIONS
Ability to Identify Acquisitions. Since January 1994, the Company has
successfully completed the acquisition of 27 hotels, almost doubling the
Company's previous portfolio of 30 hotels. As a result of the significant
experience of the Company's management team and its in-depth knowledge of
individual local markets, the size and geographic diversity of the Company's
current portfolio and management's personal relationships with numerous hotel
owners and operators, the Company believes it has access to acquisition
opportunities which may not be identified by its competitors. Information
regarding potential acquisitions is sourced at every level of the Company's
management, including its general managers, regional managers and senior
management. Extensive industry association contacts also feed the Company's
pipeline of potential acquisitions. Further, the Company believes that its
established track record for consummating acquisitions provides it with
invaluable credibility when approaching sellers and negotiating acquisition
agreements.
Ability to Acquire Hotels Below Replacement Cost. In 1995, the Company
significantly accelerated the pace of its acquisition strategy. During 1995 and
1996, approximately $141.3 million was spent to acquire 23 hotels containing
approximately 4,147 rooms compared to the acquisition of four hotels in 1994.
The average purchase price of these hotels was approximately $34,100 per room,
and planned or completed renovation expenditures total approximately $6,700 per
room, of which approximately $4,700 per room has already been spent, for a total
cost per room of approximately $40,800. Management believes this cost per room
is significantly below replacement cost, which the Company estimates to be
between $75,000 and $90,000 per room, for hotels of similar type and quality
under current market and financial conditions. Eleven hotels were acquired in
1995 (the "1995 Acquisitions"). Twelve hotels were acquired in 1996 and the
Company increased its ownership interest from a minority to a majority interest
in one additional hotel in 1996 (the "1996 Acquisitions"). Of these
acquisitions, hotels containing approximately 2,389 rooms are wholly owned by
the Company and hotels containing approximately 1,966 rooms are majority owned
by the Company through joint ventures.
Adherence to a Defined Acquisition Strategy. The Company believes that the
1995 Acquisitions and the 1996 Acquisitions reflect its strategy of (i) focusing
on full-service hotels in secondary metropolitan markets and (ii) acquiring
hotels where it believes it can make a meaningful improvement in operating
results through the repositioning and renovation of the acquired properties. The
1995 Acquisitions and the 1996 Acquisitions increased the number of owned hotels
by approximately 73%, transforming the Company into one of the largest owners
and operators of hotels in the United States. The Company believes that its
portfolio expansion significantly decreases its sensitivity to changes in
economic conditions in any single location. The Company also believes that the
addition of the 1995 Acquisitions and the 1996 Acquisitions significantly
strengthens the Company's base for future expansion into new markets.
Acquisition Pipeline. The Company continually reviews hotel properties for
potential acquisition and, to date in 1997, has reviewed proposals relating to
approximately 29 hotel properties offered for sale at purchase prices
aggregating approximately $347 million. While Servico is currently pursuing a
number of these acquisitions, the successful acquisition of any property is
subject to a number of conditions, which will vary by transaction, including the
execution of definitive documentation, completion of due diligence to the
Company's satisfaction and receipt of required consents. There is no assurance
that any of these acquisitions will be consummated.
Improved Access to Capital and a Strong Balance Sheet. Historically, the
Company has used proceeds from the refinancing of the owned hotels as a source
of acquisition financing. To expedite its future plans for external growth, the
Company is currently negotiating to obtain a $100 million secured line of credit
with a syndicate led by Lehman Holdings. Upon the completion of the Offering and
utilization of the proceeds to repay approximately $128 million of indebtedness,
the Company's total pro forma debt outstanding as of March 31, 1997, will
decrease from approximately $308 million to approximately $177 million, reducing
the Company's pro forma ratio of debt to total market capitalization from
approximately 67% to approximately
28
<PAGE> 31
35%. The Company believes that such a reduction in debt will provide it with
additional flexibility with respect to the execution of its acquisition
strategy.
REPOSITIONING AND RENOVATIONS
The Company is in the process of repositioning and renovating the 1995
Acquisitions and the 1996 Acquisitions. The Company is repositioning these
hotels based upon strategic plans designed to address the opportunities
presented by each hotel and the hotel's particular market. Renovations are
chosen based on anticipated returns on investment, and include enhancing
lobbies, restaurants and public areas, upgrading guest rooms and converting
unprofitable lounge areas to meeting rooms to accommodate the needs of business
travelers. In certain instances, the Company chooses to change a hotel's
franchise affiliation to further enhance the property's identity. During 1995
and 1996, the Company invested a total of approximately $22.4 million in
connection with the repositioning and renovation of these hotels.
From 1991 through 1994, the Company devoted significant resources and
efforts to repositioning and renovating its hotels (the hotels purchased prior
to January 1, 1995, referred to as the "Pre-1995 Hotels"). During this period,
the Company spent approximately $43 million (approximately $6,700 per room) on
hotel renovations and on upgrading hotel operating systems and equipment at
these properties. Fourteen of the Pre-1995 Hotels underwent changes in franchise
affiliations to enhance their competitive position in their respective markets.
The Company believes these efforts significantly increased the desirability of
the Pre-1995 Hotels.
The following table sets forth certain key hospitality performance
measures, including the percentage changes from the prior year, for the Pre-1995
Hotels, the 1995 Acquisitions and the 1996 Acquisitions included in the
Company's consolidated financial statements:
<TABLE>
<CAPTION>
TOTAL YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------
NUMBER OF NUMBER OF % % %
HOTELS(1) ROOMS 1994 CHANGE 1995 CHANGE 1996 CHANGE
--------- --------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRE-1995 HOTELS.............. 32 6,464
Occupancy.................. 65.8 % 5.11% 67.8 % 3.04% 68.0 % .29%
Average Daily Rate......... $65.14 6.72% $67.95 4.31% $71.59 5.36%
RevPAR..................... $42.85 12.17% $46.09 7.56% $48.72 5.71%
Hotel EBITDA Margin........ 24.1 % 6.64% 25.9 % 7.47% 29.1 % 12.36%
1995 ACQUISITIONS............ 11 1,876
Occupancy.................. -- -- 67.7 % -- 71.3 % 5.32%
Average Daily Rate......... -- -- $59.40 -- $65.24 9.83%
RevPAR..................... -- -- $40.23 -- $46.52 15.64%
Hotel EBITDA Margin........ -- -- 29.2 % -- 35.7 % 22.26%
1996 ACQUISITIONS(2)......... 13 2,479
Occupancy.................. -- -- -- -- 56.8 % --
Average Daily Rate......... -- -- -- -- $64.10 --
RevPAR..................... -- -- -- -- $36.39 --
Hotel EBITDA Margin........ -- -- -- -- 18.3 % --
-- ------
56 10,819
== ======
</TABLE>
- ---------------
(1) Excludes an unconsolidated 240-room hotel in which the Company has a
minority ownership interest.
(2) Includes one hotel purchased in 1994 and one hotel purchased in 1995 by
partnerships in which the Company had a minority interest. These hotels were
accounted for under the equity method until April 1996, at which time the
Company acquired a majority interest and, accordingly, began consolidating
their financial information.
INDUSTRY AND PERFORMANCE OUTLOOK
The Company expects overall industry performance to improve in most of the
markets where the owned and managed hotels are located. While in certain markets
occupancy has leveled off, the Company believes
29
<PAGE> 32
these markets will generally support additional price increases, which would
potentially favorably impact financial results even at the Company's Pre-1995
Hotels. The 1995 Acquisitions and the 1996 Acquisitions are still in various
stages of renovation, and the Company does not expect the majority of these
hotels to achieve stabilized operating results until 1998. As a result, the
Company anticipates further improvements in the operating performance of the
1995 Acquisitions and the 1996 Acquisitions independent of any favorable impact
from overall industry conditions.
HOTEL OPERATIONS
The Company believes that its corporate management structure and effective
centralized controls provide corporate and regional support yet encourage its
hotel managers to develop innovative solutions to the issues which arise at the
individual hotel level. The Company's organizational structure emphasizes direct
accountability through vertical integration in order to maintain Servico's
standards for guest services and hotel operations throughout its hotel system.
The Company has established certain uniform productivity standards and skill
requirements for hotel employees, which the Company believes increase operating
efficiencies by enhancing the Company's ability to measure performance and to
interchange certain employees within its hotel system.
Hotel Management. The day-to-day operations of each Servico hotel are
managed by a general manager who is assisted by additional on-site employees who
specialize in the areas of food and beverage, marketing, budgeting, housekeeping
and maintenance. The actual size of each hotel's on-site management team varies
depending on the hotel's size and business volume. Servico's 59 general managers
have an average of over 12 years of experience in the lodging industry and an
average of over nine years of experience with the Company. To bring yield
management to the property level, the Company extensively trains each general
manager to understand the financial side of hotel operations, including gross
operating margins, cash flow, debt service and return on investment. General
managers and certain other on-site employees also participate in equity-based
incentive programs and can receive up to 50% of their base salary in the form of
performance bonuses, both of which are based largely on the financial
performance and guest satisfaction at their respective hotels. The Company
believes that financial accountability at the property level and
performance-based compensation help to achieve the appropriate balance between
providing high quality guest services and generating consistently strong and
improving returns.
Direct Sales and Marketing. While there are significant benefits from
affiliations with national reservation systems, the Company believes that many
reservation decisions are made in local markets and that significant business
can be attracted through an aggressive local sales effort. Additionally, because
the Company strongly believes that the utilization of meeting space and banquet
facilities results in increased occupancy, the Company maintains corporate sales
and marketing departments which, together with the regional managers, assist the
on-site sales and marketing personnel in attracting conventions, business
meetings and other major guest functions. The Company has a track record of
attracting group business during low volume periods, which the Company believes
enables its hotels to maintain higher occupancy levels than its competitors.
Regional Operations. Servico's general managers each report directly to
one of three regional managers who, in turn, report to the Company's Executive
Vice President-Chief Operating Officer. The Company divides its operations into
three regions and has regional offices located in Atlanta, Georgia, Phoenix,
Arizona and Pittsburgh, Pennsylvania. The regional management teams provide
management support and direction to the general managers and their staff,
coordinate communications between the hotels and the Company's centralized
corporate departments and assist in establishing and administering corporate
policies, procedures and standards.
Centralized Corporate Services and Information Systems. The Company has a
centralized corporate staff located in West Palm Beach, Florida which provides a
variety of managerial and support services to its hotels. The Company believes
that its experienced corporate management team provides strong, central
leadership in all areas of operations, including accounting and finance,
payroll, data processing and MIS, interior design, purchasing, food and beverage
services, human resources, recruiting and training, corporate
30
<PAGE> 33
sales and marketing, advertising, insurance and telecommunications. The
Company's systems provide its senior management and hotel-level employees with
comprehensive hotel operations data on a daily, weekly or monthly basis,
including occupancy and rate information, yield management data, cost and labor
variance analysis, and budget tracking for both hospitality and food and
beverage operations. Each individual hotel is ranked against other hotels within
a region based on operating performance measures and analyzed by general,
regional and corporate managers. Servico believes that such rankings encourage
managers to improve hotel operating performance and develop "best practices,"
which can be utilized throughout the Company's portfolio.
Budgeting Process. Intensive hotel-level budgeting is undertaken by the
Company's corporate, regional and hotel level managers on an annual and
quarterly basis for all of the owned hotels. These plans, which are initiated by
the general and regional managers, are reviewed and monitored by regional
managers and corporate staff. The Company's business plans seek to customize
marketing, staffing, capital investment and yield enhancement programs on an
individual property basis. Revenue and cost targets are based on historical
operating performance, planned renovations, operational efficiencies and
changing competitive trends and local market conditions. In addition, capital
budgets are developed with a view toward enhancing a hotel's guest appeal,
attracting new customers and generating increased revenue and cash flow. The
Company's budgeting process also includes a closely monitored system of 90-day
hotel level action plans that assist hotel managers in achieving their goals.
Recruiting and Training. The Company is strongly committed to developing
and promoting its management personnel from within the Servico organization. To
ensure ongoing career development, adherence to Company operating standards and
high levels of guest satisfaction, the Company has developed detailed and
ongoing training programs for its employees from general managers to
housekeeping staff. General managers and property level employees typically
receive two weeks of training each year. Training programs are implemented by
the Company's regional operations group and are held at the Company's properties
nationwide, although the Company also utilizes the extensive training programs
available through its franchisors. Training programs focus on key operational
areas, including yield management, sales and marketing, customer service and
loss prevention.
Purchasing. The Company centrally purchases a wide variety of goods and
services, including perishable food, consumable supplies, dry goods, linens,
cable television systems, telephone systems, advertising agency services,
independent marketing services, printing services, furniture, fixtures and
equipment. The Company's purchasing department is a key element of its operating
plan and its ability to control costs and improve the profitability of its
hotels. As one of the largest owners and operators of full-service hotels in the
United States, the Company believes that it has significant leverage to
negotiate competitive prices on goods and services from both local and national
vendors.
FRANCHISE AFFILIATIONS
In recent years, operators of hotels not owned or managed by major lodging
companies have affiliated their hotels with national hospitality franchisors as
a means of remaining competitive with hotels owned by or affiliated with
national lodging companies. Franchisors provide a number of services to hotel
operators that can generate additional occupancy and contribute to the improved
financial performance of their properties, including national reservation
systems, marketing and advertising programs and direct sales programs. The
Company believes that hotel franchisors with larger numbers of hotels enjoy
greater brand awareness among potential hotel guests than those with fewer
numbers of hotels. As an independent hotel owner and operator, the Company is in
a position to choose the franchise that will best position each hotel in its
particular market. In certain instances, following the renovation of a property,
the Company will change a hotel's franchise affiliation to further signal the
changes in the improved property to the community.
31
<PAGE> 34
At April 30, 1997, all of the Company's owned and managed hotels were
affiliated with nationally recognized hospitality franchises, including Holiday
Inn, Best Western, Clarion, Crowne Plaza, Days Inn, Embassy Suites, Hampton Inn,
Hilton, Howard Johnson, Omni, Quality Inn, Radisson, Sheraton and Westin, as set
forth in the following table:
<TABLE>
<CAPTION>
TOTAL WHOLLY OWNED PARTIALLY OWNED MANAGED
---------------------------- --------------- --------------- ---------------
NUMBER NUMBER PERCENT OF NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF TOTAL OF OF OF OF OF OF
FRANCHISE HOTELS ROOMS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
- --------- ------ ------ ---------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Inn............................. 37 7,089 61.3% 25 4,379 11 2,453 1 257
Best Western............................ 5 799 6.9% 5 799 -- -- -- --
Hilton.................................. 3 624 5.4% 2 431 1 193 -- --
Radisson................................ 2 407 3.5% 1 163 1 244 -- --
Hampton Inn............................. 2 237 2.1% 2 237 -- -- -- --
Howard Johnson.......................... 2 255 2.2% 2 255 -- -- -- --
Omni.................................... 2 605 5.2% 1 386 1 219 -- --
Other................................... 6 1,554 13.4% 5 1,300 -- -- 1 254
-- ------ ----- -- ----- -- ----- -- ---
Total........................... 59 11,570 100.0% 43 7,950 14 3,109 2 511
== ====== ===== == ===== == ===== == ===
</TABLE>
The Company's franchise agreements typically authorize the operation of a
hotel under a particular brand, at a specific location or within a specific
area, and require that the hotel be operated in accordance with standards
specified by the franchisor. The franchise agreements also permit the Company to
utilize the franchisor's reservation system. Generally, the franchise agreements
require the Company to pay a royalty fee, an advertising/marketing fee, a fee
for the use of the franchisor's nationwide reservation system and certain
ancillary charges. The franchise agreements are subject to cancellation in the
event of a default, including the failure to operate the hotel in accordance
with the quality standards and specifications of the franchisor. The franchise
agreements generally have an original ten-year term, although certain franchise
agreements provide for original 15 and 20 year terms. The majority of the
Company's franchise agreements have five to nine years remaining on the term.
The average remaining life of the Company's franchise agreements is
approximately seven years. The franchisor may require the Company to upgrade its
facilities at any time to comply with the franchisor's then current standards.
The franchisor may elect not to renew a franchise agreement or, in connection
with a franchise renewal, may require payment of a renewal fee, increased
royalty and other recurring fees and substantial renovation of the facility. It
is the Company's policy to review individual property franchise affiliations at
the time of property acquisition and, thereafter, on a regular basis. These
reviews may result in changes in such affiliations. The Company believes that
its relationships with its franchisors are good and that its position as one of
the nation's leading owners and operators of hotels enhances the Company's
relationships with its franchisors. See "Risk Factors -- Risks Associated with
Franchise Agreements."
HOLIDAY INN(R), BEST WESTERN(R), CLARION(R), CROWNE PLAZA(R), DAYS INN(R),
EMBASSY SUITES(R), HAMPTON INN(R), HILTON(TM), HOWARD JOHNSON(R), OMNI(R),
QUALITY INN(R), RADISSON(TM), SHERATON(R) AND WESTIN(TM) ARE REGISTERED
TRADEMARKS OF THIRD PARTIES, NONE OF WHICH SHALL BE DEEMED AN ISSUER OR
UNDERWRITER OF THE SHARES OF COMMON STOCK OFFERED HEREBY NOR HAVE ANY OF SUCH
FRANCHISORS ENDORSED OR APPROVED THE OFFERING. SUCH FRANCHISORS HAVE NOT
ASSUMED, AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR, ANY FINANCIAL
STATEMENTS OR OTHER FINANCIAL INFORMATION CONTAINED HEREIN OR ANY PROSPECTUS OR
ANY WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER HEREOF. A GRANT
OF ANY SUCH FRANCHISE LICENSE FOR CERTAIN OF THE COMPANY'S HOTELS IS NOT
INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR
ENDORSEMENT BY ANY OF SUCH FRANCHISORS (OR ANY OF THEIR AFFILIATES, SUBSIDIARIES
OR DIVISIONS) OF THE COMPANY OR THE SHARES OF COMMON STOCK OFFERED HEREBY.
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<PAGE> 35
MANAGEMENT AGREEMENTS
The Company currently manages two hotels for third-parties pursuant to
written management agreements. These agreements provide that the Company will be
paid a base fee calculated as a percentage of gross revenues, and generally
provide for an accounting services fee and an incentive management fee. The
incentive management fee is generally a percentage of gross operating profits in
excess of a negotiated amount. All operating and other expenses are paid by the
third-party owner.
One of the Company's hotels, the Westin William Penn, located in
Pittsburgh, Pennsylvania, is managed by an unaffiliated third-party. The terms
of this management agreement provide for the third-party manager to receive the
greater of a base fee of three percent of gross revenues or an incentive fee
based upon profits available for debt service. The management agreement for this
hotel also requires the Company to make funds available for capital
improvements.
EMPLOYEES
At March 31, 1997, the Company employed approximately 4,300 full-time and
approximately 1,800 part-time employees, of whom approximately 5,300 were
compensated on an hourly basis. Approximately 80 employees work at the Company's
corporate headquarters. At March 31, 1997, employees at four hotels were
represented by labor unions. Management believes that relations with its
employees are good.
33
<PAGE> 36
THE PROPERTIES
The following table sets forth certain information with respect to the
Company's owned hotels:
<TABLE>
<CAPTION>
NUMBER DATE OF
OF GUEST YEAR DATE LAST PERCENT
HOTEL LOCATION ROOMS BUILT ACQUIRED RENOVATION(1) OWNED(2)
----- -------- -------- ----- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Hampton Inn...................... Dothan, AL 113 1988 8/95 1996 100%
Holiday Inn...................... Dothan, AL 102 1961 8/95 1996 100%
Holiday Inn Express.............. Gadsden, AL 143 1963 8/95 1996 100%
Holiday Inn(3)................... Sheffield, AL 201 1981 5/82 1994 100%
Howard Johnson................... Flagstaff, AZ 100 1984 9/89 1993 100%
Holiday Inn (West)............... Phoenix, AZ 144 1986 9/89 1995 100%
Holiday Inn Select
(Airport)(4)................... Phoenix, AZ 298 1987 6/95 1995 51%(5)
Radisson (Airport)............... Phoenix, AZ 163 1988 9/89 1995 100%
Holiday Inn Express.............. Palm Desert, CA 129 1984 9/89 1992 100%
Holiday Inn...................... Frisco, CO 216 1969 11/96 in process 100%
Holiday Inn Express.............. Ft. Pierce, FL 164 1964 8/95 in process 100%
Holiday Inn...................... Melbourne, FL 293 1981 8/94 1996 50%
Hampton Inn...................... Pensacola, FL 124 1985 8/95 1995 100%
Holiday Inn...................... Pensacola, FL 152 1981 8/95 1996 100%
Holiday Inn Express.............. Pensacola, FL 214 1960 8/95 1996 100%
Omni............................. West Palm Beach, FL 219 1983 8/83 1994 50%
Holiday Inn...................... Augusta, GA 239 1979 1/96 in process 51%
Holiday Inn...................... Brunswick, GA 126 1974 9/76 1994 100%
Holiday Inn(4)................... Jekyll Island, GA 199 1974 9/76 1995 100%
Best Western..................... Council Bluffs, IA 89 1963 7/96 1993 100%
Best Western..................... Des Moines, IA 161 1975 7/96 in process 100%
Hilton........................... Sioux City, IA 193 1973 1/96 1994 51%
Holiday Inn...................... Bloomington, IN 187 1974 12/86 1992 100%
Hilton........................... Fort Wayne, IN 245 1985 8/93 1996 100%
Holiday Inn...................... Fort Wayne, IN 208 1968 9/94 1995 51%
Holiday Inn...................... Lawrence, KS 192 1982 8/95 1996 51%(5)
Holiday Inn...................... Manhattan, KS 197 1981 8/95 1996 51%(5)
Holiday Inn...................... Wichita, KS 152 1973 7/96 in process 100%
Quality Hotel.................... Metairie, LA 204 1972 12/89 1995 100%
Radisson (Airport)............... New Orleans, LA 244 1973 11/79 1995 50%
Crowne Plaza..................... Worcester, MA 243 1982 5/95 1996 51%
Days Inn(4)...................... Silver Spring, MD 140 1955 9/93 1995 100%
Holiday Inn...................... Lansing, MI 239 1977 5/96 in process 100%
Crowne Plaza..................... Saginaw, MI 177 1980 10/95 1996 51%
Hilton........................... Troy, MI 186 1975 10/83 1996 100%
Holiday Inn...................... St. Paul, MN 156 1973 4/88 1995 100%
Holiday Inn...................... Fayetteville, NC 198 1983 6/83 1994 100%
Holiday Inn(3)................... Raleigh, NC 202 1969 1/69 1994 100%
Best Western..................... Omaha, NE 213 1970 7/96 in process 100%
Sheraton......................... Omaha, NE 168 1975 7/96 in process 100%
Holiday Inn...................... Santa Fe, NM 130 1986 9/89 1992 100%
Omni(4).......................... Albany, NY 386 1980 11/81 1995 100%
Holiday Inn...................... Columbus, OH 240 1966 12/94 1996 30%
Holiday Inn...................... Richfield, OH 219 1967 1/96 1997 51%
Clarion (Airport)................ Pittsburgh, PA 193 1972 4/75 1995 100%
Holiday Inn (Greentree).......... Pittsburgh, PA 200 1971 10/72 in process 100%
Holiday Inn (McKnight Rd.)....... Pittsburgh, PA 147 1970 9/75 1995 50%
Holiday Inn (Monroeville)........ Pittsburgh, PA 189 1968 6/68 1996 100%
Holiday Inn (Parkway East)....... Pittsburgh, PA 180 1976 7/76 1996 100%
Holiday Inn (Meadowlands)........ Pittsburgh, PA 138 1973 12/83 1996 100%
Howard Johnson (Airport)......... Pittsburgh, PA 155 1963 2/63 1991 100%
</TABLE>
34
<PAGE> 37
<TABLE>
<CAPTION>
NUMBER DATE OF
OF GUEST YEAR DATE LAST PERCENT
HOTEL LOCATION ROOMS BUILT ACQUIRED RENOVATION(1) OWNED(2)
----- -------- -------- ----- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Westin William Penn.............. Pittsburgh, PA 595 1916 10/87 1996 100%
Best Western..................... Charleston, SC 197 1981 8/94 1993 100%
Best Western..................... Hilton Head, SC 139 1990 6/96 in process 100%
Holiday Inn...................... Hilton Head, SC 201 1974 5/77 1995 100%
Holiday Inn...................... Austin, TX 210 1984 12/89 1994 100%
Holiday Inn...................... Laredo, TX 207 1976 12/89 1994 100%
------
Total.................. 11,059
======
</TABLE>
- ---------------
(1) The year in which major renovations were completed as distinguished from
on-going maintenance expenditures.
(2) At March 31, 1997, the operations of 56 Owned Hotels were consolidated in
the financial statements of the Company, and the operations of one Owned
Hotel in which the Company has a minority interest was accounted for under
the equity method. See "Notes to Consolidated Financial
Statements -- Summary of Significant Accounting Policies -- Principles of
Consolidation."
(3) Hotel subject to long-term lease covering the land and improvements.
(4) Hotel subject to long-term ground lease.
(5) Hotel is currently 51% owned. Proceeds from this Offering will be used to
purchase the remaining 49% interest held by certain EMC Affiliates.
35
<PAGE> 38
The following summary presents certain information concerning each of the
Company's owned hotels:
HAMPTON INN -- DOTHAN, AL
Located at US 231 Bypass at US 84 West. Amenities
include outdoor pool and exercise facility. Local
attractions include Westgate Softball Complex and Park
and Waterworld, 1/2 mile; Robert Trent Jones Golf
Trail, 3 miles; Adventureland, nearby. Local companies
include Ft. Rucker, Michelin, Sony, Farley Nuclear
Plant, Globe Motors, Georgia Pacific and Flowers
Hospital.
MAP
HOLIDAY INN -- DOTHAN, AL
Located on US 231 Bypass at US 84 West, 7 miles from
airport. Amenities include 2,250 square feet of meeting
room space, full-service restaurant, outdoor pool and
exercise facility. Local attractions include Gulf Coast
beaches, 85 miles; Waterworld, Westgate Park and
Softball Complex, 1/2 mile; Wiregrass Commons Mall,
civic center and Robert Trent Jones Golf Trail, 3
miles. Local companies include Sony and Georgia
Pacific.
MAP
HOLIDAY INN EXPRESS -- GADSDEN, AL
Located at junction of I-59, US 431 and 278. Amenities
include 600 square feet of meeting room space and
outdoor pool. Local attractions include golf at Silver
Lakes and Robert Trent Jones Golf Trail; downtown
Gadsden, 3 miles; Noccalula Falls and City Park,
Guntersville State Park and Lake Guntersville, 4 miles;
Boaz Shopping Factory Outlets, 14 miles; Gadsden Sports
Complex, 2 miles; Alabama International Dragway, 10
miles and Ft. Payne, 42 miles.
MAP
HOLIDAY INN -- SHEFFIELD, AL
Located in the Muscle Shoals Area which is situated in
the Tennessee Valley region. Amenities include over
4,000 square feet of meeting room space, full-service
restaurant, free transportation to/from airport,
outdoor pool, whirlpool/spa and exercise facility.
Local attractions include Helen Keller Birthplace, 4
miles; Natchez Trace Parkway, 12 miles; Reynolds
Aluminum, W.C. Handy Museum, 5 miles; Tennessee
Tombigbee Waterway, TVA, 1 mile; fishing, golf, tennis,
racquetball and health club facilities nearby; Pope's
Tavern, nearby; Indian Mound Museum, Wilson Dam, 3
miles; McFarland Park, 2 miles.
MAP
HOWARD JOHNSON -- FLAGSTAFF, AZ
Located off Interstate 40. Amenities include
full-service restaurant, glass-enclosed indoor pool and
whirlpool/spa and game room. Local attractions include
shopping mall, 2 miles; downtown, 1 mile; nearby Grand
Canyon, Sedona, Snow Bowl, Lake Powell, Lowell
Observatory and Northern Arizona University.
MAP
HOLIDAY INN WEST -- PHOENIX, AZ
Located on I-10 in west Phoenix. Amenities include
3,900 square feet of meeting room space, full-service
restaurant and lounge, outdoor pool, whirlpool/spa and
exercise facility. Local attractions include Phoenix
International Airport, 7 miles; Desert Sky Pavilion, 2
miles; Goodyear Air Park, Metro Center Mall, 10 miles;
Convention Center, American West Arena and Arizona
State Fairgrounds, 5 miles.
MAP
HOLIDAY INN SELECT (AIRPORT) -- PHOENIX, AZ
Located at corner of 44th Street and Washington, 1 mile
from I-10 and the airport. Amenities include 12,000
square feet meeting room space, full-service restaurant
and lounge, outdoor pool, whirlpool/spa and exercise
facility. Local attractions include downtown Phoenix, 4
miles; Arizona State University, 3 miles; Phoenix Civic
Plaza, Oakland A's Training, zoo, 2 miles; and
Scottsdale, 5 miles.
MAP
RADISSON (AIRPORT) -- PHOENIX, AZ
Located off Interstate 10, 5 minutes from Sky Harbor
International Airport. Amenities include 4,000 square
feet of meeting room space, full-service restaurant and
lounge, outdoor pool, whirlpool/spa and exercise
facility. Local attractions include Old Town Tempe,
Arizona State University and Sun Devil Stadium, 4
miles; Phoenix Civic Plaza and America West Plaza, 7
miles; at gateway to Southbank Business Park.
MAP
36
<PAGE> 39
HOLIDAY INN EXPRESS -- PALM DESERT, CA
Located on Highway 111, 13 miles from the airport.
Amenities include outdoor pool, whirlpool/spa, tennis
courts and exercise facility. Local attractions include
89 championship golf courses nearby; Desert Town
Center, Living Desert, 2 miles; World Class Shopping,
Aerial Tramway, 20 miles; El Paseo Shopping District, 1
mile; and Oasis Waterpark, 15 miles.
MAP
HOLIDAY INN -- FRISCO, CO
Located off I-70. Amenities include full-service
restaurant and lounge, game room, indoor pool and
whirlpool. Local attractions include all of Summit
County's premier ski areas and golf courses in 15 mile
radius; located on Lake Dillon; 81 factory outlet
stores, 3 miles; adjacent to 47 miles of paved bike
paths; downtown Breckenridge, 10 miles; hiking, cross
country skiing, fishing, river rafting and casinos
nearby.
MAP
HOLIDAY INN EXPRESS -- FT. PIERCE, FL
Located near junction of Florida Turnpike and I-95, 3
miles from airport. Amenities include 2,260 square feet
meeting room space and outdoor pool. Local attractions
include Jai Alai, 1 mile; beach, 8 miles; Mets Complex,
5 miles; Orange Blossom Mall, 2 miles; Indian River
Community College and St. Lucie County Airport, 3
miles; hospital and civic center, 4 miles; factory
outlet mall, 2 blocks; and Palm Beach International
Airport, 50 miles.
MAP
HOLIDAY INN -- MELBOURNE, FL
Located off I-95 on beach, 6 miles from Melbourne
airport and 55 miles from Orlando airport. Amenities
include 6,200 square feet of meeting room space, full-
service restaurant and lounge, outdoor pool,
whirlpool/spa, game room, tennis courts and exercise
facility. Local attractions include closest beach to
Disney, MGM and Sea World, 59 miles; Kennedy Space
Center, 29 miles; Patrick Air Force Base, 5 miles.
MAP
HAMPTON INN -- PENSACOLA, FL
Located off I-10, 5 miles from the airport. Amenities
include 500 square feet of meeting room space,
complimentary breakfast and airport transportation.
Local attractions include mall (adjacent); beaches, 15
miles; University of West Florida, 2 miles; Pensacola
Junior College, 5 miles; downtown, 6 miles. Local
companies include Westinghouse, Air Products and
Monsanto Chemical.
MAP
HOLIDAY INN -- PENSACOLA, FL
Located off I-10, 5 miles from the airport. Amenities
include 3,000 square feet of meeting room space,
full-service restaurant and lounge, outdoor pool and
exercise facility. Local attractions include downtown
business and historical district, 8 miles; Pensacola
Civic Center, 7 miles; Pensacola Beach, 15 miles; Naval
Air Station and Museum, 15 miles; West Florida Hospital
& Medical Center, 3 miles; Ellyson Industrial Park, 4
miles; and Pensacola Junior College, 4 miles. Local
companies include Monsanto Chemical, Air Products and
Westinghouse.
MAP
HOLIDAY INN EXPRESS -- PENSACOLA, FL
Located off I-10, 7 miles from the airport. Amenities
include 1,650 square feet of meeting room space and
outdoor pool. Local attractions include historical
district, civic center and downtown, 3 miles; Gulf of
Mexico and Ft. Pickens, 2 miles; Naval Air Station, zoo
and NAS Museum, 9 miles; golf course, 13 miles. Local
companies include Westinghouse, Gulf Power and Air
Products.
MAP
OMNI -- WEST PALM BEACH, FL
Located off I-95, less than a mile from Palm Beach
International Airport. Amenities include 10,000 square
feet of meeting room space, full-service restaurant and
lounge, outdoor pool, whirlpool/spa, tennis courts and
exercise facility. Local attractions include beaches, 5
miles; dog track, 1 mile; Worth Avenue, 5 miles;
Montreal Expos Spring Training, 3 miles.
MAP
37
<PAGE> 40
HOLIDAY INN -- AUGUSTA, GA
Located along I-20, 6 and 12 miles from the airports.
Amenities include 4,500 square feet of meeting room
space, full-service restaurant, outdoor pool,
whirlpool/spa and exercise facility. Local attractions
include Augusta National Golf Course, 1 mile; Clark
Hill Lake & Dam, 21 miles; Riverfront Area, 8 miles;
located in Central Savannah River Area; minutes from
Historic Downtown Augusta & The Riverfront Park; near
Ft. Gordon, Medical College of Georgia, convention
center, shopping malls and Jones Creek & Forest Hills
golf courses.
MAP
HOLIDAY INN -- BRUNSWICK, GA
Located on I-95, 4 miles from the jetport. Amenities
include 1,780 square feet of meeting room space,
full-service restaurant and lounge and outdoor pool.
Local attractions include beaches, 15 miles; 207 holes
of golf within 3 miles; outlet mall, 1 block; Glynn
Place Mall, 2 miles; historical downtown, 5 miles; and
Brunswick's waterfront, 5 miles.
MAP
HOLIDAY INN -- JEKYLL ISLAND, GA
Located 14 miles off I-95. Amenities include 7,600
square feet of meeting room space, full-service
restaurant and lounge, outdoor pool, game room, and
tennis courts. Local attractions include 63 holes of
golf, 13 tennis courts, bicycle rentals, paved bicycle
and jogging trails, boat rentals, fishing, water park,
swimming, windsurfing, dolphin cruise and historical
tours.
MAP
BEST WESTERN -- COUNCIL BLUFFS, IA
Located off of I-480 and Highway 6, closer to the
downtown business district of Omaha than the main area
of Council Bluffs. Downtown Omaha is 2 miles to the
west of the hotel. Amenities include 1,900 square feet
of meeting space, indoor pool, with a full-service
restaurant adjacent to the property. Local attractions
include Old Market, 3 miles; Bluffs Run Greyhound
Racing, 4 miles; Eppley Airfield, 6 miles; Omaha Civic
Auditorium, 3 1/2 miles; Rosenblatt Stadium, Henry
Dorley Zoo, Amtrak Terminal, 5 miles; Aksarben Field, 9
miles.
MAP
BEST WESTERN -- DES MOINES, IA
Located in west suburban Des Moines, one block East of
I-35, Exit 125, in close proximity to several major
office parks. Amenities include 5,500 square feet of
meeting space, full-service restaurant and lounge,
indoor pool, whirlpool/spa, game room, and airport
service. Local attractions include the downtown
business, convention, cultural centers, 12 miles; Des
Moines International Airport, 15 miles; State Capitol,
10 miles; Adventureland Park, State Fairgrounds,
Prairie Meadows Racetrack & Casino, 20 miles; Drake
University, 8 miles; Bridges of Madison County, 30
miles; Iowa State University, 35 miles; Living History
Farms and Valley West Mall, 1 mile.
MAP
HILTON -- SIOUX CITY, IA
Located 2 blocks from I-29, Exit 147B, in downtown
Sioux City and connected to the convention center, area
shops and the central business district by enclosed
skywalks. Amenities include 12,000 square feet of
meeting space, restaurant and lounge, indoor pool,
whirlpool/spa and exercise facility. Within 1 mile of
the hotel are the following local attractions: Anderson
Dance Pavilion; The Belle of Sioux City Riverboat
Casino; Sioux City Auditorium; the Sioux City Art
Center; and the Midland Marina. Other attractions
include dog and horse racing, 3 miles; airport 10
miles; Dakota Dunes, 2 miles.
MAP
HOLIDAY INN -- BLOOMINGTON, IN
Located off SR 37 on Kinser Parkway, 6 miles from
airport. Amenities include 3,240 square feet of meeting
room space, full-service restaurant and lounge, indoor
pool, whirlpool/spa and game room. Local attractions
include Indiana University and Bloomington Convention
Center, 1 mile; Otis, GE, ABB, Thomson Consumer and
Rogers Mall, 3 miles; Oliver Winery, 5 miles; and Lake
Monroe, 12 miles.
MAP
HILTON -- FORT WAYNE, IN
Located off I-69, 7 miles from the airport. Amenities
include 54,000 square feet of meeting room space in the
attached Grand Wayne Center, full-service restaurant
and lounge, indoor pool, whirlpool/spa and exercise
facility. Local attractions include Botanical Gardens,
Embassy Theater and Historical & Art Museum, 2 blocks;
and Memorial Coliseum & Stadium, 3 1/2 miles.
MAP
38
<PAGE> 41
HOLIDAY INN -- FORT WAYNE, IN
Located off I-69, 7 miles from the airport. Amenities
include 7,500 square feet of meeting room space,
full-service restaurant and lounge, indoor pool,
whirlpool/spa, game room and exercise facility. Local
attractions include Grand Wayne Center; Botanical
Gardens, Embassy Theater and Historical & Art Museum, 2
blocks; and Memorial Coliseum & Stadium, 3 1/2 miles.
MAP
HOLIDAY INN -- LAWRENCE, KS
Centrally located in northeast Kansas between Topeka
and Kansas City on I-70 and is within close proximity
to the University of Kansas and other commercial areas
of the town of Lawrence. Amenities include an atrium
restaurant and sports lounge, indoor pool, sauna,
jacuzzi, miniature golf, game room, exercise room and
over 14,000 square feet of meeting space. Local
attractions include Kansas City International Airport,
51 miles, outlet mall, 2 miles; Haskell Indian College,
downtown, 4 miles; Woodlands Horse/Dog Racing,
Heartland Park Racetrack, 25 miles; Alvamar Golf
Course, 3 miles.
MAP
HOLIDAY INN -- MANHATTAN, KS
Located approximately 15 miles from I-70 off of Exit
183B, and 5 miles from the Manhattan Municipal Airport.
Amenities include a holidome area which houses two
in-house restaurants and one lounge, over 12,000 square
feet of meeting space, indoor heated swimming pool,
whirlpool, sauna, miniature golf, game room and
exercise facility. Local attractions include Kansas
State University, 2 miles; Kansas State University
Stadium, 2 miles; Regional Shopping Mall, 3 miles; Ft.
Riley, 20 miles; Sunset Zoo, 1/2 mile.
MAP
HOLIDAY INN -- WICHITA, KS
Located on the west side of Wichita, Exit US 54 W off
of Interstate 235, within 5 minutes of the
Mid-Continent Airport. Amenities include 5,300 square
feet of meeting space, restaurant and lounge,
complimentary airport transportation, indoor pool,
whirlpool/spa and game room. Local attractions include
Sheplers Western Wear Store, Sedgwick County Zoo,
Wichita Botanical Gardens, Wichita Boat House & Museum,
Towne West Mall -- all within 1 mile; Century II
Convention Center, 6 miles; Kansas Coliseum, 14 miles;
Hutchinson, Kansas Cosmosphere & Space Center, Kansas
State Fair and the NJCAA Tournament, 58 miles. Local
companies include Boeing Cessna & Learjet.
MAP
QUALITY HOTEL -- METAIRIE, LA
Easily accessed from I-10 at Causeway Blvd. South, Exit
228, the property is located 8 miles from New Orleans
International Airport and 8 miles from downtown New
Orleans adjacent to a regional shopping mall. Amenities
include over 16,000 square feet of meeting and function
space, fitness center, sauna, large outdoor pool,
restaurant and lounge, and complimentary shuttle
service to and from the airport and the French Quarter.
Local attractions include French Quarter, convention
center, Audubon Zoo, 7 miles; Treasure Chest Casino,
Superdome and the University of New Orleans, 6 miles.
MAP
RADISSON HOTEL -- NEW ORLEANS, LA
Located at the intersection of I-10 and Williams Blvd.
on Veteran's Memorial Blvd., the property is 5 minutes
from the New Orleans International Airport and 15
minutes west of downtown. Amenities include 14,000
square feet of meeting space, restaurant, lounge and
outdoor pool. Local attractions include French Quarter,
convention center, Audubon Zoo, 7 miles; Treasure Chest
Casino, Superdome and the University of New Orleans, 6
miles.
MAP
39
<PAGE> 42
CROWNE PLAZA -- WORCESTER, MA
Located on Worcester Central Blvd., exit 10 off of the
Massachusetts Turnpike. Amenities include executive
club floor level, 13,300 square feet of meeting space,
restaurant and lounge, indoor and outdoor pools,
whirlpool/spa, game room and exercise facility. Local
attractions include Worcester Centrum, Worcester Common
Fashion Outlets, county courthouse, Mechanics Hall,
Foothills Theater, College of the Holy Cross, Clark
University, Allmerica Financial, Sturbridge Village,
Worcester Art Museum and the New England Science
Center.
MAP
DAYS INN -- SILVER SPRING, MD
Located off of Exit 31B of I-495 Beltway, within the
urban district of Silver Spring and 6 miles from all
Washington, D.C. tourist attractions. Amenities include
1,500 square feet of meeting space and an outdoor pool.
The hotel is accessible from Georgia Avenue, which is
one of the largest thoroughfares in the city travelled
by approximately 41,300 vehicles per day, leading in
and out of Washington, D.C. Also in close proximity are
Bethesda Naval Hospital, National Institute of Health,
Walter Reed Army Medical Center and the new offices of
the National Oceanic and Atmospheric Administration.
MAP
HOLIDAY INN -- LANSING, MI
Located on the Saginaw Highway, exit 93B off of I-96
and I-69. Amenities include 15,600 square feet of
meeting space, TGI Friday's restaurant, indoor and
outdoor pool, whirlpool/spa, game room and exercise
facility. Local attractions include state capitol
buildings, downtown and Impression 5 Museum, 5 miles;
Michigan State University, 11 miles; Capitol City
Airport, 4 miles; Potter Park Zoo, 8 miles; Lansing
Mall and Family Fun Park, 1 mile. Local companies
include GM-Oldsmobile World Headquarters.
MAP
CROWNE PLAZA -- SAGINAW, MI
Located in the heart of downtown Saginaw with easy
access to I-75. Amenities include 3,800 square feet of
meeting space, indoor swimming pool with patio,
whirlpool, fitness center, game room, 24 hour business
center, restaurant and lounge and an executive club
floor level. Local attractions include Tri-City
airport, 15 miles; Frankenmuth, Michigan's second most
visited tourist area, 15 minutes. Close proximity to
the International Centre and civic center. Local
companies include Saginaw Division of General Motors.
MAP
HILTON -- TROY, MI
Located at the Northfield Intersection off I-75
(Chrysler Freeway) at the Crooks Road exit. Amenities
include over 11,000 square feet of meeting space,
restaurant and lounge, indoor pool and exercise
facility. Local attractions include downtown Detroit,
25 miles; Detroit International Airport, 45 minutes;
convention center, 20 minutes; Pontiac Silverdome, 10
minutes; Palace of Auburn Hills, 10 minutes; Pine Knob
Music Theatre and Meadowbrook Theatre, 15 minutes. Many
Fortune 500 companies are within 5 minutes in the heart
of Troy.
MAP
HOLIDAY INN -- ST. PAUL, MN
Located at the Lexington exit of I-694, a 10 minute
drive from either downtown Minneapolis or St. Paul, and
a 20 minute drive from the Minneapolis/St. Paul
Airport. Amenities include 15,000 square feet of
meeting space, restaurant and lounge, indoor swimming
pool, whirlpool, fitness center and game room. Local
attractions include state capitol, Target Center,
Metrodome, 10 miles; Mall of America, 21 miles; State
Fairgrounds, 4 miles; Rosedale Mall, 2 1/2 miles;
University of Minnesota, 3 miles; Bethel, Northwestern
College and John Rose Oval, 2 miles.
MAP
40
<PAGE> 43
HOLIDAY INN -- FAYETTEVILLE, NC
Located on Exit 49 from Charlotte Highway 74 E to I-95
North. Amenities include 14,000 square feet of meeting
space, restaurant and lounge, indoor pool, whirlpool/
spa, game room and exercise facility. Local attractions
include Ft. Bragg, Pope AFB, Methodist College, 10
miles; FTCC, downtown, 5 miles; airport, 7 miles; civic
center, auditorium, Fayetteville State University,
industrial park, 4 miles; 10 golf courses within 7
miles. Local companies include DuPont, Kelly
Springfield, Black & Decker, Purolator and
Westinghouse.
MAP
HOLIDAY INN -- RALEIGH, NC
Located off of Exit 298 B of I-40 on Hillsborough
Street in downtown Raleigh. Amenities include 3,600
square feet of meeting space, restaurant and lounge,
outdoor pool and exercise facility. Local attractions
include the airport, 12 miles; convention center, 6
blocks; Capitol, Legislative Building, State Museum,
downtown, 3 blocks; opposite ISA Training Center;
Walnut Creek Amphitheater, Wake Medical, Crabtree Mall,
4 miles; State Fairgrounds, Carter Finley Stadium, Rex
Hospital, 3 miles; RTP, 14 miles; North Carolina State
University and Reynolds Coliseum nearby.
MAP
BEST WESTERN -- OMAHA, NE
Located north of the 72nd Street and I-80 interchange
at Exit 449. Amenities include 4,600 square feet of
meeting space, restaurant, indoor pool, whirlpool/spa,
and airport service. Local attractions include airport,
12 miles; horse track 1 mile; dog track, 10 miles;
downtown Omaha, Old Market, 6 miles; Henry Dorley Zoo
and Rosenblatt Stadium, 5 miles.
MAP
SHERATON -- OMAHA, NE
Located at the junction of I-80 and I-680, just off the
"L" Street West exit in west Omaha. Amenities include
3,300 square feet of meeting space, restaurant and
lounge, indoor pool, hot tub and dry sauna. Local
attractions include airport, 12 miles; horse track, 1
mile; dog track, 10 miles; downtown Omaha, Old Market,
6 miles; Henry Dorley Zoo and Rosenblatt Stadium, 5
miles.
MAP
HOLIDAY INN -- SANTA FE, NM
Located 2 miles north of I-25 at Exit 278 and 65 miles
from Albuquerque International Airport. Amenities
include restaurant and lounge, 2,300 square feet of
meeting space, indoor and outdoor pool, whirlpool/spa
and exercise facility. Local attractions include
Sweeney Convention Center, 6 miles; Villa Linda Mall,
1/4 mile; historical downtown plaza, 6 miles; Santa Fe
Ski Basin, 16 miles; Santa Fe Opera, 9 miles; Santa Fe
Downs, 3 miles; Santa Fe Rodeo, 1 mile.
MAP
OMNI -- ALBANY, NY
Located in the heart of Albany, 1 block from the State
Capitol, Empire State Plaza and the Convention Center.
Just 1 minute away from I-787, which leads both to I-90
and I-87 and 5 minutes from major shopping areas.
Amenities include 18,000 square feet of meeting space,
executive club level, restaurant and lounge, indoor
pool, whirlpool/spa and exercise facility. Local
attractions include SUNY Campus; Crossgates Mall; St.
Rose, 3 miles; St. Peters Hospital, 4 miles; Saratoga
Racetrack, 25 miles.
MAP
HOLIDAY INN -- COLUMBUS, OH
Located off of 4th Street Exit of I-71N. Amenities
include an executive club floor level, outdoor pool,
access to a nearby state-of-the-art fitness facility,
airport transportation, restaurant, lounge and 6,000
square feet of meeting space. Local attractions include
downtown, business district, City Center Mall, 1 block;
State Capitol, 3 blocks; Convention Center, 10 blocks;
Ohio State University, 3 miles; German Village, Port
Columbus International Airport, 9 miles; Grant
Hospital, 2 blocks.
MAP
HOLIDAY INN -- RICHFIELD, OH
Located 1 block South of the Turnpike on Exit 11 of US
21. Amenities include indoor and outdoor pool, indoor
jacuzzi and kiddie pool, fitness center, miniature golf
and game center, restaurant and lounge and over 13,000
square feet of meeting space. Local attractions include
downtown Cleveland, Akron, 15 miles; Boston Mills,
Brandywine Ski & Golf, 3 miles; Blossom Music Center,
12 miles; Sea World, Geauga Lake, 18 miles; Cleveland
Airport, I-X Center, 21 miles; Jacobs Field, Gund
Arena, Rock and Roll Hall of Fame and Museum, 15 miles;
Sleepy Hollow Golf Course, 2 miles; Dover Lake Park, 4
miles; Pro Football Hall of Fame, 40 miles.
MAP
41
<PAGE> 44
CLARION (AIRPORT) -- PITTSBURGH, PA
Located off of Business Route 60 on Thorn Run Road on
the westbound side of Route 60. Amenities include over
8,000 square feet of meeting space, executive club
level, restaurant and lounge, outdoor pool and exercise
facility. Local attractions include Pittsburgh
International Airport, 7 miles; downtown Pittsburgh, 15
miles; Three Rivers Stadium, 3 miles; Robinson Town
Center, 5 miles; Robert Morris College, Ladbroke OTB,
1/2 mile; Racoon State Park, 9 miles; Star Lake
Amphitheater, Quicksilver Golf, 8 miles; David Lawrence
Convention Center and Brady's Run Park, 20 miles.
MAP
HOLIDAY INN GREENTREE -- PITTSBURGH, PA
Located on Exit 4 off of I-279 in Foster Plaza Business
Complex on Holiday Drive. Amenities include more than
8,000 square feet of meeting space, an executive club
level, restaurant and lounge, outdoor pool and exercise
facility. Local attractions include downtown
Pittsburgh, Three Rivers Stadium, Carnegie Science
Center, Station Square, 3 miles; Pittsburgh
International Airport, 12 miles; University of
Pittsburgh, Carnegie Mellon University and Oakland, 6
miles.
MAP
HOLIDAY INN (MCKNIGHT ROAD) -- PITTSBURGH, PA
Located in the North Hills area of Pittsburgh, 2.5
miles north of I-279. Amenities include over 10,000
square feet of meeting space, outdoor pool and
membership at a local 24 hour health facility. Local
attractions include downtown business district, 6
miles; Three Rivers Stadium, David Lawrence Convention
Center, Civic Arena, 5 miles; airport, 19 miles; North
Hills Village Mall -- adjacent to; Ross Park Mall, 2
blocks; University of Pittsburgh and Oakland, 7 miles;
biking, boating, fishing, tennis, golf, running,
skating, horses -- all at North Park, 3 miles.
MAP
HOLIDAY INN (MONROEVILLE) -- PITTSBURGH, PA
Located at Exit 6 of the Pennsylvania Turnpike at the
intersections of the William Penn Highway and I-376.
Amenities include 3,100 square feet of meeting space,
outdoor pool and game room and restaurant and lounge.
Local attractions include downtown, 14 miles; Expo Mart
Center, Monroeville Mall, 3 miles; Pittsburgh
International Airport, 30 miles; Pittsburgh Zoo, 10
miles; Kennywood Amusement Park, Sandcastle, 12 miles;
Westinghouse Energy Center, 1/4 mile; University of
Pittsburgh, Carnegie Mellon University and Oakland, 12
miles.
MAP
HOLIDAY INN (PARKWAY EAST) -- PITTSBURGH, PA
Located at Exit 11, Wilkinsburg, on Brinton Road, off
of I-376. Amenities include over 6,000 square feet of
meeting space, restaurant and lounge, indoor pool and
complimentary breakfast. Local attractions include
University of Pittsburgh, Carnegie Mellon University,
Duquesne University, Carlow College, 5 miles; Three
Rivers Stadium, Civic Arena, Station Square, downtown
Pittsburgh, 8 miles; Pittsburgh International Airport,
23 miles; Pittsburgh Zoo, Kennywood Park, Monroeville
Mall and Sandcastle Water Park, 5 miles. Local
companies include Westinghouse, Digital Equipment
Company and Alcoa.
MAP
HOLIDAY INN (MEADOWLANDS) -- PITTSBURGH, PA
Located off of I-79 and Route 19, Exit 8B, Racetrack
Road. Amenities include over 10,000 square feet of
meeting space, an executive club floor level,
restaurant, two lounges, outdoor pool, whirlpool/spa,
game room and exercise facility. Local attractions
include downtown Pittsburgh, 24 miles; Pittsburgh
International Airport, 28 miles; Ladbroke Racing, 1/2
mile; Starlake Amphitheatre, 23 miles; Southpointe
Industrial Park, 6 miles and Wheeling Jamboree, 35
miles.
MAP
42
<PAGE> 45
HOWARD JOHNSON (AIRPORT) -- PITTSBURGH, PA
Located off of Interstate 279 on Montour Church Road.
Amenities include over 3,500 square feet of meeting
space, outdoor pool, game room, complimentary breakfast
and guest accessibility to tennis, racquet ball and an
exercise facility. Local attractions include downtown,
12 miles; Pittsburgh International Airport, 5 miles;
Three Rivers Stadium, 10 miles; Robinson Town Center, 5
miles; Robert Morris College, Ladbroke OTB, 1/2 mile;
Racoon State Park, 9 miles; Star Lake Amphitheater,
Quicksilver Golf, 8 miles; David Lawrence Convention
Center and Brady's Run Park, 20 miles.
MAP
WESTIN WILLIAM PENN -- PITTSBURGH, PA
Located in downtown Pittsburgh and built in 1916, the
hotel is a national historic landmark. Amenities
include an executive club floor level, 52,000 square
feet of meeting space, restaurant, two lounge
facilities, exercise facility, valet parking, business
center, bakery, deli, hair salon, day care center,
travel agency, coffee stand, bank and jewelry store.
Local attractions include University of Pittsburgh, 2
miles; Carnegie Mellon University, 3 blocks; Three
Rivers Stadium, Civic Arena and Carnegie Science
Center, 3 miles.
MAP
FOUR POINTS HOTEL -- CHARLESTON, SC
Located off Interstate 26 at Exit 209, Ashley Phosphate
Road in the City of North Charleston. Amenities include
full-service restaurant and lounge, 6,000 square feet
of meeting space, heated indoor pool, outdoor pool,
whirlpool/spa, game room and exercise facility. Local
attractions include Charleston International Airport, 5
miles; historic Charleston and downtown, 12 miles;
within walking distance of the largest area mall; golf
courses and beaches are just minutes away.
MAP
FOUR POINTS HOTEL -- HILTON HEAD, SC
Located off of Exit 28 of 278 in the South Forest Beach
section of beautiful Hilton Head Island. Amenities
include 4,000 square feet of meeting space, restaurant
and lounge, two outdoor pools, jacuzzi and tennis
courts. Within a short distance are many fine boutiques
and restaurants, with golf courses from 1 to 13 miles
away. Local attractions include Waterfun Park, Coligny
Plaza (50 shops, 5 restaurants), Harbour Town, The
Mall, 4 miles; shopping outlet mall, 3 miles; airport,
8 miles.
MAP
HOLIDAY INN -- HILTON HEAD, SC
Located in the South Forest Beach section of beautiful
Hilton Head Island, directly on the ocean. Amenities
include 3,000 square feet of meeting space, two
restaurants, lounge and outdoor Tiki bar, outdoor pool
and gift shop. Local attractions include Waterfun Park,
Coligny Plaza (50 shops, 5 restaurants), Harbour Town,
The Mall, 4 miles; shopping outlet mall, 3 miles;
airport, 8 miles; mini golf, 4 blocks; golf, 1 mile and
12 miles of bike paths.
MAP
HOLIDAY INN -- AUSTIN, TX
Located at the Woodward exit on Highway 35 opposite
Saint Edward's University in a business district of
south Austin. Amenities include an executive club
level, 8,500 square feet of meeting space, restaurant
and lounge, outdoor pool, whirlpool/spa. Local
attractions include state capitol, convention center
and downtown, 1 1/2 miles; LBJ Library, University of
Texas, 4 miles; Sea World, Fiesta, TX, 1 hour; 6th
Street and the Business District, 3 miles.
MAP
HOLIDAY INN -- LAREDO, TX
Located on the banks of the Rio Grande in downtown
Laredo, next to the Mexico International Bridge and
overlooking Laredo and Nuevo Laredo, Mexico. Amenities
include 5,200 square feet of meeting space, restaurant
and lounge, outdoor pool and exercise facility. Local
attractions include airport, 4 miles; adjacent to park,
jogging trail on the river; Laredo Community College, 1
mile; government offices, 2 miles; International Bridge
to Mexico, Arts Center, Museum, Historical Sites,
Riverdrive Mall, 1 block; downtown Laredo (over 300
stores), 2 blocks.
MAP
43
<PAGE> 46
MANAGEMENT
The table below sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------- --- ----------------------------------------------------
<S> <C> <C>
David Buddemeyer............... 39 President, Chief Executive Officer and Director
Karyn Marasco.................. 39 Executive Vice President and Chief Operating Officer
Warren M. Knight............... 50 Vice President-Finance and Chief Financial Officer
Robert D. Ruffin............... 56 Vice President-Administration and Secretary
Peter J. Walz.................. 53 Vice President-Acquisitions
John W. Adams.................. 53 Chairman of the Board
Joseph C. Calabro.............. 46 Director
Peter R. Tyson................. 50 Director
Richard H. Weiner.............. 47 Director
</TABLE>
DAVID BUDDEMEYER has been the Chief Executive Officer of the Company since
December 1995, a director since April 1994 and its President since May 1993. Mr.
Buddemeyer served as the Chief Operating Officer of the Company from May 1993 to
December 1995 and its Executive Vice President from June 1990 to May 1993. Prior
to such time, from 1987 to June 1990, he served as Vice President-Operations of
Prime Motor Inns, Inc., a hotel management company.
KARYN MARASCO joined the Company as its Executive Vice President and Chief
Operating Officer in May 1997. Prior to such time, Ms. Marasco was employed by
Westin Hotels and Resorts for 18 years and served as Area Managing Director from
July 1994 to May 1997.
WARREN M. KNIGHT has been Vice President -- Finance and Chief Financial
Officer of the Company since December 1991. Prior to such time, from March 1988
to November 1991, Mr. Knight served as Director of Finance for W.A. Taylor &
Co., an importer of distilled spirits into the United States.
ROBERT D. RUFFIN has been Vice President -- Administration of the Company
since June 1991 and Secretary of the Company since January 1992. Mr. Ruffin
joined the Company in November 1990, and, prior to such time, Mr. Ruffin was
employed by Kendavis Holding Company for 29 years, and served as its Vice
President -- Industrial Relations from 1986 through 1990.
PETER J. WALZ has been Vice President -- Acquisitions of the Company since
February 1996. Prior to such time, from December 1994 to January 1996, he was a
consultant to the Company. From October 1993 to November 1994, Mr. Walz was an
executive officer of Hospitality Investment Trust, Inc., a development stage
lodging real estate investment trust. Prior to such time, from April 1987 to
September 1993, Mr. Walz was Executive Vice President of CMS Development, Inc.,
a developer of office buildings, condominiums and hotels.
JOHN W. ADAMS has been the Chairman of the Board of the Company since
December 1995 and a director since April 1994. Since 1984, Mr. Adams has been
President of Smith Management Company, a private investment firm. Mr. Adams is
also Chairman of the Board of Directors of Harvard Industries, Inc., a
manufacturer of automobile components, Hawaiian Airlines, Inc., a passenger
airline and Regency Health Services, Inc., a health services company.
JOSEPH C. CALABRO has been a director of the Company since August 1992. Mr.
Calabro has been a principal of Joseph C. Calabro, C.P.A., a Devon, Pennsylvania
accounting firm, since 1982. Mr. Calabro has also been an officer and director
of Bibsy Corporation, which previously owned and operated a Holiday Inn hotel in
Bensalem, Pennsylvania, since 1971.
PETER R. TYSON has been a director of the Company since August 1992. From
December 1990 to the present, Mr. Tyson has been President of Peter R. Tyson &
Associates, Inc., a firm offering consulting services to clients in the
hospitality industry. Prior to forming Peter R. Tyson & Associates, Inc., Mr.
Tyson was the partner-in-charge of the hospitality industry consulting practice
in the Philadelphia office of the accounting and consulting firm of Laventhol &
Horwath, with which he was associated for 20 years.
RICHARD H. WEINER has been a director of the Company since August 1992. Mr.
Weiner is a senior partner in the Albany, New York law firm of Cooper, Erving,
Savage, Nolan & Heller, where he has practiced law since 1975.
44
<PAGE> 47
UNDERWRITING
The Underwriters of the U.S. Offering of Common Stock (the "U.S.
Underwriters"), for whom Lehman Brothers Inc., Alex. Brown & Sons Incorporated,
Montgomery Securities and Raymond James & Associates, Inc. are serving as
representatives (the "Representatives") have severally agreed, subject to the
terms and conditions of the underwriting agreement, the form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "U.S. Underwriting Agreement"), to purchase from the Company and the
Company has agreed to sell to the U.S. Underwriters, the aggregate number of
shares of Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
U.S. UNDERWRITERS ----------------
<S> <C>
Lehman Brothers Inc.........................................
Alex. Brown & Sons Incorporated.............................
Montgomery Securities.......................................
Raymond James & Associates, Inc.............................
-------------
Total............................................. 8,000,000
=============
</TABLE>
The managers of the International Offering named below (the "International
Managers") for whom Lehman Brothers International (Europe), Alex. Brown & Sons
International, Montgomery Securities and Raymond James & Associates, Inc. are
acting as lead managers, have severally agreed, subject to the terms and
conditions of the International Underwriting Agreement, the form of which has
been filed as an exhibit to the Registration Statement (the "International
Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the International Managers, the aggregate number of shares of
Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
INTERNATIONAL MANAGERS ----------------
<S> <C>
Lehman Brothers International (Europe)......................
Alex. Brown & Sons International............................
Montgomery Securities.......................................
Raymond James & Associates, Inc.............................
----------
Total............................................. 2,000,000
==========
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the "Underwriting Agreements") provide that the
obligations of the U.S. Underwriters and the International Managers,
respectively, to purchase shares of Common Stock, are subject to the approval of
certain legal matters by counsel and to certain other conditions, and that if
any of the shares of Common Stock are purchased by the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement or by the International Managers
pursuant to the International Underwriting Agreement, all the shares of Common
Stock agreed to be purchased by either the U.S. Underwriters or the
International Managers, as the case may be, pursuant to their respective
Underwriting Agreements, must be so purchased. The offering price and
underwriting discounts and commissions for the U.S. Offering and the
International Offering are identical. The closing of the International Offering
is a condition to the closing of the U.S. Offering and the closing of the U.S.
Offering is a condition to the closing of the International Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain selected dealers (who may include the U.S.
Underwriters and International Managers) at such public offering price less a
selling concession not to exceed $ per share. The selected dealers may
reallow a concession not to exceed $ per share. After the initial
offering of the Common Stock, the concession to selected dealers and the
reallowance to other dealers may be changed by the U.S. Underwriters and the
International Managers.
The U.S. Underwriters and the International Managers have entered into an
Agreement Among U.S. Underwriters and International Managers (the "Agreement
Among") pursuant to which each U.S. Under-
45
<PAGE> 48
writer has agreed, that, as part of the distribution of the shares of Common
Stock offered in the U.S. Offering, (a) it is not purchasing any of such shares
for the account of anyone other than a U.S. or Canadian Person (as defined
below) and (b) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such shares or distribute any prospectus
relating to the U.S. Offering outside the United States or Canada or to anyone
other than a U.S. or Canadian Person. In addition, pursuant to the Agreement
Among, each International Manager has agreed that, as part of the distribution
of the shares of Common Stock offered in the International Offering, (a) it is
not purchasing any of such shares for the account of any U.S. or Canadian Person
and (b) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus relating
to the International Offering within the United States or Canada or to any U.S.
or Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Underwriting
Agreements and the Agreement Among, including: (i) certain purchases and sales
between the U.S. Underwriters and the International Managers; (ii) certain
offers, sales, resales, deliveries or distributions to or through investment
advisors or other persons exercising investment discretion; (iii) purchases,
offers, or sales by a U.S. Underwriter who is also acting as an International
Manager or by an International Manager who also is acting as a U.S. Underwriter;
and (iv) other transactions specifically approved by the U.S. Underwriters and
International Managers. As used herein, "U.S. or Canadian Person" means any
resident or citizen of the United States or Canada, any corporation, pension,
profit sharing or other trust or other entity organized under or governed by the
laws of the United States or Canada or any political subdivision thereof (other
than the foreign branch of the United States or Canadian Person), any estate or
trust the income of which is subject to United States or Canadian federal income
taxation regardless of the source of its income, and any United States or
Canadian branch of a person other than a United States or Canadian Person. The
term "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction. The term "Canada" means the provinces
of Canada, its territories, its possessions and other areas subject to its
jurisdiction.
Pursuant to the Agreement Among, sales may be made among the U.S.
Underwriters and the International Managers of such number of shares of Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for Common Stock being sold by the U.S.
Underwriters and International Managers, less an amount not greater than the
selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Among, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
46
<PAGE> 49
The imposition of a penalty bid might have an effect on the price of a security
to the extent that it were to discourage resales of the security by purchasers
in the offering.
Neither the Company nor any of the U.S. Underwriters or International
Managers makes any representation or prediction as to the direction or magnitude
of any effect that the transactions described above may have on the price of the
Common Stock. In addition, neither the Company nor any of the U.S. Underwriters
or International Managers makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issuance of
the shares of Common Stock, will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on, and
will only issue or pass on, to any person in the United Kingdom, any document
received by it in connection with the issuance of the Common Stock if that
person is of a kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1995.
Purchasers of the shares offered pursuant to the Offering may be required
to pay stamp taxes and other charges in accordance with the laws and practices
of the country of purchase in addition to the offering price set forth on the
cover page hereof.
The Company has agreed to indemnify the U.S. Underwriters and International
Managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to the payments they may be required to make in respect
thereto.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional 1,200,000 and 300,000 shares of
Common Stock, at the public offering price, less the aggregate underwriting
discounts and commissions shown on the cover page of this Prospectus, solely to
cover over-allotments, if any. Such options may be exercised at any time within
30 days after the date of the Underwriting Agreement. To the extent the U.S.
Underwriters or International Managers exercise such options, each of the U.S.
Underwriters and International Managers, as the case may be, will be committed,
subject to certain conditions, to purchase a number of the additional shares of
Common Stock proportionate to such U.S. Underwriter's or International Manager's
initial commitment as indicated in the preceding table.
In connection with the Offering, the Company and certain of its directors
and executive officers have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable for Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Lehman Brothers.
In May 1996, the Company completed a debt refinancing with Lehman Holdings,
an affiliate of Lehman Brothers. The Company expects to repay approximately $60
million owed to Lehman Holdings and $66 million owed to a trust in which an
affiliate of Lehman Holdings holds subordinate interests out of the net proceeds
of the Offering. Additionally, the Company will pay an exit fee of approximately
$4.9 million to Lehman Holdings in connection with the repayment of such
indebtedness. See "Use of Proceeds." The Company is currently seeking to obtain
a $100 million credit facility with a syndicate led by Lehman Holdings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Although the conflict of interest provisions of the Conduct Rules of the
National Association of Security Dealers, Inc. (the "Conduct Rules") do not
require the use of a "qualified independent underwriter" for offerings of equity
securities for which a bona fide independent market exists, as is the case with
the Offering, because an affiliate of Lehman Brothers will receive more than 10%
of the net proceeds of the Offering in repayment of currently outstanding
indebtedness, the Underwriters have determined to conduct the Offering in
accordance with Rule 2710(c)(8) of the Conduct Rules. In accordance with the
Conduct Rules, Alex.
47
<PAGE> 50
Brown & Sons Incorporated (the "Independent Underwriter") is assuming the
responsibilities of acting as "qualified independent underwriter" and will
recommend the public offering price for the shares of Common Stock offered
hereby in compliance with the Conduct Rules. In connection with the Offering,
the Independent Underwriter is performing due diligence investigations and is
reviewing and participating in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The public
offering price will be no higher than the price recommended by the Independent
Underwriter.
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other
legal matters will be passed upon for the Company by Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A., Miami, Florida. Certain legal matters will
be passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of Servico, Inc. at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
appearing and incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1997 and 1996,
incorporated by reference in this Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report,
included in Servico, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, and incorporated herein by reference, states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the review procedures applied.
The independent certified public accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 (the "Act") for their
report on the unaudited interim financial information because that report is not
a "report" or a "Part" of the Registration Statement prepared or certified by
the independent certified public accountants within the meaning of Sections 7
and 11 of the Act.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such information is also available
to the public from commercial documents on the internet web site maintained by
the Commission at http: www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock offered hereby. This Prospectus, which is
a part of the Registration Statement, does not contain all of the information
set forth in, or annexed as exhibits to, such Registration Statement. For
further information with respect to the Company or the shares of Common Stock
offered hereby, reference is made to such Registration Statement and the
exhibits thereto, certain portions of which are omitted from this Prospectus as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus regarding the contents of any
48
<PAGE> 51
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
The Common Stock is listed on the AMEX and reports, proxy and information
statements and other information concerning the Company can also be inspected at
the offices of the AMEX, 86 Trinity Place, New York, New York, 10006.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, including the portions of the Company's Proxy Statement
dated April 14, 1997, incorporated by reference in such report.
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus but prior to
termination of this Offering shall be deemed to be incorporated by reference
herein and made a part hereof from the date of filing of such documents. Any
statement contained 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 other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide, without
charge, to each person, including any beneficial owner, to whom this Prospectus
is delivered, upon written or oral request of such person, a copy of any or all
of the documents described above which have been or may be incorporated into
this Prospectus and deemed to be a part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents. Requests for such copies should be directed to Mr. Warren M.
Knight, Vice President-Finance, Servico, Inc., 1601 Belvedere Road, West Palm
Beach, Florida, 33406; telephone (561) 689-9970.
49
<PAGE> 52
SERVICO, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of March 31, 1997, December
31, 1996 and 1995......................................... F-3
Consolidated Statements of Income for the Three Months Ended
March 31, 1997 and 1996 and the Years Ended December 31,
1996, 1995 and 1994....................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 and the Three
Months Ended March 31, 1997............................... F-5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 and the Years Ended December
31, 1996, 1995 and 1994................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
Information pertaining to the three months ended March 31, 1997 and 1996 is
unaudited.
All schedules have been omitted since the required information is not applicable
or is not present in amounts sufficient to require submission of the schedules
or because the information required is included in the consolidated financial
statements or notes thereto.
F-1
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
THE SHAREHOLDERS AND BOARD OF DIRECTORS
SERVICO, INC.
We have audited the accompanying consolidated balance sheets of Servico,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended, December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Servico, Inc.
and subsidiaries at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
February 13, 1997
F-2
<PAGE> 54
SERVICO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,235 $ 19,473 $ 11,401
Accounts receivable, net of allowances.................... 10,018 7,742 6,652
Other receivables......................................... 635 855 794
Inventories............................................... 2,766 2,796 1,878
Deferred income taxes..................................... 2,067 2,067 2,067
Other current assets...................................... 5,941 5,047 2,641
-------- -------- --------
Total current assets.............................. 40,662 37,980 25,433
Property and equipment, net................................. 370,179 364,922 277,873
Investment in unconsolidated entities....................... 902 906 3,591
Other assets, net........................................... 33,427 35,978 17,305
-------- -------- --------
$445,170 $439,786 $324,202
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,841 $ 6,369 $ 5,723
Accrued liabilities....................................... 25,203 23,100 19,977
Current portion of long-term obligations.................. 23,179 22,719 5,992
-------- -------- --------
Total current liabilities......................... 56,223 52,188 31,692
Long-term obligations, less current portion................. 285,237 284,880 210,242
Deferred income taxes....................................... 8,405 8,353 7,682
Commitments and contingencies
Minority interests.......................................... 19,990 19,627 11,766
Stockholders' equity:
Common stock, $.01 par value-25,000,000 shares authorized;
9,402,399, 9,369,605 and 8,846,269 shares issued and
outstanding at March 31, 1997 and December 31, 1996 and
1995, respectively..................................... 94 94 88
Additional paid-in capital................................ 55,403 55,136 51,424
Retained earnings......................................... 19,818 19,508 11,308
-------- -------- --------
Total stockholders' equity........................ 75,315 74,738 62,820
-------- -------- --------
$445,170 $439,786 $324,202
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 55
SERVICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------- ------------------------------
1997 1996 1996 1995 1994
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms....................................... $41,494 $35,097 $156,564 $113,902 $ 93,720
Food and beverage........................... 17,275 14,391 68,803 53,499 46,945
Other....................................... 3,878 3,111 14,159 11,079 9,018
------- ------- -------- -------- --------
62,647 52,599 239,526 178,480 149,683
Operating expenses:
Direct:
Rooms.................................... 11,150 9,408 43,667 32,140 26,848
Food and beverage........................ 13,603 11,252 52,761 41,474 36,585
General and administrative.................. 2,203 2,560 9,297 8,977 7,944
Other....................................... 21,611 18,611 77,183 59,727 52,205
Depreciation and amortization............... 5,399 4,026 18,677 12,370 9,465
------- ------- -------- -------- --------
53,966 45,857 201,585 154,688 133,047
------- ------- -------- -------- --------
Income from operations........................ 8,681 6,742 37,941 23,792 16,636
Other income (expenses):
Other income................................ 373 3,820 5,335 1,197 864
Interest expense............................ (8,024) (6,001) (29,443) (17,903) (12,693)
Minority interests.......................... (513) (835) (2,060) (572) (171)
------- ------- -------- -------- --------
Income before income taxes and extraordinary
item........................................ 517 3,726 11,773 6,514 4,636
Provision for income taxes.................... 207 1,490 3,225 2,605 1,855
------- ------- -------- -------- --------
Income before extraordinary item.............. 310 2,236 8,548 3,909 2,781
Extraordinary item:
(Loss) gain on extinguishment of
indebtedness, net of income tax (benefit)
expense of ($232) in 1996 and $956 in
1994..................................... -- -- (348) -- 1,436
------- ------- -------- -------- --------
Net income.................................... $ 310 $ 2,236 $ 8,200 $ 3,909 $ 4,217
======= ======= ======== ======== ========
Earnings per common and common equivalent
share:
Primary:
Income before extraordinary item......... $ .03 $ .24 $ .87 $ .42 $ .34
Extraordinary item....................... -- -- (.03) -- .17
------- ------- -------- -------- --------
Net income............................... $ .03 $ .24 $ .84 $ .42 $ .51
======= ======= ======== ======== ========
Fully diluted:
Income before extraordinary item......... $ .03 $ .24 $ .87 $ .42 $ .33
Extraordinary item....................... -- -- (.03) -- .17
------- ------- -------- -------- --------
Net income............................... $ .03 $ .24 $ .84 $ .42 $ .50
======= ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 56
SERVICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993................. 7,046,617 $70 $31,756 $ 3,182 $35,008
Issuance of common stock................... 1,000,000 10 6,990 -- 7,000
401(k) Plan contribution................... 43,555 1 434 -- 435
Exercise of stock options.................. 20,000 -- 80 -- 80
Net income................................. -- -- -- 4,217 4,217
--------- --- ------- ------- -------
Balance at December 31, 1994................. 8,110,172 81 39,260 7,399 46,740
Issuance of common stock................... 830,000 8 8,157 -- 8,165
Shares retired............................. (159,532) (2) 2 -- --
401(k) Plan contribution................... 38,829 1 331 -- 332
Exercise of stock options.................. 26,800 -- 107 -- 107
Reduction of valuation allowance........... -- -- 3,567 -- 3,567
Net income................................. -- -- -- 3,909 3,909
--------- --- ------- ------- -------
Balance at December 31, 1995................. 8,846,269 88 51,424 11,308 62,820
401(k) Plan contribution................... 25,536 1 465 -- 466
Exercise of stock options.................. 497,800 5 2,008 -- 2,013
Tax benefit from exercise of stock
options................................. -- -- 1,239 -- 1,239
Net income................................. -- -- -- 8,200 8,200
--------- --- ------- ------- -------
Balance at December 31, 1996................. 9,369,605 94 55,136 19,508 74,738
401(k) Plan contribution................... 6,794 -- 120 -- 120
Exercise of stock options.................. 26,000 -- 147 -- 147
Net income................................. -- -- -- 310 310
--------- --- ------- ------- -------
Balance at March 31, 1997.................... 9,402,399 $94 $55,403 $19,818 $75,315
========= === ======= ======= =======
</TABLE>
The data for the three months ended March 31, 1997 is unaudited.
See accompanying notes.
F-5
<PAGE> 57
SERVICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 310 $ 2,236 $ 8,200 $ 3,909 $ 4,217
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 5,399 4,026 18,677 12,370 9,465
Minority interests........................................ 513 835 2,060 572 171
401(k) Plan contributions................................. 133 149 548 322 422
Deferred income taxes..................................... 52 372 1,252 1,328 2,005
Equity in (gain) loss of unconsolidated entities.......... (5) 97 63 85 89
Provision for losses (recoveries) on receivables.......... 60 41 27 94 (49)
Gain on litigation settlement............................. -- (3,915) (3,868) -- --
Gain on recovery of investments........................... -- -- (134) -- (539)
Loss (gain) on extinguishment of indebtedness............. -- -- 580 -- (2,392)
Changes in operating assets and liabilities, net of effect
of acquisitions:
Accounts receivables.................................... (2,336) (2,462) (824) (2,307) 87
Inventories............................................. 31 (173) (761) (399) (319)
Other assets............................................ 2,354 222 1,875 272 (5,131)
Accounts payable........................................ 1,467 110 200 (403) 1,071
Accrued liabilities..................................... 2,104 4,716 3,075 4,824 2,027
-------- -------- -------- --------- --------
Net cash provided by operating activities........... 10,082 6,254 30,970 20,667 11,124
-------- -------- -------- --------- --------
INVESTING ACTIVITIES
Acquisitions of property and equipment...................... -- (17,241) (70,312) (73,038) (4,600)
Capital improvements, net................................... (10,656) (3,483) (26,323) (20,417) (15,558)
Net deposits for capital expenditures....................... -- (2,762) (7,074) (6,105) --
Notes receivable issued to related parties.................. -- (1,670) (1,670) -- --
Net proceeds from litigation settlement..................... -- 3,915 3,868 -- --
Decrease (increase) in investment in unconsolidated
entities.................................................. 9 448 2,198 (2,118) (1,418)
Payments on notes receivable issued to related parties...... -- -- 1,200 -- --
Net proceeds from recovery of investments................... -- -- 556 -- 539
Other....................................................... 339 107 -- -- 250
-------- -------- -------- --------- --------
Net cash used in investing activities............... (10,308) (20,686) (97,557) (101,678) (20,787)
-------- -------- -------- --------- --------
FINANCING ACTIVITIES
Proceeds from issuance of long-term obligations............. 14,763 30,299 166,317 127,141 22,219
(Distributions to) contributions from minority interests.... (150) 2,705 5,078 8,182 2,550
Net proceeds from issuance of common stock.................. 147 1,669 2,013 8,272 7,080
Principal payments of long-term obligations................. (13,946) (14,253) (92,216) (59,498) (12,985)
Payments of deferred loan costs............................. (826) (862) (6,533) (4,657) --
-------- -------- -------- --------- --------
Net cash (used in) provided by financing activities......... (12) 19,558 74,659 79,440 18,864
-------- -------- -------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (238) 5,126 8,072 (1,571) 9,201
Cash and cash equivalents at beginning of period............ 19,473 11,401 11,401 12,972 3,771
-------- -------- -------- --------- --------
Cash and cash equivalents at end of period.................. $ 19,235 $ 16,527 $ 19,473 $ 11,401 $ 12,972
======== ======== ======== ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amount capitalized....................... $ 6,422 $ 5,417 $ 23,147 $ 11,935 $ 12,549
======== ======== ======== ========= ========
Income taxes paid, net of refunds......................... $ 92 $ 363 $ 2,531 $ 1,032 $ 438
======== ======== ======== ========= ========
Non-cash capital lease obligations:
Addition to property and equipment........................ $ -- $ -- $ -- $ -- $ 2,085
======== ======== ======== ========= ========
Addition to long-term obligations......................... $ -- $ -- $ -- $ -- $ 2,085
======== ======== ======== ========= ========
</TABLE>
See Notes 5 and 6 for a description of other non-cash transactions.
See accompanying notes.
F-6
<PAGE> 58
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Servico, Inc., its wholly-owned subsidiaries and consolidated partnerships
(collectively, the "Company"), own or manage hotels in 22 states. At December
31, 1996 and 1995, the Company owned, either wholly or partially, or managed 61
and 55 hotels, respectively.
PRINCIPLES OF CONSOLIDATION
The financial statements consolidate the accounts of Servico, Inc.
("Servico"), its wholly-owned subsidiaries (owning 43 hotels) and partnerships
in which Servico exercises control over the partnerships' assets and operations
(owning 13 hotels). Servico believes it has control of partnerships when the
Company manages and has control of the partnerships' assets and operations, has
the ability and authority to enter into financing arrangements on behalf of the
entity or to sell the assets of the entity within reasonable business
guidelines. An unconsolidated entity (owning 1 hotel) in which the Company
exercises significant influence over operating and financial policies is
accounted for on the equity method. The accounts of 9 hotels which the Company
managed for third party owners during all or part of 1996 (4 at December 31,
1996) are not consolidated, however, management fee income earned from these
hotels is included in other revenues. All significant intercompany accounts and
transactions have been eliminated.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments, consisting primarily of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 1997, and the results of its operations and its cash flow for
the three months then ended.
INVENTORIES
Inventories consist primarily of food and beverage, linens, china,
tableware and glassware and are valued at the lower of cost (computed on the
first-in, first-out method) or market.
MINORITY INTERESTS
Minority interests represent the minority interests' proportionate share of
equity or deficit of partnerships which are accounted for by the Company on a
consolidated basis. The Company generally allocates to minority interests their
share of any profits or losses in accordance with the provisions of the
applicable agreements. However, if the loss applicable to a minority interest
exceeds its total investment and advances, such excess is charged to the
Company.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets. Property
under capital leases is amortized using the straight-line method over the
shorter of the estimated useful lives of the assets or the lease term. The
Company capitalizes interest costs incurred during the construction of capital
assets. During the years ended December 31, 1996, 1995 and 1994, the Company
capitalized $644,000, $632,000 and $506,000 of such costs, respectively.
Management periodically evaluates the Company's property and equipment to
determine if there has been any impairment other-than-temporary in the carrying
value of the assets in accordance with Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" ("Statement 121"). Statement 121 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
F-7
<PAGE> 59
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted Statement 121 in 1995 and, such
adoption has had no effect on the Company's financial position or results of
operations.
DEFERRED COSTS
Deferred franchise, financing, and other deferred costs are stated at cost,
net of accumulated amortization of $5,471,000, $4,129,000 and $1,411,000 at
March 31, 1997, December 31, 1996 and 1995, respectively, which is computed
using the straight-line method, over the terms of the related franchise, loan or
other agreements. The straight-line method of amortizing deferred financing
costs approximates the interest method.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of current assets and current liabilities are assumed to be
equal to their reported carrying amounts. The fair values of the Company's
long-term debt are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. In the opinion of management, the carrying value of these
instruments approximates market value as of December 31, 1996 and 1995.
CONCENTRATION OF CREDIT RISK
Concentration of credit risk associated with cash and cash equivalents is
considered low due to the credit quality of the issuers of the financial
instruments held by the Company and due to their short duration to maturity.
Accounts receivable are primarily from major credit card companies, airlines and
other travel related companies. The Company performs ongoing evaluations of its
significant customers and generally does not require collateral. The Company
maintains an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential credit losses. At December 31, 1996
and 1995, these allowances were $305,000 and $266,000, respectively.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per share is calculated based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during the
periods. Earnings per common share include the Company's outstanding stock
options, if dilutive, and common stock contributed or to be contributed by the
Company to its employee 401(k) Plan (the "401(k)").
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". SFAS
128 requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earnings per share ("EPS") on the face of the income statement. The presentation
of basic EPS replaces the presentation of primary EPS currently required by
Accounting Principles Board Opinion No. 15 ("APB No. 15"), "Earnings Per Share".
Basic EPS is calculated as income available to common stockholders divided by
the weighted average number of common shares outstanding during the period.
Diluted EPS (previously referred to as fully diluted EPS) is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as prescribed by APB No. 15. This
F-8
<PAGE> 60
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
statement is effective for financial statements issued for interim and annual
periods ending after December 15, 1997. The Company does not believe the
adoption of SFAS 128 in fiscal 1997 will have a significant impact on the
Company's reported EPS.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and, because the exercise price of the Company's employee
stock options is equal to the market price of the underlying stock on the date
of grant, no compensation expense is recognized. Under Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation",
net income and earnings per share are not materially different from amounts
reported, therefore, no pro forma information has been presented.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$1,613,000, $1,194,000 and $928,000 in advertising costs during 1996, 1995 and
1994, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
2. PROPERTY AND EQUIPMENT
At December 31, 1996 and 1995, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
USEFUL
LIVES
(YEARS) 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land..................................................... -- $ 32,246 $ 24,260
Buildings and improvements............................... 10-30 295,858 219,437
Furnishings and equipment................................ 3-10 72,762 46,281
Property under capital leases, buildings and
improvements........................................... 10-30 8,530 8,530
-------- --------
409,396 298,508
Less accumulated depreciation and amortization........... (52,955) (33,437)
Construction in progress................................. 8,481 12,802
-------- --------
$364,922 $277,873
======== ========
</TABLE>
F-9
<PAGE> 61
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
During the year ended December 31, 1996, the Company purchased eight hotels
and entered into three partnerships which purchased an additional three hotels.
The aggregate purchase price for the eleven hotels was $60,700,000 and was paid
for by the delivery of mortgage notes totaling $40,600,000 and cash for the
balance, of which approximately $2,000,000 was contributed by the minority
partners. In addition, in May 1996, the Company increased its ownership
interests in two partnerships, owning two hotels, from 25% to 51% for
approximately $3,000,000. As a result of the increase in ownership, the accounts
of these two partnerships are included in the Company's consolidated financial
statements. The minority partners in all five of the above partnerships are
affiliates of Energy Management Corporation ("EMC") (see Note 8 for further
information on EMC). The thirteen hotels combined above, containing an aggregate
of 2,479 guest rooms, are operated under license agreements with nationally
recognized franchisors and are managed by the Company.
Unaudited pro forma results of operations assuming the 13 hotels were
acquired on January 1, 1995, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
---------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues................................................... $255,077 $221,342
Income before extraordinary item........................... 8,792 4,708
Net income................................................. 8,444 4,708
Income per share before extraordinary item................. .90 .51
Net income per share....................................... $ .87 $ .51
Weighted average common shares outstanding................. 9,763 9,319
</TABLE>
During the year ended December 31, 1995, the Company purchased seven hotels
and entered into four partnerships with affiliates of EMC, which purchased four
additional hotels. The aggregate purchase price for the eleven hotels was
$70,800,000 and was paid for by the delivery of mortgage notes totaling
$54,200,000 and cash for the balance, of which $5,400,000 was contributed by the
minority partners. The eleven hotels combined above, containing an aggregate of
1,876 rooms, are operated under license agreements with nationally recognized
franchisors and are managed by the Company.
3. INVESTMENTS IN UNCONSOLIDATED ENTITIES
At December 31, 1996, the Company had an investment in one unconsolidated
hotel. In addition, in May 1996, the Company increased its ownership interests
in two partnerships, owning two hotels, from 25% to 51% for approximately
$3,000,000. These hotels were accounted for by the Company on the equity method
prior to May 1996. As a result of the increase in ownership, the accounts of
these two partnerships are included in the Company's consolidated financial
statements from May 1996. The minority partners in these partnerships are
affiliates of EMC.
F-10
<PAGE> 62
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
4. ACCRUED LIABILITIES
At December 31, 1996 and 1995, accrued liabilities consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Salaries and related costs.................................. $ 9,117 $ 7,290
Real estate taxes........................................... 2,500 2,035
Interest.................................................... 2,335 1,755
Advance deposits............................................ 1,842 1,452
Sales taxes................................................. 1,781 1,230
Other....................................................... 5,525 6,215
------- -------
$23,100 $19,977
======= =======
</TABLE>
5. LONG-TERM OBLIGATIONS
At December 31, 1996 and 1995, long-term obligations consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable with fixed rates ranging from 8.4% to
10.7%, variable rates ranging from Prime (8.25% at
December 31, 1996) plus 1% to 4% and LIBOR (5.4% at
December 31, 1996) plus 3.5%, payable through 2010........ $284,180 $192,764
Installment loans payable, primarily unsecured, with fixed
rates of 7% to 10% payable through 2019................... 10,299 8,489
Obligations under capital leases, payable in various monthly
installments through 2015, net of interest imputed at 8%
to 18.3%(a)............................................... 12,019 13,182
Pre-petition priority claims, payable in equal semi-annual
installments plus interest on unpaid balances at 7.5% per
annum, payable through 1998............................... 1,101 1,799
-------- --------
307,599 216,234
Less current portion of long-term obligations............... (22,719) (5,992)
-------- --------
$284,880 $210,242
======== ========
</TABLE>
- ---------------
(a) The Company is obligated under long-term capital leases primarily for the
lease of two hotel properties. The hotel leases provide for specific minimum
annual payments. In addition, the Company is responsible for property tax,
insurance and maintenance expenses. One hotel lease has a remaining term of
less than one year and the other of 18 years at December 31, 1996. The hotel
leases contain renewal options from 20 to 80 years and one of the hotel
leases includes a purchase option.
Substantially, all of the Company's property and equipment are pledged as
collateral for long-term obligations. Certain of the mortgage notes are subject
to a prepayment penalty if repaid prior to their maturity.
During 1996, the Company refinanced certain long-term obligations on 20 of
its hotels. The Company issued approximately $123,200,000 in new variable rate
mortgage notes, satisfied approximately $84,500,000 of existing obligations,
paid approximately $5,000,000 in fees and expenses, escrowed approximately
$1,300,000 for future use by the Company and generated approximately $32,400,000
of net proceeds. In addition, the Company recorded approximately $7,400,000 in
non-cash deferred loan costs which are being amortized over 36 months. These
deferred loan costs are payable in May 1999. In connection with this
F-11
<PAGE> 63
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
refinancing the Company recorded a loss on early extinguishment of debt of
$348,000 (net of income taxes of $232,000) as an extraordinary item.
During 1995, the Company completed a series of transactions for the
refinancing of certain long-term obligations on 11 of its hotels. The Company
executed $64,400,000 in new fixed rate mortgages maturing in 15 years, satisfied
approximately $43,700,000 of existing obligations, paid approximately $3,200,000
in fees and expenses, escrowed approximately $3,300,000 for future use by the
Company and generated in excess of $14,200,000 of net proceeds. In 1994, the
Company prepaid certain obligations at a reduced amount and recorded a gain on
early extinguishment of debt of $1,436,000 (net of income taxes of $956,000).
This transaction was recorded as an extraordinary item.
Maturities of long-term obligations for each of the five years after
December 31, 1996 and thereafter, are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 22,719
1998........................................................ 7,707
1999........................................................ 31,362
2000........................................................ 101,770
2001........................................................ 13,517
Thereafter.................................................. 130,524
--------
$307,599
========
</TABLE>
Subsequent to December 31, 1996, the Company entered into financing
agreements to refinance $12,000,000 in debt which would have matured in 1997.
This debt is classified as long-term debt at December 31, 1996.
6. INCOME TAXES
Provision for income taxes for the Company is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------ ------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal....................... $1,322 $1,170 $2,492 $ 751 $1,262 $2,013 $110 $1,323 $1,433
State and local............... 651 82 733 526 66 592 422 -- 422
------ ------ ------ ------ ------ ------ ---- ------ ------
$1,973 $1,252 $3,225 $1,277 $1,328 $2,605 $532 $1,323 $1,855
====== ====== ====== ====== ====== ====== ==== ====== ======
</TABLE>
F-12
<PAGE> 64
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
The components of the cumulative effect of temporary differences in the
deferred income tax liability and asset balances at December 31, 1996 and 1995,
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
TOTAL ASSET LIABILITY TOTAL ASSET LIABILITY
-------- ------- ----------- -------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Property and equipment.... $ 20,201 $ -- $20,201 $ 19,371 $ -- $ 19,371
Net operating loss
carryforward............ (10,286) (605) (9,681) (10,983) (605) (10,378)
Alternative minimum tax
credits................. (1,371) -- (1,371) (918) -- (918)
Self-insurance reserve.... (928) (928) -- (903) (903) --
Vacation pay accrual...... (438) (438) -- (472) (472) --
Other..................... (892) (96) (796) (480) (87) (393)
-------- ------- ------- -------- ------- --------
$ 6,286 $(2,067) $ 8,353 $ 5,615 $(2,067) $ 7,682
======== ======= ======= ======== ======= ========
</TABLE>
The difference between income taxes using the effective income tax rate and
the federal income tax statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at statutory rate........................ $ 4,003 $2,215 $1,576
State income taxes, net..................................... 483 390 279
Tax benefit with respect to legal settlement................ (1,261) -- --
------- ------ ------
$ 3,225 $2,605 $1,855
======= ====== ======
</TABLE>
As of December 31, 1996, the Company had a net operating loss carryforward
of approximately $28,800,000 for federal income tax purposes which expires in
the years 2005 through 2008. The full amount of the income tax benefit of this
net operating loss carryforward has been reflected in the Consolidated Financial
Statements of the Company in prior years.
7. COMMITMENTS AND CONTINGENCIES
Four of the Company's hotels are subject to long-term ground leases
expiring from 2014 through 2056 which provide for minimum payments as well as
incentive rent payments and most of the Company's hotels have noncancellable
operating leases, mainly for operating equipment. The land covered by one lease
can be purchased by the Company for approximately $2,500,000. For the years
ended December 31, 1996, 1995 and 1994, lease expense for the three
noncancellable ground leases and noncancellable operating leases was
approximately $1,381,000, $1,280,000 and $1,060,000, respectively.
F-13
<PAGE> 65
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
At December 31, 1996, the future minimum commitments for noncancellable
leases are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 1,154
1998........................................................ 1,069
1999........................................................ 796
2000........................................................ 625
2001........................................................ 624
Thereafter.................................................. 21,638
-------
$25,906
=======
</TABLE>
The Company has entered into license agreements with various hotel chains
which require annual payments for license fees, reservation services and
advertising fees. The license agreements generally have an original ten year
term. The majority of the Company's license agreements have four to nine years
remaining on the term. The licensor may require the Company to upgrade its
facilities at any time to comply with the licensor's then current standards.
Upon the expiration of the term of a license, the licensee may apply for a
license renewal. In connection with the renewal of a license, the licensor may
require payment of a renewal fee, increased license, reservation and advertising
fees, as well as substantial renovation of the facility.
The license agreements are subject to cancellation in the event of a
default, including the failure to operate the hotel in accordance with the
quality standards and specifications of the licensor. The Company believes that
the loss of a license for any individual hotel would not have a material adverse
effect on the Company's financial condition and results of operations. The
Company believes it will be able to renew its current licenses or obtain
replacements of a comparable quality. Payments made in connection with these
agreements totaled approximately $12,401,000, $8,649,000 and $6,593,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Fourteen hotels which the Company owns are operated under license
agreements that require the Company to make certain capital improvements in
accordance with a specified time schedule. Further, in connection with the
refinancing of the Company's hotels (see Note 5) and the acquisition of other
hotels (see Note 2), the Company has agreed to make certain capital improvements
and has approximately $12,300,000 escrowed for such improvements. The Company
estimates its remaining obligations for all the above commitments to be
approximately $18,000,000 of which approximately $13,000,000 is expected to be
spent in 1997 and the balance by 1999.
The Company has maintenance agreements, primarily on a one to three year
basis, which resulted in expenses of approximately $2,106,000, $1,699,000 and
$1,520,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
In accordance with the provisions of one mortgage payable, in the event the
property is sold, the lender has the right to any appreciation in the property
to the extent the appreciation does not exceed the difference between the then
outstanding carrying amount of the mortgage payable and the lender's security
interest. The difference between the carrying amount of the mortgage payable and
the lender's security interest was approximately $1,300,000 at December 31,
1996.
The Company is a party to legal proceedings arising in the ordinary course
of its business, the impact of which would not, either individually or in the
aggregate, in management's opinion, based upon the facts known by management and
the advice of counsel, have a material adverse effect on the Company's financial
condition or results of operations.
F-14
<PAGE> 66
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
8. RELATED PARTY TRANSACTIONS
In March 1995, the Company issued 800,000 shares of its common stock at a
price of $10 per share to an affiliate of EMC on terms similar to the EMC
transaction described below. In connection with the acquisition of the 800,000
shares, an affiliate of EMC agreed to make an additional $8,000,000 equity
investment in partnerships or joint ventures with the Company for the purpose of
acquiring hotel properties. This obligation had been satisfied as of December
31, 1995.
In April 1994, the Company issued one million shares of its common stock to
EMC for $7,000,000 in cash. In connection with a certain Stock Acquisition and
Standstill Agreement (the "Acquisition Agreement"), the Company agreed, during
the term of the Acquisition Agreement, to cause the nomination of one designee
of EMC to the Company's Board of Directors. This event occurred in April 1994.
In accordance with the Acquisition Agreement, as amended, EMC also agreed
to certain standstill provisions generally prohibiting it from acquiring voting
securities of the Company with voting rights in excess of 30% (on a fully
diluted basis) of the voting rights of all outstanding voting securities of the
Company. EMC is also generally restricted in the amount and manner by which it
may transfer any of the Company's common stock which it owns.
9. EMPLOYEE BENEFITS PLANS AND STOCK OPTION PLAN
The Company makes contributions to several multi-employer pension plans for
employees of various subsidiaries covered by collective bargaining agreements.
These plans are not administered by the Company and contributions are determined
in accordance with provisions of negotiated labor contracts. Certain withdrawal
penalties may exist, the amount of which are not determinable at this time. The
cost of such contributions during the years ended December 31, 1996, 1995 and
1994, was approximately $499,000, $433,000 and $438,000, respectively.
The Company adopted, the 401(k) for the benefit of its non-union employees
under which participating employees may elect to contribute up to 10% of their
compensation. The Company may match an employee's elective contributions to the
401(k) subject to certain conditions with shares of the Company's common stock
equal to up to 100% of the amount of such employee's elective contributions.
These employer contributions vest at a rate of 20% per year beginning in the
third year of employment. The cost of these contributions during the years ended
December 31, 1996, 1995 and 1994, was $548,000, $322,000 and $422,000,
respectively. The 401(k) does not require a contribution by the Company.
The Company has also adopted the Servico, Inc. Stock Option Plan, as
amended, (the "Option Plan"). In accordance with the Option Plan, options to
acquire up to 1,425,000 shares of common stock may be granted to employees,
directors, independent contractors and agents as determined by a committee
appointed by the Board of Directors. Options may be granted at an exercise price
not less than fair market value on the date of grant. These options will
generally vest over five years.
F-15
<PAGE> 67
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 IS
UNAUDITED)
The following table indicates the options granted and their status as of
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES RANGE PER SHARE
--------- ---------------
<S> <C> <C>
Balance December 31, 1993................................... 1,000,000 $4.00
Granted................................................... 152,000 8.25 - 8.63
Exercised................................................. (20,000) 4.00
Forfeited................................................. (1,500) 8.63
--------- -------------
Balance December 31, 1994................................... 1,130,500 4.00 - 8.63
Granted................................................... 50,000 9.50
Exercised................................................. (26,800) 4.00
Forfeited................................................. (16,500) 8.63
--------- -------------
Balance December 31, 1995................................... 1,137,200 4.00 - 9.50
Granted................................................... 216,500 10.75 - 16.13
Exercised................................................. (497,800) 4.00 - 9.50
Forfeited................................................. (38,900) 8.63 - 10.75
--------- -------------
Balance December 31, 1996................................... 817,000 $4.00 - 16.13
========= =============
</TABLE>
At December 31, 1996, there were 576,000 options exercisable, of which
26,400 were subsequently exercised at prices between $4.00 - $10.75 per share.
The income tax benefit, if any, associated with the exercise of stock
options is credited to additional paid-in capital.
10. CERTAIN NON-RECURRING EVENTS
In January 1996, the Company entered into an agreement with its former
Chief Executive Officer in connection with his resignation from the Company and
its Board of Directors. This agreement provides for payments totaling
approximately $830,000 over a twenty-four month period, the cost of which is
included in other operating expenses for the year ended December 31, 1996.
Additionally, in accordance with the terms of the agreement, the former Chief
Executive Officer exercised stock options to acquire 300,000 shares of the
Company's common stock by delivery of a $1,200,000 promissory note payable to
the Company. This note was repaid in full during 1996.
In March 1996, the Company received approximately $3,900,000 in connection
with the settlement of a lawsuit brought on behalf of Servico, against a bank
group and law firm, based on alleged breaches prior to 1990 of their duties to
the Company. This amount, less approximately $300,000 of associated expenses, is
included in other income for the year ended December 31, 1996.
F-16
<PAGE> 68
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE U.S.
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Unaudited Pro Forma Condensed
Consolidated Financial Statements... 15
Selected Consolidated Financial and
Other Data.......................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
The Company........................... 25
Business Strategy..................... 25
Business and Properties............... 28
Management............................ 44
Underwriting.......................... 45
Legal Matters......................... 48
Experts............................... 48
Available Information................. 48
Information Incorporated by
Reference........................... 49
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
10,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
JUNE , 1997
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
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 June 6, 1997
PROSPECTUS
10,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
Servico, Inc. ("Servico" or the "Company") is one of the largest owners and
operators of full-service hotels in the United States. Servico currently
operates 59 hotels containing approximately 11,570 rooms, located in 22 states.
The Company's hotels include 43 wholly owned hotels, 14 partially owned hotels
and two hotels managed for third parties. The Company's objective is to maximize
shareholder value by enhancing its position within the full-service segment of
the lodging industry through the strategic acquisition of underperforming
mid-market and upscale hotels and through a focused operating strategy that
generates continued increases in occupancy and revenues. Since January 1994, the
Company has successfully completed the acquisition of 27 hotels, nearly doubling
the Company's previous portfolio of 30 hotels.
Of the 10,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby, 2,000,000 shares are initially being offered
outside the United States and Canada (the "International Offering") by the
International Managers (as defined herein) and 8,000,000 shares are being
offered in the United States and Canada (the "U.S. Offering") by the U.S.
Underwriters (as defined herein). See "Underwriting." All of the shares of
Common Stock offered hereby are being offered by the Company.
The Common Stock is currently traded on the American Stock Exchange
("AMEX") under the symbol "SER." The Company has filed an application to list
the Common Stock on the New York Stock Exchange ("NYSE"). On June 5, 1997, the
last reported sale price of the Common Stock on the AMEX was $15 7/8. See "Price
Range of Common Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE 7.
---------------------------
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.
<TABLE>
<CAPTION>
===================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------
Total(3)...................................... $ $ $
===================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several U.S. Underwriters and
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the U.S. Underwriters and International Managers
a 30-day option to purchase up to 1,500,000 additional shares on the same
terms and conditions set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
several International Managers, subject to prior sale, to withdrawal,
cancellation or modification of the offer without notice, to delivery to and
acceptance by the International Managers and to certain further conditions. It
is expected that delivery of the shares will be made at the offices of Lehman
Brothers Inc., in New York, New York on or about June , 1997.
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INTERNATIONAL
MONTGOMERY SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
, 1997
<PAGE> 70
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal tax
consequences of the acquisition, ownership and disposition of Common Stock by a
holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof or an
estate or trust whose income is includible in gross income for United States
Federal income tax purposes regardless of its source. This discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-United States Holder. Prospective investors are urged to consult their tax
advisors regarding the United States Federal tax consequences of acquiring,
holding and disposing of Common Stock, as well as any tax consequences that may
arise under the laws of any foreign state, local or other taxing jurisdiction.
DIVIDENDS
The Company currently intends to retain any earnings to finance the
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future. See "Dividend Policy." If,
however, the Company were to pay dividends, then dividends paid to a Non-United
States Holder will generally be subject to withholding of United States Federal
income tax at the rate of 30% unless the dividend is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder, in which case the dividend will be subject to the United States
Federal income tax on net income on the same basis that applies to United States
persons generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-United States Holders should consult
any applicable income tax treaties that may provide for a lower rate of
withholding or other rules different from those described above. A Non-United
States Holder may be required to satisfy certain certification requirements in
order to claim treaty benefits or otherwise claim a reduction of or exemption
from withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a nonresident alien individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year and certain other requirements
are met, or (iii) the Company is or has been a "United States real property
holding corporation" (a "USRPHC") for Federal income tax purposes at any time
during the five year period ending on the date of disposition. The Company
currently believes that it is a USRPHC. Nevertheless, a Non-United States Holder
would generally not be subject to Federal income tax or withholding on the gain
from the sale or other disposition of Common Stock by reason of the Company's
USRPHC status if the Common Stock is regularly traded on an established
securities market ("regularly traded") during the calendar year in which such
sale or disposition occurs provided that such holder does not own, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Common Stock outstanding at any time during a required
holding period.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States Federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
45
<PAGE> 71
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends paid to,
and the tax withheld with respect to, such holder, regardless of whether any tax
was actually withheld. This information may also be made available to the tax
authorities of a country in which the Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Stock to a Non-United States Holder at an
address outside the United States. Payments by a United States office of a
broker of the proceeds of a sale of the Common Stock is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies its Non-United States Holder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirements (but not
backup withholding) will also apply to payments of the proceeds of sales of the
Common Stock by foreign offices of United States brokers, or foreign brokers
with certain types of relationships to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that
certain required information is furnished to the United States Internal Revenue
Service.
These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Common Stock could be
changed by future regulations. The United States Internal Revenue Service has
recently issued proposed Treasury regulations concerning these rules which are
presently proposed to be effective for payments made after December 31, 1997.
Prospective investors should consult their tax advisors concerning the potential
adoption of such proposed Treasury regulations and the potential effect on their
ownership and disposition of the Common Stock.
46
<PAGE> 72
UNDERWRITING
The Underwriters of the U.S. Offering of Common Stock (the "U.S.
Underwriters"), for whom Lehman Brothers Inc., Alex. Brown & Sons Incorporated,
Montgomery Securities and Raymond James & Associates, Inc. are serving as
representatives (the "Representatives") have severally agreed, subject to the
terms and conditions of the underwriting agreement, the form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "U.S. Underwriting Agreement"), to purchase from the Company and the
Company has agreed to sell to the U.S. Underwriters, the aggregate number of
shares of Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
U.S. UNDERWRITERS ----------------
<S> <C>
Lehman Brothers Inc.........................................
Alex. Brown & Sons Incorporated.............................
Montgomery Securities.......................................
Raymond James & Associates, Inc.............................
-------------
Total............................................. 8,000,000
=============
</TABLE>
The managers of the International Offering named below (the "International
Managers") for whom Lehman Brothers International (Europe), Alex. Brown & Sons
International, Montgomery Securities and Raymond James & Associates, Inc. are
acting as lead managers, have severally agreed, subject to the terms and
conditions of the International Underwriting Agreement, the form of which has
been filed as an exhibit to the Registration Statement (the "International
Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the International Managers, the aggregate number of shares of
Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
INTERNATIONAL MANAGERS ----------------
<S> <C>
Lehman Brothers International (Europe)......................
Alex. Brown & Sons International............................
Montgomery Securities.......................................
Raymond James & Associates, Inc.............................
----------
Total............................................. 2,000,000
==========
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the "Underwriting Agreements") provide that the
obligations of the U.S. Underwriters and the International Managers,
respectively, to purchase shares of Common Stock, are subject to the approval of
certain legal matters by counsel and to certain other conditions, and that if
any of the shares of Common Stock are purchased by the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement or by the International Managers
pursuant to the International Underwriting Agreement, all the shares of Common
Stock agreed to be purchased by either the U.S. Underwriters or the
International Managers, as the case may be, pursuant to their respective
Underwriting Agreements, must be so purchased. The offering price and
underwriting discounts and commissions for the U.S. Offering and the
International Offering are identical. The closing of the International Offering
is a condition to the closing of the U.S. Offering and the closing of the U.S.
Offering is a condition to the closing of the International Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain selected dealers (who may include the U.S.
Underwriters and International Managers) at such public offering price less a
selling concession not to exceed $ per share. The selected dealers may
reallow a concession not to exceed $ per share. After the initial
offering of the Common Stock, the concession to selected dealers and the
reallowance to other dealers may be changed by the U.S. Underwriters and the
International Managers.
The U.S. Underwriters and the International Managers have entered into an
Agreement Among U.S. Underwriters and International Managers (the "Agreement
Among") pursuant to which each U.S. Under-
47
<PAGE> 73
writer has agreed, that, as part of the distribution of the shares of Common
Stock offered in the U.S. Offering, (a) it is not purchasing any of such shares
for the account of anyone other than a U.S. or Canadian Person (as defined
below) and (b) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such shares or distribute any prospectus
relating to the U.S. Offering outside the United States or Canada or to anyone
other than a U.S. or Canadian Person. In addition, pursuant to the Agreement
Among, each International Manager has agreed that, as part of the distribution
of the shares of Common Stock offered in the International Offering, (a) it is
not purchasing any of such shares for the account of any U.S. or Canadian Person
and (b) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares or distribute any prospectus relating
to the International Offering within the United States or Canada or to any U.S.
or Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Underwriting
Agreements and the Agreement Among, including: (i) certain purchases and sales
between the U.S. Underwriters and the International Managers; (ii) certain
offers, sales, resales, deliveries or distributions to or through investment
advisors or other persons exercising investment discretion; (iii) purchases,
offers, or sales by a U.S. Underwriter who is also acting as an International
Manager or by an International Manager who also is acting as a U.S. Underwriter;
and (iv) other transactions specifically approved by the U.S. Underwriters and
International Managers. As used herein, "U.S. or Canadian Person" means any
resident or citizen of the United States or Canada, any corporation, pension,
profit sharing or other trust or other entity organized under or governed by the
laws of the United States or Canada or any political subdivision thereof (other
than the foreign branch of the United States or Canadian Person), any estate or
trust the income of which is subject to United States or Canadian federal income
taxation regardless of the source of its income, and any United States or
Canadian branch of a person other than a United States or Canadian Person. The
term "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction. The term "Canada" means the provinces
of Canada, its territories, its possessions and other areas subject to its
jurisdiction.
Pursuant to the Agreement Among, sales may be made among the U.S.
Underwriters and the International Managers of such number of shares of Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for Common Stock being sold by the U.S.
Underwriters and International Managers, less an amount not greater than the
selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Among, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase shares of Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
48
<PAGE> 74
The imposition of a penalty bid might have an effect on the price of a security
to the extent that it were to discourage resales of the security by purchasers
in the offering.
Neither the Company nor any of the U.S. Underwriters or International
Managers makes any representation or prediction as to the direction or magnitude
of any effect that the transactions described above may have on the price of the
Common Stock. In addition, neither the Company nor any of the U.S. Underwriters
or International Managers makes any representation that the Representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issuance of
the shares of Common Stock, will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on, and
will only issue or pass on, to any person in the United Kingdom, any document
received by it in connection with the issuance of the Common Stock if that
person is of a kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1995.
Purchasers of the shares offered pursuant to the Offering may be required
to pay stamp taxes and other charges in accordance with the laws and practices
of the country of purchase in addition to the offering price set forth on the
cover page hereof.
The Company has agreed to indemnify the U.S. Underwriters and International
Managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to the payments they may be required to make in respect
thereto.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional 1,200,000 and 300,000 shares of
Common Stock, at the public offering price, less the aggregate underwriting
discounts and commissions shown on the cover page of this Prospectus, solely to
cover over-allotments, if any. Such options may be exercised at any time within
30 days after the date of the Underwriting Agreement. To the extent the U.S.
Underwriters or International Managers exercise such options, each of the U.S.
Underwriters and International Managers, as the case may be, will be committed,
subject to certain conditions, to purchase a number of the additional shares of
Common Stock proportionate to such U.S. Underwriter's or International Manager's
initial commitment as indicated in the preceding table.
In connection with the Offering, the Company and certain of its directors
and executive officers have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable for Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Lehman Brothers.
In May 1996, the Company completed a debt refinancing with Lehman Holdings,
an affiliate of Lehman Brothers. The Company expects to repay approximately $60
million owed to Lehman Holdings and $66 million owed to a trust in which an
affiliate of Lehman Holdings holds subordinate interests out of the net proceeds
of the Offering. Additionally, the Company will pay an exit fee of approximately
$4.9 million to Lehman Holdings in connection with the repayment of such
indebtedness. See "Use of Proceeds." The Company is currently seeking to obtain
a $100 million credit facility with a syndicate led by Lehman Holdings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Although the conflict of interest provisions of the Conduct Rules of the
National Association of Security Dealers, Inc. (the "Conduct Rules") do not
require the use of a "qualified independent underwriter" for offerings of equity
securities for which a bona fide independent market exists, as is the case with
the Offering, because an affiliate of Lehman Brothers will receive more than 10%
of the net proceeds of the Offering in repayment of currently outstanding
indebtedness, the Underwriters have determined to conduct the Offering in
accordance with Rule 2710(c)(8) of the Conduct Rules. In accordance with the
Conduct Rules, Alex.
49
<PAGE> 75
Brown & Sons Incorporated (the "Independent Underwriter") is assuming the
responsibilities of acting as "qualified independent underwriter" and will
recommend the public offering price for the shares of Common Stock offered
hereby in compliance with the Conduct Rules. In connection with the Offering,
the Independent Underwriter is performing due diligence investigations and is
reviewing and participating in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The public
offering price will be no higher than the price recommended by the Independent
Underwriter.
LEGAL MATTERS
The validity of the Common Stock being offered hereby and certain other
legal matters will be passed upon for the Company by Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A., Miami, Florida. Certain legal matters will
be passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of Servico, Inc. at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
appearing and incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended March 31, 1997 and 1996,
incorporated by reference in this Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report,
included in Servico, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, and incorporated herein by reference, states that they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the review procedures applied.
The independent certified public accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 (the "Act") for their
report on the unaudited interim financial information because that report is not
a "report" or a "Part" of the Registration Statement prepared or certified by
the independent certified public accountants within the meaning of Sections 7
and 11 of the Act.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such information is also available
to the public from commercial documents on the internet web site maintained by
the Commission at http: www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Common Stock offered hereby. This Prospectus, which is
a part of the Registration Statement, does not contain all of the information
set forth in, or annexed as exhibits to, such Registration Statement. For
further information with respect to the Company or the shares of Common Stock
offered hereby, reference is made to such Registration Statement and the
exhibits thereto, certain portions of which are omitted from this Prospectus as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus regarding the contents of any
50
<PAGE> 76
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
The Common Stock is listed on the AMEX and reports, proxy and information
statements and other information concerning the Company can also be inspected at
the offices of the AMEX, 86 Trinity Place, New York, New York, 10006.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996, including the portions of the Company's Proxy Statement
dated April 14, 1997, incorporated by reference in such report.
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus but prior to
termination of this Offering shall be deemed to be incorporated by reference
herein and made a part hereof from the date of filing of such documents. Any
statement contained 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 other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company hereby undertakes to provide, without
charge, to each person, including any beneficial owner, to whom this Prospectus
is delivered, upon written or oral request of such person, a copy of any or all
of the documents described above which have been or may be incorporated into
this Prospectus and deemed to be a part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents. Requests for such copies should be directed to Mr. Warren M.
Knight, Vice President-Finance, Servico, Inc., 1601 Belvedere Road, West Palm
Beach, Florida, 33406; telephone (561) 689-9970.
51
<PAGE> 77
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
INTERNATIONAL MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Unaudited Pro Forma Condensed
Consolidated Financial Statements... 15
Selected Consolidated Financial and
Other Data.......................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
The Company........................... 25
Business Strategy..................... 25
Business and Properties............... 28
Management............................ 44
Certain United States Federal Tax
Considerations to Non-U.S.
Holders............................. 45
Underwriting.......................... 47
Legal Matters......................... 50
Experts............................... 50
Available Information................. 50
Information Incorporated by
Reference........................... 51
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
10,000,000 SHARES
LOGO
COMMON STOCK
---------------------------
PROSPECTUS
JUNE , 1997
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INTERNATIONAL
MONTGOMERY SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 51,184
NASD Filing Fee............................................. 14,500
Legal Fees and Expenses*.................................... 300,000
Accounting Fees and Expenses*............................... 100,000
Printing Expenses*.......................................... 225,000
Blue Sky Qualification Fees and Expenses.................... 15,000
Miscellaneous*.............................................. 294,316
----------
Total*............................................ $1,000,000
==========
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act (the "Florida
Act") provides that a director is not personally liable for monetary damages to
the corporation or any person for any statement, vote, decision or failure to
act regarding corporate management or policy, by a director, unless: (a) the
director breached or failed to perform his duties as a director; and (b) the
director's breach of, or failure to perform, those duties constitutes: (i) a
violation of criminal law unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) a circumstance under
which the director is liable for an improper distribution; (iv) in a proceeding
by, or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interests of
the corporation, or willful misconduct; or (v) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or an
act or omission which was committed in bad faith or with malicious purpose or in
a manner exhibiting wanton and willful disregard of human rights, safety or
property.
Section 607.0850 of the Florida Act provides that a corporation shall have
the power to indemnify any person who was or is a party to any proceeding (other
than an action by, or in the right of, the corporation), by reason of the fact
that he is or was a director, officer or employee or agent of the corporation
against liability incurred in connection with such proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 607.0850 also provides that a corporation shall have the power to
indemnify any person, who was or is a party to any proceeding by, or in the
right of, the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
Under Section 607.0850, indemnification is authorized if such person acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification may be
made in respect of any claim, issue, or matter as to which such person is
adjudged to be liable unless, and only to the extent that, the court in which
such proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability, but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court deems proper. To the
extent that a director, officer, employee or agent has been successful on the
merits or otherwise in defense of any of the foregoing proceedings, or in
defense of any claim, issue or matter therein Section 607.0850 provides that, he
shall be indemnified against expenses
II-1
<PAGE> 79
actually and reasonably incurred by him in connection therewith. Under Section
607.0850, any indemnification, unless pursuant to a determination by a court,
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper under the circumstances because he has met the applicable
standard of conduct. Notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination by the corporation in a
specific case, Section 607.0850 permits a director, officer, employee or agent
of the corporation who is or was a party to a proceeding to apply for
indemnification to the appropriate court and such court may order
indemnification if it determines that such person is entitled to indemnification
under the applicable standard.
Section 607.0850 also provides that a corporation has the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of Section 607.0850.
The Registrant's bylaws provide that it shall indemnify its officers and
directors and former officers and directors to the full extent permitted by law.
The Registrant's directors and officers are covered by insurance policies
indemnifying them against certain liabilities, including liabilities under the
federal securities laws (other than liability under Section 16(b) of the
Exchange Act), which might be incurred by them in such capacities.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the several Underwriters of the
Registrant's directors, officers and controlling persons against certain
liabilities that may be incurred in connection with the offering, including
liabilities under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS
The following exhibits are either filed herewith or incorporated by
reference to documents previously filed as indicated below:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
5 -- Opinion of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A.*
15 -- Letter from Independent Certified Public Accountants
relating to unaudited interim financial information for the
quarter ended March 31, 1997*
23.1 -- Consent of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A.
23.2 -- Consent of Ernst & Young LLP
24.1 -- Power of Attorney*
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")(and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
II-2
<PAGE> 80
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 in 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as 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.
(2) For the purpose of determining any liability under the Securities
Act, 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.
II-3
<PAGE> 81
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-3 and had duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of West Palm Beach, State of Florida, on the 5th
day of June, 1997.
SERVICO, INC.
By: /s/ DAVID A. BUDDEMEYER
------------------------------------
David A. Buddemeyer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ DAVID A. BUDDEMEYER Director, President and Chief June 5, 1997
- ----------------------------------------------------- Executive Officer
David A. Buddemeyer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ WARREN M. KNIGHT Vice President -- Finance and June 5, 1997
- ----------------------------------------------------- Chief Financial and
Warren M. Knight Principal Accounting Officer
* Director June 5, 1997
- -----------------------------------------------------
John W. Adams
* Director June 5, 1997
- -----------------------------------------------------
Joseph C. Calabro
* Director June 5, 1997
- -----------------------------------------------------
Peter R. Tyson
* Director June 5, 1997
- -----------------------------------------------------
Richard H. Weiner
*By: /s/ WARREN M. KNIGHT
- ----------------------------------------------------
(Attorney-in-fact
pursuant to power of attorney)
</TABLE>
II-4
<PAGE> 1
8,000,000 Shares
SERVICO, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
U.S. UNDERWRITING AGREEMENT
---------------------------
June __, 1997
LEHMAN BROTHERS INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
As Representatives of the several
U.S. Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Servico, Inc., a Florida corporation (the "Company"),
proposes to sell 8,000,000 shares (the "Firm Stock") of the Company's common
stock, par value $.01 per share (the "Common Stock"). In addition, the Company
proposes to grant to the underwriters named in Schedule 1 hereto (the "U.S.
Underwriters") an option to purchase up to an additional 1,200,000 shares of
the Common Stock on the terms and for the purposes set forth in Section 2 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company by the U.S. Underwriters
named in Schedule 1 hereto.
It is understood by all parties that the Company is
concurrently entering into an agreement dated the date hereof (the
"International Underwriting Agreement") providing for the sale by the Company
of 2,300,000 shares of Common Stock (including the over-allotment option
thereunder) (the "International Stock") through arrangements with certain
underwriters outside the United States (the "International Managers"), for whom
Lehman Brothers International (Europe), Alex. Brown & Sons Incorporated,
Montgomery Securities and Raymond James & Associates, Inc. are acting as lead
managers. The U.S. Underwriters and the International Managers simultaneously
are entering into an agreement between the U.S. and international underwriting
syndicates (the "Agreement Between U.S. Underwriters and International
Managers") which provides for, among other things, the transfer of shares of
Common Stock between the two syndicates. Two forms of prospectus are to be used
in connection with the offering and sale of shares of Common Stock contemplated
by the foregoing, one relating to the Stock and the other relating to the
International Stock. The latter form of
<PAGE> 2
prospectus will be identical to the former except for certain substitute pages
as included in the registration statement and amendments thereto referred to
below. Except as used in Sections 2, 4, 5, 10, and 11 herein, and except as the
context may otherwise require, references herein to the Stock shall include all
the shares of which may be sold pursuant to either this Agreement or the
International Underwriting Agreement, and references herein to any prospectus
whether in preliminary or final form, and whether as amended or supplemented,
shall include both the U.S. and the international versions thereof.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-3 (333-7303),
and any amendments thereto, with respect to the Stock has (i)
been prepared by the Company in conformity with the
requirements of the United States Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations
(the "Rules and Regulations") of the United States Securities
and Exchange Commission (the "Commission") thereunder, (ii)
been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of
such registration statement and each amendment thereto have
been delivered by the Company to you as the representatives
(the "Representatives") of the Underwriters. As used in this
Agreement, "Effective Time" means the date and the time as of
which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or
amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission
by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement,
as amended at the Effective Time, including any documents
incorporated by reference therein at such time and all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 6(a) hereof and deemed
to be a part of the registration statement as of the
Effective Time pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations; and "Prospectus" means such final
prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and
Regulations. Reference made herein to any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to
and include any documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Securities Act, as
of the date of such Preliminary Prospectus or the Prospectus,
as the case may be, and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include any document filed
under the United States Securities Exchange Act of 1934 (the
"Exchange Act") after the date of such Preliminary Prospectus
or the Prospectus, as the
2
<PAGE> 3
case may be, and incorporated by reference in such
Preliminary Prospectus or the Prospectus, as the case may be;
and any reference to any amendment to the Registration
Statement shall be deemed to include any annual report of the
Company filed with the Commission pursuant to Section 13(a)
or 15(d) of the Exchange Act after the Effective Time that is
incorporated by reference in the Registration Statement. The
Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will, when they
become effective or are filed with the Commission, as the
case may be, conform in all respects to the requirements of
the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; PROVIDED that no representation or
warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information concerning
such U.S. Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter
specifically for inclusion therein.
(c) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the
Commission, as the case may be, conformed in all material
respects to the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of
the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
any further documents so filed and incorporated by reference
in the Prospectus, when such documents become effective or
are filed with Commission, as the case may be, will conform
in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will
not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(d) The Company and each of its subsidiaries (as
defined in Section 16) have been duly organized and are
validly existing as corporations, [general or] limited
partnerships or limited liability companies, as the case may
be, in good standing under the laws of their respective
jurisdictions of organization, are duly qualified to do
business and are in good standing as foreign corporations,
limited partnerships or limited liability companies, as the
case may be, in each jurisdiction in which their respective
ownership or lease of property or
3
<PAGE> 4
the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to
own or hold their respective properties and to conduct the
businesses in which they are engaged.
(e) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock,
partnership interests or limited liability company membership
interests, as the case may be, of each subsidiary of the
Company have been duly and validly authorized and issued and
(except for partnership interests of general partners) are
fully paid and non-assessable and, except as set forth in
SCHEDULE 1(E), are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities
or claims.
(f) The unissued shares of the Stock to be issued
and sold by the Company to the U.S. Underwriters hereunder
and under the International Underwriting Agreement have been
duly and validly authorized and, when issued and delivered
against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and
validly issued, fully paid and non-assessable; and the Stock
will conform to the description thereof contained in the
Prospectus.
(g) This Agreement has been duly authorized,
executed and delivered by the Company.
(h) The execution, delivery and performance of this
Agreement and the International Underwriting Agreement by the
Company and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any
of the property or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter, by-laws,
partnership agreement or operating agreement of the Company
or any of its subsidiaries or any statute or any order, rule
or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its
subsidiaries or any of their properties or assets; and except
for the registration of the Stock under the Securities Act
and such consents, approvals, authorizations, registrations
or qualifications as may be required under the Exchange Act
and applicable state securities laws in connection with the
purchase and distribution of the Stock by the U.S.
Underwriters and the International Managers, no consent,
approval, authorization or order of, or filing or
registration with, any such court or governmental agency or
body is required for the execution, delivery and
4
<PAGE> 5
performance of this Agreement, or the International
Underwriting Agreement by the Company and the consummation of
the transactions contemplated hereby.
(i) Except as set forth in the Prospectus, here are
no contracts, agreements or understandings between the
Company or any of its subsidiaries and any person granting
such person the right to require the Company to file a
registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities
in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under
the Securities Act. With respect to the Registration
Statement, all of such rights have been waived or satisfied.
(j) Except as set forth in the Prospectus, there are
no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of,
any unissued shares of the Stock to be issued and sold by the
Company to the U.S. Underwriters hereunder pursuant to the
Company's charter or by-laws or any agreement or other
instrument.
(k) Except as described in the Prospectus, the
Company has not sold or issued any shares of Common Stock
during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A under,
or Regulations D or S of, the Securities Act, other than
shares issued pursuant to employee benefit plans, qualified
stock options plans or other employee compensation plans or
pursuant to outstanding options, rights or warrants.
(l) Neither the Company nor any of its subsidiaries
has sustained, since the date of the latest audited financial
statements included or incorporated by reference in the
Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the
Prospectus; and, since such date, other than as set forth or
contemplated in the Prospectus, (i) there has been no
material adverse change in the financial condition, results
of operation or business of the Company, or any subsidiary of
the Company, whether or not arising in the ordinary course of
business, (ii) no material casualty loss or material
condemnation or other material adverse event with respect to
any Property has occurred, (iii) there have been no
transactions or acquisition agreements entered into by the
Company, or any subsidiary of the Company, other than those
in the ordinary course of business, which are material with
respect to such entity, (iv) there has been no material
adverse change in a dividend or distribution of any kind
declared, paid or made by the Company on any class of its
capital stock and (v) there has been no change in the capital
stock of the Company, or any increase in the indebtedness of
the Company or any subsidiary not in the ordinary course of
business.
5
<PAGE> 6
(m) The financial statements (including the related
notes and supporting schedules) filed as part of the
Registration Statement or included or incorporated by
reference in the Prospectus present fairly the financial
condition and results of operations of the entities purported
to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with
generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as
otherwise stated therein. The pro forma financial information
included in the Prospectus has been prepared in accordance
with the applicable requirements of Rules 11-01 and 11-02 of
Regulation S-X under the Securities Act and the Rules and
Regulations and AICPA guidelines with respect to pro forma
financial information and includes all adjustments necessary
to present fairly the pro forma financial position of the
Company at the respective dates indicated and the results of
its operations for the respective periods specified. The
assumptions underlying the pro forma adjustments are
reasonable. Other than the historical and pro forma financial
statements included or incorporated by reference therein, no
other financial statements are required by the Securities Act
or the Rules and Regulations to be included in the
Registration Statement.
(n) Ernst & Young LLP, who have certified certain
financial statements of the Company, whose report appears in
the Prospectus or is incorporated by reference therein and
who have delivered the initial letter referred to in Section
8(f) hereof, are independent public accountants as required
by the Securities Act and the Rules and Regulations.
(o) The Company and each of its subsidiaries have
good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned
by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of
such property and do not materially interfere with the use
made and proposed to be made of such property by the Company
and its subsidiaries; and all real property and buildings
held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases, with
such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries. There is
issued and outstanding with respect to each of the wholly
owned or partially owned hotels ("Owned Hotels") an ALTA form
of owner's title insurance policy (or local equivalent with
respect to those Owned Hotels located in jurisdictions where
an ALTA form of owner's title insurance policy is not
available) insuring the fee simple or leasehold estate of the
applicable subsidiary of the Company in the Owned Hotel owned
by such subsidiary in an amount at least equal to the
acquisition price of such Owned Hotel and each such title
insurance policy is in full force and effect.
6
<PAGE> 7
(p) The Company and each of its subsidiaries carry,
or are covered by, insurance in such amounts and covering
such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and
as is customary for companies engaged in similar businesses
in similar industries.
(q) Each of the Company and its subsidiaries
possesses such certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such
certificates, authorizations or permits would not have a
material adverse effect on the consolidated financial
position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries (a
"Material Adverse Effect"), and none of the Company or any of
its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling,
or finding, would have a Material Adverse Effect.
(r) The Company and each of its subsidiaries own or
possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations,
copyrights and licenses and franchises necessary for the
conduct of their respective businesses and have no reason to
believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim
of conflict with, any such rights of others. Any prior notice
received by the Company or any subsidiary from any franchisor
terminating, or threatening to terminate, the current
franchise agreement for any Owned Hotel has been cured, is no
longer effective, or has been waived by the party issuing
such notice.
(s) There are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a
party or of which any property or assets of the Company or
any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, could
reasonably be expected to have a Material Adverse Effect; and
to the best of the Company's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others.
(t) The Company and the Offering meet the conditions
for use of Form S-3, as set forth in the General Instructions
thereto.
(u) There are no contracts or other documents which
are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act
or by the Rules and Regulations which have not been described
in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted
by the Rules and Regulations.
7
<PAGE> 8
(v) No relationship, direct or indirect, exists
between or among the Company or any of its subsidiaries on
the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required to be
described in the Prospectus which is not so described.
(w) There is (i) no material unfair labor practice
complaint pending against the Company or its subsidiaries
nor, to the best knowledge of the Company, threatened against
any of them before the National Labor Relations Board or any
state or local labor relations board, and no significant
grievance or significant arbitration proceeding arising out
of or under any collective bargaining agreement is so pending
against the Company or its subsidiaries or, to the best
knowledge of the Company, threatened against any of them,
(ii) no material strike, labor dispute, slowdown or stoppage
pending against the Company or its subsidiaries nor, to the
best knowledge of the Company, threatened against the Company
or its subsidiaries which could reasonably be expected to
have a Material Adverse Effect.
(x) None of the Company or any subsidiary has
violated any safety or similar law applicable to its business
nor any federal, state or local law relating to
discrimination in the hiring, promotion or pay of employees
nor any applicable federal or state wages and hours laws
which in each case could reasonably be expected to result in
a Material Adverse Effect.
(y) The Company and its subsidiaries are in
compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with
respect to any "pension plan" (as defined in ERISA) for which
the Company would have any liability; the Company or its
subsidiaries have not incurred and do not expect to incur
liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension
plan" for which the Company or its subsidiaries would have
any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects
and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(z) The Company and each of its subsidiaries have
filed all federal, state and local income and franchise tax
returns required to be filed through the date hereof and have
paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company or any of its
8
<PAGE> 9
subsidiaries which has had (nor does the Company or its
subsidiaries have any knowledge of) any tax deficiency which,
if determined adversely to the Company or any of its
subsidiaries, could reasonably be expected to have a Material
Adverse Effect; the amounts currently set up as provisions
for taxes or otherwise by the Company and its subsidiaries on
their books and records are sufficient for the payment of all
their unpaid federal, foreign, state, county and local taxes
accrued through the dates as of which they speak, and for
which the Company and its subsidiaries may be liable in their
own right or as a transferee of the assets of, or as
successor to any other corporation, association, partnership,
limited liability company, joint venture or other entity.
(aa) Since the date as of which information is given
in the Prospectus through the date hereof, and except as may
otherwise be disclosed in the Prospectus, the Company and its
subsidiaries have not (i) other than shares issued pursuant
to employee benefit plans, qualified stock options plans or
other employee compensation plans or pursuant to outstanding
options, rights or warrants, issued or granted any
securities, (ii) incurred any liability or obligation, direct
or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii)
entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital
stock.
(ab) The Company and its subsidiaries (i) make and
keep accurate books and records and (ii) maintain internal
accounting controls which provide reasonable assurance that
(A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its
books, records and accounts is permitted only in accordance
with management's authorization and (D) the reported
accountability for its assets is compared with existing
assets at reasonable intervals.
(ac) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter, by-laws, partnership
agreement or operating agreement, (ii) is in default in any
material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term,
covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement, franchise agreement,
management agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any
of its properties or assets is subject or (iii) is in
violation in any respect of any law, ordinance, governmental
rule, regulation or court decree to which it or its property
or assets may be subject or has failed to obtain any license,
permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its
property or to the conduct of its business which violation or
failure could reasonably be expected to have a Material
Adverse Effect.
9
<PAGE> 10
(ad) Neither the Company nor any of its
subsidiaries, nor any director, officer, agent, employee or
other person associated with or acting on behalf of the
Company or any of its subsidiaries, has used any corporate,
partnership or company funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or
employee from corporate, partnership or company funds;
violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful
payment.
(ae) There has been no storage, disposal,
generation, manufacture, refinement, installation,
transportation, handling or treatment of toxic wastes,
medical wastes, hazardous wastes, petroleum or petroleum
products (including crude oil or any fraction thereof),
hazardous substances or any other substances which pose a
hazard to human health, safety, natural resources, industrial
hygiene or the environment or which cause or threaten to
cause a nuisance by the Company, any of its subsidiaries,
(or, to the knowledge of the Company, by any of their
predecessors in interest or by any other entity) at, upon or
from any of the property now or previously owned leased or,
to the knowledge of Company, operated by the Company or its
subsidiaries except to the extent commonly used in the normal
operations of such property, in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or
permit or which would require investigation, monitoring,
removal action, corrective action, remedial action or other
response action ("response action") under any applicable law,
ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or response action which
would not have, or could not be reasonably likely to have,
singularly or in the aggregate with all such violations and
response actions, a Material Adverse Effect; there has been
no material spill, discharge, leak, emission, injection,
escape, dumping or release or threatened release of any kind
onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes,
hazardous wastes, petroleum or petroleum products (including
crude oil or any fraction thereof), hazardous substances or
any other substances which pose a hazard to human health,
safety, natural resources, industrial hygiene or the
environment or which cause or threaten to cause a nuisance,
except for any such spill, discharge, leak, emission,
injection, escape, dumping or release or threatened release
which would not have or would not be reasonably likely to
have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings,
releases and threatened releases, a Material Adverse Effect;
and the terms "hazardous wastes," "solid wastes," "toxic
wastes," "hazardous substances," "petroleum," "petroleum
products" and "medical wastes" shall have the meanings
specified in any applicable local, state, federal and foreign
laws or regulations with respect to environmental protection.
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<PAGE> 11
(af) Neither the Company nor any subsidiary is, or
will be as a result of the offer and sale of the Stock
hereunder, an "investment company" within the meaning of such
term under the Investment Company Act of 1940 and the rules
and regulations of the Commission thereunder.
2. PURCHASE OF THE STOCK BY THE U.S. UNDERWRITERS. On the
basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement, the Company agrees to sell 8,000,000
shares of the Firm Stock to the several Underwriters and each of the U.S.
Underwriters, severally and not jointly, agrees to purchase the number of
shares of the Firm Stock set opposite that U.S. Underwriter's name in Schedule
1 hereto. The respective purchase obligations of the U.S. Underwriters with
respect to the Firm Stock shall be rounded among the U.S. Underwriters to avoid
fractional shares, as the Representatives may determine.
In addition, the Company grants to the U.S. Underwriters an
option to purchase up to 1,200,000 shares of Option Stock. Such option is
granted solely for the purpose of covering over-allotments in the sale of Firm
Stock and is exercisable as provided in Section 4 hereof. Shares of Option
Stock shall be purchased severally for the account of the U.S. Underwriters in
proportion to the number of shares of Firm Stock set opposite the name of such
U.S. Underwriters in Schedule 1 hereto. The respective purchase obligations of
each U.S. Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no U.S. Underwriter shall be obligated to purchase
Option Stock other than in 100 share amounts. The price of both the Firm Stock
and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the
Stock to be delivered on the First Delivery Date or the Second Delivery Date
(as hereinafter defined), as the case may be, except upon payment for all the
Stock to be purchased on such Delivery Date as provided herein and in the
International Underwriting Agreement.
3. RETENTION OF QUALIFIED INDEPENDENT UNDERWRITER. The
Company hereby confirms its engagement of Alex. Brown & Sons Incorporated as,
and Alex. Brown & Sons Incorporated hereby confirms its agreement with the
Company to render services as, "qualified independent underwriter" within the
meaning of Section 2720 of the Conduct Rules of the National Association of
Securities Dealers, Inc. with respect to the offering and sale of the Stock.
Alex. Brown & Sons Incorporated, solely in its capacity as qualified
independent underwriter and not otherwise, is referred to herein as the
"Independent Underwriter."
4. OFFERING OF STOCK BY THE UNDERWRITERS. Upon authorization
by the Representatives of the release of the Firm Stock, the several U.S.
Underwriters propose to offer the Firm Stock for sale upon the terms and
conditions set forth in the Prospectus. Each U.S. Underwriter agrees that,
except to the extent permitted by the Agreement Between U.S. Underwriters and
International Managers, it will not offer or sell any of the Stock outside of
the United States.
5. DELIVERY OF AND PAYMENT FOR THE STOCK. Delivery of and
payment for the Firm Stock shall be made at the office of Lehman Brothers Inc.
at 10:00 A.M., New York City
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<PAGE> 12
time, on the fourth full business day following the date of this Agreement or
at such other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "First Delivery Date." On the First Delivery Date, the Company shall
deliver or cause to be delivered certificates representing the Firm Stock to
the Representatives for the account of each U.S. Underwriter against payment to
or upon the order of the Company of the purchase price by wire transfer of
federal (same day) funds to an account or accounts designated in writing to
Lehman Brothers Inc. by the Company. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each U.S. Underwriter hereunder. Upon delivery,
the Firm Stock shall be registered in such names and in such denominations as
the Representatives shall request in writing not less than two full business
days prior to the First Delivery Date. For the purpose of expediting the
checking and packaging of the certificates for the Firm Stock, the Company
shall make the certificates representing the Firm Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
At any time, and from time to time, on or before the
thirtieth day after the date of this Agreement the option granted in Section 2
may be exercised by written notice being given to the Company by the
Representatives. Such notice shall set forth the aggregate number of shares of
Option Stock as to which the option is being exercised, the names in which the
shares of Option Stock are to be registered, the denominations in which the
shares of Option Stock are to be issued and the date and time, as determined by
the Representatives, when the shares of Option Stock are to be delivered;
PROVIDED, HOWEVER, that this date and time shall not be earlier than the First
Delivery Date nor earlier than the second business day after the date on which
the option shall have been exercised nor later than the fifth business day
after the date on which the option shall have been exercised. The date and time
the shares of Option Stock are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this
Section 5 (or at such other place as shall be determined by agreement between
the Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each U.S. Underwriter against payment to or
upon the order of the Company of the purchase price by wire transfer of federal
(same day) funds to an account or accounts designated in writing to Lehman
Brothers Inc. by the Company. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each U.S. Underwriter hereunder. Upon delivery, the Option
Stock shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company shall make the certificates representing the Option Stock
available for inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business day prior to the
Second Delivery Date.
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<PAGE> 13
6. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by
the Representatives and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than
Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or
to the Prospectus prior to the last Delivery Date except as
permitted herein; to advise the Representatives, promptly
after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to file promptly all
reports and any definitive proxy or information statements
required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of the Prospectus and for so long
as the delivery of a prospectus is required in connection
with the offering or sale of the Stock; to advise the
Representatives, promptly after it receives notice thereof,
of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the
Representatives and to counsel for the U.S. Underwriters a
signed copy of the Registration Statement as originally filed
with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such
number of the following documents as the Representatives
shall reasonably request: (i) conformed copies of the
Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding
exhibits other than this Agreement and the computation of per
share earnings), (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus and
(iii) any document incorporated by reference in the
Prospectus (excluding exhibits thereto); and, if the delivery
of a prospectus is required at any time after the Effective
Time in connection with the offering or sale of the Stock or
any other securities relating thereto and if at such time any
events shall have occurred as a result of which the
Prospectus as then amended or supplemented
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<PAGE> 14
would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary
to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the
Prospectus in order to comply with the Securities Act or the
Exchange Act, to notify the Representatives and, upon their
request, to file such document and to prepare and furnish
without charge to each U.S. Underwriter and to any dealer in
securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or
effect such compliance.
(d) During the period when the Prospectus is
required to be delivered in connection with the offer and
sale of the Stock, to file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment of
the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any
amendment to the Registration Statement or supplement to the
Prospectus, any document incorporated by reference in the
Prospectus or any Prospectus pursuant to Rule 424 of the
Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the U.S. Underwriters and
obtain the consent of the Representatives to the filing,
except that with respect to current reports on Form 8-K, the
Company shall use its best efforts to satisfy this covenant;
(f) As soon as practicable after the Effective Date
(it being understood that the Company shall have until at
least 410 days after the end of the Company's current fiscal
quarter), to make generally available to the Company's
security holders and to deliver to the Representatives an
earnings statement of the Company and its subsidiaries (which
need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at
the option of the Company, Rule 158);
(g) For a period of five years following the
Effective Date, to furnish to the Representatives copies of
all materials furnished by the Company to its shareholders
and all public reports and all reports and financial
statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange
or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder;
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<PAGE> 15
(h) Promptly from time to time to take such action
as the Representatives may reasonably request to qualify the
Stock for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to
comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the
Stock, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any
jurisdiction.
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale,
sell or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Stock
and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant
options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), without the prior
written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the
listing of the Stock on the New York Stock Exchange and to
use its best efforts to complete that listing, subject only
to official notice of issuance, prior to the First Delivery
Date;
(k) To apply the net proceeds from the sale of the
Stock being sold by the Company as set forth in the
Prospectus; and
(l) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such
term under the Investment Company Act of 1940 and the rules
and regulations of the Commission thereunder.
7. EXPENSES. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus or
any document incorporated by reference therein, all as provided in this
Agreement; (d) the costs of producing and distributing this Agreement and any
other related documents in connection with the offering, purchase, sale and
delivery of the Stock; (e) the filing fees and expenses (including related
reasonable fees and expenses of counsel to the Underwriters) incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the
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<PAGE> 16
securities laws of the several jurisdictions as provided in Section 6(h) and
of preparing, printing and distributing a Blue Sky Memorandum (including
related reasonable fees and expenses of counsel to the Underwriters); (i) all
fees and expenses of an Independent Underwriter; and (j) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; PROVIDED that, except as provided in this Section 7 and in
Section 12, the U.S. Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Stock which they may sell and the expenses of advertising any offering of the
Stock made by the U.S. Underwriters.
8. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The
respective obligations of the U.S. Underwriters hereunder are subject to the
accuracy, when made and on each Delivery Date, of the representations and
warranties of the Company contained herein, to the performance by the Company
of its obligations hereunder required to be performed at or prior to the
Delivery Date, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with
the Commission in accordance with Section 6(a); no stop order
suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion
of additional information in the Registration Statement or
the Prospectus or otherwise shall have been complied with.
(b) No U.S. Underwriter or International Manager
shall have discovered and disclosed to the Company on or
prior to such Delivery Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion
of Hogan & Hartson L.L.P., counsel for the U.S. Underwriters,
is material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal
matters incident to the authorization, form and validity of
this Agreement, the International Underwriting Agreement, the
Stock, the Registration Statement and the Prospectus, and all
other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the U.S.
Underwriters, and the Company shall have furnished to such
counsel all documents and information that they may
reasonably request to enable them to pass upon such matters.
(d) Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. shall have furnished to the Representatives
its written opinion, as counsel to the Company, addressed to
the U.S. Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives,
to the effect that:
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<PAGE> 17
(i) The Company and each of its
subsidiaries have been duly incorporated or formed
and are validly existing as corporations, [general
or] limited partnerships or limited liability
companies, as the case may be, in good standing
under the laws of their respective jurisdictions of
organization, are duly qualified to do business and
are in good standing as foreign corporations,
limited partnerships or limited liability companies,
as the case may be, in each jurisdiction in which
their respective ownership or lease of property or
the conduct of their respective businesses (as set
forth in certificates of officers of the Company,
upon which such counsel is relying without
independent investigation) requires such
qualification and except where the failure to so
qualify or be in good standing would not have a
Material Adverse Effect and have all corporate or
partnership power and authority necessary to own or
hold their respective properties and conduct the
businesses in which they are engaged;
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and
all of the issued shares of capital stock of the
Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description
thereof contained in the Prospectus; and all of the
issued shares of capital stock, partnership
interests or limited liability company membership
interests, as the case may be, of each subsidiary of
the Company have been duly and validly authorized
and issued and (except for partnership interests of
general partners) are fully paid, non-assessable and
are owned directly or indirectly by the Company, to
such counsel's knowledge free and clear of all
liens, encumbrances, equities or claims, except as
set forth in Schedule 1(e);
(iii) There are no statutory preemptive or,
to such counsel's knowledge, other rights to
subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the
Stock pursuant to the Company's charter or by-laws
or any agreement or other instrument known to such
counsel;
(iv) To the best of such counsel's
knowledge and other than as set forth in the
Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries
is the subject which, if determined adversely to the
Company or any of its subsidiaries could reasonably
be expected to have a Material Adverse Effect; and,
to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by
governmental authorities or threatened by others;
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<PAGE> 18
(v) The Registration Statement was declared
effective under the Securities Act as of the date
and time specified in such opinion, the Prospectus
was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date
specified therein and to the knowledge of such
counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no
proceeding for that purpose is pending or threatened
by the Commission;
(vi) The Registration Statement and the
Prospectus and any further amendments or supplements
thereto made by the Company prior to such Delivery
Date (other than the financial statements and
related schedules therein, as to which such counsel
need express no opinion) comply as to form in all
material respects with the requirements of the
Securities Act and the Rules and Regulations; the
documents incorporated by reference in the
Prospectus and any further amendment or supplement
to any such incorporated document made by the
Company prior to such Delivery Date (other than the
financial statements and related schedules therein,
as to which such counsel need express no opinion),
when they became effective or were filed with the
Commission, as the case may be, complied as to form
in all material respects with the requirements of
the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the
Commission thereunder;
(vii) To the best of such counsel's
knowledge, there are no contracts or other documents
which are required to be described in the Prospectus
or filed as exhibits to the Registration Statement
by the Securities Act or by the Rules and
Regulations which have not been described or filed
as exhibits to the Registration Statement or
incorporated therein by reference as permitted by
the Rules and Regulations;
(viii) Each of this Agreement and the
International Underwriting Agreement has been duly
authorized, executed and delivered by the Company;
(ix) The issue and sale of the shares of
Stock being delivered on such Delivery Date by the
Company and the compliance by the Company with all
of the provisions of this Agreement and the
International Underwriting Agreement and the
consummation of the transactions contemplated hereby
will not conflict with or result in a breach or
violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, franchise agreement,
management agreement or other agreement or
instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is
bound or to
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<PAGE> 19
which any of the property or assets of the Company
or any of its subsidiaries is subject, which breach
is reasonably likely to have a Material Adverse
Effect nor will such actions result in any violation
of the provisions of the charter, by-laws or limited
partnership agreement of the Company or any of its
subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body of the United States or
the State of Florida having jurisdiction over the
Company or any of its subsidiaries or any of their
properties or assets; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state or
foreign securities laws in connection with the
purchase and distribution of the Stock by the U.S.
Underwriters and the International Managers, no
consent, approval, authorization or order of, or
filing or registration with, any such court or
governmental agency or body is required for the
execution, delivery and performance of this
Agreement or the International Underwriting
Agreement by the Company and the consummation of the
transactions contemplated hereby;
(x) To the best of such counsel's
knowledge, except as set forth in the Prospectus,
there are no contracts, agreements or understandings
between the Company and any person granting such
person the right to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under
the Securities Act. With respect to the Registration
Statement, all of such rights have been waived or
satisfied;
(xi) Neither the Company nor any of its
subsidiaries is an "investment company" as such term
is defined in the Investment Company Act of 1940, as
amended; and
(xii) The statements contained in the
Prospectus under the caption "Certain United States
Federal Tax Considerations to Non-U.S. Holders,
regarding federal income tax treatment are correct
in all material respects.
In rendering such opinion, such counsel may state that its
opinion is limited to matters governed by the Federal laws of
the United States of America, and the laws of the State of
Florida. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the U.S.
Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representatives, to
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<PAGE> 20
the effect that (x) such counsel has acted as counsel to the
Company on a regular basis, has acted as counsel to the
Company in connection with previous financing transactions
and has acted as counsel to the Company in connection with
the preparation of the Registration Statement, and (y) based
on the foregoing, no facts have come to the attention of such
counsel which lead it to believe that (I) the Registration
Statement (except for financial statements and schedules
included therein or omitted therefrom, as to which counsel
need make no statement), as of the Effective Date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or that
the Prospectus (except for financial statements and schedules
included therein or omitted therefrom, as to which counsel
need make no statement) contains any untrue statement of a
material fact or omits to state a material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading or (II) any document
incorporated by reference in the Prospectus or any further
amendment or supplement to any such incorporated document
made by the Company prior to such Delivery Date (except for
financial statements and schedules included therein or
omitted therefrom, as to which counsel need make no
statement), when they became effective or were filed with the
Commission, as the case may be, contained, in the case of a
registration statement which became effective under the
Securities Act, any untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading, or, in the case of other documents which were
filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
(e) The Representatives shall have received from
Hogan & Hartson L.L.P., counsel for the U.S. Underwriters,
such opinion or opinions, dated such Delivery Date, with
respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a
letter, in form and substance satisfactory to the
Representatives, addressed to the U.S. Underwriters and dated
the date hereof (i) confirming that they are independent
public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01
of Regulation S-X of the Commission, (ii) stating, as of the
date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a
date
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<PAGE> 21
not more than five days prior to the date hereof), the
conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection
with registered public offerings.
(g) With respect to the letter of Ernst & Young LLP
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this
Agreement (the "initial letter"), the Company shall have
furnished to the Representatives a letter (the "bring-down
letter") of such accountants, addressed to the U.S.
Underwriters and dated such Delivery Date (i) confirming that
they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since
the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more
than five days prior to the date of the bring-down letter),
the conclusions and findings of such firm with respect to the
financial information and other matters covered by the
initial letter and (iii) confirming in all material respects
the conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of
its Chairman of the Board, its President or a Vice President
and its chief financial officer stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of such Delivery Date; the Company has
complied with all its agreements contained herein;
and the conditions set forth in Sections 8(a) and
8(i) have been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not
include any untrue statement of a material fact and
did not omit to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective
Date no event has occurred which is material to the
consolidated financial position, stockholder's
equity, results of operations, business or prospects
of the Company and its subsidiaries.
(i) (I) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the
latest audited financial statements included or incorporated
by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or
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<PAGE> 22
decree, otherwise than as set forth or contemplated in the
Prospectus or (II) since such date there shall not have been
any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting
the general affairs, management, financial position,
stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any
such case described in clause (I) or (II), is, in the
judgment of the Representatives, so material and adverse as
to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered
on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(j) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange, or the American Stock Exchange, the Nasdaq Stock
Market or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or
such market by the Commission, by such exchange or by any
other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United
States shall have become engaged in hostilities, there shall
have been an escalation in hostilities involving the United
States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall
have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public
offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in
the Prospectus.
(k) The New York Stock Exchange shall have approved
the Stock for listing, subject only to official notice of
issuance.
(l) The closing under the International Underwriting
Agreement shall have occurred concurrently with the closing
hereunder on the First Delivery Date.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company shall indemnify and hold harmless
each U.S. Underwriter (including any U.S. Underwriter in its
role as qualified independent underwriter pursuant to the
rules of the National Association of Securities
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<PAGE> 23
Dealers, Inc.), its officers and employees and each person,
if any, who controls any U.S. Underwriter within the meaning
of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and
sales of Stock), to which that U.S. Underwriter, officer,
employee or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any
amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the
Company (or based upon any written information furnished by
the Company) specifically for the purpose of qualifying any
or all of the Stock under the securities laws of any state or
other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state
in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or
in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein
not misleading, or (iii) any act or failure to act or any
alleged act or failure to act by any U.S. Underwriter in
connection with, or relating in any manner to, the Stock or
the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability
or action arising out of or based upon matters covered by
clause (i) or (ii) above (PROVIDED that the Company shall not
be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such U.S.
Underwriter through its gross negligence or willful
misconduct), and shall reimburse each U.S. Underwriter and
each such officer, employee or controlling person promptly
upon demand for any legal or other expenses reasonably
incurred by that U.S. Underwriter, officer, employee or
controlling person in connection with investigating or
defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or
in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written
information concerning such U.S. Underwriter furnished to the
Company through the Representatives by or on behalf of any
U.S. Underwriter specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any U.S. Underwriter
or to any officer, employee or controlling person of that
U.S. Underwriter.
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(b) Each U.S. Underwriter, severally and not
jointly, shall indemnify and hold harmless the Company, its
officers and employees, each of its directors, and each
person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state
in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or
in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity
with written information concerning such U.S. Underwriter
furnished to the Company through the Representatives by or on
behalf of that U.S. Underwriter specifically for inclusion
therein, and shall reimburse the Company and any such
director, officer or controlling person for any legal or
other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with
investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is
in addition to any liability which any U.S. Underwriter may
otherwise have to the Company or any such director, officer,
employee or controlling person.
(c) Promptly after receipt by an indemnified party
under this Section 9 of notice of any claim or the
commencement of any action, the indemnified party shall, if a
claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the
indemnifying party in writing of the claim or the
commencement of that action; PROVIDED, HOWEVER, that the
failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 9
except to the extent it has been materially prejudiced by
such failure and, PROVIDED FURTHER, that the failure to
notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise
than under this Section 9. If any such claim or action shall
be brought against an indemnified party, and it shall notify
the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the
indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by the indemnified party in
connection with the defense
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<PAGE> 25
thereof other than reasonable costs of investigation;
PROVIDED, HOWEVER, that the Representatives shall have the
right to employ counsel to represent jointly the
Representatives and those other U.S. Underwriters and their
respective officers, employees and controlling persons who
may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the U.S.
Underwriters against the Company under this Section 9 if, in
the reasonable judgment of the Representatives, it is
advisable for the Representatives and those U.S.
Underwriters, officers, employees and controlling persons to
be jointly represented by separate counsel, and in that event
the fees and expenses of one such separate counsel in each
state shall be paid by the Company; provided further, that,
if indemnity is sought by the Independent Underwriter acting
in its capacity as the "qualified independent underwriter,"
then, in addition to such counsel for the indemnified
parties, the indemnifying party shall be liable for the
reasonable fees and expenses of not more than one counsel (in
addition to any necessary local counsel) for such Independent
Underwriter and all persons, if any, who control the
Independent Underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, if, in
the reasonable judgment of the Independent Underwriter there
may exist a conflict of interest between the Independent
Underwriter and the other indemnified parties. In the case of
any such separate counsel for the Independent Underwriter and
such control persons of the Independent Underwriter, such
counsel shall be designated in writing by the Independent
Underwriter. No indemnifying party shall (i) without the
prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of
any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled
with the consent of the indemnifying party or if there be a
final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this
Section 9 shall for any reason be unavailable to or
insufficient to hold harmless an indemnified party under
Section 9(a) or 9(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such
loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company on the
one hand and the U.S. Underwriters on the other from the
offering of the Stock or (ii) if the
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<PAGE> 26
allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the
one hand and the U.S. Underwriters on the other with respect
to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and
the U.S. Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased
under this Agreement (before deducting expenses) received by
the Company, on the one hand, and the total underwriting
discounts and commissions received by the U.S. Underwriters
with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under
this Agreement, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information
supplied by the Company or the U.S. Underwriters, the intent
of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such
statement or omission. The Company and the U.S. Underwriters
agree that it would not be just and equitable if
contributions pursuant to this Section were to be determined
by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other
method of allocation which does not take into account the
equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof,
referred to above in this Section shall be deemed to include,
for purposes of this Section 9(d), any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 9(d),
no U.S. Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at
which the Stock underwritten by it and distributed to the
public was offered to the public exceeds the amount of any
damages which such U.S. Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. The U.S. Underwriters'
obligations to contribute as provided in this Section 9(d)
are several in proportion to their respective underwriting
obligations and not joint.
(e) The U.S. Underwriters severally confirm and the
Company acknowledges that the statements with respect to the
public offering of the Stock by the U.S. Underwriters set
forth on the cover page of, the legend concerning
stabilization on the inside front cover page of and the
concession and reallowance figures appearing under the
caption "Underwriting" in, the Prospectus are correct
26
<PAGE> 27
and constitute the only information concerning such U.S.
Underwriters furnished in writing to the Company by or on
behalf of the U.S. Underwriters specifically for inclusion in
the Registration Statement and the Prospectus.
10. DEFAULTING U.S. UNDERWRITERS. If, on either Delivery
Date, any U.S. Underwriter defaults in the performance of its obligations under
this Agreement, the remaining non-defaulting U.S. Underwriters shall be
obligated to purchase the Stock which the defaulting U.S. Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions
which the number of shares of the Firm Stock set opposite the name of each
remaining non-defaulting U.S. Underwriter in Schedule 1 hereto bears to the
total number of shares of the Firm Stock set opposite the names of all the
remaining non-defaulting U.S. Underwriters in Schedule 1 hereto; PROVIDED,
HOWEVER, that the remaining non-defaulting U.S. Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total
number of shares of the Stock which the defaulting U.S. Underwriter or U.S.
Underwriters agreed but failed to purchase on such date exceeds 9.09% of the
total number of shares of the Stock to be purchased on such Delivery Date, and
any remaining non-defaulting U.S. Underwriter shall not be obligated to
purchase more than 110% of the number of shares of the Stock which it agreed to
purchase on such Delivery Date pursuant to the terms of Section 2. If the
foregoing maximums are exceeded, the remaining non-defaulting U.S.
Underwriters, or those other U.S. Underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated,
to purchase, in such proportion as may be agreed upon among them, all the Stock
to be purchased on such Delivery Date. If the remaining U.S. Underwriters or
other U.S. Underwriters satisfactory to the Representatives do not elect to
purchase the shares which the defaulting U.S. Underwriter or U.S. Underwriters
agreed but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the U.S. Underwriters to
purchase, and of the Company to sell, the Option Stock) shall terminate without
liability on the part of any non-defaulting U.S. Underwriter or the Company,
except that the Company will continue to be liable for the payment of expenses
to the extent set forth in Sections 7 and 12. As used in this Agreement, the
term "U.S. Underwriter" includes, for all purposes of this Agreement unless the
context requires otherwise, any party not listed in Schedule 1 hereto who,
pursuant to this Section 10, purchases Firm Stock which a defaulting U.S.
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting U.S.
Underwriter of any liability it may have to the Company for damages caused by
its default. If other U.S. Underwriters are obligated or agree to purchase the
Stock of a defaulting or withdrawing U.S. Underwriter, either the
Representatives or the Company may postpone the Delivery Date for up to seven
full business days in order to effect any changes that in the opinion of
counsel for the Company or counsel for the U.S. Underwriters may be necessary
in the Registration Statement, the Prospectus or in any other document or
arrangement.
11. TERMINATION. The obligations of the U.S. Underwriters
hereunder may be terminated by the Representatives by notice given to and
received by the Company prior to delivery of and payment for the Firm Stock if,
prior to that time, any of the events described in
27
<PAGE> 28
Sections 8(i) or 8(j), shall have occurred or if the U.S. Underwriters shall
decline to purchase the Stock for any reason permitted under this Agreement.
12. REIMBURSEMENT OF U.S. UNDERWRITERS' EXPENSES. If (a) the
Company shall fail to tender the Stock for delivery to the U.S. Underwriters by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed, or because any other
condition of the U.S. Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled, the Company will reimburse the U.S.
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the U.S. Underwriters in connection with
this Agreement and the proposed purchase of the Stock, and upon demand the
Company shall pay the full amount thereof to the Representatives. If this
Agreement is terminated pursuant to Section 10 by reason of the default of one
or more U.S. Underwriters, the Company shall not be obligated to reimburse any
defaulting U.S. Underwriter on account of those expenses.
13. NOTICES, ETC. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the U.S. Underwriters, shall be delivered
or sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation,
Office of the General Counsel, Lehman Brothers Inc., 3 World
Financial Center, 10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
David A. Buddemeyer (Fax: (561) 689-8946);
PROVIDED, HOWEVER, that any notice to a U.S. Underwriter pursuant to Section
9(c) shall be delivered or sent by mail, telex or facsimile transmission to
such U.S. Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by
the Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the U.S. Underwriters by Lehman Brothers Inc. on
behalf of the Representatives.
14. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of and be binding upon the U.S. Underwriters, the
Company, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(A) the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
person or persons, if any, who control any U.S. Underwriter within the meaning
of Section 15 of the Securities Act and for the benefit of each International
Manager (and controlling persons thereof) who offers or sells any shares of
Stock in accordance with the terms of the Agreement Between U.S. Underwriters
and International Managers and (B) the indemnity agreement of the U.S.
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<PAGE> 29
Underwriters contained in Section 9(b) of this Agreement shall be deemed to be
for the benefit of directors of the Company, officers of the Company who have
signed the Registration Statement and any person controlling the Company within
the meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 14, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
15. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Company and the U.S. Underwriters contained in
this Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them.
16. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY".
For purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK WITHOUT PRINCIPLES OF
CONFLICT OF LAW THEREOF.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. HEADINGS. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
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<PAGE> 30
If the foregoing correctly sets forth the agreement between
the Company and the U.S. Underwriters, please indicate your acceptance in the
space provided for that purpose below.
Very truly yours,
SERVICO, INC.
By ____________________________
David A. Buddemeyer
Chief Executive Officer
Accepted:
LEHMAN BROTHERS INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
RAYMOND JAMES & ASSOCIATES, INC.
For themselves and as Representatives
of the several U.S. Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By ________________________________
AUTHORIZED REPRESENTATIVE
ALEX. BROWN & SONS INCORPORATED
as Independent Underwriter
By _________________________________
AUTHORIZED REPRESENTATIVE
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<PAGE> 31
SCHEDULE 1
Number of
Shares
---------
U.S. Underwriters
-----------------
Lehman Brothers Inc.......................................
Alex. Brown & Sons Incorporated...........................
Montgomery Securities.....................................
Raymond James & Associates, Inc...........................
Total................................................ 8,000,000
=========
31
<PAGE> 1
EXHIBIT 23.1
CONSENT OF COUNSEL
We hereby consent to the use of our opinion included herein and to all
references to this firm under the heading "Legal Matters" in the Prospectus
constituting a part of this Registration Statement on Form S-3 of Servico, Inc.
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
Miami, Florida
June 5, 1996
II-5
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 13, 1997, included and incorporated by
reference in the Registration Statement (Form S-3) and related Prospectus of
Servico, Inc. for the registration of 10 million shares of its common stock.
Ernst & Young LLP
West Palm Beach, Florida
June 5, 1997
II-6
