<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1996
Commission File No. 0-28108
SUBURBAN LODGES OF AMERICA, INC.
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(Exact name of Registrant as specified in its charter)
(Georgia)
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(State or other jurisdiction of incorporation or organization)
581781184
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(I.R.S. Employer Identification No.)
1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 951-9511
Name of each exchange on which registered: NASDAQ
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Securities registered pursuant to Section 12(g) of the Act: Common
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Stock, Par Value $0.01 Per Share
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Securities registered pursuant to Section 12(b) of the Act: _______
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10K. [ ]
The aggregate market value of the voting stock held by non-
affiliates (which for purposes hereof are all holders other than
executive officers and directors) of the Registrant as of February
28, 1997 is $168,244.206.50 (based on 8,518,694 shares outstanding
at $19.75 per share; the last sales price on the NASDAQ Stock Market
on February 28, 1997).
At February 28, 1997 there were issued and outstanding
12,127,502 shares of Common Stock, par value $0.01 per share,
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the
1997 Annual Meeting of Shareholders are incorporated by reference
into Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Suburban Lodges of America, Inc. (the "Company" or "Suburban")
was incorporated in Georgia in 1987. The Company develops, owns,
manages and franchises Suburban Lodge(R) hotels, which are economy
extended stay lodging facilities designed to appeal to value-
conscious guests seeking to "Lodge for Less." (SM) The Company
believes that the Suburban Lodge chain is one of the largest lodging
chains (based on number of guest rooms and facilities) devoted to
serving the economy extended stay market. Suburban Lodge guest
rooms are fully furnished and include a combination living room and
bedroom, a bathroom and a fully equipped kitchenette.
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 its existing 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. 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. Individuals on temporary work assignments
and persons relocating or purchasing a home constitute the two
largest groups of guests.
The Company believes that several features differentiate Suburban
and its hotels from, and provide a competitive advantage over,
traditional and other extended stay lodging hotels such as: (i) its
low weekly rates; (ii) provision of fully-equipped kitchenettes;
(iii) marketing and pricing to appeal to longer guest stays; (iv)
higher occupancy rates; (v) operating efficiencies; (vi) standard
design and low construction costs; (vii) attractive unit economics;
and (viii) franchising opportunities.
SIGNIFICANT ACQUISITIONS
In connection with and prior to the Company's initial public
offering ( "IPO") of its Common Stock on May 23, 1996, the Company
entered into a number of transactions with certain of its officers
and directors and their affiliates in order to restructure the
Company and its operations for public ownership. Through a merger
with partnerships and limited liability companies (the "Affiliated
Entities") in which Messrs. David E. Krischer (the Chairman of the
Company's board of directors, the Chief Executive Officer and
President), James R. Kuse and Michael McGovern, each of whom is a
director of the Company, and other officers had an interest, the
Company acquired 11 extended stay hotels (including four which were
under construction at the time) for a combination of cash and Common
Stock of the Company.
In connection with these transactions, the owners of the
Affiliates Entities received (i) an aggregate of 875,062 shares of
Common Stock with a value of approximately $15.0 million based upon
the IPO price of $17.00 per share, including 784,008 shares which
were issued to affiliates of the Company (including 307,144 shares
to Mr. Krischer, 199,333 shares to Mr. Kuse and his affiliates,
131,735 shares to Mr. McGovern, an aggregate of 124,630 shares
issued to investors in HS II Associates, L.P. and HS III Associates,
L.P. (significant investors in many of the Affiliated Entities and
together the second largest shareholder of the Company prior to this
corporate reorganization (the "Corporate Reorganization"),
hereinafter referred to as "HS Associates") and 21,166 shares issued
to the other officers of the Company as a group) and (ii) $2.9
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million in cash (including $84,600 to Mr. Krischer, $545,700 to Mr.
Kuse and his affiliates, $386,600 to Mr. McGovern and $48,000 to the
other officers of the Company as a group). The Company also paid
$385,000 in cash to acquire certain minority interests in one of the
Affiliated Entities and paid a $100,000 development fee (of which
$25,000 was paid to Mr. Krischer). The Company also assumed an
aggregate of approximately $16.4 million of indebtedness secured by
the Affiliated Facilities and approximately $1.2 million owed to
affiliates of the Company, including approximately $124,400 to Mr.
Krischer and his affiliates, $1.0 million to Mr. Kuse and his
affiliates and $81,250 to Mr. McGovern.
In addition, the Company also acquired five extended stay
facilities (including two construction and two development
facilities) (the "Third Party Facilities") from third party sellers
by either mergers or through the acquisition of assets. The
aggregate purchase price for the Third Party Facilities was $10
million of which $4.7 million was paid in cash and the balance was
paid with 144,314 shares of Common Stock.
BUSINESS STRATEGY
Suburban's business objective is to become a national provider of
economy extended stay lodging hotels. The Company intends to
achieve its objective through the execution of its growth and
operating strategies. Suburban's growth strategy is to develop
additional Company-owned hotels and to franchise the Suburban Lodge
concept to independent developers and operators as well as to
passive investors who will retain the Company to develop and manage
their Suburban Lodge 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 lodging
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.
GROWTH STRATEGY
COMPANY-OWNED DEVELOPMENT. At December 31, 1996, the Company
owned and operated 14 Suburban Lodge hotels and franchised ten
additional Suburban Lodge hotels located in six southeastern states.
The Company intends to continue the growth of the Suburban Lodge
chain in 1997 by opening approximately 40 additional Suburban Lodge
hotels, 22 of which are expected to be Company-owned. The addition
of these 40 hotels should result in a total of 64 Suburban Lodge
hotels by the end of 1997. Fourteen of these hotels (seven Company-
owned and seven franchised) expected to open in 1997 were under
construction at December 31, 1996, and 26 of the hotels (13 Company-
owned and 13 franchised) expected to open in 1997 were under
development at December 31 1996. Also, the Company and its
franchisees are seeking and negotiating to acquire suitable sites
for the development of additional Suburban Lodge hotels projected to
open in 1998. It is not certain that the Company and its
franchisees will be able to complete the development of all of these
hotels, or to complete them on schedule.
Suburban initially plans to develop and operate Company-owned
hotels in the Southeast and Midwest and to franchise the Suburban
Lodge system on a nationwide basis. The Company also intends to
develop and operate Company-owned hotels on a nationwide basis, but
it has no specific timetable for such expansion. By initially
clustering the Company-owned hotels in these regions, Suburban
believes that it will increase consumer awareness of the Suburban
Lodge(R) brand name and achieve efficiencies in purchasing, marketing
and management. In selecting particular cities, the Company plans
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to identify markets that have high levels of employment and MSAs
with populations of 150,000 or more. In considering specific
development sites, the Company reviews demographic and traffic
studies, the availability and pricing of suitable sites, the costs
and risks of developing and any other factors deemed relevant,
including site selection criteria based on the experience of the
existing 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.
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 concept to
independent developers and operators, and also intends to franchise
the Suburban Lodge concept to passive investors who may 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 its franchisees
is good. Through franchising, the Company intends to accelerate the
growth of the Suburban Lodge chain, thereby increasing its market
presence and brand awareness in both new and existing markets, while
generating incremental revenues at an attractive margin. Further,
the Company anticipates that the development of a large network of
lodging hotels will result in economies of scale in management,
marketing and purchasing. Suburban intends to offer franchising
opportunities on a national level and believes that its existing
infrastructure and experience in franchising the Suburban Lodge
concept will be an important factor in executing its franchising
strategy.
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
lodging hotels. The average weekly rate at the seven "same store"
hotels (hotels which were open in 1995 and during a comparable
period in 1996) during 1996 was $148.27. The average weekly rate at
the 14 facilities open during fiscal year 1996 was $155.84. 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 facility with a staff of approximately six to eight full-time
employees, which is smaller than the staffs at most traditional
lodging facilities, maintains limited office hours and provides
weekly rather than daily housekeeping. In addition, because the
average guest stay is approximately five to six 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.
TRADEMARKS
The trade name "Suburban Lodge" and the service mark "Lodge for
Less" and related logos are actively used and are significant to the
Company's business. All of these marks have been registered on the
Principal Register of the United States Patent and Trademark Office.
The term for the registration of the "Suburban Lodge" trademark
extends to November 2004 on the Principal Register, at which time it
may be renewed for successive ten-year periods. The term for the
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registration of the Suburban Lodge name and design logo extends to
March 2009, at which time it may be renewed for successive ten-year
periods. The term for the registration of the service mark "Lodge
for Less" extends to October 2000, at which time it may be renewed
for successive ten-year periods.
SEASONALITY
Management believes that extended stay lodging hotels are not as
seasonal in nature as the overall lodging industry due to long-term
guest stays. Based upon the experience of the existing hotels,
management expects that occupancy and revenues may be lower than
normal during the months of November, December and January due to
the holiday season. Because many of Suburban's expenses do not
fluctuate with occupancy, such declines in occupancy may cause
fluctuations or decreases in the Company's quarterly earnings.
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 lodging facilities, including both traditional
hotels and other extended stay hotels. The number of competitive
lodging facilities in a particular area could have a material
adverse effect on occupancy, average weekly rate and the weekly room
revenue per available guest room of the existing hotels and the
construction hotels or properties developed or acquired in the
future.
The Company anticipates that competition within the extended stay
lodging market will increase substantially in the foreseeable
future. A number of other lodging chains and developers recently
have announced their intent to develop or are already attempting to
develop extended stay hotels which may compete with the Company's
hotels. In particular, some of these entities have announced their
intent to target the economy segment of the extended stay market in
which the Company competes. The Company may compete for guests and
for development sites with certain of these established entities
which have greater financial resources than the Company and better
relationships with lenders and real estate sellers. These entities
may be able to accept more risk than the Company can prudently
manage. Further, new or existing competitors might reduce their
rates or offer greater convenience, services or amenities or expand
or improve facilities in markets in which the Company competes,
thereby adversely affecting the Company's business and results of
operations.
At the present time, the Company's hotels are located principally
in the Southeast and in particular in metropolitan Atlanta. In
these regions, the Company competes with both traditional hotels and
other extended stay hotels, including individual extended stay
hotels and those owned and operated by competing chains. The
Company competes with these hotels by offering low weekly rates,
customer service and convenient locations.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an
owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on
such property. Such laws often impose liability without regard to
whether the owner knew of, or was responsible for, the presence of
hazardous or toxic substances. In connection with the ownership and
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operation of its properties, the Company may be potentially liable
for any such costs. Any potential environmental liability the
Company may have solely as a franchisor is less clear; however, the
Company's business and results of operations could be adversely
affected if a franchisee incurred environmental liability. Suburban
believes that the Company-owned hotels are in compliance in all
material respects with all federal, state and local ordinances and
regulations regarding hazardous or toxic substances and other
environmental matters. Neither the Company nor, to the knowledge of
the Company, any of the current owners of the franchised hotels has
been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental issues in connection with any of
its present or former properties. Moreover, no assurances can be
given that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current
environmental condition of the Company's existing and future
properties will not be affected by the condition of neighboring
properties (such as the presence of leaking underground storage
tanks) or by third parties unrelated to the Company.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of lodging facilities
by requiring registration, disclosure statements and compliance with
specific standards of conduct. The Company believes that each of
its hotels has the necessary permits and approvals to operate its
respective business, and the Company intends to continue to obtain
such permits and approvals for its new hotels. The Company is also
subject to laws governing its relationship with employees, including
minimum wage requirements, overtime, working conditions and work
permit requirements.
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.
Although the Company has attempted to satisfy ADA requirements in
the design of its hotels, a material ADA claim could be asserted
against the Company, which could result in a judicial order
requiring compliance and the expenditure of substantial sums to
achieve compliance, an imposition of fines or an award of damages to
private litigants.
Suburban is subject to Federal Trade Commission ("FTC")
regulation and various state laws which regulate the offer and sale
of franchises. State laws that regulate the franchisor-franchisee
relationship presently exist or are being considered in a
substantial number of states, and bills have been introduced in
Congress (one of which is now pending) which provide for federal
regulation of certain aspects of the franchisor-franchisee
relationship. These current and proposed franchise relationship
laws limit, among other things, the duration and scope of non-
competition provisions, the ability of a franchisor to terminate or
refuse to renew a franchise and the ability of a franchisor to
designate sources of supply.
EMPLOYEES
As of December 31, 1996, the Company employed 126 persons. The
Company's employees are not subject to any collective bargaining
agreements. Management believes that its relationship with its
employees is good.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David E. Krischer 47 Chairman of the Board, Chief Executive
Officer and President
Dan J. Berman 32 Vice President - Franchising and Director
Seth H. Christian 31 Vice President - Operations
Terry J. Feldman 53 Vice President, Chief Financial Officer and
Treasurer
G. Hunter Hilliard 53 Vice President - Construction
Kevin R. Pfannes 42 Vice President - Development and Secretary
</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 and has been involved in the hospitality industry for
more than ten years. From 1974 to 1986, he was a partner with
two Atlanta law firms, Arrington, Rubin, Winter, Krischer & Goger
and Costanzo & Krischer, where his practice focused on general
business and real estate law and real estate syndication.
DAN J. BERMAN. Mr. Berman joined the Company in September
1993 as its Vice President - Franchising and was elected as a
Director in March 1996. Prior to joining the Company in 1993,
Mr. Berman practiced commercial law in New York City with the
firm Young and Young from September 1990 to May 1993. Mr. Berman
received the degrees of Juris Doctor and Master of Business
Administration from Emory University Law and Business Schools in
1990.
SETH H. CHRISTIAN. Mr. Christian joined the Company in
November 1987 and was elected Vice President - Operations in
January 1989. From 1983 through 1987, he served as General
Manager of Hotel/Restaurant Management, Inc., an Atlanta-based
hospitality company. Mr. Christian is a member of the Board of
Directors of the Arthritis Foundation, Georgia Chapter. Mr.
Christian received a Bachelor of Arts in economics from Georgia
State University in 1988.
TERRY J. FELDMAN. Mr. Feldman joined the Company in January
1995 as its Treasurer and Chief Financial Officer and was elected
Vice President in March 1996. He has over 30 years of experience
in real estate accounting and finance. Prior to joining the
Company, Mr. Feldman served as the Vice President and Chief
Financial Officer of Unity Mortgage, Inc., a home mortgage
lender, from July 1992 to July 1994. Mr. Feldman served as the
Vice President and Chief Financial Officer of Anderson
Properties, Inc., a commercial real estate company in Atlanta,
from 1984 to 1992. From 1977 to 1984, he served in treasury and
financial planning capacities at Days Inns of America, Inc. Mr.
Feldman is a Certified Public Accountant.
G. HUNTER HILLIARD. Mr. Hilliard joined the Company in April
1987 as its Vice President - Construction. In addition, since
1980, Mr. Hilliard has been the sole shareholder and Secretary of
Acreage Investment Corporation, a real estate and construction
consulting firm. He has over 25 years of experience in the
development and construction of single and multi-family housing,
retail centers and office space.
KEVIN R. PFANNES. Mr. Pfannes joined the Company in January
1996 and was elected Vice President - Development in February
1996. He has 17 years of legal and business experience in the
development, acquisition, leasing and financing of a broad range
of commercial real estate transactions. From July 1992 through
January 1995, Mr. Pfannes served as real estate counsel and
Director of Operations of General 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.
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CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
Many of the matters discussed in this Annual Report on Form
10-K are forward looking statements. These statements involve a
number of risks and uncertainties that could cause actual results
to differ materially from any such statement. Some of these
risks may include, but are not limited to: (i) development
risks (including the risks that (A) development costs may exceed
budgeted projections, (B) competition for development sites may
limit the sites available to the Company; (C) the Company may
fail to obtain necessary zoning and other permits; (D) the
Company may experience delays in construction; and (E) changes in
government regulations and overall economic conditions may have a
material adverse effect on the Company, etc.); (ii) management of
growth (the Company's rapid growth has created new demands on the
Company's management and its operating and financial systems
which may lead to the risk that the Company may not manage this
growth effectively); (iii) dependence on senior management (the
Company's continued success is dependent on the efforts of its
key management, including Mr. Krischer and the failure or
inability of Mr. Krischer to continue in his leadership role might
have a material adverse effect on the Company); (iv) risks
associated with the lodging industry (the economy extended stay
segment of the lodging industry may be adversely affected by
changes in national or local economic conditions and other local
market conditions); (v) the risks associated with compliance with
environmental regulations and other government regulations which
have been set forth elsewhere herein; (See "Environmental
Matters" and "Governmental Regulation").and (vi) risks associated
with financing.
ITEM 2. DESCRIPTION OF FACILITIES.
At December 31, 1996, there were 24 existing hotels located in
six southeastern states, which contained an aggregate of 3,154
guest rooms, which had an average of 131 guest rooms. A newly
developed Suburban Lodge hotel is built using either a two-story
or three-story interior or exterior corridor design. The two
designs have similar architectural styles and guest room floor
plans. The majority of Suburban Lodge guest rooms are uniform in
size and weekly rates for single occupancy currently range from
$139 to $169. Recently developed hotels, however, include some
larger guest rooms for which a range of $169 to $229 is charged,
and the Company has recently decided to increase the number of
larger guest rooms in each new hotel. 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.
The following tables set forth certain information with
respect to the existing hotels, hotels under construction and
hotels which were being developed, as of December 31, 1996.
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<TABLE>
<CAPTION>
Number Number
Date of Estimated of
Existing Hotels Opened Rooms<F1> Construction Hotels Opening<F3> Rooms
- --------------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <S> <S> <C>
COMPANY-OWNED: COMPANY OWNED
Atlanta (Forest Park), GA..... Mar-88 126 Chesapeake (Chesapeake), VA ........... 1st Quarter 1997 132
Atlanta (Fulton Industrial), Dec-88 108 Pressley/I-77 (Charlotte), NC........... 1st Quarter 1997 132
GA ....................
Atlanta (Norcross), GA....... Jun-89 129 University Area (Charlotte), NC......... 1st Quarter 1997 138
Birmingham (Oxmoor), AL...... Jul-90 151 Ridgeway Road (Memphis), TN ............ 2nd Quarter 1997 144
Atlanta (Mableton), GA <F2>.. Jun-93 79 Fairfield (Cincinnati), OH ............ 2nd Quarter 1997 131
Greenville (Mauldin Road), SC Sep-93 130 Newport News (Newport News), VA ........ 2nd Quarter 1997 134
Charlotte (Matthews), NC..... Aug-95 139 South Dayton (Dayton), OH............... 2nd Quarter 1997 130
---
Atlanta (Conyers), GA ....... Apr-96 138 SUBTOTAL 941
Atlanta (Douglasville), GA... Jun-96 132
Louisville (Preston Highway), Aug-96 150
KY ........................
Atlanta (Tara Blvd.), GA.... Sep-96 138 FRANCHISED:
Greenville (Wade Hampton Bay Meadows (Jacksonville), FL ......... 1st Quarter 1997 138
Blvd.), SC ................ Oct-96 126 Gwinnett Place (Atlanta),GA ........... 1st Quarter 1997 138
Kingston Pike (Knoxville), Taylorsville Rd (Louisville), KY........ 1st Quarter 1997 144
TN....................... Dec-96 132 Antioch Pike (Nashville), TN............ 2nd Quarter 1997 126
Atlanta (Northside Drive), Florence (Cincinnati), 2nd Quarter 1997 144
GA...................... Dec-96 150 Woodstock (Atlanta), GA ............... 2nd Quarter 1997 138
----- Montgomery Mall (Montgomery), AL ....... 2nd Quarter 1997 144
SUBTOTAL .................. 1,828 ----
FRANCHISED: SUBTOTAL 972
Birmingham (Riverchase/ TOTAL -----
Pelham), AL............... Jun-92 122 1,913
Atlanta (Stone Mountain), GA Nov-92 132
Atlanta (Marietta), GA ..... Aug-94 132
Birmingham (Inverness/
Greystone), AL ......... Sep-95 130
Atlanta (Lilburn/Highway 78),
GA ....................... Nov-95 132 DEVELOPMENT HOTELS
Savannah, (Abercorn), Mar-96 130
GA.......................
Atlanta (Lawrenceville), GA.. Jun-96 132 COMPANY-OWNED:
Atlanta (Roswell), GA........ Jun-96 134 Chattanooga (Chattanooga), TN .......... 3rd Quarter 1997
Atlanta (Decatur), GA........ Oct-96 133 Eastland Area (Columbus), OH ........... 3rd Quarter 1997
Atlanta (Indian Trail/I-85), Nov-96 149 Hazelwood (St. Louis), MO............... 3rd Quarter 1997
GA...................... North Charleston (Charleston), S C ..... 3rd Quarter 1997
Virginia Beach (Virginia Beach), VA .... 3rd Quarter 1997
SUBTOTAL ...................... 1,326 Jackson (Jackson), MS .................. 4th Quarter 1997
----- Cleveland (Euclid), OH................. 4th Quarter 1997
SYSTEM-WIDE TOTAL ............. 3,154 San Antonio - East Texas (San Antonio),
TX................................... 4th Quarter 1997
Northwest (Indianapolis), IN .......... 4th Quarter 1997
Mobile (Mobile), AL .................... 4th Quarter 1997
North Texas (Arlington), TX ............ 4th Quarter 1997
Richmond (Richmond), VA................. 4th Quarter 1997
St. Charles (St. Louis), MO............. 4th Quarter 1997
Dallas (Carrolton), .................... 1st Quarter 1998
FRANCHISED:
Fayetteville (Fayetteville), NY ......... 3rd Quarter 1997
Gainesville (Gainesville), GA............ 3rd Quarter 1997
Mall Area (Valdosta), GA ................ 3rd Quarter 1997
Northwestern (Albany), GA ............... 3rd Quarter 1997
Pineville (Charlotte), NC ............... 3rd Quarter 1997
Sawmill (Columbus), OH .................. 3rd Quarter 1997
Ben White Blvd. (Austin), TX ............ 4th Quarter 1997
Duluth (Atlanta), GA .................... 4th Quarter 1997
Garden City (Savannah), GA .............. 4th Quarter 1997
Garner (Raleigh/Garner), NC ............. 4th Quarter 1997
Murfreesboro (Nashville), TN ............ 4th Quarter 1997
Northwest Houston (Houston), TX ......... 4th Quarter 1997
West End (Nashville), TN ................ 4th Quarter 1997
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______________________________
<FN>
<F1> The number of guest rooms does not include the general
manager's apartment.
<F2> The Mableton hotel was acquired in June 1993 and converted
into a Suburban Lodge hotel in October 1994.
<F3> The Company believes that each of the Construction and
Development 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.
</FN>
/TABLE>
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the
Registrant during the fourth quarter of the fiscal year covered
by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on The Nasdaq Stock Market under
the symbol "SLAM." The price to the public for the Common Stock
in the IPO was $17.00 per share (the "IPO Price"), and the Common
Stock began trading on May 23, 1996. The last reported sale
price of the Common Stock on The Nasdaq Stock Market on February
28, 1997, was $19.75. The following table sets forth for the
periods indicated the high and low transaction prices of the
Common Stock on The Nasdaq Stock Market. As of February 28,
1997, there were approximately 72 holders of record and 1,500
beneficial owners, respectively, of the Common Stock.
</TABLE>
<TABLE>
<CAPTION>
Price Range
--------------------
High Low
---- ---
<S> <C> <C>
Year Ending December 31, 1996
Second Quarter (since May 23, 1996) . . . . . . . . $29.50 $19.50
Third Quarter . . . . . . . . . . . . . . . . . . . 25.25 17.50
Fourth Quarter . . . . . . . . . . . . . . . . . . 25.125 15.00
</TABLE>
On May 29, 1996, an aggregate of 1,019,376 shares of Common
Stock were issued in connection with the merger or acquisition of
16 partnerships and limited liability companies into the Company,
in reliance upon the exemption contained in Section 4(2) of the
Securities Act. In exchange therefor, the Company acquired all
of the outstanding partnership interests and units in the
partnerships and limited liability companies which owned eight
existing Suburban Lodge hotels, five Suburban Lodge hotels in
various stages of construction, and three Suburban Lodge hotels
in various stages of development.
-11-<PAGE>
During the past three years, the following person was issued
Common Stock of the Company in reliance upon the exemption
contained in Section 4(2) of the Securities Act, in the number of
shares, on the date and for the consideration referenced below:
<TABLE>
<CAPTION>
Name No. Shares Date of Issuance Consideration
---- ---------- ---------------- -------------
<S> <C> <C> <S>
Dan Berman ........................... 149,200 10/1/94 Services rendered
</TABLE>
On May 23, 1996, an aggregate of 3,000 shares of restricted
Common Stock were issued to the Company's non-employee directors
in reliance upon the exemption contained in Section 4(2) of the
Securities Act.
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 Company has obtained a $25 million line of
credit (the "Line of Credit") with PNC Bank, Kentucky, Inc., a
commitment from PNC to increase the Line of Credit to $50 million
and a further commitment, which is subject to obtaining other
participating lenders, to increase the commitment to $100
million, which does, and future financing arrangements may,
impose minimum net worth covenants and other limitations that
could restrict the Company's right to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
SUBURBAN LODGES OF AMERICA, INC.
(In thousands, except share and Operating Data)
The selected consolidated financial data set forth below has
been derived from the historical consolidated financial statements of
Suburban Lodges of America, Inc. The historical consolidated
financial statements of Suburban Lodges of America, Inc. for the four
years ended December 31, 1996 have been derived from the consolidated audited
financial statements of the Company. The selected data for 1992 has 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. 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.
-12-<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenue:
Room revenue $ 2,184 $ 2,893 $ 3,904 $ 4,431 $ 7,754
Other facility revenue 173 223 290 296 596
Franchise and other revenue 194 247 151 460 916
------- ------- ------- -------- --------
Total revenue 2,551 3,363 4,345 5,187 9,266
------- ------- ------- -------- --------
Expenses:
Facility operating expenses 1,058 1,364 1,768 2,072 3,910
Corporate operating expenses 378 429 737 883 1,527
Related party consulting fees -- -- -- 17 10
Depreciation and amortization 323 372 416 460 788
------- ------- ------- -------- --------
Total expenses 1,759 2,165 2,921 3,432 6,235
------- ------- ------- -------- --------
Operating income 792 1,198 1,424 1,755 3,031
Interest income -- -- -- -- 957
Interest expense (614) (725) (936) (1,098) (556)
------- ------- ------- -------- --------
Income (loss) before income taxes and
extraordinary income 178 473 488 657 3,432
Income Taxes (benefit) <F1> -- -- (14) (20) (1,047)
Extraordinary income from early
extinguishment of debt - - 130 - -
- - - -
------- ------- ------- -------- --------
Net income (loss) $ 178 $ 473 $ 632 $ 677 $ 2,385
======= ======= ======= ======== ========
Pro forma earnings per share <F2> .31
Pro forma weighted average shares
outstanding <F2> 6,923,956
Cash Flow Data:
EBITDA <F3> $ 1,115 $ 1,570 $ 1,840 $ 2,215 $ 3,819
Cash flows provided by (used in):
Operating activities 399 879 929 1,305 3,369
Investing activities (15) (2,349) (651) (4,791) (36,357)
Financing activities (273) 1,561 (238) 3,707 110,641
(NOTES ON FOLLOWING PAGE)
-13-
<PAGE>
Year Ended December 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
OPERATING DATA:
Number of facilities open at end of
period:
Company-owned 3 5 5 6 14
Franchised 3 3 4 6 10
------- ------- ------- -------- --------
System-wide 6 8 9 12 24
======= ======= ======= ======== ========
Company-owned facilities:
Occupancy 92.9% 95.5% 97.7% 95.8% 89.0%
Average weekly rate $ 116.59 $ 121.96 $ 128.69 $ 136.19 $ 155.84
Weekly REVPAR <F4> $ 108.27 $ 116.47 $ 125.74 $ 130.93 $ 138.92
Franchised facilities:
Occupancy 85.9% 96.8% 98.9% 93.2% 86.4%
Average weekly rate $ 119.15 $ 123.21 $ 131.03 $ 146.34 $ 167.06
Weekly REVPAR <F4> $ 101.57 $ 119.23 $ 129.59 $ 135.44 $ 145.11
Balance Sheet Data:
Cash and cash equivalents $ 337 $ 428 $ 467 $ 687 $ 78,340
Total assets 5,872 9,097 9,640 15,004 131,000
Long-term debt 6,258 9,357 10,072 13,818 15,000
Shareholders' equity (deficit) (623) (512) (692) 100 112,194
<FN>
<F1> Historical financial data does not include a provision for
income taxes for affiliated entities because such entities
were limited liability companies or partnerships not subject
to income taxes. Income taxes or income tax benefits have
been provided for Suburban Lodges of America, Inc. and its
subsidiaries where appropriate under SFAS 109, "Accounting
for Income Taxes." See Note 9 to the Consolidated Financial
Statements.
<F2> Earnings per share information has been calculated by
dividing net income, adjusted to provide for income taxes,
by the weighted average number of common shares outstanding
during the period assuming that the shares issued in the
Corporate Organization and the related stock split were
issued on January 1, 1996. Outstanding shares of Suburban
Lodges of America, Inc. differ substantially on a historical
basis prior to the IPO from the shares of Common Stock
outstanding after the IPO. Accordingly, the Company
believes that the presentation of historical per share
information for periods is not meaningful.
<F3> EBITDA represents income (loss) before interest expense,
income taxes (if applicable) and depreciation and
amortization. EBITDA is a commonly used financial analysis
tool for measuring and comparing lodging companies and other
companies with significant amortization and depreciation
expense and for analyzing operating performance, leverage
and liquidity of such companies. Such data are not a
measure of financial performance under generally accepted
accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a
measure of liquidity.
-14-<PAGE>
<F4> Weekly REVPAR is determined by dividing room revenue by the
number of guest room days available for the period and
multiplying by seven.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
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 year 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 to date 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 14.4% increase in
the average weekly rate from $136.19 to $155.84, which reflects
additional revenue at two hotels as a result of the Olympics 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
facilities 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 99% over the year ended December 31,
1995. Franchise revenue for the year increased $224,000 or
approximately 107%, 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
hotels acquired in 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 to date expenses for the Matthews hotel and the
partial year expenses for the hotels which opened in 1996, and
the expenses for Forest Park which was acquired on May 29, 1996.
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% 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
-15-<PAGE>
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 initial public offering ("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 follow-on offering which was completed on November 25, 1996.
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 average weekly rates
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%, over the year
ended December 31, 1994. Franchise revenue for the period
increased $96,000, or approximately 98% 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.
-16-<PAGE>
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 May
23, 1996 IPO to the repayment of approximately $21 million in
debt, plus accrued interest, and paid approximately $7.6 million
in connection with the acquisition of certain hotels as part of
the Corporate Organization, leaving approximately $30 million
dollars available for development of additional Suburban Lodge
hotels and general corporate purposes. Since the IPO, the
Company has used a portion of the net proceeds from the IPO and
cash flow from operations to fund development and construction of
additional hotels and for working capital.
On November 25, 1996 the Company completed a follow-on
offering which resulted in net proceeds of approximately $53
million. These funds are targeted for future acquisitions, and
construction and development of additional hotels.
As of December 31, 1996, the Company had $78.3 million cash
and cash equivalents and had borrowed $15 million under the Line
of Credit. On February 28, 1997, the Company acquired four
Suburban Lodge hotels from a franchisee and utilized
approximately $12.5 million to pay off the existing debt related
to these properties.
The Company anticipates that the total cost to open all 20
Company-owned hotels expected to open by the end of 1997 will be
approximately $72 million. The Company intends to fund the
development and construction of these hotels with existing cash
balances, 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 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 $3.6
million (approximately $25,000-27,000 per guest room) to develop
and construct, including pre-opening costs.
The Company has obtained a $25 million Line of Credit with PNC
Bank, Kentucky, Inc. ("PNC"), a commitment from PNC to increase
the Line of Credit to $50 million and a further commitment, which
is subject to obtaining other participating lenders, to increase
the commitment to $100 million. The Line of Credit matures
September 25, 1998 and bears interest, at the borrower's option,
at (1) 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 assets of the
Company. The Line of Credit restricts, among other things, the
incurrence of indebtedness, the sale of assets, the incurrence of
liens, the concentration of facility locations, and the payment
of cash dividends. In addition, the Company is required to
satisfy, among other things, certain financial performance
criteria, including minimum net worth levels and minimum levels
of earnings before interest, taxes, depreciation, and
amortization. As of December 31, 1996, the Company had $35
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.
-17-
<PAGE>
The Company believes that existing cash balances, cash
generated from operations and borrowings under the Line of Credit
will be sufficient to meet the Company's working capital and
capital expenditure needs through the end of 1997. However,
additional capital may be necessary for the Company to execute
its long-term development plans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Independent Auditors' Report, the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements
that appear on pages F-1 through F-18 herein are incorporated
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Information about
the Nominee and Continuing Directors" in the definitive Proxy
Statement used in connection with the solicitation of proxies for
the Company's 1997 Annual Meeting of Shareholders, previously
filed with the Commission, is incorporated herein by reference.
Pursuant to instruction 3 to paragraph (b) of Item 401 of
Regulation S-K, information relating to the executive officers of
the Company is included in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive
Compensation" in the definitive Proxy Statement used in
connection with the solicitation of proxies for the Company's
1997 Annual Meeting of Shareholders, previously filed with the
Commission, is incorporated herein by reference. In no event
shall the information contained in the Proxy Statement under the
heading "Shareholder Return Performance Graph" be deemed
incorporated herein by such reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained under the heading "Beneficial
Ownership of Securities and Voting Rights-Voting Securities and
Principal Holders" in the definitive Proxy Statement used in
connection with the solicitation of proxies for the Company's
1997 Annual Meeting of Shareholders, previously filed with the
Commission, is incorporated herein by reference. For purposes of
determining the aggregate market value of the Company's voting
stock held by nonaffiliates, shares held by all directors and
executive officers of the Company have been excluded. The
exclusion of such shares is not intended to, and shall not,
constitute a determination as to which persons or entities may be
"affiliates" of the Company as defined by the Commission.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain
Transactions" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for the Company's
1997 Annual Meeting of Shareholders, previously filed with the
Commission, is incorporated herein by reference.
-18-<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM
8-K.
(a) The following financial statements and notes thereto are incorporated
by reference in Item 8 of this report:
1. Financial Statements
Description
-----------
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Common Stock, Capital (Deficit),
and Partners' Capital (Deficit) for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements as of December 31,
1996 and 1995 and for the years ended December 31, 1996, 1995,
and 1994
2. Financial Statement Schedules
All schedules have been omitted since the information required is
either included in the financial statements or notes is not required.
3. Exhibits
The exhibits set forth on the following page are required to be filed
with this Report pursuant to Item 601 of Regulation S-K:
-19-
<PAGE>
<TABLE>
<CAPTION
Incorporated by
Reference to Exhibit
Registration or File Form of Date of Report Number in
Exhibit Description Number Report Report
No.
---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <S> <C>
3.1 Amended and Restated Articles of the 333-2876 S-1 March 28, 3.1
Company 1996**
3.2 Amended and Restated By-laws of the
Company, Amended as of March 17, 1997 *
4.1 Form of Common Stock Certificate of 333-2876 Amendment No. 1
the Company to S-1 May 7, 1996 4.1
10.1 Form of Acquisition Agreement and 333-2876 S-1 March 28, 1996 10.1
Plan of Merger (with accompanying
schedule)
10.2 Purchase and Sale Agreement by and 333-2876 S-1 March 28, 1996 10.2
between Suburban Holdings, L.P. and
Gulf Coast Associates, Ltd.
10.3 Purchase and Sale Agreement by and 333-2876 S-1 March 28, 1996 10.3
between Suburban Holdings, L.P. and
Omnicorp Resources, Inc.
10.4 Form of Agreement and Consent of 333-2876 S-1 March 28, 1996 10.4
Partners of each of the Affiliated
Entities and Third Party Sellers
10.5 Suburban Lodges of America, Inc. 333-2876 Amendment No. 1 May 7, 1996 10.5
Stock Option and Incentive Award to S-1
Plan
10.6 Suburban Lodges of America, Inc. 333-2876 Amendment No. 1 May 7, 1996 10.6
Non-Employee Directors' Stock Option to S-1
and Fee Plan
10.7 Form of Indemnification Agreement 333-2876 S-1 March 28, 1996 10.7
between Suburban Lodges of America,
Inc. and its directors and officers
-20-<PAGE>
Incorporated by
Reference to Exhibit
Registration or File Form of Date of Report Number in
Exhibit Description Number Report Report
No.
---------------------------------------------------------------------------------------------------------------------------
10.8 Registration Rights Agreement among 333-2876 S-1 March 28, 1996 10.8
Suburban Lodges of America, Inc. and
Certain Shareholders
10.9 Form of Franchise Agreement 333-2876 S-1 March 28, 1996 10.9
10.10 Form of Development and 333-2876 S-1 March 28, 1996 10.10
Design/Building Agreement
10.11 Form of Management Agreement 333-2876 S-1 March 28, 1996 10.11
10.12 Management Agreement between 333-2876 S-1 March 28, 1996 10.12
Suburban Management, Inc. and Gulf
Coast Associates, Ltd.
10.13 Consulting Agreement with Legacy 333-2876 S-1 March 28, 1996 10.13
Securities Corp.
10.14 Acknowledgment and Agreement between 333-2876 S-1 March 28, 1996 10.14
Suburban Lodges of America, Inc. and
Young Consulting, Inc. re. Company's
proprietary computer software
10.15 Suburban Lodge 401(k) Savings Plan 333-2876 S-1 May 20, 1996 10.15
10.16 Rights Agreement 333-2876 Amendment No. 1 May 7, 1996 10.16
to S-1
10.17 Commitment Letter for the Line of 333-2876 Amendment No. 1 May 7, 1996 10.17
Credit to S-1
10.18 Preliminary Agreement for a License *
to Develop a Suburban Lodge Unit
between Suburban- Franchise Systems,
Inc. and E.E.B. Lodging Systems LLC
10.19 Preliminary Agreement for a License *
to Develop a Suburban Lodge Unit
between Suburban-Franchise Systems,
Inc. and E.E.B. Lodging Systems
LLCII
10.20 Development and Design/Build *
Agreement for Suburban Lodge of
Arlington South
10.21 Development and Design/Build *
Agreement for Suburban Lodge of
Lewisville, Texas
21.1 Subsidiaries of the Registrant 333-2876 S-1 March 28, 1996 21.1
23.1 Consent of Deloitte & Touche, L.L.P. *
27. Financial Data Schedule *
-------------------------------------
*Filed herewith.
**Originally filed on the date set forth above and refiled
pursuant to Regulation S-T on May 7, 1996
</TABLE>
(b) No reports on Form 8-K have been filed during the last quarter covered
by this report.
-21-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1996
and 1995 F-3
Consolidated Statements of Operations
Year ended December 31, 1994, Year Ended
December 31, 1995 and Year Ended December 31, 1996 F-5
Consolidated Statements of Common Stock,
Capital (Deficit) and Partners' Capital
(Deficit) at December 31, 1993, December 31, 1994,
December 31, 1995 and December 31, 1996 F-6
Consolidated Statements of Cash Flows-Year Ended
December 31, 1994, Year Ended December 31, 1995
Year Ended December 31, 1996 F-7
Notes to Consolidated Financial Statements F-8
F-1<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Suburban Lodges of America, Inc.:
We have audited the accompanying consolidated balance sheets of the
Suburban Lodges of America, Inc. ("Suburban Lodges") as of December 31, 1996
and 1995 and the related consolidated statements of operations, consolidated
statements of common stock, capital (deficit), and partners' capital (deficit),
and consolidated statements of cash flows for each of the three years in the
period ended December 31, 1996. These consolidated financial statements are
the responsibility of Suburban Lodges' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and the significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Suburban Lodges as of December 31, 1996 and 1995 and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 21, 1997
(February 28, 1997 as to Note 13)
F-2<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION
December 31 1996 1995
- ----------- ---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 78,340,278 $ 687,432
Accounts receivable, trade - net of allowance for doubtful
accounts $12,500 (1996), $0 (1995) 95,158 62,495
Prepaid expenses and other assets 1,075,057 117,621
Advances to affiliates 50,000 5,000
Current deferred tax asset 55,026 33,611
------------ ---------
Total current assets 79,615,519 906,159
NONCURRENT DEFERRED TAX ASSET 375,118 --
DEFERRED EXPENSES - Net 265,651 461,526
INVESTMENT IN FACILITIES - At cost:
Land 4,351,868 2,386,633
Buildings and improvements 31,069,119 9,359,201
Equipment 1,414,595 888,162
Furniture and fixtures 2,405,849 1,004,875
Construction-in-progress 14,224,492 1,988,674
------------ ----------
53,465,923 15,627,545
Less accumulated depreciation (2,721,819) (1,990,982)
------------ ----------
Net investment in facilities 50,744,104 13,636,563
------------ ----------
$131,000,392 $ 15,004,248
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION
December 31 1996 1995
- ----------- ---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital leases $ -- $ 640,413
Current portion of notes payable to affiliates -- 1,052,511
Accounts payable, trade 758,209 82,369
Construction accounts payable 2,025,518 544,602
Accrued interest 94,042 137,228
Accrued expenses and other liabilities 403,219 179,178
Unearned franchise fees 297,820 143,500
Income tax payable 228,083 --
----------- -----------
Total current liabilities 3,806,891 2,779,801
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 15,000,000 11,552,359
LONG-TERM NOTES PAYABLE TO AFFILIATES -- 572,398
----------- -----------
Total liabilities 18,806,891 14,904,558
SHAREHOLDERS' EQUITY:
Common stock -- $.01 par value, 100,000,000 shares authorized,
11,525,812 and 3,729,158 shares issued and outstanding at
December 31, 1996 and 1995, respectively 115,258 15
Additional paid-in capital 110,063,881 999
Retained earnings (deficit) 2,014,362 (1,561,685)
Partners' and members' capital -- 1,660,361
----------- -----------
Total shareholders' equity 112,193,501 99,690
----------- -----------
$ 131,000,392 $ 15,004,248
</TABLE>
See notes to consolidated financial statements.
F-4<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
REVENUE:
Room revenue $ 7,753,659 $ 4,431,164 $ 3,903,533
Other facility revenue 595,528 295,758 290,150
Franchise and other revenue 916,841 460,425 151,001
--------- --------- ---------
Total revenue 9,266,028 5,187,347 4,344,684
COSTS AND EXPENSES:
Facility operating expenses 3,909,808 2,072,389 1,768,162
Corporate operating expenses 1,527,243 882,615 736,886
Related party consulting fees 10,000 17,000 --
Depreciation and amortization 787,818 459,665 415,604
--------- --------- ---------
Total costs and expenses 6,234,869 3,431,669 2,920,652
OPERATING INCOME 3,031,159 1,755,678 1,424,032
INTEREST INCOME 956,496 -- --
INTEREST EXPENSE (555,625) (1,098,117) (936,465)
--------- --------- ---------
INCOME BEFORE INCOME TAX (EXPENSE) BENEFIT
AND EXTRAORDINARY INCOME 3,432,030 657,561 487,567
INCOME TAX (EXPENSE) BENEFIT (1,047,338) 19,611 14,000
EXTRAORDINARY INCOME -- -- 130,180
--------- --------- ---------
NET INCOME $ 2,384,692 $ 677,172 $ 631,747
PER SHARE AND SHARE INFORMATION:
Pro forma earnings per common share $ 0.31
====
Weighted average shares outstanding 6,923,956
=========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF COMMON STOCK, CAPITAL (DEFICIT), AND
PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Additional Partners'
Common Common Paid-in Capital Capital Total
Shares Stock Capital (Deficit) (Deficit) Capital
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1993 3,432,013 $ 14 $ 999 $ (414,247) $ (98,578) $ (511,812)
Net income (loss) -- -- -- (659,704) 1,291,451 631,747
Stock issuance 298,440 1 -- -- -- 1
Distribution to partners -- -- -- -- (811,456) (811,456)
----------------------------------------------------------------------------------------------
BALANCE - December 31, 1994 3,730,453 15 999 (1,073,951) 381,417 (691,520)
Net income -- -- -- (487,734) 1,164,906 677,172
Contributions from partners -- -- -- -- 863,000 863,000
Distribution to partners -- -- -- -- (748,962) (748,962)
----------------------------------------------------------------------------------------------
BALANCE - December 31, 1995 3,730,453 15 999 (1,561,685) 1,660,361 99,690
Net income -- -- -- 2,384,692 -- 2,384,692
Distributions to partners -- -- -- -- (700,306) (700,306)
Corporate organization -- -- (774,339) 1,191,355 (960,055) (543,039)
Stock issuance on
May 29, 1996,
net of offering costs 4,817,376 85,463 58,206,034 -- -- 58,291,514
Stock issuance on
November 20, 1996,
net of offering costs 2,977,983 29,780 52,631,187 -- -- 52,660,950
----------------------------------------------------------------------------------------------
BALANCE - December 31, 1996 11,525,812 $ 115,258 $ 110,063,881 $ 2,014,362 $ -- 112,193,501
----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION:
Year Ended December 31 1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,384,692 $ 677,172 $ 631,747
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 787,819 459,665 415,604
Extraordinary gain on extinguishment of debt -- -- (130,180)
Loss on disposal of fixed assets -- -- 18,279
Changes in assets and liabilities:
Trade receivables, net (32,663) (24,121) --
Prepaid expenses and other assets (957,436) (66,303) (318)
Advances to affiliates (45,000) (5,000) --
Current deferred tax asset (21,415) (19,611) (14,000)
Noncurrent deferred tax asset (375,118) -- --
Deferred expenses, net 388,893 -- --
Accounts payable, trade 675,840 16,070 (4,416)
Accrued expenses 224,041 177,607 15,983
Accrued interest (43,186) 89,653 (4,084)
Unearned franchise fees 154,320 -- --
Income taxes payable 228,083 -- --
----------------------------------------------
Net cash provided by operating activities 3,368,870 1,305,132 928,615
INVESTING ACTIVITIES:
Purchase of land (1,965,235) (675,000) (500,000)
Construction in progress (12,235,818) -- --
Construction accounts payable 1,480,916 544,602 --
Expenditures for building and improvements (21,709,918) (4,292,464) (65,951)
Purchase of furniture, fixtures, and equipment (1,927,407) (368,543) (85,019)
----------------------------------------------
Net cash used in investing activities (36,357,462) (4,791,405) (650,970)
FINANCING ACTIVITIES:
Additions to loan closing costs (250,000) (141,545) (141,429)
Proceeds from issuance of long-term debt 17,814,967 3,976,803 5,941,357
Principal payments on long-term debt (14,981,894) (275,538) (5,850,924)
Advances from affiliates -- 123,763 678,785
Payments on advances from affiliates (1,624,909) (67,875) (34,700)
Contributions from partners - 863,000 --
Proceeds from stock issuance 120,765,000 -- 1
Offering costs (9,812,536) -- --
Redemption of minority interest and other distributions
associated with the corporate organization (543,039) -- --
Distributions to partners (700,306) (748,962) (811,456)
Payments on capital lease obligations (25,845) (23,144) (19,940)
----------------------------------------------
Net cash provided by (used in) financing activities 110,641,438 3,706,502 (238,306)
NET CHANGE IN CASH AND CASH EQUIVALENTS 77,652,846 220,229 39,339
CASH AND CASH EQUIVALENTS:
Beginning of year 687,432 467,203 427,864
----------------------------------------------
End of year $ 78,340,278 $ 687,432 $ 467,203
----------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-7<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995 AND FOR THE YEARS ENDED DECEMBER 31,
1996, 1995, AND 1994
1. CORPORATE ORGANIZATION, BASIS OF PRESENTATION, AND INITIAL PUBLIC OFFERING
TRANSACTIONS
BASIS OF PRESENTATION
On May 29, 1996, the Company completed an initial public offering ("IPO") of
3,795,000 shares of common stock for aggregate net proceeds of $58.2 million.
Simultaneously with the offering Suburban Lodges of America, Inc. and its
subsidiaries acquired seven existing hotels and four hotels under
construction from related parties for $2,500,000 in cash and 875,062 shares
of common stock (the "Corporate Organization"). The acquisition of the seven
existing hotels and two of the construction hotels for common stock has been
accounted for in a manner similar to a pooling of interests on the basis of
common ownership and control. An additional two hotels under construction
that were acquired for cash were recorded as a purchase on the basis of the
cash price paid for the hotels. Additionally, other cash payments in the
amount of $485,000 were made for the redemption of a minority partnership
interest and other distributions associated with the Corporate Organization.
The Company also acquired an operating hotel, Forest Park, from a
third party for $3,800,000 in cash and, in addition, acquired two hotels
under construction and two hotels in the development phase for $6,153,000.
Such purchase price was paid by delivery of $900,000 in cash, 144,314 shares
of common stock, and the assumption of approximately $2.8 million of debt
secured by such hotels. All hotels acquired from third-party sellers were
recorded at the acquisition cost of the hotel.
The hotels acquired from third parties, with the exception of the
Forest Park hotel, were either under construction or in the development stage
and had no operating results as of December 31, 1995 and through May 29,
1996. The following unaudited pro forma information gives effect to the
acquisition of the Forest Park hotel assuming the acquisition had occurred on
January 1, 1995.
- -----------------------------------------------------------
Year Ended December 31 1996 1995
- -----------------------------------------------------------
Total revenue $9,659,000 $5,978,000
Net income 2,071,000 386,000
On May 29, 1996, as part of the Corporate Organization, the Company
effected a stock split of approximately 2,518-for-1 to increase the number
of outstanding shares to 3,730,453. All share information has been restated
to give effect to the stock split. Authorized shares are 100,000,000.
All outstanding long-term debt, capital lease obligations, and notes
payable to related parties as of May 29, 1996 were repaid from the proceeds
of the offering.
The financial statements as of December 31, 1995 and prior include
the effects of the above transactions except for the IPO and the acquisition
of hotels from third parties accounted for as purchases.
The financial statements as of December 31, 1996
and for the year then ended reflect the effects of all of the above
transactions.
F-8<PAGE>
On November 20, 1996, the Company completed a follow-on offering and
issued 2,977,983 common shares for aggregate net proceeds of $53.0 million.
NATURE OF OPERATIONS
Suburban Lodges develops, constructs, owns, and operates extended stay
lodging hotels. Additionally, Suburban Lodges franchises the right to own and
operate Suburban Lodge hotels to third parties. Third-party development,
construction, and management services are available to such third-party
franchisees on a fee basis.
The hotels are primarily located in the Southeast with seven company
owned properties and seven franchise properties located in the Atlanta,
Georgia metropolitan area. Therefore, adverse events or conditions which
affect those areas particularly (such as natural disasters or adverse changes
in local economic conditions) could have a more pronounced negative impact on
the operations of Suburban Lodges.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Room and other hotel revenue is recognized as earned. Reserves are
established for estimated unrecoverable amounts. The Company expensed $12,500
during the year ended December 31, 1996 as a provision for uncollectible
accounts.
FRANCHISE REVENUE
Franchisees are required to pay an initial franchise fee of the greater of
$25,000 or $190 per guest room. Initial franchise fees are recognized as
revenue when the franchisee has commenced operations. Additionally,
franchisees are required to pay an ongoing royalty of 3% of gross revenues
and may be required to pay either advertising/marketing fees or
reservation/referral fees. Such ongoing fees are recognized as revenue when
earned. As of December 31, 1996, there were ten franchises in operation and
seven franchises under construction.
F-9<PAGE>
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
Income taxes have been provided for under the provision of Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes."
No provision has been made for federal and state income taxes on income from
properties acquired from limited partnerships or limited liability companies
because each partner's proportionate share of the partnership's or limited
liability company's income or loss is passed through to be included on the
individual tax returns of the partners or members (as the case may be).
INVESTMENTS IN HOTELS
The hotels are stated at cost. Costs directly associated with the
construction of the hotels are capitalized until the related project is
substantially complete and ready for its intended use. Additions to hotels
for the years ended December 31, 1996 and 1995 included $193,766 and $76,437,
respectively, of interest on funds borrowed to finance construction.
Depreciation through September 30, 1996 is computed using the straight-line
method for buildings and the double-declining-balance method for equipment
and fixtures. All property additions after September 30, 1996 are depreciated
using the straight-line method. The estimated useful lives are
as follows:
- ----------------------------------------------
Buildings 40 years
Equipment 7 years
Furniture and fixtures 7 years
- ----------------------------------------------
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation are removed from
the accounts, and the gain or loss is included in operations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with maturities
of three months or less.
DEFERRED EXPENSES
Deferred expenses primarily consist of deferred loan costs and costs relating
to initial operations. Amortization is computed using the straight-line
method over the estimated lives of the assets as follows:
- -------------------------------------------------
Loan costs 4 - 25 years
Organization costs 4 - 5 years
- -------------------------------------------------
Accumulated amortization is $46,308, $81,356, and $53,782 at
December 31, 1996, 1995, and 1994, respectively.
Pre-opening costs are expensed as incurred.
F-10<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION
Included in the consolidated statements of cash flows are cash payments for
interest, net of amount capitalized, of $598,811, $1,008,464, and $940,549
for the years ended December 31, 1996, 1995, and 1994, respectively. There
were no cash payments for income taxes for the years ended December 31, 1995
and 1994. Cash paid for taxes during the year ended December 31, 1996 was
$844,300.
During 1995, Suburban Lodges entered into a capital lease and
capitalized the related asset and recorded the capital lease obligation of
$11,435.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which is effective for the Company's 1996 financial statements. SFAS 121
requires that long-lived assets and certain identifiable intangible assets
held and used by a company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets
might not be recoverable. The Company has determined that, as of December 31,
1996, no assets covered by SFAS 121 have
been impaired.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. EARNINGS PER SHARE
Prior to May 28, 1996, the assets of the Company were owned and operated by
Suburban Lodges of America, Inc. and its affiliates. The outstanding shares
or other equity interests of the affiliates differ 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 may not be meaningful.
F-11<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EARNINGS PER SHARE (CONTINUED)
Pro forma earnings per share for the year ended December 31, 1996 has
been calculated by dividing net income adjusted to provide for income taxes
(approximately $1,287,011 for the year ended December 31, 1996) assuming a
37.5% effective tax rate by the weighted average number of shares of common
stock deemed to be outstanding during the period. Prior to May 29, 1996, the
Company was not fully subject to income taxes because it consisted of
partnerships and limited liability companies; however, if they had been
subject to income taxes, pro forma net income after taxes would have been
approximately $2,145,019 and $410,976 for the years ended December 31, 1996
and 1995, respectively, assuming a 37.5% effective tax rate.
In accordance with Accounting Principles Board Opinion 15, the
Company has also computed supplemental earnings per common
share to be $.31 for the year ended December 31, 1996. Supplemental net
income of approximately $2,502,000 for the year ended December 31, 1996
has been computed by adjusting historical net income for (i) the elimination
of interest expense on debt repaid with a portion of the proceeds of the
initial public offering; (ii) inclusion of Forest Park for the entire period;
and (iii) the computation of income taxes for the entire period at a rate of
37.5%. For the period January 1, 1996 to May 29, 1996, the supplemental
weighted average number of common shares outstanding is based upon
outstanding shares for the beginning of the period of 6,622,251 which were
shares issued in connection with the Corporate Organization and its related
stock split and the IPO as described in the Company's Registration Statement.
Through May 29, 1996, shares outstanding for purposes of computing supplemental
earnings per share exclude 1,925,705 shares issued relative to amounts used
for general corporate purposes. All shares outstanding (8,547,829) are
included in the calculation of supplemental weighted average shares for the
period May 30, 1996 to September 30, 1996. During the quarter ended December
31, 1996, an additional 2,977,983 shares were issued and are included in
weighted average shares outstanding for the purpose of computing supplemental
earnings per share. Supplemental weighted average shares outstanding for the
year ended December 31, 1996 are 8,104,443 based upon the above.
4. LONG-TERM DEBT
- ------------------------------------------------------------
December 31 1996 1995
- ------------------------------------------------------------
Line of credit $ 15,000,000 $ -
Mortgage notes payable
with interest rates
ranging from 8.5% to
10.75%, maturities
ranging from 1999 to 2018,
and collateralized
by the facilities $12,155,866
Capital lease obligations
(Note 4) 36,906
- --------------------------------------------------------------
15,000,000 12,192,772
Less current portion (640,413)
- ---------------------------------------------------------------
Total $ 15,000,000 $ 11,552,359
- ---------------------------------------------------------------
F-12<PAGE>
LINE OF CREDIT
During 1996, the Company obtained a $25 million Line of Credit with PNC Bank,
Kentucky, Inc. ("PNC") and a commitment to increase the Line of Credit to $50
million and a further commitment, which is subject to obtaining other
participating lenders, to increase the commitment to $100 million. The Line
of Credit matures September 25, 1998 and bears interest, at the borrower's
option, at (i) the higher of PNC's prime rate plus three-quarters of one
percent or the federal funds rate plus one and one quarter percent or (ii)
the Euro-Rate plus two and one quarter percent. The Line of Credit is secured
by substantially all assets of the Company. The Line of Credit restricts,
among other things, the incurrence of indebtedness, the sale of assets, the
incurrence of liens, the concentration of facility locations, and the payment
of cash dividends. In addition, the Company is required to satisfy, among
other things, certain financial performance criteria, including minimum net
worth levels and minimum levels of earnings before interest, taxes,
depreciation, and amortization. As of December 31, 1996, the Company had $35
million available under the Line of Credit.
In 1994, Suburban Lodges refinanced certain mortgage loans for an
amount which was $130,180 less than the carrying value and recognized an
extraordinary gain on the transactions.
5. CAPITAL LEASES
During 1995, certain equipment was leased under capital lease agreements
expiring at varying times through 2000. In conjunction with the IPO on May
29, 1996, the Company paid off all of its capital lease obligations.
Capitalized lease assets were amortized over the shorter of the useful life
of the related asset or the lease term. The balances of capital lease assets
and related accumulated amortization at December 31, 1995 were as follows:
- --------------------------------------------------------
Equipment $ 133,493
Less accumulated amortization (101,150)
- --------------------------------------------------------
Total $ 32,343
- --------------------------------------------------------
6. LEASES
Suburban Lodges leases satellite television equipment under operating leases
expiring through August 1998. Satellite television rental expense was
$88,132, $43,851, and $40,659 for the years ended December 31, 1996, 1995,
and 1994, respectively.
The Company had an operating lease for its corporate offices which
expired on December 31, 1996. Total rental expense under this agreement was
$37,644, $36,040, and $25,900 for the years ended December 31, 1996, 1995,
and 1994, respectively.
During 1996, the Company moved its corporate offices and entered into
a new operating lease agreement. Total rental expense under this agreement
for the year ended December 31, 1996 was $22,586.
F-13<PAGE>
Minimum future rental payments under noncancelable operating leases
having remaining terms in excess of one year as of December 31, 1996, for
each year and in the aggregate, are as follows:
- ----------------------------------------------------------
December 31
- ----------------------------------------------------------
1997 $ 373,953
1998 343,230
1999 304,241
2000 252,326
2001 89,665
- ---------------------------------------------------------
Total $ 1,363,415
- ---------------------------------------------------------
7. NOTES PAYABLE TO AFFILIATES
The acquired partnerships and limited liability companies had certain notes
payable to affiliates. All of these notes were repaid with the proceeds from
the IPO. No amounts were outstanding under these notes payable to affiliates
as of December 31, 1996.
On January 1, 1994, SLA Associates-White Horse, L.P. ("White Horse")
issued an unsecured note bearing interest at 10% for $450,000 payable to a
limited partner of White Horse. Principal and interest was to be repaid from
operating cash flows on an annual basis. All unpaid amounts were originally
due and payable no later than January 1, 2003. The amount outstanding at
December 31, 1995 was $450,000.
Mableton Associates L.P. ("Mableton") issued unsecured notes for
$10,000 in 1993 bearing interest at 12% per annum payable to an affiliate.
Mableton replaced and extended these notes by issuing another note of $15,000
in 1995. Mableton issued additional notes for $17,399 in 1995. The amount
outstanding at December 31, 1995 under these notes was $32,399.
On May 24, 1994, Mableton issued an unsecured note
to a limited partner for $105,000 which was originally due on May 24, 1997
and bore interest at 10%. In accordance with the terms of the note agreement,
the interest rate increased to prime plus 4% (12.5%) as of January 1, 1996.
Mableton also issued three unsecured notes aggregating $50,000 on May 20,
1994 to limited partners due on May 20, 1995 which were subsequently extended
to March 10, 1996, and bore interest at 12%. The amount outstanding at
December 31, 1995 under these notes was $53,125.
During the inception of the Company, various partnership investors
loaned funds as required by the organization. These notes accrued interest at
prime plus 2%. The amount outstanding at December 31, 1995 under these notes
was $394,385.
Pursuant to an agreement with SLA Associates-Matthews, L.P.
("Matthews"), three limited partners loaned funds in 1995 and 1996 to
Matthews bearing interest at 10% payable on demand. The amount outstanding at
December 31, 1995 on these three notes was $675,000.
During 1995 and 1996, HSL of Conyers, LLC ("Conyers") received
$20,000 and $40,000 in member loans from its members which accrued interest
at prime plus 2%, and were payable on demand. The principal balance
outstanding on the loans at December 31, 1995 was $20,000.
F-14<PAGE>
8. RELATED PARTY TRANSACTIONS
From time to time, the Company made advances to an officer of the Company.
The balance outstanding under these advances were $50,000 and $5,000 at
December 31, 1996 and 1995, respectively.
The Company paid consulting fees to a firm owned by an officer of the
Company. Total payments were $10,000 and $17,000 for the years ended December
31, 1996 and 1995, respectively.
9. INCOME TAXES
Income taxes have been provided for under the provisions of SFAS 109. No
provision has been made for federal and state income taxes on the properties
acquired from partnerships or limited liability companies because each
partner's proportionate share of the partnership's or limited liability
company's income or loss is passed through to be included on the individual
tax returns of the partners or members (as the case may be).
The components of the provision for income tax were as follows at
December 31:
- ---------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------
Current income
tax expense (benefit) $ 1,059,266 $ 12,870 $ (19,844)
Deferred income
tax expense (benefit) (11,928) (32,481) 5,844
- ---------------------------------------------------------------------
Total expense (benefit) $ 1,047,338 $ (19,611) $ (14,000)
- ---------------------------------------------------------------------
The following is a reconciliation of the statutory rate to the
effective rate of Suburban Lodges at December 31:
- ---------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------
Statutory federal rate 34.0% 34.0% 34.0%
State income taxes 1.4 4.5 4.5
Effect of income not
subject to tax (4.5) (36.8) (42.6)
Change in valuation
allowance (4.2) 1.2
Other (0.4) - -
- ---------------------------------------------------------------------
Effective tax rate 30.5% (2.5)% (2.9)%
- ---------------------------------------------------------------------
The components of the deferred tax asset were as follows at
December 31:
- ----------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------
Investment in hotels $ 375,118 $ -
Unearned franchise fees 55,026 -
Net operating loss
carryforward $ 33,611
- ----------------------------------------------------------------
Net deferred tax asset $ 430,144 $ 33,611
- ----------------------------------------------------------------
F-15<PAGE>
Suburban Lodges had net operating loss carryforwards of approximately
$172,000 at December 31, 1995. All of the net operating loss carryforwards
were utilized during 1996. In connection with the Corporate Organization and
the IPO described in Note 1, certain deferred tax assets and liabilities were
adjusted to reflect the change in tax rates associated with the mergers and
to reflect the increase in the income tax basis of assets acquired in the
transaction.
10. SHAREHOLDERS' EQUITY AND STOCK OPTION PLANS
Suburban Lodges had 11,525,812 and 3,729,158 shares of common stock having a
par value of $0.01, outstanding at December 31, 1996 and 1995, respectively.
Authorized shares were 100,000,000 at December 31, 1996. The equity accounts
also include the capital accounts of the merging partnerships in the amount
of $1,660,361 at December 31, 1995. The balances of shareholders' deficit and
partners' capital were reclassified to additional paid-in capital in
conjunction with the IPO and concurrent Corporate Organization on May 29,
1996. Accordingly, at December 31, 1996, retained earnings is comprised of
the net income of the Company since the date of the Corporate Organization.
On May 23, 1996, the Company granted options to acquire an aggregate
of 400,000 shares of common stock at $17.00 to $18.70 per share under the
Suburban Lodges of America, Inc. Stock Option and Incentive Award Plan (the
"1996 Plan"). Such options become exercisable for 25% of the shares of common
stock covered by the options on the first anniversary of the date of grant
and an additional 25% on each anniversary of such date through the year 2000.
There are 250,000 and 150,000 options exercisable for ten years and five
years from the date of grant, respectively. Additionally, 4,500 options to
acquire common stock at $17.00 were granted on May 23, 1996 under the
Suburban Lodges of America, Inc. Nonemployee Directors' Stock Option and Fee
Plan (the "Directors' Plan"). Such shares vest on the first anniversary of
grant and are exercisable for ten years from the date of grant. Nonemployee
Directors also received an award of 1,000 shares of restricted common stock
for an aggregate award of 3,000 shares.
In October 1995, SFAS 123, "Accounting for Stock-Based Compensation"
was issued. The adoption of the new recognition provisions for stock-based
compensation expense included in SFAS 123 is optional; however, the pro forma
effects on net income and earnings per share had the new recognition
provisions been elected is required to be disclosed in the financial
statements. Suburban Lodges has elected to follow the requirements of
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees," in its accounting for employee stock options; therefore, no
impact on the Company's financial position and results of operations
is expected. Had compensation cost for the 1996 Plan and the Directors'
Plan been determined consistent with SFAS 123, "Accounting
for Stock-Based Compensation," the Company's pro forma net income and
earnings per share for 1996 would have been $1,932,830 and $.28, respectively.
Under the terms of the plans, 750,000 and 100,000 shares of the
Company's common stock were reserved for issuance under the 1996 Plan and
Directors' Plan, respectively. At December 31, 1996, 350,000 and 95,500
shares were available for future grant under the 1996 Plan and the Directors'
Plan, respectively. Stock option transactions are summarized as follows:
F-16<PAGE>
- ------------------------------------------------------------------------
Weighted
Average
Exercise Exercise
Number of Price Price Per
Shares Per Share Share
- -------------------------------------------------------------------------
Directors' Plan
Granted during
1996 and
outstanding at
December 31, 1996 4,500 $ 17.00 $ 17.00
- -------------------------------------------------------------------------
1996 Plan
Granted during
1996 and
outstanding at
December 31, 1996 400,000 $ 17.00 $ 17.68
to
$ 18.70
- -------------------------------------------------------------------------
All stock options are granted with an exercise price equal to the
quoted market price of the common stock at the grant date. The weighted
average fair value of the stock options granted during 1996 was $7.05 and
$7.31 for the options under the 1996 Plan and the Directors' Plan,
respectively. The fair value of each stock option grant is estimated on
the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 1996:
- --------------------------------------------------------------
1996 Directors'
Plan Plan
- --------------------------------------------------------------
Risk free interest rate 6.3% 6.2%
Expected dividend yield 0.0% 0.0%
Expected life 4.0 years 4.0 years
Expected volatility 46.0% 45.0%
- --------------------------------------------------------------
The outstanding stock options at December 31, 1996 have a weighted
average contractual life of 8.9 years. No option shares were exercisable at
December 31, 1996 under the 1996 Plan or the Directors' Plan.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures About Fair Value of Financial Instruments," requires
companies to disclose the estimated fair value of both assets and liabilities
recognized and not recognized in the statement of financial position, subject
to certain exceptions. For certain instruments, including cash and cash
equivalents, accounts payable, and accrued expenses, it has been assumed that
the carrying amount approximates fair value due to their short-term maturity.
The carrying amount of long-term debt approximates fair value because
most interest notes are variable and fixed notes were not significantly
different than notes available to Suburban Lodges at December 31, 1996 and
1995 for debt with similar terms and remaining maturities.
The fair value of notes payable to affiliates at December 31, 1995
cannot be readily determined due to their related party nature.
F-17<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SELECTED QUARTERLY FINANCIAL DATA - (UNAUDITED)
Quarterly financial data for the years ended December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1996 First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $ 1,669,323 $ 2,083,534 $ 2,660,166 $2,853,005
Operating income 620,470 846,368 945,677 618,644
Net income 307,629 591,171 721,140 764,752
Pro forma earnings per share 0.06 0.08 - -
Earnings per share - - 0.08 0.08
- -----------------------------------------------------------------------------------------------------------------
1995
- -----------------------------------------------------------------------------------------------------------------
Total revenue 1,142,665 1,220,996 1,332,588 1,491,098
Operating income 349,614 445,371 520,070 440,623
Net income 124,230 228,732 273,675 50,535
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
13. SUBSEQUENT EVENT
On February 28, 1997, the Company purchased four properties from a
franchisee. The aggregate purchase price was $23 million in common stock at
the average closing price for the 20 consecutive trading days prior to the
contract date, which was $17.50 per share as agreed upon by the parties, less
debt assumed at closing of approximately $12.5 million. The debt assumed was
immediately paid off.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(a) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Atlanta, State of
Georgia, on the 28th day of March, 1997.
SUBURBAN LODGES OF AMERICA, INC.
By: /s/ David Krischer
David E. Krischer
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Company in the capacities set forth and on the
28th day of March, 1997.
<TABLE>
<CAPTION>
Signature Position
<S> <C>
/s/ David E. Krischer Chairman of the Board, Chief Executive Officer,
David E. Krischer President and Director (Principal Executive Officer)
/s/ Dan J. Berman Vice President - Franchising and Director
Dan J. Berman
/s/ Terry J. Feldman Vice President and Chief Financial Officer (Principal
Terry J. Feldman Financial and Accounting Officer)
/s/ James R. Kuse Director
James R. Kuse
/s/ Michael McGovern Director
Michael McGovern
/s/ John W. Speigel Director
John W. Spiegel
</TABLE>
-24-
<PAGE>
Exhibit 3.2
Amended as of
March 17, 1997
AMENDED AND RESTATED BYLAWS
OF
SUBURBAN LODGES OF AMERICA, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The corporation shall
maintain at all times a registered office in the State of Georgia
and a registered agent at that office.
Section 2. Other Offices. The corporation may also
have offices at such other places both within and without the
State of Georgia as the business of the corporation may require
or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
Section 1. Regular Meetings. The regular meeting of
the shareholders of the corporation shall be held at the
principal office of the corporation or at such other place in the
United States as may be determined by the board of directors, at
11:00 a.m. on the third Tuesday of the fourth month following the
close of each fiscal year, or at such other date and time as
shall be determined by the board of directors, for the purpose of
electing directors and transacting such other business as may
properly be brought before the meeting.
Section 2. Special Meetings. (a) Special meetings of
shareholders of one or more classes or series of the
corporation's shares shall be called by the President or the
Secretary (i) when so directed by the Chairman or by a majority
of the entire board of directors; or (ii) upon the demand of
holders of at least forty percent (40%) of all votes entitled to
be cast on each issue to be considered at a proposed special
meeting of the shareholders. The business that may be transacted
at any special meeting of shareholders shall be limited to that
proposed in the notice of the special meeting given in accordance
with Section 3 (including related or incidental matters that may
be necessary or appropriate to effectuate the proposed business).
(b) Promptly after the date of receipt of written
shareholder demands (the "Demand Date") purporting to comply with
the provisions of the Georgia Business Corporation Code, as
amended from time to time (the "Code"), and these Bylaws, the
President or the Secretary of the corporation shall determine the
validity of the demand. If the demand is valid, the President or
the Secretary of the corporation shall call a special
shareholders meeting by mailing notice within 20 days of the
Demand Date.
<PAGE>
(c) The time, date and place of any special
shareholders meeting shall be determined by the board of
directors and shall be set forth in the notice of meeting.
Section 3. Notice of Meetings. (a) Unless otherwise
required by law or specified in the Articles of Incorporation or
these Bylaws, written notice of every meeting of shareholders,
stating the place, date and hour of the meeting, shall be given,
in a manner permitted by applicable law, to each shareholder of
record entitled to vote at such meeting not less than 10 nor more
than 60 days prior to the date of the meeting.
(b) A shareholder may waive any notice required by the
Code, the Articles of Incorporation, or these Bylaws, before or
after the date and time of the matter to which the notice
relates, by delivering to the corporation a written waiver of
notice signed by the shareholder entitled to the notice. In
addition, a shareholder's attendance at a meeting shall be (i) a
waiver of objection to lack of notice or defective notice of the
meeting unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting; and (ii) a waiver of objection to consideration of a
particular matter at the meeting that is not within the purpose
stated in the meeting notice, unless the shareholder objects to
considering the matter when it is presented. Except as otherwise
required by the Code, neither the purpose of nor the business
transacted at the meeting need be specified in any waiver.
Section 4. Quorum. At all meetings of shareholders,
any Voting Group entitled to vote on a matter may take action on
the matter only if a quorum of that Voting Group exists at the
meeting, and if a quorum exists, the Voting Group may take action
on the matter notwithstanding the absence of a quorum of any
other Voting Group that may be entitled to vote separately on the
matter. Unless the Articles of Incorporation, these Bylaws or
the Code provides otherwise, the presence (in person or by proxy)
of shares representing a majority of votes entitled to be cast on
a matter by a Voting Group shall constitute a quorum of the
Voting Group with regard to that matter. Once a share is present
at any meeting other than solely to object to holding the meeting
or transacting business at the meeting, the share shall be deemed
present for quorum purposes for the remainder of the meeting and
for any adjournments of that meeting, unless a new record date
for the adjourned meeting is or must be set pursuant to Article
VI, Section 4(a) of these Bylaws. If a quorum is not present at
any meeting of the shareholders, the holders of a majority of the
shares present (in person or represented by proxy) and entitled
to vote thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at
the original meeting.
Section 5. Voting. Unless otherwise provided by law,
the Articles of Incorporation, or board resolutions setting forth
the preferences and other rights, restrictions or limitations of
any class or series of preferred stock, each outstanding share,
regardless of class or series, shall be entitled to one vote on
each matter voted on at a shareholders meeting, and each class or
-2-<PAGE>
series of the corporation's shares entitled to vote generally on
a matter shall for that purpose be considered a single voting
group (a "Voting Group"). Unless the Articles of Incorporation,
these Bylaws, a resolution of the board of directors or
applicable law require a different vote, action on a matter
presented for consideration at a meeting where a quorum is
present, shall be approved as follows: (a) directors shall be
elected by a majority of the votes cast by the shares entitled to
vote in the election at a meeting at which a quorum is present;
and (b) all other matters shall be approved if the votes cast
within the applicable Voting Group favoring the action exceed the
votes cast opposing the action, unless the Articles of
Incorporation, a provision of these Bylaws that has been adopted
pursuant to Section 14-2-1021 of the Code (or any successor
provision), or applicable law requires a greater number of
affirmative votes. If either the Articles of Incorporation or
the Code requires separate voting by two or more Voting Groups on
a matter, action on that matter is taken only when voted upon by
each such Voting Group separately.
A shareholder may vote his shares in person or by
proxy. A shareholder may appoint a proxy to vote or otherwise
act for him by signing an appointment form. An appointment of a
proxy is valid for eleven months unless a shorter or longer
period is expressly provided in the appointment form.
Any proxy given pursuant to a solicitation with respect
to any meeting of the shareholders may be revoked by any
shareholder who attends the meeting and gives written notice of
his or her election to vote in person, without compliance with
any other formalities. In addition, any proxy given pursuant to
a solicitation with respect to any meeting of the shareholders
may be revoked prior to the meeting by delivering an instrument
revoking it or a duly executed proxy bearing a later date to the
Secretary of the Company.
Section 6. Shareholder Proposals. (a) No shareholder
proposal or resolution (each a "Shareholder Proposal"), whether
purporting to be binding or non-binding on the corporation or its
board of directors, shall be considered at any annual or special
meeting of the shareholders unless:
(i) If such Shareholder Proposal relates solely
to the nomination and election of directors, it
satisfies the requirements of Article III, Section
3; or
(ii) With respect to any Shareholder Proposal to
be considered at a special shareholders meeting
called pursuant to Article II, Section 2, subsection
(a)(i), the shareholder(s) proposing to make such
Shareholder Proposal provided the information set
forth in subsection (b) of this Section 6 to the
board of directors within 14 days after the date of
the notice calling such special shareholders meeting
(or if less than 21 days notice of the meeting is
given to shareholders, such information was
delivered to the President not later than the close
of the seventh day following the date on which the
notice of the shareholders' meeting was mailed); or
-3-<PAGE>
(iii) With respect to any Shareholder Proposal to
be considered at a special shareholders meeting
called pursuant to Article II, Section 2, subsection
(a)(ii), the shareholder(s) proposing to make such
Shareholder Proposal provided the information set
forth in subsection (b) of this Section 6 to the
board of directors concurrently with the filing of
the initial demand by shareholders relating to such
special shareholders meeting; or
(iv) With respect to any Shareholder Proposal to
be considered at any regular meeting of
shareholders, other than as described in clause (i)
hereof, the shareholder(s) proposing to make such
Shareholder Proposal provided the information set
forth in subsection (b) of this Section 6 to the
board of directors between 90 to 120 days prior to
the regular meeting at which they wish the
Shareholder Proposal to be considered.
For the purposes of determining whether information was provided
at the times or within the specified periods, the date of the
applicable meeting shall be as set forth in the notice of meeting
given by the corporation, and such times and periods will be
determined without regard to any postponements, deferrals or
adjournments of such meeting to a later date.
(b) The following information must be provided to
the board of directors, within or at the times specified in
subsection (a) above, in order for the Shareholder Proposal to be
considered at the applicable shareholders meeting:
(i) The Shareholder Proposal, as it will be
proposed, in full text and in writing;
(ii) The purpose(s) for which the Shareholder
Proposal is desired and the specific meeting at
which such proposal is proposed to be considered;
(iii) The name(s), address(es), and number of
shares held of record by the shareholder(s) making
such Shareholder Proposal (or owned beneficially and
represented by a nominee certificate on file with
the corporation);
(iv) The number of shares that have been solicited
with regard to the Shareholder Proposal and the
number of shares the holders of which have agreed
(in writing or otherwise) to vote in any specific
fashion on said Shareholder Proposal; and
(v) A written statement by said shareholder(s)
that they intend to continue ownership of such
voting shares through the date of the meeting at
which said Shareholder Proposal is proposed to be
considered.
(c) Failure to fully comply with the provisions
of this Section 6 shall bar discussion of and voting on the
Shareholder Proposal at the applicable regular or special
-4-<PAGE>
shareholders meeting. Any Shareholder Proposal that does not
comply with the requirements of this Section 6 shall be
disregarded by the chairman of the meeting, and any votes cast in
support of the Shareholder Proposal, unless the Shareholder
Proposal has been validly submitted by another shareholder, shall
be disregarded by the chairman of such meeting.
(d) The provisions of this Section 6 shall be
read in accordance with and so as not to conflict with the rules
and regulations promulgated by the Securities and Exchange
Commission and any stock exchange or quotation system upon which
the corporation's shares are traded. Nothing in these Bylaws
shall be deemed to require the consideration at any meeting of
shareholders of any Shareholder Proposal that, pursuant to law,
the corporation may refuse to permit consideration thereof.
Section 7. List of Shareholders; Inspection of
Records. (a) The corporation shall keep at its registered office
or principal place of business, or at the office of its transfer
agent or registrar, a record of its shareholders, giving their
names and addresses and the number, class and series, if any, of
the shares held by each.
(b) Shareholders are entitled to inspect the
corporate records as and to the extent provided by the Code;
provided, however, that only shareholders owning more than two
percent (2%) of the outstanding shares of any class of the
corporation's stock shall be entitled to inspect (1) the minutes
from any board, board committee or shareholders meeting
(including any records of action taken thereby without a
meeting); (2) the accounting records of the corporation; or (3)
any record of the shareholders of the corporation.
ARTICLE III
DIRECTORS
Section 1. Powers. Except as otherwise provided by
any legal agreement among shareholders, the property, affairs and
business of the corporation shall be managed and directed by its
board of directors, which may exercise all powers of the
corporation and do all lawful acts and things which are not (by
law, by any legal agreement among shareholders, by the Articles
of Incorporation or by these Bylaws) directed or required to be
exercised or done by the shareholders.
Section 2. Number, Election and Term. (a) The number
of directors which shall constitute the whole board shall be not
less than two nor more than nine, the number thereof to be
determined from time to time by resolution of the board of
directors or the shareholders; provided, however, that no
decrease in the number of directors shall have the effect of
shortening the term of an incumbent director. Upon the closing of
the corporation's initial public offering of shares of its common
stock and the election of three additional directors concurrent
with such closing, the directors shall be classified with respect
to the time during which they shall severally hold office by
dividing them into three classes, as nearly equal in number as
possible, and Class 1 shall consist of one director; Class 2
shall consist of two directors; and Class 3 shall consist of two
directors, and with respect to the initial five person board,
-5-<PAGE>
their terms shall be as follows: Class 1, one year; Class 2, two
years; and Class 3, three years. At each annual meeting of the
shareholders held thereafter, the successors to the class of
directors whose terms shall expire that year shall be elected to
hold office for a term of three years, so that the term of office
of one class of directors shall expire in each year. Any
increase in the number of directors following the establishment
of the staggered board of directors shall be apportioned among
the classes so as to make all classes as nearly equal in number
as possible. Except as hereinafter provided with respect to
filling vacancies on the board, the directors shall be elected by
the shareholders as provided in Article II hereof, and each
director elected shall hold office until his successor is elected
and qualified or until his earlier resignation, removal from
office, or death. Directors shall be natural persons who have
attained the age of 21 years, but need not be residents of the
State of Georgia or shareholders of the corporation. The board,
from time to time, may designate persons to act as advisory
directors.
(b) As long as any shares of the corporation's Common Stock
shall be quoted on the NASDAQ National Market, the board of
directors of the corporation shall ensure, and shall have all
powers necessary to ensure, that the membership of the board of
directors shall at all times include such number of "independent"
directors (as such term is defined in Part III, Paragraph 6(c) of
Schedule D to the Bylaws of the National Association of Security
Dealers, Inc. (the "NASD"), as the same may be amended from time
to time) as shall be required by the Bylaws of the NASD in order
for shares of the corporation's Common Stock to be eligible for
quotation on the NASDAQ National Market. In the event that the
shares of the corporation's Common Stock shall cease to be quoted
on the NASDAQ National Market and subsequently such shares are
listed or quoted on a national securities exchange or other
trading system, the board of directors of the corporation shall
ensure, and shall have all powers necessary to ensure, that the
membership of the board of directors shall at all times be
consistent with the applicable rules and regulations, if any, for
the corporation's Common Stock to be eligible for listing and
quotation on such exchange or other trading system.
Section 3. Nominations. (a) If any shareholder
intends to nominate or cause to be nominated any candidate for
election to the board of directors (other than any candidate to
be sponsored by and proposed at the instance of the management),
such shareholder shall notify the President by first class
registered mail sent not less than 14 nor more than 50 days
before the scheduled meeting of the shareholders at which
directors will be elected. However, if less than 21 days notice
of the meeting is given to shareholders, such nomination shall be
delivered or mailed to the President not later than the close of
the seventh day following the date on which the notice of the
shareholders' meeting was mailed. Such notification shall
contain the following information with respect to each nominee,
to the extent known to the shareholder giving such notification:
(1) Name, address and principal present
occupation;
(2) To the knowledge of the shareholder who
-6-<PAGE>
proposed to make such nomination, the total number
of shares that may be voted for such proposed
nominee;
(3) The names and address of the shareholders who
propose to make such nomination, and the number of
shares of the corporation owned by each of such
shareholders; and
(4) The following additional information with
respect to each nominee: age, past employment,
education, beneficial ownership of shares in the
corporation, past and present financial standing,
criminal history (including any convictions,
indictments or settlements thereof), involvement in
any past or pending litigation or administrative
proceedings (including threatened involvement),
relationship to and agreements (whether or not in
writing) with the shareholder(s) (and their
relatives, subsidiaries and affiliates) intending to
make such nomination, past and present relationships
or dealings with the corporation or any of its
subsidiaries, affiliates, directors, officers or
agents, plans or ideas for managing the affairs of
the corporation (including, without limitation, any
termination of employees, any sales of corporate
assets, any proposed merger, business combination or
recapitalization involving the corporation, and any
proposed dissolution or liquidation of the
corporation), and all additional information
relating to such person that would be required to be
disclosed, or otherwise required, pursuant to
Sections 13 or 14 of the Securities Exchange Act of
1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), in
connection with any acquisition of shares by such
nominee or in connection with the solicitation of
proxies by such nominee for his election as a
director, regardless of the applicability of such
provisions of the Exchange Act.
(b) Any nominations not in accordance with the
provisions of this Section 3 may be disregarded by the chairman
of the meeting, and upon instruction by the chairman, votes cast
for each such nominee shall be disregarded. In the event,
however, that a person should be nominated by more than one
shareholder, and if one such nomination complies with the
provisions of this Section 3, such nomination shall be honored,
and all shares voted for such nominee shall be counted.
Section 4. Vacancies. (a) Subject to subsections 4(b)
and 4(c), vacancies, including vacancies resulting from any
increase in the number of directors and vacancies resulting from
removal from office by the shareholders, may be filled only by
the board of directors or by a majority of the directors then in
office (if the directors remaining in office constitute less than
a quorum), and a director so chosen shall hold office until the
next annual election and until his successor is duly elected and
qualified, unless sooner displaced; provided, however, that if
there are no directors in office, then vacancies shall be filled
-7-<PAGE>
through election by the shareholders.
(b) If any vacant office described in subsection 4(a)
was held by a director elected by a particular Voting Group, only
the remaining directors elected by that Voting Group shall be
entitled to fill the vacancy; provided, however, that if the
vacant office was held by a director elected by a particular
Voting Group and there is no remaining director elected by that
Voting Group, the other remaining directors or director (elected
by another Voting Group or Groups) may fill the vacancy.
(c) If any vacant office described in subsection 4(a)
was held by an independent director (as such term is defined in
Part III, Paragraph 6(c) of Schedule D to the Bylaws of the
National Association of Security Dealers, Inc. (the "NASD"), as
the same may be amended from time to time), such vacancy shall be
filled by the affirmative vote of a majority of the remaining
independent directors.
Section 5. Meetings and Notice. (a) The board of
directors of the corporation may hold meetings, both regular and
special, either within or without the State of Georgia. Regular
meetings of the board of directors may be held without notice at
such time and place as shall from time to time be determined by
resolution of the board. Special meetings of the board may be
called by the Chairman or by any two directors upon two day's
notice given in a manner permitted by law. Such notice shall
state a reasonable time, date and place of meeting, but the
purpose need not be stated therein. Unless otherwise provided by
law, the Articles of Incorporation or these Bylaws, directors may
participate in a meeting of the board, or any committee thereof,
by means of conference telephone or similar communications
equipment whereby all persons participating in the meeting can
hear each other. Participation in the meeting shall constitute
presence in person.
(b) A director may waive any notice required by the
Code, the Articles of Incorporation, or these Bylaws before or
after the date and time of the matter to which the notice
relates, by a written waiver signed by the director and delivered
to the corporation for inclusion in the minutes or filing with
the corporate records. Attendance by a director at a meeting
shall constitute waiver of notice of the meeting, except where a
director at the beginning of the meeting (or promptly upon his or
her arrival) objects to holding the meeting or to transacting
business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
Section 6. Quorum. At all meetings of the board a
majority of directors shall constitute a quorum for the action of
business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the
board, except as may be otherwise specifically provided by law,
by the Articles of Incorporation, by these Bylaws or by contract.
If a quorum shall not be present at any meeting of the board, the
directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting,
until a quorum shall be present.
-8-<PAGE>
Section 7. Consent of Directors. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any
action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken
without a meeting if the action is evidenced by one or more
written consents describing the action taken and signed by each
director or committee member, and the writing or writings are
delivered to the corporation for inclusion in the minutes for
filing with the corporate records. Such consent shall have the
same force and effect as a unanimous vote of the board or
committee, as the case may be.
Section 8. Committees. The board of directors may by
resolution create one or more committees and appoint one or more
members of the board of directors to serve on them. The board
may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of
such committee. Any such committee, to the extent provided in
the resolution, shall have and may exercise all of the authority
of the board of directors in the management of the business and
affairs of the corporation, subject to limitations imposed by law
or the Articles of Incorporation. Such committee or committees
shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors. A majority
of each committee may determine its action and may fix the time
and places of its meetings, unless otherwise provided by the
board of directors. Each committee shall keep regular minutes of
its meetings and report the same to the board of directors when
required.
Section 9. Removal of Directors. At any shareholders
meeting, with respect to which notice of such purpose has been
given, any director may be removed from office only for cause, by
a majority of the shares outstanding; provided that directors
elected by a particular Voting Group may be removed only by the
shareholders in that Voting Group.
Section 10. Compensation of Directors. Directors
shall be entitled to such compensation for their services as
directors or members of any committee of the board as shall be
fixed from time to time by resolution adopted by the board, and
shall also be entitled to reimbursement for any reasonable
expenses incurred in attending any meeting of the board or any
such committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation
shall be chosen by the board of directors and shall be a
Chairman, a President and a Secretary. The board of directors
may also choose one or more Vice Presidents (including Executive
Vice Presidents, Senior Vice Presidents, Assistant Vice
Presidents, and the like), one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers. Any number of
offices may be held by the same person. The board of directors
may appoint such other officers and agents as it shall deem
necessary.
Section 2. Compensation. The salaries of all officers
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and agents of the corporation shall be fixed by the board of
directors or a committee or officer appointed by the board.
Section 3. Term of Office. Unless otherwise provided
by resolution of the board of directors, the principal officers
shall be chosen annually by the board of directors at the first
meeting of the board following the regular meeting of
shareholders of the corporation, or as soon thereafter as is
conveniently possible. Subordinate officers may be elected from
time to time. Each officer shall serve until his successor shall
have been chosen and qualified, or until his death, resignation
or removal.
Section 4. Removal. Any officer may be removed from
office at any time, with or without cause, by the board of
directors whenever in its judgment the best interests of the
corporation will be served thereby.
Section 5. Vacancies. Any vacancy in an office,
existing for any reason, may be filled by the board of directors.
Section 6. Powers and Duties. Except as otherwise
provided by law, the Articles of Incorporation or these Bylaws,
or as hereinafter provided, the officers of the corporation shall
each have such powers and duties as from time to time may be
conferred by the board of directors.
(a) Chairman. The Chairman shall preside as
chairman at all meetings of the board of directors and of the
shareholders, and shall have such other authority and duties as
the board of directors or these Bylaws shall provide.
(b) President. The President shall be the chief
executive officer of the corporation, shall in the absence of the
Chairman preside as chairman at all meetings of shareholders, and
shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the
board of directors are carried into effect. The President shall
have the authority to select and appoint employees and agents of
the corporation, and shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers
of the Chairman of the Board. The President shall perform any
other duties and have any other authority as may be delegated
from time to time by the board of directors, and shall be subject
to the limitations fixed from time to time by the board of
directors. The President shall otherwise have such authority as
generally pertains to the office of president.
(c) Vice Presidents. The Vice President (if there be
one) shall, in the absence or disability of the President, or at
the direction of the President, perform the duties and exercise
the powers of the President, whether the duties and powers are
specified in these Bylaws or otherwise. If the corporation has
more than one Vice President, the one designated by the board of
directors or the President (in that order of precedence) shall
act in the event of the absence or disability of the President.
Vice Presidents shall perform any other duties and have any other
authority as from time to time may be delegated by the board of
directors or the President.
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(d) Secretary. The Secretary shall attend all
meetings of the board of directors and all meetings of the
shareholders and record all the proceedings of such meetings in a
book to be kept for that purpose and shall perform like duties
for the standing committees of the board when required. He or a
designee shall give, or cause to be given, notice of all meetings
of the shareholders, and shall perform such other duties as may
be prescribed by the board of directors or President, under whose
supervision he shall be. He shall have custody of the corporate
seal of the corporation and he, or an assistant secretary, shall
have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by
the signature of such assistant secretary. The board of
directors may give general authority to any other officer to
affix the seal of the corporation and to attest to affixing by
his signature.
(e) Bonds and Sureties. If required by the board
of directors, any officer or employee shall give the corporation
a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful
performance of the duties of his office and for the restoration
to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the corporation.
(f) Signatures. The signature of any officer,
employee or agent upon any document of the corporation may be
made by facsimile or machine signature under such limitations and
circumstances as the board of directors or any appropriate
committee of the board of directors may provide from time to
time.
Section 7. Voting Securities of Corporation. Unless
otherwise provided by the board of directors, the Chairman, and
in his absence, the President, shall have full power and
authority on behalf of the corporation to attend and to act and
vote at any meetings of security holders of corporations in which
the corporation may hold securities, and at such meetings shall
possess and may exercise any and all rights and powers incident
to the ownership of such securities which the corporation might
have possessed and exercised if it had been present. The board
of directors by resolution from time to time may confer like
powers upon any other person or persons.
ARTICLE V
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers.
The corporation shall indemnify and hold harmless any person (an
"Indemnified Person") who is or was a party, or is threatened to
be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action or suit by or in the right of
the corporation) by reason of the fact that he is or was a
director or officer of the corporation, against expenses
(including, but not limited to, attorneys' fees and
disbursements, court costs and expert witness fees), and against
any judgments, fines, and amounts paid in settlement actually and
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reasonably incurred by him in connection with such action, suit
or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful; provided, in any case, that no indemnification shall be
made in respect of expenses, judgments, fines and amounts paid in
settlement attributable to circumstances as to which, under
applicable provisions of the Code as in effect from time to time,
such indemnification may not be authorized by action of the Board
of Directors, the shareholders or otherwise.
Section 2. Indemnification of Directors and Officers
for Derivative Actions. The corporation shall indemnify and hold
harmless any Indemnified Person who is or was a party, or is
threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by or in the right of the
corporation, by reason of the fact that he is or was a director
or officer of the corporation, against expenses (including, but
not limited to, attorneys' fees and disbursements, court costs
and expert witness fees) actually and reasonably incurred by him
in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. No
indemnification shall be made pursuant to this Section 2 for any
claim, issue or matter as to which an Indemnified Person shall
have been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the
corporation, or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in
which such action or suit was brought or other court of competent
jurisdiction shall determine upon application that such person is
fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
Section 3. Indemnification of Employees and Agents.
The Board of Directors shall have the power to cause the
corporation to provide to any person who is or was an employee or
agent of the corporation all or any part of the right to
indemnification and other rights of the type provided under
Sections 1, 2, 6 and 12 of this Article V (subject to the
conditions, limitations, obligations and other provisions
specified herein), upon a resolution to that effect identifying
such employee or agent (by position or name) and specifying the
particular rights provided, which may be different for each
employee or agent identified. Each employee or agent of the
corporation so identified shall be an "Indemnified Person" for
purposes of the provisions of this Article V.
Section 4. Subsidiaries and Other Organizations. The Board
of Directors shall have the power to cause the corporation to
provide to any person who is or was a director, officer, employee
or agent of the corporation who also is or was a director,
officer, trustee, partner, employee or agent of a Subsidiary (as
defined below), or is or was serving at the corporation's request
in such a position with any other organization, all or any part
of the right to indemnification and other rights of the type
provided under Sections 1, 2, 6 and 12 of this Article V (subject
to the conditions, limitations, obligations and other provisions
-12-<PAGE>
specified herein), with respect to service by such person in such
position with a Subsidiary or other organization, upon a
resolution identifying such person, the Subsidiary or other
organization involved (by name or other classification), and the
particular rights provided, which may be different for each
person so identified. Each person so identified shall be an
"Indemnified Person" for purposes of the provisions of this
Article V. As used in this Article V, "Subsidiary" shall mean
(i) another corporation, joint venture, trust, partnership or
unincorporated business association more than 20% of the voting
capital stock or other voting equity interest of which was, at or
after the time of the circumstances giving rise to such action,
suit or proceeding, owned, directly or indirectly, by the
corporation; or (ii) a nonprofit corporation that receives its
principal financial support from the corporation or its
Subsidiaries.
Section 5. Determination. Notwithstanding any
judgment, order, settlement, conviction or plea in any action,
suit or proceeding of the kind referred to in Sections 1 and 2 of
this Article V, an Indemnified Person shall be entitled to
indemnification as provided in such Sections 1 and 2 if a
determination that such Indemnified Person is entitled to such
indemnification shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who are not at
the time parties to the proceeding; or (ii) if a quorum cannot be
obtained under (i) above, by majority vote of a committee duly
designated by the Board of Directors (in which designation
interested directors may participate), consisting solely of two
or more directors who are not at the time parties to the
proceeding; or (iii) in a written opinion by special legal
counsel selected as required by Section 14-2-855(b)(3) of the
Code or any successor provision. To the extent that an
Indemnified Person has been successful on the merits or otherwise
in defense of any action, suit or proceeding of the kind referred
to in Sections 1 and 2 of this Article V, or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 6. Advances. Expenses (including, but not
limited to, attorneys' fees and disbursements, court costs, and
expert witness fees) incurred by an Indemnified Person in
defending any action, suit or proceeding of the kind described in
Sections 1 and 2 hereof (or in Section 4 hereof if applicable to
such Indemnified Person) shall be paid by the corporation in
advance of the final disposition of such action, suit or
proceeding as set forth herein. The corporation shall promptly
pay the amount of such expenses to the Indemnified Person, but in
no event later than ten days following the Indemnified Person's
delivery to the corporation of a written request for an advance
pursuant to this Section 6, together with a reasonable accounting
of such expenses; provided, however, that the Indemnified Person
shall furnish the corporation a written affirmation of his good
faith belief that he has met the standard of conduct set forth in
the Code and a written undertaking and agreement, executed
personally or on his behalf, to repay to the corporation any
advances made pursuant to this Section 6 if it shall be
ultimately determined that the Indemnified Person is not entitled
to be indemnified by the corporation for such amounts. The
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corporation shall make the advances contemplated by this Section
6 regardless of the Indemnified Person's financial ability to
make repayment. Any advances and undertakings to repay pursuant
to this Section 6 shall be unsecured and interest-free.
Section 7. Non-Exclusivity. Subject to any applicable
limitation imposed by the Code or the Articles of Incorporation,
the indemnification and advancement of expenses provided by or
granted pursuant to this Article V shall not be exclusive of any
other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any bylaw,
resolution or agreement specifically or in general terms approved
or ratified by the affirmative vote of holders of a majority of
the shares entitled to be cast thereon.
Section 8. Insurance. The corporation shall have the
power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the
corporation, or who, while a director, officer, employee, or
agent of the corporation, is or was serving as a director,
officer, trustee, general partner, employee or agent of a
Subsidiary or, at the request of the corporation, of any other
organization, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the
power to indemnify him against such liability under the
provisions of this Article V.
Section 9. Notice. If any expenses or other amounts
are paid by way of indemnification, otherwise than by court order
or action by the shareholders or by an insurance carrier pursuant
to insurance maintained by the corporation, the corporation
shall, not later than the next annual meeting of shareholders,
unless such meeting is held within three months from the date of
such payment, and in any event within 15 months from the date of
such payment, send by first class mail to its shareholders of
record at the time entitled to vote for the election of directors
a statement specifying the persons paid, the amount paid and the
nature and status at the time of such payment of the litigation
or threatened litigation.
Section 10. Security. The corporation may designate
certain of its assets as collateral, provide self-insurance or
otherwise secure its obligations under this Article V, or under
any indemnification agreement or plan of indemnification adopted
and entered into in accordance with the provisions of this
Article V, as the Board of Directors deems appropriate.
Section 11. Amendment. Any amendment to this Article
V that limits or otherwise adversely affects the right of
indemnification, advancement of expenses, or other rights of any
Indemnified Person hereunder shall, as to such Indemnified
Person, apply only to claims, actions, suits or proceedings based
on actions, events or omissions (collectively, "Post Amendment
Events") occurring after such amendment and after delivery of
notice of such amendment to the Indemnified Person so affected.
Any Indemnified Person shall, as to any claim, action, suit or
proceeding based on actions, events or omissions occurring prior
to the date of receipt of such notice, be entitled to the right
of indemnification, advancement of expenses and other rights
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under this Article V to the same extent as if such provisions had
continued as part of the Bylaws of the corporation without such
amendment. This Section 11 cannot be altered, amended or
repealed in a manner effective as to any Indemnified Person
(except as to Post Amendment Events) without the prior written
consent of such Indemnified Person.
Section 12. Agreements. In addition to the rights
provided in this Article V, the corporation shall have the power,
upon authorization by the Board of Directors, to enter into an
agreement or agreements providing to any person who is or was a
director, officer, employee or agent of the corporation
indemnification rights substantially similar to, or greater than,
those provided in this Article V.
Section 13. Continuing Benefits. The indemnification
and advancement of expenses provided by or granted pursuant to
this Article V shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
Section 14. Successors. For purposes of this Article
V, the terms "the corporation" or "this corporation" shall
include any corporation, joint venture, trust, partnership or
unincorporated business association that is the successor to all
or substantially all of the business or assets of this
corporation, as a result of merger, consolidation, sale,
liquidation or otherwise, and any such successor shall be liable
to the persons indemnified under this Article V on the same terms
and conditions and to the same extent as this corporation.
Section 15. Severability. Each of the sections of
this Article V, and each of the clauses set forth herein, shall
be deemed separate and independent, and should any part of any
such section or clause be declared invalid or unenforceable by
any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable
any other part thereof or any other separate section or clause of
this Article V that is not declared invalid or unenforceable.
Section 16. Additional Indemnification. In
addition to the specific indemnification rights set forth herein,
the corporation shall indemnify each of its directors and
officers to the full extent permitted by action of the Board of
Directors without shareholder approval under the Code or other
laws of the State of Georgia as in effect from time to time.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form of Certificate. Every holder of
record of fully-paid shares in the corporation shall be entitled
to have a certificate in such form as the board of directors may
from time to time prescribe.
Section 2. Lost Certificates. The corporation may
issue a new certificate in place of any certificate theretofore
issued by the corporation and alleged to have been lost, stolen
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or destroyed, upon the making of an affidavit, in form and
substance satisfactory to the corporation, of that fact by the
person claiming the certificate to be lost, stolen or destroyed.
The corporation may, in its discretion and as a condition
precedent to the issuance thereof, together with such other
conditions precedent that it may reasonably require, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall
require and/or to give the corporation a bond in such sum as it
may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 3. Transfers. (a) Transfers of capital shares
of the corporation shall be made only on the books of the
corporation by the registered holder thereof, or by his duly
authorized attorney, or with a transfer clerk or transfer agent
appointed as provided in Section 5 of this Article, and on
surrender of the certificate or certificates for such shares
properly endorsed and the payment of all taxes thereon.
(b) Except as otherwise provided by law or as
provided elsewhere herein, the corporation shall be entitled to
recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such
owner, and for all other purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not
it shall have express or other notice thereof.
(c) Capital shares may be transferred by
delivery of the certificates thereof, accompanied either by an
assignment in writing on the back of the certificates or by
separate written power of attorney to sell, assign and transfer
the same, signed by the record holder thereof, or by his duly
authorized attorney-in-fact, and accompanied by such evidence
that all such signatures are genuine, as the corporation, at its
option, may request, but no transfer shall affect the right of
the corporation to pay any dividend upon the stock to the holder
of record as the holder in fact thereof for all purposes, and no
transfer shall be valid, except between the parties thereto,
until such transfer shall have been made upon the books of the
corporation as herein provided.
(d) The board may, from time to time, make such
additional rules and regulations as it may deem expedient, not
inconsistent with these Bylaws or the Articles of Incorporation
concerning the issue, transfer and registration of certificates
for shares of the corporation, and nothing contained herein shall
limit or waive any rights of the corporation with respect to such
matters under applicable law or any subscriptions or other
agreement by which the corporation is bound.
Section 4. Record Date. (a) In order that the
corporation may determine the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment
thereof, or to express any consent or demand with respect to any
corporate action, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
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exchange of shares or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which
shall not be more than 70 days and, in case of a meeting of
shareholders, not less than 10 days prior to the date on which
the particular action requiring such determination of
shareholders is to be taken.
(b) If no record date is fixed as provided in Section
4(a), then the record date for any determination of shareholders
that may be proper or required by law shall be, as appropriate,
the date on which notice of a shareholders' meeting is mailed,
the date on which the board of directors adopts a resolution
declaring a dividend or authorizing a distribution, or the date
on which any other action is taken that requires a determination
of shareholders.
Section 5. Transfer Agent and Registrar. The board of
directors may appoint one or more transfer agents or one or more
transfer clerks and one or more registrars, and may require all
certificates of shares to bear the signature or signatures of any
of them.
ARTICLE VII
BUSINESS COMBINATIONS
Section 1. Business Combinations. All of the
requirements of Sections 14-2-1110 et seq. and 14-2-1131 et seq.
of the Georgia Business Corporation Code (and any successor
provisions) shall be applicable to the corporation.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distribution. Distributions upon shares of
the corporation, subject to the provisions, if any, of the
Articles of Incorporation, or any lawful agreement among
shareholders, may be declared by the board of directors at any
regular or special meeting, pursuant to law. Distributions may
be paid in cash or in property, subject to applicable provisions
of the Articles of Incorporation. Before payment of any
distribution, there may be set aside out of any funds of the
corporation available for distribution such sum or sums as the
board from time to time, in its sole and absolute discretion,
deems proper as a reserve or reserves to meet contingencies, or
for equalizing distributions, or for repairing or maintaining any
property of the corporation, or for such other purpose as the
board shall deem conducive to the interest of the corporation,
and the board may modify or abolish any such reserve in its sole
and absolute discretion.
Section 2. Fiscal Year. The fiscal year of the
corporation shall be fixed by resolution of the board of
directors.
Section 3. Seal. The corporate seal shall have
inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal" and "Georgia." The
seal may be used by causing it or a facsimile thereof to be
impressed, affixed or reproduced.
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Section 4. Savings Clause. To the extent these Bylaws
conflict with any provision of any state or federal law as such
laws may be amended from time to time, these Bylaws shall be
construed so as not to conflict with said law, and any
discretionary actions made hereunder shall be made in accordance
with applicable law.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. The board of directors shall
have power to alter, amend or repeal these Bylaws or adopt new
bylaws by the affirmative vote of a majority of the members of
the board, but any bylaws adopted by the board of directors may
be altered, amended or repealed, and new bylaws may be adopted,
by the affirmative vote of a majority of the shares outstanding,
unless the Articles of Incorporation, these Bylaws or applicable
law require otherwise.
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PRELIMINARY AGREEMENT FOR A LICENSE TO DEVELOP
A SUBURBAN LODGE UNIT
THIS AGREEMENT is made and entered into on December 20,
1996, by and between SUBURBAN FRANCHISE SYSTEMS, INC., a Georgia
corporation ("SFS") and E.E.B. Lodging Systems, LLC whose
principal address is P.O. Box 420528, Atlanta, Georgia 30342
("APPLICANT").
W I T N E S S E T H:
SFS, through the expenditure of time, effort and money, has
developed an extended stay lodging facility featuring efficiency
guest rooms rented primarily for periods in excess of one day.
Such establishments are operated with uniform formats, signs,
equipment, layout, systems, methods, procedures and designs and
are known as "SUBURBAN LODGE UNITS." SFS owns, uses, promotes
and licenses the trade name and trademark and service mark
"SUBURBAN LODGE" (the "Mark"), which has gained and continues to
gain public acceptance and goodwill. SFS has experience and
know-how in and the ability to provide assistance and guidance in
connection with the operation of a SUBURBAN LODGE UNIT.
WHEREAS, APPLICANT has applied to SFS for a license to
operate a SUBURBAN LODGE UNIT and such application has been
approved by SFS.
NOW, THEREFORE, the parties agree as follows:
1. The preambles are incorporated herein by this
reference.
2. It shall be the obligation of APPLICANT to locate
within 30 days a site suitable for the operation of a SUBURBAN
LODGE UNIT acceptable to SFS within the following area: Cooper
Street., Arlington, TX. SFS shall not unreasonably withhold
approval of sites that meet its standards for general location
and neighborhood, traffic pattern, parking, size, layout,
competition and other physical characteristics for a SUBURBAN
LODGE UNIT. If APPLICANT shall be unable to locate an acceptable
site within the time above specified, SFS may, subject to
Paragraph 6 below, at any time thereafter terminate this
Preliminary Agreement, provided that SFS shall refund the deposit
to the extent required by Paragraphs 5 and 6 below.
3. Unless APPLICANT withdraws his application for a
license to operate a SUBURBAN LODGE UNIT as hereinafter provided,
APPLICANT agrees upon approval by SFS of a site for APPLICANT's
SUBURBAN LODGE UNIT, to execute SFS's standard Franchise
Agreement in the form delivered to APPLICANT. Such agreement
shall be executed no later than the earlier of: (a) thirty (30)
days after the execution by APPLICANT of a purchase contract for
the site; (b) prior to the submission of any loan application for
construction and/or permanent financing for the development of
the SUBURBAN LODGE UNIT; (c) prior to engagement of the services
of an engineer and/or architect for the design of the SUBURBAN
LODGE UNIT; (d) forty-five (45) days after site approval by SFS.
EXHIBIT B
- Page 1 -
<PAGE>
4. APPLICANT has, contemporaneously with the execution of
this Preliminary Agreement, paid to SFS the sum of Three Thousand
Dollars ($3,000) to be applied against the initial franchise fee
payable to SFS in accordance with SFS's standard Franchise
Agreement.
5. SFS agrees to expend such time and effort and to incur
such expense as it may deem necessary to inspect sites proposed
by APPLICANT for a SUBURBAN LODGE UNIT. APPLICANT may withdraw
its application for a license to operate a SUBURBAN LODGE UNIT
and terminate this Preliminary Agreement at any time prior to the
execution by APPLICANT of SFS's standard Franchise Agreement by a
written notice of termination delivered to SFS. Upon such
termination, SFS shall refund APPLICANT's deposit less the
expenses incurred by SFS in connection with APPLICANT's
development of a SUBURBAN LODGE UNIT including, without
limitation, those expenses related to site selection, inspecting
and negotiating the lease or purchase contract for proposed sites
for APPLICANT's SUBURBAN LODGE UNIT, assistance in supplying
APPLICANT with information concerning the operation of a SUBURBAN
LODGE UNIT, travel and living expenses, compensation of employees
and agents of SFS, and legal fees and expenses.
6. If APPLICANT has not located a site acceptable to SFS
within the period specified in Paragraph 2 above, APPLICANT may
notify SFS in writing (for receipt by SFS not later than the last
day of the period) that APPLICANT desires to extend this
Agreement for an additional period of thirty (30) days (an
"Extension Period"). If APPLICANT elects so to extend this
Agreement, APPLICANT's payment made to SFS pursuant to Paragraph
4 above shall become nonrefundable. If by the expiration of the
first Extension Period APPLICANT has not located a site
acceptable to SFS, APPLICANT may notify SFS in writing (for
receipt by SFS not later than the last day of the Extension
Period) that APPLICANT desires to extend this Agreement for a
second Extension Period. To obtain a second Extension Period,
APPLICANT shall, together with such notice, include a
nonrefundable payment to SFS of Three Thousand Dollars ($3,000).
By the same procedures and by making an additional nonrefundable
payment of Three Thousand Dollars ($3,000), APPLICANT may obtain
a third (but no further) Extension Period. If APPLICANT enters
into a Franchise Agreement within forty-five (45) days of the
expiration of the last Extension Period obtained by APPLICANT,
SFS shall apply the $3,000 payment made by APPLICANT pursuant to
Paragraph 4 above and any $3,000 fee paid to SFS by APPLICANT for
a second or third Extension Period to APPLICANT's initial
franchise fee obligation under the Franchise Agreement.
7. APPLICANT understands that information concerning the
business of SFS which SFS may provide in connection with
APPLICANT's development of a SUBURBAN LODGE UNIT will contain
confidential and proprietary information about the business of
SFS and/or its parent and affiliates (any such materials or
information contained in or developed from such materials by us
or by APPLICANT, in either written or verbal form, shall
hereinafter be collectively referred to as the "Development
Materials").
By execution of this Agreement, APPLICANT acknowledges that
the Development Materials are the valuable confidential property
EXHIBIT B
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<PAGE>
of SFS and agrees:
a. To use the Development Materials solely for the purpose
of developing a SUBURBAN LODGE Unit, and to refrain
from copying or otherwise reproducing the Development
Materials or allowing such information to be used in
any way for private use or commercial purpose by
APPLICANT or any other party;
b. To take all appropriate measures to safeguard the
confidentiality of the Development Materials
and to show them to and discuss them with only those
employees and outside advisors to whom disclosure is
required in order for APPLICANT to develop a SUBURBAN
LODGE UNIT;
c. Prior to showing the Development Materials to, or
discussing them with, any of the individuals described
in paragraph 0 above, to advise such individuals of the
confidentiality of the Development Materials and to
require that such individuals agree to and maintain the
confidentiality of the Development Materials;
d. To accept full legal responsibility for any
unauthorized disclosure of the Development Materials by
any of the individuals to whom the Development
Materials are provided pursuant to paragraphs b and c
above;
e. Upon written request from SFS, to return all of the
Development Materials to SFS and to destroy all
materials prepared by or for APPLICANT based upon the
Development Materials, including purging or erasing all
such materials stored by electronic means, and to
confirm to SFS that all such materials have been
returned or destroyed.
8. APPLICANT understands and agrees that SFS might be
irreparably harmed by violation of this Agreement, and that the
unauthorized use of the Development Materials for the business
purpose of any party other than SFS (or its related entities
conducting its business) could enable such a party to compete
unfairly with SFS. In the event that APPLICANT becomes aware of
any breach of the confidentiality of, or the misappropriation of,
any of the Development Materials, APPLICANT agrees to promptly
give notice thereof to SFS. In addition, APPLICANT agrees that
SFS shall be entitled to injunctive relief and to enforcement by
specific performance of this Agreement in addition to any other
relief to which it may be entitled at law or in equity.
9. APPLICANT understands and agrees that neither this
Agreement nor the disclosure of the Development Materials shall
confer upon APPLICANT any license to, or any other right, title
or interest in, or ownership of, any portion of the Development
Materials.
10. APPLICANT understands and agrees that its Agreement to
maintain the confidentiality of the Development Materials shall
survive for a period of five years from the date of this
Agreement.
11. This Agreement shall be binding upon APPLICANT, its
successors and assigns and APPLICANT agrees that it shall be
governed by and construed in accordance with the laws of the
State of Georgia.
12. APPLICANT ACKNOWLEDGES THAT HE HAS READ THIS
EXHIBIT B
- Page 4 -
<PAGE>
PRELIMINARY AGREEMENT AND THAT HE HAS BEEN GIVEN THE OPPORTUNITY
TO CLARIFY ANY PROVISIONS THAT HE DID NOT UNDERSTAND AND TO
CONSULT WITH AN ATTORNEY OR OTHER PROFESSIONAL ADVISOR.
APPLICANT REPRESENTS THAT HE UNDERSTANDS THE TERMS,
CONDITIONS AND OBLIGATIONS OF THIS PRELIMINARY AGREEMENT AND
AGREES TO BE BOUND THEREBY.
Sincerely,
SUBURBAN FRANCHISE SYSTEMS, INC.
By: /s/ David Krischer
David Krischer
Its: CEO
Date: 12/20/96
CONFIRMED AND AGREED TO BY APPLICANT:
E.E.B. Lodging Systems, LLC
By: /s/ Michael McGovern
Michael McGovern
Its: Manager
Date: 12-20-96
EXHIBIT B
- Page 6 -
PRELIMINARY AGREEMENT FOR A LICENSE TO DEVELOP
A SUBURBAN LODGE UNIT
THIS AGREEMENT is made and entered into on December 20,
1996, by and between SUBURBAN FRANCHISE SYSTEMS, INC., a Georgia
corporation ("SFS") and E.E.B. Lodging Systems II, LLC whose
principal address is P.O. Box 420528, Atlanta, Georgia 30342
("APPLICANT").
W I T N E S S E T H:
SFS, through the expenditure of time, effort and money, has
developed an extended stay lodging facility featuring efficiency
guest rooms rented primarily for periods in excess of one day.
Such establishments are operated with uniform formats, signs,
equipment, layout, systems, methods, procedures and designs and
are known as "SUBURBAN LODGE UNITS." SFS owns, uses, promotes
and licenses the trade name and trademark and service mark
"SUBURBAN LODGE" (the "Mark"), which has gained and continues to
gain public acceptance and goodwill. SFS has experience and
know-how in and the ability to provide assistance and guidance in
connection with the operation of a SUBURBAN LODGE UNIT.
WHEREAS, APPLICANT has applied to SFS for a license to
operate a SUBURBAN LODGE UNIT and such application has been
approved by SFS.
NOW, THEREFORE, the parties agree as follows:
1. The preambles are incorporated herein by this
reference.
2. It shall be the obligation of APPLICANT to locate
within 30 days a site suitable for the operation of a SUBURBAN
LODGE UNIT acceptable to SFS within the following area:
Dallas/Lewisville, TX. SFS shall not unreasonably withhold
approval of sites that meet its standards for general location
and neighborhood, traffic pattern, parking, size, layout,
competition and other physical characteristics for a SUBURBAN
LODGE UNIT. If APPLICANT shall be unable to locate an acceptable
site within the time above specified, SFS may, subject to
Paragraph 6 below, at any time thereafter terminate this
Preliminary Agreement, provided that SFS shall refund the deposit
to the extent required by Paragraphs 5 and 6 below.
3. Unless APPLICANT withdraws his application for a
license to operate a SUBURBAN LODGE UNIT as hereinafter provided,
APPLICANT agrees upon approval by SFS of a site for APPLICANT's
SUBURBAN LODGE UNIT, to execute SFS's standard Franchise
Agreement in the form delivered to APPLICANT. Such agreement
shall be executed no later than the earlier of: (a) thirty (30)
days after the execution by APPLICANT of a purchase contract for
the site; (b) prior to the submission of any loan application for
construction and/or permanent financing for the development of
the SUBURBAN LODGE UNIT; (c) prior to engagement of the services
of an engineer and/or architect for the design of the SUBURBAN
LODGE UNIT; (d) forty-five (45) days after site approval by SFS.
EXHIBIT B
- Page 1 -
<PAGE>
4. APPLICANT has, contemporaneously with the execution of
this Preliminary Agreement, paid to SFS the sum of Three Thousand
Dollars ($3,000) to be applied against the initial franchise fee
payable to SFS in accordance with SFS's standard Franchise
Agreement.
5. SFS agrees to expend such time and effort and to incur
such expense as it may deem necessary to inspect sites proposed
by APPLICANT for a SUBURBAN LODGE UNIT. APPLICANT may withdraw
its application for a license to operate a SUBURBAN LODGE UNIT
and terminate this Preliminary Agreement at any time prior to the
execution by APPLICANT of SFS's standard Franchise Agreement by a
written notice of termination delivered to SFS. Upon such
termination, SFS shall refund APPLICANT's deposit less the
expenses incurred by SFS in connection with APPLICANT's
development of a SUBURBAN LODGE UNIT including, without
limitation, those expenses related to site selection, inspecting
and negotiating the lease or purchase contract for proposed sites
for APPLICANT's SUBURBAN LODGE UNIT, assistance in supplying
APPLICANT with information concerning the operation of a SUBURBAN
LODGE UNIT, travel and living expenses, compensation of employees
and agents of SFS, and legal fees and expenses.
6. If APPLICANT has not located a site acceptable to SFS
within the period specified in Paragraph 2 above, APPLICANT may
notify SFS in writing (for receipt by SFS not later than the last
day of the period) that APPLICANT desires to extend this
Agreement for an additional period of thirty (30) days (an
"Extension Period"). If APPLICANT elects so to extend this
Agreement, APPLICANT's payment made to SFS pursuant to Paragraph
4 above shall become nonrefundable. If by the expiration of the
first Extension Period APPLICANT has not located a site
acceptable to SFS, APPLICANT may notify SFS in writing (for
receipt by SFS not later than the last day of the Extension
Period) that APPLICANT desires to extend this Agreement for a
second Extension Period. To obtain a second Extension Period,
APPLICANT shall, together with such notice, include a
nonrefundable payment to SFS of Three Thousand Dollars ($3,000).
By the same procedures and by making an additional nonrefundable
payment of Three Thousand Dollars ($3,000), APPLICANT may obtain
a third (but no further) Extension Period. If APPLICANT enters
into a Franchise Agreement within forty-five (45) days of the
expiration of the last Extension Period obtained by APPLICANT,
SFS shall apply the $3,000 payment made by APPLICANT pursuant to
Paragraph 4 above and any $3,000 fee paid to SFS by APPLICANT for
a second or third Extension Period to APPLICANT's initial
franchise fee obligation under the Franchise Agreement.
7. APPLICANT understands that information concerning the
business of SFS which SFS may provide in connection with
APPLICANT's development of a SUBURBAN LODGE UNIT will contain
confidential and proprietary information about the business of
SFS and/or its parent and affiliates (any such materials or
information contained in or developed from such materials by us
or by APPLICANT, in either written or verbal form, shall
hereinafter be collectively referred to as the "Development
Materials").
By execution of this Agreement, APPLICANT acknowledges that
the Development Materials are the valuable confidential property
EXHIBIT B
- Page 2 -
<PAGE>
of SFS and agrees:
a. To use the Development Materials solely for the purpose
of developing a SUBURBAN LODGE Unit, and to refrain
from copying or otherwise reproducing the Development
Materials or allowing such information to be used in
any way for private use or commercial purpose by
APPLICANT or any other party;
b. To take all appropriate measures to safeguard the
confidentiality of the Development Materials
and to show them to and discuss them with only those
employees and outside advisors to whom disclosure is
required in order for APPLICANT to develop a SUBURBAN
LODGE UNIT;
c. Prior to showing the Development Materials to, or
discussing them with, any of the individuals described
in paragraph b above, to advise such individuals of the
confidentiality of the Development Materials and to
require that such individuals agree to and maintain the
confidentiality of the Development Materials;
d. To accept full legal responsibility for any
unauthorized disclosure of the Development Materials by
any of the individuals to whom the Development
Materials are provided pursuant to paragraphs 0 and 0
above;
e. Upon written request from SFS, to return all of the
Development Materials to SFS and to destroy all
materials prepared by or for APPLICANT based upon the
Development Materials, including purging or erasing all
such materials stored by electronic means, and to
confirm to SFS that all such materials have been
returned or destroyed.
8. APPLICANT understands and agrees that SFS might be
irreparably harmed by violation of this Agreement, and that the
unauthorized use of the Development Materials for the business
purpose of any party other than SFS (or its related entities
conducting its business) could enable such a party to compete
unfairly with SFS. In the event that APPLICANT becomes aware of
any breach of the confidentiality of, or the misappropriation of,
any of the Development Materials, APPLICANT agrees to promptly
give notice thereof to SFS. In addition, APPLICANT agrees that
SFS shall be entitled to injunctive relief and to enforcement by
specific performance of this Agreement in addition to any other
relief to which it may be entitled at law or in equity.
9. APPLICANT understands and agrees that neither this
Agreement nor the disclosure of the Development Materials shall
confer upon APPLICANT any license to, or any other right, title
or interest in, or ownership of, any portion of the Development
Materials.
10. APPLICANT understands and agrees that its Agreement to
maintain the confidentiality of the Development Materials shall
survive for a period of five years from the date of this
Agreement.
11. This Agreement shall be binding upon APPLICANT, its
successors and assigns and APPLICANT agrees that it shall be
governed by and construed in accordance with the laws of the
State of Georgia.
12. APPLICANT ACKNOWLEDGES THAT HE HAS READ THIS
EXHIBIT B
- Page 4 -
<PAGE>
PRELIMINARY AGREEMENT AND THAT HE HAS BEEN GIVEN THE OPPORTUNITY
TO CLARIFY ANY PROVISIONS THAT HE DID NOT UNDERSTAND AND TO
CONSULT WITH AN ATTORNEY OR OTHER PROFESSIONAL ADVISOR.
APPLICANT REPRESENTS THAT HE UNDERSTANDS THE TERMS,
CONDITIONS AND OBLIGATIONS OF THIS PRELIMINARY AGREEMENT AND
AGREES TO BE BOUND THEREBY.
Sincerely,
SUBURBAN FRANCHISE SYSTEMS, INC.
By: /s/ David Krischer
David Krischer
Its: CEO
Date: 12/20/96
CONFIRMED AND AGREED TO BY APPLICANT:
E.E.B. Lodging Systems II, LLC
By: /s/ Michael McGovern
Michael McGovern
Its: Manager
Date: 12-20-96
EXHIBIT B
- Page 6 -
DEVELOPMENT AND DESIGN/BUILD AGREEMENT
FOR
SUBURBAN LODGE OF ARLINGTON-SOUTH<PAGE>
DEVELOPMENT AND DESIGN/BUILD AGREEMENT
This Agreement made this 20th day of December, 1996 by and
between E.E.B. Lodging Systems, LLC, a Georgia Limited Liability
Corporation (hereinafter "Owner"), and SLA DEVELOPMENT, INC., a
Georgia Corporation, (hereinafter "SDI").
Whereas, Owner has executed a Preliminary Agreement For a
License to Develop a Suburban Lodge Unit with Suburban Franchise
Systems, Inc. (hereinafter "SFS"), dated December 20, 1996,
(hereinafter the "Preliminary Agreement"); and
Whereas, Owner will execute a Suburban Lodge Franchise
Agreement (the "Franchise Agreement") with SFS pursuant to the
Preliminary Agreement, thereby authorizing Owner the non
exclusive right to operate a SUBURBAN LODGE System Unit
(hereinafter "Hotel") and to utilize the Licensed Marks in
conjunction therewith as defined by and in accordance with the
Franchise Agreement; and,
Whereas, Owner wishes to engage SDI, an affiliate of SFS, as
its developer and design/builder for the performance of certain
services in connection with the site selection, site purchase,
design, development and construction supervision of said Hotel in
conformity with the Franchise Agreement; and,
Whereas, SDI desires to perform certain services for Owner
in connection with the site selection, site purchase, design,
development and construction supervision of said Hotel.
NOW, THEREFORE, in consideration of the mutual covenants,
promises and agreements contained hereinbelow, Owner and SDI
covenant and agree as follows:
1. PROJECT SCOPE / SERVICES AND RESPONSIBILITIES
(a) The Project is the site selection, site purchase,
design, development and construction supervision of the Hotel for
which SDI is responsible. The Work comprises the completed
construction of the Hotel.
(b) Legal services shall be performed by licensed
practicing attorneys selected by SDI. Design, survey and testing
services shall be performed by qualified architects, engineers
and other professionals selected by SDI. The professional
obligations of such persons shall be undertaken and performed in
the interest of Owner. Construction services shall be performed
by qualified construction contractors and suppliers, selected by
SDI and acting in the interest of Owner. Affiliates of SDI may
provide construction services so long as the cost of such
services are comparable with the cost available from third
parties. All of the foregoing services shall be paid for by the
Owner.
-2-
<PAGE>
2. BASIC SERVICES
(a) SDI shall assist in and recommend possible sites for
the construction of the Hotel. Upon the approval of the site by
Owner, SDI shall secure, on Owner's behalf and cost, a legal
description and a certified land survey of the site, showing, as
applicable, rights-of-way, restrictions, easements,
encroachments, zoning, elevations and contours of the site;
locations, pertaining to existing improvements; and full
information concerning available services and utility lines, both
public and private, above and below grade, including inverts and
depths.
(b) SDI shall, after consultation with, and approval of the
site by, the Owner, negotiate for the purchase of the site,
subject to the ultimate approval by the Owner.
(c) SDI shall seek such zoning changes, variances and
approvals, on behalf of Owner, as may be necessary to develop the
Hotel on the site.
(d) SDI shall secure, on behalf of Owner, the services of
geotechnical engineers and other consultants on behalf of Owner
when such services are deemed necessary by SDI. Geotechnical
engineers and other consultants shall be selected by SDI. Such
services shall include, as required, applicable test borings,
test pits, soil bearing values, percolation tests, environmental
tests, and other necessary operations with reports and
appropriate professional recommendations.
(e) SDI shall secure the services of qualified architects,
engineers, and other professionals on behalf of Owner to prepare
Preliminary Design Documents, and thereafter Construction
Documents.
(f) SDI shall submit to the Owner for Owner's approval, a
Proposal including Preliminary Design Documents, an architectural
services agreement, a preliminary statement of the proposed
Design/Build Budget, a proposed schedule for completion of the
Work, and all other information necessary to complete the Work.
(i) The Preliminary Design Documents shall consist of
preliminary design drawings and other documents to fix and
describe the size, quality and character of the entire Project,
its architectural design and materials, and such other elements
of the Project as may be appropriate.
(ii) The Design/Build Budget shall reflect the
projected costs and expenditures (including contingencies) for
the design, development and construction of the Hotel. Said
Design/Build Budget shall be adjusted accordingly in the event of
the need for a change or an addition to the initial scope of the
Work contemplated herein due to: (A) a request for a change or
addition by Owner; (B) a request for a material change or
addition by SDI and approved by Owner; (C) a request for a change
or addition by a regulatory authority or other governmental
authority; (D) concealed or unknown conditions; or, (E) the
enactment of codes, laws or regulations subsequent to the
submission of the Design/Build Budget by SDI to Owner.
-3-<PAGE>
(g) Upon Owner's approval of the Proposal, SDI shall have
prepared and submit to the Owner Construction Documents for
approval by the Owner. Construction Documents shall include
technical drawings, schedules, diagrams and specifications,
setting forth in detail the requirements for construction of the
Hotel and shall: (i) provide information customarily necessary
for the use of those in the building trades; and (ii) include
documents customarily required for regulatory agency approvals.
(h) SDI shall, by Owner s professionals, file the documents
required to obtain necessary approvals of governmental
authorities having jurisdiction over the Project.
(i) SDI shall negotiate for, on behalf of the Owner, the
design services, labor, materials, equipment, utilities,
transportation and other facilities and services necessary for
proper execution and completion of the Work.
(j) SDI shall be responsible for and shall coordinate all
construction methods, sequences and procedures.
(k) SDI shall keep the Owner informed of the progress and
quality of the Work.
(l) SDI shall include in the construction contracts the
requirement that the contractors correct Work which does not
conform to the Construction Documents.
(m) SDI shall include in the construction contracts the
requirement that the contractors give all necessary notices
required by and, and will otherwise comply with laws, ordinances,
rules, regulations and lawful orders of public authorities
relating to the Project.
(n) SDI shall include in the construction contracts the
requirement that the contractors keep the premises free from
accumulation of waste materials or rubbish caused by their
operations. At the completion of the Work, SDI shall require that
the contractors remove from and about the Project their tools,
construction equipment, surplus materials, waste materials and
rubbish.
(o) SDI shall have authority to make minor changes in the
design and construction of the Hotel consistent with the intent
of this Agreement, not involving a material adjustment in the
Design/ Build Budget. SDI shall promptly inform the Owner, in
writing, of minor changes in the design and construction.
(p) SDI shall maintain in good order at either its office
or the site one record copy of the drawings, specifications,
product data, samples, shop drawings, and modifications, marked
currently to record changes made during construction. These
shall be delivered to the Owner upon completion of the design and
construction and prior to final payment.
-4-<PAGE>
3. OWNER
(a) The Owner shall pay for the cost of all of the services
and expenditures described herein, including but not limited to
land costs, legal, design/engineering and other professional
services, building and other permits, fees and licenses,
construction services and materials and any other costs, services
and expenditures associated with the site selection and purchase
and the design, development, construction and equipping of the
Hotel. All such payments shall be made in accordance with the
requirements of Paragraph 5 below.
(b) The Owner shall pay SDI's Compensation and Reimbursable
Expenses in accordance with the schedules described in Paragraphs
7 and 8 below.
(c) The Owner shall provide all funding for the Project and
the Work including sufficient funds to pay for the construction
and equipping of the Hotel. The Owner shall provide to SDI upon
request but no less than quarterly, evidence of the immediate
availability of sufficient funds to construct and equip the Hotel
in the manner contemplated herein and to comply with all
provisions of the Franchise Agreement. This evidence shall be in
a form and substance required by SDI. The obligations of SDI are
conditioned upon the compliance by the Owner with the provisions
of this paragraph and the constant compliance with the financial
requirements set forth herein. SDI shall have the right to
terminate its obligations hereunder in the event the Owner fails
to provide the evidence required herein or in the event SDI
determines in its discretion that the funds available to the
Owner on an immediate and uncontested basis are insufficient to
fund the Project and the Work or to otherwise comply with the
Franchise Agreement.
(d) All contracts or other obligations for the purchase of
the site, and for the design, engineering and construction of the
Hotel shall be in the name of the Owner and shall be the
obligation of the Owner. To facilitate the purchase of the site
and the construction of the Hotel, the Owner hereby appoints and
constitutes SDI as its duly appointed and constituted attorney in
fact to execute such documents and instruments in the name of the
Owner as SDI may deem necessary or appropriate in order to
develop the Project and perform the Work. The Owner hereby
indemnifies SDI for all losses, costs, damages, claims or other
amounts incurred by or asserted against SDI in connection with
the performance of obligations under documents or instruments
executed pursuant to this power of attorney or under this
Agreement. This power of attorney is coupled with an interest
and is revocable only upon written notice to SDI. Third parties
may rely upon the validity of this power of attorney without
further inquiry until a revocation thereof is recorded in the
Cobb County, Georgia Superior Court records.
(e) The Owner shall designate a representative authorized
to act on the Owner's behalf with respect to the Project. The
Owner or such authorized representative shall examine the
requests, proposals and documents submitted by SDI from time to
time as required herein, and shall promptly render decisions
pertaining thereto, to avoid delay in the orderly progress of
site purchase and design, development and construction of the
Hotel.
-5-<PAGE>
(f) If the Owner observes or otherwise becomes aware of any
fault or defect in the Work, the Owner shall give prompt written
notice thereof to SDI.
(g) The Owner shall communicate with architect, engineers,
contractors and other professionals engaged in the performance of
the Project and the Work only through SDI.
(h) The Owner shall purchase and maintain policies of
liability and property insurance in such amounts and coverages as
SDI shall recommend, which coverage shall name SDI, its parent
and affiliates, as additional insureds. SDI shall assist Owner
in securing such insurance coverage.
4. OWNERSHIP AND USE OF DOCUMENTS
(a) The drawings, specifications and other documents to be
generated for Owner by SDI are owned by SFS and licensed to Owner
pursuant to the Franchise Agreement, and shall not become the
property of the Owner whether or not the Project for which they
are made is commenced. Drawings, specifications and other
documents furnished by SDI shall not be used by the Owner on
other projects.
(b) Submission or distribution of documents to meet
official regulatory requirements or for other purposes in
connection with the Project is not to be construed as publication
in derogation SFS's common law copyrights or other reserved
rights. The Owner shall own neither the documents nor the
copyrights.
5. PAYMENTS
(a) Owner shall advance to SDI, upon request, such amounts
as may be necessary to pay for the services and expenditures
described herein, within ten days of the Owner's receipt of a
properly submitted itemized Application for Payment.
(b) The Application for Payment shall constitute a
representation by SDI to the Owner that, to the best of SDI's
knowledge, information and belief the services and expenditures
are necessary and appropriate for the continued site selection,
site purchase, design, development construction and/or equipping
of the Hotel; and that the lawyers, architects, engineers,
contractors and others are entitled to payment in the amount
requested and/or the expenditures are necessary in the amount
requested.
(c) SDI shall include in the construction contracts that
the final ten percent (10%) of the unpaid balance of the amount
due under the construction contracts shall be due and payable at
the time the Work is completed and the construction contracts are
fully performed.
(d) The making of final payment shall constitute a waiver
of all claims by the Owner except those arising from: (i)
unsettled liens, and (ii) faulty or defective Work appearing
during the first year after the Certificate of Occupancy.
-6-<PAGE>
6. PROTECTION OF PERSONS AND PROPERTY
(a) SDI shall in include in the construction contracts the
requirement that the contractors carry all-risks insurance,
workers compensation and other applicable policies of insurance
showing Owner and SDI, its parents and affiliates, as additional
insureds and be responsible for initiating, maintaining and
providing supervision of safety precautions and programs in
connection with the Work. SDI shall include in the construction
contracts the requirement that the contractors provide
certifications evidencing the procurement of such policies of
insurance. SDI shall also include in the construction contracts
the requirement that the contractors indemnify Owner and SDI for
any losses, costs, damages, claims or other amounts incurred by
or asserted against Owner or SDI arising from the performance of
the Work as a result of any negligent acts or omissions caused by
the contractors.
(b) SDI shall include in the construction contracts the
requirement that the contractors take reasonable precautions for
safety of, and shall provide reasonable protection to prevent
damage, injury or loss to: (1) employees on the Work and other
persons who may be affected thereby; (2) the Work and materials
and equipment to be incorporated therein; and (3) other property
at or adjacent to the site.
(c) SDI shall include in the construction contracts the
requirement that the contractors give notices and comply with
applicable laws, ordinances, rules, regulations and orders of
public authorities bearing on the safety of persons and property
and their protection from damage, injury or loss.
7. COMPENSATION
(a) As its compensation for the services described herein
SDI shall be paid One Hundred Thousand Dollars ($100,000). An
initial payment of Twenty Five Thousand Dollars ($25,000), shall
be made upon the execution of this Agreement. A second payment
of Fifty Thousand Dollars ($50,000) shall be made upon ground
breaking for the construction of the Hotel. The remaining
payment of Twenty Five Thousand Dollars ($25,000) shall be made
upon the issuance of a Certificate of Occupancy for the Hotel by
the applicable governmental authority. All payments hereof shall
be deemed earned at the time of payment.
8. REIMBURSABLE EXPENSES
Reimbursable Expenses are in addition to Compensation.
Reimburseable Expenses are actual expenditures made by SDI and
SDI's employees in the interest of the Project and the Work,
including but not limited to expenses for demographics,
preliminary site plans, application and submittal fees in
connection with zoning and permitting, miscellaneous office
expenses such as express mail and long distance calls, and
travel, meals and lodging expenses. Such expenditures shall not
exceed Seven Thousand Five Hundred Dollars ($7,500) except with
the written approval of Owner. SDI shall include its
Reimbursable Expenses in its Application for Payment described in
Section 5 above.
-7-<PAGE>
9. INTEREST PAYMENTS
The rate of interest for past due payments required
hereunder shall be twelve (12%) percent per annum and shall begin
to accrue thirty (30) days after billing.
10. CONCEALED CONDITIONS
If concealed or unknown conditions of an unusual nature that
affect the performance of the Work and vary from those indicated
by the Contract Documents are encountered below ground or in an
existing structure other than the Work, which conditions are not
ordinarily found to exist or which differ materially from those
generally recognized as inherent in work of the character
provided for in this Agreement, notice by the observing party
shall be given promptly to the other party and, if possible,
before conditions are disturbed and in no event later than
twenty-one (21) days after first observance of the conditions.
11. CORRECTION OF WORK
SDI shall promptly cause the applicable contractor to
correct Work rejected by the Owner or known by SDI to be
defective or failing to conform to the Construction Documents,
whether or not fabricated, installed or completed.
12. TIME
(a) SDI shall provide its services as expeditiously as is
consistent with reasonable skill and care and the orderly
progress of design and construction.
(b) Time is of the essence of this Agreement.
(c) If SDI is delayed in the progress of the Project by
acts or neglect of the Owner, Owner's employees, third party
contractors, changes or additions ordered in the Work not caused
by the fault of SDI, labor disputes, fire, unusual delay in
transportation, adverse weather conditions not reasonably
anticipatable, unavoidable casualties, or other causes beyond
SDI's control, or by delay authorized by the Owner's pending
arbitration or another cause which the Owner and SDI agree is for
the amount of time caused by such delay or act of God, the
schedule for completion of the Work shall be reasonably extended.
13. ARBITRATION
(a) Claims, disputes and other matters in question between
the parties to this Agreement arising out of or relating to this
-8-<PAGE>
Agreement shall be decided by arbitration in accordance with the
Rules of the American Arbitration Association then in effect
unless the parties agree otherwise. No arbitration arising out
of or relating to this Agreement shall include, by consolidation
or joinder or in any other manner, an additional person not a
party to this Agreement except by written consent containing
specific reference to this Agreement and signed by the Owner, SDI
and any other person sought to be joined. Consent to arbitration
involving an additional person or persons shall not constitute
consent to arbitration of a dispute not described therein or with
a person not named therein. This provision shall be specifically
enforceable in any court of competent jurisdiction.
(b) Notice of demand for arbitration shall be filed in
writing with the other party and with the American Arbitration
Association. The demand shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen.
In no event shall the demand for arbitration be made after the
date when the applicable statute of limitations would bar
institution of a legal or equitable proceeding based on such
claim, dispute or other matter in question.
(c) The award rendered by arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law
in any court having jurisdiction.
(d) Unless otherwise agreed in writing, SDI shall carry on
the services and maintain progress during any arbitration
proceedings, and the Owner shall continue to make payments to SDI
in accordance with this Agreement.
(e) Any breach of any obligation under the Franchise
Agreement or default or other failure to comply with the terms
and conditions thereof by the Owner or party related to the Owner
shall automatically relieve SDI from its obligations hereunder.
The alternative dispute resolution provisions set forth in this
Section 13 shall not be applicable to disputes or defaults
arising under the Franchise Agreement. The provisions of the
Franchise Agreement shall control over contrary provisions herein
including the dispute resolution provisions in the Franchise
Agreement. Any default under this Agreement shall be deemed to be
a default under the Franchise Agreement.
14. TERMINATION OF THE AGREEMENT
(a) This Agreement may be terminated by either party upon
seven (7) days' written notice should the other party fail
substantially to perform in accordance with its terms through no
fault of the party initiating the termination. In the event of
termination SDI shall be paid for all of the Reimbursable
Expenses for which it is due pursuant to Sections 2, 3 and 8.
(b) In the event of termination not the fault of SDI, SDI
shall be paid all of the compensation described in Section 7
above in addition to the reimbursements required by Sections 2, 3
and 8 above.
(c) This Agreement may be terminated by SDI upon seven (7)
days notice if: (1) SDI recommends in its reasonable discretion a
site to Owner for purchase within a three mile radius of the area
-9-<PAGE>
described by the Preliminary Agreement and Owner fails to approve
of such site, (2) after six (6) months from the date of this
Agreement SDI is unable despite reasonable efforts to locate a
site to recommend in its reasonable discretion for purchase by
Owner or (3) SDI is unsuccessful in an attempt to rezone or
obtain necessary variances or permits for a site. In the event
of any such termination by SDI, SDI shall be entitled to retain
any compensation previously paid and shall be entitled to be paid
any compensation then due and payable at the time of termination
as described in Section 7 above in addition to any "Reimburseable
Expenses" required by Sections 2, 3 and 8 above.
This Agreement shall terminate upon the completion of the
services described herein or upon the termination of the
Franchise Agreement, whichever is earlier.
15. MISCELLANEOUS PROVISIONS
(a) This Agreement shall be governed by the laws of the
State of Georgia.
(b) The table of contents and the headings of articles and
paragraphs are for convenience only and shall not modify rights
and obligations created by this Agreement.
(c) In case a provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected.
(d) This Agreement shall be binding on successors, assigns
and legal representatives of any persons in privity of contract
with the Owner or SDI. Neither party shall assign, sublet or
transfer an interest in this Agreement without the written
consent of the other.
(e) This Agreement represents the entire agreement between
the Owner and SDI and supersedes prior negotiations,
representations or agreements.
(f) Except as may be expressly provided elsewhere herein to
the contrary, wherever in this Agreement there is required the
consent and/or approval of Owner or SDI to any action or proposed
action or to any performance by or on the part of Owner or SDI,
said consent and/or approval of Owner or SDI shall not be
unreasonably withheld and, if not given or denied for cause by or
before the expiration of ten (10) calendar days from the date of
request for said consent and/or approval by Owner or SDI, shall
be deemed given.
(g) All notices, requests, approvals, demands and other
communications required or permitted to be given under this
Agreement shall be in writing and shall either be mailed by
certified mail, return receipt requested or delivered by a
recognized courier service, receipt acknowledged. Any notice
complying with the provisions hereof shall be deemed to have been
duly given and to be effective three (3) business days after
mailing, or on the date of receipt, whichever is earlier.
Notices shall be addressed as follows:
-10-<PAGE>
(a) If to SDI:
c/o David Krischer, President
120 Interstate North Parkway East
Building 100, Suite 120
Atlanta, Georgia 30339
(b) If to Owner:
c/o Michael McGovern
P.O. Box 420528
Atlanta, GA 30342
or such address as the party to whom the notice is sent shall
have designated.
(h) This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which constitute
but one and the same instrument.
(i) Neither this Agreement nor any term or provision hereof
may be changed, waived, or discharged or terminated orally, but
only by an instrument in writing signed by the party against
which the enforcement of the change, waiver, discharge or
termination is sought. This Agreement may be amended only by an
instrument executed by both parties which expressly refers to
this Agreement.
(j) In providing and performing services pursuant to this
Agreement, SDI shall be acting as an independent contractor.
Nothing contained in this Agreement shall constitute or be
construed to be or create either a leasehold interest in the
Hotel or a partnership or joint venture between Owner and SDI.
-11-<PAGE>
IN WITNESS WHEREOF, the parties have executed and caused
their seals to be affixed to this Agreement as of the day and
year first above written.
Witness As To Owner E.E.B. Lodging Systems, LLC
"Owner"
[unreadable]
By: /s/ Michael McGovern
Michael McGovern
Title: Manager
Witness As To SDI SLA Development, Inc.
"SDI"
[unreadable]
By: /s/ David Krischer
Title: President
-12-
DEVELOPMENT AND DESIGN/BUILD AGREEMENT
FOR
SUBURBAN LODGE OF DALLAS-LEWISVILLE<PAGE>
DEVELOPMENT AND DESIGN/BUILD AGREEMENT
This Agreement made this 20th day of December, 1996 by and
between E.E.B. Lodging Systems II, LLC, a Georgia Limited Liability
Corporation (hereinafter "Owner"), and SLA DEVELOPMENT, INC., a
Georgia Corporation, (hereinafter "SDI").
Whereas, Owner has executed a Preliminary Agreement For a
License to Develop a Suburban Lodge Unit with Suburban Franchise
Systems, Inc. (hereinafter "SFS"), dated December 20, 1996,
(hereinafter the "Preliminary Agreement"); and
Whereas, Owner will execute a Suburban Lodge Franchise
Agreement (the "Franchise Agreement") with SFS pursuant to the
Preliminary Agreement, thereby authorizing Owner the non
exclusive right to operate a SUBURBAN LODGE System Unit
(hereinafter "Hotel") and to utilize the Licensed Marks in
conjunction therewith as defined by and in accordance with the
Franchise Agreement; and,
Whereas, Owner wishes to engage SDI, an affiliate of SFS, as
its developer and design/builder for the performance of certain
services in connection with the site selection, site purchase,
design, development and construction supervision of said Hotel in
conformity with the Franchise Agreement; and,
Whereas, SDI desires to perform certain services for Owner
in connection with the site selection, site purchase, design,
development and construction supervision of said Hotel.
NOW, THEREFORE, in consideration of the mutual covenants,
promises and agreements contained hereinbelow, Owner and SDI
covenant and agree as follows:
1. PROJECT SCOPE / SERVICES AND RESPONSIBILITIES
(a) The Project is the site selection, site purchase,
design, development and construction supervision of the Hotel for
which SDI is responsible. The Work comprises the completed
construction of the Hotel.
(b) Legal services shall be performed by licensed
practicing attorneys selected by SDI. Design, survey and testing
services shall be performed by qualified architects, engineers
and other professionals selected by SDI. The professional
obligations of such persons shall be undertaken and performed in
the interest of Owner. Construction services shall be performed
by qualified construction contractors and suppliers, selected by
SDI and acting in the interest of Owner. Affiliates of SDI may
provide construction services so long as the cost of such
services are comparable with the cost available from third
parties. All of the foregoing services shall be paid for by the
Owner.
-2-
<PAGE>
2. BASIC SERVICES
(a) SDI shall assist in and recommend possible sites for
the construction of the Hotel. Upon the approval of the site by
Owner, SDI shall secure, on Owner's behalf and cost, a legal
description and a certified land survey of the site, showing, as
applicable, rights-of-way, restrictions, easements,
encroachments, zoning, elevations and contours of the site;
locations, pertaining to existing improvements; and full
information concerning available services and utility lines, both
public and private, above and below grade, including inverts and
depths.
(b) SDI shall, after consultation with, and approval of the
site by, the Owner, negotiate for the purchase of the site,
subject to the ultimate approval by the Owner.
(c) SDI shall seek such zoning changes, variances and
approvals, on behalf of Owner, as may be necessary to develop the
Hotel on the site.
(d) SDI shall secure, on behalf of Owner, the services of
geotechnical engineers and other consultants on behalf of Owner
when such services are deemed necessary by SDI. Geotechnical
engineers and other consultants shall be selected by SDI. Such
services shall include, as required, applicable test borings,
test pits, soil bearing values, percolation tests, environmental
tests, and other necessary operations with reports and
appropriate professional recommendations.
(e) SDI shall secure the services of qualified architects,
engineers, and other professionals on behalf of Owner to prepare
Preliminary Design Documents, and thereafter Construction
Documents.
(f) SDI shall submit to the Owner for Owner's approval, a
Proposal including Preliminary Design Documents, an architectural
services agreement, a preliminary statement of the proposed
Design/Build Budget, a proposed schedule for completion of the
Work, and all other information necessary to complete the Work.
(i) The Preliminary Design Documents shall consist of
preliminary design drawings and other documents to fix and
describe the size, quality and character of the entire Project,
its architectural design and materials, and such other elements
of the Project as may be appropriate.
(ii) The Design/Build Budget shall reflect the
projected costs and expenditures (including contingencies) for
the design, development and construction of the Hotel. Said
Design/Build Budget shall be adjusted accordingly in the event of
the need for a change or an addition to the initial scope of the
Work contemplated herein due to: (A) a request for a change or
addition by Owner; (B) a request for a material change or
addition by SDI and approved by Owner; (C) a request for a change
or addition by a regulatory authority or other governmental
authority; (D) concealed or unknown conditions; or, (E) the
enactment of codes, laws or regulations subsequent to the
submission of the Design/Build Budget by SDI to Owner.
-3-<PAGE>
(g) Upon Owner's approval of the Proposal, SDI shall have
prepared and submit to the Owner Construction Documents for
approval by the Owner. Construction Documents shall include
technical drawings, schedules, diagrams and specifications,
setting forth in detail the requirements for construction of the
Hotel and shall: (i) provide information customarily necessary
for the use of those in the building trades; and (ii) include
documents customarily required for regulatory agency approvals.
(h) SDI shall, by Owner s professionals, file the documents
required to obtain necessary approvals of governmental
authorities having jurisdiction over the Project.
(i) SDI shall negotiate for, on behalf of the Owner, the
design services, labor, materials, equipment, utilities,
transportation and other facilities and services necessary for
proper execution and completion of the Work.
(j) SDI shall be responsible for and shall coordinate all
construction methods, sequences and procedures.
(k) SDI shall keep the Owner informed of the progress and
quality of the Work.
(l) SDI shall include in the construction contracts the
requirement that the contractors correct Work which does not
conform to the Construction Documents.
(m) SDI shall include in the construction contracts the
requirement that the contractors give all necessary notices
required by and, and will otherwise comply with laws, ordinances,
rules, regulations and lawful orders of public authorities
relating to the Project.
(n) SDI shall include in the construction contracts the
requirement that the contractors keep the premises free from
accumulation of waste materials or rubbish caused by their
operations. At the completion of the Work, SDI shall require that
the contractors remove from and about the Project their tools,
construction equipment, surplus materials, waste materials and
rubbish.
(o) SDI shall have authority to make minor changes in the
design and construction of the Hotel consistent with the intent
of this Agreement, not involving a material adjustment in the
Design/ Build Budget. SDI shall promptly inform the Owner, in
writing, of minor changes in the design and construction.
(p) SDI shall maintain in good order at either its office
or the site one record copy of the drawings, specifications,
product data, samples, shop drawings, and modifications, marked
currently to record changes made during construction. These
shall be delivered to the Owner upon completion of the design and
construction and prior to final payment.
-4-<PAGE>
3. OWNER
(a) The Owner shall pay for the cost of all of the services
and expenditures described herein, including but not limited to
land costs, legal, design/engineering and other professional
services, building and other permits, fees and licenses,
construction services and materials and any other costs, services
and expenditures associated with the site selection and purchase
and the design, development, construction and equipping of the
Hotel. All such payments shall be made in accordance with the
requirements of Paragraph 5 below.
(b) The Owner shall pay SDI's Compensation and Reimbursable
Expenses in accordance with the schedules described in Paragraphs
7 and 8 below.
(c) The Owner shall provide all funding for the Project and
the Work including sufficient funds to pay for the construction
and equipping of the Hotel. The Owner shall provide to SDI upon
request but no less than quarterly, evidence of the immediate
availability of sufficient funds to construct and equip the Hotel
in the manner contemplated herein and to comply with all
provisions of the Franchise Agreement. This evidence shall be in
a form and substance required by SDI. The obligations of SDI are
conditioned upon the compliance by the Owner with the provisions
of this paragraph and the constant compliance with the financial
requirements set forth herein. SDI shall have the right to
terminate its obligations hereunder in the event the Owner fails
to provide the evidence required herein or in the event SDI
determines in its discretion that the funds available to the
Owner on an immediate and uncontested basis are insufficient to
fund the Project and the Work or to otherwise comply with the
Franchise Agreement.
(d) All contracts or other obligations for the purchase of
the site, and for the design, engineering and construction of the
Hotel shall be in the name of the Owner and shall be the
obligation of the Owner. To facilitate the purchase of the site
and the construction of the Hotel, the Owner hereby appoints and
constitutes SDI as its duly appointed and constituted attorney in
fact to execute such documents and instruments in the name of the
Owner as SDI may deem necessary or appropriate in order to
develop the Project and perform the Work. The Owner hereby
indemnifies SDI for all losses, costs, damages, claims or other
amounts incurred by or asserted against SDI in connection with
the performance of obligations under documents or instruments
executed pursuant to this power of attorney or under this
Agreement. This power of attorney is coupled with an interest
and is revocable only upon written notice to SDI. Third parties
may rely upon the validity of this power of attorney without
further inquiry until a revocation thereof is recorded in the
Cobb County, Georgia Superior Court records.
(e) The Owner shall designate a representative authorized
to act on the Owner's behalf with respect to the Project. The
Owner or such authorized representative shall examine the
requests, proposals and documents submitted by SDI from time to
time as required herein, and shall promptly render decisions
pertaining thereto, to avoid delay in the orderly progress of
site purchase and design, development and construction of the
Hotel.
-5-<PAGE>
(f) If the Owner observes or otherwise becomes aware of any
fault or defect in the Work, the Owner shall give prompt written
notice thereof to SDI.
(g) The Owner shall communicate with architect, engineers,
contractors and other professionals engaged in the performance of
the Project and the Work only through SDI.
(h) The Owner shall purchase and maintain policies of
liability and property insurance in such amounts and coverages as
SDI shall recommend, which coverage shall name SDI, its parent
and affiliates, as additional insureds. SDI shall assist Owner
in securing such insurance coverage.
4. OWNERSHIP AND USE OF DOCUMENTS
(a) The drawings, specifications and other documents to be
generated for Owner by SDI are owned by SFS and licensed to Owner
pursuant to the Franchise Agreement, and shall not become the
property of the Owner whether or not the Project for which they
are made is commenced. Drawings, specifications and other
documents furnished by SDI shall not be used by the Owner on
other projects.
(b) Submission or distribution of documents to meet
official regulatory requirements or for other purposes in
connection with the Project is not to be construed as publication
in derogation SFS's common law copyrights or other reserved
rights. The Owner shall own neither the documents nor the
copyrights.
5. PAYMENTS
(a) Owner shall advance to SDI, upon request, such amounts
as may be necessary to pay for the services and expenditures
described herein, within ten days of the Owner's receipt of a
properly submitted itemized Application for Payment.
(b) The Application for Payment shall constitute a
representation by SDI to the Owner that, to the best of SDI's
knowledge, information and belief the services and expenditures
are necessary and appropriate for the continued site selection,
site purchase, design, development construction and/or equipping
of the Hotel; and that the lawyers, architects, engineers,
contractors and others are entitled to payment in the amount
requested and/or the expenditures are necessary in the amount
requested.
(c) SDI shall include in the construction contracts that
the final ten percent (10%) of the unpaid balance of the amount
due under the construction contracts shall be due and payable at
the time the Work is completed and the construction contracts are
fully performed.
(d) The making of final payment shall constitute a waiver
of all claims by the Owner except those arising from: (i)
unsettled liens, and (ii) faulty or defective Work appearing
during the first year after the Certificate of Occupancy.
-6-<PAGE>
6. PROTECTION OF PERSONS AND PROPERTY
(a) SDI shall in include in the construction contracts the
requirement that the contractors carry all-risks insurance,
workers compensation and other applicable policies of insurance
showing Owner and SDI, its parents and affiliates, as additional
insureds and be responsible for initiating, maintaining and
providing supervision of safety precautions and programs in
connection with the Work. SDI shall include in the construction
contracts the requirement that the contractors provide
certifications evidencing the procurement of such policies of
insurance. SDI shall also include in the construction contracts
the requirement that the contractors indemnify Owner and SDI for
any losses, costs, damages, claims or other amounts incurred by
or asserted against Owner or SDI arising from the performance of
the Work as a result of any negligent acts or omissions caused by
the contractors.
(b) SDI shall include in the construction contracts the
requirement that the contractors take reasonable precautions for
safety of, and shall provide reasonable protection to prevent
damage, injury or loss to: (1) employees on the Work and other
persons who may be affected thereby; (2) the Work and materials
and equipment to be incorporated therein; and (3) other property
at or adjacent to the site.
(c) SDI shall include in the construction contracts the
requirement that the contractors give notices and comply with
applicable laws, ordinances, rules, regulations and orders of
public authorities bearing on the safety of persons and property
and their protection from damage, injury or loss.
7. COMPENSATION
(a) As its compensation for the services described herein
SDI shall be paid One Hundred Thousand Dollars ($100,000). An
initial payment of Twenty Five Thousand Dollars ($25,000), shall
be made upon the execution of this Agreement. A second payment
of Fifty Thousand Dollars ($50,000) shall be made upon ground
breaking for the construction of the Hotel. The remaining
payment of Twenty Five Thousand Dollars ($25,000) shall be made
upon the issuance of a Certificate of Occupancy for the Hotel by
the applicable governmental authority. All payments hereof shall
be deemed earned at the time of payment.
8. REIMBURSABLE EXPENSES
Reimbursable Expenses are in addition to Compensation.
Reimburseable Expenses are actual expenditures made by SDI and
SDI's employees in the interest of the Project and the Work,
including but not limited to expenses for demographics,
preliminary site plans, application and submittal fees in
connection with zoning and permitting, miscellaneous office
expenses such as express mail and long distance calls, and
travel, meals and lodging expenses. Such expenditures shall not
exceed Seven Thousand Five Hundred Dollars ($7,500) except with
the written approval of Owner. SDI shall include its
Reimbursable Expenses in its Application for Payment described in
Section 5 above.
-7-<PAGE>
9. INTEREST PAYMENTS
The rate of interest for past due payments required
hereunder shall be twelve (12%) percent per annum and shall begin
to accrue thirty (30) days after billing.
10. CONCEALED CONDITIONS
If concealed or unknown conditions of an unusual nature that
affect the performance of the Work and vary from those indicated
by the Contract Documents are encountered below ground or in an
existing structure other than the Work, which conditions are not
ordinarily found to exist or which differ materially from those
generally recognized as inherent in work of the character
provided for in this Agreement, notice by the observing party
shall be given promptly to the other party and, if possible,
before conditions are disturbed and in no event later than
twenty-one (21) days after first observance of the conditions.
11. CORRECTION OF WORK
SDI shall promptly cause the applicable contractor to
correct Work rejected by the Owner or known by SDI to be
defective or failing to conform to the Construction Documents,
whether or not fabricated, installed or completed.
12. TIME
(a) SDI shall provide its services as expeditiously as is
consistent with reasonable skill and care and the orderly
progress of design and construction.
(b) Time is of the essence of this Agreement.
(c) If SDI is delayed in the progress of the Project by
acts or neglect of the Owner, Owner's employees, third party
contractors, changes or additions ordered in the Work not caused
by the fault of SDI, labor disputes, fire, unusual delay in
transportation, adverse weather conditions not reasonably
anticipatable, unavoidable casualties, or other causes beyond
SDI's control, or by delay authorized by the Owner's pending
arbitration or another cause which the Owner and SDI agree is for
the amount of time caused by such delay or act of God, the
schedule for completion of the Work shall be reasonably extended.
13. ARBITRATION
(a) Claims, disputes and other matters in question between
the parties to this Agreement arising out of or relating to this
-8-<PAGE>
Agreement shall be decided by arbitration in accordance with the
Rules of the American Arbitration Association then in effect
unless the parties agree otherwise. No arbitration arising out
of or relating to this Agreement shall include, by consolidation
or joinder or in any other manner, an additional person not a
party to this Agreement except by written consent containing
specific reference to this Agreement and signed by the Owner, SDI
and any other person sought to be joined. Consent to arbitration
involving an additional person or persons shall not constitute
consent to arbitration of a dispute not described therein or with
a person not named therein. This provision shall be specifically
enforceable in any court of competent jurisdiction.
(b) Notice of demand for arbitration shall be filed in
writing with the other party and with the American Arbitration
Association. The demand shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen.
In no event shall the demand for arbitration be made after the
date when the applicable statute of limitations would bar
institution of a legal or equitable proceeding based on such
claim, dispute or other matter in question.
(c) The award rendered by arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law
in any court having jurisdiction.
(d) Unless otherwise agreed in writing, SDI shall carry on
the services and maintain progress during any arbitration
proceedings, and the Owner shall continue to make payments to SDI
in accordance with this Agreement.
(e) Any breach of any obligation under the Franchise
Agreement or default or other failure to comply with the terms
and conditions thereof by the Owner or party related to the Owner
shall automatically relieve SDI from its obligations hereunder.
The alternative dispute resolution provisions set forth in this
Section 13 shall not be applicable to disputes or defaults
arising under the Franchise Agreement. The provisions of the
Franchise Agreement shall control over contrary provisions herein
including the dispute resolution provisions in the Franchise
Agreement. Any default under this Agreement shall be deemed to be
a default under the Franchise Agreement.
14. TERMINATION OF THE AGREEMENT
(a) This Agreement may be terminated by either party upon
seven (7) days' written notice should the other party fail
substantially to perform in accordance with its terms through no
fault of the party initiating the termination. In the event of
termination SDI shall be paid for all of the Reimbursable
Expenses for which it is due pursuant to Sections 2, 3 and 8.
(b) In the event of termination not the fault of SDI, SDI
shall be paid all of the compensation described in Section 7
above in addition to the reimbursements required by Sections 2, 3
and 8 above.
(c) This Agreement may be terminated by SDI upon seven (7)
days notice if: (1) SDI recommends in its reasonable discretion a
site to Owner for purchase within a three mile radius of the area
-9-<PAGE>
described by the Preliminary Agreement and Owner fails to approve
of such site, (2) after six (6) months from the date of this
Agreement SDI is unable despite reasonable efforts to locate a
site to recommend in its reasonable discretion for purchase by
Owner or (3) SDI is unsuccessful in an attempt to rezone or
obtain necessary variances or permits for a site. In the event
of any such termination by SDI, SDI shall be entitled to retain
any compensation previously paid and shall be entitled to be paid
any compensation then due and payable at the time of termination
as described in Section 7 above in addition to any "Reimburseable
Expenses" required by Sections 2, 3 and 8 above.
This Agreement shall terminate upon the completion of the
services described herein or upon the termination of the
Franchise Agreement, whichever is earlier.
15. MISCELLANEOUS PROVISIONS
(a) This Agreement shall be governed by the laws of the
State of Georgia.
(b) The table of contents and the headings of articles and
paragraphs are for convenience only and shall not modify rights
and obligations created by this Agreement.
(c) In case a provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected.
(d) This Agreement shall be binding on successors, assigns
and legal representatives of any persons in privity of contract
with the Owner or SDI. Neither party shall assign, sublet or
transfer an interest in this Agreement without the written
consent of the other.
(e) This Agreement represents the entire agreement between
the Owner and SDI and supersedes prior negotiations,
representations or agreements.
(f) Except as may be expressly provided elsewhere herein to
the contrary, wherever in this Agreement there is required the
consent and/or approval of Owner or SDI to any action or proposed
action or to any performance by or on the part of Owner or SDI,
said consent and/or approval of Owner or SDI shall not be
unreasonably withheld and, if not given or denied for cause by or
before the expiration of ten (10) calendar days from the date of
request for said consent and/or approval by Owner or SDI, shall
be deemed given.
(g) All notices, requests, approvals, demands and other
communications required or permitted to be given under this
Agreement shall be in writing and shall either be mailed by
certified mail, return receipt requested or delivered by a
recognized courier service, receipt acknowledged. Any notice
complying with the provisions hereof shall be deemed to have been
duly given and to be effective three (3) business days after
mailing, or on the date of receipt, whichever is earlier.
Notices shall be addressed as follows:
-10-<PAGE>
(a) If to SDI:
c/o David Krischer, President
120 Interstate North Parkway East
Building 100, Suite 120
Atlanta, Georgia 30339
(b) If to Owner:
c/o Michael McGovern
P.O. Box 420528
Atlanta, GA 30342
or such address as the party to whom the notice is sent shall
have designated.
(h) This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which constitute
but one and the same instrument.
(i) Neither this Agreement nor any term or provision hereof
may be changed, waived, or discharged or terminated orally, but
only by an instrument in writing signed by the party against
which the enforcement of the change, waiver, discharge or
termination is sought. This Agreement may be amended only by an
instrument executed by both parties which expressly refers to
this Agreement.
(j) In providing and performing services pursuant to this
Agreement, SDI shall be acting as an independent contractor.
Nothing contained in this Agreement shall constitute or be
construed to be or create either a leasehold interest in the
Hotel or a partnership or joint venture between Owner and SDI.
-11-<PAGE>
IN WITNESS WHEREOF, the parties have executed and caused
their seals to be affixed to this Agreement as of the day and
year first above written.
Witness As To Owner E.E.B. Lodging Systems II, LLC
"Owner"
[unreadable]
By: /s/ Michael McGovern
Michael McGovern
Title: Manager
Witness As To SDI SLA Development, Inc.
"SDI"
[unreadable]
By: /s/ David Krischer
Title: President
-12-
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-11643 and Registration Statement No. 33-11671 of Suburban Lodges
of America, Inc., on Form S-8 of our report dated February 21, 1997
(February 28, 1997 as to Note 13), appearing in this Annual Report on
Form 10-K of Suburban Lodges of America, Inc.
/s/ DELOITTE & TOUCHE, LLP
DELOITTE & TOUCHE, LLP
March 26, 1997
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