<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUBURBAN LODGES OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 7011 58-1781184
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1000 PARKWOOD CIRCLE MR. DAVID E. KRISCHER
SUITE 850 PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATLANTA, GEORGIA 30339 1000 PARKWOOD CIRCLE
(770) 951-9511 SUITE 850
(Address, including zip code, and telephone ATLANTA, GEORGIA 30339
number, including area code, of (770) 951-9511
registrant's principal executive offices) (Name, address, including zip code, and
telephone number, including area code, of
agent for service)
</TABLE>
------------------------
Copies to:
<TABLE>
<S> <C>
MICHAEL H. TROTTER, ESQ. ALAN J. PRINCE, ESQ.
KILPATRICK & CODY, L.L.P. KING & SPALDING
1100 PEACHTREE STREET 191 PEACHTREE STREET
ATLANTA, GEORGIA 30309 ATLANTA, GEORGIA 30303
(404) 815-6500 (404) 572-4600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities on this Form are being offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
-------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.01 par value...... 4,879,450 shares $22.50 $109,787,625 $33,269
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</TABLE>
(1) Includes 636,450 shares that may be purchased pursuant to the over-allotment
option granted to the Underwriters.
(2) Estimated solely for the purpose of determining the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1996
4,243,000 SHARES
[SUBURBAN LODGE LOGO]
SUBURBAN LODGES OF AMERICA, INC.
COMMON STOCK
Of the 4,243,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering"), 4,000,000 shares are being
sold by Suburban Lodges of America, Inc. (the "Company") and 243,000 shares are
being sold by certain shareholders of the Company (the "Selling Shareholders").
See "Principal and Selling Shareholders." The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Shareholders.
The Common Stock is traded on The Nasdaq Stock Market under the symbol "SLAM,"
and on October 29, 1996, the last reported sale price was $22.75 per share. See
"Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------
Proceeds
Price Underwriting Proceeds to to Selling
to Public Discount(1) Company(2) Shareholders
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<S> <C> <C> <C> <C>
Per Share..... $ $ $ $
Total(3)...... $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$350,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 636,450 additional shares of Common Stock at the Price to Public less
the Underwriting Discount solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the Price to Public will total
$ , the Underwriting Discount will total $ and the
Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject any order in whole or in part. It is expected that
delivery of the certificates representing the shares will be made against
payment therefor at the office of Montgomery Securities on or about
, 1996.
------------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
, 1996
<PAGE> 3
[A three page fold out is included containing photos of the Charlotte
(Matthews), North Carolina facility and the Newport News, Virginia facility.
Also, included is a map of the Eastern United States, which shows the location
of Company-owned and franchised Existing Facilities, Construction Facilities,
and Development Facilities. The map pages also include photos of the Birmingham
(Oxmoor), Alabama facility, a standard size guest room, and the Greenville
(Mauldin Road), South Carolina facility.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY (AND SELLING
GROUP MEMBERS) ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context suggests otherwise, (i) references in this Prospectus to the
"Company" or "Suburban" mean Suburban Lodges of America, Inc. and its
subsidiaries, and (ii) all information in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised.
THE COMPANY
Suburban Lodges of America, Inc. develops, owns, manages and franchises
Suburban Lodge(R) facilities, which are economy extended stay lodging facilities
designed to appeal to value-conscious guests seeking to "Lodge for Less."SM The
Company believes that the Suburban Lodge chain is one of the largest lodging
chains (based on number of guest rooms and facilities) devoted to serving the
economy extended stay market. Suburban Lodge guest rooms are fully furnished and
include a combination living room and bedroom, a bathroom and a fully equipped
kitchenette. Weekly maid and linen service, access to cable or satellite
television and coin-operated laundromats are also provided to allow guests to
stay comfortably for extended periods. Suburban Lodge facilities offer clean,
comfortable and attractive accommodations to guests at substantially lower rates
than most traditional and other extended stay lodging facilities. Although daily
rates are available, substantially all guests pay the Company's weekly rates,
which currently range from $139 to $169 per week for single occupancy and from
$153 to $189 per week for double occupancy, for the Company's standard size
rooms.
The extended stay segment of the lodging industry, which includes economy
extended stay facilities, is a relatively small but growing segment of the
lodging industry. Of the approximately 3.3 million guest rooms available in the
U.S. lodging industry at the end of August 1996, there were approximately
53,000, or 1.6%, dedicated extended stay guest rooms at approximately 460
properties. Based upon the high occupancy rates of the existing Suburban Lodge
facilities, published occupancy rates for other participants in the extended
stay market and industry sources, the Company believes that demand for extended
stay lodging facilities compares favorably to the existing supply of facilities
in this segment of the market. According to industry sources, non-convention
stays of five nights or longer accounted for 259 million, or 29.8%, of the 868
million total hotel room nights used in 1995. The Company believes that Suburban
Lodge facilities appeal to an underserved and growing segment of guests in the
extended stay market, including business travelers (particularly those with
limited or no expense accounts), individuals on temporary work assignments,
persons between domestic situations, persons relocating or purchasing a home,
tourists and other value-conscious customers desiring low-cost, longer-term,
quality accommodations with fully equipped kitchenettes. Suburban believes that
the extended stay market offers a number of attractive investment
characteristics compared to traditional hotels, including higher than industry
average occupancy rates and operating margins.
The Company owns and operates 12 Suburban Lodge facilities and franchises
nine additional Suburban Lodge facilities located in five southeastern states
(collectively, the "Existing Facilities"). The Existing Facilities contain an
aggregate of 2,723 guest rooms, have an average of 130 guest rooms and average
approximately 2.4 years in age. The Company anticipates that an additional six
Suburban Lodge facilities, four Company-owned and two franchised, will open
during the remainder of 1996 resulting in an aggregate of 27 Suburban Lodge
facilities by year-end. The Company intends to continue the growth of the
Suburban Lodge chain in 1997 by opening approximately 38 additional Suburban
Lodge facilities (20 Company-owned facilities and 18 franchised facilities),
which would result in a total of 65 Suburban Lodge facilities by the end of
1997. There are currently 14 facilities under construction (nine Company-owned
and five franchised, the "Construction Facilities"), and sites have been
acquired or are under contract for 23 facilities (eight Company-owned and 15
franchised, the "Development Facilities"). There can be no assurance that the
Company and its franchisees will be able to complete the development of all of
these facilities. See "-- Forward-Looking Statements" and "Risk
Factors -- Development Risks."
The Company's business objective is to become a national provider of
economy extended stay lodging facilities. Suburban's growth strategy is to
develop additional Company-owned facilities and to franchise the
3
<PAGE> 5
Suburban Lodge concept to independent developers and operators as well as to
passive investors who may retain the Company to develop and manage their
Suburban Lodge facilities. The Company's principal operating strategies are to
(i) provide its guests with clean, comfortable and attractive accommodations at
weekly rates substantially lower than those offered by most traditional and
other extended stay lodging facilities; (ii) control operating costs at each of
its facilities and maintain above industry average operating margins and (iii)
ensure guest satisfaction through a commitment to customer service. The Company
believes that the depth and experience of its senior management team will be an
important factor in executing its growth and operating strategies.
The Company believes that the following features differentiate the Suburban
Lodge system and its facilities from, and provide a competitive advantage over,
many traditional hotels and other extended stay lodging facilities:
- LOW WEEKLY RATES. Suburban Lodge facilities offer weekly rates
substantially lower than those offered by most traditional and other
extended stay lodging facilities. The average weekly rate at the nine
Existing Facilities open during the year ended December 31, 1995 (the
"Nine Mature Facilities") was $139.69, compared to an equivalent average
weekly rate (average daily rate multiplied by seven) of $546.21 for
extended stay hotels and $239.96 for lower economy hotels. The average
weekly rate at the 12 facilities open during the entire nine months ended
September 30, 1996 was $155.56.
- KITCHENETTES. Each Suburban Lodge guest room contains a fully equipped
kitchenette, including a refrigerator, two-burner stove-top, microwave
oven and cooking and eating utensils.
- LONGER GUEST STAYS. Suburban designs, markets and prices its guest rooms
to appeal to guests staying one week or longer. The Company believes that
this strategy results in longer guest stays and higher occupancies. The
average guest stay at the 12 facilities open during the entire nine months
ended September 30, 1996 was approximately five and one-half weeks.
- HIGHER OCCUPANCY. Average occupancy at the Nine Mature Facilities during
1995 was 97.6%, which compares favorably to the average occupancy of 81.2%
for extended stay hotels and 64.3% for lower economy hotels during the
same period. Average occupancy at the 12 facilities open during the entire
nine months ended September 30, 1996 was 95.8%.
- OPERATING EFFICIENCIES. The Company seeks to minimize costs throughout
its operations. Suburban believes that long-term guest stays, weekly
rather than daily housekeeping, limited office hours and a small on-site
staff produce significant operating efficiencies.
- STANDARD DESIGN AND LOW CONSTRUCTION COSTS. Suburban Lodge facilities
are designed and built to uniform plans and specifications developed and
periodically refined since 1987. The Company believes that standardization
lowers construction costs and establishes consistent quality. The average
total investment in the five Company-owned Existing Facilities opened
during 1996 was approximately $3.4 million with a range of approximately
$23,100 to $26,100 per guest room, including building structures,
improvements, furniture, fixtures, equipment, land and pre-opening costs.
The Company believes that its construction costs are relatively low due to
a number of factors, including careful site selection, smaller room sizes,
economical and durable exterior and interior finishes and room furnishings
and refined building systems and processes.
- ATTRACTIVE UNIT ECONOMICS. Suburban believes its facilities have
achieved attractive unit level economics. For the two most recently
completed Company-owned Existing Facilities that have been open at least
one year, facility level earnings before interest, taxes and depreciation
for the 12 months ended September 30, 1996, constituted 25.5% and 26.6%,
respectively, of their total development and construction costs, including
building structures, improvements, furniture, fixtures, equipment, land
and pre-opening costs. The Company believes that its facilities' favorable
unit economics are due, in part, to the fact that Suburban Lodge
facilities reach stabilization in a relatively short period after opening.
In the past, Suburban Lodge facilities have reached 90% occupancy within,
on average, 90 days of opening (except for two of the most recently opened
facilities in the Atlanta metropolitan area which were adversely impacted
by the 1996 Summer Olympic Games (the "Olympics")).
4
<PAGE> 6
- FRANCHISING OPPORTUNITIES. Suburban believes that the combination of its
experience in franchising, its relationships with its 11 franchisee groups
(six existing franchisees and five prospective franchisees which are
defined as those having a site under contract and a signed preliminary
agreement for a license to develop a Suburban Lodge facility) and the
potential attractive return on investment for Suburban Lodge facilities
will facilitate the expansion of the Suburban Lodge chain throughout the
country.
Since 1987, the Suburban Lodge system has increased to 21 facilities and
has achieved attractive growth, operating results and returns on investment.
From December 31, 1991 through December 31, 1995, for facilities open at least
one year, (i) average occupancy increased from 90.3% to 97.6%; (ii) average
weekly rates increased from $110.38 to $139.69, representing a compound annual
growth rate of approximately 6.1% and (iii) weekly revenue per available room
("Weekly REVPAR") increased from $99.72 to $136.39, representing a compound
annual growth rate of 8.1%. For the nine months ended September 30, 1996,
average occupancy, average weekly rates and Weekly REVPAR for the 12 facilities
open for the entire nine month period were 95.8%, $155.56 and $149.14,
respectively. Average weekly rate is determined by dividing room revenue by the
number of guest room days sold and multiplying by seven. Weekly REVPAR is
determined by dividing room revenue by the number of guest room days available
for the period and multiplying by seven.
The Company was incorporated in Georgia in 1987, and its executive offices
are located at 1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339, and its
telephone number is (770) 951-9511.
RECENT DEVELOPMENTS
Since the Company's initial public offering of its Common Stock in May 1996
(the "IPO"), the Company and its franchisees have opened four Company-owned and
three franchised Suburban Lodge facilities which contain an aggregate of 945
guest rooms, representing a 53.1% increase over the total number of guest rooms
at the time of the IPO. The Company and its franchisees have also started
construction of an additional 11 Suburban Lodge facilities, of which seven are
Company-owned, and development of 23 new Suburban Lodge facilities, of which
eight are Company-owned. The Company has also accelerated its expansion plans
and now intends to have 65 rather than 54 Suburban Lodge facilities open by the
end of 1997. In order to facilitate the Company's expansion, the Company has,
among other things, developed an interior corridor prototype facility suitable
for use in cold weather climates and launched a nationwide advertising campaign
in industry publications to promote Suburban Lodge franchising opportunities.
In addition to these developments, the Company has obtained a preliminary
commitment from its lender to increase the commitment on the Line of Credit from
$50 million to $100 million, which is subject to obtaining other participating
leaders, although there can be no assurance that such lenders will be obtained.
Furthermore, the Company recently commenced development of the first Suburban
Lodge facility for a passive investor who has retained the Company to develop
and manage the facility.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company................................ 4,000,000
By the Selling Shareholders................... 243,000
-----------
Total........................................... 4,243,000
Common Stock to be outstanding after the
Offering(1)................................... 12,547,829
Use of proceeds................................. To finance the development of additional
Suburban Lodge facilities. See "Use of
Proceeds."
Nasdaq Stock Market symbol...................... SLAM
</TABLE>
- ---------------
(1) Excludes (i) 750,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option and Incentive Award Plan (the "1996 Plan")
pursuant to which options to purchase 400,000 shares have been granted and
(ii) 100,000 shares reserved for issuance under the Company's Non-Employee
Directors' Stock Option and Fee Plan (the "Directors' Plan") pursuant to
which options to purchase 4,500 shares have been granted. See
"Management -- 1996 Stock Incentive Plans."
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary, including projections with
respect to the number of facilities, and under the captions "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things,
uncertainty as to the Company's future profitability; the ability to meet
construction and development schedules and budgets and, in particular, to locate
and purchase suitable sites for new facilities at satisfactory prices; the
ability to develop and implement operational and financial systems to manage
rapidly growing operations; uncertainty as to the consumer demand for economy
extended stay lodging; increasing competition in the extended stay lodging
market; the ability to obtain financing on acceptable terms to finance the
Company's growth strategy; the ability of the Company to operate within the
limitations imposed by financing arrangements; and other factors referenced in
this Prospectus. See "Risk Factors."
COMBINED SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
SUMMARY HISTORICAL COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND CERTAIN OPERATING DATA)
The following table sets forth: (i) combined historical financial
information for Suburban Lodges of America, Inc. and the partnerships and
limited liability companies previously owned in whole or in part by certain
affiliates of the Company from whom the Company acquired seven Existing
Facilities and four Construction Facilities (the "Affiliated Entities") and (ii)
pro forma financial information for the Company presented as if the acquisition
of facilities in conjunction with the IPO (the "Corporate Organization"), the
IPO and the use of the net proceeds therefrom had occurred on January 1, 1995.
Such information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operation," the combined
financial statements of Suburban Lodges of America, Inc. and Affiliated
Entities, the pro forma financial information for the Company and the notes
thereto which are contained elsewhere in this Prospectus. The pro forma
information does not purport to represent what the Company's financial position
or results of operations actually would have been if such transactions had, in
fact, occurred on such date or to project the Company's financial position or
results of operations at any future date or for any future period.
6
<PAGE> 8
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue..................................... $ 2,055 $ 2,184 $ 2,893 $ 3,904 $ 4,431 $ 3,171 $ 5,329
Other facility revenue........................... 146 173 223 290 296 210 381
Franchise and other revenue...................... 51 194 247 151 460 315 703
------- ------- ------- ------- ------- ------- -------
Total revenue.............................. 2,252 2,551 3,363 4,345 5,187 3,696 6,413
------- ------- ------- ------- ------- ------- -------
Expenses:
Facility operating expenses...................... 937 1,058 1,364 1,768 2,072 1,519 2,578
Corporate operating expenses..................... 336 378 429 737 883 554 974
Related party consulting fees.................... -- -- -- -- 17 9 10
Depreciation and amortization.................... 375 323 372 416 460 299 438
------- ------- ------- ------- ------- ------- -------
Total expenses............................. 1,648 1,759 2,165 2,921 3,432 2,381 4,000
------- ------- ------- ------- ------- ------- -------
Operating income.................................. 604 792 1,198 1,424 1,755 1,315 2,413
Interest income................................... -- -- -- -- -- -- 347
Interest expense.................................. (782) (614) (725) (936) (1,098) (688) (554)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary income........................... (178) 178 473 488 657 627 2,206
Income taxes (benefit)(1)......................... -- -- -- (14) (20) -- 586
Extraordinary income from early extinguishment of
debt............................................. -- -- -- 130 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss).......................... ($ 178) $ 178 $ 473 $ 632 $ 677 $ 627 $ 1,620
======== ======== ======== ======== ======== ======== =======
Pro forma net income per share(2)................. $ 0.23
=======
Pro forma weighted average shares
outstanding(2)................................... 5,918,623
<CAPTION>
COMPANY PRO FORMA
---------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------
1995 1995 1996
------------ --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue..................................... $ 5,282 $ 3,814 $ 5,724
Other facility revenue........................... 345 247 413
Franchise and other revenue...................... 351 261 669
------------ --------- ---------
Total revenue.............................. 5,978 4,322 6,806
------------ --------- ---------
Expenses:
Facility operating expenses...................... 2,458 2,029 2,903
Corporate operating expenses..................... 1,276 849 1,138
Related party consulting fees.................... 17 9 10
Depreciation and amortization.................... 697 479 585
------------ --------- ---------
Total expenses............................. 4,448 3,366 4,636
------------ --------- ---------
Operating income.................................. 1,530 956 2,170
Interest income................................... -- -- 347
Interest expense.................................. -- -- --
------------ --------- ---------
Income (loss) before income taxes and
extraordinary income........................... 1,530 956 2,517
Income taxes (benefit)(1)......................... 574 359 944
Extraordinary income from early extinguishment of
debt............................................. -- -- --
------------ --------- ---------
Net income (loss).......................... $ 956 $ 597 $ 1,573
============== ========== ==========
Pro forma net income per share(2)................. $ 0.14 $ 0.21
============== ==========
Pro forma weighted average shares
outstanding(2)................................... 6,622,251 7,496,873
CASH FLOW DATA:
EBITDA(3)......................................... $ 979 $ 1,115 $ 1,570 $ 1,840 $ 2,215 $ 1,614 $ 2,851
Cash flows provided by (used in):
Operating activities............................. (143) 399 879 929 1,305 927 2,158
Investing activities............................. (129) (15) (2,349) (651) (4,791) (3,168) (26,236)
Financing activities............................. 348 (273) 1,561 (238) 3,707 2,446 43,100
OPERATING DATA(4):
Number of facilities open at end of period:
Company-owned.................................... 3 3 5 5 6 6 11
Franchised....................................... 1 3 3 4 6 5 8
------- ------- ------- ------- ------- ------- -------
System-wide.................................... 4 6 8 9 12 11 19
======== ======== ======== ======== ======== ======== ========
<CAPTION>
CASH FLOW DATA:
<S> <C> <C> <C>
EBITDA(3)......................................... -- -- --
Cash flows provided by (used in):
Operating activities............................. -- -- --
Investing activities............................. -- -- --
Financing activities............................. -- -- --
OPERATING DATA(4):
Number of facilities open at end of period:
Company-owned.................................... 7 7 11
Franchised....................................... 5 4 8
------------ --------- ---------
System-wide.................................... 12 11 19
============== ========== ==========
Company-owned facilities(5):
Occupancy................................................................ 90.9% 92.9% 95.5% 97.7% 95.8%
Average weekly rate...................................................... $111.34 $116.59 $121.96 $128.69 $136.77
Weekly REVPAR(6)......................................................... $101.26 $108.27 $116.47 $125.74 $130.93
Franchised facilities(5):
Occupancy................................................................ 88.4% 85.9% 96.8% 98.9% 93.2%
Average weekly rate...................................................... $107.42 $119.15 $123.21 $131.03 $146.34
Weekly REVPAR(6)......................................................... $ 94.96 $101.57 $119.23 $129.59 $135.44
<CAPTION>
Company-owned facilities(5):
<S> <C>
Occupancy................................................................ 97.8% 92.4% 96.3% 98.1%
Average weekly rate...................................................... $134.81 $157.88 $ 135.91 $134.31
Weekly REVPAR(6)......................................................... $131.42 $143.45 $ 130.76 $131.33
Franchised facilities(5):
Occupancy................................................................ 99.4% 90.7% 91.6% 99.5%
Average weekly rate...................................................... $142.14 $166.58 $ 150.54 $145.49
Weekly REVPAR(6)......................................................... $141.36 $149.94 $ 137.01 $144.77
<CAPTION>
Company-owned facilities(5):
Occupancy................................................................ 92.7%
Average weekly rate...................................................... $157.59
Weekly REVPAR(6)......................................................... $143.57
Franchised facilities(5):
Occupancy................................................................ 90.1%
Average weekly rate...................................................... $167.28
Weekly REVPAR(6)......................................................... $149.91
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
AS
ACTUAL ADJUSTED(7)
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 19,709 $105,695
Total assets............................ 61,219 147,205
Long-term debt.......................... -- --
Shareholders' equity.................... 58,641 144,627
</TABLE>
(Notes on following page)
7
<PAGE> 9
- ---------------
(1) Historical financial data does not include a provision for income taxes for
Affiliated Entities because such entities were limited liability companies
or partnerships not subject to income taxes. Income taxes or income tax
benefits have been provided for Suburban Lodges of America, Inc. and its
subsidiaries where appropriate under Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes." Federal and state
income taxes have been provided for the Company on a pro forma basis at a
combined effective tax rate of 37.5%. See Note 8 to the Combined Financial
Statements.
(2) Earnings per share information for the historical nine months ended
September 30, 1996 has been calculated by dividing net income, adjusted to
provide for income taxes (approximately $827,000 for the nine months ended
September 30, 1996), by the weighted average number of common shares
outstanding during the period assuming that the shares issued in the
Corporate Organization and the related stock split were issued on January
1, 1996. Pro forma earnings per share information for the year ended
December 31, 1995 assumes that 6,622,251 shares were issued in connection
with the Corporate Organization, the related stock split and the IPO on
January 1, 1995. Shares outstanding for purposes of the calculation exclude
1,925,578 shares issued in the IPO relative to proceeds used for general
corporate purposes. Pro forma earnings per share information for the pro
forma nine months ended September 30, 1996 has been calculated by dividing
pro forma net income by the weighted average number of common shares
outstanding for the historical nine months ended September 30, 1996,
adjusted to reflect the estimate of shares in the IPO on January 1, 1996
for which the proceeds were used for other than general corporate purposes.
Outstanding shares of Suburban Lodges of America, Inc. differ substantially
on a historical basis prior to the IPO from the shares of Common Stock
outstanding after the IPO. Accordingly, the Company believes that the
presentation of historical per share information for periods prior to the
nine months ended September 30, 1996 is not meaningful.
(3) EBITDA represents income (loss) before interest expense, income taxes (if
applicable) and depreciation and amortization. EBITDA is a commonly used
financial analysis tool for measuring and comparing lodging companies and
other companies with significant amortization and depreciation expense and
for analyzing operating performance, leverage and liquidity of such
companies. Such data are not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
(4) Pro forma operating data includes the Forest Park facility, which was
acquired from a third party in May 1996, as a Company-owned facility as if
the acquisition had occurred on January 1, 1995.
(5) Information for the nine month periods ended September 30, 1995 and 1996 is
provided from the beginning of the first calendar month following the date
of opening or acquisition of each facility, and all other information is
presented from the date of opening or acquisition.
(6) Weekly REVPAR is determined by dividing room revenue by the number of guest
room days available for the period and multiplying by seven.
(7) The as adjusted balance sheet data is presented as if the sale of 4,000,000
shares offered hereby by the Company and the application of the net
proceeds therefrom had occurred on September 30, 1996. See "Use of
Proceeds."
8
<PAGE> 10
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
contained in this Prospectus.
DEVELOPMENT RISKS
The Company intends to grow primarily by developing and franchising
additional Suburban Lodge facilities. Development involves substantial risks,
including the risk that development costs will exceed budgeted or contracted
amounts, the risk of delays in construction, the risk of failing to obtain all
necessary zoning and construction permits, the risk that financing might not be
available on favorable terms, the risk that developed properties will not
achieve desired revenue or profitability levels once opened, the risk of
competition for suitable development sites from competitors which have greater
financial resources than the Company, the risk of incurring substantial costs in
the event a development project must be abandoned prior to completion, changes
in governmental rules, regulations and interpretations and general economic and
business conditions. Although the Company intends to manage development to
reduce such risks, there can be no assurance that present or future developments
will perform in accordance with the Company's expectations. The Company
currently intends to complete construction of four Company-owned facilities
during the remainder of 1996, to complete approximately 20 Company-owned
facilities in 1997 and to continue an active development program thereafter.
There can be no assurance that the Company will be able to complete all of these
facilities or do so on a timely basis or within budget.
In general, the Company takes approximately 12 months to develop a Suburban
Lodge facility, including seven to eight months devoted to construction. The
Company anticipates that the average cost of each of the nine Company-owned
facilities under construction, including building structures, improvements,
furniture, fixtures, equipment, land and pre-opening costs, will be
approximately $3.55 million (or approximately $26,000 per guest room). The
Company anticipates the total aggregate cost to open all of the Company-owned
Construction Facilities and Development Facilities will be approximately $60
million, of which approximately $8.8 million has already been spent as of
September 30, 1996. The Company anticipates that the total cost to open all 24
Company-owned facilities expected to open by the end of 1997 will be
approximately $85 million. See "Prospectus Summary -- Forward-Looking
Statements."
MANAGEMENT OF GROWTH
Suburban has experienced rapid growth in its revenues, the number of its
employees and the scope of its operations. This growth has resulted in, and is
expected to continue to create, new and increased responsibilities for
management personnel, as well as added demands on the Company's operating and
financial systems. In addition, as the Company continues to pursue an
accelerated expansion strategy through the development and franchising of new
Suburban Lodge facilities, new Company-owned and franchised facilities will be
opened in geographic markets in which the Company has limited or no previous
operating or franchise experience. The Company's growth will depend on the
efforts of key management personnel and the Company's ability to attract or
develop new management personnel and to integrate these new employees into its
overall operations. If the Company is unable to manage growth effectively, the
Company's business and results of operations could be materially and adversely
affected. See "Business -- Business Strategy."
RISKS OF INDEPENDENT FINANCING
The Company expects that it will require additional financing over time,
the amount of which will depend on a number of factors, including the number of
facilities the Company constructs and the cash flow generated by its facilities.
The Company has obtained a $25 million line of credit (the "Line of Credit"), a
commitment from the lender to increase the Line of Credit to $50 million and a
preliminary commitment from its lenders to increase the Line of Credit to $100
million, which is subject to obtaining other participating lenders, although
there can be no assurance that such lenders will be obtained. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The terms of any additional
financing the Company may be able to procure are unknown at this time. Any
future debt financing
9
<PAGE> 11
or issuances of preferred stock by the Company will be senior to the rights of
the holders of Common Stock, and any future issuances of Common Stock will
result in the dilution of the then-existing shareholders' proportionate equity
interests in the Company.
DEPENDENCE ON SENIOR MANAGEMENT
Suburban's continued success will depend to a significant extent upon the
efforts and abilities of its senior management and key employees, including
David E. Krischer, the founder, Chairman of the Board, Chief Executive Officer
and President of the Company. The loss of Mr. Krischer's services could have a
material adverse effect upon the Company; however, the Company carries a $3
million key man life insurance policy on Mr. Krischer's life. See
"Management -- Directors and Executive Officers."
CONTROL OF THE COMPANY BY MANAGEMENT
It is expected that after consummation of the Offering, Mr. Krischer will
beneficially own approximately 20.9% of the outstanding shares of Common Stock
of the Company and, together with the other executive officers and directors of
the Company as a group, will own approximately 28.6% of the outstanding shares
of Common Stock. By reason of such holdings, these shareholders acting as a
group will be able to exercise significant influence over the affairs and
policies of the Company. See "Principal and Selling Shareholders." Subject to
the limitations contained in the Line of Credit, the Board of Directors will
control the declaration and determination of the size of dividends.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The economy extended stay segment of the lodging industry, in which the
Company operates, may be adversely affected by changes in national or local
economic conditions and other local market conditions, such as an oversupply of
lodging or a reduction in demand for lodging in a geographic area, changes in
travel patterns, extreme weather conditions, changes in governmental regulations
which influence or determine wages, prices, construction costs or methods of
operation, changes in interest rates, the availability of financing for
operating or capital needs and changes in real estate tax rates and other
operating expenses. In addition, due in part to the strong correlation between
the lodging industry's performance and economic conditions, the lodging industry
is subject to cyclical changes in revenues and profits. These risks may be
exacerbated by the relatively illiquid nature of real estate holdings. Downturns
or prolonged adverse conditions in real estate or capital markets or in national
or local economies or the inability of the Company to dispose of an investment
when it finds disposition to be advantageous or necessary could have a material
adverse effect on the Company.
COMPETITION IN THE LODGING INDUSTRY
The lodging industry is highly competitive. Competitive factors within the
industry include room rates, quality of accommodations, name recognition, supply
and availability of alternative lodging, including short-term lease apartments,
service levels, reputation, reservation systems and convenience of location.
Each of the Existing Facilities and the Construction Facilities is located, and
each of the Development Facilities will be located, in a developed area that
includes competing lodging facilities. The number of competitive lodging
facilities in a particular area could have a material adverse effect on
occupancy, average weekly rates and Weekly REVPAR of the Existing Facilities and
the Construction Facilities or facilities developed or acquired in the future.
See "Business -- Competition."
The Company anticipates that competition within the extended stay lodging
market will increase substantially in the foreseeable future. A number of other
lodging chains and developers recently have announced their intent to develop or
are already developing extended stay lodging facilities which may compete with
the Company's facilities. In particular, some of these entities have announced
their intent to target the economy segment of the extended stay market in which
the Company competes. The Company may compete for guests and for new development
sites with certain of these established entities which have greater financial
resources than the Company and better relationships with lenders and real estate
sellers. These
10
<PAGE> 12
entities may be able to accept more risk than the Company can prudently manage.
Further, there can be no assurance that new or existing competitors will not
significantly reduce their rates or offer greater convenience, services or
amenities or significantly expand or improve facilities in markets in which the
Company competes, thereby materially adversely affecting the Company's business
and results of operations.
REAL ESTATE INVESTMENT RISKS
General Risks
The Company's investment in its facilities will be subject to varying
degrees of risk generally incident to the ownership and operation of real
property. The underlying value of the Company's real estate investments is
significantly dependent upon its ability to maintain or increase cash provided
by operations. The value of the Company's facilities and the income from the
facilities may be materially adversely affected by changes in national economic
conditions, changes in general or local economic conditions and neighborhood
characteristics, competition from other lodging facilities, changes in real
property tax rates and in the availability, cost and terms of financing, the
impact of present or future environmental legislation and compliance with
environmental laws, the ongoing need for capital improvements, changes in
operating expenses, changes in governmental rules and fiscal policies, civil
unrest, acts of God, including earthquakes and other natural disasters (which
may result in uninsured losses), acts of war, changes in zoning laws and other
factors which are beyond the control of the Company.
Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions
will be limited. There can be no assurance that the Company will be able to
dispose of an investment when it finds disposition advantageous or necessary or
that the sale price of any disposition will recoup or exceed the amount of the
Company's investment.
Uninsured and Underinsured Losses Could Result in Loss of Value of Facilities
Suburban maintains comprehensive insurance on each of its facilities,
including liability, fire and extended coverage. The Company believes this
coverage is of the type and amount customarily obtained for or by an owner of
similar real property assets. However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes and floods, that may be
uninsurable or not economically insurable. The Company uses its discretion in
determining amounts, coverage limits and deductibility provisions of insurance,
with a view to obtaining appropriate insurance on the Company's facilities at a
reasonable cost and on suitable terms. This may result in insurance coverage
that in the event of a loss would be insufficient to pay the full current market
value or current replacement cost of the Company's lost investment. Inflation,
changes in building codes and ordinances, environmental considerations and other
factors also might make it infeasible to use insurance proceeds to replace a
facility after it has been damaged or destroyed. Under such circumstances, the
insurance proceeds received by the Company might not be adequate to restore its
economic position with respect to such facility.
COMPETITION FOR AND DEPENDENCE ON FRANCHISEES
One of the Company's sources of revenue is franchise agreements with
facility owners. The Company competes with national and regional brand
franchisors, most of which have greater name recognition and financial resources
than the Company. Competition for franchisees is intense among national brand
franchisors in the lodging industry. Suburban believes that its ability to
attract a franchisee is based principally upon both the perceived value and
quality of its brand name and services and the potential economic advantages to
the facility owner of retaining the Company's brand name. The Company believes
that the perceived value of a brand name to a facility owner is in part a
function of the success of the facilities currently under management. No
assurance can be given that the Company will be successful in retaining current
or competing for additional franchisees. While the Company does not anticipate
that the loss or termination of any single franchise agreement would have a
material adverse effect on its operations, the loss of a multi-
11
<PAGE> 13
facility franchisee could have a material adverse effect on the Company's
results of operations. Further, the Company is highly dependent upon the efforts
of its franchisees with respect to revenues from franchising operations,
particularly with franchisees who manage their own facilities. See
"Business -- Business Strategy -- Growth Strategy" and " -- Franchise,
Development and Management Agreements."
EMPHASIS ON SUBURBAN LODGE FACILITIES
The Company intends to develop and franchise additional Suburban Lodge
facilities. Suburban currently does not intend to develop lodging facilities
with other franchisors. Accordingly, Suburban will be subject to risks inherent
in concentrating investments in a single franchise brand, such as a reduction in
business following adverse publicity related to the brand, which could have a
material adverse effect on the Company's business and results of operations.
MARKET CONCENTRATION
Fourteen of the Existing Facilities are located in the State of Georgia,
and 13 of such facilities are located in metropolitan Atlanta. In addition, four
Construction Facilities and six Development Facilities are located in the State
of Georgia, and all of these Construction Facilities are located in metropolitan
Atlanta. See "Business -- The Facilities." Therefore, adverse events or
conditions which affect those areas particularly (such as natural disasters,
adverse changes in local economic conditions or the recent construction of
additional hotels in the Atlanta metropolitan area) could have a pronounced
negative impact on the operations of the Company. The Line of Credit contains
limitations on the Company's ability to expand in the Atlanta, Georgia and
Charlotte, North Carolina areas. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
IMPACT OF ENVIRONMENTAL REGULATIONS
Suburban's operating costs may be affected by the obligation to pay for the
cost of complying with existing environmental laws, ordinances and regulations.
In addition, in the event any future legislation is adopted, the Company may
from time to time be required to make significant capital and operating
expenditures in response to such legislation. Suburban attempts to minimize its
exposure to potential environmental liability through its site selection
procedures. The Company typically secures an option to purchase land subject to
certain contingencies. Prior to exercising such option and purchasing the
property, the Company conducts a Phase I environmental assessment (which
generally involves a physical inspection and database search, but not soil or
groundwater analyses). Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws often impose
liability whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
contamination from hazardous or toxic substances, or the failure to remediate
properly such contaminated property, may materially adversely affect the owner's
ability to use or sell such real property or to borrow using such real property
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether such facility is
or ever was owned or operated by such person. Certain environmental laws and
common-law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which property may be used or transferred or in which businesses
may be operated, and these restrictions may require expenditures. In connection
with the ownership and operation of its facilities, the Company may be liable
for any such costs. Any potential environmental liability the Company may have
solely as a franchisor is less clear; however, the Company's business and
results of operations could be materially adversely affected if a franchisee
incurred environmental liability. Although the Company has not received any
notice of potential liability for environmental cleanups or violations from a
federal, state or local government agency and is not currently aware of any
material environmental claims
12
<PAGE> 14
pending or threatened against it or any of its franchised facilities, no
assurance can be given that such notice will not be served or that a material
environmental claim will not be asserted against the Company and its franchised
facilities. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect the Company's results of operations and financial
condition. See "Business -- Environmental Matters."
GOVERNMENT REGULATION AND COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
The lodging industry is subject to numerous federal, state and local
government regulations including those relating to building and zoning
requirements. Also, the Company is subject to laws governing its relationship
with employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. The Company is also subject to federal
regulations and certain state laws that govern the offer and sale of franchises.
Many state laws impose substantive requirements on franchise agreements,
including limitations on non-competition provisions and termination or
nonrenewal of a franchise. Some states require that certain materials be
approved before franchises can be offered or sold in that state. The failure to
obtain approvals to sell franchises or an increase in the minimum wage rate,
employee benefit costs or other costs associated with employees could materially
adversely affect the Company.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that the Existing
Facilities and the Construction Facilities are substantially in compliance with
these requirements, a determination that the Company or one of its franchisees
is not in compliance with the ADA could result in the imposition of fines or an
award of damages to private litigants. In addition, changes in governmental
rules and regulations or enforcement policies affecting the use and operation of
the facilities, including changes to building codes and fire and life-safety
codes, may occur. If the Company were required to make substantial modifications
at its facilities to comply with the ADA or other changes in governmental rules
and regulations, the Company's financial condition and ability to develop new
facilities could be materially adversely affected.
PROPERTY TAX AND INSURANCE FLUCTUATIONS
Each of the Company's facilities is subject to real property taxes. Real
property taxes may increase or decrease as property tax rates change and as the
facilities are assessed or reassessed by taxing authorities. Also, each of the
Company's facilities is covered by property and casualty insurance. Property and
casualty insurance rates may increase depending upon claims experience,
insurance market conditions and the replacement value of the facilities.
ANTI-TAKEOVER CONSIDERATIONS
Staggered Board
The Company's Board of Directors is divided into three classes serving
staggered three-year terms. The terms of the current directors will expire in
1997, 1998 and 1999. The staggered terms of directors may limit the ability of
the holders of Common Stock to change control of the Company even if a change of
control were in such shareholders' best interests. See "Description of Capital
Stock -- Certain Provisions of Georgia Law and the Company's Articles of
Incorporation and Bylaws." The foregoing may discourage offers or other bids for
the Common Stock at a premium over the market price thereof.
Articles and Bylaws
The ownership positions of Mr. Krischer and the other executive officers
and directors of the Company as a group, together with the anti-takeover effects
of certain provisions in the Company's Articles of Incorporation and Bylaws, may
have the effect of delaying, deferring or preventing a change of control of the
Company, even if a change of control were in the shareholders' best interests.
For example, the Articles of Incorporation require that all shareholder actions
must be effected at a duly-called annual or special meeting of shareholders, and
the Bylaws require that shareholders follow an advance notification procedure
for certain shareholder
13
<PAGE> 15
nominations of candidates for the Board of Directors and for certain other
business to be conducted at any meeting of shareholders. In addition, the
Company's Articles of Incorporation authorize "blank check" preferred stock, so
that the Company's Board of Directors may, without shareholder approval, issue
preferred shares through a shareholders' rights plan or otherwise, which could
inhibit a change of control. See "Description of Capital Stock."
Georgia Anti-Takeover Statutes
The Company has adopted both the fair price and business combinations with
interested stockholders provisions of the Georgia Business Corporation Code
("Georgia Code"), which, in general, impose restrictions upon acquirors of ten
percent or more of the Common Stock. These statutes may delay, defer or prevent
a change of control of the Company, even if a change of control were in the
shareholders' best interests. See "Description of Capital Stock -- Certain
Provisions of Georgia Law and the Company's Articles of Incorporation and
Bylaws -- Anti-Takeover Protection."
Rights Agreement
The Company's Board of Directors has adopted a Rights Agreement (the
"Rights Agreement"). Pursuant to the terms of the Rights Agreement, one right (a
"Right") has been issued in respect of each outstanding share of Common Stock,
and one Right will be issued in respect of each share of Common Stock issued in
the Offering. Rights will also attach to shares of Common Stock issued after the
Offering but prior to the date on which the Rights are distributed pursuant to
the terms of the Rights Agreement. Each Right will entitle the holder thereof to
purchase a fraction of a share of the Company's Series A Participating
Cumulative Preferred Stock or, in certain instances, Common Stock or stock of
the Acquiring Person (as defined below) if, in most instances (i) a third party
or group (an "Acquiring Person") acquires beneficial ownership of 15% or more of
the Common Stock or (ii) a tender or exchange offer that would result in a
person or group becoming an Acquiring Person is commenced. The Rights Plan will
be in effect through May 2006 and could have the effect of discouraging offers
or other bids for the Common Stock at a premium over the market price for the
Common Stock. See "Description of Capital Stock -- Rights Agreement."
VOLATILITY OF MARKET PRICE
The Common Stock has been traded on The Nasdaq Stock Market since the IPO,
and the market price of the Common Stock has risen substantially since such
time. In the future, the market price of the Common Stock could be subject to
significant fluctuations due to variations in quarterly operating results and
other factors, such as changes in general conditions in the economy, the
financial markets or the lodging industry, natural disasters or other
developments affecting the Company or its competitors. In addition, the
securities markets have experienced significant price and volume fluctuations
from time to time in recent years. This volatility has had a significant effect
on the market prices of securities issued by many companies for reasons
unrelated to their operating performance, and these broad fluctuations may
materially adversely affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 3,487,453 shares of Common Stock are, and approximately
776,376 shares of Common Stock will become, eligible for sale in the public
market after the completion of the Offering, subject to compliance with an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), such as Rule 144 or Rule 144A. The holders of
certain of these shares have agreed that they will not sell any shares of Common
Stock held by them (other than shares acquired in the IPO, the Offering or the
public market) for a period of 120 days (180 days in the case of Mr. Krischer)
from the date of this Prospectus, subject to certain exceptions, without the
consent of Montgomery Securities, which may be withheld in its sole discretion.
The Company has also granted "piggyback" registration rights to the persons who
received Common Stock at the consummation of the IPO in conjunction with the
Corporate Organization. The Selling Shareholders have exercised their rights
under the Registration Rights Agreement in connection with the Offering.
Accordingly, approximately 4,506,829 shares remain subject to registration
14
<PAGE> 16
rights. See "Description of Capital Stock -- Registration Rights." In addition,
the Company may consider filing a registration statement covering shares of
Common Stock that may be issued in connection with potential future acquisitions
and resales thereof by the recipients, although no such acquisitions are
currently contemplated. Shares so registered could be sold in the public market.
No predictions can be made as to the effect, if any, that market sales of such
shares or the availability of such shares for sale would have on the market
price for shares of Common Stock prevailing from time to time. Sales of
substantial amounts of shares of Common Stock in the public market following the
Offering could materially adversely affect the market price of the Common Stock
and could impair the Company's future ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. See "Dividend Policy."
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $86.0 million ($99.7 million if the Underwriters' over-allotment
option is exercised in full), based upon an estimated public offering price of
$22.75 per share, the last reported sale price of the Common Stock on The Nasdaq
Stock Market on October 29, 1996. The Company intends to use such net proceeds
to develop additional Company-owned Suburban Lodge facilities.
Pending use of the net proceeds as set forth above, the net proceeds will
be invested in interest-bearing, short-term, investment grade securities or
money market accounts. Such investments may include, for example, government and
government agency securities, certificates of deposit and interest-bearing bank
deposits.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock offered by the Selling Shareholders.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock. The Board of
Directors intends to continue a policy of retaining earnings to finance the
Company's growth and, therefore, does not anticipate paying any such dividends
in the foreseeable future. In addition, the Line of Credit does, and future
financing arrangements may, impose minimum net worth covenants and other
limitations that could restrict the Company's right to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale by the Company of
4,000,000 shares of Common Stock at an assumed public offering price of $22.75
per share after the deduction of the underwriting discount and other estimated
offering expenses and the application of the net proceeds therefrom as described
under "Use of Proceeds." This table should be read in conjunction with the
selected financial data, the historical and combined pro forma financial
statements of the Company and the related notes thereto contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations............................. $ -- $ --
Long-term notes payable to affiliates.................................... -- --
Shareholders' equity:
Preferred Stock, par value $1.00 per share, 5,000,000 shares
authorized; no shares issued and outstanding........................ -- --
Common Stock, par value $0.01 per share, 100,000,000 shares authorized;
8,547,829 shares issued and outstanding; 12,547,829 shares issued
and outstanding, as adjusted(1)..................................... 85 125
Additional paid-in capital............................................. 57,306 143,252
Retained earnings...................................................... 1,250 1,250
------- -----------
Total shareholders' equity........................................ 58,641 144,627
------- -----------
Total capitalization........................................... $58,641 $ 144,627
======= =========
</TABLE>
- ---------------
(1) Excludes (i) 750,000 shares of Common Stock reserved for issuance under the
1996 Plan pursuant to which options to purchase 400,000 shares are
outstanding and (ii) 100,000 shares reserved for issuance under the
Directors' Plan pursuant to which options to purchase 4,500 shares are
outstanding. See "Management -- 1996 Stock Incentive Plans."
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on The Nasdaq Stock Market under the symbol
"SLAM." The price to the public for the Common Stock in the IPO was $17.00 per
share (the "IPO Price"), and the Common Stock began trading on May 23, 1996. The
last reported sale price of the Common Stock on The Nasdaq Stock Market on
October 29, 1996, was $22.75 per share. The following table sets forth for the
periods indicated, the high and low closing sale prices of the Common Stock on
The Nasdaq Stock Market. As of October 29, 1996, there were approximately 50
holders of record and 1,369 beneficial owners, respectively, of the Common
Stock.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1996
Second Quarter (since May 23, 1996)...................................... $26.75 $19.63
Third Quarter............................................................ 24.63 17.50
Fourth Quarter (through October 29, 1996)................................ 24.50 21.50
</TABLE>
17
<PAGE> 19
SELECTED COMBINED HISTORICAL FINANCIAL DATA
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES
(IN THOUSANDS, EXCEPT SHARE AND OPERATING DATA)
The selected combined financial data set forth below has been derived from
the historical combined financial statements of Suburban Lodges of America, Inc.
and Affiliated Entities. The historical combined financial statements of
Suburban Lodges of America, Inc. and Affiliated Entities for the three years
ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent
accountants, whose report thereon appears elsewhere herein. The selected data
for the years 1991 and 1992 and the nine month periods ended September 30, 1995
and 1996 have been derived from the unaudited combined financial statements of
Suburban Lodges of America, Inc. and Affiliated Entities. In the opinion of
management, the unaudited financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The combined historical results for the nine
months ended September 30, 1995 and 1996 are not necessarily indicative of the
results for a full year. These selected combined financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical combined financial statements and
related notes thereto of Suburban Lodges of America, Inc. and Affiliated
Entities.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue......................... $ 2,055 $ 2,184 $ 2,893 $ 3,904 $ 4,431 $ 3,171 $ 5,329
Other facility revenue............... 146 173 223 290 296 210 381
Franchise and other revenue.......... 51 194 247 151 460 315 703
------- ------- ------- ------- ------- ------- ----------
Total revenue...................... 2,252 2,551 3,363 4,345 5,187 3,696 6,413
------- ------- ------- ------- ------- ------- ----------
Expenses:
Facility operating expenses.......... 937 1,058 1,364 1,768 2,072 1,519 2,578
Corporate operating expenses......... 336 378 429 737 883 554 974
Related party consulting fees........ -- -- -- -- 17 9 10
Depreciation and amortization........ 375 323 372 416 460 299 438
------- ------- ------- ------- ------- ------- ----------
Total expenses..................... 1,648 1,759 2,165 2,921 3,432 2,381 4,000
------- ------- ------- ------- ------- ------- ----------
Operating income....................... 604 792 1,198 1,424 1,755 1,315 2,413
Interest income........................ -- -- -- -- -- -- 347
Interest expense....................... (782) (614) (725) (936) (1,098) (688) (554)
------- ------- ------- ------- ------- ------- ----------
Income (loss) before income taxes and
extraordinary income............... (178) 178 473 488 657 627 2,206
Income taxes (benefit)(1).............. -- -- -- (14) (20) -- 586
Extraordinary income from early
extinguishment of debt............... -- -- -- 130 -- -- --
------- ------- ------- ------- ------- ------- ----------
Net income (loss).................... ($ 178) $ 178 $ 473 $ 632 $ 677 $ 627 $ 1,620
======== ======== ======== ======== ======== ======== ==========
Pro forma earnings per share(2)........ $ 0.23
==========
Pro forma weighted average shares
outstanding(2)....................... 5,918,623
CASH FLOW DATA:
EBITDA(3).............................. $ 979 $ 1,115 $ 1,570 $ 1,840 $ 2,215 $ 1,614 $ 2,851
Cash flows provided by (used in):
Operating activities................. (143) 399 879 929 1,305 927 2,158
Investing activities................. (129) (15) (2,349) (651) (4,791) (3,168) (26,236)
Financing activities................. 348 (273) 1,561 (238) 3,707 2,446 43,100
(Notes on following page)
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(4):
Number of facilities open at end of
period:
Company-owned........................ 3 3 5 5 6 6 11
Franchised........................... 1 3 3 4 6 5 8
------- ------- ------- ------- ------- ------- ----------
System-wide........................ 4 6 8 9 12 11 19
======== ======== ======== ======== ======== ======== ==========
Company-owned facilities:
Occupancy............................ 90.9% 92.9% 95.5% 97.7% 95.8% 97.8% 92.4%
Average weekly rate.................. $111.34 $116.59 $121.96 $128.69 $136.77 $134.81 $ 157.88
Weekly REVPAR(5)..................... $101.26 $108.27 $116.47 $125.74 $130.93 $131.42 $ 143.45
Franchised facilities:
Occupancy............................ 88.4% 85.9% 96.8% 98.9% 93.2% 99.4% 90.7%
Average weekly rate.................. $107.42 $119.15 $123.21 $131.03 $146.34 $142.14 $ 166.58
Weekly REVPAR(5)..................... $ 94.46 $101.57 $119.23 $129.59 $135.44 $141.36 $ 149.94
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 226 $ 337 $ 428 $ 467 $ 687 $ 672 $ 19,709
Total assets......................... 6,101 5,872 9,097 9,640 15,004 12,899 61,219
Long-term debt....................... 6,231 6,258 9,357 10,072 13,818 12,832 --
Shareholders' equity (deficit)....... (649) (623) (512) (692) 100 (378) 58,641
</TABLE>
- ---------------
(1) Historical financial data does not include a provision for income taxes for
Affiliated Entities because such entities were limited liability companies
or partnerships not subject to income taxes. Income taxes or income tax
benefits have been provided for Suburban Lodges of America, Inc. and its
subsidiaries where appropriate under SFAS 109, "Accounting for Income
Taxes." See Note 8 to the Combined Financial Statements.
(2) Earnings per share information for the historical nine months ended
September 30, 1996 has been calculated by dividing net income, adjusted to
provide for income taxes (approximately $827,000 for the nine months ended
September 30, 1996), by the weighted average number of common shares
outstanding during the period assuming that the shares issued in the
Corporate Organization and the related stock split were issued on January
1, 1996. Outstanding shares of Suburban Lodges of America, Inc. differ
substantially on a historical basis prior to the IPO from the shares of
Common Stock outstanding after the IPO. Accordingly, the Company believes
that the presentation of historical per share information for periods prior
to the nine months ended September 30, 1996 is not meaningful.
(3) EBITDA represents income (loss) before interest expense, income taxes (if
applicable) and depreciation and amortization. EBITDA is a commonly used
financial analysis tool for measuring and comparing lodging companies and
other companies with significant amortization and depreciation expense and
for analyzing operating performance, leverage and liquidity of such
companies. Such data are not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
(4) Information for the nine month periods ended September 30, 1995 and 1996 is
provided from the beginning of the first calendar month following the date
of opening or acquisition of each facility, and all other information is
presented from the date of opening or acquisition.
(5) Weekly REVPAR is determined by dividing room revenue by the number of guest
room days available for the period and multiplying by seven.
19
<PAGE> 21
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SUBURBAN LODGES OF AMERICA, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The Company's unaudited pro forma combined statements of operations for the
year ended December 31, 1995 and for the nine month periods ended September 30,
1995 and 1996 are presented as if the Corporate Organization, the IPO and the
application of the net proceeds therefrom had occurred as of January 1, 1995.
See "Use of Proceeds." The pro forma information is based in part upon, and
should be read in conjunction with, the combined financial statements of
Suburban Lodges of America, Inc. and Affiliated Entities and the notes thereto
and the financial statements of Gulf Coast Associates, Ltd. d/b/a Suburban Lodge
of Forest Park and the notes thereto which are contained elsewhere in this
Prospectus. In management's opinion, all adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited pro forma combined statements of operations are not
necessarily indicative of what actual results of operations of the Company would
have been assuming such transactions had been completed as of January 1, 1995,
nor do they purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------
SUBURBAN
LODGES
OF AMERICA, INC.
AND AFFILIATED GULF COAST ASSOCIATES,
ENTITIES LTD. (FOREST PARK PRO FORMA COMPANY
HISTORICAL FACILITY) ADJUSTMENTS PRO FORMA
---------------- ---------------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenue:
Room revenue................... $4,431 $851 $ 5,282
Other facility revenue......... 296 49 345
Franchise and other revenue.... 460 -- ($109)(A) 351
------- ------ ----------
Total revenue.......... 5,187 900 5,978
------- ------ ----------
Expenses:
Facility operating expenses.... 2,072 495 (109)(A) 2,458
Corporate operating expenses... 883 -- 393(B) 1,276
Related party consulting
fees........................ 17 17
Depreciation and
amortization................ 460 128 109(C) 697
------- ------ ----------
Total expenses......... 3,432 623 4,448
------- ------ ----------
Operating income................. 1,755 277 1,530
Interest expense................. 1,098 307 (1,405)(D) --
Income taxes (benefit)........... (20) -- 594(E) 574
------- ------ ----------
Net income (loss)................ $ 677 ($30) $ 956
=========== ================ =========
Pro forma net income per
share(F)....................... $ 0.14
=========
Pro forma weighted average shares
outstanding(F)................. 6,622,251
</TABLE>
- ---------------
(Notes on following page)
20
<PAGE> 22
(A) Reflects the elimination of certain intercompany transactions which are as
follows: (i) franchise costs -- $27; (ii) management and incentive
fees -- $79 and (iii) administrative fees -- $3.
(B) Reflects an increase in: (i) salaries and benefits -- $106; (ii) audit and
tax fees -- $65; (iii) legal expenses -- $35; (iv) directors' fees,
expenses and stock awards -- $40; (v) directors' and officers'
insurance -- $125 and (vi) additional overhead -- $22; in each case, as a
result of becoming a public company.
(C) Reflects the following: (i) the elimination of amortization on deferred
loan costs on the previous indebtedness -- $26; (ii) the new amortization
on deferred loan costs related to $25 million of the Line of Credit -- $125
and (iii) adjustment to record the new depreciation related to the
acquisition price of the Forest Park facility computed using the straight
line method over 40 years for buildings and the straight line method over
seven years for fixtures and equipment -- $10.
(D) Reflects reduction of interest expense due to the repayment of all
outstanding indebtedness from the proceeds of the IPO -- $1,098 and the
elimination of interest expense on the Forest Park facility -- $307.
(E) Historical financial data does not include a provision for income taxes for
the Affiliated Entities because such entities were partnerships or limited
liability companies not subject to income taxes. The historical financial
data does include a provision for income taxes for Suburban Lodges of
America, Inc. and subsidiaries. The pro forma adjustments reflect federal
and state income taxes (assuming a 37.5% combined effective tax rate) as if
the Company had been taxed as a C-Corporation.
(F) Pro forma per share information assumes that 6,622,251 shares were issued
in connection with the Corporate Organization and its related stock split
and the IPO on January 1, 1995. Shares outstanding for purposes of
computing pro forma earnings per share exclude 1,925,578 shares issued
relative to amounts used for general corporate purposes. Outstanding shares
of Suburban Lodges of America, Inc. differ substantially on a historical
basis from the shares of Common Stock outstanding after the IPO.
Accordingly, the Company believes that the presentation of historical per
share information is not meaningful.
21
<PAGE> 23
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SUBURBAN LODGES OF AMERICA, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
NINE MONTHS ENDED SEPTEMBER 30, 1995 1996
---------------------------------------------------------------- ----------------------------------
SUBURBAN SUBURBAN
LODGES LODGES
OF AMERICA, INC. GULF COAST OF AMERICA, INC. GULF COAST
AND AFFILIATED ASSOCIATES, LTD. AND AFFILIATED ASSOCIATES, LTD.
ENTITIES (FOREST PARK PRO FORMA COMPANY ENTITIES (FOREST PARK
HISTORICAL FACILITY) ADJUSTMENTS PRO FORMA HISTORICAL FACILITY)(A)
---------------- ---------------- ------------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........ $3,171 $643 $ 3,814 $ 5,329 $ 395
Other facility
revenue........... 210 37 247 381 32
Franchise and other
revenue........... 315 -- (54)(B) 261 703 --
------ ------ --------- ---------------- ------
Total
revenue..... 3,696 680 4,322 6,413 427
------ ------ --------- ---------------- ------
Expenses:
Facility operating
expenses.......... 1,519 564 (54)(B) 2,029 2,578 359
Corporate operating
expenses.......... 554 -- 295(C) 849 974 --
Related party
consulting fees... 9 -- 9 10 --
Depreciation and
amortization...... 299 96 84(D) 479 438 53
------ ------ --------- ---------------- ------
Total
expenses.... 2,381 660 3,366 4,000 412
------ ------ --------- ---------------- ------
Operating income...... 1,315 20 956 2,413 15
Interest income....... -- -- -- 347 --
Interest expense...... (688) (230) 918(E) -- (554) (128)
Income taxes
(benefit)........... -- -- 359(F) 359 586 --
------ ------ --------- ---------------- ------
Net income (loss)..... $ 627 ($210) $ 597 $ 1,620 ($ 113)
============ ============ ======== ============ ============
Pro forma net income
per share(G)........ $ 0.23
============
Pro forma weighted
average shares
outstanding(G)...... 5,918,623
============
<CAPTION>
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
------------- ----------
<S> <C> <C>
Revenue:
Room revenue........ $5,724
Other facility
revenue........... 413
Franchise and other
revenue........... (34)(B) 669
----------
Total
revenue..... 6,806
----------
Expenses:
Facility operating
expenses.......... (34)(B) 2,903
Corporate operating
expenses.......... 164(C) 1,138
Related party
consulting fees... 10
Depreciation and
amortization...... 94(D) 585
----------
Total
expenses.... 4,636
----------
Operating income...... 2,170
Interest income....... 347
Interest expense...... 682(E) --
Income taxes
(benefit)........... 358(F) 944
----------
Net income (loss)..... $ 1,573
==========
Pro forma net income
per share(G)........ $ 0.21
==========
Pro forma weighted
average shares
outstanding(G)...... 7,496,873
==========
</TABLE>
(Notes on following page)
22
<PAGE> 24
(A) The amounts for Gulf Coast Associates, Ltd. (Forest Park facility) include
only the results prior to the acquisition by Suburban Lodges of America,
Inc. Results after the acquisition are included in the Suburban Lodges of
America, Inc. historical amounts.
(B) Reflects the elimination of certain intercompany transactions which are as
follows for 1995: (i) franchise costs -- $20 and (ii) management and
incentive fees -- $34. Such adjustments for 1996 are: (i) franchise
costs -- $13 and (ii) management and administrative fee -- $21.
(C) Reflects the following increases:(i) salaries and benefits -- $80 in 1995
and $44 in 1996; (ii) audit and tax fees -- $49 in 1995 and $27 in 1996;
(iii) legal expenses -- $26 in 1995 and $15 in 1996; (iv) directors' fees,
expenses and stock awards -- $30 in 1995 and $17 in 1996; (v) directors'
and officers' insurance -- $94 in 1995 and $52 in 1996; and (vi) additional
overhead -- $16 in 1995 and $9 in 1996.
(D) Reflects the following: (i) the elimination of amortization on deferred
loan costs on the previous indebtedness -- $19 in 1995 and $5 in 1996; (ii)
the new amortization on deferred loan costs related to $25 million of the
Line of Credit -- $94 in 1995 and 1996 and (iii) adjustment to record the
new depreciation related to the acquisition price of the Forest Park
facility computed using the straight line method over 40 years for
buildings and the straight line method over seven years for fixtures and
equipment -- $9 in 1995 and $5 in 1996.
(E) Reflects reduction of interest expense due to the repayment of all
outstanding indebtedness from the proceeds of the IPO -- $688 in 1995 and
$554 in 1996 and the elimination of interest expense on the Forest Park
facility -- $230 in 1995 and $128 in 1996.
(F) Historical financial data does not include a provision for income taxes for
the Affiliated Entities because such entities were owned by partnerships or
limited liability companies not subject to income taxes. The historical
financial data does include a provision for income taxes for Suburban
Lodges of America, Inc. and subsidiaries. The pro forma adjustments reflect
federal and state income taxes (assuming a 37.5% combined effective tax
rate) as if the Company had been taxed as a C-Corporation.
(G) Earnings per share information for the historical nine months ended
September 30, 1996 has been calculated by dividing net income, adjusted to
provide for income taxes (approximately $827,000 for the nine months ended
September 30, 1996), by the weighted average number of common shares
outstanding during the period assuming that the shares issued in the
Corporate Organization and the related stock split were issued on January
1, 1996. Pro forma earnings per share information for the pro forma nine
months ended September 30, 1996 has been calculated by dividing pro forma
net income by the weighted average number of common shares outstanding for
the historical nine months ended September 30, 1996 adjusted to reflect the
issuance of shares in the IPO on January 1, 1996 for which the proceeds
were used for other than general corporate purposes.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Formed in 1987, the Company presently owns and operates 12 Suburban Lodge
facilities and franchises nine additional Suburban Lodge facilities located in
five southeastern states. These Existing Facilities contain an aggregate of
2,723 guest rooms, have an average of 130 guest rooms and average approximately
2.4 years in age. The Company anticipates that an additional six Suburban Lodge
facilities, four Company-owned and two franchised, will open during the
remainder of 1996 resulting in an aggregate of 27 Suburban Lodge facilities by
year-end. The Company intends to continue the growth of the Suburban Lodge chain
in 1997 by opening approximately 38 additional Suburban Lodge facilities (20
Company-owned facilities and 18 franchised facilities), which would result in a
total of 65 Suburban Lodge facilities by the end of 1997. There are currently 14
facilities under construction (nine Company-owned and five franchised), and
sites have been acquired or are under contract for 23 facilities (eight
Company-owned and 15 franchised). There can be no assurance that the Company and
its franchisees will be able to complete the development of all of these
facilities. See "Prospectus Summary -- Forward-Looking Statements" and "Risk
Factors -- Development Risks."
The Company's growth strategy is to develop additional Company-owned
facilities and to franchise the Suburban Lodge concept to independent developers
and operators, as well as to passive investors who may retain the Company to
develop and manage their Suburban Lodge facilities. The Company has obtained a
Line of Credit to fund future development projects and for working capital.
Suburban's principal operating strategies are to (i) provide its guests with
clean, comfortable and attractive accommodations at weekly rates substantially
lower than those offered by most traditional and other extended stay lodging
facilities; (ii) control operating costs at each of its facilities and maintain
above industry average operating margins and (iii) ensure guest satisfaction
through a commitment to customer service. Given the Company's focus on
maintaining competitive prices and the historically high occupancies at the
Existing Facilities, the Company's growth is expected to be generated
principally by the development of new Company-owned and franchised Suburban
Lodge facilities.
RESULTS OF OPERATIONS
The following table sets forth certain combined historical operating
information for Suburban Lodges of America, Inc. and Affiliated Entities, as a
percentage of total revenue, for the periods indicated.
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES(1)
---------------------------------------
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER
DECEMBER 31, 30,
--------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Room revenue............................................. 86.0% 89.9% 85.4% 85.8% 83.1%
Other facility revenue................................... 6.7 6.7 5.7 5.7 5.9
Franchise and other revenue.............................. 7.3 3.4 8.9 8.5 11.0
----- ----- ----- ----- -----
Total revenue.................................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Facility operating expenses.............................. 40.6 40.7 40.0 41.1 40.2
Corporate operating expenses and related party consulting
fees................................................... 12.8 17.0 17.3 15.2 15.4
Depreciation and amortization............................ 11.1 9.6 8.9 8.1 6.8
----- ----- ----- ----- -----
Total expenses................................. 64.5 67.3 66.2 64.4 62.4
----- ----- ----- ----- -----
Operating income......................................... 35.5% 32.7% 33.8% 35.6% 37.6%
===== ===== ===== ===== =====
</TABLE>
(Note on following page)
24
<PAGE> 26
The following table sets forth certain information with respect to facility
level operating performance for the periods indicated, which the Company
believes to be important in assessing its operating performance.
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES(1)
-------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- -------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Facility operating expenses as a percentage of room revenue
and other facility revenue............................... 43.8% 42.2% 43.8% 44.9% 45.2%
Facility operating margin.................................. 56.2 57.8 56.2 55.1 54.8
----- ----- ----- ----- -----
Total............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Information for the Forest Park facility is included in the data for the
nine months ended September 30, 1996, from the date of its acquisition by
the Company.
Comparison of the nine months ended September 30, 1996 to the nine months
ended September 30, 1995
Total revenue for the nine month period ended September 30, 1996 was
approximately $6,413,000, which was an increase of $2,717,000, or 73.5%, over
the nine month period ended September 30, 1995. Room revenue for the period
increased by approximately $2,158,000, of which approximately $1,988,000 was
attributable to the opening and full year-to-date results of the Matthews
facility which opened in August 1995, the partial year-to-date room revenue for
facilities which opened in 1996, as well as the acquisition of the Forest Park
facility in May 1996. Approximately $170,000 of the increase in revenue was
attributable to facilities open throughout both periods, reflecting an 8.2%
increase in Weekly REVPAR for those facilities. The increase in total room
revenue resulted from a 17.3% increase in the average weekly rate from $134.31
to $157.59, which reflects additional revenue at two facilities as a result of
the Olympics and an increase in the availability of deluxe rooms at the
facilities which opened in 1996. This increase was partially offset by a
decrease in occupancy of 5.4%, which resulted from the number of new facilities
opened in 1996 and the need to commence a normal rent-up process immediately
following the Olympics at the two most recently opened facilities in the Atlanta
metropolitan area.
Franchise and other revenue from corporate operations for the nine month
period ended September 30, 1996, which includes management, franchise and
development revenue, was approximately $703,000, an increase of $388,000, or
approximately 123.2%, over the nine month period ended September 30, 1995.
Franchise revenue for the period increased $139,000, or approximately 93.2%,
from $149,000 in 1995 to $288,000 in 1996. The additional franchise revenue
reflects initial franchise fees on six new Suburban Lodge facilities opened in
1996 (including two facilities acquired in the Corporate Organization) and
increased royalties on open facilities. Development and construction revenue
increased approximately $211,000 due to the accelerated development of
additional facilities during 1996, all of which were later acquired by the
Company in the Corporate Organization.
Facility operating expenses increased $1,059,000, or approximately 69.7%,
to $2,578,000 for the nine month period ended September 30, 1996 from $1,519,000
for the nine month period ended September 30, 1995. The majority of this
increase reflects the opening and full year-to-date expenses for the Matthews
facility and the partial year expenses for the four facilities which opened in
1996 and the Forest Park facility, which was acquired in May 1996. The balance
of the increase in facility operating expenses of $155,000 is related to
increases in expenses at facilities open during the entire period for both
periods. Depreciation and amortization increased $139,000, or approximately
46.4%, principally as a result of the facilities opened in 1996 and the
acquisition of the Forest Park facility. Facility operating margin decreased
from 55.1% to 54.8% from September 30, 1995 to September 30, 1996, due primarily
to fixed operating costs associated with new facilities opened in 1996.
25
<PAGE> 27
Corporate operating expenses increased $420,000, or approximately 75.8%, to
$974,000 due to additional staffing in the financial, management and development
sections of the business, legal and professional fees associated with being a
public company and executive compensation and benefit plans. Interest expense
during the nine month period ended September 30, 1996 decreased to $554,000 from
$688,000 in the nine month period ended September 30, 1995. The decrease is
primarily attributable to the use of a portion of the net proceeds from the IPO
to retire all the then existing debt.
Income taxes were $586,000 as compared to $0 in 1995 as a result of the
Company becoming a taxable entity.
Comparison of the year ended December 31, 1995 to the year ended December 31,
1994
Total revenue for the year ended December 31, 1995 was approximately
$5,301,000, which was an increase of $957,000, or 22.0%, over the year ended
December 31, 1994. Room revenue for the period increased by approximately
$528,000, of which approximately $354,000 was attributable to the opening of the
Matthews facility in August 1995 and $174,000 was attributable to facilities
open throughout both periods. The increase in room revenue for facilities open
throughout both periods resulted from a 4.1% increase in Weekly REVPAR from
$125.74 to $130.93. The increase resulted from a 6.3% increase in average weekly
rates from $128.69 to $136.77, which was partially offset by a slight decrease
in occupancy.
Franchise and other revenue from corporate operations for the year ended
December 31, 1995, which includes management, construction and development
revenue, was approximately $460,000, an increase of $309,000, or approximately
205.0%, over the year ended December 31, 1994. Franchise revenue for the period
increased $96,000, or approximately 98.0%, from $98,000 in 1994 to $194,000 in
1995. The additional franchise revenue reflects two initial franchise fees for
facilities which opened in 1995, and increased royalties on open facilities as a
result of increases in revenue at these facilities. The franchise component of
the Company's business produces a high return as a result of its relatively
small incremental overhead. Management foresees accelerated expansion of this
component of the Company's business. Development and construction revenue from
the development of five additional sites acquired or placed under construction
during the year for third party franchisees were approximately $44,000 and
$116,000, respectively, in 1995, representing an aggregate increase of
approximately $154,000 from 1994. Management fees in 1995, for third party
management activities, increased to approximately $107,000 from $47,000 in 1994.
Facility operating expenses increased $304,000, or approximately 17.2%, to
$2,072,000 for the year ended December 31, 1995 from $1,768,000 for the year
ended December 31, 1994. More than half the increase, or $166,000, resulted from
preparation for the opening and operation of the Matthews facility. The
Company's policy is to expense pre-opening costs as they are incurred due to the
short stabilization period for its facilities. The balance of the increase in
facility operating expenses of $138,000 is related to increases in expenses at
facilities open during the entire year. Management's focus on recruiting
property managers, expanding compensation and benefit programs, implementing
proactive quality assurance programs to ensure all rooms are maintained at
quality standards and general increases in utilities and guest supplies were the
principal causes for the $138,000 increase in costs. Depreciation and
amortization increased $44,000, or approximately 10.6%, principally as a result
of the opening of the Matthews facility.
Corporate operating expenses and related party consulting fees increased
$163,000, or approximately 22.1%, to $900,000. This increase was due to the
addition of senior management, including hiring a Chief Financial Officer and
Treasurer, a Vice President of Development and a land acquisition specialist, to
help prepare for accelerated development and expansion, as well as upgrades in
computer systems, corporate advertising and marketing programs and executive
compensation and benefit plans.
Interest expense during 1995 increased $162,000, or approximately 17.3%, to
$1,098,000, primarily from an increase in indebtedness associated with the
opening of the Matthews facility. As of December 31, 1995, Suburban had
outstanding indebtedness on six of the Existing Facilities of $10,668,000. The
Company's policy is to capitalize interest expense incurred in connection with
the construction and development of Suburban Lodge facilities prior to their
opening dates.
26
<PAGE> 28
Comparison of the year ended December 31, 1994 to the year ended December 31,
1993
Total revenue for the year ended December 31, 1994 was $4,345,000, an
increase of $982,000, which represents a 29.2% increase over the year ended
December 31, 1993. Room revenue for the period increased by approximately
$1,011,000, of which approximately $881,000 was attributable to a full year of
operations in 1994 for the Mableton and Greenville facilities, and $130,000 was
attributable to facilities open throughout both periods. The $130,000 increase
in room revenue resulted principally from a 8.0% increase in Weekly REVPAR from
$116.47 to $125.74, which was caused by a 5.5% increase in average weekly rate
from $121.96 to $128.69 and a modest increase in occupancy. Other facility
revenue in 1994, which includes television rental, telephone charges and laundry
revenue, increased by approximately $67,000, principally as a result of the full
year of operations of the Mableton and Greenville facilities.
Franchise and other revenue from corporate operations for the year ended
December 31, 1994, which includes management, construction and development
revenue, was $151,000, a decline of $96,000, or approximately 38.9%, from the
year ended December 31, 1993. Franchise revenue for the period increased by
$32,000, or approximately 48.5%, from $66,000 in 1993 to $98,000 in 1994.
However, development and construction revenue from the development of third
party franchised facilities declined by $122,000 as a result of the lack of
development activity during 1994.
Facility operating expenses increased $404,000, or approximately 29.6%, to
$1,768,000 for the year ended December 31, 1994 from $1,364,000 for the year
ended December 31, 1993. Of such increase, $363,000 resulted from the inclusion
of a full year of operating expenses at the Mableton and Greenville facilities,
which were opened or acquired in June 1993 and September 1993, respectively. The
remaining increases resulted from a change in utilities and real estate taxes at
the facilities. Depreciation and amortization increased $44,000, or
approximately 11.8%, principally as a result of a full year of depreciation of
the Mableton and Greenville facilities.
Corporate operating expenses increased $308,000, or approximately 71.9%, to
$737,000. The increase is due primarily to increases in salaries and benefits
and general office expenses related to new site openings and increased franchise
activity, which had a positive impact on income in 1995.
During 1994, interest expense increased $212,000, or approximately 29.3%,
from $724,000 to $936,000, due to an increase in indebtedness associated with
the opening of the Mableton and Greenville facilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company applied a portion of the net proceeds from the IPO to the
repayment of approximately $21 million in debt, plus accrued interest, and paid
approximately $7.6 million in connection with the acquisition of certain
facilities as part of the Corporate Organization, leaving approximately $30
million available for development of additional Suburban Lodge facilities and
general corporate purposes. Since the IPO, the Company has used a portion of the
net proceeds from the IPO and cash flow from operations to fund development and
construction of additional facilities and for working capital. As of September
30, 1996, the Company had cash and cash equivalents of approximately $19.7
million, and it has not yet borrowed any funds under the Line of Credit.
The Company anticipates that the total development and construction costs
for completion of the nine Company-owned Construction Facilities and the eight
Company-owned Development Facilities will be approximately $60 million, of which
$8.8 million has already been spent as of September 30, 1996. The Company
anticipates that the total cost to open all 24 Company-owned facilities expected
to open by the end of 1997 will be approximately $85 million. The Company
intends to fund the development and construction of these facilities with
existing cash balances, the net proceeds from the Offering, cash flow from
operations and borrowings under the Line of Credit. The Company anticipates that
in the immediate future a typical 136-guest room Suburban Lodge facility will
cost approximately $3.55 million (approximately $26,000 per guest room) to
develop and construct, including building structures, improvements, furniture,
fixtures, equipment, land and pre-opening costs. See "Prospectus
Summary -- Forward-Looking Statements."
27
<PAGE> 29
The Company has obtained a $25 million Line of Credit with PNC Bank,
Kentucky, Inc. ("PNC"), a commitment from PNC to increase the Line of Credit to
$50 million, and a preliminary commitment from its lenders to increase the Line
of Credit to $100 million, which is subject to obtaining other participating
lenders, although there can be no assurance that such lenders will be obtained.
Borrowings under the Line of Credit will bear interest at the Company's election
at (i) the higher of PNC's prime rate plus three-quarters of one percent or the
Federal Funds rate plus one and one-quarter percent or (ii) the Euro-Rate plus
two and one-quarter percent. The debt due under the Line of Credit matures on
September 25, 1998; advances under the Line of Credit are secured by
substantially all of the Company's assets, and the Company may not incur
additional debt on the assets securing the Line of Credit. Advances under the
Line of Credit may not exceed 45% of the appraised value of the Company-owned
facilities based on PNC-commissioned appraisals. The Line of Credit contains the
following financial covenants: maintenance of a minimum debt service coverage
ratio of 2.25x, a minimum ratio of earnings before interest, taxes, depreciation
and amortization to consolidated debt service of 2.50x and a maximum ratio of
consolidated debt to the market value of the Company of 45%. In addition, the
Company may not incur any unsecured debt (other than normal trade payables), may
not incur more than $50 million of recourse debt (including the Line of Credit),
must limit investment in facilities under development and land to 35% of the
market value of the Company and must maintain a net worth equal to or greater
than $30 million plus 80% of the aggregate net proceeds received by the Company
from any equity offering subsequent to the closing of the Line of Credit.
Further, no more than 15% of Company-owned facilities may be concentrated in a
single Metropolitan Statistical Area ("MSA"), excluding the Atlanta, Georgia and
Charlotte, North Carolina MSAs and the Company may not own more than 10
facilities in the Atlanta, Georgia MSA or four facilities in the Charlotte,
North Carolina MSA without PNC's consent. Borrowings under the Line of Credit
may be prepaid without prepayment penalty.
In the future, the Company may seek to increase the amount of its credit
facilities, negotiate additional credit facilities or issue corporate debt or
equity securities. Any debt incurred or issued by the Company may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
the Board of Directors of the Company deems prudent.
The Company believes that existing cash balances, the net proceeds to the
Company from the Offering, cash generated from operations and borrowings under
the Line of Credit, will be sufficient to meet the Company's working capital and
capital expenditure needs through the end of 1997. However, additional capital
may be necessary for the Company to execute its long-term development plans.
SEASONALITY
Management believes that extended stay lodging facilities are not as
seasonal in nature as the overall lodging industry due to long-term guest stays.
Based upon the experience of the Existing Facilities, management expects that
occupancy and revenues may be lower than normal during the months of November,
December and January due to the holiday season. Because many of Suburban's
expenses do not fluctuate with occupancy, such declines in occupancy may cause
fluctuations or decreases in the Company's quarterly earnings.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenue or operating results of the
Company. However, inflation in the future could affect the Company's operating
or construction costs. See "Risk Factors -- Development Risks."
28
<PAGE> 30
BUSINESS
OVERVIEW
The Company develops, owns, manages and franchises Suburban Lodge(R)
facilities, which are economy extended stay lodging facilities designed to
appeal to value-conscious guests seeking to "Lodge for Less."(SM) The Company
believes that the Suburban Lodge chain is one of the largest lodging chains
(based on number of guest rooms and facilities) devoted to serving the economy
extended stay market. Suburban Lodge guest rooms are fully furnished and include
a combination living room and bedroom, a bathroom and a fully equipped
kitchenette. Weekly maid and linen service, access to cable or satellite
television and coin-operated laundromats are also provided to allow guests to
stay comfortably for extended periods. Suburban Lodge facilities offer clean,
comfortable and attractive accommodations to guests at substantially lower rates
than most traditional and other extended stay lodging facilities. Although daily
rates are available, substantially all guests pay the Company's weekly rates,
which currently range from $139 to $169 per week for single occupancy and from
$153 to $189 per week for double occupancy, for the Company's standard size
rooms.
The extended stay segment of the lodging industry, which includes economy
extended stay facilities, is a relatively small but growing segment of the
lodging industry. Of the approximately 3.3 million guest rooms available in the
U.S. lodging industry at the end of August 1996, there were approximately
53,000, or 1.6%, dedicated extended stay guest rooms at approximately 460
properties. Based upon the high occupancy rates of the Existing Facilities,
published occupancy rates for other participants in the extended stay market and
industry sources, the Company believes that demand for extended stay lodging
facilities compares favorably to the existing supply of facilities in this
segment of the market. According to industry sources, non-convention stays of
five nights or longer accounted for 259 million, or 29.8%, of the 868 million
total hotel room nights used in 1995. The Company believes that Suburban Lodge
facilities appeal to an underserved and growing segment of guests in the
extended stay market. These guests include business travelers (particularly
those with limited or no expense accounts), individuals on temporary work
assignments, persons between domestic situations, persons relocating or
purchasing a home, tourists and other value-conscious customers desiring low-
cost, longer-term, quality accommodations with fully equipped kitchenettes, with
individuals on temporary work assignments and persons relocating or purchasing a
home constituting the two largest groups of guests. Suburban believes that the
extended stay market offers a number of attractive investment characteristics
compared to traditional hotels, including higher than industry average occupancy
rates and operating margins.
The Company believes that the following features differentiate the Suburban
Lodge system and its facilities from, and provide a competitive advantage over,
many traditional hotels and other extended stay lodging facilities:
- LOW WEEKLY RATES. Suburban Lodge facilities offer weekly rates
substantially lower than those offered by most traditional and other
extended stay lodging facilities. The average weekly rate at the Nine
Mature Facilities during the year ended December 31, 1995 was $139.69,
compared to an equivalent average weekly rate (average daily rate
multiplied by seven) of $546.21 for extended stay hotels and $239.96 for
lower economy hotels. The average weekly rate at the 12 facilities open
during the entire nine months ended September 30, 1996 was $155.56.
- KITCHENETTES. Each Suburban Lodge guest room contains a fully equipped
kitchenette, including a refrigerator, two-burner stove-top, microwave
oven and cooking and eating utensils.
- LONGER GUEST STAYS. Suburban designs, markets and prices its guest rooms
to appeal to guests staying one week or longer. The Company believes that
this strategy results in longer guest stays and higher occupancies. The
average guest stay at the 12 facilities open during the entire nine months
ended September 30, 1996 was approximately five and one-half weeks.
- HIGHER OCCUPANCY. Average occupancy at the Nine Mature Facilities during
1995 was 97.6%, which compares favorably to the average occupancy of 81.2%
for extended stay hotels and 64.3% for lower economy hotels during the
same period. Average occupancy at the 12 facilities open during the entire
nine months ended September 30, 1996 was 95.8%. The Company believes that
its high occupancy is
29
<PAGE> 31
primarily a result of the combination of its low weekly rates and its
guest room amenities. Many of the Existing Facilities frequently maintain
waiting lists of people seeking available guest rooms.
- OPERATING EFFICIENCIES. The Company seeks to minimize costs throughout
its operations. Suburban believes that long-term guest stays, weekly
rather than daily housekeeping and limited office hours produce
significant operating efficiencies. Each Suburban Lodge facility has a
staff of approximately six to eight on-site employees, including a general
manager, which is substantially smaller than the staffs at most
traditional lodging facilities.
- STANDARD DESIGN AND LOW CONSTRUCTION COSTS. Suburban Lodge facilities
are designed and built to uniform plans and specifications developed and
periodically refined since 1987. The Company believes that standardization
lowers construction costs and establishes consistent quality. The average
total investment in the five Company-owned Existing Facilities opened
during 1996 was approximately $3.4 million with a range of approximately
$23,100 to $26,100 per guest room, including building structures,
improvements, furniture, fixtures, equipment, land and pre-opening costs.
The Company believes that its construction costs are relatively low due to
a number of factors, including careful site selection, smaller room sizes,
economical and durable exterior and interior finishes and room furnishings
and refined building systems and processes.
- ATTRACTIVE UNIT ECONOMICS. Suburban believes its facilities have
achieved attractive unit level economics. For the two most recently
completed Company-owned Existing Facilities that have been open at least
one year, facility level earnings before interest, taxes and depreciation
for the 12 months ended September 30, 1996, constituted 25.5% and 26.6%,
respectively, of their total development and construction costs, including
building structures, improvements, furniture, fixtures, equipment, land
and pre-opening costs. Suburban believes that the owners of the recently
completed franchised Existing Facilities have obtained comparable returns
on their facilities before accounting for fees and expenses paid to the
Company. The Company believes that its facilities' favorable unit
economics are due, in part, to the fact that Suburban Lodge facilities
reach stabilization in a relatively short period after opening. In the
past, Suburban Lodge facilities have reached 90% occupancy within, on
average, 90 days of opening (except for two of the most recently opened
facilities in the Atlanta metropolitan area which were adversely impacted
by the Olympics).
- FRANCHISING OPPORTUNITIES. Suburban believes that the combination of its
experience in franchising, its relationships with its 11 franchise groups
(six existing franchisees and five prospective franchisees which are
defined as those having a site under contract and a signed preliminary
agreement for a license to develop a Suburban Lodge facility) and the
potential attractive return on investment for Suburban Lodge facilities
will facilitate the expansion of the Suburban Lodge chain throughout the
country.
Since 1987, the Suburban Lodge system has increased to 21 facilities and
has achieved attractive growth, operating results and returns on investment.
From December 31, 1991 through December 31, 1995, for facilities open at least
one year, (i) average occupancy increased from 90.3% to 97.6%; (ii) average
weekly rates increased from $110.38 to $139.69 representing a compound annual
growth rate of approximately 6.1% and (iii) Weekly REVPAR increased from $99.72
to $136.39 representing a compound annual growth rate of 8.1%. For the nine
months ended September 30, 1996, average occupancy, average weekly rates and
Weekly REVPAR for the 12 facilities open for the entire nine month period were
95.8%, $155.56 and $149.14, respectively.
Since the IPO in May 1996, the Company and its franchisees have opened four
Company-owned and three franchised Suburban Lodge facilities which contain an
aggregate of 945 guest rooms, representing a 53.1% increase over the total
number of guest rooms at the time of the IPO. The Company and its franchisees
have also started construction of an additional 11 Suburban Lodge facilities, of
which seven are Company-owned, and development of 23 new Suburban Lodge
facilities, of which eight are Company-owned. The Company has also accelerated
its expansion plans and now intends to have 65 rather than 54 Suburban Lodge
facilities open by the end of 1997. In order to facilitate the Company's
expansion, the Company has, among other things, developed an interior corridor
prototype facility suitable for use in cold weather climates and
30
<PAGE> 32
launched a nationwide advertising campaign in industry publications to promote
Suburban Lodge franchising opportunities.
In addition to these developments, the Company has obtained a preliminary
commitment from its lender to increase the commitment on the Line of Credit from
$50 million to $100 million, which is subject to obtaining other participating
lenders, although there can be no assurance that such lenders will be obtained.
Furthermore, the Company recently commenced development of the first Suburban
Lodge facility for a passive investor who has retained the Company to develop
and manage the facility.
BUSINESS STRATEGY
Suburban's business objective is to become a national provider of economy
extended stay lodging facilities. The Company intends to achieve its objective
through the execution of its growth and operating strategies. Suburban's growth
strategy is to develop additional Company-owned facilities and to franchise the
Suburban Lodge concept to independent developers and operators as well as to
passive investors who will retain the Company to develop and manage their
Suburban Lodge facilities. The Company's principal operating strategies are to
(i) provide its guests with clean, comfortable and attractive accommodations at
weekly rates substantially lower than those offered by most traditional and
other extended stay lodging facilities; (ii) control operating costs at each of
its facilities and maintain above industry average operating margins and (iii)
ensure guest satisfaction through a commitment to customer service.
Growth Strategy
Company-owned Development. The Company presently owns and operates 12
Suburban Lodge facilities and franchises nine additional Suburban Lodge
facilities located in five southeastern states. The Existing Facilities contain
an aggregate of 2,723 guest rooms, have an average of 130 guest rooms and
average approximately 2.4 years in age. The Company anticipates that an
additional six Suburban Lodge facilities, four Company-owned and two franchised,
will open during the remainder of 1996 resulting in an aggregate of 27 Suburban
Lodge facilities by year-end. The Company intends to continue the growth of the
Suburban Lodge chain in 1997 by opening approximately 38 additional Suburban
Lodge facilities (20 Company-owned facilities and 18 franchised facilities),
which would result in a total of 65 Suburban Lodge facilities by the end of
1997. There are currently 14 facilities under construction (nine Company-owned
and five franchised), and sites have been acquired or are under contract for 23
facilities (eight Company-owned and 15 franchised). There can be no assurance
that the Company and its franchisees will be able to complete the development of
all of these facilities. See "Prospectus Summary -- Forward-Looking Statements"
and "Risk Factors -- Development Risks."
The Company believes that the depth and experience of its senior management
team will be an important factor in executing its growth strategy. David E.
Krischer, the Company's founder, Chairman of the Board, Chief Executive Officer
and President, developed the Suburban Lodge concept and has overseen the
development or acquisition of each of the Company-owned Existing Facilities. In
addition, both the Company's Vice President of Operations and its Vice President
of Construction have been employed by the Company since its inception. The
Company's in-house development team has significant experience in developing
Suburban Lodge facilities and supervises all phases of development to ensure
on-time construction within budget that meets the Company's standards. This team
developed 11 of the Existing Facilities and currently is developing nine of the
Construction Facilities and nine of the Development Facilities, including one
for a franchisee who will retain the Company to manage the facility.
Suburban initially plans to develop and operate Company-owned facilities in
the Southeast and Midwest and to franchise the Suburban Lodge system on a
nationwide basis. The Company also intends to develop and operate Company-owned
facilities on a nationwide basis, but it has no specific timetable for such
expansion. By initially clustering the Company-owned facilities in these
regions, Suburban believes that it will increase consumer awareness of the
Suburban Lodge(R) brand name and achieve efficiencies in purchasing, marketing
and management. In selecting particular cities, the Company plans to identify
markets that have high levels of employment and MSAs with populations of 150,000
or more. In considering specific development sites, the
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<PAGE> 33
Company reviews demographic and traffic studies, the availability and pricing of
suitable sites, the costs and risks of developing and any other factors deemed
relevant, including site selection criteria based on the experience of the
Existing Facilities. In particular, the Company looks for sites that are exposed
to heavily-traveled thoroughfares with nearby retail and restaurant developments
and that are located in areas with a substantial number of employers.
Suburban has developed uniform plans and specifications for the design of
Suburban Lodge facilities. Depending upon site configuration, land costs and
climate conditions, each facility will be constructed using Suburban's two-story
or three-story exterior or interior corridor design and are expected to contain
between 120 and 150 guest rooms. Once the Company has selected and acquired a
site and obtained regulatory permits and approvals, the construction phase of
development generally requires approximately seven to eight months, with the
entire development process lasting approximately 12 months. Suburban has
relationships with several architectural and engineering firms as well as
independent general contractors, whose work is supervised by the Company's
in-house development team. The Company believes that these relationships
facilitate the construction of its facilities.
Franchising and Third Party Development and Management Activities. In
addition to operating Company-owned Suburban Lodge facilities, the Company
franchises Suburban Lodge facilities. In particular, the Company franchises the
Suburban Lodge concept to independent developers and operators and intends to
franchise the Suburban Lodge concept to passive investors who may retain the
Company to develop and manage their Suburban Lodge facilities. Suburban
considers its franchisees to be an integral component of its continued growth
and believes its relationship with its franchisees is excellent. As of September
30, 1996, 11 franchisee groups were operating or developing franchised Suburban
Lodge facilities in Alabama, Florida, Georgia, Kentucky, Mississippi, North
Carolina and Tennessee. The Company plans to work with its franchisees to open
approximately 18 franchised Suburban Lodge facilities in 1997, although there
can be no assurance that all of these facilities will be opened. See "Prospectus
Summary -- Forward-Looking Statements" and "Risk Factors -- Development Risks"
and " -- Competition for and Dependence on Franchisees."
Through franchising, the Company intends to accelerate the growth of the
Suburban Lodge chain, thereby increasing its market presence and brand awareness
in both new and existing markets, while generating incremental revenues at an
attractive margin. Further, the Company anticipates that the development of a
large network of lodging facilities will result in economies of scale in
management, marketing and purchasing. Suburban intends to offer franchising
opportunities on a national level and believes that its existing infrastructure
and experience in franchising the Suburban Lodge concept will be an important
factor in executing its franchising strategy.
Suburban believes that several aspects of the Suburban Lodge concept should
be attractive to franchise prospects, including the depth of the Company's
management team and its experience in the economy extended stay market, the
competitive pricing and low per guest room development costs of each Suburban
Lodge facility and the potential for a franchisee to receive a superior return
on investment. Management is currently unaware of any lodging competitor that
targets franchise opportunities primarily for newly constructed extended stay
lodging facilities at a similar price point. The Company also offers development
and management services to franchisees who are passive investors for additional
fees. See " -- Franchise, Development and Management Agreements." The Company's
current franchisees have been obtained primarily through referrals. In addition,
the Company advertises franchising opportunities at industry trade shows and has
launched a nationwide advertising campaign in industry publications.
Operating Strategies
Suburban's principal operating strategies are to (i) provide its guests
with clean, comfortable and attractive accommodations at weekly rates
substantially lower than those offered by most traditional and other extended
stay lodging facilities; (ii) control the operating costs at each of its
facilities and maintain above industry average operating margins and (iii)
ensure guest satisfaction through a commitment to customer service.
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<PAGE> 34
Economy Pricing. Suburban's principal operating strategy is to offer its
guests weekly rates substantially lower than those offered by most traditional
and other extended stay lodging facilities. The average weekly rate at the Nine
Mature Facilities during 1995 was $139.69, compared to an equivalent average
weekly rate of $546.21 for extended stay hotels and $239.96 for lower economy
hotels. The average weekly rate at the 12 facilities open during the entire nine
months ended September 30, 1996 was $155.56. The Company also competes with
individual extended stay facilities and small chains of extended stay facilities
which have average weekly rates comparable to the Company's average weekly
rates. The Company believes that its high occupancy is primarily a result of the
combination of its low weekly rates, which appeal to a broad base of potential
guests, and its guest room amenities. Suburban intends to maintain its
competitive pricing policy and to focus on achieving high occupancy rates. The
Company is able to offer clean, comfortable and attractive accommodations at its
low weekly rates due to the low development costs for each Suburban Lodge
facility and the low operating costs involved in operating a Suburban Lodge
facility. According to the Company's latest guest survey, approximately 32% of
guests who responded said they would have either stayed with family or friends
or would not have travelled to the area if an extended stay facility similar to
a Suburban Lodge facility had not been available.
Low Operating Costs. Suburban seeks to minimize costs throughout its
operations. The Company is able to control its operating costs because it
operates each facility with a staff of approximately six to eight full-time
employees, which is smaller than the staffs at most traditional lodging
facilities, maintains limited office hours and provides weekly rather than daily
housekeeping. In addition, because the average guest stay is approximately five
and one-half weeks, the Company has been able to minimize its marketing and
advertising efforts while maintaining high occupancies. Longer guest stays also
reduce guest check-in traffic and the administrative costs of the facilities.
Guest Satisfaction. The Company prides itself on maintaining a positive
and professional relationship with its guests and seeks to instill this approach
in all of its employees. The Suburban Lodge philosophy is to provide clean,
comfortable and attractive lodging accommodations to guests at substantially
lower rates than most traditional and other extended stay lodging facilities and
to serve guests in a professional manner. In particular, the Company strives to
maintain guest satisfaction by keeping each of its facilities well maintained
and in good condition. The Company conducts periodic guest surveys in order to
ascertain its guests' needs and concerns. According to the latest guest survey,
approximately 99% of guests who responded (255 of 258) said they would recommend
Suburban Lodge to friends and associates.
THE FACILITIES
The Existing Facilities are located in five southeastern states, contain an
aggregate of 2,723 guest rooms, have an average of 130 guest rooms and average
approximately 2.4 years in age. The Construction Facilities and Development
Facilities are located in 11 southeastern and midwestern states. A newly
developed Suburban Lodge facility is built using either a two-story or
three-story exterior or interior corridor design. The designs have similar
architectural styles and guest room floor plans. The majority of Suburban Lodge
guest rooms are uniform in size and weekly rates for single occupancy currently
range from $139 to $169, and for double occupancy range from $153 to $189.
Recently developed facilities, however, include some larger guest rooms for
which a range for single occupancy of $169 to $209 is charged and for which a
range for double occupancy of $179 to $229 is charged. Each facility includes
guest rooms, a general manager's apartment, an office and a guest laundry room
and offers convenience items for sale to its guests in the front office. Each
guest room includes a combination living room and bedroom, a fully equipped
kitchenette (including a refrigerator, two-burner stove-top, microwave oven and
cooking and eating utensils), a telephone and access to satellite or cable
television. Each Suburban Lodge facility also offers weekly maid and linen
service.
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<PAGE> 35
The following tables set forth certain information with respect to the
Existing Facilities, Construction Facilities and Development Facilities.
<TABLE>
<CAPTION>
AVERAGE OCCUPANCY(2) AVERAGE WEEKLY RATE(2)
------------------------------------- ---------------------------------------------------
NINE NINE
MONTHS MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
EXISTING DATE NUMBER OF -------------------- ------------- ----------------------------- ------------------
FACILITIES OPENED ROOMS(1) 1993 1994 1995 1995 1996 1993 1994 1995 1995 1996
- ---------- ------- --------- ---- ---- ---- ---- ---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPANY-OWNED:
Atlanta
(Forest
Park),
GA..... Mar-88 126 96.6% 99.1% 98.8% 99.3% 98.3% $117.61 $123.70 $131.47 $131.87 $148.16
Atlanta
(Fulton
Industrial),
GA..... Dec-88 108 98.1 99.6 99.2 99.0 98.0 119.78 124.62 129.18 128.51 143.47
Atlanta
(Norcross),
GA..... Jun-89 129 99.6 99.8 97.9 99.5 97.8 122.46 131.15 140.20 139.32 152.10
Birmingham
(Oxmoor),
AL..... Jul-90 151 96.8 94.3 92.5 96.4 91.8 121.47 128.73 138.04 136.13 145.45
Atlanta
(Mableton),
GA(3)... Jun-93 79 94.2 97.6 97.1 96.2 98.1 128.20 128.93 130.59 132.80 135.11
Greenville
(Mauldin
Road),
SC..... Sep-93 130 73.8 98.1 97.8 99.6 95.1 120.91 129.44 138.14 135.73 149.45
Charlotte
(Matthews),
NC..... Aug-95 139 86.6 82.3 99.6 146.02 152.21 169.27
Atlanta
(Conyers),
GA(4)... Apr-96 138 74.4 205.35
Atlanta
(Douglasville),
GA(4)... Jun-96 132 49.2 248.22
Louisville
(Preston
Highway),
KY..... Aug-96 150 47.8 181.91
Atlanta
(Tara
Blvd.),
GA..... Sep-96 138
Greenville
(Wade
Hampton
Blvd.),
SC..... Oct-96 126
---------
SUBTOTAL/WEIGHTED
AVERAGE... 1,546 95.7% 98.0% 96.3% 98.1% 92.7% $121.05 $127.82 $135.91 $134.31 $157.59
FRANCHISED(5):
Birmingham
(Riverchase/Pelham),
AL..... Jun-92 122
Atlanta
(Stone
Mountain),
GA..... Nov-92 132
Atlanta
(Marietta),
GA..... Aug-94 132
Birmingham
(Inverness/Greystone),
AL..... Sep-95 130
Atlanta
(Lilburn/Highway
78),
GA..... Nov-95 132
Savannah
(Abercorn),
GA..... Mar-96 130
Atlanta
(Lawrenceville),
GA..... Jun-96 132
Atlanta
(Roswell),
GA..... Jun-96 134
Atlanta
(Decatur),
GA..... Oct-96 133
---------
SUBTOTAL/WEIGHTED
AVERAGE... 1,177 96.8% 98.9% 91.6% 99.5% 90.1% $125.99 $134.03 $150.54 $145.49 $167.28
---------
SYSTEM-WIDE
TOTAL/WEIGHTED
AVERAGE... 2,723 96.1% 98.2% 94.6% 98.6% 91.5% $122.51 $129.67 $141.24 $138.15 $161.95
=========
</TABLE>
<TABLE>
<CAPTION>
NUMBER
CONSTRUCTION FACILITIES LOCATION ESTIMATED OPENING(6) OF ROOMS(1)
- ------------------------------------------------------------- ----------------- --------------------- -----------
<S> <C> <C> <C>
COMPANY-OWNED:
Chesapeake................................................. Chesapeake, VA Fourth Quarter 1996 132
Kingston Pike.............................................. Knoxville, TN Fourth Quarter 1996 132
Northside Drive............................................ Atlanta, GA Fourth Quarter 1996 150
Pressley/I-77.............................................. Charlotte, NC Fourth Quarter 1996 132
Ridgeway Road.............................................. Memphis, TN First Quarter 1997 144
University Area............................................ Charlotte, NC First Quarter 1997 138
Fairfield.................................................. Cincinnati, OH Second Quarter 1997 131
Newport News............................................... Newport News, VA Second Quarter 1997 134
Dayton (South)............................................. Dayton, OH Second Quarter 1997 130
-----
SUBTOTAL............................................. 1,223
-----
FRANCHISED:
Bay Meadows................................................ Jacksonville, FL Fourth Quarter 1996 138
Indian Trail/I-85.......................................... Atlanta, GA Fourth Quarter 1996 150
Gwinnett Place............................................. Atlanta, GA First Quarter 1997 138
Taylorsville Rd............................................ Louisville, KY First Quarter 1997 144
Woodstock.................................................. Atlanta, GA Second Quarter 1997 138
-----
SUBTOTAL............................................. 708
-----
TOTAL................................................ 1,931
============
</TABLE>
(Notes on following page)
34
<PAGE> 36
<TABLE>
<CAPTION>
DEVELOPMENT FACILITIES LOCATION ESTIMATED OPENING(6)
- -------------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
COMPANY-OWNED:
Chattanooga............................................................. Chattanooga, TN Third Quarter 1997
Hazelwood............................................................... St. Louis, MO Third Quarter 1997
Northwest Franklin...................................................... Columbus, OH Third Quarter 1997
North Charleston........................................................ Charleston, SC Third Quarter 1997
Virginia Beach.......................................................... Virginia Beach,
VA Third Quarter 1997
Northwest............................................................... Indianapolis, IN Fourth Quarter 1997
Richmond................................................................ Richmond, VA Fourth Quarter 1997
St. Charles............................................................. St. Louis, MO Fourth Quarter 1997
FRANCHISED:
Bay St. Louis........................................................... Bay St. Louis, MS First Quarter 1997
Antioch Pike............................................................ Nashville, TN Second Quarter 1997
Florence................................................................ Cincinnati, KY Second Quarter 1997
Montgomery Mall......................................................... Montgomery, AL Second Quarter 1997
Gainesville............................................................. Gainesville, GA Third Quarter 1997
Goodlettsville.......................................................... Nashville, TN Third Quarter 1997
Mall Area............................................................... Valdosta, GA Third Quarter 1997
Northwestern............................................................ Albany, GA Third Quarter 1997
Pineville............................................................... Charlotte, NC Third Quarter 1997
Riverside............................................................... Macon, GA Third Quarter 1997
Sawmill................................................................. Columbus, OH Third Quarter 1997
Duluth.................................................................. Atlanta, GA Fourth Quarter 1997
Garden City............................................................. Savannah, GA Fourth Quarter 1997
Murfreesboro............................................................ Murfreesboro, TN Fourth Quarter 1997
West End................................................................ Nashville, TN Fourth Quarter 1997
</TABLE>
- ---------------
(1) The number of guest rooms does not include the general manager's apartment.
(2) Information for the nine month periods ended September 30, 1995 and 1996 is
provided from the beginning of the first calendar month following the date
of opening or acquisition of each facility, and all other information is
presented from the date of opening or acquisition.
(3) The Mableton facility was acquired in June 1993 and converted to a Suburban
Lodge facility in October 1994.
(4) Information for these facilities reflects the impact of the Olympics on the
occupancy and room revenue for these facilities.
(5) Individual facility information has not been provided for the franchised
facilities due to non-disclosure agreements between the Company and its
franchisees.
(6) The Company believes that each of the Construction and Development
Facilities will open during the calendar quarter indicated. However, the
Company and its franchisees may not be able to complete the development of
all of these facilities on schedule, and the number of guest rooms has not
yet been determined for the Development Facilities. See "Prospectus
Summary -- Forward-Looking Statements" and "Risk Factors -- Development
Risks."
OPERATING PRACTICES
The Company has managed Suburban Lodge facilities since 1988, when the
first facility was opened, and is currently managing the 12 Company-owned
Existing Facilities. Each Suburban Lodge facility has a general manager, who
resides on-site and is responsible for the overall operation of the facility,
and an assistant manager. Managers are trained in all aspects of facility
operations, with particular emphasis placed on customer service, and are given
broad authority to make day-to-day operating decisions. Managers are supervised
through the Company's management information systems and on-site audits by area
managers. Area managers are assigned to zones that typically include four to six
facilities and visit and inspect each facility in their respective zone on a
regular basis to ensure that consistency and quality standards are being
satisfied. Incentive programs allow managers to earn bonuses based on
achievement of monthly budgets set for each facility and upon performance and
occupancy rates. In addition, the employees of each facility compete against the
Company's other facilities for awards based upon occupancy and their overall
performance. To the extent possible, the Company intends to promote managers
from within its organization. As part of its ongoing training program, the
Company requires that each manager attend monthly training sessions to discuss
improvement of property performance and safety and current industry
developments.
Each facility utilizes the Company's proprietary software package that
processes all on-site transactions and maintains financial records. The software
provides on-site management with updated information on items such as available
guest rooms, guest rooms needing cleaning or repairs, room charges due and guest
payment history. Each facility is connected by modem to Suburban's corporate
office in Atlanta, and operating results
35
<PAGE> 37
are compiled and reviewed on a regular basis. The corporate office purchases
supplies, pays virtually all property expenses and prepares monthly financial
statements for all properties managed by the Company.
Suburban collects data about each of its guests, including their
occupation, permanent residence, length of stay and how they learned about the
facility. The Company uses this information as part of its market research and
in the preparation of advertising and sales materials for each facility. In
order to sustain and improve upon the high level of demand historically
experienced at the facilities, Suburban employs various marketing techniques,
which include billboard, print (including yellow pages and newspapers) and radio
advertising, as well as direct marketing by area and general managers to local
employers, and its 24-hour 1-800 guest information line (1-800-951-STAY).
The Company is committed to keeping each of its facilities well maintained
and in good condition. Due to the historically high occupancy levels at the
Company-owned Existing Facilities, the Company has adopted a policy of
refurbishing guest rooms on an "as-needed" basis. During the three-year period
ended December 31, 1995, maintenance and repair expenses for the Company-owned
Existing Facilities (exclusive of the Forest Park facility) represented 3.8% to
4.6% of room revenues per year for the Company-owned facilities open for the
entire 12 months during each year. During the nine months ended September 30,
1996, maintenance and repair expenses for the Company-owned Existing Facilities
open for the entire nine month period represented 4.5% of room revenues for such
period.
THE LODGING INDUSTRY
Traditional Lodging Industry
The financial results of the lodging industry have improved in each year
since 1991. The industry as a whole generated record earnings in 1995, with
industry-wide pretax profits of approximately $7.6 billion, according to Coopers
& Lybrand Hospitality Directions, January 1996 ("Hospitality Directions"). This
figure was up 38% from approximately $5.5 billion in pretax profits in 1994.
The industry's profitability has been driven by four consecutive years in
which the growth in demand for hotel rooms has exceeded the growth in room
supply. According to industry sources, industry-wide growth in room demand
exceeded the growth in total room supply by 1.7%, 2.2%, 2.6% and 1.0% in 1992,
1993, 1994 and 1995, respectively. This trend has continued in the first eight
months of 1996, with demand growth exceeding supply growth by 1.2%.
The sustained, favorable relationship between demand growth and supply
growth has enabled the industry to increase REVPAR every year since 1991.
According to industry sources, REVPAR for the industry as a whole grew 3.2%,
5.6%, 6.5% and 5.8% in 1992, 1993, 1994 and 1995, respectively. This trend has
continued in the first eight months of 1996, with REVPAR growing 7.8%.
Hospitality Directions forecasts industry-wide REVPAR gains averaging
approximately 5% annually in the period 1996 through 1998. However, there can be
no assurance that the industry will experience such gains. See "Prospectus
Summary -- Forward-Looking Statements" and "Risk Factors -- Industry Risks."
The Extended Stay Segment
The extended stay market is one of the fastest growing sectors of the
lodging industry. From 1990 to 1995, room demand for dedicated extended stay
hotels grew at a 6.9% compound annual growth rate, outperforming the U.S.
lodging industry average which grew by 2.5% annually during the same period.
Room supply during this period grew 5.0% annually for extended stay hotels
compared to 1.6% growth in the lodging industry as a whole. Despite the growth
in room supply at extended stay hotels, the number of purpose-built extended
stay rooms represents only a small portion of the total available guest rooms in
the U.S. lodging industry. The Company believes that as of August 1996, there
were approximately 53,000, purpose-built extended stay rooms at approximately
460 hotels representing approximately 1.6% of the 3.3 million guest rooms
available in the U.S. lodging industry. According to industry sources, extended
stays, defined as stays of 5 nights or more, accounted for 259 million, or
29.8%, of the 868 million total hotel room nights used in 1995. This translates
into potential demand for approximately 710,000 extended stay rooms in 1995.
36
<PAGE> 38
The Company believes that the demand for extended stay lodging is driven in
part by the economic and social changes resulting from the increased mobility of
the workforce, the increased number of corporate reorganizations and trends
toward corporate downsizing and outsourcing. These changes have created new
accommodation needs for, among others, corporate executives and trainees,
consultants, sales representatives, construction workers and people in between
jobs or homes.
The Economy Segment
As with the extended stay segment in general, the Company believes that the
economy extended stay segment of the lodging industry presently is characterized
by a demand for multi-night accommodations which compares favorably to the
supply of purpose-built, economy extended stay rooms. Industry sources estimate
that there were approximately 55.6 million extended stay room nights at U.S.
hotels with average daily rates below $40, reflecting, in management's view,
substantial potential demand for economy, extended stay lodging facilities. In
contrast, the economy segment of the extended stay market has a relatively small
supply of purpose-built rooms. Based on industry sources, the Company believes
that at September 30, 1996, there were approximately 12,250 purpose-built
economy extended stay rooms at approximately 111 properties representing
approximately 0.4% of the total guest rooms in the U.S. lodging industry.
The Company expects the extended stay segment to continue to experience
increasing demand due to a number of factors, including the continuance of
corporate reorganizations, a continued trend toward downsizing and outsourcing,
the heightened mobility of the U.S. labor force and technological advancements
which have allowed the decentralization of the modern workforce. The Company
believes that these economic and social factors combined with the low supply of
extended stay rooms create a substantial market niche.
Based on data which the Company believes to be reliable, occupancy and
growth in Weekly REVPAR for Suburban Lodge facilities outpaced certain extended
stay hotels, lower economy hotels in general and the U.S. lodging industry as a
whole between 1991 and 1995. During this period, Weekly REVPAR increased 33.4%
for Suburban Lodge facilities, 17.4% for extended stay hotels, 11.3% for lower
economy hotels and 22.8% for the U.S. lodging industry as a whole.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OCCUPANCY:
Existing Facilities(1)................................... 90.4% 90.4% 96.1% 98.2% 94.6%
Extended stay hotels(2).................................. 74.0 77.0 80.3 81.8 81.2
Lower economy hotels(3).................................. 65.9 62.6 62.1 63.2 64.3
U.S. hotels(4)........................................... 60.7 61.7 63.0 64.6 65.2
AVERAGE WEEKLY RATE(5):
Existing Facilities(1)................................... $110.38 $117.51 $122.51 $129.67 $141.24
Extended stay hotels(2).................................. 510.58 518.14 516.18 522.83 546.21
Lower economy hotels(3).................................. 210.35 216.23 223.58 231.07 239.96
U.S. hotels(4)........................................... 413.07 419.30 433.79 450.38 472.22
WEEKLY REVPAR(6):
Existing Facilities(1)................................... $ 99.72 $105.87 $117.69 $127.36 $133.04
Extended stay hotels(2).................................. 377.83 398.97 414.49 427.67 443.52
Lower economy hotels(3).................................. 138.62 135.36 138.84 146.04 154.29
U.S. hotels(4)........................................... 250.74 258.71 273.29 290.95 307.89
</TABLE>
- ---------------
(1) The information for the Existing Facilities includes information for these
facilities since the date of their opening or acquisition.
(2) Average weekly rate and Weekly REVPAR were calculated as described below in
notes 5 and 6, respectively. Includes Residence Inn(R), Homewood Suites(R),
Summerfield Suites(R), Woodfin Suites(R), Hawthorne Suites(R), Homestead
Village(R), Studio Plus(R) and Extended Stay AmericaSM Efficiencies.
(3) Average weekly rate and Weekly REVPAR were calculated as described below in
notes 5 and 6, respectively. Includes 15 chains, including, among others,
Best Inns of America(R), Budget Host Inn(R), EconoLodge(R), Knights Inn(R),
Motel 6(R), Red Carpet Inn(R), Super 8(R) and Thriftlodge(R).
(4) Average weekly rate and Weekly REVPAR were calculated as described below in
notes 5 and 6, respectively.
37
<PAGE> 39
(5) Average weekly rate is determined by dividing room revenue by the number of
guest room days sold and multiplying by seven.
(6) Weekly REVPAR is determined by dividing room revenue by the number of guest
room days available for the period and multiplying by seven.
FRANCHISE, DEVELOPMENT AND MANAGEMENT AGREEMENTS
Franchise Agreements
General. The Company enters into single unit franchise agreements with its
franchisees for the construction of a Suburban Lodge facility over a defined
period of time at a specific site. The Company's current franchise agreement
provides for an initial term of ten years and three months, with a ten-year
renewal option subject to several conditions, including the requirement that the
franchisee modernize or contract to modernize its facility and that it pay the
Company an administrative fee equal to 10% of the initial franchise fee
specified in the then-current franchise agreement. Each franchise agreement
provides the franchisee with a protected territory, in which Suburban agrees not
to construct, operate or grant others the right to construct or operate a
business using Suburban's trade names, trademarks, servicemarks or other indicia
of origin.
Fees. Under the current Suburban Lodge franchise agreement, the franchisee
is required to pay an initial franchise fee for a single facility equal to the
greater of $25,000 or $190 per guest room. Beginning three months after
operations commence, the franchisee is required to pay the Company a monthly
royalty fee of three percent of gross revenues. Upon notice from Suburban, all
franchisees are also required to pay an advertising and marketing fee of one
percent of gross revenues and a reservations/referral fee of one percent of
gross revenues, to cover the franchisee's share of the costs incurred by
Suburban in providing these services. The Company may increase these fees under
certain conditions. Currently, the Company does not require payment of either
advertising/marketing fees or reservations/referral fees, although it intends to
require payment of reservations/referral fees beginning in 1997.
Services. The Company has prepared comprehensive materials and provides
services to assist each franchisee in developing and operating a Suburban Lodge
facility. These materials and services include development and operating
manuals, pre-opening and ongoing training for the franchisee and its general
manager, proprietary operating software designed specifically for the operation
of a Suburban Lodge facility, prototype architectural plans and specifications
(which offer a choice between Suburban's two-story and three-story structure), a
24-hour 1-800 guest information line (with "fax on demand" capability which
allows a potential guest to receive locator maps and brochures), semi-annual
inspections by Suburban's corporate staff to ensure quality control and
advertising materials and layouts.
Franchisee Training and Support. An important element of Suburban's
franchise program is the training it provides to each franchisee. The Company
must approve each franchisee's selection of a general manager, who is required
to complete satisfactorily the Company's training program. In addition, the
Company provides between six to ten days of training to a franchisee with
respect to its first facility, between three to five days of training for each
additional facility and ongoing supervision thereafter. The Company maintains
regular communication with its franchisees to relay operating and marketing
information.
Quality Control. To maintain quality and consistency within the Suburban
Lodge system, the current franchise agreement specifies certain management,
operational, maintenance, record-keeping, accounting, reporting and marketing
standards and procedures with which each franchisee must comply. Each franchisee
is also obligated to comply with Suburban's standards with respect to the
training of operational personnel, safety, maintaining specified insurance, the
type of ancillary services and products which may be provided, the display of
signs and the type, quality and age of furniture, fixtures and equipment to be
included in the guest rooms and throughout the facility. To ensure compliance
with Suburban's quality control standards, the Company's corporate staff
conducts periodic inspections of its franchised facilities.
Reporting. Each franchised facility's operating system is connected via
modem to the Company's central system, which allows Suburban to download sales
and other operating information on a regular basis.
38
<PAGE> 40
Termination. Suburban has the right to terminate a franchise agreement for
a variety of reasons, including a franchisee's failure to make payments when due
or comply with its other covenants under the franchise agreement, its failure to
adhere to the Company's policies and standards or its failure to comply with any
applicable laws in its operation of the facility. The franchisee may terminate
the agreement only if the Company materially breaches the franchise agreement
(and fails to cure such breach), and only by providing the Company with a
six-month notice of termination. Many state franchise laws limit the ability of
a franchisor to terminate or refuse to renew a franchise. See "-- Governmental
Regulation." Suburban does not anticipate that the termination of any single
franchise agreement would have a material adverse effect on its operations.
Termination by a potential multiple-unit franchisee of several franchise
agreements for various locations could, however, have a material adverse effect
on the Company's operations.
Covenants. During the term of the agreement, each franchisee agrees not to
engage as an owner, operator or in any managerial capacity in any other economy
extended stay lodging business. Each franchisee also agrees not to divulge any
Company trade secrets or any information received from the Company's
confidential operating manual.
Right of First Refusal. If a franchisee desires to sell an interest in the
agreement or the facility, the franchisee must first notify Suburban in writing
of such intention and offer to sell such interest to the Company upon terms and
conditions at least as favorable as those offered by a third party. If the
Company and the franchisee cannot agree within 30 days of such notice on the
terms and conditions of such sale, or if the Company chooses not to acquire such
interest, the franchisee may then sell the interest to a third party on such
terms and conditions, provided that the sale is made within 180 days after the
expiration of any offer to the Company and that the facility continues to be
operated pursuant to the Suburban Lodge system.
Development Agreements
The Company, in accordance with the terms of its current Development and
Design/Build Agreement, may perform development and design services for its
franchisees who are passive investors, including the recommendation of possible
sites, the negotiation for the purchase of sites, securing the services of
engineers, architects and other professionals, the preparation of preliminary
design documents and design/build budgets, negotiation with contractors and the
overall monitoring of the development and construction of the Suburban Lodge
facility. The franchisee pays for the cost of all services and expenditures
associated with the construction of the facility, including development fees to
the Company. The agreement terminates upon the completion of the services
described, or upon termination of the franchise agreement, whichever occurs
first. In addition, in the event either party fails to perform substantially
under the agreement, the party not at fault may terminate the agreement upon
seven days' written notice. The Company is developing one Suburban Lodge
facility for a passive investor pursuant to the terms of its standard
Development and Design/Build Agreement, and it expects to develop one or more
additional facilities for passive investors in 1997.
Management Agreements
The Company, upon request, will manage franchised Suburban Lodge facilities
for its franchisees pursuant to a management agreement between the Company and
the franchisee. The Company's current Management Agreement has a five-year term,
which is automatically renewed for successive terms unless terminated upon 120
days' written notice. Under the agreement, the Company, in addition to providing
certain pre-opening services, operates and manages the facility and, among other
duties, is responsible for all personnel decisions, the negotiation of operating
leases and contracts, the preparation of advertising campaigns, the payment of
taxes and the general maintenance of the facility. Suburban also maintains the
right to determine all operating policies affecting the appearance of the
facility, the maintenance of the facility and its standards of operation, the
quality of services and other matters affecting customer satisfaction. The
agreement is terminable if either party fails to perform any material term or
condition under the agreement and fails to cure after notice from the
non-defaulting party, if either party files for bankruptcy or upon the
destruction or condemnation of the facility. In addition to a fixed fee for
pre-opening services, Suburban will charge a management fee equal to five
percent of the facility's monthly gross revenues. As of the date of this
39
<PAGE> 41
Prospectus, the Company has no Management Agreements in effect, but it expects
to enter into one or more such agreements in 1997.
The facility owner is obligated to indemnify the Company against certain
liabilities arising out of the financing of the facility, unless such
liabilities result from the negligence, fault, misrepresentation, omission or
misconduct of the Company, its agents or employees. In addition, to the extent
not covered by insurance, the facility owner is obligated to indemnify the
Company against certain liabilities occasioned by the negligence, fault,
omission or other tortious conduct of the facility owner, its agents, employees
and contractors. Similarly, to the extent not covered by insurance, the Company
is obligated to indemnify the facility owner against certain liabilities
occasioned by the negligence, fault, omission or other tortious conduct of the
Company, its employees, agents, business invitees (except guests) or
contractors.
COMPETITION
The lodging industry is highly competitive. Competitive factors within the
industry include room rates, quality of accommodations, name recognition, supply
and availability of alternative lodging, including short-term lease apartments,
service levels, reputation, reservation systems and convenience of location.
Each of the Existing Facilities and Construction Facilities is located, and each
of the Development Facilities will be located, in a developed area that includes
competing lodging facilities, including both traditional lodging facilities and
other extended stay facilities. The number of competitive lodging facilities in
a particular area could have a material adverse effect on occupancy, average
weekly rate and Weekly REVPAR of the Existing Facilities and the Construction
Facilities or properties developed or acquired in the future. See " -- The
Facilities."
The Company anticipates that competition within the extended stay lodging
market will increase substantially in the foreseeable future. A number of other
lodging chains and developers recently have announced their intent to develop or
are already developing extended stay lodging facilities which may compete with
the Company's facilities. In particular, some of these entities have announced
their intent to target the economy segment of the extended stay market in which
the Company competes. The Company may compete for guests and for development
sites with certain of these established entities which have greater financial
resources than the Company and better relationships with lenders and real estate
sellers. These entities may be able to accept more risk than the Company can
prudently manage. Further, new or existing competitors might reduce their rates
or offer greater convenience, services or amenities or expand or improve
facilities in markets in which the Company competes, thereby adversely affecting
the Company's business and results of operations. See "Risk
Factors -- Competition in the Lodging Industry."
At the present time, the Company's facilities are located principally in
the Southeast and in particular in metropolitan Atlanta. In these regions, the
Company competes with both traditional lodging facilities and other extended
stay facilities, including individual extended stay facilities and those owned
and operated by competing chains. The Company competes with these facilities by
offering low weekly rates, customer service and convenient locations.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the presence of hazardous or toxic substances. Furthermore, a person that
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
use such real estate or to borrow using such real estate as collateral. In
connection with the ownership and operation of its properties, the Company may
be potentially liable for any such costs. Any potential environmental liability
the Company
40
<PAGE> 42
may have solely as a franchisor is less clear; however, the Company's business
and results of operations could be adversely affected if a franchisee incurred
environmental liability.
The Company has obtained recent Phase I environmental site assessments
("Phase I Surveys") on the Company-owned Existing Facilities and Company-owned
Construction Facilities and intends to obtain Phase I Surveys prior to the
purchase of any future sites or properties, including the Development
Facilities; however, the Company has not yet obtained Phase I Surveys on any of
the Development Facilities. While the Company believes that Phase I Surveys have
been obtained on the franchised facilities, it has not required franchisees to
obtain Phase I Surveys. The Phase I Surveys are intended to identify potential
environmental contamination and regulatory compliance concerns. Phase I Surveys
generally include historical reviews of the properties, review of certain public
records, preliminary investigations of the sites and surrounding properties and
the preparation and issuance of written reports. Phase I Surveys generally do
not include invasive procedures, such as soil sampling or ground water analysis.
If the Phase I Survey indicates that additional analysis or testing is
appropriate, the Company will either abandon the site or obtain a Phase II
Survey, which generally involves invasive testing procedures.
The Phase I Surveys have not revealed any environmental liability or
compliance concern at the Company-owned Existing Facilities that the Company
believes would have a material adverse effect on the Company's business, assets,
results of operations or liquidity, nor is the Company aware of any such
liability or concern. Nevertheless, it is possible that Phase I Surveys will not
reveal all environmental liabilities or compliance concerns or that there will
be material environmental liabilities or compliance concerns of which the
Company will not be aware. Moreover, no assurances can be given that (i) future
laws, ordinances or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the Company's existing
and future properties will not be affected by the condition of neighboring
properties (such as the presence of leaking underground storage tanks) or by
third parties unrelated to the Company.
The Atlanta Suburban Lodge facility located in the Fulton Industrial
District is located in the vicinity of a property from which leaking underground
storage tanks have been removed. Such tanks released petroleum products into the
soil and groundwater, and it is not known whether the release has impacted the
groundwater beneath the Fulton Industrial site. Although this release initially
migrated in groundwater towards the Company's property, it currently appears
that it is unlikely to have impacted the Company's property in light of the tank
owner's ongoing remediation activities and the groundwater monitoring records
from the adjacent property. Suburban does not believe that it will have any
material liability in the event the release migrates or has migrated under the
Fulton Industrial site; however, there can be no guarantee that the Company will
not incur future environmental liabilities arising out of such activities or
that any such liability would not have a material adverse effect on the future
financial condition or results of operations of the Company.
In addition, the initial Phase I groundwater sampling at the Existing
Facility in Greenville (Wade Hampton Blvd.), South Carolina discloses evidence
of a dry-cleaning solvent in the groundwater. The likely source of the solvent
is a dry-cleaning facility located approximately 150 feet upgradient of the
site. Based upon a Phase II Survey obtained with respect to this site, the
Company does not believe that it will have any material liability in connection
with the dry-cleaning solvent; however, there can be no guarantee that the
Company will not incur future environmental liabilities arising out of the
presence of the solvent or that any such liability would not have a material
adverse effect on the future financial condition or results of operation of the
Company.
The Phase I Survey for the Construction Facility in Newport News, Virginia,
identified the potential for wetlands to exist, based on a wetlands map.
Although a delineation to determine whether wetlands in fact exist and, if so,
to what extent, has not yet been undertaken, the Company has requested an
environmental consultant to conduct such a delineation shortly. Based on its
knowledge of the site, the Company believes that it is unlikely that the
delineation will determine that wetlands in fact exist, or, if any wetlands are
identified, they will not exceed one-quarter acre in size. The federal Clean
Water Act prohibits discharges of fill material into waters of the United
States, including wetlands, unless permitted by law, permit or regulation. Based
on its knowledge of the site, the Company believes that any wetlands identified
at this site would be exempt from the prohibition on discharge of fill material
under Nationwide Permit 26, which permits discharges of fill material into
isolated wetlands less than ten acres in size that are located above headwaters.
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Suburban believes that the Company-owned facilities are in compliance in
all material respects with all federal, state and local ordinances and
regulations regarding hazardous or toxic substances and other environmental
matters. Neither the Company nor, to the knowledge of the Company, any of the
current owners of the franchised facilities has been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental issues in
connection with any of its present or former properties.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of lodging facilities by
requiring registration, disclosure statements and compliance with specific
standards of conduct. The Company believes that each of its facilities has the
necessary permits and approvals to operate its respective business, and the
Company intends to continue to obtain such permits and approvals for its new
facilities. The Company is also subject to laws governing its relationship with
employees, including minimum wage requirements, overtime, working conditions and
work permit requirements. An increase in the minimum wage rate, employee benefit
costs or other costs associated with employees could adversely affect the
Company. Both at the federal and state level from time to time, there are
proposals under consideration to increase the minimum wage.
Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. Although the
Company has attempted to satisfy ADA requirements in the design of its
facilities, a material ADA claim could be asserted against the Company, which
could result in a judicial order requiring compliance and the expenditure of
substantial sums to achieve compliance, an imposition of fines or an award of
damages to private litigants. These and other initiatives could adversely affect
the Company as well as the lodging industry in general.
Suburban is subject to Federal Trade Commission ("FTC") regulation and
various state laws which regulate the offer and sale of franchises. Several
state laws also regulate various aspects of the franchisor-franchisee
relationship. The FTC requires the Company to furnish to prospective franchisees
a franchise offering circular containing prescribed information. A number of
states in which the Company might consider franchising also regulate the sale of
franchises and require registration of the franchise offering circular with
state authorities. State laws that regulate the franchisor-franchisee
relationship presently exist or are being considered in a substantial number of
states, and bills have been introduced in Congress which provide for federal
regulation of certain aspects of the franchisor-franchisee relationship. These
current and proposed franchise relationship laws limit, among other things, the
duration and scope of non-competition provisions, the ability of a franchisor to
terminate or refuse to renew a franchise and the ability of a franchisor to
designate sources of supply.
TRADEMARKS
The tradename "Suburban Lodge" and the service mark "Lodge for Less" and
related logos are actively used and are significant to the Company's business.
All of these marks have been registered on the Principal Register of the United
States Patent and Trademark Office. The term for the registration of the
"Suburban Lodge" trademark extends to November 2004 on the Principal Register,
at which time it may be renewed for successive ten-year periods. The term for
the registration of the Suburban Lodge name and design logo extends to March
2009, at which time it may be renewed for successive ten-year periods. The term
for the registration of the service mark "Lodge for Less" extends to October
2000, at which time it may be renewed for successive ten-year periods.
INSURANCE
Suburban currently maintains the types and amounts of insurance coverage
that it considers appropriate for a company in its business. While management
believes that the Company's insurance coverage is adequate, if the Company were
held liable for amounts exceeding the limits of its insurance coverage or for
claims outside of the scope of its insurance coverage, the Company's business,
results of operations and financial condition could be materially and adversely
affected.
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EMPLOYEES
As of September 30, 1996, Suburban employed 112 persons. Suburban expects
that it will increase the number of its employees as it expands its business.
The Company's employees are not subject to any collective bargaining agreements,
and management believes that its relationship with its employees is good.
HEADQUARTERS
The Company's corporate headquarters are located in Atlanta, Georgia and
are occupied pursuant to a lease that expires in August 2000. The Company
believes that its current office space is sufficient to meet its present needs
and does not anticipate any difficulty securing additional space, as needed, on
terms acceptable to the Company.
LEGAL PROCEEDINGS
Suburban is not a party to any litigation or claim, and, to date, no claims
have had a material adverse effect on the Company.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and all executive officers of
the Company is set forth in the table below.
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION CLASS EXPIRES
- -------------------------------- --- ------------------------------------------- ----- -------
<S> <C> <C> <C> <C>
David E. Krischer............... 47 Chairman of the Board, Chief Executive III 1999
Officer and President
Dan J. Berman................... 32 Vice President -- Franchising and Director III 1999
Seth H. Christian............... 31 Vice President -- Operations and Assistant
Secretary
Terry J. Feldman................ 53 Vice President, Chief Financial Officer and -- --
Treasurer
G. Hunter Hilliard.............. 53 Vice President -- Construction -- --
Kevin R. Pfannes................ 42 Vice President -- Development and Secretary -- --
James R. Kuse................... 66 Director II 1998
Michael McGovern................ 53 Director II 1998
John W. Spiegel................. 55 Director I 1997
</TABLE>
DAVID E. KRISCHER. Mr. Krischer formed the Company in 1987 to develop a
national chain of economy extended stay facilities and has served as its
President and Chairman since inception. Mr. Krischer has over 15 years of
experience in real estate development and has been involved in the hospitality
industry for nearly ten years. From 1974 to 1986, he was a partner with two
Atlanta law firms, Arrington, Rubin, Winter, Krischer & Goger and Costanzo &
Krischer, where his practice focused on general business and real estate law and
real estate syndication.
DAN J. BERMAN. Mr. Berman joined the Company in September 1993 as its Vice
President -- Franchising and was elected as a Director in March 1996. Prior to
joining the Company in 1993, Mr. Berman practiced commercial law in New York
City with the firm Young and Young from September 1990 to May 1993. Mr. Berman
received the degrees of Juris Doctor and Master of Business Administration from
Emory University Law and Business Schools in 1990.
SETH H. CHRISTIAN. Mr. Christian joined the Company in November 1987 and
was elected Vice President -- Operations in January 1989 and Assistant Secretary
in October 1996. From 1983 through 1987, he served as General Manager of
Hotel/Restaurant Management, Inc., an Atlanta-based hospitality company. Mr.
Christian is a member of the Board of Directors of the Arthritis Foundation,
Georgia Chapter. Mr. Christian received a Bachelor of Arts in economics from
Georgia State University in 1988.
TERRY J. FELDMAN. Mr. Feldman joined the Company in January 1995 as its
Treasurer and Chief Financial Officer and was elected Vice President in March
1996. He has over 30 years of experience in real estate accounting and finance.
Prior to joining the Company, Mr. Feldman served as the Vice President and Chief
Financial Officer of Unity Mortgage, Inc., a home mortgage lender, from July
1992 to July 1994. Mr. Feldman served as the Vice President and Chief Financial
Officer of Anderson Properties, Inc., a commercial real estate company in
Atlanta, from 1984 to 1992. From 1977 to 1984, he served in treasury and
financial planning capacities at Days Inns of America, Inc. Mr. Feldman is a
Certified Public Accountant.
G. HUNTER HILLIARD. Mr. Hilliard joined the Company in April 1987 as its
Vice President -- Construction. In addition, since 1980, Mr. Hilliard has been
the sole shareholder and Secretary of Acreage Investment Corporation, a real
estate and construction consulting firm. He has over 25 years of experience in
the development and construction of single and multi-family housing, retail
centers and office space.
KEVIN R. PFANNES. Mr. Pfannes joined the Company in January 1996 and was
elected Vice President -- Development in February 1996. He has 17 years of legal
and business experience in the development, acquisition, leasing and financing
of a broad range of commercial real estate transactions. From July 1992 through
January 1995, Mr. Pfannes served as real estate counsel and Director of
Operations of General
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<PAGE> 46
Innkeeping Acceptance Corporation, a wholly-owned subsidiary of Holiday Inns,
Inc., which provided financing for Holiday Inn hotels. From January 1986 to July
1992, Mr. Pfannes was a self-employed attorney, and his practice focused on
commercial real estate matters. From 1979 to 1984, Mr. Pfannes worked for the
Chicago law firm of Rooks, Pitts and Poust, where his practice focused on real
estate and lending matters.
JAMES R. KUSE. Mr. Kuse was elected as a Director of the Company in May
1996. Mr. Kuse has been the Chairman of the Board of Directors of Georgia Gulf
Corporation since January 1985. From February 1989 through February 1991, Mr.
Kuse also served as the Chief Executive Officer of Georgia Gulf Corporation. Mr.
Kuse also serves as a Director of Rhodes, Inc. and Green Capital Investors.
MICHAEL MCGOVERN. Mr. McGovern was elected as a Director of the Company in
May 1996. Since 1975, Mr. McGovern has been the President and a Director of
McGovern Enterprises, Inc., a company which provides corporate, financial and
real estate advisory services throughout the United States.
JOHN W. SPIEGEL. Mr. Spiegel was elected a Director of the Company in May
1996. Since 1985, Mr. Spiegel has served as Executive Vice President and Chief
Financial Officer of SunTrust Banks, Inc. He has also served as Treasurer of
Trust Company of Georgia since 1978 and is an officer and director of various
subsidiaries of SunTrust Banks, Inc. Mr. Spiegel is also a member of the Board
of Directors of Rock-Tenn Company, Student Loan Marketing Association and
ContiFinancial Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of Messrs. Kuse, Spiegel and
Krischer. The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Kuse and McGovern. The Compensation Committee determines compensation for the
Company's executive officers and administers the Company's 1996 Plan.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual
compensation for services in all capacities to the Company and its predecessors
for the fiscal year ended December 31, 1995 of David E. Krischer, the Company's
Chief Executive Officer and the only officer whose annual salary and bonuses
exceeded $100,000. The Company has not entered into an employment agreement with
any of its officers or employees.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- --------------------------------------------------------------------- ---- -------- ------
<S> <C> <C> <C>
David E. Krischer.................................................... 1995 $187,000 $7,769
Chairman of the Board, Chief
Executive Officer and President
</TABLE>
45
<PAGE> 47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Kuse and McGovern. During
calendar year 1995, the Company did not have a Compensation Committee, and all
compensation decisions were made by Mr. Krischer, who also served as President
of the Company.
COMPENSATION OF DIRECTORS
The Company's non-employee directors receive directors' fees of $1,250 per
board meeting attended, and all Directors are reimbursed for their out-of-pocket
expenses incurred in connection with their service on the Board of Directors.
For a description of the non-cash compensation paid to the non-employee
Directors for their service on the Board, see "Management -- 1996 Stock
Incentive Plans -- The Directors' Plan." Messrs. Krischer and Berman receive no
compensation for their service on the Board of Directors other than
reimbursement for their out-of-pocket expenses incurred in connection with such
service.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnification Agreements, the Company is required to indemnify the Indemnified
Parties against certain liabilities arising out of their services for the
Company. The Indemnification Agreements require the Company (i) to indemnify
each Indemnified Party to the fullest extent permitted by law; (ii) to provide
coverage for each Indemnified Party under the Company's directors and officers
liability insurance policy and (iii) to advance certain expenses incurred by an
Indemnified Party. The Indemnification Agreements provide limitations on the
Indemnified Parties' rights to indemnification in certain circumstances. To the
extent that indemnification provisions contained in the Indemnification
Agreements purport to include indemnification for liabilities arising under the
Securities Act, the Company has been informed that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
contrary to public policy and therefore unenforceable.
1996 STOCK INCENTIVE PLANS
The Company has adopted the 1996 Plan and the Directors' Plan for the
purpose of (i) attracting and retaining employees and directors with ability and
initiative; (ii) providing incentives to those deemed important to the success
of the Company and related entities and (iii) associating the interests of these
individuals with the interests of the Company and its shareholders through
opportunities for increased ownership of Common Stock. The summaries of the 1996
Plan and the Directors' Plan set forth below are qualified in their entirety by
reference to the text of the 1996 Plan and the Directors' Plan, which were filed
as exhibits to the IPO Registration Statement.
The 1996 Plan
Administration. The 1996 Plan is administered by the Compensation
Committee of the Board (the "Compensation Committee"). As used in this summary,
the term "Administrator" means the Compensation Committee.
Eligibility. Each employee of the Company or of a wholly-owned subsidiary
of the Company, including an employee who is a member of the Board, is eligible
to participate in the 1996 Plan. The Administrator selects the individuals who
participate in the 1996 Plan ("Participants"), but no person may participate in
the 1996 Plan while he or she is a member of the Compensation Committee. The
Administrator may, from time to time, grant stock options, stock appreciation
rights ("SARs"), stock awards, restricted stock awards or performance shares to
Participants.
Stock Options. Options granted under the 1996 Plan may be incentive stock
options ("ISOs") or nonqualified stock options. A stock option entitles a
Participant to purchase shares of Common Stock from the Company at the option
price. The option price may be paid in cash, with shares of Common Stock or with
a combination of cash and Common Stock. The option price is fixed by the
Administrator at the time the option
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<PAGE> 48
is granted, but the price cannot be less than the shares' Fair Market Value (as
defined in the Plan) on the date of grant. The exercise price of an ISO granted
to any Participant who is a Ten Percent Shareholder (as defined below) may not
be less than 110% of the shares' Fair Market Value on the date of grant. A
Participant is a Ten Percent Shareholder if he owns, or is deemed to own, more
than ten percent of the total combined voting power of all classes of stock of
the Company or a related entity. A Participant is deemed to own any voting stock
owned (directly or indirectly) by the Participant's spouse, brothers, sisters,
ancestors and lineal descendants. A Participant and such persons are also
considered to own proportionately any voting stock owned (directly or
indirectly) by or for a corporation, partnership, estate or trust of which the
Participant or any such person is a shareholder, partner or beneficiary. An
option must expire within ten years from the date of grant, except that the term
of an ISO that is granted to a Ten Percent Shareholder may not be longer than
five years. Moreover, no Participant may be granted ISOs or related SARs (under
all incentive stock option plans of the Company) which are first exercisable in
any calendar year for stock having an aggregate Fair Market Value (determined as
of the date the ISO was granted) that exceeds $100,000. Finally, no Participant
shall be granted options to purchase more than 150,000 shares of stock in any
12-month period.
SARs. SARs entitle the Participant to receive a payment based on a formula
determined by the Administrator and set forth in the SAR Agreement. The
Participant is entitled to receive no more than the excess of the Fair Market
Value of a share of Common Stock on the date of exercise over the initial value
of the SAR. The initial value of the SAR is the Fair Market Value of a share of
Common Stock on the date of grant. The amount payable upon the exercise of a SAR
may be paid in cash, Common Stock or a combination of the two. SARs may be
granted in relation to option grants ("Corresponding SARs") or independently of
option grants. The difference between these two types of SARs is that to
exercise a Corresponding SAR, the Participant must surrender unexercised that
portion of the stock option to which the Corresponding SAR relates. The maximum
number of shares underlying SARs which can be awarded during any 12-month period
to any Participant is 150,000 shares.
Restricted Stock; Stock Awards. Participants may also be awarded shares of
Common Stock pursuant to a stock award. The Administrator, in its discretion,
may prescribe that a Participant's rights in a stock award shall be
nontransferable or forfeitable or both unless certain conditions are satisfied.
These conditions may include, for example, a requirement that the Participant
continue employment with the Company for a specified period or that the Company
or the Participant achieve stated objectives.
Performance Share Awards. The 1996 Plan also provides for the award of
performance shares. A performance share award entitles the Participant to
receive a payment equal to the Fair Market Value of a specified number of shares
of Common Stock if certain performance standards are met. The Administrator
prescribes the requirements that must be satisfied before a performance share
award is earned. The performance share requirements may include, for example, a
requirement that the Participant continue employment with the Company for a
specified period or that the Company or the Participant achieve stated
objectives. To the extent that performance shares are earned, the obligation may
be settled in cash, in Common Stock or by a combination of the two. No more than
25,000 performance shares may be earned by a Participant with respect to any
performance period.
Share Authorization. All awards made under the 1996 Plan are evidenced by
written agreements between the Company and the Participant. A maximum of 750,000
shares of Common Stock may be issued under the 1996 Plan. The share limitation
and the terms of outstanding awards shall be adjusted, as the Compensation
Committee deems appropriate, in the event of a stock dividend, stock split,
combination, reclassification, recapitalization or other similar event.
Nontransferability. Any option or SAR granted under the 1996 Plan is
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of a Participant, options or SARs may only be exercised by
such Participant. Notwithstanding the foregoing, a Participant may transfer an
option or SAR (other than an ISO and its Corresponding SAR) with respect to all
or part of the shares of Common Stock subject to such option or SAR to the
Participant's spouse, children or grandchildren, to a trust for the benefit of
such family members or to a partnership in which such family members are the
only partners if (a) no consideration is received by the Participant in exchange
for the option or SAR; (b) the agreement evidencing
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<PAGE> 49
the option or SAR expressly provides for transfers described in this sentence
and is approved by the Committee; (c) the option or SAR continues to be subject
to the same terms and conditions after the transfer and (d) the transfer is
permissible under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") as in effect from time to time.
Change in Control. In the event the Company undergoes a change in control
(as defined in the 1996 Plan), all restricted stock (other than restricted stock
granted within six months of the Change in Control) shall vest, all performance
awards shall be earned and all options and SARs granted under the 1996 Plan
shall become exercisable. Amounts payable or earned as a result of a change in
control are subject to certain reductions to mitigate the effect of Section 280G
of the Internal Revenue Code of 1986 (the "Code").
Assumption of Awards. In the event of a merger, consolidation or statutory
share exchange in which the Company either is not the survivor or becomes a
subsidiary of the acquiring entity, or an acquisition of the Company's assets
that results in the Company going out of business, all awards granted under the
1996 Plan shall be assumed by the acquiring entity.
Termination and Amendment. No option, SAR or stock award may be granted
and no performance shares may be awarded under the 1996 Plan after March 26,
2006. The Board may amend or terminate the 1996 Plan at any time, but an
amendment will not become effective without shareholder approval if the
amendment changes the eligibility requirements, increases the benefits that may
be provided under the 1996 Plan or extends the term of the Plan.
Initial Awards. On May 23, 1996, the Company granted options to acquire an
aggregate of 400,000 shares of Common Stock. Mr. Krischer received options to
purchase 150,000 shares, and Messrs. Berman, Christian, Feldman, Hilliard and
Pfannes each received options to purchase 50,000 shares. Each of the grantees
received an ISO covering the maximum number of shares for which an ISO may be
awarded, given the $100,000 per year annual limitation discussed above under the
heading "Stock Options," and a nonqualified option covering the remainder of the
shares. The options will become exercisable for 25% of the shares of Common
Stock covered by each such option on the first anniversary of the date of grant,
and with respect to an additional 25% on each anniversary of such date through
the year 2000. Each option, other than the ISOs granted to Mr. Krischer, is
exercisable for ten years from the date of grant at a price per share equal to
the IPO Price. Due to the Ten Percent Shareholder rule discussed under the
heading "Stock Options," the ISOs granted to Mr. Krischer are exercisable for
five years from the date of grant at a price per share equal to 110% of the IPO
Price.
Shareholder Rights. A Participant has no rights as a shareholder with
respect to the shares subject to his or her option until the option is
exercised.
Federal Income Taxes. No income is recognized by a Participant at the time
an option is granted. If the option is an ISO, no income will be recognized upon
the Participant's exercise of the option. Income is recognized by a Participant
when he disposes of shares acquired under an ISO. The exercise of a nonqualified
stock option generally is a taxable event that requires the Participant to
recognize, as ordinary income, the difference between the shares' Fair Market
Value and the option price.
No income is recognized upon the grant of a SAR. The exercise of a SAR is
generally a taxable event. A Participant generally must recognize income equal
to any cash that is paid and the Fair Market Value of Common Stock that is
received in settlement of a SAR.
Unless an election is made under Section 83(b) of the Code, a Participant
will recognize income on account of a stock award on the first day that the
shares are either transferable or not subject to a substantial risk of
forfeiture. The amount of income recognized by the Participant is equal to the
Fair Market Value of the Common Stock received on that date.
Unless an election is made under Section 83(b) of the Code, a Participant
will recognize income on account of the settlement of a performance share award.
The amount of such income will be equal to any cash that is paid and the Fair
Market Value of Common Stock (on the date that the shares are first transferable
or not subject to a substantial risk of forfeiture) that is received in
settlement of the award.
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<PAGE> 50
Suburban ordinarily will be entitled to claim a federal income tax
deduction on account of the exercise of a nonqualified option or SAR, the
vesting of a stock award and the settlement of a performance share award. The
amount of the deduction is equal to the ordinary income recognized by the
Participant. Suburban will not be entitled to a federal income tax deduction on
account of the grant or the exercise of an ISO. Suburban may claim a federal
income tax deduction on account of certain dispositions of Common Stock acquired
upon the exercise of an ISO.
The Directors' Plan
Eligibility. The Directors' Plan provides for the grant of options to
purchase Common Stock to each eligible Director of the Company and the award of
Common Stock to each eligible Director. No Director who is an employee of the
Company or a subsidiary is eligible to participate in the Directors' Plan.
Options. Option grants under the Directors' Plan are made at each annual
meeting of the Board of Directors immediately following their election or
re-election, and on such date each eligible Director will receive options to
purchase 1,500 shares of Common Stock at the Fair Market Value of the Common
Stock on the date of grant. The exercise price may be paid in cash, cash
equivalent acceptable to the plan administrator, Common Stock or a combination
thereof. Options granted under the Director's Plan are exercisable for ten years
from the date of grant, subject to certain restrictions described below.
Exercise of Options. Each option granted to a Director under the
Directors' Plan becomes exercisable on the first to occur of: (a) the first
anniversary of the date of grant or (b) the date of the next annual meeting of
the shareholders, in each case if such Director is then a member of the Board.
Notwithstanding the foregoing, if a Director ceases to be a member of the Board
as a result of his or her death or disability, such Director's option will
become immediately exercisable. Except as provided in the event of death or
disability, on the date that a Director ceases to be a member of the Board for
any reason, he or she shall forfeit the right to exercise his or her option with
respect to any shares for which it is not then exercisable in accordance with
the foregoing.
If a Director leaves the Board as a result of death or disability, his or
her option may be exercised within one year following the last date on which the
Director is a member of the Board or during the remainder of the option period,
whichever is shorter. If the Director leaves the Board for any other reason, the
option may be exercised within one year following the last date on which the
Director is a member of the Board or during the remainder of the option period,
whichever is shorter. An option may be exercised with respect to any number of
whole shares less than the full number for which the option could be exercised.
Nontransferability. Any option granted under the Directors' Plan is
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of a Participant, options may only be exercised by such
Participant. Notwithstanding the foregoing, an option may be transferred with
respect to all or part of the shares of Common Stock subject to the option to
the Directors' spouse, children or grandchildren, to a trust for the benefit of
such family members or to a partnership in which such family members are the
only partners if (a) no consideration is received by the director in exchange
for the option; (b) the agreement evidencing the option expressly provides for
transfers described in this sentence and is approved by the plan administrator;
(c) the option continues to be subject to the same terms and conditions after
the transfer and (d) the transfer is permissible under Rule 16b-3 of the
Exchange Act.
Change in Control. In the event the Company undergoes a change in control
(as defined in the Directors' Plan), all restricted stock (other than restricted
stock granted within six months of the Change in Control) shall vest and all
options granted under the Directors' Plan shall become exercisable.
Assumption of Awards. In the event of a merger, consolidation or statutory
share exchange in which the Company either is not the survivor or becomes a
subsidiary of the acquiring entity or an acquisition of the Company's assets
that results in the Company going out of business, all awards granted under the
Directors' Plan shall be assumed by the acquiring entity.
Stock Awards. All awards of Common Stock under the Directors' Plan are
made at the first Board Meeting following an annual meeting of the Company's
shareholders (the date of each such Board meeting
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<PAGE> 51
being referred to as an "Award Date"). Each eligible Director will receive on
each Award Date on which he is a member of the Board the lesser of 1,000 shares
of Common Stock or, if the Fair Market Value of 1,000 shares exceeds $10,000 on
the Award Date, a number of whole shares of Common Stock having a Fair Market
Value that as nearly as possible equals, but does not exceed, $10,000.
Vesting of Stock Awards. A Director will be vested in one hundred percent
of the shares of Common Stock awarded to him under the Directors' Plan on the
first to occur of (a) the first anniversary of the date of grant or (b) the date
of the next annual meeting of the shareholders. If, however, a Director is not a
member of the Board on any Award Date on which his shares otherwise would become
vested, no shares will vest for such Director on that date, and the Director
will have no further right in any shares of Common Stock issued to him under the
Directors' Plan that are not then vested.
Shareholder Rights. A Director has no rights as a shareholder with respect
to the shares subject to his option until the option is exercised. A Director
has the right to vote all shares of Common Stock awarded to him under the
Directors' Plan and receives all dividends paid with respect to the shares,
notwithstanding that the shares have not vested. Upon a Director's ceasing to be
a member of the Board, these rights will immediately terminate with respect to
any share of Common Stock not then vested.
Amendment and Termination. The Directors' Plan provides that the Board may
amend or terminate the Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment changes the eligibility
requirements, increases the benefits that may be provided under the Directors'
Plan, or extends the term of the Director's Plan. No shares of Common Stock will
be awarded under the Directors' Plan after March 26, 2006.
Share Authorization. A maximum of 100,000 shares of Common Stock may be
issued under the Directors' Plan. The share limitation and the terms of
outstanding awards shall be adjusted, as the Compensation Committee deems
appropriate, in the event of a stock dividend, stock split, combination,
reclassification, recapitalization or other similar event.
Initial Awards. On May 23, 1996, the Company awarded each eligible
Director options to purchase 1,500 shares of Common Stock at the IPO Price. On
May 23, 1996, the Company awarded each eligible Director 1,000 shares of
restricted Common Stock.
Profit Sharing Plan
The Company sponsors the Suburban Lodge 401(k) Savings Plan for its
employees. For employees earning under $30,000 per year, the Company makes a
matching contribution of 100% of the first $10 contributed per employee per pay
period. Thereafter, 10% of all contributions over $10 per pay period are matched
by the Company. For employees earning over $30,000 per year, the Company makes a
matching contribution of 10% of the employee's contribution. Employee
contributions vest immediately upon contribution, and matching contributions
made by the Company vest over time, with all employees with more than five years
of service being fully vested in their Company contributions. Employees may
contribute from one percent to 15% of their pay each pay period up to an
aggregate of $9,500 in 1996. All employees of the Company who have completed 12
months of service with the Company, have worked 1,000 hours or more per year and
have attained the age of 21 are eligible to participate in the plan.
CERTAIN TRANSACTIONS
Prior to and in connection with the IPO, the Company entered into a number
of transactions with certain of its officers and directors and their affiliates
in connection with the restructuring of the Company and its operations in
preparation for public ownership. The Company merged with the Affiliated
Entities in exchange for an aggregate of 875,189 shares of Common Stock, with a
value of approximately $15.0 million based upon the IPO Price, and approximately
$2.9 million in cash. Of these shares, an aggregate of 784,008 shares were
issued to affiliates of the Company, including 307,144 shares issued to Mr.
Krischer, 199,333 shares issued to Mr. Kuse and his affiliates, 131,735 shares
issued to Mr. McGovern, 124,630 shares issued to the investors in HS Associates
and 21,166 shares issued to the officers of the Company as a group, in exchange
for their
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<PAGE> 52
interests in the Affiliated Entities. These shares had a value of approximately
$13.3 million based on the IPO Price. Of the shares issued to Mr. McGovern,
approximately 13,500 shares were issued as payment for development services
rendered in connection with the development of the Mableton facility.
Of the $2.9 million in cash paid in connection with the acquisition of the
Affiliated Entities, approximately $1.1 million was paid to affiliates of the
Company as follows: $84,600 to Mr. Krischer, $545,700 to Mr. Kuse and his
affiliates, $386,600 to Mr. McGovern and $48,000 to the other officers of the
Company as a group. Also, the Company paid a $100,000 development fee (of which
$25,000 was paid to Mr. Krischer) with respect to the Conyers facility.
Prior to the IPO, Messrs. Krischer, Kuse and McGovern and HS Associates
made loans to Suburban and the partnerships and limited liability companies
which owned the 16 facilities acquired in the Corporate Organization to fund
development, construction and working capital requirements. In connection with
the Corporate Organization, a portion of the net proceeds of the IPO was used to
repay the indebtedness of the Company and such partnerships and limited
liability companies, including approximately $1.7 million to affiliates of the
Company, including approximately $401,000 to Mr. Krischer and his family
members, $1.0 million to Mr. Kuse and his affiliates, $129,000 to Mr. McGovern
and $126,000 to HS Associates. In addition, Mr. Krischer, HS Associates and Mr.
McGovern had extended a wrap-mortgage of approximately $2.7 million to the
former owner of the Forest Park facility. After repayment of the underlying
mortgage, Mr. Krischer, HS Associates and Mr. McGovern received approximately
$559,000, $373,000 and $187,000, respectively, upon repayment of the
wrap-mortgage by such seller. In addition, almost all of the indebtedness repaid
with a portion of the net proceeds of the IPO had been guaranteed by Mr.
Krischer and one or more of Mr. McGovern and Mr. Kuse and his affiliates.
Immediately prior to the IPO, the Affiliated Entities distributed to Mr.
Krischer, as agent, the cash and cash equivalents of the Affiliated Entities for
purposes of liquidating current liabilities and making final distributions to
the investors in the Affiliated Entities. The cash distributed to Mr. Krischer,
as agent, aggregated approximately $747,000, and Messrs. Krischer, Kuse and
McGovern, investors in HS Associates and certain other officers of the Company
received approximately $257,000, $133,000, $75,000, $85,000 and $10,000,
respectively, of such distribution after liquidation of certain liabilities in
the amount of approximately $187,000. These distributions substantially reduced
the cash balances of the Affiliated Entities immediately prior to the closing of
the IPO. Also, the Company reimbursed the Affiliated Entities $473,000 for
expenses advanced to fund the IPO.
Pursuant to the terms of a Management Agreement between the Company and the
former owner of the Forest Park facility, upon consummation of the Company's
acquisition of the Forest Park facility, the Company received a sales incentive
fee of $198,000, which was accounted for as a reduction in the price paid for
the Forest Park facility.
In 1995, the Company paid $17,000 in consulting fees to Acreage Investment
Corporation, a real estate and construction consulting firm owned by Mr.
Hilliard, the Company's Vice President of Construction. The Company paid $10,000
in consulting fees to Acreage Investment Corporation prior to the IPO. The
Company does not anticipate paying any additional fees to Acreage Investment
Corporation.
Shortly before the IPO, the Company distributed $100,000 to Mr. Krischer as
an advance on his bonus for calendar year 1996.
In addition, Mr. McGovern and Mr. Kuse's son have expressed an interest in
becoming franchisees and engaging the Company to develop and manage their
franchised Suburban Lodge facilities. The Company is considering this proposal,
and any agreements reached with Mr. McGovern and Mr. Kuse's son would be on
similar terms and conditions as the Company's existing franchise, development
and management agreements and would be unanimously approved by the disinterested
members of the Board of Directors.
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<PAGE> 53
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by (i) each director of the Company; (ii) each
executive officer of the Company; (iii) all directors and executive officers of
the Company as a group; (iv) each person known to the Company to beneficially
own more than 5% of the outstanding Common Stock and (v) each Selling
Shareholder. Unless otherwise indicated, all shares are owned directly and the
indicated person has sole voting and investment power. The number of shares
represents the number of shares of Common Stock the person holds as of October
, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
OF
PERCENT OF OUTSTANDING
NUMBER OF SHARES OUTSTANDING NUMBER NUMBER OF SHARES COMMON STOCK
BENEFICIALLY OWNED COMMON STOCK OF SHARES BENEFICIALLY OWNED AFTER
NAME OF BENEFICIAL OWNER(1) PRIOR TO OFFERING PRIOR TO OFFERING TO BE SOLD AFTER OFFERING OFFERING
- ----------------------------- ------------------ ----------------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
David E. Krischer(2)(3)...... 2,825,437 33.1% 199,983 2,625,454 20.9%
Dan J. Berman(2)(4).......... 150,631 1.8 10,500 140,131 1.1
Seth H. Christian(2)......... 151,094 1.8 10,500 140,594 1.1
Terry J. Feldman(5).......... 6,705 * 0 6,705 *
G. Hunter Hilliard(6)........ 94,965 1.1 0 94,965 *
Kevin R. Pfannes(7).......... 3,127 * 0 3,127 *
James R. Kuse(2)(8)(9)....... 178,417 2.1 17,741 160,676 1.3
Michael McGovern(8).......... 412,516 4.8 0 412,516 3.3
John W. Spiegel(8)........... 1,000 * 0 1,000 *
William D. Bowen(2).......... 7,925 * 792 7,133 *
K&K Holdings, LLC(2)(9)...... 177,417 2.1 17,741 159,676 1.3
Michael J. Kuse(2)(9)........ 199,333 2.3 19,932 179,401 1.4
Pine Land Greyhawk,
Inc.(2).................... 12,931 * 1,293 11,638 *
All directors and executive
officers as a group (nine
persons)................... 3,823,892 44.7% 3,585,168 28.6%
</TABLE>
- ---------------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of the persons named above is care
of Suburban Lodges of America, Inc., 1000 Parkwood Circle, Suite 850,
Atlanta, Georgia 30339.
(2) Received some or all of the shares to be sold pursuant to the Corporate
Organization.
(3) Includes 117 shares held in an individual retirement account for the benefit
of Mr. Krischer's spouse and 117 shares held in an individual retirement
account for the benefit of Mr. Krischer's daughter.
(4) Includes 100 shares held with Mr. Berman's spouse as joint tenants with the
right of survivorship.
(5) Includes 6,000 shares held by Mr. Feldman's spouse.
(6) Includes 1,400 shares held by Mr. Hilliard's spouse.
(7) Includes 117 shares held in an individual retirement account for Mr.
Pfannes' benefit.
(8) Includes 1,000 shares of restricted Common Stock granted pursuant to the
Directors' Plan.
(9) Includes 177,417 shares held of record by K&K Holdings, LLC, a limited
liability company in which James R. Kuse has an indirect ten percent
interest and the remainder of which is owned by his son, Michael J. Kuse.
K&K Holdings, LLC ("K&K") intends to sell 17,741 shares in the Offering
which represents 10% of the shares beneficially owned by K&K. The 17,741
shares to be sold by K&K are included in the number of shares to be sold by
James R. Kuse and Michael J. Kuse.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $1.00 per share (the "Preferred Stock"). Upon completion of the
Offering, 12,547,829 shares of Common Stock will be issued and outstanding, and
no Preferred Stock will be issued or outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
voted on by shareholders, including elections of directors. Except as otherwise
required by law or provided in any resolution adopted by the Board of Directors
with respect to any series of Preferred Stock, the holders of the Common Stock
exclusively possess all voting power. The Articles of Incorporation do not
provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding series of Preferred Stock, the holders of
Common Stock are entitled to such dividends as may be declared from time to time
by the Board of Directors from funds available therefor, and upon liquidation
are entitled to receive pro rata all assets of the Company available for
distribution to such holders. The holders of Common Stock have no preemptive
rights.
PREFERRED STOCK
The authorized and unissued capital stock of the Company includes 5,000,000
shares of Preferred Stock, par value $1.00 per share. The Board of Directors
generally has the power to issue shares of capital stock without shareholder
approval. The Board of Directors is authorized to establish the rights,
preferences and limitations of any or all shares of Preferred Stock and to
divide such shares into classes or series, with or without voting rights, as the
Board may determine. Except for the Series A Participating Cumulative Preferred
Stock (the "Series A Preferred Stock") issuable pursuant to the Company's Rights
Agreement (as described below), no shares of Preferred Stock are currently
designated, and there is no current plan to designate or issue any other class
or series of Preferred Stock. However, the ability of the Board of Directors to
issue shares of Preferred Stock could impede or deter an unsolicited tender
offer or takeover proposal regarding the Company. See "Risk
Factors -- Anti-Takeover Considerations -- Rights Agreement." Shares of capital
stock also could be issued with such terms, provisions and rights which would
make a takeover of the Company more difficult and, therefore, less likely to
occur. In addition, the issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to holders of Common Stock and
could have the effect of making removal of management more difficult. In certain
circumstances, this could have the effect of decreasing the market value of the
Common Stock.
RIGHTS AGREEMENT
The Company's Board of Directors adopted a Rights Agreement, pursuant to
which one right (a "Right") has been issued in respect of each outstanding share
of Common Stock, and one Right will be issued in respect of each share of Common
Stock issued in the Offering. Rights will also attach to shares of Common Stock
issued after the Offering but prior to the Distribution Date (as defined below).
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share (a "Unit") of Series A Preferred Stock or, in certain
circumstances, Common Stock or stock of the Acquiring Person (as defined below).
Each Unit is structured to be the economic equivalent of one share of Common
Stock. The exercise price per Right will be $60, subject to adjustment (the
"Purchase Price").
The Rights attach to the shares of Common Stock and are evidenced by Common
Stock certificates, and no separate certificates evidencing the Rights (the
"Rights Certificates") have been distributed. The Rights will separate from the
Common Stock and a distribution of the Rights Certificates will occur (the
"Distribution Date") upon the earlier of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire (other than
pursuant to an acquisition approved in advance by a majority of the Continuing
Directors (as defined below)), beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Share Acquisition Date"), or (ii) ten
business days after the commencement of a tender offer or exchange
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<PAGE> 55
offer that would result in a person or group beneficially becoming an Acquiring
Person. Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) any Common Stock certificates issued will contain a
notation incorporating the Rights Agreement by reference and (iii) the surrender
for transfer of any certificates for Common Stock outstanding will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business in May 2006, unless earlier redeemed or exchanged by
the Company as described below. As soon as practicable after the Distribution
Date, Rights Certificates will be mailed to holders of record of the Common
Stock as of the close of business on the Distribution Date, and thereafter such
separate Rights Certificates alone will represent the Rights.
The Rights Agreement also provides that if (i) any person becomes an
Acquiring Person (other than pursuant to a tender or exchange offer approved by
a majority of the Continuing Directors), (ii) during such time as there is an
Acquiring Person an event occurs which results in such Acquiring Person's
ownership interest in the Company being increased by more than 1%, (iii) the
Company is the surviving Corporation in a merger with an Acquiring Person and
the Common Stock is not changed or exchanged or (iv) an Acquiring Person engages
in one or more "self-dealing" transactions as set forth in the Rights Agreement,
then proper provision shall be made so that each holder of a Right (except as
set forth below) will thereafter have the right to receive, upon exercise and
payment of the Purchase Price, Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to the
Purchase Price.
If, at any time following the Share Acquisition Date, (i) the Company is
acquired in a merger, statutory share exchange or other business combination in
which the Company is not the surviving corporation or (ii) the Company sells or
transfers assets aggregating more than 50% of its assets or generating more than
50% of its operating income or cash flow, each holder of a Right (except as set
forth below) shall thereafter have the right to receive, upon exercise and
payment of the Purchase Price, common stock of the acquiring company having a
value equal to twice the Purchase Price. The events set forth in this paragraph
and in the preceding paragraph are referred to as the "Triggering Events."
Upon the occurrence of a Triggering Event, Rights that are or were owned by
the Acquiring Person, or any affiliate or associate of such Acquiring Person, on
or after such Acquiring Person's Share Acquisition Date shall be null and void
and may not thereafter be exercised by any person (including subsequent
transferees).
The Purchase Price payable, and the number of shares of Series A Preferred
Stock, Common Stock or other securities or property issuable upon exercise of
the Rights, are subject to adjustment from time to time to prevent dilution.
At any time after any person becomes an Acquiring Person, the Company may
exchange all or part of the Rights (other than Rights owned by the Acquiring
Person and certain affiliated persons) for shares of Common Stock (an
"Exchange") at an exchange ratio of one share per Right, as appropriately
adjusted to reflect any stock split or similar transaction.
At any time until ten days following the Share Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $0.001
per Right (the "Redemption Price"). Under certain circumstances set forth in the
Rights Agreement, the decision to make an Exchange or to redeem the Rights shall
require the concurrence of a majority of the Continuing Directors. After the
redemption period has expired, the Company's right of redemption may be
reinstated if an Acquiring Person reduces his beneficial ownership to 10% or
less of the outstanding shares of Common Stock in a transaction or series of
transactions not involving the Company. Immediately upon the action of the Board
ordering redemption of the Rights, with, where required, the concurrence of the
Continuing Directors, the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The term "Continuing Directors" means any member of the board who was a
member of the board immediately before an Acquiring Person becomes such (other
than pursuant to a tender or exchange offer approved by a majority of the
Continuing Directors), and any person who is subsequently elected to the Board
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<PAGE> 56
if such person is recommended or approved by a majority of the Continuing
Directors, but does not include an Acquiring Person, or an affiliate or
associate of an Acquiring Person, or any representative of the foregoing
entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Series A Preferred Stock (or other consideration) of the Company
or for common stock of the acquiring company as set forth above.
Prior to the Distribution Date, the Rights Agreement may be amended in any
respect, other than to change the Redemption Price, the Expiration Date, the
Purchase Price or the number or kind of shares for which a Right is exercisable.
After the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board (in certain circumstances, with the concurrence of the
Continuing Directors) in order to cure any ambiguity, to make changes that do
not adversely affect the interests of the holders of Rights (excluding the
interests of an Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, no amendment to lengthen the time
period governing redemption may be made at such time as the Rights are not
redeemable.
The Rights may have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that acquires more than 15% of the
outstanding shares of Common Stock or if another Triggering Event occurs without
the Rights having been redeemed or in the event of an Exchange. However, the
Rights should not interfere with any merger or other business combination
approved in advance by the Board or a merger or other business combination
approved by the Board and the shareholders because the Rights are redeemable
under certain circumstances. See "Risk Factors -- Anti-Takeover
Considerations -- Rights Agreement."
The dividend and liquidation rights of the Series A Preferred Stock are
designed so that the value of one one-hundredth of a share of Series A Preferred
Stock issuable upon exercise of each Right will approximate the same economic
value of one share of Common Stock, including voting rights. Shares of Series A
Preferred Stock issuable upon exercise of each Right will not be redeemable.
Each share of Series A Preferred Stock will entitle the holder to a minimum
preferential dividend of $1.00 per share, but will entitle the holder to an
aggregate dividend payment of 100 times the dividend declared on each share of
Common Stock. In the event of liquidation, each share of Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $1.00,
plus accrued and unpaid dividends and distributions thereon, but will be
entitled to an aggregate payment of 100 times the payment made per share of
Common Stock. In the event of any merger, consolidation or other transaction in
which Common Stock is exchanged for or changed into other stock or securities,
cash or other property, each share of Series A Preferred Stock will be entitled
to receive 100 times the amount received per share of Common Stock. Series A
Preferred Stock is not convertible into Common Stock but Rights may be
exercisable for shares of Common Stock in certain instances.
Each share of Series A Preferred Stock will be entitled to 100 votes on all
matters submitted to a vote of the shareholders of the Company, and shares of
Series A Preferred Stock will generally vote together as one class with the
Common Stock and any other voting capital stock of the Company on all matters
submitted to a vote of the Company's shareholders. Further, whenever dividends
on the Series A Preferred Stock are in arrears in an amount equal to six
quarterly payments, the Series A Preferred Stock, together with any other shares
of preferred stock then entitled to elect directors, shall have the right, as a
single class, to elect one director until the default has been cured.
Whenever quarterly dividends or other dividends or distributions payable on
the Series A Preferred Stock are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether declared, on the outstanding
Series A Preferred Stock shall have been paid in full, the Company shall not:
(i) declare or pay dividends on, or make any distributions on, any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on,
or make any distributions on, any shares of stock ranking on parity (either as
to dividends or upon liquidation,
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<PAGE> 57
dissolution or winding up) with the Series A Preferred Stock, except dividends
paid ratably on the Series A Preferred Stock and all such other parity stock;
(iii) redeem, purchase or otherwise acquire for consideration shares of any
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock or (iv) redeem, purchase or
otherwise acquire for consideration any Series A Preferred Stock, or any shares
of stock ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective series
and classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
A copy of the Rights Agreement is available free of charge from the Rights
Agent, American Stock Transfer & Trust Company. This summary description of the
Rights and the Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the Rights Agreement.
CERTAIN PROVISIONS OF GEORGIA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
The following summary of certain provisions of Georgia law and the Articles
of Incorporation and Bylaws of the Company does not purport to be complete and
is subject to and qualified in its entirety by reference to Georgia law and the
Articles of Incorporation and the Bylaws of the Company. Certain provisions of
Georgia law and the Articles of Incorporation and Bylaws are described elsewhere
in this Prospectus.
Anti-Takeover Protection
The Company has elected to be covered by two provisions of the Georgia Code
that restrict business combinations with interested shareholders. These
provisions do not apply to a Georgia corporation unless its bylaws specifically
make the statute applicable, and once adopted, such a bylaw may be repealed only
by the affirmative vote of at least two-thirds of the continuing directors and a
majority of the votes entitled to be cast by the voting shares of the Company,
other than shares beneficially owned by an interested shareholder and his
associates and affiliates.
Interested Stockholders Transactions. The Business Combination with
Interested Stockholders Statute regulates business combinations, such as
mergers, consolidations, share exchanges and asset purchases, where the acquired
business has at least 100 shareholders residing in Georgia and has its principal
office in Georgia, as the Company does, and where the acquiror became an
"interested shareholder" of the corporation, unless either (i) the transaction
resulting in such acquiror becoming an "interested shareholder" or the business
combination received the approval of the corporation's Board of Directors prior
to the date on which the acquiror became an interested shareholder or (ii) the
acquiror became the owner of at least 90% of the outstanding voting stock of the
corporation (excluding shares held by directors, officers and affiliates of the
corporation and shares held by certain other persons) in the same transaction in
which the acquiror became an interested shareholder. For purposes of this
statute, an "interested shareholder" generally is any person who directly or
indirectly, alone or in concert with others, beneficially owns or controls 10%
or more of the voting power of the outstanding voting shares of the corporation.
The statute prohibits business combinations with an unapproved interested
shareholder for a period of five years after the date on which such person
became an interested shareholder. The statute restricting business combinations
is broad in its scope and is designed to deter unfriendly acquisitions. The
restrictions contained in this statute shall not apply to any person who was an
"interested shareholder" prior to the Company's adoption of this statute (i.e.,
Mr. Krischer).
Fair Price Requirements. The Fair Price Statute prohibits certain business
combinations between a Georgia business corporation and an interested
shareholder. The Fair Price Statute would permit the business combination to be
effected if (i) certain "fair price" criteria are satisfied; (ii) the business
combination is unanimously approved by the continuing directors; (iii) the
business combination is recommended by at least two-thirds of the continuing
directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, other than voting shares beneficially owned by the interested
shareholder or (iv) the interested shareholder has been such for at least three
years and has not increased his ownership position in such three-year period by
more than one percent in any 12-month period. The Fair Price Statute is designed
to deter
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<PAGE> 58
unfriendly acquisitions that do not satisfy the specified "fair price"
requirement. In general, the fair-price requirement provides that in a two-step
acquisition transaction, the interested shareholder must pay the shareholders in
the second step either the same amount of cash or the same amount and type of
consideration paid to acquire the corporation's shares in the first step. See
"Risk Factors -- Anti-Takeover Considerations -- Georgia Anti-Takeover
Statutes."
Articles of Incorporation and Bylaws.
Staggered Board of Directors; Removal; Filling Vacancies. The Articles of
Incorporation and Bylaws provide that, subject to any rights of holders of
Preferred Stock to elect additional directors under specified circumstances, the
Board of Directors will consist of not less than two but no more than nine
directors. Currently, there are five directors, three of whom are independent
directors. The Board of Directors is divided into three classes of directors
serving staggered three-year terms. The classification of directors has the
effect of making it more difficult for shareholders to change the composition of
the Board of Directors. The Company believes, however, that the longer time
required to elect a majority of a classified Board of Directors will help to
ensure the continuity and stability of the Company's management and policies.
The classification provisions could also have the effect of discouraging a third
party from accumulating large blocks of the Company's stock or attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. Accordingly, shareholders could be deprived
of certain opportunities to sell their shares of Common Stock at a higher market
price than might otherwise be the case. See "Risk Factors -- Anti-Takeover
Considerations -- Staggered Board." The shareholders shall be entitled to vote
on the election or removal of directors, with each share entitled to one vote.
The Bylaws provide that, subject to any rights of the Preferred Stock, and
unless the Board of Directors otherwise determines, any vacancies will be filled
by the affirmative vote of a majority of the remaining directors, even if less
than a quorum, provided that independent directors shall nominate and approve
directors to fill vacancies created by independent directors. Accordingly, the
Board of Directors could temporarily prevent any shareholder from enlarging the
Board of Directors and filling the new directorships with such shareholder's own
nominees. A vacancy resulting from an increase in the number of directors also
must be filled by action of a majority of the entire Board of Directors. A
director may be removed only with cause by the vote of the holders of 50% of the
outstanding shares at a special meeting of the shareholders called for the
purpose of removing him. This provision, when coupled with the provisions of the
Bylaws authorizing the Board of Directors to fill vacant directorships,
precludes the Company's shareholders from removing incumbent directors, except
for cause and upon the existence of a substantial affirmative vote, and filling
the vacancies created by such removal with their own nominees.
Amendment. In general, the Articles of Incorporation may be amended by the
affirmative vote of a majority of those outstanding shares of Common Stock
composing a quorum at a properly called shareholder meeting. However, the
Articles of Incorporation set forth certain circumstances, as previously
described, under which the affirmative vote of the holders of a majority of the
outstanding shares of the Common Stock is required to make certain amendments.
The Company's Bylaws may be amended by a majority of the Board of Directors or
by vote of the holders of a majority of the outstanding shares of Common Stock.
Directors and Officers Indemnification. The Company's Articles of
Incorporation provide for indemnification of directors to the full extent
permitted by Georgia law and, to the extent permitted by such law, eliminate or
limit the personal liability of directors to the Company and its shareholders
for monetary damages for certain breaches of fiduciary duty and the duty of
care. Such indemnification may be available for liabilities arising in
connection with this Offering. Insofar as indemnification for liabilities under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. Pursuant to its Articles of Incorporation, the Company may
indemnify its officers, employees, agents and other persons to the fullest
extent permitted by Georgia law. The Company's Bylaws obligate the Company,
under certain circumstances, to advance expenses to its directors and officers
in defending an action, suit or proceeding for which
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<PAGE> 59
indemnification may be sought. The Company has entered into Indemnification
Agreements with certain of its directors and officers. See
"Management -- Indemnification Agreements."
The Company's Bylaws also provide that the Company shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or who, while a director,
officer, employee or agent, is or was serving as a director, officer, trustee,
general partner, employee or agent of one of the Company's subsidiaries or, at
the request of the Company, of any other organization, against any liability
asserted against such person or incurred by such person in any such capacity,
whether the Company would have the power to indemnify such person against such
liability under Georgia law. The Company maintains insurance on behalf of all of
its directors and executive officers.
Ability to Consider Other Constituencies. The Articles of Incorporation
permit the Board of Directors, in determining what is believed to be in the best
interest of the Company, to consider the interests of the employees, customers,
suppliers and creditors of the Company, the communities in which offices or
other establishments of the Company are located and all other factors the
directors consider pertinent, in addition to considering the effects of any
actions on the Company and its shareholders.
REGISTRATION RIGHTS
Suburban granted to the persons who received Common Stock in the Corporate
Organization certain "piggyback" registration rights. Such registration rights,
with certain limitations, grant the holders thereof the right to have such
shares registered under any registration statement (including the Registration
Statement of which this Prospectus is part) filed by the Company relating to the
issuance of Common Stock or securities substantially similar to Common Stock.
All of the shares of Common Stock being offered for sale by the Selling
Shareholders have been registered by the Company pursuant to such rights. The
Company will bear the expenses incident to its registration requirements under
the registration rights, except that such expenses shall not include any
underwriting discount or commission, transfer taxes relating to such shares and
certain legal fees. Registration rights may be granted to future sellers of
extended stay facilities to the Company who elect to receive Common Stock or
other securities convertible into Common Stock in lieu of cash.
OTHER MATTERS
The Common Stock is traded on The Nasdaq Stock Market under the symbol
"SLAM."
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
12,547,829 shares of Common Stock. The 8,038,000 shares of Common Stock sold in
the Offering and in the IPO will be freely tradeable without restriction or
further registration under the Securities Act, except for any shares purchased
by an "affiliate" of the Company, which will be subject to the limitations of
Rule 144 promulgated under the Securities Act ("Rule 144"). Approximately
3,487,453 shares of Common Stock are, and approximately 776,376 shares of Common
Stock will become, eligible for sale in the public market after the completion
of the Offering, subject to compliance with an exemption from the registration
requirements of the Securities Act. All of these shares of Common Stock (the
"Restricted Securities") constitute restricted securities under Rule 144.
The Company, its directors and executive officers and all recipients of
shares in the Corporate Organization have agreed with the Underwriters not to
sell any shares of Common Stock, except for shares purchased in the IPO or
acquired thereafter in the public market, for a period of 180 days following the
date of the IPO, without the prior written consent of Montgomery Securities,
which it may withhold in its sole discretion. This lock-up period expires on
November 19, 1996. Further, each officer, director and Selling Shareholder has
agreed with the Underwriters not to sell any shares of Common Stock, except for
shares purchased in the IPO, the Offering or acquired thereafter in the public
market, for a period of 120 days
58
<PAGE> 60
(180 days in the case of Mr. Krischer) following the date of this Prospectus,
without the prior written consent of Montgomery Securities, which it may
withhold in its sole discretion.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who holds shares of Restricted Securities as to
which a minimum of two years has elapsed since the later of the date of
acquisition from an issuer or from an affiliate of the issuer, and any person
who is an "affiliate" as that term is defined under the Securities Act, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock of the Company (approximately 125,500 shares immediately following
the Offering) or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding a sale by such person. Sales under Rule
144 are also subject to certain manner-of-sale provisions, notice requirements
and the availability of current public information about the Company. Under Rule
144, however, a person who holds shares of Restricted Securities as to which a
minimum of three years has elapsed since their acquisition from the issuer or an
affiliate of the issuer and who is not, and for three months prior to the sale
of such shares has not been, an affiliate of the Company is free to sell such
shares without regard to the volume, manner-of-sale and certain other
limitations contained in Rule 144.
On the closing date of the Offering, the Company will have options
outstanding to purchase 400,000 shares of its Common Stock and is authorized to
grant options to purchase an additional 350,000 shares under the Company's 1996
Plan. In addition, on such date, the Company will have options outstanding to
purchase an aggregate of 4,500 shares of its Common Stock and an aggregate of
3,000 shares of restricted stock outstanding under the Directors' Plan. In 1996,
the Company filed Registration Statements under the Securities Act to register
the shares of Common Stock issuable upon the exercise of options granted under
the 1996 Plan and the Directors' Plan. Shares issued under the Company's stock
option plans are freely tradeable in the open market, subject, in the case of
sales by affiliates, to the volume, manner of sale, notice and public
information requirements of Rule 144. See "Management -- 1996 Stock Incentive
Plans."
The Company has granted certain "piggyback" registration rights to the
persons who received Common Stock in the Corporate Organization. After the
Offering, approximately 4,506,829 shares of Common Stock will remain subject to
such registration rights. See "Principal and Selling Shareholders" and
"Description of Capital Stock -- Registration Rights."
No predictions can be made as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the prevailing market price
of the Common Stock. Nevertheless, sales of substantial amounts of Common Stock
in the public market could have an adverse effect on prevailing market prices.
59
<PAGE> 61
UNDERWRITING
Montgomery Securities, Smith Barney Inc., J.C. Bradford & Co. and Legacy
Securities Corp. have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Shareholders the number of shares of Common Stock indicated below
opposite their respective names, at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
- -------------------------------------------------------------------------- ----------------
<S> <C>
Montgomery Securities.....................................................
Smith Barney Inc..........................................................
J.C. Bradford & Co........................................................
Legacy Securities Corp....................................................
----------------
Total........................................................... 4,243,000
================
</TABLE>
The Underwriters have advised the Company and the Selling Shareholders that
they propose initially to offer the Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per share
to certain other dealers. After the Offering, the offering price and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 636,450 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 4,243,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise this option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof. The
Selling Shareholders and the Company have agreed to indemnify each other against
certain liabilities that may be incurred in connection with the Offering,
including liabilities under the Securities Act. The Selling Shareholders will
pay all underwriting discounts and commissions and transfer taxes, if any, and
shall bear the cost of their counsel and advisors relating to such sales of the
Selling Shareholders' shares in the Offering. All other expenses relating to the
sale of the Selling Shareholders' shares in the Offering will be paid by the
Company.
The Company and each of its directors and executive officers and all
recipients of shares in the Corporate Organization have agreed that (except for
shares purchased in the IPO or acquired thereafter in the public market), for a
period of 180 days from the date of the IPO, they will not, directly or
indirectly, offer to sell, sell, contract to sell or otherwise sell or dispose
of any shares of their Common Stock or options or warrants to acquire shares of
Common Stock without the prior written consent of Montgomery Securities. This
lock-up period expires on November 19, 1996. In addition, each director, officer
and Selling Shareholder has agreed (except for shares purchased in the IPO, the
Offering or acquired thereafter in the public market), for a period of 120 days
(180 days in the case of Mr. Krischer) from the date of this Prospectus, that
they will not, directly or indirectly, offer to sell, sell, contract to sell or
otherwise sell or dispose of any shares of their Common Stock or options or
warrants to acquire shares of Common Stock without the consent of Montgomery
Securities. The Company has agreed not to sell any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of Montgomery Securities, except
60
<PAGE> 62
that the Company may, without consent, issue shares of Common Stock upon
exercise of outstanding stock options and warrants.
The Underwriters have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of five percent of the number of shares of Common Stock offered hereby.
In January 1996, Legacy Securities Corp. ("Legacy") agreed to provide
investment banking consulting services to the Company in connection with the IPO
and received a fee for such services in the amount of $100,000 upon the closing
of the IPO. In addition, Legacy Lodging LLC, an affiliate of Legacy, is
developing several Suburban Lodge facilities. The owners of Legacy Lodging LLC
received an aggregate of approximately 29,400 shares of Common Stock in
connection with the Company's acquisition of a Suburban Lodge facility from
Legacy Lodging LLC as part of the Corporate Organization. All of these shares
were held in escrow until the Company obtained final zoning approval on the site
for such facility. In October 1996, the Company entered into a development
agreement with Legacy Lodging III, LLC in substantially the same form as the
development agreements described in this Prospectus. See "Business -- Franchise,
Development and Management Agreements -- Development Agreements." As
compensation for its services, the Company will be paid a fee by Legacy Lodging
III, LLC of $100,000, plus certain reimbursable expenses.
Legacy became a member of the National Association of Securities Dealers,
Inc. in 1994. Since 1994, Legacy has served as the Company's financial advisor
in connection with financing alternatives and has been reimbursed by the Company
for its out-of-pocket expenses.
In connection with the Offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock on
The Nasdaq Stock Market immediately prior to the commencement of sales in the
Offering, in accordance with Rule 10b-6A under the Securities Exchange Act of
1934, as amended. Passive market making consists of displaying bids on The
Nasdaq Stock Market limited by the bid prices of independent market makers for a
security and making purchases of a security which are limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
EXPERTS
The combined financial statements of Suburban Lodges of America, Inc. and
Affiliated Entities as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995, the related combined financial
statement schedule, and the financial statements of Gulf Coast Associates, Ltd.
for the year ended December 31, 1995, all included in this Prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kilpatrick & Cody, Atlanta, Georgia. As of October 29,
1996, 2,767 shares of Common Stock of the Company were owned by attorneys with
Kilpatrick & Cody, the Company's corporate counsel. The validity of the shares
of Common Stock offered hereby will be passed upon for the Underwriters by King
& Spalding, Atlanta, Georgia.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby.
61
<PAGE> 63
As used herein, the term "Registration Statement" means the initial Registration
Statement and any and all amendments thereto. This Prospectus omits certain
information contained in said Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, or at the Commission web site
at http://www.sec.gov.
62
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Suburban Lodges of America, Inc. and Affiliated Entities
Combined Financial Statements:
Independent Auditors' Report..................................................... F-2
Combined Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996
(unaudited)..................................................................... F-3
Combined Statements of Operations for the Years Ended December 31, 1993, 1994,
1995, and the Nine Months Ended September 30, 1995 and 1996 (unaudited)......... F-4
Combined Statements of Common Stock, Deficit, and Partners' Capital (Deficit) for
the Years Ended December 31, 1993, 1994, and 1995, and the Nine Months Ended
September 30, 1996 (unaudited).................................................. F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
1995, and the Nine Months Ended September 30, 1995 and 1996 (unaudited)......... F-6
Notes to Combined Financial Statements........................................... F-7
Combined Schedule of Real Estate Owned and Accumulated Depreciation.............. F-14
Gulf Coast Associates, Ltd. d/b/a Suburban Lodge of Forest Park (Gulf Coast) Financial
Statements:
Independent Auditors' Report........................................................ F-15
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited)............... F-16
Statements of Operations for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1995 and 1996 (unaudited)........................................ F-17
Statements of Changes in Partners' Deficit for the Year Ended December 31, 1995 and
the Three Months Ended March 31, 1996 (unaudited)................................ F-18
Statements of Cash Flows for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1995 and 1996 (unaudited)........................................ F-19
Notes to Financial Statements....................................................... F-20
</TABLE>
F-1
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors
Suburban Lodges of America, Inc.
and Affiliated Entities:
We have audited the accompanying combined balance sheets of Suburban Lodges
of America, Inc. and Affiliated Entities ("Suburban Lodges") as of December 31,
1994 and 1995 and the related combined statements of operations, of common
stock, deficit, and partners' capital (deficit), and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included the
financial statement schedule included on page F-14 of this Prospectus. These
combined financial statements and the financial statement schedule are the
responsibility of Suburban Lodges' management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
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 the 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Suburban
Lodges as of December 31, 1994 and 1995 and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Deloitte & Touche LLP
Atlanta, Georgia
March 17, 1996
(May 29, 1996 as to Notes 1 and 11)
F-2
<PAGE> 66
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 467,203 $ 687,432 $ 19,709,360
Prepaid expenses and other assets..................... 89,692 180,116 668,460
Advances to affiliates................................ -- 5,000 100,000
Current deferred tax asset............................ 14,000 33,611 93,702
----------- ----------- -------------
Total current assets.......................... 570,895 906,159 20,571,522
DEFERRED TAX ASSET...................................... -- -- 183,000
DEFERRED EXPENSES -- net................................ 352,552 461,526 427,941
INVESTMENT IN FACILITIES -- at cost:
Land.................................................. 1,711,633 2,386,633 3,049,035
Buildings and improvements............................ 6,978,608 9,359,201 21,597,898
Equipment............................................. 805,837 888,162 1,181,806
Furniture and fixtures................................ 724,045 1,004,875 2,215,212
Construction-in-progress.............................. 52,361 1,988,674 14,403,096
----------- ----------- -------------
10,272,484 15,627,545 42,447,047
Less accumulated depreciation......................... 1,556,269 1,990,982 2,410,890
----------- ----------- -------------
Net investment in facilities.................. 8,716,215 13,636,563 40,036,157
----------- ----------- -------------
$ 9,639,662 $15,004,248 $ 61,218,620
========== ========== ==========
LIABILITIES AND TOTAL CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt and capital
leases............................................. $ 302,467 $ 640,413 $ --
Current portion of notes payable to affiliates........ 1,099,021 1,052,511 --
Accounts payable, trade............................... 66,299 82,369 387,683
Construction accounts payable......................... -- 544,602 1,128,331
Accrued interest...................................... 47,575 137,228 --
Accrued expenses and other liabilities................ 145,071 179,178 430,749
Unearned franchise fees............................... -- 143,500 250,230
Income tax payable.................................... -- -- 380,651
----------- ----------- -------------
Total current liabilities..................... 1,660,433 2,779,801 2,577,644
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS............ 8,200,749 11,552,359 --
LONG-TERM NOTES PAYABLE TO AFFILIATES................... 470,000 572,398 --
----------- ----------- -------------
Total liabilities............................. 10,331,182 14,904,558 2,577,644
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock.......................................... 15 15 85,495
Additional paid-in capital............................ 999 999 57,305,871
Retained earnings (deficit)........................... (1,073,951) (1,561,685) 1,249,610
Partners' and members' capital........................ 381,417 1,660,361 --
----------- ----------- -------------
Total capital (deficit)....................... (691,520) 99,690 58,640,976
----------- ----------- -------------
$ 9,639,662 $15,004,248 $ 61,218,620
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 67
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Room revenue................. $2,892,779 $3,903,533 $ 4,431,164 $ 3,171,204 $ 5,329,032
Other facility revenue....... 222,861 290,150 295,758 210,060 381,416
Franchise and other
revenue.................... 247,071 151,001 460,425 314,985 702,575
---------- ---------- ----------- ----------- -----------
Total revenue........... 3,362,711 4,344,684 5,187,347 3,696,249 6,413,023
---------- ---------- ----------- ----------- -----------
COSTS AND EXPENSES:
Facility operating
expenses................... 1,364,377 1,768,162 2,072,389 1,518,894 2,578,303
Corporate operating
expenses................... 428,641 736,886 882,615 553,993 974,163
Related party consulting
fees....................... -- -- 17,000 9,000 10,000
Depreciation and
amortization............... 371,706 415,604 459,665 299,307 438,042
---------- ---------- ----------- ----------- -----------
Total costs and
expenses.............. 2,164,724 2,920,652 3,431,669 2,381,194 4,000,508
---------- ---------- ----------- ----------- -----------
OPERATING INCOME.................. 1,197,987 1,424,032 1,755,678 1,315,055 2,412,515
INTEREST INCOME................... -- -- -- -- 347,228
INTEREST EXPENSE.................. (724,526) (936,465) (1,098,117) (688,418) (553,943)
---------- ---------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX BENEFIT
AND EXTRAORDINARY INCOME........ 473,461 487,567 657,561 626,637 2,205,800
INCOME TAX (EXPENSE)
BENEFIT......................... -- 14,000 19,611 -- (585,860)
EXTRAORDINARY INCOME.............. -- 130,180 -- -- --
---------- ---------- ----------- ----------- -----------
NET INCOME........................ $ 473,461 $ 631,747 $ 677,172 $ 626,637 $ 1,619,940
========= ========= ========== ========== ==========
Pro forma earnings per share:
Weighted average shares
outstanding..................... 5,918,623
Earnings per Common Share......... $ 0.23
==========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 68
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF COMMON STOCK, RETAINED EARNINGS (DEFICIT),
AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED PARTNERS'
COMMON PAID-IN EARNINGS CAPITAL TOTAL
STOCK CAPITAL (DEFICIT) (DEFICIT) CAPITAL
------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992.......... $ 10 $ 999 ($ 180,259) ($ 444,015) ($ 623,265)
Net income........................ -- -- (233,988) 707,449 473,461
Contributions from partners....... -- -- -- 150,000 150,000
Stock issuance.................... 4 -- -- -- 4
Distribution to partners.......... -- -- -- (512,012) (512,012)
------- ----------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1993.......... 14 999 (414,247) (98,578) (511,812)
Net income (loss)................. -- -- (659,704) 1,291,451 631,747
Stock issuance.................... 1 -- -- -- 1
Distribution to partners.......... -- -- -- (811,456) (811,456)
------- ----------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1994.......... 15 999 (1,073,951) 381,417 (691,520)
Net income........................ -- -- (487,734) 1,164,906 677,172
Contributions from partners....... -- -- -- 863,000 863,000
Distribution to partners.......... -- -- -- (748,962) (748,962)
------- ----------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1995.......... 15 999 (1,561,685) 1,660,361 99,690
Net income (unaudited)............ -- -- 1,619,940 -- 1,619,940
Distributions to partners
(unaudited).................... -- -- -- (638,641) (638,641)
Stock issuance (unaudited)........ 85,480 64,429,520 -- -- 64,515,000
Offering costs (unaudited)........ -- (6,223,486) -- -- (6,223,486)
Corporate organization
(unaudited).................... -- (901,162) 1,191,355 (1,021,720) (731,527)
------- ----------- ----------- ---------- -----------
BALANCE, SEPTEMBER 30, 1996
(unaudited)....................... $85,495 $57,305,871 $ 1,249,610 $ -- $58,640,976
======= ========== ========== ========= ==========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 69
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................... $ 473,461 $ 631,747 $ 677,172 $ 626,637 $ 1,619,940
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 371,706 415,604 459,665 299,307 438,042
Extraordinary gain on extinguishment of
debt................................. -- (130,180) -- -- --
Loss on disposal of fixed asset........ -- 18,279 -- -- --
Changes in assets and liabilities:
Prepaid expenses and other assets.... 977 (318) (90,424) (50,445) (488,344)
Advances to affiliates............... -- -- (5,000) (29,500) (95,000)
Current deferred tax asset........... -- (14,000) (19,611) -- (60,091)
Deferred expenses, net............... -- -- -- (106,497) (163,916)
Accounts payable, trade.............. 17,310 (4,416) 16,070 (7,499) 305,314
Accrued expenses..................... 11,627 15,983 177,607 240,725 251,571
Accrued interest..................... 4,261 (4,084) 89,653 (46,193) (137,228)
Unearned franchise fees.............. -- -- -- -- 106,730
Income tax payable................... -- -- -- -- 380,651
----------- ----------- ----------- ----------- ------------
Net cash provided by operating
activities.................... 879,342 928,615 1,305,132 926,535 2,157,669
INVESTING ACTIVITIES:
Purchase of land......................... (380,813) (500,000) (675,000) (263,000) (662,402)
Construction in progress................. -- -- -- (332,936) (12,414,422)
Construction accounts payable............ -- -- 544,602 -- 583,729
Expenditures for building and
improvements........................... (1,446,958) (65,951) (4,292,464) (2,342,199) (12,238,697)
Purchase of furniture, fixtures, and
equipment.............................. (521,066) (85,019) (368,543) (230,054) (1,503,981)
----------- ----------- ----------- ----------- ------------
Net cash used in investing
activities.................... (2,348,837) (650,970) (4,791,405) (3,168,189) (26,235,773)
FINANCING ACTIVITIES:
Additions to loan closing costs.......... (42,101) (141,429) (141,545) -- (250,000)
Proceeds from issuance of long-term
debt................................... 1,771,533 5,941,357 3,976,803 2,924,963 2,814,967
Principal payments on long-term debt..... (113,879) (5,850,924) (275,538) (270,107) (14,981,894)
Advances from affiliates................. 511,936 678,785 123,763 133,500 --
Payments on advances from affiliates..... (177,107) (34,700) (67,875) -- (1,624,909)
Contributions from partners.............. 150,000 -- 863,000 263,000 --
Proceeds from stock issuance............. 4 1 -- -- 64,515,000
Offering costs........................... -- -- -- -- (6,223,486)
Redemption of minority interest and other
distributions associated with the
corporate organization................. -- -- -- -- (485,160)
Distributions to partners................ (512,012) (811,456) (748,962) (576,547) (638,641)
Payments on capital lease obligations.... (27,748) (19,940) (23,144) (28,763) (25,845)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities.......... 1,560,626 (238,306) 3,706,502 2,446,046 43,100,032
----------- ----------- ----------- ----------- ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS............................ 91,131 39,339 220,229 204,392 19,021,928
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................. 336,733 427,864 467,203 467,203 687,432
----------- ----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ 427,864 $ 467,203 $ 687,432 $ 671,595 $ 19,709,360
=========== =========== =========== =========== ============
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 70
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Basis of Presentation -- On May 29, 1996, the Company completed an initial
public offering of 3,795,000 shares of common stock for aggregate net proceeds
of $58.6 million. Simultaneously with the offering Suburban Lodges of America,
Inc. and its subsidiaries acquired seven existing facilities and four facilities
under construction from related parties for $2,500,000 in cash and 875,062
shares of common stock. The acquisition of the seven existing facilities and two
of the construction facilities for common stock has been accounted for in a
manner similar to a pooling of interests on the basis of common ownership and
control. Two facilities under construction acquired for cash were recorded as a
purchase on the basis of the cash price paid for the facilities. Additionally
other cash payments in the amount of $485,000 were made for the redemption of a
minority partnership interest and other distributions associated with the
Corporate Organization.
Additionally, the Company acquired the Forest Park facility for $3,800,000
in cash from a third party and also acquired two facilities under construction
and two facilities in the development phase for $6,153,000. Such purchase price
was paid by delivery of $900,000 in cash, 144,314 shares of common stock and the
assumption of approximately $2.8 million of debt secured by such facilities. All
facilities acquired from third-party sellers were recorded at the acquisition
cost of the facility.
The facilities acquired from third parties, with the exception of the
Forest Park facility, were either under construction or in the development stage
and had no operating results as of December 31, 1995 and through May 29, 1996.
Financial statements for the Forest Park facility are included elsewhere as
indicated on the Index to Financial Statements at page F-1. The following
unaudited pro forma information gives effect to the acquisition of the Forest
Park facility assuming the acquisition had occurred on January 1, 1995.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Total Revenue................................................ $ 5,978,000 $6,806,000
Net Income................................................... 386,000 1,305,000
</TABLE>
On May 29, 1996, the Company effected a stock split of approximately
2,518-for-1 to increase the number of outstanding shares to 3,730,453.
Authorized shares are 100,000,000.
All outstanding long-term debt, capital lease obligations and notes payable
to related parties as of May 29, 1996 were repaid from the proceeds of the
offering.
The accompanying unaudited interim financial statements as of September 30,
1996 and for the nine month period then ended reflect the effects of the above
transactions. Additionally, the accompanying unaudited interim financial
statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature.
The combined financial statements as of December 31, 1995 and for the three
years then ended include the accounts of seven existing facilities, one facility
under construction, and five corporate entities collectively, the "Company."
As of December 31, 1995, the above entities included:
EXISTING FACILITIES:
SLA Associates -- Norcross, L.P.
SLA Associates -- Fulton Industrial, L.P.
Mableton Associates, L.P.
SLA Associates -- Oxmoor, L.P.
F-7
<PAGE> 71
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
SLA Associates -- White Horse, L.P.
SLA Associates -- Matthews, L.P.
HSL of Conyers, LLC
CONSTRUCTION FACILITIES:
SLA Associates -- Douglasville, L.P.
CORPORATE ENTITIES:
Suburban Lodges of America, Inc.
Suburban Management, Inc.
Suburban Franchise Systems, Inc.
Suburban Construction, Inc.
SLA Development, Inc.
All of the above entities are under common ownership and/or control by
virtue of the level of ownership of David Krischer and the officers, directors
and affiliates of Suburban Lodges and general partnership interests held by Mr.
Krischer and his affiliates. Therefore, the combination of the above entities is
accounted for as if it were a pooling of interests using the historical cost
basis of the assets. All intercompany transactions and accounts have been
eliminated in combination.
Nature of Operations -- Suburban Lodges develops, constructs, owns and
operates extended stay lodging facilities. Additionally, Suburban Lodges
franchises the right to own and operate Suburban Lodge facilities to third
parties. Third-party development, construction and management services are
available to such third-party franchisees on a fee basis.
The facilities are located in the Southeast with five located in the
Atlanta, Georgia metropolitan area. Therefore, adverse events or conditions
which affect those areas particularly (such as natural disasters or adverse
changes in local economic conditions) could have a more pronounced negative
impact on the operations of Suburban Lodges.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition -- Room and other facility revenue is recognized as
earned.
Franchise Revenue -- Franchisees are required to pay an initial franchise
fee of the greater of $25,000 or $190 per guest room. Initial franchise fees are
recognized as revenue when the franchisee has commenced operations.
Additionally, franchisees are required to pay an ongoing royalty of 3% of gross
revenues and may be required to pay either advertising/marketing fees or
reservation/referral fees. Such ongoing fees are recognized as revenue when
earned.
Four franchises were operating as of December 31, 1994. Two franchises
opened for business in 1995 bringing the total number of franchises in operation
to six. As of December 31, 1995, there were seven franchises under construction.
Income Taxes -- Income taxes have been provided for the Corporate Entities
which are subject to federal and state taxes under the provision of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." No
provision has been made for federal and state income taxes on the Existing
Facilities and Development Facilities because each partner's or member's
proportionate share of the partnership's or limited liability company's income
or loss is passed through to be included on the individual tax returns of the
partners or members (as the case may be).
The Corporate Entities file a consolidated income tax return.
F-8
<PAGE> 72
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Investments in Facilities -- The facilities are stated at cost. Costs
directly associated with the construction of the facilities are capitalized
until the related project is substantially complete and ready for its intended
use. Additions to facilities for the years ended December 31, 1993, 1994 and
1995 and for the nine month periods ended September 30, 1995 and 1996 included
$33,700, $0, $76,437 and $48,248 and $95,209, respectively, of interest on funds
borrowed to finance construction. Depreciation is computed using the
straight-line method for buildings and the double declining balance method for
equipment and fixtures based on the following estimated useful lives:
<TABLE>
<S> <C>
Buildings.......................................................... 40 years
Equipment.......................................................... 7 years
Furniture and fixtures............................................. 7 years
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in operations.
Suburban Lodges has adopted Statement of Financial Accounting Standards
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of" ("SFAS 121") as of January 1, 1996. In management's opinion,
the adoption of SFAS 121 in 1996 did not have a material affect on the financial
condition or operations of Suburban Lodges. Facilities are evaluated annually
and written down to net realizable value when management believes that the
undepreciated cost cannot be recovered through future cash flows.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments with maturities of three months or less.
Deferred Expenses -- Deferred expenses primarily consist of deferred loan
costs and costs relating to initial operations. Amortization is computed using
the straight-line method over the estimated lives of the assets as follows:
<TABLE>
<S> <C>
Loan costs...................................................... 4 - 25 years
Organization costs.............................................. 4 - 5 years
</TABLE>
Accumulated amortization is $53,782, $81,356 and $6,822 at December 31,
1994 and 1995 and September 30, 1996, respectively.
Pre-opening costs are expensed as incurred.
Supplemental Cash Flow Information -- Included in the combined statements
of cash flows are cash payments for interest (net of amount capitalized) of
$720,265, $940,549 and $1,008,464 for the years ended December 31, 1993, 1994
and 1995, respectively and $686,363 and $595,962 for the nine month periods
ended September 30, 1995 and 1996, respectively. There were no cash payments for
income taxes for the years ended December 31, 1993, 1994 or 1995. Cash paid for
taxes during the nine month period ended September 30, 1996 was $265,300.
On June 8, 1993, Mableton Associates, L.P. issued a mortgage loan of
$935,000 and three loans from investors in the amount of $165,000 to purchase a
facility. The Company capitalized $1,100,000, representing the purchase price.
During 1995, Suburban Lodges entered into a capital lease and capitalized
the related asset and recorded the capital lease obligation of $11,435.
F-9
<PAGE> 73
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Earnings per share -- The pro forma earnings per share for the nine month
period ended September 30, 1996 has been calculated by dividing net income,
adjusted to provide for income taxes (approximately $827,000 for the nine month
period ended September 30, 1996) assuming a 37.5% effective tax rate, by the
weighted average number of shares of common stock deemed to be outstanding
during the period. Prior to May 29, 1996, the Company was not fully subject to
income taxes because it consisted of partnerships and limited liability
companies; however, if they had been subject to income taxes, pro forma net
income after taxes would have been approximately $1,379,000 for the nine month
period ended September 30, 1996, assuming a 37.5% effective tax rate.
In accordance with Accounting Principles Board Opinion No. 15, the Company
has also computed supplemental earnings per common share to be $0.21 for the
nine month period ended September 30, 1996. Supplemental net income of
approximately $1,573,000 for the nine month period ended September 30, 1996 has
been computed by adjusting historical net income for (i) the elimination of
interest expense on debt repaid with a portion of the proceeds of the IPO; (ii)
the inclusion of certain additional corporate operating expenses; (iii)
adjustments to depreciation and amortization; (iv) the inclusion of Forest Park
for the entire period; and (v) the computation of income taxes for the entire
period at a rate of 37.5%. For the period January 1, 1996 to May 29, 1996, the
supplemental weighted average number of common shares outstanding is based upon
outstanding shares for the beginning of the period of 6,622,251 which were
shares issued in connection with the Corporate Organization and its related
stock split and the IPO as described in the Company's Registration Statement.
Through May 29, 1996, shares outstanding for purposes of computing supplemental
earnings per share exclude 1,925,705 shares issued relative to amounts used for
general corporate purposes. All shares outstanding (8,547,829) are included in
the calculation of supplemental weighted average shares for the period May 30,
1996 to September 30, 1996. Supplemental weighted average shares outstanding for
the nine month period ended September 30, 1996 are 7,496,873 based upon the
above.
3. LONG-TERM DEBT (SEE NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- -----------
<S> <C> <C>
Mortgage notes payable with interest rates ranging from 8.5% to
10.75%, maturities ranging from 1999 to 2018, and collateralized by
the facilities. The majority of the notes are guaranteed by various
partners of Suburban
Lodges............................................................. $8,454,599 $12,155,866
Capital lease obligations (Note 4)................................... 48,617 36,906
---------- -----------
8,503,216 12,192,772
Less current portion................................................. (302,467) (640,413)
---------- -----------
Total...................................................... $8,200,749 $11,552,359
========= ==========
</TABLE>
F-10
<PAGE> 74
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Aggregate annual principal payments for long-term debt at December 31,
1995, exclusive of capital leases (see Note 4), are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 624,622
1997............................................................ 690,456
1998............................................................ 718,048
1999............................................................ 2,011,885
2000............................................................ 753,146
Thereafter...................................................... 7,357,709
-----------
Total................................................. $12,155,866
==========
</TABLE>
In 1994, SLA Associates -- Norcross L.P. and SLA Associates -- Oxmoor L.P.
refinanced certain mortgage loans for an amount which was $130,180 less than the
carrying value and recognized extraordinary gain on the transactions.
4. CAPITAL LEASES (SEE NOTE 1)
Certain equipment is leased under capital lease agreements expiring at
varying times through 1997. Capitalized lease assets are amortized over the
shorter of the useful life of the related asset or the lease term. The balance
of capital lease assets and related accumulated amortization at December 31,
1995 are as follows:
<TABLE>
<S> <C>
Equipment..................................................... $ 133,493
Less accumulated amortization................................. (101,150)
---------
Total............................................... $ 32,343
=========
</TABLE>
Future minimum lease payments under the capital leases and the net present
value of the future minimum lease payments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
<S> <C>
1996............................................................ $20,638
1997............................................................ 14,572
1998............................................................ 3,140
1999............................................................ 3,140
2000............................................................ 2,458
-------
Total minimum lease commitments....................... 43,948
Less amounts representing interest at rates ranging from 12% to
13.25%........................................................ (7,042)
-------
Present value of future minimum lease commitments............... $36,906
=======
</TABLE>
5. LEASES
Suburban Lodges leases satellite television equipment under operating
leases expiring through August 1998. Satellite television rental expense was
$35,050, $40,659 and $43,851 for the years ended December 31, 1993, 1994 and
1995, respectively and $35,696 and $51,265 for the nine months ended September
30, 1995 and 1996, respectively.
F-11
<PAGE> 75
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
Minimum future rental payments under non cancelable operating leases having
remaining terms in excess of one year as of December 31, 1995, for each year and
in the aggregate, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
<S> <C>
1996............................................................ $39,969
1997............................................................ 34,983
1998............................................................ 5,751
-------
Total................................................. $80,703
=======
</TABLE>
6. NOTES PAYABLE TO AFFILIATES (SEE NOTE 1)
On January 1, 1993, SLA Associates-White Horse, L.P. ("White Horse") issued
an unsecured note bearing interest at 10% for $450,000 payable to a limited
partner of White Horse. Principal and interest is to be repaid from operating
cash flows on an annual basis. All unpaid amounts are due and payable no later
than January 1, 2003. The amount outstanding at December 31, 1994 and 1995 was
$450,000.
Mableton issued unsecured notes for $10,000 in 1993 and $5,000 in 1994
bearing interest at 12% per annum payable to an affiliate. Mableton replaced and
extended these notes by issuing another note of $15,000 in 1995. Mableton issued
additional notes for $17,399 in 1995. Interest on the unpaid balance is payable
annually and the entire principal balance is due two years from the date of
issuance. As of December 31, 1994 and 1995, amounts outstanding under these
notes were $15,000 and $32,399, respectively.
On May 24, 1993, Mableton issued an unsecured note to a limited partner for
$105,000 which is due on May 24, 1997 and bears interest at 10%. In accordance
with the terms of the note agreement, the interest rate increased to prime plus
4% (12.5%) as of January 1, 1995. Mableton also issued three unsecured notes
aggregating $50,000 on May 20, 1993 to certain individuals due on May 20, 1995,
which were subsequently extended to March 10, 1996, and bear interest at 12%.
Interest on the unpaid balances is payable annually and the entire balance is
due two years from the date of issuance. Such notes are personally guaranteed by
David Krischer. As of December 31, 1994 and 1995, amounts outstanding under
these notes were $110,000 and $53,125, respectively.
During the inception of the Company, various partnership investors
contributed capital as required by the organization. These notes accrue interest
at prime plus 2% and are payable upon demand. Such funds were used for working
capital. As of December 31, 1994 and 1995, amounts outstanding under these notes
were $382,321 and $394,385, respectively.
Pursuant to an agreement with SLA Associates-Matthews, L.P. ("Matthews"),
three limited partners loaned funds in 1994 and 1995 to Matthews bearing
interest at 10% payable on demand. Such funds were used for the construction of
Matthews. As of December 31, 1994 and 1995, amounts outstanding on these three
notes were $600,000 and $675,000, respectively.
During 1995 and the three months ended March 31, 1996, HSL of Conyers, LLC
("Conyers") received $20,000 and $40,000, respectively, in member loans from its
members. These funds were used for the construction of Conyers. Pursuant to the
operating agreement with Conyers, these member loans accrue interest at prime
plus 2%, and are payable on demand. The principal balance outstanding on the
loans was $20,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
From time to time, the Company made advances to an officer of the Company.
The balance outstanding under these advances were $5,000 and $100,000 at
December 31, 1995 and September 30, 1996, respectively.
F-12
<PAGE> 76
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
The Company paid consulting fees to a firm owned by an officer of the
Company. Total payments were $17,000 for the year ended December 31, 1995 and
$9,000 and $10,000 for the nine months ended September 30, 1995 and September
30, 1996, respectively.
8. INCOME TAXES
Income taxes have been provided for the Corporate Entities which are
subject to federal and state taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." No
provision has been made for federal and state income taxes on the Existing
Facilities and Development Facilities because each partner's and member's
proportionate share of the partnership's or limited liability company's income
or loss is passed through to be included on the individual tax returns of the
partners or members (as the case may be).
The components of the provision for income tax were as follows at December
31:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Current income tax expense (benefit).................... $ 6,921 ($19,844) $ 12,870
Deferred income tax expense (benefit)................... (6,921) 5,844 (32,481)
------- -------- --------
Total expense (benefit)....................... $ -- ($14,000) ($19,611)
======= ======== ========
</TABLE>
The components of the deferred tax asset were as follows at December 31:
<TABLE>
<CAPTION>
(UNAUDITED) 1994 1995
-------- -------
<S> <C> <C>
Net operating loss carryforward................................... $ 46,481 $33,611
Valuation allowance............................................... (32,481) --
-------- -------
Net deferred tax asset.................................. $ 14,000 $33,611
======== =======
</TABLE>
Suburban Lodges had net operating loss carryforwards of approximately
$172,000 and $238,000 at December 31, 1995 and 1994, respectively. Such
carryforwards expire over ten years. Utilization of the net operating loss
carryforwards will be limited in accordance with Internal Revenue Service
regulations due to the corporate reorganization and initial public offering.
The following is a reconciliation of the statutory rate to the effective
rate of Suburban Lodges at:
<TABLE>
<CAPTION>
DECEMBER 31, NINE MONTHS
------------------------- ENDED
1993 1994 1995 SEPTEMBER 30, 1996
----- ----- ----- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory federal rate....................... 34.0% 34.0% 34.0% 34.0%
Statutory state rate......................... 4.5 4.5 4.5 3.5
Effect of income not subject to tax.......... (37.0) (42.6) (36.8) (10.9)
Change in valuation allowance................ (1.5) 1.2 (4.2) --
----- ----- ----- ------
Effective tax rate........................... -- (2.9)% (2.5)% 26.6%
===== ===== ===== ==============
</TABLE>
9. SHAREHOLDERS' EQUITY
Suburban Lodges had 1,481 and 8,547,829 shares of common stock outstanding
having a par value of $0.01 outstanding at December 31, 1995 and September 30,
1996, respectively. Authorized shares were 10,000 and 100,000,000 shares at
December 31, 1995 and September 30, 1996, respectively. The equity accounts also
include the capital accounts of the merging partnerships in the amount of
$1,660,361 at December 31, 1995. The balances of shareholders' deficit and
partners' capital were reclassified to additional paid-in capital in
F-13
<PAGE> 77
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
conjunction with the IPO and concurrent Corporate Organization on May 29, 1996.
Accordingly, at September 30, 1996 retained earnings is comprised of the net
income of the Company since the date of the Corporate Organization.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), was issued. The
adoption of the new recognition provisions for stock-based compensation expense
included in SFAS No. 123 is optional; however, the pro forma effects on net
income and earnings per share had the new recognition provisions been elected is
required to be disclosed in the financial statements. Suburban Lodges will
continue to follow the requirements of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in its accounting for employee
stock options; therefore, no impact on the Company's financial position and
results of operations is expected. Suburban Lodges will provide the required
disclosures under SFAS No. 123 in the annual financial statements for the year
ended December 31, 1996.
On May 23, 1996, the Company granted options to acquire an aggregate of
400,000 shares of Common Stock at $17.00 per share. Such options became
exercisable for 25% of the shares of Common Stock covered by the options on the
first anniversary of the date of grant, and with respect to an additional 25% on
each anniversary of such date through the year 2000. Each option is exercisable
for ten years from the date of grant. Additionally, 4,500 options to acquire
common stock at $17.00 were granted on May 23, 1996 under the Directors plan.
Such shares vest on the first anniversary of grant. Directors also received an
award of 1,000 shares of restricted Common Stock for an aggregate award of 3,000
shares.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires companies to disclose the
estimated fair value of both assets and liabilities recognized and not
recognized in the statement of financial position, subject to certain
exceptions. For certain instruments, including cash and cash equivalents,
accounts payable and accrued expenses, it has been assumed that the carrying
amount approximates fair value due to their short-term maturity.
The carrying amount of long-term debt approximates fair value because most
interest notes are variable and fixed notes were not significantly different
than notes available to Suburban Lodges at December 31, 1995 and 1994 for debt
with similar terms and remaining maturities.
The fair value of notes payable to affiliates cannot be readily determined
due to their related party nature.
11. SUBSEQUENT EVENTS
On April 9, 1996, the Company obtained a commitment for a $50 million Line
of Credit with PNC Bank, Kentucky, Inc. ("PNC"). The Line of Credit matures
September 25, 1998 and bears interest, at the borrower's option, at (i) the
higher of PNC's prime rate plus three-quarters of one percent or the Federal
Funds rate plus one and one quarter percent or (ii) the Euro-Rate plus two and
one quarter percent. The Line of Credit is secured by substantially all the
assets of the Company. The Line of Credit restricts, among other things, the
incurrence of indebtedness, the sale of assets, the incurrence of liens, the
concentration of facility locations and the payment of cash dividends. In
addition, the Company is required to satisfy, among other things, certain
financial performance criteria, including minimum net worth levels and minimum
levels of earnings before interest, taxes, depreciation and amortization.
F-14
<PAGE> 78
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED SCHEDULE OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
COST CAPITALIZED
GROSS AMOUNTS AT WHICH
SUBSEQUENT CARRIED AT CLOSE OF
INITIAL COSTS TO ACQUISITION PERIOD
------------------------- ------------------- -------------------------
BUILDINGS & BUILDINGS & BUILDINGS &
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------------- ------------ ---------- ------------ ---- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oxmoor AL.................... $ 2,262,024 $ 365,819 $ 1,771,414 $ -- $ -- $ 365,819 $ 1,771,414
Norcross GA.................. 1,798,663 335,000 1,550,314 -- -- 335,000 1,550,314
Fulton Industrial GA......... 1,549,261 130,000 1,175,579 -- -- 130,000 1,175,579
Mableton GA.................. 990,360 75,000 800,000 -- -- 75,000 800,000
Greenville SC................ 2,073,358 305,814 1,681,301 -- -- 305,814 1,681,301
Properties under
Development................ 1,537,723 675,000 1,988,674 -- -- 675,000 1,988,674
Matthews NC.................. 3,175,000 500,000 2,380,593 -- -- 500,000 2,380,593
------------ ---------- ------------ ---- ----- ---------- ------------
Total................ $13,386,389 $2,386,633 $11,347,875 $ -- $ -- $2,386,633 $11,347,875
=========== ========= =========== ==== =========== ========= ===========
<CAPTION>
LIFE UPON
WHICH
DEPRECIATION
ACCUMULATED NET BOOK IN LATEST
DEPRECIATION VALUE INCOME
BUILDINGS & BUILDINGS & DATE OF STATEMENT IS
DESCRIPTION TOTAL IMPROVEMENTS IMPROVEMENTS ACQUISITION COMPUTED
- ----------------------------- ----------- ------------ ------------ ----------- ------------
<S> <<C> <C> <C> <C> <C>
Oxmoor AL.................... $ 2,137,233 ($243,568) $ 1,527,846 05/16/89 40
Norcross GA.................. 1,885,314 (253,099) 1,297,215 09/07/88 40
Fulton Industrial GA......... 1,305,579 (208,192) 967,387 04/25/88 40
Mableton GA.................. 875,000 (50,833) 749,167 06/03/93 40
Greenville SC................ 1,987,115 (140,110) 1,541,191 03/02/92 40
Properties under
Development................ 2,663,674 -- 1,988,674
Matthews NC.................. 2,880,593 (24,575) 2,356,018 12/20/94 40
----------- ------------ ------------
Total................ $13,734,508 ($920,377) $10,427,498
========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL ESTATE:
- ---------------------------------------------------------------------
<S> <C>
Balance, December 31, 1992.............................. $ 5,328,126
Acquisitions, 1993...................................... 2,862,115
-----------
Balance, December 31, 1993.............................. 8,190,241
Acquisitions, 1994...................................... 556,357
-----------
Balance, December 31, 1994.............................. 8,746,598
Acquisitions, 1995...................................... 4,987,910
-----------
Balance, December 31, 1995.............................. $13,734,508
============
<CAPTION>
RECONCILIATION OF ACCUMULATED DEPRECIATION:
- ------------------------------------------------------------------
<C> <C>
Balance, December 31, 1992.............................. $367,566
Depreciation Expense, 1993.............................. 179,308
--------
Balance, December 31, 1993.............................. 546,874
Depreciation Expense, 1994.............................. 174,464
--------
Balance, December 31, 1994.............................. 721,338
Depreciation expense, 1995.............................. 199,039
--------
Balance, December 31, 1995.............................. $920,377
=========
</TABLE>
F-15
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
Board of Directors
Suburban Lodges of America, Inc.:
We have audited the accompanying balance sheet of Gulf Coast Associates
Ltd. d/b/a Suburban Lodge of Forest Park ("Gulf Coast") as of December 31, 1995
and the related statements of operations, changes in partners' deficit, and cash
flows for the year then ended. These financial statements are the responsibility
of Gulf Coast's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gulf Coast as of December
31, 1995 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Atlanta, Georgia
March 26, 1996
(May 29, 1996 as to note 8)
F-16
<PAGE> 80
GULF COAST ASSOCIATES, LTD.
D/B/A SUBURBAN LODGE OF FOREST PARK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................. $ 154,083 $ 161,601
Prepaid expenses and other assets................................. 5,848 13,588
---------- ----------
Total current assets...................................... 159,931 175,189
INVESTMENT IN FACILITY -- at cost:
Land.............................................................. 471,395 471,395
Buildings and improvements........................................ 2,231,274 2,231,274
Equipment......................................................... 124,706 124,706
Furniture and fixtures............................................ 314,264 317,760
---------- ----------
3,141,639 3,145,135
Less accumulated depreciation....................................... 593,175 625,175
---------- ----------
Net investment in facility................................ 2,548,464 2,519,960
OTHER ASSETS........................................................ 8,843 6,843
---------- ----------
$2,717,238 $2,701,992
========= =========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Mortgage payable.................................................. $2,733,655 $2,727,753
Accrued investment advisory fees.................................. 197,800 197,800
Accounts payable and accrued expenses............................. 43,718 47,192
Amounts payable to Suburban Management, Inc....................... 55,685 24,013
---------- ----------
Total current liabilities................................. 3,030,858 2,996,758
LONG-TERM LIABILITIES:
Notes payable to affiliate........................................ 442,144 447,940
---------- ----------
Total long-term liabilities............................... 442,144 447,940
PARTNERS' DEFICIT................................................... (755,764) (742,706)
---------- ----------
$2,717,238 $2,701,992
========= =========
</TABLE>
See notes to financial statements.
F-17
<PAGE> 81
GULF COAST ASSOCIATES, LTD.
D/B/A SUBURBAN LODGE OF FOREST PARK
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FOR THE YEAR FOR THREE MONTHS
ENDED ENDED MARCH 31,
DECEMBER 31, --------------------
1995 1995 1996
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Room revenue............................................. $851,071 $201,905 $241,717
Other.................................................... 49,178 11,844 24,450
------------ -------- --------
Total revenue.................................... 900,249 213,749 266,167
EXPENSES:
Property operating costs................................. 294,615 81,359 84,926
Depreciation and amortization............................ 128,185 32,000 34,000
Management and incentive fee............................. 79,253 10,723 13,308
Administrative fees...................................... 3,221 -- --
Franchise costs.......................................... 27,327 6,434 7,985
Advertising and promotion................................ 6,787 1,722 1,136
Repairs and maintenance.................................. 43,403 6,526 10,530
Real estate and personal property taxes and insurance.... 40,071 13,537 12,459
------------ -------- --------
Total expenses................................... 622,862 152,301 164,344
------------ -------- --------
OPERATING INCOME........................................... 277,387 61,448 101,823
INTEREST EXPENSE........................................... 306,644 75,724 76,265
------------ -------- --------
NET INCOME (LOSS).......................................... ($29,257) ($14,276) $ 25,558
========== ======== ========
</TABLE>
See notes to financial statements.
F-18
<PAGE> 82
GULF COAST ASSOCIATES, LTD.
D/B/A SUBURBAN LODGE OF FOREST PARK
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTH PERIOD ENDED MARCH 31,
1996
<TABLE>
<S> <C>
PARTNERS' DEFICIT, DECEMBER 31, 1994............................................. ($706,497)
Net loss......................................................................... (29,257)
Distribution..................................................................... (20,010)
---------
PARTNERS' DEFICIT, DECEMBER 31, 1995............................................. (755,764)
---------
Net income (unaudited)........................................................... 25,558
Distribution (unaudited)......................................................... (12,500)
---------
PARTNERS' DEFICIT, MARCH 31, 1996 (unaudited).................................... ($742,706)
=========
</TABLE>
See notes to financial statements.
F-19
<PAGE> 83
GULF COAST ASSOCIATES, LTD
D/B/A SUBURBAN LODGE OF FOREST PARK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE MONTHS
ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------
1995 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... ($29,257) ($14,726) $25,558
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 128,185 32,000 34,000
Changes in assets and liabilities:
Accounts receivable and other.......................... (3,637) (7,656) (7,740)
Accounts payable and accrual........................... 13,026 10,300 3,474
Related party accounts payable......................... 22,344 464 (31,672)
Increase in accrued interest........................... 27,822 5,796 5,796
Other, net............................................. 2,031 (419) --
------------ ----------- -----------
Net cash provided by operating activities......... 160,514 25,759 29,416
------------ ----------- -----------
INVESTING ACTIVITIES:
Property additions........................................ (37,077) (25,317) (3,496)
------------ ----------- -----------
Net cash used in investing activities............. (37,077) (25,317) (3,496)
------------ ----------- -----------
FINANCING ACTIVITIES:
Distributions to partners................................. (20,010) (10,005) (12,500)
Debt repayments........................................... -- (5,344) (5,902)
------------ ----------- -----------
Net cash used in financing activities............. (20,010) (15,349) (18,402)
------------ ----------- -----------
NET CHANGE IN CASH.......................................... 103,427 (14,907) 7,518
BEGINNING CASH BALANCE...................................... 50,656 50,656 154,083
------------ ----------- -----------
ENDING CASH BALANCE......................................... $154,083 $35,749 $161,601
========== ========= =========
</TABLE>
See notes to financial statements.
F-20
<PAGE> 84
GULF COAST ASSOCIATES, LTD.
D/B/A SUBURBAN LODGES OF FOREST PARK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
1. BASIS OF PRESENTATION
The accompanying financial statements include the operations of Gulf Coast
Associates, Ltd. ("Gulf Coast") which is a limited partnership that owns the
Forest Park Suburban Lodge Facility. The accompanying unaudited interim
financial statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the interim financial statements. All such
adjustments are of a normal and recurring nature.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition -- Revenue is recognized as earned.
Investments in Facilities -- The facilities are stated at cost.
Depreciation is computed using a straight-line method based on the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings....................................................... 40 years
Equipment....................................................... 7 years
Furniture and fixtures.......................................... 7 years
</TABLE>
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from the
accounts, and the gain or loss is included in operations.
Gulf Coast has not adopted Statement of Financial Accounting Standards 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of" ("SFAS 121"). In management's opinion, the adoption of SFAS 121 in
1996 will not have a material affect on the financial condition or operations of
Gulf Coast. Facilities are evaluated annually and written down to net realizable
value when management believes that the undepreciated cost cannot be recovered
through operations.
Cash Flows -- Included in the statement of cash flows are cash payments for
interest of $255,732, for the year ended December 31, 1995 and $69,928 and
$70,469 for the three months ended March 31, 1995 and 1996, respectively.
Income Taxes -- No provision has been made for federal and state taxes
because each partner's proportionate share of the partnership's income or loss
is passed through to be included on the individual tax returns of the partners.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. MORTGAGES PAYABLE
Gulf Coast has a mortgage payable to SLA Associates -- Forest Park Ltd. The
note, dated July 1990, in the original amount of $3,050,000, bears interest at
10.25% and is payable in monthly installments of $25,091. The note comes due on
April 1, 1996; however, the maturity date has been extended to December 30,
1996. The balance outstanding at December 31, 1995 and March 31, 1996 is
$2,733,655 and $2,727,753, respectively. The note is secured by all of the land,
buildings, and equipment of Gulf Coast.
F-21
<PAGE> 85
GULF COAST ASSOCIATES, LTD.
SUBURBAN LODGES OF FOREST PARK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
4. NOTES PAYABLE TO AFFILIATE
Gulf Coast has a note payable to Vanmark Investments, Inc. in the amount of
$289,793 plus accrued interest of $152,351 and $158,147 at December 31, 1995 and
March 31, 1996, respectively. The note is payable from excess cash flow, as
defined, and is subordinated to partner distributions. Interest is accrued at
the rate of 8.0% for 1995.
5. RELATED PARTY TRANSACTIONS
David Krischer, the principal shareholder of Suburban Lodges of America,
Inc., is a 50% owner of SLA Associates -- Forest Park which holds the mortgage
on the facility.
Franchise costs represent the annual expense for franchise royalties and
the services under the terms of the franchise agreement with Suburban Franchise
Systems, Inc. expiring on December 31, 1999. Suburban Franchise Systems, Inc. is
a wholly owned subsidiary of Suburban Lodges. David Krischer owns 67.5% of
Suburban Lodges. Such franchise agreement gives the Forest Park facility the
rights to use the Suburban Lodge(R) System. Fees are computed based upon
approximately 3% of the Forest Park facility's total revenues.
Additionally, the Gulf Coast has contracted with Suburban Management, Inc.,
a wholly owned subsidiary of Suburban Lodges of America, Inc., to provide
facility management services for 5% of gross revenues.
6. LEASES
The Forest Park facility leases satellite television equipment under an
operating lease expiring in 1997.
Minimum future rental payments under noncancelable leases having remaining
terms in excess of one year as of December 31, 1995 for each year and in the
aggregate, are as follows:
<TABLE>
<S> <C>
1996....................................................................... $ 9,072
1997....................................................................... 7,560
-------
Total............................................................ $16,632
=======
</TABLE>
Satellite television rental expense was $8,970 the year ended December 31,
1995 and $3,158 and $2,242 for the three months ended March 31, 1996 and 1995.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires companies to disclose the
estimated fair value of both assets and liabilities recognized and not
recognized in the statement of financial position, subject to certain
exceptions. For certain instruments, including cash and cash equivalents,
current mortgage payable, accounts payable and accrued expenses, it has been
assumed that the carrying amount approximates fair value due to their short-term
maturity.
The fair value of notes payable to affiliate cannot be readily determined
due to their related party nature.
8. SUBSEQUENT EVENTS
Gulf Coast has sold to Suburban Lodges of America, Inc. the Forest Park
Facility (consisting of land, building, and related equipment) for $3,800,000 in
cash. Gulf Coast retained its other assets and liabilities. Such transaction
occurred in connection with Suburban Lodges of America, Inc.'s Corporate
Organization and the IPO.
F-22
<PAGE> 86
INSIDE BACK COVER
This page includes photos of the interior of a deluxe guest room, a
standard size guest room, and a front desk and guest check-in.
<PAGE> 87
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, any Selling Shareholder or any Underwriter. This Prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the securities to which it relates or an offer to sell or
the solicitation of an offer to buy any securities offered hereby by anyone in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale made hereunder shall, in any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Price Range of Common Stock........... 17
Selected Combined Historical Financial
Data................................ 18
Pro Forma Combined Statements of
Operations.......................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 29
Management............................ 44
Certain Transactions.................. 50
Principal and Selling Shareholders.... 52
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 58
Underwriting.......................... 60
Experts............................... 61
Legal Matters......................... 61
Additional Information................ 61
Available Information................. 62
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,243,000 SHARES
[LOGO] SURBURBAN LODGE (R)
SUBURBAN LODGES OF
AMERICA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is the approximate amount of the fees and expenses (other
than underwriting commissions and discounts) payable by the Registrant in
connection with the issuance and distribution of the shares of Common Stock.
<TABLE>
<S> <C>
Securities and Exchange Commission, Registration Fee...................... $ 33,269
NASD Notification Fee..................................................... 17,500
Printing and Mailing...................................................... 90,000
Accounting Fees and Expenses.............................................. 75,000
Blue Sky Fees and Expenses................................................ 10,000
Counsel Fees and Expenses................................................. 75,000
Miscellaneous............................................................. 49,231
--------
Total........................................................... $350,000
========
</TABLE>
- ---------------
* To be supplied by amendment.
The Selling Shareholders will pay all underwriting discounts and
commissions and transfer taxes, if any, and shall bear the cost of their counsel
and advisors relating to the sale of the Selling Shareholders' shares in the
Offering. All other expenses relating to the sale of the Selling Shareholders'
shares in the Offering will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The underwriting agreement provides for indemnification by the Underwriters
of the Company and the Selling Shareholders, and by the Company and the Selling
Shareholders of the Underwriters, for certain liabilities, including liabilities
arising under the Securities Act of 1933 (the "Securities Act"), and affords
certain rights of contribution with respect thereto.
As provided under Georgia law, the Company's Amended and Restated Articles
of Incorporation provide that a director shall not be personally liable to the
Company or its shareholders for monetary damages for breach of duty of care or
any other duty owed to the Company as a director, except that such provisions
shall not limit the liability of a director (a) for any appropriation, in
violation of his duties, of any business opportunity of the Company; (b) for
acts or omissions which involve intentional misconduct or a knowing violation of
law; (c) for unlawful corporate distributions or (d) for any transactions from
which the director receives an improper benefit.
Under Article V of the Company's Bylaws, the Company is required to
indemnify its directors and officers to the fullest extent permitted by Georgia
law. The Georgia Business Corporation Code provides that a corporation may
indemnify its directors, officers and agents against judgments, fines,
penalties, amounts paid in settlement and expenses, including attorneys' fees,
resulting from various types of legal actions or proceedings if the actions of
the party being indemnified meet the standards of conduct specified therein.
Determinations concerning whether the applicable standard of conduct has been
met can be made by (a) a majority of the disinterested directors; (b) a majority
of a committee of disinterested directors or (c) independent legal counsel. No
indemnification may be made to or on behalf of a corporate director, officer,
employee or agent (i) in connection with a proceeding by or in right of the
Company in which such person was adjudged liable to the Company or (ii) in
connection with any other proceeding in which said person was adjudged liable on
the basis that personal benefit was improperly received by him.
The Company has entered into Indemnification Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnification Agreements, the Company is required to indemnify the Indemnified
Parties against certain liabilities arising out of their service for the
Company. The
II-1
<PAGE> 89
Indemnification Agreements require the Company (i) to indemnify each Indemnified
Party to the fullest extent permitted by law; (ii) to provide coverage for each
Indemnified Party under the Company's directors and officers liability insurance
policy and (iii) to advance certain expenses incurred by an Indemnified Party.
The Indemnity Agreements provide limitations on the Indemnified Party's rights
to indemnification in certain circumstances.
The Company's directors and officers are insured against losses arising
from any claim against them as such for wrongful acts or omissions, subject to
certain limitations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company was incorporated in 1987. On May 29, 1996, an aggregate of
1,163,039 shares of Common Stock were issued in connection with the merger or
acquisition of 16 partnerships and limited liability companies into the Company,
in reliance upon the exemption contained in Section 4(2) of the Securities Act.
In exchange therefor, the Company acquired all of the outstanding partnership
interests and units in the partnerships and limited liability companies which
owned eight existing Suburban Lodge facilities, five Suburban Lodge facilities
in various stages of construction, and three Suburban Lodge facilities in
various states of development. These acquired Suburban Lodge facilities had an
aggregate appraised value of $68,650,000.
During the past three years, the following person was issued Common Stock
of the Company in reliance upon the exemption contained in Section 4(2) of the
Securities Act, in the number of shares, on the date and for the consideration
referenced below:
<TABLE>
<CAPTION>
NAME NO. SHARES DATE OF ISSUANCE CONSIDERATION
-------------------------------------------- ---------- ---------------- -----------------
<S> <C> <C> <C>
Dan Berman.................................. 149,200* 10/1/94 Services rendered
</TABLE>
- ---------------
* Adjusted to reflect a pre-IPO stock split of approximately 2,518-for-1.
On May 29, 1996, an aggregate of 3,000 shares of restricted Common Stock
were issued to the Company's non-employee directors in reliance upon the
exemption contained in Section 4(2) of the Securities Act.
II-2
<PAGE> 90
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
**1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Articles of Incorporation of the Registrant
*3.2 -- Amended and Restated Bylaws of the Registrant
*4.1 -- Form of Common Stock Certificate of the Registrant
**5.1 -- Opinion of Kilpatrick & Cody
*10.1 -- Form of Acquisition Agreement and Plan of Merger (with exhibits and accompanying
schedule)
*10.2 -- Purchase and Sale Agreement by and among Suburban Holdings, LP and Gulf Coast
Associates, Ltd.
*10.3 -- Purchase and Sale Agreement by and between Suburban Holdings, LP and Omnicorp
Resources, Inc.
*10.4 -- Form of Agreement and Consent of Partners of each of the Affiliated Entities and
Third Party Sellers
*10.5 -- Suburban Lodges of America, Inc. Stock Option and Incentive Award Plan
*10.6 -- Suburban Lodges of America, Inc. Non-Employee Directors' Stock Option and Fee Plan
*10.7 -- Form of Indemnification Agreement between Suburban Lodges of America, Inc. and its
directors and officers
*10.8 -- Registration Rights Agreement among Suburban Lodges of America, Inc. and Certain
Shareholders
*10.9 -- Form of Franchise Agreement
*10.10 -- Form of Development and Design/Build Agreement
*10.11 -- Form of Management Agreement
*10.12 -- Management Agreement between Suburban Management, Inc. and Gulf Coast Associates,
Ltd.
*10.13 -- Consulting Agreement with Legacy Securities Corp.
*10.14 -- Acknowledgment and Agreement between Suburban Lodges of America, Inc. and Young
Consulting, Inc. re. Company's proprietary computer software
*10.15 -- Suburban Lodge 401(k) Savings Plan
*10.16 -- Rights Agreement
**10.17 -- Credit Agreement by and among Suburban Lodges of America, Inc., the Guarantors
identified therein, the Banks identified therein, and PNC Bank, Kentucky, Inc.
**10.18 -- Sublease between Suburban Lodges of America, Inc. and Omni Insurance Company
*21.1 -- Subsidiaries of the Registrant
**23.1 -- Consent of Kilpatrick & Cody (included as Exhibit 5.1)
**23.2 -- Consent of Deloitte & Touche, LLP
*24.1 -- Powers of Attorney (see Signature Page)
**27.1 -- Financial Data Schedule (For SEC use only)
</TABLE>
- ---------------
* Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-2876) under the Securities Act, filed on
May 23, 1996
** Filed herewith
II-3
<PAGE> 91
(b) Index to Financial Statements
<TABLE>
<S> <C>
Suburban Lodges of America, Inc. and Affiliated Entities
Combined Financial Statements:
Independent Auditors' Report.....................................................
Combined Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996
(unaudited).....................................................................
Combined Statements of Operations for the Years Ended December 31, 1993, 1994,
1995, and the Nine Months Ended September 30, 1995 and 1996 (unaudited).........
Combined Statements of Common Stock, Deficit, and Partners' Capital (Deficit) for
the Years Ended December 31, 1993, 1994, and 1995, and the Nine Months Ended
September 30, 1996 (unaudited)..................................................
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
1995, and the Nine Months Ended September 30, 1995 and 1996 (unaudited).........
Notes to Combined Financial Statements...........................................
Combined Schedule of Real Estate Owned and Accumulated Depreciation..............
Gulf Coast Associates, Ltd. d/b/a Suburban Lodge of Forest Park (Gulf Coast) Financial
Statements:
Independent Auditors' Report........................................................
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited)...............
Statements of Operations for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1995 and 1996 (unaudited)........................................
Statements of Changes in Partners' Deficit for the Year Ended December 31, 1995 and
the Three Months Ended March 31, 1996 (unaudited)................................
Statements of Cash Flows for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1995 and 1996 (unaudited)........................................
Notes to Financial Statements.......................................................
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question as to whether such indemnification by it
is against public policy as expressed in the Securities Act, and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or
II-4
<PAGE> 92
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Atlanta, State of Georgia,
on the 30th day of October, 1996.
SUBURBAN LODGES OF AMERICA, INC.
By: /s/ DAVID E. KRISCHER
------------------------------------
David E. Krischer
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
David E. Krischer and Dan J. Berman and either of them, his true and lawful
attorneys-in-fact with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to cause the same to be filed, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact and agent, full power and authority to do and
perform each and every act and thing whatsoever requisite or desirable to be
done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof, including
without limitation the taking of any and all actions in connection with the
filing of any registration statement registering additional shares pursuant to
Section 462 of the Securities Act.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 30th day
of October, 1996, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ DAVID E. KRISCHER Chairman of the Board, Chief Executive
- --------------------------------------------- Officer, President and Director (Principal
David E. Krischer Executive Officer)
/s/ DAN J. BERMAN Vice President -- Franchising and Director
- ---------------------------------------------
Dan J. Berman
Vice President and Chief Financial Officer
/s/ TERRY J. FELDMAN (Principal Financial and Accounting Officer)
- ---------------------------------------------
Terry J. Feldman
/s/ JAMES R. KUSE Director
- ---------------------------------------------
James R. Kuse
/s/ MICHAEL McGOVERN Director
- ---------------------------------------------
Michael McGovern
/s/ JOHN W. SPIEGEL Director
- ---------------------------------------------
John W. Spiegel
</TABLE>
II-6
<PAGE> 94
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
**1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Articles of Incorporation of the Registrant
*3.2 -- Amended and Restated Bylaws of the Registrant
*4.1 -- Form of Common Stock Certificate of the Registrant
**5.1 -- Opinion of Kilpatrick & Cody
*10.1 -- Form of Acquisition Agreement and Plan of Merger (with accompanying schedule)
*10.2 -- Purchase and Sale Agreement by and among Suburban Holdings, LP and Gulf Coast
Associates, Ltd.
*10.3 -- Purchase and Sale Agreement by and between Suburban Holdings, LP and Omnicorp
Resources, Inc.
*10.4 -- Form of Agreement and Consent of Partners of each of the Affiliated Entities and
Third Party Sellers
*10.5 -- Suburban Lodges of America, Inc. Stock Option and Incentive Award Plan
*10.6 -- Suburban Lodges of America, Inc. Non-Employee Directors' Stock Option and Fee Plan
*10.7 -- Form of Indemnification Agreement between Suburban Lodges of America, Inc. and its
directors and officers
*10.8 -- Registration Rights Agreement among Suburban Lodges of America, Inc. and Certain
Shareholders
*10.9 -- Form of Franchise Agreement
*10.10 -- Form of Development and Design/Build Agreement
*10.11 -- Form of Management Agreement
*10.12 -- Management Agreement between Suburban Management, Inc. and Gulf Coast Associates,
Ltd.
*10.13 -- Consulting Agreement with Legacy Securities Corp.
*10.14 -- Acknowledgment and Agreement between Suburban Lodges of America, Inc. and Young
Consulting, Inc. re. Company's proprietary computer software
*10.15 -- Suburban Lodge 401(k) Savings Plan
*10.16 -- Rights Agreement
**10.17 -- Credit Agreement by and among Suburban Lodges of America, Inc., the Guarantors
identified therein, the Banks identified therein, and PNC Bank, Kentucky, Inc.
**10.18 -- Sublease between Suburban Lodges of America, Inc. and Omni Insurance Company
*21.1 -- Subsidiaries of the Registrant
**23.1 -- Consent of Kilpatrick & Cody (included as Exhibit 5.1)
**23.2 -- Consent of Deloitte & Touche, LLP
*24.1 -- Powers of Attorney (see Signature Page)
**27.1 -- Financial Data Schedule (For SEC use only)
</TABLE>
- ---------------
* Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-2876) under the Securities Act, filed on
May 23, 1996
** Filed herewith
<PAGE> 1
EXHIBIT 1.1
4,243,000 Shares
SUBURBAN LODGES OF AMERICA, INC.
Common Stock
UNDERWRITING AGREEMENT
November __, 1996
MONTGOMERY SECURITIES
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Suburban Lodges of America, Inc., a
Georgia corporation (the "Company") and the general partner of Suburban
Holdings, L.P. (the "Partnership"), proposes to issue and sell 4,000,000 shares
of its authorized but unissued Common Stock (the "Common Stock") and certain
shareholders of the Company named in Schedule B annexed hereto (the "Selling
Shareholders") propose to sell an aggregate of 243,000 shares of the Company's
issued and outstanding Common Stock to the several underwriters named in
Schedule A annexed hereto (the "Underwriters"), for whom you are acting as
Representatives. Said aggregate of 4,243,000 shares are herein called the
"Firm Common Shares." In addition, the Company proposes to grant to the
Underwriters an option to purchase up to 636,450 additional shares of Common
Stock (the "Optional Common Shares"), as provided in Section 5 hereof. The
Firm Common Shares and, to the extent such option is exercised, the Optional
Common Shares are hereinafter collectively referred to as the "Common Shares."
You have advised the Company and the Selling Shareholders that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is
advisable.
<PAGE> 2
The Company and each of the Selling Shareholders hereby
confirm their respective agreements with respect to the purchase of the Common
Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company and
the Selling Shareholders. The Company, the Partnership and each of the Selling
Shareholders hereby represent and warrant to the several Underwriters that:
(a) A registration statement on Form S-1 (File
No. 33-_____) with respect to the Common Shares has been prepared by
the Company in conformity with the requirements of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, and has been filed with the Commission.
The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you three signed copies of such registration statement
and amendments, together with three copies of each exhibit filed
therewith. Conformed copies of such registration statement and
amendments (but without exhibits) and of the related preliminary
prospectus have been delivered to you in such reasonable quantities as
you have requested for each of the Underwriters. The Company will
next file with the Commission one of the following: (i) prior to
effectiveness of such registration statement, a further amendment
thereto, including the form of final prospectus, (ii) a final
prospectus in accordance with Rules 430A and 424(b) of the Rules and
Regulations, or (iii) a term sheet (the "Term Sheet") as described in
and in accordance with Rules 434 and 424(b) of the Rules and
Regulations. As filed, the final prospectus, if one is used, or the
Term Sheet and Preliminary Prospectus, if a final prospectus is not
used, shall include all Rule 430A Information (as hereinafter defined)
and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form
furnished to you prior to the date and time that this Agreement was
executed and delivered by the parties hereto, or, to the extent not
completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest preliminary prospectus) as the Company shall have previously
advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and, in the event any post-effective
amendment thereto becomes effective prior to the First Closing Date
(as hereinafter defined), shall also mean such registration statement
as so amended; provided, however, that such term shall also include
(i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 430A of the Rules and Regulations and
(ii) any registration statement filed pursuant to Rule 462(b) of the
Rules and Regulations relating to the Common Shares. The term
"Preliminary Prospectus" shall mean any preliminary
-2-
<PAGE> 3
prospectus referred to in the preceding paragraph and any preliminary
prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean either (i) the
prospectus relating to the Common Shares in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, (ii) if a Term Sheet is not used and no filing
pursuant to Rule 424(b) of the Rules and Regulations is required,
shall mean the form of final prospectus included in the Registration
Statement at the time such Registration statement becomes effective,
or (iii) if a Term Sheet is used, the Term Sheet in the form in which
it is first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations, together with the Preliminary Prospectus
included in the Registration Statement at the time it becomes
effective. The term "Rule 430A Information" means information with
respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus, and
each Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including
each Closing Date hereinafter mentioned, the Registration Statement
and the Prospectus, and any amendments or supplements thereto, will
contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in
all material respects conform to the requirements of the Act and the
Rules and Regulations, and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or
warranty contained in this subsection 2(b) shall be applicable to
information contained in or omitted from any Preliminary Prospectus,
the Registration Statement, the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, directly
or through the Representatives, specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly
or indirectly, any corporation, association or other entity other than
the subsidiaries (individually, a "Subsidiary" and collectively, the
"Subsidiaries") listed in Exhibit [21] to the Registration Statement.
The Company and each of its Subsidiaries have been duly organized and
are validly existing as corporations or limited partnerships, as
applicable, in good standing under the laws of their respective
jurisdictions of organization, with full power and authority
(corporate or partnership, as applicable and other) to own and lease
their
-3-
<PAGE> 4
properties and conduct their respective businesses as described in the
Prospectus; the Company, directly or indirectly, owns all of the
outstanding capital stock and partnership interests, as applicable, of
its Subsidiaries free and clear of all claims, liens, charges and
encumbrances; the Company and each of its Subsidiaries are in
possession of and operating in compliance with all authorizations,
licenses, permits, consents, certificates and orders material to the
conduct of their respective businesses, all of which are valid and in
full force and effect; the Company and each of its Subsidiaries are
duly qualified to do business and in good standing as foreign
corporations or limited partnerships, as applicable, in each
jurisdiction in which the ownership or leasing of properties or the
conduct of their respective businesses requires such qualification,
except for jurisdictions in which the failure to so qualify would not
have a material adverse effect upon the Company or the Subsidiary; and
no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(d) The Company has an authorized and outstanding
capital stock as set forth under the heading "Capitalization" in the
Prospectus; the issued and outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and
nonassessable, are duly listed on The Nasdaq Stock Market, have been
issued in compliance with all federal and state securities laws, were
not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and conform to
the description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock or partnership interests, as
applicable, of each Subsidiary have been duly authorized and validly
issued and are fully paid and nonassessable. Except as disclosed in
or contemplated by the Prospectus and the financial statements of the
Company and the related notes thereto included in the Prospectus,
neither the Company nor any Subsidiary has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or partnership interests, as applicable, or any such options, rights,
convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans,
arrangements, options and rights.
(e) The Common Shares to be sold by the Company
have been duly authorized and, when issued, delivered and paid for in
the manner set forth in this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus. No preemptive rights
or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No shareholder of the Company has any right which has not
been waived to require the Company to register the sale of any shares
owned by such shareholder under the Act in the public offering
-4-
<PAGE> 5
contemplated by this Agreement. No further approval or authority of
the shareholders or the Board of Directors of the Company will be
required for the issuance and sale of the Common Shares to be sold by
the Company as contemplated herein.
(f) Each of the Company and the Partnership has
full legal right, power and authority to enter into this Agreement and
perform the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by the Company and the
Partnership and constitutes a valid and binding obligation of the
Company and the Partnership in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws affecting the rights of
creditors generally and by principles of equity, whether considered at
law or equity. The making and performance of this Agreement by the
Company and the Partnership and the consummation of the transactions
herein contemplated will not violate any provisions of the articles of
incorporation or bylaws, or other organizational documents, of the
Company or any of its Subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of
their respective properties may be bound or affected, any statute or
any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its Subsidiaries
or any of their respective properties. No consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance
with the Act, the Blue Sky or Canadian securities laws applicable to
the public offering of the Common Shares by the several Underwriters
and the clearance of such offering with the National Association of
Securities Dealers, Inc. (the "NASD").
(g) Deloitte & Touche, LLP, who have expressed
their opinion with respect to the financial statements and schedules
filed with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and
Regulations.
(h) The combined financial statements and
schedules of the Company and the Affiliated Entities, the financial
statements of Gulf Coast Associates, Ltd. d/b/a Suburban Lodge of
Forest Park ("Gulf Coast"), and the related notes thereto included in
the Registration Statement and the Prospectus present fairly the
financial position of the Company and the Affiliated Entities and Gulf
Coast, respectively, as of the respective dates of such financial
statements and schedules, and the results of operations and changes in
financial position of the Company and the Affiliated Entities and Gulf
Coast, respectively, for the respective periods covered thereby. Such
statements, schedules and
-5-
<PAGE> 6
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by
Deloitte & Touche, LLP. No other financial statements or schedules
are required to be included in the Registration Statement. The
selected financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Combined Historical Financial Data"
fairly present the information set forth therein on the basis stated
in the Registration Statement. The pro forma financial information
(including the related notes) included in the Prospectus or any
Preliminary Prospectus complies as to form in all material respects to
the applicable accounting requirements of the Act and the Rules and
Regulations and management of the Company believes that the
assumptions underlying the pro forma adjustments are reasonable. Such
pro forma adjustments have been properly applied to the historical
amounts in the compilation of the information and such information
fairly represents with respect to the Company the financial position,
results of operations and other information purported to be shown
therein at the respective dates and for the respective periods
specified.
(i) Except as disclosed in the Prospectus, and
except as to defaults which individually or in the aggregate would not
be material to the Company, neither the Company nor any of its
Subsidiaries is in violation or default of any provision of its
certificate of incorporation or bylaws, or other organizational
documents, or is in breach of or default with respect to any provision
of any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to
which it is a party or by which it or any of its properties are bound;
and there does not exist any state of facts which constitutes an event
of default on the part of the Company or any such Subsidiary as
defined in such documents or which, with notice or lapse of time or
both, would constitute such an event of default.
(j) There are no contracts or other documents
required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act or by the Rules
and Regulations which have not been described or filed as required.
The contracts so described in the Prospectus are in full force and
effect on the date hereof; and neither the Company nor any of its
Subsidiaries, nor to the best of the Company's knowledge, any other
party is in breach of or default under any of such contracts.
(k) Except as disclosed in the Prospectus, there
are no legal or governmental actions, suits or proceedings pending or,
to the best of the Company's knowledge, threatened to which the
Company or any of its Subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its Subsidiaries is
or may be the subject, or related to environmental or discrimination
matters, which actions, suits or proceedings might, individually or in
the aggregate, prevent or adversely affect the transactions
contemplated by this Agreement or result in a material adverse change
in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company or any of its
Subsidiaries, and no labor disturbance by the employees of the Company
or any of its Subsidiaries exists or is imminent which might be
-6-
<PAGE> 7
expected to affect adversely such condition, properties, business,
results of operations or prospects. Neither the Company nor any of
its Subsidiaries is a party or subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body.
(l) The Company or the applicable Subsidiary has
good and marketable title to all the properties and assets reflected
as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), and such properties and assets are not
subject to any lien, mortgage, pledge, charge or encumbrance of any
kind except (i) those, if any, reflected in such financial statements
(or elsewhere in the Prospectus), or (ii) those which are not material
in amount and do not adversely affect the use made and proposed to be
made of such property and assets by the Company and its Subsidiaries.
The Company or the applicable Subsidiary holds its leased properties
under valid and binding leases, with such exceptions as are not
materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company or its Subsidiaries
owns or leases all such properties as are necessary to its operations
as now conducted or as proposed to be conducted.
(m) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as described in or specifically contemplated by the Prospectus:
(i) the Company and its Subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which could result
in a material reduction in the future earnings of the Company or its
Subsidiaries; (ii) the Company and its Subsidiaries have not sustained
any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance; (iii) the Company has not paid or
declared any dividends or other distributions with respect to its
capital stock and the Company and its Subsidiaries are not in default
in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock
(other than upon the sale of the Common Shares hereunder and upon the
exercise of options and warrants described in the Registration
Statement) or indebtedness material to the Company and its
Subsidiaries (other than in the ordinary course of business); and (v)
there has not been any material adverse change in the condition
(financial or otherwise), business, properties, results of operations
or prospects of the Company or any Subsidiary.
(n) Except as disclosed in or specifically
contemplated by the Prospectus, the Company and its Subsidiaries have
sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to
conduct their businesses as now conducted and as proposed to be
conducted as described in the Prospectus; the contemplated expiration
of any trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals or governmental
-7-
<PAGE> 8
authorizations would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company or any Subsidiary; and the Company has no
knowledge of any material infringement by it or its Subsidiaries of
trademark, trade name rights, patent rights, mask works, copyrights,
licenses, trade secret or other similar rights of others, and there is
no claim being made against the Company or any Subsidiary regarding
trademark, trade name, patent, mask work, copyright, license, trade
secret or other infringement which could have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company and its Subsidiaries.
(o) The Company has not been advised, and has no
reason to believe, that the Company or any of its Subsidiaries is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business, properties, results of operations
or prospects of the Company or any Subsidiary.
(p) The Company and its Subsidiaries have filed
all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown as due thereon; and the Company
has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company and its Subsidiaries which
could materially adversely affect the condition (financial or
otherwise), business, properties, results of operations or prospects
of the Company and its Subsidiaries.
(q) Neither the Company nor any of its
Subsidiaries is an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment Company
Act of 1940, as amended.
(r) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in
connection with the offering and sale of the Common Shares other than
the Prospectus, the Registration Statement and other materials
permitted by the Act.
(s) Each of the Company and its Subsidiaries
maintains insurance of the types and in the amounts generally deemed
adequate for their respective businesses, including, but not limited
to, insurance covering real and personal property owned or leased by
the Company and its Subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all
of which insurance is in full force and effect.
(t) Neither the Company nor any of its
Subsidiaries has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign
-8-
<PAGE> 9
office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(u) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale
or resale of the Common Shares.
(v) No person (other than the Company) has an
option or right of first refusal to purchase all or part of any of the
Properties or any interest therein. Each of the Properties complies
with all applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and laws
relating to access to the Properties), except if and to the extent
disclosed in the Prospectus and except for such failures to comply
that would not individually or in the aggregate have a material
adverse effect on the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole. The Company has no knowledge of any
pending or threatened condemnation proceedings, zoning changes, or
other proceeding or action that will in any manner affect the size of,
use of, improvements on, construction on or access to the Properties,
except such proceedings or actions that would not have a material
adverse effect on the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole.
(w) To the best of the Company's knowledge, no
dispute exists or is imminent with any franchisee (individually, a
"Franchisee" and collectively, the "Franchisees") or with the
Franchisees of the Company and its Subsidiaries that could have a
material adverse effect on the condition (financial or otherwise),
business, properties, results of operations or prospects of the
Company and its Subsidiaries, taken as a whole.
(x) Each Franchisee is such by virtue of being a
party to a franchise agreement with either the Company or a Subsidiary
and assuming each such agreement has been duly authorized, executed
and delivered by the parties thereto, other than the Company or a
Subsidiary, each such contract constitutes a valid, legal and binding
obligation of each party thereto, enforceable against the Company or a
Subsidiary in accordance with its terms, except (i) for any one or
more of such franchise agreements as would not have a material adverse
effect on the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole, and (ii) to the extent that
enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally. The Company and each
Subsidiary have
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<PAGE> 10
complied with and are currently complying in all material respects
with the rules and regulations of the United States Federal Trade
Commission and the comparable laws, rules and regulations of each
state or state agency applicable to the franchising business of the
Company and such Subsidiary in each state in which the Company or such
Subsidiary is doing business.
(y) The Company and each of its Subsidiaries
maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in
accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) No Subsidiary is currently prohibited,
directly or indirectly, (i) from paying any dividends to the Company
and SLA Properties, Inc., (ii) from making any other distributions to
the Company or SLA Properties, Inc., or (iii) from repaying to the
Company and SLA Properties, Inc. any loans or advances, except as
disclosed in the Prospectus.
For purposes of this Section 2, "the best of the Company's knowledge"
or a similar phrase means the knowledge of each of David E. Krischer, Dan J.
Berman, Seth H. Christian and Terry J. Feldman, after diligent inquiry of
persons who should have knowledge of the facts relevant to such
representations.
SECTION 3. Representations, Warranties and Covenants of the
Selling Shareholders.
(a) Each of the Selling Shareholders represents
and warrants to, and agrees with, the several Underwriters
that:
(i) Such Selling Shareholder has, and on
the First Closing Date hereinafter mentioned will
have, good and marketable title to the Common Shares
proposed to be sold by such Selling Shareholder
hereunder on such Closing Date and full right, power
and authority to enter into this Agreement and to
sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities,
securities interests, restrictions and claims
whatsoever; and upon delivery of and payment for such
Common Shares hereunder, the Underwriters will
acquire good and marketable title thereto,
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<PAGE> 11
free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting
trusts or other defects of title whatsoever.
(ii) Such Selling Shareholder has
executed and delivered a Power of Attorney and caused
to be executed and delivered on his behalf a Custody
Agreement (hereinafter collectively referred to as
the "Shareholders Agreement") and in connection
herewith such Selling Shareholder further represents,
warrants and agrees that such Selling Shareholder has
deposited in custody, under the Shareholders
Agreement, with the agent named therein (the "Agent")
as custodian, certificates in negotiable form for the
Common Shares to be sold hereunder by such Selling
Shareholder, for the purpose of further delivery
pursuant to this Agreement. Such Selling Shareholder
agrees that the Common Shares to be sold by such
Selling Shareholder on deposit with the Agent are
subject to the interests of the Company and the
Underwriters, that the arrangements made for such
custody are to that extent irrevocable, and that the
obligations of such Selling Shareholder hereunder
shall not be terminated, except as provided in this
Agreement or in the Shareholders Agreement, by any
act of such Selling Shareholder, by operation of law,
by the death or incapacity of such Selling
Shareholder or by the occurrence of any other event.
If the Selling Shareholder should die or become
incapacitated, or if any other event should occur,
before the delivery of the Common Shares hereunder,
the documents evidencing Common Shares then on
deposit with the Agent shall be delivered by the
Agent in accordance with the terms and conditions of
this Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not
the Agent shall have received notice thereof. This
Agreement and the Shareholders Agreement have been
duly executed and delivered by or on behalf of such
Selling Shareholder and the form of such Shareholders
Agreement has been delivered to you.
(iii) The performance of this Agreement
and the Shareholders Agreement and the consummation
of the transactions contemplated hereby and by the
Shareholders Agreement will not result in a breach or
violation by such Selling Shareholder of any of the
terms or provisions of, or constitute a default by
such Selling Shareholder under, any indenture,
mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or
other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling
Shareholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or
body applicable to such Selling Shareholder or any of
its properties.
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<PAGE> 12
(iv) Such Selling Shareholder has not
taken and will not take, directly or indirectly, any
action designed to or which has constituted or which
might reasonably be expected to cause or result in
stabilization or manipulation of the price of any
security of the Company to facilitate the sale or
resale of the Common Shares.
(v) Each Preliminary Prospectus and the
Prospectus, insofar as it has related to such Selling
Shareholder, has conformed in all material respects
to the requirements of the Act and the Rules of
Regulations and has not included any untrue statement
of a material fact or omitted to state a material
fact necessary to make the statements therein not
misleading in light of the circumstances under which
they were made; and neither the Registration
Statement nor the Prospectus, nor any amendment or
supplement thereto, as it relates to such Selling
Shareholder, will include any untrue statement of a
material fact or omit to state any material fact
required to be stated therein or necessary to make
the statements therein not misleading.
(vi) Such Selling Shareholder is not
aware that any of the representations and warranties
set forth in Section 2 above is untrue or inaccurate
in any material respect.
(b) Each of the Selling Shareholders agrees with
the Company and the Underwriters not to offer to sell, sell or
contract to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable for any
shares of Common Stock, for a period of 180 days after the
first date that any of the Common Shares are released by you
for sale to the public, without the prior written consent of
either Montgomery Securities or each of the Representatives,
which consent may be withheld at the sole discretion of
Montgomery Securities or each of the Representatives, as the
case may be.
SECTION 4. Representations and Warranties of the
Underwriters. The Representatives, on behalf of the several Underwriters,
represent and warrant to the Company and the Selling Shareholders that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii)
under "Underwriting" in the Prospectus was furnished to the Company by and on
behalf of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives represent and warrant that they have been
authorized by each of the other Underwriters as the Representatives to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and
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<PAGE> 13
conditions herein set forth, (i) the Company agrees to issue and sell to the
Underwriters 4,000,000 of the Firm Common Shares, and (ii) the Selling
Shareholders agree, severally and not jointly, to sell to the Underwriters in
the respective amounts set forth in Schedule B hereto, an aggregate of 243,000
of the Firm Common Shares. The Underwriters agree, severally and not jointly,
to purchase from the Company and the Selling Shareholders, respectively, the
number of Firm Common Shares set forth opposite the name of each such
Underwriter in Schedule A hereto. The purchase price per share to be paid by
the several Underwriters to the Company and to the Selling Shareholders,
respectively, shall be $______ per share.
Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payment therefor shall be made at the offices
of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed upon by the Company and the Representatives)
at such time and date, not later than the third (or, if the Firm Common Shares
are priced, as contemplated by Rule 15c6-1(c) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), after 4:30 P.M. Washington D.C. time,
the fourth) full business day following the first date that any of the Common
Shares are released by you for sale to the public, as you shall designate by at
least 48 hours prior notice to the Company (or at such other time and date, not
later than one week after such third or fourth, as the case may be, full
business day as may be agreed upon by the Company and the Representatives) (the
"First Closing Date"); provided, however, that if the Prospectus is at any time
prior to the First Closing Date recirculated to the public, the First Closing
Date shall occur upon the later of the third or fourth, as the case may be,
full business day following the first date that any of the Common Shares are
released by you for sale to the public or the date that is 48 hours after the
date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be
made by or on behalf of the Company and the Selling Shareholders to you, for
the respective accounts of the Underwriters with respect to the Firm Common
Shares to be sold by the Company and by the Selling Shareholders against
payment by you, for the accounts of the several Underwriters, of the purchase
price therefor by wire transfer of immediately available funds to the Company
and to the Agent in proportion to the number of Firm Common Shares to be sold
by the Company and the Selling Shareholders, respectively. The certificates
for the Firm Common Shares shall be registered in such names and denominations
as you shall have requested at least two full business days prior to the First
Closing Date, and shall be made available for checking and packaging on the
business day preceding the First Closing Date at a location in New York, New
York, as may be designated by you. Time shall be of the essence, and delivery
at the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
In addition, on the basis of the representations, warranties
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 636,450 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of
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<PAGE> 14
the Underwriters in the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
within 30 days after the first date that any of the Common Shares are released
by you for sale to the public, upon notice by you to the Company setting forth
the aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, the names and denominations in which the certificates
for such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date shall not be earlier than three nor later than five full business
days after delivery of such notice of exercise. The number of Optional Common
Shares to be purchased by each Underwriter shall be determined by multiplying
the number of Optional Common Shares to be sold by the Company pursuant to such
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such Underwriter as set forth opposite its
name in Schedule A and the denominator of which is 4,243,000 (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the Company as specified
in the two preceding paragraphs. At any time before lapse of the option, you
may cancel such option by giving written notice of such cancellation to the
Company. If the option is canceled or expires unexercised in whole or in part,
the Company will deregister under the Act the number of Option Shares as to
which the option has not been exercised.
You have advised the Company and the Selling Shareholders that
each Underwriter has authorized you to accept delivery of its Common Shares, to
make payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in the
judgment of the Representatives is advisable and at the public offering price
set forth on the cover page of and on the terms set forth in the final
prospectus, if one is used, or on the first page of the Term Sheet, if one is
used.
SECTION 6. Covenants of the Company. The Company covenants
and agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is
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<PAGE> 15
executed and delivered by the parties hereto, to become effective. If
the Registration Statement has become or becomes effective pursuant to
Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide
evidence satisfactory to you of such timely filing. The Company will
promptly advise you in writing (i) of the receipt of any comments of
the Commission, (ii) of any request of the Commission for amendment of
or supplement to the Registration Statement (either before or after it
becomes effective), any Preliminary Prospectus or the Prospectus or
for additional information, (iii) when the Registration Statement
shall have become effective, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose. If the Commission shall enter any such stop order at
any time, the Company will use its best efforts to obtain the lifting
of such order at the earliest possible moment. The Company will not
file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or
the Prospectus of which you have not been furnished with a copy a
reasonable time prior to such filing or to which you reasonably object
or which is not in compliance with the Act and the Rules and
Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements
to the Registration Statement or the Prospectus which in your judgment
may be necessary or advisable to enable the several Underwriters to
continue the distribution of the Common Shares and will use its best
efforts to cause the same to become effective as promptly as possible.
The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information
omitted from the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred
to in Section 10(a) (3) of the Act during which a prospectus relating
to the Common Shares is required to be delivered under the Act any
event occurs, as a result of which the Prospectus, including any
amendments or supplements, would include an untrue statement of a
material fact, or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus,
including any amendments or supplements, to comply with the Act or the
Rules and Regulations, the Company will promptly advise you thereof
and will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement
or omission or an amendment or supplement which will effect such
compliance and will use its best efforts to cause the same to become
effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after such nine-month period, the
Company upon request, but at the expense of such Underwriter, will
promptly prepare such amendment or amendments to the Registration
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<PAGE> 16
Statement and such Prospectus or Prospectuses as may be necessary to
permit compliance with the requirements of Section 10(a) (3) of the
Act.
(d) The Company will timely file such reports pursuant to
the Exchange Act as are necessary in order to make generally available
to its security holders as soon as practicable an earnings statement
for the purposes of, and to provide the benefits contemplated by, the
last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law
to be delivered in connection with sales by an Underwriter or dealer,
the Company, at its expense, but only for the nine-month period
referred to in Section 10(a) (3) of the Act, will furnish to you or
mail to your order copies of the Registration Statement, the
Prospectus, the Preliminary Prospectus and all amendments and
supplements to any such documents in each case as soon as available
and in such quantities as you may request, for the purposes
contemplated by the Act.
(f) The Company shall cooperate with you and your counsel
in order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky or Canadian
securities laws of such jurisdictions as you designate, will comply
with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the
distribution of the Common Shares. The Company shall not be required
to qualify as a foreign corporation or to file a general consent to
service of process in any such jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign
corporation. The Company will advise you promptly of the suspension
of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any
such purpose, and in the event of the issuance of any order suspending
such qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal
thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income,
shareholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
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<PAGE> 17
(h) During the period of 180 days after the first date
that any of the Common Shares are released by you for sale to the
public, without the prior written consent of Montgomery Securities
(which consent may be withheld at the sole discretion of Montgomery
Securities), the Company will not other than pursuant to outstanding
stock options and warrants disclosed in the Prospectus issue, offer,
sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities or any other securities convertible into
or exchangeable with its Common Stock or other equity security.
(i) The Company will apply the net proceeds of the sale
of the Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or
register its Common Stock for sale in non- issuer transactions under
(or obtain exemptions from the application of) the Blue Sky laws of
the State of California (and thereby permit market making transactions
and secondary trading in the Company's Common Stock in California),
will comply with such Blue Sky laws and will continue such
qualifications, registrations and exemptions in effect for a period of
five years after the date hereof.
(k) The Company will use its best efforts to designate
the Common Stock for quotation as a national market system security on
The Nasdaq Stock Market.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective or is terminated, the Company and, unless otherwise paid by the
Company, the Selling Shareholders agree to pay in such proportions as they may
agree among themselves all costs, fees and expenses incurred in connection with
the performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses
of the Company's counsel and the Company's independent accountants, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement, each
preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement,
the Underwriters' Questionnaire, the Underwriters' Power of Attorney and the
Blue Sky memorandum, (vi) all filing
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<PAGE> 18
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for
offer and sale under the Blue Sky laws or the securities laws of Canada, (vii)
the filing fee of the NASD, and (viii) all other fees, costs and expenses
referred to in Item [13] of the Registration Statement. The Underwriters may
deem the Company to be the primary obligor with respect to all costs, fees and
expenses to be paid by the Company and by the Selling Shareholders. Except as
provided in this Section 7, Section 9 and Section 11 hereof, the Underwriters
shall pay all of their own expenses, including the fees and disbursements of
their counsel (excluding those relating to qualification, registration or
exemption under the Blue Sky and Canadian securities laws and the Blue Sky
memorandum referred to above). This Section 7 shall not affect any agreements
relating to the payment of expenses between the Company and the Selling
Shareholders.
The Selling Shareholders will pay (directly or by
reimbursement) all fees and expenses incident to the performance of their
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to (i) any fees and expenses of counsel
for such Selling Shareholders, (ii) any fees and expenses of the Agent, and
(iii) all expenses and taxes incident to the sale and delivery of the Common
Shares to be sold by such Selling Shareholders to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the Firm
Common Shares on the First Closing Date and the Optional Common Shares on the
Second Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company, the Partnership and the Selling
Shareholders herein set forth as of the date hereof and as of the First Closing
Date, to the accuracy of the statements of Company officers, Partnership
officers and the Selling Shareholders made pursuant to the provisions hereof,
to the performance by the Company, the Partnership and the Selling Shareholders
of their respective obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M., (or, in the case of a registration
statement filed pursuant to 462(b) of the Rules and Regulations
relating to the Common Shares, not later than 10 P.M.), Washington,
D.C. Time, on the date of this Agreement, or at such later time as
shall have been consented to by you; if the filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b) of the
Rules and Regulations, the Prospectus shall have been filed in the
manner and within the time period required by Rule 424(b) of the Rules
and Regulations; and prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company,
the Selling Shareholders, or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement, or otherwise,
shall have been complied with to your satisfaction.
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<PAGE> 19
(b) You shall be satisfied that since the respective
dates as of which information is given in the Registration Statement
and Prospectus, (i) there shall not have been any change in the
capital stock (other than pursuant to the exercise of outstanding
options and warrants disclosed in the Prospectus) of the Company or
any of its Subsidiaries or any material change in the indebtedness
(other than in the ordinary course of business) of the Company or any
of its Subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or
written agreement or other transaction shall have been entered into by
the Company or any of its Subsidiaries, which is not in the ordinary
course of business or which could result in a material reduction in
the future earnings of the Company or any of its Subsidiaries, (iii)
no loss or damage (whether or not insured) to the property of the
Company or any of its Subsidiaries shall have been sustained which
materially and adversely affects the condition (financial or
otherwise), business, results of operations or prospects of the
Company or any of its Subsidiaries, (iv) no legal or governmental
action, suit or proceeding affecting the Company or any of its
Subsidiaries which is material to the Company or any of its
Subsidiaries or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or
threatened, and (v) there shall not have been any material change in
the condition (financial or otherwise), business, management, results
of operations or prospects of the Company or any of its Subsidiaries
which makes it impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase the
Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Kilpatrick & Cody, counsel for
the Company and the Selling Shareholders, addressed
to the Underwriters and dated the First Closing Date,
or the Second Closing Date (in the latter case with
respect to the Company only), as the case may be, to
the effect that:
(1) Each of the Company and its
Subsidiaries has been duly incorporated and
is validly existing as a corporation in good
standing under the laws of its jurisdiction
of incorporation, is duly qualified to do
business as a foreign corporation and is in
good standing in all other jurisdictions
where the ownership or leasing of properties
or the conduct of its business requires such
qualification, except for jurisdictions in
which the failure to so qualify would not
have a material adverse effect on the Company
and its Subsidiaries, and has full corporate
power and authority to own its properties and
conduct its business as described in the
Registration Statement;
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<PAGE> 20
(2) The Partnership is a limited
partnership formed and validly existing under
the Georgia Uniform Limited Partnership Act
with the partnership power to own and lease
its properties and to conduct its business as
now conducted. The Partnership is qualified
to transact business as a foreign partnership
and is in good standing in all other
jurisdictions where the ownership or leasing
of properties or the conduct of its business
requires such qualification, except for
jurisdictions in which the failure to so
qualify would not have a material adverse
effect on the Company, its Subsidiaries and
the Partnership;
(3) The authorized, issued and
outstanding capital stock of the Company is
as set forth under the caption
"Capitalization" in the Prospectus; all
necessary and proper corporate proceedings
have been taken in order to authorize validly
such authorized capital stock, all
outstanding shares of capital stock have been
duly and validly issued, are fully paid
and nonassessable, were not issued in
violation of or subject to any preemptive
rights; without limiting the foregoing, there
are no preemptive or other rights to
subscribe for or purchase any securities,
arising by operation of law or under the
Company's Articles of Incorporation or bylaws
or under any agreement known to such counsel
to which the Company or any of its
Subsidiaries is a party, and conform to the
description thereof contained in the
Prospectus, all offers and sales of the
Company's Common Stock prior to the date
hereof were at all relevant times either
registered with the Commission under the
Registration Statement or exempt from the
registration requirements of the Act by
reason of Sections 3(b), 4(2) or 4(6) thereof
and were the subject of an available
exemption from the registration requirements
of the applicable state securities or blue
sky laws of the Common Stock to be sold by
the Company hereunder;
(4) All of the issued and
outstanding shares of the Company's
Subsidiaries have been duly and validly
authorized and issued, are fully paid and
nonassessable and, to the best of such
counsel's knowledge, based solely on a review
of stock records and minute books, are owned
beneficially by the Company free and clear of
all liens, encumbrances, equities, claims,
security interests, voting trusts or other
defects of title whatsoever; all of the
issued and outstanding interests in the
Partnership have been duly and validly
authorized and issued, are fully paid and are
owned, directly or indirectly, to the best of
such counsel's knowledge, by the Company free
and clear of all liens, encumbrances,
equities, claims, security interests, voting
trusts or other defects of title whatsoever;
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<PAGE> 21
(5) The certificates evidencing the
Common Shares to be delivered hereunder are
in due and proper form under Georgia law, and
when duly countersigned by the Company's
transfer agent and registrar, and delivered
to you or upon your order against payment of
the agreed consideration therefor in
accordance with the provisions of this
Agreement, the Common Shares represented
thereby will be duly authorized and validly
issued, fully paid and nonassessable, will
not have been issued in violation of or
subject to any preemptive rights or other
rights to subscribe for or purchase
securities arising by operation of law, under
the Company's Articles of Incorporation or
bylaws or under any agreement known to such
counsel to which the Company or any of its
Subsidiaries is a party and will conform in
all respects to the description thereof
contained in the Prospectus;
(6) Except as disclosed in or
specifically contemplated by the Prospectus,
to the best of such counsel's knowledge,
there are no outstanding options, warrants or
other rights calling for the issuance of, and
no commitments, plans or arrangements to
issue, any shares of capital stock of the
Company or any of its Subsidiaries or any
security convertible into or exchangeable for
capital stock of the Company or any of its
Subsidiaries;
(7)(a) The Registration Statement has
become effective under the Act, and, to the
best of such counsel's knowledge, no stop
order suspending the effectiveness of the
Registration Statement or preventing the use
of the Prospectus has been issued and no
proceedings for that purpose have been
instituted or are pending or contemplated by
the Commission; any required filing of the
Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and
within the time period required by such Rule
424(b);
(b) The Registration Statement, the
Prospectus and each amendment or supplement thereto
(except for the financial statements and schedules
and other financial information and data included
therein as to which such counsel need not express any
opinion) comply as to form in all material respects
with the requirements of the Act and the Rules and
Regulations;
(c) To the best of such counsel's
knowledge, there are no franchises, leases,
contracts, agreements or documents of a character
required to be disclosed in the Registration
Statement or Prospectus or to
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<PAGE> 22
be filed as exhibits to the Registration Statement
which are not disclosed or filed, as required; and
(d) To the best of such counsel's
knowledge, there are no legal or governmental
actions, suits or proceedings pending or threatened
against the Company or any of its Subsidiaries which
are required to be described in the Prospectus which
are not described as required.
(8) The Company has full right, power
and authority to enter into this Agreement and to
sell and deliver the Common Shares to be sold by it
to the several Underwriters; the Partnership has full
right, power and authority to enter into this
Agreement; this Agreement has been duly and validly
authorized by all necessary corporate action by the
Company and the Partnership, has been duly and
validly executed and delivered by and on behalf of
the Company and the Partnership, and is a valid and
binding agreement of the Company and the Partnership
in accordance with its terms, except as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating
to indemnity or contribution for liabilities arising
under the Act, as to which no opinion need be
expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license
or permit of or with any court, regulatory,
administrative or other governmental body is required
for the execution and delivery of this Agreement by
the Company and the Partnership or the consummation
of the transactions contemplated by this Agreement,
except such as have been obtained and are in full
force and effect under the Act and such as may be
required under applicable Blue Sky laws in connection
with the purchase and distribution of the Common
Shares by the Underwriters and the clearance of such
offering with the NASD;
(9) The execution and performance of
this Agreement and the consummation of the
transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either
by itself or upon notice or the passage of time or
both, a default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture,
permit or other instrument that is described or
referred to in the Registration Statement or the
Prospectus or filed as an exhibit to the Registration
Statement, or violate any of the provisions of the
certificate of incorporation or bylaws, or other
organizational documents, of the Company or any of
its Subsidiaries or, so far as is known to such
counsel, violate any statute, judgment, decree,
order, rule or regulation of any court or
governmental body having jurisdiction over the
Company or any of its Subsidiaries or any of their
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<PAGE> 23
properties, except where the failure to comply would
not have a material adverse effect on the condition
(financial or otherwise), business, properties,
results of operation or prospects of the Company and
its Subsidiaries, taken as a whole;
(10) Neither the Company nor any of its
Subsidiaries is in violation of its certificates of
incorporation or bylaws, or other organizational
documents, or to the best of such counsel's
knowledge, in breach of or default with respect to
any provision of any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit
or other instrument that is described or referred to
in the Registration Statement or the Prospectus or
filed as an exhibit to the Registration Statement,
except where such default would not materially
adversely affect the Company and its Subsidiaries,
taken as a whole; and, to the best of such counsel's
knowledge, the Company and its Subsidiaries are in
compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court
or jurisdiction to which they are subject, except
where noncompliance would not materially adversely
affect the Company and its Subsidiaries, taken as a
whole;
(11) To the best of such counsel's
knowledge, this Agreement and the Shareholders
Agreement have been duly authorized, executed and
delivered by or on behalf of each of the Selling
Shareholders; the Agent has been duly and validly
authorized to act as the custodian of the Common
Shares to be sold by each such Selling Shareholder;
and the performance of this Agreement and the
Shareholders Agreement and the consummation of the
transactions herein contemplated by the Selling
Shareholders will not result in a breach of, or
constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other
agreement or instrument known to such counsel after
reasonable investigation to which any of the Selling
Shareholders is a party or by which any of their
properties may be bound, or violate any statute,
judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having
jurisdiction over any of the Selling Shareholders or
any of their properties; and to the best of such
counsel's knowledge, no approval, authorization,
order or consent of any court, regulatory body,
administrative agency or other governmental body is
required for the execution and delivery of this
Agreement or the Shareholders Agreement or the
consummation by the Selling Shareholders of the
transactions contemplated by this Agreement, except
such as have been obtained and are in full force and
effect under the Act and such as may be required
under the rules of the NASD and applicable Blue Sky
laws;
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<PAGE> 24
(12) To the best of such counsel's
knowledge, the Selling Shareholders have full right,
power and authority to enter into this Agreement and
the Shareholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing
Date by such Selling Shareholders hereunder and good
and marketable title to such Common Shares so sold,
free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting
trusts, or other defects of title whatsoever, has
been transferred to the Underwriters (whom counsel
may assume to be bona fide purchasers) who have
purchased such Common Shares hereunder;
(13) To the best of such counsel's
knowledge, this Agreement and the Shareholders
Agreement are valid and binding agreements of each of
the Selling Shareholders in accordance with their
terms except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting
creditors' rights generally and except with respect
to those provisions relating to indemnities or
contributions for liabilities under the Act, as to
which no opinion need be expressed;
(14) To the best of such counsel's
knowledge, no holders of securities of the Company
have rights which have not been waived to the
registration of shares of Common Stock or other
securities, because of the filing of the Registration
Statement by the Company or the offering contemplated
hereby; and
(15) Neither the Company nor any of its
Subsidiaries is an "investment company," or a company
"controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as
amended.
In rendering such opinion, such counsel may rely as
to the matters set forth in paragraphs (12) and (13), on
opinions of other counsel retained by the Selling
Shareholders, as to matters of local law, on opinions of local
counsel, and as to matters of fact, on certificates of the
Selling Shareholders and of officers of the Company and of
governmental officials, in which case their opinion is to
state that they are so doing and that the Underwriters are
justified in relying on such opinions and copies of said
opinions or certificates are to be attached to the opinion.
For purposes of such opinion, "knowledge" shall mean the
current awareness of lawyers in such firm involved in the
representation of the Company and the Selling Shareholders of
factual matters such lawyers recognize as relevant to the
opinion so qualified.
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<PAGE> 25
Such counsel shall also include a statement to the
effect that nothing has come to such counsel's attention that
would lead such counsel to believe that either at the
effective date of the Registration Statement or at the
applicable Closing Date (i) the Registration Statement or any
amendment or supplement thereto, contains any untrue statement
of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading and (ii) the Prospectus contains any
untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements, in
light of the circumstances under which they were made, not
misleading;
(ii) Such opinion of Paul, Hastings, Janofsky &
Walker, special franchising counsel for the Company, addressed
to the Underwriters and dated as of the First Closing Date, or
the Second Closing Date, as the case may be, with respect to
certain franchising matters of the Company, as you may
reasonably require, and the Company shall have furnished to
such counsel such documents and shall have exhibited to them
such papers and records as they may reasonably request for the
purpose of enabling them to pass upon such matters. In
connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials.
(iii) Such opinion or opinions of King & Spalding,
counsel for the Underwriters dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to
the incorporation of the Company, the sufficiency of all
corporate proceedings and other legal matters relating to this
Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you
may reasonably require, and the Company shall have furnished
to such counsel such documents and shall have exhibited to
them such papers and records as they may reasonably request
for the purpose of enabling them to pass upon such matters.
In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials.
(iv) A certificate of the Company executed by the
Chairman of the Board or President and the chief financial or
accounting officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the
effect that:
(1) The representations and warranties
of the Company, the Partnership and the Selling
Shareholders set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the
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<PAGE> 26
conditions on its part to be performed or satisfied
on or prior to such Closing Date;
(2) The Commission has not issued any
order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to
the best of the knowledge of the respective signers,
no proceedings for that purpose have been instituted
or are pending or contemplated under the Act;
(3) Each of the respective signers of
the certificate has carefully examined the
Registration Statement and the Prospectus; in his
opinion and to the best of his knowledge, the
Registration Statement and the Prospectus and any
amendments or supplements thereto contain all
statements required to be stated therein regarding
the Company and its Subsidiaries; and neither the
Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(4) Since the initial date on which the
Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company or any of its Subsidiaries; and no legal or
governmental action, suit or proceeding is pending or
threatened against the Company or any of its
Subsidiaries which is material to the Company or any
of its Subsidiaries, whether or not arising from
transactions in the ordinary course of business, or
which may adversely affect the transactions
contemplated by this Agreement; since such dates and
except as so disclosed, neither the Company nor any
of its Subsidiaries has entered into any verbal or
written agreement or other transaction which is not
in the ordinary course of business or which could
result in a material reduction in the future earnings
of the Company or incurred any material liability or
obligation, direct, contingent or indirect,
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<PAGE> 27
made any change in its capital stock, made any
material change in its short-term debt or funded debt
or repurchased or otherwise acquired any of the
Company's capital stock; and the Company has not
declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock
payable to shareholders of record on a date prior to
the First Closing Date or Second Closing Date; and
(6) Since the respective dates as of
which information is given in the Registration
Statement and the Prospectus and except as disclosed
in or contemplated by the Prospectus, neither the
Company nor any of its Subsidiaries have sustained a
material loss or damage by strike, fire, flood,
windstorm, accident or other calamity (whether or not
insured).
(v) On the First Closing Date a certificate,
dated such Closing Date and addressed to you, signed by or on
behalf of each of the Selling Shareholders to the effect that
the representations and warranties of such Selling Shareholder
in this Agreement are true and correct, as if made at and as
of the First Closing Date or the Second Closing Date, as the
case may be, and such Selling Shareholder has complied with
all the agreements and satisfied all the conditions on his
part to be performed or satisfied prior to the First Closing
Date or the Second Closing Date, as the case may be.
(vi) On the date before this Agreement is executed
and also on the First Closing Date and the Second Closing Date
a letter addressed to you, as Representatives of the
Underwriters, from Deloitte & Touche, independent accountants,
the first one to be dated the day before the date of this
Agreement, the second one to be dated the First Closing Date
and the third one (in the event of a Second Closing) to be
dated the Second Closing Date, in form and substance
satisfactory to you.
(vii) On or before the First Closing Date, letters
from each director and executive officer of the Company, in
form and substance satisfactory to you, confirming that for a
period of 180 days after the date of the final Prospectus,
such person will not directly or indirectly sell, offer,
contract, grant any option to sell, pledge, transfer,
establish an open "put equivalent position" within the meaning
of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire
shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock
without the prior written consent of Montgomery Securities,
which consent may be withheld at the sole discretion of
Montgomery Securities.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to
you and to King & Spalding, counsel for the
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<PAGE> 28
Underwriters. The Company and the Selling Shareholders shall furnish you with
such manually signed or conformed copies of such opinions, certificates,
letters and documents as you request. Any certificate signed by any officer of
the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Shareholders without liability
on the part of any Underwrite, the Company or the Selling Shareholders, except
for the expenses to be paid or reimbursed by the Company and by the Selling
Shareholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by you pursuant to Section 8, or if the sale to the Underwriters of
the Common Shares at the First Closing is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Shareholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse you and the other Underwriters upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by you and them in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party
except that the provisions of this Section, Section 7 and Section 11 shall at
all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You,
the Company and the Selling Shareholders will use your, its and their best
efforts to cause the Registration Statement to become effective, to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
SECTION 11. Indemnification. (a) The Company, the
Partnership and each of the Selling Shareholders, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act against any losses,
claims, damages, liabilities or expenses, joint or several, to which such
Underwriter or such controlling person may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based
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<PAGE> 29
upon the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of
them not misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company, the
Partnership or the Selling Shareholders contained herein or any failure of the
Company, the Partnership or the Selling Shareholders to perform its or their
respective obligations hereunder or under law; and will reimburse each
Underwriter and each such controlling person for any legal and other expenses
as such expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that neither the Company, the Partnership nor the
Selling Shareholders will be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity with
the information furnished to the Company pursuant to Section 4 hereof. The
Company and the Selling Shareholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to their
respective amounts of such liability for which they each shall be responsible.
In addition to their other obligations under this Section 11(a), the Company,
the Partnership and the Selling Shareholders agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, or any inaccuracy in the representations and
warranties of the Company, the Partnership or the Selling Shareholders herein
or failure to perform their obligations hereunder, all as described in this
Section 11(a), they will reimburse each Underwriter on a quarterly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the obligation of the Company, the
Partnership or the Selling Shareholders to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of America NT&SA, San Francisco, California (the
"Prime Rate"). Any such interim reimbursement payments which are not made to
an Underwriter within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Company, the
Partnership or the Selling Shareholders may otherwise have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, the Partnership, each of the Company's directors, each of
the Company's officers who signed the Registration Statement, the Selling
Shareholders and each person, if any, who controls the Company, the Partnership
or any Selling Shareholder within the meaning of the Act, against any losses,
claims, damages, liabilities or expenses to which the Company, the Partnership,
or any
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<PAGE> 30
such director, officer, Selling Shareholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in,
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, the Partnership, or any such director, officer, Selling Shareholder or
controlling person for any legal and other expense reasonably incurred by the
Company, the Partnership, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 11(b) which relates to information furnished to the
Company pursuant to Section 4 hereof, it will reimburse the Company (and, to
the extent applicable, each officer, director, or controlling person, the
Partnership or Selling Shareholder) on a quarterly basis for all reasonable
legal or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company (and,
to the extent applicable, each officer, director, controlling person, the
Partnership or Selling Shareholder) for such expenses and the possibility that
such payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person, the Partnership or Selling Shareholder)
shall promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within 30 days of a
request for reimbursement, shall bear interest at the Prime Rate from the date
of such request. This indemnity agreement will be in addition to any liability
which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than
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<PAGE> 31
under the indemnity agreement contained in this Section or to the extent it is
not prejudiced as a proximate result of such failure. In case any such action
is brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed such counsel in connection with the assumption of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel, approved by the Representatives in
the case of paragraph (a), representing the indemnified parties who are parties
to such action), or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
(d) If the indemnification provided for in this Section
11 is required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to herein (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company, the Selling Shareholders and the Underwriters from the offering
of the Common Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company, the Partnership, the Selling Shareholders
and the Underwriters in connection with the statements or omissions or
inaccuracies in the representations and warranties herein which resulted
in-such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The respective relative benefits received
by the Company, the Partnership, the Selling Shareholders and the Underwriters
shall be deemed to be in the same proportion, in the case of the Company, the
Partnership and the Selling Shareholders as the total price paid to the Company
and to the Selling Shareholders, respectively, for the Common Shares sold by
them to the Underwriters (net
-31-
<PAGE> 32
of underwriting commissions but before deducting expenses), and in the case of
the Underwriters as the underwriting commissions received by them bears to the
total of such amounts paid to the Company and to the Selling Shareholders and
received by the Underwriters as underwriting commissions. The relative fault
of the Company, the Partnership, the Selling Shareholders and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company,
the Partnership, the Selling Shareholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
subparagraph (c) of this Section 11, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in subparagraph (c) of this
Section 11 with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (c) for purposes of
indemnification. The Company, the Partnership, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 11 are several in proportion to their
respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 11(a)
and 11(b) hereof, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) and 11(b) hereof.
-32-
<PAGE> 33
SECTION 12. Default of Underwriters. It shall be a condition
to this Agreement and the obligation of the Company and the Selling
Shareholders to sell and deliver the Common Shares hereunder, and of each
Underwriter to purchase the Common Shares in the manner as described herein,
that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all the Common Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Common Shares hereunder
on either the First or Second Closing Date and the aggregate number of Common
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase on such Closing Date does not exceed 10% of the total number of Common
Shares which the Underwriters are obligated to purchase on such Closing Date,
the non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Common Shares which
such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number
of Common Shares with respect to which such default occurs is more than the
above percentage and arrangements satisfactory to the Representatives and the
Company for the purchase of such Common Shares by other persons are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Shareholders except for the expenses to be paid by the Company and the
Selling Shareholders pursuant to Section 7 hereof and except to the extent
provided in Section 11 hereof.
In the event that Common Shares to which a default relates are
to be purchased by the non-defaulting Underwriters or by another party or
parties, the Representatives or the Company shall have the right to postpone
the First or Second Closing Date, as the case may be, for not more than five
business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
SECTION 13. Effective Date. This Agreement shall become
effective immediately as to Sections 7, 9, 11, 14 and 15 and, as to all other
provisions, (i) if at the time of execution of this Agreement the Registration
Statement has not become effective, at 2:00 P.M., California time, on the first
full business day following the effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, at 2:00 P.M., California time, on the first full
business day following the date of execution of this Agreement; but this
Agreement shall nevertheless become effective at such earlier time after the
Registration Statement becomes effective as you may determine on and by notice
to the Company or by release of any of the Common Shares for sale to the
public. For the purposes of this Section 13, the Common Shares shall be deemed
to have been so released upon the release for publication of any newspaper
advertisement relating to the Common Shares or upon the release by you of
telegrams (i) advising Underwriters that the Common Shares are
-33-
<PAGE> 34
released for public offering, or (ii) offering the Common Shares for sale to
securities dealers, whichever may occur first.
SECTION 14. Termination. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the
Company by notice to you and the Selling Shareholders or by
you by notice to the Company and the Selling Shareholders at
any time prior to the time this Agreement shall become
effective as to all its provisions, and any such termination
shall be without liability on the part of the Company, the
Partnership or the Selling Shareholders to any Underwriter
(except for the expenses to be paid or reimbursed by the
Company, the Partnership and the Selling Shareholders pursuant
to Sections 7 and 9 hereof and except to the extent provided
in Section 11 hereof) or of any Underwriter to the Company,
the Partnership or the Selling Shareholders (except to the
extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you
prior to the First Closing Date by notice to the Company (i)
if additional material governmental restrictions, not in force
and effect on the date hereof, shall have been imposed upon
trading in securities generally or minimum or maximum prices
shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally
shall have been suspended on either such Exchange or in the
over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or
California authorities, (ii) if an outbreak of major
hostilities or other national or international calamity or any
substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or
escalated to such an extent, as, in the judgment of the
Representatives, to affect adversely the marketability of the
Common Shares, (iii) if any adverse event shall have occurred
or shall exist which makes untrue or incorrect in any material
respect any statement or information contained in the
Registration Statement or Prospectus or which is not reflected
in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or
information contained therein not misleading in any material
respect, or (iv) if there shall be any action, suit or
proceeding pending or threatened; or there shall have been any
development or prospective development involving particularly
the business or properties or securities of the Company or any
of its Subsidiaries or the transactions contemplated by this
Agreement which, in the reasonable judgment of the
Representatives, may materially and adversely affect the
Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any
termination pursuant to this subsection (b) shall be without
liability on the part of any Underwriter to the Company or the
-34-
<PAGE> 35
Selling Shareholders or on the part of the Company or the
Selling Shareholders to any Underwriter (except for expenses
to be paid or reimbursed by the Company and the Selling
Shareholders pursuant to Sections 7 and 9 hereof and except to
the extent provided in Section 11 hereof).
(c) This Agreement shall also terminate at 5:00
P.M., California Time, on the tenth full business day after
the Registration Statement shall have become effective if the
initial public offering price of the Common Shares shall not
then as yet have been determined as provided in Section 5
hereof. Any termination pursuant to this subsection (c) shall
be without liability on the part of any Underwriter to the
Company or the Selling Shareholders or on the part of the
Company or the Selling Shareholders to any Underwriter (except
for expenses to be paid or reimbursed by the Company and the
Selling Shareholders pursuant to Sections 7 and 9 hereof and
except to the extent provided in Section 11 hereof ).
SECTION 15. Representations and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Partnership and the Selling
Shareholders, of the Company's officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwrite,
the Company, the Partnership, the Selling Shareholders or any of its or their
partners, officers or directors or any controlling person, as the case may be,
and will survive delivery of and payment for the Common Shares sold hereunder
and any termination of this Agreement.
SECTION 16. Notices. All communications hereunder shall be
in writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: Jack G. Levin, with a copy to Alan J. Prince, King
& Spalding, 191 Peachtree Street, Atlanta, GA 30303; and if sent to the
Company, the Partnership or the Selling Shareholders shall be mailed, delivered
or telegraphed and confirmed to the Company at 120 Interstate North Parkway
East, Suite 120, Atlanta, GA 30339, Attention: David E. Krischer with a copy to
Kilpatrick & Cody, 1100 Peachtree Street, Suite 2800, Atlanta, GA 30309,
Attention: Michael H. Trotter. The Company, the Partnership, the Selling
Shareholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 17. Successors. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 12 hereof, and to the benefit of the officers
and directors and controlling persons referred to in Section 11, and in each
case their respective successors, personal representatives and assigns, and no
other person will have any right or obligation hereunder. No such assignment
shall relieve any party of its obligations hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
-35-
<PAGE> 36
SECTION 18. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 19. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 20. Applicable Law. This Agreement shall be governed
by and construed in accordance with the internal laws (and not the laws
pertaining to conflicts of laws) of the State of California.
SECTION 21. General. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
several counterparts, each one of which shall be an original, and all of which
shall constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders
and the singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will not affect
the construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company, the Selling Shareholders and
you.
Any person executing and delivering this Agreement as
Attorney-in-fact for the Selling Shareholders represents by so doing that he
has been duly appointed as Attorney-in-fact by each such Selling Shareholder
pursuant to a validly existing and binding Power of Attorney which authorizes
such Attorney-in-fact to take such action. Any action taken under this
Agreement by any of the Attorneys-in-fact will be binding on all the Selling
Shareholders.
-36-
<PAGE> 37
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement among the Company, the
Partnership, the Selling Shareholders and the several Underwriters including
you, all in accordance with its terms.
Very truly yours,
SUBURBAN LODGES OF AMERICA, INC.
By:______________________________
President
SUBURBAN HOLDINGS, L.P.
By: Suburban Lodges of America, Inc.
its General Partner
By:______________________________
President
SELLING SHAREHOLDERS
By:_______________________________
(Attorney-in-fact)
By:_______________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:____________________________
-37-
<PAGE> 38
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J.C. Bradford & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legacy Securities Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,243,000
=========
</TABLE>
<PAGE> 39
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm
Common Shares
to be Sold by Selling
Name of Selling Shareholder Shareholders
- --------------------------- ------------------------
<S> <C>
David E. Kirscher 199,983
Dan J. Berman 10,500
Seth H. Christian 10,500
K&K Holdings, LLC 17,741
William D. Bowen 792
Michael J. Kuse 2,191
Pine Land Greyhawk, Inc. 1,293
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,000
========
</TABLE>
<PAGE> 1
EXHIBIT 5.1 and 23.1
November ___, 1996
Suburban Lodges of America, Inc.
1000 Parkwood Circle
Suite 850
Atlanta, Georgia 30339
Re: Form S-1 Registration Statement
Gentlemen:
At your request, we have examined the registration statement to be filed
by Suburban Lodges of America, Inc., a Georgia corporation (the "Company"),
with the Securities and Exchange Commission on October 30, 1996 (the
"Registration Statement"), with respect to the registration under the
Securities Act of 1933, as amended, of 4,243,000 shares of Common Stock, par
value $0.01 per share, of the Company (the "Common Stock"), including 4,000,000
shares to be sold by the Company and 243,000 shares to be sold by selling
shareholders named in the Registration Statement (the "Selling Shareholders")
to the underwriters named in the Registration Statement (the "Underwriters"),
for resale by them to the public, together with an additional 636,450 shares of
Common Stock subject to an over-allotment option granted to the Underwriters by
the Company.
As your counsel, and in connection with the preparation of the
Registration Statement, we have examined the originals or copies of such
documents, corporate records, certificates of public officials, officers of the
Company and other instruments relating to the authorization and issuance of the
Common Stock as we deemed relevant or necessary for the opinions herein
expressed. On the basis of the foregoing, it is our opinion that:
1. The shares of Common Stock to be issued and sold by the Company to the
Underwriters will be, upon issuance, sale and delivery in the manner and under
the terms and conditions described in the Registration Statement, validly
issued, fully paid and nonassessable.
2. The shares of Common Stock to be sold by the Selling Shareholders as
described in the Registration Statement are validly issued, fully paid and
nonassessable.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus constituting
a part thereof, and any amendments thereto.
Sincerely,
KILPATRICK & CODY
By:
Michael H. Trotter, a partner
<PAGE> 1
EXHIBIT 10.17
$25,000,000 REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
SUBURBAN LODGES OF AMERICA, INC.,
and
THE GUARANTORS PARTY HERETO
and
THE BANKS PARTY HERETO
and
PNC BANK, KENTUCKY, INC., As Agent
Dated as of September 26, 1996
PREPARED BY BUCHANAN INGERSOLL PROFESSIONAL CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
<S> <C>
1. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.1 Number; Inclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.2 Determination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.3 Agent's Discretion and Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.4 Documents Taken as a Whole. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.5 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.6 Implied References to this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.2.7 Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.2.8 Modifications to Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.2.9 From, To and Through. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.2.10 Shall; Will. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2. REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1 Revolving Credit Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 Nature of Banks' Obligations with Respect to Revolving Credit Loans. . . . . . . . . . . . . . . . . . . . 19
2.3 Commitment Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.4 Delinquent Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.5 Revolving Credit Loan Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.6 Making Revolving Credit Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7 Revolving Credit Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.8 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.9 Letter of Credit Subfacility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.9.1 Issuance of Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.9.2 Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.9.3 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.9.4 Disbursements, Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.9.5 Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.9.6 Determinations to Honor Drawing Requests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.9.7 Nature of Participation and Reimbursement Obligations. . . . . . . . . . . . . . . . . . . . . . 23
2.9.8 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.9.9 Liability for Acts and Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
2.10 Increase in Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10.1 Existing Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10.2 New Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10.3 Limitations on Increases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.11 Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3. COLLATERAL POOL PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1 Acceptance of Collateral Pool Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.1 Acceptance Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.2 Collateral Pool Addition Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 Release of Collateral Pool Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3 Borrowing Base Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3.1 Appraisals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3.2 Borrowing Base Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 Covenants Relating to the Collateral Pool and the Collateral Pool
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.1 Minimum Collateral Pool Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.2 Pro Forma Debt Service Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.3 Extended Stay Lodging Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.4 Insurance, Casualty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.5 Guest Leases; Tenant Leases; Major Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.6 Non-Disturbance Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.7 Management Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.8 Major Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.9 Annual Appraisals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.10 Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4. INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.1 Interest Rate Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.1.1 Revolving Credit Interest Rate Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.1.2 Rate Quotations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2 Interest Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2.1 Ending Date and Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2.2 Amount of Borrowing Tranche. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2.3 Termination Before Expiration Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.2.4 Renewals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2.5 Completion of Syndication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Interest After Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.1 Letter of Credit Fees, Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.2 Other Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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4.3.3 Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4 Euro-Rate Unascertainable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4.1 Unascertainable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4.2 Illegality; Increased Costs; Deposits Not Available. . . . . . . . . . . . . . . . . . . . . . . 34
4.4.3 Agent's and Bank's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5 Selection of Interest Rate Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Pro Rata Treatment of Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.3 Interest Payment Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.4 Voluntary Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.4.1 Right to Prepay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.4.2 Replacement of a Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.5 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.5.1 Borrowing Base Exceeded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6 Additional Compensation in Certain Circumstances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.6.1 Increased Costs or Reduced Return Resulting From Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . 38
5.6.2 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1.1 Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1.2 Capitalization and Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1.4 Power and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.1.5 Validity and Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.1.6 No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.1.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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6.1.8 Title to Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.1.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.1.10 Margin Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.1.11 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.1.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.1.13 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.1.14 No Event of Default; Compliance with Instruments. . . . . . . . . . . . . . . . . . . . . . . . 44
6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 44
6.1.16 Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.1.17 Mortgage Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.1.18 Status of the Pledged Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.1.19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.1.20 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.1.21 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.1.22 Investment Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.1.23 Plans and Benefit Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.1.24 Employment Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1.25 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.1.26 Senior Debt Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.2 Updates to Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1 First Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1.1 Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1.2 Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.1.3 Delivery of Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.1.4 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.1.5 Legal Details. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.1.6 Payment of Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.1.7 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1.8 Officer's Certificate Regarding MACs and Minimum
Market Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1.9 No Violation of Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1.10 No Actions or Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1.11 Collateral Pool Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1.12 Quarterly Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.2 Each Additional Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.1.1 Preservation of Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.1.2 Payment of Liabilities, Including Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.1.3 Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1.4 Maintenance of Properties and Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1.5 Maintenance of Patents, Trademarks, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1.6 Visitation Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.7 Keeping of Records and Books of Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.8 Plans and Benefit Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.9 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.10 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.1.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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8.1.12 Subordination of Intercompany Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.1.13 NASDAQ Listed Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.2 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.2.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.2.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.2.3 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.2.4 Loans and Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.2.5 Dividends and Related Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions. . . . . . . . . . . . . . . . . . . . . . . 58
8.2.7 Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2.8 Subsidiaries, Partnerships and Joint Ventures. . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2.9 Continuation of or Change in Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.2.10 Plans and Benefit Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.2.11 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2.12 Changes in Organizational Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2.13 Minimum Debt Service Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2.14 Maximum Consolidated Debt to Market Value Ratio. . . . . . . . . . . . . . . . . . . . . . . . 60
8.2.15 Maximum Floating Rate Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2.16 Minimum Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2.17 Geographical Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.2.18 Restrictions on Assets Under Development and Land. . . . . . . . . . . . . . . . . . . . . . . 61
8.3 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.3.1 Quarterly Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.3.2 Annual Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.3.3 Certificate of the Borrower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.3.4 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.3.5 Notice of Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.3.6 Budgets, Forecasts, Other Reports and Information. . . . . . . . . . . . . . . . . . . . . . . . 63
8.3.7 Notices Regarding Plans and Benefit Arrangements. . . . . . . . . . . . . . . . . . . . . . . . 63
8.3.7.1 Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.3.7.2 Notices of Involuntary Termination and Annual Reports. . . . . . . . . . . . . . . . . 64
8.3.7.3 Notice of Voluntary Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.1.1 Payments Under Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.1.2 Breach of Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.1.3 Breach of Negative Covenants or Visitation Rights. . . . . . . . . . . . . . . . . . . . . . . . 65
9.1.4 Breach of Other Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1.5 Defaults in Other Agreements or Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1.6 Final Judgments or Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1.7 Loan Document Unenforceable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
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9.1.8 Uninsured Losses; Proceedings Against Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1.9 Notice of Lien or Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.1.10 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.1.11 Events Relating to Plans and Benefit Arrangements. . . . . . . . . . . . . . . . . . . . . . . 67
9.1.12 Cessation of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.1.13 Change of Ownership or Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.1.14 Involuntary Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.1.15 Voluntary Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.2 Consequences of Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings. . . . . . . . 69
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings. . . . . . . . . . . . . . . . . . . . . . 69
9.2.3 Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.2.4 Suits, Actions, Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.2.5 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.2.6 Other Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.3 Notice of Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.3 Nature of Duties; Independent Credit Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.4 Actions in Discretion of Agent; Instructions from the Banks. . . . . . . . . . . . . . . . . . . . . . . 72
10.5 Reimbursement and Indemnification of Agent by the Borrower. . . . . . . . . . . . . . . . . . . . . . . . 72
10.6 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.7 Reimbursement and Indemnification of Agent by Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.8 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.9 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.11 Banks in Their Individual Capacities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.12 Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.13 Equalization of Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.14 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.15 Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.16 Availability of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.17 Calculations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
10.18 Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.1 Modifications, Amendments or Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.1.1 Increase of Commitment; Extension or Expiration Date. . . . . . . . . . . . . . . . . . . . . . 77
11.1.2 Extension of Payment; Reduction of Principal Interest or
Fees; Modification of Terms of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.1.3 Release of Collateral or Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.1.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.2 No Implied Waivers; Cumulative Remedies; Writing Required. . . . . . . . . . . . . . . . . . . . . . . . 78
11.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes. . . . . . . . . . . . . . . . . . . . 79
11.4 Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.5 Funding by Branch, Subsidiary or Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.5.1 Notional Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.5.2 Actual Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.9 Prior Understanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.10 Duration; Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.11 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.12 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.14 Agent's or Bank's Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.15 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.17 Tax Withholding Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.18 Joinder of Guarantors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.19 LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
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<PAGE> 9
LIST OF SCHEDULES AND EXHIBITS
SCHEDULE
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS
SCHEDULE 1.1(C) - COLLATERAL POOL PROPERTIES
SCHEDULE 1.1(R)(1) - LIST OF REAL ESTATE COLLATERAL DOCUMENTS
SCHEDULE 3.4.4 - INSURANCE REQUIREMENTS FOR COLLATERAL POOL
PROPERTIES
SCHEDULE 3.4.7 - MANAGEMENT AGREEMENTS
SCHEDULE 6.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 6.1.2 - MANAGEMENT SHAREHOLDERS; OPTIONS, WARRANTS
OR OTHER PURCHASE RIGHTS
SCHEDULE 6.1.3 - SUBSIDIARIES
SCHEDULE 6.1.8 - OWNED AND LEASED REAL PROPERTY
SCHEDULE 6.1.13 - CONSENTS AND APPROVALS
SCHEDULE 6.1.15 - PATENTS, TRADEMARKS, COPYRIGHTS,
LICENSES, ETC.
SCHEDULE 6.1.18 - PARTNERSHIP AGREEMENTS
SCHEDULE 6.1.19 - INSURANCE POLICIES
SCHEDULE 6.1.21 - MATERIAL CONTRACTS
SCHEDULE 6.1.23 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 6.1.25 - ENVIRONMENTAL DISCLOSURES
EXHIBITS
EXHIBIT 1.1(A) - FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G) - FORM OF GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.1(I) - FORM OF INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(J) - FORM OF JOINDER
EXHIBIT 1.1(N) - FORM OF REVOLVING CREDIT NOTE
EXHIBIT 1.1(P) - FORM OF PLEDGE AGREEMENT
EXHIBIT 1.1(R) - FORM OF REAL ESTATE COLLATERAL DOCUMENTS
EXHIBIT 1.1(S) - FORM OF SECURITY AGREEMENT
EXHIBIT 2.5 - FORM OF LOAN REQUEST
EXHIBIT 7.1.4(i) - REQUIREMENTS OF OPINION OF COUNSEL
EXHIBIT 8.3.3 - FORM OF COMPLIANCE CERTIFICATE
- viii -
<PAGE> 10
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of September 26, 1996 and is
made by and among SUBURBAN LODGES OF AMERICA, INC., a Georgia corporation (the
"Borrower"), each of the GUARANTORS (as hereinafter defined), the BANKS (as
hereinafter defined), and PNC BANK, KENTUCKY, INC., in its capacity as agent
for the Banks under this Agreement (hereinafter referred to in such capacity as
the "Agent").
WITNESSETH:
WHEREAS, the Borrower has requested the Banks to provide a
revolving credit facility to the Borrower in an aggregate principal amount not
to exceed $25,000,000; and
WHEREAS, the revolving credit facility shall be used for
general corporate purposes, including without limitation the acquisition,
construction and renovation of extended stay lodging facilities and related
equity investments; and
WHEREAS, the Banks are willing to provide such credit upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1.CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this
Agreement, the following words and terms shall have the following meanings,
respectively, unless the context hereof clearly requires otherwise:
Affiliate as to any Person shall mean any other
Person (i) which directly or indirectly controls, is controlled by, or is under
common control with such Person, (ii) which beneficially owns or holds 5% or
more of any class of the voting or other equity interests of such Person, or
(iii) 5% or more of any class of voting interests or other equity interests of
which is beneficially owned or held, directly or indirectly, by such Person.
Control, as used in this definition, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting
<PAGE> 11
securities, by contract or otherwise, including the power to elect a majority
of the directors or trustees of a corporation or trust, as the case may be.
Agent shall mean PNC Bank, Kentucky, Inc., and its
successors and assigns.
Agent's Fee shall have the meaning assigned to that
term in Section 10.15.
Agreement shall mean this Credit Agreement, as the
same may be supplemented, amended, restated or otherwise modified from time to
time, including all schedules and exhibits.
Annual Statements shall have the meaning assigned to
that term in Section 6.1.9(i).
Appraisal shall mean an appraisal commissioned by and
acceptable to the Agent and in compliance with the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended and the regulations
promulgated thereunder, and with the Uniform Standards of Professional
Appraisal Practice.
As Is Value shall mean, other than as set forth
herein, the value set forth in the most recent Appraisal of a Collateral Pool
Property.
Assets Under Development shall mean all real estate
which any Loan Party, directly or indirectly, owns or leases on which the
construction of building improvements has been commenced but which is not yet
completed and generating income.
Assignment and Assumption Agreement shall mean an
Assignment and Assumption Agreement by and among a Purchasing Bank, the
Transferor Bank and the Agent, as Agent and on behalf of the remaining Banks,
substantially in the form of Exhibit 1.1(A).
Authorized Officer shall mean those individuals,
designated by written notice to the Agent from the Borrower, authorized to
execute notices, reports and other documents on behalf of the Loan Parties
required hereunder. The Borrower may amend such list of individuals from time
to time by giving written notice of such amendment to the Agent.
Banks shall mean the financial institutions named on
Schedule 1.1(B) and their respective successors and assigns as permitted
hereunder, each of which is referred to herein as a Bank.
Base Net Worth shall mean the sum of $30,000,000 plus
80% of the proceeds received by the Borrower from any offering or placement of
any equity securities of the
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<PAGE> 12
Borrower after the Closing Date, net of reasonable and customary expenses in
connection with such offering or placement.
Base Rate shall mean the greater of (i) the interest
rate per annum announced from time to time by the Agent at its Principal Office
as its then prime rate, which rate may not be the lowest rate then being
charged commercial borrowers by the Agent, or (ii) the Federal Funds Effective
Rate plus 1/2% per annum.
Base Rate Option shall mean the option of the
Borrower to have Revolving Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 4.1.1(i).
Benefit Arrangement shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or
otherwise contributed to by any member of the ERISA Group.
Borrower shall mean Suburban Lodges of America, Inc.,
a corporation organized and existing under the laws of the State of Georgia.
Borrowing Base shall be determined based on the most
recent certificate of the Borrower delivered pursuant to Section 8.3.3 and
shall mean the lesser of (i) 45% of the aggregate of the As Is Value of each
Collateral Pool Property or (ii) such amount that will allow the Borrower to
comply with the Pro Forma Debt Service Coverage Ratio set forth in Section
3.4.2.
Borrowing Date shall mean, with respect to any Loan,
the date for the making thereof or the renewal or conversion thereof to the
same or a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of
Loans outstanding as follows: (i) any Loans to which a Euro-Rate Option applies
which become subject to the same Interest Rate Option under the Loan Request by
the Borrower and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
Business Day shall mean any day other than a Saturday
or Sunday or a legal holiday on which commercial banks are authorized or
required to be closed for business in Louisville, Kentucky.
Closing Date shall mean September 26, 1996.
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<PAGE> 13
Collateral shall mean the Pledged Collateral, the
Real Estate Collateral, the UCC Collateral and all other property of the
Borrower on which liens and security interests have been granted to the Agent
for the benefit of the Banks to secure the Loans.
Collateral Pool shall mean, at any time, the
Properties which the Borrower has proposed as the Collateral Pool Properties
and have been included pursuant to Section 3.1 and which have not been released
pursuant to Section 3.2. The Collateral Pool Properties shall be set forth on
Schedule 1.1(C), as amended, restated, modified or otherwise supplemented from
time to time in accordance herewith.
Collateral Pool Property shall mean an income
producing real estate property which is included in the Collateral Pool and
Collateral Pool Properties shall mean more than one Collateral Pool Property.
Collateral Pool Value shall mean the aggregate of the
As Is Value for each Collateral Pool Property. For purposes of determining
Collateral Pool Value, the Appraisal with respect to a Collateral Pool Property
may be the annual Appraisal, the Appraisal performed for the inclusion of the
Property in the Collateral Pool, or an Appraisal requested by the Borrower or
the Agent, whichever is most recent.
Commitment Fee shall have the meaning assigned to
that term in Section 2.3.
Consolidated Debt shall mean all Indebtedness of the
Borrower and its consolidated Subsidiaries.
Consolidated Debt Service shall mean for any period
of determination the sum of scheduled principal installments on Indebtedness
(as adjusted for prepayments), plus interest incurred (both capitalized and
expensed, but excluding capitalized interest financed by an interest reserve
funded by Indebtedness), in each case of the Borrower and its Subsidiaries for
such period determined and consolidated in accordance with GAAP, together with
100% of any interest incurred (both capitalized and expensed) with respect to
any obligation for which the Borrower is liable, in whole or in part, under a
Guaranty or similar obligation of an unconsolidated Affiliate.
Consolidated EBITDA for any period of determination
shall mean (i) the sum of net income, depreciation, amortization, other
non-cash charges to net income, interest expense and income tax expense minus
(ii) non-cash credits to net income and any gains (and plus any losses) from
extraordinary items and assets sales, in each case of the Borrower and its
Subsidiaries for such period determined and consolidated in accordance with
GAAP.
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<PAGE> 14
Consolidated Tangible Net Worth shall mean as of any
date of determination total stockholders' equity less intangible assets of the
Borrower and its Subsidiaries as of such date determined and consolidated in
accordance with GAAP.
Construction Project shall have the meaning assigned
to that term in Section 3.4.8.
Debt Service Coverage Ratio shall mean the ratio of
Consolidated EBITDA to Consolidated Debt Service.
Delinquent Bank shall have the meaning assigned to
that term in Section 2.4.
Dollar, Dollars, U.S. Dollars and the symbol $ shall
mean lawful money of the United States of America.
Environmental Complaint shall mean any written
complaint setting forth a cause of action for personal or property damage or
natural resource damage or equitable relief, order, notice of violation,
citation, request for information issued pursuant to any Environmental Laws by
an Official Body, subpoena or other written notice of any type relating to,
arising out of, or issued pursuant to any of the Environmental Laws or any
Environmental Conditions, as the case may be.
Environmental Conditions shall mean any conditions of
the environment, including the workplace, the ocean, natural resources
(including flora or fauna), soil, surface water, groundwater, any actual or
potential drinking water supply sources, substrata or the ambient air, relating
to or arising out of, or caused by the use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal, dumping,
threatened release or other management or mismanagement of Regulated Substances
resulting from the use of, or operations on, the Property.
Environmental Laws shall mean all federal, state,
local and foreign Laws and regulations, including permits, licenses,
authorizations, bonds, orders, judgments, consent decrees issued, or entered
into, pursuant thereto, relating to pollution or protection of human health or
the environment or employee safety in the workplace.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and
all members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under
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<PAGE> 15
common control and all other entities which, together with the Borrower, are
treated as a single employer under Section 414 of the Internal Revenue Code.
Euro-Rate shall mean with respect to the Loans
comprising any Borrowing Tranche to which the Euro-Rate Option applies for any
Interest Period, the interest rate per annum determined by the Agent by
dividing (the resulting quotient rounded upward to the nearest 1/100 of 1% per
annum) (i) the rate of interest determined by the Agent in accordance with its
usual procedures (which determination shall be conclusive absent manifest
error) to be the "ask" eurodollar rate evidenced by Telerate page 314 as quoted
by Noonan, Astley & Pierce (or appropriate successor or, if Noonan, Astley &
Pierce or its successor ceases to provide such quotes, a comparable replacement
as determined by the Agent) two (2) Business Days prior to the first day of
such Interest Period for an amount comparable to such Borrowing Tranche and
having a borrowing date and a maturity comparable to such Interest Period by
(ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The
Euro-Rate may also be expressed by the following formula:
Telerate page 314 Quoted by Noonan,
Euro-Rate = Astley & Pierce or appropriate successor
----------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option
outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
Euro-Rate Option shall mean the option of the
Borrower to have Revolving Credit Loans bear interest at the rate and under the
terms and conditions set forth in Section 4.1.1(ii).
Euro-Rate Reserve Percentage shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%)
as determined by the Agent which is in effect during any relevant period, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of a member bank
in such System.
Event of Default shall mean any of the Events of Default described in Section
9.1.
Expiration Date shall mean, with respect to the
Revolving Credit Commitment, September 25, 1998.
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<PAGE> 16
Federal Funds Effective Rate for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed and
rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve
Bank of New York (or any successor) on such day as being the weighted average
of the rates on overnight federal funds transactions arranged by federal funds
brokers on the previous trading day, as computed and announced by such Federal
Reserve Bank (or any successor) in substantially the same manner as such
Federal Reserve Bank computes and announces the weighted average it refers to
as the "Federal Funds Effective Rate" as of the date of this Agreement;
provided, if such Federal Reserve Bank (or its successor) does not announce
such rate on any day, the "Federal Funds Effective Rate" for such day shall be
the Federal Funds Effective Rate for the last day of which such rate was
announced.
Financial Projections shall have the meaning assigned
to that term in Section 6.1.9(ii).
Floating Rate Debt shall mean any outstanding
Consolidated Debt which bears interest at a rate which is subject to periodic
adjustment (either automatically or by reference to a fluctuating base or
market rate or at the option of the lender) at any time.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the provisions of
Section 1.3, and applied on a consistent basis both as to classification of
items and amounts.
Governmental Acts shall have the meaning assigned to
that term in Section 2.9.8.
Guarantor shall mean each of the parties to this
Agreement which is designated as a "Guarantor" on the signature page hereof and
each other Person which joins this Agreement as a Guarantor after the date
hereof pursuant to Section 11.18.
Guaranty of any Person shall mean any obligation of
such Person guaranteeing or in effect guaranteeing any liability or obligation
of any other Person in any manner, whether directly or indirectly, including
any agreement to indemnify or hold harmless any other Person, any performance
bond or other suretyship arrangement and any other form of assurance against
loss, except endorsement of negotiable or other instruments for deposit or
collection in the ordinary course of business.
Guaranty Agreement shall mean the Guaranty and
Suretyship Agreement in substantially the form of Exhibit 1.1(G) executed and
delivered by each Guarantor to the Agent for the benefit of the Banks.
Guest Leases shall mean agreements entered into in
the ordinary course of business between a Loan Party and a third-party guest
for extended-stay lodging accommodations.
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<PAGE> 17
Historical Statements shall have the meaning assigned
to that term in Section 6.1.9(i).
Indebtedness shall mean, as to any Person at any
time, any and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such Person for or in respect of: (i)
borrowed money, (ii) amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility, (iii) reimbursement obligations under
any letter of credit, currency swap agreement, interest rate swap, cap, collar
or floor agreement or other interest rate management device, (iv) any other
transaction (including forward sale or purchase agreements, capitalized leases
and conditional sales agreements) having the commercial effect of a borrowing
of money entered into by such Person to finance its operations or capital
requirements (but not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a promissory note
or similar evidence of indebtedness), or (v) any Guaranty of Indebtedness for
borrowed money.
Intercompany Subordination Agreement shall mean a
Subordination Agreement among the Loan Parties in the form attached hereto as
Exhibit 1.1(I).
Interest Payment Date shall mean each date specified
for the payment of interest in Section 5.3.
Interest Period shall have the meaning assigned to
such term in Section 4.2.
Interest Rate Option shall mean any Euro-Rate Option
or Base Rate Option.
Interim Statements shall have the meaning assigned to
that term in Section 6.1.9(i).
Internal Revenue Code shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to time, and
any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
Joinder shall mean a joinder by a Person as a
Guarantor, a Company and a Grantor, as the case may be, under this Agreement,
the Guaranty Agreement, the Intercompany Subordination Agreement, the Security
Agreement and the other Loan Documents in the form of Exhibit 1.1(J).
Labor Contracts shall mean all employment agreements,
employment contracts, collective bargaining agreements and other agreements
among any Loan Party or Subsidiary of a Loan Party and its employees.
-8-
<PAGE> 18
Land shall mean all unimproved real estate which any
Loan Party, directly or indirectly, owns or leases.
Law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion, release,
ruling, order, injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to
that term in Section 2.9.1.
Letter of Credit Fee shall have the meaning assigned
to that term in Section 2.9.3.
Letter of Credit Outstandings shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Letters of
Credit and (ii) the aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
Lien shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security arrangement of
any nature whatsoever, whether voluntarily or involuntarily given, including
any conditional sale or title retention arrangement, and any assignment,
deposit arrangement or lease intended as, or having the effect of, security and
any filed financing statement or other notice of any of the foregoing (whether
or not a lien or other encumbrance is created or exists at the time of the
filing).
Loan Documents shall mean this Agreement, the
Revolving Credit Notes, the Real Estate Collateral Documents, the Guaranty
Agreement, the Intercompany Subordination Agreement, the Pledge Agreement and
any other instruments, certificates or documents delivered or contemplated to
be delivered hereunder or thereunder or in connection herewith or therewith, as
the same may be supplemented or amended from time to time in accordance
herewith or therewith, and Loan Document shall mean any of the Loan Documents.
Loan Parties shall mean the Borrower and the
Guarantors.
Loan Request shall mean a request for Revolving
Credit Loans made in accordance with Section 2.5 or a request to select,
convert to or renew a Euro-Rate Option in accordance with Section 4.2.
Loans or Revolving Credit Loans shall mean
collectively and Loan or Revolving Credit Loan shall mean separately all
revolving credit loans or any revolving credit loan made by the Banks or one of
the Banks to the Borrower pursuant to Section 2.1 hereof.
Major Agreements shall mean, at any time, (a) each
Tenant Lease, (b) each cross-easement, restriction or similar agreement
encumbering or affecting a Collateral Pool
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<PAGE> 19
Property and any adjoining property, (c) each management agreement with respect
to a Collateral Pool Property, (d) each ground lease affecting a Collateral
Pool Property, and (e) any other agreement, contract, indenture or other
document or instrument material to the operation, management and/or maintenance
of a Collateral Pool Property or to the security afforded thereby; provided
that any lease for laundry facilities that is terminable by the Loan Party
which is a party thereto upon no more than thirty (30) days' notice shall not
be included as a Major Agreement.
Market Capitalization shall mean, as of any date of
determination, the product of the number of issued and outstanding shares of
common stock of the Borrower and the market price per share.
Market Value shall mean Consolidated Debt plus Market
Capitalization.
Material Adverse Change shall mean any set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Loan Parties taken as a whole to duly and
punctually pay or perform its Indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of the Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
Modified Base Rate shall have the meaning assigned to
that term in Section 4.3.2.
Month, with respect to an Interest Period under the
Euro-Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any Euro-Rate Interest Period begins on a day of a calendar month
for which there is no numerically corresponding day in the month in which such
Interest Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
Multiemployer Plan shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA and to which the Borrower or any member of the ERISA Group is then
making or accruing an obligation to make contributions or, within the preceding
five Plan years, has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has
two or more contributing sponsors (including the Borrower or any member of the
ERISA Group) at least two
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of whom are not under common control, as such a plan is described in Sections
4063 and 4064 of ERISA.
Net Operating Income shall mean, as of any date of
determination, the sum of the net operating income for each Collateral Pool
Property determined in accordance with GAAP for the fiscal quarter of the
Borrower then ending multiplied by four (4), minus a capital reserve
requirement in an amount equal to three percent (3%) of the foregoing sum.
Non-Disturbance Agreement shall have the meaning
assigned to that term in Section 3.4.6.
Notes or Revolving Credit Notes shall mean
collectively and Note or Revolving Credit Note shall mean separately all the
revolving credit notes of the Borrower in the form of Exhibit 1.1(N) evidencing
the Revolving Credit Loans together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in part.
Notices shall have the meaning assigned to that term
in Section 11.6.
Obligation shall mean any obligation or liability of
any of the Loan Parties to the Agent or any of the Banks, howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, now
or hereafter existing, or due or to become due, under or in connection with
this Agreement, the Revolving Credit Notes, the Letters of Credit or any other
Loan Document.
Official Body shall mean any national, federal,
state, local or other government or political subdivision or any agency,
authority, bureau, central bank, commission, department or instrumentality of
either, or any court, tribunal, grand jury or arbitrator, in each case whether
foreign or domestic.
Partnership Interests shall have the meaning given to
such term in Section 6.1.3.
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or any
successor.
Permitted Investments shall mean:
(i) direct obligations of the United
States of America or any agency or instrumentality thereof or obligations
backed by the full faith and credit of the United States of America maturing in
twelve (12) months or less from the date of acquisition;
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(ii) commercial paper maturing in 180
days or less rated not lower than A-1, by Standard & Poor's Corporation or P-1
by Moody's Investors Service, Inc. on the date of acquisition; and
(iii) demand deposits, time deposits or
certificates of deposit maturing within one year in commercial banks whose
obligations are rated A-1, A or the equivalent or better by Standard & Poor's
Corporation on the date of acquisition.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or
similar charges, incurred in the ordinary course of business and which are not
yet due and payable;
(ii) Pledges or deposits made in the
ordinary course of business to secure payment of workmen's compensation, or to
participate in any fund in connection with workmen's compensation, unemployment
insurance, old-age pensions or other social security programs;
(iii) Liens of mechanics, materialmen,
warehousemen, carriers, or other like Liens, securing obligations incurred in
the ordinary course of business that are not yet due and payable and Liens of
landlords securing obligations to pay lease payments that are not yet due and
payable or in default;
(iv) Good-faith pledges or deposits made
in the ordinary course of business to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, not in
excess of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v) Encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real property, none
of which materially impairs the use of such property or the value thereof, and
none of which is violated in any material respect by existing or proposed
structures or land use;
(vi) Liens, security interests and
mortgages in favor of the Agent for the benefit of the Banks;
(vii) Liens on property of any Loan Party
or Subsidiary of any Loan Party permitted in Section 8.2.1(ii) securing
Indebtedness permitted under such section;
(viii) The following, (A) if the validity
or amount thereof is being contested in good-faith by appropriate and lawful
proceedings diligently conducted so long as levy and execution thereon have
been stayed and continue to be stayed or (B) if a final judgment
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is entered and such judgment is discharged within thirty (30) days of entry,
and in either case they do not affect the Collateral or, in the aggregate,
materially impair the ability of any Loan Party to perform its Obligations
hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or
charges due and payable and subject to interest or penalty,
provided that the Loan Party maintains such reserves or other
appropriate provisions as shall be required by GAAP and pays
all such taxes, assessments or charges forthwith upon the
commencement of proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and
defects of title to, real or personal property other than the
Collateral, including any attachment of personal or real
property or other legal process prior to adjudication of a
dispute on the merits; or
(3) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual
Liens.
Person shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture, government or political subdivision or agency
thereof, or any other entity.
Plan shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either (i) is
maintained by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five years been
maintained by any entity which was at such time a member of the ERISA Group for
employees of any entity which was at such time a member of the ERISA Group.
Pledge Agreement shall mean the Pledge Agreement in
substantially the form of Exhibit 1.1(P) executed and delivered by the Borrower
to the Agent for the benefit of the Banks.
Pledged Collateral shall mean the property of the
Borrower in which security interests are to be granted under the Pledge
Agreement.
PNC shall mean PNC Bank, Kentucky, Inc., its
successors and assigns.
Potential Default shall mean any event or condition
which with notice, passage of time or a determination by the Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
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Principal Office shall mean the main banking office
of the Agent in Louisville, Kentucky.
Prior Security Interest shall mean a valid and
enforceable perfected first-priority security interest under the Uniform
Commercial Code in the UCC Collateral and the Pledged Collateral which is
subject only to Liens for taxes not yet due and payable to the extent such
prospective tax payments are given priority by statute or Purchase Money
Security Interests as permitted hereunder.
Pro Forma Debt Service shall mean, as of any date of
determination, the annual amount, assuming equal monthly payments, required to
amortize fully over a 20-year period the then-outstanding principal of the
Loans at an assumed interest rate of 2.00% over the yield to maturity for U.S.
Treasury obligations with a maturity on the date closest to 10 years from such
date.
Pro Forma Debt Service Coverage Ratio shall mean the
ratio of Net Operating Income to Pro Forma Debt Service.
Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA for which neither an individual nor a class exemption has been
issued by the United States Department of Labor.
Property shall mean all real property, both owned and
leased, of any the Borrower or Subsidiary of the Borrower.
Property Release shall have the meaning assigned to
that term in Section 3.2.
Purchase Money Security Interest shall mean Liens
upon tangible personal property securing loans to the Borrower or any
Subsidiary of the Borrower or deferred payments by the Borrower or any
Subsidiary of the Borrower for the purchase of such tangible personal property.
Purchasing Bank shall mean a Bank which becomes a
party to this Agreement by executing an Assignment and Assumption Agreement.
Ratable Share shall mean the proportion that a Bank's
Commitment bears to the Commitments of all of the Banks.
Real Estate Collateral shall mean one or more
Properties owned by a Loan Party which shall be encumbered by the Real Estate
Collateral Documents.
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Real Estate Collateral Documents shall mean mortgages
or deeds of trust and assignments of leases, rents, other income and contracts,
indemnity agreements and the other collateral documents listed on Schedule
1.1(R) hereto each in substantially the form set forth in Exhibit 1.1(R) hereto
and such other collateral documents as the Agent may request, all in form and
substance satisfactory in all respects to the Agent with respect to the Real
Estate Collateral, executed and delivered by a Loan Party to the Agent for the
benefit of the Banks.
Regulated Substances shall mean any substance,
including any solid, liquid, semisolid, gaseous, thermal, thoriated or
radioactive material, refuse, garbage, wastes, chemicals, petroleum products,
by-products, coproducts, impurities, dust, scrap, heavy metals, any substance
defined as a "hazardous substance," "pollutant," "pollution," "contaminant,"
"hazardous or toxic substance," "extremely hazardous substance," "toxic
chemical," "toxic waste," "hazardous waste," "industrial waste," "residual
waste," "solid waste," "municipal waste," "mixed waste," "infectious waste,"
"chemotherapeutic waste," "medical waste," "regulated substance" or any related
materials, substances or wastes as now or hereafter defined pursuant to any
Environmental Laws, ordinances, rules, regulations or other directives of any
Official Body, the generation, manufacture, extraction, processing,
distribution, treatment, storage, disposal, transport, recycling, reclamation,
use, reuse, spilling, leaking, dumping, injection, pumping, leaching, emptying,
discharge, escape, release or other management or mismanagement of which is
regulated by the Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time.
Reimbursement Obligation shall have the meaning
assigned to such term in Section 2.9.4(i).
Reportable Event means a reportable event described
in Section 4043 of ERISA and regulations thereunder with respect to a Plan or
Multiemployer Plan.
Requested Increase shall have the meaning assigned to
such term in Section 2.11(a).
Required Advance shall have the meaning assigned to
such term in Section 2.2.
Required Banks shall mean at any time when there are
less than three (3) Banks party to this Agreement, all of the Banks and, at any
time when there are three (3) or more Banks party to this Agreement (i) if
there are no Loans outstanding, Banks whose Commitments aggregate at least
66-2/3% of the Commitments of all of the Banks, or (ii) if there are Loans
outstanding, Banks whose Loans outstanding aggregate at least 66-2/3% of the
total principal amount of the Loans outstanding hereunder.
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Revolving Credit Commitment or Commitment shall mean,
as to any Bank at any time, the amount initially set forth opposite its name on
Schedule 1.1(B) in the column labeled "Amount of Commitment for Revolving
Credit Loans," and thereafter on Schedule I to the most recent Assignment and
Assumption Agreement, and Revolving Credit Commitments or Commitments shall
mean the aggregate Revolving Credit Commitments of all of the Banks.
Revolving Facility Usage shall mean at any time the
sum of the Revolving Credit Loans outstanding and the Letter of Credit
Outstandings.
Security Agreement shall mean the Security Agreement
in substantially the form of Exhibit 1.1(S) executed and delivered by each of
the Loan Parties to the Agent for the benefit of the Banks.
Shares shall have the meaning assigned to that term
in Section 6.1.2.
Subsidiary of any Person at any time shall mean (i)
any corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's Subsidiaries, or any partnership of which such Person is
a general partner or of which 50% or more of the partnership interests is at
the time directly or indirectly owned by such Person or one or more of such
Person's Subsidiaries, or (ii) any corporation, trust, partnership or other
entity which is controlled or capable of being controlled by such Person or one
or more of such Person's Subsidiaries.
Subsidiary Shares shall have the meaning assigned to
that term in Section 6.1.3.
Tenant Lease shall mean any tenant lease of a
Collateral Pool Property other than any Guest Lease or any lease for laundry
facilities that is terminable by the Loan Party which is a party thereto upon
no more than thirty (30) days' notice.
Transferor Bank shall mean the selling Bank pursuant
to an Assignment and Assumption Agreement.
UCC Collateral shall mean the personal property of
the Loan Parties in which security interests are granted to the Banks under the
Security Agreement and the Real Estate Collateral Documents.
Uniform Commercial Code shall have the meaning
assigned to that term in Section 6.1.16.
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1.2 Construction.
Unless the context of this Agreement otherwise clearly
requires, the following rules of construction shall apply to this Agreement and
each of the other Loan Documents:
1.2.1 Number; Inclusion.
references to the plural include the singular, the
plural, the part and the whole; "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the phrase
"including without limitation";
1.2.2 Determination.
references to "determination" of or by the Agent or
the Banks shall be deemed to include good-faith estimates by the Agent or the
Banks (in the case of quantitative determinations) and good-faith beliefs by
the Agent or the Banks (in the case of qualitative determinations) and such
determination shall be conclusive absent manifest error;
1.2.3 Agent's Discretion and Consent.
whenever the Agent or the Banks are granted the right
herein to act in its or their sole discretion or to grant or withhold consent
such right shall be exercised in good-faith;
1.2.4 Documents Taken as a Whole.
the words "hereof," "herein," "hereunder," "hereto"
and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
1.2.5 Headings.
the section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents (if any),
preceding this Agreement or such other Loan Document are for reference purposes
only and shall not control or affect the construction of this Agreement or such
other Loan Document or the interpretation thereof in any respect;
1.2.6 Implied References to this Agreement.
article, section, subsection, clause, schedule and
exhibit references are to this Agreement or other Loan Document, as the case
may be, unless otherwise specified;
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1.2.7 Persons.
reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and assigns
are permitted by this Agreement or other Loan Document, as the case may be, and
reference to a Person in a particular capacity excludes such Person in any
other capacity;
1.2.8 Modifications to Documents.
reference to any agreement (including this Agreement
and any other Loan Document together with the schedules and exhibits hereto or
thereto), document or instrument means such agreement, document or instrument
as amended, modified, replaced, substituted for, superseded or restated;
1.2.9 From, To and Through.
relative to the determination of any period of time,
"from" means "from and including," "to" means "to but excluding," and "through"
means "through and including"; and
1.2.10 Shall; Will.
references to "shall" and "will" are intended to have
the same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate), and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP.
2. REVOLVING CREDIT FACILITY
2.1 Revolving Credit Commitments.
Subject to the terms and conditions hereof and relying upon
the representations and warranties herein set forth, each Bank severally agrees
to make Revolving Credit Loans to the Borrower at any time or from time to time
on or after the date hereof to the Expiration Date provided, that, after giving
effect to such Revolving Credit Loans (i) the aggregate principal amount of
each Bank's Revolving Credit Loans outstanding hereunder shall not exceed at
any one time such Bank's Revolving Credit Commitment minus such Bank's Ratable
Share of the Letter of Credit Outstandings and (ii) the Revolving Facility
Usage hereunder shall not exceed
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the Borrowing Base. Within such limits of time and amount and subject to the
other provisions of this Agreement, the Borrower may borrow, repay and reborrow
pursuant to this Section 2.1.
2.2 Nature of Banks' Obligations with Respect to
Revolving Credit Loans.
Each Bank shall be obligated to participate in each request
for Revolving Credit Loans pursuant to Section 2.5 in accordance with its
Ratable Share (a "Required Advance"). The aggregate of each Bank's Revolving
Credit Loans outstanding hereunder to the Borrower at any time shall never
exceed its Revolving Credit Commitment minus its Ratable Share of the Letter of
Credit Outstandings. The obligations of each Bank hereunder are several. The
failure of any Bank to perform its obligations hereunder shall not affect the
Obligations of the Borrower to any other party nor shall any other party be
liable for the failure of such Bank to perform its obligations hereunder. The
Banks shall have no obligation to make Revolving Credit Loans hereunder on or
after the Expiration Date.
2.3 Commitment Fees.
Accruing from the date hereof until the Expiration Date, the
Borrower agrees to pay to the Agent for the account of each Bank, as
consideration for such Bank's Revolving Credit Commitment hereunder, a
nonrefundable commitment fee (the "Commitment Fee") equal to 1/8% per annum
from the Closing Date through December 31, 1996 and 1/4% per annum after
December 31, 1996 (in each case computed on the basis of a year of 360 days and
actual days elapsed) on the average daily difference between the amount of such
Bank's Revolving Credit Commitment as the same may be constituted from time to
time and the Revolving Facility Usage. All Commitment Fees shall be payable in
arrears on the first Business Day of each calendar quarter after the date
hereof and on the Expiration Date or upon acceleration of the Notes.
2.4 Delinquent Bank.
No Bank that has failed to make any Required Advance or other
payment due from such Bank to the Agent in accordance with the provisions of
this Agreement within three (3) Business Days after receiving notice that such
Required Advance or other payment is due (a "Delinquent Bank") shall be
entitled to (a) its Ratable Share of any payment received by the Agent until
all Obligations owed to the non-delinquent Banks have been satisfied in full;
(b) the proceeds of any Collateral until all Obligations owed to the
non-delinquent Banks have been satisfied in full; or (c) give or deny any
approval or consent to be given by the Banks hereunder, and such delinquent
Bank's Commitment shall be deducted from the aggregate amount of the Loan for
purposes of determining whether the Banks' or the Required Banks' approval or
consent has been obtained. Upon the cure by any Delinquent Bank of all defaults
which it may have committed under this Agreement, such Bank shall no longer be
deemed a Delinquent Bank, except that such Bank shall not be entitled, at any
time thereafter, to vote its Commitment with
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respect to any matter requiring the approval or consent of the Required Banks,
unless the Required Banks otherwise agree.
2.5 Revolving Credit Loan Requests.
Except as otherwise provided herein, the Borrower may from
time to time prior to the Expiration Date request the Banks to make Revolving
Credit Loans, or renew or convert the Interest Rate Option applicable to
existing Revolving Credit Loans pursuant to Section 4.2, by delivering to the
Agent, not later than 10:00 a.m., Louisville time, (i) three (3) Business Days
prior to the proposed Borrowing Date with respect to the making of Revolving
Credit Loans to which the Euro-Rate Option applies or the conversion to or the
renewal of the Euro-Rate Option for any Revolving Credit Loans; and (ii) one
(1) Business Day prior to either the proposed Borrowing Date with respect to
the making of a Revolving Credit Loan to which the Base Rate Option applies or
the last day of the preceding Interest Period with respect to the conversion to
the Base Rate Option for any Revolving Credit Loan, of a duly completed request
therefor substantially in the form of Exhibit 2.5 or a request by telephone
immediately confirmed in writing by letter, facsimile or telex in such form
(each, a "Loan Request"), it being understood that the Agent may rely on the
authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Revolving Credit Loan
Request shall be irrevocable and shall specify (i) the proposed Borrowing Date;
(ii) the aggregate amount of the proposed Revolving Credit Loans comprising
each Borrowing Tranche, which shall be in integral multiples of $100,000 and
not less than $1,000,000 for each Borrowing Tranche to which the Euro-Rate
Option applies and not less than the lesser of $100,000 or the maximum amount
available for Borrowing Tranches to which the Base Rate Option applies; (iii)
whether the Euro-Rate Option or Base Rate Option shall apply to the proposed
Revolving Credit Loans comprising the Borrowing Tranche; and (iv) in the case
of a Borrowing Tranche to which the Euro-Rate Option applies, an appropriate
Interest Period for the proposed Revolving Credit Loans comprising such
Borrowing Tranche.
2.6 Making Revolving Credit Loans.
The Agent shall, promptly after receipt by it of a Loan
Request pursuant to Section 2.5, notify the Banks of its receipt of such Loan
Request specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of such Revolving Credit Loans; (ii) the amount and type of each
such Revolving Credit Loan and the applicable Interest Period (if any); and
(iii) the apportionment among the Banks of the Revolving Credit Loans as
determined by the Agent in accordance with Section 2.2. Each Bank shall remit
the principal amount of each Revolving Credit Loan to the Agent such that the
Agent is able to, and the Agent shall, to the extent the Banks have made funds
available to it for such purpose, fund such Revolving Credit Loans to the
Borrower in U.S. Dollars and immediately available funds at the Principal
Office prior to 2:00 p.m., Louisville time, on the Borrowing Date, provided
that if any Bank fails to remit such funds to the Agent in a timely manner, the
Agent may elect in its sole
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discretion to fund with its own funds the Revolving Credit Loans of such Bank
on the Borrowing Date, and such Bank shall be subject to the repayment
obligation in Section 10.16.
2.7 Revolving Credit Notes.
The Obligation of the Borrower to repay the aggregate unpaid
principal amount of the Revolving Credit Loans made to it by each Bank,
together with interest thereon, shall be evidenced by a Revolving Credit Note
dated the Closing Date payable to the order of such Bank in a face amount equal
to the Revolving Credit Commitment of such Bank.
2.8 Use of Proceeds.
The proceeds of the Revolving Credit Loans shall be used for
general corporate purposes, including without limitation the acquisition,
construction and renovation of extended stay lodging facilities and related
equity investments.
2.9 Letter of Credit Subfacility.
2.9.1 Issuance of Letters of Credit.
Borrower may request the issuance of a letter of
credit (each a "Letter of Credit") on behalf of itself or another Loan Party by
delivering to the Agent a completed application and agreement for letters of
credit in such form as the Agent may specify from time to time by no later than
10:00 a.m., Louisville time, at least five (5) Business Days, or such shorter
period as may be agreed to by the Agent, in advance of the proposed date of
issuance. Subject to the terms and conditions hereof and in reliance on the
agreements of the other Banks set forth in this Section 2.9, the Agent will
issue a Letter of Credit provided that each Letter of Credit shall (A) have a
maximum maturity of twelve (12) months from the date of issuance, (B) in no
event expire later than one Business Day prior to the Expiration Date and
provided that in no event shall (i) the Letter of Credit Outstandings exceed,
at any one time, $5,000,000 or (ii) the Revolving Facility Usage exceed, at any
one time, the lesser of (a) the Revolving Credit Commitments or (b) the
Borrowing Base.
2.9.2 Participations.
Immediately upon issuance of each Letter of Credit,
and without further action, each Bank shall be deemed to, and hereby agrees
that it shall, have irrevocably purchased for such Bank's own account and risk
from the Agent an individual participation interest in such Letter of Credit
and drawings thereunder in an amount equal to such Bank's Ratable Share of the
maximum amount which is or at any time may become available to be drawn
thereunder, and each such Bank shall be responsible to reimburse the Agent
immediately for its Ratable Share of any disbursement under any Letter of
Credit which has not been reimbursed by Borrower in accordance with Section
2.9.4.
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2.9.3 Letter of Credit Fees.
The Borrower shall pay (i) to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal to 23%
per annum, and (ii) to the Agent for its own account a fronting fee equal to c%
per annum, which fees shall be computed on the daily average Letter of Credit
Outstanding and shall be payable quarterly in arrears commencing with the first
Business Day of each calendar quarter following issuance of each Letter of
Credit and on the Expiration Date. The Borrower shall also pay to the Agent for
the Agent's sole account the Agent's then in effect customary fees and
administrative expense payable with respect to the Letters of Credit as the
Agent may generally charge or incur from time to time in connection with the
issuance, maintenance, modification (if any), assignment or transfer (if any),
negotiation, and administration of Letters of Credit.
2.9.4 Disbursements, Reimbursement.
(i) Borrower shall be obligated immediately
to reimburse Agent for all amounts which Agent is required to advance pursuant
to the Letters of Credit. Such amounts advanced shall become, at the time the
amounts are advanced, Revolving Credit Loans from the Banks. Such Revolving
Credit Loans shall bear interest at the rate applicable under the Base Rate
Option unless the Borrower elects to have a different Interest Rate Option
apply to such Revolving Credit Loans pursuant to and in accordance with the
provisions contained in Section 4.1.
(ii) The Agent will notify the (A) Borrower
of each demand or presentment for payment or other drawing under each Letter of
Credit, and (B) Banks of the amount required to be advanced pursuant to the
Letters of Credit. Before 10:00 a.m., Louisville time, on the date of any
advance the Agent is required to make pursuant to the Letters of Credit, each
Bank shall make available such Bank's Ratable Share of such advance in
immediately available funds to the Agent.
2.9.5 Documentation.
Each Loan Party agrees to be bound by the terms of
the Agent's application and agreement for Letters of Credit and the Agent's
written regulations and customary practices relating to Letters of Credit,
though such interpretation may be different from the such Loan Party's own. In
the event of a conflict between such application or agreement and this
Agreement, this Agreement shall govern. It is understood and agreed that,
except in the case of gross negligence or willful misconduct, the Agent shall
not be liable for any error, negligence and/or mistakes, whether of omission or
commission, in following any Loan Party's instructions or those contained in
the Letters of Credit or any modifications, amendments or supplements thereto.
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2.9.6 Determinations to Honor Drawing Requests.
In determining whether to honor any request for
drawing under any Letter of Credit by the beneficiary thereof, the Agent shall
be responsible only to determine that the documents and certificates required
to be delivered under such Letter of Credit have been delivered and that they
comply on their face with the requirements of such Letter of Credit.
2.9.7 Nature of Participation and Reimbursement
Obligations.
The obligation of the Banks to participate in Letters
of Credit pursuant to Section 2.9.2 and the obligation of the Banks pursuant to
Section 2.9.4 to fund Revolving Credit Loans upon a draw under a Letter of
Credit and the Obligations of the Borrower to reimburse the Agent upon a draw
under Letter of Credit pursuant to Section 2.9 shall be absolute unconditional
and irrevocable, and shall be performed strictly in accordance with the terms
of such sections under all circumstances, including the following
circumstances:
(i) the failure of any Loan Party or any
other Person to comply with the conditions set forth in Sections 2.1, 2.5, 2.6
or 7.2 or as otherwise set forth in this Agreement for the making of a Revolving
Credit Loan, it being acknowledged that such conditions are not required for the
making of a Revolving Credit Loan under Section 2.9.4;
(ii) any lack of validity or
enforceability of any Letter of Credit;
(iii) the existence of any claim, set-off,
defense or other right which any Loan Party or any Bank may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), the Agent or other Bank or any
other Person or, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);
(iv) any draft, demand, certificate or
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(v) payment by the Agent under any
Letter of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit;
(vi) any adverse change in the business,
operations, properties, assets, condition (financial or otherwise) or prospects
of any Loan Party or Subsidiaries of a Loan Party;
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(vii) any breach of this Agreement or
any other Loan Document by any party thereto;
(viii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing;
(ix) the fact that an Event of Default
or a Potential Default shall have occurred and be continuing; or
(x) the Expiration Date shall have
passed or this Agreement or the Commitments hereunder shall have been
terminated.
2.9.8 Indemnity.
In addition to amounts payable as provided in Section
10.5, the Borrower hereby agrees to protect, indemnify, pay and save harmless
the Agent from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent may incur or be subject to as a consequence, direct or indirect, of (i)
the issuance of any Letter of Credit, other than as a result of (A) the gross
negligence or willful misconduct of the Agent as determined by a final judgment
of a court of competent jurisdiction or (B) subject to the following clause
(ii), the wrongful dishonor by the Agent of a proper demand for payment made
under any Letter of Credit or (ii) the failure of the Agent to honor a drawing
under any such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government
or governmental authority (all such acts or omissions herein called
"Governmental Acts").
2.9.9 Liability for Acts and Omissions.
As between any Loan Party and the Agent, such Loan
Party assumes all risks of the acts and omissions of, or misuse of the Letters
of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Agent shall not be
responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for an issuance of any such Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter
of Credit or the rights or benefits thereunder or proceeds thereof, in whole or
in part, which may prove to be invalid or ineffective for any reason; (iii)
failure of the beneficiary of any such Letter of Credit to comply fully with
any conditions required in order to draw upon such Letter of Credit; (iv)
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any
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document required in order to make a drawing under any such Letter of Credit or
of the proceeds thereof; (vii) the misapplication by the beneficiary of any
such Letter of Credit of the proceeds of any drawing under such Letter of
Credit; or (viii) any consequences arising from causes beyond the control of
the Agent, including any Governmental Acts, and none of the above shall affect
or impair, or prevent the vesting of, any of the Agent's rights or powers
hereunder.
In furtherance and extension and not in limitation of
the specific provisions set forth above, any action taken or omitted by the
Agent under or in connection with the Letters of Credit issued by it or any
documents and certificates delivered thereunder, if taken or omitted in
good-faith, shall not put the Agent under any resulting liability to the
Borrower.
The Banks and any Loan Party may not commence a
proceeding against the Agent for wrongful disbursement under a Letter of Credit
as a result of acts or omissions constituting gross negligence or willful
misconduct of the Agent, until the Banks have made and the Borrower has repaid
the Revolving Credit Loans described in Section 2.9.4.
2.10 Increase in Commitments.
2.10.1 Existing Banks.
Subject to the limitations contained in Section
2.10.3, the Borrower, after the Closing Date, may make one (1) request for an
increase in the Revolving Credit Commitments of the Banks by sending a notice
thereof to all of the Banks and the Agent. Such notice shall specify the total
amount of increase requested by the Borrower (the "Requested Increase") which
amount shall be at least $10,000,000 and shall not exceed the amount permitted
in Section 2.10.3 below.
2.10.2 New Banks.
Subject to the limitations contained in Section
2.10.3, the Agent upon receipt of a Requested Increase may request that a new
bank or banks join this Agreement and provide a Commitment hereunder. Unless
the Borrower objects within ten (10) Business Days of notice from the Agent of
a proposed new bank or banks, such bank or banks selected by the Agent shall
join this Agreement pursuant to the procedures contained in Section 11.11.
2.10.3 Limitations on Increases.
Borrower may not request an increase in the Revolving
Credit Commitments and the Revolving Credit Commitments shall not be increased
pursuant to Section 2.10.1 or 2.10.2 if (i) there exists an Event of Default or
Potential Default on the date of such request or on the effective date of such
increase; or (ii) after giving effect to the proposed increase in Revolving
Credit Commitments, the Revolving Credit Commitments shall exceed $50,000,000.
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2.11 Reduction of Commitments.
The Borrower shall have the right, upon not less than
five (5) Business Days' prior written notice to the Agent, to permanently
reduce, at any one time, in a principal amount of not less than $10,000,000 (so
long as after giving effect to such reduction, the Revolving Credit Commitments
are not less than $25,000,000 in the aggregate), or at any time, terminate the
Revolving Credit Commitments without penalty or premium, except as hereinafter
set forth, provided that any such reduction or termination shall be accompanied
by (a) the payment in full of any Commitment Fee then accrued on the amount of
such reduction or termination and (b) prepayment of the Revolving Credit Notes,
together with the full amount of interest accrued on the principal sum to be
prepaid (and all amounts referred to in Section 5.6 hereof), to the extent that
the aggregate amount thereof then outstanding exceeds the Revolving Credit
Commitments as so reduced or terminated. From the effective date of any such
reduction or termination the obligations of Borrower to pay the Commitment Fee
pursuant to Section 2.3 shall correspondingly be reduced or cease.
3. COLLATERAL POOL PROPERTIES
3.1 Acceptance of Collateral Pool Properties.
3.1.1 Acceptance Generally.
Subject to compliance with the terms and conditions
of Section 7.1, the Banks have accepted the properties listed on Schedule
1.1(C) as of the Closing Date as Collateral Pool Properties. If the Borrower
desires that the Banks accept an additional property as a Collateral Property,
the Borrower shall so notify the Agent and the Agent shall promptly notify each
other Bank. No such additional property will be evaluated by the Banks as a
potential Collateral Pool Property unless the Borrower delivers to the Agent in
form and substance acceptable to the Agent the items set forth on Schedule
1.1(R). If, after receipt and review of the items set forth on Schedule 1.1(R),
the Agent is prepared to proceed with acceptance of such property as a
Collateral Pool Property, the Agent will so notify the Borrower, and the Agent
will obtain an Appraisal of such property in order to determine the As Is Value
thereof. After approving such As Is Value , the Agent will submit the foregoing
documents and information and the As Is Value to the Banks, for their
consideration in deciding whether to accept or reject the property as a
Collateral Pool Property; such decision will be made by all of the Banks. The
Banks agree to make a decision with respect to such property within fifteen
(15) Business Days after the receipt of such documents and information and the
As Is Value, provided that the failure of any Bank to respond within such time
period shall be deemed to constitute such Bank's acceptance of such property as
a Collateral Pool Property. If the Banks agree to accept such property as a
Collateral Pool Property, upon execution and delivery of documents and
completion of all other closing requirements imposed by the Agent (including
without limitation provision of the documents or supplements thereto described
on Schedule 1.1(R), and such other
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items or documents as may be appropriate under the circumstances, including
updates and modifications of any documents previously delivered), such property
shall become a Collateral Pool Property.
3.1.2 Collateral Pool Addition Fee.
If more than eight (8) properties are added to the
Collateral Pool in any calendar year during the term hereof, the Borrower shall
pay to each Bank a fee in the amount of $500.00 for each property in excess in
eight (8); provided that the aggregate amount of such fees paid to the Banks
for each such property shall not exceed $2,500.
3.2 Release of Collateral Pool Properties.
In connection with the sale to or refinancing by a third party
of a Collateral Pool Property, from time to time the Borrower may request, upon
not less than thirty (30) days' prior written notice to the Agent (and the
Agent shall promptly send a copy thereof to each other Bank), that a Collateral
Pool Property be released from the Liens created by the Real Estate Collateral
Documents applicable thereto, which release ("Property Release") shall be
delivered by the Agent if all of the following conditions are satisfied as of
the date of such Property Release:
(a) no Event of Default or Potential Default has
occurred and is then continuing or will occur after giving effect to such
Property Release and the reduction in the Collateral Pool Value by reason of
the release of such Collateral Pool Property;
(b) the Borrower shall have delivered to the
Agent a Borrowing Base Certificate reflecting the Borrowing Base after giving
effect to such Property Release;
(c) the Agent shall have determined that the
outstanding principal balance of the Loans will not exceed the Borrowing Base
after giving effect to such Property Release and any prepayment to be made
and/or the acceptance of any property as additional or replacement Collateral
Pool Property to be given concurrently with such Property Release; and
(d) the title insurance policy or policies issued
in favor of the Agent shall, at the request of the Agent, be endorsed to
reflect such release of Collateral, and the Borrower shall pay all costs and
expenses reasonably incurred by or for the account of the Agent in connection
with such Property Release.
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3.3 Borrowing Base Determinations
3.3.1 Appraisals.
The As Is Value of a Collateral Pool Property or
Properties shall be determined or redetermined, as applicable, under each of
the following circumstances:
(i) upon initial acceptance of a property
as a Collateral Pool Property, the Agent will determine the As Is Value thereof;
(ii) the As Is Value of all Collateral Pool
Properties (based upon preparation of current Appraisals) will be redetermined
annually, as provided in Section 3.4.9.
(iii) from time to time a Collateral Pool
Property may be re-appraised, at the Borrower's request, upon notice by the
Borrower to Agent to re-appraise a Collateral Pool Property, in which event
Agent shall cause an Appraisal thereof to be made; and
(iv) at any time and from time to time upon
five (5) Business Days' prior written notice to the Borrower, the Agent may
(and shall at the direction of the Required Banks) redetermine the As Is Value
of a Collateral Pool Property or Properties in any of the following
circumstances:
(A) if a material adverse
change occurs with respect to a Collateral Pool
Property, including, without limitation, a material
deterioration in the Net Operating Income of a
Collateral Pool Property, or a major casualty or
condemnation or a material change in the market
conditions affecting such Collateral Pool Property;
or
(B) if necessary in order to
comply with any Law applicable to any Bank.
Any As Is Value so determined or redetermined shall be submitted by the Agent
to the Borrower and to the Lenders.
3.3.2 Borrowing Base Value.
In the event the As Is Value of any Collateral Pool
Property is increased, such increase shall not become effective until the
Borrower delivers to the Agent an endorsement, if necessary, to the Agent's
title insurance policy increasing the amount thereof as related to such
Collateral Pool Property by the adjustment to the Collateral Pool Value.
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3.4 Covenants Relating to the Collateral Pool and the
Collateral Pool Properties.
The Borrower covenants and agrees that until payment in full
of the Loans and interest thereon, satisfaction of all of the Borrower's other
Obligations under the Loan Documents, expiration or termination of all Letters
of Credit and termination of the Revolving Credit Commitments, the Borrower
shall comply with the following covenants:
3.4.1 Minimum Collateral Pool Properties.
The Collateral Pool shall consist of at least three
(3) Collateral Pool Properties.
3.4.2 Pro Forma Debt Service Coverage Ratio.
The Pro Forma Debt Service Coverage Ratio as of the
end of each fiscal quarter of the Borrower for the fiscal quarter then ending
shall not be less than 2:25 to 1:00.
3.4.3 Extended-Stay Lodging Facilities.
Each Collateral Pool Property shall be an
extended-stay lodging facility (as determined by the Agent) owned or controlled
by the Borrower and, without the prior written approval of the Required Banks,
shall not contain more than 175 rooms.
3.4.4 Insurance, Casualty.
The Borrower shall maintain or cause to be maintained
insurance covering the Collateral Pool Properties in such amounts and covering
such risks as is set forth in Schedule 3.4.4 or otherwise required from time to
time pursuant to the Real Estate Collateral Documents.
3.4.5 Guest Leases; Tenant Leases; Major
Agreements.
All Guest Leases with respect to the Collateral Pool
Properties shall be on market terms and in substantial conformity with the
Borrower's standard form of Guest Lease, which form (including revisions
thereto) shall be submitted by the Borrower to the Agent for approval in
writing, which approval shall not be unreasonably withheld. Unless otherwise
consented to by the Agent in writing, all Tenant Leases with respect to the
Collateral Pool Properties shall (i) be to third parties under market terms,
(ii) provide for uses of such Collateral Pool Property that are consistent with
first-class management thereof, and (iii) contain provisions regarding
insurance, waiver of claims, damage and destruction, condemnation, notice to
mortgagee and subordination and attornment and other material matters in
substantial conformity with the standard form(s) of space lease utilized by the
Borrower for each Collateral Pool
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Property, all of which standard forms (including revisions thereto) shall be
submitted by the Borrower to the Agent for approval in writing, which approval
shall not be unreasonably withheld. Upon request by the Agent, the Borrower
shall provide to the Agent a copy of each Tenant Lease, including all
amendments, estoppel certificates and related documentation. In addition,
promptly following the execution of any Major Agreement (or the termination or
material modification thereof), Borrower shall provide a copy thereof to the
Agent, and the Agent shall promptly provide a copy thereof to each other Bank.
Upon the execution of any Major Agreement (or the termination or material
modification thereof) not approved in writing by the Agent prior to such
execution, the Agent may (and shall at the direction of Required Banks)
redetermine the As Is Value for the subject Collateral Pool Property; such
reappraisal right shall be in addition to the rights to re-appraise set forth
in Section 3.3.1(iv).
3.4.6 Non-Disturbance Agreements.
Borrower will obtain or cause to be obtained, prior
to the Closing Date, from all tenants under current Tenant Leases an estoppel,
subordination, non-disturbance and/or attornment agreement in a form approved
by the Agent (each a "Non-Disturbance Agreement"). If any Non-Disturbance
Agreement asserts a material claim or set-off right by the tenant, which is
materially inconsistent with the rent roll for such Collateral Pool Property,
or is delivered in a form materially different from the Non-Disturbance
Agreement, then, in any such circumstance, the Agent shall have the right to
establish an appropriate reserve until the Agent determines that the
circumstance leading to such reserve as aforesaid has been favorably resolved.
The Borrower shall obtain, or cause to be obtained, from each tenant under a
Tenant Lease entered into after the Closing Date, a Non-Disturbance Agreement
in a form approved by the Agent as a part of the approval of such Tenant Lease.
3.4.7 Management Agreements.
The Borrower or an Affiliate of the Borrower have
entered into the management agreements identified on Schedule 3.4.7 with
respect to the Collateral Pool Properties. The Borrower shall not enter into
any other management agreement, or hereafter amend in any material manner or
terminate, a management agreement with respect to any Collateral Pool Property,
except upon thirty (30) days' prior written notice to and approval by the
Agent, which approval shall not be unreasonably withheld. The Borrower shall
timely provide to the Agent a copy of any proposed management agreement, and
the Agent shall promptly provide a copy thereof to each other Bank. Without
limiting in any way the Agent's approval rights with respect thereto, each
proposed management agreement shall include an absolute right of Borrower or
its Affiliate to terminate such agreement upon thirty (30) days' notice to the
property manager and shall provide for management fees, reimbursements or other
payments to the property manager at levels not in excess of applicable market
levels.
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3.4.8 Major Construction.
If the Borrower or any of its Affiliates intends to
engage in any construction, remodeling or demolition project or series of
related projects with respect to a Collateral Pool Property (each, a
"Construction Project"), the aggregate cost of which will exceed Ten Percent
(10%) of the As Is Value of such property, Borrower shall first notify the
Agent, and such Construction Project shall be subject to the Required Banks'
approval, which approval shall not be unreasonably withheld.
3.4.9 Annual Appraisals.
Each of the Loan Parties shall cooperate with
appraisers engaged by the Agent and provide such information in its possession
as such appraisers reasonably require to complete annually for each Collateral
Pool Property by no later than one (1) year after the date of the most recent
appraisal for such Collateral Pool Property. The Borrower shall pay for the
cost of such annual appraisals.
3.4.10 Borrowing Base.
The Borrower shall not at any time permit the
Revolving Credit Usage to exceed the Borrowing Base.
4. INTEREST RATES
4.1.1 Interest Rate Options.
The Borrower shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by it from the Base Rate
Option, Euro-Rate Option set forth below applicable to the Loans, it being
understood that, subject to the provisions of this Agreement, the Borrower may
select different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or
any portion of the Loans comprising any Borrowing Tranche, provided that there
shall not be at any one time outstanding more than four (4) Borrowing Tranches
in the aggregate among all the Loans accruing interest at a Euro-Rate Option.
If at any time the designated rate applicable to any Loan made by any Bank
exceeds such Bank's highest lawful rate, the rate of interest on such Bank's
Loan shall be limited to such Bank's highest lawful rate.
4.1.1 Revolving Credit Interest Rate Options.
The Borrower shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans:
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(i) Base Rate Option: A fluctuating
rate per annum (computed on the basis of a year of 360 days and actual days
elapsed) equal to the Base Rate plus .75%, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate; or
(ii) Euro-Rate Option: A rate per
annum (computed on the basis of a year of 360 days and actual days elapsed)
equal to the Euro-Rate plus 2.25%.
4.1.2 Rate Quotations.
The Borrower may call the Agent on or before the date
on which a Loan Request is to be delivered to receive an indication of the
rates then in effect, but it is acknowledged that such projection shall not be
binding on the Agent or the Banks nor affect the rate of interest which
thereafter is actually in effect when the election is made.
4.2 Interest Periods.
At any time when the Borrower shall select, convert to or
renew a Euro-Rate Option, the Borrower shall notify the Agent thereof at least
three (3) Business Days prior to the effective date of such Euro-Rate Option by
delivering a Loan Request. The notice shall specify an interest period (the
"Interest Period") during which such Interest Rate Option shall apply, such
Interest Period to be one (1), two (2), three (3), six (6) or, if available to
all the Banks, twelve (12) Months in the event of a Euro-Rate Option, provided,
that:
4.2.1 Ending Date and Business Day.
any Interest Period which would otherwise end on a
date which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day;
4.2.2 Amount of Borrowing Tranche.
each Borrowing Tranche to which a Euro-Rate applies
shall be in integral multiples of $100,000 and not less than $1,000,000.
4.2.3 Termination Before Expiration Date.
the Borrower shall not select, convert to or renew an
Interest Period that would end after the Expiration Date;
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4.2.4 Renewals.
in the case of the renewal of a Euro-Rate Option at
the end of an Interest Period, the first day of the new Interest Period shall
be the last day of the preceding Interest Period, without duplication in
payment of interest for such day; and
4.2.5 Completion of Syndication.
Until the earlier to occur of (i) the date on which
the Commitment of PNC is reduced below $15,000,000 or (ii) December 26, 1996,
the only Interest Period available for a Euro-Rate Option shall be a single one
(1) month Interest Period.
4.3 Interest After Default.
To the extent permitted by Law, upon the occurrence of an
Event of Default and until such time such Event of Default shall have been
cured or waived:
4.3.1 Letter of Credit Fees, Interest Rate.
the Letter of Credit Fees and the rate of interest
for each Loan otherwise applicable pursuant to Section 2.9 or Section 4.1,
respectively, shall be increased by 2.0% per annum; and
4.3.2 Other Obligations.
each other Obligation hereunder if not paid when due
shall bear interest at a rate per annum equal to the sum of the rate of
interest applicable under the Revolving Credit Base Rate Option plus an
additional 2% per annum (the "Modified Base Rate") from the time such
Obligation becomes due and payable and until it is paid in full.
4.3.3 Acknowledgment.
The Borrower acknowledges that such increased rates
reflect, among other things, the fact that such Loans or other amounts have
become a substantially greater risk given their default status and that the
Banks are entitled to additional compensation for such risk; and, all such
interest shall be payable by Borrower upon demand by Agent.
4.4 Euro-Rate Unascertainable.
4.4.1 Unascertainable.
If on any date on which a Euro-Rate would otherwise
be determined, the Agent shall have determined that:
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(i) adequate and reasonable means
do not exist for ascertaining such Euro-Rate, or
(ii) a contingency has occurred which
materially and adversely affects the secondary market for negotiable
certificates of deposit maintained by dealers of recognized standing relating
to the London interbank eurodollar market relating to the Euro-Rate, the Agent
shall have the rights specified in Section 4.4.3.
4.4.2 Illegality; Increased Costs; Deposits Not
Available.
If at any time any Bank shall have determined that:
(i) the making, maintenance or
funding of any Loan to which a Euro-Rate Option applies has been made
impracticable or unlawful by compliance by such Bank in good-faith with any Law
or any interpretation or application thereof by any Official Body or with any
request or directive of any such Official Body (whether or not having the force
of Law), or
(ii) such Euro-Rate Option will not
adequately and fairly reflect the cost to such Bank of the establishment or
maintenance of any such Loan, or
(iii) after making all reasonable
efforts, deposits of the relevant amount in Dollars for the relevant Interest
Period for a Loan to which a Euro-Rate Option applies are not available to such
Bank in the London interbank market,
then the Agent shall have the rights specified in Section 4.4.3.
4.4.3 Agent's and Bank's Rights.
In the case of any event specified in subsection
4.4.1 above, the Agent shall promptly so notify the Banks and the Borrower
thereof, and in the case of an event specified in subsection 4.4.2 above, such
Bank shall promptly so notify the Agent and endorse a certificate to such
noticce as to the specific circumstances of such notice, and the Agent shall
promptly send copies of such notice and certificate to the other Banks and the
Borrower. Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given) the obligation of (A) the Banks,
in the case of such notice given by the Agent, or (B) such Bank, in the case of
such notice given by such Bank, to allow the Borrower to select, convert to or
renew a Euro-Rate Option shall be suspended until the Agent shall have later
notified the Borrower, or such Bank shall have later notified the Agent, of the
Agent's or such Bank's, as the case may be, determination that the
circumstances giving rise to such previous determination no longer exist. If at
any time the Agent makes a determination under subsection 4.4.1 of this Section
4.4 and the Borrower has previously notified the Agent of its selection of,
conversion to or renewal of a Euro-Rate Option and such Interest Rate Option
has
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not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to such Loans. If any Bank notifies the Agent of a
determination under subsection 4.4.2 of this Section 4.4, the Borrower shall,
subject to the Borrower's indemnification Obligations under Section 5.6.2, as
to any Loan of the Bank to which a Euro-Rate Option applies, on the date
specified in such notice either convert such Loan to the Base Rate Option
otherwise available with respect to such Loan or prepay such Loan in accordance
with Section 5.4. Absent due notice from the Borrower of conversion or
prepayment, such Loan shall automatically be converted to the Base Rate Option
otherwise available with respect to such Loan upon such specified date.
4.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period to apply
to any Borrowing Tranche of Euro-Rate Loans at the expiration of an existing
Interest Period applicable to such Borrowing Tranche in accordance with the
provisions of Section 4.2, the Borrower shall be deemed to have converted such
Borrowing Tranche to the Base Rate Option commencing upon the last day of the
existing Interest Period, provided that the Agent shall use reasonable efforts
to notify the Borrower if the Borrower fails to select such a new Interest
Period prior to the expiration of an existing one, but the Agent's failure to
provide such notice shall not result in any liability to the Agent or prevent
the conversion to the Base Rate Option if the Borrower fails to select such a
new Interest Period in accordance with the foregoing sentence.
5. PAYMENTS
5.1 Payments.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Letter of Credit Fees, Agent's Fee or
other fees or amounts due from the Borrower hereunder shall be payable prior to
11:00 a.m., Louisville time, on the date when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrower, and without set-off, counterclaim or other deduction of any nature,
and an action therefor shall immediately accrue. Such payments shall be made to
the Agent at the Principal Office for the ratable accounts of the Banks with
respect to the Loans in U.S. Dollars and in immediately available funds, and
the Agent shall promptly distribute such amounts to the Banks in immediately
available funds, provided that in the event payments are received by 11:00
a.m., Louisville time, by the Agent with respect to the Loans and such payments
are not distributed to the Banks on the same day received by the Agent, the
Agent shall pay the Banks the Federal Funds Effective Rate with respect to the
amount of such payments for each day held by the Agent and not distributed to
the Banks. The Agent's and each Bank's statement of account, ledger or other
relevant record shall, in the absence of manifest error, be conclusive as the
statement of the amount of principal of and interest on the Loans and other
amounts owing under this Agreement and shall be deemed an "account stated."
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5.2 Pro Rata Treatment of Banks.
Each borrowing shall be allocated to each Bank according to
its Ratable Share, and each selection of, conversion to or renewal of any
Interest Rate Option and each payment or prepayment by the Borrower with
respect to principal, interest, Commitment Fees, Letter of Credit Fees, or
other fees (except for the Agent's Fee) or amounts due from the Borrower
hereunder to the Banks with respect to the Loans, shall (except as provided in
Section 4.4.2 [Euro- Rate Unascertainable], 5.4.2 [Voluntary Prepayments] or
5.6.1 [Additional Compensation in Certain Circumstances]) be made in proportion
to the applicable Loans outstanding from each Bank and, if no such Loans are
then outstanding, in proportion to the Ratable Share of each Bank.
5.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall
be due and payable in arrears on the first Business Day of each month after the
date hereof and on the Expiration Date or upon acceleration of the Notes.
Interest on Loans to which the Euro-Rate Option applies shall be due and
payable on the last day of each Interest Period for those Loans and, if any
such Interest Period is longer than one (1) month, also on the last day of
every month during such period. Interest on mandatory prepayments of principal
under Section 5.5 shall be due on the date such mandatory prepayment is due.
Interest on the principal amount of each Loan or other monetary Obligation
shall be due and payable on demand after such principal amount or other
monetary Obligation becomes due and payable (whether on the stated maturity
date, upon acceleration or otherwise).
5.4 Voluntary Prepayments.
5.41 Right to Prepay.
The Borrower shall have the right at its option from
time to time to prepay the Loans in whole or part without premium or penalty
(except as provided in subsection 5.4.2 below or in Section 5.6):
(i) at any time with respect to
any Loan to which the Base Rate Option applies,
(ii) on the last day of the
applicable Interest Period with respect to Loans to which a Euro-Rate Option
applies,
(iii) on the date specified in a
notice by any Bank pursuant to Section 4.4.2 [Euro-Rate Unascertainable] with
respect to any Loan to which a Euro-Rate Option applies.
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Whenever the Borrower desires to prepay any part of
the Loans, it shall provide a prepayment notice to the Agent at least one (1)
Business Day prior to the date of prepayment of Loans setting forth the
following information:
(y) the date, which shall be a Business Day, on
which the proposed prepayment is to be made;
(z) the total principal amount of such
prepayment, which shall not be less than $100,000.
All prepayment notices shall be irrevocable. The
principal amount of the Loans for which a prepayment notice is given, together
with interest on such principal amount except with respect to Loans to which
the Base Rate Option applies, shall be due and payable on the date specified in
such prepayment notice as the date on which the proposed prepayment is to be
made. If the Borrower prepays a Loan but fails to specify the applicable
Borrowing Tranche which the Borrower is prepaying, the prepayment shall be
applied first to Loans to which the Base Rate Option applies, and then to Loans
to which the Euro-Rate Option applies. Any prepayment hereunder shall be
subject to the Borrower's Obligation to indemnify the Banks under Section
5.6.2.
5.4.2 Replacement of a Bank.
In the event any Bank (i) gives notice under Section
4.4.2 or Section 5.6.1, (ii) does not fund Revolving Credit Loans because the
making of such Loans would contravene any Law applicable to such Bank, (iii)
does not approve any action as to which consent of the Required Banks is
requested by the Borrower and obtained hereunder, or (iv) becomes subject to
the control of an Official Body (other than normal and customary supervision),
then the Borrower shall have the right at its option, with the consent of the
Agent, which shall not be unreasonably withheld, to prepay the Loans of such
Bank in whole, together with all interest accrued thereon, and terminate such
Bank's Commitment within ninety (90) days after (w) receipt of such Bank's
notice under Section 4.4.2 or 5.6.1, (x) the date such Bank has failed to fund
Revolving Credit Loans because the making of such Loans would contravene Law
applicable to such Bank, (y) the date of obtaining the consent which such Bank
has not approved, or (z) the date such Bank became subject to the control of an
Official Body, as applicable; provided that the Borrower shall also pay to such
Bank at the time of such prepayment any amounts required under Section 5.6 and
any accrued interest due on such amount and any related fees; provided,
however, that the Commitment of such Bank shall be provided by one or more of
the remaining Banks or a replacement bank acceptable to the Agent; provided,
further, the remaining Banks shall have no obligation hereunder to increase
their Commitments. Notwithstanding the foregoing, the Agent may only be
replaced subject to the requirements of Section 10.14 and provided that all
Letters of Credit have expired or been terminated or replaced.
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5.5 Mandatory Prepayments.
5.5.1 Borrowing Base Exceeded.
Whenever the Revolving Facility Usage exceeds the
Borrowing Base, the Borrower shall make, within ten (10) Business Days after
the Borrower learns of such excess and whether or not the Agent has given
notice to such effect, a mandatory prepayment of principal equal to the excess
of the Revolving Facility Usage over the Borrowing Base, together with accrued
interest on such principal amount at the default rate set forth in Section 4.3.
5.6 Additional Compensation in Certain Circumstances.
5.6.1 Increased Costs or Reduced Return
Resulting From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation or any change
in any Law, guideline or interpretation or application thereof by any Official
Body charged with the interpretation or administration thereof or compliance
with any request or directive (whether or not having the force of Law) of any
central bank or other Official Body:
(i) subjects any Bank to any tax
or changes the basis of taxation with respect to this Agreement, the Notes, the
Loans or payments by the Borrower of principal, interest, Commitment Fees, or
other amounts due from the Borrower hereunder or under the Notes (except for
taxes on the overall net income of such Bank),
(ii) imposes, modifies or deems
applicable any reserve, special deposit or similar requirement against credits
or commitments to extend credit extended by, or assets (funded or contingent)
of, deposits with or for the account of, or other acquisitions of funds by, any
Bank, or
(iii) imposes, modifies or deems
applicable any capital adequacy or similar requirement (A) against assets
(funded or contingent) of, or letters of credit, other credits or commitments
to extend credit extended by, any Bank, or (B) otherwise applicable to the
obligations of any Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank in its sole
discretion deems to be material, such Bank shall from time to time notify the
Borrower and the Agent of the amount determined in good-faith (using any
averaging and attribution methods employed in good-faith) by such Bank to be
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necessary to compensate such Bank for such increase in cost, reduction of
income or additional expense, provided that a Bank shall not give the Borrower
notice hereunder unless the Bank is generally imposing such increased costs on
its similarly situated customers. Such notice shall set forth in reasonable
detail the basis for such determination. Such amount shall be due and payable
by the Borrower to such Bank ten (10) Business Days after such notice is given.
5.6.2 Indemnity.
In addition to the compensation required by
subsection 5.6.1 of this Section 5.6, the Borrower shall indemnify each Bank
against all liabilities, losses or expenses (including loss of margin, any loss
or expense incurred in liquidating or employing deposits from third parties and
any loss or expense incurred in connection with funds acquired by a Bank to
fund or maintain Loans subject to the Euro-Rate Option) which such Bank
sustains or incurs as a consequence of any
(i) payment, prepayment, conversion
or renewal of any Loan to which the Euro-Rate Option applies on a day other
than the last day of the corresponding Interest Period (whether or not such
payment or prepayment is mandatory, voluntary or automatic and whether or not
such payment or prepayment is then due),
(ii) attempt by the Borrower to
revoke (expressly, by later inconsistent notices or otherwise) in whole or part
any notice relating to Loan Requests under Section 2.5 or Section 4.2 or
prepayments under Section 5.4, or
(iii) default by the Borrower in the
performance or observance of any covenant or condition contained in this
Agreement or any other Loan Document, including any failure of the Borrower to
pay when due (by acceleration or otherwise) any principal, interest, Commitment
Fee or any other amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it
shall from time to time notify the Borrower of the amount determined in
good-faith by such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Bank shall deem reasonable) to be necessary to indemnify such Bank for such
loss or expense. Such notice shall set forth in reasonable detail the basis for
such determination. Such amount shall be due and payable by the Borrower to
such Bank ten (10) Business Days after such notice is given.
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6. REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties.
The Loan Parties, jointly and severally, represent and warrant
to the Agent and each of the Banks as follows:
6.1.1 Organization and Qualification.
Each Loan Party and each Subsidiary of each Loan
Party is a corporation or partnership, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each Loan
Party and each Subsidiary of each Loan Party has the lawful power to own or
lease its properties and to engage in the business it presently conducts or
proposes to conduct. On the Closing Date, each Loan Party and each Subsidiary
of each Loan Party is duly licensed or qualified and in good standing in each
jurisdiction listed on Schedule 6.1.1 and in all other jurisdictions where the
property owned or leased by it or the nature of the business transacted by it
or both makes such licensing or qualification necessary.
6.2.2 Capitalization and Ownership.
The authorized capital stock of the Borrower consists
of 100,000,000 shares of common stock, par value $0.01 per share, of which, as
of June 30, 1996, 8,052,956 shares (referred to herein as the "Shares") were
issued and outstanding, and 5,000,000 shares of preferred stock, par value
$1.00 per share, of which no shares are issued and outstanding. All of the
Shares have been validly issued and are fully paid and nonassessable. There are
no options, warrants or other rights outstanding to purchase any such shares
except as indicated on Schedule 6.1.2. A list of executive officers and
directors of the Borrower who own Shares and their respective Share ownership
is also set forth on Schedule 6.1.2.
6.3 Subsidiaries.
Schedule 6.1.3 states the name of each of the
Borrower's Subsidiaries, its jurisdiction of incorporation, its authorized
capital stock, the issued and outstanding shares (referred to herein as the
"Subsidiary Shares") and the owners thereof if it is a corporation and its
outstanding partnership interests (the "Partnership Interest") if it is a
partnership. The Borrower and each Subsidiary of the Borrower has good and
marketable title to all of the Subsidiary Shares and Partnership Interests it
purports to own, free and clear in each case of any Lien. All Subsidiary Shares
and Partnership Interests have been validly issued, and all Subsidiary Shares
are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of
the Partnership Interests have been made or paid, as the case may be. There are
no options, warrants or other rights outstanding to purchase any such
Subsidiary Shares or Partnership Interests except as indicated on Schedule
6.1.3.
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6.1.4 Power and Authority.
Each Loan Party has full power to enter into,
execute, deliver and carry out this Agreement and the other Loan Documents to
which it is a party, to incur the Indebtedness contemplated by the Loan
Documents and to perform its Obligations under the Loan Documents to which it
is a party, and all such actions have been duly authorized by all necessary
proceedings on its part.
6.1.5 Validity and Binding Effect.
This Agreement has been duly and validly executed and
delivered by each Loan Party, and each other Loan Document which any Loan Party
is required to execute and deliver on or after the date hereof will have been
duly executed and delivered by such Loan Party on the required date of delivery
of such Loan Document. This Agreement and each other Loan Document constitutes,
or will constitute, legal, valid and binding obligations of each Loan Party
which is or will be a party thereto on and after its date of delivery thereof,
enforceable against such Loan Party in accordance with its terms, except to the
extent that enforceability of any of such Loan Document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.
6.1.6 No Conflict.
Neither the execution and delivery of this Agreement
or the other Loan Documents by any Loan Party nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by them will conflict with, constitute a default
under or result in any breach of (i) the terms and conditions of the
certificate of incorporation, bylaws or other organizational documents of any
Loan Party or (ii) any Law or of any material agreement or instrument or order,
writ, judgment, injunction or decree to which any Loan Party is a party or by
which it is bound or to which it is subject, or result in the creation or
enforcement of any Lien, charge or encumbrance whatsoever upon any property
(now or hereafter acquired) of any Loan Party (other than Liens granted under
the Loan Documents).
6.1.7 Litigation.
There are no actions, suits, proceedings or
investigations pending or, to the knowledge of any Loan Party, threatened
against such Loan Party or any Subsidiary of such Loan Party at law or equity
before any Official Body which individually or in the aggregate may result in
any Material Adverse Change. None of the Loan Parties or any Subsidiaries of
any Loan Party is in violation of any order, writ, injunction or any decree of
any Official Body which may result in any Material Adverse Change.
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6.1.8 Title to Properties.
The real property owned or leased by each Loan Party
and each Subsidiary of each Loan Party is described on Schedule 6.1.8. Each
Loan Party and each Subsidiary of each Loan Party has good and marketable title
to or valid leasehold interest in all properties, assets and other rights which
it purports to own or lease or which are reflected as owned or leased on its
books and records, free and clear of all Liens and encumbrances except
Permitted Liens, and subject to the terms and conditions of the applicable
leases. All leases of property are in full force and effect without the
necessity for any consent which has not previously been obtained upon
consummation of the transactions contemplated hereby.
6.1.9 Financial Statements.
(i) Historical Statements. The
Borrower has delivered to the Agent copies of its audited consolidated year-end
financial statements on a pro forma basis for the fiscal year ended December
31, 1995 (the "Annual Statements"). In addition, the Borrower has delivered to
the Agent copies of its unaudited consolidated interim financial statements for
the fiscal year to date and as of the end of the fiscal quarter ended June 30,
1996 (the "Interim Statements") (the Annual and Interim Statements being
collectively referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by the
Borrower's management, are correct and complete and fairly represent the
consolidated financial condition of the Borrower and its Subsidiaries as of
their dates and the results of operations for the fiscal periods then ended and
have been prepared in accordance with GAAP consistently applied, subject (in
the case of the Interim Statements) to normal year-end audit adjustments.
(ii) Financial Projections. The
Borrower has delivered to the Agent financial projections of the Borrower and
its Subsidiaries for the period 1996-1998 derived from various assumptions of
the Borrower's management (the "Financial Projections"). The Financial
Projections represent a reasonable range of possible results in light of the
history of the business, present and foreseeable conditions and the intentions
of the Borrower's management. The Financial Projections accurately reflect the
liabilities of the Borrower and its Subsidiaries upon consummation of the
transactions contemplated hereby as of the Closing Date.
(iii) Accuracy of Financial
Statements. Neither the Borrower nor any Subsidiary of the Borrower has any
liabilities, contingent or otherwise, or forward or long-term commitments that
are not disclosed in the Historical Statements or in the notes thereto, and
except as disclosed therein there are no unrealized or anticipated losses from
any commitments of the Borrower or any Subsidiary of the Borrower which may
cause a Material Adverse Change. Since December 31, 1995, no Material Adverse
Change has occurred.
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6.1.10 Margin Stock.
None of the Loan Parties or any Subsidiaries of any
Loan Party engages or intends to engage principally, or as one of its important
activities, in the business of extending credit for the purpose, immediately,
incidentally or ultimately, of purchasing or carrying margin stock (within the
meaning of Regulation U). No part of the proceeds of any Loan has been or will
be used, immediately, incidentally or ultimately, to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock or to refund Indebtedness originally incurred for
such purpose, or for any purpose which entails a violation of or which is
inconsistent with the provisions of the regulations of the Board of Governors
of the Federal Reserve System. None of the Loan Parties or any Subsidiary of
any Loan Party holds or intends to hold margin stock in such amounts that more
than 25% of the reasonable value of the assets of any Loan Party or Subsidiary
of any Loan Party are or will be represented by margin stock.
6.1.11 Full Disclosure.
Neither this Agreement nor any other Loan Document,
nor any certificate, statement, agreement or other documents furnished to the
Agent or any Bank in connection herewith or therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading. There is no fact
known to any Loan Party which materially adversely affects the business,
property, assets, financial condition, results of operations or prospects of
any Loan Party or Subsidiary of any Loan Party which has not been set forth in
this Agreement or in the certificates, statements, agreements or other
documents furnished in writing to the Agent and the Banks prior to or at the
date hereof in connection with the transactions contemplated hereby.
6.1.12 Taxes.
All federal, state, local and other tax returns
required to have been filed with respect to each Loan Party and each Subsidiary
of each Loan Party have been filed, and payment or adequate provision has been
made for the payment of all taxes, fees, assessments and other governmental
charges which have or may become due pursuant to said returns or to assessments
received, except to the extent that such taxes, fees, assessments and other
charges are being contested in good faith by appropriate proceedings diligently
conducted and for which such reserves or other appropriate provisions, if any,
as shall be required by GAAP shall have been made. There are no agreements or
waivers extending the statutory period of limitations applicable to any federal
income tax return of any Loan Party or Subsidiary of any Loan Party for any
period.
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6.1.13 Consents and Approvals.
Except for the filing of financing statements and the
applicable Real Estate Collateral Documents in the state and county filing
offices, no consent, approval, exemption, order or authorization of, or a
registration or filing with, any Official Body or any other Person is required
by any Law or any agreement in connection with the execution, delivery and
carrying out of this Agreement and the other Loan Documents by any Loan Party,
except as listed on Schedule 6.1.13, all of which shall have been obtained or
made on or prior to the Closing Date except as otherwise indicated on Schedule
6.1.13.
6.1.14 No Event of Default; Compliance with
Instruments.
No event has occurred and is continuing and no
condition exists or will exist after giving effect to the borrowings to be made
on the Closing Date under the Loan Documents which constitutes an Event of
Default or Potential Default. None of the Loan Parties or any Subsidiaries of
any Loan Party is in violation of (i) any term of its certificate of
incorporation, bylaws, or other organizational documents or (ii) any material
agreement or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would constitute a
Material Adverse Change.
6.1.15 Patents, Trademarks, Copyrights,
Licenses, Etc.
Each Loan Party and each Subsidiary of each Loan
Party owns or possesses all the material patents, trademarks, service marks,
trade names, copyrights, licenses, registrations, franchises, permits and
rights necessary to own and operate its properties and to carry on its business
as presently conducted and planned to be conducted by such Loan Party or
Subsidiary, without known conflict with the rights of others. All material
patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises and permits of each Loan Party and each Subsidiary of
each Loan Party are listed and described on Schedule 6.1.15.
6.1.16 Security Interests.
The Liens and security interests granted to the Agent
for the benefit of the Banks pursuant to the Pledge Agreement, the Real Estate
Collateral Documents and the Security Agreement in the Collateral (other than
the Collateral Pool Properties) constitute and will continue to constitute
Prior Security Interests under the Uniform Commercial Code as in effect in each
applicable jurisdiction (the "Uniform Commercial Code") or other applicable Law
entitled to all the rights, benefits and priorities provided by the Uniform
Commercial Code or such Law. Upon the filing of financing statements relating
to said security interests in each office and in each jurisdiction where
required in order to perfect the security interests described above, taking
possession of any stock certificates or other certificates evidencing the
Pledged Collateral, and recordation of the Security Agreement in the United
States Patent and Trademark Office and the United States Copyright Office, as
applicable, all such action as is necessary or advisable to
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establish such rights of the Agent will have been taken, and there will be upon
execution and delivery of the Pledge Agreement and the Real Estate Collateral
Documents, such filings and such taking of possession, no necessity for any
further action in order to preserve, protect and continue such rights, except
the filing of continuation statements with respect to such financing statements
within six months prior to each five-year anniversary of the filing of such
financing statements. All filing fees and other expenses in connection with
each such action have been or will be paid by the Borrower.
16.1.7 Mortgage Liens.
The Liens granted to the Agent for the benefit of the
Banks pursuant to the Real Estate Collateral Documents constitute a valid first
priority Lien under applicable law. All such action as will be necessary or
advisable to establish such Lien of the Agent and its priority as described in
the preceding sentence will be taken at or prior to the time required for such
purpose, and there will be as of the date of execution and delivery of the Real
Estate Collateral Documents no necessity for any further action in order to
protect, preserve and continue such Lien and such priority.
6.1.18 Status of the Pledged Collateral.
All the shares of capital stock or Partnership
Interests included in the Pledged Collateral to be pledged pursuant to the
Pledge Agreement are or will be upon issuance validly issued and nonassessable
and owned beneficially and of record by the pledgor free and clear of any Lien
or restriction on transfer, except as otherwise provided by the Pledge
Agreement and except as the right of the Banks to dispose of the Shares or
Partnership Interests may be limited by the Securities Act of 1933, as amended,
and the regulations promulgated by the Securities and Exchange Commission
thereunder and by applicable state securities laws. There are no shareholder,
partnership or other agreements or understandings with respect to the Shares of
capital stock or Partnership Interests included in the Pledged Collateral
except for the partnership agreements described on Schedule 6.1.18. The Loan
Parties have delivered true and correct copies of such partnership agreements
to the Agent.
6.1.19 Insurance.
Schedule 6.1.19 lists all insurance policies and
other bonds to which any Loan Party or Subsidiary of any Loan Party is a party
on the Closing Date, all of which are valid and in full force and effect. No
notice has been given or claim made and no grounds exist to cancel or avoid any
of such policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of each
Loan Party and each Subsidiary of each Loan Party in accordance with prudent
business practice in the industry of the Loan Parties and their Subsidiaries.
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6.1.20 Compliance with Laws.
The Loan Parties and their Subsidiaries are in
compliance in all material respects with all applicable Laws (in other than
Environmental Laws which are specifically addressed in subsection 6.1.25) in
all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is
presently or will be doing business except where the failure to do so would not
constitute a Material Adverse Change.
6.1.21 Material Contracts.
As of the Closing Date, Schedule 6.1.21 lists all
material contracts relating to the business operations of each Loan Party and
each Subsidiary of any Loan Party, including all employee benefit plans and
Labor Contracts. All such material contracts are valid, binding and enforceable
upon such Loan Party or Subsidiary and each of the other parties thereto in
accordance with their respective terms, and there is no default thereunder, to
the Loan Parties' knowledge, with respect to parties other than such Loan Party
or Subsidiary.
6.1.22 Investment Companies.
None of the Loan Parties or any Subsidiaries of any
Loan Party is an "investment company" registered or required to be registered
under the Investment Company Act of 1940 or under the "control" of an
"investment company" as such terms are defined in the Investment Company Act of
1940 and shall not become such an "investment company" or under such "control."
6.1.23 Plans and Benefit Arrangements.
Except as set forth on Schedule 6.1.23:
(i) The Borrower and each member
of the ERISA Group are in compliance in all material respects with any
applicable provisions of ERISA with respect to all Benefit Arrangements, Plans
and Multiemployer Plans. There has been no Prohibited Transaction with respect
to any Benefit Arrangement or any Plan or, to the best knowledge of the
Borrower, with respect to any Multiemployer Plan or Multiple Employer Plan,
which could result in any material liability of the Borrower or any other
member of the ERISA Group. The Borrower and all members of the ERISA Group have
made when due any and all payments required to be made under any agreement
relating to a Multiemployer Plan or a Multiple Employer Plan or any Law
pertaining thereto. With respect to each Plan and Multiemployer Plan, the
Borrower and each member of the ERISA Group (i) have fulfilled in all material
respects their obligations under the minimum funding standards of ERISA, (ii)
have not incurred any liability to the PBGC, and (iii) have not had asserted
against them any penalty for failure to fulfill the minimum funding
requirements of ERISA.
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(ii) To the best of the Borrower's
knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay
benefits thereunder when due.
(iii) Neither the Borrower nor any
other member of the ERISA Group has instituted or intends to institute
proceedings to terminate any Plan.
(iv) No event requiring notice to
the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably
expected to occur with respect to any Plan, and no amendment with respect to
which security is required under Section 307 of ERISA has been made or is
reasonably expected to be made to any Plan.
(v) The aggregate actuarial
present value of all benefit liabilities (whether or not vested) under each
Plan, determined on a plan termination basis, as disclosed in, and as of the
date of, the most recent actuarial report for such Plan, does not exceed the
aggregate fair market value of the assets of such Plan.
(vi) Neither the Borrower nor any
other member of the ERISA Group has incurred or reasonably expects to incur any
material withdrawal liability under ERISA to any Multiemployer Plan or Multiple
Employer Plan. Neither the Borrower nor any other member of the ERISA Group has
been notified by any Multiemployer Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been terminated within the
meaning of Title IV of ERISA and, to the best knowledge of the Borrower, no
Multiemployer Plan or Multiple Employer Plan is reasonably expected to be
reorganized or terminated, within the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit
Arrangement is insured, the Borrower and all members of the ERISA Group have
paid when due all premiums required to be paid for all periods through the
Closing Date. To the extent that any Benefit Arrangement is funded other than
with insurance, the Borrower and all members of the ERISA Group have made when
due all contributions required to be paid for all periods through the Closing
Date.
(viii) All Plans, Benefit Arrangements
and Multiemployer Plans have been administered in accordance with their terms
and applicable Law.
6.1.24 Employment Matters.
Each of the Loan Parties is in compliance with the
Labor Contracts and all applicable federal, state and local labor and
employment Laws including those related to equal employment opportunity and
affirmative action, labor relations, minimum wage, overtime, child labor,
medical insurance continuation, worker adjustment and relocation notices,
immigration controls and worker and unemployment compensation, where the
failure to comply would constitute a Material Adverse Change. There are no
outstanding grievances, arbitration awards or appeals therefrom arising out of
the Labor Contracts or current or threatened strikes, picketing,
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handbilling or other work stoppages or slowdowns at facilities of any of the
Loan Parties which in any case would constitute a Material Adverse Change. The
Borrower has delivered to the Agent true and correct copies of each of the
Labor Contracts.
6.1.25 Environmental Matters.
Except as disclosed on Schedule 6.1.25:
(i) None of the Loan Parties or any
Subsidiaries of any Loan Party has received any Environmental Complaint from
any Official Body or private Person alleging that such Loan Party or Subsidiary
or any prior or subsequent owner of the Property is a potentially responsible
party under the Comprehensive Environmental Response, Cleanup and Liability
Act, 42 U.S.C. Section 9601, et seq., and none of the Loan Parties has any
reason to believe that such an Environmental Complaint might be received. There
are no pending or, to any Loan Party's knowledge, threatened Environmental
Complaints relating to any Loan Party or Subsidiary of any Loan Party or, to
any Loan Party's knowledge, any prior or subsequent owner of the Property
pertaining to, or arising out of, any Environmental Conditions.
(ii) Except for conditions,
violations or failures which individually and in the aggregate are not
reasonably likely to result in a Material Adverse Change, there are no
circumstances at, on or under the Property that constitute a breach of or
non-compliance with any of the Environmental Laws, and there are no present or,
to any Loan Party's knowledge, past Environmental Conditions at, on or under
the Property or, to any Loan Party's knowledge, at, on or under adjacent
property, that prevent compliance with the Environmental Laws at the Property.
(iii) Neither the Property nor any
structures, improvements, equipment, fixtures, activities or facilities thereon
or thereunder contain or use Regulated Substances except in material compliance
with Environmental Laws. There are no processes, facilities, operations,
equipment or any other activities at, on or under the Property, or, to any Loan
Party's knowledge, at, on or under adjacent property, that currently result in
the release or threatened release of Regulated Substances onto the Property,
except to the extent that such releases or threatened releases are not a
material breach of or otherwise not a material violation of the Environmental
Laws or are not likely to result in a Material Adverse Change.
(iv) There are no aboveground
storage tanks, underground storage tanks or underground piping associated with
such tanks, used for the management of Regulated Substances at, on or under the
Property that (a) do not have, to the extent required by Environmental Laws, a
full operational secondary containment system in place, and (b) are not
otherwise in material compliance with all Environmental Laws. There are no
abandoned underground storage tanks or underground piping associated with such
tanks, previously used for the management of Regulated Substances at, on or
under the Property that have not either been closed in place in accordance with
Environmental Laws or removed in material compliance with
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all applicable Environmental Laws and no contamination associated with the use
of such tanks exists on the Property that is not in material compliance with
Environmental Laws.
(v) Each Loan Party and each
Subsidiary of any Loan Party has all material permits, licenses,
authorizations, plans and approvals necessary under the Environmental Laws for
the conduct of the business of such Loan Party and Subsidiary as presently
conducted. Each Loan Party and each Subsidiary of any Loan Party has submitted
all material notices, reports and other filings required by the Environmental
Laws to be submitted to an Official Body which pertain to past and current
operations on the Property.
(vi) Except for violations which
individually and in the aggregate are not likely to result in a Material
Adverse Change, all past and present on-site generation, storage, processing,
treatment, recycling, reclamation, disposal or other use or management of
Regulated Substances at, on, or under the Property and all off-site
transportation, storage, processing, treatment, recycling, reclamation,
disposal or other use or management of Regulated Substances has been done in
accordance with the Environmental Laws.
6.1.26 Senior Debt Status.
The Obligations of each Loan Party under this
Agreement, the Notes, the Guaranty Agreement and each of the other Loan
Documents to which it is a party do rank and will rank at least pari passu in
priority of payment with all other Indebtedness of such Loan Party except
Indebtedness of such Loan Party to the extent secured by Permitted Liens. There
is no Lien upon or with respect to any of the properties or income of any Loan
Party or Subsidiary of any Loan Party which secures indebtedness or other
obligations of any Person except for Permitted Liens.
6.2 Updates to Schedules.
Should any of the information or disclosures provided
on any of the Schedules attached hereto become outdated or incorrect in any
material respect, the Loan Party shall promptly provide the Agent in writing
with such revisions or updates to such Schedule as may be necessary or
appropriate to update or correct same; provided, however, that the Borrower
shall not be required to update any Schedule that specifically relates to the
Closing Date and no Schedule shall be deemed to have been amended, modified or
superseded by any such correction or update, nor shall any breach of warranty
or representation resulting from the inaccuracy or incompleteness of any such
Schedule be deemed to have been cured thereby, unless and until the Required
Banks, in their sole and absolute discretion, shall have accepted in writing
such revisions or updates to such Schedule.
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7. CONDITIONS OF LENDING
The obligation of each Bank to make Loans and of the
Agent to issue Letters of Credit hereunder is subject to the performance by
each of the Loan Parties of its Obligations to be performed hereunder at or
prior to the making of any such Loans or issuance of such Letters of Credit and
to the satisfaction of the following further conditions:
7.1 First Loans.
On the Closing Date:
7.1.1 Officer's Certificate.
The representations and warranties of each of the
Loan Parties contained in Article 6 shall be true and accurate on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein), and each of the Loan Parties shall have performed and
complied with all covenants and conditions hereof, no Event of Default or
Potential Default under this Agreement shall have occurred and be continuing or
shall exist; and there shall be delivered to the Agent for the benefit of each
Bank a certificate of each of the Loan Parties, dated the Closing Date and
signed by the Chief Executive Officer, President or Chief Financial Officer of
each of the Loan Parties, to each such effect.
7.1.2 Secretary's Certificate.
There shall be delivered to the Agent for the benefit
of each Bank a certificate dated the Closing Date and signed by the Secretary
or an Assistant Secretary of each of the Loan Parties, certifying as
appropriate as to:
(i) all action taken by each Loan
Party in connection with this Agreement and the other Loan Documents;
(ii) the names of the officer or
officers authorized to sign this Agreement and the other Loan Documents and the
true signatures of such officer or officers and specifying the Authorized
Officers permitted to act on behalf of each Loan Party for purposes of this
Agreement and the true signatures of such officers, on which the Agent and each
Bank may conclusively rely; and
(iii) copies of its organizational
documents, including its certificate of incorporation and bylaws as in effect
on the Closing Date certified by the appropriate state official where such
documents are filed in a state office together with
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certificates from the appropriate state officials as to the continued existence
and good standing of each Loan Party in each state where organized or qualified
to do business.
7.1.3 Delivery of Loan Documents.
The Guaranty Agreement, Real Estate Collateral
Documents for all completed and open extended stay lodging facilities owned by
any Loan Party, Pledge Agreement, Intercompany Subordination Agreement and
Security Agreement shall have been duly executed and delivered to the Agent for
the benefit of the Banks, together with all appropriate financing statements
and appropriate stock powers and certificates evidencing the Shares and the
Partnership Interests (if any).
7.1.4 Opinion of Counsel.
There shall be delivered to the Agent for the benefit
of each Bank:
(i) a written opinion of Morris,
Manning & Martin, counsel for the Loan Parties, dated the Closing Date and in
form and substance satisfactory to the Agent and its counsel as to the matters
set forth in Exhibit 7.1.4(i) and as to such other matters incident to the
transactions contemplated herein as the Agent may reasonably request.
(ii) a written opinion of local
counsel for the Borrower in form and substance satisfactory to the Agent and
its counsel as to such maters relating to the Collateral Pool Properties to be
included in the Collateral Pool on the Closing Date as the Agent may reasonably
request.
7.1.5 Legal Details.
All legal details and proceedings in connection with
the transactions contemplated by the Agreement and the other Loan Documents
shall be in form and substance satisfactory to the Agent and counsel for the
Agent, and the Agent shall have received all such other counterpart originals
or certified or other copies of such documents and proceedings in connection
with such transactions, in form and substance satisfactory to the Agent and
said counsel, as the Agent or said counsel may reasonably request.
7.1.6 Payment of Fees.
The Borrower shall pay or cause to be paid to the
Agent for itself and for the account of the Banks to the extent not previously
paid all commitment and other fees accrued through the Closing Date and the
costs and expenses for which the Agent and the Banks are entitled to be
reimbursed.
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7.1.7 Consents.
All material consents required to effectuate the
transactions contemplated hereby as set forth on Schedule 6.1.13 shall have
been obtained.
7.1.8 Officer's Certificate Regarding MACs
and Minimum Market Capitalization.
Since December 31, 1995, no Material Adverse Change
in any Loan Party or Subsidiary of any Loan Party shall have occurred; prior to
the Closing Date, there shall be no material change in the management of any
Loan Party or Subsidiary of any Loan Party; the Borrower shall have completed
an initial public offering establishing that the Market Capitalization shall
not be less than $50,000,000 and there shall be delivered to the Agent for the
benefit of each Bank a certificate dated the Closing Date and signed by the
Chief Executive Officer, President or Chief Financial Officer of each Loan
Party to each such effect.
7.1.9 No Violation of Laws.
The making of the Loans shall not contravene any Law
applicable to any Loan Party or any of the Banks.
7.1.10 No Actions or Proceedings.
No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain damages in respect of this Agreement or the consummation of the
transactions contemplated hereby or which, in the Agent's sole discretion,
would make it inadvisable to consummate the transactions contemplated by this
Agreement or any of the other Loan Documents.
7.1.11 Collateral Pool Properties.
With respect to the Collateral Pool Properties which
are part of the Collateral Pool on the Closing Date, the Borrower shall have
delivered all documents and information required hereunder for inclusion of
such Collateral Pool Property into the Collateral Pool and the Banks shall have
approved the inclusion therein.
7.1.12 Quarterly Compliance Certificate.
The Borrower shall have delivered to the Agent for
the benefit of the Banks a duly completed certificate described in Section
8.3.3, dated the Closing Date, certified by the Chief Executive Officer,
President or Chief Financial Officer.
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7.2 Each Additional Loan.
At the time of making any Loans or issuing any Letters of
Credit other than Loans made or Letters of Credit issued on the Closing Date
hereunder and after giving effect to the proposed borrowings: the
representations and warranties of the Loan Parties contained in Article 6 shall
be true on and as of the date of such additional Loan or Letter of Credit with
the same effect as though such representations and warranties had been made on
and as of such date (except representations and warranties which expressly
relate solely to an earlier date or time, which representations and warranties
shall be true and correct on and as of the specific dates or times referred to
therein) and the Loan Parties shall have performed and complied with all
covenants and conditions hereof; no Event of Default or Potential Default shall
have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to
any Loan Party or Subsidiary of any Loan Party or any of the Banks; and the
Borrower shall have delivered to the Agent a duly executed and completed Loan
Request or application for a Letter of Credit as the case may be.
8. COVENANTS
8.1 Affirmative Covenants.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations under the Loan Documents and termination of the Revolving
Credit Commitments, the Borrower shall comply at all times with the following
affirmative covenants:
8.1.1 Preservation of Existence, Etc.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain its corporate existence and its license or
qualification and good standing in each jurisdiction in which its ownership or
lease of property or the nature of its business makes such license or
qualification necessary.
8.1.2 Payment of Liabilities, Including
Taxes, Etc.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, duly pay and discharge all liabilities to which it is subject
or which are asserted against it, promptly as and when the same shall become
due and payable, including all taxes, assessments and governmental charges upon
it or any of its properties, assets, income or profits, prior to the date on
which penalties attach thereto, except to the extent that such liabilities,
including taxes, assessments or charges, are being contested in good-faith and
by appropriate and lawful proceedings diligently conducted and for which such
reserve or other appropriate provisions, if any, as shall be required
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by GAAP shall have been made, but only to the extent that failure to discharge
any such liabilities would not result in any additional liability which would
adversely affect to a material extent the financial condition of any Loan Party
or Subsidiary of any Loan Party which would affect the Collateral, provided
that the Loan Parties and their Subsidiaries will pay all such liabilities
forthwith upon the commencement of proceedings to foreclose any Lien which may
have attached as security therefor.
8.1.3 Maintenance of Insurance.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, insure its properties and assets against loss or damage by
fire and such other insurable hazards as such assets are commonly insured
(including fire, extended coverage, property damage, workers' compensation,
public liability and business interruption insurance) and against other risks
(including errors and omissions) in such amounts as similar properties and
assets are insured by prudent companies in similar circumstances carrying on
similar businesses, and with reputable and financially sound insurers,
including self-insurance to the extent customary, all as reasonably acceptable
to the Agent and, with respect to the Collateral Pool Properties, the
requirements of Schedule 3.4.4 and the Real Estate Collateral Documents. At the
request of the Agent, the Loan Parties shall deliver (x) on the Closing Date
and annually thereafter an original certificate of insurance signed by the Loan
Parties' independent insurance broker describing and certifying as to the
existence of the insurance on the Collateral required to be maintained by this
Agreement and the other Loan Documents, together with a copy of the endorsement
described in the next sentence and as required by Schedule 3.4.4 and the Real
Estate Collateral Documents attached to such certificate and (y) from time to
time a summary schedule indicating all insurance then in force with respect to
each of the Loan Parties. Such policies of insurance shall contain special
endorsements, in form and substance reasonably acceptable to the Agent, which
shall specify the Agent as an additional insured, mortgagee and lender loss
payee as its interests may appear.
8.1.4 Maintenance of Properties and Leases.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in good repair, working order and condition (ordinary
wear and tear excepted) in accordance with the general practice of other
businesses of similar character and size, all of those properties useful or
necessary to its business, and from time to time, such Loan Party will make or
cause to be made all appropriate repairs, renewals or replacements thereof.
8.1.5 Maintenance of Patents, Trademarks, Etc.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect all patents, trademarks,
trade names, copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and business if the
failure so to maintain the same would constitute a Material Adverse Change.
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8.1.6 Visitation Rights.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, permit any of the officers or authorized employees or
representatives of the Agent or any of the Banks to visit and inspect any of
its properties and to examine and make excerpts from its books and records and
discuss its business affairs, finances and accounts with its officers, all in
such detail and at such times and as often as any of the Banks may reasonably
request, provided that each Bank shall provide the Borrower and the Agent with
reasonable notice prior to any visit or inspection. In the event any Bank
desires to conduct an audit of any Loan Party, such Bank shall make a
reasonable effort to conduct such audit contemporaneously with any audit to be
performed by the Agent.
8.1.7 Keeping of Records and Books of Account.
The Borrower shall, and shall cause each Subsidiary
of the Borrower to, maintain and keep proper books of record and account which
enable the Borrower and its Subsidiaries to issue financial statements in
accordance with GAAP and as otherwise required by applicable Laws of any
Official Body having jurisdiction over the Borrower or any Subsidiary of the
Borrower, and in which full, true and correct entries shall be made in all
material respects of all its dealings and business and financial affairs.
8.1.8 Plans and Benefit Arrangements.
The Borrower shall, and shall cause each member of
the ERISA Group to, comply with ERISA, the Internal Revenue Code and other
applicable Laws applicable to Plans and Benefit Arrangements except where such
failure, alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing, the
Borrower shall cause all of its Plans and all Plans maintained by any member of
the ERISA Group to be funded in accordance with the minimum funding
requirements of ERISA and shall make, and cause each member of the ERISA Group
to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
8.1.9 Compliance with Laws.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, comply with all applicable Laws, including all Environmental
Laws, in all respects, provided that it shall not be deemed to be a violation
of this Section 8.1.9 if any failure to comply with any Law would not result in
fines, penalties, remediation costs, other similar liabilities or injunctive
relief which in the aggregate would constitute a Material Adverse Change.
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8.1.10 Use of Proceeds.
The Borrower will use the proceeds of the Loans only
for lawful purposes in accordance with Sections 2.8 and such uses shall not
contravene any applicable Law or any other provision hereof.
8.1.11 Further Assurances.
Each Loan Party shall, from time to time, at its
expense, faithfully preserve and protect the Agent's Lien on and Prior Security
Interest in the Collateral as a continuing first priority perfected Lien,
subject only to Permitted Liens, and shall do such other acts and things as the
Agent in its sole discretion may deem necessary or advisable from time to time
in order to preserve, perfect and protect the Liens granted under the Loan
Documents and to exercise and enforce its rights and remedies thereunder with
respect to the Collateral.
8.1.12 Subordination of Intercompany Loans.
Each Loan Party shall cause any intercompany
Indebtedness, loans or advances owed by any Loan Party to any other Loan Party
to be subordinated pursuant to the terms of the Intercompany Subordination
Agreement.
8.1.13 NASDAQ Listed Company.
The common stock of the Borrower shall at all times
be listed for trading and be traded on The Nasdaq Stock Market.
8.1.14
8.2 Negative Covenants.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans and interest thereon, expiration or
termination of all Letters of Credit, satisfaction of all of the Loan Parties'
other Obligations hereunder and termination of the Revolving Credit
Commitments, the Loan Parties shall comply with the following negative
covenants:
8.2.1 Indebtedness.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time create, incur, assume or suffer
to exist any Indebtedness, except:
(i) Indebtedness under the Loan
Documents;
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(ii) Indebtedness of a Loan Party
which is secured by assets not included in the Collateral Pool and for which
the holder of such Indebtedness has no recourse against any assets of a Loan
Party other than the specific asset being purchased or financed, provided that
the sum of the Revolving Credit Commitments and any Indebtedness outstanding
under this clause (ii) shall not exceed at any time $50,000,000 in the
aggregate; and
(iii) Indebtedness which is
subordinated in accordance with the provisions of Section 8.1.12.
8.2.2 Liens.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time create, incur, assume or suffer
to exist any Lien on any of its property or assets, tangible or intangible, now
owned or hereafter acquired, or agree or become liable to do so, except
Permitted Liens.
8.2.3 Guaranties.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time, directly or indirectly, become
or be liable in respect of any Guaranty, or assume, guarantee, become surety
for, endorse or otherwise agree, become or remain directly or contingently
liable upon or with respect to any obligation or liability of any other Person,
except for Guaranties of Indebtedness of the Loan Parties permitted hereunder.
8.2.4 Loans and Investments.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time make or suffer to remain
outstanding any loan or advance to, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) in, or any other investment or interest in, or make any capital
contribution to, any other Person, or agree, become or remain liable to do any
of the foregoing, except:
(i) trade credit extended on usual
and customary terms in the ordinary course of business;
(ii) advances to employees to meet
expenses incurred by such employees in the ordinary course of business;
(iii) Permitted Investments; and
(iv) loans, advances and investments
in other Loan Parties.
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8.2.5 Dividends and Related Distributions.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, make or pay, or agree to become or remain
liable to make or pay, any dividend or other distribution of any nature
(whether in cash, property, securities or otherwise) on account of or in
respect of its shares of capital stock or partnership interests on account of
the purchase, redemption, retirement or acquisition of its shares of capital
stock (or warrants, options or rights therefor) or partnership interests,
except dividends or other distributions payable to another Loan Party.
8.2.6 Liquidations, Mergers, Consolidations,
Acquisitions.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs,
or become a party to any merger or consolidation, or acquire by purchase, lease
or otherwise all or substantially all of the assets or capital stock of any
other Person, provided that any Loan Party other than the Borrower may
consolidate or merge into another Loan Party.
8.2.7 Affiliate Transactions.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, enter into or carry out any transaction
(including purchasing property or services from or selling property or services
to any Affiliate of any Loan Party or other Person) unless such transaction is
not otherwise prohibited by this Agreement, is entered into in the ordinary
course of business upon fair and reasonable arm's-length terms and conditions
which are fully disclosed to the Agent and is in accordance with all applicable
Law.
8.2.8 Subsidiaries, Partnerships and Joint
Ventures.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, own or create directly or indirectly any
Subsidiaries other than (i) any Subsidiary which has joined this Agreement as
Guarantor on the Closing Date; and (ii) any Subsidiary formed after the Closing
Date which joins this Agreement as a Guarantor pursuant to Section 11.18,
provided that the Required Banks shall have consented to such formation and
joinder (such consent not to be unreasonably withheld) and that such Subsidiary
and the Loan Parties, as applicable, shall grant and cause to be perfected
first priority Liens to the Agent in the stock of or other ownership interests
in such Subsidiary. Each of the Loan Parties shall not become or agree to
become a general or limited partner in any general or limited partnership or a
joint venturer in any joint venture, except that the Loan Parties may be
general or limited partners in other Loan Parties.
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8.2.9 Continuation of or Change in Business.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than their
respective businesses, substantially as conducted and operated by such Loan
Party or Subsidiary during the present fiscal year, or reasonable extensions
thereof including the furnishing of development and management services to
third parties, and such Loan Party or Subsidiary shall not permit any material
change in such business.
8.2.10 Plans and Benefit Arrangements.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to:
(i) fail to satisfy the minimum
funding requirements of ERISA and the Internal Revenue Code with respect to any
Plan;
(ii) request a minimum funding
waiver from the Internal Revenue Service with respect to any Plan;
(iii) engage in a Prohibited
Transaction with any Plan, Benefit Arrangement or Multiemployer Plan which,
alone or in conjunction with any other circumstances or set of circumstances
resulting in liability under ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial
present value of all benefit liabilities (whether or not vested) under each
Plan, determined on a plan termination basis, as disclosed in the most recent
actuarial report completed with respect to such Plan, to exceed, as of any
actuarial valuation date, the fair market value of the assets of such Plan;
(v) fail to make when due any
contribution to any Multiemployer Plan that the Borrower or any member of the
ERISA Group may be required to make under any agreement relating to such
Multiemployer Plan, or any Law pertaining thereto;
(vi) withdraw (completely or
partially) from any Multiemployer Plan or withdraw (or be deemed under Section
4062(e) of ERISA to withdraw) from any Multiple Employer Plan, where any such
withdrawal is likely to result in a material liability of the Borrower or any
member of the ERISA Group;
(vii) terminate, or institute
proceedings to terminate, any Plan, where such termination is likely to result
in a material liability to the Borrower or any member of the ERISA Group;
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(viii) make any amendment to any Plan
with respect to which security is required under Section 307 of ERISA; or
(ix) fail to give any and all
notices and make all disclosures and governmental filings required under ERISA
or the Internal Revenue Code, where such failure is likely to result in a
Material Adverse Change.
8.2.11 Fiscal Year.
The Borrower shall not, and shall not permit any
Subsidiary of the Borrower to, change its fiscal year from the twelve-month
period beginning January 1 and ending December 31.
8.2.12 Changes in Organizational Documents.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, amend in any respect its certificate of
incorporation (including any provisions or resolutions relating to capital
stock), by- laws or other organizational documents without providing at least
thirty (30) calendar days' prior written notice to the Agent and the Banks and,
in the event such change would be adverse to the Banks as determined by the
Agent in its reasonable discretion, obtaining the prior written consent of the
Required Banks.
8.2.13 Minimum Debt Service Coverage Ratio.
The Loan Parties shall not permit the Debt Service
Coverage Ratio, calculated as of the end of each fiscal quarter for the fiscal
quarter then ended, to be less than 2.5 to 1.0.
8.2.14 Maximum Consolidated Debt to Market
Value Ratio.
The Loan Parties shall not at any time permit the
ratio of Consolidated Debt to Market Value to exceed 45%.
8.2.15 Maximum Floating Rate Debt.
The Loan Parties shall not at any time permit
Floating Rate Debt (excluding Indebtedness under this Agreement and
Indebtedness which is subject to an interest rate protection agreement
acceptable to the Agent) to exceed 20% of Consolidated Debt.
8.2.16 Minimum Tangible Net Worth.
The Loan Parties shall not at any time permit Consolidated Tangible Net
Worth to be less than the Base Net Worth.
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8.2.17 Geographical Restrictions.
The Loan Parties shall not permit (i) without the
prior written consent of the Banks, more than ten (10) extended stay lodging
facilities owned by the Loan Parties in the aggregate to be located in the
Atlanta, Georgia Standard Metropolitan Statistical Area or more than four (4)
such facilities to be located in the Charlotte, North Carolina Standard
Metropolitan Statistical Area and (ii) except as set forth in the preceding
clause, more than fifteen (15%) of such facilities to be located in any single
Standard Metropolitan Statistical Area.
8.2.18 Restrictions on Assets Under
Development and Land.
The Loan Parties shall not at any time permit the
aggregate book value, determined in accordance with GAAP, of (i) Assets under
Development and (ii) Land to exceed 35% of Market Value.
8.3 Reporting Requirements.
The Loan Parties, jointly and severally, covenant and
agree that until payment in full of the Loans and interest thereon, expiration
or termination of all Letters of Credit, satisfaction of all of the Loan
Parties' other Obligations hereunder and under the other Loan Documents and
termination of the Revolving Credit Commitments, the Loan Parties will furnish
or cause to be furnished to the Agent and each of the Banks:
8.3.1 Quarterly Financial Statements.
As soon as available and in any event within
forty-five (45) calendar days after the end of each of the first three fiscal
quarters in each fiscal year, financial statements of the Borrower, consisting
of a balance sheet as of the end of such fiscal quarter and related statements
of income, stockholders' equity and cash flows for the fiscal quarter then
ended and the fiscal year through that date, together with an operating
statement and an occupancy report for each Collateral Pool Property, all in
reasonable detail and certified (subject to normal year-end audit adjustments)
by the Chief Executive Officer, President or Chief Financial Officer of the
Borrower as having been prepared in accordance with GAAP, consistently applied,
and setting forth in comparative form the respective financial statements for
the corresponding date and period in the previous fiscal year.
8.3.2 Annual Financial Statements.
As soon as available and in any event within ninety
(90) days after the end of each fiscal year of the Borrower, financial
statements of the Borrower consisting of a balance sheet as of the end of such
fiscal year, and related statements of income, stockholders' equity and cash
flows for the fiscal year then ended, all in reasonable detail and setting
forth in comparative form the financial statements as of the end of and for the
preceding fiscal year, and certified by
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independent certified public accountants of nationally recognized standing
reasonably satisfactory to the Agent. The certificate or report of accountants
shall be free of qualifications (other than any consistency qualification that
may result from a change in the method used to prepare the financial statements
as to which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of
the Borrower under any of the Loan Documents, together with a letter of such
accountants substantially to the effect that, based upon their ordinary and
customary examination of the affairs of the Borrower, performed in connection
with the preparation of such consolidated financial statements, and in
accordance with generally accepted auditing standards, they are not aware of
the existence of any condition or event which constitutes an Event of Default
or Potential Default or, if they are aware of such condition or event, stating
the nature thereof and confirming the Borrower's calculations with respect to
the certificate to be delivered pursuant to Section 8.3.3 with respect to such
financial statements.
8.3.3 Certificate of the Borrower.
Concurrently with the financial statements of the
Borrower furnished to the Agent and to the Banks pursuant to Sections 8.3.1 and
8.3.2, a certificate of the Borrower signed by the Chief Executive Officer,
President or Chief Financial Officer of the Borrower, in the form of Exhibit
8.3.3, to the effect that, except as described pursuant to Section 8.3.4, (i)
the representations and warranties of the Loan Parties contained in Article 6
are true on and as of the date of such certificate with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which expressly relate solely to an
earlier date or time) and the Borrower has performed and complied with all
covenants and conditions hereof, (ii) no Event of Default or Potential Default
exists and is continuing on the date of such certificate, and (iii) containing
calculations in sufficient detail to demonstrate compliance as of the date of
the financial statements with all financial covenants contained in Section 8.2
and the covenant with respect to the Borrowing Base contained in Section
3.4.10, together with any supporting information which the Agent may from time
to time request.
8.3.4 Notice of Default.
Promptly after any officer of any Loan Party has
learned of the occurrence of an Event of Default or Potential Default, a
certificate signed by the Chief Executive Officer, President or Chief Financial
Officer of such Loan Party setting forth the details of such Event of Default
or Potential Default and the action which the such Loan Party proposes to take
with respect thereto.
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8.3.5 Notice of Litigation.
Promptly after the commencement thereof, notice of
all actions, suits, proceedings or investigations before or by any Official
Body or any other Person against any Loan Party or Subsidiary of any Loan Party
which relate to the Collateral, involve a claim or series of claims in excess
of $100,000 or which if adversely determined would constitute a Material
Adverse Change with respect to any Loan Party or Subsidiary of any Loan Party.
8.3.6 Budgets, Forecasts, Other Reports and
Information.
Promptly upon their becoming available to the
Borrower:
(i) the annual budget and any
forecasts or projections of the Borrower, to be supplied not later than thirty
(30) days prior to commencement of the fiscal year to which any of the
foregoing may be applicable,
(ii)a any reports including
management letters submitted to the Borrower by independent accountants in
connection with any annual, interim or special audit,
(iii) any reports, notices or proxy
statements generally distributed by the Borrower to its stockholders on a date
no later than the date supplied to the stockholders,
(iv) regular or periodic reports,
including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses,
filed by the Borrower with the Securities and Exchange Commission,
(v) a copy of any order in any
proceeding to which the Borrower or any of its Subsidiaries is a party issued
by any Official Body, and
(vi) such other reports and
information as the Agent or the Banks may from time to time reasonably request,
including without limitation information and reports to enable the Agent and
the Banks to evaluate the financial condition and cash flow of each of the Loan
Parties. The Borrower shall also notify the Banks promptly of the enactment or
adoption of any Law which may result in a Material Adverse Change with respect
to the Borrower.
8.3.7 Notices Regarding Plans and Benefit
Arrangements.
8.3.7.1 Certain Events.
Promptly upon becoming aware of the
occurrence thereof, notice (including the nature of the event and, when known,
any action taken or threatened by the Internal Revenue Service or the PBGC with
respect thereto) of:
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(i) any Reportable Event
with respect to the Borrower or any member of the ERISA Group (regardless of
whether the obligation to report said Reportable Event to the PBGC has been
waived),
(ii) any Prohibited Transaction
which could subject the Borrower or any member of the ERISA Group to a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Internal Revenue Code in connection with any Plan, Benefit
Arrangement or any trust created thereunder,
(iii) any assertion of material
withdrawal liability with respect to any Multiemployer Plan,
(iv) any partial or complete
withdrawal from a Multiemployer Plan by the Borrower or any member of the ERISA
Group under Title IV of ERISA (or assertion thereof), where such withdrawal is
likely to result in material withdrawal liability,
(v) any cessation of operations
(by the Borrower or any member of the ERISA Group) at a facility in the
circumstances described in Section 4063(e) of ERISA,
(vi) withdrawal by the Borrower or
any member of the ERISA Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or
any member of the ERISA Group to make a payment to a Plan required to avoid
imposition of a lien under Section 302(f) of ERISA,
(viii) the adoption of an amendment to
a Plan requiring the provision of security to such Plan pursuant to Section 307
of ERISA, or
(ix) any change in the actuarial
assumptions or funding methods used for any Plan, where the effect of such
change is to materially increase or materially reduce the unfunded benefit
liability or obligation to make periodic contributions.
8.3.7.2 Notices of Involuntary
Termination and Annual Reports.
Promptly after receipt thereof, copies of (a)
all notices received by the Borrower or any member of the ERISA Group of the
PBGC's intent to terminate any Plan administered or maintained by the Borrower
or any member of the ERISA Group, or to have a trustee appointed to administer
any such Plan; and (b) at the request of the Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
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actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or any
member of the ERISA Group, and schedules showing the amounts contributed to
each such Plan by or on behalf of the Borrower or any member of the ERISA Group
in which any of their personnel participate or from which such personnel may
derive a benefit, and each Schedule B (Actuarial Information) to the annual
report filed by the Borrower or any member of the ERISA Group with the Internal
Revenue Service with respect to each such Plan.
8.3.7.3 Notice of Voluntary
Termination.
Promptly upon the filing thereof, copies of
any Form 5310, or any successor or equivalent form to Form 5310, filed with the
PBGC in connection with the termination of any Plan.
9. DEFAULT
9.1 Events of Default.
An Event of Default shall mean the occurrence or existence of
any one or more of the following events or conditions (whatever the reason
therefor and whether voluntary, involuntary or effected by operation of Law):
9.1.1 Payments Under Loan Documents.
The Borrower shall fail to pay any principal of any
Loan (including scheduled installments, mandatory prepayments or the payment
due at maturity) or shall fail to pay any interest on any Loan or any other
amount owing hereunder or under the other Loan Documents after such principal,
interest or other amount becomes due in accordance with the terms hereof or
thereof;
9.1.2 Breach of Warranty.
Any representation or warranty made at any time by
any of the Loan Parties herein or by any of the Loan Parties in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or furnished;
9.1.3 Breach of Negative Covenants or
Visitation Rights.
Any of the Loan Parties shall default in the
observance or performance of any covenant contained in Section 8.1.6 or Section
8.2;
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9.1.4 Breach of Other Covenants.
Any of the Loan Parties shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of ten (10) Business Days after any officer of any Loan Party becomes
aware of the occurrence thereof (such grace period to be applicable only in the
event such default can be remedied by corrective action of the Loan Parties as
determined by the Agent in its sole discretion);
9.1.5 Defaults in Other Agreements or
Indebtedness.
A default or event of default shall occur at any time
under the terms of any other agreement involving borrowed money or the
extension of credit or any other Indebtedness under which any Loan Party or
Subsidiary of any Loan Party may be obligated as a borrower or guarantor in
excess of $250,000 in the aggregate, and such breach, default or event of
default consists of the failure to pay (beyond any period of grace permitted
with respect thereto, whether waived or not) any indebtedness when due (whether
at stated maturity, by acceleration or otherwise) or if such breach or default
permits or causes the acceleration of any indebtedness (whether or not such
right shall have been waived) or the termination of any commitment to lend;
9.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of
money in excess of $250,000 in the aggregate shall be entered against any Loan
Party by a court having jurisdiction in the premises, which judgment is not
discharged, vacated, bonded or stayed pending appeal within a period of thirty
(30) days from the date of entry;
9.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the party executing the same
or such party's successors and assigns (as permitted under the Loan Documents)
in accordance with the respective terms thereof or shall in any way be
terminated (except in accordance with its terms) or become or be declared
ineffective or inoperative or shall in any way be challenged or contested or
cease to give or provide the respective Liens, security interests, rights,
titles, interests, remedies, powers or privileges intended to be created
thereby;
9.1.8 Uninsured Losses; Proceedings Against
Assets.
There shall occur any material uninsured damage to or
loss, theft or destruction of any of the Collateral in excess of $250,000 or
the Collateral or any other of the Loan Parties' assets with a value in excess
of $250,000 in the aggregate are attached, seized, levied upon or subjected to
a writ or distress warrant; or such come within the possession of any
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receiver, trustee, custodian or assignee for the benefit of creditors and the
same is not cured within thirty (30) days thereafter;
9.1.9 Notice of Lien or Assessment.
A notice of Lien or assessment in excess of $250,000
which is not a Permitted Lien is filed of record with respect to all or any
part of any of the Loan Parties' assets by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time or times hereafter to
any one of these becomes payable and the same is not paid within thirty (30)
days after the same becomes payable;
9.1.10 Insolvency.
Any Loan Party ceases to be solvent or admits in
writing its inability to pay its debts as they mature;
9.1.11 Events Relating to Plans and Benefit
Arrangements.
Any of the following occurs: (i) any Reportable
Event, which the Agent determines in good-faith constitutes grounds for the
termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv)
the PBGC shall give notice of its intent to institute proceedings to terminate
any Plan or Plans or to appoint a trustee to administer or liquidate any Plan;
and, in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent
determines in good-faith that the amount of the Borrower's liability is likely
to exceed 10% of its Consolidated Tangible Net Worth; (v) the Borrower or any
member of the ERISA Group shall fail to make any contributions when due to a
Plan or a Multiemployer Plan; (vi) the Borrower or any member of the ERISA
Group shall make any amendment to a Plan with respect to which security is
required under Section 307 of ERISA; (vii) the Borrower or any member of the
ERISA Group shall withdraw completely or partially from a Multiemployer Plan;
(viii) the Borrower or any member of the ERISA Group shall withdraw (or shall
be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer
Plan; or (ix) any applicable Law is adopted, changed or interpreted by any
Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), the Agent determines in
good-faith that any such occurrence would be reasonably likely to materially
and adversely affect the total enterprise represented by the Borrower and the
other members of the ERISA Group;
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9.1.12 Cessation of Business.
Any Loan Party ceases to conduct its business as
contemplated or such Loan Party is enjoined, restrained or in any way prevented
by court order from conducting all or any material part of its business and
such injunction, restraint or other preventive order is not dismissed within
thirty (30) days after the entry thereof;
9.1.13 Change of Ownership or Control.
(i) Within a period of twelve (12) consecutive
calendar months, individuals who were directors of the Borrower on the first
day of such period shall cease to constitute a majority of the board of
directors of the Borrower; or (ii) the management shareholders, as identified
on Schedule 6.1.2, in the aggregate, shall own less than 2/3s of the Shares (as
adjusted from time to time to reflect any stock splits, stock dividends,
reorganizations or similar events) owned by such management shareholders in the
aggregate on the Closing Date;
9.1.14 Involuntary Proceedings.
A proceeding shall have been instituted in a court
having jurisdiction in the premises seeking a decree or order for relief in
respect of any Loan Party in an involuntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator, conservator (or similar official) of any Loan Party for
any substantial part of its property, or for the winding-up or liquidation of
its affairs, and such proceeding shall remain undismissed or unstayed and in
effect for a period of sixty (60) consecutive days or such court shall enter a
decree or order granting any of the relief sought in such proceeding; or
9.1.15 Voluntary Proceedings.
Any Loan Party shall commence a voluntary case under
any applicable bankruptcy, insolvency, reorganization or other similar law now
or hereafter in effect, shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or other similar official) of itself or for any
substantial part of its property or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action in furtherance of any of the foregoing.
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9.2 Consequences of Event of Default.
9.2.1 Events of Default Other Than
Bankruptcy, Insolvency or Reorganization Proceedings.
If an Event of Default specified under subsections
9.1.1 through 9.1.13 of Section 9.1 shall occur and be continuing, the Banks
and the Agent shall be under no further obligation to make Loans or issue
Letters of Credit, as the case may be, and the Agent may, and upon the request
of the Required Banks, shall (i) by written notice to the Borrower, declare the
unpaid principal amount of the Notes then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness of the Borrower to the
Banks hereunder and thereunder to be forthwith due and payable, and the same
shall thereupon become and be immediately due and payable to the Agent for the
benefit of each Bank without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived, and (ii) require the
Borrower to, and the Borrower shall thereupon, deposit in a non-interest
bearing account with the Agent, as cash collateral for its Obligations under
the Loan Documents, an amount equal to the maximum amount currently or at any
time thereafter available to be drawn on all outstanding Letters of Credit, and
the Borrower hereby pledges to the Agent and the Banks, and grants to the Agent
and the Banks a security interest in, all such cash as security for such
Obligations. Upon the curing of all existing Events of Default to the
satisfaction of the Required Banks, the Agent shall return such cash collateral
to the Borrower; and
9.2.2 Bankruptcy, Insolvency or Reorganization
Proceedings.
If an Event of Default specified under subsections
9.1.14 or 9.1.15 of Section 9.1 shall occur, the Banks shall be under no
further obligations to make Loans hereunder and the unpaid principal amount of
the Notes then outstanding and all interest accrued thereon, any unpaid fees
and all other Indebtedness of the Borrower to the Banks hereunder and
thereunder shall be immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived; and
9.2.3 Set-off.
If an Event of Default shall occur and be continuing,
any Bank to whom any Obligation is owed by any Loan Party hereunder or under
any other Loan Document or any participant of such Bank which has agreed in
writing to be bound by the provisions of Section 10.13 and any branch,
Subsidiary or Affiliate of such Bank or participant anywhere in the world shall
have the right, in addition to all other rights and remedies available to it,
without notice to such Loan Party, to set-off against and apply to the then
unpaid balance of all the Loans and all other Obligations of the Borrower and
the other Loan Parties hereunder or under any other Loan Document any debt
owing to, and any other funds held in any manner for the account of, the
Borrower or such other Loan Party by such Bank or participant or by such
branch, Subsidiary or Affiliate, including all funds in all deposit accounts
(whether time or demand,
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general or special, provisionally credited or finally credited, or otherwise)
now or hereafter maintained by the Borrower or such other Loan Party for its
own account (but not including funds held in custodian or trust accounts) with
such Bank or participant or such branch, Subsidiary or Affiliate. Such right
shall exist whether or not any Bank or the Agent shall have made any demand
under this Agreement or any other Loan Document, whether or not such debt owing
to or funds held for the account of the Borrower or such other Loan Party is or
are matured or unmatured and regardless of the existence or adequacy of any
Collateral, Guaranty or any other security, right or remedy available to any
Bank or the Agent; and
9.2.4 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing,
and whether or not the Agent shall have accelerated the maturity of Loans to
the Borrower pursuant to any of the foregoing provisions of this Section 9.2,
the Agent or any Bank, if owed any amount with respect to the Notes, may
proceed to protect and enforce its rights by suit in equity, action at law
and/or other appropriate proceeding, whether for the specific performance of
any covenant or agreement contained in this Agreement or the Notes, including
as permitted by applicable Law the obtaining of the ex parte appointment of a
receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Agent or such Bank; and
9.2.5 Application of Proceeds.
From and after the date on which the Agent has taken
any action pursuant to this Section 9.2 and until all Obligations of the Loan
Parties have been paid in full, any and all proceeds received by the Agent from
any sale or other disposition of the Collateral, or any part thereof, or the
exercise of any other remedy by the Agent, shall be applied as follows:
(i) first, to reimburse the Agent
and the Banks for out-of-pocket costs, expenses and disbursements, including
reasonable attorneys' and paralegals' fees and legal expenses, actually
incurred by the Agent or the Banks in connection with realizing on the
Collateral or collection of any Obligations of any of the Loan Parties under
any of the Loan Documents, including advances made by the Banks or any one of
them or the Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, the Collateral, including advances for
taxes, insurance, repairs and the like and reasonable expenses incurred to sell
or otherwise realize on, or prepare for sale or other realization on, any of
the Collateral;
(ii) second, to the repayment of all
Indebtedness then due and unpaid of the Loan Parties to the Banks incurred
under this Agreement or any of the Loan Documents, whether of principal,
interest, fees, expenses or otherwise, in such manner as the Agent may
determine in its discretion; and
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(iii) the balance, if any, as
required by Law; and
9.2.6 Other Rights and Remedies.
In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents (including
the Mortgage), the Agent shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable Law, all of which
rights and remedies shall be cumulative and non- exclusive, to the extent
permitted by Law. The Agent may, and upon the request of the Required Banks
shall, exercise all post-default rights granted to the Agent and the Banks
under the Loan Documents or applicable Law.
9.3 Notice of Sale.
Any notice required to be given by the Agent of a sale, lease,
or other disposition of the Collateral or any other intended action by the
Agent, if given ten (10) days prior to such proposed action, shall constitute
commercially reasonable and fair notice thereof to the Borrower.
10. THE AGENT
10.1 Appointment.
Each Bank hereby irrevocably designates, appoints and
authorizes PNC to act as Agent for such Bank under this Agreement to execute
and deliver or accept on behalf of each of the Banks the other Loan Documents.
Each Bank hereby irrevocably authorizes, and each holder of any Note by the
acceptance of a Note shall be deemed irrevocably to authorize, the Agent to
take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and any other instruments and agreements referred to
herein, and to exercise such powers and to perform such duties hereunder as are
specifically delegated to or required of the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. PNC Bank agrees
to act as the Agent on behalf of the Banks to the extent provided in this
Agreement.
10.2 Delegation of Duties.
The Agent may perform any of its duties hereunder by or
through agents or employees (provided such delegation does not constitute a
relinquishment of its duties as Agent) and, subject to Sections 10.5 and 10.6,
shall be entitled to engage and pay for the advice or services of any
attorneys, accountants or other experts concerning all matters pertaining to
its duties hereunder and to rely upon any advice so obtained.
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10.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and no implied covenants,
functions, responsibilities, duties, obligations, or liabilities shall be read
into this Agreement or otherwise exist. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by reason of
this Agreement a fiduciary or trust relationship in respect of any Bank; and
nothing in this Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of this
Agreement except as expressly set forth herein. Each Bank expressly
acknowledges (i) that the Agent has not made any representations or warranties
to it and that no act by the Agent hereafter taken, including any review of the
affairs of any of the Loan Parties, shall be deemed to constitute any
representation or warranty by the Agent to any Bank; (ii) that it has made and
will continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times
thereafter.
10.4 Actions in Discretion of Agent; Instructions from the
Banks.
The Agent agrees, upon the written request of the Required
Banks, to take or refrain from taking any action of the type specified as being
within the Agent's rights, powers or discretion herein, provided that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or any other Loan Document or
applicable Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of the Required
Banks or all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
10.6. Subject to the provisions of Section 10.6, no Bank shall have any right
of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
10.5 Reimbursement and Indemnification of Agent by the
Borrower.
The Borrower unconditionally agrees to pay or reimburse the
Agent and save the Agent harmless against (a) liability for the payment of all
reasonable out-of-pocket costs, expenses and disbursements, including fees and
expenses of counsel, appraisers and environmental consultants, actually
incurred by the Agent (i) in connection with the development, negotiation,
preparation, printing, execution, administration, syndication,
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interpretation and performance of this Agreement and the other Loan Documents,
(ii) relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (iii) in connection with the enforcement of this Agreement
or any other Loan Document or collection of amounts due hereunder or thereunder
or the proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (iv) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder, provided that
the Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements if the same results from the Agent's gross negligence
or willful misconduct, or if the Borrower was not given notice of the subject
claim and the opportunity to participate in the defense thereof, at its expense
(except that the Borrower shall remain liable to the extent such failure to
give notice does not result in a loss to the Borrower), or if the same results
from a compromise or settlement agreement entered into without the consent of
the Borrower, which shall not be unreasonably withheld. In addition, the
Borrower agrees to reimburse and pay all reasonable out-of-pocket expenses of
the Agent's regular employees and agents engaged periodically to perform audits
of the Loan Parties' books, records and business properties.
10.6 Exculpatory Provisions.
Neither the Agent nor any of its directors, officers,
employees, agents, attorneys or Affiliates shall (a) be liable to any Bank for
any action taken or omitted to be taken by it or them hereunder, or in
connection herewith including pursuant to any Loan Document, unless caused by
its or their own gross negligence or willful misconduct, (b) be responsible in
any manner to any of the Banks for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement or any other Loan
Documents or for any recital, representation, warranty, document, certificate,
report or statement herein or made or furnished under or in connection with
this Agreement or any other Loan Documents, or (c) be under any obligation to
any of the Banks to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions hereof or thereof on the part of
the Loan Parties, or the financial condition of the Loan Parties, or the
existence or possible existence of any Event of Default or Potential Default.
Neither the Agent nor any Bank nor any of their respective directors, officers,
employees, agents, attorneys or Affiliates shall be liable to any of the Loan
Parties for consequential damages resulting from any breach of contract, tort
or other wrong in connection with the negotiation, documentation,
administration or collection of the Loans or any of the Loan Documents.
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10.7 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the
extent not reimbursed by the Borrower and without limiting the Obligation of
the Borrower to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent, in its capacity
as such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by the Agent hereunder or
thereunder, provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements (a) if the same results from the
Agent's gross negligence or willful misconduct, or (b) if such Bank was not
given notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense (except that such Bank shall remain liable to
the extent such failure to give notice does not result in a loss to the Bank),
or (c) if the same results from a compromise and settlement agreement entered
into without the consent of such Bank, which shall not be unreasonably
withheld. In addition, each Bank agrees promptly upon demand to reimburse the
Agent (to the extent not reimbursed by the Borrower and without limiting the
Obligation of the Borrower to do so) in proportion to its Ratable Share for all
amounts due and payable by the Borrower to the Agent in connection with the
Agent's periodic audit of the Loan Parties' books, records and business
properties.
10.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent, certificate,
letter, cablegram, statement, order or other document or conversation by
telephone or otherwise believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons, and upon the advice
and opinions of counsel and other professional advisers selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
hereunder unless it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
10.9 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Potential Default or Event of Default unless the Agent
has received written notice from a Bank or the Borrower referring to this
Agreement, describing such Potential Default or Event of Default and stating
that such notice is a "notice of default."
10.10 Notices.
The Agent shall promptly send to each Bank a copy of all
notices received from the Borrower pursuant to the provisions of this Agreement
or the other Loan Documents
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promptly upon receipt thereof. The Agent shall promptly notify the Borrower and
the other Banks of each change in the Base Rate and the effective date thereof.
10.11 Banks in Their Individual Capacities.
With respect to its Revolving Credit Commitments and the
Revolving Credit Loans made by it, the Agent shall have the same rights and
powers hereunder as any other Bank and may exercise the same as though it were
not the Agent, and the term "Banks" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. PNC Bank and its
Affiliates and each of the Banks and their respective Affiliates may, without
liability to account, except as prohibited herein, make Loans to, accept
deposits from, discount drafts for, act as trustee under indentures of, and
generally engage in any kind of banking or trust business with, the Loan
Parties and their Affiliates, in the case of the Agent, as though it were not
acting as Agent hereunder and in the case of each Bank, as though such Bank
were not a Bank hereunder.
10.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as the
owner thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
10.13 Equalization of Banks.
The Banks and the holders of any participations in any Notes
agree among themselves that, with respect to all amounts received by any Bank
or any such holder for application on any Obligation hereunder or under any
Note or under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Banks and such holders
in proportion to their interests in payments under the Notes, except as
otherwise provided in Sections 4.4.2, 5.4.2 or 5.6.1. The Banks or any such
holder receiving any such amount shall purchase for cash from each of the other
Banks an interest in such Bank's Loans in such amount as shall result in a
ratable participation by the Banks and each such holder in the aggregate unpaid
amount under the Notes, provided that if all or any portion of such excess
amount is thereafter recovered from the Bank or the holder making such
purchase, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or the holder
making such purchase.
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10.14 Successor Agent.
The Agent (i) may resign as Agent or (ii) shall resign if such
resignation is required by Section 5.4.2, in either case of (i) or (ii) by
giving not less than thirty (30) days' prior written notice to the Borrower. If
the Agent shall resign under this Agreement, then either (a) the Required Banks
shall appoint from among the Banks a successor agent for the Banks, subject to
the consent of the Borrower, such consent not to be unreasonably withheld, or
(b) if a successor agent shall not be so appointed and approved within the
thirty (30) day period following the Agent's notice to the Banks of its
resignation, then the Agent shall appoint, with the consent of the Borrower,
such consent not to be unreasonably withheld, a successor agent who shall serve
as Agent until such time as the Required Banks appoint and the Borrower
consents to the appointment of a successor agent. Upon its appointment pursuant
to either clause (a) or (b) above, such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent, effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated without any other or further act
or deed on the part of such former Agent or any of the parties to this
Agreement. After the resignation of any Agent hereunder, the provisions of this
Article 10 shall inure to the benefit of such former Agent and such former
Agent shall not by reason of such resignation be deemed to be released from
liability for any actions taken or not taken by it while it was an Agent under
this Agreement.
10.15 Agent's Fee.
The Borrower shall pay to the Agent a nonrefundable fee per
annum (the "Agent's Fee") as set forth in that certain letter dated March 21,
1996 between the Borrower and PNC Securities, payable in equal quarterly
installments in arrears on the first Business Day of each calendar quarter
after the date hereof and on the date on which all Loans shall be paid in full,
all Letters of Credit shall have expired or have been terminated, the
Commitments shall have been terminated, and the Borrower shall have paid all of
its other monetary Obligations hereunder. The Agent's Fee shall continue to
accrue through such date.
10.16 Availability of Funds.
Unless the Agent shall have been notified by a Bank prior to
the date upon which a Loan is to be made that such Bank does not intend to make
available to the Agent such Bank's portion of such Loan, the Agent may assume
that such Bank has made or will make such proceeds available to the Agent on
such date and the Agent may, in reliance upon such assumption (but shall not be
required to), make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Bank,
the Agent shall be entitled to recover such amount on demand from such Bank
(or, if such Bank fails to pay such amount forthwith upon such demand from the
Borrower) together with interest thereon, in respect of each day during the
period commencing on the date such amount was made
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available to the Borrower and ending on the date the Agent recovers such
amount, at a rate per annum equal to the applicable interest rate in respect of
the Loan.
10.17 Calculations.
In the absence of gross negligence or willful misconduct, the
Agent shall not be liable for any error in computing the amount payable to any
Bank whether in respect of the Loans, fees or any other amounts due to the
Banks under this Agreement. In the event an error in computing any amount
payable to any Bank is made, the Agent, the Borrower and each affected Bank
shall, forthwith upon discovery of such error, make such adjustments as shall
be required to correct such error, and any compensation therefor will be
calculated at the Federal Funds Effective Rate.
10.18 Beneficiaries.
Except as expressly provided herein, the provisions of this
Article 10 are solely for the benefit of the Agent and the Banks, and the Loan
Parties shall not have any rights to rely on or enforce any of the provisions
hereof. In performing its functions and duties under this Agreement, the Agent
shall act solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any of the Loan Parties.
11. MISCELLANEOUS
11.1 Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the Agent,
acting on behalf of all the Banks, and the Borrower, on behalf of the Loan
Parties, may from time to time enter into written agreements amending or
changing any provision of this Agreement or any other Loan Document or the
rights of the Banks or the Loan Parties hereunder or thereunder, or may grant
written waivers or consents to a departure from the due performance of the
Obligations of the Loan Parties hereunder or thereunder. Any such agreement,
waiver or consent made with such written consent shall be effective to bind all
the Banks and the Loan Parties; provided, that, without the written consent of
all the Banks, no such agreement, waiver or consent may be made which will:
11.1.1 Increase of Commitment; Extension or Expiration
Date.
Increase the amount of the Revolving Credit Commitment
of any Bank hereunder or extend the Expiration Date;
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11.1.2 Extension of Payment; Reduction of
Principal Interest or Fees; Modification of Terms of Payment.
Whether or not any Loans are outstanding, extend the
time for payment of principal or interest of any Loan, the Commitment Fee or
any other fee payable to any Bank, or reduce the principal amount of or the
rate of interest borne by any Loan or reduce the Commitment Fee or any other
fee payable to any Bank, or otherwise affect the terms of payment of the
principal of or interest of any Loan, the Commitment Fee or any other fee
payable to any Bank;
11.1.3 Release of Collateral or Guarantor.
Except as permitted by Section 3.2, release any
Collateral, any Guarantor from its Obligations under the Guaranty Agreement or
any other security for any of the Loan Parties' Obligations; or
11.1.4 Miscellaneous
Amend Sections 5.2 [Pro Rata Treatment of Banks],
10.6 [Exculpatory Provisions] or 10.13 [Equalization of Banks] or this Section
11.1, alter any provision regarding the pro rata treatment of the Banks, change
the definition of Required Banks, or change any requirement providing for the
Banks or the Required Banks to authorize the taking of any action hereunder.
No agreement, waiver or consent which would modify
the interests, rights or obligations of the Agent in its capacity as Agent or
as the issuer of Letters of Credit shall be effective without the written
consent of the Agent.
11.2 No Implied Waivers; Cumulative Remedies; Writing
Required.
No course of dealing and no delay or failure of the Agent or
any Bank in exercising any right, power, remedy or privilege under this
Agreement or any other Loan Document shall affect any other or future exercise
thereof or operate as a waiver thereof, nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such
a right, power, remedy or privilege preclude any further exercise thereof or of
any other right, power, remedy or privilege. The rights and remedies of the
Agent and the Banks under this Agreement and any other Loan Documents are
cumulative and not exclusive of any rights or remedies which they would
otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of any Bank of any breach or default under this Agreement
or any such waiver of any provision or condition of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such writing.
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11.3 Reimbursement and Indemnification of Banks by the
Borrower; Taxes.
The Borrower agrees unconditionally upon demand to pay or
reimburse to each Bank (other than the Agent, as to which the Borrower's
Obligations are set forth in Section 10.5) and to save such Bank harmless
against (i) liability for the payment of all reasonable out-of-pocket costs,
expenses and disbursements (including fees and expenses of counsel for each
Bank except with respect to (a) and (b) below), incurred by such Bank (a) in
connection with the administration and interpretation of this Agreement, and
other instruments and documents to be delivered hereunder, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof, (c) in
connection with the enforcement of this Agreement or any other Loan Document,
or collection of amounts due hereunder or thereunder or the proof and
allowability of any claim arising under this Agreement or any other Loan
Document, whether in bankruptcy or receivership proceedings or otherwise, and
(d) in any workout, restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against such Bank, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by such Bank hereunder or thereunder, provided that
the Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements (A) if the same results from such Bank's gross
negligence or willful misconduct, or (B) if the Borrower was not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense (except that the Borrower shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrower), or (C) if
the same results from a compromise or settlement agreement entered into without
the consent of the Borrower, which shall not be unreasonably withheld. The
Banks will attempt to minimize the fees and expenses of legal counsel for the
Banks which are subject to reimbursement by the Borrower hereunder by
considering the usage of one law firm to represent the Banks and the Agent if
appropriate under the circumstances. The Borrower agrees unconditionally to pay
all stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Agent or any Bank to be payable
in connection with this Agreement or any other Loan Document, and the Borrower
agrees unconditionally to save the Agent and the Banks harmless from and
against any and all present or future claims, liabilities or losses with
respect to or resulting from any omission to pay or delay in paying any such
taxes, fees or impositions.
11.4 Holidays.
Whenever any payment or action to be made or taken hereunder
shall be stated to be due on a day which is not a Business Day, such payment or
action shall be made or taken on the next following Business Day (except as
provided in Section 4.2.1 with respect to Interest
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Periods under the Euro-Rate Option), and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
11.5 Funding by Branch, Subsidiary or Affiliate.
11.5.1 Notional Funding.
Each Bank shall have the right from time to time,
without notice to the Borrower, to deem any branch, Subsidiary or Affiliate
(which for the purposes of this Section 11.5 shall mean any corporation or
association which is directly or indirectly controlled by or is under direct or
indirect common control with any corporation or association which directly or
indirectly controls such Bank) of such Bank to have made, maintained or funded
any Loan to which the Euro-Rate Option applies at any time, provided that
immediately following (on the assumption that a payment were then due from the
Borrower to such other office), and as a result of such change, the Borrower
would not be under any greater financial obligation pursuant to Section 5.6
than it would have been in the absence of such change. Notional funding offices
may be selected by each Bank without regard to the Bank's actual methods of
making, maintaining or funding the Loans or any sources of funding actually
used by or available to such Bank.
11.5.2 Actual Funding.
Each Bank shall have the right from time to time to
make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of
such Bank to make or maintain such Loan subject to the last sentence of this
Section 11.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or
maintain any part of the Loans hereunder, all terms and conditions of this
Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such Loans were
made or maintained by such Bank, but in no event shall any Bank's use of such a
branch, Subsidiary or Affiliate to make or maintain any part of the Loans
hereunder cause such Bank or such branch, Subsidiary or Affiliate to incur any
cost or expenses payable by the Borrower hereunder or require the Borrower to
pay any other compensation to any Bank (including any expenses incurred or
payable pursuant to Section 5.6) which would otherwise not be incurred.
11. 6 Notices.
All notices, requests, demands, directions and other
communications (as used in this Section 11.6, collectively referred to as
"notices") given to or made upon any party hereto under the provisions of this
Agreement shall be by telephone or in writing (including telex or facsimile
communication) unless otherwise expressly permitted hereunder and shall be
delivered or sent by telex or facsimile to the respective parties at the
addresses and numbers set forth under their respective names on the signature
pages hereof or in accordance with any subsequent unrevoked written direction
from any party to the others. All notices shall, except as otherwise
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expressly herein provided, be effective (a) in the case of telex or facsimile,
when received, (b) in the case of hand- delivered notice, when hand-delivered,
(c) in the case of telephone, when telephoned, provided, however, that in order
to be effective, telephonic notices must be confirmed in writing no later than
the next day by letter, facsimile or telex, (d) if given by mail, four (4) days
after such communication is deposited in the mail with first-class postage
prepaid, return receipt requested, and (e) if given by any other means
(including by air courier), when delivered; provided, that notices to the Agent
shall not be effective until received. Any Bank giving any notice to any Loan
Party shall simultaneously send a copy thereof to the Agent, and the Agent
shall promptly notify the other Banks of the receipt by it of any such notice.
11.7 Severability.
The provisions of this Agreement are intended to be severable.
If any provision of this Agreement shall be held invalid or unenforceable in
whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
11.8 Governing Law.
Each Letter of Credit and Section 2.9 shall be subject to the
Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, as the same may be
revised or amended from time to time, and to the extent not inconsistent
therewith, the internal laws of the Commonwealth of Kentucky without regard to
its conflict of laws principles and the balance of this Agreement shall be
deemed to be a contract under the Laws of the Commonwealth of Kentucky and for
all purposes shall be governed by and construed and enforced in accordance with
the internal laws of the Commonwealth of Kentucky without regard to its
conflict of laws principles.
11.9 Prior Understanding.
This Agreement supersedes all prior understandings and
agreements, whether written or oral, between the parties hereto and thereto
relating to the transactions provided for herein and therein, including any
prior confidentiality agreements and commitments.
11.10 Duration; Survival.
All representations and warranties of the Loan Parties
contained herein or made in connection herewith shall survive the making of
Loans and issuance of Letters of Credit and shall not be waived by the
execution and delivery of this Agreement, any investigation by the Agent or the
Banks, the making of Loans, issuance of Letters of Credit, or payment in full
of the Loans. All covenants and agreements of the Loan Parties contained in
Sections 8.1, 8.2 and 8.3 herein shall continue in full force and effect from
and after the date hereof so long as the
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Borrower may borrow or request Letters of Credit hereunder and until
termination of the Revolving Credit Commitments and payment in full of the
Loans and expiration or termination of all Letters of Credit. All covenants and
agreements of the Borrower contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Article 5 and Sections
10.5, 10.7 and 11.3, shall survive payment in full of the Loans, expiration or
termination of the Letters of Credit and termination of the Revolving Credit
Commitments.
11.11 Successors and Assigns.
This Agreement shall be binding upon and shall inure to the
benefit of the Banks, the Agent, the Loan Parties and their respective
successors and assigns, except that none of the Loan Parties may assign or
transfer any of its rights and Obligations hereunder or any interest herein.
Each Bank may, at its own cost, make assignments of or sell participations in
all or any part of its Revolving Credit Commitment and the Loans made by it to
one or more banks or other entities, subject to the consent of the Borrower and
the Agent with respect to any assignee, such consent not to be unreasonably
withheld, and provided that assignments may not be made in amounts less than
$5,000,000 and provided, further, that, notwithstanding the foregoing, the
consent of the Borrower shall not be required at any time after the occurrence
of an Event of Default or Potential Default. In the case of an assignment, upon
receipt by the Agent of the Assignment and Assumption Agreement, the assignee
shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it had
been a signatory Bank hereunder, the Commitments in Section 2.1 shall be
adjusted accordingly, and upon surrender of any Note subject to such
assignment, the Borrower shall execute and deliver a new Note to the assignee
in an amount equal to the amount of the Revolving Credit Commitment assumed by
it and a new Revolving Credit Note to the assigning Bank in an amount equal to
the Revolving Credit Commitment retained by it hereunder. The assigning Bank
shall pay to the Agent a service fee in the amount of $3,500 for each
assignment. In the case of a participation, the participant shall only have the
rights specified in Section 9.2.3 (the participant's rights against such Bank
in respect of such participation to be those set forth in the agreement
executed by such Bank in favor of the participant relating thereto and not to
include any voting rights except with respect to changes of the type referenced
in clauses 11.1.1, 11.1.2, or 11.1.3 under Section 11.1), all of such Bank's
obligations under this Agreement or any other Loan Document shall remain
unchanged, and all amounts payable by any Loan Party hereunder or thereunder
shall be determined as if such Bank had not sold such participation. Any
assignee or participant which is not incorporated under the Laws of the United
States of America or a state thereof shall deliver to the Borrower and the
Agent the form of certificate described in Section 11.17 relating to federal
income tax withholding. Each Bank may furnish any publicly available
information concerning any Loan Party or its Subsidiaries and any other
information concerning any Loan Party or its Subsidiaries in the possession of
such Bank from time to time to assignees and participants (including
prospective assignees or participants),
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provided that such assignees and participants agree to be bound by the
provisions of Section 11.12.
11.12 Confidentiality.
The Agent and the Banks each agree to keep confidential all
information obtained from any Loan Party or its Subsidiaries which is nonpublic
and confidential or proprietary in nature (including any information the
Borrower specifically designates as confidential), except as provided below,
and to use such information only in connection with their respective capacities
under this Agreement and for the purposes contemplated hereby. The Agent and
the Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement, subject to agreement of such Persons to maintain the
confidentiality, (ii) to assignees and participants as contemplated by Section
11.11, (iii) to the extent requested by any bank regulatory authority or, with
notice to the Borrower, as otherwise required by applicable Law or by any
subpoena or similar legal process, or in connection with any investigation or
proceeding arising out of the transactions contemplated by this Agreement, (iv)
if it becomes publicly available other than as a result of a breach of this
Agreement or becomes available from a source not subject to confidentiality
restrictions, or (v) if the Borrower shall have consented to such disclosure.
11.13 Counterparts.
This Agreement may be executed by different parties hereto on
any number of separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
11.14 Agent's or Bank's Consent.
Whenever the Agent's or any Bank's consent is required to be
obtained under this Agreement or any of the other Loan Documents as a condition
to any action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
11.15 Exceptions.
The representations, warranties and covenants contained herein
shall be independent of each other, and no exception to any representation,
warranty or covenant shall be deemed to be an exception to any other
representation, warranty or covenant contained herein unless expressly
provided, nor shall any such exceptions be deemed to permit any action or
omission that would be in contravention of applicable Law.
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11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF THE CIRCUIT COURT OF JEFFERSON COUNTY AND THE
UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY, AND WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH
LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST
IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
11.17 Tax Withholding Clause.
Each Bank or assignee or participant of a bank that is not
incorporated under the Laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Agent two (2) duly
completed copies of the following: (i) Internal Revenue Service Form W-9, 4224
or 1001, or other applicable form prescribed by the Internal Revenue Service,
certifying that such Bank, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes, or is subject to such
tax at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue
Service Form W-8 or other applicable form or a certificate of the Bank,
assignee or participant indicating that no such exemption or reduced rate is
allowable with respect to such payments. Each Bank, assignee or participant
required to deliver to the Borrower and the Agent a form or certificate
pursuant to the preceding sentence shall deliver such form or certificate as
follows: (A) each Bank which is a party hereto on the Closing Date shall
deliver such form or certificate at least five (5) Business Days prior to the
first date on which any interest or fees are payable by the Borrower hereunder
for the account of each Bank; (B) each assignee or participant shall deliver
such form or certificate at least five (5) Business Days before the effective
date of such assignment or participation (unless the Agent in its sole
discretion shall permit such assignee or participant to deliver such form or
certificate less than five (5) Business Days before such date in which case it
shall be due on the date specified by the Agent). Each Bank, assignee or
participant which so delivers a Form W-8, W-9, 4224 or 1001 further undertakes
to deliver to each of the Borrower and the Agent two (2) additional copies of
such form (or a successor form) on or before the date that such form expires or
becomes obsolete or
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after the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Agent, either certifying
that such Bank, assignee or participant is entitled to receive payments under
this Agreement and the other Loan Documents without deduction or withholding of
any United States federal income taxes or is subject to such tax at a reduced
rate under an applicable tax treaty or stating that no such exemption or
reduced rate is allowable. The Agent shall be entitled to withhold United
States federal income taxes at the full withholding rate unless the Bank,
assignee or participant establishes an exemption or that it is subject to a
reduced rate as established pursuant to the above provisions.
11.18 Joinder of Guarantors.
Any Subsidiary of the Borrower which is required to join this
Agreement as a Guarantor pursuant to Section 8.2.8 shall execute and deliver to
the Agent (i) a Joinder in substantially the form attached hereto as Exhibit
1.1(G)(1) pursuant to which it shall join as a Guarantor each of the documents
to which the Guarantors are parties, (ii) documents in the forms described in
Section 7.1 [First Loans] modified as appropriate to relate to such Subsidiary;
and (iii) documents necessary to grant and perfect Prior Security Interests to
the Agent for the benefit of the Banks in all Collateral held by such
Subsidiary. The Loan Parties shall deliver such Joinder and related documents
to the Agent within five (5) Business Days after the date of the filing of such
Subsidiary's articles of incorporation if the Subsidiary is a corporation, the
date of the filing of its certificate of limited partnership if it is a limited
partnership or the date of its organization if it is an entity other than a
limited partnership or corporation.
11.19 LIMITATION OF LIABILITY.
TO THE FULLEST EXTENT PERMITTED BY LAW, NO CLAIM MAY BE MADE
BY THE BORROWER OR ANY OTHER LOAN PARTY OR ANY OTHER PERSON AGAINST THE AGENT
AND THE BANKS, OR ANY OF THEM, OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE,
ATTORNEY OR AGENT OF THE AGENT OR THE BANKS FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM ARISING FROM OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY STATEMENT, COURSE OF
CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH
(WHETHER FOR BREACH OF CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY); AND
EACH OF THE BORROWER AND THE OTHER LOAN PARTIES HEREBY WAIVE, RELEASE AND AGREE
NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND
WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
[SIGNATURE PAGES FOLLOW]
-85-
<PAGE> 95
[SIGNATURE PAGE 1 OF 3 TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.
ATTEST: SUBURBAN LODGES OF AMERICA,
INC.
By:
- -------------------------------- --------------------------------
Title:
-----------------------------
[Seal]
GUARANTORS:
ATTEST: SUBURBAN HOLDINGS, L.P.
By: Suburban Lodges of America, Inc.,
its sole general partner
By:
- -------------------------------- --------------------------------
Title:
-----------------------------
[Seal]
ATTEST: SLA DEVELOPMENT, INC.
By:
- -------------------------------- --------------------------------
Title:
-----------------------------
[Seal]
ATTEST: SUBURBAN MANAGEMENT, INC.
By:
- -------------------------------- --------------------------------
Title:
-----------------------------
[Seal]
-86-
<PAGE> 96
[SIGNATURE PAGE 2 OF 3 TO CREDIT AGREEMENT]
ATTEST: SUBURBAN FRANCHISE SYSTEMS,
INC.
By:
- -------------------------------- --------------------------------
Title:
-----------------------------
[Seal]
Address for Notices to Borrower and Each
Guarantor until October , 1996:
120 Interstate North Parkway East
Suite 120
Atlanta, GA 30339
Telecopier No. (770) 951-9510
Attention: David E. Krischer
Telephone No. (770) 951-9511
Address for Notices to Borrower and Each
Guarantor on and after October , 1996:
Telecopier No.
-----------------------
Attention: David E. Krischer
Telephone No.
-----------------------
-87-
<PAGE> 97
[SIGNATURE PAGE 3 OF 3 TO CREDIT AGREEMENT]
PNC BANK, KENTUCKY, INC.,
individually and as Agent
By:
-------------------------------
Title:
----------------------------
Address for Notices:
500 West Jefferson, Suite 1200
Louisville, KY 40202
Telecopier No. (502) 581-3919
Attention: Commercial Real Estate Lending
Telephone No. (502) 581-3334
-88-
<PAGE> 1
EXHIBIT 10.18
SUBLEASE
1. PARTIES
This Sublease, dated August 9, 1996, is made between Omni Insurance
Company ("Sublessor") and Suburban Lodges of America, Inc. ("Sublessee").
2. MASTER LEASE
Sublessor is the lessee under a written lease dated August 21, 1991,
leased to Sublessor the real property located in the County of Cobb,
State of Georgia, described as approximately 22,975 rentable square feet
at 1000 Parkwood Circle, Atlanta, Georgia 30339 ("Master Premises").
Said lease has been amended by the following amendments: First
Amendment, dated July 1, 1994 and Second Amendment dated November 4,
1994. Master Lease and the First and Second Amendments are attached
hereto as Exhibit "A".
3. PREMISES
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): 7749 Rentable Square Feet on the 8th floor of 1000
Parkwood Circle, Atlanta, Georgia 30339, as outlined in "red" and
attached hereto as Exhibit "B".
4. WARRANTY BY SUBLESSOR
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master
Lease, and that Sublessor has no knowledge of any claim by Lessor that
Sublessor is in default or breach of any of the provisions of the Master
Lease.
5. TERM
The term of this Sublease shall commence the later of October 1, 1996 or
forty-five (45) days following delivery to Sublessee of a fully executed
Sublease including Lessor's Consent ("Commencement Date"), and end on
August 31, 2000 ("Termination Date"). Sublessor and Sublessee shall
execute a memorandum setting forth the actual date of commencement of the
Term. Possession of the Premises ("Possession") shall be delivered to
Sublessee upon receipt of Lessor's written consent. Notwithstanding the
foregoing, if Sublessor has not delivered Possession to Sublessee by
September 7, 1996, then at any time thereafter and before deliver of
Possession, Sublessee may, but does not have the obligation to, give
written notice to Sublessor of Sublessee's intention to cancel this
Sublease. Said notice shall set forth an effective date for such
cancellation which shall be at least five (5) days after delivery of said
notice to Sublessor. If Sublessor delivers Possession to Sublessee on or
before such effective date, this Sublease shall remain in full force and
effect. If Sublessor fails to deliver Possession to Sublessee on or
before such effective date, this Sublease shall be canceled, in which
case all minimum rent previously paid by Sublessee to Sublessor on
account of this Sublease shall be returned to Sublessee, this Sublease
shall thereafter be of no further force or effect, and Sublessor shall
have not further liability to Sublessee on account of such delay or
cancellation. If Sublessor permits Sublessee to take Possession prior to
the
<PAGE> 2
commencement of the Term, such early Possession shall not advance
Termination Date and shall be subject to the provisions of this Sublease,
except that the obligation to pay rent shall begin on the Commencement
Date.
6. RENT
6.1 MINIMUM RENT
Sublessee shall pay to Sublessor as minimum rent, without
deduction, set off, notice, or demand, at Omni Insurance Company,
Suite 1000, 1000 Parkwood Circle, Atlanta, GA 30339 or at such
other place as Sublessor shall designate from time to time by
notice to Sublessee. Such rent shall be due and payable in advance
on the first day of each month of the Term.
The following monthly minimum rent schedule shall apply:
10/1/96 - 8/31/97 $ 8,852.75
9/1/97 - 3/31/98 $11,300.63
4/1/98 - 8/31/98 $11,623.50
9/1/98 - 8/31/99 $11,946.38
9/1/99 - 8/3/00 $12,269.25
Sublessee shall pay to Sublessor upon execution of this Sublease
the sum of eight thousand eight hundred fifty-two and 75/100
dollars ($8,852.75) as rent for the first month. If the Term
begins or ends on a day other than the first or last day of a
month, the rent for the partial month shall be prorated on a per
diem basis.
6.2 OPERATING COSTS. In accordance with the Master Lease,
Sublessee shall reimburse Sublessor for all increases in the
expenses of operating the building and/or project above the actual
pro-rata costs for operating the building for calendar year 1996.
Such additional rent shall be payable as and when Operating Costs
are payable by Sublessor to Lessor. If the Master Lease provides
for the payment by Sublessor for Operating Costs on the basis of an
estimate thereof, then as and when adjustments between estimated and
actual Operating Costs are made under the Master Lease, the
obligations of Sublessor and Sublessee hereunder shall be adjusted
in a like manner; and if any such adjustment shall occur after the
expiration or earlier termination of the Term, then the obligations
of Sublessor and Sublessee under this Subsection 6.2 shall survive
such expiration or termination. Sublessor shall, upon request by
Sublessee, furnish Sublessee with copies of all statements submitted
by Lessor of actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT
[Intentionally deleted]
8. USE OF PREMISES
-2-
<PAGE> 3
The Premises shall be used and occupied only for general administrative
and office purposes and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING
Sublessee shall not assign this Sublease or further sublet all or any
part of the Premises without the prior written consent of Sublessor, such
consent shall not be unreasonably be withheld or delayed (and the consent
of Lessor, if such is required under the terms of the Master Lease).
Notwithstanding the aforementioned, Sublessee may sublease all or a
portion of the premises without Sublessor's prior written consent to any
of Sublessee's affiliates, subsidiaries or company in which Sublessee has
a controlling interest, however, in the event of any sublease to an
affiliate, subsidiary or company in which Sublessee has a controlling
interest, Sublessee will remain fully liable for the full and complete
performance of Sublessee's obligations hereunder.
10. OTHER PROVISIONS OF SUBLEASE
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises the Master
Premises. Sublessee assumes and agrees to perform the lessee's
obligations under the Master Lease during the Term to the extent that
such obligations are applicable to the Premises, except that the
obligation to pay rent to Lessor under the Master Lease shall be
considered performed by Sublessee to the extent and in the amount rent is
paid to Sublessor in accordance with Section 6 of this Sublease.
Sublessee and Sublessor shall not commit or suffer any act or omission
that will violate any of the provisions of the Master Lease. Sublessor
shall exercise due diligence in attempting to cause Lessor to perform its
obligations under the Master Lease for the benefit of Sublessee. If the
Master Lease terminates, this Sublease shall terminate and the parties
shall be relieved of any further liability or obligation under this
Sublease, provided however, that if the Master Lease terminates as a
result of a default or breach by Sublessor or Sublessee under this
Sublease and/or the Master Lease, then the defaulting party shall be
liable to the non-defaulting party for all damage suffered as a result of
such termination. Notwithstanding the foregoing. If the Master Lease
given Sublessor any right to terminate the Master Lease in the event of
the partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder. If Sublessor exercises its option to renew
the premises, Sublessee shall have the automatic right/option to extend
the term of the sublease for two (2) thirty (30) day periods with written
notice to Sublessor no later than May 31, 2000. The minimum rent shall
be in an amount equal to the rent payable by the Sublessor in accordance
with the Sublessor's negotiated renewal terms.
11. BROKER
Sublessor and Sublessee warrant and represent that they have dealt with
no real estate broker in connection with this Sublease other than
COLLIERS CAUBLE & CO. ("Broker") and Alan Joel Properties, Inc.
("Co-Broker"), and that no other broker is entitled to any commission on
account of this Sublease. Pursuant to Georgia Real Estate Commission
Regulation 520-1-.08, in this transaction, COLLIERS CAUBLE & CO. and
-3-
<PAGE> 4
Company as broker represents the Sublessor, and Alan Joel Properties,
Inc. as co-broker represents the Sublessor, and Alan Joel Properties,
Inc. as co-broker represents Sublessee. Both Broker and Co-broker shall
receive their compensation from the Sublessor in accordance with Sublease
Listing Agreement dated January 11, 1996, by and between Colliers Cauble
& Co. (Broker) and Omni Insurance Company (Sublessor).
12. ATTORNEYS' FEES
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
13. TENANT IMPROVEMENTS
Improvements to the Sublease premises are subject to the prior written
approval of the Lessor. Sublessee shall improve the premises per the
plans attached as Exhibit "B" of this sublease, or as subsequently
modified and approved by Lessor. In consideration for such improvements
being completed, Sublessor shall contribute sixty-one thousand dollars
($61,000.00) to the Sublessee immediately upon presentation of bona-fide
invoice for such improvements.
14. SUBLESSEE'S DEFAULT
Sublessor shall provide sublessee ten (10) days prior written notice to
cure any monetary default. Sublessor shall provide sublessee thirty (30)
days written notice to cure any nonmonetary default, plus any additional
time as is reasonably necessary in the event such nonmonetary default is
incapable of being cured in thirty (30) days.
15. CONSENT BY LESSOR
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY
LESSOR WITHIN SIXTY (60) DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS
REQUIRED UNDER THE TERMS OF THE MASTER LEASE; WHICH CONSENT SHALL APPROVE
CERTAIN CONDITIONS MADE BY SUBLESSEE.
Date: August 8, 1996 Date: August 9, 1996
SUBLESSEE: Suburban Lodges of America, Inc. SUBLESSOR: Omni Insurance Company
By: /s/ By: /s/
------------ --------------------------- ------------ -----------------
Title: President Title: Senior Vice President
By: /s/ By:
----------- ---------------------------- -------------------------------
Title: Title:
-------------------------------------- ----------------------------
-4-
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Suburban Lodges of
America, Inc. on Form S-1 of our report on the financial statements of Suburban
Lodges of America, Inc. and Affiliated Entities dated March 17, 1996 (May 29,
1996 as to Notes 1 and 11) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to use under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 30, 1996
<PAGE> 2
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Suburban Lodges of
America, Inc. on Form S-1 of our report on the financial statements of Gulf
Coast Associates Ltd. d/b/a Suburban Lodge of Forest Park dated March 26, 1996
(May 29, 1996 as to Note 8) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to use under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 30, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-START> MAY-25-1996 MAY-25-1996
<PERIOD-END> AUG-01-1996 AUG-01-1996
<CASH> 687,432 19,709,360
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 906,159 20,571,522
<PP&E> 15,627,545 42,447,047
<DEPRECIATION> 1,990,982 2,410,890
<TOTAL-ASSETS> 15,004,248 61,218,620
<CURRENT-LIABILITIES> 2,779,801 2,577,644
<BONDS> 0 0
0 0
0 0
<COMMON> 15 85,495
<OTHER-SE> 99,675 58,555,481
<TOTAL-LIABILITY-AND-EQUITY> 15,004,248 61,218,620
<SALES> 0 0
<TOTAL-REVENUES> 5,187,347 6,413,023
<CGS> 0 0
<TOTAL-COSTS> 3,431,669 4,000,507
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,098,117 553,943
<INCOME-PRETAX> 657,561 2,205,800
<INCOME-TAX> (19,611) 585,860
<INCOME-CONTINUING> 677,172 1,619,940
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 677,172 1,619,940
<EPS-PRIMARY> 0 0.23
<EPS-DILUTED> 0 0
</TABLE>
