<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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 AMOUNT OF
OF SECURITIES TO BE AGGREGATE REGISTRATION
REGISTERED OFFERING PRICE(1)(2) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value................ $140,000,000 $42,424.24
==================================================================================================================
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933.
(2) Includes shares of Common Stock which may be purchased by the Underwriters
pursuant to an over-allotment option.
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
Preliminary Prospectus Dated May 16, 1997
PROSPECTUS
10,000,000 SHARES
[LOGO] SERVICO, INC.
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 indicated that it intends to
file an application to list the Common Stock on the New York Stock Exchange
("NYSE"). On , 1997, the last reported sale price of the Common
Stock on the AMEX was $ . 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 6.
---------------------------
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 $ .
(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 and International Managers, 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 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 , 1997.
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
, 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
subsidiaries and consolidated 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. As full-service
properties, the Company's hotels offer food and beverage services, meeting and
banquet facilities, and similar guest services. The Company's hotels include 43
wholly owned hotels, 14 partially owned hotels and two managed hotels. 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 and the Company is 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 mid-market and upscale hotels where the Company believes it can
make a meaningful improvement 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 a compound annual growth rate ("CAGR") of 22.9%,
43.3% and 76.5%, respectively.
The Company's acquisition strategy is focused on the purchase of single or
small portfolios of mid-market and upscale full-service hotels in secondary
markets which management believes have the potential for attractive cash-on-cash
returns. Management believes that such acquisitions allow for timely hotel-level
improvements and integration and provide more predictable cash flow and earnings
growth. The Company believes the mid-market and upscale full-service segment of
the lodging industry is attractive because of (i) the large number of properties
available for acquisition, (ii) the significant number of owners of older
properties in attractive locations that lack the resources and capital to
improve operating results, (iii) the positive impact of food and beverage
service and meeting facilities on room utilization and profitability, (iv)
attractive segment fundamentals including limited construction, and (v)
attractive acquisition prices. Management believes the Company differs from
other owners and operators because of its willingness 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 leveraging of banquet facilities,
food and beverage operations and meeting space to maximize room utilization and
improve profitability and (iv) a commitment to reinvest sufficient 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 and leverage.
During the last six months, the Company considered various alternatives for
restructuring its balance sheet with a view towards 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"
- ---------------
(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.
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 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 AMOUNTS AND OPERATING 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% 20.6% 24.2% 24.1% 22.2% 22.7% 22.7%
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 $1.0
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 widely regarded industry
measure of lodging performance used in the assessment of hotel property
values. 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.
(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.
Future 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 the 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
during years one through four, impose prepayment penalties during years five
through ten, 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 REAL ESTATE
The Company will be subject to varying degrees of risk generally incident
to the ownership 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.
8
<PAGE> 11
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, 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 effecting 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
(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 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
9
<PAGE> 12
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. 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. 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.
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
10
<PAGE> 13
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 hotel properties. Subject to the successful 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. 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 the 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 $64 million of such debt is held by
Lehman Brothers Holdings, Inc. ("Lehman Holdings"), an affiliate of Lehman
Brothers Inc. ("Lehman Brothers") and approximately $62 million is held by a
Trust in which an affiliate of Lehman Holdings holds subordinate interests.
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
11
<PAGE> 14
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. The Company caused a
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. EMC and
Pengo have agreed not to sell any shares of Common Stock for a period of 90 days
from the date of this Prospectus or such longer period as may be reasonably
required by the Underwriters. In addition the Company has registered under the
Securities Act 1,425,000 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.
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 $64 million owed to Lehman
Holdings and $62 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 limited partnership interests in three partnerships currently
held by certain EMC Affiliates. See "Risk Factors -- Conflicts of Interest" for
a discussion of the terms of the Company's agreement to acquire such limited
partnership interests. 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. Included in
the indebtedness to be repaid is an approximately $4.9 million exit fee.
Accordingly, the effective interest rate on this indebtedness (based on an
average LIBOR rate of 5.5%,) will have been 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
12
<PAGE> 15
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............................................... $11 1/8 $9 1/4
Second Quarter.............................................. 10 3/8 9 1/8
Third Quarter............................................... 16 9 3/4
Fourth Quarter.............................................. 15 1/2 10 1/8
YEAR ENDED DECEMBER 31, 1996:
First Quarter............................................... 13 7/8 10 1/2
Second Quarter.............................................. 16 1/2 11 3/4
Third Quarter............................................... 17 13 1/2
Fourth Quarter.............................................. 17 1/4 14 1/2
YEAR ENDED DECEMBER 31, 1997:
First Quarter............................................... 20 1/2 16
Second Quarter (through , 1997)..............
</TABLE>
On , 1997, the closing sale price of the Common Stock as
reported on the AMEX composite tape was $ per share.
The Company has indicated it intends to file 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, 9,396,405 shares issued and outstanding
(19,396,405 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:.............................................. $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(f) 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(g) (18,020)
Minority interests.......................... (2,060) 198 1,077(h) (785)
-------- ------- ------- --------
Income before income taxes and extraordinary
item........................................ 11,773 407 14,331 26,511
Provision for income taxes.................. 3,225 163 5,732(i) 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 (j)................. .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(k) $ 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(l) 375,852
Investment in unconsolidated entities............... 902 -- 902
Other assets, net................................... 33,427 (9,802)(m) 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)(m,o) 21,717
Current portion of long-term obligations.......... 23,179 (4,886)(n) 18,293
-------- -------- --------
Total current liabilities........................... 56,223 (8,372) 47,851
Long-term obligations, less current portion......... 285,237 (126,329)(n) 158,908
Deferred income taxes............................... 8,405 -- 8,405
Commitments and contingencies
Minority interests.................................. 19,990 (6,013)(l) 13,977
Stockholders' equity:
Common stock...................................... 94 100(p) 194
Additional paid-in capital........................ 55,403 140,650(p) 196,053
Retained earnings................................. 19,818 (3,852)(m) 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 balance sheet
(entries k-p) as if the Offering and the acquisition of partnership interests in
three hotels took place on March 31, 1997, and to the statements of income for
the three months ended March 31, 1997, (entries a-d) and the year ended December
31, 1996, (entries e-j) as if the Offering and the acquisition of the Acquired
Businesses and partnership interests in three hotels had taken place on January
1, 1996.
(a) To record the additional depreciation expense relating to the
acquisition of additional partnership interests in three hotels. (see
note (l) 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 (n) below.
(c) To eliminate the minority interest expense associated with the
partnership interests of the three hotels discussed in note (l) 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 record the additional depreciation expense relating to the
acquisition of additional partnership interests in three hotels discussed
in note (l) below.
(g) 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 (n) below.
(h) To eliminate the minority interest expense associated with the
partnership interests of the three hotels discussed in note (l) below.
(i) To record the provision for income taxes relating to entries (f) through
(h) using the Company's overall effective rate of 40%.
(j) Non-recurring income, net of taxes, represents gain on litigation
settlement of $3.7 million less certain severance costs.
(k) To record the 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).
(l) To record the purchase of partnership interests relating to three hotels
($5.7 million) and to eliminate related minority partnership interests
($6 million).
(m) 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).
(n) 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.
(o) To record the income tax benefits ($2.6 million) relating to the write
off of unamortized loan costs.
(p) To record the issuance of 10,000,000 shares of Common Stock at $15.00
per share in connection with the Offering.
18
<PAGE> 21
RECENT SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents summary 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.......... 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
</TABLE>
19
<PAGE> 22
RECENT SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA -- (CONTINUED)
<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>
OTHER INCOME
(EXPENSES):
Interest income...... 335 1,002 1,631 1,605 179 373 373
Other income......... -- 195 89 89 26
Non-recurring
income............ 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
======== ======== ======== ======== ======== ======== ========
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
</TABLE>
20
<PAGE> 23
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
21
<PAGE> 24
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
22
<PAGE> 25
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 expenses 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 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.
23
<PAGE> 26
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.
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 mortgage notes payable which mature within twelve months of $15.3
million. 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
24
<PAGE> 27
million in non-cash deferred loan costs which are being amortized over 36
months. These deferred loan costs are payable in May 1999.
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.
25
<PAGE> 28
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. As full-service
properties, the Company's hotels offer food and beverage services, meeting and
banquet facilities, and similar guest services. The Company's hotels include 43
wholly owned hotels, 14 partially owned hotels and two managed hotels. 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 and is 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. Accordingly,
the Company seeks to achieve external growth through the acquisition of
underperforming mid-market and upscale hotels where the Company believes it can
make a meaningful improvement 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 nonrecurring and extraordinary items, to $239.5 million, $57.9
million and $.55, respectively, representing a CAGR of 22.9%, 43.3% 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 mid-market and upscale its hotels in
attractive markets. In addition, the Company seeks to enhance the operating
performance of its owned and managed hotels through the continued implementation
of both marketing plans that uniquely position each hotel within its local
market and management plans that focus on guest satisfaction, revenue yield,
cost control and labor productivity.
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 primarily accomplish such acquisitions by adding
wholly owned properties to its current portfolio and, if appropriate, by
entering into joint ventures with third parties.
Hotel Criteria
Focus on Small Portfolio and Single Hotel Acquisitions. The Company
typically targets the acquisition of small portfolios or single hotels.
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 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 selective geographically. Further, management
believes the 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 other owners and operators based on the
Company's willingness to purchase substantially underperforming hotels and its
ability to reposition the hotels after acquisition so as to achieve significant
26
<PAGE> 29
operating gains. The Company seeks full-service acquisition candidates with the
potential for highly attractive cash-on-cash 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. Upside potential,
however, can 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 positioned to dominate 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.
27
<PAGE> 30
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
leverage 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.
28
<PAGE> 31
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. An
aggregate of 11 hotels were acquired in 1995 (the "1995 Acquisitions") and an
aggregate of 13 hotels were acquired in 1996 (the "1996 Acquisitions"). Of these
24 acquisitions, 15 hotels, containing approximately 2,389 rooms, are wholly
owned by the Company and nine hotels, containing approximately 1,966 rooms, are
majority owned by the Company through joint ventures. 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.
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 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.
29
<PAGE> 32
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 TWELVE MONTHS 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 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
30
<PAGE> 33
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 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
31
<PAGE> 34
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 hotels 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.
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<PAGE> 35
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 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.
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> 36
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.
34
<PAGE> 37
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(3) OWNED(4)
----- -------- -------- ----- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Hampton Inn...................... Dothan, AL 113 1988 8/95 1995 100%
Holiday Inn...................... Dothan, AL 102 1961 8/95 1996 100%
Holiday Inn Express.............. Gadsden, AL 143 1963 8/95 1996 100%
Holiday Inn(2)................... 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)(1)................... 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(1)................... 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(2)................... Lawrence, KS 192 1982 8/95 1996 51%(5)
Holiday Inn(2)................... 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(1)...................... 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(2)................... 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(1).......................... 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>
35
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<TABLE>
<CAPTION>
NUMBER DATE OF
OF GUEST YEAR DATE LAST PERCENT
HOTEL LOCATION ROOMS BUILT ACQUIRED RENOVATION(3) OWNED(4)
----- -------- -------- ----- -------- ------------- --------
<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) Hotel subject to long-term ground lease.
(2) Hotel subject to long-term lease covering the land and improvements.
(3) The year in which major renovations were completed as distinguished from
on-going maintenance expenditures.
(4) 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."
(5) Hotel is currently 51% owned, however, proceeds from this Offering will be
used to purchase the remaining 49% interest held by certain EMC Affiliates.
The following summary presents certain information concerning each of the
Company's owned hotels:
[MAP] 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 231 Bypass, 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.
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[MAP] HOWARD JOHNSON -- FLAGSTAFF, AZ
Located off Interstate 40. Amenities include full-service restaurant,
glass-enclosed indoor pool and whirlpool/spa and game room. Location 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, I-10, 1 mile from 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 Municipal, 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] 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
path; 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.
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[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.
[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] 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 and 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
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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 -- FT. 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] 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.
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[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] 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 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.
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[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 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] 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,
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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 and 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 the 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] 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.
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[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, 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, Carlow College, 5 miles; Three
Rivers Stadium, Civic Arena, Station Square, Downtown Pittsburgh, 8 miles;
Pittsburgh International Airport, 23 miles; 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] 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,
43
<PAGE> 46
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] BEST WESTERN -- 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] BEST WESTERN -- 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 and 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 and 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 and spa. Local attractions include State Capitol,
Convention Center, 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.
44
<PAGE> 47
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 1, 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
45
<PAGE> 48
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.
46
<PAGE> 49
UNDERWRITING
The Underwriters of the U.S. Offering of Common Stock (the "U.S.
Underwriters"), for whom Lehman Brothers Inc., Alex. Brown & Sons Incorporated
and Montgomery Securities 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>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Lehman Brothers Inc.........................................
Alex. Brown & Sons Incorporated.............................
Montgomery Securities.......................................
-------------
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
Incorporated and Montgomery Securities 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>
INTERNATIONAL UNDERWRITERS NUMBER OF SHARES
-------------------------- ----------------
<S> <C>
Lehman Brothers International (Europe)......................
Alex. Brown & Sons Incorporated.............................
Montgomery Securities.......................................
----------
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. Underwriter 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
47
<PAGE> 50
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 of 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. 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.
48
<PAGE> 51
Neither the Company nor any of the Underwriters 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 Underwriters 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 Offerings 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 May, 1996, the Company completed a debt refinancing with Lehman
Holdings, an affiliate of Lehman Brothers. The Company expects to repay this
financing with approximately $126 million of the net proceeds of the Offering.
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."
Because an affiliate of Lehman will receive more than 10% of the net
proceeds of the Offering in repayment of currently outstanding indebtedness, the
Offering is being conducted in accordance with Rule 2710(c)(8) of the Conduct
Rules of the National Association of Securities Dealers, Inc. (the "Conduct
Rules"). In accordance with these requirements, Alex. 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
requirements of 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.
49
<PAGE> 52
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 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, included
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 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.
50
<PAGE> 53
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.
(3) The description of the Company's Common Stock contained in the
Company's Form 8-A, dated August 10, 1992, as amended on August 13, 1992.
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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 $ 1,935 $ 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> 60
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> 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)
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> 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)
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> 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)
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> 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)
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> 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)
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> 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)
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 carry forward 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> 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)
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> 68
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> 69
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> 70
================================================================================
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
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....................
Risk Factors..........................
Use of Proceeds.......................
Dividend Policy.......................
Price Range of Common Stock...........
Capitalization........................
Selected Consolidated Financial and
Other Data..........................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
The Company...........................
Management............................
Underwriting..........................
Legal Matters.........................
Experts...............................
Available Information.................
Information Incorporated by
Reference...........................
Index to Financial Statements......... F-1
</TABLE>
================================================================================
================================================================================
SHARES
[LOGO]
SERVICO, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
---------------------------
, 1997
================================================================================
<PAGE> 71
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
Preliminary Prospectus Dated May 16, 1997
PROSPECTUS
10,000,000 SHARES
[LOGO] SERVICO, INC.
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 indicated that it intends to
file an application to list the Common Stock on the New York Stock Exchange
("NYSE"). On , 1997, the last reported sale price of the Common
Stock on the AMEX was $ . 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 6.
---------------------------
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 $ .
(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 and International Managers, 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 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 , 1997.
---------------------------
LEHMAN BROTHERS INTERNATIONAL
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
, 1997.
<PAGE> 72
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 and
applicable estate tax treaty provides otherwise.
<PAGE> 73
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.
2
<PAGE> 74
================================================================================
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
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....................
Risk Factors..........................
Use of Proceeds.......................
Dividend Policy.......................
Price Range of Common Stock...........
Capitalization........................
Selected Consolidated Financial and
Other Data..........................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
The Company...........................
Management............................
Certain United States Federal Tax
Considerations to Non-U.S.
Holders.............................
Underwriting..........................
Legal Matters.........................
Experts...............................
Available Information.................
Information Incorporated by
Reference...........................
Index to Financial Statements......... F-1
</TABLE>
================================================================================
================================================================================
SHARES
[LOGO]
SERVICO, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
LEHMAN BROTHERS INTERNATIONAL
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
---------------------------
, 1997
================================================================================
<PAGE> 75
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........................................ $ 42,424
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............................................... 53,076
--------
Total*............................................ $750,000
========
</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> 76
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 (included with the signature pages to this
Registration Statement)
</TABLE>
- ---------------
* To be filed by amendment.
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
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<PAGE> 77
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.
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<PAGE> 78
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 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 16th day of
May, 1997.
SERVICO, INC.
By: /s/ DAVID A. BUDDEMEYER
------------------------------------
David A. Buddemeyer
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David A. Buddemeyer and Warren M. Knight, and
each of them acting along, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments,
including post-effective amendments, to this Registration Statement or any
registration statement relating to this offering to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 May 16, 1997
- ----------------------------------------------------- Executive Officer
David A. Buddemeyer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ WARREN M. KNIGHT Vice President -- Finance and May 16, 1997
- ----------------------------------------------------- Chief Financial and
Warren M. Knight Principal Accounting Officer
/s/ JOHN W. ADAMS Director May 16, 1997
- -----------------------------------------------------
John W. Adams
/s/ JOSEPH C. CALABRO Director May 16, 1997
- -----------------------------------------------------
Joseph C. Calabro
</TABLE>
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<PAGE> 79
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETER R. TYSON Director May 16, 1997
- -----------------------------------------------------
Peter R. Tyson
/s/ RICHARD H. WEINER Director May 16, 1997
- -----------------------------------------------------
Richard H. Weiner
</TABLE>
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<PAGE> 1
EXHIBIT 5
May 16, 1997
Mr. David A. Buddemeyer
Servico, Inc.
1601 Belvedere Road
West Palm Beach, FL 33406
Re: Servico, Inc. / Offering of Shares of Common Stock
Dear Mr. Buddemeyer:
As counsel to Servico, Inc. (the "Corporation"), we have examined the
Articles of Incorporation and Bylaws of the Corporation as well as such other
documents and proceedings as we have considered necessary for the purposes of
this opinion. We have also examined and are familiar with the proceedings taken
by the Corporation to authorize the issuance of up to 10,000,000 shares of
Common Stock, par value $.01 per share, of the Corporation (the "Common Stock").
In addition, we have examined a copy of the Prospectus included in the
Corporation's Registration Statement on Form S-3 (the "Prospectus") filed with
the Securities and Exchange Commission on May 16, 1997.
In rendering this opinion, we have assumed, without independent
investigation: (i) the authenticity of all documents submitted to us as
originals; (ii) the conformity to original documents of all documents submitted
to us as certified or photostatic copies; and (iii) the genuineness of all
signatures. In addition, as to questions of fact material to the opinions
expressed herein, we have relied upon such certificates of public officials,
corporate agents and officers of the Corporation and such other certificates as
we deemed relevant.
Based upon the foregoing, and having regard to legal considerations which
we deem relevant, we are of the opinion that following the issuance and delivery
of the Common Stock against payment of adequate consideration therefore in
accordance with the terms of the Prospectus, the Common Stock will be validly
issued, fully paid and non-assessable.
Very truly yours,
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
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<PAGE> 1
EXHIBIT 15
May 13, 1997
Board of Directors and Shareholders
Servico, Inc.
We are aware of the incorporation by reference in the Registration
Statement (Form S-3) of Servico, Inc. for the registration of 10,000,000 shares
of its common stock of our report dated April 18, 1997 relating to the unaudited
condensed consolidated interim financial statements of Servico, Inc. and
subsidiaries which is included in its Form 10-Q for the quarter ended March 31,
1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the Registration Statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
Very truly yours,
ERNST & YOUNG LLP
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<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
May 16, 1996
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<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
May 13, 1997
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