<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1996
REGISTRATION NO. 333-2876
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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.)
120 INTERSTATE NORTH PARKWAY EAST MR. DAVID E. KRISCHER
SUITE 120 PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATLANTA, GEORGIA 30339 120 INTERSTATE NORTH PARKWAY EAST
(770) 951-9511 SUITE 120
(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. RANDOLPH C. COLEY, ESQ.
KILPATRICK & CODY KING & SPALDING
1100 PEACHTREE STREET 191 PEACHTREE STREET, N.E.
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: / /
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- ------------------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Cover Page; Outside Back Cover
Page; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Outside Front Cover Page; Prospectus
Summary; Risk Factors
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page;
Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Outside Front Cover Page; Prospectus
Summary; Underwriting
9. Description of Securities to be Registered....... Description of Capital Stock
10. Interests of Named Experts and Counsel........... Experts
11. Information with Respect to the Registrant....... Outside and Inside Front Cover Pages;
Prospectus Summary; Risk Factors;
Corporate Organization;
Capitalization; Dividend Policy;
Selected Financial Data; Selected
Combined Historical Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal
Shareholders; Description of Capital
Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Management; Description of Capital
Stock
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE 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 MAY 7, 1996
3,000,000 SHARES
[SUBURBAN LODGE LOGO]
SUBURBAN LODGES OF AMERICA, INC.
COMMON STOCK
All of the 3,000,000 shares of Common Stock, $0.01 par value per share (the
"Common Stock"), offered hereby are being sold by Suburban Lodges of America,
Inc. (the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for quotation of the
Common Stock on The Nasdaq Stock Market upon notice of issuance, under the
proposed symbol "SLAM."
SEE "RISK FACTORS" 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.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Price Underwriting Proceeds to
to Public Discount(1) Company(2)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total(3)....................... $ $ $
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</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
$1,350,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 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
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
, 1996
<PAGE> 4
[A Map of the Eastern portion of the United States has been included which
shows the cities in which the Company has Existing, Construction and
Development Facilities].
EXISTING FACILITIES
COMPANY-OWNED:
Atlanta (Conyers), GA
Atlanta (Forest Park), GA
Atlanta (Fulton Industrial), GA
Atlanta (Mableton), GA
Atlanta (Norcross), GA
Birmingham (Oxmoor), AL
Charlotte (Matthews), NC
Greenville (Mauldin Road), SC
FRANCHISED:
Atlanta (Lilburn/Highway 78), GA
Atlanta (Marietta), GA
Atlanta (Stone Mountain), GA
Birmingham (Inverness/Greystone), AL
Birmingham (Riverchase/Pelham), AL
Savannah, GA
CONSTRUCTION FACILITIES
COMPANY-OWNED:
Atlanta (Douglasville), GA
Atlanta (Tara Blvd.), GA
Chesapeake, VA
Greenville (Wade Hampton Blvd.), NC
Knoxville (Kingston Pike), TN
Louisville (Preston Highway), KY
FRANCHISED:
Atlanta (Decatur), GA
Atlanta (Lawrenceville), GA
Atlanta (Indian Trail/I-85), GA
Atlanta (Roswell), GA
DEVELOPMENT FACILITIES
COMPANY-OWNED:
Atlanta (Northside Drive), GA
Charlotte (I-77), NC
Memphis (Ridgeway Road), TN
Newport News, VA
FRANCHISED:
Atlanta (Gwinnett Place Mall), GA
Jacksonville (Bay Meadows), FL
Louisville (Taylorsville Rd.), KY
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
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.
<PAGE> 5
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.
The information contained herein assumes that the transactions described under
"Corporate Organization" will occur simultaneously with the closing of the
Offering. Unless the context suggests otherwise, (i) references in this
Prospectus to the "Company" or "Suburban" mean Suburban Lodges of America, Inc.
and its subsidiaries, after giving effect to the Corporate Organization, (ii)
all information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised, (iii) all references to share and per share data have
been adjusted to reflect a stock split of approximately 2,421-for-1 effected in
conjunction with the Corporate Organization and (iv) statistical information
contained herein with respect to the lodging industry has been obtained from
Smith Travel Research.
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, which was founded in 1987, was
one of the first, and is one of the largest, lodging chains 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 $189 per week for single
occupancy and from $149 to $209 per week for double occupancy.
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 1995, there were approximately 40,000, or
1.2%, dedicated extended stay guest rooms at approximately 360 properties,
almost all of which are in the upscale segment of the extended stay market.
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. Based upon the high
occupancy rates of the existing Suburban Lodge facilities and published
occupancy rates for other participants in the extended stay market, 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.
The Company presently owns and operates eight Suburban Lodge facilities and
franchises six additional Suburban Lodge facilities located in four southeastern
states (collectively, the "Existing Facilities"). The Existing Facilities
contain an aggregate of 1,778 guest rooms, have an average of 127 guest rooms
and average approximately 3.3 years in age. The Company anticipates that an
additional 13 Suburban Lodge facilities, eight Company-owned and five
franchised, will open in 1996 resulting in an aggregate of 27 Suburban Lodge
facilities by year-end. Ten of these additional facilities, six Company-owned
and four franchised (collectively, the "Construction Facilities"), are currently
under construction. Management anticipates that by the end of the third quarter
of 1996 construction will commence on the three remaining facilities scheduled
to open in 1996 and an additional four facilities scheduled to open in 1997
(collectively, the "Development Facilities"). The Construction Facilities and
the Development Facilities are located in six southeastern states and are
expected to contain an aggregate of 2,319 guest rooms, representing a 130%
increase over the aggregate number of guest rooms in the Existing Facilities.
The Company intends to continue the growth of the Suburban Lodge chain in 1997
by opening approximately 26 to 28 additional Suburban Lodge facilities, 15 of
3
<PAGE> 6
which are expected to be Company-owned. The facilities expected to open in 1997
are in various stages of planning. There can be no assurance that the Company
and its franchisees will be able to complete the development of all of these
facilities, including the Construction Facilities and the Development
Facilities. See "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 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 its management team includes some of the most experienced developers and
operators in the economy extended stay market.
The Company believes that the following features differentiate the Suburban
Lodge system and its facilities from, and provide a competitive advantage over,
traditional 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 $550.16 for
extended stay hotels and $244.06 for lower economy hotels.
- 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, higher and more stable
occupancies and consistent revenues. The average stay during 1995 at the
Nine Mature Facilities was approximately six to seven weeks.
- HIGHER OCCUPANCY. Average occupancy at the Nine Mature Facilities during
1995 was 97.6%, which compares favorably to the average occupancy of 82.0%
for extended stay hotels and 62.8% for lower economy hotels during the
same period.
- 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 total
investment in the three most recently completed Company-owned Existing
Facilities was approximately $2.4 million, $3.1 million and $3.3 million
(or approximately $18,400, $22,600 and $23,600 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 excellent unit level economics. For the two most recently
completed Company-owned Existing Facilities with at least one quarter of
operations, one of which was open throughout 1995 and the other which
opened in August 1995, facility level earnings before interest, taxes and
depreciation for the year ended December 31, 1995, constituted 25.2% and
22.4% (based on annualized fourth quarter results less certain pre-opening
4
<PAGE> 7
expenses), 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' superior
unit economics are due, in part, to the fact that Suburban Lodge facilities
reach stabilization in a relatively short period after opening. On average, the
Nine Mature Facilities exceeded 80% occupancy within six weeks after opening or
acquisition by the Company.
- FRANCHISING OPPORTUNITIES. Suburban believes that the combination of its
experience in franchising, its strong relations with its six existing
franchisees, each of whom is an experienced independent real estate
developer, 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 achieved attractive growth,
operating results and returns on investment. From December 31, 1991 through
December 31, 1995, (i) the number of Suburban Lodge facilities in operation
increased from four to 12; (ii) average occupancy increased from 90.3% to 97.6%
for facilities open at least one year; (iii) average weekly rates increased from
$110.38 to $139.69 for facilities open at least one year, representing a
compound annual growth rate of approximately 6.1% and (iv) weekly revenue per
available room ("Weekly REVPAR") increased from $99.72 to $136.39 for facilities
open at least one year, representing a compound annual growth rate of 8.1%.
Immediately prior to, or simultaneously with, the closing of the Offering,
the Company will (i) acquire from certain partnerships and limited liability
companies (the "Affiliated Entities") owned in whole or in part by certain
affiliates of the Company, seven of the Existing Facilities and four of the
Construction Facilities (these facilities are referred to collectively as the
"Affiliated Facilities") and (ii) acquire from certain non-affiliated third
parties (the "Third Party Sellers") one of the Existing Facilities, two of the
Construction Facilities and two of the Development Facilities (the "Third Party
Facilities"). These transactions are referred to herein as the "Corporate
Organization." See "Corporate Organization" and "Certain Transactions."
Upon completion of the Offering, the Company's executive officers and
directors will beneficially own, in the aggregate, approximately 49.1% of the
outstanding Common Stock. See "Risk Factors -- Control of the Company by
Management" and "Principal Shareholders."
The Company was incorporated in Georgia in 1987, and its executive offices
are located at 120 Interstate North Parkway East, Suite 120, Atlanta, Georgia
30339, and its telephone number is (770) 951-9511.
5
<PAGE> 8
THE OFFERING
Common Stock offered by the
Company.......................... 3,000,000
Common Stock to be outstanding
after the Offering(1)............ 7,752,971
Use of proceeds.................. To repay indebtedness assumed in connection
with the acquisition of the Affiliated
Facilities and the Third Party Facilities,
to pay the cash portion of the purchase
prices for the Affiliated Facilities and
the Third Party Facilities, to finance the
development of additional Suburban Lodge
facilities and for other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq Stock Market
symbol........................... SLAM
- ---------------
(1) Includes 3,000,000 shares to be sold in the Offering, 1,163,039 shares to be
issued in the Corporate Organization, 3,586,932 shares outstanding after
giving effect to the stock split and 3,000 restricted shares granted to
non-employee directors under the Company's Non-Employee Directors' Stock
Option and Fee Plan (the "Directors' Plan"). Does not include 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 will be outstanding upon the closing of the
Offering, and 100,000 shares reserved for issuance under the Directors'
Plan pursuant to which options to purchase 4,500 shares will be outstanding
upon the closing of the Offering. See "Management -- 1996 Stock Incentive
Plans."
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 Affiliated Entities and
(ii) pro forma financial information for the Company presented as if the
Corporate Organization, the Offering and the use of the net proceeds therefrom
had occurred on January 1, 1995. The table includes operating data for the
Company-owned and franchised facilities since their respective dates of opening
or acquisition. Such data 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> 9
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH
YEAR ENDED DECEMBER 31, 31,
--------------------------------------------------- -------
1991 1992 1993 1994 1995 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue................................................. $ 2,055 $ 2,184 $ 2,893 $ 3,904 $ 4,431 $ 980
Other facility revenue....................................... 146 173 223 290 296 70
Franchise and other revenue.................................. 51 194 247 151 574 92
------- ------- ------- ------- ------- -------
Total revenue.......................................... 2,252 2,551 3,363 4,345 5,301 1,142
------- ------- ------- ------- ------- -------
Expenses:
Facility operating expenses.................................. 937 1,058 1,364 1,768 2,072 516
Corporate operating expenses................................. 336 378 429 737 883 170
Related party consulting fees................................ -- -- -- -- 17 3
Depreciation and amortization................................ 375 323 372 416 460 104
------- ------- ------- ------- ------- -------
Total expenses......................................... 1,648 1,759 2,165 2,921 3,432 793
------- ------- ------- ------- ------- -------
Operating income.............................................. 604 792 1,198 1,424 1,869 349
Interest expense.............................................. 782 614 725 936 1,098 225
------- ------- ------- ------- ------- -------
Income (loss) before income taxes and extraordinary income... (178) 178 473 488 771 124
Income taxes (benefit)(1)..................................... -- -- -- (14) (20) --
Extraordinary income from early extinguishment of debt........ -- -- -- 130 -- --
------- ------- ------- ------- ------- -------
Net income (loss)...................................... $ (178) $ 178 $ 473 $ 632 $ 791 $ 124
========= ========= ========= ========= ========= =========
Pro forma net income per share(2).............................
Pro forma weighted average shares outstanding(2)..............
<CAPTION>
THREE
MONTHS COMPANY PRO FORMA
ENDED ---------------------------------------
MARCH THREE MONTHS ENDED
31, YEAR ENDED MARCH 31,
------- DECEMBER 31, -----------------------
1996 1995 1995 1996
------- ------------ --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue................................................. $ 1,366 $ 5,282 $ 1,182 $ 1,608
Other facility revenue....................................... 86 345 82 110
Franchise and other revenue.................................. 253 465 75 232
------- ------------ --------- ---------
Total revenue.......................................... 1,705 6,092 1,339 1,950
------- ------------ --------- ---------
Expenses:
Facility operating expenses.................................. 653 2,458 619 762
Corporate operating expenses................................. 274 1,276 269 373
Related party consulting fees................................ 6 17 3 6
Depreciation and amortization................................ 116 697 163 174
------- ------------ --------- ---------
Total expenses......................................... 1,049 4,448 1,054 1,315
------- ------------ --------- ---------
Operating income.............................................. 656 1,644 285 635
Interest expense.............................................. 286 -- -- --
------- ------------ --------- ---------
Income (loss) before income taxes and extraordinary income... 370 1,644 285 635
Income taxes (benefit)(1)..................................... 26 617 105 238
Extraordinary income from early extinguishment of debt........ -- -- -- --
------- ------------ --------- ---------
Net income (loss)...................................... $ 344 $ 1,027 $ 180 $ 397
========= ============== =========== ===========
Pro forma net income per share(2)............................. $ 0.13 $ .05
============== ===========
Pro forma weighted average shares outstanding(2).............. 7,752,971 7,752,971
CASH FLOW DATA:
EBITDA(3)..................................................... $ 979 $ 1,115 $ 1,570 $ 1,840 $ 2,329 $ 453
Cash flows provided by (used in):
Operating activities......................................... (143) 399 879 929 1,305 295
Investing activities......................................... (129) (15) (2,349) (651) (4,791) (341)
Financing activities......................................... 348 (273) 1,561 (238) 3,707 128
OPERATING DATA(4):
Number of facilities open at end of period:
Company-owned................................................ 3 3 5 5 6 5
Franchised(5)................................................ 1 3 3 4 6 4
------- ------- ------- ------- ------- -------
System-wide................................................ 4 6 8 9 12 9
========= ========= ========= ========= ========= =========
<CAPTION>
CASH FLOW DATA:
<S> <C> <C> <C> <C>
EBITDA(3)..................................................... $ 772 -- -- --
Cash flows provided by (used in):
Operating activities......................................... 335 -- -- --
Investing activities......................................... (1,802) -- -- --
Financing activities......................................... 1,547 -- -- --
OPERATING DATA(4):
Number of facilities open at end of period:
Company-owned................................................ 6 7 6 7
Franchised(5)................................................ 7 5 3 6
------- ------------ --------- ---------
System-wide................................................ 13 12 9 13
========= ============== =========== ===========
Company-owned facilities:
Occupancy................................................... 90.9% 92.9% 95.5% 97.7% 95.8% 97.4%
Average weekly rate......................................... $111.34 $116.59 $121.96 $128.69 $136.77 $129.75
Weekly REVPAR(6)............................................ $101.26 $108.27 $116.47 $125.74 $130.93 $126.38
Franchised facilities(5):
Occupancy................................................... 88.4% 85.9% 96.8% 98.9% 93.2% 99.3%
Average weekly rate......................................... $107.42 $119.15 $123.21 $131.03 $146.34 $136.02
Weekly REVPAR(6)............................................ $ 94.96 $101.57 $119.23 $129.59 $135.44 $135.13
<CAPTION>
Company-owned facilities:
<S> <C> <C> <C> <C>
Occupancy................................................... 96.1% 96.3% 97.7% 96.5%
Average weekly rate......................................... $148.38 $ 135.91 $128.92 $148.62
Weekly REVPAR(6)............................................ $142.75 $ 130.76 $125.89 $143.45
Franchised facilities(5):
Occupancy................................................... 91.1% 91.6% 99.5% 89.7%
Average weekly rate......................................... $155.89 $ 150.54 $139.62 $157.00
Weekly REVPAR(6)............................................ $140.95 $ 137.01 $138.90 $139.71
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------
PRO FORMA(7) AS ADJUSTED(8)
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................................................................... $ 19,698 $ 42,563
Long-term debt......................................................................................... 15,780 --
Shareholders' equity................................................................................... 1,794 42,028
</TABLE>
7
<PAGE> 10
- ---------------
(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 7 to the Combined Financial
Statements.
(2) Pro forma per share information assumes that the 7,752,971 shares issued in
connection with the Corporate Organization, the related stock split and the
Offering were issued on January 1, 1995. Outstanding shares of Suburban
Lodges of America, Inc. differ substantially from the shares of Common
Stock that will be outstanding after the Offering. Accordingly, the Company
believes that the presentation of historical per share information 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 will be
acquired from a Third Party Seller, as a Company-owned facility.
(5) Data for the franchised facilities is not included in the financial and
operating data included above.
(6) Weekly REVPAR is determined by dividing room revenue by available guest
rooms for the applicable period and multiplying by seven.
(7) The pro forma balance sheet data is presented as if the Corporate
Organization had occurred on March 31, 1996 and does not give effect to the
Offering.
(8) The as adjusted pro forma balance sheet data is presented as if the
Corporate Organization, the sale by the Company of 3,000,000 shares of
Common Stock at an assumed initial public offering price of $15.00 per
share and the application of the net proceeds therefrom had occurred on
March 31, 1996.
8
<PAGE> 11
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 eight Company-owned facilities
during 1996, to complete approximately 15 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. As of the date of this Prospectus, the facilities
expected to open in 1997 are in various stages of planning, and the Company has
acquired or has an option to acquire the sites for five of these facilities.
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 total cost of each of the six Company-owned
Construction Facilities, including building structures, improvements, furniture,
fixtures, equipment, land and pre-opening costs, will range from $3.1 million to
$3.4 million (or approximately $23,300 to $26,500 per guest room). The Company
anticipates the total aggregate cost to open all of the Company-owned
Construction Facilities and Development Facilities will be $32.3 million. In the
past, Suburban Lodge facilities have, on average, reached 90% occupancy within
90 days of opening; however, there can be no assurance that each new facility
will obtain such figures within such time period.
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 commitment for a $50 million line of credit (the
"Line of Credit"), which it anticipates will be available upon the closing of
this Offering; however, $25 million of the Line of Credit is subject to
obtaining commitments from other lenders, and there can be no assurance that
such commitments 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
9
<PAGE> 12
Company may be able to procure are unknown at this time. Any future debt
financing 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 35.8% 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 49.1% of the outstanding shares of Common
Stock. By reason of such holdings, these shareholders acting as a group will be
able to control the affairs and policies of the Company and will be able to
elect a sufficient number of directors to control the Company's Board of
Directors and to approve or disapprove any matter submitted to a vote of the
shareholders, including certain fundamental corporate transactions (such as
certain mergers and sales of assets) requiring shareholder approval. See
"Principal Shareholders." The Board of Directors will control the declaration
and determination of the size of dividends.
FAIR MARKET VALUE OF FACILITIES CONTRIBUTED MAY BE LESS THAN CONSIDERATION PAID
Although the price of each Affiliated Facility and each Third Party
Facility was based on an appraisal performed by an independent appraiser, the
Affiliated Entities may not have been able to sell the facilities in the open
market to an unrelated third party at the same price. The Company, however,
believes that the terms of such transactions are fair to the Company. In
connection with the sale to the Company of the Affiliated Facilities, Messrs.
Krischer, Kuse and McGovern and their respective affiliates will receive
351,694, 227,122 and 150,364 shares of Common Stock, respectively, and $84,600,
$545,700 and $386,600 of cash, respectively. See "Corporate Organization" and
"Certain Transactions."
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 impact 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, name recognition, reputation, reservation systems and
convenience of
10
<PAGE> 13
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. 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
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 attempting to develop 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 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.
11
<PAGE> 14
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 names 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-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
Nine of the Existing Facilities are located in the State of Georgia, and
eight of such facilities are located in metropolitan Atlanta. See
"Business -- The Facilities." 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 the Company. However, 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
12
<PAGE> 15
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 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
13
<PAGE> 16
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 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") will be issued in respect of each share of Common Stock outstanding
upon the consummation of the Offering, including the shares issued in connection
with the Corporate Organization. Rights will also attach to shares of Common
Stock issued after the Corporate Organization and 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 tender offers or other
transactions which could result in shareholders receiving a premium over the
market price for the Common Stock. See "Description of Capital Stock -- Rights
Agreement."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for shares of the
Common Stock, and there can be no assurance that an active trading market will
develop or, if developed, will be sustained. The Company has been informed by
Montgomery Securities and J.C. Bradford & Co. that they intend to make a market
in the Common Stock following the Offering, although there can be no assurance
that they will make such a market. The initial public offering price of the
Common Stock will be determined through negotiations with the representatives of
the Underwriters. See "Underwriting" for the factors to be considered in
determining the initial public offering price of the shares of Common Stock.
VOLATILITY OF MARKET PRICE
After completion of the Offering, 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
14
<PAGE> 17
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 4,752,971 shares of Common Stock will become eligible for
sale in the public market at various times 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 these shares have agreed that they will not sell
any shares of Common Stock held by them (other than shares acquired in the
Offering or acquired thereafter in the public market) for a period of 180 days
from the date of this Prospectus, subject to certain exceptions, without the
consent of Montgomery Securities (one of the representatives of the
Underwriters), which may be withheld in its sole discretion. The Company intends
to register under the Securities Act, shortly after the completion of the
Offering, all shares reserved for issuance under the 1996 Plan and the
Directors' Plan. The Company has also granted "piggyback" registration rights to
the persons who will receive Common Stock in the Corporate Organization with
respect to the shares acquired in the Corporate Organization and all other
shares of Common Stock owned by such individuals. Accordingly, approximately
4,750,000 shares are subject to registration 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."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
an immediate and substantial dilution of $9.64 per share on a pro forma net
tangible book value basis. See "Dilution."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. See "Dividend Policy."
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<PAGE> 18
CORPORATE ORGANIZATION
Immediately prior to, or simultaneously with, the closing of the Offering,
the Company will, directly or through its subsidiaries, (i) acquire through
merger from certain partnerships and limited liability companies, in which
Messrs. Krischer, Kuse or McGovern and certain officers of the Company have
interests, seven of the Existing Facilities and four of the Construction
Facilities and (ii) acquire through merger or acquisition of assets from the
Third Party Sellers one of the Existing Facilities, two of the Construction
Facilities and two of the Development Facilities. In connection with these
transactions, the owners of the Affiliated Entities will receive shares of
Common Stock and cash. Two of the Third Party Sellers will receive a combination
of Common Stock and cash, two of the Third Party Sellers will receive all cash
and one of the Third Party Sellers will receive all Common Stock. The price to
be paid for each Affiliated Facility and each Third Party Facility was based
upon an appraisal performed by an independent appraiser. See "Risk
Factors -- Fair Market Value of Facilities Contributed May be Less than
Consideration Paid." After the completion of the Corporate Organization, all of
the facilities in which Messrs. Krischer, Kuse or McGovern and certain officers
of the Company have an ownership interest will be owned by the Company.
In connection with these transactions, the owners of the Affiliated
Entities will receive (i) an aggregate of 999,483 shares of Common Stock,
including 896,099 shares issuable to affiliates of the Company (including
351,694 shares issuable to Mr. Krischer, 227,122 shares issuable to Mr. Kuse and
his affiliates, 150,364 shares issuable to Mr. McGovern, an aggregate of 142,709
shares issuable to HS II Associates, L.P. and HS III Associates, L.P.
(significant investors in many of the Affiliated Entities and together the
second largest shareholder of the Company prior to the Corporate Organization,
hereinafter referred to as "HS Associates") and 24,210 shares issuable to the
other officers of the Company as a group) and (ii) $2.9 million in cash
(including $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). The Company will pay $385,000 in cash to acquire certain minority
interests in one of the Affiliated Entities and will pay a $100,000 development
fee (of which $25,000 is payable to Mr. Krischer). The Company will also assume
an aggregate of approximately $18.5 million of indebtedness secured by the
Affiliated Facilities and approximately $1.3 million owed to affiliates of the
Company, including approximately $144,700 to Mr. Krischer and his affiliates,
$1.1 million to Mr. Kuse and his affiliates and $84,000 to Mr. McGovern. See
"Certain Transactions." The acquisition of all but two of the Affiliated
Entities will be accounted for as if it was a pooling of interests. As a result,
there will be no increase in the carrying value of such interests. The purchase
method of accounting will be applied with respect to the acquisition of two of
the Affiliated Entities.
The aggregate purchase price for the Third Party Facilities is expected to
be approximately $12.7 million, which will be paid by the delivery to the Third
Party Sellers of approximately $4.7 million in cash and approximately 163,556
shares of Common Stock and includes the assumption of approximately $5.6 million
of debt secured by the Third Party Facilities. The purchase method of accounting
will be applied with respect to the acquisition of the Third Party Facilities.
As part of the Corporate Organization, the Company will effect a stock
split of approximately 2,421-for-1. The number of shares issued in the Corporate
Organization is based upon an assumed initial public offering price of $15.00
per share. Accordingly, the number of shares issued in the Corporate
Organization will vary based on the actual initial public offering price, and a
corresponding adjustment may be required to the stock split.
Immediately prior to consummation of the Corporate Organization, the
Affiliated Entities intend to distribute 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 owners of the Affiliated
Entities. As of March 31, 1996, the cash to be distributed to Mr. Krischer, as
agent, aggregated approximately $814,000. As of March 31, 1996, Messrs.
Krischer, Kuse and McGovern would have received approximately $245,000, $152,000
and $90,000, respectively, of such distributions after liquidation of certain
liabilities in the amount of approximately $323,000. Such distributions are
expected to reduce substantially the cash balances of the Affiliated Entities
immediately prior to the closing of the Offering.
16
<PAGE> 19
Each of the agreements pursuant to which the Company will acquire the
Affiliated Facilities and the Third Party Facilities contains standard
representations and warranties on the part of the sellers, including
representations and warranties regarding title to the acquired assets,
environmental matters, financial statements and undisclosed liabilities. Each
agreement also contains standard conditions to closing, including accuracy of
the representations and warranties made therein. In addition, the owners of the
Affiliated Entities and the Third Party Sellers have agreed, severally and not
jointly, to indemnify the Company, under certain limited circumstances, for
breaches of the representations and warranties made by the Affiliated Entities
and the Third Party Sellers in the acquisition agreements, including
representations and warranties regarding environmental matters.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $40.5 million ($46.8 million if the Underwriters' over-allotment
option is exercised in full) assuming an initial public offering price of $15.00
per share and after deduction of the underwriting discount and other estimated
offering expenses. The Company intends to use such net proceeds as follows:
<TABLE>
<S> <C>
Repayment of indebtedness assumed in connection with the Corporate
Organization......................................................... $25.8 million
Payment of cash in connection with the acquisition of facilities....... 7.6 million
Development of additional Suburban Lodge facilities and general
corporate purposes................................................... 7.1 million
-------------
Total........................................................ $40.5 million
===========
</TABLE>
Mortgage indebtedness to be repaid with a portion of the net proceeds of
the Offering ($13.3 million) bears interest, as of March 31, 1996, at annual
rates ranging from 8.5% to 10.75% and matures at various times from 1999 to
2018. Construction loans to be repaid with a portion of the net proceeds of the
Offering ($10.6 million) bear interest, as of March 31, 1996, at annual rates
ranging from 8.5% to 11.0% and mature in 2002. Indebtedness to be repaid to the
owners of the Affiliated Entities, including Messrs. Krischer, Kuse and McGovern
($1.9 million), bears interest at annual rates ranging from 10.0% to 12.5% and
matures at various times from 1996 to 2003. See Notes 3 and 6 of Notes to
Combined Financial Statements. Indebtedness incurred within the last year was
used for the development and construction of certain Company-owned Existing
Facilities, Construction Facilities and Development Facilities. See "Certain
Transactions."
Suburban intends to complete construction of the Company-owned Construction
Facilities and finance the development of the Company-owned Development
Facilities and other future developments with a portion of the net proceeds of
the Offering, cash flow from operations, borrowings under the Line of Credit and
future securities offerings. Suburban anticipates that the total development and
construction costs for completion of the Company-owned Construction Facilities
and the Company-owned Development Facilities will be approximately $22.2 million
and that after the application of a portion of the net proceeds of the Offering,
the Company will have to borrow approximately $15.2 million under the Line of
Credit to complete these facilities.
Pending use of the 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.
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.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the pro forma short-term debt and
capitalization of the Company as of March 31, 1996, as if the Corporate
Organization occurred on such date, and as adjusted to reflect the sale by the
Company of 3,000,000 shares of Common Stock at an assumed initial public
offering price of $15.00 per share 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>
MARCH 31, 1996
-----------------------
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt and capital lease obligations....... $ 536 $ --
Current portion of notes payable to affiliates........................ 1,053 --
--------- -----------
Total short-term debt......................................... $ 1,589 $ --
======== =========
Long-term debt and capital lease obligations............................ $15,168 $ --
Long-term notes payable to affiliates................................... 612 --
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; 4,752,971 shares issued and outstanding; 7,752,971
shares issued and outstanding, as adjusted(1)...................... 48 78
Additional paid-in capital............................................ 1,746 41,950
--------- -----------
Total shareholders' equity....................................... 1,794 42,028
--------- -----------
Total capitalization.......................................... $17,574 $42,028
======== =========
</TABLE>
- ---------------
(1) Does not include 750,000 shares of Common Stock reserved for issuance under
the 1996 Plan pursuant to which options to purchase 400,000 shares will be
outstanding upon the closing of the Offering, and 100,000 shares reserved
for issuance under the Directors' Plan pursuant to which options to
purchase 4,500 shares will be outstanding upon the closing of the Offering.
See "Management -- 1996 Stock Incentive Plans."
18
<PAGE> 21
DILUTION
As of March 31, 1996, the pro forma net tangible book value of the Company,
giving effect to the transactions (other than the Offering) described in the
notes to the pro forma consolidated balance sheet contained elsewhere in this
Prospectus, was approximately $1,308,000, or $0.28 per share of Common Stock.
Net tangible book value per share is defined as the book value of tangible
assets of the Company, less all liabilities, divided by the number of
outstanding shares of Common Stock. After giving effect to the Offering at an
assumed initial public offering price of $15.00 per share, and after deducting
estimated offering expenses and the underwriting discount, the pro forma net
tangible book value of the Company at March 31, 1996, would have been
approximately $41,558,000, or $5.36 per share. This represents an immediate
increase in such net tangible book value of $5.08 per share to the existing
shareholders and an immediate dilution of $9.64 per share to purchasers of
shares in the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $15.00
Pro forma net tangible book value per share as of March 31, 1996
(adjusted for the Corporate Organization, but excluding the net
proceeds of the Offering)........................................ $0.28
Increase in pro forma net tangible book value per share attributable
to payments by purchasers of shares in the Offering.............. 5.08
Pro forma net tangible book value per share after the Corporate
Organization and the Offering.................................... 5.36
------
Dilution per share to new investors................................... $ 9.64
======
</TABLE>
The following table summarizes, as of March 31, 1996, and after giving
effect to the Corporate Organization and the Offering, the differences between
(i) the existing shareholders, (ii) the owners of the Affiliated Entities and
the Third Party Sellers and (iii) the investors in the Offering, with respect to
the number of shares purchased, the total consideration paid to the Company and
the average price per share of Common Stock.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Shares owned by existing shareholders....... 3,586,932 46.3% $ 1,014 --% $ --
Shares issued in the Corporate
Organization.............................. 1,166,039 15.0 6,193,707 12.1 5.31
Shares purchased in the Offering............ 3,000,000 38.7 45,000,000 87.9 15.00
--------- ------- ----------- -------
Total............................. 7,752,971 100.0% $51,194,721 100.0%
======== ===== ========== =====
</TABLE>
The foregoing table excludes 750,000 shares of Common Stock reserved for
issuance pursuant to the 1996 Plan and 100,000 shares reserved for issuance
under the Directors' Plan. See "Management -- 1996 Stock Incentive Plans."
19
<PAGE> 22
SELECTED COMBINED HISTORICAL FINANCIAL DATA (1)
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES
(IN THOUSANDS, EXCEPT FOR 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 three month periods ended March 31, 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 three
months ended March 31, 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>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
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 $ 980 $ 1,366
Other facility revenue.................. 146 173 223 290 296 70 86
Franchise and other revenue............. 51 194 247 151 574 92 253
------- ------- ------- ------- ------- ------- -------
Total revenue......................... 2,252 2,551 3,363 4,345 5,301 1,142 1,705
------- ------- ------- ------- ------- ------- -------
Expenses:
Facility operating expenses............. 937 1,058 1,364 1,768 2,072 516 653
Corporate operating expenses............ 336 378 429 737 883 170 274
Related party consulting fees........... -- -- -- -- 17 3 6
Depreciation and amortization........... 375 323 372 416 460 104 116
------- ------- ------- ------- ------- ------- -------
Total expenses........................ 1,648 1,759 2,165 2,921 3,432 793 1,049
------- ------- ------- ------- ------- ------- -------
Operating income.......................... 604 792 1,198 1,424 1,869 349 656
Interest expense.......................... 782 614 725 936 1,098 225 286
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary income.................. (178) 178 473 488 771 124 370
Income taxes (benefit)(2)................. -- -- -- (14) (20) -- 26
Extraordinary income from early
extinguishment of debt.................. -- -- -- 130 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... ($ 178) $ 178 $ 473 $ 632 $ 791 $ 124 $ 344
======== ======== ======== ======== ======== ======== ========
CASH FLOW DATA:
EBITDA(3)................................. $ 979 $ 1,115 $ 1,570 $ 1,840 $ 2,329 $ 453 $ 772
Cash flows provided by (used in):
Operating activities.................... (143) 399 879 929 1,305 295 335
Investing activities.................... (129) (15) (2,349) (651) (4,791) (341) (1,802)
Financing activities.................... 348 (273) 1,561 (238) 3,707 128 1,547
(Notes on following page)
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of facilities open at end of
period:
Company-owned........................... 3 3 5 5 6 5 6
Franchised(4)........................... 1 3 3 4 6 4 7
------- ------- ------- ------- ------- ------- -------
System-wide........................... 4 6 8 9 12 9 13
======== ======== ======== ======== ======== ======== ========
Company-owned facilities:
Occupancy............................... 90.9% 92.9% 95.5% 97.7% 95.8% 97.4% 96.1%
Average weekly rate..................... $111.34 $116.59 $121.96 $128.69 $136.77 $129.75 $148.38
Weekly REVPAR(5)........................ $101.26 $108.27 $116.47 $125.74 $130.93 $126.38 $142.75
Franchised facilities(4):
Occupancy............................... 88.4% 85.9% 96.8% 98.9% 93.2% 99.3% 91.1%
Average weekly rate..................... $107.42 $119.15 $123.21 $131.03 $146.34 $136.02 $155.89
Weekly REVPAR(5)........................ $ 94.46 $101.57 $119.23 $129.59 $135.44 $135.13 $140.95
COMBINED BALANCE SHEET DATA:
Total assets............................ $ 6,101 $ 5,872 $ 9,097 $ 9,640 $15,004 $ 9,957 $16,820
Long-term debt.......................... 6,231 6,258 9,357 10,072 13,818 10,339 15,514
Shareholders' equity (deficit).......... (649) (623) (512) (692) 214 (706) 408
</TABLE>
- ---------------
(1) The table includes operating data for the Company-owned and franchised
facilities since their respective dates of opening or acquisition.
(2) 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 7 to the Combined Financial Statements.
(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) Data for the franchised facilities is not included in the financial and
operating data included above.
(5) Weekly REVPAR is determined by dividing room revenue by available guest
rooms for the applicable period and multiplying by seven.
21
<PAGE> 24
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SUBURBAN LODGES OF AMERICA, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTH
PERIODS ENDED MARCH 31, 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 three month periods ended March 31,
1995 and 1996 are presented as if the Corporate Organization, the Offering 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 the
combined statement of operations which 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.... 574 -- ($109)(A) 465
------- ------ ----------
Total revenue.......... 5,301 900 6,092
------- ------ ----------
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................. 1,869 277 1,644
Interest expense................. 1,098 307 (1,405)(D) --
Income taxes (benefit)........... (20) -- 637 (E) 617
------- ------ ----------
Net income (loss)................ $ 791 ($30) $ 1,027
=========== ================ =========
Pro forma net income per
share(F)....................... $ 0.13
=========
Pro forma weighted average shares
outstanding(F)................. 7,752,971
</TABLE>
- ---------------
(Notes on following page)
22
<PAGE> 25
(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 expected repayment of all
outstanding indebtedness from the proceeds of the Offering -- $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 Existing Facilities or the Construction Facilities because they 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.
(F) Pro forma per share information assumes that the 7,752,971 shares issued in
connection with the Corporate Organization and its related stock split and
the Offering were issued on January 1, 1995. Outstanding shares of Suburban
Lodges of America, Inc. differ substantially from the shares of Common
Stock that will be outstanding after the Offering. Accordingly, the Company
believes that the presentation of historical per share information is not
meaningful.
23
<PAGE> 26
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SUBURBAN LODGES OF AMERICA, INC.
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995 THREE MONTHS ENDED MARCH 31, 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)
---------------- ---------------- ------------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........ $ 980 $202 $ 1,182 $1,366 $242
Other facility
revenue........... 70 12 82 86 24
Franchise and other
revenue........... 92 -- $ (17)(A) 75 253 --
------ ----- --------- ------ -----
Total
revenue..... 1,142 214 1,339 1,705 266
------ ----- --------- ------ -----
Expenses:
Facility operating
expenses.......... 516 120 (17)(A) 619 653 130
Corporate operating
expenses.......... 170 -- 99(B) 269 274 --
Related party
consulting fees... 3 3 6
Depreciation and
amortization...... 104 32 27(C) 163 116 34
------ ----- --------- ------ -----
Total
expenses.... 793 152 1,054 1,049 164
------ ----- --------- ------ -----
Operating income...... 349 62 285 656 102
Interest expense...... 225 76 (301)(D) -- 286 76
Income taxes
(benefit)........... -- 105(E) 105 26 --
------ ----- --------- ------ -----
Net income (loss)..... $ 124 $(14) $ 180 $ 344 $ 26
============ ============ ======== ============ ============
Pro forma net income
per share(F)........
Pro forma weighted
average shares
outstanding(F)......
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
------------- ----------
<S> <C> <C>
Revenue:
Room revenue........ $ 1,608
Other facility
revenue........... 110
Franchise and other
revenue........... $ (21)(A) 232
----------
Total
revenue..... 1,950
----------
Expenses:
Facility operating
expenses.......... (21)(A) 762
Corporate operating
expenses.......... 99(B) 373
Related party
consulting fees... 6
Depreciation and
amortization...... 24(C) 174
----------
Total
expenses.... 1,315
----------
Operating income...... 635
Interest expense...... (362)(D) --
Income taxes
(benefit)........... 212(E) 238
----------
Net income (loss)..... $ 397
==========
Pro forma net income
per share(F)........ $ .05
==========
Pro forma weighted
average shares
outstanding(F)...... 7,752,971
==========
</TABLE>
(Notes on following page)
24
<PAGE> 27
(A) Reflects the elimination of certain intercompany transactions which are as
follows for 1995: (i) franchise costs -- $6 and (ii) management and
incentive fees -- $11. Such adjustments for 1996 are: (i) franchise
costs -- $8 and (ii) management and administrative fee -- $13.
(B) Reflects an increase for 1995 and 1996 in: (i) salaries and
benefits -- $27; (ii) audit and tax fees -- $16; (iii) legal
expenses -- $9; (iv) directors' fees, expenses and stock awards -- $10; (v)
directors' and officers' insurance -- $31 and (vi) additional
overhead -- $6; 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 -- $7 in 1995 and $10 in 1996; (ii)
the new amortization on deferred loan costs related to $25 million of the
Line of Credit -- $31 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 -- $3 in 1995 and 1996.
(D) Reflects reduction of interest expense due to the expected repayment of all
outstanding indebtedness from the proceeds of the Offering -- $225 in 1995
and $286 in 1996 and the elimination of interest expense on the Forest Park
Facility -- $76 in 1995 and 1996.
(E) Historical financial data does not include a provision for income taxes for
the Existing Facilities or the Construction Facilities because they 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.
(F) Pro forma per share information assumes that the 7,752,971 shares issued in
connection with the Corporate Organization and its related stock split and
the Offering were issued on January 1, 1995. Outstanding shares of Suburban
Lodges of America, Inc. differ substantially from the shares of Common
Stock that will be outstanding after the Offering. Accordingly, the Company
believes that the presentation of historical per share information is not
meaningful.
25
<PAGE> 28
PRO FORMA COMBINED BALANCE SHEET
SUBURBAN LODGES OF AMERICA, INC.
MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS)
The following unaudited pro forma combined balance sheet is presented as if
the Corporate Organization, the Offering at an assumed initial public offering
price of $15.00 per share and the application of the net proceeds therefrom had
occurred on March 31, 1996. See "Use of Proceeds." Such pro forma information is
based in part upon the unaudited historical combined balance sheet which 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 balance sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1996, nor does it purport to
represent the future financial position of the Company.
<TABLE>
<CAPTION>
SUBURBAN LODGES
OF AMERICA, INC. GULF COAST
AND ASSOCIATES, LTD.
AFFILIATED (FOREST PARK COMPANY
ENTITIES FACILITY) PRO
HISTORICAL HISTORICAL ELIMINATIONS(A) ADJUSTMENTS FORMA
---------------- ---------------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents... $ 767 $ 162 $ (162) $ 40,500 (B) $15,026
(3,800) (C)
(3,392) (D)
(15,704) (E)
(1,665) (E)
(250) (F)
(814) (G)
(131) (H)
(385) (I)
(100) (J)
Prepaid expenses and other
current assets............ 441 13 (13) 441
Advances to Affiliates...... 30 30
Current deferred tax
asset..................... 7 -- 7
-------- ------- -------
Total current
assets............. 1,245 175 15,504
-------- ------- -------
Deferred expenses, net........ 449 -- 250 (F) 250
-------- -------
(449) (K)
Investments in facilities, at
cost........................ 17,222 3,145 (625) 1,280 (C) 28,722
7,700 (D)
Accumulated depreciation...... (2,096) (625) 625 (2,096 )
-------- ------- -------
Net investment in
facilities................ 15,126 2,520 26,626
Deferred taxes and other
assets...................... -- 7 (7) 183 (L) 183
-------- ------- -------
Total assets......... $ 16,820 $2,702 $42,563
============== ============== ========
(Notes on following page)
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
SUBURBAN LODGES
OF AMERICA, INC. GULF COAST
AND ASSOCIATES, LTD.
AFFILIATED (FOREST PARK COMPANY
ENTITIES FACILITY) PRO
HISTORICAL HISTORICAL ELIMINATIONS(A) ADJUSTMENTS FORMA
---------------- ---------------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term
debt and
capital lease
obligations............... $ 536 $2,728 $(2,728) $ (536) (E) $ --
Current portion of notes
payable to affiliates..... 1,053 -- (1,053) (E) --
Accounts payable............ 150 47 (47) (62) (M) 88
Construction accounts
payable................... 336 -- 336
Accrued interest............ 131 -- (131) (H) --
Accrued expenses and
other..................... 281 222 (222) (170) (M) 111
-------- ------- -------
Total current
liabilities........ 2,487 2,997 535
Long-term debt and capital
lease obligations........... 13,313 -- (15,168) (E) --
1,855 (D)
Long-term notes payable to
affiliates.................. 612 448 (448) (612) (E) --
-------- ------- -------
Total liabilities.... 16,412 3,445 535
Preferred stock, $1.00 par
value: 5,000,000 shares
authorized, none issued..... -- -- --
Shareholders' equity:
Common stock............ -- -- 78 (N) 78
Additional paid-in
capital.............. 1 -- 40,500 (B) 41,950
2,453 (D)
(449) (K)
(814) (G)
232 (M)
(385) (I)
(100) (J)
(1,520) (O)
1,927 (P)
(78) (N)
183 (L)
Retained deficit........ (1,520) -- 1,520 (O) --
Partners' capital (deficit)... 1,927 (743) 3,263 (1,927) (P) --
-------- ------- -------
(2,520) (C)
Total shareholders'
equity and
partners'
capital............ 408 (743) 42,028
-------- ------- -------
Total liabilities and
shareholders'
equity............. $ 16,820 $2,702 $42,563
============== ============== ========
</TABLE>
- ---------------
(A) Reflects the elimination of (i) assets not acquired ($182) and (ii)
liabilities not assumed ($3,445) in connection with the purchase of the
Forest Park Facility from the net proceeds of the Offering.
(B) Reflects the proceeds of the Offering of 3,000,000 shares of Common Stock
($45,000) net of related expenses ($4,500).
27
<PAGE> 30
(C) Reflects the purchase of the Forest Park Facility for cash ($3,800) from
the net proceeds of the Offering. The Forest Park Facility is accounted for
at its acquisition cost. The price has been preliminarily allocated to land
($600), buildings ($2,698) and fixtures and equipment ($502). Such
allocation is based upon estimates and may be subject to revision.
(D) Reflects the purchase of the Company-owned Construction and Company-owned
Development Facilities for a total consideration of $7,700 composed of cash
from the net proceeds of the Offering ($3,392), assumed construction debt
($1,855), and 163,556 shares of Common Stock issued in conjunction with the
Corporate Organization ($2,453). Such facilities are recorded at their
acquisition cost and are recorded as construction-in-progress until
completion. The Company anticipates that the total development and
construction costs for completion of the Company-owned Construction
Facilities and the Company-owned Development Facilities will be
approximately $22.2 million and that after application of the net proceeds
of the Offering, it will have to borrow approximately $15.2 million under
the Line of Credit to complete these facilities.
(E) Reflects the repayment of long-term debt and capital lease obligations
($15,704) and notes payable to Affiliates ($1,665) from the net proceeds of
the Offering.
(F) Reflects the payment of deferred financing costs on the Line of Credit from
the net proceeds of the Offering ($250).
(G) Represents cash and cash equivalents not acquired and distributed to Mr.
Krischer, as agent for the purpose of liquidating current liabilities and
making final distributions with respect to the Affiliated Entities, in
conjunction with the Corporate Organization ($814).
(H) Represents accrued interest on long-term debt ($80) and notes payable to
Affiliates ($51) paid from the net proceeds of the Offering.
(I) Cash distributions ($385) to partners in an Affiliated Entity in exchange
for their 8% interest in such partnership in connection with the Corporate
Organization.
(J) Cash distribution to certain partners in the Conyers Facility in payment of
a development fee ($100) in connection with the Corporate Organization.
(K) Reflects the elimination of deferred financing costs related to debt to be
repaid from the net proceeds of the Offering ($449).
(L) Represents the establishment of deferred taxes at the effective rate of
37.5% for the difference between the book and tax basis of assets at March
31, 1996 ($183).
(M) Represents accounts payable ($62) and accrued expenses ($170) not assumed
in the Corporate Organization.
(N) Reflects the reclassification of (i) the par value of 3,000,000 shares of
Common Stock to be issued in the Offering ($30); (ii) the par value of
163,556 shares of Common Stock issued for the Company-owned Construction
and the Company-owned Development Facilities acquired from Third-Party
Sellers ($2); (iii) the par value of 999,483 shares of Common Stock issued
to owners of the Affiliated Entities, accounted for as if it were a pooling
of interests, in conjunction with the Corporate Organization ($10) and (iv)
the par value of 3,585,451 shares of Common Stock issued in connection with
the stock split effected in connection with the Corporate Organization
($36).
(O) Reflects the reclassification of retained deficit to additional paid-in
capital ($1,520) in connection with the Corporate Organization.
(P) Reflects the reclassification of partners' capital to additional paid-in
capital ($1,927) in connection with the Corporate Organization.
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Formed in 1987, the Company presently owns and operates eight Suburban
Lodge facilities and franchises six additional Suburban Lodge facilities located
in four southeastern states. These Existing Facilities contain an aggregate of
1,778 guest rooms and have an average of 127 guest rooms. The Company
anticipates that an additional 13 Suburban Lodge facilities, eight Company-owned
and five franchised, will open in 1996 resulting in an aggregate of 27 Suburban
Lodge facilities by year-end. Ten of these additional facilities, six
Company-owned and four franchised, are currently under construction. Management
anticipates that by the end of the third quarter of 1996 construction will
commence on the three remaining facilities scheduled to open in 1996 and an
additional four facilities scheduled to open in 1997. There can be no assurance
that the Company and its franchisees will be able to complete the development of
the Construction Facilities and the Development Facilities. See "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
commitment for a Line of Credit to fund future development projects, including
the Development Facilities, 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 discussion of results of operations relates only to the
Company and the Company-owned Existing Facilities, exclusive of the Forest Park
facility, which was owned by one of the Third Party Sellers during the stated
periods. 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
-------------------------------------
THREE MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
--------------------- -------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Room revenue............................................... 86.0% 89.9% 83.6% 85.8% 80.1%
Other facility revenue..................................... 6.7 6.7 5.6 6.1 5.1
Franchise and other revenue................................ 7.3 3.4 10.8 8.1 14.8
----- ----- ----- ----- -----
Total revenue.................................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Facility operating expenses................................ 40.6 40.7 39.1 45.2 38.3
Corporate operating expenses and related party consulting
fees..................................................... 12.8 17.0 17.0 15.1 16.4
Depreciation and amortization.............................. 11.1 9.6 8.7 9.1 6.8
----- ----- ----- ----- -----
Total expenses................................... 64.5 67.3 64.8 69.4 61.5
----- ----- ----- ----- -----
Operating income........................................... 35.5% 32.7% 35.2% 30.6% 38.5%
===== ===== ===== ===== =====
</TABLE>
29
<PAGE> 32
The following table sets forth certain information with respect to facility
level operating performance for the periods indicated, which the Company
believes is important in assessing its operating performance.
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES
-------------------------------------
THREE MONTHS
YEAR ENDED ENDED MARCH
DECEMBER 31, 31,
--------------------- -------------
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% 49.1% 44.9%
Facility operating margin.................................. 56.2 57.8 56.2 50.9 55.1
----- ----- ----- ----- -----
Total............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Comparison of the quarter ended March 31, 1996 to the quarter ended March 31,
1995
Total revenue for the quarter ended March 31, 1996 was approximately
$1,705,000 which was an increase of $563,000, or 49.2%, over the quarter ended
March 31, 1995. Room revenue for the period increased by approximately $386,000
of which approximately $304,000 was attributable to the opening of the Matthews
facility in August 1995 and $82,000 was attributable to facilities open
throughout both periods. The increase in room revenue for facilities open
throughout both periods resulted from a $16.37 increase in Weekly REVPAR from
$126.38 to $142.75. The increase resulted from an $18.63 increase in average
weekly rates from $129.75 to $148.38, which was partially offset by a slight
decrease in occupancy.
Franchise and other revenue from corporate operations for the quarter ended
March 31, 1996, which includes management, construction and development revenue,
was approximately $253,000, an increase of $161,000, or approximately 174.7%,
over the quarter ended March 31, 1995. Franchise revenue for the period
increased $54,000, or approximately 100.0%, from $54,000 in 1995 to $108,000 in
1996. The additional franchise revenue reflects initial franchise fees on two
new Suburban Lodge facilities, both of which were under construction as of March
31, 1996, increased royalties on open facilities as a result of two additional
openings in 1995 and increases in royalties from facilities open for both
periods. Development and construction revenue, which increased approximately
$69,000, from $45,000 in the first quarter of 1995 to $114,000 in the first
quarter of 1996, resulted from the development of three additional sites placed
under construction for third party franchisees. The development and construction
services which generated these revenues were performed pursuant to development
agreements negotiated on a case by case basis, and the management services which
generated these revenues were performed pursuant to the Company's standard
Management Agreement. See "Business -- Franchise, Development and Management
Agreements."
Facility operating expenses increased approximately $137,000, or 26.5%, to
approximately $653,000 for the quarter ended March 31, 1996 from approximately
$516,000 for the quarter ended March 31, 1995. This increase reflects the full
quarter expenses of the Matthews facility totaling approximately $106,000, and
the balance of the increase in facility operating expenses of $31,000 is related
to increases in expenses at facilities open during the entire quarter.
Depreciation and amortization increased $12,000, or approximately 11.5%,
principally as a result of the opening of the Matthews facility.
Corporate operating expenses and related party consulting fees increased
$107,000, or approximately 62.0%, to $280,000. This increase was due to the
additional staffing in the financial and development segments of the business as
well as upgrades and expansion of computer systems, corporate advertising and
marketing programs and executive compensation and benefit plans.
Interest expense during the quarter ended March 31, 1996 increased $61,000,
or approximately 27.0%, to $286,000 primarily from an increase in indebtedness
associated with the opening of the Matthews facility. The Company's policy is to
capitalize interest expense incurred in connection with the construction and
development of Suburban Lodge facilities prior to the opening dates.
30
<PAGE> 33
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 $574,000, an increase of $423,000, or approximately
280.0%, over the year ended December 31, 1994. Franchise revenue for the period
increased $210,000, or approximately 214.0%, from $98,000 in 1994 to $308,000 in
1995. The additional franchise revenue reflects initial franchise fees on seven
new Suburban Lodge facilities, two of 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 $10,724,000. 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.
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
31
<PAGE> 34
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
Historically, Suburban has funded its operations principally through cash
flow from operations. During the year ended December 31, 1995, the Company
generated cash flow from operations of $1,305,000 compared to $929,000 for the
year ended December 31, 1994. The increase of $376,000 was substantially
attributable to the increase in income before an extraordinary item. During the
year ended December 31, 1994, the Company generated $929,000 in cash flow from
operations, which represents an increase of $49,000 over 1993. The Company had
cash balances of $467,000 and $687,000 at December 31, 1994 and December 31,
1995, respectively. Immediately prior to consummation of the Corporate
Organization, the Affiliated Entities intend to distribute to Mr. Krischer, as
agent, the cash and cash equivalents of the Affiliated Entities for purposes of
liquidating current liabilities and making final distributions, as adjusted in
accordance with the terms of the acquisition agreements, which as of March 31,
1996 aggregated approximately $814,000. As of March 31, 1996, Messrs. Krischer,
Kuse and McGovern would have received approximately $245,000, $152,000 and
$90,000, respectively, of such distributions, after liquidation of certain
liabilities in the amount of approximately $323,000. Such distributions are
expected to reduce substantially the cash balances of the Affiliated Entities
immediately prior to the closing of the Offering.
The Company has funded its development principally from borrowings and, to
a lesser extent, equity contributions. As of March 31, 1996, Suburban had
outstanding indebtedness on six of the Existing Facilities of $10,578,000. Upon
consummation of the Corporate Organization, the Offering and application of the
net proceeds therefrom, Suburban does not anticipate having any outstanding
borrowings under the Line of Credit. The Company anticipates that the total
development and construction costs for completion of the Company-owned
Construction Facilities and the Company-owned Development Facilities will be
approximately $22.2 million, which it intends to fund with a portion of the net
proceeds from the Offering, borrowings of $15.2 million under the Line of Credit
and cash flow from operations. The Company anticipates that in the immediate
future a typical 132-guest room Suburban Lodge facility will cost approximately
$3.4 million (approximately $25,800 per guest room) to develop and construct,
including building structures, improvements, furniture, fixtures, equipment,
land and pre-opening costs. In the past, Suburban Lodge facilities have, on
average, reached 90% occupancy within 90 days of opening; however, there can be
no assurance that each new facility will obtain such figures within such time
period.
32
<PAGE> 35
At December 31, 1995, the Company had material commitments for capital
expenditures of approximately $3.3 million related to the development and
construction of the Conyers and Douglasville facilities. As of the date of this
Prospectus, a substantial portion of these commitments has been spent and such
funds were obtained primarily from borrowings.
From time to time, the Company may also acquire Suburban Lodge facilities
from its franchisees. Other than the Development Facilities, the Company has no
present agreements, commitments or understandings to acquire other facilities or
sites. However, the Company is continually searching for other appropriate sites
on which to develop additional Suburban Lodge facilities.
The Company has obtained a commitment for a $50 million Line of Credit with
PNC Bank, Kentucky, Inc. ("PNC"); however, $25 million of the Line of Credit is
subject to obtaining commitments from other lenders, and there can be no
assurance that such commitments will be obtained. Under the terms of the
commitment letter, 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 term of the Line of Credit
is two years, and advances under the Line of Credit will be secured by
substantially all of the Company's assets, assuming the Company obtains the
entire $50 million under 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 will contain certain
financial covenants, including maintenance of a minimum debt service coverage
ratio, a minimum ratio of earnings to consolidated debt service and a maximum
ratio of consolidated debt to the market value of the Company. 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. See "Business -- Business
Strategy."
The Company believes that the net proceeds to the Company from the
Offering, together with cash generated from operations and borrowings
anticipated to be available under the Line of Credit, will be sufficient to meet
the Company's working capital and capital expenditure needs for the immediate
future.
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."
33
<PAGE> 36
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, which was founded in 1987, was one of
the first, and is one of the largest, lodging chains 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 $189 per week for single occupancy and from
$149 to $209 per week for double occupancy.
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 1995, there were approximately 40,000, or
1.2%, dedicated extended stay guest rooms at approximately 360 properties,
almost all of which are in the upscale segment of the extended stay market.
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. Based upon the high
occupancy rates of the Existing Facilities and published occupancy rates for
other participants in the extended stay market, 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.
The Company believes that the following features differentiate the Suburban
Lodge system and its facilities from, and provide a competitive advantage over,
traditional 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 $550.16 for extended stay hotels and $244.06 for
lower economy hotels.
- 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, higher and more stable
occupancies and consistent revenues. The average stay during 1995 at the
Nine Mature Facilities was approximately six to seven weeks, and, as of
March 31, 1996, 27.7% of the guests had stayed for longer than six months.
- HIGHER OCCUPANCY. Average occupancy at the Nine Mature Facilities during
1995 was 97.6%, which compares favorably to the average occupancy of 82.0%
for extended stay hotels and 62.8% for lower economy hotels during the
same period. The Company believes that its high occupancy is 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
34
<PAGE> 37
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 total
investment in the three most recently completed Company-owned Existing
Facilities was approximately $2.4 million, $3.1 million and $3.3 million
(or approximately $18,400, $22,600 and $23,600 per guest room), including
building structures, improvements, furniture, fixtures, equipment, land
and pre-opening costs. The Company anticipates that the total cost of each
of the six Company-owned Construction Facilities, including building
structures, improvements, furniture, fixtures, equipment, land and
pre-opening costs, will range from approximately $3.1 million to $3.4
million (or approximately $23,300 to $26,500 per guest room). 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 excellent unit level economics. For the two most recently
completed Company-owned Existing Facilities open at least one quarter, one
of which was open throughout 1995 and the other which opened in August
1995, facility level earnings before interest, taxes and depreciation for
the year ended December 31, 1995, constituted 25.2% and 22.4% (based on
annualized fourth quarter results less certain pre-opening expenses),
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' superior unit economics
are due, in part, to the fact that Suburban Lodge facilities reach
stabilization in a relatively short period after opening. On average, the
Nine Mature Facilities exceeded 80% occupancy within six weeks after
opening or acquisition by the Company.
- FRANCHISING OPPORTUNITIES. Suburban believes that the combination of its
experience in franchising, its strong relations with its six existing
franchisees, each of whom is an experienced independent real estate
developer, 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 achieved attractive growth,
operating results and returns on investment. From December 31, 1991 through
December 31, 1995, (i) the number of Suburban Lodge facilities in operation
increased from four to 12; (ii) average occupancy increased from 90.3% to 97.6%
for facilities open at least one year; (iii) average weekly rates increased from
$110.38 to $139.69 for facilities open at least one year, representing a
compound annual growth rate of approximately 6.1% and (iv) Weekly REVPAR
increased from $99.72 to $136.39 for facilities open at least one year,
representing a compound annual growth rate of 8.1%.
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.
35
<PAGE> 38
Growth Strategy
Company-owned Development. The Company presently owns and operates eight
Suburban Lodge facilities and franchises six additional Suburban Lodge
facilities located in four southeastern states. The Existing Facilities contain
an aggregate of 1,778 guest rooms, have an average of 127 guest rooms and
average approximately 3.3 years in age. The Company anticipates that an
additional 13 Suburban Lodge facilities, eight Company-owned and five
franchised, will open in 1996 resulting in an aggregate of 27 Suburban Lodge
facilities by year-end. Ten of these additional facilities, six Company-owned
and four franchised, are currently under construction. Management anticipates
that by the end of the third quarter of 1996 construction will commence on the
three remaining facilities scheduled to open in 1996 and an additional four
facilities scheduled to open in 1997. The Construction Facilities and the
Development Facilities are located in six southeastern states and are expected
to contain an aggregate of 2,319 guest rooms, representing a 130% increase over
the aggregate number of guest rooms in the Existing Facilities. The Company
intends to continue the growth of the Suburban Lodge chain in 1997 by opening
approximately 26 to 28 additional Suburban Lodge facilities, 15 of which are
expected to be Company-owned. The facilities expected to open in 1997 are in
various stages of planning. There can be no assurance that the Company and its
franchisees will be able to complete the development of all of these facilities,
including the Construction Facilities and the Development Facilities. See "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. The Company
believes that its management team includes some of the most experienced
developers and operators in the economy extended stay market. 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 seven of the Existing Facilities and currently is developing five of
the Construction Facilities and three of the Development Facilities.
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 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 corridor design and will 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.
36
<PAGE> 39
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 March 31,
1996, six independent franchisees, each of whom has extensive experience in
multi-unit real estate development, were operating or developing franchised
Suburban Lodge facilities in Alabama, Florida and Georgia. The Company plans to
work with its franchisees to open 11 to 13 franchised Suburban Lodge facilities
in 1997, although there can be no assurance that all of these facilities will be
opened. See "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 attractive, high margin
incremental revenues. 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 -- Fees." The
Company's current franchisees have been obtained primarily through referrals. In
addition, the Company advertises franchising opportunities at industry trade
shows and intends to advertise franchising opportunities in trade 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.
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 $550.16 for extended stay hotels and $244.06 for lower economy
hotels. 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.
37
<PAGE> 40
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 substantially 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 six to seven 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 four southeastern states, contain an
aggregate of 1,778 guest rooms, have an average of 127 guest rooms and average
approximately 3.3 years in age. The Construction Facilities and Development
Facilities are located in six southeastern states and are expected to contain an
aggregate of 2,319 guest rooms, representing a 130% increase over the aggregate
number of guest rooms in the Existing Facilities. A newly developed Suburban
Lodge facility is built using either a two-story or three-story design. The two
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. Recently developed
facilities, however, include some larger guest rooms for which a range of $169
to $189 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.
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)
------------------------------------ ---------------------------------------------------
THREE
THREE MONTHS MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
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(3)... Mar-88 126 96.6% 99.1% 98.8% 98.9% 98.4% $117.61 $123.70 $131.47 $124.97 $149.97
Atlanta
(Fulton
Industrial),
GA...... Dec-88 108 98.1 99.6 99.2 98.6 99.6 119.78 124.62 129.18 126.20 137.38
Atlanta
(Norcross),
GA...... Jun-89 129 99.6 99.8 97.9 99.5 98.6 122.46 131.15 140.20 131.34 147.49
Birmingham
(Oxmoor),
AL...... Jul-90 151 96.8 94.3 92.5 94.2 89.1 121.47 128.73 138.04 129.40 144.64
Atlanta
(Mableton),
GA(4)... Jun-93 79 94.2 97.6 97.1 94.6 98.1 128.20 128.93 130.59 130.29 133.30
Greenville
(Mauldin
Road),
SC...... Sep-93 130 73.8 98.1 97.8 99.7 94.1 120.91 129.44 138.14 131.22 149.49
Charlotte
(Matthews),
NC...... Aug-95 139 86.6 99.6 146.02 169.36
Atlanta
(Conyers),
GA...... Apr-96 138
SUBTOTAL/WEIGHTED
AVERAGE... 1,000 95.7% 98.0% 96.3% 97.7% 96.5% $121.05 $127.82 $135.91 $128.92 $148.62
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,
GA...... Mar-96 130
---------
SUBTOTAL/WEIGHTED
AVERAGE... 778 96.8% 98.9% 91.6% 99.5% 89.7% $125.99 $134.03 $150.54 $139.62 $157.00
---------
SYSTEM-WIDE
TOTAL/WEIGHTED
AVERAGE... 1,778 96.1% 98.2% 94.6% 98.3% 93.5% $122.51 $129.67 $141.24 $132.65 $151.99
=========
</TABLE>
(Notes on following page)
38
<PAGE> 41
<TABLE>
<CAPTION>
NUMBER
CONSTRUCTION FACILITIES LOCATION ESTIMATED OPENINGS(6) OF ROOMS(1)
- ------------------------------------------------------------- ----------------- --------------------- -----------
<S> <C> <C> <C>
COMPANY-OWNED:
Douglasville............................................... Atlanta, GA Second Quarter 1996 132
Preston Highway(7)......................................... Louisville, KY Third Quarter 1996 150
Kingston Pike.............................................. Knoxville, TN Third Quarter 1996 132
Tara Blvd.(7).............................................. Atlanta, GA Third Quarter 1996 138
Wade Hampton Blvd.......................................... Greenville, SC Third Quarter 1996 126
Chesapeake................................................. Chesapeake, VA Fourth Quarter 1996 132
-----
SUBTOTAL............................................. 810
-----
FRANCHISED:
Lawrenceville.............................................. Atlanta, GA Second Quarter 1996 132
Roswell.................................................... Atlanta, GA Second Quarter 1996 134
Decatur.................................................... Atlanta, GA Third Quarter 1996 133
Indian Trail/I-85.......................................... Atlanta, GA Fourth Quarter 1996 150
-----
SUBTOTAL............................................. 549
-----
DEVELOPMENT FACILITIES
COMPANY-OWNED:
Charlotte/I-77............................................. Charlotte, NC Fourth Quarter 1996 132
Northside Drive............................................ Atlanta, GA Fourth Quarter 1996 150
Newport News............................................... Newport News, VA First Quarter 1997 132
Ridgeway Rd.(8)............................................ Memphis, TN First Quarter 1997 138
-----
SUBTOTAL............................................. 552
-----
FRANCHISED:
Taylorsville Rd............................................ Louisville, KY Fourth Quarter 1996 132
Baymeadows................................................. Jacksonville, FL First Quarter 1997 138
Gwinnett Place Mall........................................ Atlanta, GA First Quarter 1997 138
-----
SUBTOTAL............................................. 408
-----
TOTAL............................................ 2,319
============
</TABLE>
- ---------------
(1) The number of guest rooms does not include the general manager's apartment.
(2) Information is provided from the date of opening or acquisition of each
facility.
(3) The Forest Park facility will be acquired from an unrelated third party for
$3.8 million in cash. However, this facility has been managed by the Company
since its opening in March 1988.
(4) The Mableton facility was acquired in June 1993 and converted to a Suburban
Lodge facility in October 1994.
(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. See "Risk Factors -- Development
Risks."
(7) These facilities will be acquired from unrelated third parties for a
combination of Common Stock and cash.
(8) This facility is being acquired from Legacy Lodging, LLC, an affiliate of
Legacy Securities Corp. See "Underwriting."
OPERATING PRACTICES
The Company has managed Suburban Lodge facilities since 1988, when the
first facility was opened, and is currently managing the eight 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.
39
<PAGE> 42
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. Management is not aware of any other software package generally
available which is designed to assist in the operation and management of
extended stay lodging facilities. Each facility is connected by modem to
Suburban's corporate office in Atlanta, and operating results 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.
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.
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 on January 1, 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.
40
<PAGE> 43
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.
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 has entered into eight development
arrangements negotiated on a case by case basis, all of which are either in
process or have been
41
<PAGE> 44
carried through to completion. In the future, the Company intends to use its
standard Development and Design/Build Agreement, and the Company cannot predict
the number of Development Agreements it will enter into in the future.
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
Prospectus, the Company has no Management Agreements in effect, and it cannot
predict the number of such agreements it will enter into in the future.
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.
THE LODGING INDUSTRY
Traditional Lodging Industry
The U.S. lodging industry is estimated to have generated approximately
$52.7 billion in annual room revenues in 1995 and had approximately 3.3 million
rooms at the end of 1995. Industry statistics, which the Company believes to be
reliable, indicate that the U.S. lodging industry's performance is strongly
correlated to economic activity. Room supply and demand historically have been
sensitive to shifts in economic growth, which has resulted in cyclical changes
in average daily room and occupancy rates. Overbuilding in the lodging industry,
combined with the general downturn in the economy in the mid and late 1980s, led
to depressed industry performance and a lack of capital available to the
industry in the late 1980s and early 1990s. Since the early 1990s, the Company
believes that the lodging industry has benefited from a gradually improving
supply and demand balance, as evidenced by increased occupancy and average daily
rates.
Extended Stay Market
The Company believes that the extended stay market generates higher than
industry average occupancy rates and operating margins. Demand for extended stay
lodging has been stimulated by the economic and social changes resulting from
the increased number of corporate reorganizations and trends toward down-sizing
and out-sourcing of various functions, the increased mobility of the workforce
and technological improvements which have allowed businesses to relocate outside
of large metropolitan areas. 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
extended stay market is one of the most rapidly evolving sectors of the U.S.
lodging industry. During the three years ended
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<PAGE> 45
December 31, 1995, the number of dedicated extended stay rooms increased at a
compound annual growth rate of approximately 2.7%, compared with compound annual
room growth of approximately 1.4% for the overall lodging industry during the
same period. However, the vast majority of these rooms have been developed in
the upscale segment of the extended stay market.
Economy Extended Stay Concept
The economy extended stay segment of the lodging market competes on the
basis of price compared to the extended stay market generally, thereby providing
an economic inducement to guests who are already attracted to the extended stay
concept. In addition, economy extended stay lodging provides a new and
affordable lodging alternative for guests who are value-conscious, have lower
incomes or have limited expense accounts. Based on the Existing Facilities' high
occupancy rates and published occupancy rates for other participants in the
extended stay market, the Company believes that there is a strong demand for
economy extended stay accommodations and that there are few competitors on a
regional basis and none who currently serve the economy extended stay market on
a national level. Of the approximately 3.3 million total available rooms in the
U.S. lodging industry at the end of 1995, there were approximately 40,000, or
1.2%, dedicated extended stay rooms at approximately 360 properties. More than
two-thirds of these extended stay properties were controlled by a single lodging
company, which competes in the upscale segment of the extended stay market.
As shown below, 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, 16.5%
for extended stay hotels, 10.7% for lower economy hotels and 23.5% for the U.S.
lodging industry as a whole. As noted below, certain statistical information has
been provided by Smith Travel Research. Smith Travel Research has not provided
any form of consultation, advice or counsel regarding any aspects of, and is in
no way associated with, the proposed Offering.
<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).................................. 74.8 77.7 80.9 82.7 82.0
Lower economy hotels(3).................................. 63.9 61.4 61.0 62.0 62.8
U.S. hotels(4)........................................... 60.6 61.6 63.0 64.7 65.5
AVERAGE WEEKLY RATE:(5)
Existing Facilities(1)................................... $110.38 $117.51 $122.51 $129.67 $141.24
Extended stay hotels(2).................................. 518.03 522.16 519.01 528.02 550.16
Lower economy hotels(3).................................. 216.59 221.02 228.23 235.63 244.06
U.S. hotels(4)........................................... 412.08 418.40 432.96 449.68 471.37
WEEKLY REVPAR(6):
Existing Facilities(1)................................... $ 99.72 $105.87 $117.69 $127.36 $133.04
Extended stay hotels(2).................................. 387.25 405.81 419.88 436.89 451.09
Lower economy hotels(3).................................. 138.39 135.63 139.29 146.01 153.19
U.S. hotels(4)........................................... 249.80 257.81 272.62 290.79 308.61
</TABLE>
- ---------------
(1) The information for the Existing Facilities includes information for these
facilities since the date of their opening or acquisition.
(2) Occupancy and average daily rates were provided by Smith Travel Research.
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) Occupancy and average daily rates were provided by Smith Travel Research.
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) Occupancy and average daily rates were provided by Smith Travel Research.
Average weekly rate and Weekly REVPAR were calculated as described below in
notes 5 and 6.
(5) Average weekly rate is determined by dividing room revenue by guest rooms
sold for the applicable period and multiplying by seven.
(6) Weekly REVPAR is determined by dividing room revenue by available guest
rooms for the applicable period and multiplying by seven.
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<PAGE> 46
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, name recognition, 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 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 attempting to develop 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, 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. 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 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. 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, reviews 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
44
<PAGE> 47
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 Construction
Facility in Greenville, SC, discusses 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.
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 managed and 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.
45
<PAGE> 48
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 (one of which is now pending)
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.
EMPLOYEES
As of March 31, 1996, Suburban and its subsidiaries employed approximately
80 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 January 1997. The Company will
reassess its needs for office space at that time, but it 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, other than routine
matters incidental to the operation of its business. To date, no claims have had
a material adverse effect on the Company, nor does the Company expect that the
outcome of any pending claims will have such an effect.
46
<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors, persons who have been
nominated to serve as directors but who will not become directors until
completion of the Offering 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................... 31 Vice President -- Franchising and Director III 1999
Seth H. Christian............... 31 Vice President -- Operations
Terry J. Feldman................ 52 Vice President, Chief Financial Officer and -- --
Treasurer
G. Hunter Hilliard.............. 53 Vice President -- Construction -- --
Kevin R. Pfannes................ 41 Vice President -- Development and Secretary -- --
James R. Kuse................... 65 Director II 1998
Michael McGovern................ 52 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 and as Chief Executive Officer since
March 1996. 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. 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
47
<PAGE> 50
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 will become a Director of the Company effective
immediately upon the closing of the Offering. 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 will become a Director of the Company
effective immediately upon the closing of the Offering. 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 will become a Director of the Company
effective immediately upon the closing of the Offering. 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. Effective upon the closing of the Offering, the Board of
Directors will establish an Audit Committee, which will consist of Mr. Kuse, Mr.
Spiegel and Mr. Krischer. The Audit Committee will make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees and review the adequacy of the Company's
internal accounting controls.
Compensation Committee. Effective upon the closing of the Offering, the
Board of Directors will establish a Compensation Committee, which will consist
of Mr. Kuse and Mr. McGovern. The Compensation Committee will determine
compensation for the Company's executive officers and administer 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>
48
<PAGE> 51
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Following the consummation of the Offering, the Compensation Committee will
consist 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 will receive directors fees of $1,250
per board meeting attended, and all Directors will be 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 to be 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 will
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 have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
The 1996 Plan
Administration. The 1996 Plan will be 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 will select the individuals
who will 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 will be fixed by the
Administrator at the time the
49
<PAGE> 52
option 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 will be 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 will
prescribe 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 will be 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> 53
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. The Company will grant, on the effective date of the
Registration Statement of which this Prospectus is a part, options to acquire an
aggregate of 400,000 shares of Common Stock. Mr. Krischer will receive options
to purchase 150,000 shares, and Messrs. Berman, Christian, Feldman, Hilliard and
Pfannes will each receive options to purchase 50,000 shares. Each of the
grantees will receive 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, will be exercisable for ten years from the date of grant at a price
per share equal to the Offering Price. Due to the Ten Percent Shareholder rule
discussed under the heading "Stock Options," the ISOs granted to Mr. Krischer
will be exercisable for five years from the date of grant at a price per share
equal to 110% of the Offering Price.
Shareholder Rights. A Participant will have 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> 54
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 who is a member of the Board upon the
consummation of the Offering. No Director who is an employee of the Company or a
subsidiary is eligible to participate in the Directors' Plan.
Options. The Directors' Plan provides that each eligible Director who is a
member of the Board of Directors will be awarded options to purchase 1,500
shares of Common Stock at the Price to Public on the effective date of the
Registration Statement. Thereafter, option grants under the Directors' Plan will
be 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 will become 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
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<PAGE> 55
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. The Directors' Plan provides that each eligible Director who
is a member of the Board immediately following the closing of the Offering will
be awarded 1,000 shares of restricted Common Stock on that date. All other
awards of Common Stock under the Directors' Plan will be made at the first Board
Meeting following an annual meeting of the Company's shareholders (the date of
each such Board meeting 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 will have no rights as a shareholder with
respect to the shares subject to his option until the option is exercised. A
Director will have the right to vote all shares of Common Stock awarded to him
under the Directors' Plan and will receive 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.
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 will make 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 will be
matched by the Company. For employees earning over $30,000 per year, the Company
will make 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
The Company has 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 will merge with the Affiliated Entities which (i) own and operate seven
Company-owned Existing Facilities and (ii) own and are developing three of the
Construction Facilities and one of the Development Facilities, in exchange for
an aggregate of 999,483 shares of Common Stock, with a value of
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<PAGE> 56
approximately $15.0 million based upon the Price to Public, and approximately
$2.9 million in cash. Of these shares, an aggregate of 896,099 shares will be
issuable to affiliates of the Company, including 351,694 shares issuable to Mr.
Krischer, 227,122 shares issuable to Mr. Kuse and his affiliates, 150,364 shares
issuable to Mr. McGovern, 142,709 shares issuable to HS Associates and 24,210
shares issuable to the other officers of the Company as a group, in exchange for
their interests in the Affiliated Entities. These shares have a value of
approximately $13.4 million based on the Offering Price. Of the shares issuable
to Mr. McGovern, approximately 15,300 shares will be issued as payment for
development services rendered in connection with the development of the Mableton
facility.
Of the $2.9 million in cash to be paid in connection with the acquisition
of the Affiliates Entities, approximately $1.1 million will be 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 will pay a $100,000
development fee (of which $25,000 is payable to Mr. Krischer) with respect to
the Conyers facility.
From time-to-time Messrs. Krischer, Kuse and McGovern and HS Associates
have made loans to Suburban, the Affiliated Entities and the Third Party Sellers
to fund development, construction and working capital requirements. In
connection with the Corporate Organization, a portion of the net proceeds of the
Offering will be used to repay the indebtedness of the Company and the
Affiliated Entities, including approximately $1.7 million to affiliates of the
Company, including approximately $392,000 to Mr. Krischer and his family
members, $1.1 million to Mr. Kuse and his affiliates, $136,000 to Mr. McGovern
and $125,000 to HS Associates. In addition, Mr. Krischer, HS Associates and Mr.
McGovern have extended a wrap-mortgage of approximately $2.7 million to the
Third Party Seller who owns the Forest Park facility. After repayment of the
underlying mortgage, Mr. Krischer, HS Associates and Mr. McGovern will receive
approximately $550,000, $368,000 and $181,000, respectively, upon repayment of
the wrap-mortgage by the Third Party Seller at the closing of the transaction.
In addition, almost all of the indebtedness to be repaid with a portion of the
net proceeds of the Offering has been guaranteed by Mr. Krischer and one or more
of Mr. McGovern and Mr. Kuse and his affiliates.
Immediately prior to the consummation of the Corporate Organization, the
Affiliated Entities intend to distribute 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. As of March 31, 1996, the cash to be distributed to Mr. Krischer, as
agent, aggregated approximately $814,000. As of March 31, 1996, Messrs.
Krischer, Kuse and McGovern would have received approximately $245,000, $152,000
and $90,000, respectively, of such distributions after liquidation of certain
liabilities in the amount of approximately $323,000. Such distributions are
expected to reduce substantially the cash balances of the Affiliated Entities
immediately prior to the closing of the Offering. Upon the closing of the
Offering, and in conjunction with such cash distributions, the Company will
reimburse the Affiliated Entities for expenses advanced to fund the Offering,
which, as of December 31, 1995, totaled approximately $283,000.
Pursuant to the terms of a Management Agreement between the Company and the
Third Party Seller who owns the Forest Park facility, upon consummation of the
Company's acquisition of the Forest Park facility, the Company will receive a
sales incentive fee equal to 25% of the net proceeds to the Third Party Seller
from such sale after certain deductions, including the repayment of debt. The
Company anticipates that the fee will be approximately $200,000, and it will be
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 anticipates
that it will pay approximately $8,000 in consulting fees to Acreage Investment
Corporation prior to the consummation of the Offering. After consummation of the
Offering, the Company does not anticipate paying any additional fees to Acreage
Investment Corporation.
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PRINCIPAL 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 and (iv) each person known to the Company to beneficially
own more than 5% of the outstanding Common Stock. 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 is expected to hold immediately following completion of the
Corporate Organization and the Offering.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OUTSTANDING
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED COMMON STOCK
- ---------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
David E. Krischer............................................... 2,772,877 35.8%
Dan J. Berman................................................... 144,968 1.9
Seth H. Christian............................................... 145,630 1.9
Terry J. Feldman................................................ 800 *
G. Hunter Hilliard.............................................. 91,219 1.2
Kevin R. Pfannes................................................ 145 *
James R. Kuse(2)................................................ 228,122 2.9
Michael McGovern(2)............................................. 420,381 5.4
John W. Spiegel(2).............................................. 1,000 *
HS II Associates, L.P. and HS III Associates, L.P.(3)........... 680,744 8.8
All directors and executive officers as a group (nine 3,805,142 49.1%
persons)......................................................
</TABLE>
- ---------------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of such persons is care of Suburban
Lodges of America, Inc., 120 Interstate North Parkway East, Suite 120,
Atlanta, Georgia 30339.
(2) Includes 1,000 shares of restricted Common Stock granted pursuant to the
Directors' Plan and, with respect to Mr. Kuse, includes 226,123 shares held
of record by K&K Holdings, a partnership in which Mr. Kuse has an indirect
ten percent interest and the remainder of which is owned by his son,
Michael Kuse.
(3) These partnerships are owned by three partners, none of whom is an officer
or director of the Company, who have informed the Company that they intend
to distribute all of the shares to the individual partners promptly upon
receipt. If such distribution occurs, none of the three individuals will
own more than five percent of the Company's outstanding shares of Common
Stock. The address of HS II Associates, L.P. and HS III Associates, L.P. is
6640 Powers Ferry Road, Suite 200, Atlanta, Georgia 30339.
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"). There are currently
six holders of record of Common Stock. All outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby will be, upon payment
therefor, fully paid and nonassessable.
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
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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 has adopted a Rights Agreement, pursuant
to which one right (a "Right") will be issued in respect of each share of Common
Stock outstanding upon consummation of the Offering, including shares issued in
connection with the Corporate Organization. Rights will also attach to shares of
Common Stock issued after the Corporate Organization and the Offering but prior
to the Distribution Date (as defined below).
Each Right will entitle 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 $ , subject to adjustment
(the "Purchase Price").
The Rights will attach to the shares of Common Stock and will be evidenced
by Common Stock certificates, and no separate certificates evidencing the Rights
(the "Rights Certificates") will be distributed initially. 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 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.
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<PAGE> 59
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
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
57
<PAGE> 60
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, 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 will be available after the Offering free of
charge from the Rights Agent, American Stock Transfer & Trust Company. This
summary description of the Rights and the Rights
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<PAGE> 61
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 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.
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<PAGE> 62
Initially, there will be five directors, three of whom will be 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 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 intends to purchase and maintain
insurance on behalf of all of its directors and executive officers.
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<PAGE> 63
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 has granted to the persons who receive Common Stock in the
Corporate Organization certain "piggyback" registration rights. These
registration rights become effective six months after the effective date of the
Registration Statement of which this Prospectus is a part. Such registration
rights, with certain limitations, grant the holders thereof the right to have
such shares registered under any registration statement (other than 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. 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, Commission or state securities
registration fees or transfer taxes relating to such shares. 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
Suburban has applied for quotation of the Common Stock on The Nasdaq Stock
Market upon notice of issuance, under the proposed 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 the completion of the Offering, the Company will have outstanding
7,752,971 shares of Common Stock. The 3,000,000 shares of Common Stock sold in
the Offering will be freely tradable 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"). The remaining 4,752,971 outstanding
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 Offering or
acquired thereafter in the public market, for a period of 180 days 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 77,500 shares immediately following
this 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.
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<PAGE> 64
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. The
Company expects to file a Registration Statement under the Securities Act after
the date of this Prospectus to register the shares of Common Stock that may be
issued upon the exercise of options granted under the 1996 Plan and the
Directors' Plan. Shares issued under the Company's stock option plans after the
effective date of such Registration Statement will be 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 receive Common Stock in the Corporate Organization. An aggregate of
approximately 4,750,000 shares of Common Stock is subject to such registration
rights. See "Principal Shareholders -- Registration Rights."
Prior to the Offering, there has been no public market for the Common
Stock, and 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.
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<PAGE> 65
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities, J.C.
Bradford & Co. and Legacy Securities Corp. (the "Representatives"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names, at the initial
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.....................................................
J.C. Bradford & Co........................................................
Legacy Securities Corp....................................................
----------------
Total........................................................... 3,000,000
================
</TABLE>
The Representatives have advised the Company 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 Representatives 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 450,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 3,000,000 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 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 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 Offering or acquired thereafter in the public market),
for a period of 180 days from the date of this Prospectus, 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. 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 that the Company may, without consent,
issue shares of Common Stock upon exercise of outstanding stock options and
warrants.
The Representatives 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.
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<PAGE> 66
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price will be determined
by negotiation between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, the prospects
for future earnings of the Company, the present state of the Company's
development, the general condition of the securities markets at the time of the
Offering and the market prices of and demand for publicly traded common stock of
comparable companies in recent periods.
In January 1996, Legacy Securities Corp. ("Legacy") agreed to provide
investment banking consulting services to the Company in connection with the
Offering and will receive a fee in the amount of $100,000 upon the closing of
the Offering for such services. In addition, Legacy Lodging LLC, an affiliate of
Legacy, is developing several Suburban Lodge facilities in Tennessee. One of
these facilities is under contract and will be acquired in connection with the
Corporation Organization on the same terms and conditions as the Affiliated
Facilities. The owners of Legacy Lodging LLC will receive an aggregate of
approximately 33,300 shares of Common Stock in connection with the merger. All
of these shares will be held in escrow until the Company obtains final zoning
approval on the site for such facility.
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.
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, and 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. 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.
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<PAGE> 67
AVAILABLE INFORMATION
As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file 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.
65
<PAGE> 68
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 March 31, 1996
(unaudited)..................................................................... F-3
Combined Statements of Operations for the Years Ended December 31, 1993, 1994,
1995, and the Three Months Ended March 31, 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 Three Months Ended
March 31, 1996 (unaudited)...................................................... F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
1995, and the Three Months Ended March 31, 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 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> 69
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 their
operations and their 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
(April 9, 1996 as to Note 10)
F-2
<PAGE> 70
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 467,203 $ 687,432 $ 767,163
Prepaid expenses and other assets..................... 89,692 180,116 440,587
Advances to affiliates................................ 5,000 30,000
Current deferred tax asset............................ 14,000 33,611 7,050
----------- ----------- -----------
Total current assets.......................... 570,895 906,159 1,244,800
DEFERRED EXPENSES -- net................................ 352,552 461,526 448,907
INVESTMENT IN FACILITIES -- at cost:
Land.................................................. 1,711,633 2,386,633 2,386,633
Buildings and improvements............................ 6,978,608 9,359,201 9,371,039
Equipment............................................. 805,837 888,162 909,773
Furniture and fixtures................................ 724,045 1,004,875 1,105,168
Construction-in-progress.............................. 52,361 1,988,674 3,449,530
----------- ----------- -----------
10,272,484 15,627,545 17,222,143
Less accumulated depreciation......................... 1,556,269 1,990,982 2,096,182
----------- ----------- -----------
Net investment in facilities.................. 8,716,215 13,636,563 15,125,961
----------- ----------- -----------
$ 9,639,662 $15,004,248 $16,819,668
========== ========== ==========
LIABILITIES AND TOTAL CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt and capital
leases............................................. $ 302,467 $ 640,413 $ 535,902
Current portion of notes payable to affiliates........ 1,099,021 1,052,511 1,052,511
Accounts payable, trade............................... 66,299 82,369 149,999
Construction accounts payable......................... 544,602 336,078
Accrued interest...................................... 47,575 137,228 131,125
Accrued expenses and other liabilities................ 145,071 208,678 280,899
----------- ----------- -----------
Total current liabilities..................... 1,660,433 2,665,801 2,486,514
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS............ 8,200,749 11,552,359 13,312,938
LONG-TERM NOTES PAYABLE TO AFFILIATES................... 470,000 572,398 612,397
----------- ----------- -----------
Total liabilities............................. 10,331,182 14,790,558 16,411,849
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock.......................................... 15 15 15
Additional paid-in capital............................ 999 999 999
Deficit............................................... (1,073,951) (1,447,685) (1,519,789)
Partners' and members' capital........................ 381,417 1,660,361 1,926,594
----------- ----------- -----------
Total capital (deficit)....................... (691,520) 213,690 407,819
----------- ----------- -----------
$ 9,639,662 $15,004,248 $16,819,668
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 71
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Room revenue.................... $2,892,779 $3,903,533 $4,431,164 $ 980,454 $1,366,141
Other facility revenue.......... 222,861 290,150 295,758 70,152 86,322
Franchise and other revenue..... 247,071 151,001 574,425 92,059 252,860
---------- ---------- ---------- ---------- ----------
Total revenue.............. 3,362,711 4,344,684 5,301,347 1,142,665 1,705,323
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Facility operating expenses..... 1,364,377 1,768,162 2,072,389 515,955 652,581
Corporate operating expenses.... 428,641 736,886 882,615 169,809 274,022
Related party consulting fees... 17,000 3,000 6,000
Depreciation and amortization... 371,706 415,604 459,665 104,287 116,250
---------- ---------- ---------- ---------- ----------
Total costs and expenses... 2,164,724 2,920,652 3,431,669 793,051 1,048,853
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................... 1,197,987 1,424,032 1,869,678 349,614 656,470
INTEREST EXPENSE..................... 724,526 936,465 1,098,117 225,384 286,280
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY INCOME............... 473,461 487,567 771,561 124,230 370,190
INCOME TAX (EXPENSE)
BENEFIT............................ 14,000 19,611 (26,561)
EXTRAORDINARY INCOME................. 130,180
---------- ---------- ---------- ---------- ----------
NET INCOME........................... $ 473,461 $ 631,747 $ 791,172 $ 124,230 $ 343,629
========= ========= ========= ========= =========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 72
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF COMMON STOCK, DEFICIT,
AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL PARTNERS'
COMMON PAID-IN 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............................. (373,734) 1,164,906 791,172
Contributions from partners............ 863,000 863,000
Distribution to partners............... (748,962) (748,962)
------ ---------- ----------- ---------- ---------
BALANCE, DECEMBER 31, 1995............... 15 999 (1,447,685) 1,660,361 213,690
Net income (unaudited)................. (72,104) 415,733 343,629
Distributions to partners
(unaudited)......................... (149,500) (149,500)
------ ---------- ----------- ---------- ---------
BALANCE, MARCH 31, 1996 (unaudited)...... $ 15 $999 $(1,519,789) $1,926,594 $ 407,819
====== ======= ========== ========= =========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 73
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................. $ 473,461 $ 631,747 $ 791,172 $ 124,230 $ 343,629
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 371,706 415,604 459,665 104,287 116,250
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) 907 (260,471)
Advances to affiliates................. (5,000) (25,000)
Current deferred tax asset............. (14,000) (19,611) 26,561
Accounts payable, trade................ 17,310 (4,416) 16,070 5,231 67,630
Accrued expenses....................... 11,627 15,983 63,607 39,774 72,221
Accrued interest....................... 4,261 (4,084) 89,653 20,152 (6,103)
----------- ----------- ----------- --------- -----------
Net cash provided by operating
activities...................... 879,342 928,615 1,305,132 294,581 334,717
INVESTING ACTIVITIES:
Purchase of land........................... (380,813) (500,000) (675,000)
Construction accounts payable.............. 544,602 (208,524)
Expenditures for building and
improvements............................. (1,446,958) (65,951) (4,292,464) (320,883) (1,471,126)
Purchase of furniture, fixtures, and
equipment................................ (521,066) (85,019) (368,543) (20,399) (121,904)
----------- ----------- ----------- --------- -----------
Net cash used in investing
activities...................... (2,348,837) (650,970) (4,791,405) (341,282) (1,801,554)
FINANCING ACTIVITIES:
Additions to loan closing costs............ (42,101) (141,429) (141,545)
Proceeds from issuance of long-term debt... 1,771,533 5,941,357 3,976,803 327,709 1,742,203
Principal payments on long-term debt....... (113,879) (5,850,924) (275,538) (67,837) (79,844)
Advances from affiliates................... 511,936 678,785 123,763 11,886
Payments on advances from affiliates....... (177,107) (34,700) (67,875) 40,000
Contributions from partners................ 150,000 863,000
Proceeds from stock issuance............... 4 1
Distributions to partners.................. (512,012) (811,456) (748,962) (138,430) (149,500)
Payments on capital lease obligations...... (27,748) (19,940) (23,144) (5,411) (6,291)
----------- ----------- ----------- --------- -----------
Net cash provided by (used in)
financing activities............ 1,560,626 (238,306) 3,706,502 127,917 1,546,568
----------- ----------- ----------- --------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.... 91,131 39,339 220,229 81,216 79,731
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 $ 548,419 $ 767,163
============ ============ ============ ========== ============
</TABLE>
See notes to combined financial statements.
F-6
<PAGE> 74
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION, AND PROPOSED INITIAL PUBLIC OFFERING
Proposed Initial Public Offering -- Suburban Lodges of America, Inc.
expects to file its registration statement with the Securities and Exchange
Commission pursuant to which Suburban Lodges of America, Inc. expects to offer
3,000,000 shares of its common stock to the public (the "Offering") (see Note
11).
Basis of Presentation -- The combined financial statements include the
accounts of seven existing facilities ("Existing Facilities"), one facility
under construction ("Construction Facility"), and five corporate entities
("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.
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.
The accompanying, unaudited interim combined 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 facilities are located in the Southeast with six 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.
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition -- Room and other facility revenue is recognized as
earned.
F-7
<PAGE> 75
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
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 final franchise agreement is signed by the
franchisee. 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.
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 year ended December 31, 1993, 1994 and 1995
and for the three month period ended March 31, 1995 and 1996 included $33,700,
$0, $76,437 and $0 and $61,651, 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>
F-8
<PAGE> 76
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Accumulated amortization is $53,782, $81,356 and $91,356 at December 31,
1994 and 1995 and March 31, 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 $205,232 and $292,383 for the three month periods
ended March 31, 1995 and 1996, respectively. There were no cash payments for
income taxes for the years ended December 31, 1993, 1994 or 1995 or the three
month period ended March 31, 1996.
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.
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. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ----------- -----------
<S> <C> <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 $13,818,225
Capital lease obligations (Note 4)....................... 48,617 36,906 30,615
---------- ----------- -----------
8,503,216 12,192,772 13,848,840
Less current portion..................................... (302,467) (640,413) (535,902)
---------- ----------- -----------
Total.......................................... $8,200,749 $11,552,359 $13,312,938
========= ========== ==========
</TABLE>
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>
F-9
<PAGE> 77
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
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
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 $13,297 and $10,599 for the three months ended March 31,
1995 and 1996, respectively.
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
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
F-10
<PAGE> 78
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
January 1, 2003. The amount outstanding at December 31, 1994 and 1995 and as of
March 31, 1996 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 and March 31, 1996, amounts
outstanding under these notes were $15,000, $32,399 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
and subsequently extended to March 10, 1996 and bearing 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 and March 31, 1996, amounts
outstanding under these notes were $110,000, $53,125 and $23,125, 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 and March 31, 1996, amounts
outstanding under these notes were $382,321, $394,385 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 and March 31, 1996, amounts
outstanding on these three notes were $600,000, $675,000 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
limited partners. 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 and $60,000 at March
31, 1996.
7. RELATED PARTY TRANSACTIONS
From time to time, the Company made loans to an officer of the Company. The
balance outstanding under these loans was $5,000 and $30,000 at December 31,
1995 and March 31, 1996, respectively.
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
$3,000 and $6,000 for the quarters ended March 31, 1995 and March 31, 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).
F-11
<PAGE> 79
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
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>
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, THREE MONTHS
------------------------- ENDED
1993 1994 1995 MARCH 31, 1996
----- ----- ----- --------------
<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 4.5
Effect of income not subject to tax............ (37.0) (42.6) (36.8) (31.3)
Change in valuation allowance.................. (1.5) 1.2 (4.2) --
----- ----- ----- ------
Effective tax rate............................. -- (2.9)% (2.5)% 7.2%
===== ===== ===== ===========
</TABLE>
9. CAPITAL
Suburban Lodges has 1,481 shares of common stock outstanding having a par
value of $0.01 outstanding at December 31, 1995 and March 31, 1996. Authorized
shares are 10,000. The equity accounts also include the capital accounts of the
merging partnerships in the amount of $1,660,361 at December 31, 1995 and
$1,926,594 at March 31, 1996. The balances of shareholders' deficit and
partners' capital will be reclassified to additional paid-in capital in
conjunction with the proposed initial public offering and concurrent Corporate
Organization.
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.
F-12
<PAGE> 80
SUBURBAN LODGES OF AMERICA, INC. AND AFFILIATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
The fair value of notes payable to affiliates cannot be readily determined
due to their related party nature.
11. SUBSEQUENT EVENTS
Prior to or simultaneous with the completion of a public offering, Suburban
Lodges of America, Inc. and its subsidiaries will acquire from the Affiliated
Entities (those in which Messrs. Krischer, Kuse, or McGovern and certain
officers of the Company have interests) seven of the Existing Facilities, two of
the Construction Facilities for 999,487 shares of stock (see note 1).
Additionally, two Construction Facilities (Knoxville-Kingston Pike and
Greenville-Wade Hampton) will be acquired for cash of $2,500,000 from Affiliated
Entities. A minority interest in the Conyers property will be acquired for
$385,000 and a $100,000 development fee will be paid with respect to the Conyers
Facility. The acquisition of the seven Existing Facilities and the Construction
Facilities have been accounted for in a manner similar to a pooling of interests
on the basis of common ownership and control. The two Construction Facilities
acquired for cash have been recorded as a purchase on the basis of the cash
price paid to the Affiliated Entities. The acquisition of the minority interest
will be recorded as a distribution to redeem the interests.
The Company will acquire one Existing Facility (Forest Park) for $3,800,000
in cash from a Third-Party Seller. The Company will also acquire from third
party sellers two Construction Facilities and two Development Facilities for
approximately $8,900,000. Such purchase price will be paid by delivery of
$900,000 in cash, 163,556 shares of Common Stock and the assumption of
approximately $5.6 million of debt secured by the Third-Party Facilities. All
Facilities acquired from Third Party Sellers will be recorded at the acquisition
cost of the Facility.
After the transaction, the Company will have acquired eight Existing
Facilities, six Construction Facilities and four Development Facilities.
The Third Party Facilities, with the exception of the Forest Park facility,
are either under construction or in the development stage and have no operating
results as of December 31, 1995 and through the filing date of the proposed
initial public offering of common stock. Financial statements for the Forest
Park facility are included elsewhere as indicated on the Table of Contents at
page F-1.
In conjunction with the Corporate Organization, Suburban Lodges of America,
Inc. will effect a stock split of approximately 2,421-for-1 to increase the
number of outstanding shares to 3,586,932. Authorized shares will be
100,000,000.
On April 9, 1996, the Company obtained a commitment for a $50 million Line
of Credit with PNC Bank, Kentucky, Inc. ("PNC"); however, $25 million of the
Line of Credit is subject to obtaining commitments from other lenders, and there
can be no assurance that such commitments will be obtained. The Line of Credit
matures two years from the date of closing and will bear 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-13
<PAGE> 81
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:
- ------------------------------------------------------------------
<S> <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-14
<PAGE> 82
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
F-15
<PAGE> 83
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-16
<PAGE> 84
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-17
<PAGE> 85
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-18
<PAGE> 86
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-19
<PAGE> 87
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.
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-20
<PAGE> 88
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 agreed to sell 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 will retain its other assets and liabilities.
Such transaction is expected to occur in connection with Suburban Lodges of
America, Inc.'s Corporate Organization and Initial Public Offering of Common
Stock.
F-21
<PAGE> 89
INSIDE BACK COVER
This page includes photos of the exterior of the Charlotte (Matthews),
North Carolina facility, the Birmingham (Oxmoor), Alabama facility, and the
Greenville (Mauldin Road), South Carolina facility. It also includes a photo
of a front desk and guest check-in and Suburban Lodge guest room.
<PAGE> 90
- ------------------------------------------------------
- ------------------------------------------------------
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 or by 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
Corporate Organization................ 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Combined Historical Financial
Data................................ 20
Pro Forma Combined Statements of
Operations.......................... 22
Pro Forma Combined Balance Sheet...... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 34
Management............................ 47
Certain Transactions.................. 53
Principal Shareholders................ 55
Description of Capital Stock.......... 55
Shares Eligible for Future Sale....... 61
Underwriting.......................... 63
Experts............................... 64
Legal Matters......................... 64
Additional Information................ 64
Available Information................. 65
Index to Financial Statements......... F-1
</TABLE>
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
LOGO
SUBURBAN LODGES OF
AMERICA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 91
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..................... $ 19,034
NASD Filing Fee.......................................................... 6,020
Nasdaq National Market listing fee....................................... *
Printing and Mailing..................................................... 150,000**
Accounting Fees and Expenses............................................. 475,000**
Blue Sky Fees and Expenses............................................... 30,000
Counsel Fees and Expenses................................................ 400,000**
Investment banking fees.................................................. 100,000
Miscellaneous............................................................ 145,000**
----------
Total.......................................................... $1,350,000
=========
</TABLE>
- ---------------
* To be supplied by amendment.
** Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The underwriting agreement provides for indemnification by the Underwriters
of the Company and by the Company 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 Registrant 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 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
II-1
<PAGE> 92
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 Registrant was incorporated in 1987. Simultaneously with the closing of
the Offering, an aggregate of 1,163,039 shares of Common Stock will be issued in
connection with the merger or acquisition of 16 partnerships and limited
liability companies into the Registrant, in reliance upon the exemption
contained in Section 4(2) of the Securities Act. In exchange therefor, the
Registrant acquired all of the outstanding partnership interests and units in
the limited liability companies which own 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 have an aggregate appraised value of
$68,650,000.
During the past three years, the following persons were issued Common Stock
of the Registrant in reliance upon the exemption contained in Section 4(2) of
the 1933 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.................................. 59.26 10/1/94 Services rendered
Seth Christian.............................. 59.26 10/1/93 Services rendered
G. Hunter Hilliard.......................... 29.63 10/1/93 Services rendered
HS III Associates, L.P...................... 222.22 9/1/93 Services rendered
Michael McGovern............................ 111.11 9/1/93 Services rendered
</TABLE>
Simultaneous with the closing of the Offering, an aggregate of 3,000 shares
of restricted Common Stock will be issued to the Registrant's non-employee
directors in reliance upon the exemption contained in Section 4(2) of the 1933
Act.
II-2
<PAGE> 93
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 -- Commitment Letter for the Line of Credit
*21.1 -- Subsidiaries of the Registrant
**23.1 -- Consent of Kilpatrick & Cody
23.2 -- Consent of Deloitte & Touche, LLP
23.3 -- Form of Consent of Smith Travel Research
*24.1 -- Powers of Attorney (see Signature Page)
*99.1 -- Consent of Michael McGovern
*99.2 -- Consent of James R. Kuse
*99.3 -- Consent of John W. Spiegel
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment
*** Refiled pursuant to Regulation S-T.
II-3
<PAGE> 94
(b) Index to Financial Statements
<TABLE>
<CAPTION>
PAGES
-----
<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 March 31, 1996
(unaudited)..................................................................... F-3
Combined Statements of Operations for the Years Ended December 31, 1993, 1994,
and 1995, and the Three Months Ended March 31, 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 Three Months Ended
March 31, 1996 (unaudited)...................................................... F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
and 1995, and the Three Months Ended March 31, 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
Statement of Operations for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1995 and 1996 (unaudited)........................................ F-17
Statements of Partners Deficit for the Year Ended December 31, 1995 and the Three
Months Ended March 31, 1995 and 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>
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 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-4
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Atlanta, State of Georgia, on the 6th day of May, 1996.
SUBURBAN LODGES OF AMERICA, INC.
By: /s/ DAVID E. KRISCHER
------------------------------------
David E. Krischer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 6th day
of May, 1996, in the capacities and on the dates 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)
* Vice President -- Franchising and Director
- ---------------------------------------------
Dan J. Berman
* Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Terry J. Feldman
* /s/ DAVID E. KRISCHER
- ---------------------------------------------
David E. Krischer,
Pursuant to power of attorney previously
filed
</TABLE>
II-5
<PAGE> 96
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 -- Commitment Letter for the Line of Credit
*21.1 -- Subsidiaries of the Registrant
**23.1 -- Consent of Kilpatrick & Cody
*23.2 -- Consent of Deloitte & Touche, L.L.P.
23.3 -- Form of Consent of Smith Travel Research
*24.1 -- Powers of Attorney (see Signature Page)
*99.1 -- Consent of Michael McGovern
*99.2 -- Consent of James R. Kuse
*99.3 -- Consent of John W. Spiegel
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment
*** Refiled pursuant to Regulation S-T.
<PAGE> 1
EXHIBIT 1.1
3,000,000 SHARES
SUBURBAN LODGES OF AMERICA, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1996
MONTGOMERY SECURITIES
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"), proposes to issue and sell 3,000,000 shares of its
authorized but unissued Common Stock (the "Common Stock") to the several
underwriters named in Schedule A annexed hereto (the "Underwriters"), for whom
you are acting as Representatives. Said aggregate of 3,000,000 shares are herein
called the "Firm Common Shares." In addition, the Company proposes to grant to
the Underwriters an option to purchase up to 450,000 additional shares of Common
Stock (the "Optional Common Shares"), as provided in Section 4 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."
At or prior to the First Closing Date (as hereinafter defined), the Company
and SLA Properties, Inc., a wholly-owned subsidiary of the Company, will
complete a series of transactions described in the Prospectus (as hereinafter
defined) under the heading "Corporate Organization." As part of these
transactions, (i) the Underwriters will purchase the Firm Shares and offer them
in a public offering as contemplated hereunder, (ii) the Company and SLA
Properties, Inc. will form Suburban Holdings, L.P. (the "Partnership") which,
together with the Company, will acquire, through merger, all of the assets of
the partnerships and limited liability companies which currently own and operate
8 of the Existing Facilities, are constructing 6 of the Construction Facilities
or own the rights to 4 of the Development Facilities (all as described and
defined in the Prospectus and collectively referred to herein as the
"Properties"), (iii) the Company, SLA Properties, Inc. and the Partnership will
repay approximately $25.8 million of indebtedness assumed by the Company, SLA
Properties, Inc. and the Partnership in connection with the acquisition of the
properties described above and (iv) the Company shall declare and pay a stock
dividend of approximately 2,421 shares of Common Stock for each share of the
Company's Common Stock outstanding prior to the Corporate Organization. As used
herein, the term "Corporate Organization" shall mean the occurrence of all
events described in this paragraph and the other transactions described in the
section of the Prospectus captioned "Corporate Organization."
You have advised the Company 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 hereby confirms its 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
Partnership. The Company and the Partnership, jointly and severally, hereby
represent and warrant to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 33-32876) 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 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 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
2
<PAGE> 3
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 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, 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 of the Company
have been duly authorized and validly issued and are fully paid and (with
respect to Subsidiaries that are corporations) nonassessable. Except as
disclosed in or contemplated by the Prospectus and the combined financial
statements of the Company and the Affiliated Entities 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 stockholder of the Company
has
3
<PAGE> 4
any right which has not been waived to require the Company to register the sale
of any shares owned by such stockholder under the Act in the public offering
contemplated by this Agreement. No further approval or authority of the
stockholders 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) To the best of the Company's knowledge, each of the entities
owning the properties and other assets to be acquired by the Company or a
Subsidiary (the "Acquired Assets") in the Corporate Organization as
described in the Prospectus (collectively, the "Predecessor Entities") has
been duly organized and is validly existing in good standing under the laws
of the respective jurisdiction of its organization as a corporation,
limited or general partnership, limited liability company or joint venture,
as the case may be, with power and authority to own, lease and operate its
properties, to conduct the business in which it is engaged and to enter
into and perform its obligations under the respective merger agreements or
purchase and sale agreements, as applicable (collectively, the "Merger
Agreements"), the forms of which have been filed as exhibits to the
Registration Statement.
(h) To the best of the Company's knowledge, each of the partners or
members, as applicable, of the Predecessor Entities (individually,
"Partner" and collectively, the "Partners") has full individual right,
power and authority to enter into the Agreement and Consent of Partners
among the Company, the Partnership and each Partner (the "Indemnification
Agreement") and to consummate the transactions contemplated thereby, and
the Indemnification Agreement has been duly authorized, executed and
delivered by each Partner and constitutes the valid and binding agreement
of each Partner, enforceable against each such Partner 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 in equity.
(i) 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.
(j) 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
4
<PAGE> 5
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 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.
(k) Except as disclosed in the Prospectus, and except as to defaults
which individually or in the aggregate would not be material to the
Company, the Company, any of its Subsidiaries or, to the best of the
Company's knowledge, any Predecessor Entity is not 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, any such Subsidiary or any Predecessor
Entity as defined in such documents or which, with notice or lapse of time
or both, would constitute such an event of default.
(l) 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.
(m) 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, any of its
Subsidiaries or any of the Predecessor Entities is or may be a party or of
which property owned or leased by the Company, any of its Subsidiaries or
any of the Predecessor Entities 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 Subsidiary, and no labor disturbance by the employees of the Company or
any of its Subsidiaries exists or is imminent which might be expected to
affect adversely such condition, properties, business, results of
operations or prospects. The Company, any of its Subsidiaries or any
Predecessor Entity is not 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.
(n) 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), subject
to no 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 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
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<PAGE> 6
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.
(o) 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, its
Subsidiaries and, to the best of the Company's knowledge, the Predecessor
Entities 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, its
Subsidiaries and the Predecessor Entities 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, its
Subsidiaries and, to the best of the Company's knowledge, the Predecessor
Entities 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, its Subsidiaries or, to
the best of the Company's knowledge, the Predecessor Entities (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.
(p) 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 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, its
subsidiaries and the Partnership.
(q) 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.
(r) The Company, its Subsidiaries and, to the best of the Company's
knowledge, the Predecessor Entities 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, its
Subsidiaries or any Predecessor Entity which could materially adversely
affect the condition (financial or otherwise), business, properties,
results of operations or prospects of the Company and its Subsidiaries.
(s) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
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<PAGE> 7
(t) 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 the other materials permitted by the Act.
(u) 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.
(v) The Merger Agreements have been duly authorized, executed and
delivered by the Company, the Partnership and, to the best of the Company's
knowledge, the other parties thereto. Such Merger Agreements and all deeds,
assignments of leases and other documents delivered or to be delivered in
connection therewith are legally sufficient to effect the transfer to the
Company or the Partnership, as applicable, of all of the Predecessor
Entities' right, title and interest in and to the Acquired Assets. Upon the
sale of the Common Shares and the application of the net proceeds therefrom
as described in the Registration Statement and the Prospectus, on the
Closing Date, the Company or its Subsidiaries, as applicable, will have
good and marketable title in fee simple absolute to their respective
properties and good title to the items of personal property referred to in
the Registration Statement and the Prospectus or reflected in the financial
statements referred to in Section 2(j) hereof as being owned by the
Predecessor Entities, in each case free and clear of all liens, claims,
security interests, and other encumbrances, except such as (i) are
described in the Registration Statement and the Prospectus or (ii) 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. To the best of the
Company's knowledge, all representations and warranties of the Predecessor
Entities in the Merger Agreements are true and correct and may be relied
upon by the Underwriters notwithstanding any purported or actual defect or
unenforceability of such Merger Agreements.
(w) None of the Company or its Subsidiaries nor any of the Predecessor
Entities will recognize gain or loss for federal income tax purposes as a
result of the mergers of the Predecessor Entities pursuant to the Merger
Agreements. The Partners who receive solely Common Stock of the Company
pursuant to a Merger Agreement will not recognize gain or loss for federal
income tax purposes. The Partners who receive both Common Stock of the
Company and cash pursuant to a Merger Agreement will recognize gain for
federal income tax purposes to the extent of cash received, but such
Partners will not recognize loss for federal income tax purposes.
(x) None of the Company, its Subsidiaries, nor, to the best of the
Company's knowledge, any Predecessor Entity or any employee of them has at
any time during the last five years (i) made any unlawful contribution to
any candidate for foreign 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.
(y) 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.
(z) 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
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<PAGE> 8
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 operation or prospects of the Company and its
Subsidiaries, taken as a whole.
(aa) 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 operation or
prospects of the Company and its Subsidiaries, taken as a whole.
(ab) 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 operation 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 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.
(ac) The offers and sales by the Company of Common Stock prior to the
date hereof were exempt from the registration requirements of the Act and
applicable state securities and Blue Sky laws.
(ad) The Common Stock to be issued in connection with the Corporate
Organization has been duly and validly authorized by the Company. At the
Closing Date, such Common Stock will be validly issued, fully paid and
nonassessable. The offer, issue, sale and delivery of the Common Stock in
connection with the Corporate Organization will be exempt from the
registration requirements of the Act and applicable state securities laws.
(ae) 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.
(af) 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 and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and the Partnership 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
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<PAGE> 9
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 4. Purchase, Sale and Delivery of Common Shares. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
to the Underwriters 3,000,000 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company 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 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 to you, for the respective accounts of the Underwriters
against payment by you, for the accounts of the several Underwriters, of the
purchase price therefor by certified or official bank checks payable in next day
funds to the order of the Company. 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 450,000 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 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 3,000,000 (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
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<PAGE> 10
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 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 5. 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 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
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<PAGE> 11
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 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, stockholders' 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.
(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.
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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 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its 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 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 National Association of
Securities Dealers, Inc., and (viii) all other fees, costs and expenses referred
to in Item 13 of the Registration Statement. Except as provided in this Section
6, Section 8 and Section 10 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).
SECTION 7. 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 and the Partnership herein set forth as of
the date hereof and as of the First Closing Date or the Second Closing Date, as
the case may be, to the accuracy of the statements of the officers of the
Company and the Partnership made pursuant to the provisions hereof, to the
performance by the Company and the Partnership of their 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 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.
(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, any of its subsidiaries or the Partnership, (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, any of its subsidiaries or the
Partnership, which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company, its
subsidiaries and the Partnership, (iii) no loss or damage (whether or not
insured) to the property of the Company, any of its subsidiaries or the
Partnership shall
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have been sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects of the
Company, its subsidiaries and the Partnership, (iv) no legal or governmental
action, suit or proceeding affecting the Company, any of its subsidiaries or the
Partnership which is material to the Company, its subsidiaries and the
Partnership 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, its subsidiaries
and the Partnership 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,
addressed to the Underwriters and dated the First Closing Date, or the
Second Closing Date, 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;
(2) The Partnership is a limited partnership duly formed and
validly existing under the Georgia Uniform Limited Partnership Act
with the partnership power and authority 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 Common Stock; all
outstanding shares of Common Stock have been duly and validly issued,
are fully paid and nonassessable, were not issued in violation of or
subject to any preemptive rights 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 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;
(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> 14
(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 security convertible
into or exchangeable for capital stock of the Company;
(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 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, any subsidiary, the Partnership or any
Predecessor Entity 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
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<PAGE> 15
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
Merger Agreements and the consummation of the transactions herein and
therein 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, any of its
subsidiaries and the Partnership 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, any of its subsidiaries or the Partnership or any of
their 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) None of the Company, any subsidiary or the Partnership is
in violation of its certificate 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, its subsidiaries
or the Partnership; and, to the best of such counsel's knowledge, the
Company, its subsidiaries and the Partnership 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 and the Partnership;
(11) 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;
(12) Each of the Company, its subsidiaries and the Partnership
has the right, power and authority to enter into each of the Merger
Agreements to which it is a party and to consummate the transactions
contemplated therein. Each of the Merger Agreements has been duly
authorized, executed and delivered by the Company, its subsidiaries
and the Partnership, as applicable, and constitutes a valid and
binding agreement of the Company, its subsidiaries and the
Partnership, enforceable against each such party 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 in equity. The mergers of the
Predecessor Entities with and into the Partnership and the Company,
as the case may be, as contemplated by the Corporate Organization are
legally sufficient to effect the transfer to the Partnership and the
Company, as the case may be, by operation of law without any further
act or instrument, of all right, title and interest of the respective
Predecessor Entities to the assets to be acquired in the mergers;
(13) To the best of such counsel's knowledge, each of the
Predecessor Entities has the corporate power and authority to enter
into the respective Merger Agreement to which it is a party and to
consummate the transactions contemplated therein and each such Merger
Agreement has been duly authorized, executed and delivered by the
Predecessor Entity which is a party thereto and constitutes a valid
and binding agreement, enforceable in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy,
insolvency,
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<PAGE> 16
moratorium, reorganization or other laws affecting the rights of creditors
generally and by principles of equity, whether considered at law or in equity.
(14) The Articles of Merger for each of the Mergers contemplated
by the Corporate Organization have been filed with the Secretary of
State of the State of Georgia and the mergers described therein are
effective under the Georgia Business Corporation Code.
(15) Neither the Company nor any subsidiary is, or solely as a
result of the consummation of the Corporate Organization will become,
an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940,
as amended.
(16) None of the Company or its subsidiaries or the Partnership
nor any of the Predecessor Entities will recognize gain or loss for
federal income tax purposes as a result of the mergers pursuant to
the Merger Agreements. Partners of a Predecessor Entity who receive
solely Common Stock of the Company pursuant to a Merger Agreement
will not recognize gain or loss for federal income tax purposes.
Partners who receive both Common Stock of the Company and cash
pursuant to a Merger Agreement will recognize gain for federal income
tax purposes to the extent of cash received, but such Partner will
not recognize loss for federal income tax purposes.
In rendering such opinion, such counsel may rely, as to matters of
local law, on opinions of local counsel, and as to matters of fact, on
certificates 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 of
factual matters such lawyers recognize as relevant to the opinion so
qualified.
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) An 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, to the effect that:
(1) [To the best of such counsel's knowledge, none of the
Company or its subsidiaries is in breach of or default with respect
to any provision of any of the Franchise Agreements and Preliminary
Agreements for a License to Develop a Suburban Lodge Unit to which
the Company or any of its subsidiaries is a party, except where such
default would not materially adversely affect the Company or its
subsidiaries; 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 or statutes of any court or
jurisdiction to which they are subject with respect to their
franchising activities, including, without limitation, compliance
with the applicable federal, state and local laws governing the
payment of franchise fees, offering circulars and registration
requirements, except where noncompliance would not have a material
adverse effect on the condition (financial or otherwise), business,
results of operation or prospects of the Company and its
subsidiaries.]
(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
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<PAGE> 17
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 and the
Partnership 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 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, its subsidiaries and the Partnership; 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, its subsidiaries and the Partnership; and no legal or
governmental action, suit or proceeding is pending or threatened
against the Company, any of its subsidiaries or the Partnership which
is material to the Company, its subsidiaries and the Partnership,
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, any of its subsidiaries nor the Partnership 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, 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
stockholders of record on a date prior to the First Closing Date or
Second Closing Date; and
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<PAGE> 18
(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, the Company, its
subsidiaries and the Partnership have not sustained a material loss
or damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(v) 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.
(vi) On or before the First Closing Date, letters from each Partner
that receives Common Stock of the Company pursuant to a Merger Agreement
and 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 Underwriters. The Company 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 without liability on the part of any Underwriter or the Company, except
for the expenses to be paid or reimbursed by the Company pursuant to Sections 6
and 8 hereof and except to the extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 7, 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 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 6 and Section 10
shall at all times be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You and the Company
will use your and its 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 10. Indemnification. (a) The Company and the Partnership, 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
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<PAGE> 19
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 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 and the Partnership
contained herein or any failure of the Company or the Partnership to perform
their 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 the Company and the Partnership will not 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 3
hereof. In addition to its other obligations under this Section 10(a), the
Company and the Partnership 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 and the Partnership herein or failure to perform their obligations
hereunder, all as described in this Section 10(a), it 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 and the Partnership 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 and the Partnership 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 and the Partnership may
otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the Company
and the Partnership, each of the Company's directors, each of the Company's
officers who signed the Registration Statement and each person, if any, who
controls the Company or the Partnership within the meaning of the Act, against
any losses, claims, damages, liabilities or expenses to which the Company, the
Partnership or any such director, officer 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 3 hereof; and will reimburse the
Company, the Partnership or any such director, officer or controlling person for
any legal and other expense reasonably incurred by the Company, the Partnership,
or any such director, officer 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 10(b), each
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<PAGE> 20
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 10(b) which relates to information furnished to the
Company and the Partnership pursuant to Section 3 hereof, it will reimburse the
Company and the Partnership (and, to the extent applicable, each officer,
director or controlling person) 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 the Partnership (and,
to the extent applicable, each officer, director or controlling person) 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
the Partnership (and, to the extent applicable, each officer, director or
controlling person) 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 and the
Partnership 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 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 10 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 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 and the Underwriters in connection with the statements or
20
<PAGE> 21
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 and the Underwriters shall be deemed to
be in the same proportion, in the case of the Company and the Partnership as the
total price paid to the Company for the Common Shares sold by it to the
Underwriters (net 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 received by the
Underwriters as underwriting commissions. The relative fault of the Company and
the Partnership 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 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 10, 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 10 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 and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 10 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 10, 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 10 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 10(a) and 10(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 10(a) and 10(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 10(a) and 10(b) hereof.
SECTION 11. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company 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
21
<PAGE> 22
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 except for the expenses to be paid by the Company pursuant to
Section 6 hereof and except to the extent provided in Section 10 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 12. Effective Date. This Agreement shall become effective
immediately as to Sections 6, 8, 10, 13 and 14 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 12, 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 released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 13. 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
or by you by notice to the Company 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 to any
Underwriter (except for the expenses to be paid or reimbursed by the
Company pursuant to Sections 6 and 8 hereof and except to the extent
provided in Section 10 hereof) or of any Underwriter to the Company (except
to the extent provided in Section 10 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
22
<PAGE> 23
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 without liability on the part of any Underwriter to the Company or on the
part of the Company to any Underwriter (except for expenses to be paid or
reimbursed by the Company pursuant to Sections 6 and 8 hereof and except to the
extent provided in Section 10 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 4 hereof.
Any termination pursuant to this subsection (c) shall be without liability
on the part of any Underwriter to the Company or on the part of the Company
to any Underwriter (except for expenses to be paid or reimbursed by the
Company pursuant to Sections 6 and 8 hereof and except to the extent
provided in Section 10 hereof ).
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and the Partnership, 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 Underwriter or the Company or the Partnership 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 15. 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 Randolph C. Coley, King & Spalding, 191
Peachtree Street, Atlanta, GA 30303; and if sent to the Company or the
Partnership 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 or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 16. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 11 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 10, 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.
SECTION 17. 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 18. 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 19. 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 20. 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.
23
<PAGE> 24
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 and you.
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 between the Company, the Partnership 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
The foregoing Underwriting Agreement
is hereby confirmed and accepted by us
in San Francisco, California as of the
date first above written.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
Acting as Representatives of the
several Underwriters named in the
attached Schedule A.
By: MONTGOMERY SECURITIES
By:
-------------------------------
24
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------------------------------------------------------------------ ---------------
<S> <C>
Montgomery Securities.........................................................
J.C. Bradford & Co............................................................
Legacy Securities Corp........................................................
---------------
TOTAL............................................................... 3,000,000
============
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SUBURBAN LODGES OF AMERICA, INC.
I.
The name of the Corporation is Suburban Lodges of America, Inc.
II.
The Corporation shall have authority to issue 100,000,000 shares of
common stock, par value $0.01 per share (the "Common Stock"), and 5,000,000
shares of preferred stock, par value $1.00 per share (the "Preferred Stock").
Holders of the Common Stock are entitled to the entire voting power,
all dividends declared and all assets of the Corporation upon dissolution,
subject to the rights and preferences, if any, of the holders of the Preferred
Stock to such voting power, dividends and assets upon dissolution pursuant to
applicable law and the resolution or resolutions of the Board of Directors
providing for the issue of one or more series of Preferred Stock.
The Board of Directors is hereby expressly authorized to issue, at any
time and from time to time, shares of Preferred Stock in one or more series.
The number of shares within any such series shall be designated by the Board of
Directors in one or more resolutions, and the shares of each series so
designated shall have such preferences with respect to the Common Stock and
other series of Preferred Stock, and such other rights, restrictions or
limitations with respect to voting, dividends, conversion, exchange, redemption
and any other matters, as may be set forth in one or more resolutions adopted
by the Board of Directors. If and to the extent required by law, Articles of
Amendment setting forth any such designation, preferences, rights, restrictions
or limitations shall be filed with the Georgia Secretary of State prior to the
issuance of any shares of such series.
The authority of the Board of Directors with respect to the
establishment of each series of Preferred Stock shall include, without limiting
the generality of the foregoing, determination of the following matters which
may vary between series:
(a) The distinctive designation of that series and the number of
shares constituting that series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares of such series then outstanding)
from time to time;
<PAGE> 2
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payments of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(h) Any other relative preferences, rights, restrictions or
limitations of that series, including but not limited to any obligations of the
Corporation to repurchase shares of that series upon specified events.
III.
Any action or actions required or permitted to be taken at a
meeting of the shareholders of the Corporation prior to the closing of the
Corporation's initial public offering of its common stock may be taken without
a meeting, provided that such action or actions are evidenced by one or more
written consents describing the action taken which are signed by the holders of
100% of the Corporation's issued and outstanding shares and are delivered to
the Corporation for filing with the corporate records. After the closing of
the Corporation's initial public offering of its common stock, any action or
actions of the shareholders may only be taken at a duly called annual or
special meeting of shareholders.
IV.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of his duty of
care or other duty as a director,
2
<PAGE> 3
provided that this provision shall eliminate or limit the liability of a
director only to the extent permitted from time to time by the Georgia Business
Corporation Code (the "Code") or any successor law or laws. If at any time the
Code shall have been amended to authorize the further elimination or limitation
of the liability of a director, then the liability of each director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Code, as so amended, without further action by the shareholders, unless the
provisions of the Code, as amended, require further action by the shareholders.
Any repeal or modification of the foregoing provisions of this Article IV shall
not adversely affect the elimination or limitation of liability or alleged
liability pursuant hereto of any director of the Corporation for or with
respect to any alleged act or omission of the director occurring prior to such
repeal or modification.
V.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation,
the Board of Directors, committees of the Board of Directors and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers, and creditors of the Corporation and its subsidiaries,
the communities in which offices or other establishments of the Corporation and
its subsidiaries are located, and all other factors the directors consider
pertinent.
VI.
The Corporation may, to the fullest extend permitted by the laws of
the State of Georgia, as amended and in effect from time to time, indemnify its
directors, officers, employees and agents and all other persons whom it may
choose to indemnify.
VII.
The Bylaws of the Corporation may be adopted, amended or repealed by a
majority vote of the entire Board of Directors of the Corporation.
VIII.
The purpose of the Corporation shall be to engage in any lawful
business, act or activity for which corporations may be organized under the
Georgia Business Corporation Code.
IX.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon the shareholders
herein are granted subject to this reservation.
3
<PAGE> 4
X.
The street address and county of the Corporation's registered
office shall be 120 Interstate North Parkway East, Suite 120, Atlanta, Fulton
County, Georgia 30339. The registered agent of the Corporation at that office
shall be David E. Krischer.
IN WITNESS WHEREOF, the Corporation has caused these Amended and
Restated Articles of Incorporation to be executed by its duly authorized
officer on the 14th day of March, 1996.
SUBURBAN LODGES OF AMERICA, INC.
--------------------------------
David E. Krischer
President
4
<PAGE> 5
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SUBURBAN LODGES OF AMERICA, INC.
1.
The name of the Corporation is Suburban Lodges of America,
Inc.
2.
The Articles of Incorporation are amended by the addition of a
new Article XI as follows:
XI.
SECTION 1. DESIGNATION AND NUMBER OF SHARES. The shares of
such series shall be designated as "Series A Participating Cumulative Preferred
Stock" (the "SERIES A PREFERRED STOCK"), and the number of shares constituting
such series shall be 500,000. Such number of shares of the Series A Preferred
Stock may be increased or decreased by resolution of the Board of Directors;
provided, however, that no decrease shall reduce the number of shares of Series
A Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares issuable upon exercise or conversion of outstanding
rights, options or other securities issued by the Corporation.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking prior and
superior to the shares of Series A Preferred Stock with respect to dividends,
if any, the holders of shares of Series A Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable on the last day
of March, June, September and December of each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of any share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 and (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount (payable in kind) of all cash dividends or other distributions
and 100 times the aggregate per share amount of all non-cash dividends or other
distributions (other than (i) a dividend payable in shares of Common Stock, par
value $.01 per share, of the Corporation (the "COMMON STOCK") or (ii) a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise)), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of
<PAGE> 6
Series A Preferred Stock. If the Corporation shall at any time after May 5,
1996 (the "RIGHTS DECLARATION DATE") declare or pay any dividend on Common
Stock payable in shares of Common Stock or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of Common Stock (other
than the stock split previously approved on March 26, 1996), then in each such
case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in SECTION 2(A)
immediately after it declares a dividend or distribution on the Common Stock
(other than as described in clauses (i) and (ii) of the first sentence of
SECTION 2(A)); provided, however, that if no dividend or distribution shall
have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date
(or, with respect to the first Quarterly Dividend Payment Date, the period
between the first issuance of any share or fraction of a share of Series A
Preferred Stock and such first Quarterly Dividend Payment Date), a dividend of
$1.00 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is on or before the
record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue and be cumulative from the date
of issue of such shares, or unless the date of issue is a date after the record
date for the determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and on or before such Quarterly
Dividend Payment Date, in which case dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall not be more than 60 days
prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. In addition to any other voting
rights required by law, the holders of shares of Series A Preferred Stock shall
have the following voting rights:
(A) Subject to the provision for adjustment hereinafter
set forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of shareholders of the
Corporation. If the Corporation shall at any time after the Rights Declaration
Date declare or pay any dividend on Common Stock payable in shares of Common
Stock or effect a subdivision or combination or consolidation of the
outstanding shares of
-2-
<PAGE> 7
Common Stock (by reclassification or otherwise) into a greater or lesser number
of shares of Common Stock, then in each such case the number of votes per share
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote together as a single class on all matters submitted to
a vote of shareholders of the Corporation.
(C) (i) If at any time dividends on any Series A
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon (whether or not consecutive), the occurrence of such
contingency shall mark the beginning of a period (herein called a "DEFAULT
PERIOD") which shall extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Preferred Stock then
outstanding shall have been declared and paid or set apart for payment. During
each default period, all holders of Series A Preferred Stock and any other
series of Preferred Stock then entitled as a class to elect directors, voting
together as a single class, irrespective of series, shall have the right to
elect one Director.
(ii) During any default period, such voting right of the
holders of Series A Preferred Stock may be exercised initially at a special
meeting called pursuant to SECTION 3(C)(III) or at any annual meeting of
shareholders, and thereafter at annual meetings of shareholders; provided,
however, that neither such voting right nor the right of the holders of any
other series of Preferred Stock, if any, to increase, in certain cases, the
authorized number of Directors shall be exercised unless the holders of 10% in
number of shares of Preferred Stock outstanding shall be present in person or
by proxy. The absence of a quorum of holders of Common Stock shall not affect
the exercise by holders of Preferred Stock of such voting right. At any
meeting at which holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right, voting
as a class, to elect Directors to fill such vacancy, if any, in the Board of
Directors as may then exist up to one Director or, if such right is exercised
at an annual meeting, to elect one Director. If the number which may be so
elected at any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such increase in
the number of Directors as shall be necessary to permit the election by them of
the required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein provided
or pursuant to the rights of any equity securities ranking senior to or pari
passu with the Series A Preferred Stock.
(iii) Notwithstanding anything to the contrary contained in
the Corporation's Articles of Incorporation or Bylaws, unless the holders of
Preferred Stock shall, during an existing default period, have previously
exercised their right to elect Directors, the Board of Directors may order, or
any shareholder(s) owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of
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<PAGE> 8
a special meeting of holders of Preferred Stock, which meeting shall thereupon
be called by the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this SECTION 3(C)(III)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or request, such
meeting may be called on similar notice by any shareholder(s) owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series. Notwithstanding the
provisions of this SECTION 3(C)(III), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of shareholders.
(iv) In any default period, the holders of Common Stock,
and other classes of stock of the Corporation if applicable, shall continue to
be entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right to elect one Director voting
as a class, after the exercise of which right (x) the Directors so elected by
the holders of Preferred Stock shall continue in office until their successors
shall have been elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as provided
in SECTION 3(C)(II) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of stock which elected the
Director whose office shall have become vacant. References in this SECTION
3(C) to Directors elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be such
number as may be provided for in the Articles of Incorporation or Bylaws
irrespective of any increase made pursuant to the provisions of SECTION
3(C)(II) (such number being subject, however, to change thereafter in any
manner provided by law or in the Articles of Incorporation or Bylaws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
Directors.
(D) Except as otherwise provided herein, holders of
Series A Preferred Stock shall have no special voting rights, and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in SECTION 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on outstanding shares of Series A
Preferred Stock shall have been paid in full, the Corporation shall not:
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<PAGE> 9
(i) declare or pay dividends on, or make any other
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 other
distributions on, any shares of stock ranking on a parity (either as
to dividends or upon liquidation, 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 on which dividends
are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem, purchase or otherwise acquire for value any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock; provided, however, that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of stock of the Corporation ranking junior (as to
dividends and upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for value any
shares of Series A Preferred Stock, or any shares of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or
winding up) 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 Series A Preferred Stock
and all such other parity stock upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for value any shares of stock
of the Corporation unless the Corporation could, under SECTION 4(A), purchase
or otherwise acquire such shares at such time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A
Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock without designation as to
series and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors as permitted by
the Articles of Incorporation or as otherwise permitted under Georgia law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid
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<PAGE> 10
dividends and distributions thereon, whether or not declared, to the date of
such payment; provided, however, that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such other parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. If the Corporation shall at any time after the
Rights Declaration Date pay any dividend on Common Stock payable in shares of
Common Stock or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION OR MERGER. If the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged for or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash or any other property, as the case may be, into which or for
which each share of Common Stock is exchanged or changed. If the Corporation
shall at any time after the Rights Declaration Date pay any dividend on Common
Stock payable in shares of Common Stock or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The Series A Preferred Stock shall
not be redeemable.
SECTION 9. RANK. The Series A Preferred Stock shall rank
junior (as to dividends and upon liquidation, dissolution and winding up) to
all other series of the Corporation's preferred stock, except any series that
specifically provides that such series shall rank junior to the Series A
Preferred Stock.
SECTION 10. FRACTIONAL SHARES. Series A Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares,
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<PAGE> 11
to exercise voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series A Preferred Stock.
SECTION 11. AMENDMENT. The Articles of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
3.
This amendment was duly adopted by the Board of Directors of
the Corporation on May 5, 1996, and in accordance with the Code and the
Corporation's Amended and Restated Articles of Incorporation, no action of the
Corporation's shareholders was required.
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment to be executed by its duly authorized officer this 5th day of May,
1996.
SUBURBAN LODGES OF AMERICA, INC.
By:
---------------------------------
David E. Krischer, President
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
SUBURBAN LODGES OF AMERICA, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The corporation shall maintain
at all times a registered office in the State of Georgia and a registered agent
at that office.
SECTION 2. OTHER OFFICES. The corporation may also have
offices at such other places both within and without the State of Georgia as
the business of the corporation may require or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
SECTION 1. REGULAR MEETINGS. The regular meeting of the
shareholders of the corporation shall be held at the principal office of the
corporation or at such other place in the United States as may be determined by
the board of directors, at 11:00 a.m. on the third Tuesday of the fourth month
following the close of each fiscal year, or at such other date and time as
shall be determined by the board of directors, for the purpose of electing
directors and transacting such other business as may properly be brought before
the meeting.
SECTION 2. SPECIAL MEETINGS. (a) Special meetings of
shareholders of one or more classes or series of the corporation's shares shall
be called by the President or the Secretary (i) when so directed by the
Chairman or by a majority of the entire board of directors; or (ii) upon the
demand of holders of at least forty percent (40%) of all votes entitled to be
cast on each issue to be considered at a proposed special meeting of the
shareholders. The business that may be transacted at any special meeting of
shareholders shall be limited to that proposed in the notice of the special
meeting given in accordance with SECTION 3 (including related or incidental
matters that may be necessary or appropriate to effectuate the proposed
business).
(b) Promptly after the date of receipt of written shareholder
demands (the "Demand Date") purporting to comply with the provisions of the
Georgia Business Corporation Code, as amended from time to time (the "Code"),
and these Bylaws, the President or the Secretary of the corporation shall
determine the validity of the demand. If the
<PAGE> 2
demand is valid, the President or the Secretary of the corporation shall call a
special shareholders meeting by mailing notice within 20 days of the Demand
Date.
(c) The time, date and place of any special shareholders
meeting shall be determined by the board of directors and shall be set forth in
the notice of meeting.
SECTION 3. NOTICE OF MEETINGS. (a) Unless otherwise required
by law or specified in the Articles of Incorporation or these Bylaws, written
notice of every meeting of shareholders, stating the place, date and hour of
the meeting, shall be given, in a manner permitted by applicable law, to each
shareholder of record entitled to vote at such meeting not less than 10 nor
more than 60 days prior to the date of the meeting.
(b) A shareholder may waive any notice required by the Code,
the Articles of Incorporation, or these Bylaws, before or after the date and
time of the matter to which the notice relates, by delivering to the
corporation a written waiver of notice signed by the shareholder entitled to
the notice. In addition, a shareholder's attendance at a meeting shall be (i)
a waiver of objection to lack of notice or defective notice of the meeting
unless the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting; and (ii) a waiver of objection
to consideration of a particular matter at the meeting that is not within the
purpose stated in the meeting notice, unless the shareholder objects to
considering the matter when it is presented. Except as otherwise required by
the Code, neither the purpose of nor the business transacted at the meeting
need be specified in any waiver.
SECTION 4. QUORUM. At all meetings of shareholders, any
Voting Group entitled to vote on a matter may take action on the matter only if
a quorum of that Voting Group exists at the meeting, and if a quorum exists,
the Voting Group may take action on the matter notwithstanding the absence of a
quorum of any other Voting Group that may be entitled to vote separately on the
matter. Unless the Articles of Incorporation, these Bylaws or the Code
provides otherwise, the presence (in person or by proxy) of shares representing
a majority of votes entitled to be cast on a matter by a Voting Group shall
constitute a quorum of the Voting Group with regard to that matter. Once a
share is present at any meeting other than solely to object to holding the
meeting or transacting business at the meeting, the share shall be deemed
present for quorum purposes for the remainder of the meeting and for any
adjournments of that meeting, unless a new record date for the adjourned
meeting is or must be set pursuant to ARTICLE VI, SECTION 4(A) of these Bylaws.
If a quorum is not present at any meeting of the shareholders, the holders of a
majority of the shares present (in person or represented by proxy) and entitled
to vote thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting.
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<PAGE> 3
SECTION 5. VOTING. Unless otherwise provided by law, the
Articles of Incorporation, or board resolutions setting forth the preferences
and other rights, restrictions or limitations of any class or series of
preferred stock, each outstanding share, regardless of class or series, shall
be entitled to one vote on each matter voted on at a shareholders meeting, and
each class or series of the corporation's shares entitled to vote generally on
a matter shall for that purpose be considered a single voting group (a "Voting
Group"). Unless the Articles of Incorporation, these Bylaws, a resolution of
the board of directors or applicable law require a different vote, action on a
matter presented for consideration at a meeting where a quorum is present,
shall be approved as follows: (a) directors shall be elected by a majority of
the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present; and (b) all other matters shall be approved if the
votes cast within the applicable Voting Group favoring the action exceed the
votes cast opposing the action, unless the Articles of Incorporation, a
provision of these Bylaws that has been adopted pursuant to Section 14-2-1021
of the Code (or any successor provision), or applicable law requires a greater
number of affirmative votes. If either the Articles of Incorporation or the
Code requires separate voting by two or more Voting Groups on a matter, action
on that matter is taken only when voted upon by each such Voting Group
separately.
A shareholder may vote his shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment form. An appointment of a proxy is valid for eleven months unless
a shorter or longer period is expressly provided in the appointment form.
SECTION 6. SHAREHOLDER PROPOSALS. (a) No shareholder
proposal or resolution (each a "Shareholder Proposal"), whether purporting to
be binding or non-binding on the corporation or its board of directors, shall
be considered at any annual or special meeting of the shareholders unless:
(i) If such Shareholder Proposal relates solely to the
nomination and election of directors, it satisfies the
requirements of ARTICLE III, SECTION 3; or
(ii) With respect to any Shareholder Proposal to be considered
at a special shareholders meeting called pursuant to
ARTICLE II, SECTION 2, SUBSECTION (A)(I), the
shareholder(s) proposing to make such Shareholder
Proposal provided the information set forth in subsection
(b) of this SECTION 6 to the board of directors within 14
days after the date of the notice calling such special
shareholders meeting (or if less than 21 days notice of
the meeting is given to shareholders, such information
was delivered to the President not later than the close
of the seventh day following the date on which the notice
of the shareholders' meeting was mailed); or
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(iii) With respect to any Shareholder Proposal to
be considered at a special shareholders meeting called
pursuant to ARTICLE II, SECTION 2, SUBSECTION (A)(II),
the shareholder(s) proposing to make such Shareholder
Proposal provided the information set forth in subsection
(b) of this SECTION 6 to the board of directors
concurrently with the filing of the initial demand by
shareholders relating to such special shareholders
meeting; or
(iv) With respect to any Shareholder Proposal to be considered
at any regular meeting of shareholders, other than as
described in clause (i) hereof, the shareholder(s)
proposing to make such Shareholder Proposal provided the
information set forth in subsection (b) of this SECTION 6
to the board of directors between 90 to 120 days prior to
the regular meeting at which they wish the Shareholder
Proposal to be considered.
For the purposes of determining whether information was provided at the times
or within the specified periods, the date of the applicable meeting shall be as
set forth in the notice of meeting given by the corporation, and such times and
periods will be determined without regard to any postponements, deferrals or
adjournments of such meeting to a later date.
(b) The following information must be provided to the board
of directors, within or at the times specified in subsection (a) above, in
order for the Shareholder Proposal to be considered at the applicable
shareholders meeting:
(i) The Shareholder Proposal, as it will be proposed, in full
text and in writing;
(ii) The purpose(s) for which the Shareholder Proposal is
desired and the specific meeting at which such proposal
is proposed to be considered;
(iii) The name(s), address(es), and number of
shares held of record by the shareholder(s) making such
Shareholder Proposal (or owned beneficially and
represented by a nominee certificate on file with the
corporation);
(iv) The number of shares that have been solicited with regard
to the Shareholder Proposal and the number of shares the
holders of which have agreed (in writing or otherwise) to
vote in any specific fashion on said Shareholder
Proposal; and
(v) A written statement by said shareholder(s) that they
intend to continue ownership of such voting shares
through the date of the meeting at which said Shareholder
Proposal is proposed to be considered.
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(c) Failure to fully comply with the provisions of this
SECTION 6 shall bar discussion of and voting on the Shareholder Proposal at the
applicable regular or special shareholders meeting. Any Shareholder Proposal
that does not comply with the requirements of this SECTION 6 shall be
disregarded by the chairman of the meeting, and any votes cast in support of
the Shareholder Proposal, unless the Shareholder Proposal has been validly
submitted by another shareholder, shall be disregarded by the chairman of such
meeting.
(d) The provisions of this SECTION 6 shall be read in
accordance with and so as not to conflict with the rules and regulations
promulgated by the Securities and Exchange Commission and any stock exchange or
quotation system upon which the corporation's shares are traded. Nothing in
these Bylaws shall be deemed to require the consideration at any meeting of
shareholders of any Shareholder Proposal that, pursuant to law, the corporation
may refuse to permit consideration thereof.
SECTION 7. LIST OF SHAREHOLDERS; INSPECTION OF RECORDS. (a)
The corporation shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
shareholders, giving their names and addresses and the number, class and
series, if any, of the shares held by each.
(b) Shareholders are entitled to inspect the corporate
records as and to the extent provided by the Code; provided, however, that only
shareholders owning more than two percent (2%) of the outstanding shares of any
class of the corporation's stock shall be entitled to inspect (1) the minutes
from any board, board committee or shareholders meeting (including any records
of action taken thereby without a meeting); (2) the accounting records of the
corporation; or (3) any record of the shareholders of the corporation.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise provided by any legal
agreement among shareholders, the property, affairs and business of the
corporation shall be managed and directed by its board of directors, which may
exercise all powers of the corporation and do all lawful acts and things which
are not (by law, by any legal agreement among shareholders, by the Articles of
Incorporation or by these Bylaws) directed or required to be exercised or done
by the shareholders.
SECTION 2. NUMBER, ELECTION AND TERM. (a) The number of
directors which shall constitute the whole board shall be not less than two nor
more than nine, the number thereof to be determined from time to time by
resolution of the board of directors or the shareholders; provided, however,
that no decrease in the number of directors shall have the effect of shortening
the term of an incumbent director. Upon the closing of the corporation's
initial public offering of shares of its common stock and the election of three
additional
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<PAGE> 6
directors concurrent with such closing, the directors shall be classified with
respect to the time during which they shall severally hold office by dividing
them into three classes, as nearly equal in number as possible, and Class 1
shall consist of one director; Class 2 shall consist of two directors; and
Class 3 shall consist of two directors, and with respect to the initial five
person board, their terms shall be as follows: Class 1, one year; Class 2, two
years; and Class 3, three years. At each annual meeting of the shareholders
held thereafter, the successors to the class of directors whose terms shall
expire that year shall be elected to hold office for a term of three years, so
that the term of office of one class of directors shall expire in each year.
Any increase in the number of directors following the establishment of the
staggered board of directors shall be apportioned among the classes so as to
make all classes as nearly equal in number as possible. Except as hereinafter
provided with respect to filling vacancies on the board, the directors shall be
elected by the shareholders as provided in ARTICLE II hereof, and each director
elected shall hold office until his successor is elected and qualified or until
his earlier resignation, removal from office, or death. Directors shall be
natural persons who have attained the age of 21 years, but need not be
residents of the State of Georgia or shareholders of the corporation. The
board, from time to time, may designate persons to act as advisory directors.
(b) As long as any shares of the corporation's Common Stock shall be
quoted on the NASDAQ National Market, the board of directors of the corporation
shall ensure, and shall have all powers necessary to ensure, that the
membership of the board of directors shall at all times include such number of
"independent" directors (as such term is defined in Part III, Paragraph 6(c) of
Schedule D to the Bylaws of the National Association of Security Dealers, Inc.
(the "NASD"), as the same may be amended from time to time) as shall be
required by the Bylaws of the NASD in order for shares of the corporation's
Common Stock to be eligible for quotation on the NASDAQ National Market. In
the event that the shares of the corporation's Common Stock shall cease to be
quoted on the NASDAQ National Market and subsequently such shares are listed or
quoted on a national securities exchange or other trading system, the board of
directors of the corporation shall ensure, and shall have all powers necessary
to ensure, that the membership of the board of directors shall at all times be
consistent with the applicable rules and regulations, if any, for the
corporation's Common Stock to be eligible for listing and quotation on such
exchange or other trading system.
SECTION 3. NOMINATIONS. (a) If any shareholder intends to
nominate or cause to be nominated any candidate for election to the board of
directors (other than any candidate to be sponsored by and proposed at the
instance of the management), such shareholder shall notify the President by
first class registered mail sent not less than 14 nor more than 50 days before
the scheduled meeting of the shareholders at which directors will be elected.
However, if less than 21 days notice of the meeting is given to shareholders,
such nomination shall be delivered or mailed to the President not later than
the close of the seventh day following the date on which the notice of the
shareholders' meeting was mailed. Such notification shall
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contain the following information with respect to each nominee, to the extent
known to the shareholder giving such notification:
(1) Name, address and principal present occupation;
(2) To the knowledge of the shareholder who proposed to make
such nomination, the total number of shares that may be
voted for such proposed nominee;
(3) The names and address of the shareholders who propose to
make such nomination, and the number of shares of the
corporation owned by each of such shareholders; and
(4) The following additional information with respect to each
nominee: age, past employment, education, beneficial
ownership of shares in the corporation, past and present
financial standing, criminal history (including any
convictions, indictments or settlements thereof),
involvement in any past or pending litigation or
administrative proceedings (including threatened
involvement), relationship to and agreements (whether or
not in writing) with the shareholder(s) (and their
relatives, subsidiaries and affiliates) intending to make
such nomination, past and present relationships or
dealings with the corporation or any of its subsidiaries,
affiliates, directors, officers or agents, plans or ideas
for managing the affairs of the corporation (including,
without limitation, any termination of employees, any
sales of corporate assets, any proposed merger, business
combination or recapitalization involving the
corporation, and any proposed dissolution or liquidation
of the corporation), and all additional information
relating to such person that would be required to be
disclosed, or otherwise required, pursuant to Sections 13
or 14 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder (the
"Exchange Act"), in connection with any acquisition of
shares by such nominee or in connection with the
solicitation of proxies by such nominee for his election
as a director, regardless of the applicability of such
provisions of the Exchange Act.
(b) Any nominations not in accordance with the provisions of
this SECTION 3 may be disregarded by the chairman of the meeting, and upon
instruction by the chairman, votes cast for each such nominee shall be
disregarded. In the event, however, that a person should be nominated by more
than one shareholder, and if one such nomination complies with the provisions
of this SECTION 3, such nomination shall be honored, and all shares voted for
such nominee shall be counted.
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SECTION 4. VACANCIES. (a) Subject to SUBSECTIONS 4(B) AND
4(C), vacancies, including vacancies resulting from any increase in the number
of directors and vacancies resulting from removal from office by the
shareholders, may be filled only by the board of directors or by a majority of
the directors then in office (if the directors remaining in office constitute
less than a quorum), and a director so chosen shall hold office until the next
annual election and until his successor is duly elected and qualified, unless
sooner displaced; provided, however, that if there are no directors in office,
then vacancies shall be filled through election by the shareholders.
(b) If any vacant office described in SUBSECTION 4(A) was
held by a director elected by a particular Voting Group, only the remaining
directors elected by that Voting Group shall be entitled to fill the vacancy;
provided, however, that if the vacant office was held by a director elected by
a particular Voting Group and there is no remaining director elected by that
Voting Group, the other remaining directors or director (elected by another
Voting Group or Groups) may fill the vacancy.
(c) If any vacant office described in SUBSECTION 4(A) was
held by an independent director (as such term is defined in Part III, Paragraph
6(c) of Schedule D to the Bylaws of the National Association of Security
Dealers, Inc. (the "NASD"), as the same may be amended from time to time), such
vacancy shall be filled by the affirmative vote of a majority of the remaining
independent directors.
SECTION 5. MEETINGS AND NOTICE. (a) The board of directors
of the corporation may hold meetings, both regular and special, either within
or without the State of Georgia. Regular meetings of the board of directors
may be held without notice at such time and place as shall from time to time be
determined by resolution of the board. Special meetings of the board may be
called by the Chairman or by any two directors upon two day's notice given in a
manner permitted by law. Such notice shall state a reasonable time, date and
place of meeting, but the purpose need not be stated therein. Unless otherwise
provided by law, the Articles of Incorporation or these Bylaws, directors may
participate in a meeting of the board, or any committee thereof, by means of
conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other. Participation in the meeting
shall constitute presence in person.
(b) A director may waive any notice required by the Code, the
Articles of Incorporation, or these Bylaws before or after the date and time of
the matter to which the notice relates, by a written waiver signed by the
director and delivered to the corporation for inclusion in the minutes or
filing with the corporate records. Attendance by a director at a meeting shall
constitute waiver of notice of the meeting, except where a director at the
beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or to transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
-8-
<PAGE> 9
SECTION 6. QUORUM. At all meetings of the board a majority
of directors shall constitute a quorum for the action of business, and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board, except as may be otherwise specifically
provided by law, by the Articles of Incorporation, by these Bylaws or by
contract. If a quorum shall not be present at any meeting of the board, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 7. CONSENT OF DIRECTORS. Unless otherwise restricted
by the Articles of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if the action is evidenced by
one or more written consents describing the action taken and signed by each
director or committee member, and the writing or writings are delivered to the
corporation for inclusion in the minutes for filing with the corporate records.
Such consent shall have the same force and effect as a unanimous vote of the
board or committee, as the case may be.
SECTION 8. COMMITTEES. The board of directors may by
resolution create one or more committees and appoint one or more members of the
board of directors to serve on them. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of such committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise all of the authority of
the board of directors in the management of the business and affairs of the
corporation, subject to limitations imposed by law or the Articles of
Incorporation. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the board of
directors. A majority of each committee may determine its action and may fix
the time and places of its meetings, unless otherwise provided by the board of
directors. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
SECTION 9. REMOVAL OF DIRECTORS. At any shareholders
meeting, with respect to which notice of such purpose has been given, any
director may be removed from office only for cause, by a majority of the shares
outstanding; provided that directors elected by a particular Voting Group may
be removed only by the shareholders in that Voting Group.
SECTION 10. COMPENSATION OF DIRECTORS. Directors shall be
entitled to such compensation for their services as directors or members of any
committee of the board as shall be fixed from time to time by resolution
adopted by the board, and shall also be entitled to reimbursement for any
reasonable expenses incurred in attending any meeting of the board or any such
committee.
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<PAGE> 10
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be
chosen by the board of directors and shall be a Chairman, a President and a
Secretary. The board of directors may also choose one or more Vice Presidents
(including Executive Vice Presidents, Senior Vice Presidents, Assistant Vice
Presidents, and the like), one or more Assistant Secretaries, a Treasurer and
one or more Assistant Treasurers. Any number of offices may be held by the
same person. The board of directors may appoint such other officers and agents
as it shall deem necessary.
SECTION 2. COMPENSATION. The salaries of all officers and
agents of the corporation shall be fixed by the board of directors or a
committee or officer appointed by the board.
SECTION 3. TERM OF OFFICE. Unless otherwise provided by
resolution of the board of directors, the principal officers shall be chosen
annually by the board of directors at the first meeting of the board following
the regular meeting of shareholders of the corporation, or as soon thereafter
as is conveniently possible. Subordinate officers may be elected from time to
time. Each officer shall serve until his successor shall have been chosen and
qualified, or until his death, resignation or removal.
SECTION 4. REMOVAL. Any officer may be removed from office
at any time, with or without cause, by the board of directors whenever in its
judgment the best interests of the corporation will be served thereby.
SECTION 5. VACANCIES. Any vacancy in an office, existing for
any reason, may be filled by the board of directors.
SECTION 6. POWERS AND DUTIES. Except as otherwise provided
by law, the Articles of Incorporation or these Bylaws, or as hereinafter
provided, the officers of the corporation shall each have such powers and
duties as from time to time may be conferred by the board of directors.
(a) Chairman. The Chairman shall preside as chairman at all
meetings of the board of directors and of the shareholders, and shall have such
other authority and duties as the board of directors or these Bylaws shall
provide.
(b) President. The President shall be the chief executive
officer of the corporation, shall in the absence of the Chairman preside as
chairman at all meetings of shareholders, and shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried into effect.
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<PAGE> 11
The President shall have the authority to select and appoint employees and
agents of the corporation, and shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board. The President shall perform any other duties and have
any other authority as may be delegated from time to time by the board of
directors, and shall be subject to the limitations fixed from time to time by
the board of directors. The President shall otherwise have such authority as
generally pertains to the office of president.
(c) Vice Presidents. The Vice President (if there be one)
shall, in the absence or disability of the President, or at the direction of
the President, perform the duties and exercise the powers of the President,
whether the duties and powers are specified in these Bylaws or otherwise. If
the corporation has more than one Vice President, the one designated by the
board of directors or the President (in that order of precedence) shall act in
the event of the absence or disability of the President. Vice Presidents shall
perform any other duties and have any other authority as from time to time may
be delegated by the board of directors or the President.
(d) Secretary. The Secretary shall attend all meetings of
the board of directors and all meetings of the shareholders and record all the
proceedings of such meetings in a book to be kept for that purpose and shall
perform like duties for the standing committees of the board when required. He
or a designee shall give, or cause to be given, notice of all meetings of the
shareholders, and shall perform such other duties as may be prescribed by the
board of directors or President, under whose supervision he shall be. He shall
have custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The board of directors may give general authority
to any other officer to affix the seal of the corporation and to attest to
affixing by his signature.
(e) Bonds and Sureties. If required by the board of
directors, any officer or employee shall give the corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
(f) Signatures. The signature of any officer, employee or
agent upon any document of the corporation may be made by facsimile or machine
signature under such limitations and circumstances as the board of directors or
any appropriate committee of the board of directors may provide from time to
time.
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<PAGE> 12
SECTION 7. VOTING SECURITIES OF CORPORATION. Unless
otherwise provided by the board of directors, the Chairman, and in his absence,
the President, shall have full power and authority on behalf of the corporation
to attend and to act and vote at any meetings of security holders of
corporations in which the corporation may hold securities, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities which the corporation might have possessed and
exercised if it had been present. The board of directors by resolution from
time to time may confer like powers upon any other person or persons.
ARTICLE V
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
corporation shall indemnify and hold harmless any person (an "Indemnified
Person") who is or was a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action or suit by or
in the right of the corporation) by reason of the fact that he is or was a
director or officer of the corporation, against expenses (including, but not
limited to, attorneys' fees and disbursements, court costs and expert witness
fees), and against any judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; provided, in any case, that no indemnification shall be
made in respect of expenses, judgments, fines and amounts paid in settlement
attributable to circumstances as to which, under applicable provisions of the
Code as in effect from time to time, such indemnification may not be authorized
by action of the Board of Directors, the shareholders or otherwise.
SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS FOR
DERIVATIVE ACTIONS. The corporation shall indemnify and hold harmless any
Indemnified Person who is or was a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by or in the right of the
corporation, by reason of the fact that he is or was a director or officer of
the corporation, against expenses (including, but not limited to, attorneys'
fees and disbursements, court costs and expert witness fees) actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. No indemnification shall
be made pursuant to this SECTION 2 for any claim, issue or matter as to which
an Indemnified Person shall have been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction shall determine upon application that
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
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<PAGE> 13
SECTION 3. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Board of Directors shall have the power to cause the corporation to provide to
any person who is or was an employee or agent of the corporation all or any
part of the right to indemnification and other rights of the type provided
under SECTIONS 1, 2, 6 AND 12 of this ARTICLE V (subject to the conditions,
limitations, obligations and other provisions specified herein), upon a
resolution to that effect identifying such employee or agent (by position or
name) and specifying the particular rights provided, which may be different for
each employee or agent identified. Each employee or agent of the corporation
so identified shall be an "Indemnified Person" for purposes of the provisions
of this ARTICLE V.
SECTION 4. SUBSIDIARIES AND OTHER ORGANIZATIONS. The Board of
Directors shall have the power to cause the corporation to provide to any
person who is or was a director, officer, employee or agent of the corporation
who also is or was a director, officer, trustee, partner, employee or agent of
a Subsidiary (as defined below), or is or was serving at the corporation's
request in such a position with any other organization, all or any part of the
right to indemnification and other rights of the type provided under SECTIONS
1, 2, 6 AND 12 of this ARTICLE V (subject to the conditions, limitations,
obligations and other provisions specified herein), with respect to service by
such person in such position with a Subsidiary or other organization, upon a
resolution identifying such person, the Subsidiary or other organization
involved (by name or other classification), and the particular rights provided,
which may be different for each person so identified. Each person so
identified shall be an "Indemnified Person" for purposes of the provisions of
this ARTICLE V. As used in this ARTICLE V, "Subsidiary" shall mean (i) another
corporation, joint venture, trust, partnership or unincorporated business
association more than 20% of the voting capital stock or other voting equity
interest of which was, at or after the time of the circumstances giving rise to
such action, suit or proceeding, owned, directly or indirectly, by the
corporation; or (ii) a nonprofit corporation that receives its principal
financial support from the corporation or its Subsidiaries.
SECTION 5. DETERMINATION. Notwithstanding any judgment,
order, settlement, conviction or plea in any action, suit or proceeding of the
kind referred to in SECTIONS 1 AND 2 of this ARTICLE V, an Indemnified Person
shall be entitled to indemnification as provided in such SECTIONS 1 AND 2 if a
determination that such Indemnified Person is entitled to such indemnification
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not at the time parties to the proceeding; or
(ii) if a quorum cannot be obtained under (i) above, by majority vote of a
committee duly designated by the Board of Directors (in which designation
interested directors may participate), consisting solely of two or more
directors who are not at the time parties to the proceeding; or (iii) in a
written opinion by special legal counsel selected as required by Section
14-2-855(b)(3) of the Code or any successor provision. To the extent that an
Indemnified Person has been successful on the merits or otherwise in defense of
any action, suit or proceeding of the kind referred to in SECTIONS 1 AND 2 of
this ARTICLE V, or in defense of any claim, issue or matter therein, he shall
be indemnified
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<PAGE> 14
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
SECTION 6. ADVANCES. Expenses (including, but not limited
to, attorneys' fees and disbursements, court costs, and expert witness fees)
incurred by an Indemnified Person in defending any action, suit or proceeding
of the kind described in SECTIONS 1 AND 2 hereof (or in SECTION 4 hereof if
applicable to such Indemnified Person) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as set
forth herein. The corporation shall promptly pay the amount of such expenses
to the Indemnified Person, but in no event later than ten days following the
Indemnified Person's delivery to the corporation of a written request for an
advance pursuant to this SECTION 6, together with a reasonable accounting of
such expenses; provided, however, that the Indemnified Person shall furnish the
corporation a written affirmation of his good faith belief that he has met the
standard of conduct set forth in the Code and a written undertaking and
agreement, executed personally or on his behalf, to repay to the corporation
any advances made pursuant to this SECTION 6 if it shall be ultimately
determined that the Indemnified Person is not entitled to be indemnified by the
corporation for such amounts. The corporation shall make the advances
contemplated by this SECTION 6 regardless of the Indemnified Person's financial
ability to make repayment. Any advances and undertakings to repay pursuant to
this SECTION 6 shall be unsecured and interest-free.
SECTION 7. NON-EXCLUSIVITY. Subject to any applicable
limitation imposed by the Code or the Articles of Incorporation, the
indemnification and advancement of expenses provided by or granted pursuant to
this ARTICLE V shall not be exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, resolution or agreement specifically or in general terms approved or
ratified by the affirmative vote of holders of a majority of the shares
entitled to be cast thereon.
SECTION 8. INSURANCE. The corporation 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 corporation, or who, while a
director, officer, employee, or agent of the corporation, is or was serving as
a director, officer, trustee, general partner, employee or agent of a
Subsidiary or, at the request of the corporation, of any other organization,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of this ARTICLE V.
SECTION 9. NOTICE. If any expenses or other amounts are paid
by way of indemnification, otherwise than by court order or action by the
shareholders or by an insurance carrier pursuant to insurance maintained by the
corporation, the corporation shall, not later than the next annual meeting of
shareholders, unless such meeting is held within three months from the date of
such payment, and in any event within 15 months from the date of such payment,
send by first class mail to its shareholders of record at the time entitled to
vote for the election of directors
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<PAGE> 15
a statement specifying the persons paid, the amount paid and the nature and
status at the time of such payment of the litigation or threatened litigation.
SECTION 10. SECURITY. The corporation may designate certain
of its assets as collateral, provide self-insurance or otherwise secure its
obligations under this ARTICLE V, or under any indemnification agreement or
plan of indemnification adopted and entered into in accordance with the
provisions of this ARTICLE V, as the Board of Directors deems appropriate.
SECTION 11. AMENDMENT. Any amendment to this ARTICLE V that
limits or otherwise adversely affects the right of indemnification, advancement
of expenses, or other rights of any Indemnified Person hereunder shall, as to
such Indemnified Person, apply only to claims, actions, suits or proceedings
based on actions, events or omissions (collectively, "Post Amendment Events")
occurring after such amendment and after delivery of notice of such amendment
to the Indemnified Person so affected. Any Indemnified Person shall, as to any
claim, action, suit or proceeding based on actions, events or omissions
occurring prior to the date of receipt of such notice, be entitled to the right
of indemnification, advancement of expenses and other rights under this ARTICLE
V to the same extent as if such provisions had continued as part of the Bylaws
of the corporation without such amendment. This SECTION 11 cannot be altered,
amended or repealed in a manner effective as to any Indemnified Person (except
as to Post Amendment Events) without the prior written consent of such
Indemnified Person.
SECTION 12. AGREEMENTS. In addition to the rights provided
in this ARTICLE V, the corporation shall have the power, upon authorization by
the Board of Directors, to enter into an agreement or agreements providing to
any person who is or was a director, officer, employee or agent of the
corporation indemnification rights substantially similar to, or greater than,
those provided in this ARTICLE V.
SECTION 13. CONTINUING BENEFITS. The indemnification and
advancement of expenses provided by or granted pursuant to this ARTICLE V
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 14. SUCCESSORS. For purposes of this ARTICLE V, the
terms "the corporation" or "this corporation" shall include any corporation,
joint venture, trust, partnership or unincorporated business association that
is the successor to all or substantially all of the business or assets of this
corporation, as a result of merger, consolidation, sale, liquidation or
otherwise, and any such successor shall be liable to the persons indemnified
under this ARTICLE V on the same terms and conditions and to the same extent as
this corporation.
SECTION 15. SEVERABILITY. Each of the sections of this
ARTICLE V, and each of the clauses set forth herein, shall be deemed separate
and independent, and should any part of any such section or clause be declared
invalid or unenforceable by any court of competent jurisdiction, such
invalidity or unenforceability shall in no way render invalid or unenforceable
any other part
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<PAGE> 16
thereof or any other separate section or clause of this ARTICLE V that is not
declared invalid or unenforceable.
SECTION 16. ADDITIONAL INDEMNIFICATION. In addition to
the specific indemnification rights set forth herein, the corporation shall
indemnify each of its directors and officers to the full extent permitted by
action of the Board of Directors without shareholder approval under the Code or
other laws of the State of Georgia as in effect from time to time.
ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. FORM OF CERTIFICATE. Every holder of record of
fully-paid shares in the corporation shall be entitled to have a certificate in
such form as the board of directors may from time to time prescribe.
SECTION 2. LOST CERTIFICATES. The corporation may issue a
new certificate in place of any certificate theretofore issued by the
corporation and alleged to have been lost, stolen or destroyed, upon the making
of an affidavit, in form and substance satisfactory to the corporation, of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
The corporation may, in its discretion and as a condition precedent to the
issuance thereof, together with such other conditions precedent that it may
reasonably require, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 3. TRANSFERS. (a) Transfers of capital shares of the
corporation shall be made only on the books of the corporation by the
registered holder thereof, or by his duly authorized attorney, or with a
transfer clerk or transfer agent appointed as provided in SECTION 5 of this
Article, and on surrender of the certificate or certificates for such shares
properly endorsed and the payment of all taxes thereon.
(b) Except as otherwise provided by law or as provided
elsewhere herein, the corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and for all other purposes, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof.
(c) Capital shares may be transferred by delivery of the
certificates thereof, accompanied either by an assignment in writing on the
back of the certificates or by separate written power of attorney to sell,
assign and transfer the same, signed by the record holder
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<PAGE> 17
thereof, or by his duly authorized attorney-in-fact, and accompanied by such
evidence that all such signatures are genuine, as the corporation, at its
option, may request, but no transfer shall affect the right of the corporation
to pay any dividend upon the stock to the holder of record as the holder in
fact thereof for all purposes, and no transfer shall be valid, except between
the parties thereto, until such transfer shall have been made upon the books of
the corporation as herein provided.
(d) The board may, from time to time, make such additional
rules and regulations as it may deem expedient, not inconsistent with these
Bylaws or the Articles of Incorporation concerning the issue, transfer and
registration of certificates for shares of the corporation, and nothing
contained herein shall limit or waive any rights of the corporation with
respect to such matters under applicable law or any subscriptions or other
agreement by which the corporation is bound.
SECTION 4. RECORD DATE. (a) In order that the corporation
may determine the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or to express any consent or demand
with respect to any corporate action, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the board of directors may fix,
in advance, a record date, which shall not be more than 70 days and, in case of
a meeting of shareholders, not less than 10 days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
(b) If no record date is fixed as provided in SECTION 4(A),
then the record date for any determination of shareholders that may be proper
or required by law shall be, as appropriate, the date on which notice of a
shareholders' meeting is mailed, the date on which the board of directors
adopts a resolution declaring a dividend or authorizing a distribution, or the
date on which any other action is taken that requires a determination of
shareholders.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The board of
directors may appoint one or more transfer agents or one or more transfer
clerks and one or more registrars, and may require all certificates of shares
to bear the signature or signatures of any of them.
ARTICLE VII
BUSINESS COMBINATIONS
SECTION 1. BUSINESS COMBINATIONS. All of the requirements of
Sections 14-2-1110 et seq. and 14-2-1131 et seq. of the Georgia Business
Corporation Code (and any successor provisions) shall be applicable to the
corporation.
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<PAGE> 18
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DISTRIBUTION. Distributions upon shares of the
corporation, subject to the provisions, if any, of the Articles of
Incorporation, or any lawful agreement among shareholders, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Distributions may be paid in cash or in property, subject to applicable
provisions of the Articles of Incorporation. Before payment of any
distribution, there may be set aside out of any funds of the corporation
available for distribution such sum or sums as the board from time to time, in
its sole and absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing distributions, or for repairing or maintaining
any property of the corporation, or for such other purpose as the board shall
deem conducive to the interest of the corporation, and the board may modify or
abolish any such reserve in its sole and absolute discretion.
SECTION 2. FISCAL YEAR. The fiscal year of the corporation
shall be fixed by resolution of the board of directors.
SECTION 3. SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal" and "Georgia." The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced.
SECTION 4. SAVINGS CLAUSE. To the extent these Bylaws
conflict with any provision of any state or federal law as such laws may be
amended from time to time, these Bylaws shall be construed so as not to
conflict with said law, and any discretionary actions made hereunder shall be
made in accordance with applicable law.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. The board of directors shall have
power to alter, amend or repeal these Bylaws or adopt new bylaws by the
affirmative vote of a majority of the members of the board, but any bylaws
adopted by the board of directors may be altered, amended or repealed, and new
bylaws may be adopted, by the affirmative vote of a majority of the shares
outstanding, unless the Articles of Incorporation, these Bylaws or applicable
law require otherwise.
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<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 4.1
[LOGO]
SUBURBAN
LODGE
<S> <C> <C>
NUMBER SHARES
SL SUBURBAN LODGES OF AMERICA, INC.
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 864444 10 4
THIS CERTIES THAT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
(New York, New York)
IS THE OWNER OF BY TRANSFER AGENT AND REGISTRAR
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE COMMON STOCK OF
SUBURBAN LODGES OF AMERICA, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized
officers.
Dated:
/s/ /s/ David Krischer
------------- ------------------
Secretary SUBURBAN LODGES OF AMERICA, INC. President
CORPORATE
SEAL AUTHORIZED SIGNATURE
1987
GEORGIA
SECURITY COLUMBIAN UNITED STATES BANKNOTE CORPORATION
</TABLE>
<PAGE> 2
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS A STATEMENT OR SUMMARY OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES, AND LIMITATIONS APPLICABLE TO EACH CLASS OF STOCK OF THE
CORPORATION AND THE VARIATIONS IN RIGHTS, PREFERENCES, AND LIMITATIONS
DETERMINED FOR EACH SERIES (AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO
DETERMINE VARIATIONS FOR FUTURE SERIES). SUCH REQUEST MAY BE MADE TO THE
CORPORATION AT ITS PRINCIPAL OFFICE OR TO THE TRANSFER AGENT NAMED ON THE FACE
OF THIS CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties -------- --------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-----------------------------
(State)
Additional abbreviations may also be used though not listed in the above list.
For value received, hereby sell, assign and transfer unto
--------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated
---------------------------------
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NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
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THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
This Certificate also evidences certain Rights as set forth in a Rights
Agreement between Suburban Lodges of America, Inc. and American Stock Transfer &
Trust Company, dated as of May ___, 1996 (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which is on file
at the principal office of the Corporation. The Corporation will mail to the
holder of this Certificate a copy of the Rights Agreement without charge
promptly after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
evidenced by separate certificates and no longer be evidenced by this
Certificate, may be redeemed or exchanged or may expire. As set forth in the
Rights Agreement, Rights issued to, or held by, any Person who is, was or
becomes as Acquiring Person or an Affiliate or Associate thereof (as such terms
are defined in the Rights Agreement), whether currently held by or on the
behalf of such Person or by any subsequent holder, may be null and void.
<PAGE> 1
EXHIBIT 10.1
FORM OF
ACQUISITION AGREEMENT AND PLAN OF MERGER
OF
[NAME OF MERGING PARTNERSHIP]
INTO
SUBURBAN HOLDINGS, LP
THIS ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered
into on this day of March, 1996, by and between , a
Georgia limited partnership (the "Merging Partnership"), Suburban Holdings, LP,
a Georgia limited partnership (the "Surviving Partnership"), Suburban Lodges of
America, Inc., a Georgia Corporation (the "Corporation"), and David E. Krischer
("Krischer") as agent for the partners of the Merging Partnership (for purposes
of SECTION 8.10).
WHEREAS, Section 14-9-206.1 of the Georgia Revised Uniform Limited
Partnership Act, O.C.G.A. sec. 149-100 et seq. (the "Act"), permits a merger of
one or more limited partnerships; and
WHEREAS, the Merging Partnership owns that certain real property as more
particularly described on EXHIBIT A to this Agreement (the "Land"), together
with all improvements thereon (the "Motel") and personal property used in the
operation of the Motel (the "Personal Property") (the Land, the Motel, and the
Personal Property hereinafter collectively are referred to as the "Property");
WHEREAS, the partners in the Merging Partnership wish to contribute their
partnership interests in the Merging Partnership to the Corporation in exchange
for cash or shares in the Corporation,
WHEREAS, the Corporation is in the process of filing a registration
statement with the Securities and Exchange Commission for registration of the
initial public offering (the "IPO") of the Corporation's common stock, $.01 par
value per share (the "Common Stock"); and
WHEREAS, the Merging Partnership, the Surviving Partnership, and the
Corporation deem it advisable and to the advantage, welfare, and best interests
of both limited partnerships and the Corporation and their respective partners
and shareholders to effect the transactions described below pursuant to the
provisions of the laws of the State of Georgia and upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, the Agreement and the terms and conditions
hereof and the mode of carrying the same into effect, together with any
provisions required or permitted to be set forth therein, are hereby determined
and agreed upon, as hereinafter set forth in this Agreement.
ARTICLE 1
THE TRANSACTION
1.1 Description of Transaction. At the Effective Time (as defined in
SECTION 4.3), the following transactions shall be effected, subject to and in
accordance with the provisions of this Agreement:
(a) Each of the partners in the Merging Partnership shall contribute
his partnership interest in the Merging Partnership to the Corporation in
exchange for cash or shares of Common Stock in the Corporation in an
exchange qualifying under Section 351 of the Internal Revenue Code of 1986,
as amended (the "IRC").
(b) The Corporation shall thereafter contribute to a wholly-owned
Florida corporation of the Corporation (the "Subsidiary") an undivided
ninety-nine percent (99%) interest in the Property, and, thereafter, the
Subsidiary shall contribute such ninety-nine (99%) percent interest in the
Property to the Surviving Partnership in return for a ninety-nine percent
(99%) limited partnership interest in the Surviving Partnership pursuant to
Section 721 of the IRC.
<PAGE> 2
(c) The Corporation shall contribute an undivided one percent (1%)
interest in the Property to the Surviving Partnership in return for a one
percent (1%) general partnership interest in the Surviving Partnership
pursuant to Section 721 of the IRC.
1.2 Implementation. As a convenience to the parties and to minimize
transaction costs, the transactions described above shall be effected by a
merger of the Merging Partnership into the Surviving Partnership pursuant to
Section 14-9-206.1 of the Act, pursuant to which (1) the Surviving Partnership
shall survive and succeed to the assets and liabilities of the Merging
partnership, (2) each of the partners in the Merging Partnership shall receive
the number of shares of Common Stock or cash to which he is entitled, (3) the
Corporation and the Subsidiary shall receive a 1% general partnership interest
and a 99% limited partnership interest in the Surviving Partnership,
respectively.
ARTICLE 2
THE MERGER
2.1 Merger. At the Effective Time (as defined in Section 4.3) and upon the
terms and subject to the conditions set forth in this Agreement, the Merging
Partnership shall merge into and with the Surviving Partnership, which shall be
the continuing and resulting limited partnership and shall be governed by the
laws of the State of Georgia (hereinafter referred to as the "Merger"). Upon the
occurrence of the Merger, the separate existence of the Merging Partnership
shall cease, and it shall terminate as a limited partnership for all purposes.
2.2 Effect of Merger. The Merger shall in all respects have the effect
provided for in section 14-9-206.1 of the Act, including without limitation the
following:
(a) The Surviving Partnership shall succeed to and shall hereafter
possess all of the rights, duties, obligations, privileges, immunities,
franchises, and powers of the Merging Partnership, and the Merging
Partnership shall transfer to and vest in the Surviving Partnership, and
the Surviving Partnership shall take, without further act or deed, all real
property, personal property, and fixtures of the Merging Partnership, all
debts due the Merging Partnership, any chose in action of the Merging
Partnership, and each and every other interest of or belonging to or due to
the Merging Partnership. The Merger shall not cause the reversion of or
otherwise impair the title to any real estate, or any interest therein, of
the Merging Partnership.
(b) The Surviving Partnership shall thereupon and thereafter be
responsible for all liabilities and obligations of the Merging Partnership,
and any claim existing or action or proceeding pending by or against the
Merging Partnership may be prosecuted as if the Merger had not taken place,
or any party to any such action or proceeding may substitute the Surviving
Partnership in the place of the Merging Partnership. The Merger shall not
impair the rights of creditors or any liens upon any property of the
Merging Partnership.
ARTICLE 3
THE SURVIVING PARTNERSHIP
3.1 Certificate of Limited Partnership. Upon the Merger, the Suburban
Holdings, LP Certificate of Limited partnership (the "Certificate") as in effect
as of the Effective Time shall be the certificate of limited partnership for the
Surviving Partnership, until amended in accordance with the Act and the
Partnership Agreement (as defined in SECTION 3.2).
3.2 Limited Partnership Agreement. Upon the Merger, the Suburban Holdings,
LP Limited Partnership Agreement (the "Partnership Agreement") as in effect at
the Effective Time shall be the limited partnership agreement for the Surviving
Partnership, until amended in accordance with the terms of the Partnership
Agreement.
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<PAGE> 3
ARTICLE 4
CONVERSION, CLOSING
4.1 Conversion of Partnership Interests. At the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof:
(a) The partnership interests in the Merging Partnership of each of
the Cash-Out Partners listed on Schedule 4.1 hereto shall be canceled and
extinguished and shall be converted into the right to receive the
"Liquidating Distribution Amount" (as defined in Section 4.2 below) in
cash.
(b) The partnership interests in the Merging Partnership of each of
the Continuing Equity Partners listed on Schedule 4.1 hereto shall be
canceled and extinguished and shall be converted into the right to receive
the number of shares of Common Stock with a value qual to the Liquidating
Distribution Amount. Each share of Common Stock received pursuant to the
Merger shall be valued at the price to the public of the Common Stock on
the effective date of the Corporation's registration statement for the IPO.
No fractional shares of Common Stock will be issued, and partners receiving
Common Stock in the Merger will receive a cash payment in lieu of any such
fractional shares.
(c) The partnership interests of the partners of the Surviving
Partnership shall continue unchanged.
4.2 Liquidating Distribution Amount Defined. For purposes of this
Agreement, the "Liquidating Distribution Amount" with respect to any partner of
the Merging Partnership shall mean an amount that such partner would receive
assuming the following actions occurred:
(a) The Merging Partnership sold all of its assets of the Effective
Time for an amount of cash equal to [THE APPRAISED VALUE OF THE PARTNERSHIP
ASSETS] [FOR LODGES CURRENTLY IN OPERATION: less the amounts specified in
Schedule 9.1] (the "Hypothetical Sale").
(b) The Merging Partnership allocated all gain or loss in connection
with the Hypothetical Sale described in Section 4.2(a) above to the
partners of the Merging Partnership in accordance with [THE APPLICABLE
PROFIT OR LOSS ALLOCATION PROVISION] of the Agreement of Limited
Partnership of [NAME OF MERGING PARTNERSHIP].
(c) The Merging Partnership distributed the cash and Common Stock
deemed paid pursuant to the Hypothetical Sale described in Section 4.2(a)
above to the partners of the Merging Partnership in accordance with [THE
APPLICABLE LIQUIDATING DISTRIBUTION PROVISION] of the Agreement of [NAME OF
MERGING PARTNERSHIP]. The Liquidating Distribution Amount with respect to
each of the partners of the Merging Partnership shall be determined as of
the Effective Time in accordance with this Section 4.2 The [FOR CERTAIN
PARTNERSHIPS: approximate] amount to be received by each partner of the
Merging Partnership is set forth on SCHEDULE 4.2 hereto.
4.3 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kilpatrick & Cody,
1100 Peachtree Street, Atlanta, Georgia 30309 at 10:00 a.m. on the day after the
satisfaction or waiver of all of the conditions set forth in Article 10 and
Article 11 (the "Effective Time"), or otherwise as agreed to by the parties
hereto. On the date of the Closing, the Merging Partnership and the Surviving
Partnership shall file with the Secretary of State of Georgia an executed
Certificate of Merger as required by the Limited Partnership Act.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE MERGING PARTNERSHIP
For the purpose of this Article 5, the term "knowledge" means the actual
knowledge of each of David E. Krischer, Seth H. Christian, and Terry J. Feldman
(the "Principals"), after diligent inquiry of the employees of Suburban
Management, Inc. who are designated to work with the Principals and who should
have knowledge of the facts relevant to this Article 5, and the general manager
of the motel located on the Property.
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<PAGE> 4
The Merging Partnership hereby represents and warrants to the Surviving
Partnership and the Corporation, as follows:
5.1 Organization and Standing. The Merging Partnership is a Georgia
limited partnership, duly organized, validly existing, and in good standing
under the laws of the State of Georgia and has all requisite powers and all
governmental and regulatory licenses, authorizations, consents, and approvals to
carry on its business as now conducted, to own, lease and operate its
properties, to execute and deliver this Agreement and any documents or
instruments required to be executed and delivered on behalf of the Merging
Partnership hereunder, to perform its obligations under this Agreement and any
such other documents or instruments, and to consummate the merger and the other
transactions contemplated hereby. The Merging Partnership has no subsidiaries
and does not, directly or indirectly, own any capital stock of any other entity.
5.2 Authority. The Merging Partnership has the lawful right, power,
authority and capacity to sell the Property in accordance with the terms,
provisions and conditions of this Agreement and the execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized and approved by all necessary
action on the part of the Merging Partnership and no other actions are necessary
to authorize and approve this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by, and constitutes
a valid and binding obligation of the Merging Partnership, enforceable against
the Merging Partnership in accordance with its terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting creditors' rights generally, or by the principles
governing the availability of equitable remedies).
5.3 Suites, Etc. No actions, suits, claims, or proceedings are pending
against or by, or threatened against or by, or affecting the Merging Partnership
(i) that affect title to the Property, (ii) that question the validity or
enforceability of this Agreement or of any action taken by the Merging
Partnership under this Agreement, (iii) that are reasonably likely to have a
material adverse effect on the results of operations or financial condition of
the Merging Partnership, or (iv) that are reasonably likely to cause a material
limitation on the Surviving Partnership's ability to operate the business of the
Merging Partnership after the Effective Date, in any court or before any
judicial, administrative, or union body or any arbitrator or any governmental
authority, domestic or foreign. No present or former officer or partner of the
Merging Partnership has any claim for indemnification from the Merging
Partnership related to any act or omission by such present or former officer or
partner.
5.4 Execution; No Default. Except for any loan document with respect to
any indebtedness of the Merging Partnership secured by the Property (the
"Mortgage Loan"), the execution of and entry into this Agreement, the execution
and delivery of the documents and instruments that the Merging Partnership will
execute or deliver on the date of the Closing, and the performance by the
Merging Partnership of its duties and obligations under this Agreement and of
all other acts necessary and appropriate for the full consummation of the
transactions as contemplated by and provided for in this Agreement, are
consistent with and not in violation of, and will not create any adverse
condition under, any contract, agreement or other instrument to which the
Merging Partnership is a party, any judicial order or judgment of any nature by
which the Merging Partnership is bound, and this Agreement. The covenants and
agreements of the Merging Partnership under this Agreement are the valid and
binding obligations of the Merging Partnership, enforceable in accordance with
their terms.
5.5 Financial Statements. Prior to the date hereof, the Merging
Partnership shall have provided the Surviving Partnership with audited financial
statements for the Merging Partnership's fiscal years ended December 31, 1993,
December 31, 1994, and December 31, 1995 (collectively, the "Merging Partnership
Financial Statements"). To the best knowledge of the Merging Partnership, the
Merging Partnership Financial Statements are true, correct and complete, have
been prepared in accordance with generally accepted accounting principles
(subject to normal year-end adjustments), and present fairly, in all material
respects, the financial position of the Merging Partnership and the results of
its operations for the periods then ended. Since December 31, 1995, there has
been no material adverse change in the financial condition or in the operations
of the Merging Partnership.
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<PAGE> 5
5.6 Absence of Undisclosed Liabilities. The Merging Partnership has no
liabilities or obligations, either accrued, contingent or otherwise, except
those reflected in the Merging Partnership Financial Statements or arising in
the ordinary course of its business after December 31, 1995.
5.7 Title to Property. The Merging Partnership owns good and marketable
fee simple title to the Property, free and clear of any and all encumbrances,
except as set forth on the policy of title insurance with regards to the
Property attached hereto as EXHIBIT B as of the effective dated specified
therein, and on the policy of title insurance currently being procured by the
Corporation in connection with the Merger, subject to such title report being
procured being satisfactory to the Corporation (the "Existing Exceptions").
5.8 Absence of Liens. On the date of the Closing, the Merging Partnership
will not be indebted to any contractor, laborer, mechanic, materialman,
architect, engineer, or any other person for work, labor or services performed
or rendered, or for materials supplied or furnished, for which any such person
could claim a lien against the Property. [THIS PROVISION WILL BE DELETED FOR
LODGES UNDER CONSTRUCTION.]
5.9 Encroachments. To the knowledge of the Merging Partnership, no
encroachments on the Land exist, and the location of the Motel is entirely
within the boundaries of the Land and within applicable building lines.
5.10 Condemnation. No pending, threatened, or, to the knowledge of the
Merging Partnership, contemplated condemnation actions involving all or any
portion of the Property exist; and the Merging Partnership does not have any
knowledge, of any existing, proposed, or contemplated plans to widen, modify, or
realign any public rights-of-way located adjacent to any portion of the Land.
The Merging Partnership will, promptly upon receiving any such notice or
learning of any such contemplated or threatened action, give the Surviving
Partnership written notice thereof.
5.11 Access. Access to the Land from streets and roads adjoining the Land
is not limited or restricted.
5.12 Environmental Matters. For purposes of this Section, the term
"hazardous waste or substances" means petroleum (including crude oil or any
fraction thereof), radon gas naturally occurring, and any substance identified
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or any other federal, state, or county environmental
laws, regulations, or ordinances.
(a) To the best knowledge of the Merging Partnership, the Merging
Partnership has complied in all material respects with all applicable laws
and regulations relating to pollution and environmental control.
(b) To the best knowledge of the Merging Partnership, the Merging
Partnership has received all material permits and approvals with respect to
emissions into the environment (including solids, liquids and gases) and
the proper disposal of materials (including solid waste materials) required
for the operation of its business.
(c) To the best knowledge of the Merging Partnership, the Merging
Partnership has kept all records and made all material filings required by
applicable state, local and federal laws and regulations with respect to
emissions into the environment (including solids, liquids and gases) and
the proper disposal of materials (including solid waste materials).
(d) To the best knowledge of the Merging Partnership, no toxic
materials, hazardous waste or substances, including any asbestos or
asbestos-related products, and any oils, petroleum-derived compounds or
pesticides are now located on the Property, except as disclosed in that
certain "Phase I" environmental report with regards to the Property
attached hereto as EXHIBIT C (the "Environmental Report").
(e) The Merging Partnership has received no complaint, order,
citation, or notice with regard to air emissions, water discharges, noise
emissions, and hazardous waste or substance, if any, or any other
environmental, health, or safety matters affecting the Property, or any
portion thereof, from any Person or
5
<PAGE> 6
government, and, to the best knowledge of the Merging Partnership, none has been
filed or issued, except as disclosed in the Environmental Report.
(f) The Merging Partnership has no knowledge of the Property having
been previously used as a landfill or as a dump for garbage or refuse.
(g) Except as disclosed in the Environmental Report, the Merging
Partnership has no knowledge that any storage tanks are or have been
located on the Property, either above or below ground, or that there are
underground pipes or lines on the Property, except for water, sewer,
electrical, or other utility lines.
(h) Except as disclosed in the Environmental Report, the Merging
Partnership has no knowledge that there has been any leaking or disposal of
material of any type onto or into the Property.
(i) The Merging Partnership has no knowledge that solid or hazardous
waste material has been generated on the Property.
(j) To the knowledge of the Merging Partnership, no asbestos or
asbestos containing materials have been installed, used, incorporated into,
or disposed of on the Property, and no polychlorinated biphenyls have been
located on or in the Property, whether in electrical transformers,
fluorescent light fixtures with ballast, cooling oils, or otherwise.
(k) The Merging Partnership has no knowledge that any hazardous waste
or substances have been generated, disposed of, released, found, or allowed
to escape in the vicinity of the Property, except as disclosed in the
Environmental Report.
5.13 Assessments. The Merging Partnership has no knowledge that any
assessments have been made against any portion of the Property which are unpaid
(except ad valorem taxes for the current year), whether or not they have become
liens, and the Merging Partnership shall notify the Surviving Partnership upon
learning of such assessments.
5.14 Fees. To the knowledge of the Merging Partnership, all impact fees
and facilities taxes, if any, with respect to the Property and the improvements
thereon have been paid by the Merging Partnership.
5.15 No Parties In Possession. Except for guests of the motel occupying
rooms therein in the ordinary course of business ("Motel Guest") and the
Existing Exceptions, there is no tenant, lessee, or other occupant of the
Property (including any improvements thereon) having any right or claim to
possession or use of the Property (or any such improvements) after the Effective
Time, and possession of the Property shall be delivered by the Merging
Partnership to the Surviving Partnership at the Effective time free of the
rights or claims of any tenants, occupants, or other parties in possession of,
or having or claiming any right of possession or use of, the Property, except
for Motel Guests and except for the Existing Exceptions.
5.16 No Violations. The Merging Partnership has received no notice (oral
or written) that any municipality or other governmental or quasi-governmental
authority has determined that there are any violations of zoning, health,
environmental, or other statutes, ordinances, or regulations affecting the
Property, and the Merging Partnership has no knowledge of any such violations.
In the event the Merging Partnership receives notice of any such violations
prior to the Effective Time, the Merging Partnership shall promptly notify the
Surviving Partnership thereof.
5.17 Property -- Flood Plain. No part of the Property is situated in a
flood plain or flood hazard area which is delineated on any flood hazard area
boundary map available under the National Flood Insurance Program through the
Department of Housing and Urban Development, Federal Insurance Administration.
5.18 Property -- Wetlands. To the knowledge of the Merging Partnership
without inquiry, no part of the Property is situated within any "wetlands"
designated by any applicable governmental authority.
5.19 Zoning. To the knowledge of the Merging Partnership, the zoning
classification for the Property supports the current use of the Property, and
there are no special conditions to such zoning and no special covenants
restricting the use of the Property for any purpose permitted under such zoning
classification; the
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<PAGE> 7
Merging Partnership has no knowledge of any proceeding to change such zoning
classification or the conditions applicable thereto and shall not itself apply
for or acquiesce in any such change, and there exists no violation of any
requirement or condition of such zoning classification which is applicable to
the Property.
5.20 Historical Districts. To the knowledge of the Merging Partnership,
neither the Property, nor any portion thereof, is (a) listed, or eligible to be
listed, in any national, state, or local register of historic places or areas,
or (b) located within any designated district or area in which the permitted
uses of land located therein are restricted by regulations, rules, or laws other
than those specified under local zoning ordinances.
5.21 Casualty. To the knowledge of the Merging Partnership, there has been
no unrestored fire or other casualty damage which has affected the Property.
5.22 Insurance. The Partnership maintains adequate insurance with respect
to the Property as of the date hereof. To the Merging Partnership's knowledge,
all such insurance is in full force and effect. To the Merging Partnership's
knowledge, the Property complies with all requirements of each insurance policy
carried by the Merging Partnership and the Merging Partnership has not received
from any of the insurers thereunder any notice requiring or suggesting that any
work be performed at the Property (or any work so required or suggested has been
performed). The Merging Partnership has not received any written notice of
defects or inadequacies in the Property which would adversely affect the
insurability (other than the Existing Exceptions) of the same or cause the
imposition of extraordinary premiums therefor or create or be likely to create a
hazard, excessive maintenance costs or material operating deficiencies.
5.23 Condition of Improvements. The Motel and Personal Property of the
Merging Partnership located on and used in connection with the Property
(including heating, ventilating, and air conditioning systems) are in good
condition and good working order and there are no material defects in the
structural or mechanical aspects of the Motel or Personal Property of which the
Merging Partnership has knowledge, other than wear and tear occurring in the
normal course of business. [THIS PROVISION TO BE DELETED FOR LODGES UNDER
CONSTRUCTION]
5.24 Utilities. Those public utilities (including without limitation,
water, electricity, gas, sanitary sewage, storm water drainage facilities, and
telephone utilities) sufficient to operate the Property for its current uses are
available to the Property and are completed on the Property and, as may be
appropriate, are connected to the improvements located on the Property; to the
knowledge of the Merging Partnership, such utilities enter the Property through
adjoining public streets or valid and enforceable private easements, and to the
knowledge of the Merging Partnership, all of the installation costs, access, or
"tap on" fees, and similar costs for such utilities have been paid in full.
[THIS PROVISION TO BE DELETED FOR LODGES UNDER CONSTRUCTION]
5.25 Governmental Permits. The Merging Partnership has obtained all
permits, licenses, certificates of occupancy, approvals, and authorizations from
the applicable governmental authorities required for the occupancy and use of
the Property in its current operations and all of such are in good standing.
5.26 FIRPTA Representation. The Merging Partnership is not a "foreign
person" as that term is defined in the Internal Revenue Code of 1986, as
amended, and the regulations promulgated pursuant thereto.
5.27 No Defaults. To the knowledge of the Merging Partnership, the Merging
Partnership is not in default under any of the Existing Exceptions.
5.28 Employee Benefits. The Merging Partnership does not have any pension
or retirement benefits or employment contract with the employees of the Motel.
5.29 No Broker. Other than as set forth on SCHEDULE 5.29 hereto, the
Merging Partnership has not entered into any agreement or arrangement and has
not received services from any broker or broker's employees or independent
contractors, including, without limitation, any agreement or arrangement that
would give rise to any claim of lien or lien against the Property pursuant to
the Georgia Commercial Real Estate Broker Lien Limited Partnership Act.
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<PAGE> 8
5.30 No Special Taxes. The Merging Partnership has no knowledge of, nor
has it received any notice of, any special taxes or assessments relating to the
Property or any part thereof.
5.31 Other Assets. Other than the Property and the related personal
property, the Merging Partnership has no other assets and is engaged in no
business other than ownership of the Property.
5.32 Disclosure. Neither this Agreement nor the financial and operating
information referenced in SECTION 5.5 hereof nor the draft prospectus of
Suburban Lodges of America, Inc. attached hereto as EXHIBIT D, contains any
untrue statement of material fact with respect to the Merging Partnership or its
properties, or omits to sate any material fact with respect to the Merging
Partnership or its properties, necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
5.33 Partnership Records. The books and records of the Merging Partnership
(including, without limitation, the Merging Partnership Financial Statements)
accurately reflect and fairly present all material actions taken during the
period covered thereby by the partners of the Merging Partnership.
5.34 Taxes. Except for such matters as in the aggregate are not likely to
result in a material adverse effect (i) all tax or informational returns
required to be filed (as the time for filing may be extended from time to time)
on or before the date of Closing or by or on behalf of the Merging Partnership
have been filed or will be filed on or before the Effective Date, and (ii) there
is no action, suit, or proceeding pending against, or with respect to, the
Merging Partnership in respect of the collection of any tax, nor has the Merging
Partnership received any written or actual notice of any claim for additional
tax asserted by any such authority, which remains unresolved as of the Effective
Date.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SURVIVING PARTNERSHIP
The Surviving Partnership hereby represents and warrants to the Merging
Partnership and the Corporation, as follows:
6.1 Organization and Standing. The Surviving Partnership is a Georgia
limited partnership, duly organized, validly existing, and in good standing
under the laws of the State of Georgia and has all requisite powers and all
governmental and regulatory licenses, authorizations, consents, and approvals to
carry on its business as now conducted, to own, lease, and operate its
properties, to execute and deliver this Agreement and any document or instrument
required to be executed and delivered on behalf of the Surviving Partnership
hereunder, to perform its obligations under this Agreement and any such other
documents or instruments and to consummate the merger and the other transactions
contemplated herein.
6.2 Authority. The Surviving Partnership has the lawful right, power,
authority and capacity to acquire the Property in accordance with the terms,
provisions, and conditions of this Agreement and the execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby. This agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of the Surviving Partnership,
enforceable against the Surviving Partnership in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally, or by the principles governing the ability of equitable remedies).
6.3 Suits, Etc. No actions, suits, or proceedings are pending against or
by, threatened against or by, or affecting the Surviving Partnership that
question the validity or enforceability of this Agreement or of any action taken
by it under this Agreement, in any court or before any governmental authority,
domestic or foreign.
6.4 Execution; No Default. The execution of and entry into this Agreement,
the execution and delivery of the documents and instruments that the Surviving
Partnership will execute or deliver on the date of the Closing, and the
performance by the Surviving Partnership of its duties and obligations under
this Agreement and of all acts necessary and appropriate for the full
consummation of the transactions as contemplated by and
8
<PAGE> 9
provided for in this Agreement, are consistent with and not in violation of, and
will not create any adverse condition under, any contract, agreement or other
instrument to which the Surviving Partnership is a party, any judicial order or
judgment of any nature by which the Surviving Partnership is bound, and this
Agreement. The covenants and agreements of the Surviving Partnership under this
Agreement are the valid and binding obligations of the Surviving Partnership,
enforceable in accordance with their terms.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation hereby represents and warrants to the Merging Partnership
and the Surviving Partnership, as follows:
7.1 Organization and Standing. The Corporation is a Georgia corporation,
duly organized, validly existing, and in good standing under the laws of the
State of Georgia and has all requisite powers and all governmental and
regulatory licenses, authorizations, consents, and approvals to carry on its
business as now conducted, to own, lease, and operate its properties, to execute
and deliver this Agreement and any document or instrument required to be
executed and delivered on behalf of the Corporation hereunder, to perform its
obligations under this Agreement and any such other documents or instruments and
to consummate the merger and the other transactions contemplated herein.
7.2 Authority. The Corporation has the lawful right, power, authority and
capacity to acquire the Property in accordance with the terms, provisions, and
conditions of this Agreement and the execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized and approved by all necessary action on the part of the
Corporation and no other actions are necessary to authorize and approve this
Agreement and the transactions contemplated hereby. This agreement has been duly
executed and delivered by, and constitutes a valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally, or by the principles governing the availability of equitable
remedies).
7.3 Suits, Inc. No actions, suits, or proceedings are pending against or
by, threatened against or by, or affecting the Corporation that question the
validity or enforceability of this Agreement or of any action taken by it under
this Agreement, in any court or before any governmental authority, domestic or
foreign.
7.4 Execution; No Default. The execution of and entry into this Agreement,
the execution and delivery of the documents and instruments that the Corporation
will execute or deliver on the date of the Closing, and the performance by the
Corporation of its duties and obligations under this Agreement and of all other
acts necessary and appropriate for the full consummation of the transactions as
contemplated by and provided for in this Agreement, are consistent with and not
in violation of, and will not create any adverse condition under, any contract,
agreement or other instrument to which the corporation is a party, any judicial
order or judgment of any nature by which the Corporation is bound, and this
Agreement. The covenants and agreements of the Corporation under this Agreement
are the valid and binding obligations of the corporation, enforceable in
accordance with their terms.
ARTICLE 8
COVENANTS OF THE MERGING PARTNERSHIP
From the date of this Agreement until and including the date of the
Closing:
8.1 Preservation of Business. The Merging Partnership shall use its best
efforts to (a) preserve intact the present business organization and personnel
of the Merging Partnership, (b) preserve the present goodwill and advantageous
relationships of the Merging Partnership with all persons having business
dealings with it, and (c) preserve and maintain in force all material licenses,
certificates, leases, contracts, permits, registrations, franchises, patents,
trademarks, trade names, copyrights, bonds, and other similar material rights
9
<PAGE> 10
and confidential information of the Merging Partnership. The Merging Partnership
shall not enter into any new employment or consulting agreements with any of its
present management personnel or consultants, or any other employment or
consulting agreement with any other person or entity, except as has been
previously disclosed and approved by the Surviving Partnership in writing.
8.2 Ordinary Course. The Merging Partnership shall operate its business
only in the ordinary course and, except in the ordinary course of business, the
Merging Partnership shall not, without the prior written consent of the
surviving Partnership, (a) encumber or mortgage any of the Property or its other
assets, (b) incur any obligation (contingent or otherwise), (c) purchase,
acquire, transfer, or convey any assets or property, (d) enter into any other
transaction, (e) make or enter into any contract or commitment, or (f) acquire
any corporation, partnership, trust, or other entity.
8.3 Books and Records. The Merging Partnership shall maintain its books,
accounts, and records in the usual, regular, and ordinary manner, in compliance
with applicable laws and on a basis consistent with prior years.
8.4 No Organic Change. The Merging Partnership shall make no amendment to
the Certificate of Limited partnership or the Agreement of Limited Partnership
of the Merging Partnership. The Merging Partnership shall make no change to any
of its partnership interests by reclassification, subdivision, reorganization,
or otherwise. The Merging Partnership shall not merge or consolidate with any
other partnership, corporation trust, or entity or change the character of its
business.
8.5 No Issuance of Partnership Interests or Options. Neither the Merging
Partnership nor the partners of the Merging Partnership shall issue any
partnership interests in the Merging Partnership or grant any option, warrant,
or other right to purchase or to convert any obligation made by the Merging
Partnership or the partners of the Merging Partnership, into a partnership
interest in the Merging Partnership.
8.6 Compensation. Without the prior written consent of the Surviving
Partnership, the Merging Partnership shall not increase the compensation or fees
payable to any management employee of the Merging Partnership, and shall
increase the compensation payable to other personnel only in accordance with
past practices for merit, length of service, change in position or
responsibility, or other similar reason.
8.7 Ad Valorem Taxes. The Merging Partnership will pay or cause to be paid
promptly when due all city, state, and county ad valorem taxes and similar taxes
and assessments, all sewer and water charges, and all other governmental charges
levied or imposed upon or assessed against the Property between the date hereof
and the date of the Closing, and will pay or cause to be paid all expenses
incurred in the use, occupancy, and operation of the Property between the date
hereof and the date of the Closing.
8.8 Insurance. The Merging Partnership shall continue to carry and
maintain in force all existing policies of casualty and public liability
insurance with respect to the Property.
8.9 Accuracy as of Effective Time. The Merging Partnership and the
partners of the Merging Partnership will not cause or permit any action to be
taken that will cause any of the conditions of the Surviving Partnership's or
the Corporation's obligations set forth in ARTICLE 10 hereof to be unsatisfied
or unperformed on or as of the date of the Closing.
8.10 Distributions; Assumption of Certain Liabilities. The partners of the
Merging Partnership shall be responsible for payment of all liabilities of the
Merging Partnership arising from the ordinary course of the Merging
Partnership's business prior to the Closing except for liabilities identified on
SCHEDULE 9.1 attached hereto. Prior to the Closing, the Merging Partnership
shall make a distribution of all of its cash to Krischer as agent for the
partners of the Merging Partnership (provided that the Merging Partnership shall
retain cash and cash equivalents equal to the security deposits of the Merging
Partnership. Krischer shall cause the partners of the Merging Partnership to pay
the liabilities of the Merging Partnership arising from the ordinary course of
the Merging Partnership's business prior to the Closing other than those
identified on SCHEDULE 9.1 from the cash distributed from the Merging
Partnership, or otherwise. The obligations pursuant to this Section shall
survive the Closing. [THIS SECTION TO BE DELETED FOR LODGES UNDER CONSTRUCTION]
10
<PAGE> 11
8.11 Consents and Approvals. The Merging Partnership shall use its best
efforts to obtain all necessary consents and approvals of all persons, firms,
entities, and governmental authorities to the consummation of the transactions
contemplated by this Agreement.
8.12 Indemnification. The Merging Partnership agrees to indemnify and hold
the Surviving Partnership, the Corporation, and the Subsidiary harmless from and
against any and all losses, damages, expenses, liabilities, claims or demands
whatsoever suffered or incurred by Surviving Partnership (including, but not
limited to, attorneys' fees) resulting or arising from any material breach of,
or material misrepresentation in, the representations or warranties of the
Merging Partnership contained in ARTICLE 5 hereof.
ARTICLE 9
COVENANTS OF THE SURVIVING PARTNERSHIP AND CORPORATION
9.1 Amounts to be Paid. At the Closing, the Surviving Partnership and the
Corporation shall assume and pay all of the amounts set forth on SCHEDULE 9.1.
9.2 Tax Returns. After the Closing, the Surviving Partnership shall file
all federal, state, and local tax returns to reflect the completion of the
Merger.
ARTICLE 10
THE SURVIVING PARTNERSHIP AND CORPORATION
The obligations of the Surviving Partnership and the Corporation under this
Agreement are subject to satisfaction of the following conditions at or prior to
the Closing, any or all of which the Surviving Partnership may waive in whole or
in part.
10.1 Initial Public Offering. All conditions to the closing of the IPO, on
terms satisfactory to the Corporation in its sole discretion, shall have been
satisfied. It is the intention of the Merging Partnership and the Surviving
Partnership that the closing of the IPO will occur simultaneously with or
immediately following the Closing hereunder.
10.2 Representations and Warranties. The representations and warranties of
the Merging Partnership set forth in this Agreement and in any certificate or
other writing delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true, complete and accurate in all material
respects on and as of the date of the Closing to the same extent and with the
same force and effect as if made on such date.
10.3 Performance by the Merging Partnership. The Merging Partnership shall
have duly performed in all material respects all obligations, convents, and
agreements undertaken by it herein and complied in all material respects with
all terms and conditions applicable to it hereunder to be performed and complied
with on or prior to the date of the Closing.
10.4 Partner Consent. The Surviving Partnership shall have received at or
prior to the Closing the duly adopted consent of the partners of the Merging
Partnership, (a) authorizing and approving the execution and delivery of this
Agreement on behalf of the Merging Partnership and the consummation of the
transactions contemplated herein, and (b) authorizing and approving all other
necessary and proper partnership actions to enable the Merging Partnership to
comply with the terms hereof, in substantially the form as attached hereto as
EXHIBIT E.
10.5 Other Agreements. The Surviving Partnership shall have received at or
prior to the Closing (i) from each of the partners of the Merging Partnership a
fully completed and executed Supplemental Agreement and Questionnaire relating
to securities law representations and (ii) from each of [CONTINUING EQUITY
PARTNERS] a fully executed Shareholder Lock-Up Agreement.
10.6 Waiver and Consents by lender. The Merging Partnership shall have
obtained (a) a waiver by the lender, or any other appropriate person
(collectively, the "Lender"), with respect to any loans secured by the Property
(the "Mortgage Loan"), with respect to any default under any document relating
to the Mortgage
11
<PAGE> 12
Loan caused by entry into this Agreement, and (b) the consents of the Lender
with respect to the consummation of the transactions caused by this Agreement.
10.7 Third-Party Consents. All necessary approvals or consents shall have
been obtained from any and all federal and state departments and regulatory and
other agencies and from all other commissions, boards, agencies, and any other
person or entity whose approval or consent is necessary to consummate the
transactions contemplated hereunder.
10.8 Title Insurance. The Surviving Partnership shall have obtained a
title insurance policy for the property which is reasonably acceptable to the
Surviving Partnership and the Corporation.
ARTICLE 11
CONDITIONS TO OBLIGATIONS OF THE MERGING PARTNERSHIP
The obligations of the Merging Partnership under this Agreement are subject
to satisfaction of the following conditions at or prior to the Closing, any or
all of which the Merging Partnership may waive in whole or in part.
11.1 Initial Public Offering. All conditions to the closing of the IPO, on
terms satisfactory to the Corporation in its sole discretion, shall have been
satisfied. It is the intention of the Merging Partnership and the Surviving
Partnership that the closing of the IPO will occur simultaneously with or
immediately following the Closing hereunder.
11.2 Representations and Warranties. The representations and warranties of
the Surviving Partnership and the Corporation set forth herein and in any
certificate or other writing delivered pursuant hereto or in connection with the
transactions contemplated hereby shall be true, complete, and accurate in all
material respects on and as of the date of the Closing Date to the same extent
and with the same force and effect as if made on such date.
11.3 Performance by the Surviving Partnership. The Surviving Partnership
and the Corporation each shall have duly performed in all material respects all
obligations, covenants and agreements undertaken by it herein and complied in
all material respects with all the terms and conditions applicable to it
hereunder to be performed or complied with on or prior to the date of the
Closing.
11.4 Partner Consent. The Merging Partnership shall have received at the
Closing a duly adopted consent, (a) authorizing and approving the execution and
delivery of this Agreement on behalf of the Surviving Partnership and the
consummation of the transactions contemplated herein, and (b) authorizing and
approving all other necessary and proper actions to enable the Surviving
Partnership to comply with the terms hereof.
11.5 Third-Party Consents. All necessary approvals or consents shall have
been obtained from any and all federal and state departments and regulatory and
other agencies and from all other commissions, boards, agencies, and any other
person or entity whose approval or consent is necessary to consummate the
transactions contemplated hereunder.
11.6 Registration Rights Agreements. The Corporation shall have executed
and delivered Registration Rights Agreements to those partners receiving shares
of Common Stock in substantially the form of EXHIBIT F hereto.
12
<PAGE> 13
ARTICLE 12
TERMINATION
12.1 Termination. Notwithstanding any other provision of this Agreement,
this Agreement may be terminated at any time up to and including the date of the
Closing upon written notice to the other parties as follows:
(a) by unanimous agreement of the parties hereto;
(b) by the Surviving Partnership if a material adverse change in the
financial condition or business of the Merging Partnership shall have
occurred, or the Merging Partnership shall have suffered a loss or damage
to any of its properties or assets, which loss or damage materially
adversely affects or impairs the ability of the Merging Partnership to
conduct its business, and
(c) by the Merging Partnership, solely through its general partner, or
by the Surviving Partnership, solely through its general partners, or by
Krischer, if any action, suit or proceeding shall have been instituted or
threatened against any party to this Agreement which would restrain,
prohibit, invalidate or otherwise affect in an adverse way the transactions
contemplated by this Agreement.
Notwithstanding anything in this ARTICLE 12 to the contrary, this Agreement
shall terminate automatically on December 31, 1996 if the Closing shall not have
occurred prior to such date. Upon any such termination of this Agreement, no
party hereto shall have any liability to any other party.
ARTICLE 13
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All statements contained in this Agreement and in any Schedule or Exhibit
hereto or any certificate delivered at the Closing by or on behalf of the
parties hereto pursuant to this Agreement shall be deemed representations and
warranties hereunder. All representations and warranties made by the respective
parties hereunder, including those set forth herein or in any other document
required to be executed by the terms of this Agreement, shall survive the
consummation of the transactions contemplated by this Agreement for a period
ending on March 31, 1997, at which time such representations and warranties
shall terminate.
ARTICLE 14
ADVANCES
14.1 Loan. Upon the date hereof, the Merging Partnership shall loan to the
Surviving Partnership amounts sufficient to pay expenses related to the Merger,
provided that such loan shall not exceed Fifteen Thousands Dollars ($15,000).
The Surviving Partnership shall repay such loan at or prior to the Closing If
the Closing should not occur, such loan shall be forgiven by the Merging
Partnership and need not be repaid.
14.2 Reimbursement of Advances. The Surviving Partnership shall reimburse
and repay the Merging Partnership the amount of Forty One Thousand Six Hundred
Sixty Six Dollars ($41,666) which was previously advanced by the Merging
Partnership to the Surviving Partnership. [THIS PROVISION ONLY FOR 6 OF THE
LIMITED PARTNERSHIPS: FOREST PARK, FULTON INDUSTRIAL, NORCROSS, OXMOOR,
MABLETON, MAULDIN RD] [FOREST PARK LODGE -- $40,000 ADVANCE FROM MORTGAGE HOLDER
TO BE REIMBURSED]
14.3 Disbursements of Repayments. Upon any repayment of loans or advances
under this ARTICLE 14, the sum of any such repayments shall be distributed to
the partners of the Merging Partnership prior to the Closing pursuant to the
terms of its Agreement of Limited Partnership.
13
<PAGE> 14
ARTICLE 15
MISCELLANEOUS
15.1 Assignment; Third Parties; Binding Effect. Except as expressly
provided in this Agreement, the rights under this Agreement shall not be
assignable nor the duties delegable by any party without the prior written
consent of all other parties hereto. Nothing contained in this Agreement,
express or implied, is intended to confer upon any person or entity, other than
the parties hereto and their successors in interest, any rights or remedies
under or by reason of this Agreement unless so stated expressly to the contrary
herein. All covenants, agreements, representations, and warranties of the
parties contained herein shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
15.2 Expenses. Subject to ARTICLE 14 of this Agreement, the parties hereto
will bear all of their own expenses incurred in connection with the transactions
contemplated by this Agreement, including, without limitation, legal and
accounting fees.
15.3 Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or deposited in the United States mail, certified or
registered, return receipt requested, postage prepaid, addressed to the parties
at the following addresses or at such other address as shall be given in writing
by any party to the others in accordance with this Section.
To the Merging Partnership:
[NAME OF MERGING PARTNERSHIP]
c/o Suburban Lodges of America, Inc.
120 Interstate North Parkway East
Suite 120
Atlanta, Georgia 30339
Attn: David E. Krischer
To the Surviving Partnership:
Suburban Holdings, LP
c/o Suburban Lodges of America, Inc.
120 Interstate North Parkway East
Suite 120
Atlanta, Georgia 30339
Attn: David E. Krischer
15.4 Remedies Not Exclusive. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
remedy given hereunder or now or hereafter existing, at law or in equity, by
statute or otherwise. The election of any one or more remedies shall not
constitute a waiver of the right to pursue other available remedies.
15.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and te same instrument.
15.6 Article and Section Headings. Article and Section headings used
herein are for convenience only and are not a part of this Agreement and shall
not be used in construing it.
15.7 Waiver. Any failure by any of the parties hereto to comply with any
of the obligations, agreements, or conditions set forth herein may be waived in
writing by the other party or parties; provided, that any such waiver shall not
be deemed a waiver of any other obligation, agreement or condition contained
herein.
15.8 Cooperation. Each of the parties agrees to cooperate to consummate
the transactions contemplated hereby and to execute and deliver any and all
instruments, and take such additional action, as shall be reasonably necessary
or appropriate for such purpose.
14
<PAGE> 15
15.9 Entire Agreement. This Agreement, together with the Schedules and
Exhibits hereto, embodies the entire understanding and agreement among the
parties, may be amended or modified only in a writing signed by all parties, and
supersedes all prior understandings and agreements among or between the parties
relating to the subject matter hereof.
15.10 Schedules. All references to Schedules herein shall mean separate
Schedules delivered by the appropriate parties as required by the terms of this
Agreement, which Schedules shall be attached hereto, except as otherwise
expressly stated herein.
15.11 Severability. The provisions of this Agreement, and of each separate
Article and Section, are severable, and if any one or more provisions may be
determined to be illegal or otherwise unenforceable, in whole or in part, the
remaining provisions, and any unenforceable provision to the extent enforceable
in any jurisdiction, shall nevertheless be binding and enforceable.
15.12 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
[Remainder of Page Intentionally Left Blank]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
[NAME OF MERGING PARTNERSHIP]
By: ,
------------------------------------
its general partner
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
SUBURBAN HOLDINGS, L.P.
By: ,
------------------------------------
its general partner
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
SUBURBAN LODGES OF AMERICA, INC.
By: ,
------------------------------------
its general partner
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
--------------------------------------
DAVID E. KRISCHER, as agent for the
partners of the Merging Partnership
(for purposes of SECTION 8.10)
<PAGE> 17
SCHEDULES AND EXHIBITS TO FORM OF ACQUISITION AGREEMENT AND
PLAN OF MERGER
<TABLE>
<CAPTION>
SCHEDULE ITEM
- --------------------------------------------------------------------------------------------
<S> <C>
4.2 Liquidating Distribution
5.29 Brokers
9.1 Amounts to be Paid by Surviving Partnership
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT ITEM
- --------------------------------------------------------------------------------------------
<S> <C>
A Description of Land
B Existing Exceptions to Title
C Environmental Report
D Draft Prospectus
E Agreement and Consent of Partners
F Registration Rights Agreement
</TABLE>
<PAGE> 18
SCHEDULE A
ENTITIES ENTERING INTO AN ACQUISITION AGREEMENT AND PLAN OF MERGER WITH
SUBURBAN LODGES OF AMERICA, INC.
The following entities have entered into an Acquisition Agreement and
Plan of Merger with Suburban Lodges of America, Inc. in materially the same
form as the attached Form of Acquisition Agreement and Plan of Merger:
SLA Associates - Fulton Industrial, Ltd. (L.P.)
SLA Associates - Norcross, L.P.
SLA Associates - Oxmoor, Limited Partnership
Mableton Associates, L.P.
SLA Associates - White Horse, L.P.
SLA Associates - Matthews, L.P.
HSL of Conyers, LLC
Preston Lodge, L.P.
SLA Associates - Douglasville, L.P.
HSL Tara, LLC
SLA Associates - Wade Hampton, L.P.
SLA Associates - Kingston Pike, L.P.
SLA Associates - Chesapeake, LP
Legacy Lodging, LLC
<PAGE> 1
EXHIBIT 10.5
SUBURBAN LODGES OF AMERICA, INC.
STOCK OPTION AND INCENTIVE
AWARD PLAN
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT 4.1
[LOGO]
SUBURBAN
LODGE
<S> <C> <C>
NUMBER SHARES
SL SUBURBAN LODGES OF AMERICA, INC.
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 864444 10 4
THIS CERTIES THAT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST
COMPANY
(New York, New York)
IS THE OWNER OF BY TRANSFER AGENT AND REGISTRAR
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE COMMON STOCK OF
SUBURBAN LODGES OF AMERICA, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized
officers.
Dated:
/s/ /s/ David Krischer
------------- ------------------
Secretary SUBURBAN LODGES OF AMERICA, INC. President
CORPORATE
SEAL AUTHORIZED SIGNATURE
1987
GEORGIA
SECURITY COLUMBIAN UNITED STATES BANKNOTE CORPORATION
</TABLE>
<PAGE> 3
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO
REQUESTS A STATEMENT OR SUMMARY OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES, AND LIMITATIONS APPLICABLE TO EACH CLASS OF STOCK OF THE
CORPORATION AND THE VARIATIONS IN RIGHTS, PREFERENCES, AND LIMITATIONS
DETERMINED FOR EACH SERIES (AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO
DETERMINE VARIATIONS FOR FUTURE SERIES). SUCH REQUEST MAY BE MADE TO THE
CORPORATION AT ITS PRINCIPAL OFFICE OR TO THE TRANSFER AGENT NAMED ON THE FACE
OF THIS CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties -------- --------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-----------------------------
(State)
Additional abbreviations may also be used though not listed in the above list.
For value received, hereby sell, assign and transfer unto
--------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated
---------------------------------
-----------------------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
---------------------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
This Certificate also evidences certain Rights as set forth in a Rights
Agreement between Suburban Lodges of America, Inc. and American Stock Transfer &
Trust Company, dated as of May ___, 1996 (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of which is on file
at the principal office of the Corporation. The Corporation will mail to the
holder of this Certificate a copy of the Rights Agreement without charge
promptly after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
evidenced by separate certificates and no longer be evidenced by this
Certificate, may be redeemed or exchanged or may expire. As set forth in the
Rights Agreement, Rights issued to, or held by, any Person who is, was or
becomes as Acquiring Person or an Affiliate or Associate thereof (as such terms
are defined in the Rights Agreement), whether currently held by or on the
behalf of such Person or by any subsequent holder, may be null and void.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Establishment of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Duration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 The Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Authority of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Decisions Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4. SHARES SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Lapsed Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Adjustments In Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 6. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Grant of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Duration of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Exercise of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.6 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 Termination of Employment Due to Death,
Disability or Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.8 Termination of Employment for Other Reasons. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 Limited Transferability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.10 Shareholder Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Grants of SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Duration of SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 Exercise of SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4 Determination of Payment of Cash and/or
Common Stock Upon Exercise of SAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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7.5 Nontransferability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Shareholder Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 8. RESTRICTED STOCK; STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Restricted Period; Lapse of Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.3 Rights of Holder; Limitations Thereon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 Delivery of Unrestricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 Nonassignability of Restricted Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 9. PERFORMANCE SHARE AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Earning the Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.3 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.4 Shareholder Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 10. BENEFICIARY DESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 11. DEFERRALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 12. RIGHTS OF EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.1 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.2 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 13. CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.1 Occurrence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13.2 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.3 Limitation on Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.1 Amendment, Modification and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.2 Awards Previously Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.3 Compliance With Code Section 162(m) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 15. WITHHOLDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.1 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.2 Share Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 16. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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ARTICLE 17. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 18. LEGAL CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.1 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.2 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.3 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.4 Regulatory Approvals and Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
18.5 Securities Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
18.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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<PAGE> 7
SUBURBAN LODGES OF AMERICA, INC.
STOCK OPTION AND INCENTIVE AWARD PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Suburban Lodges of America, Inc., a
Georgia corporation (hereinafter referred to as the "COMPANY"), hereby
establishes a stock option and incentive award plan known as the "Suburban
Lodges of America, Inc. Stock Option and Incentive Award Plan" (the "PLAN"), as
set forth in this document. The Plan permits the grant of Incentive Stock
Options, Nonqualified Stock Options, Restricted Stock, Stock Awards,
Performance Share Awards and Stock Appreciation Rights.
The Plan shall become effective on the date it is approved by the
Company's shareholders and Board of Directors (the "EFFECTIVE DATE") and shall
remain in effect as provided in SECTION 1.3.
1.2 Purpose of the Plan. The purpose of the Plan is to secure for
the Company and its shareholders the benefits of the incentive inherent in
stock ownership in the Company by employees who are largely responsible for its
future growth and continued success. The Plan promotes the success and
enhances the value of the Company by linking the personal interests of
Participants (as defined below) to those of the Company's shareholders, and by
providing Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract and retain the services of Participants upon
whose judgment, interest and special effort the successful conduct of its
operation largely depends.
<PAGE> 8
1.3 DURATION OF THE PLAN. The Plan shall commence on the
Effective Date, and shall remain in effect, subject to the right of the Board
of Directors to amend or terminate the Plan at any time pursuant to ARTICLE 14,
until the day prior to the tenth (10th) anniversary of the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(b) "Award" means, individually or collectively, a grant under
this Plan of Incentive Stock Options, Nonqualified Stock
Options, Restricted Stock, Stock Awards, Performance Share
Awards or Stock Appreciation Rights.
(c) "Beneficial Owner" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the Exchange
Act.
(d) "Board" or "Board of Directors" means the Board of Directors
of the Company.
(e) "Cause" means: (i) willful misconduct on the part of a
Participant that is materially detrimental to the Company; or
(ii) the conviction of a Participant for the commission of a
felony. The existence of "Cause" under either (i) or (ii)
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<PAGE> 9
shall be determined by the Committee. Notwithstanding the
foregoing, if the Participant has entered into an employment
agreement that is binding as of the date of employment
termination, and if such employment agreement defines "Cause,"
and/or provides a means of determining whether "Cause" exists,
such definition of "Cause" and means of determining its
existence shall supersede this provision.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the committee appointed by the Board to
administer the Plan with respect to grants of Awards, as
specified in ARTICLE 3. No member of the Committee shall at
any time be eligible to participate in or receive an award.
Such members must also be persons who satisfy the definition
of outside director under Section 162(m) of the Code.
(h) "Common Stock" means the common stock of the Company, par
value $.01 per share.
(i) "Company" means Suburban Lodges of America, Inc., a Georgia
corporation, or any successor thereto as provided in ARTICLE
17.
(j) "Corresponding SAR" means an SAR that is granted in relation
to a particular Option and that can be exercised only upon the
surrender to the Company, unexercised, of that portion of the
Option to which the SAR relates.
(k) "Director" means any individual who is a member of the Board
of Directors of the Company.
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<PAGE> 10
(l) "Disability" shall have the meaning ascribed to such term in
the Company's long-term disability plan covering the
Participant, or in the absence of such plan, a meaning
consistent with Section 22(e)(3) of the Code.
(m) "Employee" means any full-time, salaried employee of the
Company, or the Company's Subsidiaries. Directors who are not
otherwise employed by the Company or the Company's
Subsidiaries shall not be considered Employees eligible to
receive Awards under this Plan.
(n) "Effective Date" shall have the meaning ascribed to such term
in SECTION 1.1.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(p) "Fair Market Value" shall be determined as follows:
(i) If, on the relevant date, the Shares are traded on a
national or regional securities exchange or on
The Nasdaq Stock Market ("Nasdaq") and closing sale
prices for the Shares are customarily quoted, on the
basis of the closing sale price on the principal
securities exchange on which the Shares may then be
traded or, if there is no such sale on the relevant
date, then on the immediately preceding day on which
a sale was reported;
(ii) If, on the relevant date, the Shares are not listed
on any securities exchange or traded on Nasdaq, but
nevertheless are publicly traded and reported on
Nasdaq without closing sale prices for the Shares
being customarily quoted, on the basis of the mean
between the
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<PAGE> 11
closing bid and asked quotations in such
other over-the-counter market as reported by Nasdaq;
but, if there are no bid and asked quotations in the
over-the-counter market as reported by Nasdaq on
that date, then the mean between the closing bid and
asked quotations in the over-the-counter market as
reported by Nasdaq on the immediately preceding day
such bid and asked prices were quoted; and
(iii) If, on the relevant date, the Shares are not
publicly traded as described in (i) or (ii), on the
basis of the good faith determination of the
Committee.
(q) "Incentive Stock Option" or "ISO" means an option to purchase
Shares granted under ARTICLE 6 which is designated as an
Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(r) "Initial Value" means, with respect to a Corresponding SAR,
the Option Price per share of the related Option, and with
respect to an SAR granted independently of an Option, the Fair
Market Value of one share of Common Stock on the date of
grant.
(s) "Insider" shall mean an Employee who is, on the relevant date,
an officer or a director, or a ten percent (10%) beneficial
owner of any class of the Company's equity securities that is
registered pursuant to Section 12 of the Exchange Act or any
successor provision, as "officer" and "director" are defined
under Section 16 of the Exchange Act.
(t) "Named Executive Officer" means a Participant who, as of the
date of vesting and/or payout of an Award is one of the group
of "covered employees," as defined in the regulations
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<PAGE> 12
promulgated under Code Section 162(m), or any successor
statute.
(u) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares granted under ARTICLE 6, and which is not
intended to meet the requirements of Code Section 422.
(v) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(w) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee. The Option Price may not be less
than the Fair Market Value of a Share on the date the Option
is granted.
(x) "Participant" means an Employee who has been determined by the
Committee to contribute significantly to the profits or growth
of the Company and who has been granted an Award under the
Plan which is outstanding.
(y) "Performance Share Award" means an Award, which, in accordance
with and subject to an Agreement, will entitle the
Participant, or his estate or beneficiary in the event of the
Participant's death, to receive cash, Common Stock or a
combination thereof.
(z) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof.
(aa) "Retirement" shall mean retiring from employment with the
Company or any Subsidiary upon attaining the age of 65.
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<PAGE> 13
(bb) "Restricted Stock" means an Award of Common Stock granted in
accordance with the terms of ARTICLE 8 and the other
provisions of the Plan, and is nontransferable and subject to
a substantial risk of forfeiture. Shares of Common Stock
shall cease to be Restricted Stock when, in accordance with
the terms hereof and the applicable Agreement, they become
transferable and free of substantial risk of forfeitures.
(cc) "SAR" means a stock appreciation right that entitles the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the amount determined
by the Committee and specified in an Agreement. In the
absence of such specification, the holder shall be entitled to
receive in cash, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial
Value. References to "SARs" include both Corresponding SARs
and SARs granted independently of Options, unless the context
requires otherwise.
(dd) "Shares" means the shares of Common Stock of the Company.
(ee) "Stock Award" means a grant of Shares under ARTICLE 8 that is
not generally subject to restrictions and pursuant to which a
certificate for the Shares is transferred to the Employee.
(ff) "Subsidiary" means any corporation, partnership, joint venture
or other entity in which the Company has a fifty percent (50%)
or greater voting interest.
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<PAGE> 14
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the
Compensation Committee of the Board, or by any other Committee appointed by the
Board that is granted authority to administer the Plan, with such Committee
consisting of not less than two (2) Directors who meet the "disinterested
administration" requirements of Rule 16b-3 or any successor thereto under the
Exchange Act. The members of the Committee shall be appointed from time to
time by, and shall serve at the discretion of, the Board of Directors.
The Committee shall be comprised solely of Directors who are eligible
to administer the Plan pursuant to Rule 16b-3(c)(2) or any successor thereto
under the Exchange Act. However, if for any reason any member of the Committee
does not qualify to administer the Plan, as contemplated by Rule 16b-3(c)(2) of
the Exchange Act, the Board of Directors may appoint a new Committee member who
complies with Rule 16b-3(c)(2).
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have full power to select the Employees who are
responsible for the future growth and success of the Company who shall
participate in the Plan (who may change from year to year); determine the size
and types of Awards; determine the terms and conditions of Awards in a manner
consistent with the Plan (including conditions on the exercisability of all or
a part of an Option or SAR, restrictions on transferability and vesting
provisions on Restricted Stock or Performance Share Awards and the duration of
the Awards); construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend or waive rules and regulations
for the Plan's administration; and (subject to the provisions of ARTICLE 14)
amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
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<PAGE> 15
the Plan, including accelerating the time any Option or SAR may be exercised
and establishing different terms and conditions relating to the effect of the
termination of employment or other services to the Company. Further, the
Committee shall make all other determinations which may be necessary or
advisable in the Committee's opinion for the administration of the Plan. All
expenses of administering this Plan shall be borne by the Company.
3.3 DECISIONS BINDING. All determinations and decisions made by
the Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all Persons,
including the Company, the shareholders, Employees, Participants and their
estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in
SECTION 4.3, the total number of Shares available for grant of Awards under the
Plan shall be an aggregate of seven hundred fifty thousand (750,000) Shares.
These Shares may, in the discretion of the Company, be either authorized but
unissued Shares or Shares held as treasury shares, including Shares purchased
by the Company.
The following rules shall apply for purposes of the determination of
the number of Shares available for grant under the Plan:
(a) While an Option, SAR, Stock Award, Restricted Stock
Award or Performance Share Award is outstanding, it
shall be counted against the authorized pool of
Shares, regardless of its vested status.
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<PAGE> 16
(b) The grant of an Option, SAR, Stock Award, Restricted
Stock Award or Performance Share Award shall reduce
the Shares available for grant under the Plan by the
number of Shares subject to such Award.
4.2 LAPSED AWARDS. If any Award granted under this Plan is
canceled, terminates, expires or lapses for any reason, any Shares subject to
such Award shall again be available for the grant of an Award under the Plan.
However, in the event that prior to the Award's cancellation, termination,
expiration or lapse, the holder of the Award at any time received one or more
"benefits of ownership" pursuant to such Award (as defined by the Securities
and Exchange Commission, pursuant to any rule or interpretation promulgated
under Section 16 of the Exchange Act), the Shares subject to such Award shall
not again be made available for regrant under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change
in corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under the
Plan, and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number and the Committee shall make
such adjustments as are necessary to insure Awards of whole Shares.
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<PAGE> 17
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Any key Employee of the Company, or of any Subsidiary, including any
such Employee who is also a director of the Company, or of any Subsidiary,
whose judgment, initiative and efforts contribute or may be expected to
contribute materially to the successful performance of the Company or any
Subsidiary shall be eligible to receive an Award under the Plan. In
determining the Employees to whom such an Award shall be granted and the number
of Shares which may be granted pursuant to that Award, the Committee shall take
into account the duties of the respective Employees, his or her present and
potential contributions to the success of the Company or any Subsidiary, and
such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan. No person who is a member of the
Committee shall be eligible to be granted any Award under the Plan.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Employees at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each
Participant. An Option may be granted with or without a Corresponding SAR. No
Participant may be granted ISOs (under the Plan and all other incentive stock
option plans of the Company and any Subsidiary) which are first exercisable in
any calendar year for Common Stock having an aggregate Fair Market Value
(determined as of the date an Option is granted) that exceeds $100,000. The
preceding annual limit shall not apply to NQSOs. The Committee may grant a
Participant ISOs, NQSOs or a combination thereof, and may vary such Awards
among Participants. The maximum number of Shares subject to Options which can
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<PAGE> 18
be granted under the Plan during any 12 month period to any Participant is
150,000 Shares.
6.2 AGREEMENT. Each Option grant shall be evidenced by an
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains and such other provisions as the
Committee shall determine. The Option Agreement shall further specify whether
the Award is intended to be an ISO or an NQSO. Any portion of an Option that
is not designated as an ISO or otherwise fails or is not qualified as an ISO
(even if designated as an ISO) shall be a NQSO. If the Option is granted in
connection with a Corresponding SAR, the Agreement shall also specify the terms
that apply to the exercise of the Option and Corresponding SAR.
6.3 OPTION PRICE. The Option Price for each grant of an ISO or
NQSO shall not be less than one hundred percent (100%) of the Fair Market Value
of a Share on the date the ISO is granted. In no event, however, shall any
Participant who, at any time would otherwise be granted an Option, owns (within
the meaning of Section 424(d) of the Code) stock of the Company possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company be eligible to receive an ISO at an Option Price less than
one hundred ten percent (110%) of the Fair Market Value of a share on the date
the ISO is granted.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as
the Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of its
grant; provided, further, however, that any ISO granted to any Participant who
at such time owns (within the meaning of Section 424(d) of the Code) stock of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock
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of the Company, shall be exercisable not later than the fifth (5th)
anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant. Each Option shall be exercisable for such
number of Shares and at such time or times, including periodic installments, as
may be determined by the Committee at the time of the grant. Except as
otherwise provided in the Agreement and ARTICLE 13, the right to purchase
Shares that are exercisable in periodic installments shall be cumulative so
that when the right to purchase any Shares has accrued, such Shares or any part
thereof may be purchased at any time thereafter until the expiration or
termination of the Option. The exercise or partial exercise of either an
Option or its Corresponding SAR shall result in the termination of the other to
the extent of the number of Shares with respect to which the Option or
Corresponding SAR is exercised.
6.6 PAYMENT. Options shall be exercised by the delivery of a
written notice of exercise to the Company, setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full
payment for the Shares. The Option Price upon exercise of any Option shall be
payable to the Company in full, either: (a) in cash, (b) cash equivalent
approved by the Committee, (c) if approved by the Committee, by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for the period required by law,
if any, prior to their tender to satisfy the Option Price), or (d) by a
combination of (a), (b) and (c). The Committee also may allow cashless
exercises as permitted under Federal Reserve Board's Regulation T, subject to
applicable securities
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law restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s), and may place appropriate
legends on the certificates representing such Shares.
6.7 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT.
Unless otherwise provided by the Committee in the Agreement, the following
rules shall apply in the event of the Participant's termination of employment
due to death, Disability or Retirement:
(a) TERMINATION BY DEATH. In the event the Participant
dies while actively employed, all outstanding
Options granted to that Participant shall
immediately vest and shall remain exercisable at any
time prior to their expiration date, or for one (1)
year after the date of death, whichever period is
shorter, by (i) such person(s) as shall have been
named as the Participant's beneficiary, (ii) such
person(s) that have acquired the Participant's
rights under such Options by will or by the laws of
descent and distribution, (iii) the Participant's
estate or representative of the Participant's
estate, or (iv) by a transferee of the Option who
has acquired the Option in a transaction that is
permitted by SECTION 6.9.
(b) TERMINATION BY DISABILITY. In the event the
employment of a Participant is terminated by reason
of Disability, all outstanding Options granted to
that Participant shall immediately vest as of the
date the Committee
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determines the definition of Disability to have
been satisfied and shall remain exercisable at any
time prior to their expiration date, or for one (1)
year after the date that the Committee determines the
definition of Disability to have been satisfied,
whichever period is shorter, by the Participant's
duly appointed guardian or other legal
representative.
(c) TERMINATION BY RETIREMENT. In the event the
employment of a Participant is terminated by reason
of Retirement, all outstanding Options granted to
that Participant shall immediately vest and shall
remain exercisable at any time prior to their
expiration date, or for three (3) months after the
effective date of Retirement, whichever period is
shorter.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the
event that a Participant's employment terminates by
reason of Disability or Retirement, and within the
exercise period following such termination the
Participant dies, then the remaining exercise period
for outstanding Options shall equal the longer of:
(i) one (1) year following death; or (ii) the
remaining portion of the exercise period which was
triggered by the employment termination. Such
Options shall be exercisable by the persons
specified in subsection (a) above.
6.8 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the
employment of a Participant shall terminate for any reason other than the
reasons set forth in SECTION 6.7, all Options held by the Participant which are
not vested as of the effective date of his employment termination shall be
immediately forfeited to the Company (and shall, subject to SECTION 4.2 hereof,
once again become available for grant under the Plan).
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<PAGE> 22
However, the Committee, in its sole discretion, shall have the right to
immediately vest all or any portion of such Options, subject to such terms as
the Committee, in its sole discretion, deems appropriate.
In the event an Employee's employment is terminated by the Company for
Cause, or such Employee voluntarily terminates his employment, the Option rights
under any then vested outstanding Options shall terminate immediately upon
termination of employment. If the Employee's employment is terminated by the
Company without Cause, any Options vested as of such Employee's date of
termination shall remain exercisable at any time prior to their expiration date
or for three (3) months after such Employee's date of termination of employment,
whichever period is shorter.
6.9 LIMITED TRANSFERABILITY. A Participant may transfer an Option
granted hereunder, including but not limited to transfers to members of his or
her Immediate Family (as defined below), to one or more trusts for the benefit
of such Immediate Family members, or to one or more partnerships where such
Immediate Family members are the only partners, if (i) the Agreement evidencing
such Option expressly provides that the Option may be transferred, (ii) the
Participant does not receive any consideration in any form whatsoever for such
transfer, (iii) such transfer is permitted with respect to applicable tax laws,
and (iv) the Participant is an Insider, such transfer is permitted under Rule
16b-3 of the Exchange Act as in effect from time to time. Any Option so
transferred shall continue to be subject to the same terms and conditions in
the hands of the transferee as were applicable to said Option immediately prior
to the transfer thereof. Any reference in any such Agreement to the employment
by or performance of services for the Company by the Participant shall continue
to refer to the employment of, or performance by, the transferring Participant.
For purposes hereof, "IMMEDIATE FAMILY" shall mean the Participant and the
Participant's spouse, children and grandchildren. Any Option that is granted
pursuant to any Agreement that did not initially expressly allow the transfer
of
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<PAGE> 23
said Option and that has not been amended to expressly permit such transfer,
shall not be transferable by the Participant otherwise than by will or by the
laws of descent and distribution and such Option thus shall be exercisable in
the Participant's lifetime only by the Participant.
6.10 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to his Option until the issuance of
such Shares to the Participant pursuant to the exercise of such Option.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANTS OF SARS. The Committee shall designate Employees to
whom SARs are granted, and will specify the number of Shares of Common Stock
subject to each grant. An SAR may be granted with or without a related Option.
All SARs granted under this Plan shall be subject to an Agreement in accordance
with the terms of this Plan. A payment to the Participant upon the exercise of
a Corresponding SAR may not be more than the difference between the Fair Market
Value of the Shares subject to the ISO on the date of grant and the Fair Market
Value of the Shares on the date of exercise of the Corresponding SAR. The
maximum number of Shares underlying SARs which can be awarded under the Plan
during any 12 month period to any Participant is 150,000 Shares.
7.2 DURATION OF SARS. The duration of an SAR shall be set forth
in the Agreement as determined by the Committee. An SAR that is granted as a
Corresponding SAR shall have the same duration as the Option to which it
relates. An SAR shall terminate due to the Participant's termination of
employment at the same time as the date specified in SECTIONS 6.7 and 6.8 with
respect to Options, regardless of whether the SAR was granted in connection
with the grant of an Option.
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<PAGE> 24
7.3 EXERCISE OF SAR. An SAR may be exercised in whole at any time
or in part from time to time and at such times and in compliance with such
requirements as the Committee shall determine as set forth in the Agreement;
provided, however, that a Corresponding SAR that is related to an Incentive
Stock Option may be exercised only to the extent that the related Option is
exercisable and only when the Fair Market Value exceeds the Option Price of the
related ISO. An SAR granted under this Plan may be exercised with respect to
any number of shares less than a full number of whole shares for which the SAR
could be exercised. A partial exercise of an SAR shall not affect the right to
exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of either an Option or Corresponding SAR shall result in the
termination of the other to the extent of the number of Shares with respect to
which the Option or its Corresponding SAR is exercised.
7.4 DETERMINATION OF PAYMENT OF CASH AND/OR COMMON STOCK UPON
EXERCISE OF SAR. At the Committee's discretion, the amount payable as a result
of the exercise of an SAR may be settled in cash, Common Stock, or a
combination of cash and Common Stock. A fractional share shall not be
deliverable upon the exercise of an SAR, but a cash payment shall be made in
lieu thereof.
7.5 NONTRANSFERABILITY. Each SAR granted under the Plan shall be
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of the Participant to whom the SAR is granted, the SAR may
be exercised only by the Participant. No right or interest of a Participant in
any SAR shall be liable for, or subject to any lien, obligation or liability of
such Participant. A Corresponding SAR shall be subject to the same
restrictions on transfer as the ISO to which it relates.
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<PAGE> 25
Notwithstanding the foregoing, a Participant may transfer an SAR
(other than a Corresponding SAR that relates to an Incentive Stock Option)
under the same rules and conditions as are set forth in SECTION 6.9.
7.6 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to his SAR until the issuance of
Shares (if any) to the Participant pursuant to the exercise of such SAR.
ARTICLE 8. RESTRICTED STOCK; STOCK AWARDS
8.1 GRANTS. The Committee may from time to time in its discretion
grant Restricted Stock and Stock Awards to Employees and may determine the
number of Shares of Restricted Stock or Stock Awards to be granted. The
Committee shall determine the terms and conditions of, and the amount of
payment, if any, to be made by the Employee for, such Restricted Stock. A
grant of Restricted Stock may, in addition to other conditions, require the
Employee to pay for such Shares of Restricted Stock, but the Committee may
establish a price below Fair Market Value at which the Employee can purchase
the Shares of Restricted Stock. Each grant of Restricted Stock shall be
evidenced by an Agreement containing terms and conditions not inconsistent with
the Plan as the Committee shall determine to be appropriate in its sole
discretion.
8.2 RESTRICTED PERIOD; LAPSE OF RESTRICTIONS. At the time a grant
of Restricted Stock is made, the Committee shall establish a period or periods
of time (the "RESTRICTED PERIOD") applicable to such grant which, unless the
Committee otherwise provides, shall not be less than one year. Subject to the
other provisions of this SECTION 8, at the end of the Restricted Period all
restrictions shall lapse and the Restricted Stock shall vest in the
Participant. At the time a grant is made, the
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<PAGE> 26
Committee may, in its discretion, prescribe conditions for the incremental lapse
of restrictions during the Restricted Period and for the lapse or termination of
restrictions upon the occurrence of other conditions in addition to or other
than the expiration of the Restricted Period with respect to all or any portion
of the Restricted Stock. Such conditions may, but need not, include without
limitation:
(a) The death, Disability or Retirement of the Employee
to whom Restricted Stock is granted, or
(b) The occurrence of a Change in Control (as defined in
SECTION 13.2).
The Committee may also, in its discretion, shorten or terminate the Restricted
Period, or waive any conditions for the lapse or termination of restrictions
with respect to all or any portion of the Restricted Stock at any time after
the date the grant is made.
8.3 RIGHTS OF HOLDER; LIMITATIONS THEREON. Upon a grant of
Restricted Stock, a stock certificate (or certificates) representing the number
of Shares of Restricted Stock granted to the Employee shall be registered in
the Employee's name and shall be held in custody by the Company or a bank
selected by the Committee for the Employee's account. Following such
registration, the Employee shall have the rights and privileges of a
shareholder as to such Restricted Stock, including the right to receive
dividends, if and when declared by the Board of Directors, and to vote such
Restricted Stock, except that the right to receive cash dividends shall be the
right to receive such dividends either in cash currently or by payment in
Restricted Stock, as the Committee shall determine, and except further that,
the following restrictions shall apply:
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(a) The Employee shall not be entitled to delivery of a
certificate until the expiration or termination of
the Restricted Period for the Shares represented by
such certificate and the satisfaction of any and all
other conditions prescribed by the Committee;
(b) None of the Shares of Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted
Period and until the satisfaction of any and all
other conditions prescribed by the Committee; and
(c) All of the Shares of Restricted Stock that have not
vested shall be forfeited and all rights of the
Employee to such Shares of Restricted Stock shall
terminate without further obligation on the part of
the Company, unless the Employee has remained a
full-time employee of the Company or any of its
Subsidiaries, until the expiration or termination of
the Restricted Period and the satisfaction of any and
all other conditions prescribed by the Committee
applicable to such Shares of Restricted Stock. Upon
the forfeiture of any shares of Restricted Stock,
such forfeited Shares shall be transferred to the
Company without further action by the Employee and
shall, in accordance with SECTION 4.2, again be
available for grant under the Plan.
With respect to any Shares received as a result of adjustments under
SECTION 4.3 hereof and any Shares received with respect to cash dividends
declared on Restricted Stock, the Participant shall have the same rights and
privileges, and be subject to the same restrictions, as are set forth in this
SECTION 8.
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8.4 DELIVERY OF UNRESTRICTED SHARES. Upon the expiration or
termination of the Restricted Period for any Shares of Restricted Stock and the
satisfaction of any and all other conditions prescribed by the Committee, the
restrictions applicable to such Shares of Restricted Stock shall lapse and a
stock certificate for the number of Shares of Restricted Stock with respect to
which the restrictions have lapsed shall be delivered, free of all such
restrictions except any that may be imposed by law, to the holder of the
Restricted Stock. The Company shall not be required to deliver any fractional
Share but will pay, in lieu thereof, the Fair Market Value (determined as of
the date the restrictions lapse) of such fractional share to the holder
thereof. Prior to or concurrently with the delivery of a certificate for
Restricted Stock, the holder shall be required to pay an amount necessary to
satisfy any applicable federal, state and local tax requirements as set out in
ARTICLE 15 below.
8.5 NONASSIGNABILITY OF RESTRICTED STOCK. Unless the Committee
provides otherwise in the Agreement, no grant of, nor any right or interest of
a Participant in or to, any Restricted Stock, or in any instrument evidencing
any grant of Restricted Stock under the Plan, may be assigned, encumbered or
transferred except, in the event of the death of a Participant, by will or the
laws of descent and distribution.
ARTICLE 9. PERFORMANCE SHARE AWARDS
9.1 AWARD. The Committee may designate Employees to whom
Performance Shares Awards will be granted at any time and from time to time for
no consideration and specify the number of shares of Common Stock covered by
the Award. No more than 25,000 Performance Shares may be earned by a
Participant with respect to any performance period.
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9.2 EARNING THE AWARD. A Performance Share Award, or portion
thereof, will be earned, and the Participant will be entitled to receive Common
Stock, a cash payment or a combination thereof, only upon the achievement by
the Participant, the Company, or a Subsidiary of such performance objectives as
the Committee, in its discretion, shall prescribe on the date of grant. By way
of example and not limitation, such performance objectives may be stated with
respect to earnings per share of Common Stock, the Company's return on assets,
or Fair Market Value. The determination as to whether such objectives have
been achieved shall be made by the Committee, and such determination shall be
conclusive; provided, however, that the period in which such performance is
measured shall be at least one year.
9.3 PAYMENT. In the discretion of the Committee, the amount
payable when a Performance Share Award is earned may be settled in cash, by the
grant of Common Stock or a combination of cash and Common Stock. The aggregate
Fair Market Value of the Common Stock received by the Participant pursuant to a
Performance Share Award, together with any cash paid to the Participant, shall
be equal to the aggregate Fair Market Value, on the date the Performance Shares
are earned, of the number of shares of Common Stock equal to each Performance
Share earned. A fractional share will not be deliverable when a Performance
Share Award is earned, but a cash payment will be made in lieu thereof.
9.4 SHAREHOLDER RIGHTS. No Participant shall have, as a result of
receiving a Performance Share Award, any rights as a shareholder until and to
the extent that the Performance Shares are earned and Common Stock is
transferred to such Participant. If the Agreement so provides, a Participant
may receive a cash payment equal to the dividends that would have been payable
with respect to the number of shares of Common Stock covered by the Award
between (a) the date that the Performance Shares are awarded and (b) the date
that a transfer of Common Stock to the Participant, cash settlement, or
combination thereof is made pursuant to
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the Performance Share Award. A Participant may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of a Performance Share Award or the
right to receive Common Stock thereunder other than by will or the laws of
descent and distribution. After a Performance Share Award is earned and paid in
Common Stock, a Participant will have all the rights of a shareholder with
respect to the Common Stock so awarded.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company and shall be effective only when filed by the
Participant, in writing, with the Company during the Participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of a beneficiary or beneficiaries
other than the spouse.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer to another plan or
program such Participant's receipt of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option or the vesting of
Restricted Stock. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
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ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit
in any way the right of the Company or a Subsidiary to terminate any
Participant's employment or engagement by the Company at any time, nor confer
upon any Participant any right to continue in the employ or service of the
Company or a Subsidiary. For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
12.2 PARTICIPATION. No Employee shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
13.1 OCCURRENCE. Upon the occurrence of a Change in Control (as
defined below), except as provided in the Agreement or unless otherwise
specifically prohibited by the terms of ARTICLE 18 hereof:
(a) Any and all Options and SARs granted hereunder shall
become fully vested and immediately exercisable;
(b) To the extent provided by the Committee in the
Award, all restrictions on a grant of Restricted
Stock shall lapse and such Restricted Stock shall be
delivered to the Participant in accordance with
SECTION 8.4;
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(c) Each Performance Share Award shall be deemed to be
earned in its entirety and converted into Common
Stock as of the date of a Change in Control, and
shall be transferable and nonforfeitable; and
(d) Subject to ARTICLE 14 hereof, the Committee shall
have the authority to make any modifications to the
Awards as determined by the Committee to be
appropriate before the effective date of the Change
in Control.
13.2 DEFINITION. For purposes of the Plan, a "Change in Control"
shall be deemed to have occurred if:
(a) An acquisition by any Person of Beneficial Ownership
of the shares of Common Stock of the Company
then outstanding (the "COMPANY COMMON STOCK
OUTSTANDING") or the voting securities of the Company
then outstanding entitled to vote generally in the
election of directors (the "COMPANY VOTING SECURITIES
OUTSTANDING"), if such acquisition of Beneficial
Ownership results in the Person beneficially owning
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) twenty-five percent (25%) or more
of the Company Common Stock Outstanding or
twenty-five percent (25%) or more of the combined
voting power of the Company Voting Securities
Outstanding; provided, that immediately prior to such
acquisition such Person was not a direct or indirect
Beneficial Owner of twenty-five percent (25%) or more
of the Company Common Stock Outstanding or
twenty-five percent (25%) or more of the combined
voting power of Company Voting Securities
Outstanding, as the case may be; or
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(b) The approval of the shareholders of the Company of a
reorganization, merger, consolidation, complete
liquidation or dissolution of the Company, the sale
or disposition of all or substantially all of the
assets of the Company or similar corporate
transaction (in each case referred to in this
SECTION 13.2 as a "CORPORATE TRANSACTION") or, if
consummation of such Corporate Transaction is
subject, at the time of such approval by
shareholders, to the consent of any government or
governmental agency, the obtaining of such consent
(either explicitly or implicitly); or
(c) A change in the composition of the Board such that
the individuals who, as of the Effective Date,
constitute the Board (such Board shall be
hereinafter referred to as the "INCUMBENT BOARD")
cease for any reason to constitute at least a
majority of the Board; provided, however, for
purposes of this SECTION 13.2 that any individual
who becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for
election by the Company's shareholders, was approved
by a vote of at least a majority of those
individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be
considered as though such individual were a member
of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of
office occurs as a result of either an actual or
threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act, including any successor to such
Rule), or other actual or threatened solicitation of
proxies or consents by or on behalf of a
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Person other than the Board, shall not be so
considered as a member of the Incumbent Board.
Notwithstanding the provisions set forth in
subsections (a) and (b), the following shall not
constitute a Change in Control for purposes of this
Plan: (1) any acquisition of shares of Common Stock
by, or consummation of a Corporate Transaction with,
any Subsidiary or any employee benefit plan (or
related trust) sponsored or maintained by the
Company or an affiliate; or (2) any acquisition of
shares of Common Stock, or consummation of a
Corporate Transaction, following which more than
fifty percent (50%) of, respectively, the shares
then outstanding of common stock of the corporation
resulting from such acquisition or Corporate
Transaction and the combined voting power of the
voting securities then outstanding of such
corporation entitled to vote generally in the
election of directors is then beneficially owned,
directly or indirectly, by all or substantially all
of the individuals and entities who were Beneficial
Owners, respectively, of the Company Common Stock
Outstanding and Company Voting Securities
Outstanding immediately prior to such acquisition or
Corporate Transaction in substantially the same
proportions as their ownership, immediately prior to
such acquisition or Corporate Transaction, of the
Company Common Stock Outstanding and Company Voting
Securities Outstanding, as the case may be.
13.3 LIMITATION ON AWARDS. Notwithstanding any other provisions of
the Plan, if any Award under this Plan, either alone or together with payments
that a Participant has the right to receive from the Company or
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a Subsidiary, would constitute a "parachute payment" (as defined in Section 280G
of the Code), all such payments shall be reduced to the largest amount that will
result in no portion being subject to the excise tax imposed by Section 4999 of
the Code.
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION
14.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at
any time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, that, unless approved by the holders of a majority
of the total number of Shares of the Company represented and voted at a meeting
at which a quorum is present, no amendment shall be made to the Plan if such
amendment would (a) materially modify the eligibility requirements provided in
ARTICLE 5; (b) increase the total number of Shares (except as provided in
SECTION 4.3) which may be granted under the Plan, as provided in SECTION 4.1;
(c) extend the term of the Plan; or (d) amend the Plan in any other manner
which the Board, in its discretion, determines should become effective only if
approved by the shareholders even though such shareholder approval is not
expressly required by the Plan or by law. No amendment which requires
shareholder approval in order for the Plan to continue to comply with Rule
16b-3 under the Exchange Act, including any successor to such Rule, shall be
effective unless such amendment shall be approved by the requisite vote of
shareholders.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award. The Committee shall, with the written consent
of the Participant holding such Award, have the authority to cancel Awards
outstanding and grant replacement Awards therefor.
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14.3 COMPLIANCE WITH CODE SECTION 162(M). At all times when the
Committee determines that compliance with Code Section 162(m) is desired, all
Awards granted under this Plan shall comply with the requirements of Code
Section 162(m). In addition, in the event that changes are made to Code
Section 162(m) to permit greater flexibility with respect to any Award or
Awards under the Plan, the Committee may, subject to this ARTICLE 14, make any
adjustments it deem appropriate.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Participant to remit to the Company,
an amount sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising in connection with an Award under this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon
the exercise of Options, or upon any other taxable event arising as a result of
Awards granted hereunder which are to be paid in the form of Shares,
Participants may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All elections shall be irrevocable, made in writing, signed
by the Participant, and elections by Insiders shall additionally comply with
all legal requirements applicable to Share transactions by such Participants.
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ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall be in addition to any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
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<PAGE> 38
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance
of Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4 REGULATORY APPROVALS AND LISTING. The Company shall not be
required to issue any certificate or certificates for Shares under the Plan
prior to (i) obtaining any approval from any governmental agency which the
Company shall, in its discretion, determine to be necessary or advisable, (ii)
the admission of such shares to listing on any national securities exchange or
Nasdaq on which the Company's Shares may be listed, and (iii) the completion of
any registration or other qualification of such Shares under any state or
federal law or ruling or regulations of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security"
or "equity security" offered pursuant to the Plan to any Insider may not be
sold or transferred for at least six (6) months
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after the date of grant of such Award. The terms "equity security" and
"derivative security" shall have the meanings ascribed to them in the
then-current Rule 16(a) under the Exchange Act.
18.5 SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provisions of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
18.6 GOVERNING LAW. To the extent not preempted by Federal law,
the Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Georgia.
AS APPROVED BY THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SUBURBAN
LODGES OF AMERICA, INC. ON March 26, 1996.
SUBURBAN LODGES OF AMERICA, INC.
By:
---------------------------------
David E. Kirscher
Chairman of the Board,
President and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 10.6
SUBURBAN LODGES OF AMERICA, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION AND FEE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION . . . . . . . . . . . . . . . . . . . . . 1
1.1 Establishment of the Plan . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purpose of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Duration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 4. SHARES SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Lapsed Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Adjustments In Authorized Shares . . . . . . . . . . . . . . . . . . . 7
ARTICLE 5. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 6. STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Grant of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4 Duration of Options . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.5 Exercise of Options . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 Termination of Service As A Director . . . . . . . . . . . . . . . . . 10
6.8 Limited Transferability . . . . . . . . . . . . . . . . . . . . . . . 11
6.9 Shareholder Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 7. PAYMENT OF DIRECTOR'S FEES BY AWARD OF RESTRICTED STOCK . . . . . . . . . . . . 12
7.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Restricted Period; Lapse of Restrictions . . . . . . . . . . . . . . . 12
7.3 Rights of Holder; Limitations Thereon . . . . . . . . . . . . . . . . 12
7.4 Delivery of Unrestricted Shares . . . . . . . . . . . . . . . . . . . 14
7.5 Nonassignability of Restricted Stock . . . . . . . . . . . . . . . . . 14
ARTICLE 8. BENEFICIARY DESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 9. CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.1 Occurrence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.2 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION . . . . . . . . . . . . . . . . . . . 17
10.1 Amendment, Modification and Termination . . . . . . . . . . . . . . . 18
10.2 Awards Previously Granted . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 12. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 13. LEGAL CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.1 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.2 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13.3 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.4 Regulatory Approvals and Listing . . . . . . . . . . . . . . . . . . 20
13.5 Securities Law Compliance . . . . . . . . . . . . . . . . . . . . . . 20
13.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<PAGE> 4
SUBURBAN LODGES OF AMERICA, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION AND FEE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Suburban Lodges of America, Inc., a
Georgia corporation (hereinafter referred to as the "COMPANY"), hereby
establishes a stock option and directors' fee plan for directors who are not
employees of the Company known as the "Suburban Lodges of America, Inc.
Non-Employee Directors' Stock Option and Fee Plan" (the "PLAN"), as set forth
in this document. The Plan grants Stock Options and Restricted Stock to
non-employee directors of the Company in consideration of their service as
directors.
The Plan shall become effective on the date it is approved by the
Company's shareholders and Board of Directors (the "EFFECTIVE DATE") and shall
remain in effect as provided in SECTION 1.3.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to secure for
the Company and its shareholders the benefits of the incentive inherent in
stock ownership in the Company by directors who are not employees of the
Company but who oversee its future growth and continued success. The Plan is
further intended to provide flexibility to the Company in its ability to
motivate, attract and retain the services of Participants as directors of the
Company upon whose judgment, interest and special effort the successful conduct
of its operation largely depends.
1.3 DURATION OF THE PLAN. The Plan shall commence on the
Effective Date, and shall remain in effect, subject to the right of the Board
of Directors to amend or terminate the Plan at any time pursuant to ARTICLE 10,
until the day prior to the tenth (10th) anniversary of the Effective Date.
<PAGE> 5
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Administrator" means the Director or Directors appointed by
the Board to administer the Plan.
(b) "Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(c) "Award" means, individually or collectively, a grant under
this Plan of Options or Restricted Stock.
(d) "Beneficial Owner" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the Exchange
Act.
(e) "Board" or "Board of Directors" means the Board of Directors
of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Common Stock" means the common stock of the Company, par
value $.01 per share.
(h) "Company" means Suburban Lodges of America, Inc., a Georgia
corporation, or any successor thereto as provided in ARTICLE
12.
(i) "Director" means any individual who is a member of the Board
of Directors of the Company. Only Directors who are not
employees of the Company or a Subsidiary shall be eligible to
participate
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<PAGE> 6
and shall be referred to herein as an "Eligible Director" or
"Eligible Directors."
(j) "Disability" shall have the meaning consistent with Section
22(e)(3) of the Code.
(k) "Effective Date" shall have the meaning ascribed to such term
in SECTION 1.1.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(m) "Fair Market Value" shall be determined as follows:
(i) If, on the relevant date, the Shares are traded on a
national or regional securities exchange or on
The Nasdaq Stock Market ("Nasdaq") and closing sale
prices for the Shares are customarily quoted, on the
basis of the closing sale price on the principal
securities exchange on which the Shares may then be
traded or, if there is no such sale on the relevant
date, then on the immediately preceding day on which
a sale was reported;
(ii) If, on the relevant date, the Shares are not listed
on any securities exchange or traded on Nasdaq, but
nevertheless are publicly traded and reported on
Nasdaq without closing sale prices for the Shares
being customarily quoted, on the basis of the mean
between the closing bid and asked quotations in such
other over-the-counter market as reported by Nasdaq;
but, if there are no bid and asked quotations in the
over-the-counter market as reported by Nasdaq on
that date, then the mean between the closing bid and
asked quotations in the over-the-counter market as
reported by Nasdaq on the immediately preceding day
such bid and asked prices were quoted; and
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<PAGE> 7
(iii) If, on the relevant date, the Shares are not
publicly traded as described in (i) or (ii), on the
basis of the good faith determination of the
Administrator.
(n) "Insider" shall mean a Participant who is, on the relevant
date, an officer or a director, or a ten percent (10%)
beneficial owner of any class of the Company's equity
securities that is registered pursuant to Section 12 of the
Exchange Act or any successor provisions, all as defined under
Section 16 of the Exchange Act.
(o) "Option" means an option to purchase Shares granted under
ARTICLE 6.
(p) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option which shall
be the Fair Market Value of a Share on the date an Option is
granted.
(q) "Participant" means an Eligible Director of the Company who
has been granted an Award under the Plan which is outstanding.
(r) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof or any corresponding successor provisions of the
Exchange Act.
(s) "Restricted Stock" means an Award of Common Stock as a
Director's fee, granted in accordance with the terms of
ARTICLE 7 and the other provisions of the Plan, which is
nontransferable and subject to a substantial risk of
forfeiture. Shares of Common Stock shall cease to be
Restricted Stock when, in accordance with the terms hereof and
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<PAGE> 8
the applicable Agreement, they become transferable and free of
substantial risks of forfeitures.
(t) "Shares" means the shares of Common Stock of the Company.
(u) "Subsidiary" means any corporation, partnership, joint venture
or other entity in which the Company has a fifty percent (50%)
or greater voting interest.
ARTICLE 3. ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have authority to grant Options and award Common Stock upon
such terms (not inconsistent with the provisions of the Plan) as the
Administrator may consider appropriate. In addition, the Administrator shall
have complete authority to interpret all provisions of the Plan; to adopt,
amend, and rescind rules and regulations pertaining to the administration of
the Plan; and to make all other determinations necessary or advisable for the
administration of the Plan. The express grant in the Plan of any specific
power to the Administrator shall not be construed as limiting any power or
authority of the Administrator. Any decision made, or action taken, by the
Administrator in connection with the administration of the Plan shall be final
and conclusive. No Director serving as Administrator shall be liable for any
act done in good faith with respect to the Plan. All expenses of administering
the Plan shall be borne by the Company.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in
SECTION 4.3, the total number of Shares available for grant of Awards under the
Plan shall be an aggregate of one hundred thousand (100,000) Shares. These
Shares may, in the discretion of the Company, be either authorized
-5-
<PAGE> 9
but unissued Shares or Shares held as treasury shares, including Shares
purchased by the Company.
The following rules shall apply for purposes of the determination of
the number of Shares available for grant under the Plan:
(a) While an Option or Restricted Stock Award is
outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested
status.
(b) The grant of an Option or Shares of Restricted Stock
shall reduce the Shares available for grant under
the Plan by the number of Shares subject to such
Award.
4.2 LAPSED AWARDS. If any Award granted under this Plan is
canceled, terminates, expires or lapses for any reason, any Shares subject to
such Award shall again be available for the grant of an Award under the Plan.
However, in the event that prior to the Award's cancellation, termination,
expiration or lapse, the holder of the Award at any time received one or more
"benefits of ownership" pursuant to such Award (as defined by the Securities and
Exchange Commission, pursuant to any rule or interpretation promulgated under
Section 16 of the Exchange Act), the Shares subject to such Award shall not
again be made available for regrant under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change
in corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under the Plan, and in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, as may be determined to
be appropriate and equitable by the Administrator, in its sole discretion, to
prevent
-6-
<PAGE> 10
dilution or enlargement of rights; provided, however, that the number
of Shares subject to any Award shall always be a whole number and the
Administrator shall make such adjustments as are necessary to insure Awards
of whole Shares.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Eligibility shall be limited to Eligible Directors. Each Eligible
Director shall become a Participant at the time he enters into an Agreement
evidencing an Award of an Option or Restricted Stock.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. With regard to the initial grant of Options
under this Plan, as of the effective date of the registration statement for the
initial public offering of Common Stock, each Eligible Director shall be
granted an Option to purchase 1,500 Shares on the terms provided herein with
regard to the grant of Options, with the Option Price per Share for such
initial grant being the "price to public" in the initial public offering.
Thereafter, subject to the terms and provisions of the Plan, Options to
purchase 1,500 Shares shall be granted to each Eligible Director at the annual
meeting of the Board of Directors immediately following their election or
re-election to the Board.
6.2 AGREEMENT. Each Option grant shall be evidenced by an
Agreement that shall specify the Option Price, the duration of the Option, and
the number of Shares to which the Option pertains.
6.3 OPTION PRICE. Except as set forth in SECTION 6.1 with respect
to the initial Option grants, the Option Price for each grant of an Option
shall be the Fair Market Value of a Share on the date the Option is granted.
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<PAGE> 11
6.4 DURATION OF OPTIONS. Except as provided in SECTION 6.7, an
Option shall expire on the first anniversary of the date a Participant ceases
to be a Director; provided, however, that no Option shall be exercisable later
than the tenth (10th) anniversary date of its date of grant.
6.5 EXERCISE OF OPTIONS. Except as provided in SECTION 6.7,
Options granted under the Plan shall first be exercisable on the first to occur
of: (a) the first anniversary date of the date of grant, or (b) the next
annual meeting of the shareholders and in each case, then only if the
Participant is still a Director on such date. Options shall continue to be
exercisable thereafter as provided herein.
6.6 PAYMENT. Options shall be exercised by the delivery of a
written notice of exercise to the Company, setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full
payment for the Shares. The Option Price upon exercise of any Option shall be
payable to the Company in full, either: (a) in cash, (b) cash equivalent
approved by the Administrator, (c) if approved by the Administrator, by
tendering previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price (provided that the Shares
which are tendered must have been held by the Participant for the period
required by law, if any, prior to their tender to satisfy the Option Price), or
(d) by a combination of (a), (b) and (c). The Administrator also may allow
cashless exercises as permitted under the Federal Reserve Board's Regulation T,
subject to applicable securities law restrictions, or by any other means which
the Administrator determines to be consistent with the Plan's purpose and
applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
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<PAGE> 12
6.7 TERMINATION OF SERVICE AS A DIRECTOR. Unless otherwise provided
in the Agreement, the following rules shall apply in the event of the
Participant's termination of service as a Director:
(a) TERMINATION BY DEATH. In the event the Participant
dies while a Director, all outstanding Options
granted to that Participant shall immediately vest
and shall remain exercisable at any time prior to
their expiration date, or for one (1) year after the
date of death, whichever period is shorter, by (i)
such person(s) as shall have been named as the
Participant's beneficiary, (ii) such person(s) that
have acquired the Participant's rights under such
Options by will or by the laws of descent and
distribution, (iii) the Participant's estate or
representative of the Participant's estate, or (iv)
by a transferee of the Option who has acquired the
Option in a transaction that is permitted by SECTION
6.8.
(b) TERMINATION BY DISABILITY. In the event the
Participant's service as a Director is terminated by
reason of Disability, all outstanding Options
granted to that Participant shall immediately vest
as of the date the Administrator determines the
definition of Disability to have been satisfied and
shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date
that the Administrator determines the definition of
Disability to have been satisfied, whichever period
is shorter, by the Participant's duly appointed
guardian or other legal representative.
(c) TERMINATION FOR ANY OTHER REASON. If the
Participant's Service as a Director is terminated
for any other reason, all outstanding Options in
which such Director has not vested shall expire.
The Options in which such Director has vested shall
remain exercisable at any time
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<PAGE> 13
prior to their expiration date or for a period
of one (1) year from the date he ceases to be a
Director, whichever period is shorter.
6.8 LIMITED TRANSFERABILITY. A Participant may transfer an Option
granted hereunder, including but not limited to transfers to members of his or
her Immediate Family (as defined below), to one or more trusts for the benefit
of such Immediate Family members, or to one or more partnerships where such
Immediate Family members are the only partners, if (i) the Agreement evidencing
such Option expressly provides that the Option may be transferred, (ii) the
Participant does not receive any consideration in any form whatsoever for such
transfer, (iii) such transfer is permitted with respect to applicable tax laws;
and (iv) the Participant is an Insider, such transfer is permitted under Rule
16b-3 of the Exchange Act as in effect from time to time. Any Option so
transferred shall continue to be subject to the same terms and conditions in
the hands of the transferee as were applicable to said Option immediately prior
to the transfer thereof. Any reference in any such Agreement to the employment
by or performance of services for the Company by the Participant shall continue
to refer to the employment of, or performance by the transferring Participant.
For purposes hereof, "IMMEDIATE FAMILY" shall mean the Participant and the
Participant's spouse, children and grandchildren. Any Option that is granted
pursuant to any Agreement that did not initially expressly allow the transfer
of said Option and that has not been amended to expressly permit such transfer,
shall not be transferable by the Participant otherwise than by will or by the
laws of descent and distribution and such Option thus shall be exercisable in
the Participant's lifetime only by the Participant.
6.9 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to his Option until the issuance of
such Shares to the Participant pursuant to the exercise of such Option.
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<PAGE> 14
ARTICLE 7. PAYMENT OF DIRECTOR'S FEES BY AWARD OF RESTRICTED STOCK
7.1 AWARDS. With respect to the initial award of Restricted Stock
under this Plan, as of the effective date of the registration statement for the
initial public offering of Common Stock, each Eligible Director shall be
awarded 1,000 Shares of Restricted Stock subject to the terms hereof that apply
to the award of Restricted Stock. Thereafter, 1,000 Shares of Restricted Stock
shall be awarded to each Eligible Director as a Director's Fee at the annual
meeting of the Directors immediately following their election or re-election to
the Board, provided that if the Fair Market Value of such Shares on the date of
grant exceeds $10,000, the number of Shares shall be reduced to the number of
whole shares which is closest in value to $10,000. Each award of Restricted
Stock shall be evidenced by an Agreement containing terms and conditions not
inconsistent with the Plan as the Administrator shall determine to be
appropriate in its sole discretion.
7.2 RESTRICTED PERIOD; LAPSE OF RESTRICTIONS. The Director shall
not vest in the Restricted Stock until the first to occur of: (a) one year
from the date of award, or (b) the date of the next annual meeting of
shareholders, and in each case then only if he is a Director on such date.
Upon the vesting of an award of Restricted Stock, all restrictions shall lapse.
An award of Restricted Stock shall immediately vest if a Participant suffers a
Disability, dies or there is a Change in Control.
7.3 RIGHTS OF HOLDER; LIMITATIONS THEREON. Upon an award of
Restricted Stock, a stock certificate (or certificates) representing the number
of Shares of Restricted Stock awarded to the Participant shall be registered in
the Participant's name and shall be held in custody by the Company or a bank
selected by the Administrator for the Participant's account. Following such
registration, the Participant shall have the rights and privileges of a
shareholder as to such Restricted Stock, including the right to receive
dividends, if and when declared by the Board of Directors, and to vote such
Restricted Stock, except that, the following restrictions shall apply:
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<PAGE> 15
(a) The Participant shall not be entitled to delivery of
a certificate until the expiration or termination of
the Restricted Period for the Shares represented by
such certificate and the satisfaction of any and all
other conditions in the Agreement;
(b) None of the Shares of Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise
encumbered or disposed of during the restricted
period and until the satisfaction of any and all
other conditions in the Agreement; and
(c) All of the Shares of Restricted Stock that have not
vested under the terms of the grant of Restricted
Stock shall be forfeited and all rights of the
Participant to such Shares of Restricted Stock shall
terminate without further obligation on the part of
the Company. Upon the forfeiture of any shares of
Restricted Stock, such forfeited Shares shall be
transferred to the Company without further action by
the Participant and shall, in accordance with
SECTION 4.2, again be available for grant under the
Plan.
With respect to any Shares received as a result of adjustments under
SECTION 4.3 hereof and any Shares received with respect to cash dividends
declared on Restricted Stock, the Participant shall have the same rights and
privileges, and be subject to the same restrictions, as are set forth in this
SECTION 7.
7.4 DELIVERY OF UNRESTRICTED SHARES. Upon the Participant's full
vesting in any Shares of Restricted Stock and the satisfaction of any and all
other conditions in the Agreement, the restrictions applicable to such Shares
of Restricted Stock shall lapse and a stock certificate for the number of
Shares of Restricted Stock with respect to which the restrictions have lapsed
shall be delivered, free of all such restrictions except any that may be
imposed by law, to the holder of the
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<PAGE> 16
Restricted Stock. The Company shall not be required to deliver any fractional
Share but will pay, in lieu thereof, the Fair Market Value (determined as of the
date the restrictions lapse) of such fractional share to the holder thereof.
7.5 NONASSIGNABILITY OF RESTRICTED STOCK. No grant of, nor any
right or interest of a Participant in or to, any Restricted Stock, or in any
instrument evidencing any grant of Restricted Stock under the Plan, may be
assigned, encumbered or transferred except, in the event of the death of a
Participant, by will or the laws of descent and distribution.
ARTICLE 8. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company and shall be effective only when filed by the
Participant, in writing, with the Company during the Participant's lifetime.
In the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of a beneficiary or beneficiaries
other than the spouse.
ARTICLE 9. CHANGE IN CONTROL
9.1 OCCURRENCE. Upon the occurrence of a Change in Control, except as
provided in the Agreement or unless otherwise specifically prohibited by the
terms of ARTICLE 13 hereof:
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<PAGE> 17
(a) All Options granted hereunder shall become fully
vested and immediately exercisable;
(b) All restrictions on a grant of Restricted Stock
shall lapse and such Restricted Stock shall be
delivered to the Participant in accordance with
SECTION 7.4;
9.2 DEFINITION. For purposes of the Plan, a "Change in Control" shall
be deemed to have occurred if:
(a) An acquisition by any Person of Beneficial Ownership
of the shares of Common Stock of the Company then
outstanding (the "COMPANY COMMON STOCK OUTSTANDING")
or the voting securities of the Company then
outstanding entitled to vote generally in the
election of directors (the "COMPANY VOTING
SECURITIES OUTSTANDING"), if such acquisition of
Beneficial Ownership results in the Person
beneficially owning (within the meaning of Rule
13d-3 promulgated under the Exchange Act, or any
successor thereto) twenty-five percent (25%) or more
of the Company Common Stock Outstanding or
twenty-five percent (25%) or more of the combined
voting power of the Company Voting Securities
Outstanding; provided, that immediately prior to
such acquisition such Person was not a direct or
indirect Beneficial Owner of twenty-five percent
(25%) or more of the Company Common Stock
Outstanding or twenty-five percent (25%) or more of
the combined voting power of Company Voting
Securities Outstanding, as the case may be; or
(b) The approval of the shareholders of the Company of a
reorganization, merger, consolidation, complete
liquidation or dissolution of the Company, the sale
or disposition of all or substantially all of the
assets of the Company or similar corporate
transaction (in each case referred to in this
SECTION 9.2 as a "CORPORATE
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<PAGE> 18
TRANSACTION") or, if consummation of such
Corporate Transaction is subject, at the time of such
approval by shareholders, to the consent of any
government or governmental agency, the obtaining of
such consent (either explicitly or implicitly); or
(c) A change in the composition of the Board such that
the individuals who, as of the Effective Date,
constitute the Board (such Board shall be
hereinafter referred to as the "INCUMBENT BOARD")
cease for any reason to constitute at least a
majority of the Board; provided, however, for
purposes of this SECTION 9.2 that any individual who
becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for
election by the Company's shareholders, was approved
by a vote of at least a majority of those
individuals who are members of the Board and who
were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be
considered as though such individual were a member
of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of
office occurs as a result of either an actual or
threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act, including any successor to such
Rule), or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person
other than the Board, shall not be so considered as
a member of the Incumbent Board.
Notwithstanding the provisions set forth in
subsections (a) and (b), the following shall not
constitute a Change in Control for purposes of this
Plan: (1) any acquisition of shares of Common Stock
by, or consummation of a Corporate Transaction with,
any Subsidiary or any employee benefit plan (or
related
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<PAGE> 19
trust) sponsored or maintained by the Company or
an affiliate; or (2) any acquisition of shares of
Common Stock, or consummation of a Corporate
Transaction, following which more than fifty percent
(50%) of, respectively, the shares then outstanding
of common stock of the corporation resulting from
such acquisition or Corporate Transaction and the
combined voting power of the voting securities then
outstanding of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who
were Beneficial Owners, respectively, of the Company
Common Stock Outstanding and Company Voting
Securities Outstanding immediately prior to such
acquisition or Corporate Transaction in substantially
the same proportions as their ownership, immediately
prior to such acquisition or Corporate Transaction,
of the Company Common Stock Outstanding and Company
Voting Securities Outstanding, as the case may be.
ARTICLE 10. AMENDMENT, MODIFICATION AND TERMINATION
10.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at
any time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, that, unless approved by the holders of a majority
of the total number of Shares of the Company represented and voted at a meeting
at which a quorum is present, no amendment shall be made to the Plan if such
amendment would (a) materially modify the eligibility requirements provided in
ARTICLE 5; (b) increase the total number of Shares (except as provided in
SECTION 4.3) which may be granted under the Plan, as provided in SECTION 4.1;
(c) extend the term of the Plan; or (d) amend the Plan in any other manner
which the Board, in its discretion, determines should become effective only if
approved by the shareholders even though such shareholder approval is not
expressly required by the Plan or by law. No amendment which requires
shareholder
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<PAGE> 20
approval in order for the Plan to continue to comply with Rule 16b-3 under the
Exchange Act, including any successor to such Rule, shall be effective unless
such amendment shall be approved by the requisite vote of shareholders.
10.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award. The Administrator shall, with the written
consent of the Participant holding such Award, have the authority to cancel
Awards outstanding and grant replacement Awards therefor.
ARTICLE 11. INDEMNIFICATION
Each person who is or shall have been the Administrator or a Director
shall be indemnified and held harmless by the Company against and from any
loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf. The foregoing
right of indemnification shall be in addition to any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
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<PAGE> 21
ARTICLE 12. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 13. LEGAL CONSTRUCTION
13.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
13.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
13.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance
of Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
13.4 REGULATORY APPROVALS AND LISTING. The Company shall not be
required to issue any certificate or certificates for Shares under the Plan
prior to (i) obtaining any approval from any governmental agency which the
Company shall, in its discretion, determine to be necessary or advisable, (ii)
the admission of such shares to listing on any national securities exchange or
Nasdaq on which the Company's Shares may be listed, and (iii) the completion of
any registration or other qualification of such Shares under any state or
federal law or ruling or
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<PAGE> 22
regulations of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security"
or "equity security" offered pursuant to the Plan to any Insider may not be
sold or transferred for at least six (6) months after the date of grant of such
Award. The terms "equity security" and "derivative security" shall have the
meanings ascribed to them in the then-current Rule 16(a) under the Exchange
Act.
13.5 SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provisions of the Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.
13.6 GOVERNING LAW. To the extent not preempted by Federal law,
the Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Georgia.
AS APPROVED BY THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SUBURBAN
LODGES OF AMERICA, INC. ON March 26, 1996.
SUBURBAN LODGES OF AMERICA, INC.
By:
-----------------------------
David E. Kirscher
Chairman of the Board,
President and Chief
Executive Officer
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<PAGE> 1
EXHIBIT 10.16
RIGHTS AGREEMENT
DATED AS OF
MAY ___, 1996
BETWEEN
SUBURBAN LODGES OF AMERICA, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY,
AS RIGHTS AGENT
<PAGE> 2
TABLE OF CONTENTS(1)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Section 1. Definitions ................................................................... 1
Section 2. Appointment of Rights Agent.................................................... 5
Section 3. Issue of Rights Certificates................................................... 5
Section 4. Form of Rights Certificate..................................................... 7
Section 5. Countersignature and Registration.............................................. 7
Section 6. Transfer and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificates .................................................. 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.................. 8
Section 8. Cancellation and Destruction of Right Certificates............................. 10
Section 9. Reservation and Availability of Capital Stock.................................. 10
Section 10. Preferred Stock Record Date ................................................... 11
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights ...................................................................... 12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares .................... 20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power .......... 21
Section 14. Fractional Rights and Fractional Shares ....................................... 23
Section 15. Rights of Action .............................................................. 24
Section 16. Agreement of Right Holders .................................................... 25
Section 17. Right Certificate Holder Not Deemed a Shareholder ............................. 25
Section 18. Concerning the Rights Agent ................................................... 26
Section 19. Merger or Consolidation or Change of Name of Rights Agent .................... 26
</TABLE>
- --------------------
(1) The Table of Contents is not a part of this Agreement.
i
<PAGE> 3
<TABLE>
<S> <C>
Section 20. Duties of Rights Agent ....................................................... 27
Section 21. Change of Rights Agent ....................................................... 28
Section 22. Issuance of New Right Certificates ........................................... 29
Section 23. Redemption ................................................................... 29
Section 24. Exchange ..................................................................... 30
Section 25. Notice of Proposed Actions ................................................... 31
Section 26. Notices ...................................................................... 32
Section 27. Supplements and Amendments ................................................... 32
Section 28. Successors ................................................................... 33
Section 29. Determinations and Actions by the Board of Directors, etc. ................... 33
Section 30. Benefits of this Agreement ................................................... 34
Section 31. Severability ................................................................ 34
Section 32. Governing Law ............................................................... 34
Section 33. Counterparts ................................................................ 34
Section 34. Descriptive Headings ......................................................... 34
</TABLE>
Exhibit A - Form of Board Resolution Establishing and Designating Preferred
Stock
Exhibit B - Form of Rights Certificate
Exhibit C - Summary Description of the Shareholder Rights Plan
ii
<PAGE> 4
RIGHTS AGREEMENT
THIS AGREEMENT is made and entered into as of May ___, 1996, by and
between SUBURBAN LODGES OF AMERICA, INC., a Georgia corporation (the
"COMPANY"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a __________
corporation, as Rights Agent (the "RIGHTS AGENT").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has approved the execution
of this Agreement and has authorized and declared a dividend distribution of
one Right (as defined below) for each outstanding share of Common Stock, par
value $0.01 per share, of the Company (the "COMMON STOCK") at the close of
business on the effective date of the Acquisitions (as defined below) and has
authorized the issuance of one Right for each share of Common Stock issued in
the Public Offering (as defined below) or otherwise issued between the
effective date of the Acquisitions and the earlier of the Distribution Date (as
defined below) and the Expiration Date (as defined below), each Right
representing the right to purchase, one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock of the Company having the rights,
powers and preferences set forth in the Board Resolution Establishing
and Designating Series A Preferred Stock attached hereto as EXHIBIT A, upon the
terms and subject to the conditions contained herein (individually, a "RIGHT,"
and collectively, the "RIGHTS");
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
(a) "ACQUIRING PERSON" means any Person who or which, together with all
Affiliates and Associates of such Person, shall be the Beneficial Owner of 15%
or more of the shares of Common Stock then outstanding; provided, however,
that, an "ACQUIRING PERSON" shall not include the following Persons: (i) any
Excluded Person, (ii) any Person who, immediately following consummation of the
Acquisitions and the Public Offering is the Beneficial Owner of 25% or more of
the shares of Common Stock then outstanding, or (iii) any Person, who alone or
together with its Affiliates or Associates becomes the Beneficial Owner of 15%
or more of the shares of Common Stock then outstanding as a result of an
Approved Acquisition; provided, further, that in the event that a Person does
not become an ACQUIRING PERSON by reason of clause (iii) above, such Person
nonetheless shall become an ACQUIRING PERSON if such Person thereafter becomes
the Beneficial Owner of an additional 1% or more of the Common Stock then
outstanding, unless the acquisition of such Common Stock is an Approved
Acquisition. Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith (but only if at the time of such determination
by the Board of Directors there are then in office not less than two Continuing
Directors and such action is approved by a majority of the Continuing Directors
then in office) that a Person who would otherwise be an "ACQUIRING PERSON" as
defined pursuant to the foregoing provisions of this SECTION 1(A) has become
such inadvertently, and such
<PAGE> 5
Person divests as promptly as practicable a sufficient number of shares of
Common Stock so that such Person would no longer be an "ACQUIRING PERSON" as
defined pursuant to the foregoing provisions of this SECTION 1(A), then such
Person shall not be deemed an Acquiring Person for any purposes of this
Agreement.
(b) "ACQUISITIONS" means the acquisition by merger or purchase of 16
Suburban Lodge facilities to be effective immediately prior to or
simultaneously with the closing of the Public Offering, and pursuant to which
the Company will issue approximately 1,166,000 shares of Common Stock to the
owners of the acquired facilities.
(c) "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to
such terms in Rule 12b-2 under the Exchange Act as in effect on the date
hereof.
(d) "APPROVED ACQUISITION" means any acquisition of Common Stock that (i)
causes a Person to become the Beneficial Owner of (A) 15% or more of the shares
of Common Stock then outstanding, or (B) if already a Beneficial Owner of 15%
or more of the shares of Common Stock then outstanding, an additional 1% or
more of the shares of Common Stock then outstanding, and (ii) is approved in
advance by a majority of the Continuing Directors.
(e) A Person shall be deemed the "BENEFICIAL OWNER" of, and shall be
deemed to "BENEFICIALLY OWN," any securities:
(i) which such Person or any of its Affiliates or Associates
beneficially owns (as determined pursuant to Rule 13d-3 under the
Exchange Act as in effect on the date hereof), directly or indirectly;
(ii) which such Person or any of its Affiliates or Associates,
directly or indirectly, has
(A) the right to acquire (whether such right is exercisable
immediately or only upon the occurrence of certain events or the
passage of time or both) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights (other than pursuant to
the Rights), warrants, options or otherwise; provided, however,
that a Person shall not be deemed the "BENEFICIAL OWNER" of, or to
"BENEFICIALLY OWN," any securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of its
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or
(B) the right to vote or dispose of (whether such right is
exercisable immediately or only upon the occurrence of certain
events or the passage of time or both) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or
otherwise; provided, however, that a Person shall not be deemed the
"BENEFICIAL OWNER" of, or to "BENEFICIALLY OWN," any security under
this clause (B) as a result of an agreement, arrangement or
understanding to vote such
2
<PAGE> 6
security if such agreement, arrangement or understanding (1)
arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act, and (2) is not
also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person (or any of its Affiliates or Associates) has any agreement,
arrangement or understanding (whether or not in writing) for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in SUBSECTION (II)(B) above) or disposing of any such
securities; provided, however, that nothing in this SECTION 1(E) shall
cause any Person engaged in business as an underwriter of securities who
acquires any securities of the Company through such Person's
participation in good faith in a firm commitment underwriting to be
deemed the "BENEFICIAL OWNER" of, or to "BENEFICIALLY OWN," such
securities until the expiration of 40 days after the date of such
acquisition.
(f) "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which banking institutions in the States of Georgia or New York are authorized
or obligated by law or executive order to close.
(g) "CLOSE OF BUSINESS" on any given date means 5:00 P.M., Atlanta,
Georgia time, on such date; provided, however, that if such date is not a
Business Day, then it shall mean 5:00 P.M., Atlanta, Georgia time, on the next
succeeding Business Day.
(h) "COMMON STOCK" means the Common Stock, par value $0.01 per share, of
the Company, except that, when used with respect to any Person other than the
Company, "COMMON STOCK" means the capital stock (or other equity interests) of
such Person with the greatest voting power, or the equity securities or other
equity interests having the power to control or direct the management of such
Person.
(i) "CONTINUING DIRECTOR" means any member of the Board of Directors of
the Company, while such Person is a member of the Board, who is not an
Acquiring Person or an Affiliate or Associate of an Acquiring Person or a
representative or nominee of an Acquiring Person or of any such Affiliate or
Associate, or otherwise affiliated with an Acquiring Person or of any such
Affiliate or Associate, and who either (i) was a member of the Board
immediately prior to the time any Person becomes an Acquiring Person (other
than pursuant to a Qualifying Tender Offer), or (ii) subsequently becomes a
member of the Board, if such Person's nomination for election or election to
the Board is recommended or approved by a majority of the Continuing Directors
serving at the time of such nomination or election.
(j) "DISTRIBUTION DATE" means the earlier of (i) the Close of Business on
the tenth day (or such later day as may be designated by action of a majority
of the Continuing Directors) after the Share Acquisition Date, and (ii) the
Close of Business on the tenth Business Day (or
3
<PAGE> 7
such later day as may be designated by action of a majority of the Continuing
Directors) after the date of the commencement by any Person (other than an
Excluded Person) of, or of the first public announcement of the intention by any
Person (other than an Excluded Person) to commence, a tender or exchange offer
if, upon consummation thereof, such Person, together with all Affiliates and
Associates of such Person, would be the Beneficial Owner of 15% or more of the
shares of Common Stock then outstanding.
(k) "EMPLOYEE BENEFIT PLAN" means any employee benefit plan of the Company
or any of its Subsidiaries or any Person organized, appointed or established by
the Company or any of its Subsidiaries for or pursuant to the terms of any such
plan.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "EXCLUDED PERSON" means the Company, any of its Subsidiaries or any
Employee Benefit Plan.
(n) "EXPIRATION DATE" means the earlier of (i) the Final Expiration Date,
and (ii) the time at which all Rights are redeemed as provided in SECTION 23 or
exchanged as provided in SECTION 24.
(o) "FINAL EXPIRATION DATE" means the Close of Business on May ___, 2006.
(p) "FLIP-IN EVENT" means any event described in SECTION 11(A)(II)(A), (B)
OR (C), but excluding any event described in SECTION 11(A)(II)(D).
(q) "FLIP-OVER EVENT" means any event described in SECTION 13(A)(X), (Y),
OR (Z).
(r) "PERSON" means an individual, corporation, partnership, limited
liability company, association, trust or any other entity or organization.
(s) "PREFERRED STOCK" means the Series A Participating Cumulative
Preferred Stock, par value $0.01 per share, of the Company having the terms set
forth in the form of certificate of designation attached hereto as EXHIBIT A.
(t) "PUBLIC OFFERING" means the issuance and sale of a maximum of
3,450,000 shares of Common Stock pursuant to the Registration Statement on Form
S-1 No. 333-2876, as amended.
(u) "PURCHASE PRICE" means the price (subject to adjustment as provided
herein) at which a holder of a Right may purchase one one-hundredth of a share
of Preferred Stock (subject to adjustment as provided herein) upon exercise of
a Right, which price shall initially be $_____.
(v) "QUALIFYING TENDER OFFER" means a tender or exchange offer for all
outstanding shares of Common Stock of the Company approved by a majority of
Continuing Directors then in
4
<PAGE> 8
office, after taking into account the potential long-term value of the Company
and all other factors that they consider relevant.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(x) "SHARE ACQUISITION DATE" means the date of the first public
announcement (including the filing of a report on Schedule 13D under the
Exchange Act (or any comparable or successor report)) by the Company or an
Acquiring Person indicating that an Acquiring Person has become such.
(y) "SUBSIDIARY" means, with respect to any Person, any other Person of
which securities or other ownership interests having ordinary voting power, in
the absence of contingencies, to elect a majority of the board of directors or
other Persons performing similar functions are at the time directly or
indirectly owned or controlled by such first Person.
(z) "TRADING DAY" means a day on which the principal national securities
exchange or inter-dealer quotation system on which the shares of Common Stock
are listed, admitted to trading or quoted is open for the transaction of
business or, if the shares of Common Stock are not listed, admitted to trading
or quoted on any national securities exchange or inter-dealer quotation system,
a Business Day.
(aa) "TRIGGERING EVENT" means any Flip-in Event or any Flip-over Event.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with SECTION 3, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable. If the Company appoints one or more co-Rights Agents, then the
respective duties of the Rights Agent and any co-Rights Agents shall be as the
Company shall determine.
SECTION 3. ISSUE OF RIGHTS CERTIFICATES. (a) Prior to the Distribution
Date, (i) the Rights will be evidenced (subject to SECTION 3(B)) by the
certificates for the Common Stock and not by separate Rights Certificates (as
defined below), and the registered holders of the Common Stock shall be deemed
to be the registered holders of the associated Rights, and (ii) the Rights will
be transferable only in connection with the transfer of the underlying shares
of Common Stock (including a transfer to the Company). As soon as practicable
after the Company has notified the Rights Agent of the occurrence of a
Distribution Date, the Rights Agent will, subject to SECTION 7(D), send, by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, one or more Rights
Certificates, in substantially the form of EXHIBIT B attached hereto (the
"RIGHTS CERTIFICATES"), evidencing one Right (subject to adjustment as
provided herein) for each share of Common Stock so held. If an adjustment in
the number of Rights per share of Common Stock has been made pursuant to
SECTION 11(P), then the
5
<PAGE> 9
Company shall, at the time of distribution of the Rights Certificates to record
holders of Common Stock as of the Close of Business on the Distribution Date,
make the necessary and appropriate rounding adjustments (in accordance with
SECTION 14(A)) so that Rights Certificates representing only whole numbers of
Rights are distributed to such holders and cash is paid to such holders in lieu
of any fractional Rights. From and after the Distribution Date, the Rights will
be evidenced solely by such Right Certificates.
(b) As soon as practicable after the consummation of the Acquisitions, the
Company will send a summary of the Rights substantially in the form of EXHIBIT
C attached hereto, by first-class, postage prepaid mail, to each record holder
of the Common Stock as of the Close of Business at the effective time of the
consummation of the Acquisitions at the address of such holder shown on the
records of the Company. Until the Distribution Date, the Rights shall be
evidenced by such certificates evidencing the Common Stock, and the registered
holders of such Common Stock shall also be the registered holders of the
associated Rights.
(c) Rights shall be issued in respect of all shares of Common Stock that
become outstanding (on original issuance or out of treasury) after the
consummation of the Acquisitions but prior to the earlier of the Distribution
Date or the Expiration Date. Certificates for the Common Stock that become
outstanding or shall be transferred or exchanged after the consummation of the
Acquisitions but prior to the earlier of the Distribution Date or the
Expiration Date shall also be deemed to be certificates for Rights and shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences certain Rights as
set forth in a Rights Agreement between Suburban
Lodges of America, Inc. and American Stock Transfer &
Trust Company, dated as of May ___, 1996 (the "Rights
Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which
is on file at the principal office of the Company.
The Company will mail to the holder of this
certificate a copy of the Rights Agreement without
charge promptly after receipt of a written request
therefor. Under certain circumstances, as set forth
in the Rights Agreement, such Rights may be evidenced
by separate certificates and no longer be evidenced by
this certificate, may be redeemed or exchanged or may
expire. As set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or
becomes an Acquiring Person or an Affiliate or
Associate thereof (as such terms are defined in the
Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may
be null and void.
(d) With respect to the certificates containing the foregoing legend,
until the earlier of the Distribution Date or the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with
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<PAGE> 10
the Common Stock represented thereby. If the Company purchases or acquires any
shares of Common Stock after the consummation of the Acquisitions but prior to
the Distribution Date, any Rights associated with such Common Stock shall be
deemed cancelled and retired so that the Company shall not be entitled to
exercise any Rights associated with the Common Stock that are no longer
outstanding.
SECTION 4. FORM OF RIGHTS CERTIFICATE. (a) The Rights Certificates (and
the forms of assignment, election to purchase and certificates to be printed on
the reverse thereof) shall be substantially in the form of EXHIBIT B attached
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law, rule or regulation or
with any rule or regulation of any stock exchange or inter-dealer quotation
system of a registered national securities association on which the Rights may
from time to time be listed, traded or quoted or to conform to usage. Subject
to SECTIONS 11 AND 22, the Rights Certificates, whenever distributed, shall be
dated as of the Distribution Date, shall entitle the holders thereof to
purchase such number of one one-hundredths of a share of Preferred Stock as
shall be set forth therein at the price set forth therein, but the number of
such one one-hundredths and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate representing Rights beneficially owned by any
Person referred to in SECTION 7(D)(I), (II) OR (III) shall (to the extent
feasible) contain the following legend:
The Rights represented by this Rights Certificate are
or were beneficially owned by a Person who was or
became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). This Rights
Certificate and the Rights represented hereby may be
or may become null and void in the circumstances
specified in Section 7(d) of the Rights Agreement.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Rights Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
President or any Vice President, either manually or by facsimile signature, and
shall have affixed thereto the Company's seal or a facsimile thereof which
shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
manually countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company whose
manual or facsimile signature is affixed to the Rights Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Rights Certificates may,
nevertheless, be countersigned by the Rights Agent and issued and delivered
with the same force and effect as though the individual who signed such Rights
Certificates had not ceased to be such officer of the Company. Any Rights
Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the
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<PAGE> 11
Company to sign such Rights Certificate, although at the date of the execution
of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its principal office or offices designated as the appropriate
place for surrender of Rights Certificates upon exercise, transfer or exchange,
books for registration and transfer of the Rights Certificates. Such books
shall show with respect to each Rights Certificate the name and address of the
registered holder thereof, the number of Rights indicated on the certificate,
and the certificate number.
SECTION 6. TRANSFER AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED,
DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a) Subject to SECTION 4(B),
7(D), AND 14, at any time after the Close of Business on the Distribution Date
and prior to the Close of Business on the Expiration Date, any Rights
Certificate(s) may, upon the terms and subject to the conditions set forth in
this SECTION 6(A), be transferred or exchanged for another Rights
Certificate(s) evidencing a like number of Rights as the Rights Certificate(s)
surrendered. Any registered holder desiring to transfer or exchange any Rights
Certificate(s) shall make such request in writing delivered to the Rights
Agent, and shall surrender such Rights Certificate(s) (with, in the case of a
transfer, the form of assignment and certificate on the reverse side thereof
duly executed) to the Rights Agent at the principal office or offices of the
Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate(s) until the registered
holder of the Rights has complied with the requirements of SECTION 7(E). Upon
satisfaction of the foregoing requirements, the Rights Agent shall, subject to
SECTIONS 4(B), 7(D), 14 AND 24, countersign and deliver to the Person entitled
thereto a Rights Certificate(s) as so requested. The Company may require
payment of a sum sufficient to cover any transfer tax or other governmental
charge that may be imposed in connection with any transfer or exchange of any
Rights Certificate(s).
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation
of a Rights Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will issue and
deliver a new Rights Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered holder in lieu of the Rights
Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS; RESTRICTIONS ON
TRANSFER. (a) Subject to SECTION 7(D), the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein, including, without limitation, SECTIONS 7(E), 9(C), 11(A),
13, 23, AND 24), in whole or in part, at any time after the Distribution Date
and prior to the Expiration Date upon surrender of the Rights Certificate,
with the form of election to purchase and the certificate on the reverse side
thereof duly executed (with signatures guaranteed), to the Rights Agent at the
principal office or offices of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price (in lawful
8
<PAGE> 12
money of the United States of America by certified check or bank draft payable
to the order of the Company) with respect to the Rights then to be exercised
and an amount equal to any applicable transfer tax or other governmental
charge.
(b) Upon satisfaction of the requirements of SECTION 7(A) and subject to
SECTION 20(K), the Rights Agent shall thereupon promptly (i)(A) requisition
from any transfer agent of the Preferred Stock (or make available, if the
Rights Agent is the transfer agent therefor) certificates for the total number
of one one-hundredths of a share of Preferred Stock to be purchased (and the
Company hereby irrevocably authorizes its transfer agent to comply with all
such requests), or (B) if the Company shall have elected to deposit the shares
of Preferred Stock issuable upon exercise of the Rights with a depository
agent, requisition from the depository agent depository receipts representing
such number of one one-hundredths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depository agent), and the Company will direct the depository agent to comply
with such request, (ii) requisition from the Company the amount of cash, if
any, to be paid in lieu of issuance of fractional shares in accordance with
SECTION 14, and (iii) after receipt of such certificates or depository receipts
and cash, if any, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate (with such certificates or
receipts registered in such name or names as may be designated by such holder).
If the Company is obligated to deliver Common Stock, other securities or
assets pursuant to this Agreement, the Company will make all arrangements
necessary so that such other securities and assets are available for
distribution by the Rights Agent, if and when appropriate.
(c) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate evidencing
the number of Rights remaining unexercised shall be issued by the Rights Agent
and delivered to, or upon the order of, the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, subject to the provisions of SECTION 14.
(d) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Flip-in Event, any Rights beneficially owed by
(i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person (or any such
Associate or Affiliate) to holders of equity interests in such Acquiring Person
(or in any such Associate or Affiliate) or to any Person with whom the
Acquiring Person (or any such Associate or Affiliate) has any continuing
agreement, arrangement or understanding regarding the transferred Rights, or
(B) a transfer which the Continuing Directors have determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect
the avoidance of this SECTION 7(D) shall become null and void without any
further action, and no holder of such Rights shall have any rights whatsoever
with respect to such Rights, whether under any provision of this Agreement or
otherwise; provided, however, that the foregoing provisions of this SECTION
7(D) shall not apply to Rights beneficially owned by an
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<PAGE> 13
Acquiring Person (or an Associate or Affiliate) of such Acquiring Person or
a transferee thereof if such Person became an Acquiring Person pursuant to a
Qualifying Tender Offer. The Company shall use all reasonable efforts to
insure that the provisions of SECTION 4(B) AND THIS SECTION 7(D) and are
complied with, but shall have no liability to any holder of Rights Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates and Associates or any
transferee of any of them hereunder.
(e) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action
with respect to a registered holder of Rights upon the occurrence of any
purported transfer pursuant to SECTION 6 or exercise pursuant to this SECTION 7
unless such registered holder (i) shall have completed and signed the
certificate contained in the form of assignment or election to purchase, as the
case may be, set forth on the reverse side of the Rights Certificate
surrendered for such transfer or exercise, as the case may be, (ii) shall not
have indicated an affirmative response to clause 1 or 2 thereof, and (iii)
shall have provided such additional evidence of the identity of the Beneficial
Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the
Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Rights
Certificates surrendered for exercise, transfer or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the Rights
Agent for cancellation or in cancelled form, or, if surrendered to the Rights
Agent, shall be cancelled by it, and no Rights Certificates shall be issued in
lieu thereof except as expressly permitted by this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall cancel and retire, any other Rights Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company, or shall,
at the written request of the Company, destroy such cancelled Rights
Certificates, and in either such case shall deliver a certificate of
cancellation or destruction thereof, as appropriate, to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The Company
covenants and agrees that it will use reasonable efforts to cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of Triggering Event, out of its
authorized and unissued shares of Common Stock) a number of shares of Preferred
Stock (and, following the occurrence of a Triggering Event, out of its
authorized but unissued shares of Common Stock) that will be, except as
provided in SECTION 11(A)(III), sufficient to permit the exercise in full of
all outstanding Rights as provided in this Agreement.
(b) So long as the Preferred Stock (and, following the occurrence of
Triggering Event, Common Stock and other securities) issuable and deliverable
upon the exercise of the Rights may be listed on any national securities
exchange or inter-dealer quotation system of a registered national securities
association, the Company shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all securities reserved for such
issuance to be listed on any such exchange or quotation system upon official
notice of issuance upon such exercise.
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<PAGE> 14
(c) The Company shall use its best efforts (i) to file, as soon as
practicable following the earliest date after the occurrence of a Flip-in
Event, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities issuable upon exercise of the Rights, (ii) to cause such
registration statement to become effective as soon as practicable after such
filing, and (iii) to cause such registration statement to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance
with, the securities or blue sky laws of the various states in connection with
the exercisability of the Rights. The Company may temporarily suspend, for a
period of time not to exceed 90 days after the date set forth in this SECTION
9(C)(I), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall notify the Rights Agent and issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is
no longer in effect that the rights are currently exercisable. Notwithstanding
any such provision of this Agreement to the contrary, the Rights shall not be
exercisable for securities in any jurisdiction if the requisite qualification
in such jurisdiction shall not have been obtained, such exercise therefor shall
not be permitted under applicable law or a registration statement in respect of
such securities shall not have been declared effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all one one-hundredths of a share of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock or
other securities) issuable upon exercise of the Rights shall, at the time of
delivery of the certificates for such securities (subject to payment of the
Purchase Price), be duly authorized, validly issued, fully paid, and
nonassessable.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and other governmental
charges which may be payable in respect of the issuance or delivery of the
Rights Certificates and of any certificates for Preferred Stock (or Common
Stock or other securities, as the case may be) upon the exercise of Rights.
The Company shall not, however, be required to pay any transfer tax or other
governmental charge which may be payable in respect of any transfer involved in
the issuance or delivery of any Rights Certificates or of any certificates for
Preferred Stock (or Common Stock or other securities, as the case may be) to a
Person other than the registered holder of the applicable Rights Certificate,
and prior to any such transfer, issuance or delivery any such tax or other
governmental charge shall have been paid by the holder of such Rights
Certificate or it shall have been established to the Company's satisfaction
that no such tax or other governmental charge is due.
SECTION 10. PREFERRED STOCK RECORD DATE. Each Person (other than the
Company) in whose name any certificate for Preferred Stock (or Common Stock or
other securities, as the case may be) is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of such
Preferred Stock (or Common Stock or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon
which the Rights Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and
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<PAGE> 15
any applicable transfer taxes or other governmental charges) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
transfer books of the Company relating to the Preferred Stock (or Common Stock
or other securities, as the case may be) are closed, such Person shall be deemed
to have become the record holder of such shares on, and such certificate shall
be dated, the next succeeding Business Day on which the applicable transfer
books of the Company are open.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by
each Right, and the number of Rights outstanding are subject to adjustment from
time to time, as provided in this SECTION 11.
(a)(i) If the Company shall at any time after the date of this Agreement
(A) declare or pay a dividend on the Preferred Stock payable in shares of
Preferred Stock (or other capital stock), (B) subdivide the outstanding
Preferred Stock into a greater number of shares, (C) combine the outstanding
Preferred Stock into a smaller number of shares, or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or merger involving the
Company in which the Company is the surviving or continuing corporation),
except as otherwise provided in SECTION 7(D) and this SECTION 11(A), then the
Purchase Price in effect immediately prior to the record date for such dividend
or of the effective date of such subdivision, combination or reclassification,
and the number and kind of shares of Preferred Stock or other capital stock
issuable on such date shall be proportionately adjusted so that each holder of
a Right shall thereafter be entitled to receive, upon exercise thereof at the
Purchase Price in effect immediately prior to such date, the aggregate number
and kind of shares of Preferred Stock or other capital stock, as the case may
be, which, if such Right had been exercised immediately prior to such date and
at a time when the applicable transfer books of the Company were open, such
holder would have been entitled to receive upon such exercise and by virtue of
such dividend, subdivision, combination or reclassification. If an event
occurs which requires an adjustment under both this SECTION 11(A)(I) and
SECTION 11(A)(II), the adjustment provided for in this SECTION 11(A)(I) shall
be in addition to, and shall be made prior to, any adjustment required pursuant
to SECTION 11(A)(II).
(ii) Subject to SECTIONS 23 AND 24, if:
(A) any Person, alone or together with its Affiliates and
Associates, shall, at any time after the date of this Agreement
become an Acquiring Person (other than pursuant to a Qualifying
Tender Offer), or
(B) during such time as there is an Acquiring Person, there
shall be a reclassification of securities (including any reverse
stock split), recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries or any
other transaction or series of transactions involving the Company
or any of its Subsidiaries (whether or not with or into or
otherwise involving an Acquired Person), other than a Flip-over
Event(s), which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share
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<PAGE> 16
of the outstanding shares of any class of equity or convertible
securities of the Company or any of its Subsidiaries which is
directly or indirectly beneficially owned by any Acquiring Person
or any Associate or Affiliate of any Acquiring Person, or
(C) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement,
directly or indirectly, (1) shall merge into the Company or
otherwise combine or consolidate with the Company and the Company
shall be the continuing or surviving corporation of such merger,
combination or consolidation and, in connection with such merger,
combination or consolidation, none of the outstanding shares of the
Common Stock of the Company shall be changed into or exchanged for
stock or other securities of the Company or of any other Person or
cash or any other property, (2) shall, in one transaction or a
series of transactions, other than in connection with the exercise
of a Right or Rights and other than in connection with the exercise
or conversion of securities exercisable for or convertible into
securities of the Company which securities were outstanding prior
to the time such Acquiring Person became such, transfer any assets
to the Company or to any of its Subsidiaries in exchange (in whole
or in part) for shares of Common Stock, for other equity securities
of the Company, or for securities exercisable for or convertible
into shares of equity securities of the Company (Common Stock or
otherwise) or otherwise obtain from the Company, with or without
consideration, any additional shares of such equity securities or
securities exercisable for or convertible into shares of such
equity securities (other than pursuant to a pro rata offer or
distribution to all holders of Common Stock), (3) shall sell,
purchase, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of assets (in one or more transactions), to, from, with or
of, as the case may be, the Company or any of its Subsidiaries
(including, in the case of Subsidiaries, by way of a merger,
combination or consolidation of any Subsidiary), on terms and
conditions less favorable to the Company than the Company would be
able to obtain in arm's-length negotiations with an unaffiliated
third party, other than pursuant to a Flip-over Event, (4) shall
sell, purchase, lease, exchange, mortgage, pledge, transfer or
otherwise acquire or dispose of in one transaction or a series of
transactions, to, from or with (as the case may be) the Company or
any of its Subsidiaries (other than incidental to the lines of
business, if any, engaged in as of such date between the Company
and such Acquiring Person or Associates or Affiliate) assets having
an aggregate fair market value of more than $1,000,000, other than
pursuant to a transaction set forth in SECTION 13(A), (5) shall
receive any compensation from the Company or any of its
Subsidiaries other than compensation for full-time employment as a
regular employee, or fees for serving as a director, at rates in
accordance with the Company's (or its Subsidiaries') past
practices, or (6) shall receive the benefit, directly or
indirectly (except proportionately as a shareholder and except if
resulting from a requirement of law or governmental regulation),
of any loans, assumptions of loans, advances, guarantees, pledges
or other financial assistance, or any tax credits or other tax
advantage, provided by the Company or any of its Subsidiaries,
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<PAGE> 17
(D) provided that the events described in SECTIONS
11(A)(II)(A), (B) AND (C) shall not include a repurchase by the
Company of Common Stock that is approved by a majority of
Continuing Directors, promptly following five days after the date
of the occurrence of the event described in SECTION 11(A)(II)(A)
hereof and promptly following the occurrence of any event described
in SECTION 11(A)(B) or (C) hereof,
then proper provision shall promptly be made so that each holder of a
Right shall (except as otherwise provided herein, including, without
limitation, SECTION 7(D)) thereafter be entitled to receive, upon
exercise of the Right, without payment of the Purchase Price and in lieu
of Preferred Stock, such number of duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock of the Company (such shares
being referred to herein as the "ADJUSTMENT SHARES") as shall be equal to
the result obtained by (x) multiplying the then current Purchase Price by
the number of one one-hundredths of a share of Preferred Stock for which
a Right is then exercisable (such product being thereafter referred to as
the "PURCHASE PRICE" for each Right and for all purposes of this
Agreement), and dividing that product by (y) the current market price
(determined pursuant to SECTION 11(D)(I)) per share of Common Stock on
the date of such first occurrence; provided, however, that if the
transaction that would otherwise give rise to the foregoing adjustment
is also subject to the provisions of SECTION 13, then only the provisions
of SECTION 13 shall apply and no adjustment shall be made pursuant to
this SECTION 11(A)(II).
(iii) If the number of shares of Common Stock which are authorized
by the Company's articles of incorporation but not outstanding or
reserved for issuance other than upon exercise of the Rights is
insufficient to permit the exercise in full of the Rights in accordance
with SECTION 11(A)(II), the Company shall (A) determine the excess of (1)
the value of the Adjustment Shares issuable upon the exercise of a Right
(computed using the "CURRENT MARKET PRICE" used to determine the number
of Adjustment Shares), over (2) the Purchase Price (such excess being
referred to herein as the "SPREAD"), and (B) with respect to each Right,
make adequate provision to substitute for the Adjustment Shares, (1) (to
the extent available) Common Stock and then, (2) (to the extent
available) other equity securities of the Company which a majority of the
Continuing Directors has determined to be essentially equivalent to
shares of Common Stock in respect to dividend, liquidation and voting
rights (such securities being referred to herein as "COMMON STOCK
EQUIVALENTS"), and then, if necessary, (3) other equity or debt
securities of the Company, cash or other assets, a reduction in the
Purchase Price or any combination of the foregoing, having an aggregate
value (as determined by the Continuing Directors based upon the advice
of a nationally recognized investment banking firm selected by the
Continuing Directors) equal to the value of the Adjustment Shares;
provided, however, if the Company shall not have made adequate provision
to deliver value pursuant to clause (B) above within thirty (30) days
following the latter of (x) the first occurrence of a Flip-in Event and
(y) the date on which the Company's right of redemption pursuant to
SECTION 23 expires, then the Company shall be obligated to deliver, upon
the surrender for exercise
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<PAGE> 18
of a Right and without requiring payment of the Purchase Price, shares
of Common Stock (to the extent available), shares of Preferred Stock of
the Company, and then, if necessary, cash, which shares and cash have an
aggregate value equal to the Spread. If the Continuing Directors of the
Company shall determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon
exercise in full of the Rights, the 30 day period set forth above (such
period, as it may be extended, being referred to herein as the
"SUBSTITUTION PERIOD") may be extended to the extent necessary, but not
more than 90 days following the first occurrence of a Flip-In Event, in
order that the Company may seek shareholder approval for the
authorization of such additional shares. If the Company determines that
some action is to be taken pursuant to the first or second sentence of
this SECTION 11(A)(III), then the Company (x) shall provide, subject to
SECTION 7(D), that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization
of additional shares or to decide the appropriate form and value of any
consideration to be delivered as referred to in such first or second
sentence. If any such suspension occurs, the Company shall issue a
public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this
SECTION 11(A)(III), the value of the Common Stock shall be the current
market price per share of Common Stock (as determined pursuant to
SECTION 11(D)) on the later of the date of the first occurrence of a
Flip-in Event and the first date that the right to redeem the Rights
pursuant to SECTION 23 shall expire; any common stock equivalent shall
be deemed to have the same value as the Common Stock on such date; and
the value of other securities or assets shall be determined pursuant to
SECTION 11(D)(III).
(b) If the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within 45 calendar days after
such record date) Preferred Stock (or securities having the same rights,
privileges and preferences as the shares of Preferred Stock ("EQUIVALENT
PREFERRED STOCK")) or securities convertible into or exercisable for Preferred
Stock (or equivalent preferred stock) at a price per share of Preferred Stock
(or equivalent preferred stock) (in each case, taking account of any conversion
or exercise price) less than the current market price (as determined pursuant
to SECTION 11(D)) per share of Preferred Stock on such record date, the
Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock which the aggregate price (taking account of any conversion or exercise
price) of the total number of shares of Preferred Stock (and/or equivalent
preferred stock) so to be offered would purchase at such current market price,
and the denominator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of additional shares of
Preferred Stock (and/or equivalent preferred stock) so to be offered. In case
such subscription price may be paid by delivery of consideration part or all of
which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
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<PAGE> 19
Rights Agent and shall be conclusive for all purposes. Shares of Preferred
Stock owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed, and if such rights,
options or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger involving the Company in
which the Company is the surviving entity) of evidences of indebtedness, equity
securities other than Preferred Stock, cash or assets (other than a regular
periodic cash dividend out of the earnings or retained earnings of the Company)
or rights, options or warrants (excluding those referred to in SECTION 11(B)),
the Purchase Price to be in effect after such record date shall be determined
by multiplying the Purchase Price in effect immediately prior to such record
date by a fraction, the numerator of which shall be the current market price
(as determined pursuant to SECTION 11(D)) per share of Preferred Stock on such
record date, less the value (as determined pursuant to SECTION 11(D)(III)) of
such evidences of indebtedness, equity securities, assets, rights, options or
warrants so to be distributed with respect to one share of Preferred Stock, and
the denominator of which shall be such current market price per share of
Preferred Stock (as determined by SECTION 11(D)). Such adjustment shall be
made successively whenever such a record date is fixed, and if such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(d)(i) For the purpose of any computation hereunder other than
computations made pursuant to SECTION 11(A)(III) OR 14, the "CURRENT MARKET
PRICE" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the 30
consecutive Trading Days immediately prior to such date; for purposes of
computations made pursuant to SECTION 11(A)(III), the "CURRENT MARKET PRICE"
per share of Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Common Stock for the 10 consecutive
Trading Days immediately following such date; and for purposes of computations
made pursuant to SECTION 14, the "CURRENT MARKET PRICE" per share of Common
Stock for any Trading Day shall be deemed to be the closing price per share of
Common Stock for such Trading Day; provided, however, that if the current
market price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a dividend
or distribution on such Common Stock payable in shares of such Common Stock or
securities exercisable for or convertible into shares of such Common Stock
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and prior to the expiration of the
requisite 30 Trading Day or 10 Trading Day period after the ex-dividend date
for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "CURRENT
MARKET PRICE" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or, if
the shares of Common Stock are not listed or
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<PAGE> 20
admitted to trading on the New York Stock Exchange, on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by The Nasdaq Stock Market or such other
system then in use or, if on any such date the shares of Common Stock are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Common Stock selected by the Board of Directors of the Company, or, if at the
time of such selection there is an Acquiring Person, by a majority of the
Continuing Directors. If on any such date no market maker is making a market
in the Common Stock, then the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company (or, if at
the time of such determination there is an Acquiring Person, then by a majority
of the Continuing Directors) shall be used. If the Common Stock is not
publicly held or not so listed or traded, the "CURRENT MARKET PRICE" per share
means the fair value per share as determined in good faith by the Board of
Directors of the Company, or, if at the time of such determination there is an
Acquiring Person, by a majority of the Continuing Directors, or if there are no
Continuing Directors, by a nationally recognized investment banking firm
selected by the Board of Directors, which determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "CURRENT
MARKET PRICE" per share of Preferred Stock shall be determined in the
same manner set forth above for the Common Stock in SECTION 11(D)(I)
(other than the last sentence thereof). If the current market price per
share of Preferred Stock cannot be determined in such manner, or if the
Preferred Stock is not publicly held or listed or traded in a manner
described in SECTION 11(D)(I), then the "CURRENT MARKET PRICE" per share
of Preferred Stock shall be conclusively deemed to be an amount equal to
100 (as such number may be appropriately adjusted for such events as
stock splits, stock dividends and recapitalizations with respect to the
Common Stock occurring after the date of this Agreement) multiplied by
the current market price per share of Common Stock (as determined
pursuant to SECTION 11(D)(I) (other than the last sentence thereof)). If
neither the Common Stock nor the Preferred Stock is publicly held or so
listed or traded, the "CURRENT MARKET PRICE" per share of the Preferred
Stock shall be determined in the same manner as set forth in the last
sentence of SECTION 11(D)(I). For all purposes of this Agreement, the
"CURRENT MARKET PRICE" of one one-hundredth of a share of Preferred Stock
shall be equal to the "CURRENT MARKET PRICE" of one share of Preferred
Stock divided by 100.
(iii) For the purpose of any computation hereunder, the value of any
securities or assets other than Common Stock or Preferred Stock shall be
the fair value as determined in good faith by the Board of Directors of
the Company, or, if at the time of such determination there is an
Acquiring Person, by a majority of the Continuing Directors then in
office, or, if there are no Continuing Directors, by a nationally
recognized investment banking firm selected by the Board of Directors,
which determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.
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<PAGE> 21
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this SECTION 11(E) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this SECTION 11 shall be made to the
nearest cent or to the nearest ten-thousandth of a share of Common Stock or
other share or one-millionth of a share of Preferred Stock, as the case may be.
(f) If at any time, as a result of an adjustment made pursuant to SECTION
11(A)(II) or SECTION 13(A), the holder of any Right shall be entitled to
receive upon exercise of such Right any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
SECTIONS 11(A), (B), (C), (E), (G), (H), (I), (J), (K) AND (M), and the
provisions of SECTIONS 7, 9, 10, 13 AND 14 with respect to the Preferred Stock
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made hereunder shall evidence the right to purchase, at the Purchase
Price then in effect, the then applicable number of one one-hundredths of a
share of Preferred Stock and other capital stock of the Company issuable from
time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
SECTION 11(I), upon each adjustment of the Purchase Price as a result of the
calculations made in SECTIONS 11(B) AND (C), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of
a share of Preferred Stock (calculated to the nearest one-millionth) obtained
by (i) multiplying (x) the number of one one-hundredths of a share for which a
Right was exercisable immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price, and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in the
number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one one-hundredths
of a share of Preferred Stock for which such Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated to the
nearest ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the
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<PAGE> 22
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this SECTION 11(I), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Right Certificates evidencing, subject to
SECTION 14, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Rights Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredth of a
share and the number of shares which were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the par value, if any, of the number of one one-hundredths
of a share of Preferred Stock issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid
and nonassessable such number of one one-hundredths of a share of Preferred
Stock at such adjusted Purchase Price.
(l) In any case in which this SECTION 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the number
of one one-hundredths of a share of Preferred Stock or other capital stock of
the Company, if any, issuable upon such exercise over and above the number of
one one-hundredths of a share of Preferred Stock or other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Purchase Price
in effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the occurrence of
the event requiring such adjustment.
(m) Anything in this SECTION 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this SECTION 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preferred Stock, (ii)
issuance wholly for cash of any Preferred Stock at less than the current market
price, (iii) issuance wholly for cash of Preferred Stock or securities which by
their terms are convertible into or exercisable
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<PAGE> 23
for Preferred Stock, (iv) stock dividends, or (v) issuance of rights, options or
warrants referred to in this SECTION 11, hereafter made by the Company to the
holders of its Preferred Stock, shall not be taxable to such shareholders.
(n) The Company covenants and agrees that it will not at any time after
the Distribution Date, (i) consolidate with any other Person, (ii) merge with
or into any other Person, (iii) effect a statutory share exchange with any
Person, or (iv) sell, lease or otherwise transfer (and/or permit any of its
Subsidiaries to sell, lease or otherwise transfer), in one transaction or a
series of related transactions, assets aggregating more than 50% of the assets
(measured by either book value or fair market value) or generating more than
50% of operating income or cash flow of the Company and its Subsidiaries, taken
as a whole, to any other Person or Persons if (x) at the time of or immediately
after such consolidation, merger, statutory share exchange, sale, lease or
transfer there are any rights, warrants or other instruments or securities
outstanding or any agreements or arrangements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, or (y) prior to, simultaneously with or immediately
after such consolidation, merger, statutory share exchange, sale, lease or
transfer, the shareholders of a Person who constitutes, or would constitute,
the "PRINCIPAL PARTY" for the purposes of SECTION 13 shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(o) The Company covenants and agrees that after the Distribution Date, it
will not, except as permitted by SECTIONS 23, 24 OR 27, take (or permit any
Subsidiary to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, unless
such action is approved by a majority of the Continuing Directors.
(p) Notwithstanding anything in this Agreement to the contrary, if at any
time after the consummation of the Acquisitions and prior to the Distribution
Date the Company shall (i) pay a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock into a larger number of shares, or (iii) combine the outstanding Common
Stock into a smaller number of shares, the number of Rights associated with
each share of Common Stock then outstanding, or issued or delivered thereafter
shall be proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event shall equal
the result obtained by multiplying the number of Rights associated with each
share of Common Stock immediately prior to such event by a fraction the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in SECTIONS 11 AND 13, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent and with each transfer agent for the Preferred Stock and
the Common Stock a copy of such certificate, and (c) mail a
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<PAGE> 24
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock) in the manner set forth in SECTION 26. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment
contained therein.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER. (a) Except for any transaction with a Person who has consummated a
Qualifying Tender Offer which transaction is approved by a majority of the
Continuing Directors, if following the Share Acquisition Date, directly or
indirectly,
(w) the Company shall consolidate with, merge with or into, or
otherwise combine with, any other Person, and the Company shall not
be the continuing or surviving corporation of such consolidation,
merger or combination, or
(x) any Person shall consolidate with, merge with or into, or
otherwise combine with, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation, merger
or combination and, in connection with such consolidation, merger
or combination, all or part of the outstanding shares of Common
Stock shall be changed into or exchanged for other stock or
securities of the Company or any other Person or cash or any other
property, or
(y) the Company shall be a party to any statutory share
exchange with any other Person after which the Company is a
subsidiary of any other Person, or
(z) the Company and/or one or more of its Subsidiaries shall
sell, lease or otherwise transfer, in one transaction or a series
of related transactions, assets aggregating more than 50% of the
assets (measured by either book value or fair market value) or
generating more than 50% of the operating income or cash flow of
the Company and its Subsidiaries, taken as a whole, to any other
Person or Persons,
then, and in each such case, proper provision shall promptly be made so that
(i) each holder of a Right, except as provided in SECTION 7(D), shall
thereafter be entitled to receive, upon exercise thereof at the then current
Purchase Price, such number of duly authorized, validly issued, fully
paid and nonassessable shares of freely tradable Common Stock of the Principal
Party (as defined below), not subject to any rights of call or first refusal,
liens, encumbrances or other claims, as shall be equal to the result obtained
by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Flip-over Event (or, if a
Flip-in Event has previously occurred, multiplying the number of such one
one-hundredths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Flip-in Event by the Purchase
Price in effect immediately prior to such first occurrence) (such product being
thereafter referred to as the "PURCHASE PRICE" for each Right and for all
purposes of this Agreement), and dividing that product by (B) 50% of the
current market price (determined pursuant to SECTION
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11(D)(I)) per share of the Common Stock or other securities of such Principal
Party) on the date of consummation of such consolidation, merger, combination,
statutory share exchange, sale, lease or transfer;
(ii) the Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, combination, statutory
share exchange, sale, lease or transfer, all the obligations and duties
of the Company pursuant to this Agreement;
(iii) the term "COMPANY" shall thereafter be deemed to refer to such
Principal Party, it being specifically intended that the provisions of
SECTION 11 shall apply only to such Principal Party following the first
occurrence of a Flip-over Event;
(iv) such Principal Party shall take such steps (including, without
limitation, the authorization and reservation of a sufficient number of
shares of its Common Stock to permit exercise of all outstanding Rights
in accordance with this SECTION 13(A)) in connection with the
consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights; and
(v) the provisions of SECTION 11(A)(II) shall be of no effect
following the first occurrence of a Flip-over Event.
(b) "PRINCIPAL PARTY" means:
(i) in the case of any transaction described in SECTIONS 13(A) (W),
(X) OR (Y), (A) the Person that is the issuer of any securities into
which shares of Common Stock of the Company are converted in such merger,
consolidation, or combination or for which shares of Common Stock of the
Company are exchanged in such statutory share exchange, or, if there is
more than one such issuer, the issuer of the Common Stock of which has
the greatest aggregate market value, or (B) if no securities are issued,
(x) the person that survives such consolidation or is the other party to
the merger, combination or statutory share exchange, or, if there is more
than one such Person, the Person the Common Stock of which has the
greatest aggregate market value, or (y) if the Person that is the other
party to the merger does not survive the merger, the Person that does
survive the merger (including the Company if it survives); and
(ii) in the case of any transactions described in SECTIONS 13(A)(Z),
the Person that is the party receiving the greatest portion of the
assets, operating income or cash flow transferred pursuant to such
transaction or transactions, or, if each person that is a party to such
transaction or transactions receives the same portion of the assets,
operating income or cash flow so transferred, or, if the Person receiving
the greatest portion of the assets, operating income or cash flow cannot
be determined, the person the Common Stock of which has the greatest
aggregate market value;
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<PAGE> 26
provided, however, that in any such case, (A) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, and such
Person is a direct or indirect Subsidiary of another Person the Common Stock of
which is and has been so registered, "PRINCIPAL PARTY" shall refer to such
other Person; and (B) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stock of two or more of which
are and have been so registered, "PRINCIPAL PARTY" shall refer to whichever of
such Persons is the issuer of the Common Stock having the greatest aggregate
market value.
(c) The Company shall not consummate any such consolidation, merger,
combination, statutory share exchange, sale, lease or transfer unless the
Principal Party shall have a sufficient number of authorized shares of its
Common Stock which are not outstanding or otherwise reserved for issuance to
permit the exercise in full of the Rights in accordance with this SECTION 13
and unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
for the terms set forth in SECTIONS 13(A) AND (B) and further providing that,
as soon as practicable after the date of any consolidation, merger,
combination, statutory share exchange, sale, lease or transfer mentioned in
SECTION 13(A), the Principal Party will (i) prepare and file a registration
statement under the Securities Act with respect to the Rights and the
securities issuable upon exercise of the Rights on an appropriate form, and
will use its best efforts to cause such registration statement (A) to become
effective as soon as practicable after such filing, and (B) to remain effective
(with a prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date; and (ii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form 10 under
the Exchange Act.
(d) The provisions of this SECTION 13 shall similarly apply to successive
mergers, consolidations, combinations, statutory share exchanges, sales, leases
or other transfers. If any Flip-over Event shall occur at any time after the
occurrence of a Flip-in Event, the Rights which have not theretofore been
exercised shall thereafter become exercisable in the manner described in
SECTION 13(A).
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in SECTION 11(P), or to distribute Rights
Certificates which evidence fractional Rights. In lieu of any such fractional
Rights, the Company shall pay to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
price of a whole Right. For purposes of this SECTION 14(A), the current
market price of a whole Right shall be the closing price of a Right for the
Trading Day immediately prior to the date on which such fractional Rights
would otherwise have been issuable. The closing price of a Right for any day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported on the principal national securities exchange on which
the Rights are listed or admitted to trading or, if the Rights are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or, if not so quoted, the average of the high bid and low
23
<PAGE> 27
asked prices in the over-the-counter market, as reported by The Nasdaq Stock
Market or such other system then in use or, if on any such date the Rights are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company, or, if at the time of such
selection there is an Acquiring Person, by a majority of the Continuing
Directors. If on any such date no such market maker is making a market in the
Rights, the current market price of the Rights on such date shall be as
determined in good faith by the Board of Directors of the Company, or, if at the
time of such determination there is an Acquiring Person, by a majority of the
Continuing Directors.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are multiples of one one-hundredth
of a share of Preferred Stock) upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Preferred Stock (other than
fractions which are multiples of one one-hundredth of a share of Preferred
Stock). In lieu of any such fractional shares of Preferred Stock, the Company
shall pay to the registered holders of Rights Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market price of one one-hundredth of a share of
Preferred Stock. For purposes this SECTION 14(B), the current market price of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
SECTION 11(D)) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of any Triggering Event or upon any exchange
pursuant to SECTION 24, the Company shall not be required to issue fractions of
shares of Common Stock upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are exercised or
exchanged as provided herein an amount in cash equal to the same fraction of
the current market price of a share of Common Stock. For purposes of this
SECTION 14(C), the current market price of a share of Common Stock shall be the
closing price of a share of Common Stock (as determined pursuant to SECTION
11(D)(I)) for the Trading Day immediately prior to the date of such exercise or
exchange.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as permitted by this SECTION 14.
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
Common Stock), and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of any Common Stock), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of any Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner
24
<PAGE> 28
provided in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of, any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office or offices of the Rights Agent designated for such purposes, duly
endorsed or accompanied by a proper instrument of transfer and with the
appropriate forms and certificates fully executed;
(c) subject to SECTIONS 6(A) AND 7(E), the Company and the Rights Agent
may deem and treat the Person in whose name a Rights Certificate (or, prior to
the Distribution Date, a certificate representing Common Stock) is registered
as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificate or the certificate representing shares of Common Stock made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent, subject to the last sentence of
SECTION 7(D), shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither
the Company nor the Rights Agent shall have any liability to any holder of a
Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Company must use
its best efforts to have any such order, decree or ruling lifted or otherwise
overturned as soon as possible.
SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital
stock which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate,
as such, any of the rights of a shareholder of the Company or any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting shareholders (except
as
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provided in SECTION 25), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights Certificate shall
have been exercised in accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the execution or
administration of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent,
for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement or the exercise or performance
of its duties hereunder, including the costs and expenses of defending against
any claim of liability.
(b) The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
the administration of this Agreement or the exercise or performance of its
duties hereunder in reliance upon any Rights Certificate or certificate for
Common Stock or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
instruction, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
corporate trust or stock transfer business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
SECTION 21. In case at the time such successor Rights Agent shall succeed to
the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of a predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the
Rights Certificates shall not have been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name
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or in its changed name; and in all such cases, such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any "ACQUIRING PERSON" and the
determination of "CURRENT MARKET PRICE") be proved or established by the
Company prior to taking, suffering or omitting to take any action hereunder,
such fact or matter (unless other evidence in respect thereof is specifically
prescribed herein) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent. Any such certificate shall be full
authorization to the Rights Agent for any action taken, suffered or omitted in
good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall
it be responsible for any change in the exercisability of the Rights (including
the Rights becoming void pursuant to SECTION 7(D)) or any adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in SECTIONS 3, 11, 13, 23 OR 24, or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after actual notice of any
such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock or Preferred Stock to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any shares of Common Stock or Preferred
Stock will, when issued, be duly authorized, validly issued, fully paid and
nonassessable.
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(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President any Vice President, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken, suffered or omitted to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not the Rights Agent under
this Agreement. Nothing herein shall preclude the Rights Agent from acting in
any other capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company or to any holders of Rights
resulting from any such act, default, neglect or misconduct; provided, however,
that reasonable care was exercised in the selection and continued employment
thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds
or adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 or 2 thereof,
the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' written notice mailed to the Company and to each transfer agent
of the Common Stock and Preferred Stock by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Rights Certificates
by first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' written notice, mailed to the Rights Agent or
successor
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Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock by registered or certified mail, and subsequent to the
Distribution Date, to the holders of the Rights Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days of
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then the registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or of the
States of Georgia or New York (or any other state of the United States so long
as such corporation is authorized to do business as a banking institution in the
States of Georgia or New York), in good standing, having a principal office in
the State of Georgia, which is authorized under such laws to exercise stock
transfer or corporate trust powers and is subject to supervision or examination
by federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50,000,000 or (b) an
Affiliate of a corporation described in SECTION 21(A). After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock and the Preferred Stock, and,
subsequent to the Distribution Date, mail a notice thereof in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this SECTION 21, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of shares or other
securities issuable or property purchasable upon exercise of the Rights made in
accordance with the provisions of this Agreement.
SECTION 23. REDEMPTION AND TERMINATION. (a) The Company may, at its
option, but only upon the vote of a majority of the Board of Directors then in
office, at any time prior to the earlier of (i) the Close of Business on the
tenth day after the Share Acquisition Date (or such later date as a majority of
the Continuing Directors may designate prior to such time as the Rights are no
longer redeemable), or (ii) the Final Expiration Date, redeem all but not less
than all of the then outstanding Rights at a redemption price of $0.001 per
Right, as such amount may be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being referred to herein as the "REDEMPTION
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PRICE"), and the Company may, at its option, pay the Redemption Price in shares
of Common Stock (based on the "CURRENT MARKET VALUE," as defined in SECTION
11(D), of the shares of Common Stock at the time of redemption), cash or any
other form of consideration deemed appropriate by the Board of Directors;
provided, however, that after any Person has become an Acquiring Person (other
than pursuant to a Qualifying Tender Offer), any redemption of the Rights shall
be effective only if there are Continuing Directors then in office, and such
redemption shall have been approved by a majority of such Continuing Directors;
provided, further, that any redemption of Rights shall also be subject to any
additional approval procedures required by the articles of incorporation or
bylaws of the Company. Notwithstanding anything in this Agreement to the
contrary, the Rights shall not be exercisable after the first occurrence of a
Flip-in Event until such time as the Company's right of redemption hereunder has
expired.
(b) If, following the occurrence of a Share Acquisition Date and following
the expiration of the right of redemption hereunder (i) a Person who is an
Acquiring Person shall have transferred or otherwise disposed of a number of
shares of Common Stock in one transaction or series of transactions, not
directly or indirectly involving the Company or any of its Subsidiaries, which
did not result in the occurrence of a Triggering Event such that such Person is
thereafter the Beneficial Owner of 10% or less of the outstanding Common Stock,
and (ii) there are no other Persons immediately following the occurrence of the
event described in clause (i) who are Acquiring Persons, then the right of
redemption shall be reinstated and thereafter be subject to the provisions of
this SECTION 23.
(c) Immediately upon the action of the Board of Directors of the Company
electing to redeem the Rights and without any further action and without any
notice, the right to exercise the Rights will terminate and thereafter the only
right of the holders of Rights shall be to receive the Redemption Price for
each Right so held. The Company shall promptly thereafter give notice of such
redemption to the Rights Agent and the holders of the Rights in the manner set
forth in SECTION 26; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such redemption. Any notice
which is mailed in the manner provided herein shall be deemed given, whether
or not the holder receives the notice. Each such notice of redemption will
state the method by which the payment of the Redemption Price will be made.
SECTION 24. EXCHANGE. (a) At any time after any Person becomes an
Acquiring Person, a majority of the Continuing Directors may, at their option,
exchange all or part of the then outstanding and exercisable Rights (which
shall not include Rights that have become void pursuant to SECTION 7(D)) for
shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "EXCHANGE RATIO").
(b) Immediately upon the action of the Continuing Directors electing to
exchange any Rights pursuant to SECTION 24(A) and without any further action
and without any notice, the right to exercise such Rights will terminate and
thereafter the only right of a holder of such Rights shall be to receive that
number of shares of Common Stock equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. The Company shall promptly
thereafter give notice
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of such exchange to the Rights Agent and the holders of the Rights to be
exchanged in the manner set forth in SECTION 26; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. Any notice which is mailed in the manner provided herein shall
be deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of the shares of
Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to SECTION 7(D)) held by each holder of Rights.
(c) If there shall not be sufficient Common Stock issued but not
outstanding or authorized but unissued to permit any exchange of Rights as
contemplated by this SECTION 24, the Company shall take all such action as may
be necessary to authorize additional Common Stock for issuance upon exchange of
the Rights. In the event the Company shall, after a good faith effort, be
unable to take all such action as may be necessary to authorize such additional
Common Stock, the Company may substitute common stock equivalents (as defined
in SECTION 11(A)(III)) for shares of Common Stock exchangeable for Rights, at
the initial rate of one common stock equivalent for each share of Common Stock,
as appropriately adjusted to reflect adjustments in dividend, liquidation and
voting rights of common stock equivalents pursuant to the terms thereof, so
that each common stock equivalent delivered in lieu of each share of Common
Stock shall have essentially the same dividend, liquidation and voting rights
as one share of Common Stock.
(d) The Company shall not be required to issue fractional shares of Common
Stock or to distribute certificates which evidence fractional shares of Common
Stock. In lieu of such fractional shares of Common Stock, the Company shall
pay to the registered holders of Rights Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole share of
Common Stock. For purposes of this SECTION 24(D), the current market value of
a whole share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to SECTION 11(D)) for the Trading Day
immediately prior to the date of the exchange.
SECTION 25. NOTICE OF PROPOSED ACTIONS. (a) If the Company shall propose,
at any time after the Distribution Date, (i) to pay any dividend payable in
stock of any class to the holders of Preferred Stock or to make any other
distribution to the holders of Preferred Stock (other than a regular quarterly
cash dividend out of earnings or retained earnings of the Company), (ii) to
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional shares of Preferred Stock or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision or combination of outstanding shares of
Preferred Stock), (iv) to effect any consolidation or merger with or into any
other Person, or to effect a statutory share exchange with any Person, or to
effect and/or to permit one or more of its Subsidiaries to effect any sale,
lease or other transfer, in one transaction or a series of related
transactions, of assets aggregating more than 50% of the assets (measured by
either book value or fair market value) or generating more than 50% of the
operating income or cash flow of the Company and its Subsidiaries, taken as a
whole, to any other Person or Persons, or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
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shall give to each holder of a Right, to the extent feasible and in accordance
with SECTION 26, a notice of such proposed action, which shall specify the
record date for the purposes of any such dividend, distribution or offering of
rights or warrants, or the date on which any such reclassification,
consolidation, merger, statutory share exchange, sale, lease, transfer,
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered
by clause (i) or (ii) above at least 20 days prior to the record date for
determining holders of the Preferred Stock entitled to participate in such
dividend, distribution or offering, and in the case of any such other action,
at least 20 days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of Preferred Stock, whichever
shall be the earlier. The failure to give notice required by this Section or
any defect therein shall not affect the legality or validity of the action
taken by the Company or the vote upon any such action.
(b) Notwithstanding anything in this Agreement to the contrary, prior to
the Distribution Date a public filling by the Company with the Securities and
Exchange Commission shall constitute sufficient notice to the holders of
securities of the Company, including the Rights, for purposes of this Agreement
and no other notice need be given to such holders.
(c) If a Triggering Event shall occur, then, in any such case, (i) the
Company shall as soon as practicable thereafter give to each holder of a Right,
in accordance with SECTION 26, a notice of the occurrence of such event, which
shall specify the event and the consequences of the event to holders of Rights
under SECTION 11(A)(II) OR 13, as the case may be, and (ii) all references in
SECTION 25(A) to Preferred Stock shall be deemed thereafter to refer to Common
Stock or other capital stock, as the case may be.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right to or on the
Company shall be sufficiently given or made if sent by first-class, postage
prepaid mail to the address of the Company indicated on the signature page
hereof or such other address as the Company shall specify in writing to the
Rights Agent. Subject to the provisions of SECTION 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Right to or on the Rights Agent shall be sufficiently given or
made if sent by first-class, postage prepaid mail to the address of the Rights
Agent indicated on the signature page hereof or such other address as the
Rights Agent shall specify in writing to the Company. Notices or demands
authorized by this Agreement to be given or made by the Company or the Rights
Agent to the holder of any Rights Certificate (or, prior to the Distribution
Date, to the holder of any certificate representing shares of Common Stock)
shall be sufficiently given or made if sent by first-class, postage prepaid
mail to the address of such holder shown on the registry books of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the Distribution Date
and subject to the penultimate sentence of this SECTION 27, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date, and
subject to the penultimate sentence of this SECTION 27, the Company and
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the Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Right Certificates in order
(a) to cure any ambiguity, (b) to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provisions herein,
(c) to shorten or lengthen any time period hereunder (which shortening or
lengthening shall be effective only if there are Continuing Directors in office
and shall require the concurrence of a majority of such Continuing Directors),
or (d) to change or supplement the provisions hereof in any manner which the
Company may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, however, that this
Agreement may not be supplemented or amended pursuant to SECTION 27(C) to
lengthen (i) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (ii) any other time period,
unless lengthening such other time period is for the purpose of protecting,
enhancing, or clarifying the rights of, or benefits to the holders of, the
Rights. Notwithstanding the foregoing, after any Person has become an
Acquiring Person, any supplement or amendment shall be effective only if there
are Continuing Directors then in office, and such supplement or amendment shall
have been approved by a majority of such Continuing Directors. Upon the
delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the
terms of this Section, the Rights Agent shall execute such supplement or
amendment. Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made which changes the Redemption
Price, the Final Expiration Date, the Purchase Price or the number of one
one-hundredths of a share of Preferred Stock for which a Right is exercisable.
Prior to the Distribution Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
SECTION 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) under the Exchange Act as in effect on the date
of this Agreement. The Board of Directors of the Company (or, after any Person
has become an Acquiring Person, a majority of the Continuing Directors) shall
have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (a) interpret
the provisions of this Agreement, and (b) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or exchange or not to redeem or exchange the Rights or
to amend this Agreement); provided, however, that any redemption of Rights
shall also be subject to any additional approval procedures required by the
articles of incorporation or bylaws of the Company. All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all
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omissions with respect to the foregoing) which are done or made by the Board
(or, after any Person has become an Acquiring Person, by the Continuing
Directors) in good faith, shall (x) be final, conclusive and binding on the
Company (subject to any additional redemption approval procedures referred to in
the proviso to the immediately preceding sentence), the Rights Agent, the
holders of the Rights and all other parties, and (y) not subject the Board of
Directors of the Company or the Continuing Directors to any liability to the
holders of the Rights.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the certificates representing the shares of Common Stock)
any legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, the certificates representing the shares of Common
Stock).
SECTION 31. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that, notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company (or, after any Person has become an Acquiring Person,
a majority of the Continuing Directors) determines in its good faith judgment
that severing the invalid language from this Agreement would adversely affect
the purpose or effect of this Agreement, the right of redemption set forth in
SECTION 23 hereof shall be reinstated and shall not expire until the close of
business on the tenth day following the date of such determination by the
Board of Directors or Continuing Directors, as the case may be.
SECTION 32. GOVERNING LAW. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Georgia and for all purposes shall be governed by and
construed in accordance with the laws of such State (other than its conflicts
of laws rules) applicable to contracts to be made and performed entirely within
such State, except that the rights and obligations of the Rights Agent shall be
governed by the laws of the State of New York.
SECTION 33. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute one and the
same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. The captions herein are included for
convenience of reference only, do not constitute a part of this Agreement and
shall be ignored in the construction and interpretation hereof.
34
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SUBURBAN LODGES OF AMERICA, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Suburban Lodges of America, Inc.
120 Interstate North Parkway East
Suite 120
Atlanta, Georgia 30339
Attention: President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
----------------------------------------
Name:
----------------------------------
Title:
----------------------------------
6201 Fifteenth Avenue
Brooklyn, New York 11219
Attention:
35
<PAGE> 39
EXHIBIT A
FORM OF
BOARD RESOLUTION ESTABLISHING AND DESIGNATING
SERIES A PARTICIPATING CUMULATIVE
PREFERRED STOCK
OF
SUBURBAN LODGES OF AMERICA, INC.
PURSUANT TO SECTION 14-2-602 OF THE GEORGIA
BUSINESS CORPORATION CODE
SECTION 1. DESIGNATION AND NUMBER OF SHARES. The shares of such series
shall be designated as "Series A Participating Cumulative Preferred Stock" (the
"SERIES A PREFERRED STOCK"), and the number of shares constituting such series
shall be 500,000. Such number of shares of the Series A Preferred Stock may
be increased or decreased by resolution of the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares issuable upon exercise or conversion of outstanding
rights, options or other securities issued by the Corporation.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Preferred Stock with respect to dividends, if any, the holders of
shares of Series A Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
A-1
<PAGE> 40
purpose, quarterly dividends payable on the last day of March, June, September
and December of each year (each such date being referred to herein as a
"QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of any share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 and (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount
(payable in kind) of all cash dividends or other distributions and 100 times
the aggregate per share amount of all non-cash dividends or other distributions
(other than (i) a dividend payable in shares of Common Stock, par value $.01
per share, of the Corporation (the "COMMON STOCK") or (ii) a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise)),
declared on the Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A
Preferred Stock. If the Corporation shall at any time after May 5, 1996 (the
"RIGHTS DECLARATION DATE") declare or pay any dividend on Common Stock payable
in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock (other
than the stock split previously approved on March 26, 1996), then in each such
case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in SECTION 2(A) immediately after it declares a
dividend or distribution on the Common Stock (other than as described in
clauses (i) and (ii) of the first sentence of SECTION 2(A)); provided, however,
that if no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date (or, with respect to the first
Quarterly Dividend Payment Date, the period between the first issuance of any
share or fraction of a share of Series A Preferred Stock and such first
Quarterly Dividend Payment Date), a dividend of $1.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred Stock,
unless the date of issue of such shares is on or before the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue and be cumulative from the date of issue of such shares,
or unless the date of issue is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and on or before such Quarterly Dividend Payment
Date, in which case dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a
A-2
<PAGE> 41
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall not be more than 60 days
prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. In addition to any other voting rights required
by law, the holders of shares of Series A Preferred Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of shareholders of the Corporation. If the
Corporation shall at any time after the Rights Declaration Date declare or pay
any dividend on Common Stock payable in shares of Common Stock or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock shall
vote together as a single class on all matters submitted to a vote of
shareholders of the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock shall be
in arrears in an amount equal to six quarterly dividends thereon (whether or
not consecutive), the occurrence of such contingency shall mark the beginning
of a period (herein called a "DEFAULT PERIOD") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Preferred Stock then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of Series A Preferred
Stock and any other series of Preferred Stock then entitled as a class to elect
directors, voting together as a single class, irrespective of series, shall
have the right to elect one Director.
(ii) During any default period, such voting right of the holders of Series
A Preferred Stock may be exercised initially at a special meeting called
pursuant to SECTION 3(C)(III) or at any annual meeting of shareholders, and
thereafter at annual meetings of shareholders; provided, however, that neither
such voting right nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain cases, the authorized number
of Directors shall be exercised unless the holders of 10% in number of shares
of Preferred Stock outstanding shall be present in person or by proxy. The
absence of a quorum of holders of Common Stock shall not affect the exercise by
holders of Preferred Stock of such voting right. At any meeting at which
holders of Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a class, to elect
Directors to fill such vacancy, if any, in the Board of Directors as may then
exist up to one Director or, if such right is exercised at an annual meeting,
to elect one Director. If the number which may be so elected at any special
A-3
<PAGE> 42
meeting does not amount to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the number of Directors as
shall be necessary to permit the election by them of the required number.
After the holders of the Preferred Stock shall have exercised their right to
elect Directors in any default period and during the continuance of such
period, the number of Directors shall not be increased or decreased except by
vote of the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with the Series
A Preferred Stock.
(iii) Notwithstanding anything to the contrary contained in the
Corporation's Articles of Incorporation or Bylaws, unless the holders of
Preferred Stock shall, during an existing default period, have previously
exercised their right to elect Directors, the Board of Directors may order, or
any shareholder(s) owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective of
series, may request, the calling of a special meeting of holders of Preferred
Stock, which meeting shall thereupon be called by the President, a Vice
President or the Secretary of the Corporation. Notice of such meeting and of
any annual meeting at which holders of Preferred Stock are entitled to vote
pursuant to this SECTION 3(C)(III) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his last address as
the same appears on the books of the Corporation. Such meeting shall be called
for a time not earlier than 20 days and not later than 60 days after such order
or request or in default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar notice by any
shareholder(s) owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding, irrespective of series.
Notwithstanding the provisions of this SECTION 3(C)(III), no such special
meeting shall be called during the period within 60 days immediately preceding
the date fixed for the next annual meeting of shareholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of Directors until the holders of Preferred Stock shall
have exercised their right to elect one Director voting as a class, after the
exercise of which right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in SECTION
3(C)(II) be filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected the Director whose
office shall have become vacant. References in this SECTION 3(C) to Directors
elected by the holders of a particular class of stock shall include Directors
elected by such Directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect Directors shall cease, (y)
the term of any Directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of Directors shall be such number as may be
provided for in the Articles of Incorporation or Bylaws irrespective of any
increase made pursuant to the provisions of SECTION 3(C)(II) (such number being
subject, however, to change thereafter in any manner provided by law or in the
Articles of Incorporation or Bylaws). Any vacancies in the Board of Directors
effected by the provisions of
A-4
<PAGE> 43
clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as otherwise provided herein, holders of Series A Preferred
Stock shall have no special voting rights, and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in SECTION 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on outstanding shares of Series A
Preferred Stock shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any other 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 other distributions on, any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, 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 on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem, purchase or otherwise acquire for value any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock; provided, however, that the
Corporation may at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of stock of the Corporation
ranking junior (as to dividends and upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for value any shares of Series
A Preferred Stock, or any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) 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
Series A Preferred Stock and all such other parity stock upon such terms as
the Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for value any shares of stock of the Corporation
unless the
A-5
<PAGE> 44
Corporation could, under SECTION 4(A), purchase or otherwise acquire such shares
at such time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock without designation as to series and may be
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors as permitted by the Articles of
Incorporation or as otherwise permitted under Georgia law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock shall
have received $1.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment; provided, however, that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such other parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. If the Corporation shall at any time after the
Rights Declaration Date pay any dividend on Common Stock payable in shares of
Common Stock or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION OR MERGER. If the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash or any other property, then in any such case the shares of Series A
Preferred Stock shall at the same time be similarly exchanged for or changed
into an amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount of stock, securities, cash
or any other property, as the case may be, into which or for which each share
of Common Stock is exchanged or changed. If the Corporation shall at any time
after the Rights Declaration Date pay any dividend on Common Stock payable in
shares of Common Stock or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock
A-6
<PAGE> 45
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The Series A Preferred Stock shall not be
redeemable.
SECTION 9. RANK. The Series A Preferred Stock shall rank junior (as to
dividends and upon liquidation, dissolution and winding up) to all other series
of the Corporation's preferred stock, except any series that specifically
provides that such series shall rank junior to the Series A Preferred Stock.
SECTION 10. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
SECTION 11. AMENDMENT. The Articles of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of Series A Preferred
Stock, voting separately as a class.
A-7
<PAGE> 46
EXHIBIT B
Form of Rights Certificate
Certificate No. R- ________________Rights
NOT EXERCISABLE AFTER THE EARLIER OF________, 2006 AND THE DATE ON WHICH THE
RIGHTS EVIDENCED HEREBY ARE REDEEMED OR EXCHANGED BY THE COMPANY AS SET FORTH
IN THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $0.001 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. AS SET
FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS,
WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR
ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BE NULL AND VOID.
[THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR AN
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BE
OR MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(d) OF
THE RIGHTS AGREEMENT.)](1)
RIGHTS CERTIFICATE
SUBURBAN LODGES OF AMERICA, INC.
This Rights Certificate certifies that , or registered assigns, is the
registered holder of the number of Rights set forth above, each of which
entitles the holder (upon the terms and subject to the conditions set forth in
the Rights Agreement, dated as of May ____, 1996 (the "Rights Agreement"),
between Suburban Lodges of America, Inc., a Georgia corporation (the
"Company"), and American Stock Transfer & Trust Company (the "Rights Agent")),
to purchase from the Company, at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to the Expiration Date (as
such term is defined in the Rights Agreement), one one-hundredth{s} of a fully
paid, non-assessable share of Series A Participating Cumulative Preferred
Stock (the "Preferred Stock") of the Company, at a purchase price of $_____
per one one-hundredth of a share (the "Purchase Price"), payable in lawful
money of the United States of America, upon surrender of this Rights
Certificate, with the form of election to purchase and related certificate
duly executed, and payment of the Purchase Price at an office of the Rights
Agent designated for such purpose.
- -------------------------
(1) If applicable, insert this portion of the legend and delete the preceding
sentence.
B-1
<PAGE> 47
Terms used herein and not otherwise defined herein have the meanings
assigned to them in the Rights Agreement.
The number of Rights evidenced by this Rights Certificate (and the number
and kind of shares issuable upon exercise of each Right) and the Purchase Price
set forth above are as of ________, 1996, and may have been or in the future
may be adjusted as a result of the occurrence of certain events, as more fully
provided in the Rights Agreement.
Upon the occurrence of a Flip-in Event, if the Rights evidenced by this
Rights Certificate are beneficially owned by (a) an Acquiring Person or an
Associate or Affiliate of an Acquiring Person, (b) a transferee of an Acquiring
Person (or any such Associate or Affiliate) who becomes a transferee after the
Acquiring Person becomes such, or (c) under certain circumstances specified in
the Rights Agreement, a transferee of an Acquiring Person (or any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such, such Rights shall become null and void, and
no holder hereof shall have any right with respect to such Rights from and
after the occurrence of such Flip-in Event.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the office of the Company and
are also available upon written request to the Company.
Upon surrender at the principal office or offices of the Rights Agent
designated for such purpose and subject to the terms and conditions set forth
in the Rights Agreement, any Rights Certificate(s) may be transferred or
exchanged for another Rights Certificate(s) evidencing a like number of Rights
as the Rights Certificate(s) surrendered. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender
hereof another Rights Certificate(s) for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Board of Directors
of the Company may, at its option,
(a) at any time prior to the earlier of (i) the Close of
Business on the tenth day after the Share Acquisition Date (or such
later date as a majority of the Continuing Directors may designate
prior to such time as the Rights are no longer redeemable), and
(ii) the Final Expiration Date, redeem all but not less than all
the then outstanding Rights at a redemption price of $0.001 per
Right; or
(b) at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding Rights (other than
Rights held by the Acquiring Person and certain related Persons)
for shares of Common Stock at an exchange ratio of one share of
Common Stock per Right. If the Rights shall be
B-2
<PAGE> 48
exchanged in part, the holder of this Rights Certificate shall be
entitled to receive upon surrender hereof another Rights
Certificate(s) for the number of whole Rights not exchanged.
After the expiration of the redemption period, the Companies right of
redemption may be reinstated if an Acquiring Person reduces his beneficial
ownership to ten percent or less of the outstanding shares of Common Stock in a
transaction or series of transactions not involving the Company and there is no
other Acquiring Person.
No fractional shares of Preferred Stock are required to be issued upon the
exercise of any Right(s) evidenced hereby (other than fractions which are
multiples of one one-hundredth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depository receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital
stock which may at any time be issuable on the exercise hereof, nor shall
anything contained in the Rights Agreement or herein be construed to confer
upon the holder hereof, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting shareholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Right(s)
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-3
<PAGE> 49
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal by its authorized officers.
Dated as of ,
-------- ----
SUBURBAN LODGES OF AMERICA, INC.
By:
------------------------------
Title:
(SEAL)
Attest:
- --------------------------
Secretary
Countersigned:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Rights Agent
By:
----------------------
Authorized Signature
B-4
<PAGE> 50
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
(To be executed if the registered holder
desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED __________________________________________________________
hereby sells, assigns and transfers unto_____________________________________
_____________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated:
----------------------------- -----------------------------
Signature
Signature Guaranteed:
B-5
<PAGE> 51
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate ___ are ___ are not
being assigned by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it ___
did ___ did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring person.
Dated:
-------------------------- -----------------------------
Signature
NOTICE
The signatures to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE> 52
-------------------
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder desires to exercise Rights represented
by the Rights Certificate.)
To: Suburban Lodges of America, Inc.
The undersigned hereby irrevocably elects to exercise ______________
Rights represented by this Rights Certificate to purchase shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other Person which may be issuable upon the exercise of the
Rights) and requests that certificates for such securities be issued in the
name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ---------------------------------------------
(Please print name and address)
- ---------------------------------------------
Dated: ,
-------------------- -------
--------------------------------
Signature
Signature Guaranteed:
B-7
<PAGE> 53
------------
EXHIBIT C
SUBURBAN LODGES OF AMERICA, INC.
SHAREHOLDER RIGHTS PLAN
Summary of Terms
Form of Security: The Board of Directors has declared a dividend
of one preferred stock purchase right for each
outstanding share of the Company's Common Stock,
payable to holders of record as of the on the
close of business on the effective date of the
consummation of the Company's proposed acquisition
of 16 Suburban Lodge facilities (each a "Right," and
collectively, the "Rights").
Distribution Date: The earlier of:
(1) the 10th day after public announcement
that any person or group has become the
beneficial owner of 15% or more of the
Company's Common Stock (other than pursuant
to an Approved Acquisition (as below)); and
(2) the 10th business day after the date of
the commencement of a tender or exchange
offer by any person which would, if
consummated, result in such person becoming
the beneficial owner of 15% or more of the
Company's Common Stock, in each case,
subject to extension by a majority of the
Continuing Directors.
Approved Acquisition: An acquisition of 15% or more of the Common Stock then
outstanding by any person if such acquisition is
approved in advance by a majority of the Continuing
Directors or if any person has acquired such an
interest, the acquisition of an additional 1% or
more of the Common Stock then outstanding if such
acquisition is approved in advance by a majority of
the Continuing Directors.
Qualifying Tender Offer: A tender or exchange offer for all the Common
Stock which is approved by a majority of the
Continuing Directors.
C-1
<PAGE> 54
Transfer: Prior to the Distribution Date, the Rights will
be evidenced by the certificates for and will be
transferred with the Common Stock, and the registered
holders of the Common Stock will be deemed to be the
registered holders of the Rights.
After the Distribution Date, the Rights Agent
will mail separate certificates evidencing the Rights
to each record holder of the Common Stock as of the
close of business of the Distribution Date, and
thereafter the Rights will be transferable separately
from the Common Stock.
Exercise: Prior to the Distribution Date, the Rights will
not be exercisable.
After the Distribution Date, each Right will be
exercisable to purchase, for $____ (the "Purchase
Price"), one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock, par value
$0.01 per share, of the Company.
Flip-In: If (1) any person or group (an "Acquiring Person")
becomes the beneficial owner of 15% or more of the
Company's Common Stock (other than pursuant to
a Qualifying Tender Offer), (2) 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%, (3)
the Company is the surviving corporation in a merger
with an Acquiring Person and its Common Stock is not
changed or exchanged, or (4) an Acquiring Person
engages in one or more "self-dealing" transactions as
set forth in the Rights Agreement, then each Right
(other than Rights beneficially owned by the Acquiring
Person and certain affiliated persons) will entitle
the holder to elect to receive a number of shares of
the Company's Common Stock (or in certain
circumstances, cash, property or other securities of
the Company) having a market value equal to the
Purchase Price. Notwithstanding the foregoing, in most
instances following the occurrence of the events set
forth in this paragraph, all Rights that are, or
(under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring
Person will be null and void. However, Rights are not
exercisable following the occurrence of the events set
forth above until such time as the Rights are no
longer redeemable by the Company as set forth below.
C-2
<PAGE> 55
Flip-Over: If, after any person has become an Acquiring
Person (other than pursuant to a Qualifying Tender
Offer), (1) the Company is involved in a merger or
other business combination in which the Company is not
the surviving corporation or its Common Stock is
exchanged for other securities or assets, or (2) the
Company and/or one or more of its subsidiaries sell or
otherwise transfer assets aggregating more than 50% of
the assets or generating more than 50% of the
operating income or cash flow of the Company and its
subsidiaries, taken as a whole, then each Right will
entitle the holder to purchase, for the Purchase
Price, a number of shares of common stock of the other
party to such business combination or sale (or in
certain circumstances, an affiliate) having a market
value of twice the Purchase Price.
Exchange: At any time after any person has become an Acquiring
Person a majority of the Continuing Directors may
exchange all or part of the Rights (other than the
Rights beneficially owned by the Acquiring Person
and certain affiliated persons) for shares of Common
Stock at an exchange ratio of one share of Common
Stock per Right.
Redemption: Subject to the applicable provisions in the Company's
articles of incorporation and bylaws, the Board of
Directors may redeem all of the Rights at a
price of $0.001 per Right at any time prior to the
close of business on the tenth day after the public
announcement that any person has become an Acquiring
Person (subject to extension by a majority of the
Continuing Directors). After any person has become an
Acquiring Person, the Rights may be redeemed only with
the approval 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 of Directors 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 the Rights will be
to receive the redemption price thereof.
Continuing Director: Means any member of the Board of Directors who
was a member of the Board prior to the time an
Acquiring Person becomes such (other than pursuant to
a Qualifying Tender
C-3
<PAGE> 56
Offer) or any person who is subsequently elected
to the Board if such person is recommended or approved
by a majority of the Continuing Directors. Continuing
Directors do not include an Acquiring Person, an
affiliate or associate of an Acquiring Person or any
representative or nominee of the foregoing.
Expiration: The Rights will expire on _________, 2006, unless
earlier exchanged or redeemed.
Amendments: 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 of shares of Preferred
Stock for which a Right is exercisable.
After the Distribution Date, the Rights Agreement
may be amended in any respect that does not
adversely affect the Rights holders (other than any
Acquiring Person and certain affiliated persons).
After any person has become an Acquiring Person,
the Rights Agreement may be amended only with the
approval of a majority of the Continuing Directors.
Voting Rights: Rights holders have no rights as a shareholder of the
Company, including the right to vote and to receive
dividends.
Antidilution Provisions: The Purchase Price payable, and the number of shares
of Preferred Stock or other securities or property
issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (1)
in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the
Preferred Stock, (2) upon the grant to holders of the
Preferred Stock of certain rights or warrants to
subscribe for or purchase Preferred Stock at a price,
or securities convertible into Preferred Stock with a
conversion price, less than the then-current market
price of the Preferred Stock, or (3) upon the
distribution to holders of the Preferred Stock of
evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or
retained earnings) or of subscription rights or
warrants.
The number of outstanding Rights and the number of
1/100ths of a share of Preferred Stock issuable
upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common
Stock or a stock dividend on the Common Stock payable
in Common Stock or subdivisions,
C-4
<PAGE> 57
consolidations or combinations of the Common Stock
occurring prior to the Distribution Date.
With certain exceptions, no adjustment in the
Purchase Price will be required until cumulative
adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Preferred Stock will be
issued (other than fractions which are integral
multiples of 1/100th of a share of a Preferred Stock),
and in lieu thereof, an adjustment in cash will be
made based on the market price of the Preferred Stock
on the last trading date prior to the date of
exercise.
Preferred Stock: The dividend and liquidation rights of the Preferred
Stock are designed so that the value of one
one-hundredth of a share of 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 Preferred Stock issuable
upon exercise of the Rights will not be redeemable.
Each share of 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 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 Preferred Stock will be
entitled to receive 100 times the amount received per
share of Common Stock.
Each share of Preferred Stock will be entitled
to 100 votes on all matters submitted to a vote of the
shareholders of the Company, and shares of 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 Preferred Stock are in arrears in an amount equal
to six quarterly payments, the 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.
C-5
<PAGE> 58
Taxes: While the dividend of the Rights will not be taxable
to shareholders or to the Company, shareholders or the
Company may, depending upon the circumstances,
recognize taxable income in the event that the Rights
become exercisable as set forth above.
------------------------
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A. A copy of
the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement.
C-6
<PAGE> 1
EXHIBIT 10.17
[PNC BANK LETTERHEAD]
April 8, 1996
Mr. David E. Krischer
President
Suburban Lodges of America, Inc.
120 Interstate North Parkway East
Suite 120
Atlanta, Georgia 30339
RE: $50,000,000 Line of Credit
Suburban Lodges of America, Inc.
Dear David:
You have requested that PNC Bank, Kentucky, Inc. ("PNC Bank") enter into
certain financing arrangements with Suburban Lodges of America, Inc. (the
"Borrower") to provide up to a $50,000,000 revolving credit facility (the
"Revolving Credit Facility") for the Borrower.
We are pleased to advise you that, subject to the statutory and other
requirements by which PNC is governed and the terms and conditions hereinafter
set forth, PNC agrees to extend to Borrower $25,000,000 under the Revolving
Credit Facility. PNC will arrange the balance of the Revolving Credit Facility
on a best-efforts basis through PNC Securities Corp. (collectively with PNC
Bank, "PNC"). The first $5,000,000 of any additional commitments shall reduce
PNC's commitment to $20,000,000.
PNC has also agreed to act as the administrative agent (the "Agent") for
the lending institutions acceptable to the Borrower and PNC providing a portion
of the Revolving Credit Facility as described above (the "Banks").
PNC's obligation hereunder is expressly conditioned upon the execution and
delivery by Borrower of a definitive Credit Agreement (the "Credit Agreement"),
and the execution and delivery of all other instruments and documents required
by the Credit Agreement and such other instruments, documents, certificates,
opinions and assurances as PNC and the Banks may reasonable require,
satisfaction of all of the terms and conditions set forth in the Credit
Agreement, and completion of all proceedings in connection with the execution,
delivery and performance of the credit documentation, all in form and substance
satisfactory to PNC and its counsel. In the event that the Banks shall request
any modification to the loan documents required by the Credit Agreement, the
Borrower will not reasonable withhold its consent to any such modifications,
provided that PNC advises the Borrower in writing that the modifications are
necessary to effectuate a partial assignment of or participation in the
Revolving Credit Facility, and such modifications (a) do not relate to the
maturity date, the amount of the Revolving Credit Facility or to any fee, rate
of interest or any amounts payable by or distributable to the Borrower under the
terms of this commitment, (b) do not delay the closing date, (c) do not require
any additional collateral, and (d) do not impose any additional material
requirements or conditions to the PNC's obligations to close hereunder. Such
modifications may include, if required by any assignee or participant, matters
relating to approval to be granted by the Agent and the Banks under the terms of
the Credit Agreement. Each Bank's obligation to fund will be subject to and
conditioned upon the simultaneous funding of the respective share of the other
Banks.
The Credit Agreement shall include the terms and conditions set forth
herein and as referenced in the Summary of Terms and Conditions attached hereto,
which are not intended to be exhaustive since final
<PAGE> 2
documentation will require further discussions among PNC and Borrower. Without
limitation, the extension of the Revolving Credit Facility is conditioned upon
no material adverse change in the business, operations, prospects or financial
condition of the Borrower or any development that would materially adversely
affect the performance by the Borrower of its obligations under the Credit
Agreement. The Credit Agreement will also include such other representations,
warranties, covenants, conditions and other terms and provisions as are
appropriate and customary in transactions of this type, in PNC's judgement.
Without in any way limiting the generality of the foregoing or the Summary
of Terms and Conditions, PNC's obligations hereunder are also subject to the
Borrower's completion of an initial public stock offering establishing a minimum
market value (defined as total number of shares of common stock outstanding
after the offering times the price per share) of $100,000,000 upon closing of
the offering.
Borrower hereby agrees to indemnify PNC and any of its respective assignees
of their interests in the Revolving Credit Facility and the holders of
participation interests therein (and their respective directors, officers,
employees, agents and controlling persons) against any and 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 persons or entities, in any way
relating to or arising out of this letter or any actions taken or omitted by
such persons or entities in connection with any investigation, litigation or
other proceeding arising in connection with this letter or the actions of PNC
taken in anticipation of the financing transactions contemplated herein,
provided that Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties from PNC's gross negligence (unless such
gross negligence relates to PNC's failure to fulfill its obligations under this
letter) or willful misconduct. PNC SHALL NOT, IN ANY EVENT, BE LIABLE FOR ANY
CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, LOSSES OR EXPENSES (INCLUDING,
WITHOUT LIMITATION, COUNSEL FEES) (COLLECTIVELY "LOSSES") INCURRED OR ALLEGED BY
ANY PERSON AS A RESULT OF THIS LETTER WHETHER OR NOT THE POSSIBILITY OR
LIKELIHOOD OF SUCH LOSSES IS KNOWN TO PNC.
The Borrower shall pay to PNC Bank the fees set forth in the Summary of
Terms and Conditions and that certain Engagement Letter dated as March 27, 1996
and related Fee Letter dated March 21, 1996. PNC shall also be paid a retainer
fee of $25,000 as detailed in the Engagement Letter. PNC shall be reimbursed
from time to time upon demand for all reasonable out-of-pocket expenses
(including without limitation reasonable fees and expense of counsel) which it
may incur in the negotiation, preparation, due diligence, execution and delivery
of this letter, the Credit Agreement and other documentation and any assignment
of its interest hereunder or participation interests herein, regardless of
whether the transaction contemplated by this letter is completed or the Credit
Agreement is signed.
This commitment letter is solely for the benefit of Borrower and no other
person shall obtain any rights thereunder or be entitled to rely or claim
reliance upon the terms and conditions hereof or in any documents delivered
pursuant hereto. This commitment letter may not be assigned by Borrower and no
rights of Borrower hereunder may be transferred without the prior written
consent of PNC. Subject to the attached Summary of Terms and conditions, PNC or
the Banks may elect to (a) assign a portion of their respective rights and
obligations hereunder so that the permitted assignee or assignees thereof may
become parties to the Credit Agreement and (b) arrange for the sale or
assignment to other permitted banks of participation interests their commitments
hereunder and/or loans made by them as contemplated hereby. In the event of any
assignment referred to in (a) above, the assignor shall be released of all
obligations assumed by the assignee.
This commitment letter shall be governed by and construed in accordance
with the laws of the State of Kentucky.
This commitment letter shall not be binding upon PNC unless it is accepted
by the Borrower by April 10, 1996. If Borrower accepts this commitment, on or
before such date, an authorized officer should execute a copy of this letter and
return it to PNC. Unless so accepted, this letter will expire and not be
effective for any purpose. After acceptance of this letter, PNC shall be
obligated hereunder only if the Credit Agreement is executed on or before the
earlier of (a) sixty (60) days after the completion of the Borrower's initial
public offering; or (b) September 30, 1996. Prior to this execution of the
Credit Agreement, PNC may in its sole
2
<PAGE> 3
discretion terminate this commitment in the event Borrower fails to comply in
any material way with any of the terms and conditions hereof or PNC reasonably
determines that any of the conditions precedent set forth herein or in the
Summary of Terms and Conditions cannot be met.
Very truly yours,
PNC BANK, KENTUCKY, INC.
By: /s/ DENISE F. FAZIO
------------------------------------
Denise F. Fazio
Vice President
Accepted and agreed this
the 10th day of April, 1996.
SUBURBAN LODGES OF AMERICA, INC.
<TABLE>
<S> <C>
By: /s/ TERRY FELDMAN
----------------------------------------
----------------------------------------
Title: VP-CFO
----------------------------------------
</TABLE>
3
<PAGE> 4
March 27, 1996
SUMMARY OF TERMS AND CONDITIONS
Borrower Suburban Lodges of America, Inc., a Georgia
C-corporation (the "Borrower").
Administrative Agent PNC Bank, Kentucky, Inc. ("PNC" or "Agent").
Banks PNC and lending institutions acceptable to the
Borrower and PNC providing a portion of the
credit facility described below (the "Banks").
Credit Facility Up to a $50,000,000 revolving credit facility (the
"Credit Facility"). Availability under the Credit
Facility will be subject to the Borrowing Base
limitations described below.
PNC proposes to underwrite $25,000,000 of the
Credit Facility and arrange the balance with
Banks other than PNC on a best-efforts basis. PNC
intends to retain up to $20,000,000 of its
underwritten portion and to sell the remainder of
its underwritten portion via assignment to one or
more Banks other than PNC. Sale of any assignment
will not be a condition of closing.
The Credit Facility may close at a minimum amount
of $25,000,000.
Purpose The proceeds of the Credit Facility shall be used
for the general corporate purposes of the
Borrower, including new property construction,
acquisitions, renovations, and equity investments
associated with extended stay lodging facilities.
Maturity Two years from closing.
Repayment At maturity. Until maturity, the Borrower may
borrow, repay and reborrow an amount not to
exceed the lesser of the Credit Facility or
availability under the Borrowing Base.
Prepayment The Credit Facility may be prepaid in whole or in
part without any penalty except for customary
costs, if any, of breaking Euro-Rate tranches.
Interest Rates At the Borrower's option:
Base Rate + 0.75% or
Euro-Rate + 2.25%
The Base Rate is the higher of PNC's Prime rate or
the Federal Funds rate plus 1/2%.
Interest on Base Rate borrowings is calculated on
an actual/360 day basis and is payable monthly in
arrears. Base Rate advance elections will require
a one-day notice from the Borrower.
Interest on Euro-Rate borrowings is calculated on
an actual/360 day basis and is payable monthly in
arrears. Euro-Rate pricing will be adjusted for
any statutory reserves. Euro-Rate borrowings will
be in minimum amounts of $1,000,000 and will be
available for periods of 1, 2, 3, 6, or 12 months
(if available to all Banks) so long as the Euro-
Rate period does not exceed the remaining term of
the Credit Facility. Notwithstanding the above,
Euro-Rate borrowings will be limited to one-month
periods until the completion of the syndication
of the Credit Facility. Euro-Rate advance
elections will require three days' notice from
the Borrower.
4
<PAGE> 5
The Borrower may have no more than five borrowing
tranches, including the Base Rate tranche, at any
one time.
Fees
Commitment Until December 31, 1996: 0.125% per annum payable
to the Banks quarterly in arrears on the average
unborrowed amount of the Credit Facility during
the quarter.
After December 31, 1996: 0.25% per annum payable to
the Banks quarterly in arrears on the average
unborrowed amount of the Credit Facility during
the quarter.
Collateral Pool Addition $500 per property per Bank (up to a maximum of 5
Banks) for every property in excess of eight per
calendar year admitted to the Collateral Pool (as
hereinafter defined). The Collateral Pool
Addition Fee shall not apply to any existing
properties taken as collateral at the time of the
initial closing of the Credit Facility.
Collateral Collateral for the Credit Facility shall consist of
the following: (i) First mortgage liens on the
fee simple and/or leasehold interests in all
completed and open extended stay lodging
facilities owned by the Borrower at the time of
closing or which may be added from time to time
after closing (individually referred to as the
"Properties" and collectively as the "Collateral
Pool"); (ii) First assignment of all leases,
rents, other income, contracts, accounts, general
intangibles, and personal property pertaining to
the Collateral Pool Properties; and (iii) First
assignment of all franchise agreements,
management contracts, profits, licenses, and
other assets of the Borrower. Notwithstanding the
above, Properties released from the Collateral
Pool, pursuant to the Property Release Provisions
section herein, shall be excluded from
Collateral.
Borrowing Base Advances under the Credit Facility shall be subject
to the following conditions:
(i) Advances under the Credit Facility shall not
exceed 45% of the as-is appraised value of the
Collateral Pool based upon the PNC-
commissioned initial appraisals and subsequent
appraisals conducted annually.
(ii) The Debt Service Coverage ratio with respect
to the Collateral Pool as of the end of each
quarter shall not be less than 2.25x. Debt
Service Coverage shall be defined as Net
Operating Income divided by Debt Service. Net
Operating Income shall be defined as the
prior quarter's annualized Net Operating
Income from the Collateral Pool Properties,
net of a three percent (3%) capital reserve
requirement. Debt Service shall be calculated
based on 20-year mortgage-style amortization
of the most recent balance of the Credit
Facility at an interest rate of 200 basis
points above the yield of the most recent
10-year Treasury Note.
(iii) The Collateral Pool shall, at all times,
consist of a minimum of three (3) Properties.
5
<PAGE> 6
(iv) Properties included in the Collateral Pool
will be limited to extended stay lodging
facilities. No Property will have more than
175 rooms without the approval of the Banks.
(v) The Borrower will have a controlling interest
in all assets in the Collateral Pool.
(vi) The Borrower shall provide the Banks with
standard underwriting due diligence materials
for each property in the Collateral Pool,
including PNC-commissioned appraisals,
environmental reports, surveys, title
insurance, inspecting engineers reports,
historical, and proforma operating statements.
Property Release Provisions Properties may be released from the Collateral Pool
upon sale or refinance provided that the
outstandings under the Credit Facility remain in
compliance with the Borrowing Base limitations
and provided that there are no existing
defaults under the Credit Facility. The amount
of the Collateral Pool for purposes of Borrowing
Base calculations shall be reduced by an amount
equal to 100% of the most recent appraised value
of the Property being released.
Covenants 1. No other indebtedness shall be permitted on
Collateral Pool Properties.
2. The Borrower shall not incur unsecured debt
(other than normal trade payables).
3. The Borrower shall not incur more than
$50,000,000 of recourse debt (including the
Credit Facility).
4. Borrower shall have a minimum Earnings Before
Interest, Taxes, Depreciation and Amortization,
exclusive of extraordinary gains and
extraordinary losses, and gains and losses from
the sale of assets ("EBITDA") to Consolidated
Debt Service of at least 2.50 times.
Consolidated Debt Service shall be defined as
any scheduled amortization plus interest
expense which shall include, without
duplication, capitalized interest (excluding
capitalized interest financed by an interest
reserve from a loan) plus 100% of any interest
expense or capitalized interest incurred on any
obligation, including all unfunded obligations,
for which the Borrower is wholly or partially
liable under guarantees and obligations of
unconsolidated affiliates.
5. Consolidated Debt (excluding trade payables) to
Market Value of no greater than forty-five
percent (45%). Market Value shall be defined as
the total consolidated debt of the Borrower
plus the total number of common shares of
Borrower times the then current market price of
Borrower as publicly listed.
6. Investments in Assets under Development and
Land shall not exceed thirty-five (35%) of
Market Value.
7. Floating rate debt, excluding the Credit
Facility, will be limited to no more than
twenty percent (20%) of Consolidated Debt.
8. No more than fifteen percent (15%) of extended
stay lodging facilities owned by the Borrower
will be concentrated in a single SMSA,
excluding the Atlanta, GA and Charlotte, NC
SMSA's. Borrower shall own no more than ten
(10) facilities in the Atlanta,
6
<PAGE> 7
GA SMSA and four (4) facilities in the
Charlotte, NC SMSA without the Bank's
consent.
9. The Net Worth of the Borrower may not be less
$30,000,000 plus 80% of the aggregate proceeds
received by Borrower (net of customary related
fees and expenses) in connection with any
equity offering by Borrower subsequent to
closing of the Credit Facility.
10. Distributions from the Borrower shall be
prohibited (including dividends).
11. The Borrower shall not dissolve, divide, merge,
or consolidate with any other entity.
12. Such other covenants consistent with the
provisions of this summary and as required by
PNC and its legal counsel and typical of credit
facilities of this type provided by PNC.
Reporting Requirements 1. GAAP-basis unqualified annual audited and
quarterly unaudited financial statements of
Borrower on a consolidated and unaudited
supporting data within 120 days of fiscal year
end and within 45 days of quarter end.
2. All SEC filings including, without limitation,
all 10-K's and 10-Q's within ten days of filing.
3. Quarterly certifications of no default and
financial covenant compliance certificates from
the Borrower certified by the Chief Financial
Officer of the Borrower.
4. Quarterly operating statements and occupancy
reports for all properties comprising the
Collateral.
5. Other information reasonably requested by the
Banks to evaluate the financial condition and
cash flow of Borrower.
Conditions Precedent to
Closing 1. Successful public offering establishing a
minimum market capitalization of $100 million.
2. No material adverse change in Borrower's
financial condition.
3. Pro-forma demonstration of compliance with
parameters of the Borrowing Base and the
Covenants under the Credit Facility.
4. Documentation in form and substance satisfactory
to the Banks and their counsel.
Other Conditions Precedent as appropriate.
Assignments and
Participations Banks will be permitted to assign and participate
the Credit Facility. Assignments and
participation will be in minimum amounts of
$5,000,000 and assignees and participants will be
subject to the consent of the Borrower and the
Administrative Agent, such consent not to be
unreasonably withheld. Voting rights to
participants will be limited to any increase in
principal amount, any reduction of the rate of
interest or fees and postponement of the
scheduled payment of any principal, interest or
fees.
Required Banks For the purpose of making amendments or waivers to
the credit agreement or related documents, and
provided that there are three or more Banks in
the Credit Facility, Banks whose commitments
under the
7
<PAGE> 8
Credit Facility aggregate not more than
60% of the Credit Facility shall be required.
The actual percentage will be determined by
the final composition of the Bank group.
However, unless agreed to by all Banks, no
amendment or waiver shall increase the
principal amount, reduce the stated rate of
interest or fees, postpone the scheduled
payment of any principal, interest or fees,
release any collateral except as expressly
provided for in the credit agreement, or
change the definition of Required Banks.
8
<PAGE> 9
[LETTERHEAD]
March 21, 1996
Mr. David E. Krischer
President
Suburban Lodges of America, Inc.
120 Interstate North Parkway East
Suite 120
Atlanta, GA 30339
CONFIDENTIAL
Re: Up to $50,000,000 Secured Revolving Credit Facility to Suburban Lodges of
America, Inc.
Dear David:
This letter (the "Fee Letter") confirms the fees and expenses that you
agree to pay to PNC and the Banks in connection with the arrangement of the
Credit Facility described in the Engagement Letter and the Summary of Terms and
Conditions.
Underwriting Fee: 1.0% of the $25,000,000 underwritten portion of the
Credit Facility payable to PNC at the initial
closing.
Arrangement Fee: 0.25% of any commitment amounts arranged in excess
of the $25,000,000 portion of the Credit Facility
underwritten by PNC. The Arrangement Fee shall be
payable to PNC at the time that the commitment(s)
of the non-PNC Bank(s) are closed.
Closing Fee: Closing Fees shall be payable to the non-PNC Banks
at the time that the commitment(s) of the non-PNC
Bank(s) are closed. PNC shall endeavor on a
best-efforts basis to obtain commitments with
Closing Fees within the range of 0.50% to 0.75%;
however, the actual Closing Fees will be
determined by market conditions at the time that
the commitments are solicited. Acceptance of
commitments with Closing Fees in excess of the
range specified herein shall be at the Borrower's
discretion.
Administrative Fee: A per-annum Administrative Fee shall be payable to
PNC quarterly in arrears based upon the amount of
total accepted commitments as outlined below:
<TABLE>
<CAPTION>
ACCEPTED COMMITMENTS ADMINISTRATIVE FEE
----------------------------------------- ------------------
<S> <C>
less than or equal to $25,000,000................................ $ 20,000
greater than $25,000,000; less than or equal to $40,000,000...... $ 35,000
greater than $40,000,000......................................... $ 50,000
</TABLE>
Expenses: Reasonable out-of-pocket expenses incurred by PNC
shall be paid by the Borrower. These fees and
expenses shall include, but not limited to legal,
title insurance, appraisals, environmental
reviews, engineering reviews, and recording
costs. Payment by the Borrower of these expenses
shall not be contingent upon the closing of the
Credit Facility.
9
<PAGE> 10
You agree, except as may otherwise be provided in the Engagement Letter,
that each of the fees described above shall be fully earned and are
non-refundable on the date such fees are payable.
If the foregoing accurately sets forth your understanding, please indicate
your acceptance thereof by signing this Fee Letter and returning it to me with
the Engagement Letter. Thank you.
Sincerely,
[Sig]
D. Scott Bassin
Vice President
Agreed to and accepted:
Suburban Lodges of America, Inc.
<TABLE>
<S> <C>
By: /s/ TERRY FELDMAN Date:
----------------------------------------- 4-5-96
---------------------------------------
</TABLE>
Its: VP-CFO
--------------------------------
10
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Surburban Lodges of
America, Inc. on Form S-1 of our report on the combined financial statements
and the combined financial statement schedule of Suburban Lodges of America,
Inc. and Other Merger Entities dated March 17, 1996 (April 9, 1996 as to Note
11), appearing in the Prospectus, which is part of this Registration Statement
and to the reference to us under the headings "Selected Financial Information"
and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Atlanta, Georgia
May 5, 1996
<PAGE> 2
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Surburban 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, appearing in the Prospectus, which is part of this Registration Statement
and to the reference to us under the headings "Selected Financial Information"
and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Atlanta, Georgia
May 5, 1996
<PAGE> 1
EXHIBIT 23.3
May 3, 1996
Re: Registration Statement (Form S-1) for Suburban Lodges of America, Inc.
Dear Mr. Krischer
You have indicated to us that you intend to refer to, include or quote
statistical and other information compiled by us, and to identify Smith Travel
Research as the source of such information, in Registration Statement (No.
333-2876) on Form S-1 (the "Statement"), as amended, as filed with the
Securities and Exchange Commission (it being understood that we will have the
opportunity to review the statistical and other information attributed to us in
such Statement). We hereby consent to your reference to, inclusion or quotation
of such information, and the identification of Smith Travel Research as the
source of such information, in the Statement and related materials; provided
that, Smith Travel Research shall have no liability to the Securities and
Exchange Commission, or to you, ,
any of the underwriters, or any of the prospective investors with respect to any
of such information.
We request that you include the following sentence in the appropriate
section of the Statement after the citation of Smith Travel Research
information: "IT SHOULD BE NOTED THAT SMITH TRAVEL RESEARCH HAS NOT PROVIDED
ANY FORM OF CONSULTATION, ADVICE OR COUNSEL REGARDING ANY ASPECTS OF, AND IS IN
NO WAY WHATSOEVER ASSOCIATED WITH, THE PROPOSED OFFERING."
Thank you for your cooperation in this matter.
Very truly yours,
Randell A. Smith
CEO
RAS:jw
