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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 1, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to __________________
Commission File Number 1-13486
JOHN Q. HAMMONS HOTELS, L.P.
JOHN Q. HAMMONS HOTELS FINANCE CORPORATION
JOHN Q. HAMMONS HOTELS FINANCE CORPORATION II
(Exact Name of Registrants as specified in their charters)
Delaware 43-1523951
Missouri 43-1680322
Missouri 43-1720400
(State of Organization) (I.R.S. employer identification no.)
300 John Q. Hammons Parkway, Ste. 900
Springfield, Missouri 65806
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 864-4300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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PART I
Item 1. Business.
As used herein, the term "Company" means John Q. Hammons Hotels, L.P., a
Delaware limited partnership, and its corporate and partnership subsidiaries
collectively, or, as the context may require, John Q. Hammons Hotels, L.P. only.
As used herein, the term "General Partner" means John Q. Hammons Hotels, Inc., a
Delaware corporation, or Hammons, Inc., a Missouri corporation, and the
predecessor general partner of the Company. As used herein, the term "Finance
Corp." means John Q. Hammons Hotels Finance Corporation, a wholly owned
subsidiary of the Company which has nominal assets and does not conduct any
operations, and Finance Corp. II means John Q. Hammons Hotels Finance
Corporation II, each of which is co-obligor for the 1994 Notes and the 1995
Notes (as defined herein). As used herein, the term "Registrants" means John Q.
Hammons Hotels, L.P., Finance Corp. and Finance Corp. II.
Overview
The Company is a leading independent owner, manager and developer of
affordable upscale hotels in capital city, secondary and airport markets. The
Company owns and manages 42 hotels located in 20 states, containing 10,293 guest
rooms or suites (the "Owned Hotels"), including four new hotels opened in 1998.
The Company also manages five additional hotels located in two states,
containing 1,176 guest rooms (the "Managed Hotels"). On January 1, 1999, the
Company also owned six upscale hotels at various stages of development, which
are scheduled to open during 1999 and 2000 (the "Scheduled Hotels"). The
Company's existing Owned Hotels and Managed Hotels (together, the "JQH Hotels")
operate primarily under the Holiday Inn and Embassy Suites trade names. Most of
the Company's hotels are near a state capitol, university, airport or corporate
headquarters, plant or other major facility and generally serve markets with
populations of up to 300,000 people (or larger populations in the case of
airport markets and many of the markets in which the Company has developed new
hotels over the past several years).
The Company's strategy is to increase cash flow and thereby enhance Partner
value primarily through (i) capitalizing on positive operating fundamentals in
the upscale full-service sector of its markets and improving the operating
results of its newer hotels, (ii) converting the franchises of its existing
hotels to franchise brands that are considered to be more upscale, and (iii)
selling certain mature assets and re-investing the net proceeds.
The JQH Hotels are designed to appeal to a broad range of hotel customers,
including frequent business travelers, groups and conventions, as well as
leisure travelers. Each of the JQH Hotels is individually designed by the
Company, and most contain an impressive multi-storied atrium, with water
features and lush plantings, expansive meeting space, large guest rooms or
suites and comfortable lounge areas. The Company believes that these design
features enhance guest comfort and safety and increase the value perceived by
the guest. The JQH Hotels' meeting facilities can be readily adapted to
accommodate both larger and smaller meetings, conventions and trade shows. The
18 Holiday Inn JQH Hotels are affordably priced hotels designed to attract the
business and leisure traveler desiring quality accommodations, including meeting
facilities, in-house restaurants, cocktail lounges and room service. The 13
Embassy Suites JQH Hotels are all-suite hotels which appeal to the traveler
needing or desiring greater space and specialized services. The JQH Hotels also
include six non-franchise hotels,
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two Radissons, one Hampton Inn & Suites, two Marriotts, two Homewood Suites, one
Crowne Plaza, one Sheraton and one Days Inn. Four of the non-franchise hotels
have the word "Plaza" in their name and the other two non-franchise hotels are
resort hotels. The Company determines which brand of hotel to develop depending
upon the demographics of the market to be served.
Management of the JQH Hotels is coordinated from the Company's headquarters
in Springfield, Missouri by its senior management team. Five Regional Vice
Presidents and two District Directors are responsible for supervising a group of
general managers of JQH Hotels in day-to-day operations. Centralized management
services and functions include development, design, sales and marketing,
purchasing and financial controls. Through these centralized services,
significant cost savings are realized due to economies of scale.
The General Partner conducts all of its business operations through the
Company and its subsidiaries. Mr. Hammons beneficially owns all 294,100 shares
of Class B Common Stock of the General Partner, representing 70.88% of the
combined voting power of both classes of the General Partner Common Stock. The
General Partner is the sole general partner of the Company through its ownership
of all 6,336,100 general partner units (the "GP Units"), representing 28.31% of
the total equity in the Company. Mr. Hammons beneficially owns all 16,043,900
limited partnership units of the Company (the "LP Units"), representing 71.69%
of the total equity in the Company. The 6,042,000 shares of Class A Common Stock
of the General Partner represent 27.00% of the total equity of the Company, and
the Class B Common Stock and LP Units beneficially owned by Mr. Hammons
represent 73.00% of the total equity in the Company. Mr. Hammons is also the
beneficial owner of 110,100 shares of Class A Common Stock.
The Company's executive offices are located at 300 John Q. Hammons
Parkway, Suite 900, Springfield, Missouri 65806 and its telephone number is
(417) 864-4300. The Company is a Delaware limited partnership that was formed
on September 5, 1989.
Development
The Company announced on September 11, 1998 that it was ceasing new
development activity, except for the hotels currently under construction. The
following table sets forth information as to the "Scheduled Hotels":
<TABLE>
<CAPTION>
Number of Stage of Development/
Location Franchise/Name Rooms/Suites Description Estimated Completion Date
- -------- -------------- ------------ ----------- -------------------------
<S> <C> <C> <C> <C>
Mesquite, TX Hampton Inn & Suites 160 Convention Center Construction commenced;
2nd Quarter 1999
Coral Springs, FL Radisson Plaza 224 Atrium; Convention Construction commenced;
Center 2nd Quarter 1999
Dallas/Ft. Worth
Airport, TX Embassy Suites 330 Atrium Construction commenced;
3rd Quarter 1999
Charlotte, NC Renaissance Suites 275 Atrium Construction commenced;
4th Quarter 1999
Oklahoma City, OK Renaissance 312 Atrium; Convention Construction commenced;
Center 1st Quarter 2000
Charleston, SC Embassy Suites 275 Atrium Construction commenced;
1st Quarter 2000
</TABLE>
Although the Company has in the past chosen to develop rather than acquire
existing hotels, the Company may in the future acquire hotels if suitable
opportunities arise. The
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Company continues to be approached from time to time by third-party hotel owners
seeking to sell or buy hotels. The Company will continue to evaluate each offer
and base its decision on the market location, capital required, and return on
investment alternatives.
On February 6, 1998, the Company completed the sale of six hotels to an
unrelated party for $39.4 million, resulting in a gain of approximately $0.2
million. The net book value of the hotels' property and equipment at the time of
the sale was approximately $38.6 million. On December 31, 1998, the Company
completed the sale of an additional hotel property to an unrelated party for
$16.1 million, resulting in a gain of approximately $8.0 million. The net book
value of the hotel's property and equipment at the time of the sale was
approximately $8.1 million.
The Company's development activity restricts its ability to grow per share
income in the short term. Fixed charges for new hotels (such as depreciation and
amortization expense and interest expense) exceed new hotel operating cash flow
in the first one to three years of operations. As new hotels mature, the Company
expects, based on past experience, that the operating expenses for these hotels
will decrease as a percentage of revenues, although there can be no assurance
that this will continue to occur.
Operations
Management of the JQH Hotels network is coordinated by the Company's senior
management team at the Company's headquarters in Springfield, Missouri. The
management team is responsible for managing the day-to-day financial needs of
the Company, including the Company's internal accounting audits. The Company's
management team administers insurance plans and business contract review,
oversees the financial budgeting and forecasting for the JQH Hotels, analyzes
the financial feasibility of new hotel developments, and identifies new systems
and procedures to employ within the JQH Hotels to improve efficiency and
profitability. The management team also coordinates each JQH Hotel's sales
force, designing sales training programs, tracking future business under
contract, and identifying, employing and monitoring marketing programs aimed at
specific target markets. The management team is indirectly responsible for
interior design of all hotels and each hotel's product quality, and directly
oversees the detailed refurbishment of existing operations. The overall
management of the JQH Hotels is coordinated by the central management team
through five Regional Vice Presidents and two District Directors responsible for
guiding the general managers of each JQH Hotel in day-to-day operations.
Central management utilizes information systems that track each JQH Hotel's
daily occupancy, average room rate, and rooms and food and beverage revenues.
Contracted business is tracked for each hotel individually five years into the
future using the Company's sales projection and usage reporting system. By
having the latest information available at all times, management is better able
to respond to changes in each market by focusing sales and yield management
efforts on periods of demand extremes (low periods and high periods of demand)
and controlling variable expenses to maximize the profitability of each JQH
Hotel.
Creating operating, cost and guest service efficiencies in each hotel is a
top priority to the Company. With a total of 47 hotels under management, the
Company is able to realize significant cost savings due to economies of scale.
By leveraging the total hotels/rooms under its management, the Company is able
to secure volume pricing from its vendors that is not available
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to smaller hotel companies. The Company employs a systems trainer who is
responsible for installing new computer systems and providing training to hotel
employees to maximize the effectiveness of these systems and to ensure that
guest service is enhanced.
Regional management constantly monitors each JQH Hotel to verify that the
Company's high level of operating standards are being met. The Company's
franchisors maintain rigorous inspection programs in which chain representatives
visit their respective JQH Hotels (typically 2 or 3 times per year ) to evaluate
product and service quality. Each chain also provides feedback to each hotel
through their guest satisfaction rating systems in which guests who visited the
hotel are asked to rate a variety of product and service issues.
Sales and Marketing
The Company's marketing strategy is to market the JQH Hotels both through
national and marketing programs. These are local sales managers and a director
of sales at each of the JQH Hotels. While the Company makes periodic
modifications to the concept in order to address differences and maintain a
sales organization structure based on market needs and local preferences, it
generally utilizes the same major campaign concept throughout the country. The
concepts are developed at its management headquarters while the modifications
are implemented by the JQH Hotels regional vice presidents, district directors
and local sales force, all of whom are experienced in hotel marketing. The sales
force reacts promptly to local changes and market trends in order to customize
marketing programs to meet each hotel's competitive needs. In addition, the
local sales force is responsible for developing and implementing marketing
programs targeted at specific customer segments within each market. The Company
requires that each of its sales managers complete an extensive sales training
program. Before finishing the program, the sales manager must successfully
complete certifications in three development phases.
The Company's core market consists of business travelers who visit a given
area several times per year, including salespersons covering a regional
territory, government and military personnel and technicians. The profile of the
primary target customer is a college educated business traveler, age 25 to 54,
from a two-income household with a middle management white collar occupation or
upper level blue collar occupation. The Company believes that business travelers
are attracted to the JQH Hotels because of their convenient locations in state
capitals, their proximity to airports or corporate headquarters, plants,
convention centers or other major facilities, the availability of ample meeting
space and the high level of service relative to other hotel operators serving
the same markets. The Company's sales force markets to organizations which
consistently produce a high volume of room nights and which have a significant
number of individuals traveling in the Company's operating regions. The Company
also targets groups and conventions attracted by a JQH Hotel's proximity to
convention or trade centers (often adjacent). JQH Hotels' group meetings
logistics include flexible space readily adaptable to groups of varying size,
high-tech audio-visual equipment and on-site catering facilities. The Company
believes that suburban convention centers attract more convention sponsors due
to lower prices than larger, more cosmopolitan cities. In addition to the
business market, the Company's targeted customers also include leisure travelers
looking for secure, comfortable lodging at an affordable price as well as women
travelers who find the security benefits of the Company's atrium hotels
appealing.
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The Company advertises primarily through direct mail, magazine
publications, directories, and newspaper advertisements, all of which focus on
value delivered to and perceived by the guest. The Company has developed in-
house marketing materials including professional photographs and written
materials that can be mixed and matched to appeal to a specific target group
(business traveler, vacationer, religious group, reunions, etc.). The Company's
marketing efforts focus primarily on business travelers who account for
approximately 50% of the rooms rented in the JQH Hotels.
The Company's franchise hotels utilize the centralized reservation systems
of its franchisors, which the Company believes are among the more advanced
reservation systems in the hotel industry. The franchisors' reservation systems
receive reservation requests entered (i) on terminals located at all of their
respective franchises, (ii) at reservation centers utilizing 1-800 phone access
and (iii) through several major domestic airlines. Such reservation systems
immediately confirm reservations or indicate accommodations available at
alternate system hotels. Confirmations are transmitted automatically to the
hotel for which the reservations are made. The Company believes that these
systems are effective in directing customers to the Company's franchise hotels.
Franchise Agreements
The Company enters into non-exclusive franchise licensing agreements (the
"Franchise Agreements") with franchisors which it believes are the most
successful brands in the hotel industry. The term of the individual Franchise
Agreement for a hotel typically is 20 years. The Franchise Agreements allow the
Company to start with and then build upon the reputation of the brand names by
setting higher standards of excellence than the brands themselves require. The
non-exclusive nature of the Franchise Agreements allows the Company the
flexibility to continue to develop properties with the brands that have shown
success in the past or to develop in conjunction with other brand names. While
the Company currently has a good relationship with its franchisors, there can be
no assurance that a desirable replacement would be available if any of the
Franchise Agreements were to be terminated.
Holiday Inn. The Franchise Agreement grants to the Company a
nonassignable, non-exclusive license to use the Holiday Inns service mark and
computerized reservation network. The Franchisor maintains the right to improve
and change the reservation system to make it more efficient, economical and
competitive. Monthly fees paid by the Company are based on a percentage of gross
revenues attributable to room rentals, plus marketing and reservation
contributions which are also a percentage of gross revenues. The term of the
Franchise Agreement is 20 years with a renewal option in the 15th year.
Embassy Suites. The Franchise Agreement grants to the Company a
nonassignable, non-exclusive license to use the Embassy Suites service mark and
computerized reservation network. The franchisor maintains the exclusive right
to improve and change the reservation system for the purpose of making it more
efficient, economical and competitive. Monthly fees paid by the Company are
based on a percentage of gross revenues attributable to suite rentals, plus
marketing and reservation contributions which are also a percentage of gross
revenues. The term of the Franchise Agreement is 20 years with a renewal option
in the 18th year.
Other Franchisors. The franchise agreements with other franchisors not
listed above are similar in that they are nonassignable, non-exclusive licenses
to use the franchisor's service mark
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and computerized reservation network. Payments and terms of agreement vary based
on specific negotiations with the franchisor.
Competition
Each of the JQH Hotels competes in its market area with numerous full
service lodging brands, especially in the upscale market, and with numerous
other hotels, motels and other lodging establishments. Chains such as Sheraton
Inns, Marriott Hotels, Ramada Inns, Radisson Inns, Comfort Inns, Hilton hotels
and Doubletree/Red Lion Inns are direct competitors of JQH Hotels in their
respective markets. There is, however, no single competitor or group of
competitors of the JQH Hotels that is consistently located nearby and competing
with most of the JQH Hotels. Competitive factors in the lodging industry include
reasonableness of room rates, quality of accommodations, level of service and
convenience of locations.
Regulations and Insurance
General. 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. In
addition, various federal and state regulations mandate certain disclosures and
practices with respect to the sales of license agreements and the
licensor/licensee relationship. The Company believes that each of the JQH Hotels
has the necessary permits and approvals to operate its respective businesses.
The Company believes that all necessary permits and approvals to operate the
Scheduled Hotels will be obtained in the ordinary course of business. To
supplement the Company's self insurance programs, umbrella, property, auto,
commercial liability and worker's compensation insurance is provided to the JQH
Hotels under a blanket policy. Insurance expenses for the JQH Hotels were
approximately $6.3 million, $6.2 million and $2.2 million in 1996, 1997 and
1998, respectively. During 1998, the Company realized continued favorable trends
in insurance expense as a result of claim experience and rate improvements and a
favorable buyout of several prior self-insured years. The Company believes that
the JQH Hotels are adequately covered by insurance.
Americans with Disabilities Act. The JQH Hotels and any newly developed or
acquired hotels must comply with Title III of the Americans with Disabilities
Act ("ADA") to the extent that such properties are "public accommodations" and
/or "commercial facilities" as defined by the ADA. Compliance with the ADA
requirements could require removal of structural barriers to handicapped areas
in certain public areas of the JQH Hotels where such removal is readily
achievable. Noncompliance could result in a judicial order requiring compliance,
an imposition of fines or an award of damages to private litigants. The Company
has taken into account an estimate of the expense required to make any changes
required by the ADA and believes that such expenses will not have a material
adverse effect on the Company's financial condition or results of operations. If
required changes involve a greater expenditure than the Company currently
anticipates, or if the changes must be made on a more accelerated basis than the
Company anticipates, the Company could be adversely affected. The Company
believes that its competitors face similar costs to comply with the requirements
of the ADA.
Asbestos Containing Materials. Certain, federal, state and local laws,
regulations and ordinances govern the removal, encapsulation or disturbance of
Asbestos Containing Materials ("ACMs") when ACMs are in poor condition or in the
event of building, remodeling, renovation or demolition. These laws may impose
liability for the release of ACMs and may permit third
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parties to seek recovery from owners or operators of real estate for personal
injury associated with ACMs. Based on prior environmental assessments, seven of
the Owned Hotels contain ACMs and four of the Owned Hotels may contain ACMs,
generally in sprayed-on ceiling treatments or in roofing materials. However, no
removal of asbestos from the Owned Hotels has been recommended, and the Company
has no plans to undertake any such removal, beyond the removal that has already
occurred. The Company believes that the presence of ACMs in the Owned Hotels
will not have a material adverse effect on the Company, but there can be no
assurance that this will be the case.
Environmental Regulations. The JQH Hotels are subject to environmental
regulations under federal, state and local laws. Certain of these laws may
require a current or previous owner or operator of real estate to clean up
designated hazardous or toxic substances or petroleum product releases affecting
the property. In addition, the owner or operator may be held liable to a
governmental entity or to third parties for damages or costs incurred by such
parties in connection with the contamination. The Company does not believe that
it is subject to any material environmental liability.
Employees
The Company employs approximately 8,000 full time employees, approximately
305 of whom are members of labor unions. The Company believes that labor
relations with employees are good.
Management
The following is a biographical summary of the experience of the executive
officers and other key officers of the General Partner.
John Q. Hammons is the Chairman, Chief Executive Officer, a director and
founder of the General Partner, and a founder of the Company. Mr. Hammons has
been actively engaged in the development, management and acquisition of hotel
properties since 1959. From 1959 through 1969, Mr. Hammons and a business
partner developed 34 Holiday Inn franchises, 23 of which were sold in 1969 to
Holiday Inns, Inc. Since 1969, Mr. Hammons has developed 81 hotels on a
nationwide basis, primarily under the Holiday Inn and Embassy Suites trade
names.
Kenneth J. Weber is the Chief Financial Officer of the General Partner. He
joined the General Partner in April 1998 and became a director of the General
Partner in May 1998. Prior to joining the General Partner, Mr. Weber was the
Executive Vice President and Chief Financial Officer of Chartwell Leisure, a New
York based hotel company. From 1992 to 1996, Mr. Weber was the Senior Vice
President and Chief Financial Officer of Omni Hotels, based in Hampton, New
Hampshire. From 1986 to 1992, Mr. Weber worked with Red Lion Hotels, based in
Vancouver, Washington, holding the positions of Senior Vice President, Chief
Accounting Officer and Corporate Controller. Mr. Weber began his career in the
hotel industry with the Marriott Corporation, holding positions in several of
Marriott's divisions, including President and Chief Executive Officer of
Farrell's Ice Cream Parlour Restaurants from 1983 to 1986.
Lonnie A. Funk is Senior Vice President of Operations. He began with the
Company in 1975 as the General Manager at the Holiday Inn in Billings, Montana.
In 1981, he was promoted
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to Regional Vice President of the Midwest Region. In November 1998, he was
promoted to his current position.
Debra M. Shantz is Corporate Counsel of the General Partner. She joined the
General Partner in May 1995. Prior thereto, Ms. Shantz was a partner of
Farrington & Curtis, P.C. (now Husch & Eppenberger, LLC), a law firm which
serves as Mr. Hammons' primary outside counsel, where she practiced primarily in
the area of real estate law. Ms. Shantz had been with that firm since 1988.
Pat A. Shivers is Senior Vice President, Administration and Control, of the
General Partner. He has been active in Mr. Hammons' hotel operations since 1985.
Prior thereto, he had served as Vice President of Product Management in
Winegardner & Hammons, Inc., a hotel management company.
Steven E. Minton is Senior Vice President, Architecture, of the General
Partner. He has been active in Mr. Hammons' hotel operations since 1985. Prior
to that time, Mr. Minton was a project manager with the firm of Pellham and
Phillips working on various John Q. Hammons projects.
Jacqueline A. Dowdy has been the Secretary and a director of the General
Partner since 1989. She has been active in Mr. Hammons' hotel operations since
1981. She is an officer of several affiliates of the General Partner.
John D. Fulton is Vice President, Design and Construction of the General
Partner. He joined the General Partner in 1989 from Integra/Brock Hotel
Corporation, Dallas, Texas where he had been Director of Design and Purchasing
for ten years.
Paul E. Muellner is Vice President, Corporate Controller of the General
Partner. Prior to joining the General Partner in June of 1998, Mr. Muellner was
Vice President of Finance for Carnival Hotels. He also served as Operations
Controller at Omni Hotels as well as positions with Red Lion Inns and Marriott
Corporation.
Lawrence A. Welch has been Vice President, Food and Beverage, of the
General Partner since March 1994. Prior to joining the General Partner, Mr.
Welch worked in the Food and Beverage division with Davidson Hotel Company for
ten years.
Forward-Looking Statements
In addition to historical information, this document contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995. These statements typically, but not exclusively, are
identified by the inclusion of phrases such as "the Company believes," "the
Company plans," "the Company intends," and other phrases of similar meaning.
These forward-looking statements involve risks and uncertainties and are based
on current expectations. Consequently, actual results could differ materially
from the expectations expressed in the forward-looking statements. Among the
various factors that could cause actual results to differ include a downturn in
the economy (either regionally or nationwide) affecting overall hotel occupancy
rates, revenues at New Hotels not reaching expected levels as quickly as planned
as the result of competitive factors or the Company's inability to obtain
permanent financing for New Hotels on terms similar to those available in the
past.
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Item 2. Properties.
The Company leases its headquarters in Springfield, Missouri from a
Missouri general partnership of which Mr. Hammons is a 50% partner. In 1998, the
Company made aggregate annual lease payments of approximately $231,000 to such
Missouri general partnership. The Company leases from John Q. Hammons the real
estate on which two of the Company's hotels are located. These leases are more
fully described in Item 13 "Certain Relationships and Related Transactions." The
Company owns the land on which 33 of the Owned Hotels are located, while nine of
the Owned Hotels are subject to long-term ground leases.
Description of Hotels - General
The JQH Hotels are located in 21 states and contain a total of 11,469
rooms. The JQH Hotels operate primarily under the Holiday Inn and Embassy Suites
trade names. Most of the JQH Hotels have assumed a leadership position in their
local market by providing a high quality product in a market unable to
economically support a second competitor of similar quality.
Each of the JQH Hotels is individually designed by the Company. Many of the
JQH Hotels contain an expansive multi-storied atrium, large indoor water
features, lush plantings, expansive meeting space, large guest rooms or suites
and comfortable lounge areas. In addition to the visual appeal, the Company
believes that an atrium design in which each of the hotel's room doors face into
the atrium, combined with glass elevators, achieves a greater level of security
for all guests. The Company believes this safety factor is particularly relevant
to women, who represent a growing portion of its business clientele. The JQH
Hotels also appeal to fitness conscious guests as all of the JQH Hotels have at
least one swimming pool and most have exercise facilities.
The Company believes that the presence of adjacent convention centers
provides incremental revenues for its hotel rooms, meeting facilities, and
catering services, and that hotels which are adjacent to convention centers
occupy a particularly successful niche within the hotel industry. These
convention or trade centers are available for rent by hotel guests. Each of the
JQH Hotels has a restaurant/catering service on its premises which provides an
essential amenity to the convention trade. The Company chooses not to lease out
the restaurant business to third-party caterers or vendors since it considers
the restaurant business an important component of securing convention business.
All of the restaurants in the JQH Hotels are owned and managed by the Company
specifically to maintain direct quality control over a vital aspect of the
convention and hotel business. The Company also derives significant revenue and
operating profit from food and beverage sales due to its ownership and
management of all of the restaurants in the JQH Hotels. The Company believes
that its food and beverage sales are more profitable than its competitors due to
the amount of catering business provided to convention and other meetings at the
Owned Hotels.
The Company retains responsibility for all aspects of the day-to-day
management of each of the JQH Hotels, including establishing and implementing
standards of operation at all levels; hiring, training and supervising staff;
creating and maintaining financial controls; regulating compliance with laws and
regulations relating to the hotel operations; and providing for the safekeeping,
repair and maintenance of the hotels owned by the Company. The Company typically
refurbishes individual hotels every four to six years, and has spent an average
per year
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of $20.9 million in the last four years on the Owned Hotels. During 1999, the
Company expects to spend approximately $15.5 million on refurbishment of the
Owned Hotels.
Owned Hotels
The Owned Hotels consist of 42 hotels, which are located in 20 states and
contain a total of 10,293 guest rooms or suites. The following table sets forth
certain information concerning location, franchise/name, number of rooms/suites,
description and opening date for each Owned Hotel:
<TABLE>
<CAPTION>
Number of
---------
Location Franchise/Name Rooms/Suites Description Opening Date
- -------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Montgomery, AL Embassy Suites 237 Atrium; 8/95
Meeting Space: 15,000 sq. ft. (c)
Tucson, AZ Holiday Inn 299 Atrium; 11/81
Meeting Space: 14,000 sq. ft.
Tucson, AZ Marriott 250 Atrium; 12/96
Meeting Space: 11,500 sq. ft.
Little Rock, AR Embassy Suites 251 Atrium; 8/97
Meeting Space: 14,000 sq. ft.
Springdale, AR Holiday Inn 206 Atrium; 7/89
Meeting Space: 18,000 sq. ft.
Convention Center: 29,280 sq. ft.
Springdale, AR Hampton Inn & Suites 102 Meeting Space 400 sq. ft. 10/95
Bakersfield, CA Holiday Inn Select 259 Meeting Space: 9,735 sq. ft. (c) 6/95
Monterey, CA Embassy Suites 225 Meeting Space: 13,700 sq. ft. 11/95
Sacramento, CA Holiday Inn 364 Meeting Space: 9,000 sq. ft. 8/79
San Francisco, CA Holiday Inn 280 Meeting Space: 9,000 sq. ft. 6/72
Denver, CO(a) Holiday Inn (International 256 Atrium; 10/82
Airport) Trade Center: 66,000 sq. ft. (b)
Denver, CO Holiday Inn (Northglenn) 235 Meeting Space: 20,000 sq. ft. 12/80
Fort Collins, CO Holiday Inn 259 Atrium; 8/85
Meeting Space: 12,000 sq. ft.
St. Augustine, FL World Golf Village Resort 302 Atrium; 5/98
Convention Center: 40,000 sq. ft.
Tampa, FL Embassy Suites 247 Atrium; 1/98
Meeting Space: 18,000 sq. ft.
Joliet, IL Holiday Inn 200 Meeting Space: 5,500 sq. ft. 3/71
Cedar Rapids, IA Collins Plaza 221 Atrium; 9/88
Meeting Space: 11,250 sq. ft.
Davenport, IA Radisson 221 Meeting Space: 7,800 sq. ft. (c) 10/95
Des Moines, IA Embassy Suites 234 Atrium; 9/90
Meeting Space: 13,000 sq. ft.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of
---------
Location Franchise/Name Rooms/Suites Description Opening Date
- -------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Des Moines, IA Holiday Inn 288 Atrium; 1/87
Meeting Space: 15,000 sq. ft.
Topeka, KS Capitol Plaza 224 Atrium; 8/98
Convention Center: 26,000 sq. ft.
Bowling Green, KY University Plaza 218 Meeting Space: 4,000 sq. ft. (c) 8/95
Branson, MO Chateau on the Lake 302 Atrium; Meeting 5/97
Space: 40,000 sq. ft.
Jefferson City, MO Capitol Plaza 255 Atrium; 9/87
Meeting Space: 14,600 sq. ft.
Joplin, MO Holiday Inn 264 Atrium; 6/79
Meeting Space: 8,000 sq. ft.
Trade Center: 32,000 sq. ft. (b)
Kansas City, MO(a) Embassy Suites 236 Atrium; 4/89
Meeting Space: 12,000 sq. ft.
Kansas City, MO Homewood Suites 119 Extended Stay 5/97
Springfield, MO Holiday Inn 188 Atrium; 9/87
Meeting Space: 3,020 sq. ft.
Omaha, NE Embassy Suites 249 Atrium; 1/97
Meeting Space: 13,000 sq. ft.
Reno, NV Holiday Inn 286 Meeting Space: 8,700 sq. ft. 2/74
Albuquerque, NM Holiday Inn 311 Atrium; 12/86
Meeting Space: 12,300 sq. ft.
Greensboro, NC(a) Embassy Suites 221 Atrium; 1/89
Meeting Space: 10,250 sq. ft.
Greensboro, NC(a) Homewood Suites 104 Extended Stay 8/96
Raleigh-Durham, NC Embassy Suites 273 Atrium; 9/97
Meeting Space: 20,000 sq. ft.
Portland, OR(a) Holiday Inn 286 Atrium; 4/79
Trade Center: 37,000 sq. ft. (b)
Portland, OR(a) Embassy Suites 253 Atrium; 9/98
Meeting Space: 11,000 sq. ft.
Columbia, SC Embassy Suites 214 Atrium; 3/88
Meeting Space: 13,000 sq. ft.
Greenville, SC Embassy Suites 268 Atrium; 4/93
Meeting Space: 20,000 sq. ft.
Beaumont, TX Holiday Inn 253 Atrium; 3/84
Meeting Space: 12,000 sq. ft.
Houston, TX(a) Radisson 288 Atrium; 12/85
Meeting Space: 14,300 sq. ft.
Charleston, WV Embassy Suites 253 Atrium; 12/97
Meeting Space: 14,600 sq. ft.
Madison, WI Marriott 292 Atrium; 10/85
Meeting Space: 15,000 sq. ft. (b)
Convention Center: 50,000 sq. ft.
</TABLE>
________________________
(a) Airport location
(b) The trade or convention center is located adjacent to hotel and is owned by
Mr. Hammons, except the convention centers in Madison, Wisconsin and
Denver, Colorado, which are owned by the Company.
(c) Large civic center is located adjacent to hotel.
<PAGE>
Managed Hotels
The Managed Hotels consist of five hotels (three Holiday Inns, one Sheraton
and one Days Inn) located in two states (Missouri and South Dakota), and contain
a total of 1,176 guest rooms. Mr. Hammons directly owns four of these five
hotels. The remaining hotel is owned by an entity controlled by Mr. Hammons in
which he has a 50% interest. Jacqueline Dowdy, a director and officer of the
General Partner, and Daniel L. Earley, a director of the General Partner, each
own a 25% interest in this entity. There is a convention and trade center
adjacent to three of the Managed Hotels.
The Company provides management services to the Managed Hotels within the
guidelines contained in annual operating and capital plans submitted to the
hotel owner for review and approval during the final 30 days of the preceding
year. The Company is responsible for the day-to-day operations of the Managed
Hotels. While the Company is responsible for the implementation of major
refurbishment and repairs, the actual cost of such refurbishments and repairs is
borne by the hotel owner. The Company earns a fee based on the size of the
project. The Company earns an average annual management fee of 3% of the hotel's
gross revenues. Each of the Managed Hotels' management contracts is for an
initial term of 20 years, which automatically extends for four periods of five
years, unless otherwise canceled. The Company has received an option from Mr.
Hammons or entities controlled by him to purchase each of the Managed Hotels.
Item 3. Legal Proceedings.
The Company is not presently involved in any litigation which if decided
adversely to the Company would have a material effect on the Company's financial
condition. To the Company's knowledge, there is no litigation threatened other
than routine litigation arising in the ordinary course of business which would
be covered by liability insurance.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
Not Applicable.
Item 6. Selected Financial Data.
<PAGE>
The selected consolidated financial information of the Company for the
1998, 1997, 1996, 1995 and 1994 Fiscal Years has been derived from and should be
read in conjunction with the audited consolidated financial statements of the
Company, which statements have been audited by Arthur Andersen LLP, independent
public accountants. The information presented below also should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included under Item 7. The Company's fiscal year
ends on the Friday nearest December 31. Consequently, the Company's 1996 Fiscal
Year included 53 weeks of operations while the 1994, 1995, 1997 and 1998 Fiscal
Years included 52 weeks of operations.
Selected Consolidated Financial Information
- -------------------------------------------
<TABLE>
<CAPTION>
(in thousands, except per share amounts, ratios and hotel data)
FISCAL YEAR-ENDED
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
REVENUES
Rooms (a) $211,989 $195,296 $171,206 $148,432 $137,387
Food and beverage 91,982 86,183 79,580 70,840 65,308
Meeting room rental and other (b) 22,159 20,795 18,061 15,907 13,998
-------- -------- -------- -------- --------
Total revenues 326,130 302,274 268,847 235,179 216,693
-------- -------- -------- -------- --------
OPERATING EXPENSES
Direct operating costs and expenses (c)
Rooms 54,600 50,265 43,610 38,543 34,413
Food and beverage 64,174 62,383 57,956 54,228 49,721
Other 3,389 3,385 2,929 2,521 2,397
General, administrative, sales and management
service expenses (d,e) 95,500 85,766 74,646 64,234 57,981
Repairs and maintenance 13,438 12,578 11,528 10,131 9,888
Depreciation and amoritization 45,580 34,781 24,034 18,346 13,975
-------- -------- -------- -------- --------
Total operating expenses 276,681 249,158 214,703 188,003 168,375
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS 49,449 53,116 54,144 47,176 48,318
OTHER (INCOME) EXPENSES
Interest expense and amorization of deferred
financing fees, net 57,286 44,325 35,620 28,447 32,932
Gain on sales of property and equipment (f) (8,175) -- -- -- --
-------- -------- -------- ------- - --------
INCOME BEFORE EXTRAORDINARY
ITEM (g) $ 338 $ 8,791 $ 18,524 $ 18,729 $ 15,386
======== ======== ======== ======== ========
BALANCE SHEET DATA
Total Assets $876,486 $816,733 $658,072 $542,371 $443,044
Total Debt, including current portion 759,716 695,791 531,143 458,094 380,869
</TABLE>
<PAGE>
(a) Includes revenues derived from rooms.
(b) Includes meeting room rental, management fees for providing management
services to the Managed Hotels and other.
(c) Includes expenses incurred in connection with rooms, food and beverage, and
telephones.
(d) Includes expenses incurred in connection with franchise fees,
administrative, marketing and advertising, utilities, insurance, property
taxes, rent and other.
(e) Includes expenses incurred providing management services to the Managed
Hotels.
<PAGE>
(f) Gain on sales includes six hotels sold February 6, 1998 and one hotel sold
December 31, 1998.
(g) The 1994 and 1995 Fiscal Years do not include a $3.3 million and a $0.3
million, respectively, extraordinary charge related to prepayment fees on
Stock Offering. The 1998 Fiscal Year includes a $2.2 million extraordinary
charge related to early extinguishment of debt.
Supplemental Financial Information Relating to the 1994 and 1995 Collateral
Hotels
The following tables set forth, as of January 1, 1999, unaudited selected
financial information with respect to the 20 hotels collateralizing the 1994
Notes (the "1994 Collateral Hotels") and the eight hotels collateralizing the
1995 notes (the "1995 Collateral Hotels") and the Company, excluding
Unrestricted Subsidiaries (as defined in the indentures relating to the 1994
Notes and the 1995 Indentures) (the "Restricted Group"). Under the heading
"Management Operations," information with respect to revenues and expenses
generated by the Company as manager of the 1994 Collateral Hotels, the 1995
Collateral Hotels, the other Owned Hotels owned by John Q. Hammons Hotels Two,
L.P. ("L.P. Two"), and the Managed Hotels is provided.
<TABLE>
<CAPTION>
12 Months Ended January 1, 1999
1994 1995 Management
Collateral Collateral Operations Total
Hotels Hotels Group Restricted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Operating Revenues $139,721 $57,528 $6,783(a) $204,032
Operating Expenses:
Direct operating costs and expenses 51,997 21,611 -- 73,608
General Administrative,
Sales and Mgmt expenses (b) 39,292 18,617 (917)(c) 56,992
Repairs and Maintenance 5,448 1,549 -- 6,998
Depreciation and Amortization 11,922 5,402 412 17,736
-------- ------- ------ --------
Total Operating Expense 108,659 47,179 (505) 155,337
-------- ------- ------ --------
Income from Operations $ 31,062 $10,349 $7,287 $ 48,699
======== ======= ====== ========
Operating Data:
Occupancy 66.0% 61.6%
Average Daily Room Rate $ 87.51 $ 80.16
RevPAR $ 56.70 $ 49.34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
12 Months Ended January 2, 1998
------------------------------------------------
1994 1995 Management
Collateral Collateral Operations Total
Hotels Hotels Group Restricted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statement of Operations
Data: $151,797 $62,209 $ 4,828 (a) $218,834
Operating Revenues
Operating Expenses:
Direct operating costs and expenses 57,511 24,030 -- 81,541
General Administrative,
Sales and Mgmt expenses(b) 41,960 18,303 (1,524)(c) 58,739
Repairs and Maintenance 6,089 2,771 -- 8,860
Depreciation and 12,072 5,391 76 17,539
Amortization -------- ------- ------- --------
Total Operating 117,632 50,496 (1,448) 166,679
Expense -------- ------- ------- --------
Income from Operations $ 34,165 $11,713 $ 6,276 $ 52,154
======== ======= ======= ========
Operating Data:
Occupancy 65.2% 65.2%
Average Daily Room Rate $ 80.32 $ 75.30
RevPAR $ 52.33 $ 49.06
</TABLE>
(a) Represents management revenues derived from the Owned Hotels owned by Two
L.P. and the Managed Hotels.
(b) General, administrative, sales and management expenses for the 1994 and 1995
Collateral Hotels include management expenses allocated to the respective
hotels.
(c) General, administrative, sales and management expenses applicable to
management operations are net of management revenues allocated to the 1994 and
1995 Collateral Hotels.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The following discussion and analysis primarily addresses results of
operations of the Company for the fiscal years ended January 1, 1999 ("1998"),
January 2, 1998 ("1997") and January 3, 1997 ("1996"). The following discussion
should be read in conjunction with the selected consolidated financial
information of the Company and the consolidated financial statements of the
Company included elsewhere herein.
The Company's consolidated financial statements include revenues from the
Owned Hotels and management fee revenues for providing management services to
the Managed Hotels. References to the JQH Hotels include both the Owned Hotels
and the Managed Hotels. Revenues from the Owned Hotels are derived from rooms,
food and beverage, meeting rooms and other revenues. The Company's beverage
revenues include only revenues from the sale of alcoholic beverages, while
revenues from the sale of non-alcoholic beverages are shown as part of food
revenues. Direct operating costs and expenses include expenses incurred in
connection with the direct operation of rooms, food and beverage and telephones.
General, administrative, sales and management services expenses include expenses
incurred from franchise fees, administrative,
<PAGE>
sales and marketing, utilities, insurance, property taxes, rent, management
services and other expenses.
From 1994 through 1998, the Company's total revenues grew at an annual
compounded growth rate of 10.8%, from $216.7 million to $326.1 million.
Occupancy for the Owned Hotels during that period decreased 6.4 percentage
points from 68.5% to 62.1%. However, the Owned Hotels' average daily room rate
(ADR) increased by 33.5% from $68.45 to $91.38 during that period. Room revenue
per available room (RevPAR) increased by 21.1% from $46.88 to $56.79.
In general, hotels opened during the period from 1994 to 1998 decreased
overall occupancy but increased the overall average room rate. The Company
tracks the performance of the Owned Hotels in two groups. One group of hotels
are those opened by the Company during the current and prior fiscal years (New
Hotels). During 1998, the New Hotels included four hotels opened in 1998 and six
hotels opened in 1997. The remainder of the Owned Hotels, excluding the New
Hotels, are defined as Mature Hotels. In 1998, the Mature Hotels included 32
hotels opened prior to 1997. New hotels typically generate positive cash flow
from operations before debt service in the first year, generate cash sufficient
to service mortgage debt in the second year and create positive cash flow after
Debt service in the third year.
<TABLE>
<CAPTION>
FISCAL YEAR-ENDED
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OWNED HOTELS
Average Occupancy 62.1% 62.9% 64.7% 67.1% 68.5%
Average Daily Room Rate (ADR) $ 91.38 $ 82.38 $ 76.16 $ 71.68 $ 68.45
Room Revenue per Available Room
(RevPAR) $ 56.79 $ 51.84 $ 49.24 $ 48.09 $46.88
Available Rooms (a) 3,733,166 3,767,387 3,476,279 3,087,700 2,930,893
Number of Hotels 42 45 39 37 31
MATURE HOTELS
Average Occupancy 64.1% 63.8% 64.8% 67.1% 68.5%
Average Daily Room Rate (ADR) $ 86.50 $ 79.80 $ 76.06 $ 71.68 $ 68.45
Room Revenue per Available Room
(RevPAR) $ 55.41 $ 50.90 $ 49.24 $ 48.09 $ 46.88
Available Rooms (a) 3,012,845 3,388,896 3,454,899 3,087,700 2,930,893
Number of Hotels 32 37 37 37 31
NEW HOTELS
Average Occupancy 54.1% 55.3% 42.2% -- --
Average Daily Room Rate (ADR) $ 115.55 $ 108.97 $ 100.49 -- --
Room Revenue per Available Room
(RevPAR) $ 62.54 $ 60.21 $ 42.42 -- --
Available Rooms (a) 720,321 378,491 21,380 -- --
Number of Hotels 10 8 2 -- --
PERCENTAGES OF TOTAL REVENUES
REVENUES
Rooms 65.0% 64.6% 63.7% 63.1% 63.4%
Food and beverage 28.2% 28.5% 29.6% 30.1% 30.1%
Meeting room rental and other 6.8% 6.9% 6.7% 6.8% 6.5%
---------- ---------- ---------- ---------- ----------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Direct operating costs and expenses
Rooms 16.7% 16.6% 16.2% 16.4% 15.9%
Food and beverage 19.7% 20.6% 21.6% 23.0% 22.9%
Other 1.0% 1.1% 1.1% 1.1% 1.1%
General, administrative, sales and
management service expenses 29.3% 28.4% 27.8% 27.3% 26.8%
Repairs and maintenance 4.1% 4.2% 4.3% 4.3% 4.6%
Depreciation and amortization 14.0% 11.5% 8.9% 7.8% 6.4%
---------- ---------- ---------- ---------- ----------
Total operating expenses 84.8% 82.4% 79.9% 79.9% 77.7%
---------- ---------- ---------- ---------- ----------
Income from Operations 15.2% 17.6% 20.1% 20.1% 22.3%
========== ========== ========== ========== ==========
</TABLE>
(a) Available rooms represent the number of rooms available for rent multiplied
by the number of days in the period reported or, in the case of New Hotels, the
number of days the hotel was opened during the period reported. The Company's
1996 Fiscal Year contained 53 weeks or 371 days, while its 1994, 1995, 1997 and
1998 Fiscal Years each contained 52 weeks, or 364 days.
1998 FISCAL YEAR COMPARED TO 1997 FISCAL YEAR
Total revenues increased to $326.1 million in 1998 from $302.3 million in 1997,
an increase of $23.8 million, or 7.9%. Of the total revenues reported in 1998,
65.0% were revenues from rooms, 28.2% were revenues from food and beverage and
6.8% were revenues from meeting room rental and other, compared with 64.6%,
28.5% and 6.9%, respectively, during 1997.
Rooms revenues increased to $212.0 million in 1998 from $195.3 million in 1997,
an increase of $16.7 million, or 8.6%, as a result of the operation of two
hotels which opened in 1996 and six hotels opened in 1997, and the increase in
average daily room rate (ADR). Average daily room rates (ADR) of Mature Hotels
increased to $86.50 in 1998 from $79.80 in 1997. The occupancy in the mature
hotels was a 0.3 percentage point increase to 64.1% in 1998, compared to 63.8%
in 1997. The Mature Hotels' room revenue per available room (RevPAR) improved to
$55.41 in 1998 from $50.90 in 1997, an increase of $4.51 or 8.9%. In 1998, the
New Hotels included ten hotels, which generated a revenue per available room
(RevPAR) of $62.54, up 3.9% from the 1997 revenue per available room (RevPAR) of
$60.21, when eight New Hotels were open. In general, management believes the New
Hotels are more insulated from the effects of new hotel supply than are the
Mature Hotels, since the New Hotels utilize franchise brands that are considered
to be more upscale in nature, and the New Hotels have higher-quality guest rooms
and public spaces.
Food and beverage revenues increased to $92.0 million in 1998 from $86.2 million
in 1997, an increase of $5.8 million, or 6.7%. This increase was due to revenues
associated with newly opened hotels.
Meeting room rental and other revenues increased to $22.2 million in 1998 from
$20.8 million in 1997, an increase of $1.4 million, or 6.7%. This increase was
due to the addition of meeting space in the New Hotels.
<PAGE>
Direct operating costs and expenses for rooms increased to $54.6 million in 1998
from $50.3 million in 1997, an increase of $4.3 million, or 8.5%. As a
percentage of rooms revenue, these expenses remained stable, at 25.8%.
Direct operating costs and expenses for food and beverage increased to $64.2
million in 1998 from $62.4 million in 1997, an increase of $1.8 million, or
2.9%, but decreased as a percentage of food and beverage revenues, to 69.8% from
72.4% in 1997. The dollar increase was due to costs associated with the higher
volume of sales.
Direct operating costs and expenses for other remained stable in 1998 at $3.4
million, but decreased as a percentage of meeting room rental and other revenues
to 15.3% from 16.3% in 1997.
General, administrative, sales and management service expenses increased to
$95.5 million in 1998 from $85.8 million in 1997, an increase of $9.7 million,
or 11.3%. Increases in these expenses are primarily attributable to expenses
associated with the opening of new hotels in 1997 and 1998. A large portion of
expenses associated with new hotel openings are fixed costs in nature. As a
result, these expenses rise faster than revenues in the first one to two years
of operation. As a percentage of total revenues, these expenses increased to
29.3% in 1998 from 28.4% in 1997.
Repairs and maintenance expenses increased to $13.4 million in 1998 from $12.6
million in 1997, by $0.8 million or 6.3%, but decreased slightly as a percentage
of total revenues, to 4.1% from 4.2% in 1997.
Depreciation and amortization increased to $45.6 million in 1998 from $34.8
million in 1997, by $10.8 million, or 31.0%. As a percentage of total revenues,
these expenses increased to 14.0% in 1998 from 11.5% in 1997. The increase was a
direct result of the increased level of capital expenditures for the newly
opened hotels.
Income from operations decreased to $49.4 million in 1998 from $53.1 million in
1997, a decrease of $3.7 million, or 7.0%. The decrease was due to higher costs,
including depreciation expense related to the building of new hotels. As a
percentage of total revenues, income from operations was 15.2% in 1998 and 17.6%
in 1997.
Interest expense and amortization of deferred financing fees, net increased to
$57.3 million in 1998 from $44.3 million in 1997, an increase of $13.0 million,
or 29.3%. The increase was attributable to borrowing for new hotel construction.
Income before extraordinary item decreased to $0.3 million in 1998 from $8.8
million in 1997, a decrease of $8.5 million, or 96.6%. The 1998 results include
an $8.2 million gain on sales of property and equipment in connection with the
sale of six Holiday Inns in February of 1998 and one Holiday Inn in December of
1998.
1997 FISCAL YEAR COMPARED TO 1996 FISCAL YEAR
Total revenues increased to $302.3 million in 1997 from $268.8 million in 1996,
an increase of $33.5 million, or 12.4%. Of total revenues recognized in 1997,
64.6% were revenues from rooms, compared to 63.7% in 1996, continuing the
gradual shift over the past several years, as
<PAGE>
the average daily room rate (ADR) continues to increase. Revenues from food and
beverage represented 28.5% of total revenues recognized in 1997, compared to
29.6% in 1996, and revenues from meeting room rental and other represented 6.9%
of total revenues compared to 6.7% in 1996.
Rooms revenues increased to $195.3 million in 1997 from $171.2 million in 1996,
an increase of $24.1 million, or 14.1%, as a result of the addition of six
hotels opened in 1997, a full year of operation for the two hotels opened in
1996, and a 4.9% increase in the average daily room rate (ADR) of the Mature
Hotels.
Food and beverage revenues increased to $86.2 million in 1997 from $79.6 million
in 1996, an increase of $6.6 million, or 8.3%. This increase was primarily due
to revenues associated with the New Hotels.
Meeting room rental and other revenues increased to $20.8 million in 1997 from
$18.1 million in 1996, an increase of $2.7 million, or 15.1%. This increase was
primarily a result of the New Hotels.
Direct operating costs and expenses for rooms increased to $50.3 million in 1997
from $43.6 million in 1996, an increase of $6.7 million, or 15.3%. As a
percentage of rooms revenue, these expenses increased slightly to 25.7% in 1997
from 25.5% in 1996. The increased expense was associated with the New Hotels.
These costs generally represent a higher percentage of rooms revenue in newer
hotels until these hotels reach stabilized occupancy levels.
Direct operating costs and expenses for food and beverage increased to $62.4
million in 1997 from $58.0 million in 1996, an increase of $4.4 million, or
7.6%, but decreased slightly as a percentage of food and beverage revenues to
72.4%, from 72.8% in 1996. The dollar increase was due to costs associated with
the higher volume of sales associated with the New Hotels.
Other direct operating costs and expenses were $3.4 million in 1997 and $ 2.9
million in 1996, a 15.6% increase. As a percentage of meeting room rental and
other revenues, these expenses were 16.3% in 1997 and 16.2% in 1996.
General, administrative, sales and management service expenses increased to
$85.8 million in 1997 from $74.6 million in 1996, an increase of $11.2 million,
or 14.9%. Increases in these expenses were primarily attributable to expenses
associated with the New Hotels. As a percentage of total revenues, these
expenses increased to 28.4% in 1997, from 27.8% in 1996.
Repairs and maintenance expenses increased to $12.6 million in 1997 from $11.5
million in 1996, an increase of $1.1 million, or 9.1%, but decreased slightly as
a percentage of revenues to 4.2% from 4.3% in 1996.
Depreciation and amortization increased by $10.8 million, or 44.7%, to $34.8
million in 1997 from $24.0 million in 1996. As a percentage of total revenues,
these expenses increased to 11.5% in 1997 from 8.9% in 1996. The increase was a
direct result of the opening of the eight New Hotels during 1996 and 1997.
Income from operations decreased to $53.1 million in 1997 from $54.1 million in
1996, a decrease of $1.0 million, or 1.9%. As a percentage of total revenues,
income from operations was
<PAGE>
17.6% in 1997 compared to 20.1% in 1996, due primarily to the non-cash expense
of depreciation and amortization associated with the New Hotels.
Interest expense and amortization of deferred financing fees, net increased to
$44.3 million in 1997 from $35.6 million in 1996, an increase of $8.7 million or
24.4%. The increase was attributable to debt associated with the financing of
the New Hotels.
Income before extraordinary item decreased to $8.8 million in 1997 from $18.5
million in 1996, a decrease of $9.7 million, or 52.5%.
LIQUIDITY AND CAPITAL RESOURCES
In general, the Company has financed its operations through internal cash
flow, loans from financial institutions, the issuance of public debt and equity
and the issuance of industrial revenue bonds. The Company's principal uses of
cash are to pay operating expenses, to service debt and to fund capital
expenditures, new hotel development and permitted distributions to fund some of
the taxes allocable to the partners.
At January 1, 1999, the Company had $46.2 million of cash and equivalents
and also had $6.5 million of marketable securities, compared to $42.0 million in
cash and cash equivalents and $12.7 million of marketable securities at the end
of 1997. Such amounts are available for development of new hotels and other
working capital requirements of the Company.
Net cash provided by operating activities increased significantly to $43.5
million at the end of 1998 from $27.8 million at the end of 1997, an increase of
$15.7 million, or 56.5%, primarily as the result of changes in interim financing
of construction through trade payables.
The Company incurred net capital expenditures of $131.2 million and $179.4
million, respectively, for 1998 and 1997. Capital expenditures typically include
capital improvements on existing hotel properties and expenditures for
development of new hotels. Capital expenditures in 1998 included $111.5 million
for new hotel development and $19.7 million for existing hotels. During 1997,
capital expenditures for existing hotels and new hotel development were $19.1
million and $160.3 million, respectively. During 1999, the Company expects
capital expenditures to approximate $120.8 million, representing approximately
$15.5 million for capital improvements on existing hotels and approximately
$105.3 million for continued new hotel development.
At the end of 1998, total debt was $759.7 million compared with $695.8
million in 1997. The increase is attributable to the hotels opened during 1998
as well as six Scheduled Hotels under construction at the end of 1998. The
current portion of long-term debt was $42.3 million at the end of 1998, compared
with $61.5 million at the end of 1997.
In February 1998, the Company completed the sale of six hotels for $39.4
million, resulting in a gain of approximately $0.2 million. Five of the six
hotels sold served as collateral for the 1994 and 1995 Mortgage Notes. Under the
terms of these Indentures, the Company provided replacement collateral.
On December 31, 1998, the Company completed the sale of an additional hotel
property for $16.1 million, resulting in a gain of approximately $8.0 million.
The net book value of the
<PAGE>
hotel's property and equipment at the time of the sale was approximately $8.1
million. In addition to cash received upon closing, the sales price included a
note receivable for $11.9 million, with 8.0% interest, due in 1999. The note
receivable is secured by the hotel and the personal guarantee of a shareholder
of the buyer. This hotel served as collateral under the 1995 Mortgage Notes.
Under the terms of the Indenture, the Company must provide replacement
collateral of equivalent value or apply the net proceeds from the sale to
amounts outstanding. The Company intends to provide replacement collateral in
accordance with the Indenture provisions.
The Company estimates that building, pre-opening and other costs of the six
Scheduled Hotels will require aggregate funding of approximately $198.0 million
from the Company (net of $61.0 million included in construction in progress and
other assets at year end). The Company has obtained loans and commitments of
approximately $143.0 million (approximately $22 million of which had been drawn
at year end) on the Scheduled Hotels and expects the remaining 1999 capital
requirements to be funded by cash, cash flow from operations and refinancing of
certain existing hotels.
Based upon current plans relating to the timing of new hotel development
and loan draw schedules, the Company anticipates that its capital resources will
be adequate to satisfy its 1999 capital requirements for the currently planned
projects and normal recurring capital improvement projects.
The Company distributed or accrued $10.6 million in 1998, and $0.6 million
in 1997 to its partner for income taxes. Distributions by the Company must be
made in accordance with the provisions of the Indentures.
Year 2000
State Of Readiness
John Q. Hammons Hotels, Inc. (the "Company") is actively addressing
the impact of the Year 2000 as it relates to the processes of its information
technology environment. Potential problems with internal, external and embedded
systems are being addressed. Capital budget funds have been set aside for
software and hardware upgrades and/or replacements to address Year 2000 issues.
Virtually all such upgrades were anticipated by the Company and would have been
implemented within the next few years even absent a Year 2000 issue.
The Company is requiring vendors and suppliers to certify Year 2000
compliance of supplied information technology systems and devices. Compliance is
defined as no failures or interruptions occurring due to the processing of date
information or data between the years through 1999 and years beginning with the
year 2000.
The Company has reviewed the effects of the upcoming Year 2000 on its
computer systems and operations, as well as on those of the hotels it operates.
The Company does not anticipate any material impact on its corporate operation,
given that the current systems used are believed to be Year 2000 compliant.
Corporate Systems
<PAGE>
Hardware-Computer systems were tested for Y2K compliance during the
first quarter of 1998. Ninety percent of those systems not compliant were
replaced by the end of the third quarter of 1998. The remaining systems were
replaced during the fourth quarter of 1998.
Software-All software systems were tested during the first quarter of
1998. Word processing and spreadsheet software packages were deemed materially
compliant and will not be replaced. The accounting and payroll system was not
Y2K compliant and was replaced during January, 1998.
Hotel Systems
Hardware-Testing of Company owned computer hardware was started during
the first quarter of 1998. Ninety percent of all systems have been tested and
those systems deemed not Y2K compliant have been identified and have either been
replaced at this time or are scheduled for replacement during the first half of
1999.
Software-Bass Hotels and Resorts use the Encore Property Management
System. This system is currently not Y2K compliant but is being upgraded at no
expense to the Company.
Promus Hotels, Inc. uses the HMS Property Management System. This
system is not Y2K compliant and is scheduled for replacement at all non-
compliant hotels during the first half of 1999.
Radisson Hotels and some Company hotels use the Fidelio Property
Management System. This software is Y2K compliant. The operating system on the
file servers will be compliant with the installation of software patches at no
expense to the Company. These systems are scheduled for upgrade in the year 2000
independent of the Y2K situation.
Other Company hotels use the Multi-Systems, Inc. Property Management
System, which is Y2K compliant.
Embedded Systems
Non-Critical-Fax machines, copiers and similar equipment are generally
leased. The majority of these devices have been tested and deemed Y2K compliant.
Those failing the Y2K testing will be replaced by the lessor during 1999 under
current leasing agreements as required in order to be Y2K compliant.
Critical-Systems in this category include elevators, fire control,
security, energy management, credit card processing and telecommunications. The
Company is currently testing and evaluating these systems. These evaluations are
approximately 75% complete with anticipated completion by the end of the first
quarter, 1999.
Time Keeping and Payroll Systems
The Company currently uses Time Resource Management software for time
keeping. This software is not Y2K compliant and will be replaced during the
second quarter of
<PAGE>
1999. Payroll processing is out-sourced and a Y2K compliance certificate from
the processor is on file.
Vendor Compliance Certifications
Strategic Relationships-Requests for Y2K compliance have been sent to those
vendors which have a strategic relationship with the Company specifically and
with the hotels in general. Those compliance letters will be on file in our
offices.
Utility Suppliers-Requests for Y2K compliance have been sent to those
suppliers which have a strategic relationship with the Company specifically and
with the hotels in general. Those compliance letters will be on file in our
offices.
Compliance Testing
Information Technology
Vendor Certification-The Company has received Y2K compliance
certifications from the majority of its property management system vendors. All
certifications are expected to be on file by the end of the second quarter,
1999.
Field Testing-The Company has received Y2K compliance testing software
from our property management system vendors. These tests were completed during
the fourth quarter, 1998.
Evaluation-The Company will monitor all systems currently in place and
those Y2K upgrades that will be installed during the first half of 1999 to
insure Y2K integrity. This evaluation will continue throughout the year 2000.
Embedded Systems
Vendor Certification-The Company has received Y2K compliance
certifications from the majority of its vendors. All certifications are expected
to be on file by the end of the first quarter, 1999.
Field Testing-The Company or its authorized vendors began conducting
Y2K compliance field testing during the fourth quarter of 1998 and will continue
testing throughout 1999.
Evaluation-The Company will monitor all systems currently in place and
those Y2K upgrades that will be installed during the first half of 1999, to
insure Y2K integrity. This evaluation will continue throughout the year 2000.
Cost of Implementation
Corporate Office
Information Technology-Expenses for hardware and software that were
<PAGE>
directly attributed to Y2K compliance were less than $75,000.
Embedded Systems-The Company has no current expenses directly
attributed to Y2K compliance for embedded systems.
Hotels
Information Technology
Bass Hotels & Resorts-The Company has upgraded hardware and software
systems over the last two years that were required from a technology standpoint.
Y2K compliance was an ancillary benefit of these upgrades.
Promus Hotels, Inc.-The Company has allocated less than $15,000 to
date for upgrades necessary to meet Y2K compliance at these hotels.
Embedded Systems-The Company has not expended any funds directly
attributed to Y2K compliance for these systems. Those upgrades and replacements
of equipment that have occurred over the last two years were required to replace
equipment that had reached the end of the normal life cycle and not specifically
for Y2K compliance.
Future Costs
Corporate Office
Additional software upgrades are anticipated to maintain current
technology levels but are not directly attributed to Y2K compliance.
Hotels
Information Technology
Bass Hotels & Resorts-Hotels operating under this flag (eighteen
hotels) will incur minimal costs to replace some computer systems. Average cost
per hotel is estimated to be less than $10,000. Hardware requirements will be
offset with the transfer of existing Y2K compliant hardware from other hotels
that are receiving technology-driven upgrades.
Promus Hotels, Inc.-Hotels operating under this flag (sixteen hotels)
will receive new hardware and software as part of a technology and Y2K compliant
upgrade. The estimated cost for this upgrade is approximately $625,000.
The balance of the Company's hotels have budgeted approximately
$400,000 in capital funds for technology replacements and Y2K compliancy issues.
Embedded Systems-Final evaluation of these systems has not been
completed at this time. No major replacements are expected based upon the
results of early testing.
Risk Factors
<PAGE>
Information Technology-Based upon current testing results and
evaluation of those results, it is believed that all hardware and software
systems in the Company's corporate office and hotels will be Y2K compliant by
the end of the second quarter, 1999. Risk to the operation of the Company is
therefore considered to be low.
Embedded Systems-Complete analysis of all embedded systems has not
been completed at this time. Final evaluation is scheduled for the end of the
first quarter, 1999, with testing to be completed by the end of the second
quarter, 1999. Based upon early reports, risk to the operation of the Company is
considered to be low.
Vendors and Suppliers-The Company does not rely on the services of any
one single vendor or supplier that will materially impact its operations. To
date, no strategic vendor or supplier has reported that it will not be Y2K
compliant by the end of 1999. Based upon these reports, risk to the operations
of the Company is considered to be low.
Contingency Plans
Information Technology
Hardware-A number of non-critical (time/date critical operations are
not dependent on these systems) hardware systems have failed Y2K compliancy
testing. These systems are scheduled for replacement during the first half of
1999. Failure to replace these systems will not materially impact the operation
of the Company or its hotels.
Software-Manual operation of guest services, reservations, credit card
processing and time keeping systems can be accomplished with existing personnel
and equipment. Since all known, non-compliant software systems will be replaced
during the first half of 1999, no material impact to the operation of the
Company is expected.
Embedded Systems
Contingency plans will be finalized during the first quarter of 1999,
when evaluation of these systems is complete. All known embedded systems can be
manually over-ridden if necessary, in the event of a failure due to a Y2K issue.
Vendors and Suppliers
The Company will use alternative vendors and suppliers in the event
any one strategic vendor or supplier is incapable of operating as a result of a
Y2K compliance issue. The Company maintains a list of alternative vendors and
suppliers. These vendors and suppliers will be certified as Y2K compliant in the
event their services are required.
Seasonality
Demand is affected by normally recurring seasonal patterns. For most of the
JQH Hotels, demand is higher in the spring and summer months (March through
October) than during the remainder of the year. Accordingly, the Company's
operations are seasonal in nature, with lower
<PAGE>
revenue, operating profit and cash flow in the first and fourth quarters due to
decreased travel during the winter months.
Inflation
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenues or operating results of the
Company during the three most recent fiscal years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to changes in interest rates primarily as a result of its
investing and financing activities. Investing activity includes operating cash
accounts and investments, with an original maturity of three months or less, and
certain balances of various money market and common bank accounts. The financing
activities of the Company are comprised of long-term fixed and variable rate
debt obligations utilized to fund business operations and maintain liquidity.
The following table presents the principle cash repayments and related weighted
average interest rates by maturity date for the Company's long-term fixed and
variable rate debt obligations as of January 1, 1999:
<PAGE>
Expected Maturity Date
(in millions)
<TABLE>
<CAPTION>
There-
1999 2000 2001 2002 2003 After Total Fair Value (d)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt(a)
$300 Million 1st Mortgage Notes $ - $ - $ - $ - $ - $ 300 $300 $313
Average interest rate (b) 8.9% 8.9% 8.9% 8.9% 8.9% 8.9% 8.9%
$90 Million 1st Mortgage Notes $ - $ - $ - $ - $ - $ 90 $ 90 $ 94
Average interest rate(b) 9.8% 9.8% 9.8% 9.8% 9.8% 9.8% 9.8%
Other fixed-rate debt $41 $ 6 $ 13 $ 30 $ 20 $ 213 $323 $323
obligations
Average interest rate(b) 8.8% 8.4% 8.2% 8.8% 8.7% 8.7% 8.7%
Other variable-rate debt $ 1 $ 1 $ 7 $ 10 $ 3 $ 25 $ 47 $ 47
obligations
Average interest rate(c) 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
</TABLE>
(a) Includes amounts reflected as long-term debt due within one year
(b) For the long-term fixed rate debt obligations, the weighted average interest
rate is based on the stated rate of the debt that is maturing in the year
reported. The weighted average interest rate excludes the effect of the
amortization of deferred financing costs.
(c) For the long-term variable rate debt obligations, the weighted average
interest rate assumes no changes in interest rates and is based on the variable
rate of the debt, as of January 1, 1999, that is maturing in the year reported.
The weighted average interest rate excludes the effect of the amortization of
deferred financing costs.
(d) The fair values of long-term debt obligations approximate their
respective historical carrying amounts except with respect to the $300 million
1st Mortgage Notes and the $90 million 1st Mortgage Notes. The fair value of
the first mortgage note issues is estimated by obtaining quotes from brokers.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the Index to Consolidated Financial Statements and the
Financial Statements following such index in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Company does not have any directors or officers. The General Partner
in its capacity as general partner, manages and controls the activities of the
Company. The following sets forth certain information concerning the directors
and director nominees of the General Partner who are not also officers of the
General Partner. Information required by this item with respect to officers of
the General Partner is provided in Item 1 of this report. See "Management."
Finance Corp. and Finance Corp. II each have the same directors and officers as
the General Partner, except that
<PAGE>
Messrs. Earley, Hart, Lopez-Ona, and Moore are not directors of Finance Corp. or
Finance Corp. II.
Daniel L. Earley, age 56, has been a director of the General Partner since
February 1994. Since 1985, Mr. Earley has been President, Chief Executive
Officer and a director of Clermont Savings Bank, FSB, a community bank located
in Milford, Ohio, which is owned by Mr. Hammons.
William J. Hart, age 58, has been a director of the General Partner since
December 1993. He is a partner in the law firm of Husch & Eppenberger, LLC
formerly Farrington & Curtis, P.C., a position he has held since 1970. Mr.
Hart's firm performs legal services on a regular basis for the Company and
personally for Mr. Hammons. Mr. Hart has also been a director since 1981 of
Johnston Industries, Inc., a commercial textiles company listed on the New York
Stock Exchange.
John E. Lopez-Ona, age 41, became a director of the General Partner in May
1996. Mr. Lopez-Ona was a Managing director of Kidder Peabody & Company, Inc.
an investment banking firm, from March 1990 through March 1995. Since June 1995
Mr. Lopez-Ona has been the President of Anvil Capital, Inc., a firm owned by
him, which specializes in principal investments.
James F. Moore, age 57, became a director of the General Partner in May
1995. Since 1987, Mr. Moore has been Chairman, Chief Executive Officer and a
Director of Champion Products, Incorporated, a privately owned manufacturing
company serving the telecommunications industry located in Strafford, Missouri.
Prior to 1987, Mr. Moore had served as President of the Manufacturing Division
of Service Corporation International, a company listed on the New York Stock
Exchange.
Item 11. Executive Compensation.
Cash Compensation
The following table sets forth the salary, cash bonus and certain other
forms of compensation paid by the General Partner and its subsidiaries for
services rendered in all capacities during the 1998, 1997 and 1996 fiscal years
to the Chief Executive Officer of the General Partner and the four most highly
compensated executive officers of the General Partner other than the Chief
Executive Officer serving at the end of the 1998 fiscal year (the "named
executive officers").
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation Awards
Annual Compensation ---------------------
Fiscal --------------------- All Other Securities Underlying
Name and Principal Positions Year Salary ($) Bonus ($) Compensation ($) Options (#)
- ---------------------------- ------ ---------- --------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
John Q. Hammons 1998 $200,000 $50,000 $ -- 200,000 (b)
Chairman of the Board and 1997 150,000 -- -- --
Chief Executive Officer 1996 100,000 -- -- --
Kenneth J. Weber (a) 1998 169,840 57,500 -- 100,000 (b)
Executive Vice President and 1997 -- -- -- --
Chief Financial Officer 1996 -- -- -- --
Debra M. Shantz 1998 135,000 47,500 1,544(c) 70,000 (b)
Corporate Counsel 1997 97,500 40,000 1,139(c) --
1996 93,000 30,000 -- --
Steven E. Minton 1998 130,000 45,000 1,563(c) 40,000 (b)
Senior Vice President, 1997 118,000 40,000 1,275(c) --
Architecture 1996 106,000 25,000 1,490(c) --
Pat A. Shivers 1998 124,000 40,000 1,553(c) 35,000 (d)
Senior Vice President, 1997 120,000 37,500 1,296(c) --
Administration and Control 1996 112,125 30,000 2,072(c) --
</TABLE>
- ---------------
(a) Mr. Weber joined the Company in April of 1998.
(b) Comprised of options with an exercise price of $7.375 per share.
(c) Matching contributions to Company's 401(k) Plan.
(d) Comprised of 25,000 options granted to replace cancelled options and
10,000 additional options, all with an exercise price of $7.375 per share.
See "Option Grants".
Option Grants
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------------------- Annual Rates of Stock
Number of % of Total Options/ Price Appreciation
Securities SARs Granted to Exercise or for Option Term(1)
Underlying Options Employees in Base Price Expiration -----------------------
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- ------------------ ------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John Q. Hammons 200,000 19.4% $7.375 6/5/08 $2,288,000 $3,478,000
Kenneth J. Weber 100,000 9.7% 7.375 6/5/08 1,144,000 1,739,000
Debra M. Shantz 70,000 6.8% 7.375 6/5/08 800,800 1,217,300
Steven A. Minton (2) 40,000 3.9% 7.375 6/5/08 457,600 695,600
Pat A. Shivers (2) 35,000 3.4% 7.375 6/5/08 400,400 608,650
</TABLE>
(1) Potential realizable value assumes the stock price will appreciate at the
annual rates shown. These rates are compounded annually from the date of
grant until the end of the 10-year term of the option. The potential
realizable value is:
- the potential stock price at the end of the term based on the 5
percent and 10 percent assumed rates of appreciation,
- less the exercise price,
- times the number of shares subject to the option.
These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect the Company's estimate of future
stock price growth.
<PAGE>
(2) On June 5, 1998, options originally granted in 1994 were cancelled and new
options were granted at an exercise price of $7.375, an amount equal to the fair
market value on that date. The options granted on that date also included a new
vesting schedule, with none of the new options being exercisable until June 5,
1999, at which point 25% vest, with the rest vesting 25% on each succeeding June
5th. See "Ten-Year Option/SAR Repricing" and "Report of the Compensation
Committee - Stock Options."
<TABLE>
<CAPTION>
Option Holdings
Fiscal Year-End Option Values
Number of Unexercised Value of Unexercised
Options In-the-Money Options
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John Q. Hammons -- 200,000 -- --
Kenneth J. Weber -- 100,000 -- --
Debra M. Shantz -- 70,000 -- --
Steven A. Minton -- 40,000 -- --
Pat A. Shivers -- 35,000 -- --
</TABLE>
The $7.375 exercise price per share of the stock options granted on June 5,
1998 (which comprise all of the options held by the Named Executive Officers) is
greater than the $3.6875 closing price of the Company's Class A Common Stock as
reported on the New York Stock Exchange on December 31, 1998, thus no options
are "In the Money." As discussed above, none of the options are exercisable
until June 5, 1999, with 25% becoming exercisable on that date, with the rest
vesting 25% on each succeeding June 5th.
Ten-Year Option/SAR Repricings
<TABLE>
<CAPTION>
Length of
Number of Original Option
Securities Term
Underlying Market Price of Exercise Price Remaining at
Options/SARs Stock at Time at Time of New Date of
Repriced or of Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
- ---- ---- ------------ --------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Minton 6/5/98 40,000 $7.375 $16.50 $7.375 6 years,
6 months
Pat A. Shivers 6/5/98 25,000 7.375 16.50 7.375 6 years,
6 months
</TABLE>
401(k) Plan
Effective January 1, 1996, the Company adopted a contributory
retirement plan (the "401(k) Plan") for its employees age 21 and over with
at least one year of service to the Company. The 401(k) Plan is designed to
provide tax-deferred income to the Company's employees in accordance with
the provisions of Section 401(k) of the Internal Revenue Code of 1986. The
401(k) Plan provides that the Company will make a matching contribution to
each participant's account equal to 50% of such participant's eligible
contributions up to a maximum of 3% of such participant's annual
compensation.
Employment Agreements
The Company entered into an employment agreement with Kenneth J.
Weber, effective April 27, 1998. Under that agreement, Mr. Weber's annual
base salary is $250,000, plus a discretionary bonus of up to 35% of his
base salary, with such annual increases in compensation as may be
determined by the Compensation Committee of the Company. The agreement
<PAGE>
contains significant non-competition provisions extending for a period of one
year following termination of the agreement. The initial term of the agreement
is for three years.
The Company entered into an employment agreement with Debra M. Shantz,
dated as of May 1, 1995 as amended on October 31, 1997. Under the agreement, Ms.
Shantz's annual base salary is $135,000, plus a discretionary bonus, with such
annual increases in compensation as may be determined by the Compensation
Committee of the Company. The term of the agreement is for three years from
October 31, 1997.
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate other filings with the
Securities and Exchange Commission ("SEC"), including this Proxy Statement, in
whole or in part, the following Report of the Compensation Committee and
Comparative Company Performance Graph shall not be incorporated by reference
into any such filings.
Compensation of Directors
Non-employee directors of the General Partner received $1,000 for each
regular Board meeting attended during the fiscal year ended January 2, 1998. No
compensation was paid to non-employee directors for attending meetings of
committees of the Board. Employee directors are not compensated for their
services as directors or committee members.
At a meeting held on February 23, 1999 the General Partner's Board of
Directors adopted a new compensation package for its non-employee directors. The
package provides each non-employee director with the following payments for
service on the General Partner's Board: (1) $1,000 for each regular Board
meeting attended and (2) $500 for each regular committee meeting attended ($750
per meeting for the committee chair). In addition, the package provides each
non-employee director with the following annual payments for service on the
General Partner's Board, payable on the day following the election of directors
at the annual meeting: (1) a cash payment of $10,000, (2) that number of shares
of the General Partner's Class A Common Stock with a fair market value equal to
$10,000 on the date of payment (the "Director Stock"), and (3) an option to
purchase 10,000 shares of the General Partner's Class A Common Stock (the
"Director Options"). The Director Stock and Director Options will be issued
pursuant to the 1999 Non-Employee Director Stock and Stock Option Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Mr. Hammons is the beneficial owner of all 16,043,900 limited partnership
units of the Company, representing 71.69% of the total equity in the Company.
The General Partner owns all 6,336,100 general partner units of the Company,
representing 28.31% of the total equity of the Company.
Item 13. Certain Relationships and Related Transactions.
In the past, Mr. Hammons has engaged Anvil Capital an investment and
consulting firm owned by Mr. Lopez-Ona, a director of the General Partner, to
provide personal financial advisory services. Mr. Hammons and Anvil Capital also
have formed a limited liability
<PAGE>
company through which they have invested in securities of one or more companies
in industries unrelated to the Company's business. Mr. Lopez-Ona has entered
into a consulting agreement with a major consulting firm to provide services to
that firm in connection with their hospitality practice. Under that contract,
Mr. Lopez-Ona receives a percentage of compensation from the Company to the firm
in connection with services provided to the Company by that firm, if any.
Mr. Hart is a non-employee director of the General Partner, and is a
partner in the law firm of Husch & Eppenberger, LLC, which performs legal
services on a regular basis for the Company and personally for Mr. Hammons. The
Company paid such firm approximately $303,500 in legal fees during the fiscal
year ended January 1, 1999.
The Company is controlled by Mr. Hammons through his control of the General
Partner, the sole general partner of the Company. His equity interest in the
Company (based on his beneficial ownership of 244,300 shares of Class A Common
Stock of the General Partner, all 294,100 shares of Class B Common Stock of the
General Partner and all 16,043,900 limited partnership units of the Company (the
"LP Units") is 73.4%. There are significant potential conflicts of interests
between Mr. Hammons as a limited partner of the Company, and the holders of
Class A Common Stock of the General Partner, which conflicts may be resolved in
favor of Mr. Hammons.
Holders of LP Units have the right to require the redemption of their LP
Units. This redemption right will be satisfied, at the sole option of the
General Partner, by the payment of the then cash equivalent thereof or by the
issuance of shares of Class A Common Stock on a one-for-one basis. Mr. Hammons
beneficially owns all 16,043,900 LP Units. If Mr. Hammons, as a holder of LP
Units, requires the Company to redeem LP Units, the non-employee directors of
the General Partner would decide, consistent with their fiduciary duties as to
the best interests of the Company, whether to redeem the LP Units for cash or
for shares of Class A Common Stock. Mr. Hammons would not vote or otherwise
participate in the decision of the non-employee directors. Mr. Hammons has
informed the Company that he has no current plan to require the Company to
redeem his LP Units.
During 1998, the Company provided management services to five hotels not
owned by the Company (the "Managed Hotels") pursuant to management contracts
(the "Management Contracts"). Four of the Managed Hotels are owned by Mr.
Hammons and one is owned 50% by Mr. Hammons; 25% by Jacqueline A. Dowdy, the
Secretary and a director of the General Partner; and 25% by Daniel L. Earley, a
director of the General Partner. Management fees of approximately 3% of gross
revenues were paid to the Company by the Managed Hotels in the aggregate amount
of $715,000 in the fiscal year ended January 1, 1999. Each of the Management
Contracts is for an initial term of 20 years, which automatically extends for
four periods of five years, unless otherwise canceled. In addition to the
management fees paid by the Managed Hotels to the Company in that year, the
Managed Hotels reimbursed the Company for a portion of the salaries paid by the
Company to its five regional vice presidents, whose duties include management
services related to the Managed Hotels, and for certain marketing and other
expenses allocated to the Managed Hotels. Such reimbursed services and expenses
aggregated $145,000 in the fiscal year ended January 1, 1999.
The Company has an option granted by Mr. Hammons or persons or entities
controlled by him to purchase the Managed Hotels. The options are effective
until February 2009. If an option is exercised, the purchase price is based on a
percentage of the fair market value of the
<PAGE>
Managed Hotel as determined by an appraisal firm of national standing. One hotel
owned by the Company and two Managed Hotels are located in Springfield,
Missouri. These hotels are potentially competing with one another for customers.
The Company, however, believes that these hotels do not significantly compete
with one another due to their respective locations and attributes.
Mr. Hammons has a 45% ownership interest in Winegardner & Hammons, Inc.
("WHI"). All of the hotels owned by the Company (the "Owned Hotels") have
contracted with WHI to provide accounting and other administrative services. The
accounting and administrative charges expensed by the Owned Hotels were
approximately $1,388,000 in the fiscal year ended January 1, 1999. The fee may
increase if the number of hotels for which accounting and administrative
services are performed drops below 35 hotels. The accounting services contract
expires in June 1999.
The Company leases space in the John Q. Hammons Building for its
headquarters from a Missouri general partnership, of which Mr. Hammons is a 50%
partner and the remaining 50% is collectively held by other employees, including
Jacqueline A. Dowdy, the Secretary and a director of the General Partner, who is
a 9.5% partner. Pursuant to four lease agreements, expiring December 31, 1998,
the Company paid monthly rental payments of approximately $19,250 in 1998. In
December 1998, the Company entered into four new lease agreements, expiring
December 31, 2001. The Company made aggregate annual lease payments to the
Missouri general partnership of approximately $231,000 in 1998.
Mr. Hammons also owns trade centers adjacent to three of the Owned Hotels
(the "JQH Trade Centers"). The Company leases the convention space in the JQH
Trade Center located in Portland, Oregon from Mr. Hammons pursuant to a long-
term lease expiring in 2004, requiring annual payments of approximately
$300,000. With respect to the other two JQH Trade Centers, the Company makes
nominal annual lease payments to Mr. Hammons. The Company has assumed
responsibility for all operating expenses of the JQH Trade Centers.
The Company leases the real estate for the Company's Chateau on the Lake
Resort, opened in mid-1997, in Branson, Missouri, from Mr. Hammons. Annual rent
was $120,000 in 1998. Thereafter, rent will be an amount based on adjusted gross
revenues from room sales on the property. The lease term is 50 years, with an
option to renew for an additional 10 years. The Company also has an option to
purchase the land after March 1, 2118 at a proposed transfer price of the
greater of $3,000,000 or the current appraised value.
The Company also leases the real estate for the Company's Embassy Suites
hotel in Little Rock, Arkansas which opened in the fall of 1997, from Mr.
Hammons. Annual rent is $100,000 in 1998, and $120,000 per year for the next
three years. The lease term is 40 years. The Company has an option to purchase
the land at any time during the first 10 years of the lease term, for the
greater of $1,900,000 or the current appraised value.
The Company also leases the real estate for the Company's Renaissance
Suites Hotel in Charlotte, NC, which will open in November, 1999 from Tulsa
Hills Investments, Inc., an Ohio corporation, of which Mr. Hammons is a 99%
owner and Jacqueline A. Dowdy is a 1% owner. The lease term is 99 years.
Commencing October 15, 1997, annual rent is $80,000 in years one and two,
$120,000 in years three through five, $124,800 in years six through ten with
cost of living adjustments for each year thereafter.
<PAGE>
Mr. Hammons owns parcels of undeveloped land throughout the United States.
Although there are no current plans to do so, the Company may purchase or lease
one or more of these parcels in the future in order to develop hotels. Since Mr.
Hammons controls the Company, such transactions would not be arms-length
transactions but will be subject to restrictions contained in the indentures
relating to the Company's outstanding mortgage notes due in 2004 and 2005.
The General Partner receives no management fee or similar compensation in
connection with its management of the Company. The General Partner receives the
following remuneration from the Company: (i) distributions, if any, in respect
of its equity interest in the Company; and (ii) reimbursement for all direct and
indirect costs and expenses incurred by the General Partner for or on behalf of
the Company and all other expenses necessary or appropriate to the conduct of
the business of, and allocable to, the Company.
The Company is unaware of any other transactions to which the Company is a
party in which any director or executive officer of the Company has or will have
a direct or indirect material interest.
PART IV
Item 14. Exhibits, Financial Schedules, and Reports on Form 8-K.
14(a)(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements and the
Consolidated Financial Statements following such index.
14(a)(2) Financial Statement Schedules
All schedules have been omitted because the required information in such
schedules is not present in amounts sufficient to require submission of the
schedule or because the required information is included in the consolidated
financial statements or is not required.
14(a)(3) Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K are listed in
the Exhibit Index attached hereto, which is incorporated by reference. Set forth
below is a list of management contracts and compensatory plans and arrangements
required to be filed as exhibits by Item 14(c).
10.5 Form of Option Purchase Agreement
10.8 Employment Agreement between John Q. Hammons Hotels, Inc.
and Debra M. Shantz dated as of May 1,1995 as amended on
October 31, 1997.
10.13 Employment Agreement between the General Partner and
Kenneth J. Weber dated as of April 27, 1998
10.18 1994 Stock Option Plan of the General Partner
10.19 1999 Non-Employer Director Stock and Stock Option Plan of the
General Partner
14(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal year ended January 1,
1999.
<PAGE>
14(c) Exhibits
Reference is made to the exhibit index which has been filed with the
exhibits.
14(d) Financial Statements
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Partners of
John Q. Hammons Hotels, L.P.:
We have audited the accompanying consolidated balance sheets of John Q.
Hammons Hotels, L.P. (Note 1) as of January 1, 1999 and January 2, 1998 and the
related consolidated statements of operations, changes in equity and cash flows
for each of the three fiscal years ended January 1, 1999, January 2, 1998 and
January 3, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
John Q. Hammons Hotels, L.P. (Note 1) as of January 1, 1999 and January 2, 1998
and the results of their operations and their cash flows for each of the three
fiscal years ended January 1, 1999, January 2, 1998, and January 3, 1997 in
conformity with generally accepted accounting principles.
Cincinnati, Ohio,
February 17, 1999
<PAGE>
John Q. Hammons Hotels, L.P. (Note 1)
Consolidated Balance Sheets
(000's omitted)
ASSETS
------
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1997
Year-End Year-End
--------- ---------
<S> <C> <C>
CASH AND EQUIVALENTS (Restricted cash of $860 and $1,235 in 1998 and 1997,
respectively) (Notes 2 and 5) $ 46,233 $ 41,961
MARKETABLE SECURITIES (Notes 2 and 5) 6,533 12,742
RECEIVABLES:
Trade, less allowance for doubtful accounts of $206 and $188 in 1998 and
1997, respectively 8,852 7,652
Management fees (Note 3) 62 50
Construction reimbursements, shareholder and other (Note 3)
5,269 3,739
INVENTORIES 1,205 1,206
PREPAID EXPENSES AND OTHER 1,089 1,386
--------- ---------
Total current assets 69,243 68,736
--------- ---------
PROPERTY AND EQUIPMENT, at cost (Notes 2, 5 and 6):
Land and improvements 47,982 40,511
Buildings and improvements 605,586 527,856
Furniture, fixtures and equipment 239,648 197,177
Construction in progress 63,078 78,946
--------- ---------
956,294 844,490
Less- Accumulated depreciation and amortization (194,860) (166,125)
--------- ---------
761,434 678,365
Property and equipment available for sale, net (Note 8) - 38,791
--------- ---------
761,434 717,156
--------- ---------
DEFERRED FINANCING COSTS, FRANCHISE FEES
AND OTHER, net (Notes 2, 4 and 5) 45,809 30,841
--------- ---------
$ 876,486 $ 816,733
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
John Q. Hammons Hotels, L.P. (Note 1)
Consolidated Balance Sheets
(000's omitted)
LIABILITIES AND EQUITY
----------------------
<TABLE>
<CAPTION>
Fiscal Fiscal
1998 1997
Year-End Year-End
-------- --------
<S> <C> <C>
LIABILITIES:
Current portion of long-term debt (Note 5) $ 42,256 $ 61,517
Accounts payable, including construction payables of
approximately $2,203 and $3,391, respectively 13,141 11,232
Accrued expenses-
Payroll and related benefits 6,843 5,529
Sales and property taxes 9,558 8,676
Insurance (Notes 2 and 3) 10,061 11,242
Interest 12,540 12,603
Utilities, franchise fees and other 5,568 5,822
Accrued dividends 2,936 -
-------- --------
Total current liabilities 102,903 116,621
Long-term debt (Note 5) 717,460 634,274
Other obligations and deferred revenue (Note 2) 10,883 7,900
-------- --------
Total liabilities 831,246 758,795
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
EQUITY (Note 1):
Contributed capital 96,436 96,436
Partners' and other deficits, net (51,196) (38,498)
-------- --------
Total equity 45,240 57,938
-------- --------
$876,486 $816,733
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
John Q. Hammons Hotels, L.P. (Note 1)
Consolidated Statements of Operations
(000's omitted)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Rooms $211,989 $195,296 $171,206
Food and beverage 91,982 86,183 79,580
Meeting room rental and other 22,159 20,795 18,061
-------- -------- --------
Total revenues 326,130 302,274 268,847
-------- -------- --------
OPERATING EXPENSES (Notes 3, 4 and 6):
Direct operating costs and expenses-
Rooms 54,600 50,265 43,610
Food and beverage 64,174 62,383 57,956
Other 3,389 3,385 2,929
General, administrative, sales and management
service expenses 95,500 85,766 74,646
Repairs and maintenance 13,438 12,578 11,528
Depreciation and amortization 45,580 34,781 24,034
-------- -------- --------
Total operating expenses 276,681 249,158 214,703
-------- -------- --------
INCOME FROM OPERATIONS (Note 8) 49,449 53,116 54,144
OTHER (INCOME) EXPENSE:
Interest expense and amortization of deferred
financing fees, net of $3,794, $1,279 and $2,103
of interest income in 1998, 1997 and 1996,
respectively (Note 2(e)) 57,286 44,325 35,620
Gain on sales of property and equipment (Note 8) (8,175) - -
-------- -------- --------
Income before extraordinary item 338 8,791 18,524
EXTRAORDINARY ITEM:
Cost of early extinguishment of debt (Note 5) (2,249) - -
-------- -------- --------
Net income (loss) (Note 2(j)) $ (1,911) $ 8,791 $ 18,524
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
John Q. Hammons Hotels, L.P. (Note 1)
Consolidated Statements of Changes in Equity
(000's omitted)
<TABLE>
<CAPTION>
Partners and
Contributed Capital Other Equity (Deficit)
------------------- ----------------------
General Limited General Limited
Partner Partner Partner Partner Total
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, Year-End 1995 $96,436 $ - $(85,373) $ 23,082 $ 34,145
Distributions (Note 1(b)) - - (107) (2,700) (2,807)
Net income - - 5,244 13,280 18,524
------- -------- -------- -------- --------
Balance, Year-End 1996 96,436 - (80,236) 33,662 49,862
Distributions (Note 1(b)) - - (150) (565) (715)
Net income - - 2,489 6,302 8,791
------- -------- -------- -------- --------
Balance, Year-End 1997 96,436 - (77,897) 39,399 57,938
Distributions (Note 1(b)) - - (150) (10,637) (10,787)
Net loss - - (541) (1,370) (1,911)
------- -------- -------- -------- --------
Balance, Year-End 1998 $96,436 $ - $(78,588) $ 27,392 $ 45,240
======= ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
John Q. Hammons Hotels, L.P. (Note 1)
Consolidated Statements of Cash Flows
(000's omitted)
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------
1998 1997 1996
---------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,911) $ 8,791 $ 18,524
Adjustments to reconcile net income (loss) to cash
provided by operating activities-
Depreciation, amortization and loan cost amortization
48,448 37,662 26,414
Extraordinary item (Note 5) 2,249 - -
Gain on sales of property and equipment (Note 8) (8,175) - -
Changes in certain assets and liabilities-
Receivables (2,742) (4,826) 999
Inventories (112) (187) 91
Prepaid expenses and other 297 542 (804)
Accounts payable 1,909 (18,745) 21,595
Accrued expenses 698 3,805 3,896
Other obligations and deferred revenue 2,983 877 1,444
---------------- ---------------- --------------
Net cash provided by operating activities 43,644 27,919 72,159
---------------- ---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (131,183) (179,385) (155,579)
Proceeds from sales of property and equipment (Note 8) 43,577 - -
Franchise fees and other (11,528) (3,499) (4,936)
(Purchase) sale of marketable securities, net 6,209 (10,387) 24,219
---------------- ---------------- --------------
Net cash used in investing activities (92,925) (193,271) (136,296)
---------------- ---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan financing fees (2,521) (3,069) (1,433)
Proceeds from borrowings 260,771 186,684 76,239
Repayments of debt (196,846) (22,036) (3,190)
Distributions to partners, net (7,851) (715) (2,807)
---------------- ---------------- --------------
Net cash provided by financing activities 53,553 160,864 68,809
---------------- ---------------- --------------
Increase (decrease) in cash and equivalents 4,272 (4,488) 4,672
CASH AND EQUIVALENTS, beginning of period 41,961 46,449 41,777
---------------- ---------------- --------------
CASH AND EQUIVALENTS, end of period $ 46,233 $ 41,961 $ 46,449
================ ================ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST, net of amounts capitalized $ 58,733 $ 43,399 $ 35,441
================ ================ ==============
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Note receivable from sale of property and equipment (Note 8)
$ 11,900 $ - $ -
================ ================ ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
John Q. Hammons Hotels, L.P.
Notes To Consolidated Financial Statements
(000's omitted)
(1) Basis of Presentation-
(a) Entity Matters--The accompanying consolidated financial statements
include the accounts of John Q. Hammons Hotels, L.P. and its wholly-owned
subsidiaries (the Partnership), John Q. Hammons Hotels Finance
Corporation, a corporation with nominal assets and no operations, the
catering corporations, which consist of separate corporations for each
hotel location chartered to own the respective food and liquor licenses
as well as operate the related food and beverage facilities and certain
wholly-owned subsidiaries which consist of certain hotel operations. As
of fiscal year-end 1998, 1997 and 1996, the Partnership had forty-two,
forty-five, and thirty-nine, respectively, hotels in operation of which
twenty-eight in 1998, thirty-five in 1997 and thirty-two in 1996 operate
under the Holiday Inn and Embassy Suites trade names. The Partnership's
hotels are located in twenty states throughout the United States.
In conjunction with a public offering of debt securities in February,
1994 and a public offering of equity securities in November, 1994 by John
Q. Hammons Hotels, Inc., J.Q.H. Hotels, L.P., which owned and operated
ten hotel properties, obtained through transfers or contributions from
Mr. John Q. Hammons (Mr. Hammons) or enterprises which he controlled,
twenty-one additional operating hotel properties, equity interests in two
hotels under construction, the stock of the catering corporations and
management contracts relating to all of Mr. Hammons' hotels. Upon
consummation of these transactions J.Q.H. Hotels, L.P. changed its name
to John Q. Hammons Hotels, L.P. and the allocation of income or loss was
modified from 1% to its general partner and 99% to its limited partner to
10% and 90%, respectively, upon completion of the public debt offering
and to 28.31% to its general partner and 71.69% to its limited partner
upon completion of the public equity offering.
The Partnership is directly or indirectly owned and controlled by Mr.
Hammons, as were all enterprises which transferred or contributed net
assets to the Partnership. Accordingly, the accompanying financial
statements present, as a combination of entities under common control as
if using the pooling method of accounting, the financial position and
related results of operations of all entities on a consolidated basis for
all periods presented. All significant balances and transactions between
the entities and properties have been eliminated.
(b) Partnership Matters--A summary of selected provisions of the Partnership
agreement and other matters are as follows:
<PAGE>
General and Limited Partner; John Q. Hammons Hotels, Inc. was formed in
September 1994 and had no operations or assets prior to its initial
public offering of 6,042,000 Class A common shares at $16.50 per share on
November 23, 1994. Immediately prior to the initial public offering, Mr.
Hammons contributed approximately $5 million in cash in exchange for
294,100 shares of Class B common stock (which represents approximately
72% of the voting control of the company). John Q. Hammons Hotels, Inc.
contributed the approximate $96 million of the net proceeds from the
Class A and Class B common stock offerings to the Partnership in exchange
for an approximate 28% general partnership interest.
As a result of the public equity offering, John Q. Hammons Hotels, Inc.
became the sole general partner and John Q. Hammons Revocable Living
Trust and Hammons, Inc., entities beneficially owned and controlled by
Mr. Hammons, became its limited partners.
Allocation of Income, Losses and Distributions; Income, losses and
distributions of the Partnership will generally be allocated between the
general partner and the limited partners based on their respective
ownership interests of approximately 28% and 72%.
In the event the Partnership has taxable income, distributions are to be
made to the partners in an aggregate amount equal to the amount that the
Partnership would have paid for income taxes had it been a C corporation
during the applicable period. Aggregate tax distributions will first be
allocated to the general partner, if applicable, with the remainder
allocated to the limited partners. Distributions for taxes approximated
$10,637, $565 and $2,700 for the fiscal years ended 1998, 1997 and 1996,
respectively.
Additional Capital Contributions; In the event proceeds from the sale of
the twenty hotel properties (or applicable replacement collateral) which
secure the $300 million first mortgage notes (1994 notes) (Note 5) are
insufficient to satisfy amounts due on the 1994 notes, Mr. Hammons and
Hammons, Inc. (as general partners at the time the 1994 notes were
secured) are severally obligated to contribute up to $135 million and $15
million, respectively, to satisfy amounts due, if any. In the event
proceeds from the sale of the eight hotel properties (or applicable
replacement collateral) which secure the $90 million first mortgage notes
(1995 notes) (Note 5) are insufficient to satisfy amounts due on the 1995
notes, Mr. Hammons is obligated to contribute up to $45 million to
satisfy amounts due, if any. In addition, with respect to the eleven
hotel properties contributed by Mr. Hammons concurrent with the public
equity offering, Mr. Hammons is obligated to contribute up to $50 million
in the event proceeds from the sale of these hotel properties (or
applicable replacement collateral) are insufficient to satisfy amounts
due on the then outstanding mortgage indebtedness related to these
properties.
<PAGE>
Redemption of Limited Partner Interests; Subject to certain limitations,
the limited partners have the right to require redemption of their
limited partner interests at any time subsequent to November 1995. Upon
redemption, the limited partners receive, at the sole discretion of the
general partner, one share of John Q. Hammons Hotels, Inc.'s Class A
common stock for each limited partner unit tendered or the then cash
equivalent thereof.
Additional General Partner Interests; Upon the issuance by the general
partner of additional shares of its common stock, including shares issued
upon the exercise of its stock options, the general partner will be
required to contribute to the Partnership the net proceeds received and
the Partnership will be required to issue additional general partner
units to the general partner in an equivalent number to the additional
shares of common stock issued.
(2) Summary of Major Accounting Policies-
(a) Cash and Equivalents--Cash and equivalents include operating cash
accounts and investments, with an original maturity of three months or
less, and certain balances of various money market and common bank
accounts.
Restricted cash consists of certain funds maintained in escrow for
property taxes and certain other obligations.
(b) Marketable Securities--Marketable securities consist of available-for-
sale commercial paper and government agency obligations which mature or
will be available for use in operations in 1999. These securities are
valued at current market value, which approximates cost. Realized gains
and losses in 1998 and 1997, determined using the specific identification
method, were nominal.
(c) Inventories--Inventories consist of food and beverage items. These items
are stated at the lower of cost, as determined by the first-in, first-out
valuation method, or market.
(d) Deferred Financing Costs, Franchise Fees and Other--Franchise fees paid
to the respective franchisors of the hotel properties are amortized on a
straight-line basis over ten to twenty years which approximates the terms
of the respective agreements. Costs of obtaining financing are
capitalized and amortized over the respective terms of the debt.
Costs directly related to commencing a hotel's operations are deferred
until the hotel has opened. The preopening expense is amortized over one
year using the straight-line method. Unamortized preopening costs were
approximately $2,296 and $3,825 as of fiscal year-end 1998 and 1997,
respectively (Note 2(o)).
The components of deferred financing costs, franchise fees and other are
summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-End
-----------------------
1998 1997
-------- -------
<S> <C> <C>
Deferred financing costs $ 23,534 $24,025
Franchise fees 6,412 4,716
Less- Accumulated amortization (12,009) (9,466)
-------- -------
17,937 19,275
Note receivable, related to sale of hotel and a component of
replacement collateral for 1994 and 1995 first mortgage notes (Note 8) 11,900 -
Restricted cash deposits, interest bearing, related to sales of hotels
and a component of replacement collateral for 1994 and 1995 first
mortgage notes (Note 8) 6,266 -
7,017 7,397
Deposits 2,689 4,169
-------- -------
Preopening expenses and other, net $ 45,809 $30,841
======== =======
</TABLE>
In October 1997, the Partnership entered into an irrevocable stand-by
letter of credit agreement with a bank for approximately $5.6 million.
The letter of credit replaced the restricted cash deposit which was
required by and maintained with an insurance carrier. In December
1998, the letter of credit amount was amended to approximately $2.2
million. The letter of credit expires in October 1999.
(e) Property and Equipment--Property and equipment are stated at cost
(including interest, real estate taxes and certain other costs
incurred during development and construction) less accumulated
depreciation and amortization. Buildings and improvements are
depreciated using the straight-line method while all other property is
depreciated using both straight-line and accelerated methods. The
estimated useful lives of the assets are summarized as follows:
<TABLE>
<CAPTION>
Lives In Years
--------------
<S> <C>
Land improvements 5-25
New buildings and improvements 5-40
Purchased buildings 25
Furniture, fixtures and equipment 5-10
</TABLE>
Construction in progress includes primarily land, development and
construction costs of certain hotel developments. Costs associated
with hotel development construction in progress approximated $59
million in 1998 and $75 million in 1997, with the remainder
representing refurbishments of operating hotels.
<PAGE>
The Partnership periodically reviews the carrying value of these
assets and other long-lived assets and impairments are recognized when
the expected undiscounted future cash flows are less than the carrying
amount of the asset. Based on its most recent analysis, the
Partnership believes no impairment exists at January 1, 1999.
Interest costs, construction overhead and certain other carrying costs
are capitalized during the period hotel properties are under
construction. Interest costs capitalized were $6,163, $10,259 and
$7,162 for the fiscal years ended 1998, 1997 and 1996, respectively.
Construction in progress is recorded at the lower of cost or market.
Costs incurred for prospective hotel projects ultimately abandoned are
charged to operations in the period such plans are finalized. Costs of
significant improvements are capitalized, while costs of normal
recurring repairs and maintenance are charged to expense as incurred.
The accompanying 1998 consolidated financial statements include the
land costs for thirty-three of the operating hotel properties. Land
for seven of the remaining nine operating hotel properties is leased
by the Partnership from unrelated parties over long-term leases. Land
for the remaining two operating hotel properties is leased by the
Partnership from a related party over long-term leases. Rent expense
for all land leases was $1,008, $464, and $450 for the fiscal years
ended 1998, 1997 and 1996, respectively.
(f) Par Operating Equipment--A hotel's initial expenditures for the
purchase of china, glassware, silverware, linens and uniforms are
capitalized into furniture, fixtures and equipment and amortized on a
straight-line basis over a three to five year life. Costs for
replacement of these items are charged to operations in the period the
items are placed in service.
(g) Advertising--The Partnership expenses the cost of advertising
associated with operating hotels as incurred. Advertising costs
incurred for a hotel prior to its opening are deferred and charged to
expense in the period the hotel commences operations.
Advertising expense for 1998, 1997 and 1996 was approximately $23,571,
$21,405 and $17,373, respectively, of which approximately $797,
$1,296, and $291, respectively, pertained to preopening advertising
expenses of the hotels which opened in these respective years.
(h) Pensions and Other Benefits--The Partnership contractually provides
retirement benefits for certain union employees at two of its hotel
properties under a union sponsored defined benefit plan and a defined
contribution plan. Contributions to these plans, based upon the
provisions of the respective union contracts, approximated $70, $66,
and $54 for the fiscal years ended 1998, 1997 and 1996, respectively.
<PAGE>
Effective January 1996, the Partnership implemented an employee
savings plan (a 401(k) plan). The Partnership matches a percentage of
an employee's contribution. The Partnership's matching contributions
are funded currently. The cost of the matching program and
administrative costs charged to income were approximately $591, $381
and $293 in 1998, 1997 and 1996, respectively. The Partnership does
not offer any other post-employment or post-retirement benefits to its
employees.
(i) Self-Insurance--The Partnership is self-insured for certain levels of
general liability and workers' compensation coverage. Estimated costs
of these self-insurance programs are accrued based on known claims and
projected settlements of unasserted claims. Subsequent changes in,
among others, assumed claims, claim costs, claim frequency, as well as
changes in actual experience, could cause these estimates to change.
(j) Income Taxes--Prior to 1994, the entities and properties included in
the accompanying consolidated financial statements consisted of a
Partnership, S Corporations and a sole proprietorship. Accordingly,
the Partnership generally is not responsible for payment of income
taxes. Rather, the respective partner, stockholder or sole proprietor,
as applicable, is taxed on the Partnership's taxable income at the
respective individual federal and state income tax rates. Therefore,
no income taxes have been provided in the accompanying consolidated
financial statements.
As described in Note 1, the Partnership and its general partner, as
applicable, completed public offerings of first mortgage notes and
equity securities. Prior to the consummation of these offerings, the S
Corporation status of the catering companies was terminated, and,
accordingly, the Partnership is subject to federal and state income
taxes on taxable income, if any, earned by the catering companies
after the effective date of the securities registrations. There were
nominal, if any, earnings attributable to the catering companies after
the applicable public offerings and there were no undistributed
earnings of the S Corporations at the time of termination.
(k) Revenue Recognition--The Partnership recognizes revenues from its
rooms, catering and restaurant facilities as earned on the close of
business each day.
(l) 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 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.
(m) Fiscal Year--The Partnership's fiscal year ends on the Friday nearest
December 31 which includes 52 weeks in 1998 and 1997 and 53 weeks in
1996.
The periods ended in the accompanying consolidated financial
statements are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Year Fiscal Year-End
---- ---------------
<S> <C> <C>
1998 January 1, 1999
1997 January 2, 1998
1996 January 3, 1997
</TABLE>
(n) Reclassifications--Certain reclassifications have been reflected in
1997 and 1996 to conform with the current period presentation.
(o) New Accounting Pronouncements--In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
which requires comprehensive income and the associated income tax
expense or benefit to be reported in a financial statement that is
displayed with the same prominence as other financial statements with
an aggregate amount of comprehensive income reported in that same
financial statement. "Other Comprehensive Income" refers to revenues,
expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but not in net income.
The Partnership adopted this statement in the first quarter of fiscal
1998 with no impact on the Partnership's reported consolidated
financial position, results of operations, cash flows or related
disclosures.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" (SFAS No. 131), which requires disclosure for
each segment in which the chief operating decision maker organizes
these segments within a partnership for making operating decisions and
assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure and any
manner in which management disaggregates a partnership. The
Partnership adopted this statement in the fourth quarter of fiscal
1998 with no impact on the Partnership's reported consolidated
financial position, results of operations, cash flows or related
disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5), which requires costs of start-up activities,
including preopening expenses, to be expensed as incurred. The
Partnership's current practice is to defer these expenses until a
hotel has commenced operations, at which time the costs, other than
advertising costs which are expensed upon opening, are amortized over
a one-year period. The Partnership intends to adopt SOP 98-5 in the
first quarter of fiscal 1999. Included in the accompanying 1998
consolidated balance sheet is approximately $2,296 of unamortized
preopening expenses which would have been expensed had this
pronouncement been effective as of January 1, 1999.
<PAGE>
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). This statement establishes accounting and
reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts)
be recorded in the balance sheet as either an asset or liability
measured at its fair value. This statement requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS 133 is effective for
fiscal years beginning after June 15, 1999. Upon adoption of this
statement, the Partnership anticipates no impact on its reported
consolidated financial position, results of operations, cash flows or
related disclosures.
(3) Related Party Transactions-
(a) Hotel Management Fees--In addition to managing the hotel properties
included in the accompanying consolidated financial statements, the
Partnership provides similar services for other hotel properties owned
or controlled by Mr. Hammons which included five properties at January
1, 1999. A management fee of approximately 3% of gross revenues (as
defined) is paid to the Partnership by these hotels which aggregated
approximately $715, $643 and $717 for the fiscal years ended 1998,
1997 and 1996, respectively.
(b) Accounting and Administrative Services--The hotels have contracted for
accounting and other administrative services with Winegardner &
Hammons, Inc. (WHI), a company related by common ownership. The
accounting and administrative charges expensed by the hotel
properties, included in administrative expenses, were approximately
$1,388, $1,411, and $1,228 for the fiscal years ended 1998, 1997 and
1996, respectively.
In 1995, the Partnership negotiated a new contract with WHI to
continue to provide accounting and administrative services through
June 1999. Charges for these services provided by WHI will approximate
$32 per year for each hotel property for the duration of the
agreement.
(c) Insurance Coverage--To supplement the Partnership's self-insurance
programs, umbrella, property, auto, commercial liability and workers'
compensation insurance is provided to the hotel properties under a
blanket commercial policy purchased by John Q. Hammons Hotels, Inc. or
WHI, covering hotel properties owned by the Partnership, Mr. Hammons,
or managed by WHI. Generally, premiums allocated to each hotel
property are based upon factors similar to those used by the insurance
provider to compute the aggregate group policy premium. Insurance
expense for the properties included in operating expenses was
approximately $2,158, $6,196 and $6,265 for the fiscal years ended
1998, 1997 and 1996, respectively. During fiscal 1998, the Partnership
realized continued favorable trends in insurance expense as a
<PAGE>
result of experience and rate improvements and a favorable buyout of
several prior self-insured years.
(d) Allocation of Common Costs--The Partnership incurs certain hotel
management expenses incidental to the operations of all hotels
beneficially owned or controlled by Mr. Hammons. These costs
principally include the compensation and related benefits of certain
senior hotel executives. Commencing in May of 1993, these costs were
allocated by the Partnership to hotels not included in the
accompanying statements, based on the respective number of rooms of
all hotels owned or controlled by Mr. Hammons. These costs
approximated $145, $131, $150 for the fiscal years-ended 1998, 1997
and 1996, respectively. Management considers these allocations to be
reasonable.
(e) Transactions with Partners and Directors--At fiscal 1997 year-end,
there were certain prepayments to a partner associated with the
Partnership's estimated 1998 taxable income, which approximated $2,031
and are included as a component of construction reimbursements,
shareholder and other receivables.
In 1997, the Partnership reimbursed Mr. Hammons for development costs
incurred on behalf of the Partnership, at approximate cost. These
transactions amounted to approximately $7,251 (including debt assumed
of $4,728). In addition to actual costs incurred, the 1997
reimbursement includes a return on capital employed by Mr. Hammons of
approximately $120, calculated based on the Partnership's approximate
incremental borrowing rate. During 1998, no such transactions
occurred. Consistent with the Partnership's plans to suspend new
development activity, in 1998 Mr. Hammons assumed approximately $0.3
million in costs incurred associated with new developments.
During 1996, the Partnership entered into an agreement with a director
relating to certain financial advisory services. The Partnership has
recognized approximately $17, $180 and $188 in expense for the fiscal
years ended 1998, 1997 and 1996 under this agreement.
(f) Summary of Related Party Expenses--The following summarizes expenses
reported as a result of activities with related parties:
<TABLE>
<CAPTION>
Fiscal Year-End
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Expenses included within general,
administrative, sales and management
service expenses:
Accounting and administrative $1,388 $1,411 $1,228
Rental expenses (Note 6) 800 465 520
Financial advisory services from a
director 17 180 188
------ ------ ------
$2,205 $2,056 $1,936
====== ====== ======
Allocated insurance expense from the
pooled coverage included within
various operating categories $2,158 $6,196 $6,265
====== ====== ======
</TABLE>
<PAGE>
(4) Franchise Agreements-
As of year-end 1998 and 1997, thirty-six of the forty-two and forty-one of
the forty-five, respectively, operating hotel properties included in the
accompanying consolidated balance sheets have franchise agreements with
national hotel chains which require each hotel to remit to the franchisor
monthly fees equal to approximately four percent of gross room revenues, as
defined. Franchise fees expensed under these contracts were $8,110, $7,165
and $6,250 for the fiscal years ended 1998, 1997 and 1996, respectively.
As part of the franchise agreement, each hotel also pays additional
advertising, reservation and maintenance fees to the franchisor which range
from 1% to 3.5% of room revenues, as defined. The amount of expense related
to these fees included in the consolidated statements of operations as a
component of sales expenses was approximately $7,083, $6,497 and $5,493 for
the fiscal years ended 1998, 1997 and 1996, respectively.
(5) Long-Term Debt-
The components of long-term debt are summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year-End
--------------------
1998 1997
-------- --------
<S> <C> <C>
First mortgage notes, interest at 8.875%, interest only payable
February 15 and August 15, principal due February 15, 2004,
secured by a first mortgage lien on twenty hotel properties (or
applicable replacement collateral) and additional capital
contributions of up to $150 million by Mr. Hammons and an
entity under his control. (Note 1(b)) $300,000 $300,000
First mortgage notes, interest at 9.75%, interest only payable
April 1 and October 1, principal due October 1, 2005, secured
by a first mortgage lien on six hotel properties (or applicable
replacement collateral) and a second mortgage lien on two
hotel properties and additional capital contributions of up to
$45 million by Mr. Hammons. (Note 1(b)) 90,000 90,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year-End
--------------------
1998 1997
-------- --------
<S> <C> <C>
Development Bonds, variable interest rate approximates 85%
of the bond equivalent yield of thirteen week U.S. Treasury
bills (not to exceed 12%) and fixed rates ranging from 7.125%
to 9.00%, payable in scheduled installments through June
2015, certain of the obligations are subject to optional
prepayments by the bondholders, secured by certain hotel
facilities, fixtures and an assignment of rents. 14,443 36,063
Mortgage notes payable to banks, insurance companies and a
state retirement plan, variable interest rates at prime to LIBOR
plus 3.25% with certain instruments subject to a ceiling rate
and a floor rate, fixed rates ranging from 7.97% to 9.5%,
payable in scheduled installments through April 2027, secured
by certain hotel facilities, fixtures, assignment of rents, certain
other real property controlled by Mr. Hammons, with certain
instruments subject to cross-collateralization provisions and,
with respect to approximately $334,005 of mortgage notes, a
personal guarantee of Mr. Hammons. 344,369 261,071
Other notes payable, various variable interest rates and fixed
rates ranging from 6.8% to 8.1%, payable in scheduled
installments through March 2003, secured by certain hotel
improvements, furniture, fixtures and related equipment and,
with respect to approximately $1,725 of notes, a personal
guarantee of Mr. Hammons. 10,904 8,657
-------- --------
759,716 695,791
Less-- current portion (42,256) (61,517)
-------- --------
$717,460 $634,274
======== ========
</TABLE>
The indenture agreements relating to the 1994 and 1995 notes include certain
covenants which, among others, limit the ability of the Partnership and its
restricted subsidiaries (as defined) to make distributions, incur debt and issue
preferred equity interests, engage in certain transactions with its partners,
stockholders or affiliates, incur certain liens, engage in mergers or
consolidations and achieve certain interest coverage ratios, as defined. In
addition, certain of the other credit agreements include subjective acceleration
clauses and limit, among others, the incurrence of certain liens and additional
indebtedness. The 1994 and 1995 notes and certain other obligations include
scheduled prepayment penalties in the event the obligations are paid prior to
their scheduled maturity.
In 1998, the Partnership paid off or refinanced approximately $133.0 million of
long-term debt in 1998. In connection with these transactions, the Partnership
incurred approximately $2.2 million in charges related to the early
extinguishment of debt. These debt extinguishment charges have been reflected
in the accompanying 1998 consolidated statement of operations as an
extraordinary item.
Scheduled maturities of long-term debt are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Year-End
Year Ending 1998
----------- --------
<S> <C>
1999 $ 42,256
2000 6,828
2001 19,844
2002 39,946
2003 23,533
Thereafter 627,309
--------
$759,716
========
</TABLE>
(6) Commitments and Contingencies-
(a) Operating Leases--The hotel properties lease certain equipment and
land from unrelated parties under various lease arrangements. In
addition, the Partnership leases certain parking spaces at one hotel
for the use of its patrons and is billed by the lessor based on actual
usage. Rent expense for these leases was approximately $2,715, $1,819
and $1,629 for the fiscal years ended 1998, 1997 and 1996,
respectively, which has been included in general and management
service expenses.
Included in the accompanying consolidated financial statements are the
operating results of trade centers located in Joplin, Missouri and
Portland, Oregon. Both of the trade centers are owned by Mr. Hammons.
The lease agreement for the Joplin trade center stipulates nominal
rentals for each of the fiscal years ended 1998, 1997, 1996 and for
each ensuing year through 2014. The lease agreement for the Portland
facility extends through 2004 and requires minimum annual rents of
$300 to Mr. Hammons. In addition, the Partnership leases office space
in Springfield, Missouri from a partnership (of which Mr. Hammons is a
partner) for annual payments of approximately $234 through December
2001. The Partnership has also entered into land leases with Mr.
Hammons for two operating hotel properties. Subject to the Partnership
exercising purchase options provided under these agreements, these
leases extend through 2036 and 2045, respectively, and require
aggregate minimum annual payments of approximately $270. Rent expense
for these related party leases was approximately $800, $465 and $520
for the fiscal years ended 1998, 1997 and 1996, respectively.
The minimum annual rental commitments for these noncancelable
operating leases at January 1, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending Mr. Hammons Other Total
----------- ----------- ------- -------
<S> <C> <C> <C>
1999 $ 553 $ 1,442 $ 1,995
2000 570 1,195 1,765
2001 570 839 1,409
2002 570 640 1,210
2003 570 574 1,144
Thereafter 10,805 40,200 51,005
------- ------- -------
$13,638 $44,890 $58,528
======= ======= =======
</TABLE>
<PAGE>
(b) Hotel Development--In 1999 and early 2000, the Partnership plans to
complete construction and open six new hotels. The total estimated
aggregate development and construction costs for these hotels are
expected to exceed $197 million.
(c) Legal Matters--The Partnership is party to various legal proceedings
arising from its consolidated operations. Management of the
Partnership believes that the outcome of these proceedings,
individually and in the aggregate, will have no material adverse
effect on the Partnership's consolidated financial position, results
of operations or its cash flows.
(7) Fair Value of Financial Instruments-
The fair values of marketable securities, and long-term debt approximate
their historical carrying amounts except with respect to the 1994 and 1995
notes for which fair market value was approximately $408 million and $404
million at 1998 and 1997, respectively. The fair value of the first
mortgage note issues is estimated by obtaining quotes from brokers.
(8) Sales of Property and Equipment-
On February 6, 1998, the Partnership completed the sale of six hotels to an
unrelated party for $39.4 million, resulting in a gain of approximately
$0.2 million. The net book value of the hotels' property and equipment at
the time of the sale was approximately $38.6 million. Certain of these
hotels served as collateral under the 1994 and 1995 first mortgage notes
(Note 5). Under the terms of these indentures, the Partnership provided
replacement collateral in accordance with the indenture provisions.
On December 31, 1998, the Partnership completed the sale of an additional
hotel property to an unrelated party for $16.1 million, resulting in a gain
of approximately $8.0 million. The net book value of the hotel's property
and equipment at the time of the sale was approximately $8.0 million. In
addition to cash received upon closing, the sales price included a note
receivable for $11.9 million, 8.0% interest, due in 1999. The note
receivable is secured by the hotel and a personal guarantee by a
shareholder of the buyer. This hotel served as collateral under the 1994
first mortgage notes (Note 5). Under the terms of this indenture, the
Partnership must provide replacement collateral of equivalent value or
apply the net proceeds from the sale to amounts outstanding. The
Partnership intends to provide replacement collateral in accordance with
the indenture provisions.
<PAGE>
Summary unaudited operating results for the seven hotels for each of the three
years ended 1998, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Revenues $9,716 $35,673 $36,637
====== ======= =======
Income from operations, including
depreciation and amortization of $861,
$3,101, and $2,971, respectively $1,250 $ 5,122 $ 4,722
====== ======= =======
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, in the City of
Springfield, Missouri, on the 31st day of March, 1999.
JOHN Q. HAMMONS HOTELS, L.P.
By: John Q. Hammons Hotels, Inc.,
its general partner
By: /s/ John Q. Hammons
------------------------
John Q. Hammons
Chairman and Founder
JOHN Q. HAMMONS HOTELS FINANCE
CORPORATION
By: /s/ John Q. Hammons
-----------------------
John Q. Hammons
Chairman and Founder
JOHN Q. HAMMONS HOTELS FINANCE
CORPORATION II
By: /s/ John Q. Hammons
-----------------------
John Q. Hammons
Chairman and Founder
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
in their capacities at John Q. Hammons Hotels, Inc. as general partner of John
Q. Hammons Hotels, L.P., and in the capacities indicated for John Q. Hammons
Hotels Finance Corporation, and John Q Hammons Hotels Finance Corporation II, on
March 31st, 1999.
<PAGE>
<TABLE>
<CAPTION>
Signatures Title
- --------------------------------- ---------------------------------------------------------------------------------------
<S> <C>
/s/ John Q. Hammons Chairman and Founder of John Q. Hammons Hotels, Inc., John Q. Hammons Hotels Finance
- --------------------------------- Corporation and John Q. Hammons Finance Corporation II (Principal Executive Officer)
John Q. Hammons
/s/ Kenneth J. Weber Director, Chief Financial Officer of John Q. Hammons Hotels, Inc. [John Q. Hammons
- --------------------------------- Hotels Financial Corporation and John Q. Hammons Finance Corporation II] (Principal
Kenneth J. Weber Financial and Accounting Officer)
/s/ Jacqueline A. Dowdy Director, Secretary of John Q. Hammons Hotels, Inc., John Q. Hammons Hotels Finance
- --------------------------------- Corporation and John Q. Hammons Finance Corporation II
Jacqueline A. Dowdy
/s/ William J. Hart Director of John Q. Hammons Hotels, Inc.
- ---------------------------------
William J. Hart
/s/ Daniel L. Earley Director of John Q. Hammons Hotels, Inc.
- ---------------------------------
Daniel L. Earley
/s/ James F. Moore Director of John Q. Hammons Hotels, Inc.
- ---------------------------------
James F. Moore
/s/ John E. Lopez-Ona Director of John Q. Hammons Hotels, Inc.
- ---------------------------------
John E. Lopez-Ona
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Title Page
- ------ ----------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
*3.1 Second Amended and Restated Agreement of Limited Partnership of the Company (the
"Partnership Agreement")
3.2 Amendment No. 1 to Partnership Agreement (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1994)
**3.3 Amendment No. 2 to Partnership Agreement
****3.4 Certificate of Limited Partnership of the Company filed with the Secretary of State of
the State of Delaware
*3.5 Restated Certificate of Incorporation of the General Partner
***3.6 Certificate of Incorporation of John Q. Hammons Hotels Finance Corporation II
**10.1 1994 Note Indenture
**10.2 1995 Note Indenture
**10.3 Embassy Suites License Agreement
**10.4 Form of Option Purchase Agreement
*10.5 Collective Bargaining Agreement between East Bay Hospitality Industry Association, Inc.
and Service Employee's International Union
***10.6 Collective Bargaining Agreement between Hotel Employee and Restaurant Employee Union
Local 49 and Holiday Inn Sacramento--Capitol Plaza, for 06/01/95 to 5/31/98
*10.7 Letter Agreement re: Hotel Financial Services for Certain Hotels Owned and Operated
by John Q. Hammons or JQH Controlled Companies
10.8 Employment Agreement between John Q. Hammons Hotels, Inc. and Debra M. Shantz dated as of
May 1,1995 as amended on October 31, 1997.
***10.9a John Q. Hammons Building Lease Agreement - 9th Floor (6000 sq. ft.)
***10.9b John Q. Hammons Building Lease Agreement - 7th Floor (2775 sq. ft.)
***10.9c John Q. Hammons Building Lease Agreement - 7th Floor (2116 sq. ft.)
***10.9d John Q. Hammons Building Lease Agreement - 8th Floor (6000 sq. ft.)
*10.10 Triple Net Lease
*10.11 Lease Agreement between John Q. Hammons and John Q. Hammons Hotels, L.P.
10.13 Employment Agreement between John Q. Hammons Hotels, Inc. and Kenneth J. Weber dated
as of April 27, 1998.
***10.14 Ground lease between John Q. Hammons and John Q. Hammons-Branson, L.P. -
(Chateau on the Lake, Branson, Missouri)
***10.15 Ground lease between John Q. Hammons and John Q. Hammons-Hotels Two, L.P. -
(Little Rock, Arkansas)
*10.16 Operating Agreement of Rivercenter Plaza Development Co., L.C., an Iowa limited liability
company
*10.17 Agreement of Limited Partnership of John Q. Hammons Hotels, L.P. Two
*10.18 1994 Stock Option Plan
****10.19 Agreement of Limited Partnership of John Q. Hammons Hotel--Montgomery L.P.
10.20 1999 Non-Employee Director Stock and Stock Option Plan of the General Partner
12.1 Computations of Ratio of Earnings to Fixed Charges of the Company
27 Financial Data Schedule
</TABLE>
________________________
* Incorporated by reference to the General Partner's Registration Statement
on Form S-1, No. 33-84570.
** Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-73340.
*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended January 3, 1997.
**** Incorporated herein by reference to the Company's Registration Statement
(Registration No. 33-99614) previously filed with the Commission.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between John Q. Hammons Hotels, Inc., a Delaware
Corporation (the "Company"), and Debra M. Shantz (the "Executive"), dated as of
the 1st day of May, 1995.
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
hereby agree as follows:
1. Offer and Acceptance of Employment. Commencing on May 10, 1995 (the
"Effective Date"), the Company agrees to and hereby does, employ the Executive
as its in-house legal counsel. The Executive hereby accepts such employment in
such capacity and agrees to discharge faithfully, diligently, and to the best of
her ability the responsibilities of that position.
2. Term. This Agreement shall commence on the Effective Date for an initial
period of three (3) years (the "Employment Term") and continuing thereafter from
year to year (a "Renewal Term") provided that either the Company or the
Executive may terminate such employment at the end of the Employment Term or any
Renewal Term by giving the other not less than six (6) months prior written
notice of such termination. The foregoing notwithstanding either the Executive
or the Company may terminate such employment ninety (90) days after the
Effective Date (the "Option Period") with two (2) weeks written notice to the
other of such termination.
3. Duties and Responsibilities.
(a) During the Employment Term, the Executive (i) shall be in charge of
overseeing on going litigation in which the Company is involved, (ii) shall be
in charge of
<PAGE>
coordinating the Company's legal matters with outside counsel, (iii) shall
report to the Chairman and President and (iv) shall assume and perform such
further reasonable responsibilities and duties assigned to her by the
President or Chairman of the Board of Directors. If elected or appointed,
the Executive shall serve as a director of the Company without any
additional compensation.
(b) Excluding periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote her working time and
energy to the business and affairs of the Company and to use her best
efforts to perform the responsibilities assigned to her hereunder
faithfully and efficiently. Executive will work thirty-five (35) hours per
week on the Company's affairs and the Company agrees to allow the Executive
flexibility in her work schedule, specifically to include permitting
Executive to depart at 3:00 p.m. each day.
3. Compensation. The following provisions apply during the time the
Executive is employed by the Company:
(a) Base Salary. During the Employment Term, the Executive shall
receive a base salary of Ninety Thousand Dollars ($90,000.00) (the "Base
Salary") payable in accordance with the Company's normal payroll practices
for salaried employees. The Base Salary shall be reviewed annually and may
be increased (but not decreased) in the course of each such review. Under
no circumstances shall any increase in the Base Salary (i) limit or reduce
any other obligation to the Executive under this Agreement or (ii) be later
reduced or eliminated, once effective.
(b) Annual Bonus. In addition to the Base Salary, the Executive shall
be entitled, for each year of the Employment Term or any Renewal Term, to
an annual bonus ("Annual Bonus") in an amount determined by the Chairman of
the Board and President of
<PAGE>
the Company. Each Annual Bonus shall be determined and accrued as of the
end of the fiscal year for which the Annual Bonus is awarded and paid no
later than April 1 of the following year, unless the Executive shall
otherwise timely elect to defer the receipt of the Annual Bonus under any
deferred compensation plan of the Company then in effect.
(c) Savings and Retirement Plans. In addition to the Base Salary and
Annual Bonus payable as hereinabove provided, the Executive shall be
entitled to participate, during the Employment Term and any Renewal Term,
in all savings and retirement plans or programs applicable to other key
executives of the Company.
(d) Welfare Benefit Plans. During the Employment Term and any Renewal
Term, the Executive, and the Executive's dependents as to medical and
dental benefits, shall be eligible to participate in and shall receive all
benefits under each welfare benefit plan of the Company, including, without
limitation, all medical, dental, disability (at least $250,000), group life
(at least $75,000), accidental death and travel accident (at least
$250,000) insurance plans and programs of the Company.
(e) Expenses. During the Employment Term and any Renewal Term, the
Executive shall be entitled, upon submission of proper substantiation, to
receive reimbursement for all reasonable business-related expenses actually
paid or incurred by the Executive in connection with the discharge of her
duties hereunder and in the promotion of the business of the Company.
(f) Fringe Benefits. During the Employment Term and any Renewal Term,
the Executive shall be entitled to fringe benefits in accordance with the
policies of the Company.
<PAGE>
(g) Vacation. The Executive shall be entitled to five (5) days of paid
vacation in 1995 and ten (10) days of paid vacation during 1996, and
fifteen (15) days of paid vacation per year thereafter, excluding weekends
or days which the Company is not open for business, which are the following
holidays: Christmas, New Year's Day, Thanksgiving and the day after,
Memorial Day, Labor Day and July 4th.
(h) Bar Dues. During the Employment Term and any Renewal Term, the
Company shall pay the Executive's Bar Association Dues to allow the
Executive to maintain her membership in the American, Missouri and
Springfield Metropolitan Bar Associations.
(i) Continuing Legal Education. During the Employment Term and any
Renewal Term, the Company shall pay for the Executive to attend the
requisite continuing legal education programs to maintain her license to
practice law.
(j) Malpractice Insurance Premium. During the Employment Term and any
Renewal Term, the Company shall pay for the Executive's Malpractice Premium
to provide the Executive with legal malpractice coverage for errors and
omissions.
(k) Stock Options. The Executive shall receive the option to purchase
shares of the Class A Common Stock of the Company as options are awarded to
the other executives of the Company.
(l) Executive's Assistant. The Company shall hire as the Executive's
Assistant, Micca L. Braden to be paid Twenty-Five Thousand Dollars
($25,000.00) per year. Ms. Braden shall be entitled to paid vacation of
five (5) days during 1995, and ten (10) days per year for each year
thereafter, and health and disability insurance fully paid for by the
Company.
<PAGE>
(m) Legal Resources. The Company shall provide the Executive with
legal publications and resources at the Executive's request, including
subscriptions to legal publications, purchase of software and books
necessary for the Executive to perform her job for the Company.
(n) Highland Springs Country Club Membership. Company shall provide
Executive, during the Employment Term and any Renewal Term, a Social
Membership to Highland Springs Country Club; however, Executive shall pay
all monthly dues and other costs associated with such membership.
5. Termination. The following provisions relate solely to termination of
the Executive's employment during the Employment Term or any Renewal Term:
(a) Death or Disability.
(i) Subject to Section 7 below, this Agreement shall terminate
automatically upon the Executive's death.
(ii) Subject to Section 7 below, the Company shall at all times
have the right to terminate the Executive's employment hereunder at
any time after the Employee shall be absent from her employment, for
whatever cause, including but not limited to mental or physical
incapacity, illness or disability, (collectively "Disability") for a
continuous period of more than twenty-six (26) weeks.
(b) Cause. The Company may terminate the Executive's employment for
"Cause" by a majority vote of the Company's Board of Directors at a meeting
where the Executive has had an opportunity to be present and express her
response. For purposes of this Agreement, "Cause" means (i) the conviction
of the Executive by a court of competent jurisdiction of crime involving
moral turpitude, (ii) the commission by the Executive of an
<PAGE>
act of fraud on the Company; (iii) the misappropriation or attempted
misappropriation by the Executive of any funds or property of the Company,
or (iv) the continuing failure of the Executive to perform her obligations
under Section 2 of this Agreement thirty (30) days after having received a
written notice specifying the manner in which she is failing to perform
those obligations.
6. Notice of Termination. Any termination by the Company for Cause shall
be communicated in writing to the Executive in accordance with Section 13(b) of
this Agreement and if the termination date is other than the date of receipt,
the notice shall specify the termination date.
7. Obligations of the Company Upon Termination. The following provisions
apply only in the event the Executive is terminated during the Employment Term
or any Renewal Term:
(a) Death. If the Executive's employment is terminated by reason of
the Executive's death, this Agreement shall terminate without further
obligation to the Executive's legal representatives under this Agreement
other than those salary, bonus and fringe benefit amounts accrued and
payable hereunder at the date of the Executive's death. Anything in this
Agreement to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to those provided by the
Company generally to surviving families of key executives of the Company
under its plans, programs and policies relating to family death benefits,
if any.
(b) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability, the Executive shall be entitled to receive
the amount specified in Section 7(d)(i) and (ii) hereof and to receive
disability and other benefits at least equal to those provided by the
Company to disabled employees and/or their families in accordance with such
plans, programs, and policies relating to disability, if any.
<PAGE>
(c) Cause. If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive her Base Salary through the date
of termination at the rate in effect at the time notice of termination is
given and shall have no further obligation to the Executive under this
Agreement except as to vested employee benefits.
(d) Termination or Failure to Renew Without Cause. If the Company
shall terminate or fail to renew the Executive's employment with the
Company without cause:
(i) the Company shall pay to the Executive at the time of
termination, an amount equal to two (2) year's current Base Salary;
and, in the case of vested compensation previously deferred by the
Executive, all amounts of such compensation previously deferred and
not yet paid by the Company;
(ii) the Company shall, promptly upon submission by the
Executive of supporting documentation, pay or reimburse, or cause to
be paid or reimbursed, to the Executive any business related costs and
expenses paid or incurred by the Executive on or before the date of
termination which would have been payable under Section 3(e) if the
Executive's employment had not terminated; and
(iii) until the six-month anniversary of the Executive's
termination, the Company shall continue benefits (or equivalent
coverage) to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance
with the plans, programs and policies described in Sections 3(d) and
3(f) of this Agreement if the Executive's employment had not been
terminated.
8. Non-Competition. At all times during the Executive's employment with
the Company and for a period of two (2) years after the Executive is no longer
employed by the Company, the Executive shall not anywhere in the United States,
directly or indirectly, engage in
<PAGE>
any business, enterprise or employment whether as owner, operator, shareholder,
director, partner, financial backer, creditor, consultant, agent, executive or
any capacity whatsoever that is directly or indirectly competitive with the
business of the Company; provided, however, that the foregoing shall not be
deemed to prohibit the Executive from (i) acquiring, solely as an investment and
through market purchases, securities of any issuer that are registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
that are listed or admitted for trading on any United States national securities
exchange or that are quoted on the NASDAQ National Market System or any similar
system of automated dissemination of quotations of securities prices in common
use, so long as the Executive is not a member of any control group (within the
meaning of the rules and regulations of the Securities and Exchange Commission)
of any such issuer, and (ii) practicing law at the location of her choice.
9. Non-Solicitation of Employees and Customers. The Executive shall not
at any time during her employment hereunder and for a period of two (2) years
after the date her employment is terminated for any reason, directly or
indirectly, for herself or for any other person, firm, corporation, partnership,
association or other entity, (i) attempt to employ, employ or enter into any
contractual arrangement with any employee or former employee of the Company, its
affiliates, or predecessors-in-interest, unless such employee or former employee
has not been employed by the Company, its affiliates, or predecessors-in-
interest for a period in excess of six (6) months; and/or (ii) call on or
solicit any of the actual or targeted prospective customers or suppliers of the
Company with respect to any matters, related to or competitive with the business
of the Company, nor shall the Executive make known the names or addresses of
such customers or suppliers or any information relating in any manner to the
Company's trade or business relationships with such customers or suppliers.
<PAGE>
10. Non-Disclosure. Except as expressly permitted by the Company, or in
connection with the performance of her duties hereunder, the Executive shall not
at any time during or subsequent to her employment by the Company, disclose,
directly or indirectly, to any person, firm, corporation, partnership,
association or other entity any proprietary or confidential information relating
to the Company or any information concerning the Company's financial condition
or prospects, the Company's customers or suppliers, the Company's sources of
leads and methods of obtaining new business, the design, development, or
construction of the Company's properties or the Company's methods of doing and
operating its business (collectively, "Confidential Information"). Confidential
Information shall not include information which, at the time of disclosure, is
known or available to the general public by publication or otherwise through no
act or failure to act on the part of the Executive. The Executive acknowledges
and agrees that the Confidential Information is a valuable, special and unique
asset of the Company's business.
11. Books and Records. All books, records and accounts relating in any
manner to the Company's customer, suppliers, or methods of conducting business
whether prepared by the Executive or otherwise coming into the Executive's
possession, and all copies thereof in the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company upon termination of the Executive's employment hereunder or upon the
Company's request at any time.
12. Injunction. The Executive acknowledges that if she were to breach any
of the provisions of Sections 8, 9, 10, or 11 it would result in immediate and
irreparable injury to the Company which cannot be adequately or reasonably
compensated at law. Therefore, the Executive agrees that the Company shall be
entitled, if any such breach shall occur or be threatened or attempted, if it so
elects, to a temporary and permanent injunction, without being required to post
a
<PAGE>
bond, enjoining and restraining a breach by the Executive, her associates, her
partners or agents, either directly or indirectly, and that right to injunction
shall be cumulative to whatever remedies or actual damages the Company may
possess.
13. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company the benefits accrued and payable hereunder
shall not be assignable by the Executive otherwise than by will or the laws
of descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors.
(c) In the event that another corporation or unincorporated entity
becomes a Successor (as such term is defined below) of the Company, then
the Successor shall, by an agreement in form and substance reasonably
satisfactory to the Executive, expressly assume and agree to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform if there had been no Successor. As used herein, the
term "Successor" means another corporation or unincorporated entity or
group of corporations or unincorporated entities which (i) acquires all or
substantially all of the assets of the Company, or (ii) is the surviving
entity as a result of the merger of the Company into that entity.
14. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Missouri. The captions of this Agreement are
not part of the provisions
<PAGE>
hereof and shall have no force or effect. This Agreement may not be amended
or modified otherwise than by a written agreement executed by the parties
hereto or their respective successor and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
<TABLE>
<CAPTION>
<S> <C>
If to the Executive: Debra M. Shantz
------------------- 3760 E. Meadowmere Place
Springfield, Missouri 65809
If to the Company: John Q. Hammons Hotels, Inc.
----------------- 300 John Q. Hammons Parkway
Springfield, Missouri 65802
Attention: John Q. Hammons
with a copy to: William J. Hart
-------------- Farrington & Curtis, P.C.
750 No. Jefferson
Springfield, Missouri 65802
</TABLE>
or to such other address as either party shall have furnished to the other
in writing on accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) If any term or provision of the Agreement or the application
hereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of that
term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. Moreover, if a court of competent
jurisdiction deems any
<PAGE>
provisions hereof to be too broad in time, scope or area, it is expressly
agreed that provision shall be enforced to a lesser degree which the court
of competent jurisdiction finds enforceable.
(d) The Company may withhold from any amounts payable under this
Agreement such federal, state and local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) This Agreement contains the entire understanding of the Company
and the Executive with respect to the subject matter hereof.
(f) Any waiver of any breach of this Agreement shall not be construed
to be a continuing waiver of consent to any subsequent breach by either
party hereto.
(g) In the event that either party hereto brings suit for the
collection of any damages resulting from, or the injunction of any action
constituting, a breach of any of the terms or provisions of this Agreement,
then the party found to be at fault shall pay all reasonable court costs
and attorneys' fees of the other.
(h) The Executive shall not delegate the employment obligations
pursuant to this Agreement to any other person.
IN WITNESS WHEREOF, the Executive has hereunto set her hand, and the
Company has caused these presents to be executed in its name on its behalf, all
as of the day and year first above written.
JOHN Q. HAMMONS HOTELS, INC.
By
- --------------------------------- --------------------------------------
Debra M. Shantz John Q. Hammons, Chairman of the Board
<PAGE>
EXHIBIT 10.8
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is made and entered into as of the 31st day of October,
1997, by and between John Q. Hammons Hotels, Inc. (the "Company") and Debra
Mallonee Shantz (the "Executive").
WHEREAS, the Company and Executive previously entered into an
Employment Agreement dated as of May 1, 1995, (the "Agreement") and Company and
Executive now desire to amend the terms of the Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
provisions set forth herein and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Company and
Executive hereby agree to amend the Agreement as follows:
1. Paragraph 2 - Term shall be amended in its entirety as follows:
"This Agreement shall continue for a renewal term of three
(3) years (the "Renewal Term"), commencing May 1, 1998, and
continuing thereafter from year to year, provided that either the
Company or the Executive may terminate such employment at the end
of the Renewal Term by giving the other not less than six months'
prior written notice of such termination."
2. Paragraph 3(a) - Compensation shall be amended in its entirety as
follows:
"Base salary. During the Renewal Term, the Executive shall
receive a base salary of One Hundred Thirty-five Thousand Dollars
(135,000.00) (the "Base Salary"), payable in accordance with the
Company's normal payroll practices for salaried employees. The
Base Salary shall be reviewed annually and may be increased (but
not decreased) in the course of each such review. Under no
circumstances shall any
<PAGE>
increase in the Base Salary (i) limit or reduce any other
obligation to the Executive under this Agreement or (ii) be later
reduced or eliminated once effective."
3. Continuing Validity. Except as expressly modified herein, all
remaining terms and conditions of the Agreement shall remain in
full force and effect.
COMPANY
John O. Hammons Hotels, Inc.
-------------------------------------
JOHN Q. HAMMONS
Chairman of the Board and
Chief Executive Officer
EXECUTIVE
-------------------------------------
Debra Mallonee Shantz
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), executed March 27, 1998, and
to be effective April 27, 1998, is by and between JOHN Q. HAMMONS HOTELS, INC.,
a Delaware Corporation (the "Company"), and KENNETH J. WEBER ("Employee").
RECITALS
--------
Employee will be employed as the Chief Financial Officer of the Company on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
AGREEMENT
---------
1. Employment. The Company hereby employs Employee as Executive Vice
President and Chief Financial Officer ("CFO") of the Company for the Term (as
defined below) of this Agreement, and Employee hereby accepts employment on the
terms and subject to the conditions set forth herein. Employee shall have and
exercise the authority and perform the duties normally incident to the office of
CFO, as well as such other duties as may be reasonably delegated to him by the
Company's Chief Executive Officer (the "CEO") and Board of Directors (the
"Board").
2. Term of Agreement. The term of this Agreement (the "Term") shall
begin on April 27, 1998, or such earlier date as mutually agreed upon by the
parties hereto (the "Commencement Date"), and shall continue until the date that
is three (3) years after the Commencement Date.
3. Compensation.
(a) Base Salary. The Company shall pay to Employee an annual salary of
Two Hundred Fifty Thousand Dollars ($250,000.00) (the annual salary, as it may
be increased from time to time by the Board on an annual basis, is referred to
herein as the "Base Salary") in equal bi-weekly installments.
(b) Discretionary Bonus. Each year during the Term, the Company shall
pay to Employee a bonus (the "Annual Bonus") of up to thirty-five percent (35%)
of his Base Salary for that year based on reasonable, performance-based
standards as established from time to time in the reasonable discretion of the
Board based on the following criteria: one-half (1/2) of the Annual Bonus shall
be based on the Compensation Committee's evaluation of Employee's overall job
performance; the other one-half (1/2) of the Annual Bonus shall be based on the
financial performance of the Company during that year, including the relative
financial performance of the Company as compared to the immediately preceding
year, and the extent to
-1-
<PAGE>
which the Company has met or exceeded the Company's annual budget projections as
adopted by the Board for that year.
All bonuses payable pursuant to this Section 3(b) shall be paid to
Employee in cash or other immediately available funds at the same time bonuses
are paid to the other officers of the Company.
(c) Stock Options. The Company shall grant to Employee options to
purchase one hundred thousand (100,000) shares ("Options") of the Company's
Class A Common Stock, par value One Dollar ($1.00) ("Common Stock"), for their
fair market value on the grant date of the option, pursuant to the Company's
1994 Stock Option Plan as in effect on the date hereof.
Except as otherwise provided herein, each of the Options granted
hereunder shall vest and become exercisable over a four (4) year period
following their Grant Date as follows: twenty-five percent (25%) of the granted
Options shall vest and become exercisable on each anniversary of the Grant Date
of the Options. Notwithstanding the foregoing, all Options granted to Employee
shall immediately vest and become exercisable upon the sale, merger,
reorganization or recapitalization of the Company pursuant to which the holders
of the Common Stock of the Company become entitled to receive stock, securities,
or other assets in exchange for their shares of Common Stock.
4. Benefits. Employee shall be entitled to receive the following
benefits from the Company:
(a) Insurance. The Company shall, at its sole expense, if Employee is
insurable at standard rates, purchase and maintain during the Term (i) a life
insurance policy on Employee's life, payable to one (1) or more beneficiaries
designated by Employee, in the aggregate amount of Five Hundred Thousand Dollars
($500,000.00); and (ii) such medical and disability insurance as is generally
available to other executive employees of the Company. If immediate coverage
under the Company's insurance plans is not available to Employee as of the
Commencement Date, the Company shall pay, or reimburse Employee for, the cost of
maintaining full coverage under Employee's existing life, health and disability
insurance policies until Employee is covered under the Company's plans.
(b) Retirement Plan. Employee shall be entitled to participate in any
retirement, savings or benefit plans that the Company makes available to any of
its executive employees.
(c) Club Memberships. The Company shall provide membership at (i)
Highland Springs Country Club, and (ii) the Tower Club (collectively, the
"Country Clubs"). Employee shall be responsible for all monthly dues and food
and other incidental charges incurred by Employee for personal use at the
Country Clubs.
(d) Vacation. Employee shall be entitled to two (2) weeks of paid
vacation during calendar 1998 and four (4) weeks of paid vacation per year
beginning in January, 1999.
-2-
<PAGE>
(e) Indemnity; D & O Insurance. To the extent permitted by law, the
Company shall indemnify Employee for any and all liability or damages incurred
by Employee in connection with his employment hereunder; and Employee shall be
covered by any Directors and Officers Liability Insurance which is maintained by
Company.
(f) Miscellaneous. The Company shall reimburse Employee for all
costs and expenses reasonably incurred by Employee in connection with the
performance of his duties hereunder.
5. Relocation.
(a) The Company shall reimburse Employee for two (2) trips to
Springfield for Employee and his spouse (including one (1) trip with his
children), to locate a residence in Springfield, and all costs and expenses
reasonably incurred in connection therewith, including meals, transportation,
and lodging at a hotel affiliated with the Company.
(b) If Employee begins work at the Company before his immediate family
moves to Springfield, the Company shall reimburse Employee for all reasonable
expenses incurred in connection with Employee's reasonable round-trip travel
between Springfield and New York, for up to three (3) months after the
Commencement Date.
(c) The Company shall pay the direct relocation costs for Employee and
his family to move from New York to Springfield, including without limitation
(i) packing and moving their personal effects, furniture and other property
(including the cost of shipping up to three (3) cars or, if one (1) or more of
the cars are driven to Springfield, the costs associated therewith including
mileage reimbursement), (ii) travel costs (including meals and lodging), (iii)
the costs of renting an apartment or other temporary living arrangements for up
to six (6) months, or until employee purchases a home in Springfield, whichever
is earlier, (iv) temporary storage costs for Employee's furniture and personal
effects for up to six (6) months, and (v) insurance costs related to the move.
To the extent that the amount of any reimbursement hereunder will be
included in Employee's taxable income (Federal or State), and is not deductible
for income tax purposes, the Company shall pay to Employee as reimbursement for
such moving expenses an aggregate amount that is sufficient to cover all of
Employee's out-of-pocket moving expenses on an after-tax basis. For example,
and without limiting the generality of the foregoing, if reimbursement of Seven
Hundred Fifty Dollars ($750.00) of Employee's actual moving expenses would be
included in Employee's taxable income (without an offsetting deduction), and if
Employee were taxed at a twenty-five percent (25%) effective rate (combined
Federal and State), then the Company would be obligated to pay Employee an
aggregate of One Thousand Dollars ($1,000.00) for such moving expenses (i.e.,
Seven Hundred Fifty Dollars ($750.00) on an after-tax basis).
6. Termination.
-3-
<PAGE>
(a) The Company may terminate this Agreement at any time with or
without "Cause." As used herein, the term "Cause" means gross negligence, fraud
or wilful misconduct.
(b) If Employee is terminated for Cause or if Employee voluntarily
terminates his employment with the Company prior to the end of the Term, (i)
Employee shall be entitled to receive his Base Salary through the date of such
termination; (ii) any Stock Options not vested at the time of such termination
shall be forfeited; and (iii) Employee will not be entitled to receive his
Annual Bonus, or any portion thereof, for the fiscal year in which such
termination occurs.
(c) This Agreement shall terminate upon the death of Employee or, at
the election of the Company, if Employee is unable to perform his duties
hereunder by reason of illness, injury or incapacity for one hundred eighty
(180) consecutive days ("Disability") (during which time Employee shall continue
to be compensated as provided herein).
(d) Either the Company or Employee may elect not to extend the Term by
giving written notice of such non-extension to the other party at least one
hundred and twenty (120) days prior to the end of the Term.
(e) If the Company materially changes the authority and duties of
Employee, such that he no longer serves as the CFO of the Company, and Employee
resigns as a result thereof, then the Company shall be deemed to have terminated
the Employee without Cause for purposes of this Agreement.
7. Severance. If this agreement is terminated (i) by the Company without
Cause, (ii) pursuant to an election by the Company not to extend the Term, (iii)
upon the death or Disability of Employee, or (iv) by either the Company or
Employee if there is a material change in Employee's authority and duties such
that he no longer serves as the CFO, then Employee shall be entitled to
severance pay equal to his Base Salary for the balance of the year in which the
termination occurs and an amount equal to one (1) year of his Base Salary and
prior years bonus, and all Options granted to Employee shall immediately vest
and be exercisable.
8. Covenant Not to Compete. Employee agrees that during the Term and for
one (1) year after the termination of this Agreement by Employee prior to the
end of the Term (except pursuant to Section 6(e) above), Employee will not,
without the prior written consent of the Chief Executive Officer of the Company,
which will not be unreasonably withheld, accept employment with, or serve as a
consultant to, or become an investor with, officer, director or shareholder of
any person, firm or corporation (including any new business started by Employee
alone or with others) that directly competes with the Company in any market
where Company has an existing hotel or has plans, as of the termination of
Employee's employment, for the construction of a hotel.
9. Miscellaneous.
(a) For purposes of this Agreement, all notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when personally delivered, two (2) days after deposit in the mail if
mailed by certified mail, return receipt
-4-
<PAGE>
requested, or when received if delivered by a nationally recognized overnight
courier service, or by facsimile. Notices to the Company shall be given to the
Company's secretary, addressed to the Company's corporate headquarters. Notices
to Employee shall be addressed to Employee's most recent address as set forth in
the personnel records of the Company. Either party shall be entitled to change
the address at which notice is to be given by providing notice to the other
party of such change in the manner provided herein.
(b) This Agreement sets forth the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all prior agreements,
whether written or oral. This Agreement may be amended only by a writing signed
by the parties hereto. Each party represents and warrants that this Agreement
has been duly and validly authorized, executed and delivered by such party and
constitutes a valid and binding obligation of such party, enforceable against
such party in accordance with its terms.
(c) This Agreement shall be binding upon, and inure to the benefit of
the parties, their respective heirs, successors, personal representatives and
assigns.
(d) No waiver of any provision of this Agreement shall be valid unless
it is in writing and signed by the person or party against whom it is charged.
(e) This Agreement may be executed in one (1) or more counterparts,
any one (1) of which need not contain the signatures of more than one (1) party,
but all such counterparts taken together will constitute one (1) and the same
instrument. Signatures may be exchanged by telecopy, with original signatures to
follow. Each party to this Agreement agrees that it will be bound by its own
telecopied signature and that it accepts the telecopied signature of the other
party to this Agreement.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the state of Missouri.
IN WITNESS WHEREOF, Company and Employee have caused this Employment
Agreement to be executed as of the date first set forth above.
COMPANY:
JOHN Q. HAMMONS HOTELS, INC.
By:_________________________________
Name (Print):_______________________
Title:______________________________
EMPLOYEE:
-5-
<PAGE>
____________________________________
Kenneth J. Weber
-6-
<PAGE>
EXHIBIT 10.20
JOHN Q. HAMMONS HOTELS, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK AND STOCK OPTION PLAN
This John Q. Hammons Hotels, Inc. 1999 Non-Employee Director Stock and Stock
Option Plan (the "Plan"), was duly adopted by the Board of Directors for John Q.
Hammons Hotels, Inc., a Delaware corporation (the "Company") on February 23,
1999.
Article I: Purpose
The purpose of the Plan is to encourage qualified persons to become and remain
directors of the Company, and to provide directors of the Company with a direct
stake in its success.
Article II: Definitions
Unless otherwise defined herein, in this Plan the following terms shall have the
following respective meanings:
2.1 "Board of Directors" or the "Board" means the Board of Directors of the
Company.
2.2 "Cause" shall mean a finding by the Board that the Grantee has been engaged
in disloyalty to the Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the course
of his or her service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such information.
2.3 "Chairman of the Board" means the Chairman of the Board of Directors.
2.4 "Committee" means a Committee of the Board, which consists of no fewer than
two members of such Board, all of whom meet the criteria of "Non-Employee
Directors" as defined in Rule 16b-3(b)(3)(i), promulgated pursuant to Section 16
of the Exchange Act.
2.5 "Common Stock" means the shares of Class A Common Stock, par value $.01 per
share, of the Company.
2.6 "Director" means a member of the Board.
2.7 "Eligible Director" means a Director who is not an employee of the Company
or any of its subsidiaries or other affiliates as of the date of the relevant
grant of an Option or shares of Common Stock.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as now in effect
or as hereafter amended.
2.9 "Fair Market Value" of a security means, as of any date, (i) the average of
the high and the low price of the security as reported on the consolidated tape
of the New York Stock Exchange,
<PAGE>
or if the New York Stock Exchange is closed on such date, the next preceding
date on which it was open, or (ii) if the security is not listed for trading on
the New York Stock Exchange, but is listed for trading on another national
securities exchange or the NASDAQ National Market, the closing price, of the
security as reported on the consolidated transaction reporting system applicable
to such security, or if no such reported sale of the security shall have
occurred on such date, on the next preceding date on which there was such a
reported sale, or (iii) if the security is not listed for trading on a national
securities exchange or the NASDAQ National Market, but is listed on the NASDAQ
SmallCap Market, the average of the closing bid and asked prices, regular way,
on the NASDAQ SmallCap Market or, if no such prices shall have been so reported
for such date, on the next preceding date for which such prices were so
reported. If the shares of Stock are not listed on any of these markets, Fair
Market Value shall be determined by the Board in good faith.
2.10 "Grantee" means the holder of an Option or any person entitled to exercise
an Option or any person granted Common Stock under the Plan.
2.11 "Option" means a right to purchase Common Stock granted under this Plan.
Article III: Administration
Subject to the provisions of the Plan, the Board or the Committee shall have the
power to construe and interpret the Plan, to determine all questions arising
thereunder, and to adopt and amend rules for the administration of the Plan;
provided, however, that no such interpretation or rule shall change the number
of Options or shares that may be granted under the Plan or the terms upon which,
or the times at which, or the periods within which, such Options may be
exercised. Any actions of the Board or the Committee shall otherwise maintain
the applicable exemption from short-swing profits liability under Section 16 of
the Exchange Act. Any decision of the Board in the administration of the Plan
shall be final.
Article IV: Amount of Common Stock
The aggregate number of shares of Common Stock in respect of which Options may
be exercised and shares of Common Stock which may be granted shall not exceed
500,000, subject to adjustment pursuant to Article VII. Such shares of Common
Stock shall be previously-issued shares reacquired by the Company. If any
Options terminate or expire without being exercised in whole or in part, new
Options may be granted covering the shares not purchased under such terminated
or expired Options.
<PAGE>
Article V: Grant of Options
5.1 Annual Grants of Options and Common Stock. Commencing with the 1999 annual
meeting of stockholders, each Eligible Director who is in office on the day
immediately after the election of directors at an annual meeting of the
stockholders of the Company:
(i) shall automatically be granted a number of shares of Common Stock
with a Fair Market Value equal to $10,000 on the date of grant, and
(ii) shall automatically be granted an option to purchase 10,000
shares of Common Stock.
5.2 Term of Options. Each Option shall have a term ("Term") of 10 years
beginning on the date of grant, unless earlier terminated as provided herein.
5.3 Exercise Price. The purchase price per share of Common Stock subject to an
Option (the "Exercise Price") shall be the Fair Market Value of a share of
Common Stock on the date of grant, subject to adjustment pursuant to Article
VII.
5.4 Option Agreements. Each Option shall be evidenced by an agreement in such
form as the Board or Committee shall prescribe from time to time and shall be
consistent with the Plan.
Article VI: Exercise of Options
6.1 Vesting. Each Option granted under the Plan shall be exercisable in respect
of twenty five percent of the number of shares of Stock subject to the Option on
each of the first four anniversaries of the date on which the Option was
granted. The foregoing installments, to the extent not exercised, shall
accumulate and be exercisable prior to the termination of the Option.
6.2 Exercise. An Option shall be exercised, in whole or in part by delivery
during the Term to the Company of (i) written notice of the exercise specifying
the number of shares to be purchased and (ii) full payment in cash for the
shares of Common Stock being acquired thereunder. Such delivery may occur on any
business day, at the Company's principal office, addressed to the attention of
the Secretary.
6.3 Exercise After Termination of Directorship. If a person shall cease to be a
Director for any reason other than for Cause while holding an unexpired Option
that has not been fully exercised, such Option shall terminate three months
thereafter; provided that such person, or in the case of the Director's death or
adjudication of incompetency, the Director's executor, administrator,
distributees, guardian or legal representative, as the case may be, may exercise
the Option (to the extent that it was exercisable pursuant to Section 6.1 on the
date the person ceased to be a Director) at any time until the earlier to occur
of (i) one year after the date such person ceased to be a Director, or (ii) the
expiration of the Term of such Option. If a person ceases to be a
<PAGE>
member of the Board for "Cause," any option held by the Grantee shall terminate
as of the date the Grantee ceases to be a member of the Board.
Article VII: Changes in Capitalization
7.1 Adjustments. If the outstanding Common Stock is changed by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, reverse stock split, stock dividend, rights offering, combination, spin-
off, exchange of shares, or the like, an appropriate adjustment shall be made by
the Board to (i) the aggregate number of shares then-remaining available under
the Plan, (ii) the number of shares of Common Stock in respect of which Options
and Common Stock are subsequently to be granted, and (iii) to the extent that
the following adjustments are necessary to preserve the economic value of
unexercised Options, the number or type of shares of capital stock subject to,
and the exercise price of, outstanding Options.
7.2 No Fractional Shares. If a fraction of a share would otherwise result from
any adjustment pursuant to Section 7.1, the adjusted share amount shall be
rounded to the nearest whole number.
Article VIII: Miscellaneous
8.1 Options Non-Transferable. An Option shall not be transferable by its Grantee
except by will or the laws of descent and distribution and shall be exercisable
during the Grantee's lifetime only by the Grantee or his or her guardian or
legal representative; provided, however, that a Grantee may in a manner and to
the extent permitted by the Board or Committee (a) designate in writing a
beneficiary to exercise an Option after his or her death or (b) transfer an
Option to a revocable, inter vivos trust as to which the Grantee is the settler
and trustee.
8.2 Expenses. The expenses of the Plan shall be borne by the Company. Any taxes
imposed on a Grantee upon exercise of an Option or receipt of a grant of Common
Stock shall be paid by such Grantee.
8.3 No Right to Re-Election. Neither the Plan nor any action taken hereunder
shall be construed as giving any Director any right to be retained or re-elected
as a Director.
8.4 Securities Registration. The Company shall not be obligated to deliver any
shares of Common Stock hereunder until there has been compliance with all
applicable state and federal securities laws; provided, however, that the
Company shall use all reasonable efforts to cause any such compliance.
8.5 Rule 16b-3. The intent of this Plan is to qualify for the exemption provided
by Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan or
action by the Plan administrators does not comply with the requirements of Rule
16b-3, it shall be deemed inoperative, to the extent permitted by law and deemed
advisable by the Plan administrators, and shall not affect the validity of the
Plan. In the event Rule 16b-3 is revised or replaced, the Board may exercise
discretion to modify this Plan in any respect necessary to satisfy the
requirements of the revised exemption or its replacement.
<PAGE>
8.6 Taxes. The Company shall not be required to issue shares of Common Stock
upon the exercise of an Option unless the Grantee shall first pay to the Company
such amount, if any, as may be requested by the Company to satisfy any liability
to withhold federal, state, local or foreign income or other taxes relating to
such exercise.
8.7 Rights as Stockholder. A Grantee shall not by reason of any Option have any
right as a stockholder of the Company with respect to the shares of Common Stock
which may be deliverable upon exercise of such Option until such shares have
been delivered to him or her.
8.8 Severability. If all or any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared to
be unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner which gives
effect to the terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.
8.9 Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of Delaware.
Article IX: Amendment
The Plan may be amended from time to time by the Board as it shall deem
advisable, including amendments necessary to qualify for any exemption or to
comply with applicable law or regulations; provided, however, that no amendment
to the Plan may be made which changes (i) the criteria for Eligible Directors or
(ii) the vesting conditions, term of exercisability, grant timing, grant amount
or exercise price of Options in a manner that causes the plan to be other than a
"formula plan" as defined under applicable SEC regulations promulgated pursuant
to Section 16 of the Exchange Act. No amendment of the Plan shall adversely
affect the rights of any Grantee under an Option without the consent of such
Grantee.
Article X: Termination
The Plan shall terminate on February 23, 2009, unless sooner terminated by the
Board. Any termination of the Plan shall not affect any Option then outstanding.
The Company may retain the right in an Option Agreement to cause a forfeiture of
the shares of Stock or gain realized by an Optionee on account of that Optionee
taking actions prohibited by the applicable Option Agreement.
<PAGE>
EXHIBIT 12.1
JOHN Q. HAMMONS HOTELS, L.P
HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
(000's omitted)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HISTORICAL EARNINGS:
Net income before extraordinary item $15,386 $18,729 $18,524 $ 8,791 $ 338
Add:
Interest, amortization or deferred
financing fees and other fixed
charges (excluding interest
capitalized) 33,308 28,904 36,337 45,086 58,257
------- ------- ------- ------- -------
Historical earnings $48,694 $47,633 $54,861 $53,877 $58,595
======= ======= ======= ======= =======
FIXED CHARGES:
Interest expense and
amortization of deferred
financing fees $32,932 $28,447 $35,620 $44,325 $57,286
Interest capitalized 957 5,270 7,162 10,259 6,163
Interest element of rentals 376 457 717 761 971
------- ------- ------- ------- -------
Fixed charges $34,265 $34,174 $43,499 $55,345 $64,420
------- ------- ------- ------- -------
RATIO OF EARNINGS TO FIXED CHARGES (A) 1.42 1.39 1.26 0.97 0.91
======= ======= ======= ======= =======
</TABLE>
(A) In computing the ratio of earnings to fixed charges, earnings have been
based on income from operations before income taxes and fixed charges
(exclusive of interest capitalized) and fixed charges consist of interest
and amortization of deferred financing fees (including amounts capitalized)
and the estimated interest portion of rents (deemed to be one-third of
rental expense).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
an Annual Report on Form 10-K and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> JAN-01-1999
<CASH> 46,233
<SECURITIES> 6,533
<RECEIVABLES> 14,389
<ALLOWANCES> 206
<INVENTORY> 1,205
<CURRENT-ASSETS> 69,243
<PP&E> 956,294
<DEPRECIATION> 194,860
<TOTAL-ASSETS> 876,486
<CURRENT-LIABILITIES> 102,903
<BONDS> 717,460
0
0
<COMMON> 0
<OTHER-SE> 45,240
<TOTAL-LIABILITY-AND-EQUITY> 876,486
<SALES> 0
<TOTAL-REVENUES> 326,130
<CGS> 0
<TOTAL-COSTS> 122,163
<OTHER-EXPENSES> 154,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,286
<INCOME-PRETAX> 338
<INCOME-TAX> 0
<INCOME-CONTINUING> 338
<DISCONTINUED> 0
<EXTRAORDINARY> (2,249)
<CHANGES> 0
<NET-INCOME> (1,911)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
