<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1997
REGISTRATION NO. 333-35871
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
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 Number)
1000 Parkwood Circle Mr. David E. Krischer
Suite 850 President and Chief Executive Officer
Atlanta, Georgia 30339 1000 Parkwood Circle, Suite 850
(770) 951-9511 Atlanta, Georgia 30339
(Address, including zip code, and telephone number, (770) 951-9511
including area code, of registrant's principal (Name, address, including zip code, and telephone number,
executive offices) including area code, of agent for service)
</TABLE>
---------------------
Copies to:
<TABLE>
<C> <C>
MICHAEL H. TROTTER, ESQ. ALAN J. PRINCE, ESQ.
KILPATRICK STOCKTON LLP KING & SPALDING
1100 PEACHTREE STREET 191 PEACHTREE STREET
ATLANTA, GEORGIA 30309 ATLANTA, GEORGIA 30303
(404) 815-6500 (404) 572-4600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1997
3,000,000 SHARES
[SUBURBAN LODGE LOGO]
SUBURBAN LODGES OF AMERICA, INC.
COMMON STOCK
All of the 3,000,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Suburban
Lodges of America, Inc. (the "Company"). The Common Stock is traded on The
Nasdaq Stock Market under the symbol "SLAM," and on September 16, 1997, the last
reported sale price was $27.13 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================
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
$325,195.
(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 NationsBanc Montgomery Securities, Inc. on or
about , 1997.
------------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION
M. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context suggests otherwise, (i) references in this Prospectus to the
"Company" or "Suburban" mean Suburban Lodges of America, Inc. and its
subsidiaries, and (ii) all information in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised.
THE COMPANY
Suburban Lodges of America, Inc. develops, owns, manages and franchises
Suburban Lodge(R) hotels, which are economy extended stay hotels designed to
appeal to value-conscious guests seeking to "Lodge for Less."(SM) The Company
believes that the Suburban Lodge chain is one of the largest lodging chains
(based on number of guest rooms and hotels) 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 hotels offer clean,
comfortable and attractive accommodations to guests at substantially lower rates
than most traditional and other extended stay hotels. Although daily rates are
available, substantially all guests pay the Company's weekly rates, which
currently range from $139 to $179 per week for single occupancy and from $159 to
$199 per week for double occupancy, for the Company's standard size room.
The extended stay segment of the lodging industry, which includes economy
extended stay hotels, is a relatively small but growing segment of the lodging
industry. 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 hotels and published
occupancy rates for other participants in the extended stay market, the Company
believes that Suburban Lodge hotels 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 owns and operates 24 Suburban Lodge hotels and franchises 12
additional Suburban Lodge hotels located in eight states (collectively, the
"Existing Hotels"). The Existing Hotels contain an aggregate of 4,812 guest
rooms, have an average of 134 guest rooms and average approximately 2.3 years in
age. The Company anticipates that an additional 24 Suburban Lodge hotels (16
Company-owned and eight franchised) will open during the remainder of 1997,
resulting in an aggregate of 60 Suburban Lodge hotels by year-end. The Company
intends to continue the growth of the Suburban Lodge chain in 1998 by opening
approximately 46 additional Suburban Lodge hotels (24 Company-owned and 22
franchised) which would result in a total of 106 Suburban Lodge hotels by the
end of 1998. There are currently 28 hotels under construction (17 Company-owned
and 11 franchised, the "Construction Hotels"), and sites have been acquired or
are under contract for 47 hotels (23 Company-owned and 24 franchised, the
"Development Hotels"). There can be no assurance that the Company and its
franchisees will be able to complete the development of all of these hotels. See
"-- Developments Since Initial Public Offering" and "Risk Factors -- Development
Risks."
The Company's business objective is to become a national provider of
economy extended stay hotels. Suburban's growth strategy is to develop
additional Company-owned hotels and to franchise the Suburban Lodge concept to
independent developers and operators as well as to passive investors who retain
the Company to develop and manage their Suburban Lodge hotels. 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 hotels; (ii)
control operating costs at each of its hotels and maintain above industry
average operating margins and (iii) ensure guest satisfaction through a
commitment to customer service.
3
<PAGE> 5
The Company believes that the following are important features of the
Suburban Lodge system and its hotels:
- LOW WEEKLY RATES. Suburban Lodge hotels offer weekly rates substantially
lower than those offered by most traditional and other extended stay
hotels. The average weekly rate for the six months ended June 30, 1997 at
all 21 Company-owned hotels open at least one month during the period was
$153.71, compared to an equivalent average weekly rate (average daily rate
multiplied by seven) of $538.65 for extended stay hotels and $274.96 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.
- LONG 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 long guest stays and high occupancies. The
average guest stay at the 11 Company-owned hotels open at least one year
as of June 30, 1997 was approximately five weeks. Suburban believes that
long-term guest stays and the Company's policies of providing weekly
rather than daily housekeeping and limited office hours produce
significant operating efficiencies.
- HIGH OCCUPANCY. Average occupancy for the six months ended June 30, 1997
at the 11 Company-owned hotels open at least one year as of the end of the
period was 93.4%, which compares favorably to the average occupancy of
79.4% for extended stay hotels and 60.1% for lower economy hotels during
the same period. Average occupancy at the 21 Company-owned hotels open at
least one month as of June 30, 1997 was 87.7% during the six month period
ended June 30, 1997.
- STANDARD DESIGN AND LOW CONSTRUCTION COSTS. Suburban Lodge hotels are
designed and built to uniform plans and specifications developed and
periodically refined since 1987. The Company believes that standardization
lowers construction costs and establishes consistent quality. The average
total investment in the seven Company-owned Existing Hotels opened during
1997 was approximately $3.7 million with a range of approximately $24,600
to $29,400 per guest room, including building structures, improvements,
furniture, fixtures, equipment, land and pre-opening costs.
- ATTRACTIVE UNIT ECONOMICS. Suburban believes its hotels have achieved
attractive unit level economics. For the three most recently completed
Company-owned Existing Hotels with at least one complete quarter of
operations as of June 30, 1997, facility level earnings before interest,
taxes and depreciation constituted 16.4% (based on annualized second
quarter results) of their total development and construction costs,
including building structures, improvements, furniture, fixtures,
equipment, land and pre-opening costs. The Company believes that its
hotels' favorable unit economics are due, in part, to the fact that
Suburban Lodge hotels reach stabilization in a relatively short period
after opening. In the past, Suburban Lodge hotels have reached 90%
occupancy within, on average, 90 days of opening.
- FRANCHISING OPPORTUNITIES. Suburban believes that the combination of its
experience in franchising, its relationships with 15 existing franchise
groups and the potential attractive return on investment for Suburban
Lodge hotels will facilitate the expansion of the Suburban Lodge chain
throughout the country.
Since 1987, the Suburban Lodge system has increased to 36 hotels and has
achieved attractive growth, operating results and returns on investment. For the
years ended December 31, 1992 through 1996, for hotels open at least one year as
of the end of such year (i) average occupancy increased from 93.7% to 94.3%;
(ii) average weekly rates increased from $115.46 to $156.47, and (iii) weekly
revenue per available room ("Weekly REVPAR") increased from $108.11 to $147.45.
For the six months ended June 30, 1997, average occupancy, average weekly rates
and Weekly REVPAR at all 21 Company-owned hotels open at least one month during
the period were 87.7%, $153.71 and $135.04, respectively. Weekly REVPAR is
determined by dividing room revenue by the number of guest room days available
for the period and multiplying by seven.
The Company was incorporated in Georgia in 1987, and its executive offices
are located at 1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339, and its
telephone number is (770) 951-9511.
4
<PAGE> 6
DEVELOPMENTS SINCE INITIAL PUBLIC OFFERING
Since the Company's initial public offering in May 1996 (the "IPO"), the
Company has continued to implement its growth strategy through the following
initiatives:
UNIT EXPANSION. The number of hotels operating in the Suburban Lodge
system has increased from 14 (eight Company-owned and six franchised) to 36 (24
Company-owned and 12 franchised), and the aggregate number of guest rooms has
increased from 1,778 to 4,812. Further, the Company and its franchisees have
begun construction of an additional 28 Suburban Lodge hotels (of which 17 are
Company-owned) and development of 47 new Suburban Lodge hotels (of which 23 are
Company-owned). The Company also has expanded the number of relationships with
franchise groups from six to 15. In addition, the Company has, on appropriate
occasions, provided secondary financing to assist franchisees in the development
and construction of their Suburban Lodge hotels. In February 1997, the Company
acquired four Suburban Lodge hotels from certain of its franchisees and their
affiliates.
INTERIOR CORRIDOR PRODUCT. In connection with the Company's expansion
outside of the southern United States, Suburban has developed an interior
corridor prototype suitable for use in colder climates. The Company opened its
first interior corridor hotel in Newport News, Virginia. Eleven of the
Construction Hotels use the interior corridor design. The Company believes that
the development and construction costs of these hotels are comparable to
recently opened exterior corridor hotels.
EXPANDED CORPORATE INFRASTRUCTURE. In order to support the Company's
recent growth, the Company increased the size of its corporate staff from 17
persons as of March 31, 1996 to 63 persons as of August 31, 1997, including an
additional 23 employees in the development and construction departments. These
new employees include site selectors, an in-house architect and a civil engineer
to help assure consistent, quality development and construction throughout the
Suburban Lodge system. The Company also hired a quality assurance manager and a
training manager in order to help maintain the quality of the Company's
operations as it grows. Additionally, in order to recruit and retain quality
personnel at all levels of the Company, Suburban implemented an Employee Stock
Purchase Plan (the "Purchase Plan") in January 1997.
ADDITIONAL FINANCINGS. In order to help fund the Company's growth, the
Company completed a public offering of $53.0 million of Common Stock in November
1996 (the "November Offering"). Additionally, the Company obtained a commitment
to increase its line of credit (the "Line of Credit") with PNC Bank, Kentucky,
Inc. ("PNC") from $25.0 million to $50.0 million and received a preliminary
agreement in July 1997 from its lenders to increase the Line of Credit to $150.0
million, which is subject to obtaining other participating lenders and the
satisfaction of certain other conditions. There can be no assurance that such
lenders will be obtained or that such conditions will be satisfied.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 3,000,000
Common Stock to be outstanding after the
Offering(1)................................... 15,129,227
Use of proceeds................................. To finance the development of additional Suburban
Lodge hotels and for working capital and other
general corporate purposes. See "Use of Proceeds."
Nasdaq Stock Market symbol...................... SLAM
</TABLE>
- ---------------
(1) Excludes (i) 750,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Option and Incentive Award Plan (the "1996 Plan")
pursuant to which options to purchase 400,000 shares have been granted, (ii)
100,000 shares reserved for issuance under the Company's Non-Employee
Directors' Stock Option and Fee Plan (the "Directors' Plan") pursuant to
which options to purchase 9,000 shares have been granted and (iii) 500,000
shares of Common Stock reserved for issuance under the Purchase Plan
pursuant to which options to purchase 262,950 shares are outstanding.
6
<PAGE> 8
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND CERTAIN OPERATING DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue................................. $ 2,184 $ 2,893 $ 3,904 $ 4,431 $ 7,754 $ 3,026 $ 8,436
Other hotel revenue.......................... 173 223 290 296 596 214 681
Franchise and other revenue.................. 194 247 151 460 916 513 451
------- ------- ------- ------- --------- --------- ----------
Total revenue.......................... 2,551 3,363 4,345 5,187 9,266 3,753 9,568
------- ------- ------- ------- --------- --------- ----------
Expenses:
Hotel operating expenses..................... 1,058 1,364 1,768 2,072 3,910 1,432 4,330
Corporate operating expenses................. 378 429 737 883 1,527 597 856
Related party consulting fees................ -- -- -- 17 10 10 --
Depreciation and amortization................ 323 372 416 460 788 247 1,103
------- ------- ------- ------- --------- --------- ----------
Total costs and expenses................... 1,759 2,165 2,921 3,432 6,235 2,286 6,289
------- ------- ------- ------- --------- --------- ----------
Operating income............................... 792 1,198 1,424 1,755 3,031 1,467 3,279
Interest income................................ -- -- -- -- 957 139 1,321
Interest expense............................... (614) (725) (936) (1,098) (556) (554) (12)
------- ------- ------- ------- --------- --------- ----------
Income before income taxes (expense) and
extraordinary income....................... 178 473 488 657 3,432 1,052 4,588
Income tax (expense) benefit(1)................ -- -- 14 20 (1,047) (153) (1,557)
Extraordinary income from early extinguishment
of debt...................................... -- -- 130 -- -- -- --
------- ------- ------- ------- --------- --------- ----------
Net income (loss)...................... $ 178 $ 473 $ 632 $ 677 $ 2,385 $ 899 $ 3,031
======= ======= ======= ======= ========= ========= ==========
Earnings per common share(2)................... $ 0.25
Pro forma earnings per share(2)................ $ 0.31 $ 0.14
Weighted average shares outstanding(2)......... 6,923,956 4,603,957 11,930,781
CASH FLOW DATA:
EBITDA(3)...................................... $ 1,115 $ 1,570 $ 1,840 $ 2,215 $ 3,819 $ 1,714 $ 4,382
Cash flows provided by (used in):
Operating activities......................... 399 879 929 1,305 3,369 1,384 3,370
Investing activities......................... (15) (2,349) (651) (4,791) (36,357) (18,282) (31,405)
Financing activities......................... (273) 1,561 (238) 3,707 110,641 43,391 (12,500)
OPERATING DATA:
Number of hotels open at end of period:
Company-owned................................ 3 5 5 6 14 9 22
Franchised................................... 3 3 4 6 10 8 9
------- ------- ------- ------- --------- --------- ----------
System-wide............................ 6 8 9 12 24 17 31
======= ======= ======= ======= ========= ========= ==========
Company-owned hotels(4):
Occupancy.................................... 92.9% 95.5% 97.7% 95.8% 89.2% 96.0% 87.7%
Average weekly rate.......................... $116.59 $121.96 $128.69 $136.77 $155.35 $148.13 $153.71
Weekly REVPAR(5)............................. $108.27 $116.47 $125.74 $130.93 $136.81 $141.94 $135.04
Franchised hotels(4):
Occupancy.................................... 85.9% 96.8% 98.9% 93.2% 86.8% 92.5% 84.4%
Average weekly rate.......................... $119.15 $123.21 $131.03 $146.34 $167.77 $160.61 $166.86
Weekly REVPAR(5)............................. $101.57 $119.23 $129.59 $135.44 $144.32 $146.75 $139.76
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................................... $ 37,805 $114,800
Total assets.................................................................................. 142,973 219,968
Long-term debt................................................................................ 15,000 15,000
Shareholders' equity.......................................................................... 125,724 202,719
</TABLE>
(Notes on following page)
7
<PAGE> 9
- ---------------
(1) Historical financial data for the four years ended December 31, 1995 and the
period from January 1, 1996 to the date of the IPO does not include a
provision for income taxes for the limited liability companies and
partnerships which owned the hotels (the "Affiliated Entities") prior to the
IPO because these entities were 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") for all
periods subsequent to the date of the IPO.
(2) Earnings per common share for the six month period ended June 30, 1997 was
computed by dividing net income by the weighted average shares outstanding
for the period.
Prior to May 28, 1996, the assets of the Company were owned and operated by
Suburban Lodges of America, Inc. and its affiliates and the Affiliated
Entities. The outstanding shares or other equity interests of those entities
differed substantially from the shares of common stock of the Company
outstanding after the IPO. Accordingly, the Company believes that the
presentation of historical per share information for the periods prior to
the six months ended June 30, 1997 is not meaningful.
The pro forma earnings per share of $0.14 per share for the six month period
ended June 30, 1996 and $0.31 per share for the year ended December 31, 1996
have been calculated by dividing income before income taxes by the weighted
average number of shares of Common Stock deemed to be outstanding during the
period. Income before tax has been adjusted to provide for income taxes
(approximately $395,000 and $1,287,000 for the six month period ended June
30, 1996 and the year ended December 31, 1996, respectively) assuming a
37.5% effective tax rate. Prior to May 29, 1996, the Company was not fully
subject to income taxes because its predecessors included partnerships and
limited liability companies; however, if they had been subject to income
taxes, pro forma net income after taxes would have been approximately
$657,000 and $2,145,000 for the six month period ended June 30, 1996 and the
year ended December 31, 1996, respectively, assuming a 37.5% effective tax
rate.
(3) EBITDA represents income 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.
Additionally, EBITDA as presented may not be comparable to similarly titled
measures reported by other companies. Management's discretionary use of the
funds depicted by EBITDA may be limited by working capital requirements,
debt service, capital expenditures and other restrictions related to legal
requirements, commitments and uncertainties. See "Dividend Policy."
(4) Information for the 12 months ended December 31, 1996 and for the six month
periods ended June 30, 1996 and 1997 is provided from the beginning of the
first calendar month following the date of opening or acquisition of each
hotel, and all other information is presented from the date of opening or
acquisition.
(5) Weekly REVPAR is determined by dividing room revenue by the number of guest
room days available for the period and multiplying by seven.
(6) The as adjusted balance sheet data is presented as if the sale of 3,000,000
shares offered hereby by the Company (at an assumed public offering price of
$27.13 per share) and the application of the net proceeds therefrom had
occurred on June 30, 1997. See "Use of Proceeds."
8
<PAGE> 10
RISK FACTORS
Certain statements in this Prospectus, including projections with respect
to the number of hotels and statements included under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things,
uncertainty as to the Company's future profitability; the ability to meet
construction and development schedules and budgets; the ability to develop and
implement operational and financial systems to manage rapidly growing
operations; the uncertainty as to the consumer demand for economy extended stay
lodging; increasing competition in the extended stay lodging market; the ability
to obtain financing on acceptable terms to finance the Company's growth
strategy; the ability of the Company to operate within the limitations imposed
by financing arrangements; and other factors referenced in this Prospectus.
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 hotels. 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. For example, as the Company has expanded, it has begun to
rely on union contractors and subcontractors in certain markets for the
construction of hotels, which may result in increased construction costs and
delays for such hotels. 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 16 Company-owned hotels during the
remainder of 1997, to complete construction of approximately 24 Company-owned
hotels in 1998 and to continue an active development program thereafter. There
can be no assurance that the Company will be able to complete all of these
hotels or do so on a timely basis or within budget. As of the date of this
Prospectus, the hotels currently expected to open in 1998 are in various stages
of construction, development or planning, and the Company has acquired or has an
option to acquire the sites for 24 of these hotels.
In general, the Company takes approximately 12 months to develop a Suburban
Lodge hotel, including seven to eight months devoted to construction. The
Company anticipates that the total cost of each of the 17 Company-owned hotels
under construction, including building structures, improvements, furniture,
fixtures, equipment, land and pre-opening costs, will be approximately $3.9
million (or approximately $29,000 per guest room). The Company anticipates the
total aggregate cost to complete construction of all of the Company-owned
Construction Hotels will be approximately $66.0 million, of which approximately
$15.9 million had already been spent as of June 30, 1997. The Company
anticipates that it will cost an additional $95.7 million to open the 24
Company-owned hotels expected to open during 1998. In the past, Suburban Lodge
hotels have, on average, reached 90% occupancy within 90 days of opening;
however, there can be no assurance that each new hotel will obtain such
occupancy level 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 responsibili-
9
<PAGE> 11
ties 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 hotels, new Company-owned and franchised hotels 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
hotels the Company constructs and the cash flow generated by its hotels. The
Company has obtained a commitment from PNC to increase the Line of Credit to
$50.0 million and received a preliminary agreement in July 1997 from its lenders
to increase the Line of Credit to $150.0 million, which is subject to obtaining
other participating lenders and the satisfaction of certain other conditions.
There can be no assurance that such commitments will be obtained or such
conditions will be satisfied. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." The terms of any additional financing the Company may be able to
procure are unknown at this time. Any future debt financing 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 $3.0
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 18.7% 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 24.4% of the outstanding shares of Common Stock. By reason of
such holdings, these shareholders acting as a group will be able to exercise
significant influence over the affairs and policies of the Company, including
the election of the Company's Board of Directors. Subject to the limitations
contained in the Line of Credit, the Board of Directors will control the
declaration and determination of the size of dividends. See "Dividend Policy."
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
The economy extended stay segment of the lodging industry, in which the
Company operates, may be adversely affected by changes in national or local
economic conditions and other local market conditions, such as an oversupply of
lodging or a reduction in demand for lodging in a geographic area, changes in
travel patterns, extreme weather conditions, changes in governmental regulations
which influence or determine wages, prices, construction costs or methods of
operation, changes in interest rates, the availability of financing for
operating or capital needs and changes in real estate tax rates and other
operating expenses. In addition, due in part to the strong correlation between
the lodging industry's performance and economic conditions, the lodging industry
is subject to cyclical changes in revenues and profits. These risks may be
exacerbated by the relatively illiquid nature of real estate holdings. Downturns
or prolonged adverse conditions in real estate or capital markets or in national
or local economies or the inability of the Company to dispose of an investment
when it finds disposition to be advantageous or necessary could have a material
adverse effect on the Company.
10
<PAGE> 12
COMPETITION IN THE LODGING INDUSTRY
The lodging industry is highly competitive. Competitive factors within the
industry include room rates, quality of accommodations, name recognition, supply
and availability of alternative lodging (including short-term lease apartments),
service levels, reputation, reservation systems and convenience of location.
Each of the Existing Hotels and the Construction Hotels is located, and each of
the Development Hotels will be located, in a developed area that includes
competing hotels. The number of competitive hotels in a particular area could
have a material adverse effect on occupancy, average weekly rates and Weekly
REVPAR of the Existing Hotels and the Construction Hotels or hotels 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 are developing extended stay hotels which compete
with the Company's hotels. In particular, some of these entities have targeted
the economy segment of the extended stay market in which the Company competes.
The Company competes 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 hotels 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 hotels 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 hotels and the income from the hotels 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 hotels, 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 Hotels
Suburban maintains comprehensive insurance on each of its hotels, 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 hotels 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
11
<PAGE> 13
insurance proceeds to replace a hotel 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 hotel.
COMPETITION FOR AND DEPENDENCE ON FRANCHISEES
One of the Company's sources of revenue is franchise agreements with hotel
owners. The Company competes with national and regional brand franchisors, most
of which have greater name recognition and financial resources than the Company.
Competition for franchisees is intense among national brand franchisors in the
lodging industry. Suburban believes that its ability to attract a franchisee is
based principally upon both the perceived value and quality of its brand name
and services and the potential economic advantages to the hotel owner of
retaining the Company's brand name. The Company believes that the perceived
value of a brand name to a hotel owner is in part a function of the success of
the hotels 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-hotel 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
hotels. See "Business -- Business Strategy -- Growth Strategy" and
"Business -- Franchise, Development and Management Agreements."
MARKET CONCENTRATION
Nineteen of the 36 Existing Hotels are located in the State of Georgia, and
17 of such hotels are located in metropolitan Atlanta. See "Business -- The
Hotels." Therefore, adverse events or conditions which affect those areas
particularly (such as natural disasters or adverse changes in local economic
conditions) could have a pronounced negative impact on the operations of the
Company. The Line of Credit contains limitations on the Company's ability to
expand in the Atlanta, Georgia and Charlotte, North Carolina areas. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
IMPACT OF ENVIRONMENTAL REGULATIONS
Suburban's operating costs may be affected by the obligation to pay for the
cost of complying with existing environmental laws, ordinances and regulations.
In addition, in the event any future legislation is adopted, the Company may
from time to time be required to make significant capital and operating
expenditures in response to such legislation. Suburban attempts to minimize its
exposure to potential environmental liability through its site selection
procedures. The Company typically secures an option to purchase land subject to
certain contingencies. Prior to exercising such option and purchasing the
property, the Company conducts a Phase I environmental assessment (which
generally involves a physical inspection and database search, but not soil or
groundwater analyses). Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws often impose
liability whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
contamination from hazardous or toxic substances, or the failure to remediate
properly such contaminated property, may materially adversely affect the owner's
ability to use or sell such real property or to borrow using such real property
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether such facility is
or ever was owned or operated by such person. Certain environmental laws and
common-law principles could be used to impose liability for releases of
hazardous materials, including asbestos-containing materials ("ACMs"), into the
environment, and third parties may seek recovery from owners or operators of
real properties for personal injury associated with exposure to released ACMs or
other hazardous materials. Environmental laws may also impose restrictions on
the manner in which property may be used or transferred or in which businesses
may be
12
<PAGE> 14
operated, and these restrictions may require expenditures. In connection with
the ownership and operation of its hotels, 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
hotels, 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 hotels. 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.
The initial Phase I groundwater sampling at the Construction Hotel in
Columbia (Broad River), South Carolina discloses evidence of a dry-cleaning
solvent in the groundwater. The likely source of the solvent is a dry-cleaning
facility located 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 operations of the Company.
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. For example, certain communities in the Atlanta metropolitan area
have recently enacted new zoning ordinances restricting the development of new
extended stay hotels. To date, such ordinances have not had an adverse effect on
the Company's business; however, the enactment of new ordinances in other
jurisdictions in which the Company intends to develop hotels may have an adverse
effect on the Company's expansion plans. Additionally, 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
Hotels and the Construction Hotels 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
hotels, including changes to building codes and fire and life-safety codes, may
occur. If the Company were required to make substantial modifications at its
hotels to comply with the ADA or other changes in governmental rules and
regulations, the Company's financial condition and ability to develop new hotels
could be materially adversely affected.
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
1998, 1999 and 2000. 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
13
<PAGE> 15
in such shareholders' best interests. 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.
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,
which, in general, impose restrictions upon acquirors of 10% 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.
Rights Agreement
The Company's Board of Directors has adopted a Rights Agreement (the
"Rights Agreement"). Pursuant to the terms of the Rights Agreement, one right (a
"Right") has been issued in respect of each outstanding share of Common Stock,
and one Right will be issued in respect of each share of Common Stock issued in
the Offering. Rights will also attach to shares of Common Stock issued after the
Offering but prior to the date on which the Rights are distributed pursuant to
the terms of the Rights Agreement. Each Right will entitle the holder thereof to
purchase a fraction of a share of the Company's Series A Participating
Cumulative Preferred Stock or, in certain instances, Common Stock or stock of
the Acquiring Person (as defined below) if, in most instances (i) a third party
or group (an "Acquiring Person") acquires beneficial ownership of 15% or more of
the Common Stock or (ii) a tender or exchange offer that would result in a
person or group becoming an Acquiring Person is commenced. The Rights Plan will
be in effect through May 2006 and could have the effect of discouraging offers
or other bids for the Common Stock at a premium over the market price thereof.
LIMITED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock has traded on The Nasdaq Stock Market since May 1996 and
has a limited public market history. There can be no assurance that future
market prices for the shares will equal or exceed the price to public set forth
on the cover page of this Prospectus. The price at which the Common Stock trades
depends upon a number of factors, including, but not limited to, the performance
of the Company, the Company's historical and anticipated operating results, the
trading volume in the Common Stock and general market and economic conditions,
some of which factors are beyond the Company's control. Factors, such as
quarterly fluctuations in the Company's or its competitors' financial and
operating results and developments affecting the Company, its customers or the
industry generally, could also cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations which have affected the market
price of many companies and which have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Common Stock. See "Price Range of Common Stock"
and "Underwriting."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $77.0 million ($88.6 million if the Underwriters' over-allotment
option is exercised in full), based upon an estimated public offering price of
$27.13 per share, the last reported sale price of the Common Stock on The Nasdaq
Stock Market on September 16, 1997. The Company intends to use such net proceeds
to develop additional Suburban Lodge hotels and for working capital and other
general corporate purposes. Pending use of the net proceeds as set forth above,
the net proceeds will be invested in interest-bearing, short-term, investment
grade securities or money market accounts. Such investments may include, for
example, government and government agency securities, prime rated commercial
paper, 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 prohibits the Company
from paying dividends in most circumstances, and future financing arrangements
may impose minimum net worth covenants and other limitations that could restrict
the Company's right to pay dividends. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
15
<PAGE> 17
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on The Nasdaq Stock Market under the symbol
"SLAM." The Common Stock began trading on May 23, 1996. The last reported sale
price of the Common Stock on The Nasdaq Stock Market on September 16, 1997 was
$27.13. The following table sets forth for the periods indicated the high and
low closing sale prices of the Common Stock, as reported on The Nasdaq Stock
Market. As of September 16, 1997, there were approximately 73 holders of record
and 1,970 beneficial owners of the Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE
----------------
HIGH LOW
------- ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Second Quarter (since May 23, 1996)....................... $26.75 $19.63
Third Quarter............................................. 24.63 17.50
Fourth Quarter............................................ 24.50 15.25
YEAR ENDING DECEMBER 31, 1997
First Quarter............................................. 21.63 15.63
Second Quarter............................................ 22.50 15.50
Third Quarter (through September 16, 1997)................ 27.13 18.25
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to reflect the sale by the Company of 3,000,000 shares
of Common Stock at an assumed public offering price of $27.13 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 financial statements of the Company and the related
notes thereto, which are incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. $15,000 $ 15,000
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; 12,129,227 shares issued and
outstanding; 15,129,227 shares issued and outstanding,
as adjusted(1)......................................... 121 151
Additional paid-in capital.................................. 120,558 197,523
Retained earnings........................................... 5,045 5,045
-------- --------
Total shareholders' equity............................. 125,724 202,719
-------- --------
Total capitalization.............................. $140,724 $217,719
======== ========
</TABLE>
- ---------------
(1) Excludes (i) 750,000 shares of Common Stock reserved for issuance under the
1996 Plan pursuant to which options to purchase 400,000 shares are
outstanding, (ii) 100,000 shares reserved for issuance under the Directors'
Plan pursuant to which options to purchase 9,000 shares are outstanding and
(iii) 500,000 shares of Common Stock reserved for issuance under the
Purchase Plan pursuant to which options to purchase 262,950 shares are
outstanding.
16
<PAGE> 18
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES
(IN THOUSANDS, EXCEPT SHARE AND CERTAIN OPERATING DATA)
The selected consolidated financial data set forth below (except EBITDA and
operating data) has been derived from the historical consolidated financial
statements of Suburban Lodges of America, Inc. and Affiliated Entities. The
historical consolidated financial statements of Suburban Lodges of America, Inc.
and Affiliated Entities for the three years ended December 31, 1996 have been
audited by Deloitte & Touche LLP, independent accountants, whose reports thereon
are incorporated by reference. The selected data for 1992 and the six month
periods ended June 30, 1996 and 1997 have been derived from the unaudited
consolidated financial statements of Suburban Lodges of America, Inc. 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 consolidated historical
results for the six months ended June 30, 1996 and 1997 are not necessarily
indicative of the results for a full year. These selected consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements and related notes thereto of Suburban Lodges of America,
Inc. and Affiliated Entities incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Room revenue................................. $ 2,184 $ 2,893 $ 3,904 $ 4,431 $ 7,754 $ 3,026 $ 8,436
Other hotel revenue.......................... 173 223 290 296 596 214 681
Franchise and other revenue.................. 194 247 151 460 916 513 451
------- ------- ------- ------- --------- --------- ----------
Total revenue.......................... 2,551 3,363 4,345 5,187 9,266 3,753 9,568
------- ------- ------- ------- --------- --------- ----------
Expenses:
Hotel operating expenses..................... 1,058 1,364 1,768 2,072 3,910 1,432 4,330
Corporate operating expenses................. 378 429 737 883 1,527 597 856
Related party consulting fees................ -- -- -- 17 10 10 --
Depreciation and amortization................ 323 372 416 460 788 247 1,103
------- ------- ------- ------- --------- --------- ----------
Total expenses............................. 1,759 2,165 2,921 3,432 6,235 2,286 6,289
------- ------- ------- ------- --------- --------- ----------
Operating income............................... 792 1,198 1,424 1,755 3,031 1,467 3,279
Interest income................................ -- -- -- -- 957 139 1,321
Interest expense............................... (614) (725) (936) (1,098) (556) (554) (12)
------- ------- ------- ------- --------- --------- ----------
Income (loss) before income taxes and
extraordinary income....................... 178 473 488 657 3,432 1,052 4,588
Income taxes (benefit)(1)...................... -- -- (14) (20) 1,047 (153) (1,557)
Extraordinary income from early extinguishment
of debt...................................... -- -- 130 -- -- -- --
------- ------- ------- ------- --------- --------- ----------
Net income (loss)...................... $ 178 $ 473 $ 632 $ 677 $ 2,385 $ 899 $ 3,031
======= ======= ======= ======= ========= ========= ==========
Earnings per common share(2)................... $ 0.25
Pro forma earnings per share(2)................ $ 0.31 $ 0.14
Weighted average shares outstanding(2)......... 6,923,956 4,603,957 11,930,781
CASH FLOW DATA:
EBITDA(3)...................................... $ 1,115 $ 1,570 $ 1,840 $ 2,215 $ 3,819 $ 1,714 $ 4,382
Cash flows provided by (used in):
Operating activities......................... 399 879 929 1,305 3,369 1,384 3,370
Investing activities......................... (15) (2,349) (651) (4,791) (36,357) (18,282) (31,405)
Financing activities......................... (273) 1,561 (238) 3,707 110,641 43,391 (12,500)
</TABLE>
(Notes on following page)
17
<PAGE> 19
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Number of hotels open at end of period:
Company-owned................................ 3 5 5 6 14 9 22
Franchised................................... 3 3 4 6 10 8 9
------- ------- ------- ------- --------- --------- ----------
System-wide............................ 6 8 9 12 24 17 31
======= ======= ======= ======= ========= ========= ==========
Company-owned hotels(4):
Occupancy.................................... 92.9% 95.5% 97.7% 95.8% 89.2% 96.0% 87.7%
Average weekly rate.......................... $116.59 $121.96 $128.69 $136.77 $155.35 $ 148.13 $ 153.71
Weekly REVPAR(5)............................. $108.27 $116.47 $125.74 $130.93 $136.81 $ 141.94 $ 135.04
Franchised hotels(4):
Occupancy.................................... 85.9% 96.8% 98.9% 93.2% 86.8% 92.5% 84.4%
Average weekly rate.......................... $119.15 $123.21 $131.03 $146.34 $167.77 $ 160.61 $ 166.86
Weekly REVPAR(5)............................. $101.57 $119.23 $129.59 $135.44 $144.32 $ 146.75 $ 139.76
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 337 $ 428 $ 467 $ 687 $ 78,340 $ 27,181 $ 37,805
Total assets................................... 5,872 9,097 9,640 15,004 131,000 60,432 142,973
Long-term debt................................. 6,258 9,357 10,072 13,818 15,000 -- 15,000
Shareholders' equity........................... (623) (512) (692) 100 112,194 57,961 125,724
</TABLE>
---------------
(1) Historical financial data for the four years ended December 31, 1995 and the
period from January 1, 1996 to the date of the IPO does not include a
provision for income taxes for the Affiliated Entities because these
entities were 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") for all periods
subsequent to the date of the IPO.
(2) Earnings per common share for the six month period ended June 30, 1997 was
computed by dividing net income by the weighted average shares outstanding
for the period.
Prior to May 28, 1996, the assets of the Company were owned and operated by
Suburban Lodges of America, Inc. and its affiliates and the Affiliated
Entities. The outstanding shares or other equity interests of those entities
differed substantially from the shares of common stock of the Company
outstanding after the IPO. Accordingly, the Company believes that the
presentation of historical per share information for the periods prior to
the six months ended June 30, 1997 is not meaningful.
The pro forma earnings per share of $0.14 per share for the six month period
ended June 30, 1996 and $0.31 per share for the year ended December 31, 1996
have been calculated by dividing income before income taxes by the weighted
average number of shares of Common Stock deemed to be outstanding during the
period. Income before tax has been adjusted to provide for income taxes
(approximately $395,000 and $1,287,000 for the six month period ended June
30, 1996 and the year ended December 31, 1996, respectively) assuming a
37.5% effective tax rate. Prior to May 29, 1996, the Company was not fully
subject to income taxes because its predecessors included partnerships and
limited liability companies; however, if they had been subject to income
taxes, pro forma net income after taxes would have been approximately
$657,000 and $2,145,000 for the six month period ended June 30, 1996 and the
year ended December 31, 1996, respectively, assuming a 37.5% effective tax
rate.
(3) EBITDA represents income 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.
Additionally, EBITDA as presented may not be comparable to similarly titled
measures reported by other companies. Management's discretionary use of the
funds depicted by EBITDA may be limited by working capital requirements,
debt service, capital expenditures and other restrictions related to legal
requirements, commitments and uncertainties. See "Dividend Policy."
(4) Information for the 12 months ended December 31, 1996 and for the six month
periods ended June 30, 1996 and 1997 is provided from the beginning of the
first calendar month following the date of opening or acquisition of each
hotel, and all other information is presented from the date of opening or
acquisition.
(5) Weekly REVPAR is determined by dividing room revenue by the number of guest
room days available for the period and multiplying by seven.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Formed in 1987, the Company presently owns and operates 24 Suburban Lodge
hotels and franchises 12 additional Suburban Lodge hotels located in eight
states. These Existing Hotels contain an aggregate of 4,812 guest rooms, have an
average of 134 guest rooms and average approximately 2.3 years in age. The
Company anticipates that an additional 24 Suburban Lodge hotels (16
Company-owned and eight franchised) will open during the remainder of 1997,
resulting in an aggregate of 60 Suburban Lodge hotels by year-end. The Company
intends to continue the growth of the Suburban Lodge chain in 1998 by opening
approximately 46 additional Suburban Lodge hotels (24 Company-owned and 22
franchised), which would result in a total of 106 Suburban Lodge hotels by the
end of 1998. There are currently 28 hotels under construction (17 Company-owned
and 11 franchised), and sites have been acquired or are under contract for 47
additional hotels (23 Company-owned and 24 franchised). There can be no
assurance that the Company and its franchisees will be able to complete the
development of all of these hotels. See "Prospectus Summary -- Developments
Since Initial Public Offering" and "Risk Factors -- Development Risks."
The Company's growth strategy is to develop additional Company-owned hotels
and to franchise the Suburban Lodge concept to independent developers and
operators, as well as to passive investors who retain the Company to develop and
manage their Suburban Lodge hotels. The Company has obtained a Line of Credit to
fund future development projects and for working capital. Suburban's principal
operating strategies are to (i) provide its guests with clean, comfortable and
attractive accommodations at weekly rates substantially lower than those offered
by most traditional and other extended stay hotels; (ii) control operating costs
at each of its hotels 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 Hotels, the Company's growth is expected to be
generated principally by the development of new Company-owned and franchised
Suburban Lodge hotels.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated historical operating
information for Suburban Lodges of America, Inc. and Affiliated Entities, as a
percentage of total revenue, for the periods indicated.
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES(1)
---------------------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Room revenue........................................... 89.9% 85.4% 83.7% 80.7% 88.2%
Other hotel revenue.................................... 6.7 5.7 6.4 5.7 7.1
Franchise and other revenue............................ 3.4 8.9 9.9 13.6 4.7
----- ----- ----- ----- -----
Total revenue................................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Hotel operating expenses............................... 40.7 40.0 42.2 38.1 45.3
Corporate operating expenses and related party
consulting fees...................................... 17.0 17.3 16.6 16.2 8.9
Depreciation and amortization.......................... 9.6 8.9 8.5 6.6 11.5
----- ----- ----- ----- -----
Total expenses............................... 67.3 66.2 67.3 60.9 65.7
----- ----- ----- ----- -----
Operating income....................................... 32.7% 33.8% 32.7% 39.1% 34.3%
===== ===== ===== ===== =====
</TABLE>
(Note on following page)
19
<PAGE> 21
The following table sets forth certain information with respect to hotel
level operating performance for the periods indicated, which the Company
believes to be important in assessing its operating performance.
<TABLE>
<CAPTION>
SUBURBAN LODGES OF AMERICA, INC.
AND AFFILIATED ENTITIES(1)
---------------------------------------
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Hotel operating expenses as a percentage of room
revenue and other hotel revenue...................... 42.2% 43.8% 46.8% 44.2% 47.5%
Hotel operating margin................................. 57.8 56.2 53.2 55.8 52.5
----- ----- ----- ----- -----
Total........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Information for the Forest Park hotel is included in the data from the date
of its acquisition by the Company in May 1996.
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996
Total revenue for the six months ended June 30, 1997 was approximately
$9,568,000, which was an increase of $5,815,000, or 154.9%, over the six month
period ended June 30, 1996. Room revenue for the period increased by
approximately $5,410,000, of which approximately $5,531,000 was attributable to
the opening and year to date results for the 11 hotels which opened and the one
hotel acquired during or after the quarter ended June 30, 1996, and the partial
year to date room revenue for the four hotels acquired in February 1997. In
addition, hotels open throughout both periods experienced a decrease in room
revenue of $121,000, reflecting a 3.2% decrease in occupancy and a 1.3% decrease
in average weekly rate ("AWR"). The decrease in revenue relates primarily to the
temporary impact of opening additional Company-owned hotels in cities in which
the Company had existing hotels. The increase in total room revenue reflects a
3.8% increase in AWR for all Company hotels from $148.13 to $153.71, which
resulted from rate increases at some existing hotels as well as the overall
impact of additional deluxe rooms available at all of the hotels opened after
June 30, 1996.
Franchise and other revenue from corporate operations for the six month
period ended June 30, 1997, which includes management, franchise and development
revenue, was approximately $451,000, compared to $513,000 for the six month
period ended June 30, 1996. Franchise revenue for the period increased $104,000,
or 65.0%, from $160,000 in 1996 to $264,000 in 1997. The additional franchise
revenue reflects initial franchise fees on four new Suburban Lodge hotels opened
in 1997, and increased royalties on open hotels, which was partially offset by a
decrease in franchise revenue due to the acquisition of four franchised hotels.
Development and construction revenue decreased approximately $119,000 due to the
Company's focus on development of Company-owned hotels since June 30, 1996.
Hotel operating expenses increased $2,898,000, or approximately 202.4%, to
$4,330,000 for the six month period ended June 30, 1997, from $1,432,000 for the
six month period ended June 30, 1996. The majority of this increase, or
$2,741,000, reflects the opening and full year to date expenses for 11 hotels
opened and the one hotel acquired after the quarter ended March 31, 1996, and
the partial year to date expenses for the four hotels acquired in February 1997.
In addition, hotels opened throughout both periods experienced an increase in
operating expenses of $157,000. Hotel operating margins decreased from 55.8% to
52.5% from June 30, 1996 to June 30, 1997, due primarily to lower revenues and
fixed operating costs associated with new hotels which opened after June 30,
1996.
Depreciation and amortization increased from $247,000 to $1,104,000,
principally as a result of the 14 hotels opened or acquired after June 30, 1996.
Corporate operating expenses increased $259,000, or approximately 43.4%, to
$856,000, due to additional staffing in the financial, management and
development segments of the business, legal and professional fees associated
with being a public company and executive compensation and benefit plans.
20
<PAGE> 22
Interest income during the six month period ended June 30, 1997 increased
to $1,322,000 from $139,000 during the six month period ended June 30, 1996. The
increase is attributable primarily to the interest earned on available proceeds
from both the IPO and the November Offering.
Interest expense during the six month period ended June 30, 1997 decreased
to $13,000 from $554,000 during the six month period ended June 30, 1996. The
decrease is primarily attributable to the use of a portion of the net proceeds
from the IPO to retire all of the then existing debt.
Income tax expense increased by $1,494,000 as compared to 1996, because the
Company became a taxable entity on May 29, 1996.
Comparison of the year ended December 31, 1996 to the year ended December 31,
1995
Total revenue for the year ended December 31, 1996 was approximately
$9,266,000 which was an increase of $4,079,000, or 78.6%, over the year ended
December 31, 1995. Room revenue for the period increased by approximately
$3,322,000 of which approximately $3,124,000 was attributable to the opening and
full year to date results of the Matthews hotel which opened in August 1995, and
the partial year room revenue for hotels which opened in 1996, as well as the
acquisition of the Forest Park hotel in May 1996. In addition, approximately
$198,000 of the increase in revenue was attributable to hotels open throughout
both periods, reflecting a 4.9% increase for the year. The increase in total
room revenue resulted from a 13.6% increase in AWR from $136.77 to $155.35,
which reflects additional revenue at two hotels as a result of the 1996 Olympic
Games and an increase in the availability of deluxe rooms at the hotels which
opened in 1996. Overall occupancy declined by 8% to 89% because of the ramp-up
period associated with the seven new hotels opened in 1996.
Franchise and other revenue from corporate operations for the year ended
December 31, 1996 which includes management, franchise and development revenue,
was approximately $917,000, an increase of $456,000, or approximately 98.9%,
over the year ended December 31, 1995. Franchise revenue for the year increased
$224,000, or approximately 106.6%, from $210,000 in 1995 to $434,000 in 1996.
The additional franchise revenue reflects initial franchise fees on nine new
Suburban Lodge hotels opened in 1996 (including four of the 16 hotels acquired
concurrently with the IPO (the "Corporate Organization")) and increased
royalties on open hotels. Development and construction revenue increased
approximately $232,000 due to the accelerated development of additional hotels
during 1996, including fees related to four properties to be developed on behalf
of third party investors.
Hotel operating expenses increased $1,837,000, or approximately 88.7%, to
$3,910,000 for the year ended December 31, 1996 from $2,072,000 for the year
ended December 31, 1995. The majority of this increase, or approximately
$1,560,000, reflects the opening and full year expenses for the Matthews hotel
and the partial year expenses for the hotels which opened in 1996, and the
expenses for the Forest Park hotel. The balance of the increase in hotel
operating expenses of $277,000 is related to increases in expenses at hotels
open during the entire period for both years. Depreciation and amortization
increased $328,000, or approximately 71.4%, principally as a result of the
hotels opened in 1996 and the acquisition of the Forest Park hotel. In addition,
the Company incurred loan amortization costs associated with the Line of Credit.
Facility operating margins decreased from 56.2% to 53.2% from December 31, 1995
to December 31, 1996, due primarily to fixed operating costs associated with new
hotels opened in 1996.
Corporate operating expenses increased $645,000, or approximately 73.1%, to
$1,527,000 due to additional staffing in the financial, management and
development segments of the business, legal and professional fees associated
with being a public company and executive compensation and benefit plans.
Interest expense for the year ended December 31, 1996 decreased to $556,000 from
$1,098,000 for the year ended December 31, 1995. The decrease is primarily
attributable to the use of a portion of the net proceeds from the IPO to retire
all the then existing debt.
Interest income for the year was approximately $956,000 which was primarily
earned on available proceeds from both the IPO and the November Offering.
21
<PAGE> 23
Income tax expense increased by $1,067,000 as compared to 1995, because the
Company became a taxable entity in 1996.
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
$5,187,000, which was an increase of $843,000, or 19.4%, 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 hotel in August 1995 and $174,000 was attributable to hotels open
throughout both periods. The increase in room revenue for hotels 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 AWR from $128.69 to
$136.19, which was partially offset by a slight decrease in occupancy.
Franchise and other revenue from corporate operations for the year ended
December 31, 1995, which includes management, construction and development
revenue, was approximately $460,000, an increase of $309,000, or approximately
205.0%, over the year ended December 31, 1994. Franchise revenue for the period
increased $96,000, or approximately 98.0%, from $98,000 in 1994 to $194,000 in
1995. The additional franchise revenue reflects two initial franchise fees for
hotels which opened in 1995, and increased royalties on open hotels as a result
of increases in revenue at these hotels. The franchise component of the
Company's business produces a high return as a result of its relatively small
incremental overhead. 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.
Hotel 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 hotel. The balance of
the increase in hotel operating expenses of $138,000 is related to increases in
expenses at hotels 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
primary 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 hotel.
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 hotel. As of December 31, 1995, the Company had
outstanding indebtedness on six hotels of $10,668,000. The Company's policy is
to capitalize interest expense incurred in connection with the construction and
development of Suburban Lodge hotels prior to their opening dates.
Liquidity and Capital Resources
The Company applied a portion of the net proceeds from the IPO to the
repayment of approximately $21.0 million in debt, plus accrued interest, and
paid approximately $7.6 million in connection with the acquisition of certain
hotels as part of the Corporate Organization, leaving approximately $30.0
million available for development of additional Suburban Lodge hotels and
general corporate purposes.
On November 25, 1996, the Company received approximately $53.0 million in
net proceeds in connection with the November Offering. Since the IPO, the
Company has used the remaining net proceeds from the IPO,
22
<PAGE> 24
the November Offering, and cash flow from operations to fund development and
construction of additional hotels and for working capital. As of September 15,
1997, the Company had outstanding indebtedness of $30.0 million from PNC. On
February 28, 1997, the Company acquired four Suburban Lodge hotels from certain
of its franchisees and their affiliates and utilized approximately $12.5 million
in cash to pay off the existing debt related to such hotels. As of June 30,
1997, the Company had approximately $38.0 million in cash and cash equivalents.
These funds are targeted for future acquisitions and construction and
development of additional hotels.
The Company anticipates that the total cost to complete construction of the
Company-owned Construction Hotels will be approximately $66.0 million, of which
approximately $15.9 million had already been spent as of June 30, 1997. The
Company intends to fund the development and construction of these hotels with
existing cash balances, proceeds from the Offering, cash flow from operations
and borrowings under the Line of Credit. While the Company anticipates that
there may be some markets where, due to a number of factors (such as the
increased cost of using union subcontractors), its development costs will be
higher, overall the Company anticipates that in the immediate future a typical
136-guest room Suburban Lodge hotel will cost approximately $3.9 million
(approximately $29,000 per guest room).
The Company has obtained a commitment from PNC to increase the Line of
Credit to $50.0 million and a preliminary agreement from its lenders to increase
the Line of Credit to $150.0 million, which is subject to obtaining other
participating lenders and the satisfaction of other conditions. As of September
15, 1997, the Company had outstanding indebtedness of $30.0 million from PNC.
The Line of Credit matures March 31, 1999, and bears interest, at the Company'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 items, the incurrence of indebtedness, the sale of assets, the incurrence
of liens, the concentration of hotel locations and the payment of any cash
dividends. In addition, the Company is required to satisfy, among other items,
certain financial performance criteria, including minimum net worth levels and
minimum levels of earnings before interest, taxes, depreciation and
amortization. As of June 30, 1997, the Company had $35.0 million available under
the Line of Credit.
In the future, the Company may seek to increase the amount of its credit
facilities, negotiate additional credit facilities or issue corporate debt or
equity securities. Any debt incurred or issued by the Company may be secured or
unsecured, fixed or variable rate interest and may be subject to such terms as
the Board of Directors of the Company deems prudent.
The Company believes that existing cash balances, cash generated from
operations, the net proceeds from the Offering and borrowings under the Line of
Credit will be sufficient to complete the construction of the 24 Company-owned
hotels expected to open during the next 12 months. However, additional capital
will be necessary for the Company to execute its long-term development plans.
SEASONALITY
Management believes that extended stay hotels are not as seasonal in nature
as the overall lodging industry due to long-term guest stays. Based upon its
past experience, 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 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."
23
<PAGE> 25
BUSINESS
OVERVIEW
The Company develops, owns, manages and franchises Suburban Lodge(R)
hotels, which are economy extended stay hotels designed to appeal to
value-conscious guests seeking to "Lodge for Less."(SM) The Company believes
that the Suburban Lodge chain is one of the largest lodging chains (based on
number of guest rooms and hotels) 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 hotels offer clean, comfortable and
attractive accommodations to guests at substantially lower rates than most
traditional and other extended stay hotels. Although daily rates are available,
substantially all guests pay the Company's weekly rates, which currently range
from $139 to $179 per week for single occupancy and from $159 to $199 per week
for double occupancy, for the Company's standard size rooms.
The extended stay segment of the lodging industry, which includes economy
extended stay hotels, is a relatively small but growing segment of the lodging
industry. Based upon the high occupancy rates of the Existing Hotels, published
occupancy rates for other participants in the extended stay market and industry
sources, the Company believes that demand for extended stay hotels compares
favorably to the existing supply of hotels in this segment of the market. The
Company believes that Suburban Lodge hotels appeal to an underserved and growing
segment of guests in the extended stay market. These guests include business
travelers (particularly those with limited or no expense accounts), individuals
on temporary work assignments, persons between domestic situations, persons
relocating or purchasing a home, tourists and other value-conscious customers
desiring low-cost, longer-term, quality accommodations with fully equipped
kitchenettes, with individuals on temporary work assignments and persons
relocating or purchasing a home constituting the two largest groups of guests.
Suburban believes that the extended stay market offers a number of attractive
investment characteristics compared to traditional hotels, including higher than
industry average occupancy rates and operating margins.
The Company believes that the following are important features of the
Suburban Lodge system and its hotels:
- LOW WEEKLY RATES. Suburban Lodge hotels offer weekly rates substantially
lower than those offered by most traditional and other extended stay
hotels. The average weekly rate for the six months ended June 30, 1997 at
all 21 Company-owned hotels open at least one month during the period was
$153.71, compared to an equivalent average weekly rate (average daily rate
multiplied by seven) of $538.65 for extended stay hotels and $274.96 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.
- LONG 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 long guest stays and high occupancies. The
average guest stay at the 11 Company-owned hotels open at least one year
as of June 30, 1997 was approximately five weeks.
- HIGH OCCUPANCY. Average occupancy for the six months ended June 30, 1997
at the 11 Company-owned hotels open at least one year as of the end of the
period was 93.4%, which compares favorably to the average occupancy of
79.4% for extended stay hotels and 60.1% for lower economy hotels during
the same period. Average occupancy at the 21 Company-owned hotels open at
least one month as of June 30, 1997 was 87.7% during the six month period
ended June 30, 1997. The Company believes that its high occupancy is
primarily a result of a combination of its low weekly rates and its guest
room amenities.
- 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
24
<PAGE> 26
produce significant operating efficiencies. Each Suburban Lodge hotel 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 hotels.
- STANDARD DESIGN AND LOW CONSTRUCTION COSTS. Suburban Lodge hotels are
designed and built to uniform plans and specifications developed and
periodically refined since 1987. The Company believes that standardization
lowers construction costs and establishes consistent quality. The average
total investment in the seven Company-owned Existing Hotels opened during
1997 was approximately $3.7 million with a range of approximately $24,600
to $29,400 per guest room, including building structures, improvements,
furniture, fixtures, equipment, land and pre-opening costs.
- ATTRACTIVE UNIT ECONOMICS. Suburban believes its hotels have achieved
attractive unit level economics. For the three most recently completed
Company-owned Existing Hotels with at least one complete quarter of
operations as of June 30, 1997, facility level earnings before interest,
taxes and depreciation constituted 16.4% (based on annualized second
quarter results) of their total development and construction costs,
including building structures, improvements, furniture, fixtures,
equipment, land and pre-opening costs. The Company believes that its
hotels' favorable unit economics are due, in part, to the fact that
Suburban Lodge hotels reach stabilization in a relatively short period
after opening. In the past, Suburban Lodge hotels have reached 90%
occupancy within, on average, 90 days of opening.
- FRANCHISING OPPORTUNITIES. Suburban believes that the combination of its
experience in franchising, its relationships with 15 existing franchise
groups and the potential attractive return on investment for Suburban
Lodge hotels will facilitate the expansion of the Suburban Lodge chain
throughout the country.
BUSINESS STRATEGY
Suburban's business objective is to become a national provider of economy
extended stay hotels. The Company intends to achieve its objective through the
execution of its growth and operating strategies.
Growth Strategy
Company-owned Development. The Company presently owns and operates 24
Suburban Lodge hotels and franchises 12 additional Suburban Lodge hotels located
in eight states. The Existing Hotels contain an aggregate of 4,812 guest rooms,
have an average of 134 guest rooms and average approximately 2.3 years in age.
The Company anticipates that an additional 16 Company-owned Suburban Lodge
hotels will open during the remainder of 1997, resulting in an aggregate of 40
Company-owned Suburban Lodge hotels by year-end. The Company intends to continue
the growth of the Suburban Lodge chain in 1998 by opening approximately 24
Company-owned Suburban Lodge hotels, which would result in a total of 64
Company-owned hotels by the end of 1998. There are currently 17 Company-owned
hotels under construction, and sites have been acquired or are under contract
for 23 Company-owned hotels. In order to increase the pace of development, the
Company has been exploring the use of third parties to develop hotels in new
markets for the Company. There can be no assurance that the Company will be able
to complete the development of all of these hotels. 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. 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 Hotels. 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 hotels and supervises all phases of development to ensure on-time
construction within budget that meets the Company's standards. This team
developed 19 of the Existing Hotels and currently is developing 20 of the
Construction Hotels and 26 of the Development Hotels, including three for
franchisees who will retain the Company to manage their hotels.
25
<PAGE> 27
Suburban has begun, and expects to continue, to develop and operate
Company-owned hotels on a nationwide basis. In selecting particular cities, the
Company identifies markets that have high levels of employment and metropolitan
statistical areas 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 Hotels. 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. In order to obtain desirable sites without delay, the Company may
purchase larger sites and sell the excess real estate.
Suburban has developed uniform plans and specifications for the design of
Suburban Lodge hotels. Depending upon site configuration, land costs and climate
conditions, each hotel will be constructed using Suburban's two-story or
three-story exterior or interior corridor design and is expected to contain
between 120 and 150 guest rooms. Once the Company has selected and acquired a
site and obtained regulatory permits and approvals, the construction phase of
development generally requires approximately seven to eight months, with the
entire development process lasting approximately 12 months. Suburban has
relationships with several architectural and engineering firms as well as
independent general contractors, whose work is supervised by the Company's
in-house development team. The Company believes that these relationships
facilitate the construction of its hotels.
Franchising and Third Party Development and Management Activities. In
addition to operating Company-owned Suburban Lodge hotels, the Company
franchises Suburban Lodge hotels. In particular, the Company franchises the
Suburban Lodge system on a nationwide basis to independent developers and
operators and to passive investors who retain the Company to develop and manage
their Suburban Lodge hotels. Suburban considers its franchisees to be an
integral component of its continued growth and believes its relationship with
all of its franchisees is excellent. As of September 1, 1997, 15 franchisee
groups were operating or developing franchised Suburban Lodge hotels in Alabama,
Arizona, Colorado, Florida, Georgia, Kentucky, North Carolina, Ohio, Tennessee
and Texas. In addition to the 12 existing franchised hotels, the Company plans
to work with its franchisees to open eight franchised Suburban Lodge hotels
during the remainder of 1997 and 22 in 1998, although there can be no assurance
that all of these hotels will be opened. In addition, the Company has, on
appropriate occasions, provided secondary financing to assist franchisees in the
development and construction of their Suburban Lodge hotels. See "Risk
Factors -- Development Risks" and "Risk Factors -- Competition for and
Dependence on Franchisees."
Through franchising, the Company intends to accelerate the growth of the
Suburban Lodge chain, thereby increasing its market presence and brand awareness
in both new and existing markets, while generating incremental revenues at an
attractive margin. Further, the Company anticipates that the development of a
large network of hotels will result in economies of scale in management,
marketing and purchasing. Suburban offers 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 hotel and the potential for a franchisee to receive an attractive return
on investment. Management is currently unaware of any lodging competitor that
targets franchise opportunities primarily for newly constructed extended stay
hotels 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 in industry publications.
26
<PAGE> 28
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 hotels; (ii) control the operating costs at each of its hotels and maintain
above industry average operating margins; and (iii) ensure guest satisfaction
through a commitment to customer service. Suburban's principal operating
strategy is to offer its guests weekly rates substantially lower than those
offered by most traditional and other extended stay hotels. The Company believes
that its high occupancy is primarily a result of a combination of its low weekly
rates, which appeal to a broad base of potential guests, and its guest room
amenities. In addition, Suburban seeks to minimize costs throughout its
operations. The Company is able to control its operating costs because it
operates each hotel with a staff of approximately six to eight full-time
employees, which is smaller than the staffs at most traditional hotels,
maintains limited office hours and provides weekly rather than daily
housekeeping. In addition, because the average guest stay is approximately five
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 hotels.
THE HOTELS
The Existing Hotels are located in eight states, contain an aggregate of
4,812 guest rooms, have an average of 134 guest rooms and average approximately
2.3 years in age. The Construction Hotels and Development Hotels are located in
18 states. A newly developed Suburban Lodge hotel is built using either a
two-story or three-story exterior or interior corridor design. The designs have
similar architectural styles and guest room floor plans. The majority of
Suburban Lodge guest rooms are uniform in size, and weekly rates for single
occupancy currently range from $139 to $179, and for double occupancy range from
$159 to $199, for standard size rooms. All hotels developed after June 30, 1996,
however, include some larger guest rooms for which a range for single occupancy
of $169 to $209 is charged, and for which a range for double occupancy of $189
to $229 is charged. Each hotel 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 hotel
also offers weekly maid and linen service.
27
<PAGE> 29
The following tables set forth certain information with respect to the
Existing Hotels, Construction Hotels and Development Hotels.
<TABLE>
<CAPTION>
AVERAGE OCCUPANCY(2)
--------------------------------
SIX AVERAGE WEEKLY RATE(2)
MONTHS ---------------------------
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31,
DATE NUMBER OF ------------------ ----------- ---------------------------
EXISTING HOTELS OPENED ROOMS(1) 1994 1995 1996 1996 1997 1994 1995 1996
--------------- ------- --------- ---- ---- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPANY-OWNED:
Atlanta (Forest Park),
GA(3)....................... Mar-88 126 99.1% 98.8% 96.9% 99.0% 94.7% $123.70 $131.47 $147.86
Atlanta (Fulton Industrial),
GA.......................... Dec-88 108 99.6 99.2 97.2 99.4 94.0 124.62 129.18 143.69
Atlanta (Norcross), GA(4)..... Jun-89 129 99.8 97.9 95.7 98.0 94.3 131.15 140.20 152.75
Birmingham (Oxmoor), AL....... Jun-90 151 94.3 92.5 92.1 91.8 95.2 128.73 138.04 145.46
Atlanta (Mableton), GA........ Jun-93 79 97.6 97.1 97.5 98.1 96.5 128.93 130.59 133.63
Greenville (Mauldin Road),
SC.......................... Sep-93 130 98.1 97.8 93.3 94.9 84.1 129.44 138.14 149.02
Charlotte (Matthews), NC...... Aug-95 139 86.6 98.6 99.7 93.7 146.02 168.95
Atlanta (Lilburn), GA(5)(6)... Nov-95 132 72.1 92.3 96.7 93.8 179.71 181.40
Atlanta (Conyers), GA(5)...... Apr-96 138 72.2 78.3 91.0 182.51
Atlanta (Douglasville),
GA(5)....................... Jun-96 132 57.8 89.3 201.70
Atlanta (Roswell), GA(5)(6)... Jun-96 134 70.0 98.4 206.43
Louisville (Preston Highway),
KY.......................... Aug-96 150 66.8 88.0 162.37
Atlanta (Tara Blvd.), GA...... Sep-96 138 80.4 90.7 162.19
Greenville (Wade Hampton
Blvd.), SC.................. Oct-96 126 48.9 73.9 136.32
Atlanta (Indian Trail),
GA(6)....................... Nov-96 149 99.4 93.2 164.74
Knoxville (Kingston Pike),
TN.......................... Dec-96 132 56.6
Atlanta (Northside Drive),
GA.......................... Jan-97 150 87.3
Chesapeake (Old Greenbrier),
VA.......................... Feb-97 132 60.2
Atlanta (Gwinnett Place),
GA(6)....................... Feb-97 138 68.2
Charlotte (Pressley Rd.),
NC.......................... Mar-97 132 94.4
Charlotte (University Area),
NC.......................... Apr-97 138 68.7
Memphis (Hickory Ridge Mall),
TN.......................... Jun-97 144
Newport News (Jefferson Ave.),
VA.......................... Jul-97 134
Charleston (North), SC........ Aug-97 138
-----
SUBTOTAL/WEIGHTED AVERAGE..... 3,199 98.0% 96.3% 89.0% 96.1% 87.7% $127.82 $135.91 $155.84
FRANCHISED(7):
Birmingham (Riverchase), AL... Jun-92 122
Atlanta (Stone Mountain),
GA.......................... Nov-92 132
Atlanta (Marietta), GA........ Aug-94 132
Birmingham (Inverness), AL.... Sep-95 130
Savannah (Abercorn), GA....... Mar-96 130
Atlanta (Lawrenceville), GA... Jun-96 132
Atlanta (Decatur), GA......... Oct-96 133
Louisville (Jeffersontown),
KY.......................... Feb-97 144
Jacksonville (Bay Meadows),
FL.......................... Apr-97 138
Atlanta (Woodstock), GA....... Jul-97 138
Cincinnati (Florence), KY..... Aug-97 144
Valdosta (Mall), GA........... Aug-97 138
-----
SUBTOTAL/WEIGHTED AVERAGE...... 1,613 98.9% 91.6% 86.4% 90.4% 84.4% $134.03 $150.54 $167.06
-----
SYSTEM-WIDE TOTAL/WEIGHTED
AVERAGE....................... 4,812 98.2% 94.6% 87.8% 94.1% 86.6% $129.67 $141.24 $160.85
=====
<CAPTION>
AVERAGE WEEKLY RATE(2) WEEKLY REVPAR(2)
----------------- -----------------------------------------------
SIX MONTHS YEAR ENDED SIX MONTHS
ENDED JUNE 30, DECEMBER 31, ENDED JUNE 30,
----------------- --------------------------- -----------------
EXISTING HOTELS 1996 1997 1994 1995 1996 1996 1997
--------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
COMPANY-OWNED:
Atlanta (Forest Park),
GA(3)....................... $146.74 $151.16 $122.59 $129.89 $143.38 $145.25 $143.12
Atlanta (Fulton Industrial),
GA.......................... 142.20 144.23 124.12 128.15 139.73 141.37 135.51
Atlanta (Norcross), GA(4)..... 149.48 148.01 130.88 137.23 146.13 146.51 139.58
Birmingham (Oxmoor), AL....... 143.46 145.86 121.39 127.68 134.07 131.65 138.73
Atlanta (Mableton), GA........ 134.81 139.03 125.83 126.80 130.30 132.16 134.11
Greenville (Mauldin Road),
SC.......................... 146.72 144.71 126.98 135.10 139.13 139.16 121.89
Charlotte (Matthews), NC...... 164.65 173.12 126.45 166.58 164.07 162.17
Atlanta (Lilburn), GA(5)(6)... 174.89 164.46 113.06 166.99 169.70 154.49
Atlanta (Conyers), GA(5)...... 164.69 145.44 131.99 128.87 132.44
Atlanta (Douglasville),
GA(5)....................... 144.51 112.62 128.66
Atlanta (Roswell), GA(5)(6)... 188.63 140.77 181.05
Louisville (Preston Highway),
KY.......................... 155.33 107.31 136.75
Atlanta (Tara Blvd.), GA...... 159.42 130.40 144.50
Greenville (Wade Hampton
Blvd.), SC.................. 147.10 66.66 108.57
Atlanta (Indian Trail),
GA(6)....................... 175.55 163.75 162.22
Knoxville (Kingston Pike),
TN.......................... 146.68 81.61
Atlanta (Northside Drive),
GA.......................... 154.37 136.54
Chesapeake (Old Greenbrier),
VA.......................... 149.58 104.05
Atlanta (Gwinnett Place),
GA(6)....................... 191.73 142.41
Charlotte (Pressley Rd.),
NC.......................... 156.42 147.66
Charlotte (University Area),
NC.......................... 171.78 118.01
Memphis (Hickory Ridge Mall),
TN..........................
Newport News (Jefferson Ave.),
VA..........................
Charleston (North), SC........
SUBTOTAL/WEIGHTED AVERAGE..... $149.13 $153.71 $125.19 $130.76 $137.17 $142.24 $135.04
FRANCHISED(7):
Birmingham (Riverchase), AL...
Atlanta (Stone Mountain),
GA..........................
Atlanta (Marietta), GA........
Birmingham (Inverness), AL....
Savannah (Abercorn), GA.......
Atlanta (Lawrenceville), GA...
Atlanta (Decatur), GA.........
Louisville (Jeffersontown),
KY..........................
Jacksonville (Bay Meadows),
FL..........................
Atlanta (Woodstock), GA.......
Cincinnati (Florence), KY.....
Valdosta (Mall), GA...........
SUBTOTAL/WEIGHTED AVERAGE...... $162.53 $166.86 $132.56 $137.89 $144.30 $147.07 $139.76
SYSTEM-WIDE TOTAL/WEIGHTED
AVERAGE....................... $154.10 $158.09 $127.36 $133.04 $140.31 $144.31 $136.61
</TABLE>
(Notes on following page)
28
<PAGE> 30
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED
CONSTRUCTION HOTELS(8) LOCATION ROOMS OPENING
---------------------- ------------------- --------- --------------------
<S> <C> <C> <C>
COMPANY-OWNED:
Virginia Beach............................................ Virginia Beach, VA 144 Third Quarter 1997
Dayton South.............................................. Dayton, OH 129 Third Quarter 1997
Fairfield................................................. Cincinnati, OH 131 Fourth Quarter 1997
Eastland.................................................. Columbus, OH 139 Fourth Quarter 1997
Indianapolis Northwest.................................... Indianapolis, IN 132 Fourth Quarter 1997
Chattanooga............................................... Chattanooga, TN 132 Fourth Quarter 1997
Hazelwood................................................. St. Louis, MO 136 Fourth Quarter 1997
Mobile.................................................... Mobile, AL 132 Fourth Quarter 1997
St. Charles............................................... St. Louis, MO 133 Fourth Quarter 1997
San Antonio North......................................... San Antonio, TX 137 Fourth Quarter 1997
Northwest Franklin........................................ Columbus, OH 129 Fourth Quarter 1997
Jackson................................................... Jackson, MS 132 Fourth Quarter 1997
Broad River............................................... Columbia, SC 132 Fourth Quarter 1997
Dallas North Central...................................... Dallas, TX 144 Fourth Quarter 1997
Northland................................................. Columbus, OH 132 Fourth Quarter 1997
Indianapolis East......................................... Indianapolis, IN 135 Fourth Quarter 1997
Downers Grove............................................. Chicago, IL 132 First Quarter 1998
-----
SUBTOTAL............................................ 2,281
-----
<CAPTION>
<S> <C> <C> <C>
FRANCHISED:
Harding Place............................................. Nashville, TN 126 Third Quarter 1997
Montgomery Mall........................................... Montgomery, AL 144 Third Quarter 1997
Bragg Blvd................................................ Fayetteville, NC 144 Fourth Quarter 1997
Pineville................................................. Charlotte, NC 137 Fourth Quarter 1997
Albany Mall............................................... Albany, GA 138 Fourth Quarter 1997
Arlington South........................................... Dallas, TX 132 Fourth Quarter 1997
Savannah Airport.......................................... Savannah, GA 138 Fourth Quarter 1997
Arlington North........................................... Dallas, TX 137 Fourth Quarter 1997
Augusta West.............................................. Augusta, GA 138 First Quarter 1998
Eagle..................................................... Eagle, CO 118 First Quarter 1998
Garner.................................................... Garner, NC 144 First Quarter 1998
-----
SUBTOTAL............................................ 1,496
-----
TOTAL............................................. 3,777
=====
</TABLE>
<TABLE>
<CAPTION>
DEVELOPMENT HOTELS:
- -------------------
LOCATION COMPANY FRANCHISED
- ------------------------------------------------------------ -- --
<S> <C> <C>
Athens, GA.................................................. 0 1
Atlanta, GA................................................. 0 4
Austin, TX.................................................. 1 0
Birmingham, AL.............................................. 0 1
Chicago, IL................................................. 2 0
Cincinnati, OH.............................................. 2 0
Dallas, TX.................................................. 2 0
Denver, CO.................................................. 4 1
Dothan, AL.................................................. 0 1
El Paso, TX................................................. 1 0
Greensboro, NC.............................................. 0 1
Houston, TX................................................. 3 1
Jacksonville, FL............................................ 0 2
Louisville, KY.............................................. 0 1
Macon, GA................................................... 0 1
Melbourne, FL............................................... 0 1
Memphis, TN................................................. 0 1
Minneapolis, MN............................................. 2 0
Nashville, TN............................................... 0 2
Orlando, FL................................................. 0 3
Phoenix, AZ................................................. 0 1
Richmond, VA................................................ 1 1
Salt Lake City, UT.......................................... 2 0
San Antonio, TX............................................. 2 0
Stuart, FL.................................................. 0 1
Winston-Salem, NC........................................... 1 0
-- --
TOTAL............................................... 23 24
== ==
</TABLE>
(Notes on following page)
29
<PAGE> 31
- ---------------
(1) The number of guest rooms does not include the general manager's apartment.
(2) Information for the year ended December 31, 1996 and for the six months
ended June 30, 1996 and 1997 is provided from the beginning of the first
calendar month following the date of opening or acquisition of each hotel,
and all other information is presented from the date of opening or
acquisition.
(3) The Forest Park hotel was acquired by the Company from an unrelated third
party for $3.8 million in cash as part of the Corporate Organization.
However, this hotel has been managed by the Company since its opening in
March 1988 and is therefore treated as a Company-owned hotel in this table.
(4) In the third quarter of 1997, the Company incurred approximately $157,000 of
capital expenditures in connection with the renovation of this property. The
Company has not incurred similar expenses at the other Company-owned
Existing Hotels.
(5) Information for these hotels reflects the impact of the 1996 Olympic Games
on the occupancy and room revenue for these hotels.
(6) These hotels were acquired from certain franchisees and their affiliates on
February 28, 1997. For purposes of presentation, the results for all periods
prior to February 28, 1997 are included in the subtotal weighted average for
franchised hotels and the results for the remainder of the six month period
ended June 30, 1997 are included under Company-owned Existing Hotels.
(7) Individual hotel information has not been provided for the franchised hotels
due to non-disclosure agreements between the Company and its franchisees.
(8) The Company believes that each of the Construction Hotels 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 hotels on schedule.
See "Risk Factors -- Development Risks."
OPERATING PRACTICES
The Company has managed Suburban Lodge hotels since 1988, when the first
hotel was opened, and is currently managing the 24 Company-owned Existing
Hotels. Each Suburban Lodge hotel has a general manager, who resides on-site and
is responsible for the overall operation of the hotel, and an assistant manager.
Managers are trained in all aspects of hotel 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 hotels and
visit and inspect each hotel 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 hotel and upon performance and occupancy rates. In addition, the
employees of each hotel compete against the Company's other hotels 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 training
sessions to discuss improvement of property performance and safety and current
industry developments.
Each hotel utilizes the Company's proprietary software package that
processes all on-site transactions and maintains financial records. The software
provides on-site management with updated information on items such as available
guest rooms, guest rooms needing cleaning or repairs, room charges due and guest
payment history. Each hotel 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
hotel. The Company uses this information as part of its market research and in
the preparation of advertising and sales materials for each hotel. In order to
sustain and improve upon the high level of demand historically experienced at
the hotels, Suburban employs various marketing techniques, which include
billboard, print (including yellow pages and newspapers) and radio advertising,
as well as direct marketing by area and general managers to local employers, and
its 24-hour 1-800 guest information line (1-800-951-STAY).
The Company is committed to keeping each of its hotels well maintained and
in good condition. Due to the historically high occupancy levels at the
Company-owned Existing Hotels, the Company has adopted a policy of refurbishing
guest rooms on an "as-needed" basis. During the three-year period ended December
31, 1996, maintenance and repair expenses for the Company-owned Existing Hotels
(exclusive of the Forest Park hotel) represented 3.8% to 5.0% of room revenues
per year for the Company-owned hotels open for the entire 12 months during each
year. During the six months ended June 30, 1997, maintenance and repair expenses
for the 12 Company-owned Existing Hotels open for the entire six month period
represented 4.2% of room revenues for such period.
30
<PAGE> 32
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 hotel 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 hotel 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 hotel equal to the
greater of $30,000 or $225 per guest room. Beginning three months after
operations commence, the franchisee is required to pay the Company a monthly
royalty fee of four 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.
Services. The Company has prepared comprehensive materials and provides
services to assist each franchisee in developing and operating a Suburban Lodge
hotel. 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 hotel, prototype architectural plans and specifications (which
offer a choice between Suburban's two-story and three-story structure), a
24-hour 1-800 guest information line (with "fax on demand" capability which
allows a potential guest to receive locator maps and brochures), semi-annual
inspections by Suburban's corporate staff to ensure quality control and
advertising materials and layouts.
Franchisee Training and Support. An important element of Suburban's
franchise program is the training it provides to each franchisee. The Company
must approve each franchisee's selection of a general manager, who is required
to complete satisfactorily the Company's training program. In addition, the
Company provides between six to ten days of training to a franchisee with
respect to its first hotel, between three to five days of training for each
additional hotel 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 hotel. To ensure compliance with
Suburban's quality control standards, the Company's corporate staff conducts
periodic inspections of its franchised hotels.
Reporting. Each franchised hotel'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 hotel. Upon termination resulting from a
breach of the franchise agreement by a franchisee, the Company may purchase the
hotel at fair market value less liquidated damages, attorney's fees and other
amounts which the franchisee may owe the Company. 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
31
<PAGE> 33
laws limit the ability of a franchisor to terminate or refuse to renew a
franchise. Suburban does not anticipate that the termination of any single
franchise agreement would have a material adverse effect on its financial
condition or results of 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 hotel, 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 hotel 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, the negotiation with contractors and
the overall monitoring of the development and construction of the Suburban Lodge
hotel. The franchisee pays for the cost of all services and expenditures
associated with the construction of the hotel, including development fees to the
Company. The agreement terminates upon the completion of the services described,
or upon termination of the franchise agreement, whichever occurs first. In
addition, in the event either party fails to perform substantially under the
agreement, the party not at fault may terminate the agreement upon seven days'
written notice. The Company is developing 11 Suburban Lodge hotels for passive
investors pursuant to the terms of its standard Development and Design/Build
Agreement.
Management Agreements
The Company, upon request, will manage franchised Suburban Lodge hotels 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 hotel 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 hotel. Suburban also maintains the
right to determine all operating policies affecting the appearance of the hotel,
the maintenance of the hotel 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
hotel. In addition to a fixed fee for pre-opening services, Suburban will charge
a management fee equal to five percent of the hotel's monthly gross revenues. As
of the date of this Prospectus, the Company has seven Management Agreements in
effect.
The hotel owner is obligated to indemnify the Company against certain
liabilities arising out of the financing of the hotel, 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 hotel owner is obligated to indemnify the Company against certain
liabilities occasioned by the negligence, fault, omission or other tortious
conduct of the hotel owner, its agents, employees and contractors. Similarly, to
the extent not covered by insurance, the Company is obligated to indemnify the
hotel owner against certain
32
<PAGE> 34
liabilities occasioned by the negligence, fault, omission or other tortious
conduct of the Company, its employees, agents, business invitees (except guests)
or contractors.
COMPETITION
The lodging industry is highly competitive. Competitive factors within the
industry include room rates, quality of accommodations, name recognition, supply
and availability of alternative lodging, including short-term lease apartments,
service levels, reputation, reservation systems and convenience of location.
Each of the Existing Hotels and Construction Hotels is located, and each of the
Development Hotels will be located, in a developed area that includes competing
hotels, including both traditional hotels and other extended stay hotels. The
number of competitive hotels in a particular area could have a material adverse
effect on occupancy, AWR and Weekly REVPAR of the Existing Hotels and the
Construction Hotels or properties developed or acquired in the future. See
"-- The Hotels."
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 are already developing extended stay hotels which
may compete with the Company's hotels. In particular, some of these entities
have targeted the economy segment of the extended stay market in which the
Company competes. The Company may compete for guests and for development sites
with certain of these established entities which have greater financial
resources than the Company and better relationships with lenders and real estate
sellers. These entities may be able to accept more risk than the Company can
prudently manage. Further, new or existing competitors might reduce their rates
or offer greater convenience, services or amenities or expand or improve hotels
in markets in which the Company competes, thereby adversely affecting the
Company's business and results of operations. See "Risk Factors -- Competition
in the Lodging Industry."
EMPLOYEES
As of August 31, 1997, Suburban employed 256 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.
LEGAL PROCEEDINGS
Suburban is not a party to any litigation or claim, and, to date, no claims
have had a material adverse effect on the Company.
33
<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and 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............... 48 Chairman of the Board, Chief Executive III 1999
Officer and President
Dan J. Berman................... 33 Vice President -- Franchising and Director III 1999
Seth H. Christian............... 32 Vice President -- Operations
Terry J. Feldman................ 54 Vice President, Chief Financial Officer -- --
and Treasurer
G. Hunter Hilliard.............. 55 Vice President -- Construction -- --
Kevin R. Pfannes................ 43 Vice President -- Development and -- --
Secretary
James R. Kuse................... 67 Director II 1998
Michael McGovern................ 54 Director II 1998
John W. Spiegel................. 56 Director I 2000
</TABLE>
DAVID E. KRISCHER. Mr. Krischer formed the Company in 1987 to develop a
national chain of economy extended stay hotels and has served as its President
and Chairman since inception. Mr. Krischer has over 15 years of experience in
real estate development, has been involved in the hospitality industry for
nearly 11 years and currently is the Chairman of the Extended Stay Lodging
Council, a division of the American Hotel & Motel Association. 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 18 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
34
<PAGE> 36
through January 1995, Mr. Pfannes served as real estate counsel and Director of
Operations of General Innkeeping Acceptance Corporation, a wholly-owned
subsidiary of Holiday Inns, Inc., which provided financing for Holiday Inn
hotels. From January 1986 to July 1992, Mr. Pfannes was a self-employed
attorney, and his practice focused on commercial real estate matters. From 1979
to 1984, Mr. Pfannes worked for the Chicago law firm of Rooks, Pitts and Poust,
where his practice focused on real estate and lending matters.
JAMES R. KUSE. Mr. Kuse was elected as a Director of the Company in May
1996. Mr. Kuse has been the Chairman of the Board of Directors of Georgia Gulf
Corporation since January 1985. From February 1989 through February 1991, Mr.
Kuse also served as the Chief Executive Officer of Georgia Gulf Corporation. Mr.
Kuse also serves as a Director of Rhodes, Inc. and Green Capital Investors.
MICHAEL MCGOVERN. Mr. McGovern was elected as a Director of the Company in
May 1996. Since 1975, Mr. McGovern has been the President and a Director of
McGovern Enterprises, Inc., a company which provides corporate, financial and
real estate advisory services throughout the United States.
JOHN W. SPIEGEL. Mr. Spiegel was elected as a Director of the Company in
May 1996. Since 1985, Mr. Spiegel has served as Executive Vice President and
Chief Financial Officer of SunTrust Banks, Inc. He has also served as Treasurer
of Trust Company of Georgia since 1978 and is an officer and director of various
subsidiaries of SunTrust Banks, Inc. Mr. Spiegel is also a member of the Board
of Directors of Rock-Tenn Company and ContiFinancial Corporation.
In December 1996, the Company entered into two Development and Design/Build
Agreements and two Franchise Agreements with two entities in which Michael
McGovern, a director of the Company, and Michael Kuse, the son of James R. Kuse,
a director of the Company, own significant interests. In April and July 1997,
the Company entered into two Management Agreements with such entities, whereby
the Company will manage two Suburban Lodge hotels for such entities in exchange
for a management fee of five percent of the hotel's monthly gross revenues. In
addition, in September 1997, the Company entered into two additional Development
and Design/Build Agreements with two separate entities in which Mr. McGovern has
a significant ownership interest, whereby the Company will receive an aggregate
of $200,000 for its services. The terms and conditions of each of these
agreements are substantially the same as those in the Company's standard
Franchise, Development and Design/Build and Management Agreements. See
"Business -- Franchise, Development and Management Agreements."
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of Messrs. Kuse, Spiegel and
Krischer. The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and the results of the audit engagement, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Company's internal accounting
controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Kuse and McGovern. The Compensation Committee determines compensation for the
Company's executive officers and administers the Company's 1996 Plan.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
35
<PAGE> 37
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 5.0% 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 holds as of September 15, 1997.
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
OUTSTANDING OUTSTANDING
NAME AND ADDRESS OF NUMBER OF SHARES COMMON STOCK COMMON STOCK
BENEFICIAL OWNER(1) BENEFICIALLY OWNED PRIOR TO OFFERING AFTER OFFERING
------------------- ------------------ ----------------- --------------
<S> <C> <C> <C>
David E. Krischer(2)................................ 2,837,937 23.3% 18.7%
Dan J. Berman(3)(4)................................. 153,131 1.3 1.0
Seth H. Christian(3)................................ 153,094 1.3 1.0
Terry J. Feldman(3)(5).............................. 20,205 * *
G. Hunter Hilliard(3)(6)............................ 93,532 * *
Kevin R. Pfannes(3)(7).............................. 15,627 * *
James R. Kuse(8).................................... 19,043 * *
Michael McGovern(8)................................. 414,591 3.4 2.7
John W. Spiegel(8).................................. 10,075 * *
The Equitable Companies Incorporated(9)............. 1,777,100 14.5 11.7
Provident Investment Counsel, Inc.(10).............. 646,202 5.3 4.2
All directors and executive officers as a group
(nine persons).................................... 3,717,235 30.4% 24.4%
</TABLE>
- ---------------
* Represents less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of the persons named above is care
of Suburban Lodges of America. Inc., 1000 Parkwood Circle, Suite 850,
Atlanta, Georgia 30339.
(2) Includes options to purchase 37,500 shares, which are currently
exercisable, 117 shares held in an individual retirement account for the
benefit of Mr. Krischer's spouse and 117 shares held in an individual
retirement account for the benefit of Mr. Krischer's daughter.
(3) Includes options to purchase 12,500 shares, which are currently
exercisable.
(4) Includes 100 shares held with Mr. Berman's spouse as joint tenants with the
right of survivorship.
(5) Includes 6,000 shares held by Mr. Feldman's spouse.
(6) Includes 1,400 shares held by Mr. Hilliard's spouse.
(7) Includes 117 shares held in an individual retirement account for Mr.
Pfannes' benefit.
(8) Includes 575 shares of restricted Common Stock and options to purchase
1,500 shares of Common Stock granted pursuant to the Directors' Plan.
(9) The Equitable Companies Incorporated's address is 787 Seventh Avenue, New
York, New York 10019. Share information is based on Schedule 13G dated
February 12, 1997.
(10) Provident Investment Counsel, Inc.'s address is 300 North Lake Avenue,
Pasadena, California 91101. Share information is based on Schedule 13G
dated June 10, 1997.
36
<PAGE> 38
UNDERWRITING
NationsBanc Montgomery Securities, Inc., Smith Barney Inc., J.C. Bradford &
Co. and Legacy Securities Corp. (the "Underwriters"), 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 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>
NationsBanc Montgomery Securities, Inc......................
Smith Barney Inc............................................
J.C. Bradford & Co..........................................
Legacy Securities Corp......................................
Total............................................. 3,000,000
=========
</TABLE>
The Underwriters 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 Underwriters and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 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 of 1933, as amended (the "Securities Act"), or will contribute to
payments the Underwriters may be required to make in respect thereof.
Each director and officer of the Company has agreed (except for shares
purchased in the public market), for a period of 90 days from the date of this
Prospectus, that they will not, directly or indirectly, offer to sell, sell,
contract to sell or otherwise sell or dispose of any shares of their Common
Stock or options or warrants to acquire shares of Common Stock without the
consent of NationsBanc Montgomery Securities, Inc. The Company has agreed not to
sell any shares of Common Stock for a period of 90 days from the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities, Inc., except that the Company may, without consent, issue shares of
Common Stock upon exercise of outstanding stock options and warrants.
The Underwriters have informed the Company that they do not intend to
confirm sales to accounts over which they exercise discretionary authority in
excess of five percent of the number of shares of Common Stock offered hereby.
In January 1996, Legacy Securities Corp. ("Legacy") agreed to provide
investment banking consulting services to the Company in connection with the IPO
and received a fee for such services in the amount of $100,000 upon the closing
of the IPO. In addition, affiliates of Legacy are developing several Suburban
Lodge hotels and have entered into a number of preliminary franchise agreements
and development agreements with the Company. As part of the Corporate
Organization, the Company acquired a Suburban Lodge hotel from the owners of
Legacy Lodging LLC for an aggregate of approximately 29,400 shares of Common
Stock. All of these shares were held in escrow until the Company obtained final
zoning approval on the site for such hotel.
37
<PAGE> 39
As of the date of this Prospectus, Suburban and affiliates of Legacy are parties
to three preliminary franchise agreements, one development agreement, and one
franchise agreement with respect to one of these properties. All of these
agreements are in substantially the same form as the other agreements described
in this Prospectus. In addition, in April 1997 Suburban and an affiliate of
Legacy terminated one preliminary franchise agreement and a related development
agreement, without further liability or obligation of either party to the other.
See "Business -- Franchise, Development and Management Agreements -- Development
Agreements."
Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market. Such transactions may include stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting any purchase for the purpose of pegging, fixing
or maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on The
Nasdaq Stock Market, in the over-the-counter market, or otherwise.
In connection with the Offering, the Underwriters may engage in passive
market making transactions in the Common Stock on The Nasdaq Stock Market
immediately prior to the commencement of sales in the Offering, in accordance
with Rule 103 of Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Passive market making consists of displaying bids
on The Nasdaq Stock Market limited by the bid prices of independent market
makers and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and must be discontinued
when such limit is reached. Passive market making may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kilpatrick Stockton LLP, Atlanta, Georgia. The validity
of the shares of Common Stock offered hereby will be passed upon for the
Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The Company's financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, the combined financial statement schedule of real estate
owned and accumulated depreciation incorporated by reference in this Prospectus
from the Company's Rule 424(b) prospectus dated November 20, 1996, and the
financial statements of Gulf Coast Associates, Ltd. for the year ended December
31, 1995, incorporated by reference in this Prospectus from the Company's Rule
424(b) prospectus dated November 20, 1996, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (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
38
<PAGE> 40
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
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Copies of such reports, proxy statements and
other information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the following regional offices of the Commission: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, or at the Commission web site at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997 (as amended) and June 30, 1997;
(c) The Company's Current Report on Form 8-K, dated March 14, 1997
(and the Amendment thereto dated April 29, 1997);
(d) The combined schedule of real estate owned and accumulated
depreciation and the financial statements of Gulf Coast Associates, Ltd.
contained in the Prospectus dated November 20, 1996, filed with the
Commission pursuant to Rule 424(b) under the Securities Act; and
(e) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under Section 12 of the
Exchange Act, dated March 28, 1996, including any amendment or report
updating such description.
In addition, all documents filed by the Company pursuant to sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents (such documents, and the documents enumerated above, being
hereinafter referred to as "Incorporated Documents"). Any statement contained
herein or in an Incorporated Document shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed Incorporated Document
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner, on the
written or oral request of any such person, a copy of any or all of the
Incorporated Documents, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference therein. Requests shall be
directed to Suburban Lodges of America, Inc., 1000 Parkwood Circle, Suite 850,
Atlanta, Georgia 30339, Attention: Mr. Terry Feldman (telephone number (770)
951-9511). The information relating to the Company contained in this Prospectus
does not purport to be comprehensive and should be read together with the
information contained in the Incorporated Documents.
39
<PAGE> 41
INSIDE BACK COVER
This page includes photos of the interior of a deluxe guest room and a
standard size guest room.
<PAGE> 42
======================================================
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 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 to whom it
is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, in any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
date subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 15
Dividend Policy....................... 15
Price Range of Common Stock........... 16
Capitalization........................ 16
Selected Consolidated Historical
Financial Data...................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Management............................ 34
Principal Shareholders................ 36
Underwriting.......................... 37
Legal Matters......................... 38
Experts............................... 38
Available Information................. 38
Incorporation of Certain Documents By
Reference........................... 39
</TABLE>
======================================================
======================================================
3,000,000 SHARES
[SUBURBAN LODGE(R) LOGO]
SUBURBAN LODGES OF
AMERICA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NATIONSBANC
MONTGOMERY
SECURITIES, INC.
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
, 1997
======================================================
<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of 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........ $ 27,966
NASD Filing Fee............................................. 9,729
Printing and Mailing........................................ 100,000
Accounting Fees and Expenses................................ 75,000
Blue Sky Fees and Expenses.................................. 2,500
Counsel Fees and Expenses................................... 75,000
Miscellaneous............................................... 35,000
--------
Total............................................. $325,195
========
</TABLE>
ITEM 15. 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 Company is required to
indemnify its directors and officers to the fullest extent permitted by Georgia
law. The Georgia Business Corporation Code provides that a corporation may
indemnify its directors, officers and agents against judgments, fines,
penalties, amounts paid in settlement and expenses, including attorneys' fees,
resulting from various types of legal actions or proceedings if the actions of
the party being indemnified meet the standards of conduct specified therein.
Determinations concerning whether the applicable standard of conduct has been
met can be made by (a) a majority of the disinterested directors; (b) a majority
of a committee of disinterested directors; (c) independent legal counsel or (d)
an affirmative vote of a majority of shares held by the disinterested
shareholders. 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 Indemnity Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnity Agreements, the Company is required to indemnify the Indemnified
Parties against certain liabilities arising out of their service for the
Company. The Indemnity Agreements require the Company (i) to indemnify each
Indemnified Party to the fullest extent permitted by law; (ii) to provide
coverage for each Indemnified Party under the Company's directors and officers
liability insurance policy and (iii) to advance certain expenses incurred by an
Indemnified Party. The Indemnity Agreements provide limitations on the
Indemnified Party's rights to indemnification in certain circumstances.
The Company's directors and officers are insured against losses arising
from any claim against them as such for wrongful acts or omissions, subject to
certain limitations.
II-1
<PAGE> 44
ITEM 16. 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 Stockton LLP
*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
****10.9.a -- Form of Franchise Agreement, as amended
*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 -- Credit Agreement by and among Suburban Lodges of America,
Inc., the Guarantors identified therein, the Banks
identified therein and PNC Bank, Kentucky, Inc.
*10.17 -- Sublease between Suburban Lodges of America, Inc. and Omni
Insurance Company
**10.18 -- Purchase and Sale Agreement among the Registrant, Burson and
Simpson Lodge Development, Inc. and the parties named
therein.
**10.19 -- Registration Rights Agreement among the Registrant and
Certain Shareholders
****10.20 -- Office Lease between the Registrant and Massachusetts Mutual
Life Insurance Company
*21.1 -- Subsidiaries of the Registrant
***23.1 -- Consent of Kilpatrick Stockton LLP (see Exhibit 5.1)
****23.2 -- Consent of Deloitte & Touche LLP
***24.1 -- Powers of Attorney (see Signature Page)
</TABLE>
- ---------------
* Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-2876) under the Securities
Act, filed on May 23, 1996.
** Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed on March 14, 1997, as amended.
*** Previously filed.
**** Filed herewith.
II-2
<PAGE> 45
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Company's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Company 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-3
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 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 8th day of October, 1997.
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 Amendment
No. 2 to the Registration Statement has been signed by the following persons on
the 8th day of October, 1997, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ DAVID E. KRISCHER Chairman of the Board, Chief Executive
- ----------------------------------------------------- Officer, President and Director (Principal
David E. Krischer Executive Officer)
* Vice President -- Franchising and Director
- -----------------------------------------------------
Dan J. Berman
/s/ TERRY J. FELDMAN Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
Terry J. Feldman
* Director
- -----------------------------------------------------
James R. Kuse
* Director
- -----------------------------------------------------
Michael McGovern
* Director
- -----------------------------------------------------
John W. Spiegel
*By: /s/ DAVID E. KRISCHER
- -----------------------------------------------------
as attorney-in-fact
</TABLE>
II-4
<PAGE> 47
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 Stockton LLP
*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.a -- Form of Franchise Agreement, as amended
*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 -- Credit Agreement by and among Suburban Lodges of America,
Inc., the Guarantors identified therein, the Banks
identified therein and PNC Bank, Kentucky, Inc.
*10.17 -- Sublease between Suburban Lodges of America, Inc. and Omni
Insurance Company
**10.18 -- Purchase and Sale Agreement among Registrant, Burson and
Simpson Lodge Development, Inc. and the parties named
therein
**10.19 -- Registration Rights Agreement among the Registrant and
Certain Shareholders
****10.20 -- Office Lease between the Registrant and Massachusetts Mutual
Life Insurance Company
*21.1 -- Subsidiaries of the Registrant
***23.1 -- Consent of Kilpatrick Stockton LLP (see Exhibit 5.1)
****23.2 -- Consent of Deloitte & Touche LLP
***24.1 -- Powers of Attorney (see Signature Page)
</TABLE>
- ---------------
* Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-2876) under the Securities
Act, filed on May 23, 1996.
** Incorporated by reference to the Registrant's Current Report on Form 8-K,
filed on March 14, 1997, as amended.
*** Previously filed.
**** Filed herewith.
<PAGE> 1
EXHIBIT 1.1
K&S DRAFT -- OCTOBER 3, 1997
3,000,000 Shares
SUBURBAN LODGES OF AMERICA, INC.
Common Stock
UNDERWRITING AGREEMENT
_______________, 1997
NATIONSBANC MONTGOMERY SECURITIES, INC.
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES, INC.
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Suburban Lodges of America, Inc., a Georgia
corporation (the "Company") and the general partner of Suburban Holdings, L.P.
(the "Partnership"), proposes to issue and sell 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."
You have advised the Company that the Underwriters propose to make a
public offering 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 agreement 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-3 (File No.
333-35871) 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 four signed copies of such registration statement and
amendments, together with four copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form
of final prospectus, (ii) a final prospectus in accordance with Rules
430A and 424(b) of the Rules and Regulations, or (iii) a term sheet
(the "Term Sheet") as described in and in accordance with Rules 434 and
424(b) of the Rules and Regulations. As filed, the final prospectus, if
one is used, or the Term Sheet and Preliminary Prospectus, if a final
prospectus is not used, shall include all Rule 430A Information (as
hereinafter defined) and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the date and time that this Agreement
was executed and delivered by the parties hereto, or, to the extent not
completed at such date and time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest preliminary prospectus) as the Company shall have previously
advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and all documents incorporated or deemed to
be incorporated by reference therein 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, (ii) all information deemed to be included in such
registration statement at the time of effectiveness, pursuant to Rule
434 of the Rules and Regulations and pursuant to the Securities
Exchange Act of 1934 and the
-2-
<PAGE> 3
rules and regulations promulgated thereunder (the "Exchange Act") and
(iii) 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.
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or
"stated" in the Registration Statement or the Prospectus (and all other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is or is
deemed to be incorporated by reference in the Registration Statement or
the Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement or
the Prospectus shall be deemed to mean and include the filing of any
document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the
Prospectus, as the case may be.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus, and
each Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each
Closing Date hereinafter mentioned, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, will contain all
material statements and information required to be included therein by
the Act and the Rules and Regulations and will in all material respects
conform to the requirements of the Act and the Rules and Regulations,
and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, no representation or warranty contained in this
subsection 2(b) shall be applicable to information contained in or
omitted from any Preliminary Prospectus, the Registration
-3-
<PAGE> 4
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 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 financial statements of the
Company and the related notes thereto included in the Prospectus,
neither the Company nor any Subsidiary has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or partnership interests, as applicable, or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth
in the Prospectus accurately and fairly presents
-4-
<PAGE> 5
the information required to be shown with respect to such plans,
arrangements, options and rights.
(e) The Common Shares to be sold by the Company have
been duly authorized and, when issued, delivered and paid for in the
manner set forth in this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus. No preemptive rights
or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Common Shares by the Company pursuant to this
Agreement. No shareholder of the Company has any right which has not
been waived to require the Company to register the sale of any shares
owned by such shareholder under the Act in the public offering
contemplated by this Agreement. No further approval or authority of the
shareholders or the Board of Directors of the Company will be required
for the issuance and sale of the Common Shares to be sold by the
Company as contemplated herein.
(f) Each of the Company and the Partnership has full
legal right, power and authority to enter into this Agreement and
perform the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by the Company and the
Partnership and constitutes a valid and binding obligation of the
Company and the Partnership in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws affecting the rights of
creditors generally and by principles of equity, whether considered at
law or equity. The making and performance of this Agreement by the
Company and the Partnership and the consummation of the transactions
herein contemplated will not violate any provisions of the articles of
incorporation or bylaws, or other organizational documents, of the
Company or any of its Subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of
their respective properties may be bound or affected, any statute or
any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its Subsidiaries
or any of their respective properties. No consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with
the Act, the Blue Sky or Canadian securities laws applicable to the
public offering of the Common Shares by the several Underwriters and
the clearance of such offering with the National Association of
Securities Dealers, Inc. (the "NASD").
(g) Deloitte & Touche, LLP, who have expressed their
opinion with respect to the financial statements and schedules filed
with the Commission as a part of the
-5-
<PAGE> 6
Registration Statement and included in the Prospectus and in the
Registration Statement, are independent accountants as required by the
Act and the Rules and Regulations.
(h) The combined financial statements and schedules
of the Company and the Affiliated Entities, the financial statements of
Gulf Coast Associates, Ltd. d/b/a Suburban Lodge of Forest Park ("Gulf
Coast"), and the related notes thereto included in the Registration
Statement and the Prospectus present fairly in all material respects
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
Consolidated 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 the Exchange Act and
management of the Company believes that the assumptions underlying the
pro forma adjustments are reasonable. Such pro forma adjustments have
been properly applied to the historical amounts in the compilation of
the information and such information fairly represents with respect to
the Company the financial position, results of operations and other
information purported to be shown therein at the respective dates and
for the respective periods specified.
(i) Except as disclosed in the Prospectus, and except
as to defaults which individually or in the aggregate would not be
material to the Company, neither the Company nor any of its
Subsidiaries is in violation or default of any provision of its
articles of incorporation or bylaws, or other organizational documents,
or is in breach of or default with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which it
is a party or by which it or any of its properties are bound; and there
does not exist any state of facts which constitutes an event of default
on the part of the Company or any such Subsidiary as defined in such
documents or which, with notice or lapse of time or both, would
constitute such an event of default.
(j) There are no contracts or other documents
required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement by the Act, by the Rules and
Regulations or by the Exchange Act 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.
-6-
<PAGE> 7
(k) The documents, as amended, incorporated or deemed
to be incorporated by reference in the Prospectus, at the time they
were or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the Exchange
Act, and, when read together with the other information in the
Prospectus, at the time the Registration Statement and any amendments
thereto become effective and at the First Closing Date and the Second
Closing Date, as the case may be, will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(l) Except as disclosed in the Prospectus, there are
no legal or governmental actions, suits or proceedings pending or, to
the best of the Company's knowledge, threatened to which the Company or
any of its Subsidiaries is or may be a party or of which property owned
or leased by the Company or any of its Subsidiaries is or may be the
subject, or related to environmental or discrimination matters, which
actions, suits or proceedings might, individually or in the aggregate,
prevent or adversely affect the transactions contemplated by this
Agreement or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations
or prospects of the Company or any of its Subsidiaries, and no labor
disturbance by the employees of the Company or any of its Subsidiaries
exists or is imminent which might be expected to affect adversely such
condition, properties, business, results of operations or prospects.
Neither the Company nor any of its Subsidiaries is a party or subject
to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body, administrative agency or other
governmental body.
(m) 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) (collectively, the "Properties"), and such
properties and assets are not subject to any lien, mortgage, pledge,
charge or encumbrance of any kind except (i) those, if any, reflected
in such financial statements (or elsewhere in the Prospectus), or (ii)
those which are not material in amount and do not adversely affect the
use made and proposed to be made of such property and assets by the
Company and its Subsidiaries. The Company or the applicable Subsidiary
holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the
business of the Company. Except as disclosed in the Prospectus, the
Company or its Subsidiaries owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be
conducted.
(n) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as described in or specifically contemplated by the Prospectus:
(i) the Company and its Subsidiaries have not incurred any material
liabilities or obligations, indirect, direct or contingent, or entered
into any material
-7-
<PAGE> 8
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material
reduction in the future earnings of the Company or its Subsidiaries;
(ii) the Company and its Subsidiaries have not sustained any material
loss or interference with their respective businesses or properties
from fire, flood, windstorm, accident or other calamity, whether or not
covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and
the Company and its Subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale
of the Common Shares hereunder and upon the exercise of options and
warrants described in the Registration Statement) or indebtedness
material to the Company and its Subsidiaries (other than in the
ordinary course of business); and (v) there has not been any material
adverse change in the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company or any
Subsidiary.
(o) 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
and its Subsidiaries.
(p) 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.
(q) The Company and its Subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns
and have paid all taxes shown as due thereon; and the Company has no
knowledge of any tax deficiency which has been or might be asserted or
threatened against the Company and its Subsidiaries which could
materially adversely affect the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company
and its Subsidiaries.
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<PAGE> 9
(r) Neither the Company nor any of its Subsidiaries
is an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
(s) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in
connection with the offering and sale of the Common Shares other than
the Prospectus, the Registration Statement and other materials
permitted by the Act.
(t) 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.
(u) Neither the Company nor any of its Subsidiaries
has at any time during the last five years (i) made any unlawful
contribution to any candidate for foreign 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.
(v) 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.
(w) No person (other than the Company) has an option
or right of first refusal to purchase all or part of any of the
Properties or any interest therein. Each of the Properties complies
with all applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and laws
relating to access to the Properties), except if and to the extent
disclosed in the Prospectus and except for such failures to comply that
would not individually or in the aggregate have a material adverse
effect on the condition (financial or otherwise), business, properties,
results of operations or prospects of the Company and its Subsidiaries,
taken as a whole. The Company has no knowledge of any pending or
threatened condemnation proceedings, zoning changes, or other
proceeding or action that will in any manner affect the size of, use
of, improvements on, construction on or access to the Properties,
except such proceedings or actions that would not have a material
adverse effect on the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
Subsidiaries, taken as a whole.
(x) To the best of the Company's knowledge, no
dispute exists or is imminent with any franchisee (individually, a
"Franchisee" and collectively, the "Franchisees")
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<PAGE> 10
or with the Franchisees of the Company and its Subsidiaries that could
have a material adverse effect on the condition (financial or
otherwise), business, properties, results of operations or prospects of
the Company and its Subsidiaries, taken as a whole.
(y) Each Franchisee is such by virtue of being a
party to a franchise agreement with either the Company or a Subsidiary
and assuming each such agreement has been duly authorized, executed and
delivered by the parties thereto, other than the Company or a
Subsidiary, each such contract constitutes a valid, legal and binding
obligation of each party thereto, enforceable against the Company or a
Subsidiary in accordance with its terms, except (i) for any one or more
of such franchise agreements as would not have a material adverse
effect on the condition (financial or otherwise), business, properties,
results of operations or prospects of the Company and its Subsidiaries,
taken as a whole, and (ii) to the extent that enforceability may be
limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally. The Company and each Subsidiary have 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.
(z) 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.
(aa) 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 that the information set
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<PAGE> 11
forth (i) on the cover page of the Prospectus with respect to price,
underwriting discounts and terms of offering and (ii) under "Underwriting" in
the Prospectus was furnished to the Company by and on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement and the
Prospectus and is correct in all material respects. The Representatives
represent and warrant that they have been authorized by each of the other
Underwriters as the Representatives to enter into this Agreement on its behalf
and to act for it in the manner herein provided.
SECTION 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 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 respectively, shall be $________ per share.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of
NationsBanc Montgomery Securities, Inc. ("NationsBanc Montgomery"), 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 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
with respect to the Firm Common Shares to be sold by the Company against payment
by you, for the accounts of the several Underwriters, of the purchase price
therefor by wire transfer of immediately available funds to the Company. 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
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<PAGE> 12
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 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, and receipt for, and to make payment of the purchase price
for, the Firm Common Shares and the Optional Common Shares the Underwriters have
agreed to purchase. 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.
No later than 12:00 P.M. on the second business day following the date
the Common Shares are released by the Underwriters for sale to the public, the
Company shall deliver or cause to be
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<PAGE> 13
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
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
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<PAGE> 14
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment or supplement which
will effect such compliance and will use its best efforts to cause the
same to become effective as soon as possible; and, in case any
Underwriter is required to deliver a prospectus after such nine-month
period, the Company upon request, but at the expense of such
Underwriter, will promptly prepare such amendment or amendments to the
Registration 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 "Prospectus Delivery Period"), the Company, at its expense,
but only for the nine-month period referred to in Section 10(a) (3) of
the Act, will furnish to you or mail to your order copies of the
Registration Statement, the Prospectus, the Preliminary Prospectus and
all amendments and supplements to any such documents in each case as
soon as available and in such quantities as you may request, for the
purposes contemplated by the Act.
(f) The Company shall cooperate with you and your
counsel in order to qualify or register the Common Shares for sale
under (or obtain exemptions from the application of) the Blue Sky or
Canadian securities laws of such jurisdictions as you designate, will
comply with such laws and will continue such qualifications,
registrations and exemptions in effect so long as reasonably required
for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading
in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company,
with your cooperation, will use its best efforts to obtain the
withdrawal thereof.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, shareholders'
equity and cash flows for the year then ended and the opinion thereon
of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form
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<PAGE> 15
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 90 days after the date of
the Prospectus, without the prior written consent of NationsBanc
Montgomery (which consent may be withheld at the sole discretion of
NationsBanc Montgomery), 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; provided, however, that during such 90 day period the
Company may grant options to purchase Common Stock to its employees
under its stock option plans so long as such employees cannot exercise
such options within such 90 day period.
(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 provide all applicable notices
and pay all necessary fees to The Nasdaq Stock Market in connection
with the issuance of the Common Shares.
(l) During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the
manner and within the time periods required by the Exchange Act.
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
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<PAGE> 16
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 NASD, and (viii) all other fees, costs and expenses referred
to in Item 13 of the Registration Statement. The Underwriters may deem the
Company to be the primary obligor with respect to all costs, fees and expenses
to be paid by the Company. 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, to the accuracy of the
statements of Company officers and Partnership officers made pursuant to the
provisions hereof, to the performance by the Company and the Partnership of
their respective obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 P.M. (or, in the case of a registration
statement filed pursuant to 462(b) of the Rules and Regulations
relating to the Common Shares, not later than 10:00 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
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<PAGE> 17
been any change in the capital stock (other than pursuant to the
exercise of outstanding options and warrants disclosed in the
Prospectus) of the Company or any of its Subsidiaries or any material
change in the indebtedness (other than in the ordinary course of
business) of the Company or any of its Subsidiaries, (ii) except as set
forth or contemplated by the Registration Statement or the Prospectus,
no material verbal or written agreement or other transaction shall have
been entered into by the Company or any of its Subsidiaries, which is
not in the ordinary course of business or which could result in a
material reduction in the future earnings of the Company or any of its
Subsidiaries, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of its Subsidiaries shall have been
sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects
of the Company or any of its Subsidiaries, (iv) no legal or
governmental action, suit or proceeding affecting the Company or any of
its Subsidiaries which is material to the Company or any of its
Subsidiaries or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or
threatened, and (v) there shall not have been any material change in
the condition (financial or otherwise), business, management, results
of operations or prospects of the Company or any of its Subsidiaries
which makes it impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase the
Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as
Representatives of the Underwriters, on each Closing Date, in form and
substance satisfactory to you, except as otherwise expressly provided
below:
(i) An opinion of Kilpatrick Stockton
LLP, 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 formed and validly existing under the
Georgia Uniform Limited Partnership Act with the
partnership power to own and lease its properties and
to conduct its business as now conducted. The
Partnership is qualified to transact business as a
foreign partnership and is in good standing in all
other jurisdictions where the
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<PAGE> 18
ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify
would not have a material adverse effect on the
Company, its Subsidiaries and the Partnership;
(3) The authorized, issued and
outstanding capital stock of the Company is as set
forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate
proceedings have been taken in order to authorize
validly such authorized capital stock, all
outstanding shares of capital stock have been duly
and validly issued, are fully paid and nonassessable,
and were not issued in violation of or subject to any
preemptive rights; without limiting the foregoing,
there are no preemptive or other rights to subscribe
for or purchase shares of capital stock of the
Company, 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 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 duly
registered under the Act or exempt from the
registration requirements of the Act by reason of
Sections 3(b), 4(2) or 4(6) thereof and were duly
registered or 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 corporate
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, 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. The outstanding limited partnership
interests in the Partnership are fully paid.
(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
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<PAGE> 19
or subject to any preemptive rights or other rights
to subscribe for or purchase shares of capital stock
of the Company 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 is a party and will conform in all
respects to the description thereof contained in the
Prospectus;
(6) Except as disclosed in or
specifically contemplated by the Prospectus, to the
best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling
for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of
the Company or any of its Subsidiaries or any
security convertible into or exchangeable for capital
stock of the Company or any of its Subsidiaries;
(7) (a) The Registration Statement
has become effective under the Act, and, to the best
of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued
and no proceedings for that purpose have been
instituted or are pending or contemplated by the
Commission; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the
Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
(b) The Registration Statement,
as amended, 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 or any of its
Subsidiaries which are required to be described in
the Prospectus which are not described as required.
(8) The Company has full right,
power and authority to enter into this Agreement and
to sell and deliver the Common Shares to be sold by
it to the several Underwriters; the Partnership has
full right, power and
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<PAGE> 20
authority to enter into this Agreement; this
Agreement has been duly and validly authorized by all
necessary corporate action by the Company and the
Partnership, has been duly and validly executed and
delivered by and on behalf of the Company and the
Partnership, and is a valid and binding agreement of
the Company and the Partnership in accordance with
its terms, except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting
creditors' rights generally and except as to those
provisions relating to indemnity or contribution for
liabilities arising under the Act, as to which no
opinion need be expressed; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any
court, regulatory, administrative or other
governmental body is required for the execution and
delivery of this Agreement by the Company and the
Partnership or the consummation of the transactions
contemplated by this Agreement, except such as have
been obtained and are in full force and effect under
the Act and such as may be required under applicable
Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters
and the clearance of such offering with the NASD;
(9) The execution and performance
of this Agreement and the consummation of the
transactions herein contemplated will not conflict
with, result in the breach of, or constitute, either
by itself or upon notice or the passage of time or
both, a default under, any agreement, mortgage, deed
of trust, lease, franchise, license, indenture,
permit or other instrument that is described or
referred to in the Registration Statement or the
Prospectus or filed as an exhibit to the Registration
Statement, or violate any of the provisions of the
articles of incorporation or bylaws, or other
organizational documents, of the Company or any of
its Subsidiaries or, so far as is known to such
counsel, violate any statute, judgment, decree,
order, rule or regulation of any court or
governmental body having jurisdiction over the
Company or any of its Subsidiaries or any of their
properties, except where the failure to comply 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;
(10) Neither the Company nor any of
its Subsidiaries is in violation of its articles of
incorporation or bylaws, or other organizational
documents, or to the best of such counsel's
knowledge, in breach of or default with respect to
any provision of any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit
or other instrument that is described or referred to
in the Registration Statement or the Prospectus or
filed as an exhibit to the Registration Statement,
except where such default would not materially
adversely affect the Company and its Subsidiaries,
taken as a whole;
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<PAGE> 21
and, to the best of such counsel's knowledge, the
Company and its Subsidiaries are in compliance with
all laws, rules, regulations, judgments, decrees,
orders and statutes of any court or jurisdiction to
which they are subject, except where noncompliance
would not materially adversely affect the Company and
its Subsidiaries, taken as a whole;
(11) To the best of such counsel's
knowledge, no holders of securities of the Company
have rights which have not been waived to the
registration of shares of Common Stock or other
securities, because of the filing of the Registration
Statement by the Company or the offering contemplated
hereby; and
(12) Neither the Company nor any of
its Subsidiaries is an "investment company," or a
company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of
1940, as amended.
(13) Each document, as amended,
filed pursuant to the Act or the Exchange Act (other
than the financial statements and supporting
schedules included therein, as to which no opinion
need be rendered) and incorporated or deemed to be
incorporated by reference in the Prospectus complied
when so filed as to form in all material respects
with the Act or the Exchange Act, as the case may be;
and such counsel has no reason to believe that any of
such documents, when they were so filed, contained an
untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made when such documents were
filed, not misleading.
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 the 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
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<PAGE> 22
Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements, in light of the circumstances under which they
were made, not misleading;
(ii) Such opinion of Paul, Hastings,
Janofsky & Walker, special franchising counsel for the
Company, addressed to the Underwriters and dated as of the
First Closing Date, or the Second Closing Date, as the case
may be, with respect to certain franchising matters of the
Company, as you may reasonably require, and the Company shall
have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they may
reasonably request for the purpose of enabling them to pass
upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of
officers of the Company and governmental officials.
(iii) Such opinion or opinions of King &
Spalding, counsel for the Underwriters dated the First Closing
Date or the Second Closing Date, as the case may be, with
respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating
to this Agreement, the validity of the Common Shares, the
Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they may
reasonably request for the purpose of enabling them to pass
upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of
officers of the Company and governmental officials.
(iv) A certificate of the Company
executed by the Chairman of the Board or President and the
chief financial or accounting officer of the Company, dated
the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and
warranties of the Company 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
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<PAGE> 23
proceedings for that purpose have been instituted or
are pending or contemplated under the Act;
(3) Each of the respective signers
of the certificate has carefully examined the
Registration Statement and the Prospectus; in his
opinion and to the best of his knowledge, the
Registration Statement and the Prospectus and any
amendments or supplements thereto contain all
statements required to be stated therein regarding
the Company and its Subsidiaries; and neither the
Registration Statement nor the Prospectus nor any
amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(4) Since the initial date on which
the Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as
of which information is given in the Registration
Statement and the Prospectus, and except as disclosed
in or contemplated by the Prospectus, there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company or any of its Subsidiaries; and no legal or
governmental action, suit or proceeding is pending or
threatened against the Company or any of its
Subsidiaries which is material to the Company or any
of its Subsidiaries, whether or not arising from
transactions in the ordinary course of business, or
which may adversely affect the transactions
contemplated by this Agreement; since such dates and
except as so disclosed, neither the Company nor any
of its Subsidiaries has entered into any verbal or
written agreement or other transaction which is not
in the ordinary course of business or which could
result in a material reduction in the future earnings
of the Company or incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to shareholders of
record on a date prior to the First Closing Date or
Second Closing Date; and
(6) Since the respective dates as
of which information is given in the Registration
Statement and the Prospectus and except as
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<PAGE> 24
disclosed in or contemplated by the Prospectus,
neither the Company nor any of its Subsidiaries have
sustained a material loss or damage by strike, fire,
flood, windstorm, accident or other calamity (whether
or not insured).
(v) On the date of this Agreement 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 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 director and executive officer of the
Company, in form and substance satisfactory to you, confirming
that for a period of 90 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 NationsBanc Montgomery
which consent may be withheld at the sole discretion of
NationsBanc Montgomery.
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
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<PAGE> 25
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 8, 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 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 or the Partnership contained herein or any
failure of the Company or the Partnership to perform their respective
obligations hereunder or under law; and will reimburse each Underwriter
and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that neither the
Company nor the Partnership will be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises
out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 3 hereof. In addition to
their 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 or the Partnership herein or failure to
perform their obligations hereunder, all as described in this Section
10(a), they will reimburse each Underwriter on a quarterly basis for
all reasonable legal or other expenses
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<PAGE> 26
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 or 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 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 or the Partnership may
otherwise have.
(b) Each Underwriter will severally indemnify and
hold harmless the Company, the Partnership, each of the Company's
directors, each of the Company's officers who signed the Registration
Statement, 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 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 pursuant to Section 3 hereof, it will
reimburse the Company (and, to the extent applicable, each officer,
director, or controlling person or the Partnership) on a quarterly
basis for all reasonable legal or other expenses incurred in connection
with investigating or
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<PAGE> 27
defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriters' obligation to
reimburse the Company (and, to the extent applicable, each officer,
director, controlling person or the Partnership) for such expenses and
the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper,
the Company (and, to the extent applicable, each officer, director,
controlling person or the Partnership) shall promptly return it to the
Underwriters together with interest, compounded daily, determined on
the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Company within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for
contribution or otherwise than 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
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<PAGE> 28
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, the Partnership 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
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 them 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, 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, the Partnership 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
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<PAGE> 29
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 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.
-29-
<PAGE> 30
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 or the Partnership to any Underwriter (except for
the expenses to be paid or reimbursed by the Company and the
Partnership pursuant to Sections 6 and 8 hereof and except to the
extent provided in Section 10 hereof) or of any Underwriter to the
Company or the Partnership (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
-30-
<PAGE> 31
escalated to such an extent, as, in the judgment of the
Representatives, to affect adversely the marketability of the Common
Shares, (iii) if any adverse event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any statement
or information contained in the Registration Statement or Prospectus or
which is not reflected in the Registration Statement or Prospectus but
should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect,
or (iv) if there shall be any action, suit or proceeding pending or
threatened; or there shall have been any development or prospective
development involving particularly the business or properties or
securities of the Company or any of its Subsidiaries or the
transactions contemplated by this Agreement which, in the reasonable
judgment of the Representatives, may materially and adversely affect
the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any termination
pursuant to this subsection (b) shall be without liability on the part
of any Underwriter to the Company or 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, 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 King & Spalding, 191 Peachtree Street,
Atlanta, Georgia 30303, Attention: Alan J. Prince; and if sent to the Company or
the Partnership shall be mailed, delivered or telegraphed and confirmed to the
Company at 1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339, Attention:
David E. Krischer with a copy to Kilpatrick Stockton LLP, 1100 Peachtree Street,
Suite 2800, Atlanta, Georgia 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.
-31-
<PAGE> 32
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 NationsBanc Montgomery, 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.
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.
-32-
<PAGE> 33
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Partnership and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
SUBURBAN LODGES OF AMERICA, INC.
By:
-----------------------------------------
David E. Krischer,
President
SUBURBAN HOLDINGS, L.P.
By: Suburban Lodges of America, Inc.
its General Partner
By:
-----------------------------------------
David E. Krischer,
President
-33-
<PAGE> 34
The foregoing Underwriting Agreement
is hereby confirmed and accepted by us
in San Francisco, California as of the
date first above written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
SMITH BARNEY INC.
J.C. BRADFORD & CO.
LEGACY SECURITIES CORP.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By NATIONSBANC MONTGOMERY SECURITIES, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
----------------------------------
-34-
<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- ------------------- ---------------
<S> <C>
NationsBanc Montgomery Securities, Inc............
Smith Barney Inc..................................
J.C. Bradford & Co................................
Legacy Securities Corp............................
Total.................................... 3,000,000
=========
</TABLE>
<PAGE> 1
EXHIBIT 10.9.a
SUBURBAN LODGE(R)
FRANCHISE AGREEMENT
<PAGE> 2
SUBURBAN LODGE
FRANCHISE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Heading Page
------- ----
<S> <C> <C>
1. Parties and Recitals 1
2. Grant of Franchise 1
3. Term and Renewal 2
4. Operating Assistance 2
5. Fees 4
6. Licensed Marks 5
7. Standards of Design, Construction and Operations 6
8. Confidential Operating Manual 10
9. Advertising and Marketing 11
10. Statements, Records and Fee Payments 13
11. Covenants 14
12. Transfer and Assignment 15
13. Default and Termination 17
14. Post Term Obligations 20
15. Insurance 21
16. Taxes, Permits and Indebtedness 22
17. Indemnification and Independent Contractor 22
18. Written Approvals, Waivers, Forms
of Agreement and Amendment 22
19. Enforcement 23
20. Notices 24
21. Governing Law and Dispute Resolution 24
22. Severability and Construction 25
23. General Provisions 25
24. Acknowledgments 25
Guaranty of Franchise Owner's Undertakings
</TABLE>
Exhibit 1 - Licensed Marks and Acknowledgement
Regarding Controlling Persons
Exhibit 2 - Territory
State Rider
<PAGE> 3
1. PARTIES AND RECITALS
(a) This Franchise Agreement ("Agreement") is entered into as of
__________________, 19____, (the "Execution Date"), by and between Suburban
Franchise Systems, Inc., a Georgia corporation, with its principal place of
business at 1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339 ("SFS"), and
_________________________________ ("Franchise Owner") with its principal place
of business at __________________________________________________________.
(b) SFS owns and has the right to license certain trade names,
trademarks, service marks and/or indicia of origin (the "Licensed Marks")
identified on Exhibit 1 hereto, the uniqueness and value of which are
acknowledged by Franchise Owner. In connection therewith, SFS has developed a
plan for the organization and operation of a system of extended stay lodging
establishments which system includes assistance in site evaluation and
selection, equipment and furnishings selection and layout, prototype
architectural plans and specifications, proprietary management software and
procedures, manuals covering development issues, business practices and
policies, sales and promotional techniques, personnel training, and other
matters relating to the operation and promotion of SUBURBAN LODGE facilities
(hereinafter collectively referred to as the "SUBURBAN LODGE System") all of
which are designed to enhance the reputation and goodwill with the public of
establishments operated pursuant to the SUBURBAN LODGE System.
(c) Franchise Owner has investigated and become familiar with the
SUBURBAN LODGE System, and desires, upon the terms and conditions set forth
herein, to obtain a license to operate a business which will utilize the
Licensed Marks and the SUBURBAN LODGE System (the "Franchised Business"). SFS is
willing, upon the terms and conditions set forth herein, to license Franchise
Owner to operate the Franchised Business.
2. GRANT OF FRANCHISE
(a) Subject to all of the terms and conditions herein, SFS grants to
Franchise Owner the right to operate a SUBURBAN LODGE System facility (the
"Unit") solely at the following address:________________________________________
___________________________________________________________________________ (the
"Premises") and the non-exclusive right to utilize the Licensed Marks in
conjunction therewith. The rights granted herein are sometimes referred to in
this Agreement as the "Franchise."
(b) Franchise Owner acknowledges and agrees that the Franchise relates
solely to the Premises and the Unit thereon, and affords Franchise Owner no
right to use the SFS prototype architectural plans and specifications for any
other purpose or to construct or operate any additional, expanded or modified
facilities on the Premises, nor any right to construct or operate the Franchised
Business at any location other than the Premises.
(c) Franchise Owner expressly acknowledges and agrees that SFS may
itself construct and/or operate, and grant to others the right to construct
and/or operate any business not utilizing the Licensed Marks, at any location.
(d) Franchise Owner expressly acknowledges and agrees that SFS may
itself construct and/or operate, and grant to others the right to construct
and/or operate any business utilizing the Licensed Marks, at any location
outside the territory referenced in Exhibit 2 attached hereto. The territory
referenced in Exhibit 2 shall be deemed to be that area bounded by the right of
ways (i.e., streets and highways), county lines, city lines, and/or land lot
lines highlighted in red on Exhibit 2, running from the center of such right of
ways, county lines, city lines, and/or land lot lines to the Premises, or as
otherwise indicated by the area inside the red highlighting on the map attached
to Exhibit 2.
-1-
<PAGE> 4
3. TERM AND RENEWAL
(a) This Agreement, unless previously terminated pursuant to Paragraph
13 hereof, shall expire ten (10) years and three (3) months from the date of
commencement of operations to the public ("Commencement Date") at the Premises,
as determined by SFS in its sole discretion (the "Initial Term").
(b) Upon the expiration of the Initial Term of this Agreement,
Franchise Owner shall be entitled to the issuance of a new franchise agreement
with respect to the Franchised Business for an additional ten (10) year term,
subject to the following conditions, otherwise, such renewal right shall
automatically expire:
(i) Franchise Owner, at the expiration of the Initial
Term and within twelve (12) months prior thereto, shall not be or have been in
default in the performance of any material obligation under this Agreement;
(ii) Franchise Owner shall have modernized or contracted
to modernize the Premises, which may include structural changes, additions to or
modification, as well as refurbishment of the buildings, signs, equipment,
furnishings and decor so as to reflect the then-current image of SUBURBAN LODGE
System units;
(iii) Franchise Owner shall have duly made written
application to SFS for a new franchise agreement not less than one hundred
eighty (180) days nor more than twelve (12) months prior to the expiration date
of the Initial Term and shall have duly executed and returned to SFS for final
approval and execution the new franchise agreement within thirty (30) days of
receipt. The new franchise agreement to be issued to Franchise Owner shall be
SFS's then-current standard form franchise agreement and may contain terms and
conditions substantially different from those contained herein, including
without limitation, increased fees and/or required advertising contributions,
and renewal terms; and,
(iv) Franchise Owner shall have duly tendered to SFS in
lieu of the initial franchise fee specified in the new franchise agreement an
administrative fee equal to ten percent (10%) thereof prior to the expiration
date of this Agreement.
4. OPERATING ASSISTANCE
(a) Prior to Franchise Owner's commencement of business, SFS shall
provide Franchise Owner with the following assistance, on the same basis as it
will from time to time make available to other franchise owners of SUBURBAN
LODGE System units:
(i) One (1) set of any written facility development
materials which SFS may make available (known as the Confidential Development
Manual(s)), as the same may be amended from time to time by SFS in its sole
discretion;
(ii) Information with respect to site evaluation and
selection;
(iii) Proprietary and confidential information with respect
to prototype plans, specifications and layouts for the Unit, which SFS shall
provide to Franchise Owner for use only during the term of this Agreement, and
standards and specifications for all fixtures, signs, improvements, equipment
and other related facilities for use in typical or similar units;
-2-
<PAGE> 5
(iv) Such information as SFS may have concerning possible
sources of fixtures, signs, improvements, equipment, furnishings and other
related facilities and other products and services available in connection with
the operation of SUBURBAN LODGE System units;
(v) A minimum of three to five (3 - 5) days of training
(and such additional time as SFS may deem necessary) in the operation of the
Franchised Business prior to its opening for either Franchise Owner or its
designated manager selected by Franchise Owner and approved by SFS. Such
training shall be conducted exclusively by SFS or its designee at a site to be
designated by SFS; provided, however, Franchise Owner shall pay all its and its
employees' costs and living expenses during and in connection with such
training; and, provided further, that for training provided at Franchise Owner's
Unit, Franchise Owner shall pay the reasonable transportation, meals and living
expenses of SFS or its designees. If this is Franchise Owner's first SUBURBAN
LODGE System Unit, at least three to five (3 - 5) additional days of training
shall take place at the Unit, prior to, during and/or subsequent to its opening.
(vi) Such on-Premises pre-opening or opening assistance by
SFS or its representative(s) in the initial operation of the Franchised Business
as SFS may, in its discretion, deem appropriate; provided, however, that for
assistance requested by Franchise Owner, SFS may require Franchise Owner to pay
the reasonable transportation, meals and living expenses of SFS or its
designees; and, provided further, that if Franchise Owner requests SFS or an
affiliate of SFS to take principal responsibility for supervising the
development or construction of Franchise Owner's Unit, SFS or an affiliate of
SFS may provide such services to Franchise Owner pursuant to a separate
agreement providing for separate charges for such services;
(vii) One (1) set of any written facility operational
materials which SFS may make available (known as the Confidential Operating
Manual(s), as defined in Paragraph 8 hereof), as the same may be amended from
time to time by SFS in its sole discretion;
(viii) An initial supply of accounting forms for reporting
transactions to SFS in accordance with Paragraphs 5 and 10 hereof. Subsequent
supplies will be available at SFS's cost plus handling charges;
(ix) Proprietary computer software programs and procedures
which may be required by SFS to be utilized by Franchise Owner in the operation
of the Franchised Business and which may be updated or modified by SFS from time
to time during the term of this Agreement. Any such proprietary software
programs shall remain the property of SFS and shall be on loan to Franchise
Owner for six month intervals during the term of this Agreement. SFS shall be
obligated to renew such loan but only so long as Franchise Owner is in good
standing under this Agreement.
(b) SFS reserves the right to require Franchise Owner to maintain
standards of quality, appearance and service at all SUBURBAN LODGE System units,
thereby maintaining the public image and reputation of the SUBURBAN LODGE System
and the demand for the services provided thereunder, and to that end SFS will
provide Franchise Owner upon request from Franchise Owner with such of the
following as it shall deem appropriate, in its sole discretion, and as it then
supplies other similarly situated franchise owners:
(i) Periodic assistance in local advertising and
marketing, and sales and promotional techniques;
(ii) Periodic individual or group counseling in the
operation of the Franchised Business rendered in person, by seminar, or by
newsletters or bulletins made available from time to time to all SUBURBAN LODGE
System franchise owners;
(iii) Advice concerning operating problems, new techniques
or operating methods disclosed by reports submitted to or inspections made by
SFS;
-3-
<PAGE> 6
(iv) Advice and guidance with respect to new and improved
methods of operation or business procedures developed by SFS, use of the
Confidential Operating Manual, management materials, promotional materials,
advertising formats and the Licensed Marks;
(v) The opportunity to participate in group purchasing programs
for inventory, supplies, insurance and equipment which SFS may, from time to
time, use, develop, sponsor or provide and upon such terms and conditions as may
be determined solely by SFS; and
(vi) Periodic inspections of the Premises and other SUBURBAN
LODGE System units and of the services they offer.
5. FEES
(a) In consideration of the execution of this Agreement, Franchise
Owner agrees to pay SFS an initial franchise fee which shall be equal to the
greater of Two Hundred Twenty-Five Dollars ($225) per licensed guest room or
Thirty Thousand Dollars ($30,000). Three Thousand Dollars ($3,000) of the
initial franchise fee was paid on the date of execution of the Preliminary
Agreement for a License to Operate a SUBURBAN LODGE Unit ("Preliminary
Agreement"). An additional Three Thousand Dollars ($3,000) of the initial
franchise fee shall be paid on the Execution Date of this Agreement. The
remaining balance shall be paid on the date Franchise Owner breaks ground to
commence construction of the Unit (as determined by SFS in its sole discretion)
or the date the Franchise Owner's construction loan is closed, whichever is
earlier. Each payment of the initial franchise fee shall be non-refundable.
(b) At all times after the Commencement Date, Franchise Owner shall pay
to SFS the following recurring fees:
(i) A continuing fee equal to four percent (4%) of the Gross
Volume of Business (as hereinafter defined), except during the first ninety (90)
days of operation during which time there shall be no continuing fee.
(ii) SFS may, in its sole discretion, upon ninety (90) days
prior written notice to Franchise Owner and all other similarly situated
SUBURBAN LODGE franchise owners, but not before a minimum of fifteen (15)
SUBURBAN LODGE System units are in operation, require payment of an advertising
and marketing fee to support national, regional and/or local advertising,
initially not to exceed one percent (1%) of the Gross Volume of Business. The
advertising and marketing fee shall be expended in accordance with the terms of
Paragraph 9. The level of the advertising and marketing fee may be increased
from time to time by SFS for all SUBURBAN LODGE System units at the sole option
of SFS upon sixty (60) days written notice to Franchise Owner, provided,
however, that in no event shall the advertising and marketing fee percentage
hereunder exceed one and one-half percent (1.5%) of the Gross Volume of Business
at any given time during the term of this Agreement without the concurrence of a
majority (in the aggregate) of all company and franchised units then open for
business to the public and provided further that the advertising and marketing
fee percentage hereunder shall never exceed two percent (2%) of the Gross Volume
of Business during the Initial Term. It is the intention of the parties that the
cost of the advertising and marketing program shall be shared on a similar basis
by all SUBURBAN LODGE System units, including units owned or operated by SFS or
its affiliates, rather than for SFS to make a profit from such fees.
(iii) A reservations referral program fee not to exceed one
percent (1%) of the Gross Volume of Business, for the purpose of compensating
SFS for costs incurred in administering its reservations referral programs and
related overhead costs. SFS may in its sole discretion from time to time raise
the level of the reservations referral program fee for all SUBURBAN LODGE System
units upon thirty (30) days written notice to Franchise Owner, but only to
offset any increased costs or expenditures for reservation referral
-4-
<PAGE> 7
programs. It is the intention of the parties that the cost of the reservations
referral program shall be shared on a similar basis by all SUBURBAN LODGE System
units, including units owned or operated by SFS or its affiliates, rather than
for SFS to make a profit from such fees.
(iv) An amount equal to any sales, gross receipts or similar tax
imposed on SFS and calculated solely on payments required under the Franchise
Agreement, unless the tax is an optional alternative to an income tax otherwise
payable by SFS.
(c) Unless otherwise provided, all fees and other amounts due to SFS
hereunder shall be paid in the manner, at the times, and such payments shall be
accompanied by the statement required under Paragraph 10 of this Agreement.
(d) If any fee or any other amount due under this Agreement is not paid
within ten (10) days after such payment is due, Franchise Owner shall pay a
service charge equal to the lesser of the daily equivalent of eighteen percent
(18%) per annum of such overdue amount per year or the highest rate then
permitted by applicable law for each day such amount is past due. This charge
shall accrue whether or not SFS exercises its right to terminate this Agreement
pursuant to Paragraph 13 hereof.
(e) The term "Gross Volume of Business," as used in this Agreement,
shall mean the aggregate gross amount of all revenues from whatever source
derived (whether in the form of cash, credit, agreements to pay or other
consideration, and whether or not payment is received at the time of sale) which
arise from or are derived by Franchise Owner or by any other person from
business conducted or which originated in, on, from, or through the Premises,
whether such business is conducted in compliance with or in violation of the
terms of this Agreement, including, but not limited to, receipts from the rental
of guest rooms and revenues derived from the sale and rental of services and
merchandise including vending and laundry machine receipts, but excluding key
deposit forfeitures, security deposit forfeitures for room damages and sales or
use taxes imposed by any governmental authority directly on sales and collected
by Franchise Owner, provided that the amount thereof is added to the selling
price or absorbed therein and actually paid to the governmental authority.
(f) All payments by Franchise Owner pursuant to this Paragraph 5 shall
be applied in such order as SFS may designate from time to time. Franchise Owner
agrees that it may not designate an order for application of any fees different
from that designated by SFS and expressly acknowledges and agrees that SFS may
accept fees paid pursuant to different instructions without any obligation to
follow such instructions, even if such payment is made by its terms conditional
on such instructions being followed. This provision may be waived only by
written agreement signed by SFS, which written agreement must be separate from
the check or other document constituting payment.
6. LICENSED MARKS
(a) Franchise Owner expressly acknowledges SFS's rights in and to the
Licensed Marks and agrees not to represent in any manner that Franchise Owner
has acquired any ownership rights in the Licensed Marks. Franchise Owner agrees
not to use any of the Licensed Marks or any marks, names or indicia which are or
may be confusingly similar in its own corporate or business name except as
authorized in this Agreement. Franchise Owner further acknowledges and agrees
that any and all goodwill associated with the SUBURBAN LODGE System and
identified by the Licensed Marks shall inure directly and exclusively to the
benefit of SFS and that, upon the expiration or termination of this Agreement
for any reason, no monetary amount shall be assigned as attributable to any
goodwill associated with Franchise Owner's use of the Licensed Marks.
-5-
<PAGE> 8
(b) Franchise Owner understands and agrees that any use of the Licensed
Marks other than as expressly authorized by this Agreement, without SFS's prior
written consent, may constitute an infringement of SFS's rights therein and that
the right to use the Licensed Marks granted herein does not extend beyond the
termination or expiration of this Agreement. Franchise Owner expressly covenants
that, during the term of this Agreement and thereafter, Franchise Owner shall
not, directly or indirectly, commit any act of infringement or contest or aid
others in contesting the validity of SFS's right to use the Licensed Marks or
take any other action in derogation thereof.
(c) Franchise Owner shall promptly notify SFS of any claim, demand or
cause of action that it believes may exist or that it becomes aware of, that SFS
may have based upon or arising from any unauthorized attempt by any person or
legal entity to use the Licensed Marks, any colorable variation thereof, or any
other mark, name or indicia in which SFS has or claims a proprietary interest.
Franchise Owner shall assist SFS, upon request and at SFS's expense, in taking
such action, if any, as SFS may deem appropriate to halt such activities, but
shall take no action nor incur any expenses on SFS's behalf without SFS's prior
written approval. If SFS undertakes the defense or prosecution of any litigation
relating to the Licensed Marks, Franchise Owner agrees to execute any and all
documents and to do such acts and things as may, in the opinion of SFS's legal
counsel, be reasonably necessary to carry out such defense or prosecution.
(d) Franchise Owner further agrees and covenants to operate and
advertise only under the names or marks from time to time designated by SFS for
use by similar SUBURBAN LODGE System franchise owners; to adopt and use the
Licensed Marks solely in the manner prescribed by SFS; to refrain from using the
Licensed Marks to perform any activity or to incur any obligation or
indebtedness in such a manner as may, in any way, subject SFS to liability
therefore; to observe all laws with respect to the registration of trade names
and assumed or fictitious names, to include in any application therefore a
statement that Franchise Owner's use of the Licensed Marks is limited by the
terms of this Agreement, and to provide SFS with a copy of any such application
and other registration document(s); to observe such requirements with respect to
trademark and service mark registrations and copyright notices as SFS may, from
time to time, require, including, without limitation, affixing "SM", "TM", or
(R) adjacent to all such Licensed Marks in any and all uses thereof; and, to
utilize such other appropriate notice of ownership, registration and copyright
as SFS may require.
(e) SFS reserves the right, in its sole discretion, to designate one or
more new, modified or replacement Licensed Marks for use by franchise owners and
to require the use by Franchise Owner of any such new, modified or replacement
Licensed Marks in addition to or in lieu of any previously designated Licensed
Marks. Any expenses or costs associated with the use by Franchise Owner of any
such new, modified or replacement Licensed Marks shall be the sole
responsibility of Franchise Owner.
7. STANDARDS OF DESIGN, CONSTRUCTION AND OPERATION
SFS shall establish and Franchise Owner shall maintain standards of
quality, appearance and operation for the Franchised Business. For the purpose
of enhancing the public image and reputation of businesses operating under the
SUBURBAN LODGE System and for the purpose of increasing the demand for services
and products provided by franchise owners and SFS, the parties agree as follows:
(a) In connection with the construction of the Unit at which the
Franchised Business is to operate, Franchise Owner shall, at its expense,
furnish to SFS for its approval the following:
(i) A proposed preliminary site plan for the Unit, adapted from
SFS's standard plans by Franchise Owner's architect or engineer for use at the
Premises, which shall be supplied to SFS before construction of the Unit is
begun and which, if approved, shall not thereafter be materially changed without
SFS's prior consent;
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(ii) Copies of Franchise Owner's plans and specifications for
construction of the Unit, adapted from SFS's standard plans and specifications
by Franchise Owner's architect or engineer for use at the Premises, in proposed
final form with the stamp of Franchise Owner's architect or engineer affixed
thereon, for approval by SFS, which, if approved, shall not thereafter be
materially changed without SFS's prior consent. In addition, Franchise Owner
shall furnish SFS copies for SFS's review of all commitments and plans for
construction and permanent financing, the name, address and contact with respect
to each lender (which information shall be kept current by Franchise Owner at
all times hereunder), the name and address of the contractor, together with a
copy of the construction contract, and such other additional information as SFS
may from time to time request. Franchise Owner shall also furnish SFS throughout
the period of the construction of Franchise Owner's Unit monthly inspection
reports signed by Franchise Owner's architect or the lender's inspector
certifying the general compliance of Franchise Owner's Unit, as constructed to
the date of each such report, with the plans and specifications approved by SFS.
(iii) All such permits and certifications as may be required for
the lawful construction and operation of the Unit, together with copies of all
building inspection reports and certification from all governmental authorities
having jurisdiction over the site that all necessary permits have been obtained,
and that all requirements for construction have been met; and
(iv) A copy of the lease agreement, if the Premises are leased,
and a copy of any billboard or off Premises sign leases, which agreements shall
provide for SFS to have the right to enter the Premises or the property on which
such billboards or off Premises signs are located to make any modifications
necessary to protect the Marks, and the option to assume any such lease, with
the right to sublease for all or any part of its term, both upon Franchise
Owner's default or termination thereunder, and upon the termination or
expiration of this Agreement.
(b) Prior to opening the Franchised Business to the public, Franchise
Owner or, if applicable, its designated manager, shall have been certified by
SFS as meeting SFS's qualifications for management at similar SUBURBAN LODGE
System units. Franchise Owner agrees that the Franchised Business shall only be
operated directly by Franchise Owner or by a trained manager employed by
Franchise Owner, or by a management company that has previously been approved by
SFS and has not thereafter been disapproved. Franchise Owner shall notify SFS in
writing at least 30 days prior to employing any such manager or management
company, setting forth in reasonable detail all pertinent information relative
to the individual's or management company's character and business background
and experience. No such trained manager or management company shall be employed
to operate the Franchised Business (or any part thereof) without SFS's prior
consent, based upon such standards and requirements as SFS may from time to time
specify, in writing or otherwise. If SFS rejects or later disapproves such
trained manager or management company, it shall notify Franchise Owner of the
pertinent reasons therefor. Notwithstanding the right of SFS to protect the
goodwill of the SUBURBAN LODGE System by disapproving any manager or management
company employed by Franchise Owner, such manager or management company shall
not be deemed an employee or agent of SFS for any purpose whatsoever. No part of
the Premises shall be leased to or managed (either directly or indirectly) by
any party other than Franchise Owner without SFS's prior consent. Franchise
Owner and/or such of its designated managerial personnel as approved by SFS
shall complete, to SFS's reasonable satisfaction, any and all training programs
as SFS may reasonably require. If any trainee fails to complete the required
initial training program satisfactorily, SFS shall notify Franchise Owner of
such failure and require Franchise Owner to designate a substitute trainee.
Franchise Owner's Unit shall at all times continue to be managed by personnel
who have met SFS's training requirements. SFS may, at its option, require others
of Franchise Owner's initial and subsequent management employees to attend and
satisfactorily complete all or any part of such training programs. All expenses
incurred in training, including, without limitation, cost of travel, room, board
and wages of the person(s) receiving such training shall be borne by Franchise
Owner. Franchise Owner shall also bear the cost of any additional training which
may be required by SFS. Franchise Owner agrees that at all times during the term
of this Agreement there is to be at least one employee of Franchise Owner or its
approved management company (the "designated manager") who:
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(i) Is principally responsible for the operation of the
Franchised Business on a full-time, in-person basis at the Unit, and
(ii) Has attended and satisfactorily completed such training,
retraining or refresher training program as SFS may require, in its sole
discretion, at such times and places prior to the expiration of this Agreement
as SFS may reasonably designate.
(c) Franchise Owner shall (i) commence construction of the Unit, in
accordance with the site and building plans approved by SFS, not later than six
(6) months from and including the Execution Date, (ii) complete the construction
of the Unit and open the Franchised Business on a continuous basis to the public
not later than fifteen (15) months from and including the Execution Date and
(iii) in any event, at all times make a good faith reasonable effort to develop
and construct the Unit during such periods. SFS shall not unreasonably withhold
consent to a written request by Franchise Owner to extend either or both of the
foregoing deadlines for commencing or completing construction and opening to the
public if such consent is requested due to delays beyond the control of the
Franchise Owner, provided that Franchise Owner is without fault in failing to
prevent or causing the delay, and such delay cannot reasonably be circumvented
by Franchise Owner through the use of alternative sources, workaround plans or
other means. Any such consent by SFS to extend either or both of the foregoing
deadlines shall only be effective if made in writing. Construction of the Unit
shall not be considered completed, and the Franchised Business shall not be
opened to the public, until Franchise Owner receives written authorization from
SFS, which such authorization shall not unreasonably be withheld by SFS acting
in good faith. Upon receipt of such authorization, the Franchise Owner shall
open the Franchised Business to the public as soon as practicable.
(d) All fixtures, signs, improvements, equipment, furnishings and
supplies for the Franchised Business selected by Franchise Owner must meet the
quality and appearance standards set forth in SFS's standard plans and
specifications, Confidential Operating Manual or other writing delivered by SFS
to Franchise Owner, subject to compliance with applicable laws and regulations.
(e) Subject to compliance with applicable laws and regulations,
Franchise Owner shall acquire all signs as required by SFS for use at or in
connection with the Franchised Business.
(f) Franchise Owner agrees to comply with all SUBURBAN LODGE System
rules, regulations, policies and standards which are by their terms mandatory
including, without limitation, those contained in the Confidential Operating
Manual. Franchise Owner shall operate and maintain the Franchised Business
solely in the manner and pursuant to the standards prescribed herein, in the
Confidential Operating Manual or in other written materials provided by SFS to
Franchise Owner.
(g) Franchise Owner agrees to use the Premises solely for the operation
of the Franchised Business in the manner and pursuant to the standards
prescribed herein, in the Confidential Operating Manuals or otherwise in
writing, and to refrain from using or permitting the use of the Premises for any
other purpose or activity at any time.
(h) Franchise Owner agrees to construct and operate the Franchised
Business in conformity with such methods, standards and specifications as SFS
may from time to time prescribe in its standard plans and specifications or
Confidential Operating Manual to insure that SFS's required degree of quality,
service and image is maintained; and to refrain from deviating therefrom and
from otherwise operating in any manner which adversely reflects on SFS's name
and goodwill, or on the Licensed Marks. Without limiting the generality of the
foregoing, and provided SFS applies these requirements on a reasonably
non-discriminatory basis to comparable units, including units operated by SFS
and its affiliates, Franchise Owner specifically agrees:
(i) To purchase and install, at Franchise Owner's expense, all
such fixtures, signs, equipment, furnishings and supplies, all as may be
required by SFS, and meet the specifications of the
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approved site layout and plan, and all other such items as SFS may prescribe
from time to time; and to refrain from installing, or permitting to be
installed, on or about or in connection with the Premises or the Franchised
Business, any such item not meeting SFS's standards and specifications.
(ii) To maintain in sufficient supply, and use at all times, only
operating products, materials, supplies and expendables, including paper goods,
as conform with SFS's then-current standards and specifications, and to refrain
from using nonconforming items without SFS's prior consent.
(iii) To sell and to offer for sale all such products, goods and
services as SFS may, from time to time require, and only those which SFS may,
from time to time approve, which are not subsequently disapproved, as meeting
its quality standards and specifications. In addition to any remodeling,
repairs, replacement and redecoration required by Paragraph 7(i) hereof, in
order to introduce new products or services through all SUBURBAN LODGE System
units, Franchise Owner may be required to expend additional amounts on new,
different or modified equipment or fixtures necessary to offer such new services
or products. In such event, Franchise Owner shall have up to three (3) months to
complete any modifications necessitated by the introduction of such new products
and/or services.
(i) Franchise Owner agrees to maintain the Premises, and all buildings,
fixtures, signs, equipment, furnishings and improvements thereon, in conformity
with SFS's then current standards at all times during the term of this
Agreement, and to make such repairs and replacements thereto as SFS may require.
Without limiting the generality of the foregoing, Franchise Owner specifically
agrees:
(i) To keep the Unit at all times in a high degree of
sanitation, repair, order and condition, including, without limitation, such
periodic repainting of the exterior and interior of all buildings and related
facilities, such maintenance and repairs to all equipment, and such
refurbishment or replacement of obsolete or outdated fixtures, furnishings,
uniforms, signs and equipment as SFS may from time to time reasonably direct;
(ii) To meet and maintain at all times the highest grade of
governmental standards and ratings applicable to the operation of the Unit;
(iii) To refurbish the Unit periodically upon SFS's reasonable
request including, without limitation, remodeling and redecorating of the
interior and exterior of all buildings and related facilities on the Premises,
and such repair and replacement of existing fixtures, furnishings, signs and
equipment, as may be necessary to reflect the then current public image required
of new units by SFS and to insure the presentation of the Marks consistently
therewith; provided, however, that SFS shall not require Franchise Owner to
refurbish more frequently than every five (5) years and the total required to be
spent by Franchise Owner at such time shall not exceed two thousand two hundred
and fifty ($2,250) dollars (as increased by the increase in the CPI index using
the year in which this Agreement is entered into as the base year) for each
guest room in the Unit. SFS agrees to apply this requirement on a reasonably
nondiscriminatory basis to comparable units, including units operated by SFS and
its affiliates.
(j) Franchise Owner agrees to permit SFS or its agents, at any
reasonable time, to remove from the Premises, at SFS's option, certain samples
of any products, materials, supplies and expendables without payment therefor,
in amounts reasonably necessary for testing by SFS or any independent
laboratory, to determine whether such samples meet SFS's then-current standards
and specifications, with no liability to Franchise Owner for any damage to such
samples as a result of such testing.
(k) Franchise Owner shall purchase all fixtures, furnishings, signs,
equipment, inventory, uniforms, advertising materials, and other supplies,
products and materials required for the operation of the Franchised Business
that comply with standards and specifications published by SFS from time to
time. If Franchise Owner desires to purchase any items that do not comply with
such standards and specifications, Franchise Owner shall submit to SFS a written
request for such approval in accordance with procedures
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prescribed from time to time by SFS. SFS reserves the right to designate itself
an approved supplier and to make a profit from the sale of supplies to Franchise
Owner.
(l) Franchise Owner shall use only business stationery, business cards,
marketing materials, advertising materials, printed materials or forms which
have been approved in advance by SFS. Franchise Owner shall not employ any
person to act as a representative of Franchise Owner in connection with local
promotion of the Franchised Business in any public media without the prior
written approval of SFS. Any and all supplies or materials purchased, leased or
licensed by Franchise Owner shall always meet those standards specified by SFS
in the Confidential Operating Manual or otherwise in writing.
(m) In all advertising displays and materials and at the Premises,
Franchise Owner shall, in such form and manner as may be specified by SFS in the
Confidential Operating Manual, notify the public that Franchise Owner is
operating the business licensed hereunder as a franchise owner of SFS and shall
identify its business location in the manner specified by SFS in the
Confidential Operating Manual. Further, at the request of SFS, Franchise Owner
shall display in the guest lobby, or otherwise make available as directed by
SFS, literature provided by SFS relating to the availability of franchises and
the location of other Units in the SUBURBAN LODGE System.
(n) Franchise Owner shall promptly respond to customer complaints and
shall take such other steps as may be required to insure positive customer
relations.
(o) Franchise Owner hereby grants to SFS and its agents the right to
enter upon the Premises, without notice, at any reasonable time for the purpose
of conducting inspections of the Premises, Franchise Owner's books, records and
register tapes, and Franchise Owner agrees to render such assistance as may
reasonably be requested and to take such steps as may be necessary immediately
to correct any deficiencies detected during such an inspection upon the request
of SFS or its agents.
(p) Because complete and detailed uniformity under many varying
conditions may not be possible or practical, SFS specifically reserves the right
and privilege, in its sole discretion and as it may deem in the best interests
of all concerned in any specific instance, to vary standards for any franchise
owner based upon the peculiarities of a particular site or circumstance, density
of population, business potential, population of trade area, existing business
practices or any other conditions which SFS deems to be of importance to the
successful operation of such franchise owner's business. Franchise Owner shall
have no recourse against SFS on account of any variation from standard
specifications and practices granted to any franchise owner and shall not be
entitled to require SFS to grant Franchise Owner a like or similar variation
hereunder.
(q) Franchise Owner agrees to install, update or replace any equipment
(including computer equipment and cash registers) or software designed to be
used in connection with the operation of the Franchised Business, and to utilize
equipment and software of such kind and in such manner as is specified by SFS
from time to time. Without limiting the generality of the foregoing, Franchise
Owner agrees that it shall install and utilize in connection with the Franchised
Business such hardware and software as SFS may require from time to time, which
is compatible with and continuously accessible to SFS's central management
system through modem or other manual or electronic access. SFS agrees to apply
this requirement on a reasonably nondiscriminatory basis to comparable units,
including units operated by SFS and its affiliates. Upon request of SFS,
Franchise Owner agrees to provide SFS access to its computer data base and to
send SFS original or duplicate copies of all diskettes utilized by Franchise
Owner in the operation of the Franchised Business.
(r) Franchise Owner agrees that this Agreement shall constitute a lien
upon all exterior sign facia bearing any Licensed Marks which are to be
displayed on the exterior of the Premises or other exterior locations and in the
event of any termination or expiration of this Agreement, Franchise Owner agrees
to remove immediately such exterior facia bearing any of the Licensed Marks. If
Franchise Owner fails to make such alterations within fifteen (15) days after
termination or expiration of this Agreement, Franchise Owner
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agrees that SFS or its designated agents may enter upon any such location at any
time to make such alterations, at Franchise Owner's sole risk and expense,
without liability for trespass.
(s) Franchise Owner hereby grants to SFS the right to take such steps
as are necessary to manage the Franchised Business for the account of Franchise
Owner in the event of Franchise Owner's death or in the event that an
independent third party (such as a medical doctor) reasonably determines that
Franchise Owner is incapacitated or incapable of running the Franchised
Business, and to receive a reasonable fee for such services.
8. CONFIDENTIAL OPERATING MANUAL AND OTHER INFORMATION
(a) In order to protect the reputation and goodwill of the businesses
operating under the SUBURBAN LODGE System and to maintain standards of operation
under the Licensed Marks, Franchise Owner shall conduct the Franchised Business
operated under the SUBURBAN LODGE System in accordance with various written
instructions and confidential manuals (hereinafter and previously referred to as
the "Confidential Operating Manual"), including such amendments thereto, as SFS
may publish from time to time, all of which Franchise Owner acknowledges belong
solely to SFS and shall be on loan from SFS during the term of this Agreement.
When any provision in this Agreement requires that Franchise Owner comply with
any standard, specification or requirement of SFS, unless otherwise indicated,
such standard, specification or requirement shall be such as is set forth in
this Agreement or as may, from time to time, be set forth by SFS in the
Confidential Operating Manual.
(b) Franchise Owner shall at all times use its best efforts to keep
SFS's Trade Secrets and Confidential Information (as each term is defined below)
as confidential, and shall limit access to SFS's Trade Secrets and Confidential
Information to employees of Franchise Owner on a need-to-know basis. Franchise
Owner acknowledges that the unauthorized use or disclosure of SFS's Confidential
Information or Trade Secrets will cause irreparable injury to SFS and that
damages are not an adequate remedy. Franchise Owner accordingly covenants that
it shall not at any time, without SFS's prior written consent, disclose, use,
permit the use of (except as may be required by applicable law or authorized by
this Agreement), copy, duplicate, record, transfer, transmit or otherwise
reproduce any Trade Secrets or Confidential Information, in any form or by any
means, in whole or in part, or otherwise make the same available to any
unauthorized person or source. For purposes of this Agreement:
"Trade Secrets" means the Confidential Operating Manual and any other
manuals (including the Confidential Development Manual), the contents
thereof, the SFS proprietary prototype architectural plans and
specifications, the SFS proprietary management software, and any
methods of operation, standards, techniques, materials, goods and
information created or used by SFS or involving the SUBURBAN LODGE
System and designated for confidential use within the SUBURBAN LODGE
System, and the information contained therein, to the extent such items
(A) derive economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means
by, other persons or entities who can obtain economic value from their
disclosure or use, and (B) are the subjects of efforts by SFS that are
reasonable under the circumstances to maintain their secrecy.
"Confidential Information" means information other than Trade Secrets
that belongs to SFS or is licensed by SFS, that is of a confidential or
secret nature material to SFS, and that is not generally known to the
public.
(c) Franchise Owner understands and acknowledges that SFS may, from
time to time, revise the contents of the Confidential Operating Manual to
implement new or different requirements for the operation
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of the Franchised Business, and Franchise Owner expressly agrees to comply with
all such changed requirements which are by their terms mandatory; provided that
such requirements shall also be applied in a reasonably nondiscriminatory manner
to comparable businesses operated under the SUBURBAN LODGE System by other
franchise owners. The implementation of such requirements may require the
expenditure of reasonable sums of money by Franchise Owner at the Premises.
(d) Franchise Owner shall at all times insure that its copy of the
Confidential Operating Manual is kept current and up to date. In the event of
any dispute as to the contents thereof, the terms and dates of the master copy
thereof maintained by SFS at its principal place of business shall be
controlling.
9. ADVERTISING AND MARKETING
Recognizing the value of standardized advertising and marketing
programs to the furtherance of the goodwill and public image of the SUBURBAN
LODGE System, the parties agree as follows:
(a) SFS or its designee shall exclusively maintain and administer the
SUBURBAN LODGE Advertising Fund ("Fund") (if established), for national,
regional and/or local advertising, public relations and marketing programs and
market research ("Advertising") and shall direct all such Advertising with sole
discretion over the concepts, materials and media used therein. All advertising
and marketing fees paid by Franchise Owner pursuant to Paragraph 5(b)(ii) hereof
shall be part of such Fund. SFS shall have the sole right to enforce the
obligations of Franchise Owner, and all other franchise owners of the SUBURBAN
LODGE System, who are obligated to contribute to the Fund, and neither Franchise
Owner nor any other SUBURBAN LODGE franchise owner who shall be obligated to
contribute to the Fund shall be deemed a third party beneficiary with respect to
said Fund or have any right to enforce any obligation to contribute thereto.
Franchise Owner understands and acknowledges that the Fund is intended to
maximize general public recognition and acceptance of the Licensed Marks for the
benefit of the SUBURBAN LODGE System as a whole and that SFS and its designee
undertake no obligation in administering the Fund to insure that any particular
franchise owner benefits directly or pro rata from the Advertising. No part of
the Fund shall be used by SFS to defray any of its general operating expenses
other than those reasonably allocable to such Advertising, or other activities
reasonably related to the administration or direction of the Fund and its
related programs. SFS may, in its sole discretion from time to time, advance
monies to the Fund and charge the Fund interest on such advances at two percent
(2%) above the prime rate then designated by the Wachovia Bank of Georgia, NA
(or if no such rate is then being so designated, at such rate as reasonably
determined by SFS as an equivalent rate) and may authorize repayment of such
advances from the Fund, all in accordance with such terms as SFS deems necessary
or appropriate. Franchise Owner agrees that the Fund may otherwise be used to
meet any and all costs incident to such Advertising. In addition, SFS shall have
the right to expend all, or any portion of, the Fund for co-op advertising or
promotional programs on a regional or local basis; provided, however, that such
programs shall be available to all similarly situated franchise owners as
determined by SFS in its reasonable discretion.
(b) SFS shall maintain contributions to the Fund in a separate bank
account from SFS's general operating account. SFS shall furnish Franchise Owner
with annual financial statements of the Fund, certified to be correct by an
officer of SFS. SFS may, in its sole discretion, elect to accumulate monies in
the Fund for such periods of time as it deems necessary or appropriate, with no
obligation to expend all monies received in any fiscal year during such fiscal
year. In the event SFS's expenditures for Advertising in any one fiscal year
shall exceed the total amount contributed to the Fund during such fiscal year,
SFS shall have the right to be reimbursed to the extent of such excess
contributions from any amounts subsequently contributed to the Fund or to use
such excess as a credit against its future contributions.
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(c) Franchise Owner agrees to expend an amount of at least Three
Thousand Dollars ($3,000) on promotion and advertising of the Franchised
Business in form, content and media approved by SFS, during the period beginning
thirty (30) days prior to and ending sixty (60) days following the Commencement
Date.
(d) SFS may offer to provide Franchise Owner, from time to time, with
local advertising and marketing materials, including without limitation
newspaper mats, radio commercial tapes, merchandising materials, sales aids,
special promotions and similar advertising at a reasonable price, plus handling.
(e) Franchise Owner, at its expense and exclusive of any fees paid to
the Fund, shall:
(i) Obtain listings of the Franchised Business in the white and
yellow pages of such local telephone directories and of the kind and size
specified from time to time by SFS for all comparable SUBURBAN LODGE System
units; and
(ii) Obtain and maintain any special promotional materials of the
kind and size as SFS may from time to time require for comparable SUBURBAN LODGE
System units, including but not limited to system directories of all Units in
the SUBURBAN LODGE System, which Franchise Owner shall display and maintain in
the guest lobby of Franchise Owner's Unit.
(f) Franchise Owner shall submit (through the mail, return receipt
requested) to SFS for its prior approval (except with respect to prices to be
charged), samples of all Advertising to be used by Franchise Owner that have not
been prepared or previously approved by SFS or its designated agents. Franchise
Owner shall include in all Advertising any "1-800" number required by SFS.
(g) Franchise Owner shall participate in all cooperative advertising
and/or marketing programs as are from time to time prescribed by SFS; provided,
however, that no such cooperative advertising and/or marketing programs shall
require Franchise Owner to adhere to any specific price(s), nor shall it require
any funds other than those required to be paid under Paragraph 5(b)(ii) hereof.
The terms and conditions required for participation in any such co-op
advertising program or programs shall be as specified in the Confidential
Operations Manual.
10. STATEMENTS, RECORDS AND FEE PAYMENTS
(a) Franchise Owner shall, in a manner satisfactory to SFS, maintain
original, full and complete register tapes or sales records, other records,
accounts, books, data, licenses and contracts which shall accurately reflect all
particulars relating to Franchise Owner's business and such statistical and
other information or records as SFS may require and shall keep all such
information for not less than three (3) years, even if this Agreement is no
longer in effect. In addition, upon the request of SFS, Franchise Owner shall
compile and provide to SFS any statistical or financial information regarding
the operation of the Franchised Business, as SFS may reasonably request for
purposes of evaluating or promoting the Franchised Business or the SUBURBAN
LODGE System in general. SFS and its designated agents shall have the right to
examine and audit such records, accounts, books and data at all reasonable times
to insure that Franchise Owner is complying with the terms of this Agreement. If
such inspection discloses that the Gross Volume of Business during any scheduled
reporting period actually exceeded the amount reported by Franchise Owner as its
Gross Volume of Business, by an amount equal to two percent (2%) or more of the
Gross Volume of Business originally reported to SFS, then Franchise Owner shall
bear the cost of such inspection and audit and shall immediately pay to SFS any
such deficiency with interest from the date due at the lesser of eighteen
percent (18%) per annum of such overdue amount or the highest rate permitted by
applicable law, immediately upon the request of SFS. SFS agrees to keep the
Franchise Owner's operating results confidential, except that SFS may disclose
such data in summary form with other SUBURBAN LODGE System units or as may be
required by law.
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(b) No later than the fifteenth (15th) day of each month SFS shall
receive from Franchise Owner, in the form prescribed by SFS, statements stating
the fees due to SFS during the preceding month itemized by revenue producing
activity as specified from time to time by SFS, the Gross Volume of Business at
the Premises for the prior month, and such other information as SFS may require,
all signed and certified as true and correct by an authorized agent of Franchise
Owner. Together with such statements, Franchise Owner shall pay to SFS all
amounts due hereunder with respect to the period of time covered by each such
statement.
(c) Upon SFS's request, Franchise Owner shall furnish SFS with a copy
of each of its reports and returns of sales, use and gross receipt taxes and
complete copies of any state or federal income tax returns covering the
operation of the Franchised Business, all of which Franchise Owner shall certify
as true and correct.
(d) If requested by SFS, Franchise Owner shall prepare and deliver to
SFS on a monthly basis, no later than the thirtieth (30th) day of each month, an
unaudited profit and loss statement in a form satisfactory to SFS acting in its
sole and subjective discretion covering Franchise Owner's business for the prior
month and such additional reports as SFS may require, all of which shall be
certified by Franchise Owner as true and correct. Franchise Owner shall also
submit to SFS by March 1 and September 1 of each year during the term of this
Agreement, an unaudited balance sheet reflecting the financial position of the
Franchised Business as of the preceding December 31 and June 30. In addition,
Franchise Owner, as well as any guarantor(s) of this Agreement, shall, within
sixty (60) days after request from SFS, deliver to SFS a financial statement,
certified as correct and current, in a form which is satisfactory to SFS and
which fairly represents the total assets and liabilities of Franchise Owner and
any such guarantor(s).
(e) In addition to the foregoing statements, within one hundred and
five (105) days after the close of each fiscal year of Franchise Owner,
Franchise Owner shall furnish to SFS, at Franchise Owner's expense, financial
statements which shall include a statement of income and retained earnings of
Franchise Owner for such fiscal year, a statement of cash flows and a balance
sheet of Franchise Owner as of the end of such fiscal year. Such annual
financial statements shall be audited if an independent audit is required by
Franchise Owner's lenders or otherwise performed; otherwise such financial
statements shall be accompanied by the written certification of Franchise
Owner's chief executive officer and chief financial officer, if any, that such
statements are true and correct.
11. COVENANTS
(a) During the Term of this Agreement, Franchise Owner, and each
guarantor hereof, covenants, individually:
(i) To use its best efforts in operating the Franchised Business
and in recommending, promoting and encouraging patronage of all SUBURBAN LODGE
System units;
(ii) Not to engage as an owner, operator, or in any managerial
capacity in any extended stay lodging business featuring efficiency guest rooms
rented primarily for periods in excess of one day, other than as a franchise
owner of a SUBURBAN LODGE System unit ("Competing Facility"), except that
Franchise Owner and each guarantor hereof shall be permitted to own and/or
operate any such Competing Facility outside of a three (3) mile radius of any
then existing SUBURBAN LODGE System unit (or where construction of such unit has
begun), so long as such Competing Facility's minimum guest room rates generally
available to customers is at least equal to or greater than 200% of the average
single occupancy guest check-in rate generally available for all SUBURBAN LODGE
System units (in the aggregate) at the time of Franchise Owner's or guarantor's
engagement as an owner or operator of, or in any managerial capacity for, such
Competing Facility (and shall be maintained above such level throughout the
first three (3) years of Franchise
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Owner's or guarantor's engagement); provided, however, that Franchise Owner and
each guarantor hereof shall not be prohibited hereby from owning equity
securities of any extended stay lodging business, whose shares are traded on a
stock exchange or on the over-the-counter market so long as the Franchise
Owner's or the guarantor's ownership interest shall represent two percent (2%)
or less of the total number of outstanding shares of such business;
(b) During the Term of this Agreement and thereafter, Franchise Owner
and each guarantor covenants not to communicate directly or indirectly, nor to
divulge to or use for its benefit or the benefit of any other person or legal
entity, any Trade Secrets or Confidential Information (as defined in Paragraph
8(b) hereof), except as expressly permitted by SFS. In the event of any
termination, expiration or nonrenewal of this Agreement, Franchise Owner agrees
that it shall never use SFS's Trade Secrets and shall not, for at least two
years from the date of such expiration or termination, use SFS's Confidential
Information in the design, development or operation of any extended stay lodging
business featuring efficiency guest rooms rented primarily for periods in excess
of one day. Franchise Owner agrees that if it engages as an owner, operator or
in any managerial capacity in any such business, it will assume the burden of
proving that it has not used SFS's Trade Secrets or Confidential Information.
The protection granted hereunder shall be in addition to and not in lieu of all
other protections for some or all of the Trade Secrets and Confidential
Information as may otherwise be afforded in law or in equity. In addition,
Franchise Owner agrees to execute employee nondisclosure and noncompetition
agreements in such form as SFS may specify in its Confidential Operating Manual,
with its managers, which shall prohibit competition by such persons during and
for a period of one (1) year after termination of their employment with
Franchise Owner in any extended stay lodging business at or within a three (3)
mile radius of any existing or under construction SUBURBAN LODGE unit and which
shall further prohibit disclosure by such parties to any other person or legal
entity of any Trade Secrets or Confidential Information. Such employee
nondisclosure agreements shall be subject to the prior written approval of SFS
and shall also be for the benefit of SFS. SFS shall be a third party beneficiary
of such agreements and Franchise Owner shall not amend, modify or terminate any
such agreement without SFS's prior written consent.
(c) The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
Should any part of one or more of these restrictions be found to be
unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and should such part be capable of being made
enforceable by reduction of any or all thereof, Franchise Owner and SFS agree
that the same shall be enforced to the fullest extent permissible under the law.
In addition, SFS may, unilaterally, at any time, in its sole discretion, revise
any of the covenants in this Paragraph 11 so as to reduce the obligations of
Franchise Owner hereunder. The running of any period of time specified in this
Paragraph 11 shall be tolled and suspended for any period of time in which the
Franchise Owner is found by a court of competent jurisdiction to have been in
violation of any restrictive covenant. Franchise Owner further expressly agrees
that the existence of any claim it may have against SFS whether or not arising
from this Agreement, shall not constitute a defense to the enforcement by SFS of
the covenants in this Paragraph 11.
12. TRANSFER AND ASSIGNMENT
(a) This Agreement and all rights and duties hereunder may be freely
assigned or transferred by SFS in its sole discretion to any person or legal
entity which agrees to assume SFS's obligations hereunder, including a
competitor of SFS, and shall be binding upon and inure to the benefit of SFS's
successors and assigns including, without limitation, any entity which acquires
all or a portion of the capital stock of SFS or any entity resulting from or
participating in a merger, consolidation or reorganization in which SFS is
involved.
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(b) Franchise Owner understands and acknowledges that the rights and
duties created by this Agreement are personal to Franchise Owner, and that SFS
has granted this Franchise in reliance on many factors, including, without
limitation, (i) the individual or collective character, skill, aptitude and
business and financial capacity of Franchise Owner and any persons owning an
interest in Franchise Owner and (ii) that Franchise Owner is the entity directly
holding the fee simple, leasehold or other similar property rights interest in
the Premises and the Unit (subject only to those mortgage rights of any
financial institution(s) or other lender(s) of which Franchise Owner has given
SFS written notice prior to the execution of this Agreement). Accordingly, and
only subject to construction and/or permanent Unit financing and refinancing
with a financial institution (to which SFS's consent is not required), neither
Franchise Owner nor any person owning any direct or indirect equity interest
therein, shall, without SFS's prior written consent, directly or indirectly
sell, assign, transfer, convey, give away, pledge, mortgage or otherwise
encumber any interest in this Agreement or any portion or aspect thereof, the
Franchised Business, the Unit, the Premises, or any equity or voting interest in
Franchise Owner, nor permit the Franchised Business, Unit or Premises to be
operated, managed, directed, controlled or owned, directly or indirectly, by any
person other than Franchise Owner without the prior written approval of SFS. Any
such purported assignment occurring by operation of law or otherwise, including
any assignment by a trustee in bankruptcy, without SFS's prior written consent
shall be a material default of this Agreement. In addition, in the event
Franchise Owner is a corporation, the stock of such corporation shall not be
publicly sold or traded on any securities exchange or in the over-the-counter
market without the express prior written consent of SFS, which consent may be
given or denied in SFS's sole discretion.
Notwithstanding the foregoing, SFS's consent shall not be required for the
transfer of equity and voting interests in Franchise Owner: (i) among the
persons originally named in Paragraph 2 of Exhibit 1 of this Agreement or by
such persons to or for the benefit of their respective spouses and children,
provided that any such spouse or child legally can and does consent in writing
to be bound by the provisions of this Agreement and any Guaranty, to the same
extent as the person who is initially a party to such document, and such persons
continue to maintain voting control in Franchise Owner and decision making
authority in the operations of the Franchised Business, or (ii) among any other
persons owning an interest in Franchise Owner or by such persons to or for the
benefit of their respective spouses and children.
(c) SFS will not unreasonably withhold its consent to a transfer
under this Paragraph 12 if:
(i) The proposed transferee is a person or entity which meets
SFS's standards of qualification then applicable with respect to all new
applicants for similar SUBURBAN LODGE System franchise owners;
(ii) The proposed transfer is at a price and upon such terms and
conditions that do not endanger the economic viability of the transferee to
continue as a SUBURBAN LODGE System franchisee;
(iii) As of the date of the proposed transfer, all obligations of
Franchise Owner hereunder and under any other agreements between Franchise Owner
and SFS are fully satisfied;
(iv) As of the date of the proposed transfer, all obligations of
the proposed transferee to SFS under all other agreements, including franchise
agreements, are fully satisfied; and
(v) As of the date of the proposed transfer, SFS shall have
forwarded to Franchise Owner its approval, granted in its reasonable discretion,
of the proposed transfer to the proposed transferee, in accordance with the
provisions of this Paragraph 12.
(d) Franchise Owner shall submit to SFS prior to any proposed transfer
of any equity or voting interest in Franchise Owner, and at any other time upon
request, a list of all holders of direct or indirect equity and voting interests
in Franchise Owner reflecting their respective present and/or proposed direct or
indirect interests in Franchise Owner, in such form as SFS may require.
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<PAGE> 19
(e) SFS may require, as a condition of its approval of any proposed
transfer, satisfaction of the additional requirements set forth in Paragraph
12(f) in the event Franchise Owner is a partnership or privately-held
corporation and the proposed transfer, alone or together with all other
previous, simultaneous and/or proposed transfers, would have the effect of
reducing directly or indirectly to less than fifty-one percent (51%) the
percentage of equity and voting interest (as reasonably determined by SFS) owned
in Franchise Owner by the initial equity and voting owners identified in
Paragraph 2 of Exhibit 1 attached hereto, or in the event Franchise Owner is a
natural person and the proposed transfer, alone or together with other
simultaneous or proposed transfers, would have the effect of reducing directly
or indirectly Franchise Owner's equity or voting interest, as reasonably
determined by SFS, in this Franchise to less than fifty-one percent (51%). In
computing the percentages of equity and voting interest owned in Franchise Owner
for purposes of this Paragraph 12(e), general partnership interests shall not be
distinguished from limited partnership interests.
(f) The requirements for all such transfers under Paragraph 12(e) are
as follows:
(i) Franchise Owner must cause the prospective transferee to be
provided with SFS's current form of disclosure document required by the Federal
Trade Commission's Trade Regulation Rule on Franchising and/or other applicable
state franchise registration/disclosure laws, and a receipt for such document
shall be delivered to SFS; provided, however, SFS shall not be liable for any
representations other than those contained in such disclosure document;
(ii) The proposed transferee must execute a new franchise
agreement, namely, SFS's then-current form of franchise agreement, which may
contain terms and conditions substantially different from those in this
Agreement, for an initial term equal to the time remaining in the term of this
Agreement as of the date of such transfer;
(iii) There shall have been paid to SFS, together with the
application for consent to the transfer, the transfer fee then required by SFS
of similar SUBURBAN LODGE System franchise owners; provided, however, that in no
event shall such transfer fee exceed twenty-five percent (25%) of the
then-current initial franchise fee being offered by SFS to prospective franchise
owners;
(iv) The transferor and its guarantors and the transferee and its
guarantors shall have executed a general release under seal where required, in a
form satisfactory to SFS, of any and all claims based on acts or omissions
occurring on or before the date of such transfer against SFS, its parent,
subsidiaries, affiliates and their officers, directors, attorneys, shareholders,
and employees, in their corporate and individual capacities, including, without
limitation, claims arising under federal, state, and local laws, rules, and
ordinances arising out of, or connected with, the performance of this Agreement
or any other agreement;
(v) The transferee shall demonstrate to SFS's reasonable
satisfaction that it meets all of SFS's requirements for becoming a franchise
owner, including, without limitation, that it meets SFS's managerial and
business standards then in effect for similarly situated franchise owners;
possesses a good moral character, business reputation, and satisfactory credit
rating; is not a competitor of SFS; will comply with all instruction and
training requirements of SFS and has the aptitude and ability to operate the
Franchised Business (as may be evidenced by prior related business experience or
otherwise); and
(vi) The transferee and/or its designated managerial personnel
(as applicable) shall have completed, to SFS's satisfaction, the training then
required by SFS.
(g) Upon the death or mental or physical incompetency (as reasonably
determined by an independent third party such as a licensed doctor) of any
person with any direct or indirect interest in Franchise Owner and who has
managerial responsibility for the operation of the Franchised Business, the
executor, administrator, or personal representative of such person shall
transfer his interest to a third party approved by SFS within six months after
the death or finding of incompetency. Such transfers shall be subject
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to the same conditions as any inter vivos transfer. If the heirs or
beneficiaries of any such person are unable to meet the conditions in Paragraph
12(f) hereof, SFS may terminate this Agreement without penalty to Franchise
Owner.
(h) Except as provided in Paragraph 12(b) above, if Franchise Owner or
any person or entity holding any direct or indirect interest in Franchise Owner,
this Agreement or the Premises desires to sell or transfer for value, either an
interest in Franchise Owner, this Agreement or the Premises, Franchise Owner
shall first notify SFS in writing of such intention and offer to sell or
transfer such interest to SFS upon the terms and conditions set forth in such
notice, net of any real estate and/or business brokerage commissions, at SFS's
option. If SFS and Franchise Owner cannot agree within thirty (30) days of such
notice on the terms and conditions of such sale or transfer, or if SFS notifies
Franchise Owner that it does not want to acquire such interest, Franchise Owner
may sell or transfer such interest to a bona fide third party; provided that
such sale or transfer is made within 180 days after the expiration of any offer
to SFS, that such sale or transfer is made at a net price and on terms no more
favorable than those offered in writing to SFS, and that all applicable
requirements of Paragraph 12 hereof are met, and in connection with such sale or
transfer, that the Premises shall continue to be operated pursuant to the
SUBURBAN LODGE System. Failure of SFS to exercise the option afforded by this
Paragraph 12(h) shall not constitute a waiver of any other provision of this
Agreement, including all requirements of this Paragraph 12 with respect to a
proposed transfer. In the event the consideration, terms and/or conditions
offered by a third party are such that SFS may not reasonably be required to
furnish the same consideration, terms and/or conditions, then SFS may purchase
the interest proposed to be sold for the reasonable equivalent in cash. If the
parties cannot agree within a reasonable time on the reasonable equivalent in
cash of the consideration, terms, and/or conditions offered by the third party,
an independent appraiser shall be designated by SFS, and its determination shall
be binding.
(i) Notwithstanding the foregoing, it is understood that Franchise
Owner (if an individual) may assign this Agreement, the Franchised Business, and
Franchise Owner's rights and obligations hereunder on one occasion to a
corporation organized by Franchise Owner for that purpose only provided that at
least fifty-one percent (51%) of all the issued and outstanding shares of voting
stock and equity interest shall be owned and voted continuously by Franchise
Owner, and further provided that SFS shall approve all other shareholders of
such corporation holding equity or voting interests, which consent shall not be
unreasonably withheld. SFS shall be given written notice of such assignments and
delegation, and thereupon such corporation shall have all of such rights and
obligations, and the term "Franchise Owner" as used herein shall refer to such
corporation; provided, however, that such assignment shall in no way affect the
obligations hereunder of the individual above designated "Franchise Owner," who
shall remain fully bound by and responsible for the performance of all of such
obligations, jointly and severally with such corporation. Such corporation shall
at no time engage in any business or activities other than the exercise of the
rights herein granted to the Franchise Owner and the performance of its
obligations as Franchise Owner hereunder.
(j) SFS's consent to a transfer of any interest in the Franchise Owner
granted herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of SFS's right to demand
exact compliance with any of the terms of this Agreement by the transferee.
13. DEFAULT AND TERMINATION
(a) SFS may not terminate this Agreement prior to its expiration
except for "good cause," which shall mean the occurrence of any event
of default described below. Upon the occurrence of any event of default, SFS
may, at its option, and without waiving its rights hereunder or any other
rights available at law or in equity, including its rights to damages,
terminate this Agreement and all of Franchise Owner's rights hereunder
effective: immediately upon the date SFS gives written notice of termination,
upon such other date as may be set forth in such notice of termination, or in
those instances enumerated below in subparagraph (i), automatically upon the
occurrence of, or the lapse of the specified period following, an event of
default.
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The occurrence of any one or more of the following events shall constitute an
event of default and grounds for termination of this Agreement by SFS:
(i) Automatically, without notice or action required by SFS, if
Franchise Owner becomes insolvent or makes a general assignment for the benefit
of creditors, or, unless otherwise prohibited by law, if a petition in
bankruptcy is filed by Franchise Owner, or such a petition is filed against and
consented to by Franchise Owner or not dismissed within thirty (30) days, or if
a bill in equity or other proceeding for the appointment of a receiver of
Franchise Owner or other custodian for Franchise Owner's business or assets is
filed and consented to by Franchise Owner, or if a receiver or other custodian
(permanent or temporary) of Franchise Owner's assets or property, or any part
thereof, is appointed;
(ii) If Franchise Owner fails to pay any financial obligation
pursuant to this Agreement within ten (10) days of the date on which SFS gives
notice of such delinquency or immediately upon written notice if Franchise Owner
is determined to have underreported its Gross Volume of Business during any
month by two percent (2%) or more of the actual Gross Volume of Business during
such month on two or more occasions during the term of this Agreement, whether
or not Franchise Owner subsequently rectifies such deficiency;
(iii) If Franchise Owner fails to commence construction of the
Unit or to complete construction of the Unit and open the Franchised Business to
the public within the respective time periods specified in Paragraph 7(c) hereof
or, within such time periods, fails to at all times make a good faith reasonable
effort to develop and construct the Unit;
(iv) If Franchise Owner makes, or has made, any materially false
statement or report to SFS in connection with this Agreement or application
therefore;
(v) If there is any violation of any transfer and assignment
provision contained in Paragraph 12 of this Agreement;
(vi) If Franchise Owner receives from SFS three (3) or more
notices to cure the same or similar defaults or violations of this Agreement
during any twelve (12) month period, whether or not such defaults are cured;
(vii) If Franchise Owner fails, for a period of fifteen (15) days
after notification of noncompliance by appropriate authority to comply with any
law or regulation applicable to the operation of the Franchised Business, except
Franchise Owner shall have the right to appeal the interpretation of any such
law or regulation, during which time no default shall occur;
(viii) If Franchise Owner violates through gross negligence or
intentionally any covenant of confidentiality or nondisclosure contained in
Paragraph 8 of this Agreement or otherwise discloses, uses, permits the use of,
copies, duplicates, records, transmits or otherwise reproduces any manuals,
materials, goods or information created or used by SFS and designated for
confidential use within the SUBURBAN LODGE System without SFS's prior approval;
(ix) If Franchise Owner or any person controlling, controlled by
or under common control with Franchise Owner, or any principal officer or the
designated manager of Franchise Owner or any such person, owning an interest in
the Franchised Business is convicted of a felony, or any other crime or offense
that is reasonably likely, in the sole opinion of SFS, to affect adversely the
SUBURBAN LODGE System, any SUBURBAN LODGE System unit, the Licensed Marks or the
goodwill associated therewith;
(x) If Franchise Owner fails to perform or breaches any
covenant, obligation, term, condition, warranty or certification herein or fails
to operate the Franchised Business as specified by SFS in the Confidential
Operating Manual and fails to cure such noncompliance or deficiency within
thirty (30) days
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after SFS's written notice thereof; provided, however, in the event such failure
or breach cannot reasonably be expected to be cured within thirty (30) days,
then for such additional time as may be reasonably required to cure such failure
or breach, provided Franchise Owner commences such cure during the initial
thirty (30) day period and thereafter promptly and diligently prosecutes same to
completion, but not to exceed an additional thirty (30) days;
(xi) If Franchise Owner abandons or ceases to operate all or any
part of the Franchised Business conducted under this Agreement for twenty-four
(24) hours or longer (except as otherwise provided herein) or defaults under any
mortgage, deed of trust or lease with SFS or any third party covering the
Franchised Business or the Premises, and SFS or such third party treats such act
or omission as a default, and Franchise Owner fails to cure such default to the
satisfaction of SFS or such third party within any applicable cure period
granted Franchise Owner by SFS or such third party; or
(xii) If Franchise Owner or any guarantor(s) hereof default in any
other agreement with SFS, and such default is not cured in accordance with the
terms of such other agreement.
(b) Franchise Owner may not terminate this Agreement prior to the
expiration of its term except as a result of SFS's material breach of this
Agreement or otherwise with SFS's consent. In the event that Franchise Owner
shall claim that SFS has failed to meet any obligation under this Agreement,
Franchise Owner shall provide SFS with written notice of such claim, within six
(6) months of its occurrence, specifically enumerating all alleged deficiencies
and providing SFS with an opportunity to cure, which shall in no event be less
than thirty (30) days from the date of receipt of such notice by SFS from
Franchise Owner. Failure to give such notice shall constitute a waiver of any
such alleged default.
(c) If after opening the Franchised Business to the public the Unit
suffers destruction or significant damage by act of God or other event beyond
SFS and Franchise Owner's reasonable anticipation and Franchise Owner's control
such that the Unit ceases to be operated in the normal course of business as an
extended stay lodging facility, Franchise Owner shall promptly notify SFS in
writing of the casualty event, giving information as to the availability of
guest rooms. Franchise Owner shall advise SFS in writing within 60 days after
the casualty event whether it will restore, rebuild and refurbish the Unit to
comply with the approved building plans, which must be completed within 240 days
after the casualty event, or it elects to terminate the Agreement, effective as
of the date of notice. Franchise Owner's failure to make such an election within
the time permitted shall be deemed an election to terminate the Agreement. Any
termination under this paragraph shall require no payment of damages as set
forth in Paragraph 14(f)(i)(B) hereof, provided Franchise Owner pays all amounts
owed to SFS accruing prior to the effective date of termination within 10 days
after the termination notice is given or deemed to occur, and Franchise Owner
follows the post termination requirements set forth in Paragraph 14. Once
undertaken, Franchise Owner's failure to complete the restoration of the Unit on
time or to pursue the same diligently shall permit SFS to terminate the
Agreement. If the Unit is condemned, or such a substantial portion of the Unit
shall be condemned such that continued operation in accordance with SFS's
quality standards, or with adequate parking facilities, is commercially
impractical, or the Unit or a substantial portion is sold to the condemning
authority in lieu of condemnation, then the Agreement will be deemed terminated
on the later of the date the Unit or substantial portion is conveyed to or taken
over by the condemning authority or the date the Unit ceases to operate as an
extended stay lodging facility. No damages will be owed under Paragraph
14(f)(i)(B) by Franchise Owner in the event of such condemnation or sale if
Franchise Owner notifies SFS about the condemnation within 10 days after it
receives formal notice from the condemning authority and then pays SFS all
amounts due under this Agreement or otherwise within 30 days after the deemed
termination date.
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14. POST TERM OBLIGATIONS
Upon the expiration or termination of this Agreement, Franchise Owner
shall immediately:
(a) Cease to be a franchise owner of SFS under this Agreement and cease
to operate the former franchised business under the SUBURBAN LODGE System.
Franchise Owner shall not thereafter, directly or indirectly, represent to the
public that the former franchised business is or was operated or in any way
connected with the SUBURBAN LODGE System or hold itself out as a present or
former franchise owner of SFS at or with respect to the Premises;
(b) Pay all sums owing to SFS.
(c) Return to SFS the Confidential Operating Manual, Confidential
Development Manual, the SFS prototype architectural plans and specifications and
any other manuals, materials, goods and information created or used by SFS and
designated for confidential use within the SUBURBAN LODGE System and all Trade
Secrets and Confidential Information, as well as materials, equipment and other
property owned by SFS, including but not limited to, all computer software
provided to Franchise Owner by SFS, and all copies thereof. Franchise Owner
shall retain no copy or record of any of the foregoing; provided Franchise Owner
may retain its copy of this Agreement, any correspondence between the parties,
and any other document which Franchise Owner reasonably needs for compliance
with any applicable provision of law;
(d) Take such action as may be required by SFS at its sole option and
allowed by the appropriate vendors, to disconnect or forward to SFS's corporate
office all telephone listings of the former Franchised Business that refer to
the former Franchised Business as being operated or as being formerly operated
as a "Suburban Lodge", or transfer and assign to SFS or its designee, all
telephone numbers, white and yellow page telephone references and
advertisements, and all trade and similar name registrations and business
licenses that refer to the former Franchised Business as being operated or as
being formerly operated as a "Suburban Lodge", and to cancel any interest which
Franchise Owner may have in the same; and
(e) Cease to use in advertising, or in any manner whatsoever, any
methods, procedures or techniques associated with the SUBURBAN LODGE System in
which SFS has a proprietary right, title or interest; cease to use the Licensed
Marks and any other marks and indicia of operation associated with the SUBURBAN
LODGE System and within sixty (60) days, remove all trade dress, physical
characteristics, color combinations and other indications of operation under the
SUBURBAN LODGE System from the Premises, including removing the lattice of SFS's
trademarked arch and repainting the doors of the Premises in a color other than
blue. Without limiting the generality of the foregoing, Franchise Owner agrees
that in the event of any termination or expiration of this Agreement, SFS or a
designated agent may enter upon the Premises at any time to make such changes at
Franchise Owner's sole risk and expense and without liability for trespass and
further that SFS may remove all signage bearing the Licensed Marks. SFS shall
have the right, but not the obligation, to purchase some or all of the Unit's
fixtures, furnishings, equipment and supplies bearing the Licensed Mark(s) at
the lower of their cost or net book value, with the right to set off the
aggregate purchase price thereof against any sums then owed to SFS by Franchise
Owner.
(f) Anything in this Paragraph 14 to the contrary notwithstanding, upon
termination of this Agreement as a result of breach by Franchise Owner,
Franchise Owner shall immediately both:
(i) In addition to paying to SFS any sums otherwise due pursuant
to this Agreement, pay to SFS:
(A) reasonable attorney's fees, and costs and
expenses, incurred by SFS as a result of the default by Franchise Owner; plus
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(B) damages for lost future continuing fees in an
amount equal to "X" times "Y" where:
"X" equals the number of years (or portion thereof) left in
the term of this Agreement, and
"Y" equals seventy-five percent (75%) of Franchise Owner's
last twelve (12) months' continuing fees due and payable
pursuant to Paragraph 5(b)(i) hereof; provided, however, that
if the termination becomes effective prior to the first
fifteen (15) months of Franchise Owner's operation of its
Unit, then "Y" equals seventy-five percent (75%) of the
average continuing fees paid by all franchised Units in the
Suburban Lodge System during the previous twelve (12) months
(with such average adjusted up or down to reflect the number
of guestrooms in Franchise Owner's Unit compared to the
average number of guestrooms in all franchised Units and
without accounting for Franchise Owner or any other Franchise
Owner otherwise being relieved pursuant to Paragraph 5(b)(i)
from paying continuing fees during the first ninety (90) days
of operation of the respective Unit).
The parties acknowledge that the injury caused to SFS by
Franchise Owner's default with respect to the continuing fees, will be
impossible of accurate determination, that this provision is intended to provide
for compensation for SFS's lost continuing fees and not as a penalty, and that
the stipulated method of computation constitutes a reasonable pre-estimate of
SFS's probable damages from lost continuing fees resulting from Franchise
Owner's default.
(ii) Grant SFS or its designee the option, to acquire, through
asset or stock purchase, merger or other form SFS designates, Franchise Owner
and/or the Franchised Business and/or the Premises and/or Franchise Owner's
interest therein (including the Unit thereon) for a price equal to the fair
market value thereof. If SFS and Franchise Owner are unable to agree on such
fair market value price, such value shall be determined by an independent
appraiser experienced in appraising property of the type being acquired,
designated by SFS, whose determination shall be final and binding. SFS shall be
entitled to offset against the purchase price all sums owed SFS by Franchise
Owner or any guarantor of Franchise Owner. The net purchase price shall be
payable in cash at closing; or, at SFS' option, all or any part of the portion
of the purchase price which exceeds the amount of outstanding secured mortgage
debt with a financial institution on the Premises may be paid in unregistered
shares of Suburban Lodges of America, Inc.'s common stock using the average
closing price per share for the 15 trading days preceding closing as the per
share price of such stock. The closing shall be held on a day designated by SFS
which is not more than 30 days after the determination of fair market value of
the acquired property.
15. INSURANCE
(a) Franchise Owner shall, at its expense and no later than the
Commencement Date, procure and maintain in full force and effect throughout the
term of this Agreement the types of insurance enumerated in the Confidential
Operating Manual or otherwise in writing which shall be in such amounts as may
from time to time be required by SFS and which shall designate SFS and its
affiliates as additional named insureds, including the following:
(i) "all risk" property coverage for the Unit with limits no
less than 80% of replacement cost, with an endorsement if the Unit is in a flood
plain, for floods;
(ii) comprehensive broad form public and premises general
liability insurance, with endorsements covering at least contractual liability,
innkeeper's liability, safe deposit liability (if applicable), and personal
injury liability (with employee exclusion deleted);
(iii) workers' compensation and employer's liability;
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<PAGE> 25
(iv) automobile liability coverage on owned, non-owned and hired
vehicles used for Unit business; and
(v) umbrella liability coverage.
(b) Franchise Owner shall make timely delivery of certificates of all
required insurance to SFS, each of which shall contain a statement by the
insurer that the policy will not be canceled or materially altered without at
least thirty (30) days' prior written notice to SFS.
(c) The procurement and maintenance of such insurance shall not relieve
Franchise Owner of any liability to SFS under any indemnity requirement of this
Agreement.
16. TAXES, PERMITS AND INDEBTEDNESS
(a) Franchise Owner shall promptly pay when due any and all federal,
state and local taxes including without limitation unemployment and sales taxes,
levied or assessed with respect to any services or products furnished, used or
licensed pursuant to this Agreement and all accounts or other indebtedness of
every kind incurred by Franchise Owner in the operation of the Franchised
Business.
(b) Franchise Owner shall comply with all federal, state and local
laws, rules and regulations and timely obtain any and all permits, certificates
and licenses for the full and proper conduct of the Franchised Business.
(c) Franchise Owner hereby expressly covenants and agrees to accept
full and sole responsibility for any and all debts and obligations incurred in
the operation of the Franchised Business.
17. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
(a) Franchise Owner agrees to protect, defend, indemnify, and hold SFS,
and its respective directors, officers, agents, attorneys and shareholders,
jointly and severally, harmless from and against all claims, actions,
proceedings, damages, costs, expenses and other losses and liabilities,
consequently, directly or indirectly incurred (including without limitation
attorneys' and accountants' fees) as a result of, arising out of, or connected
with the operation of the Franchised Business; provided, however, no indemnity
shall be given with respect to claims specifically arising from Franchise
Owner's compliance with procedures required by SFS.
(b) In all dealings with third parties including, without limitation,
employees, suppliers and customers, Franchise Owner shall disclose in an
appropriate manner acceptable to SFS that it is an independent entity licensed
by SFS. Nothing in this Agreement is intended by the parties hereto to create a
fiduciary relationship between them nor to constitute Franchise Owner an agent,
legal representative, subsidiary, joint venturer, partner, employee or servant
of SFS for any purpose whatsoever. It is understood and agreed that Franchise
Owner is an independent contractor and is in no way authorized to make any
contract, warranty or representation or to create any obligation on behalf of
SFS.
18. WRITTEN APPROVALS, WAIVERS, FORMS OF AGREEMENT AND
AMENDMENT
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<PAGE> 26
(a) Whenever this Agreement requires SFS's prior approval, Franchise
Owner shall make a timely written request. Unless a different time period is
specified in this Agreement, SFS shall respond with its approval or disapproval
within fifteen (15) days of receipt of such request. If SFS has not specifically
approved a request within such fifteen (15) day period, such failure to respond
shall be deemed a disapproval of any such request.
(b) No failure of SFS to exercise any power reserved to it by this
Agreement and no custom or practice of the parties at variance with the terms
hereof shall constitute a waiver of SFS's right to demand exact compliance with
any of the terms herein. No waiver or approval by SFS of any particular breach
or default by Franchise Owner, nor any delay, forbearance or omission by SFS to
act or give notice of default or to exercise any power or right arising by
reason of such default hereunder, nor acceptance by SFS of any payments due
hereunder shall be considered a waiver or approval by SFS of any preceding or
subsequent breach or default by Franchise Owner of any term, covenant or
condition of this Agreement.
(c) No warranty or representation is made by SFS that all SUBURBAN
LODGE System franchise agreements heretofore or hereafter issued by SFS do or
will contain terms substantially similar to those contained in this Agreement.
Further, Franchise Owner recognizes and agrees that SFS may, in its reasonable
business judgment, due to local business conditions or otherwise, waive or
modify comparable provisions of other franchise agreements heretofore or
hereafter granted to other SUBURBAN LODGE System franchise owners in a
non-uniform manner, subject, however, to those provisions of this Agreement
which require SFS to act toward its Franchise Owners on a reasonably
nondiscriminatory basis.
(d) Except as otherwise provided in Paragraph 11(c) or 22(a) hereof, no
amendment, change or variance from this Agreement shall be binding upon either
SFS or Franchise Owner except by mutual written agreement. If an amendment of
this Agreement is executed at Franchise Owner's request, any legal fees or costs
of preparation in connection therewith shall, at the option of SFS, be paid by
Franchise Owner.
19. ENFORCEMENT
(a) In order to ensure compliance with this Agreement and to enable SFS
to carry out its obligations under this Agreement, Franchise Owner agrees that
SFS and its designated agents shall be permitted, with or without notice, full
and complete access during business hours to inspect the Premises and all
records thereof including, but not limited to, records relating to Franchise
Owner's customers, suppliers, employees and agents. Franchise Owner shall
cooperate fully with SFS and its designated agents requesting such access.
(b) SFS or its designee shall be entitled to obtain declarations,
temporary and permanent injunctions, and orders of specific performance, all
without bond, in order to enforce the provisions of this Agreement relating to:
(i) Franchise Owner's use of the Licensed Marks,
(ii) the obligations of Franchise Owner upon termination
or expiration of this Agreement, and
(iii) assignment of the Franchise and ownership interests
in Franchise Owner;
or to prohibit any act or omission by Franchise Owner or its employees which
constitutes a violation of any applicable law or regulation, which is dishonest
or misleading to prospective or current customers of businesses operated under
the SUBURBAN LODGE System, which constitutes a danger to other franchise
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<PAGE> 27
owners, employees, customers or the public, or which may impair the goodwill
associated with the Licensed Marks.
(c) If SFS secures any declaration, injunction or order of specific
performance pursuant to Paragraph 19(b) hereof, or if any provision of this
Agreement is enforced at any time by SFS or if any amounts due from Franchise
Owner to SFS are, at any time, collected by or through an attorney at law or
collection agency, Franchise Owner shall be liable to SFS for all costs and
expenses of enforcement and collection including, but not limited to, court
costs and reasonable attorneys' fees.
20. NOTICES
Any notice required to be given hereunder shall be in writing and shall
be either mailed by certified mail, return receipt requested or delivered by a
recognized courier service, receipt acknowledged. Notices to Franchise Owner
shall be addressed to it at the address listed in Paragraph 1 of this Agreement.
Notices to SFS shall be addressed to it at the address listed in Paragraph 1 of
this Agreement, Attention: President. Any notice complying with the provisions
hereof shall be deemed to be given three (3) days after mailing, or on the date
of receipt, whichever is earlier. Each party shall have the right to designate
any other address for such notices by giving notice thereof in the foregoing
manner, and in such event all notices to be mailed after receipt of such notice
shall be sent to such other address.
21. GOVERNING LAW AND DISPUTE RESOLUTION
(a) This Agreement is accepted by SFS in the State of Georgia and shall
be governed by and construed in accordance with the laws thereof, which laws
shall prevail in the event of any conflict; provided, however, that the service
charge provisions in Paragraph 5(d) may be governed by the laws of the state
where the Franchised Business is operated, and the restrictive covenants
contained in Paragraph 11 hereof shall be construed in accordance with the laws
of the State(s) where such restriction(s) is(are) to apply, and the laws of such
State(s) shall determine the enforceability of such covenants to be performed in
such State(s).
(b) The parties hereto agree that it is in their best interest to
resolve disputes between them in an orderly fashion and in a consistent manner.
Therefore, the parties hereby agree as follows:
(i) Franchise Owner consents and agrees that the following
courts shall have personal jurisdiction over it in all lawsuits relating to or
arising out of this Agreement and hereby waives any defense Franchise Owner may
have of lack of personal jurisdiction in any such lawsuits filed in these
courts: (x) all courts included within the state court system of the State of
Georgia; and (y) all courts of the United States of America sitting within the
State of Georgia including, but not limited to, all the United States District
Courts sitting within the State of Georgia.
(ii) Franchise Owner consents and agrees that venue shall be
proper in any of the following courts in all lawsuits relating to or arising out
of this Agreement and hereby waives any defense it may have of improper venue in
any such lawsuits filed in these courts: (x) the state court of the county where
SFS has its principal place of business (presently, Cobb County); and (y) the
United States District Court for the Northern District of Georgia, Atlanta
Division. In the event any of these courts are abolished, Franchise Owner agrees
that venue shall be proper in the state or federal court in Georgia which most
closely approximates the subject-matter jurisdiction of the abolished court as
well as any of these courts which are not so abolished. All lawsuits filed by
Franchise Owner against SFS relating to or arising out of this Agreement shall
be required to be filed in one of these courts; provided, however, that if none
of these courts has subject-matter jurisdiction over such a lawsuit such lawsuit
may be filed in any court having such subject-matter jurisdiction if in-personam
jurisdiction and venue in such court are otherwise proper. Lawsuits
-25-
<PAGE> 28
filed by SFS against Franchise Owner may be filed in any of the courts named in
this subparagraph or in any court in which jurisdiction and venue are proper.
(iii) In all lawsuits relating to or arising out of this
Agreement, Franchise Owner consents and agrees that it may be served with
process outside the State of Georgia in the same manner as service may be made
within the State of Georgia by any person authorized to make service by the laws
of the state, territory, possession or country in which service is made or by
any duly qualified attorney in such jurisdiction, and Franchise Owner hereby
waives any defense it may have of insufficiency of service of process relating
to such service. This method of service shall not be the exclusive method of
service available in such lawsuits and shall be available in addition to any
other method of service allowed by law.
22. SEVERABILITY AND CONSTRUCTION
(a) Should any provision of this Agreement be for any reason held
invalid, illegal or unenforceable by a court of competent jurisdiction, such
provision shall be deemed restricted in application to the extent required to
render it valid; and the remainder of this Agreement shall in no way be affected
and shall remain valid and enforceable for all purposes, both parties hereto
declaring that they would have executed this Agreement without inclusion of such
provision. In the event such total or partial invalidity or unenforceability of
any provision of this Agreement exists only with respect to the laws of a
particular jurisdiction, this paragraph shall operate upon such provision only
to the extent that the laws of such jurisdiction are applicable to such
provision. Each party agrees to execute and deliver to the other any further
documents which may be reasonably required to effectuate fully the provisions
hereof. Franchise Owner understands and acknowledges that SFS shall have the
right, in its sole discretion, on a temporary or permanent basis, to reduce the
scope of any covenant or provision of this Agreement that is binding upon
Franchise Owner, or any portion hereof, without Franchise Owner's consent,
effective immediately upon receipt by Franchise Owner of written notice thereof;
and Franchise Owner agrees that it will comply forthwith with any covenant as so
modified, which shall be fully enforceable.
(b) This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, but such
counterparts together shall constitute one and the same instrument.
(c) The table of contents, headings and captions contained herein are
for the purposes of convenience and reference only and are not to be construed
as a part of this Agreement. All terms and words used herein shall be construed
to include the number and gender as the context of this Agreement may require.
The parties agree that each section of this Agreement shall be construed
independently of any other section or provision of this Agreement.
23. GENERAL PROVISIONS
(a) Time is of the essence of this Agreement.
(b) The covenants and agreements made by the Franchise Owner hereunder
shall survive the expiration or termination of this Agreement.
(c) This Agreement constitutes the entire agreement between SFS and
Franchise Owner which supersedes all prior negotiations, commitments,
representations, and undertakings of the parties with respect to the subject
matter hereof. No change, modification, amendment, termination or attempted
waiver of any provisions of this Agreement shall be binding upon the parties
hereto unless in writing and signed by SFS and Franchise Owner.
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<PAGE> 29
\
24. ACKNOWLEDGMENTS
Franchise Owner hereby acknowledges the following:
(a) FRANCHISE OWNER HAS CONDUCTED AN INDEPENDENT INVESTIGATION OF THE
BUSINESS CONTEMPLATED BY THIS AGREEMENT AND UNDERSTANDS AND ACKNOWLEDGES THAT
THE BUSINESS CONTEMPLATED BY THIS AGREEMENT INVOLVES BUSINESS RISKS MAKING THE
SUCCESS OF THE VENTURE LARGELY DEPENDENT UPON THE BUSINESS ABILITIES AND
PARTICIPATION OF FRANCHISE OWNER AND ITS EFFORTS AS AN INDEPENDENT BUSINESS
OPERATOR. FRANCHISE OWNER AGREES THAT NO CLAIMS OF SUCCESS OR FAILURE HAVE BEEN
MADE TO IT PRIOR TO SIGNING THIS AGREEMENT; AND THAT IT UNDERTAKES ALL THE TERMS
AND CONDITIONS OF THIS AGREEMENT. SFS EXPRESSLY DISCLAIMS THE MAKING OF, AND
FRANCHISE OWNER ACKNOWLEDGES THAT IT HAS NOT RECEIVED OR RELIED UPON, ANY
WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, AS TO THE POTENTIAL VOLUME, PROFITS
OR SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT, OR AS TO THE
SUITABILITY OF THE SITE FOR THE UNIT AS A SUCCESSFUL LOCATION FOR THE UNIT.
(b) FRANCHISE OWNER REPRESENTS THAT IT HAS (OR WILL EMPLOY MANAGERS OR
A MANAGEMENT COMPANY APPROVED UNDER PARAGRAPH 7(b) WHO HAVE) THE NECESSARY
MANAGEMENT EXPERTISE AND EXPERIENCE TO ACQUIRE, DESIGN, CONSTRUCT, DEVELOP,
EQUIP, OPERATE, MARKET, MAINTAIN AND MANAGE THE UNIT.
(c) FRANCHISE OWNER HAS NO KNOWLEDGE OF ANY REPRESENTATIONS BY SFS OR
ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS OR SERVANTS, ABOUT THE
BUSINESS CONTEMPLATED BY THIS AGREEMENT THAT ARE CONTRARY TO THE TERMS OF THIS
AGREEMENT OR THE DOCUMENTS INCORPORATED HEREIN. FRANCHISE OWNER REPRESENTS, AS
AN INDUCEMENT TO SFS'S ENTRY INTO THIS AGREEMENT, THAT IT HAS MADE NO
MISREPRESENTATIONS IN OBTAINING THIS AGREEMENT.
(d) FRANCHISE OWNER ACKNOWLEDGES THAT SFS'S APPROVAL OF FRANCHISE
OWNER'S PREMISES DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
LOCATION OF THE UNIT, NOR ANY ASSURANCE BY SFS THAT THE OPERATION OF A UNIT AT
THE PREMISES WILL BE SUCCESSFUL OR PROFITABLE.
(e) FRANCHISE OWNER ACKNOWLEDGES THAT ITS ENTIRE KNOWLEDGE OF SFS'S
COMPUTER SOFTWARE IS DERIVED FROM INFORMATION DISCLOSED TO THE FRANCHISE OWNER
BY SFS, AND THAT SUCH INFORMATION IS PROPRIETARY AND CONFIDENTIAL AND A TRADE
SECRET OF SFS.
(f) FRANCHISE OWNER ACKNOWLEDGES THAT SFS OR ITS AGENT HAS PROVIDED
FRANCHISE OWNER WITH A FRANCHISE OFFERING CIRCULAR NOT LATER THAN THE EARLIER OF
THE FIRST PERSONAL MEETING HELD TO DISCUSS THE SALE OF A FRANCHISE, TEN (10)
BUSINESS DAYS BEFORE THE EXECUTION OF THIS AGREEMENT, OR TEN (10) BUSINESS DAYS
BEFORE ANY PAYMENT OF ANY CONSIDERATION. FRANCHISE OWNER FURTHER ACKNOWLEDGES
THAT FRANCHISE OWNER HAS READ SUCH FRANCHISE OFFERING CIRCULAR AND UNDERSTANDS
ITS CONTENTS.
(g) FRANCHISE OWNER ACKNOWLEDGES THAT SFS HAS PROVIDED FRANCHISE OWNER
WITH A COPY OF THIS AGREEMENT AND ALL RELATED DOCUMENTS, FULLY COMPLETED, AT
LEAST FIVE (5) BUSINESS DAYS PRIOR TO FRANCHISE OWNER'S EXECUTION HEREOF.
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<PAGE> 30
(h) FRANCHISE OWNER ACKNOWLEDGES THAT IT HAS HAD AMPLE OPPORTUNITY TO
CONSULT WITH ITS OWN ATTORNEYS, ACCOUNTANTS AND OTHER ADVISORS AND THAT THE
ATTORNEYS FOR SFS HAVE NOT ADVISED OR REPRESENTED FRANCHISE OWNER WITH RESPECT
TO THIS AGREEMENT OR THE RELATIONSHIP THEREBY CREATED.
(i) FRANCHISE OWNER ACKNOWLEDGES THAT THE REASONS FOR TERMINATION
UNDER PARAGRAPH 13 CONSTITUTE GOOD CAUSE, AND THAT THE NOTICE PROVISIONS
RELATING THERETO CONSTITUTE REASONABLE NOTICE.
(j) FRANCHISE OWNER, TOGETHER WITH ITS ADVISERS, HAS SUFFICIENT
KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS TO MAKE AN INFORMED
INVESTMENT DECISION WITH RESPECT TO THE FRANCHISE.
(k) FRANCHISE OWNER IS AWARE OF THE FACT THAT OTHER PRESENT OR FUTURE
FRANCHISE OWNERS OF SFS MAY OPERATE UNDER DIFFERENT FORMS OF AGREEMENT(S), AND
CONSEQUENTLY THAT SFS'S OBLIGATIONS AND RIGHTS WITH RESPECT TO ITS VARIOUS
DEVELOPERS AND FRANCHISE OWNERS MAY DIFFER MATERIALLY IN CERTAIN CIRCUMSTANCES.
(l) FRANCHISE OWNER ACKNOWLEDGES THAT THIS INSTRUMENT CONSTITUTES THE
ENTIRE AGREEMENT OF THE PARTIES. THIS AGREEMENT TERMINATES AND SUPERSEDES ANY
PRIOR AGREEMENT BETWEEN THE PARTIES CONCERNING THE SAME SUBJECT MATTER.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement under seal on the date first written above.
[SIGNATURES NEXT PAGE]
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<PAGE> 31
FRANCHISE OWNER: SFS:
- ---------------------------------- SUBURBAN FRANCHISE SYSTEMS, INC.
By: By:
------------------------------- ---------------------------
Title: Title:
--------------------------- -------------------------
(Affix Corporate Seal) (Affix Corporate Seal)
Attest: Attest:
--------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
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<PAGE> 32
GUARANTY OF FRANCHISE OWNER'S UNDERTAKINGS
In consideration of, and as an inducement to, the execution of the
foregoing Franchise Agreement ("Agreement") dated as of , 19 , by Suburban
Franchise Systems, Inc. ("SFS"), each of the undersigned hereby guarantees unto
SFS that the Franchise Owner named herein will perform during the term of this
Agreement each and every covenant, payment, agreement and undertaking on the
part of Franchise Owner contained and set forth in such Agreement.
SFS, its successors and assigns, may from time to time, without notice
to the undersigned: (a) resort to the undersigned for payment of any of the
liabilities accruing under the Agreement ("Liabilities"), whether or not it or
its successors have resorted to any property securing any of the Liabilities or
proceeded against any other of the undersigned or any party or parties primarily
or secondarily liable on any of the Liabilities, (b) release or compromise any
liability of any of the undersigned hereunder or any liability of any party or
parties primarily or secondarily liable on any of the Liabilities, and (c)
extend, renew or credit any of the Liabilities for any period (whether or not
longer than the original period); alter, amend or exchange any of the
Liabilities; or give any other form of indulgence, whether under the Agreement
or not.
The undersigned agrees to comply with and abide by the restrictive
covenants and nondisclosure provisions contained in Paragraph 11 of the
Agreement to the same extent, and for the same period of time, as Franchise
Owner is required to comply with and abide by such covenants and provisions,
except to the extent otherwise required by the Agreement. These obligations of
the undersigned shall survive any expiration or termination of the Franchise
Agreement or this Guaranty.
The undersigned further waives presentment, demand, notice of dishonor,
protest, nonpayment and all other notices whatsoever, including without
limitation: notice of acceptance hereof; notice of all contracts and
commitments; notice of the existence or creation of any Liabilities and of the
amount and terms thereof; and notice of all defaults, disputes or controversies
between Franchise Owner and SFS resulting from such Agreement or otherwise, and
the settlement, compromise or adjustment thereof.
The undersigned agrees to pay all expenses paid or incurred by SFS in
enforcing the foregoing Agreement and this Guaranty against Franchise Owner and
against the undersigned and in collecting or attempting to collect any amounts
due thereunder and hereunder, including reasonable attorneys' fees if such
enforcement or collection is by or through an attorney-at-law. Any waiver,
extension of time or other indulgence granted from time to time by SFS, its
agents, its successors or assigns, with respect to the foregoing Agreement,
shall in no way modify or amend this Guaranty, which shall be continuing,
absolute, unconditional and irrevocable.
If more than one person has executed the Guaranty, the term "the
undersigned," as used herein shall refer to each such person, and the liability
of each of the undersigned hereunder shall be joint and several and primary.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty
under seal effective as of the date of the foregoing Agreement.
- ----------------------------- ---------------------------- (SEAL)
Witness Guarantor
- ----------------------------- ---------------------------- (SEAL)
Witness Guarantor
- ----------------------------- ---------------------------- (SEAL)
Witness Guarantor
<PAGE> 33
FRANCHISE AGREEMENT
DATED _________________________, 19____
between
SUBURBAN FRANCHISE SYSTEMS, INC.
and
____________________________________
1. Licensed Marks. SFS is the sole and exclusive licensor of the
following service marks and trademarks currently used in connection with the
SUBURBAN LODGE System:
Design Mark - Registration No. 1,528,954; Registration Date:
March 7, 1989; registered with the United States Patent and
Trademark Office, Principal Register, as a service mark in
class 42 for motel services.
"Suburban Lodge" - Registration No. 1,548,778; Registration
Date: July 18, 1989; registered with the United States Patent
and Trademark Office, Supplemental Register, as a service mark
in class 42 for motel services. Registration No. 1,864,047;
Registration Date: November 22, 1994; registered with the
United States Patent and Trademark Office, Principal Register,
as a service mark in class 42 for motel services.
"Lodge for Less" - Registration No. 1,616,316; Registration
Date: October 2, 1990; registered with the United States
Patent and Trademark Office, Supplemental Register, as a
service mark in class 42 for motel services.
Franchise Owner shall be authorized to utilize only such Licensed Marks
as from time to time are authorized hereunder.
Exhibit 1 to Franchise Agreement
Page 1
<PAGE> 34
2. Acknowledgement Regarding Controlling Persons. Franchise Owner hereby
acknowledges that Franchise Owner is a(n):
________ individual
________ partnership
________ joint venture
________ corporation
________ limited liability company
________ other business form_______________________
(check one) (describe)
Franchise Owner hereby warrants and represents that the following
persons own, either legally or beneficially, voting control of Franchise Owner:
TYPE OF OWNERSHIP PERCENTAGE OF
NAME (LEGAL OR BENEFICIAL) INTEREST OWNED
---- --------------------- ---------------
Franchise Owner hereby warrants and represents that Franchise Owner is
the party that owns or leases, or not later than immediately prior to the
groundbreaking for construction of Franchise Owner's Unit will own or lease, the
Premises, the Unit and any other improvements upon the Premises. Franchise Owner
has provided SFS, or will provide SFS prior to groundbreaking, evidence of such
ownership or lease.
Franchise Owner hereby acknowledges that SFS is relying on these
representations as a material basis for entering into this Franchise Agreement,
and that the information set forth above is true and correct.
FRANCHISE OWNER
By:________________________________________
Date:______________________________________
Exhibit 1 to Franchise Agreement
Page 2
<PAGE> 35
FRANCHISE AGREEMENT
Dated __________, 199__
between
SUBURBAN FRANCHISE SYSTEMS, INC.
and
_____________________________
Map attached and marked as indicated in Paragraph 2(d) of the Franchise
Agreement.
Exhibit 2 to Franchise Agreement
<PAGE> 1
EXHIBIT 10.20
MassMutual
The Blue Chip Company(SM)
OFFICE LEASE
BY AND BETWEEN
MASSMUTUAL AND
SUBURBAN LODGES OF AMERICA, INC.
For: 1000 Parkwood Circle
Suite 400
Atlanta, Georgia 30339
A "MASSMUTUAL" PROPERTY
<PAGE> 2
OFFICE LEASE
THIS LEASE, is made as of this _____ day of _______________, 1997 by and
between MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation
("Landlord") through its agent CORNERSTONE REAL ESTATE ADVISERS, INC., having an
address at 1050 Crown Pointe Parkway, Suite 1780, Atlanta, Georgia 30338 and
SUBURBAN LODGES OF AMERICA, INC., a Georgia corporation ("Tenant") having its
principal office at 1000 Parkwood Circle, Atlanta, Georgia 30339.
<TABLE>
<CAPTION>
INDEX
ARTICLE TITLE
<S> <C>
1. Basic Provisions
2. Premises, Term and Commencement Date
3. Rent
4. Taxes and Operating Expenses
5. Landlord's Work, Tenant's Work, Alterations and Additions
6. Use
7. Services
8. Insurance
9. Indemnification
10. Casualty Damage
11. Condemnation
12. Repair and Maintenance
13. Inspection of Premises
14. Surrender of Premises
15. Holding Over
16. Subletting and Assignment
17. Subordination, Attornment and Mortgagee Protection
18. Estoppel Certificate
19 Defaults
20. Remedies
21. Quiet Enjoyment
22. Accord and Satisfaction
23. Security Deposit
24. Brokerage Commission
25. Force Majeure
26. Parking
27. Hazardous Materials
28. Additional Rights Reserved by Landlord
29 Defined Terms
30. Miscellaneous Provisions
</TABLE>
<PAGE> 3
ARTICLE 1.
BASIC PROVISIONS
A. Tenant's Tradename: Suburban Lodges of America, Inc.
B. Tenant's Address: 1000 Parkwood Circle, Atlanta, Georgia 30339
C. Office Building Name:
Address: 1000 Parkwood Circle, Atlanta, Georgia 30339
D. Premises: Suite/Unit No.: 400
Approximate Square feet (Rentable): 6,486
E. Landlord: Massachusetts Mutual Life Insurance Company
F. Landlord's Address: c/o Cornerstone Real Estate Advisers, Inc.
1050 Crown Pointe Parkway, Suite 1780
Atlanta, GA 30338
G. Building Manager/Address: Carter & Associates, 1275 Peachtree Street
Atlanta, Georgia 30367
H. Commencement Date: August 1, 1997
I. Expiration Date: August 31, 2000
J. Security Deposit: $11,215.38
K. Monthly Rent: $11,215.38
L. Operating Expenses Base: Actual 1997 Direct Operating Expenses
M. Tax Base: Actual 1997 Real Estate Taxes
N. Tenant's Pro Rate Share: 3.08%. Tenant's Pro Rata Share shall be
determined by and adjusted by Landlord from time to time (but shall
not be readjusted sooner than the commencement of the second Lease
year), by dividing the Tenant's Rentable Square Feet of the Premises
by the rentable area of the Building and multiplying the resulting
quotient, to the second decimal place, by one hundred.
O. Normal Business Hours of Building:
Monday through Friday: 7:00 a.m. to 7:00 p.m.
Saturday: 8:00 a.m. to 1:30 p.m.
Sunday: -- a.m. to -- p.m.
---- ----
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P. Use: General office use for the purpose of development, management and
administration of hotels and motels.
Q. Brokers: Carter & Associates
R. Parking Fee: NONE
The foregoing provisions shall be interpreted and applied in accordance with the
other provisions of this Lease set forth below. The capitalized terms, and the
terms defined in Article 29, shall have the meanings set forth herein or therein
(unless otherwise modified in the Lease) when used as capitalized terms in other
provisions of the Lease.
ARTICLE 2.
PREMISES, TERM AND COMMENCEMENT DATE
Landlord hereby leases and demises to the Tenant and Tenant hereby takes and
leases from Landlord that certain space identified in Article 1 and shown on a
plan attached hereto as Exhibit A ("Premises") for a term ("Term") commencing on
the Commencement Date and ending on the Expiration Date set forth in Article 1,
unless sooner terminated as provided herein, subject to the provisions herein
contained. The Commencement Date set forth in Article 1 shall be advanced to
such earlier date as Tenant commences occupancy of the Premises for the conduct
of its business. Such date shall be confirmed by execution of the Commencement
Date Confirmation in the form as set forth in Exhibit E. If Landlord delays
delivering possession of the Premises or substantial completion of any
Landlord's Work under Exhibit B, this Lease shall not be void or voidable,
except as provided in Article 5, and Landlord shall have no liability for loss
or damage resulting therefrom.
ARTICLE 3.
RENT
A. MONTHLY RENT. Tenant shall pay Monthly Rent in advance on or before the first
day of each month of the Term. If the Term shall commence and end on a day other
than the first day of a month, the Monthly Rent for the first and last partial
month shall be prorated on a per diem basis. Upon the execution of this Lease,
Tenant shall pay one installment of Monthly Rent for the first full month of the
Term and a prorated Monthly Rent for any partial month which may precede it.
B. ADDITIONAL RENT. All costs and expenses which Tenant assumes or agrees to
pay and any other sum payable by Tenant pursuant to this Lease, including,
without limitation, its shares of Taxes and Operating Expenses, shall be deemed
Additional Rent.
C. RENT. Monthly Rent, Additional Rent, Taxes and Operating Expenses and any
other amounts which Tenant is or becomes obligated to pay Landlord under this
Lease are herein referred to collectively as "Rent", and all remedies
applicable to the nonpayment of Rent shall be
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applicable thereto. Landlord may apply payments received from Tenant to any
obligations of Tenant then accrued, without regard to such obligations as may be
designated by Tenant.
D. PLACE OF PAYMENT, LATE CHARGE, DEFAULT INTEREST. Rent and other charges
required to be paid under this Lease, no matter how described, shall be paid by
Tenant to Landlord at the Building Manager's address listed in Article 1, or to
such other person and/or address as Landlord may designate in writing, without
any prior notice or demand therefor and without deduction or set-off or
counterclaim and without relief from any valuation or appraisement laws. In the
event Tenant fails to pay Rent due under this Lease by the close of business on
the tenth (10th) day of the month or by the tenth (10th) day following the due
date of such payment of Rent if not due on the first day of the month, Tenant
shall pay to Landlord a late charge of ten percent (10%) of the amount overdue.
Any Rent not paid when due shall also bear interest at the Default Rate. This
provision shall in no way be construed to modify Tenant's obligations to pay
Rent on or before the first (1st) day of the month.
ARTICLE 4.
TAXES AND OPERATING EXPENSES
A. PAYMENT OF TAXES AND OPERATING EXPENSES.
(a) Payment of Escalations. It is agreed that during each calendar year of
the Lease Term beginning on January 1, 1998 of the second Lease Year and each
month thereafter during the original Lease Term, or any extension thereof,
Tenant shall pay to Landlord as Additional Rent, at the same time as the Monthly
Rent is paid, an amount equal to one-twelfth (1/12) of Landlord's estimate (as
determined by Landlord in its sole discretion of Tenant's Pro Rata Share of any
projected increase in the Taxes or Operating Expenses for the particular
calendar year of the Lease Term (the "Estimated Escalation Increase"). If during
any calendar year the Estimated Escalation Increase is less than the Estimated
Escalation Increase for the previous calendar year on which Tenant's share of
Taxes and Operating Expenses were based for said year, such Additional Rent
payments, attributable to Estimated Escalation Increase, to be paid by Tenant
for the new Lease Year shall be decreased accordingly; provided, however, in no
event will the Rent paid by Tenant hereunder ever be less than the Monthly Rent.
A final adjustment (the "Escalation Reconciliation") shall be made between the
parties as soon as practicable following the end of each calendar year, but in
no event later than one hundred twenty (120) days after the end of each calendar
year.
(b) Escalation Reconciliation. As soon as practicable following the end of
each calendar year, Landlord shall submit to Tenant a statement setting forth
the Estimated Escalation Increase, if any the ("Escalation Statement").
Beginning with the Escalation Statement for the second calendar year of the
Lease Term, if shall also set forth the Escalation Reconciliation for the
calendar year just completed. To the extent that the increase in either Taxes or
Operating Expenses (the "Operating Expense or Tax Escalation", as applicable) is
greater than the Estimated Escalation Increase upon which Tenant paid Rent
during the calendar year just completed, Tenant shall pay Landlord the
difference in cash within thirty (30) days following receipt by Tenant from
Landlord of the Escalation Statement. If the Operating Expenses or Tax
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Escalation is less, then Tenant shall receive a credit on future Rent owing
hereunder (or cash if there if no future Rent owing hereunder) as the case may
be. Until Tenant receives the Escalation Statement, Tenant's Rent for the new
Lease Year shall continue to be paid at the rate being paid for the particular
Lease Year just completed. Tenant shall commence payment to Landlord of the
monthly installment of Additional Rent on the basis of said Statement beginning
on the first day of the month following the month in which Tenant receives the
Escalation Statement.
(c) Changes in Escalations During Lease Year. In addition to the above, if,
during any particular calendar year, there is a change in the information on
which Landlord based the estimate upon which Tenant is then making its estimated
payment of Taxes and Operating Expenses so that such Estimated Escalation
Increase furnished to Tenant is no longer accurate, Landlord shall be permitted
to revise such Estimated Escalation Increase by notifying Tenant thereof. There
shall be such adjustments made in the Additional Rent on the first day of the
month following the service of such notice on Tenant as shall be necessary by
either increasing or decreasing, as the case may be, the amount of Additional
Rent then being paid by Tenant for the balance of the calendar year; however, in
no event shall nay such decrease result in a reduction of the Rent below the
Monthly Rent. Landlord's and Tenant's responsibilities with respect to the Tax
and Operating Expense adjustments described herein shall survive the expiration
or early termination of this Lease.
B. DISPUTES OVER TAXES OR OPERATING EXPENSES.
(a) Selection of Accountants. If Tenant disputes the amount of an adjustment
or the proposed estimated increase or decrease in Taxes or Operating Expenses,
Tenant shall give Landlord written notice of such dispute within thirty (30)
days after Landlord advises Tenant of such adjustment or proposed increase or
decrease. Tenant's failure to give such notice shall waive its right to dispute
the amounts so determined. Tenant shall also not be entitled to dispute the
foregoing amounts if Tenant is then in default hereunder. If Tenant is entitled
to and timely objects, Tenant shall have the right to engage its own accountants
("Tenant's Accountants") for the purpose of verifying the accuracy of the
statement in dispute, or the reasonableness of the adjustment or estimated
increase or decrease. Tenant must specifically designate the Lease Year(s) that
Tenant intends to audit, which shall be a year within three (3) years of the
date of the audit but must be within the Term of this Lease. If Tenant's
Accountants determine that an error has been made, Landlord and Tenant's
Accountants shall endeavor to agree upon the matter. If they cannot agree within
twenty (20) days from the date Tenant's Accountants commence reviewing
Landlord's records, Landlord and Tenant's Accountants shall jointly select an
independent certified public accounting firm (the "Independent Accountant")
which firm shall conclusively determine whether the adjustment or estimated
increase or decrease is reasonable, and if not, what amount is reasonable. Both
parties shall be bound by such determination. If Tenant's Accountants do not
participate in choosing the Independent Accountant within 20 days of delivery of
notice by Landlord, then Landlord's determination of the adjustment or estimated
increase or decrease shall be conclusively determined to be reasonable and
Tenant shall be bound thereby.
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(b) Payment of Costs. All costs incurred by Tenant in obtaining Tenant's
Accountants and the cost of the Independent Accountant shall be paid by Tenant
unless Tenant's Accountants disclose an error, acknowledged by Landlord (or
found to have conclusively occurred by the Independent Accountant), of more than
ten percent (10%) in the computation of the total amount of Taxes or Operating
Expenses as set forth in the statement submitted by Landlord with respect to the
matter in dispute; in which event Landlord shall pay the reasonable costs
incurred by Tenant in obtaining such audits. No subtenant shall have the right
to conduct an audit and no assignee shall conduct an audit for any period during
which such assignee was not in possession of the Premises.
(c) Continuation of Payments Pending Determination. Tenant shall continue to
timely pay Landlord the amount of the prior year's adjustment and adjusted
Additional Rent determined to be incorrect as aforesaid until the parties have
concurred as to the appropriate adjustment or have deemed to be bound by the
determination of the Independent Accountant in accordance with the preceding
terms. Landlord's delay in submitting any statement contemplated herein for any
Lease Year shall not affect the provisions of this Paragraph, nor constitute a
waiver of Landlord's rights as set forth herein for said Lease Year or any
subsequent Lease Years during the Lease Term or any extensions thereof.
ARTICLE 5.
LANDLORD'S WORK, TENANT'S WORK,
ALTERATIONS AND ADDITIONS
A. LANDLORD'S WORK. Landlord shall construct the Premises in accordance with
Landlord's obligations as set forth in the work letter attached hereto as
Exhibit B, and hereinafter referred to as "Landlord's Work." Landlord will
deliver the Premises to Tenant with all of Landlord's Work completed (except for
minor and non-material punch list items which in Landlord's reasonable judgment
will not delay completion of Tenant's Work, as defined in subparagraph B of this
Article) on or before the date specified in Exhibit B and Tenant agrees
thereupon to commence and complete Tenant's Work on or before the Commencement
Date. If Landlord is delayed in completing Landlord's Work by strike, shortages
of labor or materials, delivery delays or other matters beyond the reasonable
control of Landlord, then Landlord shall give notice thereof to Tenant and the
date on which Landlord is to turn the Premises over to Tenant for Tenant's Work
and the Commencement Date shall be postponed for an equal number of days as the
delay as set forth in the notice. Providing, however, if such delays exceed one
hundred and twenty (120) days, then either Landlord or Tenant upon notice to the
other shall have the right to terminate this Lease without liability to either
party. If the Commencement Date is postponed as aforesaid, Tenant agrees upon
request of Landlord to execute a writing confirming the Commencement Date on
such form as set forth in Exhibit E attached hereto.
B. TENANT'S WORK. On and after the date specified in the immediately preceding
subparagraph A for delivery of the Premises to Tenant for Tenant's Work,
Tenant, at its sole cost and expense, shall perform and complete all other
improvements to the Premises (herein called "Tenant's Work") including, but not
limited to, all improvements, work and requirements
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required of Tenant under the foregoing work letter. Tenant shall complete all of
Tenant's Work in good and workmanlike manner, fully paid for and free from
liens, in accordance with the plans and specifications approved by Landlord and
Tenant as provided in Exhibit C, on or prior to the scheduled Commencement Date.
Tenant shall also have the right during this period to come onto the Premises to
install its fixtures and prepare the Premises for the operation of Tenant's
business. Notwithstanding the fact that foregoing activities by Tenant will
occur prior to the scheduled Commencement Date, Tenant agrees that all of
Tenant's obligations provided for in this Lease shall apply during such period
with the exception of any obligation to pay Rent.
C. ALTERATIONS. Except as provided in the immediately preceding subparagraph,
Tenant shall make no alterations or additions to the Premises without the prior
written consent of the Landlord, which consent Landlord may grant or withhold
in its reasonable discretion.
D. LIENS. Tenant shall give Landlord at least ten (10) days prior written notice
(or such additional time as may be necessary under applicable laws) of the
commencement of any Tenant's Work, to afford Landlord the opportunity of posting
and recording notices of non-responsibility. Tenant will not cause or permit any
mechanic's, materialman's or similar liens or encumbrances to be filed or exist
against the Premises or the Building or Tenant's interest in this Lease in
connection with work done under this Article or in connection with any other
work. Tenant shall remove any such lien or encumbrance by bond or otherwise
within twenty (20) days from the date of their existence. If Tenant fails to do
so, Landlord may pay the amount or take such other action as Landlord deems
necessary to remove any such lien or encumbrance, without being responsible to
investigate the validity thereof. The amounts so paid and costs incurred by
Landlord shall be deemed Additional Rent under this Lease and payable in full
upon demand.
E. COMPLIANCE WITH ADA. Notwithstanding anything to the contrary contained in
this Lease, Landlord and Tenant agree the responsibility for compliance with the
Americans With Disabilities Act of 1990 (the "ADA") shall be allocated as
follows: (i) Landlord shall be responsible for compliance with the provisions of
Title III of the ADA for all Common Areas, including exterior and interior areas
of the Building not included within the Premises or the premises of other
tenants; (ii) Landlord shall be responsible for compliance with the provisions
of Title III of the ADA for any construction, renovations, alterations and
repairs made within the Premises if such construction, renovations, alterations
or repairs are made by Landlord for the purpose of improving the Building
generally or are done as Landlord's Work and the plans and specifications for
the Landlord's Work were prepared by Landlord's architect or space planner and
were not provided by Tenant's architect or space planner; (iii) Tenant shall be
responsible for compliance with the provisions of Title III of the ADA for any
construction, renovations, alterations and repairs made within the Premises if
such construction, renovations, alterations and repairs are made by Tenant, its
employees, agents or contractors, at the direction of Tenant or done pursuant to
plans and specifications prepared or provided by Tenant or Tenant's architect or
space planner.
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ARTICLE 6.
USE
A. USE. Tenant shall use the Premises for the purposes set forth in Article 1(P)
herein, and for no other purpose whatsoever, subject to and in compliance with
all other provisions of this Lease, including without limitation the Building's
Rules and Regulations attached as Exhibit D hereto. Tenant and its invitees
shall also have the non-exclusive right, along with other tenants of the
Building and others authorized by Landlord, to use the Common Areas subject to
such rules and regulations as Landlord in its discretion may impose from time to
time.
B. RESTRICTIONS. Tenant shall not at any time use or occupy, or suffer or permit
anyone to use or occupy, the Premises or do or permit anything to be done in the
Premises which: (a) causes or is liable to cause injury to persons, to the
Building or its equipment, facilities or systems; (b) impairs or tends to impair
the character, reputation or appearance of the Building as a first class office
building; (c) impairs or tends to impair the proper and economic maintenance,
operation and repair of the Building or its equipment, facilities or systems; or
(d) annoys or inconveniences or tends to annoy or inconvenience other tenants or
occupants of the Building.
C. COMPLIANCE WITH LAWS. Tenant shall keep and maintain the Premises, its use
thereof and its business in compliance with all governmental laws, ordinances,
rules and regulations. Tenant shall comply with all Laws relating to the
Premises and Tenant's use thereof, including without limitation, Laws requiring
the Premises to be closed on Sundays or any other days or hours and Laws in
connection with the heath, safety and building codes, and any permit or license
requirements. Landlord makes no representation that the Premises are suitable
for Tenant's purposes.
ARTICLES 7.
SERVICES
A. Climate Control. Landlord shall furnish heat or air conditioning to the
Premises during Normal Business Hours or Building as set forth in Article 1 as
required in Landlord's reasonable judgment for the comfortable use and
occupation of the Premises. If Tenant requires heat or air conditioning at any
other time, Landlord shall use reasonable efforts to furnish such service upon
reasonable notice from Tenant, and Tenant shall pay all of the Landlord's
charges therefor on demand.
The performance by Landlord of its obligations under this Article is subject to
Tenant's compliances with the terms of this Lease including any connected
electrical load established by Landlord. Tenant shall not use the Premises or
any part thereof in a manner exceeding the heating, ventilating or
air-conditioning ("HVAC") design conditions (including any occupancy or
connected electrical load conditions), including the rearrangement of
partitioning which may interfere with the normal operation of the HVAC
equipment, or the use of computer or data processing machines or other machines
or equipment in excess of that normally required for a standard office use of
the Premises. If any such use requires changes in the HVAC or plumbing
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systems or controls servicing the Premises or portions thereof in order to
provide comfortable occupancy, such changes may be made by Landlord at Tenant's
expense and Tenant agrees to promptly pay any such amount to Landlord as
Additional Rent.
B. ELEVATOR SERVICE. If the Building is equipped with elevators, Landlord,
during Normal Business Hours of Building, shall furnish elevator service to
Tenant to be used in common with others. At least one elevator shall remain in
service during all other hours. Landlord may designate a specific elevator for
use as a service elevator.
C. JANITORIAL SERVICES. Landlord shall provide janitorial and cleaning services
to the Premises, substantially as described in Exhibit D attached hereto. Tenant
shall pay to Landlord on demand the reasonable costs incurred by Landlord for
(i) any cleaning of the Premises in excess of the specifications in Exhibit D
for any reason including, without limitation, cleaning required because of (A)
misuse or neglect on the part of Tenant or Tenant's agents, contractors,
invitees, employees and customers, (B) the use of portions of the Premises for
special purposes requiring greater or more difficult cleaning work than office
areas, (C) interior glass partitions or unusual quantities of interior glass
surfaces, and (D) non-building standard materials or finishes installed by
Tenant or at its request; and (ii) removal from the Premises of any refuse and
rubbish of Tenant in excess of that ordinarily accumulated in general office
occupancy or at times other than Landlord's standard cleaning times.
D. WATER AND ELECTRICITY. Landlord shall make available domestic water in
reasonable quantities to the common areas of the Building (and to the Premises
if so designated in Exhibit B) and cause electric service sufficient for
lighting the Premises and for the operation of Ordinary Office Equipment.
"Ordinary Office Equipment" shall mean office equipment wired for 120 volt
electric service and rated and using less than 6 amperes or 750 watts of
electric current or other office equipment approved by Landlord in writing.
Landlord shall have the exclusive right to make any replacement of lamps,
fluorescent tubes and lamp ballasts in the Premises. Landlord may adopt a system
of relamping and ballast replacement periodically on a group basis in accordance
with good management practice. Tenant's use of electric energy in the Premises
shall not at any time exceed the capacity of any of the risers, piping,
electrical conductors and other equipment in or serving the Premises. In order
to insure that such capacity is not exceeded and to avert any possible adverse
effect upon the Building's electric system, Tenant shall not, without Landlord's
prior written consent in each instance, connect appliances or heavy duty
equipment, other than Ordinary Office Equipment, to the Building's electric
system or make any alteration or addition to the Building's electric system.
Should Landlord grant its consent in writing, all additional risers, piping and
electrical conductors or other equipment therefor shall be provided by Landlord
and the cost thereof shall be paid by Tenant within 10 days of Landlord's demand
therefor. As a condition to granting such consent, Landlord may require Tenant
to agree to an increase in Monthly Rent to offset the expected cost to Landlord
of such additional service, that is, the cost of the additional electric energy
to be made available to Tenant based upon the estimated additional capacity of
such additional risers, piping and electrical conductors or other equipment. If
Landlord and Tenant cannot agree thereon, such cost shall be determined by an
independent electrical engineer, to be selected by Landlord and paid equally by
both parties.
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E. SEPARATE METERS. If the Premises are separately metered for any utility,
Tenant shall pay a utility charge to Landlord (or directly to the utility
company, if possible) based upon the Tenant's actual consumption as measured by
the meter. Landlord also reserves the right to install separate meters for the
Premises to register the usage of all or any one of the utilities and in such
event Tenant shall pay for the cost of utility usage as metered to the Premises
and which is in excess of the usage reasonably anticipated by Landlord for
normal office usage of the Premises. Tenant shall reimburse Landlord for the
cost of installation of meters if Tenant's actual usage exceeds the anticipated
usage level by more than 10 percent. In any event, Landlord may require Tenant
to reduce its consumption to the anticipated usage level. The term "utility" for
purposes hereof may refer to but is not limited to electricity, gas, water,
sewer, steam, fire protection system, telephone or other communication or alarm
service, as well as HVAC, and all taxes or other charges thereon.
F. INTERRUPTIONS. Landlord does not warrant that any of the services referred to
above, or any other services which Landlord may supply, will be free from
interruption and Tenant acknowledges that any one or more of such services may
be suspended by reason of accident, repairs, inspections, alterations or
improvements necessary to be made, or by strikes or lockouts, or by reason of
operation of law, or causes beyond the reasonable control of Landlord. Any
interruption or discontinuance of service shall not be deemed an eviction or
disturbance of Tenant's use and possession of the Premises, or any part thereof,
nor render Landlord liable to Tenant for damages by abatement of the Rent or
otherwise, nor relieve Tenant from performance of Tenant's obligations under
this Lease. Landlord shall however, exercise reasonable diligence to restore any
service so interrupted.
G. UTILITIES PROVIDED BY TENANT. Tenant shall make application in Tenant's own
name for all utilities not provided by Landlord and shall: (i) comply with all
utility company regulations for such utilities, including requirements for the
installation of meters, and (ii) obtain such utilities directly from, and pay
for the same when due directly to, the applicable utility company. The term
"utilities" for purposes hereof shall include but not be limited to electricity,
gas, water, sewer, steam, fire protection, telephone and other communication and
alarm services, as well as HVAC, and all taxes or other charges thereon. Tenant
shall install and connect all equipment and lines required to supply such
utilities to the extent not already available at or serving the Premises, or at
Landlord's option shall repair, alter or replace any such existing items. Tenant
shall maintain, repair and replace all such items, operate the same, and keep
the same in good working order and condition. Tenant shall not install any
equipment or fixtures, or use the same, so as to exceed the safe and lawful
capacity of any utility equipment or lines serving the same. The installation,
alteration, replacement or connection of any utility equipment and lines shall
be subject to the requirements for alterations of the Premises set forth in
Article 5. Tenant shall ensure that all Tenant's HVAC equipment is installed and
operated at all times in a manner to prevent roof leaks, damage, or noise due to
vibrations or improper installation, maintenance or operation.
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ARTICLE 8.
INSURANCE
A. REQUIRED INSURANCE. Tenant shall maintain insurance policies, with
responsible companies licensed to do business in the state where the Building is
located and satisfactory to Landlord, naming Landlord, Landlord's Building
Manager, Cornerstone Real Estate Advisers, Inc., Tenant and any Mortgagee of
Landlord, as their respective interests may appear, at its own cost and expense
including (i) "all risk" property insurance which shall be primary on the lease
improvements referenced in Article 5 and Tenant's property, including its goods,
equipment and inventory, in an amount adequate to cover their replacement cost;
(ii) business interruption insurance, (iii) comprehensive general liability
insurance on an occurrence basis with limits of liability in an amount not less
than $1,000,000 (One Million Dollars) combined single limit for each occurrence.
The comprehensive general liability policy shall include contractual liability
which includes the provisions of Article 9 herein.
On or before the Commencement Date of the Lease, Tenant shall furnish to
Landlord and its Building Manager, certificates of insurance evidencing the
aforesaid insurance coverage, including naming Landlord, Cornerstone Real Estate
Advisers, Inc. and Landlord's Building Manager as additional insureds. Renewal
certificates must be furnished to Landlord at least thirty (30) days prior to
the expiration date of such insurance policies showing the above coverage to be
in full force and effect.
All such insurance shall provide that it cannot be canceled except upon thirty
(30) days prior written notice to Landlord. Tenant shall comply with all rules
and directives of any insurance board, company or agency determining rates of
hazard coverage for the Premises, including but not limited to the installation
of any equipment and/or the correction of any condition necessary to prevent any
increase in such rates.
B. WAIVER OF SUBROGATION. Landlord and Tenant each agree that neither Landlord
nor Tenant will have any claim against the other for any loss, damage or injury
which is covered by insurance carried by either party and for which recovery
from such insurer is made, notwithstanding the negligence of either party in
causing the loss. This release shall be valid only if the insurance policy in
question permits waiver of subrogation or if the insurer agrees in writing that
such waiver of subrogation will not affect coverage under said policy. Each
party agrees to use its best efforts to obtain such an agreement from its
insurer if the policy does not expressly permit a waiver of subrogation.
C. WAIVER OF CLAIMS. Except for claims arising from Landlord's willful
misconduct or gross negligence that are not covered by Tenant's insurance
required hereunder, Tenant waives all claims against Landlord for injury or
death to persons, damage to property or to any other interest of Tenant
sustained by Tenant or any party claiming, through Tenant resulting from: (i)
any occurrence in or upon the Premises, (ii) leaking of roofs, bursting,
stoppage or leaking of water, gas, sewer or steam pipes or equipment, including
sprinklers, (iii) wind, rain, snow, ice, flooding, freezing, fire, explosion,
earthquake, excessive heat or cold, or other casualty, (iv) the Building,
Premises, or the operating and mechanical systems or equipment of the Building,
being
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defective, or failing, and (v) vandalism, malicious mischief, theft or
other acts or omissions of any other parties including without limitation, other
tenants, contractors and invitees at the Building. Tenant agrees that Tenant's
property loss risks shall be borne by its insurance, and Tenant agrees to look
solely to and seek recovery only from its insurance carriers in the event of
such losses. For purposes hereof, any deductible amount shall be treated as
though it were recoverable under such policies. In no event will Landlord be
responsible for any consequential damages incurred by Tenant, including but not
limited to, lost profits or interruption of business as a result of any alleged
default by Landlord hereunder.
ARTICLE 9.
INDEMNIFICATION
A. TENANT INDEMNITY OF LANDLORD. Tenant shall defend, indemnify and hold
Landlord and its agents, successors and assigns, including its Building Manager,
harmless from ant against all claims, causes of action, liabilities, losses,
costs and expenses arising from or in connection with any injury or other damage
to any person or property (i) which occurs in the Premises (except to the extent
caused by the gross negligence or willful misconduct of Landlord or any employee
or other agent of Landlord) or (ii) which occurs in any part of the Building
other than the Premises and is caused by the negligence or willful misconduct of
Tenant, its agents, contractors, employees, customers, and invitees. This
indemnification shall survive the expiration or termination of the Lease Term.
B. LANDLORD INDEMNITY OF TENANT. Landlord shall defend, indemnify and hold
Tenant harmless from and against all claims, causes of action, liabilities,
losses, costs and expenses arising from or in connection with any injury or
other damage to any person or property resulting from the gross negligence or
willful misconduct of Landlord.
C. INDEMNITY LIMITATIONS. The indemnity obligations set forth in sections A and
B above shall not apply (i) to any costs or expenses not reasonably incurred by
the indemnitee or (ii) to any claims, causes of action, liabilities, losses,
costs and expenses resulting from a default by the indemnitee hereunder.
D. INDEMNITEES; ACCEPTABLE ATTORNEYS. Whenever, in this Article and throughout
this Lease, Landlord or Tenant is required to defend, indemnify and hold the
other harmless, such obligations shall extend to the successors, assigns,
officers, partners, directors, employees and other agents of the indemnitee. In
any instance where this Lease requires either party to defend the other, such
defense shall involve an attorney or attorneys reasonably acceptable to the
indemnitee.
E. LIMITATION ON LIABILITY. Landlord shall not be liable to Tenant for any
damage by or from any act or negligence of any co-tenant or other occupant of
the Building, or by any owner or occupants of adjoining or contiguous property.
Landlord shall not be liable for any injury or damage to persons or property
resulting in whole or in part from the criminal activities or willful misconduct
of others. To the extent not covered by all risk property insurance, Tenant
agrees to pay for all damage to the Building, as well as all damage to persons
or property of other tenants
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or occupants thereof, caused by the negligence, fraud or willful misconduct of
Tenant or any of its agents, contractors, employees, customers and invitees.
Nothing contained herein shall be construed to relieve Landlord from liability
for any personal injury resulting from its gross negligence, fraud or willful
misconduct.
ARTICLE 10.
CASUALTY DAMAGE
Tenant shall promptly notify Landlord or the Building Manager of any fire or
other casualty to the Premises or to the extent it knows of damage, to the
Building. In the event the Premises or any substantial part of the Building is
wholly or partially damaged or destroyed by fire or other casualty which is
covered by Landlord's insurance, the Landlord will proceed to restore the same
to substantially the same condition existing immediately prior to such damage or
destruction unless (i) such damage or destruction is incapable of repair or
restoration within one hundred eighty (180) days; (ii) the insurance proceeds
recovered by reason of the damage or destruction are, in Landlord's sole
judgment, inadequate to complete the restoration of the Building; or (iii)
Landlord elects not to repair or restore the Building, in any of which events
Landlord may, at Landlord's option and by written notice given to Tenant within
sixty (60) days of such damage or destruction, declare this Lease terminated as
of the happening of such damage or destruction. To the extent after fire or
other casualty that Tenant shall be deprived of the use and occupancy of the
Premises or any portion thereof as a result of any such damage, destruction or
the repair thereof, providing Tenant did not cause the fire or other casualty,
Tenant shall be relieved of the same ratable portion of the Monthly Rent
hereunder as the amount of damaged or useless space in the Premises bears to the
rentable square footage of the Premises until such time as the Premises may be
restored. Landlord shall reasonably determine the amount of damaged or useless
space and the square footage of the Premises referenced in the prior sentence.
ARTICLE 11.
CONDEMNATION
In the event of a condemnation or taking of the entire Premises by a public or
quasi-public authority, this Lease shall terminate as of the date title vests in
the public or quasi-public authority. In the event of (i) a taking or
condemnation of fifteen percent (15%) or more (but less than the whole) of the
Building and without regard to whether the Premises are part of such taking or
condemnation; (ii) a taking or condemnation which results in Landlord electing
not to restore the Building; or (iii) a taking or condemnation which results in
Landlord electing to change the use of the land upon which the Building is
located, Landlord may elect to terminate this Lease by giving notice to Tenant
within sixty (60) days of Landlord receiving notice of such condemnation. All
compensation awarded for any condemnation shall be the property of Landlord,
whether such damages shall be awarded as a compensation for diminution in the
value of the leasehold or to the fee of the Premises, and Tenant hereby assigns
to Landlord all of Tenant's right, title and interest in and to any and all such
compensation. Providing, however that in the event this Lease is terminated,
Tenant shall be entitled to make a separate claim for the taking of Tenant's
personal property (including fixtures paid for by Tenant), and for costs of
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moving. Notwithstanding anything herein to the contrary, any condemnation award
to Tenant shall be available only to the extent such award is payable separately
to Tenant and does not diminish the award available to Landlord or any Lender of
Landlord and such award shall be limited to the amount of Rent actually paid by
Tenant to Landlord for the period of time for which the award is given. Any
additional portion of such award shall belong to Landlord.
ARTICLE 12.
REPAIR AND MAINTENANCE
A. TENANT'S OBLIGATIONS. Tenant shall keep the Premises in good working order,
repair and condition (which condition shall be neat, clean and sanitary) and in
compliance with all Laws now or hereafter adopted pertaining of the Premises and
shall diligently maintain and repair all nonstructural aspects of the Premises
not included in Landlord's obligations below.
B. LANDLORD'S OBLIGATIONS. Landlord shall maintain (i) the foundations, roof,
perimeter walls and exterior windows, and all structural aspects of the
Building, and (ii) all nonstructural aspects of the Building which relate to the
Common Areas or to more than one tenant's premises, or which no tenant of the
Building is required to maintain and repair, including all systems and
facilities necessary for the operation of the Building and the provision of
services and utilities as required herein (except to the extent that any of the
foregoing items are installed by or on behalf of, or are the property of,
Tenant). Landlord shall also make any necessary repairs to the Building standard
mechanical, HVAC, electrical, and plumbing systems in or servicing the Premises
(the cost of which shall be included in Operating Expenses under Article 4),
excluding repairs required to be made by Tenant pursuant to this Article.
Landlord shall have no responsibility to make any repairs unless and until
Landlord receives written notice of the need for such repair or otherwise
becomes aware. Landlord shall not be liable for any failure to make repairs or
to perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need for such repairs or maintenance is
received by Landlord from Tenant or after Landlord otherwise becomes aware.
Landlord shall make every reasonable effort to perform all such repairs or
maintenance in such a manner (in its judgment) so as to cause minimum
interference with Tenant and the Premises but Landlord shall not be liable to
Tenant for any interruption or loss of business pertaining to such activities.
Landlord shall have the right to require that any damage caused by the willful
misconduct of Tenant or any of Tenant's agents, contractors, employees, invitees
or customers, be paid for and performed by the Tenant (without limiting
Landlord's other remedies herein).
C. GENERAL OBLIGATIONS. Alterations to the Premises required from time to time
to comply with applicable laws, requirements of any board of property insurance
underwriters or similar entity, or reasonable requirements of Landlord's or
Tenant's insurers shall be made by the party to this Lease responsible for
maintaining and repairing the applicable aspect of the Premises hereunder.
Notwithstanding the foregoing, in the event that Landlord is required to make
any such alteration as the result of any use of the Premises by Tenant (i) which
was not contemplated at the time this Lease was signed and (ii) which is not
common to 50% or more of the tenants of the Building, Tenant shall reimburse
Landlord upon demand for all expenses reasonably incurred
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by Landlord in connection therewith, plus 10% of such expenses to cover
Landlord's internal administrative costs. If reasonably necessary to comply with
changes in applicable laws and requirements, Landlord may take back a portion or
portions of the Premises provided that the Monthly Rent and Additional Rent
shall be abated in proportion to any resulting impairment of Tenant's use of the
Premises; and provided further that, if such impairment (in the aggregate)
exceeds 5 %, Tenant shall be entitled to terminate this Lease by irrevocable
written notice to Landlord within 20 business days following the date of such
taking. Landlord warrants to Tenant that, as of the Commencement Date, all
aspects of the Premises comprising Landlord's Work, if any, shall comply with
all applicable laws, with the requirements of Landlord's insurers, and with the
requirements of all boards of property insurance underwriters and similar
entities.
D. SIGNS AND OBSTRUCTIONS. Tenant shall not obstruct or permit the obstruction
of light, halls, Common Areas, roofs, parapets, stairways or entrances to the
Building or the Premises and will not affix, paint, erect or inscribe any sign,
projection, awning, signal or advertisement of any kind to any part of the
Building or the Premises, including the inside or outside of the windows or
doors, without the written consent of Landlord. Landlord shall have the right to
withdraw such consent at any time and to require Tenant to remove any sign,
projection, awning, signal or advertisement to be affixed to the Building or the
Premises if such sign, etc. is-later determined to obstruct the foregoing areas.
If such work is done by Tenant through any person, firm or corporation not
designated by Landlord, or without the express written consent of Landlord,
Landlord shall have the right to remove such signs, projections, awnings,
signals or advertisements without being liable to the Tenant by reason thereof
and to charge the cost of such removal to Tenant as Additional Rent, payable
within ten (10) days of Landlord's demand therefor.
E. OUTSIDE SERVICES. Tenant shall not permit, except by Landlord or a person or
company reasonably satisfactory to and approved by Landlord: (i) the
extermination of vermin in, on or about the Premises; (ii) the servicing of
heating, ventilating and air conditioning equipment; (iii) the collection of
rubbish and trash other than in compliance with local government health
requirements and in accordance with the rules and regulations established by
Landlord, which shall minimally provide that Tenant's rubbish and trash shall be
kept in containers located so as not to be visible to members of the public and
in a sanitary and neat condition; or (iv) window cleaning, janitorial services
or similar work in or about the Premises.
ARTICLE 13.
INSPECTION OF PREMISES
Tenant shall permit the Landlord, the Building Manager and its authorized
representatives to enter the Premises to show the Premises during Normal
Business Hours of Building and at other reasonable times to inspect the Premises
and to make such repairs, improvements, alterations or additions in the Premises
or in the Building of which they are a part as Landlord may deem necessary or
appropriate.
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ARTICLE 14.
SURRENDER OF PREMISES
Upon the expiration of the Term, or sooner termination of the Lease, Tenant
shall quit and surrender to Landlord the Premises, broom clean, in good order
and condition, normal wear and tear and damage by fire and other casualty
excepted. All leasehold improvements and other fixtures, such as light fixtures
and HVAC equipment, wall coverings, carpeting and drapes, in or serving the
Premises, whether installed by Tenant or Landlord, shall be Landlord property
and shall remain, all without compensation, allowance or credit to Tenant. Any
property not removed shall be deemed to have been abandoned by Tenant and may be
retained or disposed of by Landlord at Tenant's expense free of any and all
claims of Tenant, as Landlord shall desire. All property not removed from the
Premises by Tenant may be handled or stored by Landlord at Tenant's expense and
Landlord shall not be liable for the value, preservation or safekeeping thereof.
At Landlord's option all or part of such property may be conclusively deemed to
have been conveyed by Tenant to Landlord as if by bill of sale without payment
by Landlord. The Tenant hereby waives to the maximum extent allowable the
benefit of all laws now or hereafter in force in this state or elsewhere
exempting property from liability for rent or for debt.
ARTICLE 15.
HOLDING OVER
Tenant shall pay Landlord 200% of the amount of Rent then applicable prorated on
a per diem basis for each day Tenant shall retain possession of the Premises or
any part thereof after expiration or earlier termination of this Lease, together
with all damages sustained by Landlord on account thereof. The foregoing
provisions shall not serve as permission for Tenant to hold-over, nor serve to
extend the Term (although Tenant shall remain bound to comply with all
provisions of this Lease until Tenant vacates the Premises) and Landlord shall
have the right at any time thereafter to enter and possess the Premises and
remove all property and persons therefrom. No acceptance by Landlord of any Rent
during or for any period following the expiration of termination of the Lease
shall operate or be construed as an extension or renewal of the Lease Term.
Should Tenant remain in the Premises on a month-to-month basis with Landlord's
approval, such month-to-month tenancy may be cancelled by either party with
thirty (30) days' prior written notice or such lesser time period as may be
permitted by law.
ARTICLE 16.
SUBLETTING AND ASSIGNMENT
A. LANDLORD'S CONSENT. Tenant shall not assign its interests hereunder, sublease
all or any portion of the Premises (for purposes of this Lease, a license shall
be deemed to be a sublease), or allow any other person to use or occupy any
portion of the Premises, without the prior written consent of Landlord, which
shall not be unreasonably withheld, except that Landlord shall not, under any
circumstances, be obligated to consent to any assignment or subletting by Tenant
(i) to any other tenant of the Building, (ii) by operation of law, or (iii) to
any person who fails to meet
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any of the other reasonable criteria of Landlord that Tenant was required to
meet prior to the execution of this Lease, including, without limitation, the
following:
a. The financial strength of the proposed assignee or subtenant, both in
terms of net worth and in terms of reasonably anticipated cash flow over the
Lease term, is materially less than Tenant's financial strength at the time this
Lease was signed or at the time of such assignment or sublease, whichever is
greater.
b. The proposed assignee or subtenant would burden the Premises and/or Common
Areas to an extent substantially disproportionate to typical tenants of the
Building, whether through disproportionate demand for landlord services or
utilities, disproportionate bearing weights on floor areas, disproportionate
parking requirements, deterioration of floors or other elements of the Building,
or otherwise.
c. The proposed assignee or subtenant intends to make substantial alterations
to the Premises which would, in Landlord's reasonable judgment, result in a
material net decrease in the value of the Premises as improved.
d. The proposed assignee's or subtenant's use of the Premises would not, in
Landlord's sole judgment, be compatible with the uses of the other tenants in
the Building or would not be appropriate for a Class A office building.
e. Any other basis on which Landlord can reasonably refuse to withhold its
consent to the proposed assignment or sublease, including any failure of the
proposed assignee or subtenant to meet any of the reasonable criteria of
Landlord that Tenant was required to meet prior to the execution of this Lease.
With respect to any proposed assignment or subleasing requiring Landlord's
consent, Tenant shall submit to Landlord in writing, at least 60 days prior to
the effective date of the assignment or sublease, (i) a notice of application to
assign or sublease, setting forth the proposed effective date, which shall be
not less than 60 or more than 90 days after the delivery of such notice; (ii)
the name of the proposed transferee; (iii) the nature of the proposed
transferee's business to be carried on in the Premises; (iv) the terms of the
proposed sublease or assignment; and (v) a current financial statement of the
proposed transferee. Tenant shall not submit any such application to Landlord
until Tenant has received a bona fide offer from the proposed transferee, and
Tenant shall furnish Landlord, in addition to the foregoing, with all other
information reasonably required by Landlord with respect to such transfer and
transferee. Any transfer (or sequence of transfers resulting, in the aggregate,
in the transfer) of 50% or more of the beneficial ownership of Tenant shall
constitute an assignment for purposes of this Article.
B. TRANSFERS NOT REQUIRING CONSENT. Notwithstanding the foregoing, Landlord's
consent shall not be required with respect to (i) any assignment resulting from
a consolidation, merger or purchase of substantially all of Tenant's assets; or
(ii) any assignment or sublease to a person (a) who wholly owns Tenant or who
wholly owns the person who wholly owns Tenant (in either case, a "Parent"), or
who is wholly owned by Tenant or a Parent, or is wholly owned by a person who is
wholly owned by Tenant or a Parent, and (b) whose financial strength, both in
terms of
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net worth and in terms of reasonably anticipated cash flow over the Lease term,
is not materially less than Tenant's financial strength at the time this Lease
was executed or at the time of such assignment or sublease, whichever is
greater. With respect to any assignment or subletting to which Landlord's
consent is not required, the following provisions shall apply:
1. Tenant shall give Landlord written notice of the assignment or
subletting no less than 45 days prior to the effective date thereof, which
notice shall set forth the identity of the proposed transferee, the reason(s)
why Landlord's consent is not required, and the nature of the proposed
transferee's business to be carried on in the Premises.
2. Tenant shall furnish Landlord (a) no less than 30 days prior to
the effective date of the assignment or subletting, with a current financial
statement of the proposed transferee reasonably acceptable to Landlord, and (b)
within three (3) days following Landlord's demand, with all other information
reasonably requested by Landlord with respect to such transferee.
Any assignment or subletting to which Landlord's consent is not required and
with respect to which the provisions of this paragraph are not complied with
shall, at Landlord's option, be void.
C. RECAPTURE. Landlord shall have the option to be exercised within
thirty (30) days from the submission of the aforesaid information to cancel this
Lease with respect to the space to be assigned or the space to be sublet for the
duration of the proposed sublease.
D. NET REVENUES.
1. SUBLEASE REVENUES. In the event that Tenant subleases all or any
portion of the Premises and the total of all amounts payable to Tenant for any
month under any such sublease exceeds the total of all amounts payable to
Landlord hereunder for such month for the same space, the following shall apply
to such excess (the "Net Sublease Revenues"):
a. the Net Sublease Revenues shall first be paid to Tenant to
the extent of the applicable monthly portion (calculated by amortizing each cost
on a straight-line basis over the term of the applicable sublease) of: (1) the
amount by which all Monthly Rent and Additional Rent paid by Tenant (not
including any Net Sublease Revenues) for such space, for the period since Tenant
vacated the same (and provided Landlord with written notice of such vacation)
until the date on which the subtenant is required to commence paying rent,
exceeds all amounts payable to Tenant under any previous subleases of such space
for such period; (2) all brokerage commissions reasonably incurred by Tenant in
connection with such sublease(s); and (3) all improvement allowances and other
economic concessions (space planning allowances, moving allowances, etc.) paid
to such subtenant(s); and
b. any additional Net Sublease Revenues received by Tenant
for any month shall be paid to Landlord within 5 business days thereafter.
2. ASSIGNMENT REVENUES. In the event that Tenant assigns this Lease
with respect to all or any portion of the Premises (the "assigned premises"),
Tenant shall pay to Landlord the amount, if any, by which all amounts paid to
Tenant in consideration of such
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assignment exceed the sum of (a) all Monthly Rent and Additional Rent paid by
Tenant for the assigned premises for the period from the date Tenant vacated the
same (and provided Landlord with written notice of such vacation) until the
effective date of the assignment and (b) all brokerage commissions reasonably
incurred by the assigning tenant in connection with such assignment.
E. CONTINUING LIABILITY; VOIDABLE TRANSFERS. No assignment of this Lease (other
than an assignment to Landlord resulting from Landlord's right of recapture),
and no subletting of all or any portion of the Premises, shall release Tenant or
any guarantor with respect to any post-transfer obligations, unless Landlord
agrees otherwise in writing in its absolute discretion and any such assignment
or sublease shall, at Landlord's option, be void in the event that Tenant and
each such guarantor, if any, does not expressly acknowledge and affirm its
continuing liability in form and substance reasonably satisfactory to Landlord.
The continuing liability of the assigning Tenant shall be primary, and Landlord
shall be entitled to exercise its rights and remedies against any such assignor
with respect to any Tenant Default without exhausting its rights and remedies
against any successor of such assignor. In the event that it is ever held,
notwithstanding the contrary intention of the parties hereto, that any such
assignor's continuing liability is that of a guarantor (rather than primary),
Tenant hereby waives any and all suretyship rights and defenses to which it
,would otherwise be entitled in connection with such continuing liability.
Notwithstanding the foregoing, in the event that, following any assignment
(other than an assignment described in Section B, above), Landlord and such
assignee modify this Lease in such a way as to increase Tenant's total
obligations hereunder, neither the assigning Tenant nor any guarantor whose
guaranty pre-dated such assignment shall be liable for the incremental portion
of Tenant's obligations corresponding to such increase. The acceptance of any
assignment by an assignee shall automatically constitute the assumption by such
assignee of all obligations of Tenant with respect to the assigned premises that
accrue following the assignment; provided, however, that any assignment of this
Lease shall, at Landlord's option, be void in the event that the assignee does
not expressly acknowledge and affirm the effectiveness of the foregoing
assumption in form and substance reasonably satisfactory to Landlord. Any
assignment or subletting by Tenant to which Landlord's consent is required but
not obtained shall, at Landlord's option, be void. Following Landlord's consent,
or refusal to consent, to any assignment or sublease. Tenant shall pay Landlord,
upon demand, a reasonable charge (not to exceed $500.00) to cover Landlord's
administrative and out-of-pocket costs in connection therewith.
F. OTHER PROVISIONS APPLICABLE TO TRANSFERS. No assignment or subletting shall
be deemed to modify any provision of this Lease, with respect to permitted or
restricted uses of the Premises or otherwise, unless Landlord then agrees
otherwise in writing in its absolute discretion. Tenant shall promptly furnish
Landlord with a copy of each executed assignment or sublease, and with copies of
any supplements or modifications thereto which may be executed from time to
time.
G. ASSIGNMENT OF SUBLEASE REVENUES. Tenant hereby absolutely assigns to Landlord
all of Tenant's right, title and interest in and to all revenues from each
sublease of all or any portion of the Premises; provided, however, that Landlord
hereby grants Tenant a license, which shall
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remain in effect so long as no Tenant default remains uncured, to collect all
such revenues (subject to Tenant's obligation to deliver certain of such
revenues to Landlord under this Article). Upon the occurrence of any Tenant
default, Landlord may revoke such license by written notice to Tenant and may,
by written notice to any subtenant of Tenant, demand that such subtenant pay all
such revenues directly to Landlord. In such event Tenant hereby irrevocably
authorizes and directs any such subtenant to pay such revenues to Landlord, and
further agrees (a) that any such subtenant shall be obligated and entitled to
pay such revenues to Landlord notwithstanding any contrary contentions or
instructions later received from tenant and (b) that no such subtenant shall
have any liability to Tenant for any such revenues paid to Landlord in
accordance with the foregoing. Landlord shall not be entitled to use or enjoy
any such revenues except for the purpose of applying such revenues against
unfulfilled obligations of Tenant hereunder with respect to which the applicable
cure periods have expired, or to reimburse Landlord for costs reasonably
incurred as a result of any Tenant default, or to compensate Landlord for other
losses suffered by Landlord as a result of any Tenant default. Any such revenues
remaining in Landlord's possession following the cure of all Tenant defaults and
the reimbursement of all such costs and losses shall be delivered to Tenant upon
demand. No such notice to any subtenant or receipt of revenues from any
subtenant shall be teemed to constitute either (i) Landlord's consent to such
sublease or (ii) the assumption by Landlord of any obligation of Tenant under
such sublease, nor shall any such notice or receipt create privily of contract
between Landlord and the applicable subtenant or be construed as a
nondisturbance or similar agreement between Landlord and such subtenant.
H. TRANSFERS BY SUBTENANTS. The provisions of this Article shall also apply to
assignments and subleases by subtenants, sub-subtenants and so on.
I. ASSIGNMENT OF OPTIONS. Without limiting the generality of any provision of
this Lease which states that any option or other right of Tenant is personal to
the original Tenant hereunder or may only be assigned under certain conditions,
no option or similar right of Tenant hereunder, including without limitation any
option to extend or renew, option to expand, first offer or first refusal right,
or first right to lease, may be assigned, and any attempt to assign such right
shall be null and void.
J. ENCUMBRANCE. Tenant shall not assign its interests hereunder as security for
any obligation without Landlord's prior written consent, which may be withheld
in Landlord's absolute discretion, and any such assignment without such consent
shall, at Landlord's option, be void.
ARTICLE 17.
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages now or hereafter placed
upon the Building, and all other encumbrances and matters of public record
applicable to the Building, including without limitation, any reciprocal
easement or operating agreements, covenants, conditions and restrictions and
Tenant shall not act or permit the Premises to be operated in violation thereof.
If any foreclosure or power of sale proceedings are initiated by any Lender or a
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deed in lieu is granted (or if any ground lease is terminated), Tenant agrees,
upon written request of any such Lender or any purchaser at such foreclosure
sale, to attorn and pay Rent to such party and to execute and deliver any
instruments necessary or appropriate to evidence or effectuate such attornment.
In the event of attornment, no Lender shall be: (i) liable for any act or
omission of Landlord, or subject to any offsets or defenses which Tenant might
have against Landlord (prior to such Lender becoming Landlord under such
attornment), (ii) liable for any security deposit or bound by any prepaid Rent
not actually received by such Lender, or (iii) bound by any future modification
of this Lease not consented to by such Lender. Any Lender may elect to make this
Lease prior to the lien of its Mortgage, and if the Lender under any prior
Mortgage shall require, this Lease shall be prior to any subordinate Mortgage;
such elections shall be effective upon written notice to Tenant. Tenant agrees
to give any Lender by certified mail; return receipt requested, a copy of any
notice of default served by Tenant upon Landlord, provided that prior to such
notice Tenant has been notified in writing (by way of service on Tenant of a
copy of an assignment of leases, or otherwise) of the name and address of such
Lender. Tenant further agrees that if Landlord shall have failed to cure such
default within the time permitted Landlord for cure under this Lease, any such
Lender whose address has been so provided to Tenant shall have an additional
period of thirty (30) days in which to cure (or such additional time as may be
required due to causes beyond such Lender's control, including time to obtain
possession of the Building by power of sale or judicial action or deed in lieu
of foreclosure). The provisions of this Article be self-operative; however,
Tenant shall execute such documentation as Landlord or any Lender may request
from time to time in order to confirm the matters set forth in this Article in
recordable form. To the extent not expressly prohibited by Law, Tenant waives
the provisions of any Law now or hereafter adopted which may give or purport to
give Tenant any right or election to terminate or otherwise adversely affect
this Lease or Tenant's obligations hereunder if such foreclosure or power of
sale proceedings are initiated, prosecuted or completed.
ARTICLE 18.
ESTOPPEL CERTIFICATE
Tenant shall from time to time, upon written request by Landlord or Lender,
deliver to Landlord or Lender, within ten (10) days after from receipt of such
request, a statement in writing certifying: (i) that this Lease is unmodified
and in full force and effect (or if there have been modifications, identifying
such modifications and certifying that the Lease, as modified, is in full force
and effect); (ii) the dates to which the Rent has been paid; (iii) that Landlord
is not in default under any provision of this Lease (or if Landlord is in
default, specifying each such default); and, (iv) the address to which notices
to Tenant shall be sent; it being understood that any such statement so
delivered may be relied upon in connection with any lease, mortgage or transfer.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that: (i) this Lease is in full force and effect and not modified
except as Landlord may represent; (ii) not more than one month's Rent has been
paid in advance; (iii) there are no defaults by Landlord; and, (iv) notices to
Tenant shall be sent to Tenant's Address as set forth in Article 1 of this
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Lease. Notwithstanding the presumptions of this Article, Tenant shall not be
relieved of its obligation to deliver said statement.
ARTICLE 19.
DEFAULTS
A. TENANT DEFAULTS. The occurrence of any of the following shall constitute a
"default" by Tenant hereunder:
(a) Tenant fails to pay when due any installment or other payment of Rent, or
any other amount owing to Landlord, or
(b) Tenant fails to keep in effect any insurance required to be maintained,
and such failure continues for thirty (30) days after notice thereof given by
or on behalf of Landlord, or
(c) Tenant vacates or abandons the Premises, or
(d) Tenant becomes insolvent, makes an assignment for the benefit of
creditors, files a voluntary petition in bankruptcy or an involuntary
petition is filed against Tenant which petition is not dismissed within
sixty (60) days of its filing, or if a receiver shall be appointed for its
business or its assets and the appointment of such receiver is not vacated
within thirty (30) days after such appointment, or
(e) Tenant fails to perform or observe any of the other covenants, conditions
or agreements contained herein on Tenant's part to be kept or performed or
breaches a representation made hereunder, and such failure shall continue for
thirty (30) days after notice thereof given by or on behalf of Landlord, or
if such default is curable but cure cannot reasonably be effected within such
thirty (30) day period, such default shall not be a default hereunder so long
as Tenant promptly commences cure within ten (l0) days and thereafter
diligently prosecutes such cure to completion, or
(f) If the interest of Tenant shall be offered for sale or sold under
execution or other legal process or if Tenant makes any transfer, assignment,
conveyance, sale, pledge, disposition of all or a substantial portion of
Tenant's property, or
(g) The chronic delinquency by Tenant in the payment of Monthly Rent, or any
other periodic payments required to be paid by Tenant under the Lease.
"Chronic delinquency" shall mean failure by Tenant to pay Rent, or any other
periodic payments required to be paid by Tenant under this Lease within five
(5) days after written notice thereof for any three (3) months (consecutive
or nonconsecutive) during any twelve (12) month period. In the event of a
chronic delinquency, at Landlord's option, Landlord shall have the additional
right to require that Rent be paid by Tenant quarter-annually, in advance.
This provision shall in no way modify Tenant's obligation to pay Rent on the
first (1st) day of the month.
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B. LANDLORD DEFAULTS. If any alleged default on the part of the Landlord
hereunder occurs, Tenant shall give written notice to Landlord in the manner
herein set forth and shall effort Landlord a reasonable opportunity to cure any
such default. In addition, Tenant shall send notice of such default by certified
or registered mail, postage prepaid, to the holder of any Mortgage whose address
Tenant has been notified of in writing, and shall afford such Mortgage holder a
reasonable opportunity to cure any alleged default on Landlord's behalf. In no
event will Landlord be responsible for any damages incurred by Tenant,
including, but not limited to, lost profits or interruption of business as a
result of any alleged default by Landlord hereunder.
ARTICLE 20.
REMEDIES
A. LANDLORD REMEDIES. The remedies provided Landlord under this Lease are
cumulative. Upon the occurrence of any default by Tenant, and in addition to any
and all other rights provided a Landlord under law or equity for breach of a
lease or tenancy by a Tenant, Landlord shall have the right to pursue one or
more of the following remedies:
(a) Landlord may serve notice on Tenant that the Term and the estate hereby
vested in Tenant and any and all other rights of Tenant hereunder shall cease on
the date specified in such notice and on the specified date this Lease shall
cease and expire as fully and with the effect as if the Term had expired for
passage of time.
(b) Without terminating this Lease in case of a default or if this Lease
shall be terminated for default as provided herein, Landlord may re-enter the
Premises, remove Tenant, or cause Tenant to be removed from the Premises in such
manner as Landlord may deem advisable, with or without legal process, and using
such reasonable force as may be necessary. In the event of re-entry without
terminating this Lease, Tenant shall continue to be liable for all rents and
other charges accruing or coming due under this Lease which Rent shall
automatically accelerate and become immediately due and payable.
(c) If Landlord, without terminating this Lease, shall re-enter the Premises
or if this Lease shall be terminated as provided in paragraph (a) above:
(i) All Rent due from Tenant to Landlord shall thereupon become due and
shall be paid up to the time of re-entry, dispossession or expiration,
together with reasonable costs and expenses (including, without
limitation, any legal fees and expenses) or Landlord and without benefit
of valuation and appraisement laws which Tenant hereby waives;
(ii) Landlord, without any obligation to do so, may relet the Premises or
any part thereof for a term or terms which may at Landlord's option be
less than or exceed the period which would otherwise have constituted
the balance of the Term and may grant such concessions in reletting
as Landlord, in the exercise of its reasonable business judgment, deems
desirable. In connection with such reletting,
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Tenant shall be liable for all costs of the reletting including,
without limitation, leasing commissions, legal fees and alteration and
remodeling costs;
(iii)If Landlord shall have terminated this Lease, Tenant shall also be
liable to Landlord for all damages provided for in law and under this
Lease resulting from Tenant's breach including, without limitation, the
difference between the aggregate Rents reserved under the terms of this
Lease for the balance of the Term together with all other sums payable
hereunder as Rent for the balance of the Term (using the highest annual
Percentage Rent paid by Tenant for any Lease Year), less the fair rental
value of the Premises for that period determined as of the date of such
termination. For purposes of this paragraph, Tenant shall be deemed to
include any guarantor or surety of the Lease.
(d) Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations (and with the
understanding that Landlord is under no obligation to relet the Premises under
any conditions so long as there is comparable space available in the Building
for lease).
(e) Whether or not Landlord terminates this Lease, Landlord shall have the
right, as Landlord chooses in its absolute discretion, (i) to terminate any or
all subleases, licenses, concessions and other agreements entered into by Tenant
in connection with its occupancy of the Premises and/or (ii) to maintain any or
all such agreements in effect ant succeed to Tenant's interests in connection
therewith (in which event Tenant shall cease to have any interest in any such
agreement).
B. TENANT REMEDIES. Upon the occurrence of any default by Landlord, Tenant
shall, except as otherwise expressly provided herein, have all rights and
remedies provided hereunder and by law from time to time; provided, however,
that Tenant shall in no event have the right to terminate this Lease except as
expressly provided herein.
ARTICLE 21.
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that so long as Tenant pays the Rent
and observes and performs all the terms, covenants, and conditions of this Lease
on Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the Premises subject, nevertheless, to the terms and conditions of this
Lease, and Tenant's possession will not be disturbed by anyone claiming by,
through, or under Landlord.
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ARTICLE 22.
ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of an amount less than full payment
of Rent then due and payable shall be deemed to be other than on account of the
Rent then due and payable, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment as Rent be deemed as accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or pursue any other remedy
provided for in this Lease or available at law or in equity.
ARTICLE 23.
SECURITY DEPOSIT
To secure the faithful performance by Tenant of all of the covenants, conditions
and agreements set forth in this Lease to be performed by it, including, without
limitation, the foregoing covenants, conditions and agreements in this Lease
which become applicable upon its termination by re-entry or otherwise, Tenant
has deposited with Landlord the sum shown in Article 1 as a "Security Deposit"
on the understanding:
(a) that the Security Deposit or any portion thereof may be
applied to the curing of any default that may exist, without
prejudice to any other remedy or remedies which the Landlord
may have on account thereof, and upon such application Tenant
shall pay Landlord on demand the amount so applied which shall
be added to the Security Deposit so the same will be restored
to its original amount;
(b) that should the Premises be conveyed by Landlord, the Security
Deposit or any balance thereof may be turned over to the
Landlord's grantee, and if the same be turned over as
aforesaid, Tenant hereby releases Landlord from any and all
liability with respect to the Security Deposit and its
application or return, and Tenant agrees to look solely to
such grantee for such application or return;
(c) that Landlord may commingle the Security Deposit with other
funds and not be obligated to pay Tenant any interest;
(d) that the Security Deposit shall not be considered as advance
payment of Rent or a measure of damages for any default by
Tenant, nor shall it be a bar or defense to any actions by
Landlord against Tenant;
(e) that if Tenant shall faithfully perform all of the covenants
and agreements contained in this Lease on the part of the
Tenant to be performed, the Security Deposit or any then
remaining balance thereof, shall be returned to Tenant,
without interest, within thirty (30) days after the
expiration of the Term. Tenant further covenants that it will
not assign or encumber the money deposited herein as a
Security Deposit and that neither Landlord nor its successors
or assigns shall
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be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance.
ARTICLE 24.
BROKERAGE COMMISSION
Landlord and Tenant represent and warrant to each other that neither has dealt
with any broker, finder or agent except for the Broker(s) identified in Article
1. Tenant represents and warrants to Landlord that (except with respect to the
Broker identified in Article 1 and with whom Landlord has entered into a
separate brokerage agreement) no broker, agent, commission salesperson, or other
person has represented Tenant in the negotiations for and procurement of this
Lease and of the Premises and that no commissions, fees, or compensation of any
kind are due and payable in connection herewith to any broker, agent, commission
salesperson, or other person. Tenant agrees to indemnify Landlord and hold
Landlord harmless from any and all claims, suits, or judgments (including,
without limitation, reasonable attorneys' fees and court costs incurred in
connection with any such claims, suits, or judgments, or in connection with the
enforcement of this indemnity) for any fees, commissions, or compensation of any
kind which arise out of or are in any way connected with any claimed agency
relationship not referenced in Article 1.
ARTICLE 25.
FORCE MAJEURE
Landlord shall be excused for the period of any delay in the performance of any
obligation hereunder when prevented from so doing by a cause or causes beyond
its control, including all labor disputes, civil commotion, war, war-line
operations, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, fire or other casualty,
inability to obtain any material, services or financing, or through acts of Got.
Tenant shall similarly be excused for delay in the performance of any obligation
hereunder; provided:
(a) nothing contained in this Section or elsewhere in this Lease
shall be deemed to excuse or permit any delay in the payment
of the Rent, or any delay in the cure of any default which may
be cured by the payment of money;
(b) no reliance by Tenant upon this Section shall limit or
restrict in any way Landlord's right of self-help as provided
in this Lease; and
(c) Tenant shall not be entitled to rely upon this Section unless
it shall first have given Landlord written notice of the
existence of any force majeure preventing the performance of
an obligation of Tenant within five days after the
commencement of the force majeure.
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ARTICLE 26.
PARKING
(a) Landlord hereby grants to Tenant the right, in common with others
authorized by Landlord, to use the parking facilities owned by Landlord and
shown on Exhibit A, if any. Landlord, at its election, may designate the types
and locations of parking spaces within the parking facilities which Tenant shall
be allowed to use. Landlord shall have the right, at Landlord's election, to
change said types and locations from time to time; provided, however, such
designation shall be uniformly applied and shall not unfairly favor any tenant
in the Building.
(b) Commencing on the Commencement Date, Tenant shall pay Landlord the
Parking Fee, if any, shown in Article 1, as Additional Rent, payable monthly in
advance with the Monthly Rent. If there is a Parking Fee shown in Schedule 1,
then thereafter, and throughout the Term, the parking rate for each type of
parking space provided to Tenant hereunder shall be the prevailing parking rate,
as Landlord may designate from time to time, Landlord's election, for each such
type of parking space. In addition to the right reserved hereunder by Landlord
to designate the parking rate from time to time, Landlord shall have the right
to change the parking rate at any time to include therein any amounts levied,
assessed, imposed or required to be paid to any governmental authority on
account of the parking of motor vehicles, including all sums required to be paid
pursuant to transportation controls imposes by the Environmental Protection
Agency under the Clean Air Act of 1970, as amended, or otherwise required to be
paid by any governmental authority with respect to the parking, use, or
transportation of motor vehicles, or the reduction or control of motor vehicle
traffic, or motor vehicle pollution.
(c) If requested by Landlord, Tenant shall notify Landlord of the
license plate number, year, make and model of the automobiles entitled to use
the parking facilities and if requested by Landlord, such automobiles shall be
identified by automobile window stickers provided by Landlord, and only such
designated automobiles shall be permitted to use the parking facilities. If
Landlord institutes such an identification procedure, Landlord may provide
additional parking spaces for use by customers and invitees of Tenant on a daily
basis at prevailing parking rates, if any. At Landlord's election, Landlord may
make validation stickers available to Tenant for any such additional parking
spaces, provided, however, if Landlord makes validation stickers available to
any other tenant in the Building, Landlord shall make such validation stickers
available to Tenant.
(d) The parking facilities provided for herein are provided solely for
the accommodation of Tenant and Landlord assumes no responsibility or liability
of any kind whatsoever from whatever cause with respect to the automobile
parking areas, including adjoining streets, sidewalks, driveways, property and
passageways, or the use thereof by Tenant or tenant's employees, customers,
agents, contractors or invitees.
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ARTICLE 27.
HAZARDOUS MATERIALS
A. DEFINITION OF HAZARDOUS MATERIALS. The term "Hazardous Materials" for
purposes hereof shall mean any chemical, substance, materials or waste or
component thereof which is now or hereafter listed, defined or regulated as a
hazardous or toxic chemical, substance, materials or waste or component thereof
by any federal, state or local governing or regulatory body having jurisdiction,
or which would trigger any employee or community "right-to-know" requirements
adopted by any such body, or for which any such body has adopted any
requirements for the preparation or distribution of a materials safety data
sheet ("MSDS").
B. NO HAZARDOUS MATERIALS. Tenant shall not transport, use, store, maintain,
generate, manufacture, handle, dispose, release or discharge any Hazardous
Materials. However, the foregoing provisions shall not prohibit the
transportation to and from, and use, storage, maintenance and handling within
the Premises of Hazardous Materials customarily used in the business or activity
expressly permitted to be undertaken in the Premises under Article 6, provided:
(a) such Hazardous Materials shall be used and maintained only in such
quantities as are reasonably necessary for such permitted use of the Premises
and the ordinary course of Tenant's business therein, strictly in accordance
with applicable Law, highest prevailing standards, and the manufacturers'
instructions therefor, (b) such Hazardous Materials shall not be disposed of,
released or discharged in the Building, and shall be transported to and from the
Premises in compliance with all applicable Laws, and as Landlord shall
reasonably require, (c) if any applicable Law or Landlord's trash removed
contractor requires that any such Hazardous Materials be disposed of separately
from ordinary trash, Tenant shall make arrangements at Tenant's expense for such
disposal directly with a qualified and licensed disposal company at a lawful
disposal site (subject to scheduling and approved by Landlord), and (d) any
remaining such Hazardous Materials shall be completely, properly and lawfully
removed from the Building upon expiration or earlier termination of this Lease.
Any clean up, remediation and removal work shall be subject to Landlord's prior
written approval (except in emergencies), and shall include, without limitation,
any testing, investigation, and the preparation and implementation of any
remedial action plan required by any governmental body having jurisdiction or
reasonably required by Landlord. If Landlord or any Lender or governmental body
arranges for any tests or studies showing that this Article has been violated by
Tenant, Tenant shall pay for the costs of such tests.
C. NOTICES TO LANDLORD. Tenant shall promptly notify Landlord of: (i) any
enforcement, cleanup or other regulatory action taken or threatened by any
governmental or regulatory authority with respect to the presence of any
Hazardous Materials on the Premises or the migration thereof from or to other
property, (ii) any demands or claims made or threatened by any party relating to
any loss or injury resulting from any Hazardous Materials on the Premises, (iii)
any release, discharge or non-routine, improper or unlawful disposal or
transportation of any Hazardous Materials on or from the Premises or in
violation of this Article, and (iv) any matters where Tenant is required by Law
to give a notice to any governmental or regulatory authority respecting any
Hazardous Materials on the Premises. Landlord shall have the right (but not the
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obligation) to join and participate, as a party, in any legal proceedings or
actions affecting the Premises initiated in connection with any environmental,
heath or safety law. At such times as Landlord may reasonably request, Tenant
shall provide Landlord with a written list, certified to be true and complete,
identifying any Hazardous Materials then used, stored, or maintained upon the
Premises, the use and approximate quantity of each such materials, a copy of any
MSDS issued by the manufacturer therefor, and such other information as Landlord
may reasonably require or as may be required by Law.
D. INDEMNIFICATIONS. Tenant will indemnify, defend (by counsel reasonably
acceptable to Landlord), protect, and hold Landlord and each of Landlord's
partners, employees, agents, attorneys, successors and assigns, free and
harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorney's fees) or death of or
injury to any person or damage to any property whatsoever, arising from or
caused in whole or in part, directly or indirectly, by:
(i) the presence in, on, under or about the Premises or
discharge in or from the Premises of any Hazardous Materials placed in,
under or about, the Premises by Tenant or at Tenant's direction,
excluding any tenant improvement work done by Landlord; or
(ii) Tenant's use, analysis, storage, transportation,
disposal, release, threatened release, discharge or generation of
Hazardous Materials to, in, on, under, about or from the Premises; or
(iii) Tenant's failure to comply with any Hazardous Materials
Law applicable hereunder to Tenant.
Landlord will indemnify, defend (by counsel reasonably acceptable to Tenant),
protect, and hold Tenant and each of Tenant's employees, agents, attorneys,
successors and assigns, free and harmless from and against any and all claims,
liabilities penalties, forfeitures, losses or expenses (including attorney's
fees) or death of or injury to any person or damage to any property whatsoever,
arising from or caused in whole or in part, directly or indirectly, by:
(i) the presence in, on, under or about the Premises or the
Building or discharge in or from the Premises or the Building of any
Hazardous Materials placed, in, on, under or about the Premises or the
Building by Landlord or at Landlord's direction; or
(ii) Landlord's use, analysis, storage, transportation,
disposal, release, threatened release, discharge or generation of
Hazardous Materials to, in, on, under, about or from the Premises or
the Building; or
(iii)Landlord's failure to comply with any Hazardous Materials
Law.
The obligations of each party ("INDEMNIFYING PARTY") pursuant to this Section
includes, without limitation, and whether foreseeable or unforeseeable, all
costs of any required or necessary repair, cleanup or detoxification or
decontamination of the Premises or the Building, and the
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preparation and implementation of any closure, remedial action or other required
plans in connection therewith, and survives the expiration or earlier
termination of the term of the Lease.
ARTICLE 28.
ADDITIONAL RIGHTS RESERVED BY LANDLORD
In addition to any other rights provided for herein, Landlord reserves the
following rights, exercisable without liability to Tenant for damage or injury
to property, person or business and without effecting an eviction, constructive
or actual, or disturbance of Tenant's use or possession or giving rise to any
claim:
(a) To name the Building and to change the name or street address of the
Building;
(b) To install and maintain all signs on the exterior and interior of the
Building;
(c) To designate all sources furnishing sign painting or lettering for use
in the Building:
(d) During the last ninety (90) days of the Term, if Tenant has vacated
the Premises, to decorate, remodel, repair, after or otherwise prepare
the Premises for occupancy, without affecting Tenant's obligation to
pay Rent for the Premises;
(e) To have pass keys to the Premises and all doors therein, excluding
Tenant's vaults and safes;
(f) On reasonable prior notice to Tenant, to exhibit the Premises to any
prospective purchaser, Lender, mortgagee, or assignee of any mortgage
on the Building of Land and to others having an interest therein at
any time during the Term, and to prospective tenants during the last
six months of the Term;
(g) To take any and all measures, including entering the Premises for the
purpose of making inspections, repairs, alterations, additions and
improvements to the Premises or to the Building (including for the
purpose of checking, calibrating, adjusting and balancing controls
and other parts of the Building Systems), as may be necessary or
desirable for the operation, improvement, safety, protection or
preservation of the Premises or the Building, or in order to comply
with all Laws, orders and requirements of governmental or other
authority, or as may otherwise be permitted or required by this Lease;
provided, however, that during the progress of any work on the
Premises or at the Building, Landlord will attempt not to
inconvenience Tenant, but shall not be liable for inconvenience,
annoyance, disturbance, loss of business, or other damage to Tenant
by reason of performing any work or by bringing or storing materials,
supplies, tools or equipment in the Building or Premises during the
performance of any work, and the obligations of Tenant under this
Lease shall not thereby be affected in any manner whatsoever;
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(h) To relocate various facilities within the Building and on the land of
which the Building is a part if Landlord shall determine such
relocation to be in the best interest of the development of the
Building and Property, provided that such relocation shall not
materially restrict access to the Premises; and
(i) To install vending machines of all kinds in the Building and to
receive all of the revenue derived therefrom, provided, however, that
no vending machines shall be installed by Landlord in the Premises
unless Tenant so requests.
ARTICLE 29.
DEFINED TERMS
A. "Building" shall refer to the Building named in Article 1 of which the leased
Premises are a part (including all modifications, additions and alterations made
to the Building during the term of this Lease), the real property on which the
same is located, all plazas, common areas and any other areas located on said
real property and designated by Landlord for use by all tenants in the Building.
A plan showing the Building is attached hereto as Exhibit A and made a part
hereof and the Premises is defined in Article 2 and shown on said Exhibit A by
cross-hatched lines.
B. "Common Areas" shall mean and include all areas, facilities, equipment,
directories and signs of the Building (exclusive of the Premises and areas
leased to other Tenants) made available and designated by Landlord for the
common and joint use and benefit of Landlord, Tenant and other tenants and
occupants of the Building including, but not limited to, lobbies, public
washrooms, hallways, sidewalks, parking areas, landscaped areas and service
entrances. Common Areas may further include such areas in adjoining properties
under reciprocal easement agreements, operating agreements or other such
agreements now or hereafter in effect and which are available to Landlord,
Tenant and Tenant's employees and invitees. Landlord reserves the right in its
reasonable discretion and from time to time, to construct, maintain, operate,
repair, close, limit, take out of service, alter, change, and modify all or any
part of the Common Areas.
C. "Default Rate" shall mean eighteen percent (18%) per annum, or the highest
rate permitted by applicable law, whichever shall be less. If the application of
the Default Rate causes any provision of this Lease to be usurious or
unenforceable, the Default Rate shall automatically be reduced to the highest
rate allowed by law so as to prevent such result.
D. "Hazardous Materials" shall have the meaning set forth in Article 27.
E. "Landlord" and "Tenant" shall be applicable to one or more parties as the
case may be, and the singular shall include the plural, and the neuter shall
include the masculine and feminine; and if there be more than one, the
obligations thereof shall be joint and several. For purposes of any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord" shall
include Landlord's present and future partners, beneficiaries, trustees,
officers, directors, employees, shareholders, principals, agents, affiliates,
successors and assigns.
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F. "Law" or "Laws" shall mean all federal, state, county ant local governmental
and municipal laws, statutes, ordinances, rules, regulations, codes, decrees,
orders and other such requirements, applicable equitable remedies and decisions
by courts in cases where such decisions are binding precedents in the state in
which the Building is located, and decisions of federal courts applying the Laws
of such state.
G. "Lease" shall mean thus lease executed between Tenant and Landlord, including
any extensions, amendments or modifications and any Exhibits attached hereto.
H. "Lease Year" shall mean each twelve (12) month period commencing on the
Commencement Date and expiring on each anniversary thereof during the Lease
Term.
I. "Lender" shall mean the holder of a Mortgage at the time in question, and
where such Mortgage is a ground leave, such term shall refer to the ground
lessee.
J. "Mortgage" shall mean all mortgages, deeds of trust, ground leases and other
such encumbrances now or hereafter places upon the Building or any part thereof
with the written consent of Landlord, and all renewals, modifications,
consolidations, replacements or extensions thereof, and all indebtedness now or
hereafter secured thereby and all interest thereon.
K. "Operating Expenses" shall mean all operating expenses of any kind or nature
which are necessary, ordinary or customarily incurred in connection with the
operation, maintenance or repair of the Building as determined by Landlord.
Operating Expenses shall include, but not be limited to:
1.1 costs of supplies, including, but not limited to, the cost of
relamping all Building standard lighting as the same may be
required from time to time;
1.2 costs incurred in connection with obtaining and providing
energy for the Building, including, but not limited to, costs
of propane, butane, natural gas, steam, electricity, solar
energy and fuel oils, coal or any other energy sources;
1.3 costs of water and sanitary and storm drainage services;
1.4 costs of janitorial and security services;
1.5 costs of general maintenance and repairs, including costs
under HVAC and other mechanical maintenance contracts and
maintenance, repairs and replacement of equipment and tools
used in connection with operating the Building;
1.6 costs of maintenance and replacement of landscaping;
1.7 insurance premiums, including fire and all-risk coverage,
together with loss of rent endorsements, the part of any claim
required to be paid under the deductible portion of any
insurance policies carried by Landlord in connection with the
Building (where Landlord is unable to obtain insurance without
such deductible
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from a major insurance carrier at reasonable rates), public
liability insurance and any other insurance carried by Landlord on
the Building, or any component parts thereof (all such insurance
shall be in such amounts as may be required by any holder of a
Mortgage or as Landlord may reasonably determine);
1.8 labor costs, including wages and other payments, costs of
Landlord of worker's compensation and disability insurance,
payroll taxes, welfare fringe benefits, and all legal fees and
other costs or expenses incurred in resolving any labor
dispute;
1.9 professional building management fees required for management of
the Building;
1.10 legal accounting, inspection, and other consultation fees
(including, without limitation, fees charged by consultants
retained by Landlord for services that are designed to produce
a reduction in Operating Expenses or to reasonably improve the
operation, maintenance or state of repair of the Building)
incurred in the ordinary course of operating the Building or
in connection with making the computations required hereunder
or in any audit of operations of the Building;
1.11 the costs of capital improvements or structural repairs or
replacements made in or to the Building in order to conform to
changes, subsequent to the date of this Lease, in any
applicable laws, ordinances, rules, regulations or orders of
any governmental or quasi-governmental authority having
jurisdiction over the Building (herein "Required Capital
Improvements") or the costs incurred by Landlord to install a
new or replacement capital item for the purpose of reducing
Operating Expenses (herein "Cost Savings Improvements"), and a
reasonable reserve for all other capital improvements and
structural repairs and replacements reasonably necessary to
permit Landlord to maintain the Building in its current class.
The expenditures for Required Capital Improvements and Cost
Savings Improvements shall be amortized over the useful life
of such capital improvement or structural repair or
replacement (as determined by Landlord). All costs so
amortized shall bear interest on the amortized balance at the
rate of twelve percent (12%) per annum or such higher rate as
may have been paid by Landlord on funds borrowed for the
purpose of constructing these capital improvements.
In making any computations contemplated hereby, Landlord shall also be permitted
to make such adjustments and modifications to the provisions of this paragraph
and Article 4 as shall be reasonable and necessary to achieve the intention of
the parties hereto.
L. "Rent" shall have the meaning specified therefor in Article 3.
M. "Tax" or "Taxes" shall mean:
1.1 all real property taxes and assessments levied against the
Building by any governmental or quasi-governmental authority.
The foregoing shall include all federal, state, county, or local
governmental, special district, improvement district, municipal
or other political subdivision taxes, fees, levies, assessments,
charges or
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other impositions of every kind and nature, whether general,
special, ordinary or extraordinary, respecting the Building,
including without limitation, real estate taxes, general and
special assessments, interest on any special assessments paid
in installments, transit taxes, water and sewer rents, taxes
based upon the receipt of rent, personal property taxes
imposed upon the fixtures, machinery, equipment, apparatus,
appurtenances, furniture and other personal property used in
connection with the Building which Landlord shall pay during
any calendar year, any portion of which occurs during the Term
(without regard to any different fiscal year used by such
government or municipal authority except as provided below).
Provided, however, any taxes which shall be levied on the
rentals of the Building shall be determined as if the Building
were Landlord's only property, and provided funkier that in no
event shall the term "taxes or assessment," as used herein,
include any net federal or state income taxes levied or
assessed on Landlord, unless such taxes are a specific
substitute for real property taxes. Such term shall, however,
include gross taxes on rentals. Expenses incurred by Landlord
for tax consultants and in contesting the amount or validity
of any such taxes or assessments shall be included in such
computations.
1.2 all "assessments", including so-called special assessments,
license tax, business license fee, business license tax, levy,
charge, penalty or tax imposed by any authority having the
direct power to tax, including any city, county, state or
federal government, or any school, agricultural, lighting,
water, drainage, or other improvement or special district
thereof, against the Premises of the Building or any legal or
equitable interest of Landlord therein. For the purposes of
this lease, any special assessments shall be deemed payable in
such number of installments as is permitted by law, whether or
not actually so paid. If as of the Commencement Date the
Building has not been fully assessed as a completed project,
for the purpose of computing the Operating Expenses for any
adjustment required herein or under Article 4, the Tax shall
be adjusted by Landlord, as of the date on which the
adjustment is to be made, to reflect full completion of the
Building including all standard Tenant finish work if the
method of taxation of real estate prevailing to the time of
execution hereof shall be, or has been altered, so as to cause
the whole or any part of the taxes now, hereafter or
theretofore levied, assessed or imposed on real estate to be
levied, assessed or imposed on Landlord, wholly or partially,
as a capital levy or otherwise, or on or measured by the rents
received therefrom, then such new or altered taxes
attributable to the Building shall be included within the term
real estate taxes, except that the same shall not include any
enhancement of said tax attributable to other income of
Landlord. All of the preceding clauses K(1.1 and 1.2) are
collectively referred to as the "Tax" or "Taxes".
All other capitalized terms shall have the definition set forth in the Lease.
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ARTICLE 30.
MISCELLANEOUS PROVISIONS
A. RULES AND REGULATIONS. Tenant shall comply with all of the rules and
regulations promulgated by Landlord from time to time for the Building. A copy
of the current rule and regulations is attached hereto as Exhibit D.
B. EXECUTION OF LEASE. If more than one person or entity executes this Lease as
Tenant, each such person or entity shall be jointly and severally liable for
observing and performing each of the terms, covenants, conditions and provisions
to be observed or performed by Tenant.
C. NOTICES. All notices under this Lease shall be in writing and will be deemed
sufficiently given for all purposes if, to Tenant, by delivery to Tenant at the
Premises during the hours the Building is open for business or by certified
mail, return receipt requested or by overnight delivery service (with one
acknowledged receipt), to Tenant at the address set forth below, and if to
Landlord, by certified mail, return receipt requested or by overnight delivery
service (with one acknowledged receipt), at the addresses set forth below.
Landlord: at the address shown in Article 1, item F
with a copy to: Building Manager at the address shown in Article 1, item G.
Tenant: at the address shown in Article 1, item B
with copy to: 1000 Parkwood Circle
Suite 400
Atlanta, GA 30339
D. TRANSFERS. The term "Landlord" appearing herein shall mean only the owner of
the Building from time to time and, upon a sale or transfer of its interest in
the Building, the then Landlord and transferring party shall have no further
obligations or liabilities for matters accruing after the date of transfer of
that interest and Tenant, upon such sale or transfer, shall look solely to the
successor owner and transferee of the Building for performance of Landlord's
obligations hereunder.
E. RELOCATION.
F. TENANT FINANCIAL STATEMENTS. Upon the written request of Landlord, Tenant
shall submit financial statements for its most recent financial reporting period
and for the prior Lease Year. Landlord shall make such request no more than
twice during any Lease Year. All such financial statements shall be certified as
true and correct by the responsible officer or partner of Tenant and if Tenant
is then in default hereunder, the financial statements shall be certified by an
independent certified public accountant.
G. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be
construed by the parties hereto, or by any third party, as constituting the
parties as principal and agent, partners or
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<PAGE> 37
joint venturers, nor shall anything herein render either party (other than a
guarantor) liable for the debts and obligations of any other party, it being
understood and agreed that the only relationship between Landlord and Tenant is
that of Landlord and Tenant.
H. ENTIRE AGREEMENT; MERGER This Lease embodies the entire agreement and
understanding between the parties respecting the Lease and the Premises and
supersedes all prior negotiations, agreements and understandings between the
parties, all of which are merged herein. No provision of this Lease may be
modified, waived or discharged except by an instrument in writing signed by the
party against which enforcement of such modification, waiver or discharge is
sought.
I. NO REPRESENTATION BY LANDLORD. Neither Landlord nor any agent of Landlord
has made any representations, warranties, or promises with respect to the
Premises or the Building except as expressly set forth herein.
J. LIMITATION OF LIABILITY. Notwithstanding any provision in this Lease to the
contrary, under no circumstances shall Landlord's liability or that of its
directors, officers, employees and agents for failure to perform any obligations
arising out of or in connection with the Lease or for any breach of the terms or
conditions of this Lease (whether written or implied) exceed Landlord's equity
interest in the Building. Any judgments rendered against Landlord shall be
satisfied solely out of proceeds of sale of Landlord's interest in the Building.
No personal judgment shall lie against Landlord upon extinguishment of its
rights in the Building and any judgments so rendered shall not give rise to any
right of execution or levy against Landlord's assets. The provisions hereof
shall inure to Landlord's successors and assigns including any Lender. The
foregoing provisions are not intended to relieve Landlord from the performance
of any of Landlord's obligations under this Lease, but only to limit the
personal liability of Landlord in case of recovery of a judgment against
Landlord; nor shall the foregoing be deemed to limit Tenant's rights to obtain
injunctive relief or specific performance or other remedy which may be accorded
Tenant by law or under this Lease.
K. MEMORANDUM OF LEASE. Neither party, without the written consent of the
other, will execute or record any this Lease or any summary or memorandum of
this Lease in any public recorders office.
L. NO WAIVERS; AMENDMENTS. Failure of Landlord to insist upon strict compliance
by Tenant of any condition or provision of this Lease shall not be deemed a
waiver by Landlord of that condition. No waiver shall be effective against
Landlord unless in writing and signed by Landlord. Similarly, this Lease cannot
be amended except by a writing signed by Landlord and Tenant.
M. SUCCESSORS AND ASSIGNS. The conditions, covenants and agreements contained
herein shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, executors, administrators, successors and assigns.
N. WAIVER OF JURY TRIAL; GOVERNING LAW. Landlord and Tenant hereby waive all
right to trial by jury in any claim, action proceeding or counterclaim by either
Landlord or Tenant against
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<PAGE> 38
each other or any matter arising out of or in any way connected with this Lease,
the relationship of Landlord and Tenant, and/or Tenant's use or occupancy or the
Premises. This Lease shall be governed by the law of the State where the
Building is located.
O. EXHIBITS. All exhibits attached to this Lease are a put hereof and are
incorporated herein by reference and all provisions of such exhibits shall
constitute agreements, promises and covenants of this Lease.
P. CAPTIONS. The captions and headings used in this Lease are for convenience
only and in no way define or limit the scope, interpretation or content of this
Lease.
Q. COUNTERPARTS. This Lease may be executed in one (1) or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
R. TIME. TIME IS OF THE ESSENCE OF THIS AGREEMENT.
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<PAGE> 39
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have
duly executed this Lease with the Exhibits attached hereto, as of the day and
year first written above.
LANDLORD:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
- -----------------------
Witness By: CORNERSTONE REAL ESTATE ADVISERS, INC.
Its Authorized Agent
- -----------------------
Print Name
By:
- ----------------------- ----------------------------------
Witness Name Printed:
Title:
Date:
- -----------------------
Print Name
TENANT:
- -----------------------
Witness By:
---------------------------------------
Named Printed:
- ----------------------- Title:
Print Name Date:
- -----------------------
Witness
- -----------------------
Print Name
CERTIFICATE OF TENANT
(IF A CORPORATION OF PARTNERSHIP)
I, ____________________________________, Secretary of Suburban Lodges
of American, Inc., Tenant, hereby certify that the officers or partners
executing the foregoing Lease on behalf of Tenant is/are duly authorized to act
on behalf of and bind the Tenant.
(CORPORATE SEAL)
----------------------------
Secretary of General Partner
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<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to this
Registration Statement of Suburban Lodges of America, Inc. on Form S-3 of our
report dated February 21, 1997 (February 28, 1997 as to Note 13), appearing in
the Annual Report on Form 10-K of Suburban Lodges of America, Inc. for the year
ended December 31, 1996 and our report on the combined financial statement
schedule of real estate owned and accumulated depreciation of Suburban Lodges
of America, Inc. dated March 17, 1996 (May 29, 1996 as to Notes 1 and 11)
appearing in the Suburban Lodges of America, Inc. Rule 424(b) Prospectus dated
November 20, 1996, and to the reference to us under the headings "Selected
Financial Data" and "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 8, 1997
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to this
Registration Statement of Suburban Lodges of America, Inc. on Form S-3 of our
report on the financial statements of Gulf Coast Associates Ltd. d/b/a Suburban
Lodge of Forest Park dated March 26, 1996 (May 29, 1996 as to Note 8) appearing
in the Suburban Lodges of America, Inc. Rule 424(b) Prospectus dated November
20, 1996, and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
October 8, 1997
