-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CCxpVD2ELF9xUyRhejRsbMCC2wv/IYCQ0W8vt39bcVMDwXY8MZ1o4T9ycALgkTSR jcd4AiblWa7yBk9+9uleYQ== 0000914760-97-000064.txt : 19970329 0000914760-97-000064.hdr.sgml : 19970329 ACCESSION NUMBER: 0000914760-97-000064 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIHOST PROPERTIES INC CENTRAL INDEX KEY: 0000778423 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 363312434 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15291 FILM NUMBER: 97567946 BUSINESS ADDRESS: STREET 1: 2400 E DEVON AVE STE 280 CITY: DES PLAINES STATE: IL ZIP: 60018 BUSINESS PHONE: 7082984500 MAIL ADDRESS: STREET 1: 2400 E DEVON AVE STREET 2: SUITE 280 CITY: DES PLAINES STATE: IL ZIP: 60018 FORMER COMPANY: FORMER CONFORMED NAME: AMERICA POP INC DATE OF NAME CHANGE: 19871111 10-K405 1 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 DECEMBER 31, 1996 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 2-90939C AMERIHOST PROPERTIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3312434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2400 EAST DEVON AVE., SUITE 280, DES PLAINES, ILLINOIS 60018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 298-4500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of Each Class on which registered NONE NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.005 per share (Title of class) 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 (or for such shorter period that the registrant was required to file such reports), 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 (Sec. 229.405 of this chapter) 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 While it is difficult to determine the number of shares owned by non-affiliates (within the meaning of the term under the applicable regulations of the Securities and Exchange Commission), the registrant estimates that the aggregate market value of the registrant's Common Stock held by non-affiliates on March 24, 1997 (based upon an estimate that 86.1% of the shares are so owned by non- affiliates and upon the closing price for the Common Stock of $7.38) was $39,981,752. As of March 24, 1997, 6,292,197 shares of the Registrant's Common Stock were outstanding. The following documents are incorporated into this Form 10-K by reference: None PART I ITEM 1. BUSINESS. GENERAL Amerihost Properties, Inc. and its subsidiaries (collectively, where appropriate, "Amerihost," or the "Company") is engaged in the development and construction of AmeriHost Inn hotels, its proprietary hotel brand, and the ownership, operation and management of both AmeriHost Inn hotels and other hotels. The AmeriHost Inn brand was created by the Company to provide for the consistent, cost-effective development and operation of mid-price hotels in various markets. All AmeriHost Inn hotels are designed and developed using the Company's 60 to 80 room, interior corridor and indoor pool prototype design and are located in tertiary and secondary markets. As of December 31, 1996, the Company owned, operated or managed 72 hotels located in 16 states. Of these hotels, 38 hotels are operated or managed under the Company's proprietary brand, the AmeriHost Inn. Of the 72 hotels, the Company owns a 100% or controlling ownership interest in 28 hotels and a participating equity interest, ranging from 5% to 50%, in 33 hotels. Of the 61 owned hotels, 36 are AmeriHost Inn hotels and 25 are other brands, which in most cases were acquired, renovated and repositioned in their respective marketplaces between 1987 and 1993. The majority of the other brand hotels are franchised through Days Inn, Hampton Inn, Holiday Inn and Ramada Inn. The Company also managed 11 hotels at December 31, 1996, for unaffiliated third parties whereby the Company has no ownership interest. Two of the 11 managed hotels operate as AmeriHost Inn hotels. As of December 31, 1996, an additional 19 AmeriHost Inn hotels were under construction. The Company has 100% ownership in 12 of these hotels, a minority ownership interest in six of these hotels, and is constructing one for an unaffiliated third party. The table below sets forth information regarding the hotels at December 31, 1996.
Open Under Hotels Construction Total Hotels Rooms Hotels Rooms Hotels Rooms 100% or controlling ownership: AmeriHost Inn hotels 14 896 12 732 26 1,628 Other brands 14 1,807 - - 14 1,807 28 2,703 12 732 40 3,435 Minority ownership interest: AmeriHost Inn hotels 22 1,430 6 366 28 1,796 Other brands 11 932 - - 11 932 33 2,362 6 366 39 2,728 Managed only hotels: AmeriHost Inn hotels 2 121 1 61 3 182 Other brands 9 1,262 - - 9 1,262 11 1,383 1 61 12 1,444 Total 72 6,448 19 1,159 91 7,607
Since 1993, the Company's growth strategy has focused on the expansion and increased ownership of the AmeriHost Inn hotel brand through new development and construction. The AmeriHost Inn hotels have achieved occupancy and average daily rates which are higher than those realized by the Company's other owned hotels, including those operated under national franchise affiliations. These favorable operating results experienced by the AmeriHost Inn hotels led to the Company's decision to focus on expanding this brand rather than acquiring or developing hotels under other brand affiliations. The Company intends to continue this growth strategy and to aggressively expand its development, ownership and operation of AmeriHost Inn hotels. Implementing this strategy will allow the Company to rely less on the one-time transactional fees associated with hotel development and construction while generating long-term revenues and potential profits from hotel operations. In addition to the development, construction and operation of hotels in which the Company has a controlling ownership interest, the Company provides development, construction and renovation services to hotels in which the Company has a minority ownership interest and to unaffiliated third parties. For new construction projects, the Company offers "turn-key" development services, having the in-house expertise to manage a project from inception through completion, including market research, site selection, architectural services, the securing of financing and construction management. The construction contracts entered into between the Company and the entities owning the hotels have generally been one of two types, providing either for the Company to receive costs plus developer's and construction overhead fees or a fixed fee. The Company also provides management services to minority owned hotels and other hotels owned by unaffiliated third parties. Under its management contracts with such hotels, the Company typically provides complete operational and financial management services, including sales, marketing, quality control, training, purchasing and accounting. However, under certain management contracts, the Company's joint venture partners are responsible for the day-to-day operational management, while the Company provides full financial management and operational consulting and assistance. The Company is currently managing or co-managing all of the hotels in which it has a minority ownership interest, and is also managing 11 hotels for unaffiliated third parties. These hotels are managed under contracts ranging from 1 to 10 years, with optional renewal periods of equal length, and contain provisions under which the Company is paid fees equal to a percentage of total gross revenues for its services and, in some instances, additional incentive fees based upon hotel performance. The Company has developed centralized systems and procedures which it believes allow it to manage the hotels effectively and efficiently. While the Company does not intend to actively pursue management contracts with third parties, it does intend to continue managing hotels for third parties under its current management contracts and may manage additional hotels for third parties if the terms are favorable. The Company also provides employee leasing services to hotels in which the Company has a minority ownership interest and to hotels owned by unaffiliated third parties which are managed by the Company. Under its employee leasing program, the Company employs all of the personnel working at the participating hotels and leases them to the hotels pursuant to written agreements. Employee leasing affords the Company greater control over payroll costs and allows the participating hotels to benefit from economies of scale on personnel-related costs. The Company's employee leasing agreements typically provide for one year terms, with automatic one year renewals. The Company generally receives fees from each participating hotel in an amount equal to the gross payroll costs for the leased employees, including all related taxes and benefits, plus a percentage of the gross payroll. All revenues attributable to development, construction, management and employee leasing services with respect to hotels in which the Company has a 100% or controlling ownership interest have been eliminated in consolidation. AMERIHOST INN HOTELS AmeriHost Inn hotels, the Company's proprietary brand, are designed and constructed using the Company's 60 to 80 room, interior corridor and indoor pool prototype design. The AmeriHost Inn hotel's amenities and services include 24- hour front desk and message service, facsimile machines, whirlpool and sauna area, exercise room, meeting room, a covered entrance and extensive exterior lighting for added security. The standard AmeriHost Inn guest room features an electronic card-key lock, in-room safe, in-room coffee maker, telephone with data port for personal computer, a work area and color television with premium cable service or movies on demand. In addition, each Amerihost Inn hotel typically includes 2 to 6 whirlpool suites which, in addition to the standard amenities, include in-room whirlpools, microwave ovens, compact refrigerators and an expanded sitting area. AmeriHost Inn hotels do not contain food and beverage facilities normally associated with full-service hotels. Food service for hotel guests is generally available from adjacent or nearby free-standing restaurants which are independently owned and operated. All AmeriHost Inn hotels are operated or managed by the Company in accordance with strict guidelines designed to provide guests with a consistent lodging experience. The Company believes the quality and consistency of the amenities and services provided by its AmeriHost Inn hotels increase guest satisfaction and repeat business. Further, through its use of the AmeriHost Inn prototype design, the Company believes that it is able to operate profitable hotels while offering an excellent value to its guests. The Company targets smaller communities in tertiary and secondary markets with established demand generators such as major traffic arteries, office complexes, industrial parks, shopping malls, colleges and universities or tourist attractions, as the principal location for the development and construction of AmeriHost Inn hotels. Generally, these markets have minimal competition or a lack of recent hotel development. An AmeriHost Inn hotel is typically positioned to attract both business and leisure travelers seeking consistent amenities and quality rooms at reasonable rates, generally ranging from $40 to $65 per night. The Company's in-house design staff, centralized purchasing program, strict cost controls, and low average land costs all contribute to a favorable cost structure in developing and constructing new AmeriHost Inn hotels. Furthermore, due to the centralization of all accounting, purchasing, payroll and other administrative functions, each hotel is operated efficiently and effectively with a minimal on-site staff. AmeriHost Inn hotels are not subject to franchise, royalty and marketing fees, which generally range from 8% to 10% of a hotel's gross room revenues. These factors assist the Company in maximizing its return on invested capital. OTHER OWNED HOTELS The Company's non-AmeriHost Inn hotels were primarily acquired by the Company through joint ventures prior to 1993, in most instances at prices below estimated replacement costs. The other hotels have been owned, operated and managed by the Company independently, or as part of a national franchise system such as Days Inn, Hampton Inn, Holiday Inn, and Ramada Inn. The Company believes that franchises in certain locations are important in maintaining occupancy levels, which are supported by the Franchisor's national reservation systems and marketing efforts and brand name recognition. The Company's non-AmeriHost Inn hotels typically are also located in secondary and tertiary markets, with nearby demand generators such as airports, major traffic arteries, office complexes, industrial parks, shopping malls, colleges and universities or tourist attractions. The non-AmeriHost Inn hotels contain 53 to 209 rooms, generate average daily rates ranging from $35 to $65 per night, offer a variety of amenities and services and generally do not contain food and beverage facilities. As part of the Company's strategy to focus its ownership primarily on AmeriHost Inn hotels, the Company intends to pursue selective sales of certain of these other hotels, if and when attractive terms are available. During 1996, four hotel partnerships in which the Company was a general partner sold their hotels, resulting in cash distributions to the Company upon their sale. Two additional hotels have been sold in 1997. These proceeds were, and any proceeds from future sales, if and when completed, are expected to be used by the Company to develop additional AmeriHost Inn hotels. HOTEL PROPERTIES At December 31, 1996, the Company owned and/or managed 72 hotels in 16 states, concentrated in the midwestern and southern United States. The Company had an additional 19 hotels under construction located generally in the same geographical areas. Because the hotel industry is seasonal, the revenues generated by the hotels managed by the Company will increase or decrease depending upon the time of year. Since the Company's management fees are based upon a percentage of the hotels' total gross revenues, the Company is further susceptible to these seasonal variations. Given the location of the properties the Company manages, the revenues are typically lower in the first and fourth quarters of each year. The following is a list of hotel properties under the Company's management at December 31, 1996 by state:
STATE HOTEL ROOMS Florida Hampton Inn Ft. Myers (1) 123 Georgia AmeriHost Inn Eagles Landing, Stockbridge (1) 60 AmeriHost Inn LaGrange (1) 59 AmeriHost Inn Smyrna (1) 60 Days Inn Northwest, Atlanta 107 Days Inn Peachtree, Atlanta 142 Days Inn Dalton 152 Days Inn Jekyll Island 162 Jekyll Estates Inn, Jekyll Island 37 779 Illinois AmeriHost Inn Harvard (1) 60 AmeriHost Inn Jacksonville (1) 60 AmeriHost Inn Macomb (1) 60 AmeriHost Inn Players Riverboat Hotel, Metropolis (1) 120 AmeriHost Inn Sycamore (1) 60 AmeriHost Inn Tuscola (1) 59 Days Inn Elgin (1)(3) 96 Days Inn Melrose Park (1) 123 Days Inn Niles (1) 153 Days Inn O'Hare South, Schiller Park (1) 145 Days Inn Shorewood (1) 182 Palwaukee Motor Inn, Wheeling 138 1,256 Indiana AmeriHost Inn Hammond (1) 86 AmeriHost Inn Muncie 60 AmeriHost Inn Plainfield (1)(2) 60 Days Inn Cloverdale (1)(2) 60 Days Inn Crawfordsville (1)(2) 60 Days Inn Plainfield (1)(2) 64 Days Inn Portage (1) 120 Days Inn Sullivan (1) 60 Ramada Inn Lafayette (1) 145 715 Iowa AmeriHost Inn Waverly (1) 60 Kentucky AmeriHost Inn Murray (1) 60 Louisiana Days Inn Kenner, New Orleans 324 Michigan AmeriHost Inn Coopersville (1) 60 AmeriHost Inn Grand Blanc (1) 60 AmeriHost Inn Grand Rapids North, Walker (1) 60 AmeriHost Inn Muskegon, Norton Shores (1) 61 241 Mississippi AmeriHost Inn Batesville (1) 60 Days Inn Vicksburg Landing (1)(2) 89 149 Ohio AmeriHost Inn Ashland (1) 62 AmeriHost Inn Athens (1)(2) 102 AmeriHost Inn Jeffersonville North (1)(2) 60 AmeriHost Inn Jeffersonville South (1)(2) 60 AmeriHost Inn Kenton (1)(2) 60 AmeriHost Inn Lancaster (1)(2) 60 AmeriHost Inn Logan (1)(2) 60 AmeriHost Inn Mansfield (1) 60 AmeriHost Inn Marysville (1)(2) 79 AmeriHost Inn Oxford 61 AmeriHost Inn Upper Sandusky (1) 60 AmeriHost Inn Wooster East (1) 58 AmeriHost Inn Wooster North (1) 60 AmeriHost Inn Zanesville (1)(2) 60 Days Inn Athens (1)(2) 60 Days Inn Akron/Kent, Brimfield (1)(2) 67 Days Inn Dayton South (1) 209 Days Inn Findlay (1)(3) 115 Days Inn New Philadelphia (1)(2) 102 Oakbrook Inn Middletown (1) 120 1,575 Oregon Wildhorse Resort Hotel, Pendleton (4) 100 Pennsylvania AmeriHost Inn Shippensburg (1) 60 Holiday Inn Altoona (1) 143 Holiday Inn Oil City (1) 106 309 Texas AmeriHost Inn Allen (1) 60 Vermont Holiday Inn White River Junction (1)(2) 140 West Virginia AmeriHost Inn New Martinsville (1)(2) 60 AmeriHost Inn Mineral Wells (1)(2) 61 AmeriHost Inn Parkersburg (1)(2) 79 200 Wisconsin AmeriHost Inn Green Bay (1) 60 AmeriHost Inn Mosinee (1) 53 Menominee Casino-Bingo-Hotel, Keshena 100 Oakbrook Inn Menomonee Falls (1)(3) 144 357 TOTAL ROOMS 6,448 TOTAL PROPERTIES 72 (1) Indicates properties in which the Company owns a direct or indirect equity or leasehold interest. (2) Indicates properties which are co-managed with partners. (3) Property was sold, or lease was terminated, in 1997. (4) Management contract was terminated in 1997.
LODGING INDUSTRY The United States lodging industry's performance is strongly correlated to economic activity, with changes in gross national product growth affecting both room supply and demand, resulting in cyclical changes in average occupancy rates, average daily rates, and revenue per available room. The general downturn in the economy and the oversupply of rooms during the late 1980's and early 1990's resulted in decreased economic performance in the lodging industry. Since the early 1990's, the United States lodging industry has shown significant improvement. The primary element contributing to the industry's improved performance has been increased economic activity, which has resulted in growth in the demand for hotel rooms exceeding the growth in the available supply of hotel rooms. The more rapid growth in hotel room demand, compared to growth in hotel room supply, has resulted in positive trends industry-wide for occupancy and average daily rates. According to Coopers & Lybrand L.L.P., the overall United States hotel room occupancy growth was 0.9% in 1996, while average daily rates increased 6.4%, resulting in a 7.4% increase in revenue per available room ("RevPAR"). GROWTH STRATEGY The Company's growth strategy is to increase revenues, EBITDA and net income per share by: (i) developing, operating and owning additional AmeriHost Inn hotels; (ii) maintaining or enhancing occupancy and average daily rate results at all of its hotels; and (iii) controlling operating and corporate overhead expenses. EBITDA is used by the Company as a supplemental performance measure along with net income to report its operating results. EBITDA is defined as net income, adjusted to eliminate the impact of (i) interest expense; (ii) interest and other income; (iii) leasehold rents for hotels, which the Company considers to be financing costs similar to interest; (iv) income tax expense; (v) depreciation and amortization; (vi) gains or losses from property transactions; and (vii) non-recurring charges. The Company's primary growth strategy is to focus on the expansion of its proprietary brand, the AmeriHost Inn, through continued development, construction and operation of 100% owned AmeriHost Inn hotels. During 1996, the Company opened three wholly-owned AmeriHost Inn hotels and had another 12 under construction at December 31, 1996. The Company may also continue the development of AmeriHost Inn hotels through joint ventures with partners. During 1996, such joint ventures opened 15 AmeriHost Inn hotels. The Company may seek to increase its ownership interest in existing AmeriHost Inn hotels in which the Company has less than a 100% ownership interest, if available on favorable economic terms. The Company acquired additional ownership interests during 1996 in two hotels in which the Company already held a minority ownership interest, resulting in majority ownership positions. In addition, the Company and certain joint ventures converted five hotels from other brands to the AmeriHost Inn brand during 1996. These conversions were hotels which had been built by the Company as wholly-owned hotels or through joint ventures in prior years using the AmeriHost Inn standard prototype. From time to time, the Company may also continue to provide development, construction and, to a lesser extent, management services to unaffiliated third parties on a fee-for-service basis. During 1996, the Company began construction on a record 21 AmeriHost Inn hotels, and completed construction of 19 hotels, 18 of which were AmeriHost Inn hotels. The Company intends to continue developing and constructing AmeriHost Inn hotels in communities located in tertiary and secondary markets which already have established demand generators, such as major traffic arteries, office complexes, industrial parks, shopping malls, colleges and universities or tourist attractions. Typically, the Company seeks communities where an active economic development program is in place, which suggests long-term growth potential for additional lodging demand. In most cases, the local community is interested in a new hotel because existing facilities are dated or inconvenient. The Company provides comfortable, professionally managed accommodations which are typically not available in that community. The Company has an in-house development staff dedicated to identifying and evaluating new development opportunities. Once a market has been identified and a site has been selected, the Company initiates its due diligence process prior to the construction of one of its hotels. Such due diligence typically consists of environmental surveys, feasibility and engineering studies and the securing of zoning and building permits. The Company also maintains an in-house construction and design department, which enables it to manage all phases of construction. The Company's in-house architects and design personnel prepare the blueprints for each AmeriHost Inn hotel through the use of computer assisted drafting equipment, thereby reducing architectural fees. In most cases, the Company hires a general contractor to construct the hotel for a fixed price, eliminating much of the risk typically associated with construction. The Company's project managers oversee the general contractor through each phase of construction in order to assure the quality and timing of the construction. With few exceptions, such as the interior color scheme, each AmeriHost Inn hotel is the same in every detail, including the overall layout, the room sizes and the indoor pool area. The replication of its prototype design allows accurate budgeting of its construction and overhead costs. Historically, the Company has financed its hotel development and construction through a combination of equity and debt financing, with the equity financing typically provided by the Company and/or its joint venture partners, and the debt financing typically provided by local or regional banks. All of the AmeriHost Inn hotels currently under construction are being financed in this manner, except for one joint venture which intends to lease the land. The Company intends to increase its revenue, EBITDA and net income per share through the continued development of its AmeriHost Inn brand hotel and the continued implementation of its operating and marketing strategies. The Company believes that it can develop and operate additional AmeriHost Inn hotels having occupancies and average daily rates similar to those the Company has achieved at its existing AmeriHost Inn hotels. Moreover, the Company believes that the development of additional AmeriHost Inn hotels and expanded geographic diversity will continue to enhance the awareness of the AmeriHost Inn brand and thus improve revenues at existing, as well as future, AmeriHost Inn hotels. OPERATING STRATEGY The Company's operating strategy is to provide its customers with a consistent lodging experience by offering a package of amenities and services which meet or exceed the customer's expectations during each stay. The Company has developed uniform standards and procedures for each aspect of the development, construction, operation and marketing of its AmeriHost Inn hotels, from site selection to operational management. The Company's operational management activities are overseen by a Senior Vice President of Operations who supervises regional and area managers, who in turn oversee the general managers of the hotels. Each regional manager is responsible for 6 to 10 hotels, depending on each hotel's size and location. In addition to having responsibilities as the general manager of a specific hotel, each area manager is responsible for overseeing the general managers at 1 to 2 additional hotels. In addition to these managers, the Company has centralized sales and marketing personnel who assist and direct the general managers and other on-site personnel in their marketing efforts. The Company also has internal auditors who perform audits of each hotel at least two times each year, including tests of financial items such as cash and receivables, as well as operational, security and ADA (Americans with Disabilities Act) compliance matters, and who are also responsible for developing and conducting a variety of educational and training seminars for general managers and other on-site personnel. The Company has designed a financial management system whereby all accounting and operating information is processed in the Company's centralized accounting office at its headquarters. The system includes cash management, accounts payable and the generation of daily financial and operating information and monthly financial statements which allow senior management and the regional, area and general managers to closely monitor performance and to quickly react to changes in operational conditions. The Company provides each hotel with standardized forms and procedures to ensure uniform and efficient financial reporting. The Company's financial management system relieves certain management and reporting burdens from the individual hotel managers, enabling them to focus on the operation and marketing of the hotel. The centralized financial management system also enhances the quality and timing of internal financial reports. All payroll functions are also centralized at the Company's headquarters through its employee leasing subsidiary, allowing the Company to have greater control over payroll costs. In addition, since all of the approximately 1,400 hotel personnel are employed by the same company, the costs of certain payroll related expenses are lower than if each hotel maintained its own employees, and the Company is able to offer a more attractive health insurance program to its employees. MARKETING STRATEGY The Company believes it has a unique marketing strategy which is to actively seek involvement in and ties to the local communities in which its hotels are located. The local businesses and residential communities are each hotel's best referral source. When staying in smaller communities where the Company's hotels are located, visitors typically seek recommendations from family, friends and business associates. The general managers of the hotels are expected to devote a majority of their time toward marketing activities with local businesses and the community. In an effort to promote community awareness and build strong relationships with business leaders and local residents, general managers are very active in local civic groups and frequently sponsor special events. In addition, the hotels typically sponsor various local social and community events and permit the use of their facilities by local clubs and civic organizations. This community involvement, combined with a professional marketing program, allows the hotel to showcase its facilities for both business and leisure purposes. By focusing on the local community as its primary referral source, the Company believes that each hotel can build a strong sales force of local residents. With respect to AmeriHost Inn hotels, the Company's primary marketing strategy is to consistently develop and operate AmeriHost Inn hotels using its prototype design under the trademarked AmeriHost Inn diamond-shaped logo. The Company believes that a consistent product offering, including the same design features, amenities and quality guest services, will promote guest loyalty, referrals and repeat business. The amenities and services featured in the AmeriHost Inn prototype design are not consistently found in the hotels of competitors in the markets which the Company targets. By providing amenities and services on a consistent basis, along with centralized administrative and financial reporting systems, the Company believes it is able to operate profitable hotels while offering an excellent value to its guests. JOINT VENTURES The Company continued to develop new hotels through joint ventures in 1996, whereby the Company and other investors agree to jointly undertake the development, construction, acquisition or renovation of a hotel property. As of December 31, 1996, the Company had 47 projects with joint venture partners, including multiple projects with certain joint venture partners. The Company's joint ventures have taken various forms, including general partnerships, limited partnerships, and limited liability companies. Each joint venture has been formed with respect to a particular hotel project and reflects the characteristics of that project, including the relative contributions, in cash, property or services, of its partners. In most instances, the joint venture has taken the form of a limited partnership, with a wholly-owned subsidiary of the Company as a general partner with sole or joint management authority. The Company's subsidiary, as general partner, has typically received a partnership interest ranging from 15% to 30% for contributing the Company's expertise. In certain cases, the subsidiary has also contributed a minimal amount of cash. The limited partners (which may include the Company or its affiliates in some instances) have typically contributed the cash equity required to fund the project and have received interests proportionate to their contributions. A typical joint venture agreement provides that the profits and losses of the entity will be allocated among the partners in proportion to their respective interests. However, the distribution of operating cash flow and asset sale proceeds to the Company in proportion to its ownership interest is often subordinate to the prior return of capital and other distributions payable to the other joint venture partners. In addition, in five recent joint venture arrangements, the equity interests held by the joint venture partners are exchangeable into shares of the Company's common stock and the Company has guaranteed minimum annual distributions to the joint venture partners. As the general partner, the Company's subsidiary generally has the sole or primary management authority with respect to the joint venture. However, in some instances, the joint venture agreement or applicable law may provide to the other joint venture partners the right to amend the joint venture agreement, approve a transfer of the general partner's partnership interest, remove the general partner for cause, or dissolve the joint venture. The joint venture agreements do not typically restrict the right of the Company or its affiliates to engage in related or competitive business activities. COMPETITION There is significant competition in the mid-price lodging industry. There are numerous hotel chains that operate on a national or regional basis, as well as other hotels, motor inns and other independent lodging establishments throughout the United States. Competition is primarily in the areas of price, location, quality, services and amenities. Many of the Company's competitors have recognized trade names, national reservation systems, greater resources and longer operating histories than the Company. However, the Company believes that its management is sufficiently experienced, and the markets which the Company targets for development typically contain minimal competition, enabling the Company to compete successfully. There are a number of companies which develop, construct and renovate hotels. Some of these companies perform these services only for their own account, while others actively pursue contracts for these services with third party owners. The Company believes that it can develop, construct and renovate hotels at costs which are competitive. The Company believes that its use of a well developed prototype, significant experience (the Company has managed the development and construction of more than 50 hotels) and volume purchasing of furniture and amenities result in development costs which are lower than those experienced by many competitors building comparable hotels. The Company also believes that its ability to offer additional services, such as hotel management, provides some competitive advantages. There are many hotel management companies which provide management services to hotels similar to the services provided by the Company. While the quantity of competition may be high, the Company believes that the quality of its services, including its information and management systems and employee leasing operations, will enable the Company to compete successfully. The Company believes that its focus on secondary and tertiary markets also lessens competition for the types of services provided by the Company. The Company believes that the relationship between the development and construction costs and the average daily rates achieved by the AmeriHost Inn hotels is more favorable than that experienced by many of the Company's competitors. In addition, a significant portion of the purchasing and accounting functions related to the hotels is handled in the Company's headquarters, thus enabling the local general managers and their staffs to focus their efforts on marketing and sales. The centralization of many functions also assists in keeping costs lower due to certain economies of scale. This allows the AmeriHost Inn hotels to operate efficiently and compete effectively. FRANCHISE AGREEMENTS At December 31, 1996, the Company had franchise agreements (collectively, the "Franchise Agreements") with Days Inn of America, Inc., Promus Hotels, Inc. (regarding Hampton Inns), Holiday Inns, Inc., Holiday Inns Franchising, Inc. and Ramada Franchise Systems, Inc. Although the terms of the various Franchise Agreements differ, each requires the Company to pay a monthly royalty fee for the right to operate the hotel under the "flag" of that Franchisor and to have access to the other benefits provided by such Franchisor, including access to reservation systems, marketing plans and use of trademarks. The royalty fees are typically based on gross revenues attributable to room rentals, plus marketing and reservation contributions, and typically range between 8% and 10% of gross room revenues. In addition, the Company and/or the joint venture which owns a hotel operated pursuant to a Franchise Agreement will have ongoing obligations to maintain the quality and condition of the hotel to the standards required by the Franchisor. The term of a Franchise Agreement typically is between 10 and 20 years, with a substantial penalty for early termination by the Company with either party typically having the right to terminate after five years. The Company believes that it is generally in compliance with its Franchise Agreements, and the loss of any one of the Franchise Agreements would not have a material impact on the Company. EMPLOYEES As of December 31, 1996, the Company and its subsidiaries had approximately 1,500 full and part-time employees: Hotel Management: Operations 25 Accounting and finance 17 Property general managers 73 Hotel Development: 16 Hotel Operations: 549 Corporate: General and administrative 10 Officers 4 Employee Leasing: General and administrative 5 Operations(1) 806 1,505 (1) Does not include 622 employees who are employed by ASI and leased to other subsidiaries of the Company. These employees are reflected in the table under hotel management and hotel operations. The Company believes that its relationship with its employees is good. ITEM 2. PROPERTIES. The Company's corporate offices and the offices of its wholly-owned subsidiaries are located in approximately 18,100 square feet of space at 2400 East Devon Avenue, Suite 280, Des Plaines, Illinois 60018. These offices are occupied under a lease that expires on December 31, 2000. At December 31, 1996, the Company had a controlling ownership or leasehold interest in 28 operating hotels and 12 hotels under construction, located in 14 states. The land, building, furniture, fixtures and equipment and construction in progress for these hotels is reflected in the Company's Consolidated Balance Sheet at December 31, 1996. These assets were substantially pledged to secure the related long-term mortgage debt. See Item 1 and Notes 6 and 7 to the Consolidated Financial Statements under Item 14. In addition to the foregoing, the Company has an equity interest in partnerships which own and/or lease property. See Note 4 to Consolidated Financial Statements under Item 14. ITEM 3. LEGAL PROCEEDINGS The Company is subject to claims and suits in the ordinary course of business. In management's opinion, currently pending legal proceedings and claims against the Company will not, individually or in the aggregate, have a material adverse effect on the Company's financial condition, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fourth quarter of the fiscal year ended December 31, 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the Nasdaq National Market under the symbol HOST. As of March 24, 1997, there were 1,514 holders of record of the Company's Common Stock. The following table shows the range of reported high and low closing prices per share.
High($) Low($) FISCAL 1995 First quarter 4.88 3.56 Second quarter 5.75 4.31 Third quarter 7.50 5.63 Fourth quarter 7.25 6.13 FISCAL 1996 First quarter 8.25 6.25 Second quarter 9.94 8.50 Third quarter 8.63 5.88 Fourth quarter 7.63 6.06 FISCAL 1997 First quarter (through March 24, 1997) 7.63 5.31
The Company has not declared or paid any cash dividends on its Common Stock. The Company currently intends to retain any earnings for use in its business and therefore does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be made by the Board of Directors in light of the Company's earnings, financial position, capital requirements and such other factors as the Board of Directors deems relevant. In addition, pursuant to the terms of the Company's 7% Subordinated Notes (the "7% Notes"), no dividends may be paid on any capital stock of the Company until the 7% Notes have been paid in full. (See Notes 7 and 8 to the Consolidated Financial Statements under Item 14.) ITEM 6. SELECTED FINANCIAL DATA. The selected consolidated financial data presented below have been derived from the Company's consolidated financial statements. The consolidated financial statements for all years presented have been audited by the Company's independent auditors, whose report on such consolidated financial statements for the three years ended December 31, 1996, 1995 and 1994 is included herein under Item 14. The information set forth below should be read in conjunction with the consolidated financial statements and notes thereto under Item 14 and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
(in thousands, except per share data) Fiscal Year Ended December 31, 1996 1995 1994 1993 1992 STATEMENT OF OPERATIONS DATA: Revenue $ 68,342 $ 51,962 $43,347 $ 34,274 $ 29,411 Operating costs and expenses 54,360 41,317 37,076 30,389 25,445 Depreciation and amortization expense 3,479 2,268 1,141 928 421 Leasehold rents - hotels 2,122 1,976 1,661 1,652 1,149 Corporate general and administrative 1,928 2,111 2,013 1,783 1,399 Operating income (loss) 6,453 4,290 1,456 (478) 997 Interest expense, net 2,142 1,195 427 596 220 Net income (loss) $ 3,395 $ 2,138 $ 571 $ (761) $ 511 Earnings (loss) per share $ 0.50 $ 0.35 $ 0.10 $ (0.15) $ 0.22 Weighted average shares outstanding(1) 6,729 6,125 5,624 5,038 2,347 BALANCE SHEET DATA: Total assets $ 66,901 $ 52,453 $34,404 $ 24,174 $ 13,837 Long-term debt, including current portion 34,339 25,014 13,542 6,408 6,012 Working capital 953 1,854 4,182 5,048 3,329 Shareholders' equity 20,912 17,267 13,672 12,781 3,856 OTHER DATA: EBITDA (2) $ 12,850 $ 8,862 $ 4,143 $ 2,094 $ 2,476 Cash provided by operating activities 7,558 1,918 2,215 693 1,267 Cash used in investing activities (11,347) (13,506) (8,764) (10,737) (4,065) Cash provided by financing activities 5,447 9,933 7,690 10,651 3,735 Net income plus depreciation/amortization (3) 6,874 4,406 1,712 652 932 Capital expenditures 14,049 12,539 7,872 8,292 296 (1) During the first quarter of 1993, the Company issued an additional 1,718,915 shares of Common Stock in connection with the conversion and redemption of the Company's 12% Notes, the cashless exercise of warrants and the exercise of warrants to purchase Common Stock by Diversified Innkeepers, Inc. During the second quarter of 1993, the Company issued an additional 1,550,000 shares of Common Stock in connection with the public offering completed in May 1993. (2) Earnings before interest/rent, taxes and depreciation/amortization ("EBITDA") is not defined by generally accepted accounting principles, however the Company believes it provides relevant information about its operations and is necessary for an understanding of the Company's operations, given its significant investment in real estate. EBITDA for 1996 does not include a non-recurring charge for costs associated with a public offering of common stock which was not consummated. EBITDA for 1993 does not include a non-cash debt acceleration charge of $485,411 relating to the prepayment of subordinated debt. (3) Net income plus depreciation/amortization is not defined by generally accepted accounting principles, however the Company believes it provides relevant information about its operations and is necessary for an understanding of the Company's operations. Net income plus depreciation/amortization for 1993 does not include a non-cash debt acceleration charge of $485,411 relating to the prepayment of subordinated debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company is engaged in the development of AmeriHost Inn hotels, its proprietary brand, and the ownership, operation and management of AmeriHost Inn hotels and other mid-price hotels. As of December 31, 1996 there were 38 AmeriHost Inn hotels open, of which 12 were wholly-owned, two were majority owned, 22 were minority owned, and two were managed for unrelated third parties. The Company intends to use primarily the AmeriHost Inn brand when expanding its hotel operations segment. All of the hotels currently under construction will be AmeriHost Inn hotels. As of December 31, 1996, 19 AmeriHost Inn hotels were under construction, of which 12 will be wholly owned, six will be minority- owned, and one will be managed for a third party. Same room revenues for all AmeriHost Inn hotels increased 14.5% in 1996 compared to 1995, attributable to an increase of $1.71 in average daily rate and a 10.7% increase in occupancy. Revenues from hotel operations consist of the revenues from all hotels in which the Company has a 100% or controlling ownership or leasehold interest ("Consolidated Hotels"). Investments in other entities in which the Company has a minority ownership interest are accounted for using the equity method. As a result of the Company's focus on increasing the number of Consolidated Hotels, the Company expects that revenues from the hotel operations segment will increase over time as a percentage of the Company's overall revenues. Development and construction revenues consist of one-time fees for new construction, acquisition and renovation activities performed by the Company for minority owned hotels and unrelated third parties. The Company also receives management services revenues for management services provided to minority-owned hotels and unrelated third parties. Employee leasing revenues consist of revenues the Company receives for leasing its employees to minority-owned hotels and unrelated third parties. All revenues attributable to development, construction, management and employee leasing services with respect to Consolidated Hotels have been eliminated in consolidation. The year ended December 31, 1996 resulted in record revenues, net income, operating income and EBITDA (as defined below). Revenues increased 31.5% to $68.3 million in 1996 from $52.0 million in 1995, due primarily to expanded hotel operations and significant hotel development and construction activity. Net income increased 58.8% to $3.4 million, or $0.50 per share in 1996 from $2.1 million, or $0.35 per share in 1995. The Company recognized gains from the sale of one Consolidated Hotel and two parcels of excess land in 1996. In addition, during the fourth quarter of 1996, the Company recognized approximately $238,000, net of income taxes, in expenses associated with a public offering of the Company's common stock which was not consummated. Excluding the gains from the sales of the hotel and excess parcels of land, and the expenses associated with the public offering of common stock, net of minority interests and income taxes, net income would have been $3.1 million, or $0.45 per share. Operating income increased $2.2 million, or 50.4% to $6.5 million in 1996 from $4.3 million in 1995. The Company uses EBITDA as a supplemental performance measure along with net income to report its operating results. EBITDA is defined as net income, adjusted to eliminate the impact of (i) interest expense; (ii) interest and other income; (iii) leasehold rents for hotels, which the Company considers to be financing costs similar to interest; (iv) income tax expense; (v) depreciation and amortization; (vi) gains or losses from property transactions; and (vii) non-recurring charges. EBITDA should not be considered as an alternative to net income or cash flows from operating activities as a measure of liquidity. EBITDA increased 45.0% to a record $12.9 million in 1996 from $8.9 million in 1995, or an increase of $4.0 million. During 1996, 80.6% of EBITDA was generated by hotel operations and management activities, compared to 85.3% in 1995. Amerihost had an ownership interest in 79 hotels at December 31, 1996 versus 64 hotels at December 31, 1995 and 50 hotels at December 31, 1994 (including hotels under construction). The number of Consolidated Hotels open or under construction increased to 40 at December 31, 1996 from 27 at December 31, 1995 and 17 at December 31, 1994. Excluding hotels under construction, the Company increased equivalent owned rooms by 9.9% in 1996 to 2,929 at December 31, 1996 from 2,666 at December 31, 1995, which increased 27.8% in 1995 from 2,086 equivalent owned rooms at December 31, 1994. This increased ownership was achieved primarily through the development of hotels for the Company's own account and for minority-owned entities. RESULTS OF OPERATIONS The following table sets forth the percentages of revenues of the Company represented by components of net income for 1996, 1995 and 1994.
Percentage of Total Revenue Year Ended December 31, 1996 1995 1994 Revenue 100.0% 100.0% 100.0% Operating costs and expenses 79.5 79.5 85.5 20.5 20.5 14.5 Depreciation and amortization 5.2 4.4 2.6 Leasehold rents - hotels 3.1 3.8 3.8 Corporate general and administrative 2.8 4.0 4.7 Operating income 9.4 8.3 3.4 Interest expense ( 4.0) ( 3.4) ( 2.0) Interest and other income 1.1 1.2 1.1 Equity in income and losses of affiliates 1.2 0.7 - Gain on sale of assets 1.9 - - Public offering not consummated ( 0.6) - - Income before minority interests and income taxes 9.0 6.8 2.5 Minority interests in operations of subsidiaries and consolidated partnerships ( 0.6) ( 0.1) ( 0.3) Income before income taxes 8.4 6.7 2.2 Income tax expense 3.4 2.6 0.9 Net income 5.0% 4.1% 1.3%
1996 compared to 1995 Revenues increased 31.5% to a record $68.3 million in 1996 from revenues of $52.0 million in 1995. This increase was due primarily to significant increases in revenues from hotel operations and hotel development. Hotel operations revenue increased 25.7% to a record $30.6 million in 1996, compared to $24.4 million in 1995. This increase was attributable to the net addition of four Consolidated Hotels to the hotel operations segment during 1996, and the net addition of ten Consolidated Hotels during 1995, the majority of which were opened during the second half of 1995. The Company held a minority ownership position in two of the four hotels which became Consolidated Hotels in 1996 when additional ownership interests were acquired. The hotel operations segment included 28 Consolidated Hotels comprising 2,703 rooms at the end of 1996, compared to 24 Consolidated Hotels comprising 2,516 rooms at the end of 1995, and 14 Consolidated Hotels comprising 1,543 rooms at the end of 1994, or an increase of 75.2% in total rooms from December 31, 1994 to December 31, 1996. Same room revenues for the Consolidated Hotels increased slightly, by 0.3% in 1996. Hotel development activity is summarized as follows:
1996 1995 1994 Unaffiliated & Unaffiliated & Unaffiliated & Minority- Consolidated Minority- Consolidated Minority- Consolidated Owned (1) Hotels (2) Owned (1) Hotels (2) Owned (1) Hotels (2) Under construction at beginning of year 14 3 6 3 0 2 Starts 9 12 14 6 10 5 Completions 16 3 6 6 4 4 Under construction at end of year 7 12 14 3 6 3 (1) hotels developed/constructed for unaffiliated third parties and entities in which the Company holds a minority ownership interest (2) hotels developed/constructed for the Company's own account and for entities in which the Company holds a controlling ownership interest
Hotel development revenue increased 87.4% to a record $22.9 million in 1996 from $12.2 million in 1995. Excluding the Consolidated Hotels, the Company had 23 hotels under construction during 1996, versus 20 hotels in 1995. Although the number of hotels under construction was only slightly greater in 1996, total segment revenues increased significantly since 12 of the 14 hotels which began construction in 1995 were not started until the fourth quarter, resulting in the recognition in 1996 of a large portion of total contracted revenues for these projects. In addition to the hotel projects under construction, the Company had several projects in various stages of pre-construction development at the end of both 1995 and 1996. The Company does not recognize revenues from the development and construction of Consolidated Hotels. Hotel management revenues decreased 7.5% to $2.8 million in 1996 from $3.0 million in 1995. Hotel management and employee leasing revenues are recognized from hotels which are owned by unrelated third parties and entities in which the Company holds a minority ownership interest. The number of hotels managed for third parties and minority owned entities increased from 34 hotels (3,261 rooms) at December 31, 1995 to 44 hotels (3,745 rooms) at December 31, 1996. The addition of 16 management contracts in 1996 was offset by the loss of four management contracts with minority-owned entities as a result of a hotel/investment sale, and two minority-owned hotels which became Consolidated Hotels in 1996 due to the Company acquiring additional ownership interests in these hotels. All 16 management contracts added during 1996 were for newly constructed hotels opened throughout 1996. Management fees recognized in 1996 from these hotels was lower due to their partial year of operation and the impact of their initial stabilization period when hotel revenues are typically lower. The terminated management contracts, all of which were for hotels other than the AmeriHost Inn brand, were for larger hotels compared to the 16 hotels added during 1996. Consequently, the decrease in management fee revenue from the terminated management contracts was greater than the revenues added from the 16 newly constructed hotels during 1996. The Company anticipates an increase in management fee revenues in 1997 based on the current portfolio of minority owned and managed hotels. The Company does not recognize management fees from Consolidated Hotels. Employee leasing revenue, which is based on actual employee payroll costs, decreased 2.8% to $12.0 million in 1996 from $12.4 million in 1995 as the timing of the 16 hotels added and six hotel management contracts terminated as discussed above, resulted in slightly lower payroll costs during 1996 compared to 1995. Operating costs and expenses increased 31.6% to $54.4 million (79.5% of total revenues) in 1996 from $41.3 million (79.5% of total revenues) in 1995. Operating costs and expenses in the hotel operations segment increased 23.6% to $21.1 million in 1996 from $17.1 million in 1995, resulting primarily from the net addition of four Consolidated Hotels to this segment and is directly related to the 25.7% increase in segment revenue. Hotel operations segment operating costs and expenses as a percentage of segment revenue decreased to 68.9% in 1996 from 70.1% in 1995, due primarily to improvements in operating efficiency and the increase in newly constructed AmeriHost Inn hotels, whose operating costs are typically lower than the older, acquired hotels. Operating costs and expenses for the Consolidated AmeriHost Inn hotels were 57.6% of hotel revenue in 1996. Operating costs and expenses for the non-AmeriHost Inn Consolidated Hotels were 73.3% of hotel revenues in 1996, compared to 69.9% of hotel revenues in 1995, which increase was due primarily to the conversion of four Consolidated Hotels to AmeriHost Inn hotels and higher expenses associated with the severe weather conditions in the first quarter of 1996. Operating costs and expenses in the hotel development segment increased 94.2% to $19.7 million in 1996 from $10.1 million in 1995, consistent with the 87.4% increase in hotel development revenues. Operating costs and expenses in the hotel development segment as a percentage of segment revenue increased to 85.7% in 1996 from 82.7% in 1995. There was significant construction activity in 1996, with a greater number of hotels under construction in 1996 as compared to 1995. Additionally, a significant number of hotels began construction in the fourth quarter of 1995, whereby the majority of the associated construction costs were incurred in 1996. Hotel construction activity has significantly higher associated operating costs compared to the pre-construction hotel development activity, translating to a higher percentage of segment revenue. Hotel management segment operating costs and expenses decreased 3.7% to $1.9 million in 1996 from $2.0 million in 1995, due primarily to efficiencies achieved in the management of all hotels operated and/or managed. Employee leasing operating costs and expenses decreased 3.6% to $11.7 million in 1996 from $12.1 million in 1995, attributable to the 2.8% decrease in segment revenue as well as operational efficiencies. Depreciation and amortization expense increased 53.4% to $3.5 million in 1996 from $2.3 million in 1995. This increase was primarily attributable to the net addition of four Consolidated Hotels in 1996 and ten Consolidated Hotels in 1995, the majority of which were opened during the second half of 1995, to the hotel operations segment and the resulting depreciation and amortization therefrom. Leasehold rents - hotels increased 7.4% to $2.1 million in 1996 from $2.0 million in 1995. This increase was primarily due to the addition of one leased Consolidated Hotel in the fourth quarter of 1995, partially offset by the termination of another leased Consolidated Hotel in the second quarter of 1995 as a result of the sale of the hotel. Corporate general and administrative expenses decreased 8.7% to $1.9 million in 1996 from $2.1 million in 1995. The decrease was due primarily to operational efficiencies and the allocation of costs associated with increased hotel development activity. The Company's operating income increased 50.4% to $6.5 million in 1996 from $4.3 million in 1995, or an increase of $2.2 million. Operating income from the hotel operations segment increased 30.6% to $4.4 million in 1996 from $3.4 million in 1995, resulting primarily from the addition of 14 Consolidated Hotels during 1995 and 1996. Operating income from the hotel development segment increased 53.8% to $3.2 million in 1996 from $2.1 million in 1995, due to the increased level of hotel development and construction activity. Hotel development operating income as a percentage of segment revenues decreased to 14.0% in 1996 from 17.1% in 1995 due to the higher level of construction activity in 1996 which has higher revenues and a lower gross margin than pre- construction development activity. Hotel management segment operating income decreased 31.2% to $571,680 in 1996 from $831,007 in 1995, due primarily to the termination of four hotel management contracts with minority-owned entities and unrelated third parties during 1996, as well as the elimination of management fees from Consolidated Hotels. Employee leasing operating income increased to $309,805 in 1996 from $216,075 in 1995. Interest expense increased 57.6% to $2.8 million in 1996 versus $1.8 million in 1995, primarily attributable to the additional, permanent mortgage financing obtained for newly constructed Consolidated Hotels. The Company's share of equity in income (loss) of affiliates increased 108.9% to $809,443 in 1996 from $387,439 in 1995. This increase was due primarily to gains on the sale of three minority owned hotels in 1996 and an increase in same room revenue. Distributions from affiliates increased 253% to $1.8 million in 1996 from $505,410 in 1995, due primarily to the distributions received from the three minority owned partnerships in 1996 in connection with the sale of their hotels. The Company recorded income tax expense of $2.4 million in 1996 compared to income tax expense of $1.3 million in 1995, which increase is directly attributable to the increase in pre-tax income. 1995 compared to 1994 Record revenues of $52.0 million in 1995 increased 19.9% from revenues of $43.3 million in 1994. This increase was due primarily to a significant increase in revenues from hotel operations. Hotel operations revenue increased 57.9% to $24.4 million in 1995, compared to $15.4 million in 1994. This increase was attributable to the net addition of 10 Consolidated Hotels to the hotel operations segment during 1995, and a 2.4% increase in same room revenue realized by the Consolidated Hotels. The Company held a minority ownership position in five of these 10 hotels prior to these hotels becoming Consolidated Hotels in 1995 when additional ownership interests were acquired. The hotel operations segment included 24 Consolidated Hotels comprising 2,516 rooms and the end of 1995, compared to 14 Consolidated Hotels comprising 1,543 rooms at the end of 1994, or an increase of 63.1% in total rooms. Same room occupancy for all Consolidated Hotels increased 2.8% in 1995, while same room average daily rate increased $1.19, or 2.5%. The Company does not recognize revenues from the development and construction of Consolidated Hotels. Excluding the Consolidated Hotels, the Company had 20 hotels under construction during 1995, versus 10 hotels in 1994 for unaffiliated parties and entities in which the Company holds a minority ownership interest. In addition, the Company had several projects in various stages of pre- construction development at the end of 1994 and 1995. Hotel development revenue increased 1.7% in 1995 from $12.0 million in 1994 to $12.2 million in 1995. Although the number of hotels under construction was significantly greater in 1995, total segment revenues did not increase accordingly since 12 of the 14 hotels which began construction in 1995 were not started until the fourth quarter, resulting in the recognition of only a minor portion of the total contracted revenues on these projects. Hotel management and employee leasing revenues are recognized from hotels which are owned by unrelated third parties and entities in which the Company holds a minority ownership interest. While the number of Consolidated Hotels increased from 14 to 24, the number of hotels managed for third parties and minority owned entities decreased from 39 hotels at the end of 1994 to 34 hotels at the end of 1995. The addition of four management contracts in 1995 was offset by the loss of one management contract with a unaffiliated third party, three management contracts with minority-owned entities as a result of a hotel/investment sale or temporary closing during renovation, and the five minority-owned hotels which became Consolidated Hotels in 1995 due to the Company acquiring additional ownership interests in these hotels. The Company does not recognize management and employee leasing revenues from Consolidated Hotels. Hotel management revenues increased 11.0% from $2.7 million in 1994 to $3.0 million in 1995. The decrease resulting from the changes noted above, were more than offset by an increase in same room revenue for managed hotels and incentive management fees received in 1995 which were not present in 1994 from certain managed hotels. Employee leasing revenues, which are based on actual employee costs, decreased 6.2% from $13.2 million in 1994 to $12.4 million in 1995 as a result of the decrease in employee leasing contracts with minority-owned entities and an unaffiliated third party as noted above. Operating costs and expenses increased 11.4% to $41.3 million (79.5% of total revenues) in 1995 from $37.1 million (85.5% of total revenues) in 1994. Operating costs and expenses in the hotel operations segment increased 63.2% from $10.5 million in 1994 to $17.1 million in 1995, resulting primarily from the net addition of 10 Consolidated Hotels to this segment and is directly related to the 57.9% increase in segment revenue. Operating costs and expenses in the hotel development segment decreased from $11.3 million in 1994 to $10.1 million in 1995, due to the lower level of construction costs recognized in 1995 relative to 1994, as the Company had started construction on a significant number of hotels in the fourth quarter of 1995 which had not yet incurred significant construction costs in 1995. Hotel management segment operating costs and expenses decreased 12.5% to $2.0 million in 1995 from $2.3 million in 1994, primarily due to the write-off of a contract termination fee note receivable in 1994. Employee leasing operating costs and expenses decreased 6.8% from $13.0 million in 1994 to $12.1 million in 1995. This decrease is attributable to the decrease in segment revenue as well as operational efficiencies. Depreciation and amortization expense increased 98.8% to $2.3 million in 1995 compared to $1.1 million in 1994. This increase was primarily attributable to the addition of 10 Consolidated Hotels to the hotel operations segment and the resulting depreciation and amortization therefrom. Leasehold rents - hotels increased 19.0% to $2.0 million in 1995 from $1.7 million in 1994. This increase was due to the addition of three leased Consolidated Hotels to the hotel operations segment (the Company had held a minority ownership position in these hotels prior to 1995 when additional ownership interests were acquired), partially offset by the termination of a lease agreement for one hotel. Corporate general and administrative expenses increased 4.9% from $2.0 million in 1994 to $2.1 million in 1995, and can be attributed to the Company's overall growth. The Company had $4.3 million in operating income in 1995 increasing 194.7% from $1.5 million in 1994, or an increase of $2.8 million. Operating income from the hotel operations segment increased 36.8% from $2.5 million in 1994 to $3.4 million in 1995, resulting primarily from an increase in Consolidated Hotels from 14 at December 31, 1994 to 24 at December 31, 1995. Operating income from the hotel operations segment as a percentage of segment revenue decreased during 1995 compared to 1994 due to a greater number of newly constructed Consolidated Hotels operating during their initial stabilization period, when revenues are generally lower. The hotel development segment operating income increased 194.2% from $711,032 in 1994 to $2.1 million in 1995 as operating income as a percentage of segment revenues also increased due to a higher level of pre- construction development activity realized in 1995 which has lower revenues and a higher gross margin than construction activity. Hotel management segment operating income increased from $250,118 in 1994 to $831,007 in 1995, due primarily to the increase in same room revenues for managed hotels, incentive management fees received in 1995, and the write-off of a contract termination fee note receivable in 1994. Employee leasing operating income increased from $149,305 in 1994 to $216,075 in 1995, or $66,770, due primarily from operational efficiencies. EBITDA increased $4.7 million to a record $8.9 million in 1995 compared to $4.1 million in 1994, or an increase of 113.9%. The significant changes resulting in the increase in EBITDA from 1994 to 1995 are discussed above. Interest expense increased to $1.8 million in 1995 versus $854,880 in 1994, primarily attributable to an increase in Consolidated Hotels with mortgage financing. The Company's share of equity in the operating results of affiliates increased to $387,439 in 1995 from $31,511 in 1994. This increase was due primarily to a 10.2% increase in same room revenues for all minority owned hotels and the gain on the sale of one hotel, which translated into a 392% increase in net income for these hotels. Distributions from affiliates increased 32.2% to $505,410 in 1995 from $382,229 in 1994. The Company recorded income tax expense of $1.3 million in 1995 compared to income tax expense of $381,000 in 1994, which increase is directly attributable to the increase in pre-tax income. LIQUIDITY AND CAPITAL RESOURCES The Company has four main sources of cash from operating activities: (i) revenues from hotel operations; (ii) fees from development, construction and renovation projects; (iii) fees from management contracts; and (iv) fees from employee leasing services. Cash from hotel operations is typically received at the time the guest checks out of the hotel. A portion of the Company's hotel operations revenues is generally collected within 30 to 45 days from billing, pursuant to contracts or other arrangements. Typically, investments in hotels generate positive cash flow after a stabilization period ranging from 90 to 180 days depending upon the geographic location of the hotel and time of year the hotel is opened. Fees from development, construction and renovation projects are typically received within 15 to 45 days from billing. Due to the procedures in place for processing its construction draws, the Company typically does not pay its contractors until the Company receives its draw from the equity or lending source. The Company enters into agreements with contractors for the construction of Consolidated Hotels, including hotels under construction at December 31, 1996, after both the construction and long-term mortgage financing is in place. A significant portion of the notes receivable from affiliates is for construction advances which will be collected as the construction of the hotels progresses and the equity and debt financing becomes available to the affiliate through the draw process. Management fee revenues are typically received by the Company within five working days from the end of each month. Cash from the Company's employee leasing segment is typically received 24 to 48 hours prior to the employee pay date. During 1996, the Company received cash from operations of $7.6 million, compared to $1.9 million in 1995, or an increase in cash provided by operating activities of $5.7 million. The increase in cash flow from operations during 1996 can be attributed to the significant level of hotel ownership and operation activity as the number of Consolidated Hotels increased by 10 hotels in 1995 and four hotels in 1996. In addition, a significant number of hotels were under construction during 1996 compared to 1995, including several which began construction in the fourth quarter of 1995 and completed in 1996, resulting in a significant amount of construction fees received during 1996. The Company invests cash in three principal areas: (i) the purchase of property and equipment through the construction and renovation of Consolidated Hotels; (ii) the purchase of equity interests in hotels; and (iii) loans to affiliated and non-affiliated hotels for the purpose of construction, renovation and working capital. During 1996, the Company used $11.3 million in investing activities compared to $13.5 million during 1995. During 1996, the Company used $14.0 million to purchase property and equipment for Consolidated Hotels, used $866,908 for the purchase of equity interests in hotels net of cash acquired, collected $637,891 from loans, net of advances, and received $1.8 from the sale of assets. In 1995, the Company used cash primarily for the purchase of $12.5 million in property and equipment for Consolidated Hotels, used $258,676 for the purchase of equity interests in hotels net of cash acquired, and used $946,857 for loans, net of collections. In addition, the Company received distributions from investments in minority owned hotels of $1.8 million in 1996 compared to $505,410 in 1995. Cash received from financing activities was $5.4 million in 1996 compared to $9.9 million in 1995. In 1996, the primary factors were net proceeds of $6.5 million from the mortgage financing of Consolidated Hotels, net of principal repayments, and $609,612 in net reductions to the Company's operating line-of- credit. In 1995, the contributing factors were proceeds of $7.8 million from the mortgage financing of Consolidated Hotels, net of principal repayments, and net proceeds of $2.3 million from the Company's operating line-of-credit. At December 31, 1996, the Company had $1.7 million outstanding under its operating line-of-credit. The Company's operating line-of-credit was renewed and increased effective May 1, 1996 to $5,000,000. The operating line-of-credit (i) is collateralized by a security interest in certain of the Company's assets, including its interest in various joint ventures; (ii) bears interest at an annual rate equal to the lending bank's base rate plus 1/2% (with a minimum interest rate of 7.5%); and (iii) matures May 1, 1997. The same bank providing the operating line-of-credit also provides a $7.5 million line-of-credit to be used for construction financing on hotel projects, of which $5.0 million must be used on contracts which have firm commitments for permanent mortgage financing when the construction is completed. There was no outstanding balance on the construction line-of-credit as of December 31, 1996. At December 31, 1996, the Company also had outstanding $2.1 million of its 7% Subordinated Notes which are unsecured obligations due October 9, 1999 and which pay interest quarterly. Pursuant to the terms of the 7% Subordinated Notes, no dividends may be paid on any capital stock of the Company until the 7% Subordinated Notes have been paid in full. At the Company's sole discretion, the 7% Subordinated Notes may be prepaid at any time without prepayment penalty. The Company expects cash from operations to be sufficient to pay all operating expenses and interest expenses in 1997. SEASONALITY The lodging industry, in general, is seasonal in nature. The Company's hotel revenues are generally greater in the second and third calendar quarters than in the first and fourth quarters due to weather conditions in the markets in which the Company's hotels are located and general business and leisure travel trends. This seasonality can be expected to continue to cause fluctuations in the Company's quarterly revenues. Quarterly earnings may also be adversely affected by events beyond the Company's control such as extreme weather conditions, economic factors and other factors affecting travel. In addition, hotel construction activity is seasonal, depending upon the geographic location of the construction projects. INFLATION Management does not believe that inflation has had, or is expected to have, any significant adverse impact on the Company's financial condition or results of operations. IMPACT OF NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." The new standard simplifies the methods for computing earnings per share and requires the presentation of two new amounts, basic and diluted earnings per share. When the Company adopts SFAS No. 128, it expects to report the following restated amounts:
1996 1995 1994 Basic $ 0.57 $ 0.37 $ 0.10 Diluted $ 0.49 $ 0.34 $ 0.10
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 All statements contained herein that are not historical facts, including but not limited to, statements regarding the Company's hotels under construction and the operation of AmeriHost Inn hotels are based on current expectations. These statements are forward looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: the availability of sufficient capital to finance the Company's business plan on terms satisfactory to the Company; competitive factors, such as the introduction of new hotels or renovation of existing hotels in the same markets; changes in travel patterns which could affect demand for the Company's hotels; changes in development and operating costs, including labor, construction, land, equipment and capital costs; general business and economic conditions; and other risk factors described from time to time in the Company's reports filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which statements are made pursuant to the Private Securities Litigation Reform Act of 1995, and as such, speak only as of the date made. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements filed as a part of this Form 10-K are included under "Exhibits, Financial Statements and Reports on Form 8-K" under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no disagreements on accounting and financial disclosure matters which are required to be described by Item 304 of Regulation S-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Company's executive officers and directors are:
Name Age Position H. Andrew Torchia 53 Chairman of the Board and Director Michael P. Holtz 40 President, Chief Executive Officer and Director Russell J. Cerqua 40 Executive Vice President of Finance, Secretary, Treasurer, Chief Financial Officer and Director Reno J. Bernardo 65 Director Salomon J. Dayan 51 Director
H. Andrew Torchia, a co-founder of the Company, has been a Director of the Company since its inception in 1984. Mr. Torchia was President and Chief Executive Officer of the Company from 1985 until 1989, when he became Chairman of the Board. As Chairman, Mr. Torchia's primary areas of responsibility include business development, corporate finance and strategic and financial planning. Mr. Torchia is also the President and 51% stockholder of Urban 2000 Corp. ("Urban"), a hotel development consulting firm, which was initially the sole shareholder of the Company and is currently a principal stockholder. See "Principal Stockholders" under Item 12. Mr. Torchia also owns a 50% interest in American International Hotel Corporation which leases the Best Western at O'Hare. Mr. Torchia has 30 years of experience in hotel development, operations and franchising. Prior to founding the Company, Mr. Torchia served as head of regional development for Best Western International and as head of independent franchise sales organizations for Quality Inns International and Days Inns. Michael P. Holtz has been a Director of the Company since August 1985. From 1985 to 1989, Mr. Holtz served as the Company's Treasurer and Secretary. In 1986, Mr. Holtz was promoted to Chief Operating Officer of the Company with direct responsibility for the Company's day-to-day operations. In 1989, Mr. Holtz was elected President and Chief Executive Officer of the Company. Mr. Holtz is responsible for development and implementation of all Company operations including hotel development, finance and management. Mr. Holtz has over 20 years experience in the operation, development and management of hotel properties. Russell J. Cerqua has been the Executive Vice President of Finance and Chief Financial Officer of the Company since 1987, and Treasurer and a Director of the Company since 1988. In 1989, in addition to his other responsibilities, Mr. Cerqua was elected Secretary of the Company. His primary responsibilities include internal and external financial reporting, corporate and property financing, development of financial management systems, hotel accounting for managed properties and financial analysis. Prior to joining the Company, Mr. Cerqua was an audit manager with Laventhol & Horwath, the Company's former independent certified public accountants, and was responsible for the Company's annual audits. Mr. Cerqua was involved in public accounting for over 9 years, with experience in auditing, financial reporting and taxation. Mr. Cerqua is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. Reno J. Bernardo served as the Senior Vice President of Construction of the Company from 1987 through March 1994, when he retired. His primary responsibilities included managing construction of new properties and directing renovation projects. In 1989, Mr. Bernardo became a Director of the Company and continues to serve in this capacity. From 1985 to 1986, Mr. Bernardo was Vice President of Construction with Devcon Corporation, a hotel construction company. From 1982 to 1985, Mr. Bernardo was Project Superintendent with J.R. Trueman and Associates, a hotel construction company, and a subsidiary of Red Roof Inns, where his responsibilities included supervision of the development and construction of several Red Roof Inns. Salomon J. Dayan, M.D. has been a director of the Company since August 1996. Since 1980, Dr. Dayan, a physician certified in internal and geriatric medicine, has been the Chief Executive Officer of Salomon J. Dayan Ltd., a multi-specialty medical group which he founded and which is dedicated to the care of the elderly in hospital and nursing home settings. Since 1986, Dr. Dayan has been the Medical Director and Executive Director of Healthfirst, a corporation which operates multiple medical ambulatory facilities in the Chicago, Illinois area, and since 1994 he has also been an assistant professor at Rush Medical Center in Chicago. Dr. Dayan is currently the Chairman of the Board of Directors of Greater Chicago Financial Corporation, a bank holding company owning interest in two banks. Dr. Dayan also has numerous investments in residential and commercial real estate. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the annual and long-term compensation for services as officers to the Company for the fiscal years ended December 31, 1996, 1995 and 1994, of those persons who were, at December 31, 1996 (i) the Chairman of the Board of Directors, (ii) the chief executive officer, and (iii) the other two most highly compensated executive officers of the Company (the "Named Officers"). See "Compensation of Directors" under Item 11.
SUMMARY COMPENSATION TABLE Long-Term Compensation Annual Compensation Restricted Securities Name and Principal Stock Underlying All Other Position Year Salary Bonus Awards Options(#)(1) Compensation(2) H. Andrew Torchia (3) 1996 $ 0 $ 0 $ 0 0 $ 15,000 Chairman of the Board 1995 0 0 0 120,000 15,000 1994 0 0 0 30,000 15,000 Michael P. Holtz 1996 375,000 0 0 0 10,000 President and Chief 1995 322,115 0 196,927 360,000 10,000 Executive Officer 1994 244,913 75,000 75,000 60,000 10,000 Russell J. Cerqua 1996 160,000 0 0 0 10,000 Executive Vice President 1995 149,423 0 56,690 153,333 10,000 Finance, Secretary, Treasurer 1994 132,692 15,000 15,000 30,000 10,000 and Chief Financial Officer Richard A. D'Onofrio (4) 1996 144,000 36,000 0 0 15,000 Executive Vice President 1995 137,500 27,500 0 120,000 15,000 1994 162,528 0 0 30,000 15,000 (1) Options for the purchase of 100,000, 320,000, 133,333 and 100,000 shares of Common Stock granted to Messrs. Torchia, Holtz, Cerqua and D'Onofrio were vested as of December 31, 1996. Options for the purchase of 50,000, 100,000, 50,000 and 50,000 shares of Common Stock granted to Messrs. Torchia, Holtz, Cerqua and D'Onofrio, respectively, vest as of January 1, 1997. (2) Represents life insurance premiums paid by the Company on behalf of the Named Officers. (3) Mr. Torchia, Chairman of the Board and a Director of the Company, received no annual compensation for services as an officer of the Company in 1994, 1995 or 1996. For a discussion of the fees paid to Urban, a hotel development consulting firm in which Mr. Torchia owns a 51% interest and Mr. D'Onofrio owns a 49% interest, pursuant to a consulting agreement between the Company and Urban which was terminated in 1997, see "Certain Transactions." (4) Mr. D'Onofrio resigned from the Company in January 1997.
BONUS PLANS In April of each year, the Company issues restricted Common Stock to its employees as an incentive for their continued employment. The Company's management determines those employees who are entitled to receive such Common Stock bonus. During 1996, the Company issued 5,455 shares of Common Stock, none of which were issued to the Named Officers reflected above. OPTIONS The were no options issued to or exercised by the Named Officers in 1996.
OPTION EXERCISES AND YEAR-END VALUE TABLE Number of Unexercised Options Value of Unexercised in-the-Money Held at December 31, 1996 Options at December 31, 1996 (1) Name Exercisable Unexercisable Exercisable Unexercisable H. Andrew Torchia 245,062 50,000 $ 485,459 $ 132,813 Michael P. Holtz 430,000 100,000 722,687 265,625 Richard A. D'Onofrio 293,688 50,000 482,924 132,813 Russell J. Cerqua 177,708 50,000 323,332 132,813 Reno J. Bernardo 44,375 1,000 74,582 - Salomon J. Dayan 30,000 1,000 1,406 - _______________ (1) The closing sale price of the Company's Common Stock on such date on the Nasdaq National Market was $6.22.
COMPENSATION OF DIRECTORS Each Director of the Company received an annual retainer fee of $9,000 ($750 per month) in 1996. Each Director of the Company also received $250 for each Board of Directors meeting attended in person, $150 for each Board of Directors meeting conducted by telephone and $150 for each committee meeting. As of January 31, 1997, the annual retainer fees and all meeting fees were eliminated for all Directors except nonemployee Directors. Each Director is reimbursed for all out-of-pocket expenses related to attendance at Board meetings. Mr. Torchia, a Director of the Company, also indirectly received fees through a consulting agreement between the Company and Urban which commenced in January 1991. Under the terms of the consulting agreement, Urban received a monthly consulting fee of $20,000 for the provision of business development services to the Company. The Company also paid Urban $206,154 in additional fees in 1996, for transactions brought to the Company. The Urban consulting agreement was terminated as of January 31, 1997. See "Certain Relationships and Related Transactions" under Item 13. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of March 24, 1997, by (i) each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each of the Company's Directors, (iii) each of the Named Officers and (iv) all Directors and executive officers as a group.
Shares Beneficially Owned As of March 24, 1997 Name Number Percent Michael P. Holtz 877,091 (1) 12.9% H. Andrew Torchia (5) 721,658 (1)(2) 11.0 Wellington Management Company 596,300 (3) 9.5 Massachusetts Financial Services Company 522,000 (4) 8.3 Russell J. Cerqua 316,305 (1) 4.9 Salomon J. Dayan 309,659 (1) 4.8 Reno J. Bernardo 93,458 (1) 1.5 ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (5 PERSONS) 2,318,171 30.9% (1) Includes shares subject to options exercisable presently or within 60 days as follows: Mr. Holtz, 535,000 shares, Mr. Torchia, 283,750 shares (including options for 68,750 shares owned by Urban 2000 Corp., see (2) below), Mr. Cerqua, 223,333 shares, Dr. Dayan, 154,676 shares, and Mr. Bernardo, 24,375 shares. (2) Includes 375,832 shares owned by Urban 2000 Corp., options to purchase 68,750 shares owned by Urban which are exercisable presently or within 60 days, and 7,676 shares owned by Niles 1290 Corp., a wholly-owned subsidiary of Urban 2000 Corp. Mr. Torchia is the President and 51% stockholder of Urban 2000 Corp. Mr. Torchia disclaims beneficial ownership of all but an aggregate of 195,589 shares and options exercisable into 35,063 shares owned directly, or indirectly, by Urban. (3) Based upon information provided in its Schedule 13G dated January 24, 1997, Wellington Management Company ("WMC"), in its capacity as investment advisor, may be deemed beneficial owner of 596,300 shares of the Company which are owned by numerous investment counselling clients. Of the shares shown above, WMC has shared voting power for 342,000 shares and shared investment power for 596,300 shares. (4) Based upon information provided in its Schedule 13G dated February 12, 1997, Massachusetts Financial Services Company ("MFS"), in its capacity as investment manager, may be deemed beneficial owner of 522,000 shares of the Company which are also beneficially owned by MFS Series Trust II - MFS Emerging Growth Stock Fund, shares of which are owned by numerous investors. MFS has sole voting and investment power for the 522,000 shares. (5) The address of this stockholder is c/o Amerihost Properties, Inc., 2400 East Devon, Suite 280, Des Plaines, Illinois.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Urban 2000 Corp. ("Urban") is owned 51% by H. Andrew Torchia, the Chairman of the Board of Directors of the Company. Urban, a hotel development consulting firm, and Mr. Torchia provided business development and consulting services to the Company under a consulting agreement (the "Consulting Agreement") with Urban which commenced in January 1994. Urban, pursuant to the Consulting Agreement, has agreed to not engage in business activities that directly compete with the business activities of the Company; provided, however, that Urban may pursue business opportunities which the Company decides not to pursue. Under the terms of the Consulting Agreement, Urban received (i) a monthly consulting fee of $20,000, (ii) a residual fee based on the management fees the Company received from management arrangements or relationships which resulted from contacts initiated for the Company by Urban and (iii) transaction fees, based on an established fee schedule and consistent with industry practice, for transactions introduced by Urban. The Company also provided Urban with use of the Company's telephone system. No additional amounts were paid to Urban for the reimbursement of expenses. As part of this arrangement, Mr. Torchia did not receive compensation for the services he provides to the Company, other than warrants and other non-cash compensation for his services as Chairman. During 1994, 1995 and 1996, Urban received an annual consulting fee of $240,000 plus aggregate additional fees of $289,915, $236,138 and $206,154, respectively, from the Company and received $28,200 and $82,400, in 1994 and 1995, respectively, in other transactional fees directly from joint ventures in which the Company is a general partner. The Urban Consulting Agreement was terminated as of January 31, 1997. The Company currently has a note receivable outstanding from each of Mr. Holtz, a director and the President and Chief Executive Officer of the Company, and Mr. Cerqua, a director and the Chief Financial Officer, Executive Vice President of Finance, Secretary and Treasurer of the Company. These notes (the "Officer Notes") arose initially when, in 1992, the Company entered into agreements with Grand American Hotel Management, Inc. ("Grand"), its shareholders and certain other entities owned by the shareholders of Grand to acquire seven management contracts for, among other consideration, a loan of $800,000 to the shareholders of Grand (the "Original Note"). The Original Note was collateralized by 165,784 shares of the Company's Common Stock and bore interest at a rate of 10.5% per annum. During 1993, the Company and Grand agreed to revise the terms of the Original Note to, among other things, reduce its interest rate. The Company did not receive any payments of principal or interest in 1994. Due to this default by Grand, in November 1994, the Company notified Grand of its intention to take the 165,784 shares of Common Stock in lieu of the Original Note and related receivables. In December 1994, and prior to the Company's taking possession of such shares, Messrs. Holtz and Cerqua executed notes in the amounts of $756,292 and $200,000, respectively, to the Company for the purchase of the Original Note and related receivables and the 165,784 shares of the Common Stock held as collateral on the Original Note. Following the purchase, each of Messrs. Holtz and Cerqua pledged as collateral for the Officer Notes the shares of Common Stock received upon the purchase of the Original Note together with additional shares of the Company's Common Stock which each individually owned. As originally drafted, the Officer Notes provided for annual payments of interest at 8% per annum commencing on December 31, 1995, with the principal balance due December 31, 1997, and were collateralized by an aggregate of 273,369 shares of the Company's Common Stock. The Company and Messrs. Holtz and Cerqua have amended the terms of the Officer Notes to provide that the annual payments of interest shall be payable commencing April 1, 1997. Messrs. Holtz and Cerqua each have the option to pay interest and principal with shares of the Company's Common Stock, with the shares tendered being valued at the fair market value at time of payment. The Officer Notes receivable have been classified as a reduction of shareholders' equity on the Company's Consolidated Financial Statements. In the past, certain of the Company's directors and executive officers have, directly or indirectly, invested in joint ventures with the Company. For example, Mr. Torchia, through Urban, has invested an aggregate of approximately $144,000 as limited partners and approximately $49,000 as a general partner in three joint ventures since 1991. In addition, Dr. Dayan, a director of the Company, has invested approximately $1.6 million in seven joint ventures since 1988. Dr. Dayan and each of the Company's directors and executive officers who have made such investments have done so on the same terms as all other investors in such joint ventures. In addition to his investments in certain joint ventures, Dr. Dayan also holds an interest in a mortgage on one of the joint ventures. The mortgage, which has been in place since 1989, (i) has a current outstanding balance of approximately $460,000, (ii) bears interest at an annual rate of prime plus 4% (with a minimum annual interest rate of 12%), and (iii) is payable in monthly installments through 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K. Financial Statements: The following consolidated financial statements are filed as part of this Report on Form 10-K for the fiscal year ended December 31, 1996. (a)(1) Financial Statements: Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . F-2 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-8 (a)(2) Financial Statement Schedules: No financial statement schedules are submitted as part of this report because they are not applicable or are not required under regulation S-X or because the required information is included in the financial statements or notes thereto. (a)(3) Exhibits: The following exhibits were included in the Registrant's Report on Form 10-K filed on March 26, 1993, and are incorporated by reference herein: Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation of Amerihost Properties, Inc. 3.2 By-laws of Amerihost Properties, Inc. 4.2 Specimen Common Stock Purchase Warrant for Employees 4.3 Specimen 7% Subordinated Note 4.4 Specimen Common Stock Purchase Warrant for 7% Subordinated Noteholders 4.5 Form of Registration Rights Agreement for 7% Subordinated Noteholders The following exhibits were included in the Registrant's Amendment No. 1 to Form S-2 filed on July 3, 1996, and are incorporated by reference herein: Exhibit No. Description 10.4 Employment Agreement between Amerihost Properties, Inc. and Michael P. Holtz 10.6 Employment Agreement between Amerihost Properties, Inc. and Russell J. Cerqua The following exhibits were included in the Registrant's Proxy Statement for Annual Meeting of Shareholders filed on July 25, 1996, and are incorporated by reference herein: Exhibit No. Description 10.2 1996 Omnibus Incentive Stock Plan (Annex A) 10.3 1996 Stock Option Plan for Nonemployee Directors (Annex B) The following exhibits are included in this Report on Form 10-K dated March 24, 1997: Exhibit No. Description 10.7 Urban 2000 Corp. Termination Agreement 10.8 Richard A. D'Onofrio Termination Agreement 10.9 Amendment of Employment Agreement between Amerihost Properties, Inc. and Michael P. Holtz 10.10 Amendment of Employment Agreement between Amerihost Properties, Inc. and Russell J. Cerqua 21.1 Subsidiaries of the Registrant 23.1 Consent of BDO Seidman, LLP 27.0 Financial Data Schedule Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended December 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERIHOST PROPERTIES, INC. By: /s/ Michael P. Holtz Michael P. Holtz Chief Executive Officer By: /s/ Russell J. Cerqua Russell J. Cerqua Chief Financial Officer By: /s/ James B. Dale James B. Dale Corporate Controller March 27, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ H. Andrew Torchia /s/ Michael P. Holtz H. Andrew Torchia, Director Michael P. Holtz, Director March 27, 1997 March 27, 1997 /s/ Russell J. Cerqua /s/ Reno J. Bernardo Russell J. Cerqua, Director Reno J. Bernardo, Director March 27, 1997 March 27, 1997 /s/ Salomon J. Dayan Salomon J. Dayan, Director March 27, 1997 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To The Board of Directors of Amerihost Properties, Inc. We have audited the accompanying consolidated balance sheets of Amerihost Properties, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amerihost Properties, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. BDO Seidman, LLP Chicago, Illinois March 20, 1997 AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1996 1995 ASSETS Current assets: Cash and cash equivalents $ 3,029,039 $ 1,371,278 Accounts receivable (including $3,119,905 and $802,164 from related parties) (Note 10) 5,083,973 3,270,094 Notes receivable (including $1,354,461 and $1,752,126 from related parties) (Note 2) 1,507,276 1,965,048 Prepaid expenses and other current assets 223,136 188,163 Refundable income taxes 30,629 230,530 Costs and estimated earnings in excess of billings on uncompleted contracts (including $2,048,259 and $3,574,939 from related parties) (Notes 3 and 10) 2,083,259 3,900,879 Total current assets 11,957,312 10,925,992 Investments (Notes 4 and 6) 1,595,858 2,388,999 Property and equipment (Notes 6, 7 and 13): Land 7,334,562 4,236,309 Buildings 27,885,463 22,075,629 Furniture, fixtures and equipment 10,984,572 9,204,377 Construction in progress 4,709,064 662,159 Leasehold improvements 2,404,060 2,050,654 53,317,721 38,229,128 Less accumulated depreciation and amortization 7,481,889 5,404,102 45,835,832 32,825,026 Long-term notes receivable (including $1,120,888 and $1,450,616 from related parties) (Note 2) 3,831,504 2,863,580 Costs of management contracts acquired, net of accumulated amortization of $1,158,379 and $913,393 907,404 664,110 Other assets (including deferred taxes of $171,000 and $383,000), net of accumulated amortization of $2,082,450 and $1,451,715 (Notes 5 and 9) 2,773,246 2,785,595 7,512,154 6,313,285 $ 66,901,156 $ 52,453,302
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1996 1995 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,293,184 $ 3,751,097 Bank line-of-credit (Note 6) 1,707,424 2,317,036 Accrued payroll and related expenses 935,120 688,648 Accrued real estate and other taxes 685,796 606,468 Other accrued expenses and current liabilities 828,596 666,352 Current portion of long-term debt (Note 7) 1,554,200 1,042,847 Total current liabilities 11,004,320 9,072,448 Long-term debt, net of current portion (Note 7) 32,785,108 23,971,481 Deferred income 630,899 686,388 Commitments (Notes 8, 12 and 13) Minority interests 1,569,200 1,456,226 Shareholders' equity (Notes 8, 10, and 12): Preferred stock, no par value; authorized 100,000 shares; none issued - - Common stock, $.005 par value; authorized 25,000,000 shares; issued 6,036,921 shares at December 31, 1996, and 5,977,213 shares at December 31, 1995 30,185 29,886 Additional paid-in capital 17,170,154 16,920,237 Retained earnings 5,104,457 1,709,803 22,304,796 18,659,926 Less: Stock subscriptions receivable (Note 2) (436,875) (436,875) Notes receivable (Note 2) (956,292) (956,292) 20,911,629 17,266,759 $ 66,901,156 $ 52,453,302
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 Revenue: Hotel operations: AmeriHost Inn hotels $ 8,526,923 $ 876,025 $ - Other hotels 22,088,368 23,483,974 15,428,022 Development and construction 22,937,267 12,238,128 12,036,918 Management services 2,784,031 3,010,935 2,711,637 Employee leasing 12,005,759 12,353,355 13,169,942 68,342,348 51,962,417 43,346,519 Operating costs and expenses: Hotel operations: AmeriHost Inn hotels 4,908,624 644,900 - Other hotels 16,180,182 16,420,141 10,457,154 Development and construction 19,651,500 10,117,782 11,315,973 Management services 1,930,229 2,003,310 2,288,765 Employee leasing 11,689,461 12,131,262 13,014,542 54,359,996 41,317,395 37,076,434 13,982,352 10,645,022 6,270,085 Depreciation and amortization 3,478,878 2,268,181 1,140,801 Leasehold rents - hotels 2,121,876 1,976,154 1,660,903 Corporate general and administrative 1,928,134 2,110,939 2,012,710 Operating income 6,453,464 4,289,748 1,455,671 Other income (expense): Interest expense (2,767,828) (1,755,745) (854,880) Interest income 625,386 560,724 428,353 Other income 141,941 44,099 37,836 Equity in net income and losses of affiliates 809,443 387,439 31,511 Gain on sale of assets 1,279,349 - - Public offering not consummated (403,657) - - Income before minority interests and income taxes 6,138,098 3,526,265 1,098,491 Minority interests in operations of consolidated subsidiaries and partnerships (385,444) (59,173) (146,070) Income before income taxes 5,752,654 3,467,092 952,421 Income tax expense 2,358,000 1,329,000 381,000 Net income $ 3,394,654 $ 2,138,092 $ 571,421 Net income per share $ 0.50 $ 0.35 $ 0.10
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Stock subscrip- Common stock Additional tions Total share- paid-in Retained Earnings and notes holders' Shares Amount capital (Deficit) receivable equity BALANCE AT JANUARY 1, 1994 5,475,704 $ 27,379 $15,179,959 $ (999,710) $ (1,426,875) $12,780,753 Authorized shares issued for compensation and investment 94,309 471 285,932 - - 286,403 Sale of note and receivables to officers (Note 2) - - - - 990,000 990,000 Collateralized notes receivable from officers (Note 2) - - - - (956,292) (956,292) Net income for the year ended December 31, 1994 - - - 571,421 - 571,421 BALANCE AT DECEMBER 31, 1994 5,570,013 27,850 15,465,891 (428,289) (1,393,167) 13,672,285 Authorized shares issued for compensation and investment 407,200 2,036 1,454,346 - - 1,456,382 Net income for the year ended December 31, 1995 - - - 2,138,092 - 2,138,092 BALANCE AT DECEMBER 31, 1995 5,977,213 29,886 16,920,237 1,709,803 (1,393,167) 17,266,759 Authorized shares issued for compensation and investment 10,583 53 47,194 - - 47,247 Exercise of common stock options 49,125 246 202,723 - - 202,969 Net income for the year ended December 31, 1996 - - - 3,394,654 - 3,394,654 BALANCE AT DECEMBER 31, 1996 6,036,921 $ 30,185 $17,170,154 $ 5,104,457 $ (1,393,167) $20,911,629
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 Cash flows from operating activities: Cash received from customers $ 68,751,159 $ 49,673,144 $ 42,775,919 Cash paid to suppliers and employees (57,127,365) (44,715,078) (40,282,468) Interest received 546,369 491,749 313,128 Interest paid (2,665,921) (1,660,803) (803,054) Income taxes refunded (paid) (1,946,099) (1,870,727) 211,197 Net cash provided by operating activities 7,558,143 1,918,285 2,214,722 Cash flows from investing activities: Distributions from affiliates 1,783,687 505,410 382,229 Purchase of property and equipment (14,049,010) (12,539,148) (7,872,269) Purchase of minority investments (286,099) (332,800) (349,015) Acquisitions of partnership interests, net of cash acquired (580,809) 74,124 - Increase in notes receivable (4,236,968) (2,332,472) (1,568,266) Collections on notes receivable 4,874,859 1,385,615 961,041 Preopening and management contract costs (488,280) (316,926) (279,000) Proceeds from sale of assets 1,762,221 - - Proceeds from sale of investments - 55,000 25,000 Other (127,058) (5,000) (63,938) Net cash used in investing activities (11,347,457) (13,506,197) (8,764,218) Cash flows from financing activities: Proceeds from issuance of long-term debt 8,822,046 8,478,903 7,444,998 Principal payments on long-term debt (2,367,671) (724,709) (388,844) Proceeds from line of credit 12,433,212 4,461,182 1,290,000 Repayment on line of credit (13,042,824) (2,144,146) (1,290,000) (Decrease) increase in minority interest (197,000) (138,069) 634,036 Proceeds from issuance of common stock 202,969 - - Public offering not consummated (403,657) - - Net cash provided from financing activities 5,447,075 9,933,161 7,690,190 Net increase (decrease) in cash 1,657,761 (1,654,751) 1,140,694 Cash and cash equivalents, beginning of year 1,371,278 3,026,029 1,885,335 Cash and cash equivalents, end of year $ 3,029,039 $ 1,371,278 $ 3,026,029
AMERIHOST PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 Reconciliation of net income to net cash provided by operating activities: Net income $ 3,394,654 $ 2,138,092 $ 571,421 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,478,878 2,268,181 1,140,801 Equity in net (income) loss of affiliates and amortization of deferred income (809,443) (387,439) (31,511) Minority interests in net income of subsidiaries 385,444 59,173 146,070 Amortization of deferred interest and loan discount 39,760 39,760 36,822 Decrease (increase) in deferred tax asset, net of valuation allowance 212,000 104,000 (199,000) Compensation paid through issuance of common stock 30,210 212,843 98,832 (Gain) loss on sale of investments, property and equipment (1,279,349) 18,585 (24,572) Public offering not consummated 403,657 - - Write-off of note receivable - - 190,000 Changes in assets and liabilities, net of effects of acquisitions: (Increase) decrease in accounts receivable (1,797,183) (519,695) 72,554 (Increase) decrease in prepaid expenses and other current assets (107,006) 251,305 (197,373) Decrease (increase) in refundable income taxes 199,901 (230,530) 376,000 Decrease (increase) in costs and estimated earnings in excess of billings 1,817,620 (1,895,605) (907,658) Increase in other assets (604,246) (547,318) (467,661) Increase in accounts payable 1,506,912 471,881 278,059 (Decrease) increase in income taxes payable - (415,197) 415,197 Increase in accrued payroll and other accrued expenses and current liabilities 383,277 300,700 565,292 Increase in accrued interest 56,514 49,549 6,433 Increase in deferred income 246,543 - 145,016 Net cash provided by operating activities $ 7,558,143 $ 1,918,285 $ 2,214,722
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Organization: Chicagoland Concessions, Inc. (the "Company") was incorporated under the laws of Delaware on September 19, 1984, to operate concession stands in the Chicago metropolitan area. On September 19, 1985, the Company changed its name to America Pop, Inc. In December, 1986, the Company ceased its operations of all concession stand facilities and during 1987, repositioned itself into hotel/motel development, construction and ownership/operation. In order to more appropriately reflect the nature of the Company's business, on August 21, 1987, the Company changed its name to Amerihost Properties, Inc. Principles of consolidation: The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and partnerships in which the Company has a controlling ownership interest. Significant intercompany accounts and transactions have been eliminated. Construction accounting: Development fee revenue from construction/renovation projects is recognized using the percentage-of-completion method over the period beginning with the execution of contracts and ending with the commencement of construction/renovation. Construction fee revenue from construction/renovation projects is recognized on the percentage-of-completion method, generally based on the ratio of costs incurred to estimated total contract costs. Revenue from contract change orders is recognized to the extent costs incurred are recoverable. Profit recognition begins when construction reaches a progress level sufficient to estimate the probable outcome. Provision is made for anticipated future losses in full at the time they are identified. Cash equivalents: The Company considers all investments with an initial maturity of three months or less to be cash equivalents. Concentrations of credit risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments, accounts receivable and notes receivable. The Company invests temporary cash balances in financial instruments of highly rated financial institutions generally with maturities of less than three months. A substantial portion of accounts receivable are from hotels located in the midwestern United States, where collateral is generally not required, and from hotel operators for the development and construction of hotels pursuant to written contracts. Notes receivable are primarily from hotel operating entities generally located in the midwestern and southern United States, and two of the Company's officers. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Fair values of financial instruments: The carrying values reflected in the consolidated balance sheet at December 31, 1996 reasonably approximate the fair values for cash and cash equivalents, accounts and contracts receivable and payable, and variable rate long-term debt. The majority of the notes receivable are collateralized by shares of the Company's common stock, investments in hotels, a second mortgage on a hotel property, and personal guarantees. Construction/renovation and working capital notes are repaid to the Company within a relatively short period after their origination. The notes receivable bear interest at rates approximating the current market rates and the carrying value approximates their fair value. The Company estimates that the fair value of its fixed rate long-term debt at December 31, 1996 approximates the carrying value considering the property specific nature of the notes and in certain cases, the subordinated nature of the debt. In making such assessments, the Company considered the current rate at which the Company could borrow funds with similar remaining maturities and discounted cash flow analyses as appropriate. Investments: Investments in entities in which the Company has a non-controlling ownership interest, generally less than 50%, are accounted for using the equity method, under which method the original investment is increased (decreased) by the Company's share of earnings (losses), and is reduced by dividends or distributions when received. Property and equipment: Property and equipment are stated at cost. Repairs and maintenance are charged to expense as incurred and renewals and betterments are capitalized. Depreciation is being provided for assets placed in service, principally by use of the straight-line method over their estimated useful lives. Leasehold improvements are being amortized by use of the straight-line method over the term of the lease. Construction period interest in the amount of $167,433, $119,749 and $37,222 was capitalized in 1996, 1995 and 1994, respectively, and is included in property and equipment. For each classification of property and equipment, depreciable periods are as follows: Building 31.5-39 years Furniture, fixtures and equipment 5-7 years Leasehold improvements 3-10 years Costs of management contracts acquired: The costs of management contracts acquired includes amounts paid to acquire management contracts and pre-opening costs incurred in connection with new management contracts. These amounts are being amortized by use of the straight-line method over periods ranging from two to five years. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Other assets: Investment in leases: Investment in leases represents the amounts paid for the acquisition of leasehold interests for certain hotels. These costs are being amortized by use of the straight-line method over the terms of the leases. Deferred loan costs: Deferred loan costs represent the costs incurred in issuing the 7% subordinated notes and other mortgage notes. These costs are being amortized by use of the interest method over the life of the debt. Franchise fees: Franchise fees represent the initial franchise fees paid to franchisors for certain hotels and are being amortized by use of the straight-line method over the terms of the franchise licenses, ranging from 10 to 20 years. Deferred income: Deferred income represents that portion of development, construction and renovation fees earned from entities in which the Company holds an ownership interest, which is equal to the Company's proportional ownership interest in the entity. The balance of the fees are recorded in income as earned. The deferred income is being amortized over the life of the operating assets owned by the affiliated entity. Also included in deferred income is the unamortized portion of loan points collected from a loan made to an unaffiliated party in connection with the acquisition of management contracts. These are being amortized into interest income over the life of the loan (Note 2). Income taxes: Deferred income taxes are provided on the differences in the bases of the Company's assets and liabilities as determined for tax and financial reporting purposes. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Earnings per share: Earnings per share of common stock are computed by dividing net income by the weighted average number of shares of common stock and dilutive common stock equivalents. Common stock equivalents include stock options and warrants. The weighted average number of shares used in the computations of earnings per share were equal to 6,729,054, 6,124,750 and 5,624,478 for the years ended December 31, 1996, 1995 and 1994, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." The new statement simplifies the standards for computing earnings per share and requires the presentation of two new amounts, basic and diluted earnings per share. The Company will be required to retroactively adopt this standard when it reports its operating results for the fiscal quarters and year ending December 31, 1997. When the Company adopts SFAS No. 128, it expects to report the following restated amounts:
1996 1995 1994 Basic $ 0.57 $ 0.37 $ 0.10 Diluted $ 0.49 $ 0.34 $ 0.10
Advertising: The costs of advertising, promotion and marketing programs are charged to operations in the year incurred. These costs were approximately $686,000, $462,000 and $218,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statements and reported amounts of revenue and expenses during the reported periods. Actual results may differ from those estimates. Reclassifications: Certain reclassifications have been made to the 1994 and 1995 financial statements in order to conform to the 1996 presentation. 2. NOTES RECEIVABLE: Notes receivable consists of:
1996 1995 Advances to affiliated entities for working capital and construction purposes (a) $ 2,440,349 $ 1,917,289 Diversified Innkeepers, Inc. (b) 1,421,804 1,467,886 Mortgage note receivable (c) 1,396,627 - Hammond 490 Partnership (d) - 122,493 Euless, TX 1192 General Partnership (e) - 1,162,960 Other notes 80,000 158,000 5,338,780 4,828,628 Less current portion 1,507,276 1,965,048 Notes receivable, less current portion $ 3,831,504 $ 2,863,580
(a) The Company advances funds to hotels in which the Company has a minority ownership interest for working capital and construction purposes. The advances bear interest ranging from the prime rate to 10% per annum and are due on demand. The Company expects the partnerships to repay these advances through cash flow generated from hotel operations and mortgage financing. (b) In connection with the purchase of management contracts from Diversified Innkeepers, Inc. in 1991, the Company executed notes to provide financing to the shareholders of Diversified in the amount of $1,500,000, collateralized by 125,000 shares of the Company's common stock, a limited partnership interest in a hotel, a second mortgage on another hotel property, and a personal guarantee by the shareholders. The note provided for interest only payments to be made at the rate of 12% per annum for a period of two years ending January 1995. Beginning February 6, 1995, the note provided for monthly payments of principal and interest in accordance with a fifteen-year amortization schedule, with all remaining principal and accrued interest due on December 31, 1999. In October, 1995, the note was modified to reduce the interest rate to 10% per annum and extend the term to the earlier of the termination of the related management contracts or September 30, 2000. The monthly payments of principal and interest were also modified to $16,250 per month. In connection with the Diversified transaction, the Company also issued 125,000 stock options which were exercised in January 1993, in consideration for a secured promissory note in the amount of $436,875 with interest at 6.5% per annum. The total principal balance is due April 30, 1997, unless the stock is sold, and is collateralized by limited partnership interests. This note receivable has been classified as a reduction of shareholders' equity on the accompanying balance sheets. (c) Promissory note received in the amount of $1,400,000 in connection with the sale of the Days Inn Bowling Green, Ohio. The note provides for monthly payments of $15,040 including interest at the rate of 10% per annum, and a final balloon payment at maturity on October 6, 1998 of approximately $1.3 million. The note is collateralized by a mortgage on the Days Inn Bowling Green, Ohio. (d) In March 1996, the Company exchanged the note receivable for an additional 49% ownership interest in the Hammond, Indiana 490 Partnership. (e) In December 1996, the note was repaid in connection with the sale of the Company's partnership interest in the Euless, TX 1192 General Partnership. Officers In connection with the acquisition of seven management contracts in 1992, the Company received an $800,000 note receivable, collateralized by 165,784 shares of the Company's Common Stock. In 1993, the management contracts were terminated and the note receivable was revised to provide for maturity in April 1995. In addition, the Company received a $190,000 termination note receivable which was written off in 1994. In November 1994, the Company notified the noteholder of its intention to take the 165,784 shares of common stock in lieu of the $800,000 note and $156,292 in related receivables. Prior to taking possession of the stock, in December 1994, two of the Company's officers executed notes in the amount of $956,292 to the Company for the purchase of the note and related receivables, and the 165,784 shares of the Company's stock held as collateral. The officer notes provide for annual payments of interest only at 8% per annum, with the principal balance due December 31, 1997 and are collateralized by a total of 273,369 shares of the Company's Common Stock. The officers have the option to pay interest and principal with shares of the Company's Common Stock, whereby the number of shares offered must have a fair market value at time of payment equal to the amount then due. These notes receivable have been classified as a reduction of shareholders' equity on the accompanying balance sheets. 3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS: Information regarding contracts-in-progress is as follows at December 31, 1996 and 1995:
1996 1995 Costs incurred on uncompleted contracts $ 7,362,250 $ 3,637,650 Estimated earnings 2,434,673 2,360,089 9,796,923 5,997,739 Less billings to date 7,713,664 2,096,860 Costs and estimated earnings in excess of billings on uncompleted contracts $ 2,083,259 $ 3,900,879
4. INVESTMENTS: The Company has ownership interests, ranging from 5.0% to 50.0%, in general partnerships, limited partnerships and limited liability companies formed for the purpose of owning and operating hotels. These investments are accounted for using the equity method. The Company had investments in 44 hotels at December 31, 1996 with a total balance of $1,595,858, and investments in 33 hotels at December 31, 1995 with a total balance of $2,388,999. During 1996, the Company acquired additional partnership interests in two hotels for cash and the redemption of a note receivable from the seller. During 1995, the Company acquired additional partnership interests in five hotels for a total of 278,081 shares of the Company's common stock. The following is a summary of the acquisitions:
1996 1995 Fair value of assets acquired $ 3,459,301 $ 6,952,183 Cash and redemption of note receivable (547,558) - Issuance of common stock - (932,306) Liabilities assumed $ 2,911,743 $ 6,019,877
The following represents tax basis unaudited condensed financial information for all of the Company's investments in affiliated companies accounted for under the equity method at December 31, 1996, 1995 and 1994.
1996 1995 1994 Current assets $ 3,893,360 $ 3,135,884 $ 4,020,792 Noncurrent assets 86,363,804 55,760,025 55,480,430 Current liabilities 5,060,920 5,137,164 5,295,653 Noncurrent liabilities 64,218,232 39,676,033 42,329,384 Equity 20,978,012 14,082,712 11,876,185 Gross revenue 28,990,672 31,128,888 30,386,457 Gross operating profit 13,175,668 12,137,897 10,655,515 Depreciation and amortization 4,296,057 3,591,929 3,446,013 Net income (loss) 1,585,133 2,337,969 (412,375)
5. OTHER ASSETS: Other assets, net of accumulated amortization, at December 31, 1996 and 1995 are comprised of the following:
1996 1995 Deferred loan costs $ 728,866 $ 561,310 Franchise fees and other assets 1,167,221 1,131,007 Investment in leases 706,159 710,278 Deferred taxes (Note 11) 171,000 383,000 Total $ 2,773,246 $ 2,785,595
6. BANK LINES-OF-CREDIT: The Company has a $5,000,000 bank operating line-of-credit, of which $1,707,424 and $2,317,036 was outstanding at December 31, 1996 and 1995, respectively. The operating line-of-credit (i) is collateralized by a security interest in certain of the Company's assets, including its interests in various joint ventures; (ii) bears interest at an annual rate equal to the bank's base lending rate (8.25% at December 31, 1996) plus one-half of one percent with a floor of 7.5%; and (iii) matures May 1, 1997. The same bank providing the operating line-of-credit also provides a $7.5 million line-of-credit to be used for construction financing on hotel projects, of which $5.0 million must be used on contracts which have firm commitments for permanent mortgage financing when the construction is completed. Interest on the construction line-of-credit is payable at the bank's base lending rate plus one percent. There was no outstanding balance on the construction line-of-credit as of December 31, 1996 and 1995. 7. LONG-TERM DEBT: Long-term debt consists of:
1996 1995 Mortgage notes maturing 1998 through 2014, with a weighted average effective interest rate of 9.36% $ 31,407,030 $ 22,217,784 7% Subordinated Notes ($2,250,000 face amount) due October 1999, with an effective interest rate of 9%, net of unamortized discount of $124,830 2,125,170 2,079,777 Other notes and capitalized leases 807,108 716,767 34,339,308 25,014,328 Less current portion 1,554,200 1,042,847 $ 32,785,108 $ 23,971,481
The mortgage notes are collateralized by the related hotel properties, and in certain cases, have been guaranteed by the Company. The notes generally provide for monthly payments of principal and interest based on loan amortization schedules, with interest at fixed rates ranging from 7.25% to 10.5% (weighted average interest rate of 9.0% at December 31, 1996), and floating rates ranging from prime plus 0.5% to prime plus 2.25% (weighted average interest rate of 9.51% at December 31, 1996). Construction loans of $2,681,226 at December 31, 1996 provide for interest only during the construction period and convert to long-term permanent mortgage notes upon completion of the hotels. Construction loans of $2,330,545 at December 31, 1995 converted to permanent mortgage notes during 1996. The construction loans have been included in the mortgage note balances at December 31, 1996 and 1995. The aggregate maturities of long-term debt, excluding construction loans, are approximately as follows:
Year Ending December 31, Amount 1997 $ 1,554,000 1998 5,873,000 1999 8,225,000 2000 3,242,000 2001 3,637,000 Thereafter 9,127,000 $ 31,658,000
8. SHAREHOLDERS' EQUITY: Authorized shares: The Company's corporate charter authorizes 25,000,000 shares of Common Stock and 100,000 shares of Preferred Stock without par value. The Preferred Stock may be issued in series and the Board of Directors shall determine the voting powers, designations, preferences and relative participating optional or other special rights and the qualifications, limitations or restrictions thereof. Dividend restrictions: Pursuant to the terms of the Company's subordinated notes (Note 7), no dividends may be paid on any capital stock of the Company until such notes have been paid in full. Limited partnership conversion: The Company is a general partner in five partnerships where the limited partners have the right at certain times and under certain conditions to convert their limited partnership interests into 376,225 shares of the Company's common stock. The Company has also guaranteed minimum distributions to the limited partners based on a percentage of their original contribution ranging from 10% to 15%. 9. TAXES ON INCOME: The provisions for income taxes in the consolidated statements of income are as follows:
1996 1995 1994 Current $ 2,146,000 $ 1,225,000 $ 580,000 Deferred 212,000 220,000 (155,000) Valuation allowance decrease - (116,000) (44,000) Total taxes on income $ 2,358,000 $ 1,329,000 $ 381,000
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to a net deferred tax asset relate to the following:
1996 1995 Deferred income, recognized currently for tax purposes $ 244,000 $ 264,000 Property, primarily due to majority owned partnerships consolidated for financial reporting purposes but not for tax purposes 664,000 654,000 Gain from installment sale (121,000) - Accumulated depreciation differences (488,000) (407,000) 299,000 511,000 Valuation allowance (128,000) (128,000) $ 171,000 $ 383,000
The following reconciles income tax expense at the federal statutory tax rate with the effective rate:
1996 1995 1994 Income taxes at the federal statutory rate 34.0% 34.0% 34.0% State taxes, net of federal tax benefit 7.0% 7.6% 10.6% Decrease in valuation allowance - (3.3%) (4.6%) Effective tax rate 41.0% 38.3% 40.0%
10. RELATED PARTY TRANSACTIONS: The following table summarizes related party revenue from various unconsolidated partnerships in which the company has an ownership interest:
1996 1995 1994 Development/acquisition revenue $ 21,500,972 $ 9,316,810 $ 6,126,781 Renovation revenue - 83,925 519,626 Hotel management revenue 1,841,588 1,825,202 1,782,033 Employee leasing revenue 5,937,611 5,979,522 6,708,462
In January 1991, the Company entered into an agreement with Urban 2000 Corp. ("Urban"), a company owned by the Chairman and another Officer/Director of the Company who resigned in 1997. This agreement provided for monthly payments to Urban of $20,000 for business development consulting services. No additional amounts were paid to Urban for reimbursement of expenses. Consistent with its standard industry practice, the Company also paid additional fees for transactions brought to the Company by Urban. Urban received $206,154, $236,138, and $289,915 from the Company in 1996, 1995 and 1994, respectively, and also received $82,400 and $28,200 in 1995 and 1994, respectively in other transactional fees directly from partnerships in which the Company is a general partner. The Chairman was not compensated by the Company in his capacity as an officer. As of January 31, 1997, the Company and Urban agreed to terminate this consulting agreement. Also in January 1997, an officer resigned resulting in the termination of his employment agreement (Note 13). In connection with the termination of these agreements, the Company will recognize approximately $1.7 million in related termination and severance costs in the first quarter of 1997. 11. BUSINESS SEGMENTS: The Company's business is primarily involved in four segments: (1) hotel operations, consisting of the operations of all hotels in which the Company has a controlling ownership or leasehold interest, (2) hotel development, consisting of development, construction and renovation activities, (3) hotel management, consisting of hotel management activities and (4) employee leasing, consisting of the leasing of employees to various hotels. Results of operations of the Company's business segments are reported in the consolidated statements of operations. The following represents revenues, operating costs and expenses, operating income, identifiable assets, capital expenditures and depreciation and amortization for each business segment:
Revenues 1996 1995 1994 Hotel operations $ 30,615,291 $ 24,359,999 $ 15,428,022 Hotel development 22,937,267 12,238,128 12,036,918 Hotel management 2,784,031 3,010,935 2,711,637 Employee leasing 12,005,759 12,353,355 13,169,942 $ 68,342,348 $ 51,962,417 $ 43,346,519 Operating costs and expenses 1996 1995 1994 Hotel operations $ 21,088,806 $ 17,065,041 $ 10,457,154 Hotel development 19,651,500 10,117,782 11,315,973 Hotel management 1,930,229 2,003,310 2,288,765 Employee leasing 11,689,461 12,131,262 13,014,542 $ 54,359,996 $ 41,317,395 $ 37,076,434 Operating income Hotel operations $ 4,385,720 $ 3,359,383 $ 2,455,221 Hotel development 3,217,224 2,091,480 711,032 Hotel management 571,680 831,007 250,118 Employee leasing 309,805 216,075 149,305 Corporate (2,030,965) (2,208,197) (2,110,005) $ 6,453,464 $ 4,289,748 $ 1,455,671 Identifiable assets Hotel operations $ 55,456,702 $ 41,835,019 $ 25,056,800 Hotel development 6,228,166 5,447,715 2,583,355 Hotel management 1,640,692 1,163,671 1,082,978 Employee leasing 1,169,755 825,468 690,265 Corporate 2,405,841 3,181,429 4,990,184 $ 66,901,156 $ 52,453,302 $ 34,403,582 Capital Expenditures Hotel operations $ 13,856,662 $ 12,065,286 $ 7,804,040 Hotel development 57,036 377,296 4,572 Hotel management 62,756 29,634 29,582 Employee leasing 4,956 1,602 6,461 Corporate 67,600 65,330 27,614 $ 14,049,010 $ 12,539,148 $ 7,872,269 Depreciation/Amortization Hotel operations $ 3,018,890 $ 1,959,421 $ 854,743 Hotel development 68,545 28,866 9,915 Hotel management 282,121 176,618 172,753 Employee leasing 6,493 6,018 6,095 Corporate 102,829 97,258 97,295 $ 3,478,878 $ 2,268,181 $ 1,140,801
12. STOCK OPTIONS AND WARRANTS: In August 1996, the Company adopted the 1996 Omnibus Incentive Stock Plan for key employees and the 1996 Stock Option Plan for Nonemployee Directors. For each fiscal year, the Company shall reserve for issuance under the 1996 Omnibus Incentive Stock Plan 3% of the average Common Stock outstanding used to compute fully diluted earnings per share for the preceding fiscal year. A total of 50,000 shares of Common Stock has been reserved for issuance under the 1996 Stock Option Plan for Nonemployee Directors. As of December 31, 1996, no options have been issued under the 1996 Omnibus Incentive Stock Plan and options to purchase 2,000 shares of Common Stock have been issued under the 1996 Stock Option Plan for Nonemployee Directors. On January 2, 1992, the Board of Directors authorized the issuance of 200,000 stock options expiring January 2, 1997 to certain employees of the Company. Prior to expiration, 185,000 of these options were exercised in 1997 at a price of $3.00 per share, with the remaining 15,000 options forfeited. On June 1, 1992, the Board of Directors authorized the issuance of 103,125 stock options to Urban and a former director in connection with loans made to the Company. These options are exercisable at any time prior to October 9, 1999 at an option price of $4.375 per share. The shares issued upon exercise of these options will be Rule 144 restricted common stock. On February 12, 1992, in connection with a financial advisory agreement executed in 1992 with a former director, the Board of Directors authorized the issuance of 75,000 stock options at an option price of $3.521 per share which were exercised in 1997. The option holder has the right to require the Company to file a registration statement with the Securities and Exchange Commission to register the shares. In connection with the execution of the subordinated notes (Note 7), the Company issued options to purchase a total of 1,687,500 shares at a price of $4.00 per share, all of which have been exercised as of December 31, 1996. On December 16, 1992, the Board of Directors authorized the issuance of 268,750 stock options to certain employees of the Company, exercisable at any time through September 16, 1997. Options to purchase 53,750 shares are exercisable at a price of $5.00 and options to purchase 215,000 shares are exercisable at a price of $6.00. These options are fully vested at December 31, 1996 and, except for 12,500 shares, all of the shares issued in connection with these options will be registered. On March 22, 1993, the Board of Directors authorized the issuance of 40,419 stock options to certain shareholders who executed agreements not to sell their shares of common stock in connection with a public offering completed by the Company in May 1993. During 1996, 2,250 options were exercised. The remaining 38,169 options are exercisable through March 22, 1998, at an exercise price of $6.875. On October 5, 1994, the Board of Directors authorized the issuance of 150,000 stock options to certain employees of the Company, exercisable through October 5, 2004, at an option price of $4.125 per share. The shares issued upon exercise of these options will be registered. On October 5, 1994, the Board of Directors authorized the issuance of 33,500 stock options to certain employees of the Company. These options are exercisable through October 5, 1999, at an option price of $4.75 per share. Except for 2,500 shares, the shares issued upon exercise of these options will be registered. On January 1, 1995, the Board of Directors authorized the issuance of 620,000 stock options to officers of the Company. As of December 31, 1996, 370,000 options were vested, with the remaining 250,000 options vesting January 1, 1997. The options are exercisable at a price of $3.5625, expiring January 1, 2005 through January 1, 2007. Except for 120,000 shares, the shares issued upon exercise of these options will be registered. On January 1, 1995, the Board of Directors authorized the issuance of 20,000 stock options to a co-partner in seven of the Company's hotel investments, exercisable through January 1, 1998 at an option price of $7.125 per share. The shares issued upon exercise of these options will be Rule 144 restricted common stock. On January 6, 1995, the Board of Directors authorized the issuance of 10,000 stock options to a co-partner in four of the Company's hotel investments, exercisable through January 6, 2000, at an option price of $3.56 per share. The shares issued upon exercise of these options will be Rule 144 restricted common stock. On September 27, 1995, the Board of Directors authorized the issuance of 134,000 stock options, net of subsequent forfeitures, to certain employees of the Company exercisable through September 27, 2005 at a price of $6.375 per share. At December 31, 1996, 92,500 options are vested, with the remaining 41,500 options vesting on September 27, 1997. Except for 6,500 shares, the shares issued upon exercise of these options will be registered. On December 1, 1995, the Board of Directors authorized the issuance of 133,333 stock options to certain employees of the Company, exercisable through December 1, 2005, at an option price of $6.50 per share. The shares issued upon exercise of these options will be registered. On January 17, 1996, the Board of Directors authorized the issuance of 30,000 stock options to co-partners in one of the Company's hotel investments, exercisable through January 17, 2001, at an option price of $6.125 per share. The shares issued upon exercise of these options will be Rule 144 restricted common stock. On April 26, 1996, the Board of Directors authorized the issuance of 30,000 stock options to co-partners in two of the Company's hotel investments, exercisable through April 26, 2001, at option prices of $6.625 and $8.00 per share. The shares issued upon exercise of these options will be Rule 144 restricted common stock. On August 30, 1996, the Board of Directors authorized the issuance of 2,000 stock options to outside directors pursuant to the 1996 Stock Option Plan for Nonemployee Directors. The options vest on August 30, 1997 and are exercisable through August 30, 2006, at an option price of $7.8125 per share. The shares issued upon exercise of these options will be registered. The following table summarizes the options granted, exercised and outstanding:
Wtd Avg Shares Exercise Price Options outstanding January 1, 1994 734,169 $ 4.55 Options granted 183,500 4.24 Options outstanding December 31, 1994 917,669 4.49 Options granted to employees 898,833 4.45 Options granted to nonemployees 30,000 5.94 Options outstanding December 31, 1995 1,846,502 4.49 Options exercised (49,125) 4.13 Forfeitures (11,500) 6.38 Options granted to nonemployees 62,000 6.75 Options outstanding December 31, 1996 1,847,877 $ 4.57 Options exercisable December 31, 1996 1,554,377 $ 4.68
The Company applies APB No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for options granted to employees. Under APB Opinion 25, because the exercise price of the options equals the market price of the underlying stock on the measurement date, no compensation expense is recognized. The weighted-average grant-date fair value of stock options granted to employees during the year and the weighted-average significant assumptions used to determine those fair values, using a modified Black-Sholes option pricing model, and the pro forma effect on earnings of the fair value accounting for employee stock options under Statement of Financial Accounting Standards No. 123 are as follows:
1996 1995 Grant-date fair value per share $ n/a $ 2.85 Significant assumptions (weighted-average) Risk-free interest rate at grant date n/a 5.51% Expected stock price volatility n/a 62.0% Expected dividend payout n/a - Expected option life (years) (a) n/a 2.50 Net income As reported $ 3,394,654 $ 2,138,092 Pro forma 2,994,790 1,514,818 Net income per share As reported $ 0.50 $ 0.35 Pro forma 0.45 0.25 (a) The expected option life considers historical option exercise patterns and future changes to those exercise patterns anticipated at the date of grant.
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable Number Wtd Avg Number Range of Outstanding Remaining Wtd Avg Exercisable Wtd Avg Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price $ 3.00 to 4.75 1,191,625 6.08 Years $ 3.64 941,625 $ 3.66 $ 5.00 to 8.00 656,252 4.59 6.25 612,752 6.24 $ 3.00 to 8.00 1,847,877 5.55 $ 4.57 1,554,377 $ 4.68
The Company issued 5,555, 60,450, and 32,246 shares of Common Stock to employees in 1996, 1995 and 1994, respectively, as incentive bonuses. The Company recognized compensation expense of $30,210, $212,843, and $98,832 in 1996, 1995, and 1994. 13. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: Office lease: The Company entered into an operating lease for its existing office facilities which expires December 2000. The Company may cancel the lease effective December 1, 1998 with a 180-day notice and a cancellation penalty payment of approximately $71,000. Rent expense, including real estate taxes, insurance and repair costs associated with the operating lease was approximately $200,000, $181,000 and $145,000 in 1996, 1995 and 1994, respectively. Total future minimum rent due under the operating lease is approximately as follows:
Year ending December 31, Amount 1997 $ 201,000 1998 205,000 1999 209,000 2000 214,000 $ 829,000
Hotel leases: The Company, through its subsidiaries and consolidated partnerships, leases nine hotels, the operations of which are included in the Company's consolidated financial statements. The terms of these leases are described as follows: The Company leases or sub-leases four Days Inn hotels located in Schiller Park, Shorewood, and Niles, Illinois and Portage, Indiana from four partnerships which currently own the hotels or lease the hotels from unrelated third parties. The Company owns an equity interest in these partnerships, ranging from 5% to 16.33%. The leases and sub-leases are triple net leases and provide for monthly base rent payments ranging from $9,500 to $33,028, plus additional rent payments ranging from zero to $72,000 per annum, plus percentage rents equal to 5% of room revenues in excess of stipulated amounts. The leases and sub-leases expire December 31, 1999. In July 1992, the Company entered into a triple net lease agreement for a Holiday Inn in Menomonee Falls, Wisconsin. The lease was revised effective November 1, 1996 eliminating the monthly lease payment and providing for termination as of March 28, 1997. The rent payments prior to the revision were based upon percentages of gross room revenues ranging from 15% to 20%, with a monthly minimum of $14,583. The Company entered into an agreement to lease a Ramada Inn hotel in Lafayette, Indiana, effective August 1, 1996, replacing an existing lease agreement. The new lease provides for monthly lease payments of $21,617, and expires August 31, 2003. The Days Inn Findlay operates under a triple net lease calling for payments of $7,500 per month expiring March 31, 1996. The Company exercised its five year renewal option, extending the termination date to March 31, 2001. The lease provides for monthly payments of $8,500 for the first three years of the renewal term, increasing to $10,000 for the final two years, plus additional rent payments of 5% of annual guest room revenues in excess of $750,000. On January 1, 1995, the Days Inn Dayton amended its triple net lease providing for an additional term of ten years expiring December 31, 2004. The lease provides for monthly payments ranging from $17,000 to $23,000 through December 31, 1998. Beginning in 1999, monthly payments are the greater of $23,000 or 15% of room revenue. The Company has agreed to guarantee the hotel's performance under the lease up to $50,000. The Days Inn New Philadelphia operates under a triple net lease expiring June 3, 1997 which provides for minimum monthly payments of $6,000, plus additional rent of 12.5% of annual gross room revenue in excess of $550,000. All of the aforementioned hotel leases provide for an option to purchase the hotel. Some of the purchase prices are based upon a multiple of gross room revenues for the preceding twelve months with a specified maximum, and the others are based on a fixed amount. At December 31, 1996, the aggregate purchase price for these leased hotels was approximately $23,355,000, excluding the hotel lease which was terminated as of March 28, 1997. Minimum rent payments under hotel leases are as follows:
Year Ending December 31, Amount 1997 $ 1,747,000 1998 1,735,000 1999 1,749,000 2000 655,000 2001 565,000 Thereafter 1,260,000 $ 7,711,000
Guarantees: The Company has provided approximately $30.2 million in guarantees as of December 31, 1996 on mortgage loan obligations for 23 of its affiliated partnerships. Other partners have also guaranteed portions of the same obligations. The partners of two of the partnerships have entered into cross indemnity agreements whereby each partner has agreed to indemnify the others for any payments made by any partner in relation to these guarantees in excess of their ownership interest. The Company is secondarily liable for the obligations and liabilities of the limited partnerships and limited liability corporations in which it holds a general partnership or managing member ownership interest as described in Note 4. Construction in progress: At December 31, 1996, the Company had approximately $17.0 million remaining to pay contractors for the construction of 27 hotels, a portion of which is included in accounts payable. These commitments will be funded through construction and long-term mortgage financing currently in place. Employment agreements: The Company entered into three year employment agreements with three executive officers expiring December 31, 1997, one of which includes an automatic three year renewal option. One of the executive officers resigned in January 1997, resulting in the termination of his employment agreement (Note 10). The remaining two agreements were amended in January 1997 to provide for (i) a one year extension until December 31, 1998 for the executive officer whose contract does not provide for automatic renewal; (ii) annual base salaries totaling $490,000; and (iii) options to purchase 65,625 shares of common stock to be issued in 1997 in lieu of common stock awards as provided in the original agreements. The employment agreements provide for cash bonuses to be determined annually by the compensation committee of the Board of Directors, stock options and severance pay should the officer be terminated without cause. Legal matters: The Company and certain of its subsidiaries are defendants in various litigation matters arising in the ordinary course of business. In the opinion of management, the ultimate resolution of all such litigation matters is not likely to have a material effect on the Company's financial condition, results of operation or liquidity. 14. SUPPLEMENTAL CASH FLOW DATA: The following represents the supplemental schedule of noncash investing and financing activities for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994 Purchase of investments and other assets through issuance of common stock, assumption and issuance of notes payable, and reduction of notes receivable $ 549,556 $ 1,010,188 $ 369,571 Reduction of notes receivable and related interest in exchange for common stock $ 52,860 Exchange of limited partnership interests and note receivable $ 90,000 Reduction of accounts and note payable through issuance of common stock and warrants $ 233,351 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED): The following table summarizes the unaudited quarterly financial data (in thousands, except per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter Year Ended December 31, 1996 Revenues $ 12,645 $ 19,818 $ 19,309 $ 16,571 Operating income 160 2,358 3,171 764 Net income (loss) (148) 1,380 2,027 136 Net income (loss) per common share $ (0.02) $ 0.20 $ 0.30 $ 0.01 Year Ended December 31, 1995 Revenues $ 13,157 $ 12,287 $ 14,526 $ 11,992 Operating income (loss) (207) 1,557 2,726 214 Net income (loss) (284) 844 1,564 14 Net income (loss) per common share $ (0.05) $ 0.14 $ 0.25 $ -
During the fourth quarter of 1996, the Company expensed approximately $404,000 in costs associated with a public offering of the Company's Common Stock which was not consummated. EX-10.7 2 TERMINATION AGREEMENT This Termination Agreement ("Agreement") is made and entered into as of the 31st day of January, 1997 by and among Amerihost Properties, Inc. (the "Company"), Urban 2000 Corp., a Delaware corporation ("Urban") and H. Andrew Torchia ("Torchia"). WHEREAS, on January 1, 1994, the Company and Urban entered into a Consulting Agreement (the "Consulting Agreement"), pursuant to which Urban has provided consulting services to the Company; WHEREAS, Torchia is a principal and a controlling shareholder of Urban; WHEREAS, Torchia is currently the Chairman of the Company's Board of Directors and has served as a director and officer of various subsidiaries of the Company; WHEREAS, effective as of the date hereof, Urban and the Company each desire to terminate the Consulting Agreement and settle fully and finally all matters relating thereto; WHEREAS, Torchia and the Company desire that Torchia shall continue to serve as a director of the Company and as the Chairman of the Company's Board of Directors, and as a director and Chairman of the Board of Directors of various subsidiaries of the Company, subject to the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises and mutual covenants and agreements of the parties herein contained, the parties agree as follows: 1. Payments. In connection with the termination of the Consulting Agreement and any agreements and understandings relating to Torchia's employment by, and service as a director to, the subsidiaries of the Company, and in lieu of all other amounts to which Urban or Torchia may be entitled, the Company hereby agrees to make the following payments to Urban on the terms provided herein: (a) the Company shall pay to Urban an amount equal to $1,147,266, by wire transfer to an account designated by Urban; (b) the Company shall pay to Urban an amount equal to $125,350, representing commissions owed by the Company to Urban with respect to transactions closed and funded prior to the date hereof; (c) in the event that the currently pending Whitewater, Wisconsin transaction ("Whitewater") is signed and funded by Benenson, the Company's joint venture partner, on or before April 29, 1997, the Company will pay to Urban an amount equal to $90,575, representing Urban's commissions and a residual buyout relating thereto; provided, however, that in the event that Whitewater is not closed and funded by Benenson on or before April 29, 1997, no commission or additional payment will be due to Urban; provided, further, however, that if the Company consummates Whitewater as a wholly- owned hotel or as a joint venture with a different joint partner identified by the Company, in which case the Company will pay to Urban an amount equal to $25,000, representing Urban's commissions relating thereto (there being no residual buyout payment due); (d) the amount, if any, to be paid pursuant to Section 1(c) shall be paid to Urban by wire transfer to Urban's account as designated under Section 1(a) hereof or to such other account as otherwise directed by Torchia within ten (10) days following the closing of the applicable transaction. 2. Termination of Consulting Agreement. Urban and the Company hereby agree that, as of the date hereof, the Consulting Agreement, and any other agreements and understandings relating to Urban's provisions of consulting or other services to the Company, or the Company's providing assets or services to Urban, shall be and hereby are terminated. 3. Return of Company Property. As soon as practicable on or following the date hereof, Urban shall return to the Company all items belonging to the Company, including, without limitation, all records and other documents obtained by it or entrusted to it during the course of the Consulting Agreement. 4. Torchia's Position With the Company. Provided that Torchia (i) continues to beneficially own at least 50% of the shares of the Company's stock which he presently owns, either directly or indirectly, and (ii) does not become employed by, serve as an officer or director of, provide assets or services to, or own a 5% or greater interest in, any business or company that is in direct conflict with the business of the Company, the intent of the parties is that Torchia shall be nominated for election to the Board of Directors at the Company's annual stockholder meetings in 1997, 1998 and 1999, and to cause Torchia to maintain his position as the Chairman of the Company's Board of Directors for a minimum of one year from the date hereof. The Company shall continue to provide to Torchia health, disability and life insurance on the basis provided to other officers of the Company for as long as Torchia is the Chairman of the Company's Board of Directors. 5. Confidential Information. (a) Urban hereby acknowledges that during the term of the Consulting Agreement and through Urban's relationships with the Company and its subsidiaries and affiliates, Urban has had access to certain confidential information, including, but not limited to, know-how, processes, technology, trade secrets, and the like concerning the business, customers, suppliers and relationships of the Company which are not generally known outside the Company ("Confidential Information"). Confidential Information shall not include any of the above information which has become publicly known other than through a breach of this Agreement or through a breach of another party's obligation of confidentiality to the Company. (b) Urban further acknowledges that the Confidential Information is of great value to the Company and if misused by Urban or allowed to be used by Urban for or on behalf of a competitor of the Company would cause the Company irreparable loss and damage, the extent of which will be substantial but may not be readily capable of determination. (c) Accordingly, Urban agrees to not, without prior written consent of the Company, directly or indirectly, use, divulge or make accessible to any person any Confidential Information at any time, except as may be required by law or regulation, or in response to a request or demand of a governmental agency or self-regulatory organization. 6. Release. Each of Urban and Torchia, on behalf of itself or himself and any and all of his heirs, executors or administrators, and any and all of its or his agents, representatives and assigns on one hand, and the Company, on behalf of itself and any and all of its agents, representatives and assigns on the other, hereby voluntarily and knowingly forever releases, waives and discharges the other, its successors, assigns, affiliates, directors, officers, employees, agents and representatives, from any and all claims, controversies, actions, causes of action, demands, debts, liens, contracts, agreements, promises, representations, torts, damages, costs, attorney's fees, monies due or accounts, obligations, judgments or liabilities of any nature whatsoever in law or equity, whether or not now or heretofore known, suspected or claimed, arising out of or otherwise related to the Consulting Agreement or Torchia's employment by the Company or subsidiaries or affiliates of the Company, if any, or the termination thereof, except for (i) claims arising out of Torchia's status as a shareholder of the Company after the date of this Agreement and (ii) the obligations set forth in this Agreement. Each of Urban and Torchia, on the one hand, and the Company, on the other, further agrees not to voluntarily aid or abet any individual asserting a claim against the other or threatening or instituting a charge or lawsuit against the other with respect to such subject matter. Each party hereto acknowledges and agrees that this release is an essential and material term of the Agreement and that without such release no agreement would have been reached by the parties hereto. 7. Acknowledgment. Each of Urban and Torchia acknowledges that it or he has carefully read this Agreement and fully understands all of the provisions contained herein, and that it or he knowingly, voluntarily, and willfully enters into this Agreement. 8. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: President Amerihost Properties, Inc. 2400 East Devon Avenue Suite 280 Des Plaines, IL 60018 with a copy to: Helen R. Friedli, P.C. McDermott, Will & Emery 227 W. Monroe Street Chicago, IL 60606 (ii) if to Urban or Torchia to: Urban 2000 Corp. 2400 East Devon Avenue Suite 204 Des Plaines, IL 60018 Any party may change its address for notice hereunder by notice to the other party hereto. 9. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 10. Amendments and Waivers. This Agreement may be amended, superseded, cancelled or renewed, and the terms and conditions hereof may be waived, only by a written instrument signed by all of the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 11. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of Illinois applicable to agreements made and to be performed entirely within such State. 12. Successors. This Agreement shall not be assignable by any party without the prior written consent of the other parties otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be binding upon Torchia's legal representatives and Urban's successors and assigns. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 13. Counterparts. This Agreement may be executed in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. * * * * * * * * * * * * * * * IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TORCHIA URBAN 2000 CORP. By: H. Andrew Torchia H. Andrew Torchia President AMERIHOST PROPERTIES, INC. By: Michael P. Holtz President and Chief Executive Officer EX-10.8 3 RESIGNATION AGREEMENT This Resignation Agreement ("Agreement") is made and entered into as of the 31st day of January, 1997 by and between Amerihost Properties, Inc. (the "Company") and Richard A. D'Onofrio ("D'Onofrio"). WHEREAS, on April 7, 1995 the Company and D'Onofrio entered into an Employment Agreement, (the "Employment Agreement"), pursuant to which D'Onofrio has served as the Executive Vice President of the Company; WHEREAS, D'Onofrio has been a director of the Company since the Company's inception in 1984 and has served as a director and officer of various subsidiaries of the Company; WHEREAS, effective as of the date hereof, D'Onofrio desires to resign from his positions as an officer and director of the Company and its subsidiaries and affiliates and D'Onofrio and the Company each desire to terminate the Employment Agreement and settle fully and finally all matters relating thereto; WHEREAS, as used herein, the "Company" shall include Amerihost Properties, Inc. and all of its subsidiaries and affiliates; NOW THEREFORE, in consideration of the premises and mutual covenants and agreements of the parties herein contained, the parties agree as follows: 1. Payments. In connection with the termination of the Employment Agreement and any other agreements and understandings relating to D'Onofrio's employment by, and service as a director to, the Company, and in lieu of all other amounts to which D'Onofrio may be entitled, the Company hereby agrees to make the following payments to D'Onofrio, on the terms provided herein: (a) the Company shall pay to D'Onofrio, on February, 14, 1997, an amount equal to (x) $195,000 (representing one year's salary and bonus), less (y) (i) any and all appropriate state and federal tax withholding and (ii) the amount of all indebtedness D'Onofrio owes to the Company, plus all accrued interest thereon; (b) the Company shall continue to pay to D'Onofrio $7,500 bi-weekly through December 31, 1997; (c) the Company will continue to pay D'Onofrio's health insurance premiums through December 31, 1997 pursuant to the terms of the Employment Agreement; and (d) the Company will continue to maintain a voice mail box for D'Onofrio until April 30, 1997. 2. Termination of Employment Agreement. D'Onofrio and the Company hereby agree that, as of the date hereof, the Employment Agreement, and any other agreements and understandings relating to D'Onofrio's employment by, and service as a director to, the Company, shall be and hereby are terminated. D'Onofrio hereby acknowledges in particular that, in connection with the termination of the Employment Agreement, (i) the Company will pay no more premiums on the $1.0 million life insurance policy on D'Onofrio's life and (ii) the monthly auto allowance provided by the Company to D'Onofrio will be terminated immediately. 3. Return of Company Property. As soon as practicable following the date hereof, D'Onofrio shall return to the Company all items belonging to the Company, including, without limitation, all records and other documents obtained by him or entrusted to him during the course of his employment with the Company, together with all copies thereof, all office equipment, keys and credit cards, and shall pay the Company any amount owed by him to it (whether pursuant to Section 1(a) or otherwise). Additionally, as soon as practicable following the date hereof, and in no event later than February 19, 1997, D'Onofrio shall notify the proper entities to cause all cellular telephone services currently provided to him by the Company to be transferred into D'Onofrio's name and to become his sole responsibility. D'Onofrio shall reimburse the Company for all amounts paid from and after January 29, 1997 with respect to such cellular telephone services used by D'Onofrio. 4. Confidential Information. (a) D'Onofrio hereby acknowledges that during the term of the Employment Agreement and through D'Onofrio's relationships with the Company and its subsidiaries and affiliates, D'Onofrio has had access to certain confidential information, including, but not limited to, know-how, processes, technology, trade secrets, and the like concerning the business, customers, suppliers and relationships of the Company which are not generally known outside the Company ("Confidential Information"). Confidential Information shall not include any of the above information which has become publicly known other than through a breach of this Agreement or through a breach of another party's obligation of confidentiality to the Company. (b) D'Onofrio further acknowledges that the Confidential Information is of great value to the Company and if misused by D'Onofrio or allowed to be used by D'Onofrio for or on behalf of a competitor of the Company would cause the Company irreparable loss and damage, the extent of which will be substantial but may not be readily capable of determination. (c) Accordingly, D'Onofrio agrees to not, without prior written consent of the Company, directly or indirectly, use, divulge or make accessible to any person any Confidential Information at any time, except as may be required by law or regulation, or in response to a request or demand of a governmental agency or self-regulatory organization. 5. D'Onofrio Release. (a) D'Onofrio, on behalf of himself, his heirs, executors, attorneys, administrators, successors and assigns, hereby fully and forever releases and discharges the Company and each of its related entities and each of their partners, principals, members, shareholders, directors, officers, trustees, employees, contractors, consultants, agents and attorneys, past, present and future, and all predecessors, successors and assigns thereof ("Released Parties") from any and all claims, demands, agreements, actions, suits, causes of action, damages, injunctions, restraints and liabilities, of whatever kind or nature, in law, equity or otherwise, whether now known or unknown or which have ever existed or which may now exist (except to enforce the terms of this Agreement), including, but not limited to, any and all claims, liabilities, demands or causes of action relating to or arising out of D'Onofrio's recruitment, hiring, employment, or separation from employment, such as claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq., 42 U.S.C. Section 1981, the federal and state (including, without limitation Illinois) statutes or common law, or claims for breach of contract for misrepresentation, negligence, invasion of privacy, for violation of any other federal, state or local statute, ordinance or regulation or common law dealing in any respect with discrimination in employment or otherwise, defamation, infliction of emotional distress or any other tort under the common law of any state or for attorneys' fees. D'ONOFRIO SPECIFICALLY WAIVES AND RELEASES THE RELEASED PARTIES FROM ALL CLAIMS HE MAY HAVE AS OF THE DATE HE SIGNS THIS AGREEMENT REGARDING CLAIMS OR RIGHTS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, 29 U.S.C. Section 621 ("ADEA"). (b) The following provisions are applicable to and made a part of this Agreement and the foregoing releases and waivers: (1) D'Onofrio does not release or waive any right or claim which he may have under the ADEA, as amended by the Older Workers Benefits Protection Act, which arises after the date of execution of this Agreement. (2) In exchange for this general release and waiver hereunder, D'Onofrio hereby acknowledges that he has received separate consideration beyond that which he is otherwise entitled to under the Employment Agreement, Company policy or applicable law. (3) The Company has previously advised, and does hereby expressly advise, D'Onofrio to consult with an attorney of his choosing prior to executing this Agreement which contains a general release and waiver. (c) To the maximum extent permitted by law, D'Onofrio covenants not to sue or to institute or cause to be instituted any kind of claim or action (except to enforce this Agreement) in any federal, state or local agency or court against any of the Released Parties arising out of, in the course of, from or attributable to his employment by the Company or his separation from the Company. D'Onofrio acknowledges and agrees that the release and covenant not to sue are essential and material terms of this Agreement and that, without such release and covenant not to sue, no agreement would have been reached by the parties. D'Onofrio understands and acknowledges the significance and consequences of this release and this Agreement. (d) D'Onofrio warrants and represents that he has neither made nor suffered to be made any assignment or transfer of any right, claim, demand or cause of action covered by the above release or covenant not to sue and that D'Onofrio is the sole and absolute owner of all thereof and that D'Onofrio has not filed or suffered to be filed on his behalf any claim, action, demand or other matter of any kind covered by the above release or covenant not to sue as of the date and time of the execution of this Agreement. D'Onofrio also warrants and represents that he knows of no other or further claim under any statute or common law, including without limitation the Workers' Compensation law, against Employer. (e) D'Onofrio agrees that neither this Agreement nor performance hereunder constitutes an admission by Company of any violation of any federal, state or local law, regulation, common law, of any breach of any contract or any other wrongdoing of any type. 6. Company Release. (a) The Company, on behalf of itself, its agents, representatives and assigns hereby fully and forever releases and discharges D'Onofrio, his heirs, executors, attorneys, administrators, successors and assigns, ("D'Onofrio Released Parties") from any and all claims, demands, agreements, actions, suits, causes of action, damages, injunctions, restraints and liabilities, of whatever kind or nature, in law, equity or otherwise, whether now known or unknown or which have ever existed or which may now exist (except to enforce the terms of this Agreement), including, but not limited to, any and all claims, liabilities, demands or causes of action relating to or arising out of D'Onofrio's recruitment, hiring, employment, or separation from employment. (b) To the maximum extent permitted by law, the Company covenants not to sue or to institute or cause to be instituted any kind of claim or action (except to enforce this Agreement) in any federal, state or local agency or court against any of the D'Onofrio Released Parties arising out of, in the course of, from or attributable to D'Onofrio's employment by the Company or his separation from the Company. The Company acknowledges and agrees that the release and covenant not to sue are essential and material terms of this Agreement and that, without such release and covenant not to sue, no agreement would have been reached by the parties. The Company understands and acknowledges the significance and consequences of this release and this Agreement. (c) The Company warrants and represents that it has neither made nor suffered to be made any assignment or transfer of any right, claim, demand or cause of action covered by the above release or covenant not to sue and that the Company is the sole and absolute owner of all thereof and that the Company has not filed or suffered to be filed on its behalf any claim, action, demand or other matter of any kind covered by the above release or covenant not to sue as of the date and time of the execution of this Agreement. (d) The Company agrees that neither this Agreement nor performance hereunder constitutes an admission by D'Onofrio of any violation of any federal, state or local law, regulation, common law, of any breach of any contract or any other wrongdoing of any type. 7. Acknowledgment. D'Onofrio acknowledges that he has carefully read this Agreement and fully understands all of the provisions contained herein, and that he knowingly, voluntarily, and willfully enters into this Agreement. 8. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: President Amerihost Properties, Inc. 2400 East Devon Avenue Suite 280 Des Plaines, IL 60018 with a copy to: Helen R. Friedli, P.C. McDermott, Will & Emery 227 W. Monroe Street Chicago, IL 60606 (ii) if to D'Onofrio to: Richard A. D'Onofrio 505 N. Lake Shore Drive #1516 Chicago, IL 60611 Any party may change its address for notice hereunder by notice to the other party hereto. 9. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 10. Amendments and Waivers. This Agreement may be amended, superseded, cancelled or renewed, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 11. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Illinois. D'Onofrio hereby submits to the jurisdiction of any court (state or federal) sitting in the County of Cook, State of Illinois for the purpose of any lawsuit concerning the construction or enforcement of this Agreement and further agrees he will neither file nor seek to have any lawsuit removed or transferred to any other forum. In the event that any clause, Section or subsection of this Agreement shall be determined to be contrary to governing law or otherwise unenforceable, all portions of this Agreement shall be enforced to the maximum extent permitted by law. 12. Successors. This Agreement is personal to D'Onofrio and without the prior written consent of the Company shall not be assignable by D'Onofrio otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be binding upon D'Onofrio's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 13. Counterparts. This Agreement may be executed in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. D'ONOFRIO AMERIHOST PROPERTIES, INC. By: Richard A. D'Onofrio Michael P. Holtz President and Chief Executive Officer EX-10.9 4 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Agreement") is made and entered into as of the 4th day of February, 1997 by and between Amerihost Properties, Inc. ("Company") and Michael P. Holtz ("Executive") and amends that Employment Agreement (the "Employment Agreement") between the Company and the Executive, dated as of April 7, 1995. WITNESSETH: WHEREAS, pursuant to the Employment Agreement the Executive is currently employed by the Company as its President and Chief Executive Officer; WHEREAS, the Company and Executive desire to continue Executive's employment by the Company in such positions, pursuant to the terms of the Employment Agreement, as modified hereby; NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements of the parties herein contained, the parties agree as follows: 1. The parties hereto agree that Exhibit A to the Employment Agreement shall be amended and restated in its entirety to read as attached hereto. 2. Notwitstanding Section 1 hereof, the parties hereto agree that, for purposes of Sections 5, 6 and 7 of the Employment Agreement, the term "Exhibit A" as used therein shall refer to that Exhibit A, dated as of April 7, 1995, which was attached to the Employment Agreement on the date of its execution, a copy of which is attached hereto, without regard to any subsequent amendments thereto (whether hereby or otherwise). 3. Except as amended hereby, the parties hereto agree that the terms and provisions of the Employment Agreement shall continue in full force and effect. * * * IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. EXECUTIVE AMERIHOST PROPERTIES, INC. By: Michael P. Holtz H. Andrew Torchia Chairman of the Board EXHIBIT A TO EMPLOYMENT AGREEMENT Dated as of February 4, 1997 Executive: MICHAEL P. HOLTZ Annual Cash Compensation: Base Salary Initial Term: 1995 - $325,000 1996 - $375,000 1997 - From January 1, 1997 through January 25, 1997, Executive shall be paid on the basis of an annual base salary of $425,000. Thereafter Executive shall be paid on the basis of an annual base salary of $325,000. Annual Bonus and Remainder of Renewal Term: In December of each year, beginning December 1997, the Compensation Committee of the Company's Board of Directors will determine (i) a performance bonus to be paid to Executive for the then-current year and (ii) Executive's base salary for the following year, which base salary will not be less than Executive's then-existing base salary. Payment: Base salary shall be paid in 26 equal bi-weekly installments, less such deductions as shall be required to be withheld pursuant to applicable law and regulations. Compensation in Stock Options: In 1995 the Executive received warrants for the years 1995-1997, in the amounts described below. Initial Term 1995 - 175,000 1996 - 85,000 1997 - 100,000 Renewal Term Each year of the Renewal Term, the Executive shall be entitled to receive stock options pursuant to the Company's 1996 Omnibus Incentive Stock Plan. The maximum number of stock options the Executive is entitled to receive shall increase over the Executive's then current entitlement (excluding the stock options to be received by the Executive on February 3, 1997, as described below) by a factor of ten percent (10%) or by the then current rate of inflation, whichever is greater. Should the Employment Agreement be renewed, all stock options for the Renewal Term shall be issued on January 1, 1998 at the closing price of the stock on the closest preceding trading day. The number of stock options issued on January 1, 1998 shall be equal to the total the Executive is entitled to receive during the Renewal Term based on a 10% increase in number each year and such shares shall vest on January 1 of the year with respect to which they are awarded. If during the Renewal Term, the Executive is entitled to receive additional stock options because inflation has exceeded 10%, such additional stock options shall be issued on January 1 of the entitlement year at the closing price of the stock on the closest preceding trading day. Options to be received on February 3, 1997 In addition to those warrants and stock options described above, on February 3, 1997, the Executive shall be entitled to receive stock options exercisable into an aggregate of 50,000 shares of the Company's common stock. Such options shall be immediately vested, shall survive for a period of 10 years and shall have an exercise price equal to $1.53125 per share. Vacation: 4 weeks (160 hours) per year. EXECUTIVE AMERIHOST PROPERTIES, INC. Michael P. Holtz H. Andrew Torchia Chairman of the Board This Exhibit A may be amended from time to time by an Exhibit A in similar form bearing a later effective date and the signatures of the Company and Executive. EX-10.10 5 Exhibit 10.1 TERMINATION AGREEMENT This Termination Agreement ("Agreement") is made and entered into as of the 31st day of January, 1997 by and among Amerihost Properties, Inc. (the "Company"), Urban 2000 Corp., a Delaware corporation ("Urban") and H. Andrew Torchia ("Torchia"). WHEREAS, on January 1, 1994, the Company and Urban entered into a Consulting Agreement (the "Consulting Agreement"), pursuant to which Urban has provided consulting services to the Company; WHEREAS, Torchia is a principal and a controlling shareholder of Urban; WHEREAS, Torchia is currently the Chairman of the Company's Board of Directors and has served as a director and officer of various subsidiaries of the Company; WHEREAS, effective as of the date hereof, Urban and the Company each desire to terminate the Consulting Agreement and settle fully and finally all matters relating thereto; WHEREAS, Torchia and the Company desire that Torchia shall continue to serve as a director of the Company and as the Chairman of the Company's Board of Directors, and as a director and Chairman of the Board of Directors of various subsidiaries of the Company, subject to the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises and mutual covenants and agreements of the parties herein contained, the parties agree as follows: 1. Payments. In connection with the termination of the Consulting Agreement and any agreements and understandings relating to Torchia's employment by, and service as a director to, the subsidiaries of the Company, and in lieu of all other amounts to which Urban or Torchia may be entitled, the Company hereby agrees to make the following payments to Urban on the terms provided herein: (a) the Company shall pay to Urban an amount equal to $1,147,266, by wire transfer to an account designated by Urban; (b) the Company shall pay to Urban an amount equal to $125,350, representing commissions owed by the Company to Urban with respect to transactions closed and funded prior to the date hereof; (c) in the event that the currently pending Whitewater, Wisconsin transaction ("Whitewater") is signed and funded by Benenson, the Company's joint venture partner, on or before April 29, 1997, the Company will pay to Urban an amount equal to $90,575, representing Urban's commissions and a residual buyout relating thereto; provided, however, that in the event that Whitewater is not closed and funded by Benenson on or before April 29, 1997, no commission or additional payment will be due to Urban; provided, further, however, that if the Company consummates Whitewater as a wholly- owned hotel or as a joint venture with a different joint partner identified by the Company, in which case the Company will pay to Urban an amount equal to $25,000, representing Urban's commissions relating thereto (there being no residual buyout payment due); (d) the amount, if any, to be paid pursuant to Section 1(c) shall be paid to Urban by wire transfer to Urban's account as designated under Section 1(a) hereof or to such other account as otherwise directed by Torchia within ten (10) days following the closing of the applicable transaction. 2. Termination of Consulting Agreement. Urban and the Company hereby agree that, as of the date hereof, the Consulting Agreement, and any other agreements and understandings relating to Urban's provisions of consulting or other services to the Company, or the Company's providing assets or services to Urban, shall be and hereby are terminated. 3. Return of Company Property. As soon as practicable on or following the date hereof, Urban shall return to the Company all items belonging to the Company, including, without limitation, all records and other documents obtained by it or entrusted to it during the course of the Consulting Agreement. 4. Torchia's Position With the Company. Provided that Torchia (i) continues to beneficially own at least 50% of the shares of the Company's stock which he presently owns, either directly or indirectly, and (ii) does not become employed by, serve as an officer or director of, provide assets or services to, or own a 5% or greater interest in, any business or company that is in direct conflict with the business of the Company, the intent of the parties is that Torchia shall be nominated for election to the Board of Directors at the Company's annual stockholder meetings in 1997, 1998 and 1999, and to cause Torchia to maintain his position as the Chairman of the Company's Board of Directors for a minimum of one year from the date hereof. The Company shall continue to provide to Torchia health, disability and life insurance on the basis provided to other officers of the Company for as long as Torchia is the Chairman of the Company's Board of Directors. 5. Confidential Information. (a) Urban hereby acknowledges that during the term of the Consulting Agreement and through Urban's relationships with the Company and its subsidiaries and affiliates, Urban has had access to certain confidential information, including, but not limited to, know-how, processes, technology, trade secrets, and the like concerning the business, customers, suppliers and relationships of the Company which are not generally known outside the Company ("Confidential Information"). Confidential Information shall not include any of the above information which has become publicly known other than through a breach of this Agreement or through a breach of another party's obligation of confidentiality to the Company. (b) Urban further acknowledges that the Confidential Information is of great value to the Company and if misused by Urban or allowed to be used by Urban for or on behalf of a competitor of the Company would cause the Company irreparable loss and damage, the extent of which will be substantial but may not be readily capable of determination. (c) Accordingly, Urban agrees to not, without prior written consent of the Company, directly or indirectly, use, divulge or make accessible to any person any Confidential Information at any time, except as may be required by law or regulation, or in response to a request or demand of a governmental agency or self-regulatory organization. 6. Release. Each of Urban and Torchia, on behalf of itself or himself and any and all of his heirs, executors or administrators, and any and all of its or his agents, representatives and assigns on one hand, and the Company, on behalf of itself and any and all of its agents, representatives and assigns on the other, hereby voluntarily and knowingly forever releases, waives and discharges the other, its successors, assigns, affiliates, directors, officers, employees, agents and representatives, from any and all claims, controversies, actions, causes of action, demands, debts, liens, contracts, agreements, promises, representations, torts, damages, costs, attorney's fees, monies due or accounts, obligations, judgments or liabilities of any nature whatsoever in law or equity, whether or not now or heretofore known, suspected or claimed, arising out of or otherwise related to the Consulting Agreement or Torchia's employment by the Company or subsidiaries or affiliates of the Company, if any, or the termination thereof, except for (i) claims arising out of Torchia's status as a shareholder of the Company after the date of this Agreement and (ii) the obligations set forth in this Agreement. Each of Urban and Torchia, on the one hand, and the Company, on the other, further agrees not to voluntarily aid or abet any individual asserting a claim against the other or threatening or instituting a charge or lawsuit against the other with respect to such subject matter. Each party hereto acknowledges and agrees that this release is an essential and material term of the Agreement and that without such release no agreement would have been reached by the parties hereto. 7. Acknowledgment. Each of Urban and Torchia acknowledges that it or he has carefully read this Agreement and fully understands all of the provisions contained herein, and that it or he knowingly, voluntarily, and willfully enters into this Agreement. 8. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mail, as follows: (i) if to the Company, to: President Amerihost Properties, Inc. 2400 East Devon Avenue Suite 280 Des Plaines, IL 60018 with a copy to: Helen R. Friedli, P.C. McDermott, Will & Emery 227 W. Monroe Street Chicago, IL 60606 (ii) if to Urban or Torchia to: Urban 2000 Corp. 2400 East Devon Avenue Suite 204 Des Plaines, IL 60018 Any party may change its address for notice hereunder by notice to the other party hereto. 9. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 10. Amendments and Waivers. This Agreement may be amended, superseded, cancelled or renewed, and the terms and conditions hereof may be waived, only by a written instrument signed by all of the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 11. Governing Law. This Agreement shall be governed and construed in accordance with the internal laws of the State of Illinois applicable to agreements made and to be performed entirely within such State. 12. Successors. This Agreement shall not be assignable by any party without the prior written consent of the other parties otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be binding upon Torchia's legal representatives and Urban's successors and assigns. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 13. Counterparts. This Agreement may be executed in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. Headings. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. * * * * * * * * * * * * * * * IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TORCHIA URBAN 2000 CORP. By: H. Andrew Torchia H. Andrew Torchia President AMERIHOST PROPERTIES, INC. By: Michael P. Holtz President and Chief Executive Officer EX-21.1 6 Exhibit 21.1 AMERIHOST PROPERTIES, INC. LISTING OF SUBSIDIARIES
State of Incorporation Ownership Entity or Organization Percentage Amerihost Development, Inc. Illinois 100.00% Amerihost International, Inc. Delaware 100.00% Amerihost Lodging Group, Inc. Delaware 100.00% Amerihost Management, Inc. Illinois 100.00% Amerihost Renovations, Inc. Illinois 100.00% Amerihost Staffing, Inc. Illinois 100.00% AP Equities of Arkansas, Inc. Arkansas 100.00% AP Equities of Florida, Inc. Florida 100.00% AP Equities of Indiana, Inc. Indiana 100.00% AP Equities of Ohio, Inc. Ohio 100.00% AP Hotels of Georgia, Inc. Georgia 100.00% AP Hotels of Illinois, Inc. Illinois 100.00% AP Hotels of Kansas, Inc. Kansas 100.00% AP Hotels of Michigan, Inc. Delaware 100.00% AP Hotels of Mississippi, Inc. Mississippi 100.00% AP Hotels of Ohio, Inc. Delaware 100.00% AP Hotels of Pennsylvania, Inc. Pennsylvania 100.00% AP Hotels of Texas, Inc. Delaware 100.00% AP Hotels of Vermont, Inc. Vermont 100.00% AP Hotels of Vermont, Inc. Delaware 100.00% AP Hotels of West Virginia, Inc. West Virginia 100.00% AP Lodging of Ohio, Inc. Ohio 100.00% AP Properties of Ohio, Inc. Ohio 100.00% API of Indiana, Inc. Indiana 100.00% API of Wisconsin, Inc. Wisconsin 100.00% Hammond Investors, Inc. Indiana 100.00% Niles Illinois Hotel Corporation Illinois 100.00% Schiller Park Investors, Inc. Illinois 100.00% Shorewood Hotel Investments, Inc. Illinois 100.00% Shorewood Investors, Inc. Illinois 100.00% AP Hotels of West Virginia, Inc. West Virginia 100.00% AmeriHost Inns of Illinois, Inc. Illinois 100.00% AmeriHost Inns of Ohio, Inc. Ohio 100.00% AP Hotels of Wisconsin, Inc. Wisconsin 100.00% AP Hotels of Iowa, Inc. Iowa 100.00% AP Hotels of Kentucky, Inc. Kentucky 100.00% API/Crawfordsville, Inc. Indiana 100.00% API/Cloverdale, Inc. Indiana 100.00% API/Marysville, Inc. Ohio 100.00% API/Plainfield, Inc. Indiana 100.00% AP Hotels of California, Inc. California 100.00% AmeriHost Inns of Michigan, Inc. Michigan 100.00% AP Hotels of Missouri, Inc. Missouri 100.00% AP Properties of Mississippi, Inc. Mississippi 100.00% Sullivan Motel Associates, Ltd. Indiana 56.00% White River Junction, VT 393 Limited Partnership Vermont 83.30% Metropolis, IL 1292 Limited Partnership Illinois 54.90% Tuscola, Illinois 593 Limited Partnership Illinois 100.00% Bowling Green, Ohio 590 Limited Partnership Ohio 64.16% Findlay, Ohio 391 Limited Partnership Ohio 56.67% Dayton, Ohio 1291 Limited Partnership Ohio 61.50% Altoona, PA 792 Limited Partnership Pennsylvania 62.78% New Philadelphia, Ohio 1092 Limited Partnership Ohio 50.35% Kenton, Ohio 1095 Limited Partnership Ohio 52.50%
EX-23.1 7 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Amerihost Properties, Inc. Des Plaines, Illinois We hereby consent to the incorporation by reference in the Company's previously filed Registration Statement (file no. 33-72742) of our report dated March 20, 1997 relating to the consolidated financial statements of Amerihost Properties, Inc. appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. BDO Seidman, LLP Chicago, Illinois March 20, 1997 EX-27.0 8
5 12-MOS DEC-31-1996 DEC-31-1996 3,029,039 0 8,674,508 0 0 11,957,312 53,317,721 7,481,889 66,901,156 11,004,320 0 0 0 30,185 20,881,144 66,901,156 68,342,348 68,342,348 54,359,996 54,359,996 7,528,888 0 2,767,828 5,752,654 2,358,000 3,394,654 0 0 0 3,394,654 0.50 0.50
-----END PRIVACY-ENHANCED MESSAGE-----