<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, 1998
Commission File No. 000-28108
SUBURBAN LODGES OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Georgia
-------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
581781184
-----------------------------------
(I.R.S. Employer Identification No.)
300 Galleria Parkway, Suite 1200, Atlanta, Georgia 30339
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 799-5000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, Par Value $0.01 Per Share
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. /x/
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 March 15,
1999 is $77,999,374 (based on $ 6.5625 per share; the last sales price
on the NASDAQ Stock Market on March 15, 1999).
At March 15, 1999 there were issued and outstanding 15,431,072
shares of Common Stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the
1999 Annual Meeting of Shareholders are incorporated by reference into
Part III.
<PAGE>
<PAGE>
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
hotels designed to appeal to value-conscious guests seeking to "Lodge
for Less." The Company believes that the Suburban Lodge chain is one
of the largest lodging chains (based on number of guest rooms and
hotels) devoted to serving the economy extended stay market. Suburban
Lodge guest rooms are fully furnished and include a combination living
room and bedroom, a bathroom and a fully-equipped kitchenette. Weekly
maid and linen services, access to cable or satellite television and
coin-operated laundromats are also provided to allow guests to stay
comfortably for extended periods. Suburban Lodge hotels offer clean,
comfortable and attractive accommodations to guests at substantially
lower rates than most traditional and other extended stay hotels.
Although daily rates are available, substantially all guests pay the
Company's weekly rates, which currently range from $149 to $279 for
standard guest rooms and from $189 to $324 for larger guest rooms.
The extended stay segment of the lodging industry, which includes
economy extended stay hotels, is a relatively small but growing
segment of the lodging industry. Based upon the high occupancy rates
of the Company's hotels and its franchised hotels, published occupancy
rates for other participants in the extended stay market and industry
sources, the Company believes that demand for extended stay hotels
compares favorably to the existing supply of hotels in this segment of
the market. The Company believes that Suburban Lodge hotels appeal to
an underserved and growing segment of guests in the extended stay
market. These guests include business travelers (particularly those
with limited or no expense accounts), individuals on temporary work
assignments, persons between domestic situations, persons relocating
or purchasing a home, tourists and other value-conscious customers
desiring low-cost, longer-term, quality accommodations with fully
equipped kitchenettes. Individuals on temporary work assignments and
persons relocating or purchasing a home constitute the two largest
groups of guests. Suburban believes that the extended stay market
offers a number of attractive investment characteristics compared to
traditional hotels, including higher than industry average occupancy
rates and operating margins.
The Company believes that 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) guest rooms include 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.
<PAGE>
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 keep its
guests satisfied through superior customer service and quality
accommodations at competitively lower costs.
-2-<PAGE>
<PAGE>
Growth Strategy
---------------
At December 31, 1998, the Company owned and operated 53 Suburban
Lodge hotels and franchised 30 additional Suburban Lodge hotels
located in 18 states. The Company intends to continue the growth of
the Suburban Lodge chain in 1999 by opening approximately 26
additional Suburban Lodge hotels, ten of which are expected to be
Company-owned. The addition of these 26 hotels should result in a
total of 109 Suburban Lodge hotels by the end of 1999. Twenty-four of
these hotels (ten Company-owned and 14 franchised) expected to open in
1999 were under construction at December 31, 1998, and the other two
hotels (both franchised) expected to open in 1999 were under
development at December 31, 1998. In addition, the Company and its
franchisees are developing sites for hotels projected to open in 2000.
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.
Company-owned Development. Suburban develops and operates Company-
-------------------------
owned hotels nationwide. In selecting particular cities, the Company
identifies markets that have high levels of employment and
metropolitan statistical areas with populations of 150,000 or more.
In considering specific development sites, the Company reviews
demographic and traffic studies, the availability and pricing of
suitable sites, the costs and risks of development and any other
factors deemed relevant, including the experience of the existing
hotels. In particular, the Company looks for sites that are exposed
to heavily-traveled thoroughfares with nearby retail and restaurant
developments and that are located in areas with a substantial number
of employers. In order to obtain desirable sites, without delay, the
Company may purchase larger sites and sell the excess real estate.
Franchising and Third Party Development and Management Activities.
-----------------------------------------------------------------
In addition to operating Company-owned Suburban Lodge hotels, the
Company franchises the Suburban Lodge system on a nationwide basis to
independent developers and operators and to passive investors who
retain the Company to develop and manage their Suburban Lodge hotels.
Suburban considers its franchisees to be an integral component of its
continued growth and believes its relationship with its franchisees
is excellent. Through franchising, the Company intends to
accelerate the growth of the Suburban Lodge system, thereby increasing
its market presence and brand awareness in both new and existing
markets, while generating incremental revenues at an attractive
margin. Furthermore, the Company anticipates that the development of
a large network of hotels will result in economies of scale in
management, marketing and purchasing. Suburban offers franchising
opportunities on a national level and believes that its existing
infrastructure and experience in franchising the Suburban Lodge
concept will be an important factor in executing its franchising
strategy.
<PAGE>
Operating Strategies
--------------------
Suburban's principal operating strategies are to (i) provide its
guests with clean, comfortable and attractive accommodations at weekly
rates substantially lower than those offered by most traditional and
other extended stay hotels; (ii) control the operating costs at each
of its hotels and maintain above industry average operating margins;
and (iii) ensure guest satisfaction through a commitment to customer
service. Suburban's principal operating strategy is to offer its
guests weekly rates substantially lower than those offered by most
traditional and other extended stay hotels. The average weekly rate
at the 53 Company-owned hotels open during 1998 was $174.85. The
average occupancy rate at the 53 Company-owned hotels open during 1998
was 81.8%. The average occupancy rate of the Company's "mature
hotels" (hotels open at least twelve months) during 1998 was 87.0%.
The Company believes that its high average occupancy rate is
primarily a result of the combination of its low weekly rates, which
appeal to a broad base of potential guests, and its guest-room
amenities. In addition, Suburban seeks to minimize costs throughout
its operations. The Company is able to control its operating costs
-3-<PAGE>
<PAGE>
because it operates each hotel with a staff of approximately six to
eight full-time employees, which is smaller than the staffs at most
traditional hotels, maintains limited office hours and provides weekly
rather than daily housekeeping. In addition, because the average
guest stay is approximately four 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.
Operating Practices
The Company manages its own hotels. Each Suburban Lodge hotel has
a general manager, who resides on-site and is responsible for the
overall operation of the hotel, and an assistant manager. Managers
are trained in all aspects of hotel operations, with particular
emphasis placed on customer service, and are given broad authority to
make day-to-day operating decisions. Managers are supervised through
the Company's management information systems and on-site audits by
area managers. Incentive programs allow managers to earn bonuses
based on achievement of monthly budgets, personal performance and
occupancy rates. The Company provides on-going mandatory training for
the managers.
On-site transactions are processed, and financial records are
maintained through proprietary software. The software provides on-
site management with updated information on items such as available
guest rooms, guest rooms needing cleaning or repairs, room charges due
and guest payment history. Each hotel is connected by modem to
Suburban's corporate office in Atlanta, and operating results are
compiled and reviewed on a regular basis. The corporate office
purchases supplies, pays virtually all property expenses and prepares
monthly financial statements for all properties managed by the
Company.
The Company collects data about its guests and uses the information
as part of its market research and for advertising and sales
materials. Suburban employs various marketing techniques, including
billboard, print (including yellow pages and newspapers) and radio
advertising, as well as direct marketing by sales personnel and area
and general managers to local employers, and a 24-hour 1-800 guest
information line (1-800-951-STAY).
The Company maintains customer service and quality assurance
departments. The customer service function provides customers with
property information and resolves satisfaction problems and billing
discrepancies. The Company's quality assurance department inspects
all hotels, both corporate and franchise, to ensure compliance with
quality guidelines and operational standards.
Franchise, Development and Management Agreements
Franchise Agreements
--------------------
The Company enters into single unit franchise agreements for an
initial term of ten years and three months, with a ten-year renewal
option subject to certain conditions, such as a requirement to
modernize the hotel and to pay a renewal fee. The initial franchise
fee for a single hotel is $30,000 or $225 per guest room, whichever is
greater. A monthly royalty fee of four percent of gross revenues
becomes payable after three months of operations. Agreements signed
prior to August 1, 1997 are subject to an initial fee of $25,000 or
-4-<PAGE>
<PAGE>
$190 per room, whichever is greater, and a monthly royalty of three
percent of gross revenues. Upon notice from Suburban, all franchisees
are also required to pay an advertising and marketing fee of one
percent of gross revenues and a reservations/referral fee of one
percent of gross revenues, to cover the franchisee's share of the
costs incurred by Suburban in providing these services. As of March 1,
1999, the Company initiated charges for advertising, and is
collecting a relatively small monthly referral fee to pay the costs of
the 1-800 guest information line. The Company may increase these fees
under certain conditions.
The Company provides materials and services to assist each
franchisee in developing and operating a Suburban Lodge hotel,
including development and operating manuals, training, proprietary
operating software, prototype architectural plans and specifications,
the 1-800 guest information line and Website suburbanlodge.com, semi-
annual inspections by Suburban's corporate staff to ensure quality
control and advertising materials and layouts.
Each franchised hotel's operating system is connected via modem to
the Company's central system, which allows Suburban to download sales
and other operating information on a regular basis.
If a franchisee desires to sell an interest in the franchise
agreement or the hotel, the Company generally has the first right to
buy it. In addition, the current agreement provides that upon
termination of a franchise agreement for a breach by the franchisee,
the Company may purchase the hotel at fair market value less
liquidated damages, attorney's fees and other amounts which the
franchisee may owe the Company. The franchisee has a limited right to
terminate the agreement. Many state franchise laws limit the ability
of a franchisor to terminate or refuse to renew a franchise. Suburban
does not anticipate that the termination of any single franchise
agreement would have a material adverse effect on its financial
condition or results of operations.
Development Agreements
----------------------
The Company sometimes performs development and design services for
its franchisees, including recommending possible sites, negotiating
for the purchase of sites, securing the services of engineers,
architects and other professionals, preparing preliminary design
documents and design/build budgets, negotiating with contractors and
overall monitoring of the development and construction of the Suburban
Lodge hotel. The franchisee pays for the cost of all services and
expenditures associated with the construction of the hotel, including
development fees to the Company. The development agreement terminates
upon the completion of the services described, or upon termination of
the franchise agreement, whichever occurs first. In addition, in the
event either party fails to perform substantially under the agreement,
the party not at fault may terminate the agreement upon seven days'
written notice. As of December 31, 1998, the Company is developing
four Suburban Lodge hotels for individual franchisees pursuant to the
terms of its standard development agreement.
Management Agreements
---------------------
The Company sometimes manages franchised Suburban Lodge hotels for
its franchisees. The Company generally offers a five-year management
agreement with automatic renewals. Under the agreement, the Company
provides certain pre-opening services, operates and manages the hotel
and is responsible for all personnel decisions, the negotiation of
operating leases and contracts, the preparation of advertising<PAGE>
campaigns, the payment of taxes and the general maintenance of the
hotel. Suburban also maintains the right to determine all operating
policies affecting the appearance of the hotel, the maintenance of the
hotel and its standards of operation, the quality of services and
other matters affecting customer satisfaction. In addition to a fixed
fee for pre-opening services, Suburban will charge a management fee
equal to five percent of the hotel's monthly gross revenues. As of the
date of this Report, the Company has 17 such management agreements in
place, although six of the hotels have not yet opened.
-5-<PAGE>
Trademarks
The service marks "Suburban Lodge" and "Lodge for Less" and the
corporate design logo 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" service mark
extends to November 2004 on the Principal Register, at which time it
may be renewed for successive ten-year periods. The term for the
registration of the corporate 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 July 2007, 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. Nevertheless, based upon the experience of the existing
hotels, management expects that occupancy and revenues will 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 hotels under construction is located, and each of the
hotels under development will be located, in a developed area that
includes competing hotels, including both traditional hotels and other
extended stay hotels. The number of competitive hotels in a
particular area could have a material adverse effect on occupancy,
average weekly rate and weekly room revenue per available guest room
of the existing hotels and the hotels under construction or properties
developed or acquired in the future.
The Company anticipates that competition within the extended stay
lodging market will continue to increase substantially in the
foreseeable future. A number of other lodging chains and developers
are already developing extended stay hotels which may compete with the
Company's hotels. In particular, some of these entities have targeted
the economy segment of the extended stay market in which the Company
competes. The Company may compete for guests and for development
sites with certain of these established entities which have greater
financial resources than the Company and better relationships with
lenders and real estate sellers. These entities may be able to accept
more risk than the Company can prudently manage. Further, new or
existing competitors might reduce their rates or offer greater
convenience, services or amenities or expand or improve hotels in
markets in which the Company competes, thereby adversely affecting the
Company's business and results of operations.
<PAGE>
At the present time, the Company's hotels are located principally
in the Southeast, Midwest and Southwest. In these regions, the
Company competes with both traditional hotels and other extended stay
hotels, including independent extended stay hotels and those owned and
operated by competing chains. The Company competes with these hotels
by offering low weekly rates, good customer service and convenient
locations.
-6-
<PAGE>
<PAGE>
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
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
The lodging industry is subject to numerous federal, state and
local government regulations including those relating to building and
zoning requirements and those regulating the licensing of lodging
facilities by requiring registration, disclosure statements and
compliance with specific standards of conduct. For example, certain
communities in the Atlanta metropolitan area have enacted zoning
ordinances restricting the development of new extended stay hotels. To
date, such ordinances have not had an adverse effect on the Company's
business; however, the enactment of new ordinances in other
jurisdictions in which the Company intends to develop hotels may have
an adverse effect on the Company's expansion plans. 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.
Additionally, the Company is 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. While the
Company believes its existing hotels and hotels under construction are
substantially in compliance with these requirements, a determination
that the Company or one of its franchisees is not in compliance with
the ADA could result in the imposition of fines or an award of damages
to private litigants. In addition, changes in governmental rules and
regulations or enforcement policies affecting the use and operation of
the hotels, including changes to building codes and fire and life-
safety codes, may occur. If the Company were required to make
substantial modifications at its hotels to comply with the ADA or
other changes in governmental rules and regulations, the Company's
financial condition and ability to develop new hotels could be
materially adversely affected.
<PAGE>
As a franchisor, 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 from time to time new legislation is
proposed and bills are introduced in Congress which would provide for
federal regulation of certain aspects of the franchisor-franchisee
relationship. Many state laws impose substantive requirements on
franchise agreements, including limitations on non-competition
provisions and termination or nonrenewal of a franchise. Some states
require that certain materials be approved before franchises can be
offered or sold in that state. These current and proposed franchise
relationship laws may 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. The failure to obtain
approvals to sell franchises or an increase in the minimum wage rate,
employee benefit costs or other costs associated with employees could
materially adversely affect the Company.
-7-<PAGE>
Employees
As of December 31, 1998, the Company employed 641 persons.
Suburban expects that it will increase the number of its employees as
it expands its business. The Company's employees are not subject to
any collective bargaining agreements. Management believes that its
relationship with its employees is good.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <S>
David E. Krischer 50 Chairman of the Board, Chief Executive Officer and President
Dan J. Berman 34 Vice President Franchising and Director
Seth H. Christian 34 Vice President Operations
Paul A. Criscillis, Jr. 49 Vice President Chief Financial Officer
Terry J. Feldman 55 Vice President Chief Accounting Officer and Treasurer
G. Hunter Hilliard 56 Vice President Construction
Peter Ordal 40 Vice President Marketing
Kevin R. Pfannes 44 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, has been
involved in the hospitality industry for more than 12 years and
currently is the Chairman of the Extended Stay Lodging Council, a
division of the American Hotel & Motel Association. From 1974 to
1986, he was a partner with two Atlanta law firms, Arrington, Rubin,
Winter, Krischer & Goger and Costanzo & Krischer, where his practice
focused on general business and real estate law and real estate
syndication.
Dan J. Berman. Mr. Berman joined the Company in September 1993 as
-------------
its Vice President - Franchising and has been a director since March
1996. Prior to joining the Company, 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 degree in economics from Georgia State University in
1988.
<PAGE>
Paul A. Criscillis, Jr. Mr. Criscillis joined the Company as
----------------------
Vice President - Chief Financial Officer in August 1998. Prior to
joining the Company, Mr. Criscillis had, since 1985, served as Vice
President - Chief Financial Officer for Atlanta-based Crown Crafts,
Inc., a manufacturer of textile home furnishings products. Prior to
joining Crown Crafts, Mr. Criscillis was associated with the public
accounting firm of Deloitte & Touche from 1971 to 1985, the last two
years as a partner in that firm's New York practice office. Mr.
Criscillis graduated, with honors, from the University of Kentucky in
1971 with a Bachelors degree in Accounting.
-8-<PAGE>
<PAGE>
Terry J. Feldman. Mr. Feldman joined the Company in January 1995
----------------
and has been serving as its Treasurer and Chief Accounting Officer
since August 1998. 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 26 years of experience in the development and
construction of single and multi-family housing, retail centers and
office space.
Peter Ordal. Mr. Ordal has 19 years of travel related marketing
-----------
experience. Prior to joining the Company in 1998, Mr. Ordal was a
founding executive with South Carolina based Air South Airlines.
Previous affiliations include Director of Marketing for Braniff
Airlines and five years with The Walt Disney Company in the strategic
alliances area. Mr. Ordal has also worked with several major
marketing agencies including BBDO and Interpublic Worldwide. He holds
a B.A. degree from Rollins College in Winter Park, Florida.
Kevin R. Pfannes. Mr. Pfannes joined the Company in January 1996
----------------
and was elected Vice President - Development in February 1996. He has
19 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 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 hotel and other commercial real estate matters.
Mr. Pfannes served as Development and Real Estate Counsel for Holiday
Inns, Inc. from 1984 to 1986. 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.
The Company's officers serve at the pleasure of the Board of
Directors. Terry J. Feldman has notified the Company that he will
resign from his positions with the Company effective April 9, 1999.
<PAGE>
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); (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.
-9-<PAGE>
<PAGE>
ITEM 2. DESCRIPTION OF HOTELS.
At December 31, 1998, there were 83 existing Suburban Lodge hotels
located in 18 states. These hotels contain an aggregate of 11,202
guest rooms and have an average of 135 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 at
both Company and franchise hotels for single occupancy currently range
from $149 to $279 for standard guest rooms and from $189 to $324 for
larger guest rooms. Each hotel includes guest rooms, a general
manager's apartment, an office and a guest laundry room. Each guest
room includes a combination living room and bedroom, a fully-equipped
kitchenette and access to satellite or cable television. Each
Suburban Lodge hotel also offers weekly housekeeping and linen
service.
The following tables set forth certain information as of December 31,
1998 with respect to both Company-owned and franchised existing
hotels, hotels under construction and hotels under development.
<TABLE>
<CAPTION>
Number
Date of
Existing Hotels (As of 12/31/98) Opened Rooms(1)
-------------------------------- ------ --------
<S> <S> <C>
Company-Owned:
Atlanta (Forest Park), GA Mar-88 126
Atlanta (Fulton Industrial), GA Dec-88 107
Atlanta (Norcross), GA Jun-89 128
Birmingham (Oxmoor), AL Jul-90 151
Atlanta (Mableton), GA(2) Jun-93 79
Greenville (Mauldin Road), SC Sep-93 130
Charlotte (Matthews), NC Aug-95 139
Atlanta (Lilburn/Highway 78), GA Nov-95 132
Atlanta (Conyers), GA Apr-96 138
Atlanta (Roswell), GA Jun-96 136
Atlanta (Douglasville), GA Jun-96 132
Louisville (Preston Highway), KY Aug-96 150
Atlanta (Tara Blvd.), GA Sep-96 138
Greenville (Wade Hampton Blvd.), SC Oct-96 126
Atlanta (Indian Trail/I-85), GA Nov-96 149
Knoxville (Kingston Pike), TN Dec-96 132
Atlanta (Northside Drive), GA Jan-97 150
Chesapeake, VA Feb-97 132
Atlanta (Gwinnett Place), GA Feb-97 138
Charlotte (Presley I-77), NC Mar-97 132
Charlotte (University), NC Apr-97 138
Memphis (Hickory Ridge), TN Jun-97 144
Newport News, VA Jul-97 134
Charleston (North Charleston), SC Aug-97 138
Virginia Beach, VA Oct-97 138
Dayton-South, OH Oct-97 129
Chattanooga, TN Oct-97 132
Indianapolis-NW, IN Nov-97 135
Mobile, AL Nov-97 132
St. Louis (Hazelwood), MO Nov-97 136
Cincinnati (Fairfield), OH Nov-97 131
-10-<PAGE>
<PAGE>
Number
Date of
Existing Hotels (As of 12/31/98) Opened Rooms (1)
------ --------
Company-Owned (Continued):
--------------------------
Columbus (Eastland),OH Dec-97 139
St. Louis (St. Charles),OH Dec-97 130
Columbia (Broad River), SC Dec-97 132
Dallas-North Central, TX Dec-97 144
San Antonio-North, TX Dec-97 137
Arlington-South, TX(4) Dec-97 132
Jackson, MS Jan-98 132
Columbus-NW (Franklin), OH Jan-98 127
Columbus-Northland, OH Jan-98 135
Indianapolis-East, IN Jan-98 135
Arlington-North, TX(4) Mar-98 132
Chicago (Downers Grove), IL Apr-98 133
El Paso (Airport), TX Jun-98 138
Houston (FM1960), TX Jul-98 138
Houston (NASA), TX Jul-98 132
Dallas (Carrollton), TX Aug-98 138
Chicago (O'Hare Airport) Aug-98 125
San Antonio-NE, TX Sep-98 133
Salt Lake City (Midvale), UT Oct-98 140
Minneapolis (Burnsville), MN Nov-98 135
Cincinnati (Colerain), OH Nov-98 133
Birmingham (Center Point), AL Nov-98 136
-----
Subtotal 7,088
-----
Franchised:
Birmingham (Riverchase/Pelham), AL Jun-92 122
Atlanta (Stone Mountain), GA Nov-92 132
Atlanta (Marietta), GA Aug-94 132
Birmingham (Inverness/Greystone), AL Sep-95 130
Savannah (Abercorn), GA Mar-96 130
Atlanta (Lawrenceville), GA Jun-96 132
Atlanta (Decatur), GA Oct-96 133
Louisville (Jeffersontown), KY Feb-97 144
Jacksonville (Bay Meadows), FL Apr-97 138
Atlanta (Woodstock), GA Jul-97 138
Cincinnati (Florence), KY Aug-97 144
Valdosta (Valdosta-Mall Area), GA Aug-97 138
Montgomery (Montgomery Mall), AL Sep-97 144
Nashville (Harding Place), TN Oct-97 126
Fayetteville (Bragg Blvd), NC Oct-97 138
Charlotte (Pineville), NC Oct-97 137
Raleigh-South, VA Feb-98 144
Augusta-West (Bobby Jones), GA Feb-98 138
Savannah-North, GA Apr-98 138
Eagle (Vail Valley, CO) "Extra" Jun-98 118
Atlanta (Stockbridge), GA Jun-98 150
-11-<PAGE>
<PAGE>
Number
Date of
Existing Hotels (As of 12/31/98) Opened Rooms(1)
------------------------------- ------ --------
Franchised (Continued):
Albany (Albany Mall), GA Jun-98 138
Jacksonville (Orange Park), FL Jun-98 144
Greensboro (Wendover I-40), NC Sep-98 144
Louisville-East (Westport Rd), KY Sep-98 128
Orlando (Central Park), FL Oct-98 144
Atlanta (Chamblee), GA Oct-98 150
Memphis (Bartlett), TN Nov-98 144
Phoenix (Gilbert), AZ Nov-98 138
Dothan (Ross Clark Circle), AL Dec-98 138
-----
Subtotal 4,114
------
System-wide Total 11,202
======
Hotels Under Construction
------------------------- Estimated Number of
(As of 12/31/98) Opening(3) Rooms(1)
---------------- ---------- --------
Company Owned:
South Salt Lake, UT 1st Quarter 1999 136
Minneapolis (Coons Rapids),MN 1st Quarter 1999 135
Houston-NW (I-290), TX 1st Quarter 1999 132
Albuquerque, NM 1st Quarter 1999 135
Tampa-Largo, FL 1st Quarter 1999 132
Dallas (Texas Stadium), TX 2nd Quarter 1999 138
San Antonio (Leon Valley),TX 2nd Quarter 1999 132
Denver (Aurora), CO 2nd Quarter 1999 137
Denver (Sheridan), CO 2nd Quarter 1999 135
Richmond, VA 3rd Quarter 1999 137
-----
Subtotal 1,349
-----
Franchised:
Daytona Beach, FL 1st Quarter 1999 135
Houston (Cy Fair-1960), TX 1st Quarter 1999 150
Atlanta (Thornton Rd), GA 1st Quarter 1999 150
Richmond (Broad @ N. Parham), VA 1st Quarter 1999 143
Nashville (Hermitage), TN 1st Quarter 1999 127
Stuart, FL 1st Quarter 1999 126
Melbourne, FL "Extra" 2nd Quarter 1999 132
Atlanta (Sandy Springs), GA "Extra" 2nd Quarter 1999 71
Orlando (Casselberry), FL 2nd Quarter 1999 138
Macon (Eisenhower Pkwy), GA 2nd Quarter 1999 150
-12-
<PAGE>
<PAGE>
Number
Hotels Under Construction Estimated of
(As of 12/31/98) Opening(3) Rooms (1)
- - ------------------------- ---------- ---------
Franchised (Continued):
Gautier, MS 2nd Quarter 1999 126
Athens (UGA), GA 2nd Quarter 1999 138
Orlando (University Studios-Escape), FL 3rd Quarter 1999 150
Jacksonville (St. John's Bluff), FL 3rd Quarter 1999 138
-----
Subtotal 1,874
-----
Total Under Construction 3,223
=====
Number
Hotels Under Development of
(As of 12/31/98) Rooms (1)
------------------------ ---------
Company-Owned:
Austin-North, TX 132
Tampa (Dale Mabry), FL 144
F. Lauderdale (Oakland Park), FL 135
Tampa (Brandon), FL 149
Houston (Astrodome), TX 138
Kansas City (Lenexa), KS 150
Phoenix (Tempe), AZ 138
Chicago (Villa Park), IL "Extra" 80
Denver (Tech Center), CO 155
Philadelphia (Franklin Mills), PA 132
Pittsburgh (North Hills), PA 129
Plano, TX 132
Detroit (Fraser), MI 140
Philadelphia (Valley Forge), PA 140
Cincinnati (Sharonville), OH 132
-----
2,026
-----
Franchised:
Tampa (Airport-West), FL 136
Pensacola (Warrington), FL 128
--------
Subtotal 264
--------
Total Under Development 2,029
========
- - ----------------------------
(1) The number of guest rooms does not include the general manager's
apartment.
(2) The Mableton hotel was acquired in June 1993 and converted into a
Suburban Lodge hotel in October 1994.
(3) The Company believes that each of the hotels under construction or
development will open during the period indicated. However, the
Company and its franchisees may not be able to complete the
construction and development of all of these hotels on schedule.
See Item 1 "Certain Factors Affecting Forward Looking
Statements."
(4) The Arlington-North, TX and Arlington-South, TX hotels were acquired
from a franchisee in July, 1998.
(5) Total number of guest rooms under development does not reflect
franchise hotels where room counts have not yet been determined.
</TABLE>
-13-
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in certain shareholder litigation filed
on December 19, 1997 in federal court, RUDD, ET AL. V. SUBURBAN LODGES
OF AMERICA, ET AL.; Civil Action No. 1 97-CV-3758-HTW (N.D. Ga.),
related to the Company's stock offering on October 14, 1997.
Management believes the claims are without merit and intends to defend
vigorously such litigation. It is the opinion of management that the
outcome of such litigation will not have a material effect on the
financial position, results of operations, or cash flows of the
Company; however, the outcome of such litigation cannot presently be
determined.
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.
-14-
<PAGE>
<PAGE>
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 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 March 15, 1999, there were
approximately 100 holders of record and 2,600 beneficial owners,
respectively, of the Common Stock.
<TABLE>
<CAPTION>
Price Range
--------------------
Year Ending December 31, 1998 High Low
---- ----
<S> <C> <C>
First Quarter...................................... $18.25 $12.25
Second Quarter . . . . . . . . . . . . . . . . . . $19.38 $14.63
Third Quarter . . . . . . . . . . . . . . . . . . . $16.00 $ 6.25
Fourth Quarter . . . . . . . . . . . . . . . . . . $ 9.81 $ 6.25
Year Ending December 31, 1997
First Quarter.................................. $22.25 $15.39
Second Quarter . . . . . . . . . . . . . . . . . . $22.50 $15.13
Third Quarter . . . . . . . . . . . . . . . . . . . $27.88 $18.25
Fourth Quarter . . . . . . . . . . . . . . . . . . $30.25 $10.50
</TABLE>
The Company has not paid dividends on its Common Stock during
fiscal years 1997 and 1998. 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.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
SUBURBAN LODGES OF AMERICA, INC.
(In thousands, except per share and operating data)
<TABLE>
<CAPTION>
For the year: 1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hotel revenues $ 44,756 $ 21,822 $ 8,349 $ 4,727 $ 4,194
Franchise and other revenue 1,702 1,373 917 460 151
Total revenue 46,458 23,195 9,266 5,187 4,345
Hotel operating expenses 22,754 11,204 3,910 2,072 1,768
Income from operations 12,059 7,107 3,031 1,755 1,424
Net income<F1> 2,562 6,724 2,385 677 632
Earnings per share:
Basic and diluted $ 0.17 $ 0.53
Pro forma <F2> $ 0.31
Operating data<F3>:
Average weekly rate<F4> $ 174.85 $ 157.27 $ 155.84 $136.19 $128.69
Weekly RevPAR <F4> $ 142.60 $ 134.13 $ 138.92 $130.93 $125.74
At year end:
- - ------------------------------------------------------------------------------------------------
Total assets $307,535 $242,854 $131,000 $15,004 $ 9,640
Long-term debt 74,735 25,005 15,000 13,818 10,072
Operating data:
Number of hotels open
Owned 53 39 14 6 5
Franchised 30 17 10 6 4
System-wide 83 56 24 12 9
<FN>
<F1> Prior to the Company's initial public offering on May 29, 1996,
the Company's hotels were owned by entities that were not subject
to income taxes. Accordingly, net income for 1994, 1995 and a
portion of 1996 does not reflect a provision for income taxes with
respect to earnings generated by the Company's hotels.
<F2> Prior to the Company's initial public offering on May 29, 1996,
the number of outstanding shares of the Company was substantially
less than the number of such shares outstanding after the initial
public offering. Accordingly, the Company believes that the
presentation of historical per share information for periods prior
to 1997 is not meaningful. For comparative purposes, pro forma earnings
per share for the year ended December 31, 1996 have been calculated by
dividing net income adjusted to provide for income taxes, assuming a
37.5% effective income tax rate, by the weighted number of shares of
common stock deemed to have been outstanding during the period.
<F3> Data is for Company-owned hotels.
<F4> Information for 1994 and 1995 has been calculated from the date the
hotel was opened or acquired. Commencing in 1996, this data is
calculated starting on the first day of the calendar month following
the date the hotel was opened.
</FN>
</TABLE>
-15-<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
COMPANY-OWNED HOTEL STATISTICS BY REGION FOR THE YEAR ENDED
DECEMBER 31, 1998
The following table sets forth certain information regarding the
performance of the Company's hotels by geographic region for the
year ended December 31, 1998:
<TABLE>
<CAPTION>
Total Average Age
AWR Occupancy RevPAR Hotels (years)
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mid Atlantic Region $172.01 86.8% $149.38 10 2.6
Midwest Region 180.46 77.6 138.42 15 .9
Southeast Region 172.03 85.9 148.13 19 3.6
Southwest Region 177.09 66.4 117.51 9 .6
- - -------------------------------------------------------------------------------
All Company-Owned $174.85 81.8% $142.60 53 2.1
- - -------------------------------------------------------------------------------
All Mature
Company-Owned <F1> $167.76 87.0% $146.62 31 3.2
===============================================================================
<FN>
<F1> Mature hotels are those which have operated for at least one year
as of the end of the period for which data is presented.
<FN>
</TABLE>
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED
DECEMBER 31, 1997
Total hotel revenue for the year ended December 31, 1998 was
approximately $44,756,000, which was an increase of $22,934,000, or
105%, over the year ended December 31, 1997. Room revenue increased by
approximately $23,291,000, of which approximately $11,750,000 was
attributable to the full year results of the 31 mature hotels. The
increase in mature hotel room revenue was impacted by an increase in
the AWR from $152.82 to $167.76, and a decrease in occupancy from 91%
to 87%. On July 31, 1998, the Company acquired two existing hotels
from a franchisee. The total room revenue from these two properties
was approximately $774,000. In addition, approximately $10,767,000 of
the increase in room revenue was attributable to hotels open less than
a full year. Occupancy for all Company hotels decreased from 85% to
82% as a result of the ramp up associated with the 22 hotels open less
than a full year. However, the AWR for all Company hotels increased
from $157.27 to $174.85.
Franchise and other revenue from corporate operations for the year
ended December 31, 1998, which includes management, franchise and
development revenue, was approximately $1,702,000, compared to
$1,373,000 for the year ended December 31, 1997. Management fees
increased from $14,000 to $353,000 as a result of fees earned on 11
agreements to manage hotels for franchisees. Franchise revenue for the
year increased approximately $378,000, from $701,000 in 1997 to $1,079,000
in 1998. The franchise revenue for the year ended December 31, 1998
-16-<PAGE>
<PAGE>
reflects $393,000 in initial franchise fees, representing
15 hotel openings compared to $327,000 and 12 hotel openings during
the year ended December 31, 1997. Franchise royalties and other
revenue on open hotels was approximately $686,000 for the year ended
December 31, 1998. Development and construction revenue totaled
approximately $245,000 for the year ended December 31, 1998, compared
to $636,000 for the year ended December 31, 1997.
Hotel operating expenses increased approximately $11,550,000, or 103%,
to approximately $22,754,000 for the year ended December 31, 1998,
from approximately $11,204,000 for the year ended December 31, 1997.
Of this increase, approximately $4,895,000 relates to the increase in
the mature properties, which includes the full year expenses for 17
properties opened or acquired during 1997, and approximately
$6,655,000 pertains to the opening and year to date expenses for the
22 hotels, which opened or were acquired in 1998. Hotel operating
margins at all Company hotels remained relatively constant at 49.2% in
1998 compared to 48.7% for 1997, reflecting the stabilized margins at
the 31 mature hotels.
Corporate operating expenses increased $1,721,000, or approximately
76%, to $3,975,000, due to additional staffing in the financial,
management, training and marketing segments of the business, as well
as office rent, travel expenses, insurance, and legal and professional
fees. Depreciation and amortization increased to $5,492,000 from
approximately $2,630,000 reflecting both the full year expense for the
1997 openings as well as the partial year expense for the 1998
openings and acquisitions. Interest expense increased to $202,000 for
the year ended December 31, 1998. This increase reflects interest, net
of amounts capitalized to construction in progress, and loan
amortization costs associated with the Senior Credit Facility
described under "Liquidity and Capital Resources."
On July 9, 1998, the Company purchased an interest rate lock in
connection with the planned public issuance of $100,000,000 in
subordinated debt. Subsequent to the purchase of the rate lock, demand
in the public market for subordinated debt declined dramatically.
Therefore, the Company abandoned the planned debt offering. Interest
rates fell significantly after the purchase of the interest rate lock,
even though such rates were at then historical lows at the time of
purchase, and the Company incurred a $10,440,000 loss upon settlement
of the rate lock on December 3, 1998. In total, approximately $10.6
million was charged against 1998 earnings for losses incurred in
connection with the rate lock and for certain legal, accounting and
other costs associated with the abandoned debt offering.
As the public debt market demand declined, markets for other forms of
debt also became more volatile. Due to the uncertain outlook for
financing, the Company substantially reduced its development
activities beginning in September 1998. A decision was made to defer
or cancel the purchase of several potential hotel sites that had not
yet been acquired. Accordingly, costs of $1,960,000 were recorded in
1998 to recognize the losses incurred in connection with the
abandonment of such sites. The Company also incurred lease abandonment
costs of $218,000 in connection with its move to a new headquarters
building during the fourth quarter of 1998.
-17-<PAGE>
<PAGE>
Excess funds were invested to generate interest income for the year
ended December 31, 1998 of approximately $2,236,000 compared to
$2,924,000 for the year ended December 31, 1997. The decrease in
interest income of approximately $688,000 was due to lower invested
cash balances in 1998, as funds derived from a secondary offering in
October 1997 were deployed in the acquisition of land, construction of
new hotels, and the acquisition of two existing hotels. The Company
anticipates that it will recognize less interest income and more
interest expense in future periods due to lower cash balances to be
used for investment purposes, higher average debt levels and fewer
construction projects upon which interest is capitalized.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1996
Total revenue for the year ended December 31, 1997 was approximately
$23,195,000, which was an increase of $13,929,000 or 150%, over the
year ended December 31, 1996. Room revenue for the year increased by
approximately $12,281,000. Approximately $8,485,000 of this increase
was attributable to the partial year to date room revenue for hotels
which opened in 1997 and approximately $3,796,000 of the increase in
room revenue was attributable to hotels open a full year as of
December 31, 1997. The average weekly rate increased only 1% from
$155.84 to $157.27, primarily because the prior years' AWR was
inflated by the Olympics in Atlanta. Company wide occupancy declined
from 90% to 85%, primarily because of the ramp-up period associated
with the new hotels opened or acquired in 1997. Finally, the total
rooms available increased by 149% over 1996 from 2,093 to 5,208.
Franchise and other revenue from corporate operations for the year
ended December 31, 1997, which includes management, franchise and
development revenue, was approximately $1,373,000, an increase of
$456,000 or approximately 50% over the year ended December 31, 1996.
Franchise fees and other revenue for the year increased $267,000, or
approximately 62%, from $434,000 in 1996 to $701,000 in 1997. Total
franchise revenue reflects initial franchise fees on 12 new Suburban
Lodge hotels opened in 1997 and increased royalties on open hotels.
Development revenue increased approximately $208,000, primarily as a
result of the development of additional hotels on behalf of third-
party investors.
Hotel operating expenses increased $7,294,000 or approximately 187% to
$11,204,000 for the year ended December 31, 1997 from $3,910,000 for
the year ended December 31, 1996. Approximately $2,518,000 of this
increase reflects the full year expenses for the hotels which opened
in 1996, and approximately $4,776,000 was attributable to the hotel
operating expenses at hotels which opened in 1997. Depreciation
increased $1,842,000 or approximately 234% principally as a result of
the hotels that opened in 1997. In addition, the Company incurred loan
amortization costs associated with the Line of Credit. Company wide
hotel operating margins decreased from 53.2% to 48.7% from December
31, 1996 to December 31, 1997, primarily as a result of the fixed
operating costs associated with the new hotels opened in 1997.
Corporate operating expenses increased $717,000 or approximately
47% to $2,254,000 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
increases in office, travel, and other general overhead expenses.
Interest expense for the year ended December 31, 1997 decreased to
$179,000 from $556,000 for the year ended December 31, 1996.
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.
-18-<PAGE>
<PAGE>
Interest income for the year was approximately $2,924,000, which was
primarily earned on available proceeds from the follow-on offerings which
were completed on November 25, 1996 and October 20, 1997.
Income tax expense increased by $2,281,000 as compared to 1996.
SEASONALITY
The Company's mature hotels typically experience lower
average occupancy rates and total revenues during the fourth quarter
each year.
LIQUIDITY AND CAPITAL RESOURCES
From May 29, 1996, the date of the Company's initial public
offering, through December 30, 1998, its principal sources of capital
were the proceeds from three public offerings of its common stock,
borrowings available under a bank credit facility and operating
cash flow. On December 30, 1998, the Company completed the financing
of 27 hotels with Finova Realty Capital Corporation, totaling
$75,530,000. The loan is collateralized by the real estate associated
with the 27 hotels, bears interest at a fixed rate of 8.25%, amortizes
principal based on a 25 year term, and matures on December 30, 2008.
The loan requirements are related to the payment of debt and no other
provisions restrict or prohibit the Company from future borrowings.
Under the bank credit facility, PNC Bank, N.A., as agent, and three
participating banks had committed to provide the Company with a total
of $75.0 million in borrowing capacity. The bank credit facility bore
interest, at the Company's option, at (i) the higher of PNC's prime
rate or the federal funds rate plus one-half percent or (ii) the Euro-
Rate plus 150 to 225 basis points, based upon a variable leverage
ratio. Borrowings under the bank credit facility were secured by a
collateral pool of the Company's hotels, many of which were removed
from the banks' collateral pool in order to become security for the
loan described in the preceding paragraph. Upon closing the Finova
loan, the Company repaid $65.0 million that it had borrowed under the
bank credit facility. At December 31, 1998, a total of six hotel
properties remained assigned to the banks' collateral pool, providing
the Company with a borrowing capacity of approximately $14.0 million
from the banks at that date.
Under the related credit agreement with the banks, the Company was
required to satisfy certain operating performance criteria. The bank
credit facility restricted, among other items, acquisitions, the
incurrence of indebtedness or liens, the geographic concentration of
hotel locations and the sale of assets. The bank credit facility also
prohibited certain loans and advances to third parties, investments in
joint ventures and the repurchase of the Company's common equity
securities. Subsequent to December 31, 1998, the Company and the banks
terminated the bank credit facility prior to its otherwise scheduled
maturity of December 15, 2000. At March 28, 1999, the Company had
entered into negotiations with another bank for the establishment of a
new credit facility.
As of December 31, 1998, the Company had approximately $19.2 million
in cash and cash equivalents, $6.6 million in first mortgages assumed
in connection with the acquisition of two companies that operate
Suburban Lodge hotels and $75.5 million of borrowings with Finova
Realty Capital Corporation.
-19-<PAGE>
<PAGE>
At December 31, 1998, construction had begun on ten Company-owned
hotels. These hotels are expected to be completed during the first
half of 1999. The Company anticipates that the total additional cost
to complete construction of these ten hotels will be approximately
$17.6 million. The Company intends to fund the construction of these
hotels with existing cash balances, cash flow from operations and
funds provided by the sale of one hotel to a franchisee. Management
believes that cash flow generated from operations will be sufficient
to fund its operating cash requirements for the next twelve months.
While the Company anticipates that there may be some markets where,
due to a number of factors (such as the increased cost of using union
subcontractors), its development costs will be higher, overall the
Company anticipates that in the immediate future, a typical 134-guest
room Suburban Lodge hotel will cost approximately $4.6 to $4.8 million
(approximately $34,000 to $36,000 per guest room). The Company
believes that additional capital will be necessary to commence further
construction once these ten hotels have been completed. The Company
owns ten additional sites which it plans to develop in the future
utilizing existing cash balances, cash flow from operations, and
future borrowings.
In the future, the Company may seek to negotiate bank credit
facilities to supplement its cash flow, or to issue debt or equity
securities. Any debt incurred or issued by the Company may be secured
or unsecured, bear fixed or variable rate interest, and may be subject
to such terms and conditions as the Board of Directors of the Company
deems prudent; however, there are no assurances that the Company can
access the credit markets in the future.
YEAR 2000 PREPAREDNESS
The Year 2000 issue may materialize from the widespread use of
computers that rely on two-digit date codes to perform certain
computations or decision-making functions. Many of these computers or
systems may fail to recognize that the year 1999 is followed by the
Year 2000, that the Year 2000 is a leap year, or that 99 or 00 does
not mean the end of the file or program. Due to this failure, a malfunction
might occur in products/processes using a microprocessor with two-digit
year presentation.
Suburban has established the Suburban Year 2000 Project to identify
potential risk areas and introduce action plans and guidelines for
managing Year 2000 issues. As part of the Year 2000 Project, a task
force was created, directed by the CEO and consisting of
representatives of various Suburban departments. The task force is
performing the following functions: identify systems; inventory
components of systems; assess systems and components for potential
Year 2000 risks; renovate and replace systems or components, if
necessary; and test the renovated and replaced systems and components.
Suburban has completed an initial inventory of its computer
hardware and software and determined that the Company has a
limited number of critical operating systems and applications.
Specifically, those systems and applications include:
the proprietary property management software utilized at all corporate
and franchised hotels ("Property Management System"); software for
accounting applications; ADP payroll processing software; and
commercial software for routine office applications.
The contract developer of the Property Management System has confirmed
to Suburban in writing that the software is Year 2000 compliant. In
addition, the Company has reviewed the system, tested it with live
data, and it appears to function accurately in a Year 2000
environment.
-20-<PAGE>
<PAGE>
Suburban has received written documentation from the vendor of the
accounting applications software certifying that the software can
properly interpret dates subsequent to December 31, 1999. Suburban has
not independently tested this system to confirm Year 2000 compliance
but it has plans to do so in the second quarter of 1999.
Suburban has not yet received written certification from ADP that
its payroll software systems are Year 2000 compliant. The Company has
performed remedial work on its ADP payroll software systems and
believes that they are presently compliant. The Company will run tests
during the second quarter of 1999 to verify Year 2000 compliance of
these systems.
The vendor of certain commercial software utilized by Suburban for
routine office applications has indicated that such applications can
be made Year 2000 compliant through specific procedures which Suburban
is in the process of implementing. Upon final implementation of these
procedures, Suburban intends to perform additional testing to ensure
that these applications are Year 2000 compliant. The Company believes
that any required remediation will be complete by December 31, 1999.
The detailed scope of the Year 2000 Project for Suburban facilities
includes an analysis of both information technology and non-
information based systems (such as micro-controllers and other
embedded chips) for such matters as building management, security,
credit card processing, fire safety systems, electronic locks,
elevators, telephones, heating and air-conditioning systems and
general equipment. Suburban expects to complete identification of
relevant Year 2000 issues for such systems and equipment during the
second quarter of 1999 and to implement any necessary upgrades during
the second half of 1999.
Suburban's ability to continue normal business operations into the
Year 2000 will, to a large extent, depend upon the individual Year
2000 compliance efforts of all of its vendors, including basic
utilities and telecommunications companies. In the summer of 1998,
Suburban began consideration of the effect of Year 2000 issues on its
vendors and other business partners. Suburban began categorizing its
suppliers as critical or non-critical and aims during the first half
of 1999 to verify the status of the products from all critical
suppliers, as well as their continued performance into the year 2000.
Written requests have been made of the vendors to provide letters
regarding their Year 2000 status. The Company continues to receive
written responses to its requests, which for the most part indicate
that its vendors and suppliers are currently, or will timely be, Year
2000 compliant. However, notwithstanding these efforts, for certain
vendors and suppliers it may not be possible to determine with
certainty whether they are Year 2000 compliant. To the extent that the
Company cannot reasonably determine the Year 2000 compliance status of
mission-critical vendors, or if it reasonably determines that such
vendors or suppliers will not be timely Year 2000 compliant, the
Company intends to seek alternate sources for such products and
supplies before the end of 1999.
At present, Suburban does not anticipate that material incremental
costs will be incurred in connection with the Year 2000 Project. To
date, Suburban has not experienced any known negative impacts on
operations, management, or financial reporting as a result of Year
2000 issues. No significant costs have been incurred to date. Suburban
anticipates that remaining Year 2000 preparedness activities will be
-21-<PAGE>
<PAGE>
completed primarily with existing internal personnel. Accordingly, the total
costs of the Year 2000 Project have not been separately estimated, but
are expected to be minimal over the course of the Project. The Year
2000 Project has not resulted in deferral of spending for other
systems and equipment as planned. Cost estimates may vary in the
future and will be updated as Suburban considers updating and
replacement of any systems and applications or learns additional
information concerning the status of its and third parties' Year 2000
compliance.
Based upon current information, Suburban believes that the Year 2000
problem will not have a material adverse effect on the Company, its
business or its financial condition. There can, however, be no
assurances that Year 2000 remediation by Suburban or third parties
will be properly and timely completed, and failure to do so could have
a material adverse effect on the Company, its business and its
financial condition. Suburban, like other hotels, depends on the
continued support of its customers and the availability of public
utilities. Customers may accelerate or postpone travel and business
affairs based upon Year 2000 concerns. Hotels may not be able to
operate if telecommunications, transportation, energy, water and sewer
availability are disrupted. Each of these "most likely worst case"
scenarios is beyond the immediate control of Suburban and would have a
material and adverse impact on occupancies, revenues and earnings. The
likelihood and costs of these interruptions are not known or presently
quantifiable. Suburban is in the process of developing contingency
plans with respect to certain aspects of these scenarios and other
Year 2000 issues to lessen as much as possible the adverse impacts,
and intends to take steps so that all such contingency plans are implemented
during the second half of 1999. The anticipated costs of implementing these
contingency plans are not presently known. The Company does not expect
to have a plan to overcome the entire effects on its business from a
large scale failure or disruption of passenger transportation or
transportation systems generally, the loss of utility and/or
telecommunications services or errors or failures in financial
transactions, payment processing or banking systems due to the arrival
of the Year 2000.
Factors that could result in additional costs to and disruptions of
the Company's Year 2000 Project and business include, but are not
limited to: new information Suburban may discover concerning the
status of Year 2000 compliance of company systems, software and
facilities; failures of others, including public utilities, financial
institutions, communications companies, transportation providers,
computer manufacturers and software providers, as well as other
providers of resources upon which Suburban relies, to identify,
disclose and address Year 2000 issues accurately and on a timely
basis; the inability of Year 2000 consultants, experts and advisers to
adequately identify and address Year 2000 issues as planned; and the
effectiveness and costs of contingency plans Suburban may develop as
it learns more about the status of its own and others' Year 2000
compliance and readiness.
-22-<PAGE>
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at
fair value. The Company plans to adopt SFAS 133 in 2000, and does
not presently expect such adoption to have any effect on the Company's
financial statements at that time.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report, including statements regarding
the Company's activities pertaining to the approach of the Year 2000,
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
are generally identified by words such as "expects," "believes,"
"anticipates," etc., and involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performances or
achievements of the Company to be materially different from the
expectation expressed or implied in such statements. Such factors include,
among other things, uncertainty as to economic conditions, consumer demand
for extended stay lodging, the level of competition in the extended stay
market, financial markets, the Company's ability to obtain a new bank line of
credit, development efficiencies, weather delays, zoning delays, the
Company's financial condition, its ability to maintain operational and
financial systems to manage the rapid growth it has experienced, and
the accurateness of the assurances the Company has received from third
parties concerning the impact of the Year 2000 on their products,
services and business.
-23-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operating results and cash flows are subject to
fluctuations from changes in interest rates and foreign currency
exchange rates. The Company's cash and cash equivalents are short-
term, highly liquid investments with original maturities of three
months or less consisting entirely of U.S. Government securities or
government backed securities. As a result of the short-term nature of
the Company's cash and cash equivalents, a change in market interest
rates does not impact the Company's operating results or cash flow.
At December 31, 1998, $6.6 million of the Company's long-term debt
bears interest at floating rates. Because these interest rates are
variable, an increase in interest rates would result in additional
interest expense and a reduction in interest rates would result in
reduced interest expense which would have a corresponding impact on
the Company's earnings and cash flow. The remaining $75.6 million of
the Company's long-term debt bears interest at fixed rates of
approximately 8.25%. A change in market interest rates is not
expected to be material to these fixed rate obligations.
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-19 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
Nominees and the Continuing Directors" in the definitive Proxy
Statement to be used in connection with the solicitation of proxies
for the Company's 1999 Annual Meeting of Shareholders, to be 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 to be used in
connection with the solicitation of proxies for the Company's 1999
Annual Meeting of Shareholders, to be 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.
<PAGE>
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 to be used in connection
with the solicitation of proxies for the Company's 1999 Annual Meeting
of Shareholders, to be 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
-24-
<PAGE>
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.
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 1999 Annual Meeting of
Shareholders, to be filed with the Commission, is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 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 at December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule V - Valuation and Qualifying Accounts
All other schedules have been omitted since such information is either
included in the financial statements or notes or is not required.
-25-<PAGE>
3. Exhibits
The exhibits set forth below are required to be filed with this
Report pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION
Incorporated by
Reference to Exhibit
Exhibit Registration or File Form of Number in
No. Description Number Report Date of Report Report
- - ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <S> <C>
3.1 Amended and Restated Articles of 333-2876 S-1 March 28, 1996** 3.1
the Company
3.2 Amended and Restated By-laws of the 000-28108 10-K March 28,1997 3.2
Company, Amended as of March 17,
1997
4.1 Form of Common Stock Certificate of 333-2876 Amendment May 7, 1996 4.1
the Company No. 1 to S-
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
-26-
<PAGE>
<PAGE>
Incorporated by
Reference to Exhibit
Exhibit Registration or File Form of Number in
No. Description Number Report Date of Report Report
- - ---------------------------------------------------------------------------------------------------------------------------
10.5 Suburban Lodges of America, Inc. 333-2876 Amendment May 7, 1996 10.5
Stock Option and Incentive Award No. 1 to S-
Plan 1
10.6 Suburban Lodges of America, Inc. 333-2876 Amendment May 7, 1996 10.6
Non-Employee Directors' Stock No. 1 to S-
Option and Fee Plan 1
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
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, as 333-35871 Amendment October 9, 1997 10.9.a.
amended No. 2 to S-
3
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 333-2876 S-1 March 28, 1996 10.14
between 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 May 7, 1996 10.16
No. 1 to S-
1
10.17 Commitment Letter for the Line of 333-2876 Amendment May 7, 1996 10.17
Credit No. 1 to S-
1
10.18 Preliminary Agreement for a License 000-28108 10-K March 28, 1997 10.18
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 000-28108 10-K March 28, 1997 10.19
to Develop a Suburban Lodge Unit
between Suburban-Franchise Systems,
Inc. and E.E.B. Lodging Systems LLC
II
10.20 Development and Design/Build 000-28108 10-K March 28, 1997 10.20
Agreement for Suburban Lodge of
Arlington South
10.21 Development and Design/Build 000-28108 10-K March 28, 1997 10.21
Agreement for Suburban Lodge of
Lewisville, Texas
10.22 Registration Rights Agreement among 000-28108 8-K March 17, 1997 10.19
the Registrant and Certain
Shareholders
-27-
<PAGE>
<PAGE>
Incorporated by
Reference to Exhibit
Exhibit Registration or File Form of Number in
No. Description Number Report Date of Report Report
- - ---------------------------------------------------------------------------------------------------------------------------
10.23 Office Lease between the Registrant 333-35871 Amendment October 9, 1997 10.20
and Massachusetts Mutual Life No. 2 to S-
Insurance Company 3
10.24 Deed to Secure Debt and Security *
Agreement with Finova Realty
Capital Inc. and schedule of
omitted documents
10.25 Promissory Note to Finova Realty *
Capital Inc. and schedule of
omitted documents
10.26 Security Agreement in favor of *
Finova Realty Capital Inc. and
schedule of omitted documents
10.27 Assignment of Financial Agreements *
and Franchisor's Consent and
Subordination of Franchise
Agreements in favor of Finova
Realty Capital Inc. and schedule of
omitted documents
10.28 Change of Control Agreement *
21.1 Subsidiaries of the Registrant *
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.
(b) No reports on Form 8-K have been filed during the last quarter
covered by this report.
-28-
<PAGE>
<PAGE>
Index to Financial Statements
and Consolidated Financial Statement Schedule
Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedule F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1998 F-3
and 1997
Consolidated Statements of Operations for the F-4
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1998,
1997 and 1996 F-5
Consolidated Statements of Cash Flows for the F-6
years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-7
Schedule V - Valuation and Qualifying Accounts F-20
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Suburban Lodges of America, Inc.
We have audited the accompanying consolidated balance sheets of
Suburban Lodges of America, Inc. ("Suburban Lodges") as of December
31, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1998. Our audits
also include the consolidated financial statement schedule listed in
the Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule. These consolidated financial statements
and consolidated financial statement schedule are the responsibility
of Suburban Lodges' management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis,evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Suburban Lodges as of December 31, 1998 and
1997, and the consolidated results of its operations and cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in
relation to the basic financial statements as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 26, 1999
F-2<PAGE>
Suburban Lodges of America, Inc.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1998 1997
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 19,178 $ 62,650
Restricted cash 11,000
Accounts receivable, net of reserves of
$99 (1998) and $51 (1997) 568 193
Hotel inventory and supplies 1,684 858
Prepaid and refundable income taxes 2,754 835
Deferred income taxes 904 218
Prepaid expenses and other current assets 2,956 2,400
- - ----------------------------------------------------------------------------------------
Total current assets 28,044 78,154
Property and equipment, net of accumulated depreciation
and amortization of $10,764 (1998) and $5,383 (1997) 272,030 161,145
Notes receivable 5,455 2,800
Deferred loan costs 1,552 661
Other assets 454 94
- - ----------------------------------------------------------------------------------------
Total assets $307,535 $242,854
========================================================================================
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 7,465 $ 126
Construction accounts payable 6,847 4,611
Trade accounts payable 2,448 1,614
Accrued liabilities 2,558 1,742
Income taxes payable 316
Other current liabilities 382 524
- - ----------------------------------------------------------------------------------------
Total current liabilities 20,016 8,617
Long-term debt, excluding current portion 74,735 25,005
Deferred income taxes 1,026 99
Other liabilities 114 81
- - ----------------------------------------------------------------------------------------
Total liabilities 95,891 33,802
- - ----------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $0.01 par value per share,
100,000,000 shares authorized 154 154
Additional paid-in capital 200,190 200,160
Retained earnings 11,300 8,738
- - ----------------------------------------------------------------------------------------
Total shareholders' equity 211,644 209,052
- - ----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $307,535 $242,854
========================================================================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Year Ended December 31, 1998 1997 1996
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Hotel revenues $ 44,756 $21,822 $8,349
Franchise and other revenue 1,702 1,373 917
- - -----------------------------------------------------------------------------------------------
Total revenue 46,458 23,195 9,266
- - -----------------------------------------------------------------------------------------------
Operating costs and expenses:
Hotel operating expenses 22,754 11,204 3,910
Corporate operating expenses 3,975 2,254 1,537
Lease termination costs 218
Site acquisition cancellation expense 1,960
Depreciation and amortization 5,492 2,630 788
- - -----------------------------------------------------------------------------------------------
Total operating costs and expenses 34,399 16,088 6,235
- - -----------------------------------------------------------------------------------------------
Income from operations 12,059 7,107 3,031
Other income (expense):
Interest income 2,236 2,924 957
Interest expense (202) (179) (556)
Public debt transaction abandonment costs (10,633)
Other 294 200
- - -----------------------------------------------------------------------------------------------
Income before income taxes 3,754 10,052 3,432
Provision for income taxes 1,192 3,328 1,047
- - -----------------------------------------------------------------------------------------------
Net income $ 2,562 $ 6,724 $2,385
===============================================================================================
Earnings per common share:
Basic $ 0.17 $ 0.53
Diluted $ 0.17 $ 0.53
Pro forma $ 0.31
Weighted average number of common
shares outstanding:
Basic 15,430 12,693
Diluted 15,430 12,693
Pro forma 6,924
</TABLE>
See notes to consolidated financial statements.
F-4<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Suburban Lodges of America, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Additional
-------------------- Paid-in Capital Partners' Total
(Dollars in Thousands) Shares Amount Capital (Deficit) Capital Capital
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1995 3,730,453 $ 1 $ (1,562) $1,660 $ 99
Distributions to partners (700) (700)
Corporate organization (774) 1,191 (960) (543)
Issuances of common stock,
net of offering costs 7,795,359 $115 110,837 110,952
Net income 2,385 2,385
- - -------------------------------------------------------------------------------------------------------------
Balances - December 31, 1996 11,525,812 115 110,064 2,014 -- 112,193
Issuance of common stock
for acquisition of four hotels 601,690 6 10,524 10,530
Issuance of common stock
to non-employee directors 1,725 30 30
Issuance of common stock,
net of offering costs 3,300,000 33 79,542 79,575
Net income 6,724 6,724
- - -------------------------------------------------------------------------------------------------------------
Balances - December 31, 1997 15,429,227 154 200,160 8,738 -- 209,052
Issuance of common stock
to non-employee directors 1,845 30 30
Net income 2,562 2,562
- - -------------------------------------------------------------------------------------------------------------
Balances - December 31, 1998 15,431,072 $154 $200,190 $11,300 $ -- $211,644
See notes to consolidated financial statements.
F-5<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Suburban Lodges of America, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31, 1998 1997 1996
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 2,562 $ 6,724 $ 2,385
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property and equipment 5,492 2,630 788
Site acquisition cancellation expense 1,960
Net change in deferred income tax assets and liabilities (368) 310 (397)
Stock compensation 30 30
Gain on sale of land (294)
Changes in operating assets and liabilities:
Accounts receivable (347) (98) (33)
Other current assets (3,233) (2,967) (1,002)
Other assets 117 (19) 389
Trade accounts payable 722 856 676
Other current liabilities 422 1,237 563
Other liabilities 33 86
- - -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,096 8,789 3,369
- - -------------------------------------------------------------------------------------------------------
Investing activities:
Additions to property and equipment (108,957) (89,863) (37,838)
Proceeds from sale of land 885
Increase in construction accounts payable 2,236 2,586 1,481
Acquisitions, net of cash acquired (2,279)
Other (3,086) (2,800)
- - -------------------------------------------------------------------------------------------------------
Net cash used by investing activities (111,201) (90,077) (36,357)
- - -------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuances of common stock 79,575 110,952
Amounts borrowed under line of credit 40,000 10,000 15,000
Repayment of line of credit borrowings (65,000)
Decrease (increase) in restricted cash 11,000 (11,000)
Proceeds from issuance of long-term debt 75,530 2,815
Principal payments on long-term debt (58) (12,507) (15,008)
Net additions to deferred loan costs (839) (470) (250)
Repayment of advances from affiliates (1,625)
Distributions to partners (700)
Distributions associated with the corporate organization (543)
- - -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 60,633 65,598 110,641
- - -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (43,472) (15,690) 77,653
Cash and cash equivalents at beginning of period 62,650 78,340 687
- - -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 19,178 $ 62,650 $ 78,340
========================================================================================================
Supplemental cash flow disclosures:
Cash paid for income taxes $ 3,163 $ 3,975 $ 830
========================================================================================================
Cash paid for interest expense, net of amounts capitalized $ 195 $ 170 $ 588
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-6<PAGE>
<PAGE>
SUBURBAN LODGES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Suburban Lodges of America, Inc. and its subsidiaries (collectively,
the "Company") own, operate, grant franchise rights to and manage
for third parties extended stay hotels that operate under the
Company's proprietary Suburban Lodge brand name. At February 26,
1999, 92 Suburban Lodge hotels were operating in 19 states. The
Company owns and operates 57 hotels and third parties own 35
hotels. The Company manages the operations of 14 of the third-
party hotels on behalf of the franchisees. At February 26, 1999, an
additional 17 hotels (five Company-owned, 12 franchised) were under
construction.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and operations
of Suburban Lodges of America, Inc. and its wholly-owned subsidiaries.
All significant intercompany balances and transactions are eliminated in
the preparation of such consolidated financial statements.
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 amounts of assets and liabilities and 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.
REVENUE RECOGNITION
Hotel revenues are recognized as earned. Reserves are established for
estimated unrecoverable amounts. Recognition of initial franchise fees,
which are collected at various intervals prior to the opening of the
hotels, is deferred until the franchised hotel has commenced operations.
Development fees, management fees and ongoing franchise fees are
recognized when earned.
PRE-OPENING COSTS
Non-capital expenditures incurred prior to opening new hotels are expensed
as incurred.
EARNINGS PER COMMON SHARE
Prior to the Company's initial public offering on May 29, 1996, a substantial
portion of the Company's operating income was not subject to income taxes
because the hotels were owned by entities that operated as partnerships or
as limited liability companies. Further, prior to May 29, 1996, the number
of outstanding shares of Suburban Lodges of America, Inc. was substantially
less than the number of such shares outstanding after the initial public
offering. Accordingly, the Company believes that the presentation of
historical per share information for the year ended December 31, 1996,
would not be meaningful.
F-7
<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Pro forma earnings per common share for the year ended December 31,
1996, have been calculated by dividing net income adjusted to provide
for income taxes assuming a 37.5% effective income tax rate by the
weighted number of shares of common stock deemed to have been
outstanding during the period.
Earnings per common share for 1997 and 1998 have been computed under
the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." The net income amounts used in the calculations
of basic and diluted earnings per common share are the same. The
average numbers of common shares used in the calculations of basic and
diluted earnings per common share are also the same as there were no
dilutive common share equivalents. At December 31, 1998 and 1997,
stock options outstanding under the Company's various stock option
plans represented the only securities that could potentially dilute
earnings per common share in the future.
CASH EQUIVALENTS
Cash equivalents are highly liquid unrestricted investments with a
final maturity of no more than three months when acquired.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of land includes
the contractual purchase price of the site, other costs incurred in
connection with its acquisition, such as engineering and environmental
reports, and associated overhead. The cost of hotels includes the
direct costs of construction plus capitalized interest and construction
overhead through the date the hotel is substantially complete and
ready for its intended use.
Hotels are depreciated on a straight-line basis over an estimated
useful life of 40 years. Corporate office leasehold improvements are
amortized on a straight-line basis over the life of the related lease.
Prior to October 1, 1996, depreciation of furniture, fixtures and
equipment was calculated using the double-declining-balance method.
Since that date, furniture, fixtures and equipment are depreciated on
a straight-line basis over estimated useful lives ranging from five to
seven years.
Maintenance and repairs are charged to operations as incurred, and
major renewals and betterments are capitalized. When property or
equipment is sold or otherwise disposed of, the asset and related
accumulated depreciation are removed from the accounts, and the gain
or loss is included in operations.
The Company reviews the net carrying value of its hotels and other
long-lived assets if any facts and circumstances suggest that their
recoverability may have been impaired. The Company believes that no
such impairment exists at December 31, 1998.
DEFERRED LOAN COSTS
Costs associated with obtaining and maintaining debt financing are
capitalized as deferred loan costs, and are amortized over the life
of the related debt instrument.
F-8<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock options using the intrinsic value
method and issues only stock options that have an exercise price that
is equal to or more than the market price of the underlying shares at
the date of grant. Accordingly, no compensation expense is recorded in
the accompanying statements of earnings with respect to the grant of
stock options.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1997 and
1996 financial statements to conform them to the December 31, 1998
presentation.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires
that an entity recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. The
Company plans to adopt SFAS 133 in 2000, and does not presently expect
such adoption to have any effect on the Company's financial statements
at that time.
NOTE 2 - CORPORATE ORGANIZATION AND HOTEL ACQUISITIONS
On May 29, 1996, in connection with its initial sale of common stock
to the public, the Company acquired from affiliated entities seven
operating hotels and two hotels under construction for 875,062 shares
of common stock, and two additional hotels under construction for $2.5
million in cash (the "Corporate Organization"). The acquisition of
hotels for stock was accounted for in a manner similar to a pooling of
interests on the basis of common ownership and control. The
acquisition of hotels for cash was accounted for as a purchase on the
basis of the cash price paid for the hotels. Additionally, other cash
payments totaling $485,000 were made for the redemption of a minority
partnership interest and other distributions associated with the
Corporate Organization.
At the same time, the Company also acquired from third parties an
operating hotel, two hotels under construction and two hotels in the
development phase for a total purchase price of approximately $10.0
million. Such purchase price was paid by the delivery of $4.7 million
in cash, 144,314 shares of common stock and the assumption of
approximately $2.8 million in debt secured by certain of the acquired
properties. All hotels acquired from third-party sellers were recorded
at the acquisition cost of the hotel.
F-9<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
On February 28, 1997, the Company purchased four Atlanta-area Suburban
Lodge hotels from a third-party franchisee in exchange for 601,690
shares of common stock and the assumption of $12.5 million of debt.
On July 31, 1998, the Company acquired two companies, each of which
operates a Suburban Lodge hotel in Arlington, Texas, for an aggregate
purchase price of approximately $2.5 million. A director of the
Company was a minority shareholder in these two companies. A second
director had an indirect family interest in the two companies. Prior
to the acquisitions, the Company's Board of Directors (excluding those
members of the Board with a direct or indirect interest in the
companies acquired) reviewed and approved the terms of the related
Purchase Agreements. The acquisitions were treated as purchases;
accordingly, operations of the acquired companies are included in the
consolidated statements of operations commencing on the date of
acquisition. The hotels acquired by the Company had opened in December
1997 and March 1998, respectively. Had the acquisitions occurred on
January 1, 1997, the Company's operating results for 1997 and 1998
would not have differed materially from the reported results.
The Company's allocation of purchase price to assets acquired and
liabilities assumed was as follows (in thousands):
Property and equipment $ 9,971
Other assets 420
- - --------------------------------------------------------------
Total assets 10,391
Notes payable (6,597)
Other liabilities (1,289)
- - --------------------------------------------------------------
Net assets acquired 2,505
Less cash acquired (226)
- - --------------------------------------------------------------
Purchase price, net of cash $ 2,279
==============================================================
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
December 31, 1998 1997
- - -----------------------------------------------------------------------------
Land and improvements,
including land under development $ 53,223 $ 30,621
Buildings and improvements 175,198 108,013
Furniture, fixtures and equipment 19,597 12,130
Construction in progress 34,776 15,764
- - -----------------------------------------------------------------------------
Property and equipment, at cost $ 282,794 $ 166,528
=============================================================================
Additions to hotels for the years ended December 31, 1998, 1997 and 1996,
respectively, included $3,885,000, $1,711,000 and $194,000 of
interest incurred on funds borrowed to finance construction.
F-10<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31, 1998 1997
- - -----------------------------------------------------------------------
8.25% fixed rate mortgage loans,
due December 31, 2008 $75,530
Floating rate revolving credit
facility, maturing December 14, 2000 $25,000
Capital leases 103 131
Other 6,567
- - -----------------------------------------------------------------------
82,200 25,131
Less current portion 7,465 126
- - -----------------------------------------------------------------------
Long-term debt, excluding
current portion $74,735 $25,005
=======================================================================
The mortgage loans were issued on December 29, 1998, and require
monthly payments of principal and interest totaling approximately
$596,000 commencing February 1, 1999, based upon a 25-year
amortization schedule. A total of 27 Company-owned hotels, with a net
depreciated value of approximately $99.2 million at December 31, 1998,
are pledged as collateral on these obligations.
The Company's revolving credit facility with a group of four
participating banks was terminated by the Company subsequent to
December 31, 1998. Borrowings under the credit facility bore interest,
at the Company's option, at (i) the higher of the agent bank's prime
rate or the federal funds rate plus one-half percent or (ii) the Euro-
Rate plus 150 to 225 basis points, based upon a variable leverage
ratio. Borrowings under the credit facility were secured by a
collateral pool of properties. The credit facility restricted, among
other things, the incurrence of indebtedness, the sale of assets and
the incurrence of liens. The credit facility also prohibited certain
distributions, including the payment of cash dividends and the
repurchase of the Company's common stock. In addition, the Company was
required to satisfy, among other things, certain financial performance
criteria that included the maintenance of minimum levels of net worth
and earnings before interest, taxes, depreciation and amortization.
On July 31, 1998, in connection with its acquisition of two companies,
the Company assumed certain notes with outstanding principal balances
totaling $6,597,000. At December 31, 1998, the average interest rate
on these notes was 7.5%. Under the terms of the related acquisition
agreement, the Company is obligated to repay these loans in full prior
to July 31, 1999.
F-11<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
During 1998, the Company purchased an interest rate lock in
connection with the planned issuance of $100,000,000 in subordinated
debt. Subsequent to the purchase of the rate lock, public demand for
subordinated debt declined dramatically and the Company abandoned its
planned debt offering. As public debt market demand declined, markets
for other forms of debt also became more volatile, and the Company
decided to defer or cancel the purchase of several potential hotel
sites that had not yet been acquired. As a result of these decisions,
expenses of $8.2 million, net of income taxes, were recognized during
1998 to cover costs associated with the abandoned debt transaction,
including the loss incurred upon settlement of the interest rate lock,
and the termination of negotiations with respect to several hotel
sites.
The aggregate maturities of long-term debt for the five years
subsequent to December 31, 1998, are as follows (in thousands):
Year Ended December 31,
- - ------------------------------------
1999 $7,465
2000 1,063
2001 1,146
2002 1,210
2003 1,311
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, accounts receivable, accounts
payable, and accrued liabilities reflected in the financial statements
approximates fair value because of the short-term nature of these
instruments. Based on interest rates currently available to the
Company for borrowings similar to those reflected in the December 31,
1998 and 1997 balance sheets, the Company estimates that the carrying
value of its long-term debt approximates fair value at such dates.
F-12<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 6 - INCOME TAXES
The provisions for income taxes are summarized as follows (in
thousands):
Year Ended December 31, 1998 1997 1996
- - ---------------------------------------------------------------------
Current income tax provision $1,560 $3,018 $1,059
Deferred income tax provision
(credit) (368) 310 (12)
- - ---------------------------------------------------------------------
Total provision for income taxes $1,192 $3,328 $1,047
=====================================================================
The tax effects of temporary differences that comprise the deferred
tax liabilities and assets are as follows (in thousands):
December 31, 1998 1997
- - --------------------------------------------------------------
Gross deferred income tax liability:
Property and equipment $1,166 $ 99
- - --------------------------------------------------------------
Gross deferred income tax assets:
Net operating loss carryforward - state 414
Unearned franchise fees 189 102
Unearned guest income 180 97
Reserves for site acquisition cancellation 104
Other 157 19
- - --------------------------------------------------------------
Total gross deferred income tax assets 1,044 218
- - --------------------------------------------------------------
Net deferred income tax liability (asset) $ 122 $(119)
- - --------------------------------------------------------------
The following is a reconciliation of the statutory federal income
tax rate to the Company's effective tax rates:
Year Ended December 31, 1998 1997 1996
- - ---------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes 0.7 2.0 1.4
Income not subject to tax (4.4) (2.9) (4.5)
Other 1.5 (0.4)
- - ---------------------------------------------------------------------
Effective income tax rate 31.8% 33.1% 30.5%
- - ---------------------------------------------------------------------
F-13<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 7 - STOCK OPTION PLANS
The Company has three stock option plans that provide for the grant of
stock options to employees and non-employee directors. The Company's
Stock Option and Incentive Award Plan (the "1996 Plan") provides for
the grant of up to 750,000 shares of the Company's common stock to
officers and key employees. The Company's Nonemployee Directors' Stock
Option and Fee Plan (the "Directors' Plan") provides for the grant of
up to 100,000 shares to the Company's nonemployee directors. The
Company's Employee Stock Option Plan (the "1997 Plan") provides for
the grant of up to 700,000 shares to all full-time employees who are
not participants in either the 1996 Plan or the Directors' Plan.
At December 31, 1998, 50,000, 86,500 and 248,200 shares, respectively,
were available for grant under the 1996 Plan, the Directors' Plan and
the 1997 Plan. Options outstanding under these Plans were granted at
prices that were either equal to or greater than the market price of
the stock on the date granted, expire either five or ten years from
the date granted and vest over service periods that range from one to
four years.
The following table summarizes stock option activity during each of
the three years ended December 31, 1998:
<TABLE>
<CAPTION>
Number Exercise Price Weighted Avg.
of Shares per Share Exercise Price
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1, 1996 --
Granted 404,500 $17.00 - $18.70 $17.10
Outstanding, December 31, 1996 404,500 17.00 - 18.70 17.10
Granted 383,221 13.00 - 27.38 20.77
Outstanding, December 31, 1997 787,721 13.00 - 27.38 18.88
Granted 806,155 10.25 - 19.00 13.67
Canceled (428,486) 12.38 - 27.38 17.73
Outstanding, December 31, 1998 1,165,390 10.25 - 18.70 13.92
</TABLE>
On December 14, 1998, the Company's Board of Directors adopted a
resolution reducing to $13.50 per share the exercise price of stock
options issued to employees under the 1997 Plan with an original
exercise price per share that was greater than $13.50. As a result,
396,056 options with an average exercise price of $18.75 per share
were repriced. No options held by the Company's officers or directors
were affected by this repricing.
F-14
<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
No options were exercisable at December 31, 1996. The number of
options exercisable at December 31, 1997 and 1998 were 104,500 and
232,963, respectively. A summary of stock options outstanding and
exercisable as of December 31, 1998, follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - ------------------------------------------------------------------------------------
Average
Range of Number Remaining Average Number Average
Exercise of Life Exercise of Exercise
Prices Options (Years) Price Options Price
- - ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
$10.25 300,000 9.6 $10.25 -- --
$11.63 - $13.31 48,383 9.1 12.98 -- --
$13.50 403,507 8.9 13.50 23,963 $13.50
$16.25 - $18.70 413,500 7.1 17.09 209,000 17.10
</TABLE>
Had the Company recorded compensation expense for its stock option
plans instead of following the intrinsic value method, the Company's
pro forma net income would have been $1,675,000 ($0.11 per share) for
the year ended December 31, 1998, $6,228,000 ($0.49 per share) for the
year ended December 31, 1997, and $1,933,000 ($0.28 per share) for the
year ended December 31, 1996. The fair value of each stock option
grant used in the determination of these pro forma amounts was
determined using the Black-Scholes option pricing model with the
following weighted average assumptions:
1998 1997 1996
- - -------------------------------------------------------
Risk-free interest rate 5.0% 6.0% 6.3%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life (in years) 4.5 4.5 4.0
Expected volatility 58.3% 43.3% 46.0%
Fair value of options granted $7.16 $9.15 $7.05
NOTE 8 - SEGMENT AND RELATED INFORMATION
The Company operates in three reportable segments, hotel operations,
franchising operations, and corporate and support services. The
Company was founded in 1987 as an owner-operator of economy extended-
stay hotels, the first of which opened in 1988. Since that date, the
majority of the Company's revenues have been derived from its hotel
operations segment, primarily in the form of room revenues. Since
1992, the Company has franchised the Suburban Lodge brand to third
parties. The corporate and support services segment provides hotel
management, site development and construction management services to
Company-owned hotels, and information technology, quality assurance,
marketing and customer satisfaction services to both owned and
franchised hotels. The Company also offers fee-based hotel management,
site development and construction management services to third-party
franchisees. For internal reporting purposes, the Company allocates
management fees to Company-owned hotels. These fees appear as
intersegment revenues and fees under the appropriate segments in the
table below.
F-15
<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
The Company evaluates the performance of its operating segments based
on net operating income, which is defined as income before income
taxes, nonrecurring items, interest income, interest expense and other
nonoperating income.
Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands):
<TABLE>
<CAPTION>
Corporate
Hotel Franchising and Support
Operations Operations Services Total
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998
Revenues from external customers $ 44,756 $1,079 $ 623 $ 46,458
Intersegment revenues 2,241 2,241
Depreciation and amortization 5,209 10 273 5,492
Intersegment fees 2,241 2,241
Net operating income (loss) 14,552 193 (508) 14,237
Total assets 285,489 867 21,179 307,535
Additions to property and equipment 107,721 17 1,219 108,957
Year Ended December 31, 1997
Revenues from external customers $ 21,822 $ 701 $ 672 $ 23,195
Intersegment revenues 1,090 1,090
Depreciation and amortization 2,475 6 149 2,630
Intersegment fees 1,090 1,090
Net operating income (loss) 7,058 57 (8) 7,107
Total assets 227,469 518 14,867 242,854
Additions to property and equipment 89,124 16 723 89,863
Year Ended December 31, 1996
Revenues from external customers $ 8,349 $ 434 $ 483 $ 9,266
Intersegment revenues 325 325
Depreciation and amortization 713 6 69 788
Intersegment fees 325 325
Net operating income (loss) 2,855 (10) 186 3,031
Total assets 54,263 431 76,306 131,000
Additions to property and equipment 37,561 3 274 37,838
</TABLE>
F-16<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The following table provides a reconciliation of total segment net operating
income to the Company's reported income before income taxes (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total segment net operating income $ 14,237 $ 7,107 $3,031
Interest income 2,236 2,924 957
Other nonoperating income 294 200
Public debt transaction abandonment costs (10,633)
Site acquisition cancellation costs (1,960)
Lease termination costs (218)
Interest expense (202) (179) (556)
- - -------------------------------------------------------------------------------------
Income before income taxes $ 3,754 $ 10,052 $3,432
- - -------------------------------------------------------------------------------------
</TABLE>
All of the Company's revenues are derived in the United States of
America. No single external customer accounts for ten percent or more
of the Company's total revenue.
NOTE 9 - LEASES
The Company has operating leases covering its corporate headquarters
and certain satellite television equipment utilized at its hotels. At
December 31, 1998, the Company's future minimum annual rentals under
non-cancelable operating leases were as follows (in thousands) for the
years ended December 31:
1999 $ 1,476
2000 1,636
2001 1,828
2002 1,575
2003 1,299
- - -----------------------
Total 7,814
Thereafter 5,649
- - -----------------------
$13,463
=======================
Total rent expense was approximately $862,000, $454,000 and $126,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 10 - CONTINGENCY
The Company is a defendant in certain shareholder litigation related
to the Company's stock offering of October 14, 1997. Management
believes the claims are without merit and intends to vigorously defend
such litigation. It is the opinion of management that the outcome of
such litigation will not have a material effect on the financial
position, results of operations or cash flow of the Company; however,
the outcome of such litigation cannot presently be determined.
F-17<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1998, the Company entered into a venture to develop a Suburban
Lodge hotel in Atlanta, Georgia, investing $200,000 for a 25% equity
position. A non-employee director of the Company also owns a 25%
equity position in this venture. Also during 1998, the Company
acquired an option to purchase the director's interest in this venture
for a total consideration of $300,000, including the amount paid for
the option ($230,000). The hotel owned by the venture is expected to
open in the quarter ending June 30, 1999.
During certain periods of 1998 and 1997, two franchise locations were
partially owned by two of the Company's directors or members of their
immediate families. The Company acquired both locations on July 31,
1998. Franchise and other revenue recognized for such locations prior
to their acquisition by the Company was approximately $97,000 in 1998
and $150,000 in 1997.
Prior to the Company's initial public offering, it paid consulting
fees to a firm owned by an officer of the Company. Total payments,
included in corporate operating expenses, were $10,000 for the year
ended December 31, 1996. No such payments were made during the years
ended December 31, 1998 or 1997.
From time to time, the Company made advances to an officer of the
Company. The balance outstanding under these advances was $50,000 at
December 31, 1996. No such amounts were outstanding at December 31,
1998 or 1997.
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998
Total revenue $9,046 $11,245 $13,162 $13,005
Operating income 2,636 4,200 1,900 3,323
Net income (loss) 2,255 3,174 (5,474) 2,607
Basic and diluted earnings (loss) per share 0.15 0.21 (0.35) 0.17
Year Ended December 31, 1997
Total revenue $3,923 $ 5,645 $ 7,005 $ 6,622
Operating income 1,188 2,091 2,577 1,251
Net income 1,257 1,774 2,126 1,567
Basic and diluted earnings per share 0.11 0.15 0.18 0.11
</TABLE>
F-18<PAGE>
<PAGE>
Suburban Lodges of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
During the third quarter of the year ended December 31, 1998, the
Company purchased an interest rate lock in connection with the planned
issuance of $100,000,000 in subordinated debt. Subsequent to the
purchase of the rate lock, public demand for subordinated debt
declined dramatically and the Company abandoned its planned debt
offering. As public debt market demand declined, markets for other
forms of debt also became declined, markets for other forms of debt
also became more volatile, and the Company decided to defer or cancel
the purchase of potential hotel sites that had not yet been acquired.
Accordingly, reserves of $8.7 million, net of income taxes, were
established in the third quarter to cover costs associated with the
abandoned debt transaction, including the estimated loss on the
interest rate lock, and the termination of negotiations with respect
to several hotel sites.
During the fourth quarter of the year ended December 31, 1998, the
Company closed the rate lock, incurring a loss that was slightly
smaller than originally anticipated, and determined that it would
acquire certain sites against which cancellation reserves had
previously been established. Accordingly, fourth quarter expenses
were reduced by $492,000, net of income taxes, to reflect the final
outcome of the matters against which reserves had been established in
the third quarter.
F-19<PAGE>
Schedule V - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- - ----------------------- -------- ---------------------- -------- --------
Additions
----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- - ----------------------- ------------ ---------- ----------- ---------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Reserve for Uncollectible
Accounts Receivable:
Year Ended December 31, 1996 $ - $ 13 $ - $ - $ 13
Year Ended December 31, 1997 13 38 - - 51
Year Ended December 31, 1998 51 138 - 90 <F1> 99
<FN>
<F1> Accounts written off
</FN>
</TABLE>
<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 31st day of March, 1999.
SUBURBAN LODGES OF AMERICA, INC.
By:/s/ David E. 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 31st day of March, 1999.
<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/ Paul A. Criscillis, Jr. Vice President and Chief Financial Officer (Principal
Paul A. Criscillis, Jr. Financial Officer)
/s/ Terry J. Feldman Vice President and Chief Accounting Officer
Terry J. Feldman (Principal Accounting Officer)
/s/ James R. Kuse Director
James R. Kuse
/s/ Michael McGovern Director
Michael McGovern
/s/ John W. Spiegel Director
John W. Spiegel
</TABLE>
<PAGE>
<TABLE>
<CAPTION
EXHIBIT INDEX
Incorporated by
Reference to Exhibit
Exhibit Registration or File Form of Number in
No. Description Number Report Date of Report Report
- - ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <S> <C>
3.1 Amended and Restated Articles of 333-2876 S-1 March 28, 1996** 3.1
the Company
3.2 Amended and Restated By-laws of the 000-28108 10-K March 28,1997 3.2
Company, Amended as of March 17,
1997
4.1 Form of Common Stock Certificate of 333-2876 Amendment May 7, 1996 4.1
the Company No. 1 to S-
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 May 7, 1996 10.5
Stock Option and Incentive Award No. 1 to S-
Plan 1
10.6 Suburban Lodges of America, Inc. 333-2876 Amendment May 7, 1996 10.6
Non-Employee Directors' Stock No. 1 to S-
Option and Fee Plan 1
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
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, as 333-35871 Amendment October 9, 1997 10.9.a.
amended No. 2 to S-
3
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 333-2876 S-1 March 28, 1996 10.14
between 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 May 7, 1996 10.16
No. 1 to S-
1
<PAGE>
10.17 Commitment Letter for the Line of 333-2876 Amendment May 7, 1996 10.17
Credit No. 1 to S-
1
10.18 Preliminary Agreement for a License 000-28108 10-K March 28, 1997 10.18
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 000-28108 10-K March 28, 1997 10.19
to Develop a Suburban Lodge Unit
between Suburban-Franchise Systems,
Inc. and E.E.B. Lodging Systems LLC
II
10.20 Development and Design/Build 000-28108 10-K March 28, 1997 10.20
Agreement for Suburban Lodge of
Arlington South
10.21 Development and Design/Build 000-28108 10-K March 28, 1997 10.21
Agreement for Suburban Lodge of
Lewisville, Texas
10.22 Registration Rights Agreement among 000-28108 8-K March 17, 1997 10.19
the Registrant and Certain
Shareholders
10.23 Office Lease between the Registrant 333-35871 Amendment October 9, 1997 10.20
and Massachusetts Mutual Life No. 2 to S-
Insurance Company 3
10.24 Deed to Secure Debt and Security *
Agreement with Finova Realty
Capital Inc. and schedule of
omitted documents
10.25 Promissory Note to Finova Realty *
Capital Inc. and schedule of
omitted documents
10.26 Security Agreement in favor of *
Finova Realty Capital Inc. and
schedule of omitted documents
10.27 Assignment of Financial Agreements *
and Franchisor's Consent and
Subordination of Franchise
Agreements in favor of Finova
Realty Capital Inc. and schedule of
omitted documents
10.28 Change of Control Agreement *
21.1 Subsidiaries of the Registrant *
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.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Schedule to Exhibit 10.24
Suburban Lodges, Inc.
A deed to secure debt and security agreement, mortgage, deed of
trust or similar instrument with Finova Realty Capital Inc. with
substantially the same terms as this Exhibit 10.24 for each
of the following properties are not being separately filed:
PROPERTY NAME ADDRESS COUNTY CITY, STATE
<S> <C> <C> <C>
Group 1
Forest Park* 363 Forest Parkway Clayton Forest Park, GA
Roswell 1175 Hembree Road Fulton Roswell, GA
Greenville-Mauldin Road 408 Mauldin Road Greenville Greenville, SC
Dallas North Central 9355 Forest Lane Dallas Dallas, TX
South Dayton 8981 Kingsridge Drive Montgomery Dayton, OH
Group 2
Lilburn/Hwy 78 4142 Stone Mountain Highway Gwinnett Lilburn, GA
Mableton 600 Lions Club Drive Cobb Mableton, Ga
Preston Highway 7121 Preston Highway Jefferson Louisville, KY
Taylors 2504 Wade Hampton Boulevard Greenville Greenville, SC
Chesapeake 2150 Old Greenbrier Road Chesapeake Chesapeake, VA
UNC Charlotte 110 Rocky River Road West Mecklenburg Charlotte, NC
Group 3
Norcross 6067 Buford Highway Gwinnett Norcross, GA
Jonesboro/Tara Blvd. 7021 Tara Boulevard Clayton Jonesboro, GA
Virginia Beach 416 South Independence Blvd. Virginia Beach, VA
Fairfield 6785 Fairfield Business Drive Butler Fairfield, OH
Pressley/I77 Charlotte 540 Pressley Road Mecklenburg Charlotte, NC
Fulton Industrial 660 Interchange Drive, SW Fulton Atlanta, GA
Group 4
Indian Trail 1990 Willowtrail Parkway Gwinnett Norcross, GA
Douglasville 5820 Plaza Parkway Douglas Douglasville, GA
Matthews 9211 East Independence Blvd. Mecklenburg Matthews, NC
Columbus/Eastland 4790 Hilton Corporate Drive Franklin Columbus, OH
Indianapolis, NW 5820 West 85th Street Marion Indianapolis, IN
Group 5
Northside Drive 1375 Northside Drive Fulton Atlanta, GA
Gwinnett Place 3750 Satellite Boulevard Gwinnett Duluth, GA
Columbus/Northland 2420 Dublin Granville Road Franklin Columbus, OH
North Charleston 7371 Mazyck Road Charleston North Charleston, SC
Oxmoor 90 Oxmoor Road Jefferson Birmingham, AL
/TABLE
<PAGE>
<PAGE>
PREPARED BY AND UPON
RECORDATION RETURN TO:
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
23rd Floor
Los Angeles, California 90071
Attention: Robert M. Keane, Jr., Esq.
SLAM PROPERTIES I, L.L.C.,
a Georgia limited liability company, as grantor
(Borrower)
to
FINOVA REALTY CAPITAL INC.,
a Delaware corporation, as beneficiary
(Lender)
___________________________________
DEED TO SECURE DEBT AND SECURITY AGREEMENT
___________________________________
Dated: December 29, 1998
Location: 363 Forest Parkway
Forest Park, Georgia
Section:
Block:
Lot:
County: Clayton County
<PAGE>
THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT (the "Security
Instrument") is made as of December 29, 1998, by SLAM PROPERTIES I,
L.L.C., a Georgia limited liability company, having its principal
place of business at 300 Galleria Parkway, Suite 1200, Atlanta,
Georgia 30339, Attn: Corporate Secretary, as grantor ("Borrower") to
FINOVA REALTY CAPITAL INC., a Delaware corporation, having an address
at c/o Midland Loan Services, L.P., 210 West Tenth Street, Kansas
City, Missouri 64105, as beneficiary ("Lender").
RECITALS:
Borrower by its promissory note of even date herewith with a
final maturity date of January 1, 2009 given to Lender is indebted to
Lender in the principal sum of FOURTEEN MILLION SEVEN HUNDRED EIGHTY
THOUSAND AND NO/100 DOLLARS ($14,780,000) (the "Loan Amount") in
lawful money of the United States of America (the note together with
all extensions, renewals, modifications, substitutions and amendments
thereof shall collectively be referred to as the "Note"), with
interest from the date thereof at the rates set forth in the Note,
principal and interest to be payable in accordance with the terms and
conditions provided in the Note.
Borrower desires to secure the payment of the Debt (as defined
in Article 2) and the performance of all of its obligations under the
Note and the Other Obligations (as defined in Article 2).
ARTICLE 1 - GRANTS
Section 1.1 PROPERTY. Borrower does hereby irrevocably
demise, grant, bargain, sell, pledge, assign, warrant, transfer and
convey to Lender, its successors and assigns, in the following
property, rights, interests and estates now owned, or hereafter
acquired by Borrower (collectively, the "Property"):
(a) Land. The real property described in Exhibit A attached
hereto and made a part hereof (the "Land");
(b) Additional Land. All additional lands, estates and
development rights hereafter acquired by Borrower for use in
connection with the Land and the development of the Land and all
additional lands and estates therein which may, from time to time, be
expressly made subject to this Security Instrument;
(c) Improvements. The buildings, structures, fixtures,
additions, enlargements, extensions, modifications, repairs,
replacements and improvements now or hereafter erected or located on
the Land (the "Improvements");
(d) Easements. All easements, rights-of-way or use, rights,
strips and gores of land, streets, ways, alleys, passages, sewer
rights, water, water courses, water rights and powers, air rights and
development rights, and all estates, rights, titles, interests,
privileges, liberties, servitudes, tenements, hereditaments and
appurtenances of any nature whatsoever, in any way now or hereafter
belonging, relating or pertaining to the Land and the Improvements and
the reversion and reversions, remainder and remainders, and all land
lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Land, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy
2<PAGE>
<PAGE>
and rights of curtesy, property, possession, claim and demand
whatsoever, both at law and in equity, of Borrower of, in and to the
Land and the Improvements and every part and parcel thereof, with the
appurtenances thereto;
(e) Fixtures and Personal Property. Except to the extent
prohibited or otherwise restricted under Borrower's franchise
agreement with Suburban Franchise Systems, Inc. in effect as of the
date hereof or as amended with the consent of Lender, such consent not
to be unreasonably withheld or delayed, all machinery, equipment,
fixtures (including, without limitation, all heating, air
conditioning, plumbing, lighting, communications, elevator fixtures,
inventory and goods), inventory and articles of personal property and
accessions thereof and renewals, replacements thereof and
substitutions therefor (including, without limitation, beds, bureaus,
chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases,
tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian
blinds, screens, paintings, hangings, pictures, divans, couches,
luggage carts, luggage racks, stools, sofas, chinaware, linens,
pillows, blankets, glassware, silverware, foodcarts, cookware, dry
cleaning facilities, dining room wagons, keys or other entry systems,
bars, bar fixtures, liquor and other drink dispensers, ice makers,
radios, television sets, intercom and paging equipment, electric and
electronic equipment, dictating equipment, private telephone systems,
medical equipment, potted plants, heating, lighting and plumbing
fixtures, fire prevention and extinguishing apparatus, cooling and
air-conditioning systems, elevators, escalators, fittings, plants,
apparatus, stoves, ranges, refrigerators, laundry machines, tools,
machinery, engines, dynamos, motors, boilers, incinerators,
switchboards, conduits, compressors, vacuum cleaning systems, floor
cleaning, waxing and polishing equipment, call systems, brackets,
electrical signs, bulbs, bells, ash and fuel, conveyors, cabinets,
lockers, shelving, spotlighting equipment, dishwashers, garbage
disposals, washers and dryers), other customary hotel equipment and
other tangible property of every kind and nature whatsoever owned by
Borrower, or in which Borrower has or shall have an interest, now or
hereafter located upon the Property, or appurtenances thereto, or
usable in connection with the present or future operation and
occupancy of the Property (collectively, the "Personal Property");
(f) Leases and Rents. All leases and other agreements
affecting the use, enjoyment or occupancy of all or any portion of the
Land or the Improvements heretofore or hereafter entered into (the
"Leases"), whether before or after the filing by or against Borrower
of any petition for relief under 11 U.S.C. Section 101 et seq., as the same
may be amended from time to time or any successor statute thereto (the
"Bankruptcy Code"), and all right, title and interest of Borrower, its
successors and assigns therein and thereunder, including, without
limitation, cash or other collateral deposited to secure the
performance by the lessees of their obligations thereunder; and all
rents, additional rents, revenues, issues and profits (including all
oil and gas or other mineral royalties and bonuses) from the Land and
the Improvements, all income, rents, room rates, issues, profits,
receipts, revenues, deposits, accounts, accounts receivable and other
receivables and benefits from the operation of the hotel on the
Property, including, without limitation, all revenues and credit card
receipts collected from guest rooms, restaurants, bars, mini-bars,
meeting rooms, banquet rooms and recreational facilities and
otherwise, all receivables, customer obligations, installment payment
obligations and other obligations now existing or hereafter arising or
created out of sale, lease, sublease, license, concession or other
grant of the right of the possession, use or occupancy of all or any
portion of the Property, or personalty located thereon, or rendering
of services by Borrower or any operator or manager of the hotel or the
commercial space located in the Property or acquired from others<PAGE>
including, without limitation, from the rental of any office space,
retail space, commercial space, guest room or other space, halls,
stores or offices, including any deposits securing reservations of
such space, exhibit or sales space of every kind, license, lease,
sublease and concession fees and rentals, health club membership fees,
food and beverage wholesale and retail sales, telephone and television
systems, guest laundry, the provision or sale of other goods and
services, service charges, vending machine sales and proceeds, if any,
from business interruption or other loss of income insurance relating
3<PAGE>
<PAGE>
to the use, enjoyment or occupancy of the Property, and any other
items of revenue, receipts or other income as identified in the
Uniform System of Accounts for Hotels, 9th Edition, International
Association of Hospitality Accountants (1996), as from time to time
amended, all regardless of whether paid or accruing before or after
the filing by or against Borrower of any petition for relief under the
Bankruptcy Code (the "Rents") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the
Rents;
(g) Insurance Proceeds. All proceeds of and any unearned
premiums on any insurance policies covering the Property, including,
without limitation, the right to receive and apply the proceeds of any
insurance, judgments, or settlements made in lieu thereof, for damage
to the Property;
(h) Condemnation Awards. All awards or payments, including
interest thereon, which may heretofore and hereafter be made with
respect to the Property, whether from the exercise of the right of
eminent domain (including but not limited to any transfer made in lieu
of or in anticipation of the exercise of the right), or for a change
of grade, or for any other injury to or decrease in the value of the
Property;
(i) intentionally deleted;
(j) Conversion. All proceeds of the conversion, voluntary
or involuntary, of any of the foregoing including, without limitation,
proceeds of insurance and condemnation awards, into cash or
liquidation claims;
(k) Rights. The right, in the name and on behalf of
Borrower, to appear in and defend any action or proceeding brought
with respect to the Property and to commence any action or proceeding
to protect the interest of Lender in the Property;
(l) Agreements. To the extent assignable and except to the
extent prohibited or otherwise restricted under Borrower's franchise
agreement with Suburban Franchise Systems, Inc. in effect as of the
date hereof or as amended with the consent of Lender, such consent not
to be unreasonably withheld or delayed, all agreements, contracts,
certificates, instruments, franchises, permits, licenses, plans,
specifications and other documents, now or hereafter entered into, and
all rights therein and thereto, respecting or pertaining to the use,
occupation, construction, management or operation of the Land and any
part thereof and any Improvements or respecting any business or
activity conducted on the Land and any part thereof and all right,
title and interest of Borrower therein and thereunder, including,
without limitation, the right, upon the occurrence and during the
continuance of an Event of Default (defined below), to receive and
collect any sums payable to Borrower thereunder;
(m) Intangibles. Except to the extent prohibited or
otherwise restricted under Borrower's franchise agreement with
Suburban Franchise Systems, Inc. in effect as of the date hereof or as
amended with the consent of Lender, such consent not to be
unreasonably withheld or delayed, all trade names, trademarks,
servicemarks, logos, copyrights, goodwill, books and records and all
other general intangibles relating to or used in connection with the
operation of the Property; and
(n) Other Rights. Any and all other rights of Borrower in
and to the items set forth in Subsections (a) through (m) above.
TO HAVE AND TO HOLD the above granted and described Property
unto and to the use and benefit of Lender and its successors and
assigns in fee simple, forever.
4
<PAGE>
<PAGE>
Section 1.2 ASSIGNMENT OF LEASES AND RENTS. Borrower
hereby absolutely and unconditionally assigns to Lender Borrower's
right, title and interest in and to all current and future Leases and
Rents; it being intended by Borrower that this assignment constitutes
a present, absolute assignment and not an assignment for additional
security only. Nevertheless, subject to the terms of this Section
1.2, Lender grants to Borrower a revocable license to collect and
receive the Rents. Borrower shall hold a portion of the Rents
sufficient to discharge all current sums due on the Debt for use in
the payment of such sums.
Section 1.3 SECURITY AGREEMENT. This Security Instrument
is a deed passing title to the Property to Lender and is made under
the laws of the State of Georgia relating to deeds to secure debt, and
is not a mortgage. To the extent permitted by law, this Security
Instrument is a "security agreement" within the meaning of the Uniform
Commercial Code. The Property includes both real and personal
property and all other rights and interests, whether tangible or
intangible in nature, of Borrower in the Property. By executing and
delivering this Security Instrument, Borrower hereby grants to Lender,
as security for the Obligations (defined in Section 2.3), a security
interest in the Personal Property to the full extent that the Personal
Property may be subject to the Uniform Commercial Code.
Section 1.4 PLEDGE OF MONIES HELD. Borrower hereby
pledges to Lender any and all monies now or hereafter held by Lender,
including, without limitation, any sums deposited in the Escrow Fund
(as defined in Section 3.5), Net Proceeds (as defined in Section 3.7)
and condemnation awards or payments described in Section 3.6, as
additional security for the Obligations until expended or applied as
provided in this Security Instrument.
Section 1.5 CONDITIONS TO GRANT. TO HAVE AND TO HOLD the
above granted and described Property unto and to the use and benefit
of Lender, and for their successors and assigns, forever; WITH POWER
OF SALE, to secure payment to Lender of the Debt at the time and in
the manner provided for its payment in the Note and in this Security
Instrument; PROVIDED, HOWEVER, these presents are upon the express
condition that, if Borrower shall well and truly pay to Lender the
Debt at the time and in the manner provided in the Note and this
Security Instrument, shall well and truly perform the Other
Obligations as set forth in this Security Instrument and shall well
and truly abide by and comply with each and every covenant and
condition set forth herein and in the Note, these presents and the
estate hereby granted shall cease, terminate and be void.
ARTICLE 2 - DEBT AND OBLIGATIONS SECURED
Section 2.1 DEBT. This Security Instrument and the
grants, assignments and transfers made in Article 1 are given for the
purpose of securing the payment of the following, in such order of
priority as Lender may determine in its sole discretion (the "Debt"):
(a) the indebtedness evidenced by the Note in lawful money of
the United States of America;
(b) interest, default interest, late charges and other sums,
as provided in the Note, this Security Instrument or the Other
Security Documents (defined below);
(c) the Default Consideration (as defined in the Note), if
any;
(d) all other moneys agreed or provided to be paid by
Borrower in the Note, this Security Instrument or the Other Security
Documents;
5
<PAGE>
<PAGE>
(e) all sums reasonably advanced pursuant to this Security
Instrument to protect and preserve the Property and the priority and
the security interest created hereby; and
(f) all sums advanced and costs and expenses incurred by
Lender in connection with the Debt or any part thereof, any renewal,
extension, or change of or substitution for the Debt or any part
thereof, or the acquisition or perfection of the security therefor,
whether made or incurred at the request of Borrower or Lender.
Section 2.2 OTHER OBLIGATIONS. This Security Instrument
and the grants, assignments and transfers made in Article 1 are also
given for the purpose of securing the performance of the following
(the "Other Obligations"):
(a) all other obligations of Borrower contained herein;
(b) each obligation of Borrower contained in the Note and in
the Other Security Documents; and
(c) each obligation of Borrower contained in any renewal,
extension, amendment, modification, consolidation, change of, or
substitution or replacement for, all or any part of the Note, this
Security Instrument or the Other Security Documents.
Section 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's
obligations for the payment of the Debt and the performance of the
Other Obligations shall be referred to collectively below as the
"Obligations."
Section 2.4 PAYMENTS. Unless payments are made in the
required amount in immediately available funds at the place where the
Note is payable, remittances in payment of all or any part of the Debt
shall not, regardless of any receipt or credit issued therefor,
constitute payment until the required amount is actually received by
Lender in funds immediately available at the place where the Note is
payable (or any other place as Lender, in Lender's sole discretion,
may have established by delivery of written notice thereof to
Borrower) and shall be made and accepted subject to the condition that
any check or draft may be handled for collection in accordance with
the practice of the collecting bank or banks. Acceptance by Lender of
any payment in an amount less than the amount then due shall be deemed
an acceptance on account only, and the failure to pay the entire
amount then due shall be and continue to be an Event of Default.
ARTICLE 3 - BORROWER COVENANTS
Borrower covenants and agrees that:
Section 3.1 PAYMENT OF DEBT. Borrower will pay the Debt
at the time and in the manner provided in the Note and in this
Security Instrument.
Section 3.2 INCORPORATION BY REFERENCE. All the
covenants, conditions and agreements contained in (a) the Note and (b)
all and any of the documents other than the Note or this Security
Instrument now or hereafter executed by Borrower and/or others and by
or in favor of Lender, which wholly or partially secure or guaranty
payment of the Note (the "Other Security Documents"), are hereby made
a part of this Security Instrument to the same extent and with the
same force as if fully set forth herein.
Section 3.3 INSURANCE.
6<PAGE>
<PAGE>
(a) Borrower shall obtain and maintain, or cause to be
maintained, insurance for Borrower and the Property providing at least
the following coverages:
(i) Property Insurance. Insurance with respect to the
Improvements and building equipment insuring against any peril now or
hereafter included within the classification "All Risks of Physical
Loss" in amounts at all times sufficient to prevent Lender from
becoming a co-insurer within the terms of the applicable policies and
under applicable law, but in any event such insurance shall be
maintained in an amount which, after application of deductible, shall
be equal to the full insurable value of the Improvements and building
equipment, the term "full insurable value" to mean the actual
replacement cost of the Improvements and building equipment (without
taking into account any depreciation, and exclusive of excavations,
footings and foundations, landscaping and paving) determined annually
by an insurer, a recognized independent insurance broker or an
independent appraiser selected and paid by Borrower and in no event
less than the coverage required pursuant to the terms of any Lease;
(ii) Liability Insurance. Comprehensive general liability
insurance, including bodily injury, death and property damage
liability, insurance against any and all claims, including all legal
liability to the extent insurable and imposed upon Lender and all
court costs and attorneys' fees and expenses, arising out of or
connected with the possession, use, leasing, operation, maintenance or
condition of the Property in such amounts as are generally available
at commercially reasonable premiums and are generally required by
institutional lenders for properties comparable to the Property but in
any event for a combined single limit of at least $5,000,000;
(iii) Workers' Compensation Insurance. Statutory workers'
compensation insurance with respect to any work on or about the
Property;
(iv) Business Interruption Insurance. Business interruption
and/or loss of "rental income" insurance in an amount sufficient to
avoid any co-insurance penalty and to provide proceeds which will
cover a period of not less than one (1) year from the date of casualty
or loss, the term "rental income" to mean the sum of (A) the total
then ascertainable Rents payable under the Leases and (B) the total
ascertainable amount of all other amounts to be received by Borrower
from third parties which are the legal obligation of the tenants,
reduced to the extent such amounts would not be received because of
operating expenses not incurred during a period of non-occupancy of
that portion of the Property then not being occupied;
(v) Boiler and Machinery Insurance. Broad form boiler and
machinery insurance (without exclusion for explosion) covering all
boilers or other pressure vessels, machinery, and equipment located
in, on or about the Property and insurance against loss of occupancy
or use arising from any breakdown in such amounts as are generally
required by institutional lenders for properties comparable to the
Property;
(vi) Flood Insurance. If required by Subsection 5.5(j)
hereof, flood insurance in an amount at least equal to the lesser of
(A) the principal balance of the Note, or (B) the maximum limit of
coverage available for the Property under the National Flood Insurance
Act of 1968, The Flood Disaster Protection Act of 1973 or the National
Flood Insurance Reform Act of 1994, as each may be amended;
(vii) Builder's Risk Insurance. At all times during which
structural construction, repairs or alterations are being made with<PAGE>
respect to the Improvements (A) owner's contingent or protective
liability insurance covering claims not covered by or under the terms
or provisions of the above mentioned commercial general liability
7<PAGE>
<PAGE>
insurance policy; and (B) the insurance provided for in Subsection
3.3(a)(i) written in a so-called builder's risk completed value form
(1) on a non-reporting basis, (2) against all risks insured against
pursuant to Subsection 3.3(a)(i), (3) including permission to occupy
the Property, and (4) with an agreed amount endorsement waiving co-
insurance provisions; and
(viii) Other Insurance. Such other insurance with respect
to the Property against loss or damage of the kinds from time to time
customarily insured against and in such amounts as are required by
institutional lenders for properties comparable to the Property.
(b) All insurance provided for in Subsection 3.3(a)
hereof shall be obtained under valid and enforceable policies (the
"Policies" or in the singular, the "Policy"), and shall be issued by
either the insurers who insure the Improvements on the date of this
Security Instrument or one or more other domestic primary insurer(s)
having (i) an investment grade rating or claims paying ability
assigned by one or more credit rating agencies approved by Lender (a
"Rating Agency") and (ii) a general policy rating of A or better and a
financial class of VI or better by A.M. Best Company, Inc. (or if a
rating of A.M. Best Company Inc. is no longer available, a similar
rating from a similar or successor service) (each such insurer shall
be referred to below as a "Qualified Insurer"). All insurers
providing insurance required by this Security Instrument shall be
authorized to issue insurance in the state in which the Property is
located. The Policy referred to in Subsection 3.3(a)(ii) above shall
name Lender as an additional named insured and the Policies referred
to in Subsection 3.3(a)(i), (iv), (v), (vi) and (vii), and as
applicable (viii), above shall provide that all proceeds be payable to
Lender as set forth in Section 3.7 hereof. The Policies referred to
in Subsections 3.3(a)(i), (v), (vi) and (vii) shall also contain: (i)
a standard "non-contributory mortgagee" endorsement or its equivalent
relating, inter alia, to recovery by Lender notwithstanding the
negligent or willful acts or omission of Lender; (ii) to the extent
available at commercially reasonable rates, a waiver of subrogation
endorsement as to Lender; and (iii) an endorsement providing for a
deductible per loss of an amount not more than that which is
customarily maintained by prudent owners of similar properties in the
general vicinity of the Property, but in no event in excess of
$10,000. The Policy referred to in Subsection 3.3(a)(i) above shall
provide coverage for contingent liability from Operation of Building
Laws, Demolition Costs and Increased Cost of Construction Endorsements
together with an "Ordinance or Law Coverage" or "Enforcement"
endorsement if any of the Improvements or the use of the Property
shall at any time constitute legal non-conforming structures or uses.
All Policies shall contain (i) a provision that such Policies shall
not be cancelled or terminated, nor shall they expire, without at
least thirty (30) days' prior written notice to Lender in each
instance; and (ii) include effective waivers by the insurer of all
claims for Insurance Premiums (defined below) against any loss payees,
additional insureds and named insureds (other than Borrower).
Certificates of insurance with respect to all renewal and replacement
Policies shall be delivered to Lender not less than thirty (30) days
prior to the expiration date of any of the Policies required to be
maintained hereunder, which certificates shall bear notations
evidencing payment of applicable premiums (the "Insurance Premiums").
Originals or certificates of such replacement Policies shall be
delivered to Lender promptly after Borrower's receipt thereof but in
any case within thirty (30) days after the effective date thereof. If
Borrower fails to maintain and deliver to Lender the original Policies
or certificates of insurance required by this Security Instrument,
upon ten (10) days' prior notice to Borrower, Lender may procure such
insurance at Borrower's sole cost and expense.
<PAGE>
(c) Borrower shall comply with all insurance requirements and
shall not bring or keep or permit to be brought or kept any article
upon any of the Property or cause or permit any condition to exist
thereon which would be prohibited by an insurance requirement, or
would invalidate the insurance coverage required hereunder to be
maintained by Borrower on or with respect to any part of the Property
pursuant to this Section 3.3.
8<PAGE>
<PAGE>
Section 3.4 PAYMENT OF TAXES, ETC.
(a) Borrower shall promptly pay all taxes, assessments,
water rates, sewer rents, governmental impositions, and other charges,
including without limitation vault charges and license fees for the
use of vaults, chutes and similar areas adjoining the Land, now or
hereafter levied or assessed or imposed against the Property or any
part thereof (the "Taxes"), all ground rents, maintenance charges and
similar charges, now or hereafter levied or assessed or imposed
against the Property or any part thereof (the "Other Charges"), and
all charges for utility services provided to the Property as same
become due and payable. Borrower will deliver to Lender, promptly
upon Lender's request, evidence satisfactory to Lender that the Taxes,
Other Charges and utility service charges have been so paid or are not
then delinquent. Borrower shall not suffer and shall promptly cause
to be paid, bonded, or discharged any lien or charge whatsoever which
may be or become a lien or charge against the Property. Except to the
extent sums sufficient to pay all Taxes and Other Charges have been
deposited with Lender in accordance with the terms of this Security
Instrument, Borrower shall furnish to Lender paid receipts for the
payment of the Taxes and Other Charges prior to the date the same
shall become delinquent.
(b) After prior written or telephonic notice to Lender,
Borrower, at its own expense, may contest by appropriate legal
proceeding, promptly initiated and conducted in good faith and with
due diligence, the amount or validity or application in whole or in
part of any of the Taxes, provided that (i) no Event of Default has
occurred and is continuing under the Note, this Security Instrument or
any of the Other Security Documents, (ii) Borrower is permitted to do
so under the provisions of any other mortgage, deed of trust or deed
to secure debt affecting the Property, (iii) such proceeding shall
suspend the collection of the Taxes from Borrower and from the
Property or Borrower shall have paid all of the Taxes under protest,
(iv) such proceeding shall be permitted under and be conducted in
accordance with the provisions of any other instrument to which
Borrower is subject and shall not constitute a default thereunder, (v)
neither the Property nor any part thereof or interest therein will be
in danger of being sold, forfeited, terminated, cancelled or lost, and
(vi) Borrower shall have deposited with Lender adequate reserves for
the payment of the Taxes, together with all interest and penalties
thereon, unless Borrower has paid all of the Taxes under protest, or
Borrower shall have furnished the security as may be required in the
proceeding, or as may be reasonably requested by Lender to insure the
payment of any contested Taxes, together with all interest and
penalties thereon, taking into consideration the amount in the Escrow
Fund available for payment of Taxes.
Section 3.5 ESCROW FUND. In addition to the initial
deposits with respect to Taxes and Insurance Premiums made by Borrower
to Lender on the date hereof to be held by Lender in escrow, Borrower
shall pay to Lender on the first day of each calendar month (a) one-
twelfth of an amount which would be sufficient to pay the Taxes
payable, or estimated by Lender to be payable, during the next ensuing
twelve (12) months and (b) one-twelfth of an amount which would be
sufficient to pay the Insurance Premiums due for the renewal of the
coverage afforded by the Policies upon the expiration thereof (the
amounts in (a) and (b) above shall be called the "Escrow Fund").
Borrower agrees to notify Lender immediately of any changes to the
amounts, schedules and instructions for payment of any Taxes and
Insurance Premiums of which it has or obtains knowledge and authorizes
Lender or its agent to obtain the bills for Taxes and Other Charges
directly from the appropriate taxing authority. The Escrow Fund and
the payments of interest or principal or both, payable pursuant to the
Note shall be added together and shall be paid as an aggregate sum by<PAGE>
Borrower to Lender. Provided there are sufficient amounts in the
Escrow Fund and no Event of Default exists, Lender shall be obligated
to pay the Taxes and Insurance Premiums as they become due on their
respective due dates on behalf of Borrower by applying the Escrow Fund
to the payments of such Taxes and Insurance Premiums required to be
made by Borrower pursuant to Sections 3.3 and 3.4 hereof. If the
amount of the Escrow Fund shall exceed the amounts due for Taxes and
Insurance Premiums pursuant to Sections 3.3 and 3.4 hereof, Lender
shall, in its discretion, return any excess to Borrower or credit such
excess against future payments to be made to the Escrow Fund. In
allocating such excess, Lender may deal with the person shown on the
9<PAGE>
<PAGE>
records of Lender to be the owner of the Property. If the Escrow Fund
is not sufficient to pay the items set forth in (a) and (b) above,
Borrower shall promptly pay to Lender, upon demand, an amount which
Lender shall reasonably estimate as sufficient to make up the
deficiency. The Escrow Fund shall not constitute a trust fund and may
be commingled with other monies held by Lender. Unless otherwise
required by Applicable Laws (defined in Section 3.11), no earnings or
interest on the Escrow Fund shall be payable to Borrower.
Notwithstanding the above, Lender shall provide Borrower with evidence
of payment and regular statements reflecting the activity and balance
in the Escrow Fund.
Section 3.6 CONDEMNATION. Borrower shall promptly give
Lender notice of the actual or threatened commencement of any
condemnation or eminent domain proceeding and shall deliver to Lender
copies of any and all papers served in connection with such
proceedings. Notwithstanding any taking by any public or quasi-public
authority through eminent domain or otherwise (including but not
limited to any transfer made in lieu of or in anticipation of the
exercise of such taking), Borrower shall continue to pay the Debt at
the time and in the manner provided for its payment in the Note and in
this Security Instrument and the Debt shall not be reduced until any
award or payment therefor shall have been actually received and
applied by Lender, after the deduction of expenses of collection, to
the reduction or discharge of the Debt. Lender shall not be limited
to the interest paid on the award by the condemning authority but
shall be entitled to receive out of the award interest at the rate or
rates provided herein or in the Note. Lender may apply any award or
payment to the reduction or discharge of the Debt whether or not then
due and payable. If the Property is sold, through foreclosure or
otherwise, prior to the receipt by Lender of the award or payment,
Lender shall have the
10
<PAGE>
<PAGE>
right, whether or not a deficiency judgment on the Note (to the extent
permitted in the Note or herein) shall have been sought, recovered or
denied, to receive the award or payment, or a portion thereof
sufficient to pay the Debt.
Section 3.7 RESTORATION AFTER CASUALTY/CONDEMNATION. In
the event of a casualty or a taking by eminent domain, the following
provisions shall apply in connection with the Restoration (defined
below) of the Property:
(a) If the Property shall be damaged or destroyed, in whole
or in part, by fire or other casualty, or if the Property or any
portion thereof is taken by the power of eminent domain Borrower shall
give prompt notice of such damage or taking to Lender and shall
promptly commence and diligently prosecute the completion of the
repair and restoration of the Property as nearly as possible to the
condition the Property was in immediately prior to such fire or other
casualty or taking, with such alterations as may be approved by Lender
(the "Restoration").
(b) The term "Net Proceeds" for purposes of this Section 3.7
shall mean: (i) the net amount of all insurance proceeds under the
Policies carried pursuant to Subsections 3.3(a)(i), (v), (vi), (vii)
and (viii) of this Security Instrument as a result of such damage or
destruction, after deduction of Lender's reasonable costs and expenses
(including, but not limited to reasonable counsel fees), if any, in
collecting the same, or (ii) the net amount of all awards and payments
received by Lender with respect to a taking referenced in Section 3.6
of this Security Instrument, after deduction of Lender's reasonable
costs and expenses (including, but not limited to reasonable counsel
fees), if any, in collecting the same, whichever the case may be. If
(i) the Net Proceeds do not exceed $500,000 (the "Net Proceeds
Availability Threshold"); (ii) the costs of completing the Restoration
as reasonably estimated by Borrower shall be less than or equal to the
Net Proceeds; (iii) no Event of Default shall have occurred and be
continuing under the Note, this Security Instrument or any of the
Other Security Documents; (iv) the Property and the use thereof after
the Restoration will be in compliance with or (or excepted from
compliance due to the fact that the Property was in compliance when
built), and permitted under, all applicable zoning laws, ordinances,
rules and regulations (including, without limitation, all applicable
Environmental Laws (defined in Section 12.1); and (v) Lender shall be
satisfied that any operating deficits, including all scheduled
payments of principal and interest under the Note which will be
incurred with respect to the Property as a result of the occurrence of
any such fire or other casualty or taking, whichever the case may be,
will be covered out of (1) the Net Proceeds, or (2) other funds of
Borrower, then the Net Proceeds will be disbursed directly to
Borrower.
(c) If the Net Proceeds are greater than the Net Proceeds
Availability Threshold, such Net Proceeds shall be forthwith paid to
Lender to be held by Lender in a segregated account to be made
available to Borrower for the Restoration in accordance with the
provisions of this Subsection 3.7(c).
The Net Proceeds held by Lender pursuant to Subsection
3.7(c) shall be made available to Borrower for payment or
reimbursement of Borrower's expenses in connection with the
Restoration, subject to the following conditions:
(i) no Event of Default shall have occurred and be continuing
under the Note, this Security Instrument or any of the Other Security
Documents;<PAGE>
(ii) Lender shall, within a reasonable period of time prior to
request for initial disbursement, be furnished with an estimate of the
cost of the Restoration accompanied by an independent architect's
certification as to such costs and appropriate plans and
specifications for the Restoration, such plans and specifications and
cost estimates to be subject to Lender's approval, not to be
unreasonably withheld or delayed;
11<PAGE>
<PAGE>
(iii) the Net Proceeds, together with any cash or cash
equivalent deposited by Borrower with Lender, are sufficient to cover
the cost of the Restoration as such costs are certified by the
independent architect;
(iv) Net Proceeds are less than the then outstanding principal
balance of the Note;
(v) Lender shall be satisfied that any operating deficits,
including all scheduled payments of principal and interest under the
Note which will be incurred with respect to the Property as a result
of the occurrence of any such fire or other casualty or taking,
whichever the case may be, will be covered out of (1) the Net
Proceeds, or (2) other funds of Borrower;
(vi) Lender shall be satisfied that, upon the completion of
the Restoration, the net cash flow of the Property will be restored to
a level sufficient to cover all carrying costs and operating expenses
of the Property, including, without limitation, debt service on the
Note and all required replacement reserves, reserves for tenant
improvements and leasing commissions;
(vii) the Restoration can reasonably be completed on or
before the earliest to occur of (A) six (6) months prior to the
Maturity Date (as defined in the Note), and (B) such time as may be
required under applicable zoning law, ordinance, rule or regulation in
order to repair and restore the Property to as nearly as possible the
condition it was in immediately prior to such fire or other casualty
or to such taking, as applicable; and
(vii) the Property and the use thereof after the
Restoration will be in compliance with (or excepted from compliance
due to the fact that the Property was in compliance when built), and
permitted under, all applicable zoning laws, ordinances, rules and
regulations (including, without limitation, all applicable
Environmental Laws (defined in Section 12.1).
(d) The Net Proceeds held by Lender until disbursed in
accordance with the provisions of this Section 3.7 shall constitute
additional security for the Obligations. The Net Proceeds other than
the Net Proceeds paid under the Policy described in Subsection
3.3(a)(iv) shall be disbursed by Lender to, or as directed by,
Borrower, in an amount equal to the costs actually incurred from time
to time for work in place as part of the Restoration less customary
retainage from time to time during the course of the Restoration, not
more frequently than once per month, upon receipt of evidence
satisfactory to Lender that (A) all materials installed and work and
labor performed (except to the extent that they are to be paid for out
of the requested disbursement) in connection with the Restoration have
been paid for in full, and (B) there exist no notices of pendency,
stop orders, mechanic's or materialman's liens or notices of intention
to file same, or any other liens or encumbrances of any nature
whatsoever on the Property arising out of the Restoration which have
not either been fully bonded and discharged of record or in the
alternative fully insured to the satisfaction of Lender by the title
company insuring the priority of this Security Instrument. The Net
Proceeds paid under the Policy described in Subsection 3.3(a)(iv)
shall be disbursed by Lender to pay for debt service under the loan
evidenced by the Note, to pay other expenses incurred by Borrower in
connection with the ownership and operation of the Property, and the
remainder thereof, to, or as directed by, Borrower to pay for the cost
of the Restoration in accordance with this Section 3.7(d). Final
payment shall be made after submission to Lender of all licenses,
permits, certificates of occupancy and other required approvals of
governmental authorization having jurisdiction and casualty<PAGE>
Consultant's certification that the Restoration has been fully
completed.
12
<PAGE>
<PAGE>
(e) Lender shall have the use of the plans and specifications
and all permits, licenses and approvals required or obtained in
connection with the Restoration. The identity of the contractors and
materialmen engaged in the Restoration, as well as the contracts under
which they have been engaged, shall be subject to prior review and
acceptance by Lender and, for casualties in excess of $125,000, an
independent consulting engineer selected by Lender (the "Casualty
Consultant"), such acceptance not to be unreasonably withheld or
delayed. All reasonable costs and expenses incurred by Lender in
connection with making the Net Proceeds available for the Restoration
including, without limitation, reasonable counsel fees and
disbursements and the Casualty Consultant's fees, shall be paid by
Borrower.
(f) If at any time the Net Proceeds or the undisbursed
balance thereof shall not, in the reasonable opinion of Lender, be
sufficient to pay in full the balance of the costs which are estimated
by the Casualty Consultant to be incurred in connection with the
completion of the Restoration, Borrower shall deposit the deficiency
(the "Net Proceeds Deficiency") with Lender before any further
disbursement of the Net Proceeds shall be made. The Net Proceeds
Deficiency deposited with Lender shall be held by Lender and shall be
disbursed for costs actually incurred in connection with the
Restoration on the same conditions applicable to the disbursement of
the Net Proceeds, and until so disbursed pursuant to this Section 3.7
shall constitute additional security for the Obligations.
(g) Except upon the occurrence and continuance of an Event of
Default, Borrower shall settle any insurance claims with respect to
the Net Proceeds which in the aggregate are less than the Net Proceeds
Availability Threshold. Lender shall have the right to participate in
and reasonably approve any settlement for insurance claims with
respect to the Net Proceeds which in the aggregate are greater than
the Net Proceeds Availability Threshold. If an Event of Default shall
have occurred and be continuing, Borrower hereby irrevocably empowers
Lender, in the name of Borrower as its true and lawful attorney-in-
fact, to file and prosecute such claim and to collect and to make
receipt for any such payment. If the Net Proceeds are received by
Borrower, such Net Proceeds shall, until the completion of the related
work, be held in trust for Lender and shall be segregated from other
funds of Borrower to be used to pay for the cost of the Restoration in
accordance with the terms hereof.
(h) The excess, if any, of the Net Proceeds and the remaining
balance, if any, of the Net Proceeds Deficiency deposited with Lender
after (i) the Casualty Consultant certifies to Lender that the
Restoration has been completed in accordance with the provisions of
this Section 3.7, and (ii) the receipt by Lender of evidence
satisfactory to Lender that all costs incurred in connection with the
Restoration have been paid in full and all required permits, licenses,
certificates of occupancy and other required approvals of governmental
authorities having jurisdiction have been issued, shall be remitted by
Lender to Borrower, provided no Event of Default shall have occurred
and shall be continuing under the Note, this Security Instrument or
any of the Other Security Documents.
(i) Notwithstanding the above, or anything else in the Loan
Documents to the contrary, Borrower shall have the option, exercisable
within sixty (60) days of written notice from Lender that (a) Lender
will not make the Net Proceeds available for the Restoration, or (b)
Lender is not required to return the Net Proceeds to Borrower as
excess Net Proceeds pursuant to Subsection 3.7(h), to apply the Net
Proceeds towards the cost of releasing the individual Property from
13<PAGE>
<PAGE>
the Security Instrument in accordance with Article 6 of the Note and
Article 24 hereof. If Borrower shall fail to exercise the option
granted under this paragraph within said sixty (60) day period, Lender
shall retain the Net Proceeds and apply them toward the payment of the
Debt whether or not then due and payable in such order, priority and
proportions as Lender in its discretion shall deem proper or, at the
discretion of Lender, the same shall be paid, either in whole or in
part, to Borrower. If Lender shall receive and retain Net Proceeds,
the priority of this Security Instrument shall be reduced only by the
amount received and retained by Lender and actually applied by Lender
in reduction of the Debt. If Borrower shall be entitled pursuant to
this paragraph to apply the Net Proceeds towards releasing the
individual Property from the lien of this Security Instrument pursuant
to Article 6 of the Note and Article 24 hereof and shall opt to do so,
Borrower shall be required to pay any additional sums required to
effect such partial defeasance under the provisions of Article 6 of
the Note and Article 24 hereof, and Lender shall have no liability for
any such expenses.
Section 3.8 INTENTIONALLY DELETED.
Section 3.9 MAINTENANCE AND USE OF PROPERTY. Borrower
shall cause the Property to be maintained in a good and safe condition
and repair. The Improvements and the Personal Property shall not be
removed, demolished or materially altered (except for normal
replacement of the Personal Property) without the consent of Lender.
Borrower shall promptly repair, replace or rebuild any part of the
Property which may be destroyed by any casualty, or become damaged,
worn or dilapidated or which may be affected by any proceeding of the
character referred to in Section 3.6 hereof and shall complete and pay
for any structure at any time in the process of construction or repair
on the Land. Borrower shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law
or other public or private restriction, limiting or defining the uses
which may be made of the Property or any part thereof. If under
applicable zoning provisions the use of all or any portion of the
Property is or shall become a nonconforming use, Borrower will not
cause or permit the nonconforming use to be discontinued or the
nonconforming Improvement to be abandoned without the express written
consent of Lender.
Section 3.10 WASTE. Borrower shall not commit or suffer
any waste of the Property or make any change in the use of the
Property which will in any way materially increase the risk of fire or
other hazard arising out of the operation of the Property, or take any
action that might invalidate or give cause for cancellation of any
Policy, or do or permit to be done thereon anything that may in any
way impair the value of the Property or the security of this Security
Instrument. Borrower will not, without the prior written consent of
Lender, permit any drilling or exploration for or extraction, removal,
or production of any minerals from the surface or the subsurface of
the Land, regardless of the depth thereof or the method of mining or
extraction thereof.
Section 3.11 COMPLIANCE WITH LAWS.
(a) Except as disclosed to and approved by Lender in writing,
Borrower shall promptly comply with all existing and future federal,
state and local laws, orders, ordinances, governmental rules and
regulations or court orders affecting the Property, or the use thereof
("Applicable Laws").
(b) Borrower shall from time to time, upon Lender's request,
but in no event more than one (1) time per two (2) years, provide
Lender with evidence reasonably satisfactory to Lender that the<PAGE>
Property complies with all Applicable Laws or is exempt from
compliance with Applicable Laws.
(c) Lender's approval of the plans, specifications, or
working drawings for alterations of the Property shall create no
responsibility or liability on behalf of Lender for their
completeness, design, sufficiency or their compliance with Applicable
Laws. The foregoing shall apply to tenant improvements constructed by
14<PAGE>
<PAGE>
Borrower or by any of its tenants. Lender may condition any such
approval upon receipt of a certificate of compliance with Applicable
Laws from an independent architect, engineer, or other person
acceptable to Lender.
(d) Borrower shall give prompt notice to Lender of the
receipt by Borrower of any notice related to a violation of any
Applicable Laws and of the commencement of any proceedings or
investigations which relate to compliance with Applicable Laws.
(e) After prior written notice to Lender, Borrower, at its
own expense, may contest by appropriate legal proceeding, promptly
initiated and conducted in good faith and with due diligence, the
Applicable Laws affecting the Property, provided that (i) no Event of
Default has occurred and is continuing under the Note, this Security
Instrument or any of the Other Security Documents; (ii) Borrower is
permitted to do so under the provisions of any other mortgage, deed of
trust or deed to secure debt affecting the Property; (iii) such
proceeding shall be permitted under and be conducted in accordance
with the provisions of any other instrument to which Borrower or the
Property is subject and shall not constitute a default thereunder;
(iv) neither the Property, any part thereof or interest therein, any
of the tenants or occupants thereof, nor Borrower shall be affected in
any material adverse way as a result of such proceeding; (v) non-
compliance with the Applicable Laws shall not impose civil or criminal
liability on Borrower or Lender; and (vi) Borrower shall have
furnished to Lender all other items reasonably requested by Lender.
Section 3.12 BOOKS AND RECORDS.
(a) Borrower and any Guarantors (defined in Subsection
10.1(e)) and Indemnitor(s) (defined in Section 13.4), if any, shall
keep adequate books and records of account in accordance with
generally accepted accounting principles ("GAAP"),, consistently
applied and furnish to Lender:
(i) upon reasonable request of Lender until the Loan has been
securitized or sold as a whole loan by Lender, and thereafter
quarterly and annual operating statements of the Property, prepared
and certified by Borrower in the form reasonably required by Lender,
detailing the revenues received, the expenses incurred and the net
operating income before and after debt service (principal and
interest) and major capital improvements for each month and containing
appropriate year to date information, within forty-five (45) days
after the end of each fiscal quarter or ninety (90) days after the
close of each fiscal year of Borrower, as applicable;
(ii) an annual operating statement of the Property detailing
the total revenues received, total expenses incurred, total cost of
all capital improvements, total debt service and total cash flow, to
be prepared and certified by Borrower in the form reasonably required
by Lender, or if required by Lender after an Event of Default, an
audited annual operating statement certified by an independent
certified public accountant acceptable to Lender, within ninety (90)
days after the close of each fiscal year of Borrower;
(iii) quarterly and annual balance sheet and profit and
loss statements of Borrower, in the form reasonably required by
Lender, prepared and certified by the Borrower, or if required by
Lender after an Event of Default, audited financial statements
certified by an independent certified public accountant acceptable to
Lender, within forty-five (45) days after the end of each fiscal
quarter or ninety (90) days after the close of each fiscal year of
Borrower, Guarantors and Indemnitor(s), as the case may be; and
(iv) an annual operating budget presented on a monthly basis
consistent with the annual operating statement described above for the
Property, including cash flow projections for the upcoming year, and
all proposed capital replacements and improvements at least fifteen
(15) days prior to the start of each fiscal year.
15<PAGE>
<PAGE>
(v) annually, on January 31, an occupancy summary for the
Property setting forth the occupancy rates, average weekly room rates
and room revenues for each month of the preceding calendar year, as
well as annual averages of the same, and such other information as may
customarily be reflected thereon or reasonably requested by Lender.
(b) Borrower shall furnish Lender with such other additional
financial or management information (including State and Federal tax
returns) as may, from time to time, be reasonably required by Lender
in form and substance satisfactory to Lender.
(c) Borrower shall furnish to Lender and its agents
convenient facilities for the examination and audit of any such books
and records.
Section 3.13 PAYMENT FOR LABOR AND MATERIALS. Borrower
will promptly pay when due all bills and costs for labor, materials,
and specifically fabricated materials incurred in connection with the
Property and never permit to exist in respect of the Property or any
part thereof any lien or security interest, even though inferior to
the priority and the security interests hereof, and in any event never
permit to be created or exist in respect of the Property or any part
thereof any lien or security interest, except for the Permitted
Exceptions (defined below).
Section 3.14 PERFORMANCE OF OTHER AGREEMENTS. Borrower
shall observe and perform each and every term to be observed or
performed by Borrower pursuant to the terms of any agreement or
recorded instrument affecting or pertaining to the Property, or given
by Borrower to Lender for the purpose of further securing an
Obligation and any amendments, modifications or changes thereto.
Section 3.15 CHANGE OF NAME, IDENTITY OR STRUCTURE. Except
as may be permitted under Article 8 hereof, Borrower will not change
Borrower's name, identity (including its trade name or names) or, if
not an individual, Borrower's corporate, partnership or other
structure without notifying the Lender of such change in writing at
least thirty (30) days prior to the effective date of such change and,
in the case of a change in Borrower's structure, without first
obtaining the prior written consent of the Lender, such consent not to
be unreasonably delayed or withheld.
Section 3.16 EXISTENCE. Borrower will continuously
maintain (a) its existence and shall not dissolve or permit its
dissolution, (b) its rights to do business in the state where the
Property is located and (c) its franchises and trade names, if any.
Section 3.17 MANAGEMENT. The management of the Property
shall be by either: (a) Borrower or an entity affiliated with
Borrower approved by Lender for so long as Borrower or said affiliated
entity is managing the Property in a first class manner; or (b) a
professional property management company or lessee approved by Lender.
As of the date hereof, Suburban Management, Inc., a Georgia
corporation, is hereby approved by Lender. Such management by an
affiliated entity or a professional property management company shall
be pursuant to a written agreement approved by Lender, which consent
shall not be unreasonably withheld or delayed. In no event shall any
16<PAGE>
<PAGE>
management company be removed or replaced or the terms of any
management agreement modified or amended without the prior written
consent of Lender, which consent shall not be unreasonably withheld or
delayed. All Rents generated by or derived from the Property shall
first be utilized solely for current expenses directly attributable to
the ownership and operation of the Property, including, without
limitation, current expenses relating to Borrower's liabilities and
obligations with respect to the Note, this Security Instrument and the
Other Security Documents, and none of the Rents generated by or
derived from the Property shall be diverted by Borrower and utilized
for any other purpose unless all such current expenses attributable to
the ownership and operation of the Property have been fully paid and
satisfied.
Section 3.18 YEAR 2000. Borrower shall take all action
reasonable and prudent, with respect to matters within its control, to
assure that there will be no material adverse change to Borrower's
business by reason of the advent of the year 2000, including without
limitation that all computer-based systems, embedded microchips and
other processing capabilities effectively recognize and process dates
after April 1, 1999. At Lender's request, Borrower shall provide to
Lender assurance reasonably acceptable to Lender that Borrower's
computer-based systems, embedded microchips and other processing
capabilities are year 2000 compatible.
ARTICLE 4 - SPECIAL COVENANTS
Borrower covenants and agrees that:
Section 4.1 PROPERTY USE. The Property shall be used only
for a hotel, and for no other use, without the prior written consent
of Lender.
Section 4.2 SINGLE PURPOSE ENTITY. It has not and shall
not:
(a) engage in any business or activity other than the
ownership, operation and maintenance of the Property, and activities
incidental thereto;
(b) acquire or own any material assets other than (i) the
Property, and (ii) such incidental Personal Property as may be
necessary for the operation of the Property;
(c) merge into or consolidate with any person or entity or
dissolve, terminate or liquidate in whole or in part, transfer or
otherwise dispose of all or substantially all of its assets or change
its legal structure, without in each case Lender's consent;
(d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under
the laws of the jurisdiction of its organization or formation, and
qualification to do business in the state where the Property is
located, if applicable, or without the prior written consent of
Lender, amend, modify, terminate or fail to comply with the provisions
of Borrower's Partnership Agreement, Articles or Certificate of
Incorporation, Articles of Organization or similar organizational
documents, as the case may be;
(e) own any subsidiary or make any investment in, any person
or entity without the consent of Lender;
(f) commingle its assets with the assets of any of its
members, general partners, affiliates, principals or of any other
person or entity;
(g) incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than the
Debt, except for trade payables in the ordinary course of its business
of owning and operating the Property, provided that such debt is not
evidenced by a note and is paid when due;
17<PAGE>
<PAGE>
(h) become insolvent and fail to pay its debts and
liabilities from its assets as the same shall become due;
(i) fail to maintain its records, books of account and bank
accounts separate and apart from those of the members, partners,
principals and affiliates of Borrower, the affiliates of a member,
partner or principal of Borrower, and any other person or entity;
(j) enter into any contract or agreement with any member,
general partner, principal or affiliate of Borrower, Guarantor or
Indemnitor or any member, general partner, principal or affiliate
thereof, except upon terms and conditions that are intrinsically fair
and substantially similar to those that would be available on an arms-
length basis with third parties other than any member, general
partner, principal or affiliate of Borrower, Guarantor or Indemnitor
or any member, general partner, principal or affiliate thereof;
(k) seek the dissolution or winding up in whole, or in part,
of Borrower;
(l) fail to correct any known misunderstandings regarding the
separate identity of Borrower;
(m) hold itself out to be responsible for the debts of
another person;
(n) make any loans or advances to any third party, including
any member, general partner, principal or affiliate of Borrower, or
any member, general partner, principal or affiliate thereof;
(o) fail to file its own tax returns;
18
<PAGE>
<PAGE>
(p) fail either to hold itself out to the public as a
legal entity separate and distinct from any other entity or person or
to conduct its business solely in its own name in order not (i) to
mislead others as to the identity with which such other party is
transacting business, or (ii) to suggest that Borrower is responsible
for the debts of any third party (including any member, general
partner, principal or affiliate of Borrower, or any member, general
partner, principal or affiliate thereof);
(q) fail to maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations; or
(r) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or make
an assignment for the benefit of creditors.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
Section 5.1 WARRANTY OF TITLE. Borrower has good title to
the Property and has the right to grant, bargain, sell, pledge,
assign, warrant, transfer and convey the same and that Borrower
possesses an unencumbered fee simple absolute estate in the Land and
the Improvements and that it owns the Property free and clear of all
liens, encumbrances and charges whatsoever except for those exceptions
shown in the title insurance policy insuring the priority of this
Security Instrument (the "Permitted Exceptions"). Borrower shall
forever warrant, defend and preserve the title and the validity and
priority of this Security Instrument and shall forever warrant and
defend the same to Lender against the claims of all persons
whomsoever.
Section 5.2 LEGAL STATUS AND AUTHORITY. Borrower (a) is
duly organized, validly existing and in good standing under the laws
of its state of organization or incorporation; (b) is duly qualified
to transact business and is in good standing in the state where the
Property is located; and (c) has all necessary approvals, governmental
and otherwise, and full power and authority to own, operate and lease
the Property. Borrower (and the undersigned representative of
Borrower, if any) has full power, authority and legal right to execute
this Security Instrument, and to grant, bargain, sell, pledge, assign,
warrant, transfer and convey the Property pursuant to the terms hereof
and to keep and observe all of the terms of this Security Instrument
on Borrower's part to be performed.
Section 5.3 VALIDITY OF DOCUMENTS. (a) The execution,
delivery and performance of the Note, this Security Instrument and the
Other Security Documents and the borrowing evidenced by the Note (i)
are within the power and authority of Borrower; (ii) have been
authorized by all requisite organizational action; (iii) have received
all necessary approvals and consents, corporate, governmental or
otherwise; (iv) will not violate, conflict with, result in a breach of
or constitute (with notice or lapse of time, or both) a material
default under any provision of law, any order or judgment of any court
or governmental authority, the articles of incorporation, by-laws,
partnership or trust agreement, articles of organization, operating
agreement, or other governing instrument of Borrower, or any
19
<PAGE>
<PAGE>
indenture, agreement or other instrument to which Borrower is a party
or by which it or any of its assets or the Property is or may be bound
or affected; (v) will not result in the creation or imposition of any
lien, charge or encumbrance whatsoever upon any of its assets; and
(vi) will not require any authorization or license from, or any filing
with, any governmental or other body (except for the recordation of
this Security Instrument in appropriate land records in the State
where the Property is located and except for Uniform Commercial Code
filings relating to the security interest created hereby); and (b) to
the best knowledge of Borrower, the Note, this Security Instrument and
the Other Security Documents constitute the legal, valid and binding
obligations of Borrower.
Section 5.4 LITIGATION. Except as disclosed to Lender in
writing, there is no action, suit or proceeding, judicial,
administrative or otherwise (including any condemnation or similar
proceeding), pending or, to the best of Borrower's knowledge,
threatened or contemplated against Borrower, or against or affecting
the Property that (a) has not been disclosed to Lender by Borrower in
writing, and has a material adverse affect on the Property or
Borrower's ability to perform its obligations under the Note, this
Security Instrument or the Other Security Documents, or (b) is not
adequately covered by insurance, each as determined by Lender in its
sole but reasonable discretion.
Section 5.5 STATUS OF PROPERTY.
(a) Borrower has obtained all necessary certificates,
licenses and other approvals, governmental and otherwise, necessary
for the operation of the Property and the conduct of its business and
all required zoning, building code, land use, environmental and other
similar permits or approvals, all of which are in full force and
effect as of the date hereof and not subject to revocation,
suspension, forfeiture or modification.
(b) The Property and the present and contemplated use and
occupancy thereof are in full compliance with all applicable zoning
ordinances, building codes, land use laws, Environmental Laws and
other similar laws.
(c) The Property is served by all utilities required for the
current or contemplated use thereof. All utility service is provided
by public utilities and the Property has accepted or is equipped to
accept such utility service.
(d) All public roads and streets necessary for service of and
access to the Property for the current or contemplated use thereof
have been completed, are serviceable and all-weather and are
physically and legally open for use by the public.
(e) The Property is served by public water and sewer systems.
(f) The Property is free from damage caused by fire or other
casualty.
(g) All costs and expenses of any and all labor, materials,
supplies and equipment used in the construction of the Improvements
have been paid in full.
(h) Borrower has paid in full for, and is the owner of, all
furnishings, fixtures and equipment (other than tenants' property)
used in connection with the operation of the Property, free and clear
of any and all security interests, liens or encumbrances.
(i) All liquid and solid waste disposal, septic and sewer
systems located on the Property are in a good and safe condition and
repair and in compliance with all Applicable Laws.
(j) No portion of the Improvements is located in an area
identified by the Secretary of Housing and Urban Development or any
successor thereto as an area having special flood hazards pursuant to
the Flood Insurance Acts or, if any portion of the Improvements is
located within such area, Borrower has obtained and will maintain the
insurance prescribed in Section 3.3 hereof.
20<PAGE>
<PAGE>
(k) All the Improvements lie within the boundaries of the
Property.
Section 5.6 NO FOREIGN PERSON. Borrower is not a "foreign
person" within the meaning of Section 1445(f)(3) of the Internal
Revenue Code of 1986, as amended and the related Treasury Department
regulations.
Section 5.7 SEPARATE TAX LOT. The Property is assessed
for real estate tax purposes as one or more wholly independent tax lot
or lots, separate from any adjoining land or improvements not
constituting a part of such lot or lots, and no other land or
improvements is assessed and taxed together with the Property or any
portion thereof.
Section 5.8 INTENTIONALLY DELETED.
Section 5.9 FINANCIAL CONDITION. (a) (i) Borrower is
solvent, and no bankruptcy, reorganization, insolvency or similar
proceeding under any state or federal law with respect to Borrower has
been initiated, and (ii) Borrower has received reasonably equivalent
value for the granting of this Security Instrument.
(b) No petition in bankruptcy has ever been filed by or
against Borrower in the last seven (7) years, and neither Borrower nor
any related entity, or any principal, general partner or member
thereof, in the last seven (7) years has ever made any assignment for
the benefit of creditors or taken advantage of any insolvency act or
any act for the benefit of debtors.
Section 5.10 BUSINESS PURPOSES. The loan evidenced by the
Note secured by the Security Instrument and the Other Security
Documents (the "Loan") is solely for the business purpose of Borrower,
and is not for personal, family, household, or agricultural purposes.
Section 5.11 TAXES. Borrower, any Guarantor and any
Indemnitor have filed all federal, state, county, municipal, and city
income and other tax returns required to have been filed by them and
have paid all taxes and related liabilities which have become due
pursuant to such returns or pursuant to any assessments received by
them. Neither Borrower, any Guarantor nor any Indemnitor knows of any
basis for any additional assessment in respect of any such taxes and
related liabilities for prior years.
Section 5.12 MAILING ADDRESS. Borrower's mailing address,
as set forth in the opening paragraph hereof or as changed in
accordance with the provisions hereof, is true and correct.
Section 5.13 NO CHANGE IN FACTS OR CIRCUMSTANCES. All
information in the application for the Loan submitted to Lender (the
"Loan Application") and in all financing statements, rent rolls,
reports, certificates and other documents submitted in connection with
the Loan Application or in satisfaction of the terms thereof, are
accurate, complete and correct in all respects. There has been no
adverse change in any condition, fact, circumstance or event that
would make any such information inaccurate, incomplete or otherwise
misleading.
Section 5.14 DISCLOSURE. Borrower has disclosed to Lender
all material facts and has not failed to disclose any material fact
that could cause any representation or warranty made herein to be
materially misleading.
<PAGE>
Section 5.15 THIRD PARTY REPRESENTATIONS. Each of the
representations and the warranties made by each Guarantor and
Indemnitor herein or in any Other Security Document(s) is true and
correct in all material respects.
21
<PAGE>
<PAGE>
Section 5.16 ILLEGAL ACTIVITY. No portion of the Property
has been or will be purchased, improved, equipped or furnished with
proceeds of any illegal activity and to the best of Borrower's
knowledge, there are no illegal activities or activities relating to
controlled substances at the Property.
Section 5.17 YEAR 2000. Borrower has taken all action
reasonable and prudent, with respect to matters within its control, to
assure that there will be no material adverse change to Borrower's
business by reason of the advent of the year 2000, including without
limitation that all computer-based systems, embedded microchips and
other processing capabilities effectively recognize and process dates
after April 1, 1999.
ARTICLE 6 - OBLIGATIONS AND RELIANCES
Section 6.1 RELATIONSHIP OF BORROWER AND LENDER. The
relationship between Borrower and Lender is solely that of debtor and
creditor, and Lender has no fiduciary or other special relationship
with Borrower, and no term or condition of any of the Note, this
Security Instrument and the Other Security Documents shall be
construed so as to deem the relationship between Borrower and Lender
to be other than that of debtor and creditor.
Section 6.2 NO RELIANCE ON LENDER. The members, general
partners, principals and (if Borrower is a trust) beneficial owners of
Borrower are experienced in the ownership and operation of properties
similar to the Property, and Borrower and Lender are relying solely
upon such expertise and business plan in connection with the ownership
and operation of the Property. Borrower is not relying on Lender's
expertise, business acumen or advice in connection with the Property.
Section 6.3 NO LENDER OBLIGATIONS. Notwithstanding the
provisions of Subsections 1.1(f) and (l) or Section 1.2, Lender is not
undertaking the performance of (i) any obligations under the Leases;
or (ii) any obligations with respect to such agreements, contracts,
certificates, instruments, franchises, permits, trademarks, licenses
and other documents. By accepting or approving anything required to
be observed, performed or fulfilled or to be given to Lender pursuant
to this Security Instrument, the Note or the Other Security Documents,
including without limitation, any officer's certificate, balance
sheet, statement of profit and loss or other financial statement,
survey, appraisal, or insurance policy, Lender shall not be deemed to
have warranted, consented to, or affirmed the sufficiency, the
legality or effectiveness of same, and such acceptance or approval
thereof shall not constitute any warranty or affirmation with respect
thereto by Lender.
Section 6.4 RELIANCE. Borrower recognizes and
acknowledges that in accepting the Note, this Security Instrument and
the Other Security Documents, Lender is expressly and primarily
relying on the truth and accuracy of the warranties and
representations set forth in Article 5 and Article 12 without any
obligation to investigate the Property and notwithstanding any
investigation of the Property by Lender; that such reliance existed on
the part of Lender prior to the date hereof; that the warranties and
representations are a material inducement to Lender in accepting the
Note, this Security Instrument and the Other Security Documents; and
that Lender would not be willing to make the Loan and accept this
Security Instrument in the absence of the warranties and
representations as set forth in Article 5 and Article 12.
<PAGE>
ARTICLE 7 - FURTHER ASSURANCES
22<PAGE>
<PAGE>
Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC.
Borrower forthwith upon the execution and delivery of this Security
Instrument and thereafter, from time to time, will cause this Security
Instrument and any of the Other Security Documents creating a lien or
security interest upon the Property and each instrument of further
assurance to be filed, registered or recorded in such manner and in
such places as may be required by any present or future law in order
to publish notice of and fully to protect and perfect the priority or
security interest hereof upon, and the interest of Lender in, the
Property. Borrower will pay all taxes, filing, registration or
recording fees, and all expenses incident to the preparation,
execution, acknowledgment and/or recording of the Note, this Security
Instrument, the Other Security Documents, any note or deed to secure
debt supplemental hereto, any security instrument with respect to the
Property and any instrument of further assurance, and any modification
or amendment of the foregoing documents, and all federal, state,
county and municipal taxes, duties, imposts, assessments and charges
arising out of or in connection with the execution and delivery of
this Security Instrument, any deed to secure debt supplemental hereto,
any security instrument with respect to the Property or any instrument
of further assurance, and any modification or amendment of the
foregoing documents, except where prohibited by law so to do.
Section 7.2 FURTHER ACTS, ETC. Borrower will, at the cost
of Borrower, and without expense to Lender, do, execute, acknowledge
and deliver all and every such further acts, deeds, conveyances, deeds
to secure debt, assignments, notices of assignments, transfers and
assurances as Lender shall, from time to time, require, for the better
assuring, conveying, assigning, transferring, and confirming unto
Lender the Property and rights hereby deeded, granted, bargained,
sold, conveyed, confirmed, pledged, assigned, warranted and
transferred or intended now or hereafter so to be, or which Borrower
may be or may hereafter become bound to convey or assign to Lender, or
for carrying out the intention or facilitating the performance of the
terms of this Security Instrument or for filing, registering or
recording this Security Instrument, or for complying with all
Applicable Laws. Borrower, on demand, will execute and deliver and
hereby authorizes Lender, following 10 days' notice to Borrower, to
execute in the name of Borrower or without the signature of Borrower
to the extent Lender may lawfully do so, one or more financing
statements, chattel mortgages or other instruments, to evidence more
effectively the security interest of Lender in the Property. Borrower
grants to Lender an irrevocable power of attorney coupled with an
interest for the purpose of exercising and perfecting any and all
rights and remedies available to Lender pursuant to this Section 7.2.
Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY
STAMP LAWS.
(a) If any law is enacted or adopted or amended after the
date of this Security Instrument which deducts the Debt from the value
of the Property for the purpose of taxation or which imposes a tax,
either directly or indirectly, on the Debt or Lender's interest in the
Property, Borrower will pay the tax, with interest and penalties
thereon, if any. If Lender is properly advised by counsel chosen by
it that the payment of tax by Borrower would be unlawful or taxable to
Lender or unenforceable or provide the basis for a defense of usury,
then Lender shall have the option, exercisable by written notice of
not less than one hundred eighty (180) days, to declare the Debt
immediately due and payable.
(b) Borrower will not claim or demand or be entitled to any
credit or credits on account of the Debt for any part of the Taxes or
Other Charges assessed against the Property, or any part thereof, and<PAGE>
no deduction shall otherwise be made or claimed from the assessed
value of the Property, or any part thereof, for real estate tax
purposes by reason of this Security Instrument or the Debt. If such
claim, credit or deduction shall be required by law, Lender shall have
the option, exercisable by written notice of not less than ninety (90)
days, to declare the Debt immediately due and payable.
23
<PAGE>
<PAGE>
(c) If at any time the United States of America, any State
thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Note, this Security Instrument, or
any of the Other Security Documents or impose any other tax or charge
on the same, Borrower will pay for the same, with interest and
penalties thereon, if any.
Section 7.4 ESTOPPEL CERTIFICATES.
(a) After request by Lender, Borrower, within twenty (20)
days, shall furnish Lender or any proposed assignee with a statement,
duly acknowledged and certified, setting forth (i) the original
principal amount of the Note, (ii) the unpaid principal amount of the
Note, (iii) the rate of interest of the Note, (iv) the terms of
payment and maturity date of the Note, (v) the date installments of
interest and/or principal were last paid, (vi) that, except as
provided in such statement, there are no defaults or events which with
the passage of time or the giving of notice or both, would constitute
an event of default under the Note or the Security Instrument, (vii)
that the Note and this Security Instrument are valid, legal and
binding obligations and have not been modified or if modified, giving
particulars of such modification, (viii) whether any offsets or
defenses exist against the obligations secured hereby and, if any are
alleged to exist, a detailed description thereof, (ix) that all Leases
are in full force and effect and (provided the Property is not a
residential multifamily property) have not been modified (or if
modified, setting forth all modifications), (x) the date to which the
Rents thereunder have been paid pursuant to the Leases, (xi) whether
or not, to the best knowledge of Borrower, any of the lessees under
the Leases are in default under the Leases, and, if any of the lessees
are in default, setting forth the specific nature of all such
defaults, (xii) the amount of security deposits held by Borrower under
each Lease and that such amounts are consistent with the amounts
required under each Lease, and (xiii) as to any other matters
reasonably requested by Lender and reasonably related to the Leases,
the obligations secured hereby, the Property or this Security
Instrument.
(b) Borrower shall use its best efforts to deliver to Lender,
promptly upon request, but in no event more than one (1) time per
year, duly executed estoppel certificates from any one or more lessees
as required by Lender attesting to such facts regarding the Lease as
Lender may require, including but not limited to attestations that
each Lease covered thereby is in full force and effect with no
defaults thereunder on the part of any party, that none of the Rents
have been paid more than one month in advance, and that the lessee
claims no defense or offset against the full and timely performance of
its obligations under the Lease.
(c) Upon any transfer or proposed transfer contemplated by
Section 18.1 hereof, at Lender's request, Borrower shall provide an
estoppel certificate to the Investor (defined in Section 18.1) or any
prospective Investor in such form, substance and detail as Lender,
such Investor or prospective Investor may reasonably require.
Section 7.5 FLOOD INSURANCE. After Lender's request,
Borrower shall deliver evidence satisfactory to Lender that no portion
of the Improvements is situated in a federally designated "special
flood hazard area" or if it is, that Borrower has obtained insurance
meeting the requirements of Section 3.3(a)(vi).
<PAGE>
Section 7.6 REPLACEMENT DOCUMENTS. Upon receipt of an
affidavit of an officer of Lender as to the loss, theft, destruction
or mutilation of the Note or any Other Security Document which is not
of public record, and, in the case of any such mutilation, upon
surrender and cancellation of such Note or Other Security Document,
Borrower will issue, in lieu thereof, a replacement Note or Other
Security Document, dated the date of such lost, stolen, destroyed or
mutilated Note or Other Security Document in the same principal amount
thereof and otherwise of like tenor.
24<PAGE>
<PAGE>
ARTICLE 8 - DUE ON SALE/ENCUMBRANCE
Section 8.1 NO SALE/ENCUMBRANCE. Borrower agrees that
Borrower shall not, without the prior written consent of Lender, sell,
convey, mortgage, grant, pledge, assign, or otherwise transfer the
Property or any part thereof or permit the Property or any part
thereof to be sold, conveyed, mortgaged, granted, bargained,
encumbered, pledged, assigned, or otherwise transferred, other than
pursuant to Leases of space in the Improvements to tenants.
Section 8.2 SALE/ENCUMBRANCE DEFINED. A sale, conveyance,
mortgage, grant, pledge, assignment, or transfer of the Property
within the meaning of this Article 8 shall be deemed to include, but
not limited to, (a) an installment sales agreement wherein Borrower
agrees to sell the Property or any part thereof for a price to be paid
in installments; (b) an agreement by Borrower leasing all or a
substantial part of the Property for other than actual occupancy by a
space tenant thereunder or a sale, assignment or other transfer of, or
the grant of a security interest in, Borrower's right, title and
interest in and to any Leases or any Rents (except as specifically
excepted for a REIT Transfer below); (c) the change, removal or
resignation of the Manager of Borrower or the transfer of the
membership interests of Borrower or the Manager of Borrower, or any
profits or proceeds relating to such membership interest or the
voluntary or involuntary sale, conveyance, transfer or pledge of such
membership interests. Notwithstanding the foregoing, the following
transfers shall not be deemed to be a sale, conveyance, mortgage,
grant, pledge, assignment, or transfer within the meaning of this
Article 8: (A) a transfer by devise or descent or by operation of law
upon the death of a member, of Borrower or the Manager of Borrower or
member thereof; and (B) the sale, transfer or pledge of a non-managing
membership interest in Borrower or the managing member of Borrower, by
which, in a single transaction or a series of transactions, in the
aggregate, not more than forty-nine percent (49%) of the membership
interests (as the case may be) in Borrower or the Manager of Borrower,
as applicable, shall be vested in parties not having an ownership
interest as of the date hereof; provided, however, that a transfer of
any interest in any entity other than Borrower or the Manager of
Borrower, or any publicly traded entity, shall not be deemed to be a
sale, conveyance, mortgage, grant, pledge, assignment, or transfer
within the meaning of this Article 8.
Notwithstanding the above or anything else in this Security Instrument
to the contrary, but subject to Lender's approval and compliance with
and satisfaction of the terms and conditions of this Section and
provided that no Event of Default exists under the Note, the members
of Borrower shall have the right to transfer the membership interests
in Borrower to a Real Estate Investment Trust ("REIT") and Borrower
enter into an operating lease ("Operating Lease") for all or a
substantial part of the Property ("REIT Transfer") with an operator
acceptable to Lender in its sole but reasonable discretion, provided
that, as a condition precedent to Lender's approval of the REIT
Transfer, Borrower shall have complied with all of the following:
(i) Borrower shall provide not less than sixty (60) days
prior written notice to Lender specifying a date upon which the
members of Borrower intend to effect a the transfer of the membership
interests of Borrower to the REIT and Borrower enter into the
Operating Lease;
<PAGE>
(ii) Borrower shall execute and deliver to Lender any and
all certificates, opinions, documents or instruments required by
Lender in connection with the REIT Transfer, including, without
limitation, a subordination agreement executed by all parties to the
Operating Lease, stating that the Operating Lease is subject and
subordinate to this Security Instrument and the lessee thereunder
agrees to attorn to Lender, all of which shall be in form and
25<PAGE>
<PAGE>
substance acceptable to Lender in its sole but reasonable discretion;
provided, however, that "reasonable discretion" hereunder shall not be
construed to require Lender to approve any certificates, opinions,
documents or instruments which would result in a withdrawal, downgrade
or qualification of the then current ratings by the applicable Rating
Agencies of the Securities or Participations (both as hereinafter
defined);
(iii) Borrower shall have delivered to Lender
written confirmation from the Rating Agencies (as hereinafter defined)
that such REIT Transfer will not result in a withdrawal, downgrade or
qualification of the then current ratings by the applicable Rating
Agencies of the Securities or Participations (both as hereinafter
defined). If required by the Rating Agencies, Borrower shall, at
Borrower's expense, also deliver or cause to be delivered a non-
consolidation opinion with respect to the REIT, in form and substance
satisfactory to Lender and the Rating Agencies;
(iv) Borrower shall have delivered to Lender an executed
copy of the Operating Lease and such other information and documents
as Lender shall require in connection with the REIT Transfer;
(v) The Operating Lease and the operator thereunder
shall be acceptable to Lender in its sole but reasonable discretion;
(vi) Lender shall be entitled to re-underwrite the
Property with the Operating Lease in place and Lender shall have
determined in its sole but reasonable discretion that the REIT
Transfer shall not cause the Property to have a debt coverage ratio
lower than that at the time of the original loan underwriting or a
loan to value higher than that at the time of the original loan
underwriting, each as determined by Lender; provided, however, that
"reasonable discretion" hereunder shall not be construed to require
Lender to approve any new debt coverage ratio or new loan to value
ratio which would result in a withdrawal, downgrade or qualification
of the then current ratings by the applicable Rating Agencies of the
Securities or Participations (both as hereinafter defined)
Upon Borrower's compliance with all of the conditions of the REIT
Transfer set forth in this Article 8, Lender shall permit the REIT
Transfer. All costs and expenses of Lender incurred in connection
with the REIT Transfer, including, without limitation, Lender's
counsel's reasonable fees and expenses, shall be paid by Borrower
simultaneously with the REIT Transfer.
Section 8.3 LENDER'S RIGHTS. Lender reserves the right to
condition the consent required under Section 8.4 below upon a
modification of the terms hereof and on assumption of the Note, this
Security Instrument and the Other Security Documents as so modified by
the proposed transferee, payment of a transfer fee equal to one half
of one percent (0.5%) of the then outstanding principal balance of the
Note, and all of Lender's reasonable expenses incurred in connection
with such transfer, the approval by a Rating Agency of the proposed
transferee, the proposed transferee's continued compliance with the
covenants set forth in this Security Instrument, including, without
limitation, the covenants in Section 4.2 hereof, or such other
conditions as Lender shall determine in its sole but reasonable
discretion to be in the interest of Lender. All of Lender's
reasonable expenses incurred shall be payable by Borrower whether or
not Lender consents to the transfer. Lender shall not be required to
demonstrate any actual impairment of its security or any increased
26<PAGE>
<PAGE>
risk of default hereunder in order to declare the Debt immediately due
and payable upon Borrower's sale, conveyance, mortgage, grant, pledge,
assignment, or transfer of the Property without Lender's consent.
This provision shall apply to every sale, conveyance, mortgage, grant,
pledge, assignment, or transfer of the Property regardless of whether
voluntary or not, or whether or not Lender has consented to any
previous sale, conveyance, mortgage, grant, pledge, assignment, or
transfer of the Property.
Section 8.4 PERMITTED TRANSFERS Notwithstanding the
foregoing provisions of this Section, Lender shall not unreasonably
withhold consent to not more than two (2) sales, conveyances or
transfers of the Property in its entirety (hereinafter, "Sale" or
"Sales") during the term of the Loan after the earlier to occur of (A)
the first anniversary of the first day of the first calendar month
after the date hereof (or the date hereof if dated the first day of a
calendar month) or (B) sixty (60) days after the date that is the
"startup day," within the meaning of Section 860G(a) (9) of the IRS
Code, of a REMIC that holds the Note; and with respect to such Sales,
Lender shall not require a modification of the material economic terms
hereof, to any person or entity provided that each of the following
terms and conditions are satisfied:
(i) no default after the expiration of notice or grace
periods is then continuing hereunder, under the Note or under any of
the Other Security Documents;
(ii) Borrower gives Lender written notice of the terms of
such prospective Sale not less than thirty (30) days before the date
on which such Sale is scheduled to close and, concurrently therewith,
gives Lender all such information concerning the proposed transferee
of the Property (hereinafter, "Buyer") as Lender would reasonably
require in evaluating an initial extension of credit to a borrower and
pays to Lender a non-refundable application fee in the amount of
$2,500.00. Lender shall have the right to approve or disapprove the
proposed Buyer, such approval not to be unreasonably withheld. In
determining whether to give or withhold its approval of the proposed
Buyer, Lender shall consider the Buyer's experience and track record
in owning and operating facilities similar to the Property, the
Buyer's financial strength, the Buyer's general business standing and
the Buyer's relationships and experience with contractors, vendors,
tenants, lenders and other business entities;
(iii) Borrower pays Lender, concurrently with the
closing of such Sale, a non-refundable assumption fee in an amount
equal to all out-of-pocket costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred by Lender in
connection with the Sale plus an amount equal to one half of one
percent (0.5%) of the then outstanding principal balance of the Note;
(iv) Buyer assumes and agrees to pay the indebtedness
secured hereby as and when due subject to the provisions of Article 11
of the Note and, prior to or concurrently with the closing of such
Sale, the Buyer executes, without any cost or expense to Lender, such
documents and agreements as Lender shall reasonably require to
evidence and effectuate said assumption;
(v) Borrower and the Buyer execute, without any cost or
expense to Lender, new financing statements or financing statement
amendments and any additional documents reasonably requested by
Lender;
<PAGE>
(vi) Borrower delivers to Lender, without any cost or
expense to Lender, such endorsements to Lender's title insurance
policy, hazard insurance endorsements or certificates and other
similar materials as Lender may deem necessary at the time of the
Sale, all in form and substance satisfactory to Lender, including,
without limitation, an endorsement or endorsements to Lender's title
insurance policy insuring the lien of this Security Instrument
insuring that fee simple title to the Property is vested in the Buyer;
27<PAGE>
<PAGE>
(vii) Buyer shall furnish, if the Buyer is a
corporation, partnership or other entity, all appropriate papers
evidencing the Buyer's capacity and good standing, and the
qualification of the signers to execute the assumption of the
indebtedness secured hereby, which papers shall include certified
copies of all documents relating to the organization and formation of
the Buyer and of the entities, if any, which are partners or members
of the Buyer. The Buyer and such constituent partners, members or
shareholders of Buyer (as the case may be), as Lender shall require,
shall be single purpose, "bankruptcy remote" entities, whose formation
documents shall be approved by counsel to Lender.
(viii) Buyer shall assume the obligations of Borrower
under any management agreements pertaining to the Property or assign
to Lender as additional security any new management agreement entered
into in connection with such Sale;
(ix) Buyer shall furnish an opinion of counsel
satisfactory to Lender and its counsel (A) that the Buyer's formation
documents provide for the matters described in subparagraph (vii)
above, (B) that the assumption of the indebtedness evidenced hereby
has been duly authorized, executed and delivered, and that the Note,
this Security Instrument, the assumption agreement and the Other
Security Documents are valid, binding and enforceable against the
Buyer in accordance with their terms, (C) that the Buyer and any
entity which is a controlling stockholder, member or general partner
of Buyer, have been duly organized, and are in existence and good
standing, (D) if required by Lender, that the assets of the Buyer will
not be consolidated with the assets of any other entity having an
interest in, or affiliation with, the Buyer, in the event of
bankruptcy or insolvency of any such entity, and (E) with respect to
such other matters as Lender may reasonably request;
(x) if required by Lender, Lender shall have received
evidence in writing from the Rating Agency that rate the Securities or
Participations (each as defined in Section 18.1) to the effect that
the Sale will not result in a re-qualification, downgrade or
withdrawal or any rating initially assigned or to be assigned to the
Securities or Participations, as applicable; and
(xi) Borrower's obligations under the contract of sale
pursuant to which the Sale is proposed to occur shall expressly be
subject to the satisfaction of the terms and conditions of this
Section 8.4.
ARTICLE 9 - PREPAYMENT
Section 9.1 PREPAYMENT. The Debt may not be prepaid in
whole or in part except in strict accordance with the express terms
and conditions of the Note.
ARTICLE 10 - DEFAULT
Section 10.1 EVENTS OF DEFAULT. The occurrence of any one
or more of the following events shall constitute an "Event of
Default":
(a) if any portion of the Debt is not paid prior to the fifth
(5th) day after the same is due or if the entire Debt is not paid on
or before the Maturity Date (as defined in the Note);
<PAGE>
(b) if any of the Taxes or Other Charges is not paid when the
same is due and payable except to the extent sums sufficient to pay
such Taxes and Other Charges have been deposited with Lender in
accordance with the terms of this Security Instrument;
28<PAGE>
<PAGE>
(c) if the Policies are not kept in full force and effect, or
if the Policies are not delivered to Lender upon request; except to
the extent sums sufficient to pay the premiums and costs for such
Policies have been deposited with Lender in accordance with the terms
of this Security Instrument and the Policies are not kept in full
force and effect because of Lender's failure to pay such premiums or
costs,;
(d) if Borrower violates or does not comply with any of the
provisions of Section 4.2 or Article 8 after written notice and a ten
(10) day opportunity to cure;
(e) after written notice and a ten (10) day opportunity to
cure, if any representation or warranty of Borrower made herein or in
the Environmental Indemnity (defined below) or in any guaranty, or in
any certificate, report, financial statement or other instrument or
document furnished to Lender shall have been false or misleading in
any material respect when made;
(f) if (i) Borrower or any managing member or general partner
of Borrower, shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization,
conservatorship or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of
a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the
Borrower or any managing member or general partner of Borrower shall
make a general assignment for the benefit of its creditors; or (ii)
there shall be commenced against Borrower or any managing member or
general partner of Borrower any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of one
hundred twenty (120) days; or (iii) there shall be commenced against
the Borrower or any managing member or general partner of Borrower any
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of any order
for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within one hundred twenty (120) days
from the entry thereof; or (iv) the Borrower or any managing member or
general partner of Borrower shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they
become due;
(g) if Borrower shall be in default beyond applicable notice
and grace periods under any other mortgage, deed of trust, deed to
secure debt or other security agreement covering any part of the
Property whether it be superior or junior in priority to this Security
Instrument;
(h) if the Property becomes subject to any mechanic's,
materialman's or other lien in excess of $1,000, other than a lien for
local real estate taxes and assessments not then due and payable and
the lien shall remain undischarged of record (by payment, bonding or
otherwise) for a period of sixty (60) days;
<PAGE>
(i) if any federal tax lien is filed against Borrower, any
member or general partner of Borrower, any Guarantor, any Indemnitor
or the Property and same is not discharged of record within sixty (60)
days after same is filed;
29<PAGE>
<PAGE>
(j) if any default occurs under any guaranty or indemnity
executed in connection herewith (including the Environmental
Indemnity, defined in Section 13.4) and such default continues after
the expiration of applicable grace periods, if any;
(k) if a default has occurred and continues beyond any
applicable cure period under the Franchise Agreement, if such default
permits a party to terminate or cancel the Franchise Agreement;
(l) if a default occurs under the Assignment of Franchise
Agreement, dated as of the date hereof, by Borrower and Franchisor in
favor of Lender;
(m) if Borrower ceases to operate a hotel on the Property or
terminates such business for any reason whatsoever (other than as a
result of force majeure or temporary cessation in connection with any
renovations to the Property or restoration of the Property after
casualty or condemnation);
(n) if Borrower terminates or cancels the Franchise Agreement
or operates the Property under the name of any hotel chain or system
other than that permitted under the Franchise Agreement, without
Lender's prior written consent, which shall not be unreasonably
withheld; or
(o) if for more than ten (10) days after notice from Lender,
Borrower shall continue to be in default under any other term,
covenant or condition of the Note, this Security Instrument or the
Other Security Documents in the case of any default which can be cured
by the payment of a sum of money or for sixty (60) days after notice
from Lender in the case of any other default, provided that if such
default cannot reasonably be cured within such sixty (60) day period
and Borrower shall have commenced to cure such default within such
sixty (60) day period and thereafter diligently and expeditiously
proceeds to cure the same, such sixty (60) day period shall be
extended for so long as it shall require Borrower in the exercise of
due diligence to cure such default, it being agreed that no such
extension shall be for a period in excess of one hundred (120) days.
ARTICLE 11 - RIGHTS AND REMEDIES
Section 11.1 REMEDIES. Upon the occurrence of any Event of
Default and after the expiration of all applicable notice and cure
periods, Borrower agrees that Lender may take such action, without
notice or demand, as it deems advisable to protect and enforce its
rights against Borrower and in and to the Property, including, but not
limited to, the following actions, each of which may be pursued
concurrently or otherwise, at such time and in such order as Lender
may determine, in their sole discretion, without impairing or
otherwise affecting the other rights and remedies of Lender:
(a) declare the entire unpaid Debt to be immediately due and
payable;
(b) institute proceedings, judicial or otherwise, for the
complete foreclosure of this Security Instrument under any applicable
provision of law in which case the Property or any interest therein
may be sold for cash or upon credit in one or more parcels or in
several interests or portions and in any order or manner;
(c) with or without entry, to the extent permitted and
pursuant to the procedures provided by applicable law, institute
30<PAGE>
<PAGE>
proceedings for the partial foreclosure of this Security Instrument
for the portion of the Debt then due and payable, subject to this
Security Instrument for the balance of the Debt not then due,
unimpaired and without loss of priority;
(d) sell for cash or upon credit the Property or any part
thereof and all estate, claim, demand, right, title and interest of
Borrower therein and rights of redemption thereof, pursuant to power
of sale or otherwise, at one or more sales, in one or more parcels, at
such time and place, upon such terms and after such notice thereof as
may be required or permitted by law;
(e) subject to the provisions of Article 11 of the Note,
institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein,
in the Note or in the Other Security Documents;
(f) subject to the provisions of Article 11 of the Note,
recover judgment on the Note either before, during or after any
proceedings for the enforcement of this Security Instrument or the
Other Security Documents;
(g) apply for the appointment of a receiver, trustee,
liquidator or conservator of the Property, without notice and without
regard for the adequacy of the security for the Debt and without
regard for the solvency of Borrower, any Guarantor, Indemnitor or of
any person, firm or other entity liable for the payment of the Debt;
(h) subject to any applicable law and using legal
proceedings to gain entry, the license granted to Borrower under
Section 1.2 shall automatically be revoked and Lender may enter into
or upon the Property, either personally or by its agents, nominees or
attorneys and dispossess Borrower and its agents and servants
therefrom, without liability for trespass, damages or otherwise and
exclude Borrower and its agents or servants wholly therefrom, and take
possession of all books, records and accounts relating thereto and
Borrower agrees to surrender possession of the Property and of such
books, records and accounts to Lender upon demand, and thereupon
Lender may (i) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the
Property and conduct the business thereat; (ii) complete any
construction on the Property in such manner and form as Lender
reasonably deems advisable; (iii) make alterations, additions,
renewals, replacements and improvements to or on the Property; (iv)
exercise all rights and powers of Borrower with respect to the
Property, whether in the name of Borrower or otherwise, including,
without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and
receive all Rents of the Property and every part thereof; (v) require
Borrower to pay monthly in advance to Lender, or any receiver
appointed to collect the Rents, the fair and reasonable rental value
for the use and occupation of such part of the Property as may be
occupied by Borrower; (vi) require Borrower to vacate and surrender
possession of the Property to Lender or to such receiver and, in
default thereof, Borrower may be evicted by summary proceedings or
otherwise; and (vii) apply the receipts from the Property to the
payment of the Debt, in such order, priority and proportions as
provided in the Note.
<PAGE>
(i) exercise any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code,
including, without limiting the generality of the foregoing: (i) the
right to take possession of the Personal Property or any part thereof,
and to take such other measures as Lender may deem necessary for the
care, protection and preservation of the Personal Property, and (ii)
request Borrower at its expense to assemble the Personal Property and
make it available to Lender at a convenient place acceptable to
Lender. Any notice of sale, disposition or other intended action by
Lender with respect to the Personal Property sent to Borrower in
accordance with the provisions hereof at least ten (10) days prior to
such action, shall constitute commercially reasonable notice to
Borrower;
31
<PAGE>
<PAGE>
(j) apply any sums then deposited in the Escrow Fund and any
other sums held in escrow or otherwise by Lender in accordance with
the terms of this Security Instrument or any Other Security Document
to the payment of the following items in any order in the order
provided in the Note: (i) Taxes and Other Charges; (ii) Insurance
Premiums; (iii) interest on the unpaid principal balance of the Note;
(iv) amortization of the unpaid principal balance of the Note; (v) all
other sums payable pursuant to the Note, this Security Instrument and
the Other Security Documents, including without limitation advances
made by Lender pursuant to the terms of this Security Instrument;
(k) surrender the Policies maintained pursuant to Article 3
hereof, collect the unearned Insurance Premiums and apply such sums as
a credit on the Debt in such priority and proportion as provided in
the Note, and in connection therewith, Borrower hereby appoints Lender
as agent and attorney-in-fact (which is coupled with an interest and
is therefore irrevocable) for Borrower to collect such Insurance
Premiums;
(l) apply the undisbursed balance of any Net Proceeds
Deficiency deposit, together with interest thereon, to the payment of
the Debt in such order, priority and proportions as Lender shall deem
to be appropriate in its discretion;
(m) sell the Property or any part of the Property at one or
more public sales or sales at the usual place for conducting sales of
the county in which the Land or any part of the Land is situated, to
the highest bidder for cash, in order to pay the Debt, and all
expenses of sale and of all proceedings in connection therewith,
including reasonable attorneys' fees, after advertising the time,
place and terms of sale once a week for four (4) weeks immediately
preceding such sale (but without regard to the number of days) in a
newspaper in which sheriff's sales are advertised in said county, all
other notice being hereby waived by Borrower. Lender may bid and
purchase at any such sale, and Lender, as agent and attorney-in-fact
for Borrower and in Borrower's name. may execute and deliver to the
purchaser or purchasers at any such sale a sufficient conveyance of
the Property, or the part or parcel thereof or the interest therein
which is sold. Lender's conveyance may contain recitals as to the
occurrence of any Event of Default under this Security Instrument, and
such recitals shall be presumptive evidence that all preliminary acts
prerequisite to any such sale and conveyance were in all respects duly
complied with. The sale and conveyance made by Lender shall divest
Borrower of all right, title, interest and equity that Borrower may
have or have had in, to and under the Property, or the part or parcel
thereof or the interest therein which is sold, and shall vest the same
in the purchaser or purchasers at such sale or sales. Borrower hereby
constitutes and appoints Lender as Borrower's agent and attorney-in-
fact to make such sale or sales, to execute and deliver such
conveyance or conveyances, and to make such recitals, and Borrower
hereby ratifies and confirms all of the acts and doings of Lender as
Borrower's agent and attorney-in-fact hereunder. Lender's agency and
power as attorney-in-fact hereunder are coupled with an interest,
cannot be revoked by bankruptcy, insolvency, incompetency, death,
dissolution or otherwise, and shall not be exhausted until the
Obligations have been satisfied in full; or
(n) pursue such other remedies as Lender may have under
applicable law.
<PAGE>
In the event of a sale, by foreclosure, power of sale, or otherwise,
of less than all of the Property, this Security Instrument shall
continue interest on the remaining portion of the Property unimpaired
and without loss of priority. Notwithstanding the provisions of this
Section 11.1 to the contrary, if any Event of Default as described in
clause (i) or (ii) of Subsection 10.1(f) shall occur, the entire
unpaid Debt shall be automatically due and payable, without any
further notice, demand or other action by Lender.
32
<PAGE>
<PAGE>
Section 11.2 APPLICATION OF PROCEEDS. The purchase money,
proceeds and avails of any disposition of the Property, or any part
thereof, or any other sums collected by Lender pursuant to the Note,
this Security Instrument or the Other Security Documents, may be
applied by Lender to the payment of the Debt in such priority and
proportions as provided in the Note.
Section 11.3 RIGHT TO CURE DEFAULTS. Upon the occurrence
of any Event of Default and after the expiration of any applicable
notice and cure periods, or if Borrower fails to make any payment or
to do any act as herein provided, Lender may, but without any
obligation to do so and without notice to or demand on Borrower and
without releasing Borrower from any obligation hereunder, make or do
the same in such manner and to such extent as Lender may deem
necessary to protect the security hereof. Lender is authorized to
enter upon the Property for such purposes, or appear in, defend, or
bring any action or proceeding to protect its interest in the Property
or to foreclose this Security Instrument or collect the Debt. The
reasonable cost and expense of any cure hereunder (including
reasonable attorneys' fees to the extent permitted by law), with
interest as provided in this Section 11.3, shall constitute a portion
of the Debt and shall be due and payable to Lender upon demand. All
such costs and expenses incurred by Lender in remedying such Event of
Default or such failed payment or act or in appearing in, defending,
or bringing any such action or proceeding shall bear interest at the
Default Rate (as defined in the Note), for the period after notice
from Lender that such cost or expense was incurred to the date of
payment to Lender. All such costs and expenses incurred by Lender
together with interest thereon calculated at the Default Rate shall be
deemed to constitute a portion of the Debt and be secured by this
Security Instrument and the Other Security Documents and shall be
immediately due and payable upon demand by Lender therefor.
Section 11.4 ACTIONS AND PROCEEDINGS. After the occurrence
and during the continuance of an Event of Default, Lender has the
right to appear in and defend any action or proceeding brought with
respect to the Property and to bring any action or proceeding, in the
name and on behalf of Borrower, which Lender, in its discretion,
decides should be brought to protect its interest in the Property.
Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID. Lender
shall have the right from time to time to take action to recover any
sum or sums which constitute a part of the Debt as the same become
due, without regard to whether or not the balance of the Debt shall be
due, and without prejudice to the right of Lender thereafter to bring
an action of foreclosure, or any other action, for a default or
defaults by Borrower existing at the time such earlier action was
commenced.
Section 11.6 EXAMINATION OF BOOKS AND RECORDS. Lender, its
agents, accountants and attorneys shall have the right, upon ten (10)
days prior written notice to Borrower if no Event of Default exists,
to examine and audit, during reasonable business hours, the records,
books, management and other papers of Borrower and its Manager which
pertain to their financial condition or the income, expenses and
operation of the Property, at the Property or at any office regularly
maintained by Borrower and its Manager where the books and records are
located. Lender and its agents shall have the right to make copies
and extracts from the foregoing records and other papers.
Section 11.7 OTHER RIGHTS, ETC. (a) The failure of Lender
to insist upon strict performance of any term hereof shall not be
deemed to be a waiver of any term of this Security Instrument.
33<PAGE>
<PAGE>
Borrower shall not be relieved of Borrower's obligations hereunder by
reason of (i) the failure of Lender to comply with any request of
Borrower, any Guarantor or any Indemnitor to take any action to
foreclose this Security Instrument or otherwise enforce any of the
provisions hereof or of the Note or the Other Security Documents, (ii)
the release, regardless of consideration, of the whole or any part of
the Property, or of any person liable for the Debt or any portion
thereof, or (iii) any agreement or stipulation by Lender extending the
time of payment or otherwise modifying or supplementing the terms of
the Note, this Security Instrument or the Other Security Documents.
(b) It is agreed that the risk of loss or damage to the
Property is on Borrower, and Lender shall have no liability
whatsoever, except for gross negligence or waste, for decline in value
of the Property, for failure to maintain the Policies, or for failure
to determine whether insurance in force is adequate as to the amount
of risks insured. Possession by Lender shall not be deemed an
election of judicial relief, if any such possession is requested or
obtained, with respect to any Property or collateral not in Lender's
possession.
(c) Lender may resort for the payment of the Debt to any
other security held by Lender in such order and manner as Lender, in
its discretion, may elect. Lender may take action to recover the
Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Lender thereafter to foreclose this
Security Instrument. The rights of Lender under this Security
Instrument shall be separate, distinct and cumulative and none shall
be given effect to the exclusion of the others. No act of Lender
shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision. Lender shall not be
limited exclusively to the rights and remedies herein stated but shall
be entitled to every right and remedy now or hereafter afforded at law
or in equity.
Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY.
Lender may release any portion of the Property for such consideration
as Lender may require without, as to the remainder of the Property, in
any way impairing or affecting the priority of this Security
Instrument, or improving the position of any subordinate lienholder
with respect thereto, except to the extent that the obligations
hereunder shall have been reduced by the actual monetary
consideration, if any, received by Lender for such release, and may
accept by assignment, pledge or otherwise any other property in place
thereof as Lender may require without being accountable for so doing
to any other lienholder. This Security Instrument shall continue on
the remaining portion of the Property.
Section 11.9 VIOLATION OF LAWS. If the Property is not in
compliance with Applicable Laws, Lender may impose additional
requirements upon Borrower in connection herewith including, without
limitation, monetary reserves or financial equivalents.
Section 11.10 RIGHT OF ENTRY. Lender and its agents shall
have the right to enter and inspect the Property at all reasonable
times upon five (5) days prior written notice.
<PAGE>
Section 11.11 SUBROGATION. If any or all of the proceeds of
the Note have been used to extinguish, extend or renew any
indebtedness heretofore existing against the Property, then, to the
extent of the funds so used, Lender shall be subrogated to all of the
rights, claims, liens, titles, and interests existing against the
Property heretofore held by, or in favor of, the holder of such
indebtedness and such former rights, claims, liens, titles, and
interests, if any, are not waived but rather are continued in full
force and effect in favor of Lender and are merged with the interest
created herein as cumulative security for the repayment of the Debt,
the performance and discharge of Borrower's obligations hereunder,
under the Note and the Other Security Documents and the performance
and discharge of the Other Obligations.
ARTICLE 12 - ENVIRONMENTAL MATTERS
34<PAGE>
<PAGE>
Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants, based upon an environmental site
assessment of the Property and information that Borrower knows or
should reasonably have known, that, except as disclosed to Lender in
writing: (a) there are no Hazardous Materials (defined below) or
underground storage tanks in, on, or under the Property, except those
that are both (i) in compliance with Environmental Laws (defined
below) and with permits issued pursuant thereto (if such permits are
required), if any, and (ii) either (A) in amounts not in excess of
that necessary to operate the Property or (B) fully disclosed to and
approved by Lender in writing pursuant to the written reports
resulting from the environmental site assessments of the Property
delivered to Lender (the "Environmental Report"); (b) there are no
past or present Releases (defined below) of Hazardous Materials in
violation of any Environmental Law and which would require remediation
by a governmental authority in, on, under or from the Property except
as described in the Environmental Report; (c) there is no past or
present non-compliance with Environmental Laws, or with permits issued
pursuant thereto, in connection with the Property except as described
in the Environmental Report; (d) Borrower does not know of, and has
not received, any written or oral notice or other communication from
any person or entity (including but not limited to a governmental
entity) relating to Hazardous Materials in, on, under or from the
Property; and (e) Borrower has truthfully and fully provided to
Lender, in writing, any and all information relating to environmental
conditions in, on, under or from the Property known to Borrower or
contained in Borrower's files and records, including but not limited
to any reports relating to Hazardous Materials in, on, under or
migrating to or from the Property and/or to the environmental
condition of the Property. "Environmental Law" means any present and
future federal, state and local laws, statutes, ordinances, rules,
regulations, standards, policies and other government directives or
requirements, as well as common law, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act
and the Resource Conservation and Recovery Act, that apply to Borrower
or the Property and relate to Hazardous Materials. "Hazardous
Materials" shall mean petroleum and petroleum products and compounds
containing them, including gasoline, diesel fuel and oil; explosives,
flammable materials; radioactive materials; polychlorinated biphenyls
("PCBs") and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could
become friable; underground or above-ground storage tanks, whether
empty or containing any substance; any substance the presence of which
on the Property is prohibited by any federal, state or local
authority; any substance that requires special handling; and any other
material or substance now or in the future defined as a "hazardous
substance," "hazardous material", hazardous waste", toxic substance",
"toxic pollutant", "contaminant", or pollutant" within the meaning of
any Environmental Law. "Release" of any Hazardous Materials includes
but is not limited to any release, deposit, discharge, emission,
leaking, spilling, seeping, migrating, injecting, pumping, pouring,
emptying, escaping, dumping, disposing or other movement of Hazardous
Materials.
Section 12.2 ENVIRONMENTAL COVENANTS. Borrower covenants
and agrees that so long as Borrower owns, manages, is in possession
of, or otherwise controls the operation of the Property: (a) all uses
and operations on or of the Property, whether by Borrower or any other
person or entity employed by Borrower, shall be in compliance with all
Environmental Laws and permits issued pursuant thereto; (b) there
shall be no Releases of Hazardous Materials in, on, under or from the
Property; (c) there shall be no Hazardous Materials in, on, or under
35<PAGE>
<PAGE>
the Property, except those that are both (i) in compliance with all
Environmental Laws and with permits issued pursuant thereto, if and to
the extent required, and (ii) (A) in amounts not in excess of that
necessary to operate the Property or (B) fully disclosed to and
approved by Lender in writing; (d) Borrower shall keep the Property
free and clear of all liens and other encumbrances imposed pursuant to
any Environmental Law, whether due to any act or omission of Borrower
or any other person or entity (the "Environmental Liens"); (e)
Borrower shall, at its sole cost and expense, fully and expeditiously
cooperate in all activities pursuant to Section 12.3 below, including
but not limited to providing all relevant information and making
knowledgeable persons available for interviews; (f) Borrower shall, at
its sole cost and expense, perform any environmental site assessment
or other investigation of environmental conditions in connection with
the Property, pursuant to any reasonable written request of Lender,
upon Lender's reasonable belief that the Property is not in full
compliance with all Environmental Laws, and share with Lender the
reports and other results thereof, and Lender and other Indemnified
Parties (as hereinafter defined) shall be entitled to rely on such
reports and other results thereof; (g) Borrower shall, at its sole
cost and expense, comply with all reasonable written requests of
Lender to (i) reasonably effectuate remediation of any Hazardous
Materials in, on, under or from the Property; and (ii) comply with any
Environmental Law; (h) Borrower shall not allow any tenant or other
user of the Property to violate any Environmental Law; and (i)
Borrower shall immediately notify Lender in writing after it has
become aware of (A) any presence or Release or threatened Releases of
Hazardous Materials in, on, under, from or migrating towards the
Property; (B) any non-compliance with any Environmental Laws related
in any way to the Property; (C) any actual or potential Environmental
Lien; (D) any required or proposed remediation of environmental
conditions relating to the Property; and (E) any written or oral
notice or other communication of which Borrower becomes aware from any
source whatsoever (including but not limited to a governmental entity)
relating in any way to Hazardous Materials.
Section 12.3 LENDER'S RIGHTS. Lender and any other person
or entity designated by Lender, including but not limited to any
representative of a governmental entity, and any environmental
consultant, and any receiver appointed by any court of competent
jurisdiction, shall have the right, but not the obligation, to enter
upon the Property at all reasonable times upon five (5) days prior
written notice to Borrower, to assess any and all aspects of the
environmental condition of the Property and its use, including but not
limited to conducting any environmental assessment or audit (the scope
of which shall be determined in Lender's sole discretion) and taking
samples of soil, groundwater or other water, air, or building
materials, and conducting other invasive testing. Borrower shall
cooperate with and provide access to Lender and any such person or
entity designated by Lender. Lender shall exercise its rights under
this section in a manner which minimizes interference with the
operation of a hotel on the Property. No invasive testing or boring
shall be done without prior notice to Borrower, and Lender shall
promptly repair any damage caused by its testing.
Section 12.4 OPERATIONS AND MAINTENANCE PROGRAMS. Where
recommended by the Environmental Report or as a result of any other
environmental assessment or audit of the Property, Borrower shall
establish and comply with an operations and maintenance program with
<PAGE>
respect to the Property, in form and substance reasonably acceptable
to Lender, prepared by an environmental consultant reasonably
acceptable to Lender, which program shall address any asbestos
containing material or lead based paint that may now or in the future
be detected at or on the Property. Without limiting the generality of
the preceding sentence, Lender may require (a) periodic notices or
reports to Lender in form, substance and at such intervals as Lender
may specify, (b) an amendment to such operations and maintenance
program to address changing circumstances, laws or other matters, (c)
at Borrower's sole expense, supplemental examination of the Property
by consultants specified by Lender, (d) access to the Property by
Lender, its agents or servicer, to review and assess the environmental
condition of the Property and Borrower's compliance with any
operations and maintenance program, and (e) variation of the
operations and maintenance program in response to the reports provided
by any such consultants.
ARTICLE 13 - INDEMNIFICATIONS
Section 13.1 GENERAL INDEMNIFICATION. Borrower shall, at
its sole cost and expense, protect, defend, indemnify, release and
hold harmless the Indemnified Parties (defined below) from and against
any and all Losses (defined below) imposed upon or incurred by or
36<PAGE>
<PAGE>
asserted against any Indemnified Parties and directly or indirectly
arising out of or in any way relating to any one or more of the
following: (a) any accident, injury to or death of persons or loss of
or damage to property occurring in, on or about the Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property
or adjacent parking areas, streets or ways; (b) any use, nonuse or
condition in, on or about the Property or any part thereof or on the
adjoining sidewalks, curbs, adjacent property or adjacent parking
areas, streets or ways; (c) performance of any labor or services or
the furnishing of any materials or other property in respect of the
Property or any part thereof; (d) any failure of the Property to be in
compliance with any Applicable Laws; (e) any and all claims and
demands whatsoever which may be asserted against Lender by reason of
any alleged obligations or undertakings on its part to perform or
discharge any of the terms, covenants, or agreements contained in any
Lease; or (f) the payment of any commission, charge or brokerage fee
to anyone which may be payable in connection with the funding of the
Loan evidenced by the Note and secured by this Security Instrument.
Any amounts payable to Lender by reason of the application of this
Section 13.1 shall become immediately due and payable and shall bear
interest at the Default Rate from the date loss or damage is sustained
by Lender until paid.
The term "Losses" shall mean any and all claims, suits,
liabilities (including, without limitation, strict liabilities),
actions, proceedings, obligations, debts, damages, losses, costs,
expenses, fines, penalties, charges, fees, expenses, judgments,
awards, amounts paid in settlement of whatever kind or nature
(including but not limited to attorneys' fees and other costs of
defense). The term "Indemnified Parties" shall mean (a) Lender, (b)
any prior owner or holder of the Note, (c) any servicer or prior
servicer of the Loan, (d) the officers, directors, shareholders,
partners, members, employees and trustees of any of the foregoing, and
(e) the heirs, legal representatives, successors and assigns of each
of the foregoing.
Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX. Borrower
shall, at its sole cost and expense, protect, defend, indemnify,
release and hold harmless the Indemnified Parties from and against any
and all Losses imposed upon or incurred by or asserted against any
Indemnified Parties and directly or indirectly arising out of or in
any way relating to any tax on the making and/or recording of this
Security Instrument, the Note or any of the Other Security Documents.
Section 13.3 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES
AND EXPENSES. Upon written request by any Indemnified Party, Borrower
shall defend such Indemnified Party (if requested by any Indemnified
Party, in the name of the Indemnified Party) by attorneys and other
professionals approved by the Indemnified Parties. Notwithstanding
the foregoing, any Indemnified Parties may, in their sole discretion,
engage their own attorneys and other professionals to defend or assist
them, and, at the option of Indemnified Parties, their attorneys shall
control the resolution of any claim or proceeding. Upon demand,
Borrower shall pay or, in the sole discretion of the Indemnified
Parties, reimburse, the Indemnified Parties for the payment of
reasonable fees and disbursements of attorneys, engineers,
environmental consultants, laboratories and other professionals in
connection therewith.
Section 13.4 ENVIRONMENTAL INDEMNITY. Simultaneously with
this Security Instrument, Borrower has executed and delivered that
certain environmental indemnity agreement dated the date hereof to
Lender (the "Environmental Indemnity").
<PAGE>
ARTICLE 14 - WAIVERS
Section 14.1 WAIVER OF COUNTERCLAIM. Borrower hereby
waives the right to assert a counterclaim, other than a mandatory or
compulsory counterclaim, in any action or proceeding brought against
it by Lender arising out of or in any way connected with this Security
37<PAGE>
<PAGE>
Instrument, the Note, any of the Other Security Documents, or the
Obligations.
Section 14.2 MARSHALLING AND OTHER MATTERS. Borrower
hereby waives, to the extent permitted by law, the benefit of all
appraisement, valuation, stay, extension, reinstatement and redemption
laws now or hereafter in force and all rights of marshalling in the
event of any sale hereunder of the Property or any part thereof or any
interest therein. Further, Borrower hereby expressly waives any and
all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on
behalf of each and every person acquiring any interest in or title to
the Property subsequent to the date of this Security Instrument and on
behalf of all persons to the extent permitted by Applicable Laws.
Section 14.3 WAIVER OF NOTICE. Borrower shall not be
entitled to any notices of any nature whatsoever from Lender except
(a) with respect to matters for which this Security Instrument
specifically and expressly provides for the giving of notice by Lender
to Borrower and (b) with respect to matters for which Lender is
required by Applicable Laws to give notice, and Borrower hereby
expressly waives the right to receive any notice from Lender with
respect to any matter for which this Security Instrument does not
specifically and expressly provide for the giving of notice by Lender
to Borrower.
Section 14.4 WAIVER OF STATUTE OF LIMITATIONS. Borrower
hereby expressly waives and releases to the fullest extent permitted
by law, the pleading of any statute of limitations as a defense to
payment of the Debt.
Section 14.5 SOLE DISCRETION OF LENDER. Wherever pursuant
to this Security Instrument (a) Lender exercises any right given to it
to approve or disapprove, (b) any arrangement or term is to be
satisfactory to Lender, or (c) any other decision or determination is
to be made by Lender, the decision of Lender to approve or disapprove,
all decisions that arrangements or terms are satisfactory or not
satisfactory and all other decisions and determinations made by
Lender, shall be in the sole discretion of Lender, except as may be
otherwise expressly and specifically provided herein.
SECTION 14.6 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR
OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY
THE NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THE
NOTE, THIS SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY
ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR
AGENTS IN CONNECTION THEREWITH.
ARTICLE 15 - EXCULPATION
Section 15.1 EXCULPATION. The provisions of Article 11 of
the Note are hereby incorporated by reference to the fullest extent as
if the text of such Article were set forth in its entirety herein.
ARTICLE 16 - NOTICES
Section 16.1 NOTICES. Except as expressly provided herein
to the contrary. all notices or other written communications hereunder
shall be deemed to have been properly given (i) upon delivery, if
delivered in person or by facsimile transmission with receipt
acknowledged by the recipient thereof and confirmed by telephone by
38<PAGE>
<PAGE>
sender, (ii) one (1) Business Day (defined below) after having been
deposited for overnight delivery with any reputable overnight courier
service, or (iii) three (3) Business Days after having been deposited
in any post office or mail depository regularly maintained by the U.S.
Postal Service and sent by registered or certified mail, postage
prepaid, return receipt requested, addressed to Borrower or Lender, as
the case may be, at the addresses set forth on the first page of this
Security Instrument or addressed as such party may from time to time
designate by written notice to the other parties.
Either party by notice to the other may designate
additional or different addresses for subsequent notices or
communications.
For purposes of this Subsection, "Business Day" shall
mean a day on which commercial banks are not authorized or required by
law to close in New York, New York.
ARTICLE 17 - APPLICABLE LAW
Section 17.1 CHOICE OF LAW. This Security Instrument shall
be governed, construed, applied and enforced in accordance with the
laws of the state in which the Property is located.
Section 17.2 PROVISIONS SUBJECT TO APPLICABLE LAW. All
rights, powers and remedies provided in this Security Instrument may
be exercised only to the extent that the exercise thereof does not
violate any applicable provisions of law and are intended to be
limited to the extent necessary so that they will not render this
Security Instrument invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any Applicable
Laws.
ARTICLE 18 - SECONDARY MARKET
Section 18.1 TRANSFER OF LOAN. Lender may, at any time,
sell, transfer or assign the Note, this Security Instrument and the
Other Security Documents, and any or all servicing rights with respect
thereto, or grant participations therein (the "Participations") or
issue mortgage pass- through certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering
or private placement (the "Securities"). Lender may forward to each
purchaser, transferee, assignee, servicer, participant, or investor in
such Participations or Securities (collectively, the "Investor") or
any Rating Agency rating such Securities, each prospective Investor,
and any organization maintaining databases on the underwriting and
performance of commercial mortgage loans, all documents and
information which Lender now has or may hereafter acquire relating to
the Debt and to Borrower, any Guarantor, any Indemnitor(s) and the
Property, whether furnished by Borrower, any Guarantor, any
Indemnitor(s) or otherwise, as Lender determines necessary or
desirable. Borrower irrevocably waives any and all rights it may have
under Applicable Laws to prohibit such disclosure, including but not
limited to any right of privacy.
Section 18.2 COOPERATION. Borrower, any Guarantor and any
Indemnitor agree to cooperate with Lender in connection with any
transfer made or any Securities created pursuant to this Section,
including, without limitation, the delivery of an estoppel certificate
required in accordance with Subsection 7.4(c) hereof and such other
documents as may be reasonably requested by Lender. Borrower shall
39<PAGE>
<PAGE>
also furnish and Borrower, any Guarantor and any Indemnitor consent to
Lender furnishing to such Investors or such prospective Investors or
such Rating Agency any and all information concerning the Property,
the Leases, the financial condition of Borrower, any Guarantor and any
Indemnitor as may be requested by Lender, any Investor, any
prospective Investor or any Rating Agency in connection with any sale,
transfer or Participations or Securities.
ARTICLE 19 - COSTS
Section 19.1 PERFORMANCE AT BORROWER'S EXPENSE. Except as
expressly provided to the contrary herein, Borrower acknowledges and
confirms that Lender shall impose certain reasonable administrative
processing and/or commitment fees in connection with (a) the
extension, renewal, modification, amendment and termination of the
Loan, (b) the release or substitution of collateral therefor, (c)
obtaining certain consents, waivers and approvals with respect to the
Property, or (d) the review of any Lease or proposed Lease or the
preparation or review of any subordination, non-disturbance agreement
(the occurrence of any of the above shall be called an "Event").
Borrower further acknowledges and confirms that it shall be
responsible for the payment of all costs of reappraisal of the
Property or any part thereof, whether required by law, regulation,
Lender or any governmental or quasi-governmental authority. Borrower
hereby acknowledges and agrees to pay, immediately all such reasonable
fees (as the same may be reasonably increased or decreased from time
to time), and any reasonable additional fees of a similar type or
nature which may be imposed by Lender from time to time, upon the
occurrence of any Event. Wherever it is provided for herein that
Borrower pay any costs and expenses, such costs and expenses shall
include, but not be limited to, all reasonable legal fees and
disbursements of Lender, whether with respect to retained firms, the
reimbursement for the expenses of in-house staff or otherwise.
Section 19.2 LEGAL FEES FOR ENFORCEMENT. (a) Borrower
shall pay all reasonable legal fees incurred by Lender in connection
with (i) the preparation of the Note, this Security Instrument and the
Other Security Documents and (ii) the items set forth in Section 19.1
above, and (b) Borrower shall pay to Lender on demand any and all
expenses, including legal expenses and attorneys' fees, incurred or
paid by Lender in protecting its interest in the Property or in
collecting any amount payable hereunder or in enforcing its rights
hereunder with respect to the Property, whether or not any legal
proceeding is commenced hereunder or thereunder, together with
interest thereon at the Default Rate from the date paid or incurred by
Lender until such expenses are paid by Borrower.
ARTICLE 20 - DEFINITIONS
Section 20.1 GENERAL DEFINITIONS. Unless the context
clearly indicates a contrary intent or unless otherwise specifically
provided herein, words used in this Security Instrument may be used
interchangeably in singular or plural form and the word "Borrower"
shall mean "each Borrower and any subsequent owner or owners of the
Property or any part thereof or any interest therein," the word
"Lender" shall mean "Lender and any subsequent holder of the Note,"
the word "Note" shall mean "the Note and any other evidence of
indebtedness secured by this Security Instrument," the word "person"
shall include an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government,
governmental authority, and any other entity, the word "Property"
shall include any portion of the Property and any interest therein,
and the phrases "attorneys' fees" and "counsel fees" shall include any
and all attorneys', paralegal and law clerk fees and disbursements,<PAGE>
including, but not limited to, fees and disbursements at the pre-
trial, trial and appellate levels incurred or paid by Lender in
protecting its interest in the Property, the Leases and the Rents and
enforcing its rights hereunder.
Section 20.2 HEADINGS, ETC. The headings and captions of
various Articles and Sections of this Security Instrument are for
convenience of reference only and are not to be construed as defining
or limiting, in any way, the scope or intent of the provisions hereof.
40<PAGE>
<PAGE>
ARTICLE 21 - MISCELLANEOUS PROVISIONS
Section 21.1 NO ORAL CHANGE. This Security Instrument, and
any provisions hereof, may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to
act on the part of Borrower or Lender, but only by an agreement in
writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or
termination is sought.
Section 21.2 LIABILITY. If Borrower consists of more than
one person, the obligations and liabilities of each such person
hereunder shall be joint and several. This Security Instrument shall
be binding upon and inure to the benefit of Borrower and Lender and
their respective successors and assigns forever.
Section 21.3 INAPPLICABLE PROVISIONS. If any term,
covenant or condition of the Note or this Security Instrument is held
to be invalid, illegal or unenforceable in any respect, the Note and
this Security Instrument shall be construed without such provision.
Section 21.4 DUPLICATE ORIGINALS; COUNTERPARTS. This
Security Instrument may be executed in any number of duplicate
originals and each duplicate original shall be deemed to be an
original. This Security Instrument may be executed in several
counterparts, each of which counterparts shall be deemed an original
instrument and all of which together shall constitute a single
Security Instrument. The failure of any party hereto to execute this
Security Instrument, or any counterpart hereof, shall not relieve the
other signatories from their obligations hereunder.
Section 21.5 NUMBER AND GENDER. Whenever the context may
require, any pronouns used herein shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns
and pronouns shall include the plural and vice versa.
ARTICLE 22 - SPECIAL GEORGIA PROVISIONS
Section 22.1 WAIVERS. BY EXECUTION OF THIS SECURITY
INSTRUMENT, BORROWER EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT TO
ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTE AND THE POWER OF
ATTORNEY GIVEN HEREIN TO GRANTEE TO SELL THE PROPERTY BY NONJUDICIAL
FORECLOSURE UPON DEFAULT BY GRANTOR WITHOUT ANY JUDICIAL HEARING AND
WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY
REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS SECURITY INSTRUMENT;
(B) WAIVES ANY AND ALL RIGHTS WHICH BORROWER MAY HAVE UNDER THE
CONSTITUTION OF THE UNITED STATES (INCLUDING THE FIFTH AND FOURTEENTH
AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS OF
THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO
NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY LENDER OF ANY
RIGHT OR REMEDY HEREIN PROVIDED TO LENDER, EXCEPT SUCH NOTICE (IF ANY)
AS IS SPECIFICALLY REQUIRED TO BE PROVIDED IN THIS SECURITY
INSTRUMENT, AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF
ANY MORATORIUM, REINSTATEMENT, MARSHALLING, FORBEARANCE, APPRAISEMENT,
VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS;
(C) ACKNOWLEDGES THAT BORROWER HAS READ THIS SECURITY INSTRUMENT AND
ANY AND ALL QUESTIONS REGARDING THE LEGAL EFFECT OF THIS SECURITY
INSTRUMENT AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO BORROWER
AND BORROWER HAS CONSULTED WITH COUNSEL OF BORROWER'S CHOICE PRIOR TO
41<PAGE>
<PAGE>
EXECUTING THIS SECURITY INSTRUMENT; AND (D) ACKNOWLEDGES THAT ALL
WAIVERS OF THE AFORESAID RIGHTS OF BORROWER HAVE BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY BORROWER AS PART OF A BARGAINED-FOR
LOAN TRANSACTION AND THAT THIS SECURITY INSTRUMENT IS VALID AND
ENFORCEABLE BY LENDER AGAINST BORROWER IN ACCORDANCE WITH ALL THE
TERMS AND CONDITIONS HEREOF.
Section 22.2 CANCELLATION AND SURRENDER. Should the Debt
be paid according to the tenor and effect thereof when the same shall
become due and payable, and should Borrower perform all covenants
herein contained and contained in the Loan Documents in a timely
manner, then this Security Instrument shall be cancelled and
surrendered.
ARTICLE 23 - Franchise Provisions
Section 23.1 FRANCHISE AGREEMENT. Notwithstanding any
provision of Section 3.11 to the contrary, the Improvements shall be
operated under the terms and conditions of that certain Franchise
Agreement, dated as of December 29, 1998, between SUBURBAN FRANCHISE
SYSTEMS, INC. ("Franchisor") and Borrower (as from time to time
amended, modified, extended, restated, renewed, supplemented or
replaced, the "Franchise Agreement"). Borrower shall (i) pay all sums
required to be paid by Borrower under the Franchise Agreement, (ii)
diligently perform and observe all of the terms, covenants and
conditions of the Franchise Agreement on the part of Borrower to be
performed and observed, and (iii) promptly notify Lender of the giving
of any notice to Borrower of any default by Borrower in the
performance or observance of any of the terms, covenants or conditions
of the Franchise Agreement on the part of Borrower to be performed and
observed and deliver to Lender a true copy of each such notice.
Borrower shall not, without the prior consent of the Lender, surrender
the Franchise Agreement or terminate or cancel the Franchise Agreement
or modify, change, supplement, alter or amend the Franchise Agreement,
in any respect, either orally or in writing, and Borrower hereby
assigns to Lender as further security for the payment of the Debt and
for the performance and observance of the terms, covenants and
conditions of this Security Instrument, all the rights, privileges and
prerogatives of Borrower to surrender the Franchise Agreement or to
terminate, cancel, modify, change, supplement, alter or amend the
Franchise Agreement in any respect, and any such surrender of the
Franchise Agreement or termination, cancellation, modification,
change, supplement, alteration or amendment of the Franchise Agreement
without the prior consent of Lender shall be void and of no force and
effect. If Borrower shall default in the performance or observance of
any material term, covenant or condition of the Franchise Agreement on
the part of Borrower to be performed or observed, then, without
limitation to any of the other provisions of this Security Instrument,
and without waiving or releasing Borrower from any of its obligations
hereunder, Lender shall have the right, but shall be under no
obligation, to pay any sums and to perform any act or take any action
as may be appropriate to cause all the terms, covenants and conditions
of the Franchise Agreement on the part of Borrower to be performed or
observed to be promptly performed or observed on behalf of Borrower,
and to the end that the rights of Borrower in, to and under the
Franchise Agreement shall be kept unimpaired and free from default.
Lender and any Person designated by Lender shall have, and are hereby
granted, the right to enter upon the Property at any time and from
time to time, upon five (5) days prior written notice and using legal
proceedings to gain entry for the purpose of taking any such action.
42<PAGE>
<PAGE>
If Franchisor shall deliver to Lender a copy of any notice sent to
Borrower of default under the Franchise Agreement, such notice shall
constitute full protection to Lender for any action taken or omitted
to be taken by Lender in good faith in reliance thereon. Borrower
shall use commercially reasonable efforts to obtain from Franchisor
such certificates of estoppel with respect to compliance by Borrower
with the terms of the Franchise Agreement as may be requested by
Lender from time to time. Borrower shall exercise each individual
option, if any, to extend or renew the term of the Franchise Agreement
upon demand by Lender made at any time within one (1) year prior to
the last day upon which any such option may be exercised, and Borrower
hereby expressly authorizes and appoints Lender as its attorney-in-
fact to exercise any such option in the name of and upon behalf of
Borrower, which power of attorney shall be irrevocable and shall be
deemed to be coupled with an interest.
Section 23.2 FRANCHISE AGREEMENT. The Franchise Agreement
is in full force and effect, all franchise fees, reservation fees,
royalties and other sums due thereunder have been paid in full to
date, and neither Borrower nor Franchisor is in default thereunder.
ARTICLE 24 - SPECIAL PARTIAL DEFEASANCE PROVISIONS
Section 24.1 PARTIAL DEFEASANCE OF INDIVIDUAL SUBURBAN
LODGES Notwithstanding any provision contained in any of the Loan
Documents to the contrary, Borrower agrees that no part of the
Property may be released from the liens of any of the Loan Documents
or the liens created under this Agreement except in accordance with
this Section. At any time after the earlier of (i) the second
anniversary of the date that is the "Startup day," within the meaning
of Section 860G(a) (9) of the Internal Revenue Code of 1986, as
amended from time to time or any successor statute, of a "real estate
mortgage, investment conduit" within the meaning of Section 860D of
the Code that holds the Note or (ii) four (4) years from the date
hereof, and prior to the Maturity Date of the Note, the Borrower may
defease a portion of the Note (a "Defeasance Event") and cause either
that certain hotel commonly known as Forest Park, Georgia ("Forest
Park") or that certain hotel commonly known as Roswell, Georgia
("Roswell") or that certain hotel commonly known as Maudlin Road,
Greenville ("Maudlin Road") or that certain hotel commonly known as
North Central, Dallas ("North Central") or that certain hotel commonly
known as South Dayton, Ohio ("South Dayton")(each, individually, a
"Defeased Property") to be released from the lien created hereby and
by the related Loan Documents, but only upon the satisfaction of all
of the following conditions:
(i) Borrower agrees that the amount of the
Loan allocated to Forest Park is $2,330,000 and to Roswell is
$3,500,000 and to Maudlin Road is $2,700,000 and to North Central is
$3,750,000 and to South Dayton is $2,500,000 (the "Allocated Loan
Amounts"). The Allocated Loan Amounts shall be reduced (i) pro rata
to the extent of any amortization of the principal amount of the Loan,
and (ii) in the event of a prepayment of the Note as a result of the
application of insurance proceeds or condemnation awards, in such
portion as to each property as Lender shall reasonably determine.
(ii) The principal balance of the Note to be
partially defeased shall be equal to at least one hundred twenty-five
percent (125%) of the Allocated Loan Amount for the Defeased Property.
<PAGE>
(iii) Borrower shall prepare all necessary
documents to amend and restate the Note and to substitute the
following notes: one note having a principal balance equal to the
defeased portion of the Note on account of such Defeasance Event (the
"New Defeased Note"); and the other note (the "Undefeased Note")
having a principal balance equal to the difference between (A) the
principal balance of the Note immediately prior to such Defeasance
Event and (B) the amount of the New Defeased Note; the New Defeased
Note and the Undefeased Note shall have identical terms as the
original Note except for the principal balance; the New Defeased Note
shall not be subject to further defeasance.
43
<PAGE>
<PAGE>
(iv) Borrower shall have taken all necessary
action to defease the lien of the Security Instrument applicable to
the Defeased Property in accordance with Section 6 of the Note and
shall have made all payments and delivered to Lender all certificates,
documents and instruments required in connection therewith.
(v) Lender shall have received from Borrower
at least thirty (30) days' prior written notice of the date proposed
for such defeasance (the "Defeasance Date") and the identification of
the Defeased Property.
(vi) No Event of Default under any of the Loan
Documents shall have occurred and be continuing as of the date of such
notice and the Defeasance Date.
(vii) In no event would such a Defeasance
Event result in a decrease in the ratio of net operating income
(calculated on an annual basis) from the remaining Property to the
annual debt service on the Undefeased Note (both determined in
accordance with generally accepted accounting principles after giving
effect to the payment and application of the release price and the
release of the Defeased Property), unless such ratio following such
Defeasance Event, overall (in the aggregate) is equal to or greater
than 1.40:1 for the trailing twelve (12) months on the remaining
Property.
(viii) After giving effect to such Defeasance
Event, the ratio of the outstanding principal balance of the
Undefeased Note to the appraised value (as determined by Lender) of
the remaining Property is no more than 75%.
(ix) Lender shall have received from the
Borrower with respect to the matters referred to in clauses (vii) and
(viii) above statements of the cash flow and debt service compiled by
a certified public accountant acceptable to Lender in accordance with
generally accepted accounting principles consistently applied in form
and substance reasonably acceptable to Lender; certified rent rolls
showing that the standard set forth in clause (ix) above has been
satisfied; and a certificate of the Chief Financial Officer of
Borrower (or comparable individual) stating that such statements and
calculations are true, correct and complete in all material respects
and certifying that all conditions precedent to the defeasance of the
Defeased Property contained in this Section have been complied with;
(x) Borrower shall have paid all accrued and
unpaid interest and all other charges payable in connection with a
partial defeasance of the Note.
(xi) Borrower shall have paid all of Lender's
reasonable costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses, in connection with the
release of the Defeased Property.
(xii) The portion of the Property which remains
subject to the lien of this Security Instrument following such
Defeasance Event shall be legal lots or parcels in compliance with all
subdivision laws and ordinances, including but not limited to any
requirements for number of parking spaces.
(xiii) At Borrower's sole cost, a CLTA Form 111
endorsement or equivalent shall be issued to Lender, insuring the
continued validity and priority of this Security Instrument from any
impairment resulting from the defeasance.
44<PAGE>
<PAGE>
(xiv) Neither the acceptance of any payment nor
the defeasance pursuant to this Section shall affect Borrower's
obligation to repay all amounts owing under the Loan Documents or the
lien of this Security Instrument on the remainder of the Property not
defeased.
[NO FURTHER TEXT ON THIS PAGE]
45
<PAGE>
<PAGE>
IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed
by Borrower the day and year first above written.
BORROWER:
SLAM PROPERTIES I, L.L.C.,
a Georgia limited liability company
By: SLAM PROPERTIES MANAGEMENT I, L.L.C.,
a Georgia limited liability company,
Its Manager
By: SUBURBAN MANAGEMENT, INC.
a Georgia corporation,
Its Manager
By: /s/ David Krischer
Name: David Krischer
Title:____________________
[CORPORATE SEAL]
Signed, sealed and delivered
in the presence of :
____________________________
Witness
____________________________
Notary Public
My Commission Expires:___________________________
(NOTARIAL SEAL)
46
<TABLE>
<CAPTION>
Schedule to Exhibit 10.25
Suburban Lodges, Inc.
A Promissory Note to Finova Realty Capital Inc. with substantially the
same terms as this Exhibit 10.25 for each of the following groups of
properties are not being separately filed:
PROPERTY NAME/ ADDRESS COUNTY CITY, STATE
AMOUNT OF NOTE
<S> <C> <C> <C>
Group 1/$14,780,000*
Forest Park 363 Forest Parkway Clayton Forest Park, GA
Roswell 1175 Hembree Road Fulton Roswell, GA
Greenville-Mauldin Road 408 Mauldin Road Greenville Greenville, SC
Dallas North Central 9355 Forest Lane Dallas Dallas, TX
South Dayton 8981 Kingsridge Drive Montgomery Dayton, OH
Group 2/$15,500,000
Lilburn/Hwy 78 4142 Stone Mountain Highway Gwinnett Lilburn, GA
Mableton 600 Lions Club Drive Cobb Mableton, Ga
Preston Highway 7121 Preston Highway Jefferson Louisville, KY
Taylors 2504 Wade Hampton Boulevard Greenville Greenville, SC
Chesapeake 2150 Old Greenbrier Road Chesapeake Chesapeake, VA
UNC Charlotte 110 Rocky River Road West Charlotte, NC
Group 3/$15,580,000
Norcross 6067 Buford Highway Gwinnett Norcross, GA
Jonesboro/Tara Blvd. 7021 Tara Boulevard Clayton Jonesboro, GA
Virginia Beach 416 South Independence Blvd. Virginia Beach, VA
Fairfield 6785 Fairfield Business Drive Butler Fairfield, OH
Pressley/I77 Charlotte 540 Pressley Road Mecklenburg Charlotte, NC
Fulton Industrial 660 Interchange Drive, SW Fulton Atlanta, GA
Group 4/$15,170,000
Indian Trail 1990 Willowtrail Parkway Gwinnett Norcross, GA
Douglasville 5820 Plaza Parkway Douglas Douglasville, GA
Matthews 9211 East Independence Blvd. Matthews, NC
Columbus/Eastland 4790 Hilton Corporate Drive Franklin Columbus, OH
Indianapolis, NW 5820 West 85th Street Marion Indianapolis, IN
Group 5/$14,500,000
Northside Drive 1375 Northside Drive Fulton Atlanta, GA
Gwinnett Place 3750 Satellite Boulevard Gwinnett Duluth, GA
Columbus/Northland 2420 Dublin Granville Road Franklin Columbus, OH
North Charleston 7371 Mazyck Road Charleston North Charleston, SC
Oxmoor 90 Oxmoor Road Jefferson Birmingham, AL
</TABLE>
<PAGE>
<PAGE>
PROMISSORY NOTE
(Fixed -- Defeasance)
$14,780,000 Forest Park, Georgia
Roswell, Georgia
Greenville, South Carolina
Dallas, Texas
Dayton, Ohio
December 29, 1998
FOR VALUE RECEIVED, SLAM PROPERTIES I, L.L.C., a Georgia limited
liability company, as maker, having its principal place of business at
300 Galleria Parkway, Suite 1200, Atlanta, Georgia 30339, Attn:
Corporate Secretary ("Borrower"), hereby unconditionally promises to
pay to the order of FINOVA REALTY CAPITAL INC., a Delaware corporation
("Lender"), having an address at c/o Midland Loan Services, L.P., 210
West Tenth Street, Kansas City, Missouri 64105, or at such other place
as the holder hereof may from time to time designate in writing, the
principal sum of FOURTEEN MILLION SEVEN HUNDRED EIGHTY THOUSAND AND
NO/100 DOLLARS ($14,780,000), in lawful money of the United States of
America with interest thereon to be computed from the date of the
funding of this Note at the Applicable Interest Rate (defined below)
in accordance with the terms of this Note.
ARTICLE 1: PAYMENT TERMS
Borrower agrees that the amortization period for the Note shall
be 25 years and Borrower agrees to pay sums under this Note in
installments as follows:
(a) a constant payment of $116,532.93 on February 1, 1999 and on
the first day of each calendar month thereafter up to and including
December 1, 2008 (each, a "Payment Date"); each of the payments to be
applied as follows: (i) first, to the payment of interest computed at
the Applicable Interest Rate; and (ii) the balance toward the
reduction of the principal sum; and
(b) the balance of the principal sum and all interest thereon on
January 1, 2009 (the "Maturity Date").
ARTICLE 2: INTEREST
The interest rate on this Note is eight and one quarter percent
(8.25%) per annum (the "Applicable Interest Rate"). Interest on the
principal sum of this Note shall be calculated on the basis of a three
hundred sixty (360) day year calculated by multiplying the actual
number of calendar days elapsed in the monthly period for which such
interest is payable by a daily rate based on such three hundred sixty
(360) day year.
ARTICLE 3: DEFAULT AND ACCELERATION
If any payment required in this Note is not paid (a) prior to the
fifth (5th) day after a Payment Date, (b) on the Maturity Date or (c)
on the happening of any other default, after the expiration of any
applicable notice and grace periods, herein or under the terms of the
<PAGE>
<PAGE>
Security Instruments or any of the Other Security Documents (as
defined in the Security Instruments) (collectively, an "Event of
Default"), at the option of Lender (i) the whole of the principal sum
of this Note, (ii) interest, default interest, late charges and other
sums, as provided in this Note, the Security Instruments or the Other
Security Documents, (iii) all other monies agreed or provided to be
paid by Borrower in this Note, the Security Instruments or the Other
Security Documents, (iv) all sums advanced pursuant to the Security
Instruments to protect and preserve the Property (defined below) and
the lien and the security interest created thereby, and (v) all sums
advanced and costs and expenses incurred by Lender in connection with
the Debt (defined below) or any part thereof, any renewal, extension,
or change of or substitution for the Debt or any part thereof, or the
acquisition or perfection of the security therefor, whether made or
incurred at the request of Borrower or Lender (all the sums referred
to in (i) through (v) above shall collectively be referred to as the
"Debt") shall without notice become immediately due and payable.
ARTICLE 4: DEFAULT INTEREST
Borrower agrees that upon the occurrence of an Event of Default,
Lender shall be entitled to receive and Borrower shall pay interest on
the entire unpaid principal sum at a per annum rate equal to the
lesser of (a) five percent (5%) plus the Applicable Interest Rate or
(b) the maximum interest rate which Borrower may by law pay (the
"Default Rate"). The Default Rate shall be computed from the
occurrence of the Event of Default until the earlier of the date upon
which the Event of Default is cured or the date upon which the Debt is
paid in full. Interest calculated at the Default Rate shall be added
to the Debt, and shall be deemed secured by the Security Instruments.
This clause, however, shall not be construed as an agreement or
privilege to extend the date of the payment of the Debt, nor as a
waiver of any other right or remedy accruing to Lender by reason of
the occurrence of any Event of Default.
ARTICLE 5: LATE CHARGE
If any monthly installment payable under this Note is not paid
prior to the fifth (5th) day after the applicable Payment Date,
Borrower shall pay to Lender upon demand an amount equal to the lesser
of (a) five percent (5%) of such unpaid sum or (b) the maximum amount
permitted by applicable law to defray the expenses incurred by Lender
in handling and processing the delinquent payment and to compensate
Lender for the loss of the use of the delinquent payment and the
amount shall be secured by the Security Instruments and the Other
Security Documents.
ARTICLE 6: PREPAYMENT; DEFEASANCE
(a) The principal balance of this Note may not be prepaid in
whole or in part except as expressly permitted pursuant hereto.
(b) Subject to compliance with and satisfaction of the terms and
conditions of this Article 6 and provided that no Event of Default
exists under this Note, Borrower may elect to obtain a release (the
Release ) of the Property from the lien of the Security Instruments
on any Payment Date after the Lockout Period Expiration Date (defined
below) by delivering to Lender, as security for the payment of all
interest and principal due and to become due pursuant to this Note
through the Maturity Date, plus the principal balance of this Note
scheduled to be outstanding on the Maturity Date, Defeasance
Collateral (defined below) sufficient to generate Scheduled Defeasance
Payments (defined below) (the Release and the delivery of the
Defeasance Collateral, a Defeasance ).
2<PAGE>
<PAGE>
(c) As a condition precedent to a Defeasance, and prior to any
Release, Borrower shall have complied with all of the following:
(i) Borrower shall provide not less than sixty (60) days
prior written notice to Lender specifying a Payment Date upon which it
intends to effect a Defeasance hereunder (the Defeasance Date ).
(ii) All accrued and unpaid interest on the principal
balance of this Note to and including the Defeasance Date, the
scheduled amortization payment due on such Defeasance Date, and all
other sums due under this Note, the Security Instruments and the Other
Security Documents, shall be paid in full on or prior to the
Defeasance Date.
(iii) Borrower shall execute and deliver to Lender any
and all certificates, opinions, documents or instruments reasonably
required by Lender in connection with the Defeasance and Release,
including, without limitation, a pledge and security agreement
satisfactory to Lender creating a first priority lien on the
Defeasance Collateral (a Defeasance Security Agreement ). This Note
shall thereafter be secured by the Defeasance Collateral delivered in
connection with the Defeasance. After Defeasance, this Note cannot be
prepaid in whole or in part or be the subject of any further
Defeasance.
(iv) Borrower shall have delivered to Lender an opinion of
Borrower's counsel in form and substance satisfactory to Lender
stating (A) that the Defeasance Collateral and the proceeds thereof
have been duly and validly assigned and delivered to Lender and that
Lender has a valid, perfected, first priority lien and security
interest in the Defeasance Collateral delivered by Borrower and the
proceeds thereof, (B) that if the holder of this Note shall at the
time of the Release be a REMIC (defined below), (1) the Defeasance
Collateral has been validly assigned to the REMIC Trust which holds
this Note (the REMIC Trust ), (2) the Defeasance has been effected in
accordance with the requirements of Treasury Regulation 1.860(g)-
2(a)(8) (as such regulation may be amended or substituted from time to
time) and will not be treated as an exchange pursuant to Section 1001
of the IRS Code and (3) the tax qualification and status of the REMIC
Trust as a REMIC will not be adversely affected or impaired as a
result of the Defeasance and (C) that the delivery of the Defeasance
Collateral and the grant of a security interest therein to Lender
shall not constitute an avoidable preference under Section 547 of the
U.S. Bankruptcy Code or applicable state law. The term REMIC shall
mean a real estate mortgage investment conduit within the meaning of
Section 860D of the IRS Code. The term IRS Code shall mean the
United States Internal Revenue Code of 1986, as amended, and the
related Treasury Department regulations, including temporary
regulations.
(v) Borrower shall have delivered to Lender written
confirmation from the Rating Agencies (defined in the Security
Instruments) that such Defeasance will not result in a withdrawal,
downgrade or qualification of the then current ratings by the
applicable Rating Agencies of the Securities or Participations (each
as defined in the Security Instruments). If required by the Rating
Agencies, Borrower shall, at Borrower's expense, also deliver or cause
to be delivered a non-consolidation opinion with respect to the
Defeasance Obligor (as defined below), if any, in form and substance
reasonably satisfactory to Lender and the Rating Agencies.
(vi) Borrower shall have delivered to Lender a certificate
satisfactory to Lender given by Borrower's independent certified
public accountant (which accountant shall be satisfactory to Lender)
certifying that the Defeasance Collateral shall generate the Scheduled
Defeasance Payments.
3<PAGE>
<PAGE>
(d) In connection with any Defeasance hereunder, if Borrower
shall continue to own any assets other than the Defeasance Collateral
following the Release, Borrower shall, at Borrower's expense,
establish or designate a successor entity, which shall be a single
purpose, bankruptcy remote entity acceptable to Lender (the
"Defeasance Obligor") and Borrower shall transfer and assign all
obligations, rights and duties under and to this Note and the
Defeasance Security Agreement together with the pledged Defeasance
Collateral to such Defeasance Obligor. Such Defeasance Obligor shall
assume the obligations under the Note and any Defeasance Security
Agreement and shall be bound by and obligated under Sections 3.1,
7.2, 7.4(a), 11.2, 11.7 and 14.2 and Articles 13 and 15 of the
Security Instruments; provided, however, that all references therein
to "Property" or "Personal Property" shall be deemed to refer only to
the Defeasance Collateral delivered to Lender, and Borrower shall be
relieved of its obligations under such documents and, except with
respect to any provisions therein which by their terms expressly
survive payment of the Debt in full, the Other Security Documents.
(e) The following terms shall have the meaning set forth below:
(i) The term "Defeasance Collateral" as used herein shall
mean direct, non-callable and non-redeemable obligations of the United
States of America for the payment of which its full faith and credit
is pledged, each of which shall be duly endorsed by the holder thereof
as directed by Lender or accompanied by a written instrument of
transfer in form and substance wholly satisfactory to Lender
(including, without limitation, such instruments as may be required by
the depository institution holding such securities or by the issuer
thereof, as the case may be, to effectuate book-entry transfers and
pledges through the book-entry facilities of such institution) in
order to perfect upon the delivery of the Defeasance Collateral a
first priority security interest therein in favor of the Lender in
conformity with all applicable state and federal laws governing the
granting of such security interests. Borrower shall authorize and
direct that the payments received from such obligations shall be made
directly to Lender or Lender's designee and applied to satisfy the
obligations of Borrower or, if applicable, the Defeasance Obligor,
under this Note.
(ii) The term "Scheduled Defeasance Payments" as used herein
shall mean the scheduled payments of interest and principal in
accordance with the terms of the Defeasance Collateral (without
consideration of any reinvestment of interest therefrom), providing
for payments prior, but as close as possible, to all successive
Payment Dates after the Defeasance Date through and including the
Maturity Date, and in amounts equal to or greater than the scheduled
payments of interest and principal due under this Note, including the
principal balance of this Note scheduled to be outstanding on the
Maturity Date.
(iii) The term Lockout Period Expiration Date shall
mean the date which is the earlier of (A) the second anniversary of
the date that is the startup day, within the meaning of Section
860G(a)(9) of the IRS Code, of a REMIC that holds this Note or (B) the
four (4) year anniversary of the first day of the first full calendar
month following the date of this Note.
(f) Upon Borrower's compliance with all of the conditions to
Defeasance and a Release set forth in this Article 6, Lender shall
release the Property from the lien of the Security Instruments and the
Other Security Documents. All costs and expenses of Lender incurred
in connection with the Defeasance and Release, including, without
limitation, Lender s counsel s fees and expenses, shall be paid by
Borrower simultaneously with the delivery of the Release<PAGE>
documentation. Any revenue, documentary stamp or intangible taxes or
any other tax or charge due in connection with the Defeasance shall be
paid by Borrower simultaneously with the occurrence of any Defeasance.
4<PAGE>
(g) If a Default Prepayment (defined below) occurs, Borrower
shall pay to Lender the entire Debt, including, without limitation, an
amount (the Default Consideration ) equal to the greater of (i) the
amount (if any) which when added to the then outstanding principal
amount of this Note will be sufficient to purchase Defeasance
Collateral providing the required Scheduled Defeasance Payments
assuming Defeasance would be permitted hereunder, or (ii) one percent
(1%) of the Default Prepayment. For purposes of this Note, the term
"Default Prepayment" shall mean a prepayment of the principal amount
of this Note made after the occurrence of any Event of Default or an
acceleration of the Maturity Date under any circumstances, including,
without limitation, a prepayment occurring in connection with
reinstatement of the Security Instruments provided by statute under
foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a
statutory right to redeem or prevent foreclosure, any sale in
foreclosure or under exercise of a power of sale or otherwise.
(h) Notwithstanding anything to the contrary herein, Borrower
may prepay the principal balance of this Note without premium or
penalty (i) in whole during the three months prior to the Maturity
Date or (ii) in whole or in part in connection with a prepayment
resulting from the application of insurance proceeds or condemnation
awards pursuant to Sections 3.3 and 3.6 of the Security Instruments or
changes in tax and debt credit pursuant to Section 7.3 (a) or (b) of
the Security Instruments, but in each instance Borrower shall be
required to pay all other sums due hereunder, and no principal amount
repaid may be reborrowed.
ARTICLE 7: SECURITY
This Note is secured by those certain mortgage and security
agreements, deed of trust and security agreements, deed to secure debt
and security agreements or similar real estate security agreements,
dated the date hereof in the principal sum of $14,780,000, given by
Borrower to (or for the benefit of) Lender covering the fee estates of
Borrower in certain premises located in Clayton County, State of
Georgia, Fulton County, State of Georgia, Dallas County, State of
Texas, Greenville County, State of South Carolina, Montgomery County,
State of Ohio, and other property, as more particularly described
therein (collectively, the "Property") and intended to be duly
recorded in said Counties (the "Security Instruments"), and by the
Other Security Documents.
ARTICLE 8: LOAN CHARGES
This Note, the Security Instruments and the Other Security Documents
are subject to the express condition that at no time shall Borrower be
obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or
criminal liability as a result of being in excess of the maximum
interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Note, the Security
Instruments and the Other Security Documents, Borrower is at any time
required or obligated to pay interest on the principal balance due
hereunder at a rate in excess of such maximum rate, the Applicable
Interest Rate or the Default Rate, as the case may be, shall be deemed
to be immediately reduced to such maximum rate and all previous
payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest
due hereunder. All sums paid or agreed to be paid to Lender for the
use, forbearance, or detention of the Debt, shall, to the extent<PAGE>
permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Note until payment in
full so that the rate or amount of interest on account of the Debt
does not exceed the maximum lawful rate of interest from time to time
in effect and applicable to the Debt for so long as the Debt is
outstanding.
5<PAGE>
<PAGE>
ARTICLE 9: WAIVERS
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and
demand for payment, notice of dishonor, protest and notice of protest
and non-payment and all other notices of any kind, except for notices
expressly provided for in this Note, the Security Instruments or the
Other Security Documents. No release of any security for the Debt or
extension of time for payment of this Note or any installment hereof,
and no alteration, amendment or waiver of any provision of this Note,
the Security Instruments or the Other Security Documents made by
agreement between Lender or any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect
the liability of Borrower, and any other person or entity who may
become liable for the payment of all or any part of the Debt, under
this Note, the Security Instruments or the Other Security Documents.
No notice to or demand on Borrower shall be deemed to be a waiver of
the obligation of Borrower or of the right of Lender to take further
action without further notice or demand as provided for in this Note,
the Security Instruments or the Other Security Documents. If Borrower
is a partnership, corporation or limited liability company, the
agreements contained herein shall remain in full force and effect,
notwithstanding any changes in the individuals or entities comprising
the Borrower, and the term "Borrower," as used herein, shall include
any alternate or successor entity, but any predecessor entity, and its
partners or members, as the case may be, shall not thereby be released
from any liability. (Nothing in the foregoing sentence shall be
construed as a consent to, or a waiver of, any prohibition or
restriction on transfers of interests in Borrower which may be set
forth in the Security Instruments or any Other Security Document.)
ARTICLE 10: WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM,
WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR
INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE
LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE SECURITY INSTRUMENTS OR
THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS
OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
ARTICLE 11: EXCULPATION
(a) Notwithstanding anything to the contrary contained in this
Note, the Security Instruments or any Other Security Document (but
subject to the provisions of subsections (b), (c) and (d) of this
Article 11), Lender shall not enforce the liability and obligation of
Borrower to perform and observe the obligations contained in this Note
or the Security Instruments by any action or proceeding wherein a
money judgment or any deficiency judgment or other judgment
establishing any personal liability shall be sought against Borrower,
Suburban Lodges of America, Inc., Suburban Holdings, L.P., Suburban
Management, Inc., or any parent, subsidiary, or affiliate of such
entities (except the Manager of Borrower pursuant to the Non-Recourse
Carve-Out Guarantee executed as of even date herewith) or any
principal, director, officer, senior employee, shareholder, partner,
member, trustee, agent or principal, director, officer or shareholder
of Suburban Lodges of America, Inc., Suburban Holdings, L.P., Suburban
Management, Inc. or of Borrower, or any person owning, directly or
indirectly, any legal or beneficial interest in the Borrower, or any
successors or assigns of any of the foregoing (collectively, the
6<PAGE>
<PAGE>
"Exculpated Parties"), except that Lender may bring a foreclosure
action, action for specific performance or other appropriate action or
proceeding to enable Lender to enforce and realize upon this Note, the
Security Instruments, the Other Security Documents, and the interest
in the Property, the Rents (as defined in the Security Instruments)
and any other collateral given to Lender to secure this Note;
provided, however, subject to the provisions of subsections (b), (c)
and (d) of this Article 11, that any judgment in any such action or
proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Property, in the Rents and in any other
collateral given to Lender to secure this Note. Lender, by accepting
this Note and the Security Instruments, agrees that it shall not,
except as otherwise provided in this Article 11, sue for, seek or
demand any deficiency judgment against Borrower or any of the
Exculpated Parties, in any such action or proceeding, under or by
reason of or under or in connection with this Note, the Security
Instruments or the Other Security Documents. The provisions of this
Article 11 shall not, however, (i) constitute a waiver, release or
impairment of any obligation evidenced or secured by this Note, the
Security Instruments or the Other Security Documents delivered to
Lender; (ii) impair the right of Lender to name Borrower as a party
defendant in any action or suit for judicial foreclosure and sale
under the Security Instruments; (iii) affect the validity or
enforceability of any indemnity, guaranty, master lease or similar
instrument made in connection with this Note, the Security
Instruments, or the Other Security Documents; (iv) impair the right of
Lender to obtain the appointment of a receiver; (v) impair the
enforcement of the Assignment of Leases and Rents executed in
connection herewith; (vi) impair the right of Lender to enforce the
provisions of Section 12.2 of the Security Instruments; or (vii)
impair the right of Lender to obtain a deficiency judgment or other
judgment on the Note against Borrower if necessary to obtain any
insurance proceeds or condemnation awards to which Lender would
otherwise be entitled under the Security Instruments; provided
however, Lender shall only enforce such judgment to the extent of the
insurance proceeds and/or condemnation awards.
(b) Notwithstanding the provisions of this Article 11 to the
contrary, Borrower shall be personally liable to Lender for the Losses
(as defined in the Security Instruments) it incurs due to: (i) fraud
or intentional misrepresentation by Borrower or any of the Exculpated
Parties in connection with the execution and the delivery of this
Note, the Security Instruments or the Other Security Documents or any
documents or certificate now or at any time during the term of the
Loan evidenced by this Note; (ii) Borrower's misapplication or
misappropriation of Rents received by Borrower after the occurrence of
and during the continuance of an Event of Default; (iii) Borrower's
misapplication or misappropriation of tenant security deposits or
Rents collected in advance; (iv) the misapplication or
misappropriation of insurance proceeds or condemnation awards; (v)
Personal Property (as defined in the Security Instruments) taken from
the Property by or on behalf of Borrower or any of the Exculpated
Parties and not replaced with Personal Property of the same utility
and of the same or greater value; (vi) any act of arson by Borrower or
any of the Exculpated Parties; or (vii) any fees or commissions paid
by Borrower after the occurrence of and during the continuance of an
Event of Default to any Exculpated Party in violation of the terms of
this Note, the Security Instruments or the Other Security Documents.
(c) Notwithstanding the foregoing, the agreement of Lender not
to pursue recourse liability against the Borrower as set forth in
subsection (a) above SHALL BECOME NULL AND VOID as against the
Borrower, and shall be of no further force and effect in the event of
Borrower's default under Article 8 of the Security Instruments or if
the Property or any part thereof shall become an asset in (i) a<PAGE>
voluntary bankruptcy or insolvency proceeding, or (ii) an involuntary
bankruptcy or insolvency proceeding (other than one filed by Lender)
which is not dismissed within one hundred fifty (150) days of filing.
7<PAGE>
<PAGE>
(d) Nothing herein shall be deemed to be a waiver of any right
which Lender may have under Section 506(a), 506(b), 1111(b) or any
other provision of the U.S. Bankruptcy Code to file a claim for the
full amount of the indebtedness secured by the Security Instruments or
to require that all collateral shall continue to secure all of the
indebtedness owing to Lender in accordance with this Note, the
Security Instruments and the Other Security Documents.
ARTICLE 12: AUTHORITY
Borrower represents that Borrower has full power, authority and legal
right to execute and deliver this Note, the Security Instruments and
the Other Security Documents and that this Note, the Security
Instruments and the Other Security Documents constitute valid and
binding obligations of Borrower.
ARTICLE 13: GOVERNING LAW
This Note shall be governed, construed, applied and enforced in
accordance with the laws of the State of Georgia.
ARTICLE 14: NOTICES
Except as expressly provided herein, all notices or other written
communications hereunder shall be deemed to have been properly given
(i) upon delivery, if delivered in person or by facsimile transmission
with receipt acknowledged by the recipient thereof and confirmed by
telephone by sender, (ii) one (1) Business Day (defined below) after
having been deposited for overnight delivery with any reputable
overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depository regularly
maintained by the U.S. Postal Service and sent by registered or
certified mail, postage prepaid, return receipt requested, addressed
to the addresses set forth in the preamble to this Agreement or as
such party may from time to time designate by written notice to the
other parties.
ARTICLE 15: INCORPORATION BY REFERENCE
All of the terms, covenants and conditions contained in the Security
Instruments and the Other Security Documents are hereby made part of
this Note to the same extent and with the same force as if they were
fully set forth herein.
ARTICLE 16: MISCELLANEOUS
(a)Wherever pursuant to this Note it is provided that Borrower pay any
costs and expenses, such costs and expenses shall include, but not be
limited to, reasonable legal fees and reasonable disbursements of
Lender with respect to retained firms. Borrower shall pay to Lender
on demand any and all expenses, including legal expenses and
reasonable attorneys' fees, incurred or paid by Lender in enforcing
this Note, whether or not any legal proceeding is commenced hereunder,
together with interest thereon at the Default Rate from the date paid
or incurred by Lender until such expenses are paid by Borrower.
Whenever a reference is made herein to payment by Borrower of
attorney's fees incurred by Lender, the amount payable by Borrower
shall be actual attorney's fees, at standard hourly rates, reasonably
incurred by Lender, without regard to any statutory presumption under
O.C.G.A. Section 13-1-11.
8<PAGE>
<PAGE>
(b) This Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to
act on the part of Borrower or Lender, but only by an agreement in
writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or
termination is sought.
(c) If Borrower consists of more than one person or party, the
obligations and liabilities of each person or party shall be joint and
several.
(d) Whenever used, the singular number shall include the plural,
the plural number shall include the singular, and the words "Lender"
and "Borrower" shall include their respective successors, assigns,
heirs, executors and administrators.
(e) BORROWER HEREBY ACKNOWLEDGES THAT INTEREST IN THIS NOTE IS
TO BE CALCULATED BY LENDER ON THE BASIS OF A THREE HUNDRED SIXTY (360)
DAY YEAR AND IS FULLY AWARE THAT SUCH CALCULATIONS MAY RESULT IN AN
ACCRUAL AND/OR PAYMENT OF INTEREST IN AMOUNTS GREATER THAN
CORRESPONDING INTEREST CALCULATIONS BASED ON A THREE HUNDRED SIXTY-
FIVE (365) DAY YEAR.
IN WITNESS WHEREOF, Borrower has duly executed this Note under
seal as of the day and year first above written.
BORROWER:
SLAM PROPERTIES I, L.L.C.,
a Georgia limited liability company
By: SLAM PROPERTIES MANAGEMENT I, L.L.C.,
a Georgia limited liability company
Its Manager
By: SUBURBAN MANAGEMENT, INC.
a Georgia corporation
Its Manager
By: /s/ David Krischer
Name: David Krischer
Title:_______________________
(CORPORATE SEAL)
Signed, sealed and delivered
in the presence of :
/s/ Kevin Psannes
Witness
____________________________
Notary Public
My Commission Expires:___________________________
(NOTARIAL SEAL)
9
<PAGE>
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On__________________, before me, the undersigned, personally appeared
______________________________________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on
the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
__________________________________
Notary Public in and for said
County and State
(SEAL)
11
<PAGE>
<TABLE>
<CAPTION>
Schedule to Exhibit 10.26
Suburban Lodges, Inc.
A security agreement in favor of Finova Realty Capital Inc.
with substantially the same terms as this Exhibit 10.26 for each of the
following groups of properties are not being separately filed:
PROPERTY NAME ADDRESS COUNTY CITY, STATE
<S> <C> <C> <S>
Group 1*
Forest Park 363 Forest Parkway Clayton Forest Park, GA
Roswell 1175 Hembree Road Fulton Roswell, GA
Greenville-Mauldin Road 408 Mauldin Road Greenville Greenville, SC
Dallas North Central 9355 Forest Lane Dallas Dallas, TX
South Dayton 8981 Kingsridge Drive Montgomery Dayton, OH
Group 2
Lilburn/Hwy 78 4142 Stone Mountain Highway Gwinnett Lilburn, GA
Mableton 600 Lions Club Drive Cobb Mableton, Ga
Preston Highway 7121 Preston Highway Jefferson Louisville, KY
Taylors 2504 Wade Hampton Boulevard Greenville Greenville, SC
Chesapeake 2150 Old Greenbrier Road Chesapeake Chesapeake, VA
UNC Charlotte 110 Rocky River Road West Charlotte, NC
Group 3
Norcross 6067 Buford Highway Gwinnett Norcross, GA
Jonesboro/Tara Blvd. 7021 Tara Boulevard Clayton Jonesboro, GA
Virginia Beach 416 South Independence Blvd. Virginia Beach, VA
Fairfield 6785 Fairfield Business Drive Butler Fairfield, OH
Pressley/I77 Charlotte 540 Pressley Road Mecklenburg Charlotte, NC
Fulton Industrial 660 Interchange Drive, SW Fulton Atlanta, GA
Group 4
Indian Trail 1990 Willowtrail Parkway Gwinnett Norcross, GA
Douglasville 5820 Plaza Parkway Douglas Douglasville, GA
Matthews 9211 East Independence Blvd. Matthews, NC
Columbus/Eastland 4790 Hilton Corporate Drive Franklin Columbus, OH
Indianapolis, NW 5820 West 85th Street Marion Indianapolis, IN
Group 5
Northside Drive 1375 Northside Drive Fulton Atlanta, GA
Gwinnett Place 3750 Satellite Boulevard Gwinnett Duluth, GA
Columbus/Northland 2420 Dublin Granville Road Franklin Columbus, OH
Oxmoor 90 Oxmoor Road Jefferson Birmingham, AL
</TABLE>
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made as of
December 29, 1998, by SLAM PROPERTIES I, L.L.C., a Georgia limited
liability company, having an address at 300 Galleria Parkway, Suite
1200, Atlanta, Georgia 30339, Attn: Corporate Secretary ("Borrower"),
to FINOVA REALTY CAPITAL INC., a Delaware corporation, having an
address at c/o Midland Loan Services, L.P., 210 West Tenth Street,
Kansas City, Missouri 64105 (together with its successors and assigns
"Lender").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender make a loan to
Borrower in the aggregate principal amount of FOURTEEN MILLION SEVEN
HUNDRED EIGHTY THOUSAND AND NO/100 DOLLARS ($14,780,000) (the "Loan");
WHEREAS, Lender has agreed to make the Loan to Borrower upon,
and subject to, the terms and conditions set forth herein and in the
other Loan Documents (as hereinafter defined);
WHEREAS, concurrently herewith, Borrower has delivered to
Lender its Promissory Note of even date herewith in the amount of the
Loan (as the same may hereafter from time to time be modified,
amended, replaced, restated, supplemented, renewed, or extended, and
any note(s) issued in exchange therefor or in substitution thereof,
collectively, the "Note") in evidence of the Loan, with interest from
the date hereof at the rates set forth in the Note, such interest and
the principal amount thereof to be payable in accordance with the
terms and conditions provided in the Note;
WHEREAS, Borrower has delivered those certain mortgage and
security agreements, deed of trust and security agreements, deed to
secure debt and security agreements or similar real estate security
agreements (the "Security Instruments"), dated as of the date hereof,
to Lender, encumbering Borrower's interest in those certain parcels of
land situated in the County of Fulton, State of Georgia, County of
Clayton, State of Georgia, County of Greenville, State of South
Carolina, County of Dallas, State of Texas, and County of Montgomery,
State of Ohio, as more particularly described in Exhibit A attached
hereto and made a part hereof, together with the buildings,
structures, fixtures, additions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter
located thereon (collectively, the "Property");
WHEREAS, Lender has agreed to make the Loan to Borrower
upon, and subject to, the terms and conditions set forth herein and in
the Note, the Security Instruments and any and all of the other
documents, instruments and agreements now or hereafter executed by
Borrower and/or others and by or in favor of Lender, which wholly or
partially secure or guarantee payment of the Loan or which from time
to time may evidence any portion of the Loan (as each of the same may
be amended, modified, extended, renewed, restated, consolidated,
substituted, supplemented or replaced from time to time, collectively,
the "Loan Documents");
NOW THEREFORE, in consideration of the making of the Loan and
other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Borrower hereby agrees,
covenants, represents and warrants with and to Lender as follows:
1. Grant of Security Interest. As security for (i) the
payment by Borrower of all interest, principal and other sums due and
payable or hereafter becoming due and payable pursuant to the
provisions of the Note, the Security Instruments, the other Loan<PAGE>
<PAGE>
Documents and this Security Agreement (said principal, interest and
other sums, collectively, the "Debt"), and (ii) the observance and
performance by Borrower of all of the terms, covenants and provisions
of the Note, the Security Instruments, the other Loan Documents and
this Security Agreement on the part of Borrower to be observed and
performed, Borrower hereby grants and assigns to Lender a security
interest in all of the furniture, fixtures, equipment (the "FF&E") and
other personal property (the "Personalty") described in Exhibit B
attached hereto and made a part hereof, together with replacements of,
additions to and substitutions for any of the FF&E or Personalty,
whenever acquired, and the proceeds of any of the FF&E and Personalty,
both cash and non-cash (collectively, the "Collateral").
2. Books and Records. Borrower shall keep or cause to
be kept accurate and complete books, records and accounts in
accordance with generally accepted accounting practices consistently
applied with respect to the financial affairs of Borrower, including,
without limitation, the financial affairs of Borrower which relate to
the Collateral. Borrower represents and warrants to Lender that (i)
its principal office has an address as stated above and (ii) all books
and records with respect to the financial affairs of Borrower,
including, without limitation, the financial affairs of Borrower which
relate to the Collateral, are presently kept at said address or at the
Property. Borrower shall immediately notify Lender of any change in
location of the place where Borrower's books and records are kept.
Borrower shall, within fifteen (15) days after request and at its sole
cost and expense, but in no event more than one (1) time per year,
deliver to Lender certified copies of any of such books and records as
may be requested by Lender. Lender shall have the right from time
to time at all times during normal business hours to examine such
books, records and accounts at the office of Borrower and to make
copies or extracts thereof as Lender shall desire, after five (5) days
written notice to Borrower, and in no event more than one (1) time per
year. Borrower shall, from time to time, within fifteen (15) days
after request and at its sole cost and expense, deliver to Lender such
reasonable information, reports and additional financial information
with respect to the financial affairs of Borrower and the Collateral
as Lender shall reasonably request.
3. Principal Office; Records. Borrower shall not
establish a new location for its principal office until (i) it shall
have given to Lender not less than 30 days' prior written notice of
its intention so to do, clearly describing such new location and
providing such other information in connection therewith as Lender
may reasonably request, and (ii) with respect to such new location, it
shall have taken all action, satisfactory to Lender, to maintain the
security interest of Lender in the Collateral granted hereby at all
times fully perfected and in full force and effect.
4. Trade Names; Change of Name. Borrower does not have
or operate in any jurisdiction under, or in the preceding 12 months
has had or has operated in any jurisdiction under, any trade names,
fictitious names or other names except its legal name.
5. Security for Payment of the Debt. The security
interest created by this Security Agreement is given as security for
(i) the payment to Lender of all of the Debt, (ii) the discharge and
performance of all obligations and promises of Borrower contained in
the Note, the Security Instruments, other Loan Documents, and this
Security Agreement, and all extensions, modifications, restatements
and renewals thereof, and (iii) all other liabilities, direct and
indirect, absolute or contingent, now existing or hereafter arising,
from Borrower to Lender.
<PAGE>
6. Protection of Collateral. Borrower shall take any
and all steps which may be necessary or required to preserve and
protect the Collateral during the continuance of Lender's security
interest in the Collateral, and in pursuance thereof Borrower
covenants and agrees that the Collateral:
2<PAGE>
<PAGE>
(a) shall not be misused, wasted or allowed to deteriorate;
(b) shall at all times be insured against fire (including so-
called extended coverage) and theft in accordance with the terms of
the Security Instruments, and against such other risks as Lender may
reasonably require, in such amounts, with such companies, under such
policies, in such form and for such periods as shall be reasonably
satisfactory to Lender. In the event of damage to or destruction of
the Collateral as a result of an insured casualty, Lender shall apply
the proceeds, if any, of such insurance in accordance with the terms
and conditions of the Security Instruments; and
(c) shall be kept at the Property except if being repaired
and returned or being replaced by an article of equal suitability and
value free of all liens, security interests and encumbrances.
7. Protection of Security Interest. Borrower shall
take any and all steps necessary or required to preserve and protect
the priority of the security interest granted herein, and in pursuance
of this obligation, Borrower agrees that:
(a) Borrower shall not sell (except as may be permitted
pursuant to the provisions of the Security Instruments or herein),
mortgage, encumber, transfer, lease or otherwise dispose (except as
may be permitted pursuant to the provisions of the Security
Instruments or the other Loan Documents or herein) of any of the
Collateral or any interest therein, or offer to do so, without the
prior written consent of Lender, which consent may be withheld in
Lender's sole but reasonable discretion, or permit anything to be done
that may impair the value of any of the Collateral, except, that
Borrower shall be entitled to remove any items of Collateral provided
that same are replaced with items of Collateral which have at least
equal suitability and value to the items so removed on the date of
their removal;
(b) Borrower shall pay promptly when due any taxes and
assessments upon the Collateral or for the use or operation of the
Collateral;
(c) Borrower shall execute, upon request of Lender, financing
statements under the Uniform Commercial Code of the States of Georgia,
South Carolina, Texas, or Ohio, as applicable (hereinafter referred to
as the "Uniform Commercial Code") and any other documents requested by
Lender to effectively implement the purposes of this Security
Agreement;
(d) Lender may from time to time, at its option, perform any
agreement or obligation of Borrower hereunder which Borrower shall
fail to perform and take any action which Lender deems necessary for
the maintenance or preservation of any of the Collateral or its
security interest therein; and
(e) any amounts incurred by Lender for reasonable costs and
expenses (including without limitation reasonable attorney's fees and
reasonable out-of-pocket expenses) in connection with any action taken
by Lender to enforce Lender's rights under this Security Agreement,
shall, at the option of Lender, become part of the principal amount
due under the Note and shall become part of the Debt, and on demand by
Lender, Borrower shall pay any such amount to Lender, together with
interest thereon at the Default Rate (as defined in the Security
Instruments).
<PAGE>
8. Representations and Warranties of Borrower.
Borrower continually represents and warrants that: (a) except with
3<PAGE>
<PAGE>
Lender's prior consent, no other security agreement or financing
statement covering the Collateral or any part thereof, have been made
or filed and no security interest, other than the one herein created,
have been created, attached or perfected in the Collateral or in any
part thereof, except for financing statements arising in the normal
course of business; (b) no dispute, set-off, counterclaim or defense
exists on the part of Borrower or any other party respecting any part
of the Collateral; (c) all information supplied and statements made to
Lender in connection with the identification and description of the
Collateral are true and correct; (d) title to the Collateral in
Borrower is absolute and unconditional; (e) the Collateral is in good
order and condition for its intended primary use as part of the
Property; and (f) the Collateral is located at the Property.
9. Miscellaneous Covenants of Borrower. Borrower
shall: (a) promptly furnish Lender with any information or documents
which Lender may reasonably request concerning the Collateral; (b)
promptly notify Lender of any change in any fact or circumstances
warranted or represented by Borrower in this Security Agreement or in
any other writing furnished by Borrower to Lender in connection with
the Collateral or the Debt; (c) promptly notify Lender of any claim,
action or proceeding affecting title, or any other matter relating to
the Collateral, or any part thereof, or the security interest created
herein, and, at the request of Lender, appear in and defend, at
Borrower's expense, any such claim, action or proceeding; (d) promptly
make such further assurances necessary to prove title to the
Collateral in Borrower as may be reasonably required; (e) promptly
furnish Lender with true copies of all notices of default sent by or
received by Borrower with respect to any agreements relating to the
Collateral; and (f) not, without the prior written consent of Lender,
create any other security interest in, mortgage, or otherwise encumber
the Collateral, or any part thereof, or permit the same to be or
become subject to any lien, attachment, execution, sequestration,
other legal or equitable process, or encumbrance of any kind or
character, except the security interests created in this Security
Agreement, the Security Instruments and the other Loan Documents.
10. Events of Default. At the option of Lender and
without necessity of demand or notice, the Debt shall immediately
become due and payable upon occurrence of any one of the following
events (each of which is hereinafter referred to as an "Event of
Default"):
(a) The occurrence of any Event of Default under the Security
Instruments;
(b) Failure by Borrower to pay as and when due and payable
any sum as required by this Security Agreement beyond the applicable
grace periods set forth herein for such payments, if any;
(c) Failure by Borrower to keep and perform any of the terms,
covenants or provisions of this Security Agreement, the Note, the
Security Instruments, or the other Loan Documents.
11. Right of Enforcement. Lender shall have and may
exercise any and all rights of enforcement and remedies, before or
after an Event of Default, afforded to Lender under the Uniform
Commercial Code either as of the date of this Security Agreement or as
of any Event of Default, together with all of Lender's rights and
remedies pursuant to this Security Agreement, the Note, the Security
Instruments and the other Loan Documents, and together with any and
all other rights and remedies otherwise provided and available to
Lender by law; and in conjunction with, in addition to, or
substitution for those rights, Lender may, in its sole but reasonable<PAGE>
discretion, but only after five (5) days written notice to Borrower
and using legal means:
(a) enter upon the Property to take possession of, assemble
and collect and carry away the Collateral; and/or
4<PAGE>
<PAGE>
(b) require Borrower at Borrower's sole cost to assemble the
Collateral and make it available at a place Lender designates which is
convenient to allow Lender to take possession or dispose of the
Collateral; and/or
(c) waive any Event of Default, or remedy any Event of
Default in any reasonable manner, without waiving its rights and
remedies upon such Event of Default and without waiving any other
prior or subsequent Event of Default.
Lender shall not be liable for failure to assemble and collect the
Collateral or any part thereof or to enforce any rights hereunder or
under any agreement relating to the Collateral, or for any act or
omission on the part of Lender, its officers, agents or employees,
except willful misconduct or gross negligence.
12. Rights of Sale. Borrower agrees that if an Event of
Default occurs under this Security Agreement, Lender may, at its
option, sell and dispose of the Collateral at one or more public or
private sales upon giving Borrower not less than twenty (20) days'
written notice of the time and place of each such public sale or the
time, place, terms and conditions of each such private sale, which
notice or notices Borrower hereby agrees are commercially reasonable
within the meaning of the Uniform Commercial Code. Lender, or any
other party which is the highest bidder, shall have the right to
purchase the Collateral being offered at any public sale free from any
right of redemption, if any, in Borrower, which right of redemption is
hereby expressly waived. Lender as highest bidder at any public sale
may apply any unpaid portion of the Debt on account of or in full
satisfaction of the purchase price. Lender, if it is not the
purchaser, shall have the right to apply the net proceeds of any such
public or private sale (after paying all of its reasonable costs and
expenses of every kind and nature incidental thereto including,
without limitation, attorney's fees and legal expenses and expenses
incidental to preparing for sale, selling and the like), to payment of
the Debt. Only after so applying such net proceeds and after the
payment by Lender of any other sums required to be paid pursuant to
any existing or future provision of law including, without limitation,
the Uniform Commercial Code, shall Lender be obligated to account to
Borrower for the surplus, if any, resulting from any public or private
sale.
13. Right to Assign. Lender may assign all or any part
of its interest under this Security Agreement in accordance with the
provisions of the Security Instruments, and if Lender does assign any
interest in this Security Agreement, the assignee shall be entitled to
the performance of all of Borrower's obligations and agreements under
this Security Agreement, and the assignee shall be entitled to all the
rights and remedies of Lender under this Security Agreement.
14. Miscellaneous Rights of Lender. Borrower hereby
waives any and all legal requirements that Lender institute any action
or proceeding at law or in equity against Borrower or exhaust its
remedies in respect of the Security Instruments or any other security
held by Lender as a condition precedent to exercising its rights and
remedies as to the Collateral pursuant to the provisions of this
Security Agreement. Borrower waives any defenses caused by reason of
any disability or other defense of any person, or by reason of the
cessation from any cause whatsoever of the liability of any other
person.
15. Termination. This Security Agreement shall
terminate upon the satisfaction of the Security Instruments and the
payment in full of the Debt.
<PAGE>
16. Authority. Borrower represents and warrants that it
has full power and authority to execute and deliver this Agreement,
and the execution and delivery of this Agreement has been duly
authorized and does not conflict with or constitute a default under
any law, judicial order or other agreement affecting Borrower or the
Property.
5<PAGE>
<PAGE>
16. Exculpation. THE PROVISIONS OF ARTICLE 11 OF THE
NOTE ARE HEREBY INCORPORATED BY REFERENCE TO THE FULLEST EXTENT AS IF
THE TEXT OF SUCH ARTICLE WERE SET FORTH IN ITS ENTIRETY HEREIN.
6
<PAGE>
<PAGE>
IN WITNESS WHEREOF THIS AGREEMENT has been executed by
Borrower as of the day and year first above written.
BORROWER:
SLAM PROPERTIES I, L.L.C.,
a Georgia limited liability company
By: SLAM PROPERTIES MANAGEMENT I, L.L.C.,
a Georgia limited liability company,
Its Manager
By: SUBURBAN MANAGEMENT, INC.
a Georgia corporation,
Its Manager
By: /s/ David Krischer
Name: David Krischer
Title:_______________________
7
<PAGE>
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
8
<PAGE>
<PAGE>
EXHIBIT B
SCHEDULED PERSONAL PROPERTY
9
<TABLE>
<CAPTION>
Schedule to Exhibit 10.27
Suburban Lodges, Inc.
An assignment of franchise agreements and franchisor's consent and subordination of
franchise agreement in favor of Finova with substantially
the same terms as this Exhibit 10.27 for each of the following
groups of properties are not being separately filed:
PROPERTY NAME ADDRESS COUNTY CITY, STATE
<S> <C> <C> <S>
Group 1*
Forest Park 363 Forest Parkway Clayton Forest Park, GA
Roswell 1175 Hembree Road Fulton Roswell, GA
Greenville-Mauldin Road 408 Mauldin Road Greenville Greenville, SC
Dallas North Central 9355 Forest Lane Dallas Dallas, TX
South Dayton 8981 Kingsridge Drive Montgomery Dayton, OH
Group 2
Lilburn/Hwy 78 4142 Stone Mountain Highway Gwinnett Lilburn, GA
Mableton 600 Lions Club Drive Cobb Mableton, Ga
Preston Highway 7121 Preston Highway Jefferson Louisville, KY
Taylors 2504 Wade Hampton Boulevard Greenville Greenville, SC
Chesapeake 2150 Old Greenbrier Road Chesapeake Chesapeake, VA
UNC Charlotte 110 Rocky River Road West Charlotte, NC
Group 3
Norcross 6067 Buford Highway Gwinnett Norcross, GA
Jonesboro/Tara Blvd. 7021 Tara Boulevard Clayton Jonesboro, GA
Virginia Beach 416 South Independence Blvd. Virginia Beach, VA
Fairfield 6785 Fairfield Business Drive Butler Fairfield, OH
Pressley/I77 Charlotte 540 Pressley Road Mecklenburg Charlotte, NC
Fulton Industrial 660 Interchange Drive, SW Fulton Atlanta, GA
Group 4
Indian Trail 1990 Willowtrail Parkway Gwinnett Norcross, GA
Douglasville 5820 Plaza Parkway Douglas Douglasville, GA
Matthews 9211 East Independence Blvd. Matthews, NC
Columbus/Eastland 4790 Hilton Corporate Drive Franklin Columbus, OH
Indianapolis, NW 5820 West 85th Street Marion Indianapolis, IN
Group 5
Northside Drive 1375 Northside Drive Fulton Atlanta, GA
Gwinnett Place 3750 Satellite Boulevard Gwinnett Duluth, GA
Columbus/Northland 2420 Dublin Granville Road Franklin Columbus, OH
North Charleston 7371 Mazyck Road Charleston North Charleston, SC
Oxmoor 90 Oxmoor Road Jefferson Birmingham, AL
/TABLE
<PAGE>
<PAGE>
ASSIGNMENT OF FRANCHISE AGREEMENTS AND FRANCHISOR'S
CONSENT AND SUBORDINATION OF FRANCHISE AGREEMENTS
THIS ASSIGNMENT OF FRANCHISE AGREEMENTS AND FRANCHISOR'S
CONSENT AND SUBORDINATION OF FRANCHISE AGREEMENTS (the "Assignment"),
dated as of December 29, 1998, by and among SUBURBAN FRANCHISE
SYSTEMS, INC., a Georgia corporation, having an address at 300
Galleria Parkway, Suite 1200, Atlanta, Georgia 30339, Attn: Vice-
President, Franchise ("Franchisor") and SLAM PROPERTIES II, L.L.C., a
Georgia limited liability company, having an address at 300 Galleria
Parkway, Suite 1200, Atlanta, Georgia 30339, Attn: Corporate Secretary
("Borrower"), in favor of FINOVA REALTY CAPITAL INC., a Delaware
corporation, having an address at c/o Midland Loan Services, L.P.,
210 West Tenth Street, Kansas City, Missouri 64105 (together with its
successors and assigns, "Lender").
W I T N E S S E T H
WHEREAS, concurrently herewith, Lender has made a loan to
Borrower in the original principal amount of FIFTEEN MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($15,500,000) (the "Loan"), which
Loan is evidenced by that certain Promissory Note, dated as of the
date hereof, made by Borrower in favor of Lender (as from time to time
amended, modified, extended, restated, supplemented or replaced, the
"Note") and secured by, inter alia, those certain mortgage and
security agreements, deed of trust and security agreements, deed to
secure debt and security agreements or similar real estate security
agreements, dated of even date herewith, given by Borrower to Lender
(as from time to time amended, modified, extended, restated,
supplemented or replaced, the "Security Instruments"), encumbering the
Property (as defined in the Security Instruments); and
WHEREAS, as a condition to making the Loan, Lender has
required that Borrower and Franchisor enter into this Assignment for
the benefit of Lender; and
WHEREAS, the Security Instruments provide for the assignment
by Borrower to Lender of those certain Franchise Agreements, dated as
of December 29, 1998, between Borrower and Franchisor (as from time to
time amended, modified, extended, restated, supplemented or replaced,
the "Franchise Agreements"), as additional security for Borrower's
obligations under the Note, the Security Instruments and the other
Loan Documents (as defined in the Security Instruments).
NOW, THEREFORE, in order to induce Lender to make the Loan
and as additional security for the obligations of Borrower under the
Note, the Security Instruments and the other Loan Documents, intending
to be legally bound hereby:
1 Assignment. Borrower hereby absolutely and
unconditionally transfers, assigns and delivers unto Lender, and
grants Lender a security interest in, all of its right, title and
interest in and to the Franchise Agreements.
2 Borrower's Representations and Warranties. Borrower
represents and warrants to Lender that the Franchise Agreements as
originally executed and delivered have not been amended or modified,
and Borrower further represents and warrants to Lender that a correct
and complete copy of the Franchise Agreements as in effect on the date
<PAGE>
<PAGE>
hereof have been delivered to Lender and are in full force and effect,
and that there are no uncured breaches thereof by any party thereto.
Borrower represents and warrants that it has not made and covenants
that it will not make any further assignment of the Franchise
Agreements, except as permitted under the Note, the Security
Instruments and the Other Loan Documents.
3 Event of Default Under the Loan. Borrower further
expressly agrees with Lender faithfully to pay, perform and observe
all of its material obligations under the Franchise Agreements and not
to permit to occur any event or condition which would entitle any
other party to the Franchise Agreements to terminate the same or
otherwise exercise any rights which such party might have on account
of any breach by Borrower thereunder, and so long as no Event of
Default (as defined in the Security Instruments) shall be continuing
after the expiration of any applicable notice and cure periods,
Borrower shall be entitled to enjoy and enforce all of its rights
under the Franchise Agreements. Upon the occurrence and during the
continuance of an Event of Default beyond the expiration of any
applicable notice and cure periods, Lender, upon giving thirty (30)
days prior written notice (the "Election Notice") to Franchisor and
Borrower in the manner set forth below of its intention to do so (the
date of such notice, the "Notice Date"), shall be entitled then and
thereafter either to (i) terminate the Franchise Agreements in
accordance with their terms or (ii) enjoy and enforce all of the
rights and privileges of Borrower under the Franchise Agreements as if
Lender were the franchisee thereunder. If Lender elects in the
Election Notice to enjoy and enforce the Franchise Agreements, it
shall pay any and all sums payable to Franchisor thereunder or as
provided in the Franchise Agreements and perform the remaining
obligations of Borrower in connection therewith first accruing or
arising on or after the Notice Date, and Franchisor will recognize
Lender as the franchisee under the Franchise Agreements, subject to
and upon all of the terms, covenants, conditions, provisions and
agreements therein contained; provided, however, that nothing herein
shall make Lender liable for any obligations or liabilities of
Borrower first incurred or arising prior to the Notice Date, whether
to Franchisor or to any other party. Borrower hereby irrevocably
directs Franchisor, after delivery of the Election Notice to
Franchisor, to recognize and accept Lender as the holder of the
Franchise Agreements for any and all purposes as fully as it would
recognize and accept Borrower and the performance of Borrower
thereunder. Borrower further agrees that Franchisor may rely
conclusively upon any written notice given by Lender to Franchisor
setting forth that such Event of Default exists and that Lender has
determined to exercise its rights hereunder. Franchisor agrees not to
look to Lender for payment of any accrued but unpaid fees relating to
the Property accruing prior to the Notice Date. Upon the exercise by
Lender of the rights granted in this paragraph, Borrower agrees that
its interest in the Franchise Agreements shall be extinguished and of
no further force or effect. In the event that Lender shall take
possession of the Property following the occurrence of an Event of
Default afer the expiration of any applicable notice and cure periods,
whether by foreclosure, deed-in-lieu of foreclosure, assignment-in-
lieu of foreclosure or otherwise, Lender shall have the right at any
time within sixty (60) days thereafter to deliver the Election Notice,
notwithstanding the making of any payments by Lender to Franchisor or
other performance by Lender of any of the obligations of the
franchisee under the Franchise Agreements during such sixty (60) day
period.
4 Franchisor's Representations. Franchisor warrants and
represents to Lender, as of the date hereof, that the following are
true and correct:
-2-<PAGE>
<PAGE>
(a) the entire agreement between Franchisor and Borrower
for the operation at the Property of a hotel or motel under the name
"Suburban Lodge" is evidenced by the Franchise Agreements;
(b) the Franchise Agreements constitute the valid and
binding agreement of Franchisor, enforceable in accordance with its
terms, and Franchisor has full authority under all state or local laws
and regulations to perform all of its obligations under the Franchise
Agreements; and
(c) neither Borrower nor Franchisor is in default in the
performance of any of its obligations under the Franchise Agreements.
5 Indemnification. Except as expressly provided herein,
Lender shall not be obligated to pay, perform or discharge, nor does
it undertake to pay, perform or discharge, any obligation, duty or
liability under the Franchise Agreements, and Borrower shall and does
hereby agree to indemnify and to hold Lender harmless from and against
any and all claims, liabilities, loss, damage, costs, and expenses,
including reasonable attorneys' fees and disbursements, which Lender
may incur under or in connection with the Franchise Agreements or this
Assignment, or the enforcement of either, or by reason of any
obligation, duty or liability on the part of Borrower to be paid,
performed or discharged under or arising out of any of the terms,
covenants and conditions contained in the Franchise Agreements, except
to the extent that any such claims, liabilities, loss, damage, costs
or expenses arise as a direct result of Lender's gross negligence or
willful misconduct; and should Lender incur any such liability, loss,
damage, cost or expense, including, without limitation, in the defense
of any such claim, or in connection with enforcing this
indemnification obligation of Borrower, on demand, Borrower
immediately shall reimburse Lender for the amount thereof, together
with interest thereon at the Default Rate (as defined in the Note)
from the date incurred by Lender until paid by Borrower.
6 Franchisor's Agreements. Franchisor hereby consents to
and agrees to each and every one of the following covenants and
agreements for the benefit of Lender and as a requirement of Lender to
make the Loan to Borrower:
(a) Subordination of Franchise Agreements to Lien of
Security Instruments. Any and all liens, rights and interests
(whether choate or inchoate and including, without limitation, all
mechanic's and materialman's liens under applicable law) owned,
claimed or held, or to be owned, claimed or held, by Borrower in and
to the Property (as defined in the Security Instrument), are and shall
be and are hereby made in all respects subordinate and inferior to the
liens and security interests created or to be created for the benefit
of Lender, its successors and assigns, and securing the repayment of
the Note and including, without limitation, those created under and by
virtue of the Security Instruments.
(b) Notice of and Opportunity to Cure Defaults. Whenever
Franchisor is required or obligated to give Borrower notice of any
default under the Franchise Agreements, Franchisor will also send a
copy of such notice to Lender in the manner set forth below, and
Lender shall have the right, for a period of thirty (30) days after
receipt of any such notice of default, to cure the default or to
arrange with Borrower to have Borrower cure such default, and
Franchisor shall take no action to terminate the Franchise Agreements
during such period; provided, however, that in the event the default
-3-<PAGE>
<PAGE>
does not involve the payment of money and is not reasonably
susceptible of being cured within such thirty (30) day period,
Franchisor shall not take any action to terminate the Franchise
Agreements unless Lender shall have failed to commence to cure such
default within such thirty (30) day period and thereafter diligently
prosecute such cure to completion (in no event to exceed one hundred
twenty (120) days), provided that in the event Lender cannot commence
such cure without obtaining possession of the Property, Franchisor
will not exercise any such right if Lender commences judicial or non-
judicial proceedings to obtain possession within such period and
thereafter diligently prosecutes such efforts and cure to completion;
and provided further, Franchisor shall not, as to Lender or any
purchaser of the Property at a foreclosure sale or from Lender,
require the cure of any such act or omission which is not susceptible
of being cured by Lender, and such act or omission thereafter shall
not be deemed a default under the Franchise Agreements.
(c) Notice of Borrower's Cancellation. Franchisor will
notify Lender in writing of any notice received from Borrower to
cancel the Franchise Agreements and the date of such intended
cancellation.
(d) Sale of the Property. Any sale or transfer of the
Property, whether the same be at a foreclosure sale or a private sale
in lieu thereof, or otherwise, shall be subject to all of the terms,
covenants, conditions, provisions and agreements contained in the
Franchise Agreements, provided such purchaser shall execute and
deliver to Franchisor a written agreement in recordable form whereby
such purchaser shall assume and agree to pay, perform, observe, keep
and comply all of the terms, covenants, conditions, provisions and
agreements contained in the Franchise Agreements on the part of
Borrower to be paid, observed and performed, including, without
limitation, payment to Franchisor of the royalty fees, license fees
and any and all other sums payable to Franchisor, as provided in the
Franchise Agreements.
7 Franchisor's and Borrower's Agreements. Franchisor and
Borrower agree and covenant that:
(a) No Amendments to Franchise Agreements. Franchisor and
Borrower shall not terminate, amend or modify the Franchise Agreements
in any respect which would have an adverse effect on the operations
of, the income from or the value of the Property without the prior
written approval of Lender, which approval shall not be unreasonably
withheld or delayed. In the event that Franchisor and Borrower fail
to secure such approval to any such amendment or modification, the
Franchise Agreements shall, for the purposes of Lender's rights
pursuant to this Assignment, be deemed not to have been amended or
modified by such amendment.
(b) Further Assurances. Franchisor and Borrower shall (i)
execute such affidavits and certificates as Lender shall reasonably
require to further evidence the agreements herein contained, provided
that in no event shall Franchisor be required to do so more than one
(1) time per year, and (ii) on request from Lender, Franchisor shall
furnish Lender with copies of such information as Borrower is entitled
to receive under the Franchise Agreements.
(c) No Joint Venture or Partnership. Lender has no
obligation to Franchisor with respect to the Loan and Franchisor
shall, except as expressly stated herein, have no obligation to Lender
under the Loan, and Franchisor shall not be a third party beneficiary
with respect to any of Borrower's obligations to Lender as set forth
in the Loan Documents. The relationship of Lender to Borrower is one<PAGE>
of a creditor to a debtor, and Lender is not a joint venturer or
partner of Borrower.
-4-<PAGE>
<PAGE>
(d) Lender's Reliance on Representations. Franchisor has
executed this Assignment with full knowledge that Lender shall rely
upon the representations, warranties and agreements herein contained
when making the Loan to Borrower, and that, but for this instrument
and the representations, warranties and agreements herein contained,
Lender would not take such actions.
8 Borrower's and Franchisor's Consents. Borrower has
joined herein to evidence, among other things, its consent to all of
the agreements of Franchisor contained in this Assignment. Franchisor
has joined herein to evidence, among other things, its consent to the
assignment of the Franchise Agreements as set forth herein and all of
the agreements of Borrower contained in this Assignment.
9 Notices. Except as expressly provided herein, all
notices or other written communications hereunder shall be deemed to
have been properly given (i) upon delivery, if delivered in person or
by facsimile transmission with receipt acknowledged by the recipient
thereof and confirmed by telephone by sender, (ii) one (1) Business
Day (defined below) after having been deposited for overnight delivery
with any reputable overnight courier service, or (iii) three (3)
Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt
requested, addressed to the addresses set forth in the preamble to
this Agreement or as such party may from time to time designate by
written notice to the other parties. In addition, any notices sent to
Borrower or Franchisor hereunder shall be sent to both Borrower and
Franchisor.
10 Assignment. Lender shall have the right to transfer,
sell and assign its interest in this Assignment to any person. This
Assignment shall be binding upon Franchisor and Borrower and the
successors, assigns, heirs and personal representatives of Franchisor
and Borrower and shall inure to the benefit of Lender and all
subsequent holders of the Note and their respective officers,
directors, employees, shareholders, agents, successors and assigns.
11 Severability. Whenever possible, each provision of
this Assignment shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this
Assignment shall be prohibited by or invalid or unenforceable under
the applicable law of any jurisdiction with respect to any Person (as
defined in the Security Instruments) or circumstance, such provision
shall be ineffective to the extent of such prohibition, invalidity or
unenforceability, without invalidating the remaining provisions of
this Assignment or affecting the validity or enforceability of such
provisions in any other jurisdiction or with respect to other Persons
or circumstances. To the extent permitted by applicable law, the
parties to this Assignment hereby waive any provision of law that
renders any provision hereof prohibited, invalid or unenforceable in
any respect.
12 No Oral Modifications. This Assignment, and all of the
provisions hereof, cannot be altered, modified, amended, waived,
extended, changed, discharged or terminated orally or by any act on
the part of Franchisor, Borrower or Lender, but only by an agreement
in writing signed by the party against whom enforcement of any
alteration, modification, amendment, waiver, extension, change,
discharge or termination is sought.
<PAGE>
13 Governing Law. This Assignment shall be governed by,
and construed in accordance with, the laws of the State of Georgia,
except to the extent that the applicability of any of such laws may
now or hereafter be preempted by Federal law, in which case such
Federal law shall so govern and be controlling.
-5-<PAGE>
<PAGE>
14. Trade Name Items. Lender, Borrower and Franchisor
recognize and acknowledge the rights of Franchisor with respect to any
licensed property under the provisions of the Franchise Agreements,
including, without limitation, Franchisor's ability to remove such
property (including any software), using legal proceedings to do so,
from the Property upon a termination of the Franchise Agreements.
[THE REMAINDER OF THIS PAGE HAS BEEN
INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Franchisor and Borrower have duly
executed this Assignment as of the day and year first hereinabove
written.
FRANCHISOR:
SUBURBAN FRANCHISE SYSTEMS, INC.
By: /s/ David Krischer
Name: David Krischer
Title:______________________________
BORROWER:
SLAM PROPERTIES II, L.L.C.,
a Georgia limited liability company
By: SLAM PROPERTIES MANAGEMENT II, L.L.C.,
a Georgia limited liability company,
Its Manager
By: SUBURBAN MANAGEMENT, INC.,
a Georgia corporation,
Its Manager
By: /s/ David Krischer
Name: Krischer
Title:_______________________
LENDER:
FINOVA REALTY CAPITAL INC.
a Delaware corporation
By:_____________________________
Name:___________________________
Title:____________________________
-7-
AGREEMENT
THIS AGREEMENT (the "Agreement"), effective this ____ day of
__________, (the "Effective Date"), by and between SUBURBAN LODGES OF
AMERICA, INC., a Georgia corporation (the "Company"), and _________________
(the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company wishes to assure both itself and its key
employees of continuity of management and objective judgment in the
event of a threatened or actual change in control of the Company, and
to induce its key employees to remain employed by the Company, and the
Executive is a key employee of the Company and an integral part of its
management; and
WHEREAS, this Agreement is not intended to alter materially the
compensation and benefits that the Executive reasonably could expect
to receive in the absence of a threatened or actual change in control
of the Company, and this Agreement accordingly will be operative only
upon circumstances relating to a change in control of the Company, as
set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants herein contained, the parties hereby agree as
follows:
1. OPERATION OF AGREEMENT.
----------------------
This Agreement shall be effective immediately upon its execution
by the parties hereto, but anything in this Agreement to the contrary
notwithstanding, neither this Agreement nor any provision hereof shall
be operative unless, during the term of this Agreement, there has been
a Change in Control or Threatened Change in Control of the Company, as
defined in Section 3 below. Immediately upon such an occurrence, all
of the provisions hereof shall become operative.
2. TERM OF AGREEMENT.
-----------------
The term of this Agreement shall be for a rolling, three (3) year
term commencing on the date hereof, and shall be deemed automatically
(without further action by either the Company or the Executive) to
extend each day for an additional day such that the remaining term of
the Agreement shall continue to be three (3) years; provided, however,
that on Executive's 62nd birthday this Agreement shall cease to extend
automatically and, on such date, the remaining "term" of this
Agreement shall be three (3) years; provided further, that the Company
may, by notice to the Executive, cause this Agreement to cease to
extend automatically and, upon such notice, the "Term" of this
Agreement shall be three (3) years following such notice.
3. DEFINITIONS.
-----------
(a) Base Amount - The term "BASE AMOUNT" shall have the same
-----------
meaning as ascribed to it under Section 280G(b)(3) of the Code.
<PAGE>
(b) Beneficial Owner or Beneficial Ownership - The term
---------------- --------------------
"BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the Exchange Act.
(c) Board or Board of Directors - The Board of Directors of
---------------------------
Suburban Lodges of America, Inc., or its successor.
(d) Cause - The Term "CAUSE" as used herein shall mean: (i)
-----
Executive's material fraud, malfeasance, gross negligence, or willful
misconduct with respect to business affairs of the Company which is
directly or materially harmful to the business or reputation of the
Company or any subsidiary of the Company, or (ii) Executive's
conviction of or failure to contest prosecution for a felony or a
crime involving moral turpitude. A termination of Executive for
"Cause" based on clause (i) of the preceding sentence shall take
effect thirty (30) days after the Company gives written notice of such
termination to Executive specifying the conduct deemed to qualify as
Cause, unless Executive shall, during such 30-day period, remedy the
events or circumstances constituting cause to the reasonable
satisfaction of the Company. A termination for Cause based on clause
(ii) above shall take effect immediately upon giving of the
termination notice.
(e) Change in Control - The term "CHANGE IN CONTROL" as used
-----------------
herein shall mean:
(i) An acquisition by any Person (as such term is defined
in Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof) of Beneficial Ownership of the Shares then
outstanding (the "Company Shares Outstanding") or the voting
securities of the Company then outstanding entitled to vote
generally in the election of directors (the "Company Voting
Securities Outstanding"), if such acquisition of Beneficial
Ownership results in the Person beneficially owning (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) thirty
percent (30%) or more of the Company Shares Outstanding or thirty
percent (30%) or more of the combined voting power of the Company
Voting Securities Outstanding; excluding, however, (A) any such
acquisition by a trustee or other fiduciary holding such Shares
under one or more employee benefit plans maintained by the
Company or any of its subsidiaries, and (B) any such acquisition
by David E. Krischer and his immediately family; or
(ii) The approval of the shareholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or any similar
corporate transaction (in each case referred to in this Section
3(e) as a "Corporate Transaction"), other than a Corporate
Transaction which would result in the outstanding common stock of
the Company immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
common stock of the surviving entity or a parent or affiliate
thereof) at least fifty percent (50%) of the outstanding common
stock of the Company or such surviving entity or parent or
affiliate thereof immediately after such Corporate Transaction;
provided, however, if the consummation of such Corporate
-2-
<PAGE>
Transaction is subject, at the time of such approval by
shareholders, to the consent of any government or governmental
agency, the Change in Control shall not occur until the obtaining
of such consent (either explicitly or implicitly); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board
(such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of
the Board; provided, however, for purposes of this Section 3(e)
that any individual who becomes a member of the Board subsequent
to the Effective Date whose election, or nomination for election
by the Company's shareholders, was approved by a vote of at least
a majority of those individuals who are members of the Board and
who were also members of the Incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided,
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, including any
successor to such Rule), or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board, shall not be so considered as a member of
the Incumbent Board.
(f) Code - The term "CODE" shall mean the Internal Revenue Code
----
of 1986, as amended from time to time (the "Code").
(g) Disability - The term "DISABILITY" shall mean the
----------
Executive's inability as a result of physical or mental incapacity to
substantially perform his duties for the Company on a full-time basis
for a period of six (6) months.
(h) Excess Severance Payment - The term "EXCESS SEVERANCE
------------------------
PAYMENT" shall have the same meaning as the term "excess parachute
payment" defined in Section 280G(b)(1) of the Code.
(i) Excise Tax - The term "EXCISE TAX" shall mean the excise tax
----------
imposed under Code Section 4999.
(j) Exchange Act - The term "EXCHANGE ACT" shall mean the
------------
Securities Exchange Act of 1934, as amended from time to time, or any
successor act thereto.
(k) Involuntary Termination - For purposes hereof, "INVOLUNTARY
-----------------------
TERMINATION" shall mean termination of employment that is involuntary
on the part of the Executive and that occurs for reasons other than
for Cause, Disability or death.
(l) Present Value - The term "PRESENT VALUE" shall have the same
-------------
meaning as provided in Section 280G(d)(4) of the Code.
(m) Reasonable Compensation - The term "REASONABLE COMPENSATION"
-----------------------
shall have the same meaning as provided in Section 280G(b)(4) of the
Code.
-3-<PAGE>
(n) Severance Payment - The term "SEVERANCE PAYMENT" shall have
-----------------
the same meaning as the term "parachute payment" defined in Section
280G(b)(2) of the Code.
(o) Shares - The term "SHARES" shall mean the shares of
------
common stock of the Company, par value $.01 per share.
(p) Threatened Change in Control - The term "THREATENED CHANGE
----------------------------
IN CONTROL" shall mean any pending tender offer for any class of the
Company's outstanding Shares, or any pending bona fide offer to
acquire the Company by merger or consolidation, or any other pending
action or plan to effect, or which would lead to, a Change in Control
of the Company. A Threatened Change in Control Period shall commence
on the first day the action described in the preceding sentence become
manifest and shall end when such actions are abandoned or the Change
in Control occurs.
(q) Voluntary Termination - For purposes hereof, "VOLUNTARY
---------------------
TERMINATION" shall mean termination of employment that is voluntary on
the part of the Executive, and, in the judgment of the Executive, is
due to (i) a reduction of the Executive's responsibilities, title or
status resulting from a formal change in such title or status, or from
the assignment to the Executive of any duties inconsistent with his
title, duties or responsibilities in effect within the year prior to
the Change in Control or immediately prior to the Threatened Change in
Control; (ii) a reduction in the Executive's compensation or benefits,
or (iii) a Company-required involuntary relocation of Executive's
place of residence or a significant increase in the Executive's travel
requirements. A termination shall not be considered voluntary within
the meaning of this Agreement if such termination is the result of
Cause, Disability or death of the Executive.
4. BENEFITS UPON TERMINATION FOLLOWING A CHANGE IN CONTROL.
-------------------------------------------------------
(a) Termination - If a Change in Control or Threatened Change in
-----------
Control occurs during the term of this Agreement and the Executive's
employment is terminated by either a Voluntary or Involuntary
Termination: (i) within twenty-four (24) months following the date of
the Change in Control, (ii) within six (6) months prior to the date of
the Change in Control, or (iii) during a Threatened Change in Control
Period, then the benefits described in Section 4(b) below shall be
paid or provided to the Executive.
(b) Benefits to be Provided - If the Executive becomes eligible
-----------------------
for benefits under Section 4(a) above, the Company shall pay or
provide to Executive the compensation and benefits set forth in this
Section 4(b).
(i) Salary - The Executive will continue to receive his
------
current salary (subject to withholding of all applicable taxes)
for a period of thirty-six (36) months from his date of
termination in the same manner as it was being paid as of the
date of termination; PROVIDED, HOWEVER, that the salary payments
provided for hereunder shall be paid in a single lump sum
payment, to be paid not later than 30 days after his termination
of employment; PROVIDED, FURTHER, that the amount of such lump
-4-<PAGE>
sum payment shall be determined by taking the salary payments to
be made and discounting them to their Present Value (as defined
in Section 3(l)) on the date Executive's employment is
terminated. For purposes hereof, the Executive's "current
salary" shall be the highest rate in effect during the twelve-
month period prior to the Executive's termination.
(ii) Bonuses and Incentives - The Executive shall receive
----------------------
bonus payments from the Company for the thirty-six (36) months
following the month in which his employment is terminated in an
amount for each month equal to one-twelfth of the average
("Average Bonus") of the bonuses paid to him for the two calendar
years immediately preceding the year in which such termination
occurs. Any bonus amounts that the Executive had previously
earned from the Company but which may not yet have been paid as
of the date of termination shall not be affected by this
provision. Executive shall also receive a prorated bonus for any
uncompleted fiscal year at the date of termination equal to the
Average Bonus multiplied by the number of days he worked in such
year divided by 365 days. The bonus amounts determined herein
(including the Average Bonus, any previously earned but unpaid
bonus, and the prorated bonus for any uncompleted fiscal year)
shall be paid in a single lump sum payment, to be paid not later
than 30 days after termination of employment; PROVIDED, FURTHER,
that the amount of such lump sum payment shall be determined by
taking the bonus payments (as of the payment date) to be made and
discounting them to their Present Value (as defined in Section
3(l)) on the date Executive's employment is terminated.
(iii) 401(k) Plan - The Executive shall receive supplemental
-----------
payments from the Company for the thirty-six (36) months
following the month in which his employment is terminated in an
amount for each month equal to one-twelfth of the Company's
annual contribution to its Section 401(k) Plan ("401(k) Plan")
made on his behalf (whether in the form of matching, profit
sharing or other employer contribution, but excluding any
employee deferrals) for the plan year ending immediately
preceding his date of termination. If, as of the date of
Executive's termination, the Executive is not fully vested in his
benefit under the Plan, the Company shall also pay to the
Executive, an additional payment equal to the amount of his
account under the 401(k) Plan which was forfeited as a result of
his termination. The supplemental payments determined herein
shall be paid in a lump sum payment, to be paid not later than 30
days after termination of employment; PROVIDED, HOWEVER, that the
amount of the lump sum payment shall be determined by taking the
bonus payments (as of the payment date) to be made and
discounting them to their Present Value (as defined in Section
3(l)) on the date Executive's employment is terminated.
(iv) Health, Dental and Life Insurance Coverage - The
------------------------------------------
health, dental and life insurance benefits coverage (including
any executive medical plan) provided to the Executive at his date
of termination shall be continued by the Company at its expense
at the same level and in the same manner as if his employment had
not terminated (subject to the customary changes in such
coverages if the Executive retires under a Company retirement
plan, reaches age 65 or similar events and subject to Executive's
right to make any changes in such coverages that an active
employee is permitted to make), beginning on the date of such
termination and ending on the date thirty-six (36) months from
-5-<PAGE>
the date of such termination. Any additional coverages the
Executive had at termination, including dependent coverage, will
also be continued for such period on the same terms, to the
extent permitted by the applicable policies or contracts. Any
costs the Executive was paying for such coverages at the time of
termination shall be paid by the Executive by separate check
payable to the Company each month in advance. If the terms of
any benefit plan referred to in this Section do not permit
continued participation by the Executive, the Company will
arrange for other coverage at its expense providing substantially
similar benefits. The coverages provided for in this Section
shall be applied against and reduce the period for which COBRA
will be provided. If the Executive is covered by a split-dollar
or similar life insurance program at the date of termination, he
shall have the option in his sole discretion to have such policy
transferred to him upon termination, provided that the Company is
paid for its interest in the policy upon such transfer.
(v) Stock Options - Upon the occurrence of a Change in
-------------
Control (whether or not Executive's employment is terminated),
all outstanding stock options granted to Executive under the
Suburban Lodges of America, Inc. Stock Option and Incentive Plan
and any such similar stock option plan (the "Stock Option Plans")
shall become 100% vested and immediately exercisable. To the
extent necessary, the provisions of this Section 4(b)(v) shall
constitute an amendment of the Executive's stock option
agreements under the Stock Option Plans.
(vi) Outplacement Services - At the Executive's election,
---------------------
the Company shall pay for outplacement services following the
Executive's termination of employment, provided that such
outplacement services shall not extend for a period longer than 9
months nor exceed a maximum cost of $25,000. The costs of such
outplacement services shall be paid directly to, and as billed
by, the outplacement agency of Executive's choosing.
(vii) Effect of Lump Sum Payment - The lump sum payment under
--------------------------
(i), (ii) or (iii) above shall not alter the amounts Executive is
entitled to receive under the benefit plans described in (iv)
above. Benefits under such plans shall be determined as if
Executive had remained employed and received such payments
without reduction for their Present Value over a period of
thirty-six (36) months.
5. LIMITATION AND ADJUSTMENT OF BENEFITS.
-------------------------------------
(a) Limitation and Adjustment of Benefits Upon Termination.
------------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, if, in the
opinion of independent tax accountants or counsel selected and
retained by the Company and reasonably acceptable to the Executive
("Tax Counsel"), any of the compensation or benefits payable, or to be
provided, to Executive by the Company or any member of its affiliated
group (the Company and all members of its affiliated group hereinafter
collectively referred to as the "Controlled Group") under this
Agreement are treated as Excess Severance Payments (whether alone or
in conjunction with payments or benefits outside of this Agreement),
the Company shall direct Tax Counsel to determine and compare (i)
Executive's net income after payment of all federal, state and local
-6-<PAGE>
taxes assuming that all of the compensation and benefits payable by
the Controlled Group under this Agreement and all such other
arrangements are paid to Executive and Executive pays the Excise Tax;
and (ii) Executive's net income after payment of all federal, state
and local taxes assuming that the total amount of compensation and
benefits payable by the Controlled Group under this Agreement and all
such other arrangements is reduced such that no Excess Severance
Payments result and the Excise Tax is not triggered. If the amount
calculated under (ii) above is less than 95% of the amount calculated
under (i) above, then the full amount due from the Controlled Group
under all such arrangements shall be payable to Executive. If the
amount calculated under (ii) above is at least 95% of the amount
calculated under (i) above, then the total amount of compensation and
benefits payable under all such arrangements shall be reduced, as
provided in 5(b) below, such that Executive shall receive no Excess
Severance Payments and shall have no liability for Excise Tax.
(b) Reduction of Amount - In the event that the amount of any
-------------------
Severance Payments, including any benefits, which would be payable to
or for the benefit of Executive under this Agreement must be modified
or reduced to comply with this Section 5, Executive shall direct which
Severance Payments are to be modified or reduced; provided, however,
that no increase in the amount of any payment or change in the timing
of the payment shall be made without the consent of the Company.
(c) Avoidance of Penalty Taxes - This Section 5 shall be
--------------------------
interpreted so as to maximize the net after-tax dollar value to
Executive. In determining whether any Excess Severance Payments exist
and the most advantageous outcome for Executive, the parties shall
take into account all provisions of Code Section 280G, and the
Regulations thereunder, including making appropriate adjustments to
such calculations for amounts established to be Reasonable
Compensation. Both the Company and Executive shall cooperate fully
with Tax Counsel and provide Tax Counsel with all compensation and
benefit amounts, personal tax information and other information
necessary or helpful in calculating such net after-tax amounts. In
the event of any Internal Revenue Service examination, audit or other
inquiry, the Company and Executive agree to take action to provide,
and to cooperate in providing, evidence to the Internal Revenue
Service (and, if applicable, the state revenue department) to achieve
this goal.
(d) Correction of Determination - If it is established pursuant
---------------------------
to a final determination of a court or an Internal Revenue Service
proceeding, or pursuant to an opinion of Tax Counsel, that
notwithstanding the good faith of the Company and Executive in
applying the terms of this Section 5, either (i) the amounts paid to
Executive unintentionally constituted Excess Severance Payments and
triggered the Excise Tax, even though the payments to Executive were
reduced in an effort to avoid such result; or (ii) the amounts paid to
Executive were reduced by more than was necessary to avoid triggering
the Excise Tax, then the parties shall make the applicable correction
that will achieve the goal described in Section 5(c) hereof. In the
event the error referred to in clause (i) hereof occurs, Executive is
hereby required to repay to the Company, within 15 days after the
error is discovered, the amount necessary to avoid the Excise Tax;
provided, however, that if Executive, based on advice from Tax Counsel
and Executive's own tax advisor, determines that the return of such
amounts will not serve to eliminate the Excess Severance Payments and
the Excise Tax, the Company then shall be obligated to pay to
Executive, within 15 days after Executive notifies the Company of
-7-<PAGE>
Executive's determination, the total amount by which the original
amount of Executive's compensation and benefits were reduced pursuant
to the terms of Sections 5(a) and (b) hereof. In the event the error
referred to in clause (ii) hereof occurs, the Company is hereby
required to repay to Executive, within 15 days after the error is
discovered, the maximum amount of the compensation and benefits that
were reduced pursuant to the terms of Sections 5(a) and (b) hereof
that Executive may receive without triggering the Excise Tax.
6. MISCELLANEOUS.
-------------
(a) No Obligation to Mitigate - Executive shall not be required
-------------------------
to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for under this Agreement be reduced by
any compensation earned by Executive as a result of employment by
another employer after the date of termination, or otherwise.
(b) Notices - Any notice or other communication required or
-------
permitted under this Agreement shall be effective only if it is in
writing and shall be deemed to have been duly given when delivered
personally or seven days after mailing if mailed first class by
registered or certified mail, postage prepaid, addressed as follows:
If to the Company: Suburban Lodges of America, Inc.
300 Galleria Parkway
Suite 1200
Atlanta, Georgia 30339
Attention: President
If to the Executive: _________________________________
_________________________________
_________________________________
or to such other address as any party may designate by notice to
the others.
(c) Assignment - This Agreement shall inure to the benefit of
---------
and shall be binding upon the parties hereto and their respective
executors, administrators, heirs, personal representatives and
successors, but, except as hereinafter provided, neither this
Agreement nor any right hereunder may be assigned or transferred by
either party thereto, or by any beneficiary or any other person, nor
be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy or other legal process of any kind against the
Executive, his beneficiary or any other person. Notwithstanding the
foregoing, any person or business entity succeeding to substantially
all of the business of the Company by purchase, merger, consolidation,
sale of assets or otherwise, shall be bound by and shall adopt and
assume this Agreement and the Company shall obtain the assumption of
this Agreement by such successor. If Executive shall die while any
amount would still be payable to Executive hereunder (other than
amounts which, by their terms, terminate upon the death of Executive)
if Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators
of Executive's estate.
-8-<PAGE>
(d) No Obligation to Fund - The agreement of the Company (or its
---------------------
successor) to make payments to the Executive hereunder shall represent
solely the unsecured obligation of the Company (and its successor),
except to the extent the Company (or its successors) in its sole
discretion elects in whole or in part to fund its obligations under
this Agreement pursuant to a trust arrangement or otherwise.
(e) Applicable Law - This Agreement shall be governed by and
--------------
construed and enforced in accordance with the laws of the State of
Georgia.
(f) Claims; Expenses - All claims by Executive for compensation
----------------
and benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a
claim for benefits under this Agreement shall be delivered to
Executive in writing and shall set forth the specific reasons for the
denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to Executive for a review
of a decision denying a claim and shall further allow Executive to
appeal to the Board a decision of the Board within sixty (60) days
after notification by the Board that Executive's claim has been
denied. In the event the Executive incurs legal fees and other
expenses in seeking to obtain or to enforce any rights or benefits
provided by this Agreement and is successful, in whole or in part, in
obtaining or enforcing any such rights or benefits through settlement
or otherwise, the Company shall promptly pay Executive's reasonable
legal fees and expenses incurred in enforcing this Agreement. Except
to the extent provided in the preceding sentence, each party shall pay
its own legal fees and other expenses associated with any dispute.
(g) Amendment - This Agreement may only be amended by a written
---------
instrument signed by the parties hereto, which makes specific
reference to this Agreement.
(h) Severability - If any provision of this Agreement shall be
------------
held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other
provisions hereof.
(i) Other Benefits - Nothing in this Agreement shall limit
--------------
or replace the compensation or benefits payable to Executive, or
otherwise adversely affect Executive's rights, under any other benefit
plan, program or agreement to which Executive is a party.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officers and the
Executive has hereunder set his hand, as of the date first above
written.
SUBURBAN LODGES OF AMERICA, INC.
By:________________________________
Name:___________________________
Title:__________________________
(Corporate Seal)
Attest:________________________
Secretary
EXECUTIVE
__________________________________
EXHIBIT 21.1
SUBSIDIARIES OF SUBURBAN LODGES, INC.
NAME JURISDICTION OF ORGANIZATION
Suburban Management, Inc. Georgia
SLA Properties, Inc. Delaware
SLA Development, Inc. Georgia
Suburban Franchise Systems, Inc. Georgia
Suburban Holdings, L.P. Georgia
EEB Lodging Systems, Inc. Georgia
EEB Lodging Systems II, Inc. Georgia
Suburban Construction, Inc. Georgia
SLAM Properties I, L.L.C. Georgia
SLAM Properties II, L.L.C. Georgia
SLAM Properties III, L.L.C. Georgia
SLAM Properties IV, L.L.C. Georgia
SLAM Properties V, L.L.C. Georgia
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-11643, No. 333-11671, 333-20695 and 333-64309 of Suburban Lodges
of America, Inc., on Form S-8 of our report dated February 26, 1999,
appearing in this Annual Report on Form 10-K of Suburban Lodges of
America, Inc. for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001011449
<NAME> SUBURBAN LODGES OF AMERICA, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,178
<SECURITIES> 0
<RECEIVABLES> 667
<ALLOWANCES> 99
<INVENTORY> 1,684
<CURRENT-ASSETS> 28,044
<PP&E> 282,794
<DEPRECIATION> 10,764
<TOTAL-ASSETS> 307,535
<CURRENT-LIABILITIES> 20,016
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 211,490
<TOTAL-LIABILITY-AND-EQUITY> 307,535
<SALES> 0
<TOTAL-REVENUES> 46,458
<CGS> 0
<TOTAL-COSTS> 34,399
<OTHER-EXPENSES> 10,633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 3,754
<INCOME-TAX> 1,192
<INCOME-CONTINUING> 2,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,562
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
