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, 1999
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 24, 2000 is $66,244,874 (based on $
6.50 per share, the last sales price on the NASDAQ Stock Market on March 24,
2000).
At March 24, 2000 there were issued and outstanding 13,715,972 shares
of Common Stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 2000
Annual Meeting of Shareholders are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Suburban Lodges of America, Inc. (individually and collectively with its
subsidiaries, the "Company") 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."(R) Suburban Lodge has been ranked as the 12th
largest economy hotel brand and the Company has been ranked as the 23rd largest
hotel company in the world (based on number of guest rooms and hotels). 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, a majority of all
guests pay the Company's weekly rates, which currently range from $149 to $289
for standard guest rooms and from $169 to $309 for larger guest rooms.
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 relocating or
purchasing a home, tourists and other value-conscious customers desiring
low-cost, longer-term, quality accommodations with fully equipped kitchenettes.
The Company 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 the Company and
its hotels from, and provide a competitive advantage over, traditional and other
extended-stay lodging hotels, such as: (i) franchising opportunities; (ii) its
low weekly rates; (iii) guest rooms that include fully-equipped kitchenettes;
(iv) marketing and pricing to appeal to longer guest stays; (v) higher occupancy
rates; (vi) operating efficiencies; (vii) standard design and low construction
costs; and (viii) attractive unit economics.
BUSINESS STRATEGY
With 61 Company owned and 46 franchised Suburban Lodge hotels operating in
19 states as of December 31, 1999, Suburban Lodge has established itself as a
national provider of economy extended-stay hotels. While the Company continues
to own and develop a select group of properties each year, the Company has
recently focused on reshaping itself to become a multi-brand, fee-based
franchisor rather than a capital -intensive development enterprise.
GROWTH STRATEGY
GUESTHOUSE INTERNATIONAL INNS, HOTELS AND SUITES. In June 1999, the Company
added the GuestHouse International brand to its portfolio, thereby extending the
Company's ability to attract franchisees. The Company now has a nightly stay
brand and a brand that is not targeted primarily at the economy segment of the
market. The GuestHouse International brand includes a diverse group of
mid-market hotels, many of which are two and three diamond AAA rated hotels.
Although approximately 25 percent of GuestHouse International hotels are new
construction, the brand's focus is on the conversion of existing hotels.
<PAGE>
FRANCHISING AND THIRD PARTY DEVELOPMENT AND MANAGEMENT ACTIVITIES. During
1999, the Company significantly expanded its franchise sales force to emphasize
franchising the Suburban Lodge and GuestHouse International systems on a
nationwide basis to independent developers and operators and to passive
investors who retain the Company to develop and manage their Suburban Lodge and
GuestHouse International hotels. The Company considers its franchisees to be an
integral component of its continued growth and believes its relationship with
its franchisees is good. Through franchising, the Company intends to accelerate
the growth of the Suburban Lodge and GuestHouse International systems, thereby
increasing its market presence and brand awareness in both new and existing
markets, while generating incremental revenues at an attractive margin. Suburban
believes that its existing infrastructure and experience in franchising will be
an important factor in executing its franchising strategy. At December 31, 1999,
46 franchised Suburban Lodge hotels were operating in 11 states and 46
GuestHouse International hotels were operating in 16 states.
COMPANY OWNED DEVELOPMENT. New Company owned hotels are currently under
construction in Tampa-Brandon, Florida, Chicago-Villa Park, Illinois and
Pittsburgh-North Hills, Pennsylvania. Nine Company owned hotels opened in 1999.
The Company expects that the rate of Company owned new development next year and
in the future will be slower than in previous years, with a focus on select
markets with high levels of employment and other demand generators. As a result,
hotel revenues are expected to grow more slowly in 2000 and future years while
the growth of fee-based franchise revenues is expected to accelerate.
EXTEL 2001. The Company has designed and introduced a new prototype hotel
that allows owners to take advantage of both extended-stay and transient
markets. Extel 2001 has an expandable interior corridor that can accommodate 61
to 150 guest rooms. The new prototype allows franchisees to cost-effectively
modify features to fit the needs of individual markets. The lower development
costs associated with the option of a lesser number of units and the additional
design flexibility to accommodate a broader range of markets, provides a
significant enhancement to the Company's franchising activities.
OPERATING STRATEGIES
The Company's principal operating strategies are to (i) provide its guests
with clean, comfortable and attractive accommodations at weekly rates
substantially lower than those offered by most traditional and other extended-
stay hotels; (ii) control 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.
The Company believes that its high average occupancy rate (as described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations) is primarily a result of the combination of its competitive weekly
rates, which appeal to a broad base of potential guests, and its guest room
amenities. In addition, the Company seeks to minimize costs throughout its
operations. The Company is able to control its operating costs because it
operates each hotel with a staff of approximately six to nine 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 three
weeks to four weeks, longer guest stays reduce guest check-in traffic and
administrative costs.
During 1999, the Company expanded opportunities available for prospective
guests to make reservations at Suburban Lodge and GuestHouse International
hotels. Live online reservations are now available for Suburban Lodge hotels at
suburbanlodge.com and by voice at 800-951-STAY, with GuestHouse International
- -----------------
hotel reservations available at guesthouseintl.com. Most Suburban Lodge and
--------------
GuestHouse International hotels also now participate in the Global Distribution
System (GDS), through the Lexington Worldwide Reservation System, available to
travel agents worldwide. The Company has implemented a national advertising fund
to which all hotels contribute. With these funds, the Company established a
national telemarketing group and a national sales force to help market the
hotels.
<PAGE>
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 frequent on-site visits
by district managers. Incentive programs allow managers to earn bonuses based on
achievement of quarterly budgets. The Company provides on-going mandatory
training for the managers.
Suburban Lodge on-site transactions are processed 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
the Company'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 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
SUBURBAN LODGE 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 $190 per
room, whichever is greater, and a monthly royalty of three percent of gross
revenues. Upon notice from the Company, 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 the Company to upload 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.
<PAGE>
The Company 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.
GUESTHOUSE INTERNATIONAL FRANCHISE AGREEMENTS
The Company enters into single-unit franchise agreements for an initial
term of five years with no renewal options following the initial term. The
initial franchise fee is $30,000 or $225 per guest room, whichever is greater. A
monthly operating fee of $1.50 per room per day through years 1 and 2 and $1.75
per room per day for years 3 through 5 is payable from the opening date of the
franchise hotel. Agreements signed between June 4, 1998 and June 1, 1999 are
subject to an initial fee of $15,000 and a monthly operating fee of $1.25 per
room per day. Between June 11, 1993 and June 4, 1998 no GuestHouse International
franchise agreements were offered or signed, however, licenses were granted
under Cooperative Membership Agreements with initial fees ranging from zero to
$10,000 and monthly operating fees ranging from $0.72 per room per day to $1.00
per room per day. All Cooperative Membership Agreements and franchise agreements
offered and entered into prior to June 1, 1999 were entered into by Guesthouse
International LLC or its predecessors. Suburban Lodges of America, Inc.
purchased the assets of GuestHouse International LLC on June 1, 1999 and took an
assignment of all previously executed Cooperative Membership Agreements and
franchise agreements. Franchisees are also required to pay a marketing
contribution currently set at $.50 per room per day.
The Company provides materials and services to assist each franchisee in
operating a GuestHouse International Inns, Hotels or Suites including operating
manuals, training, maintaining or subcontracting a reservation service, general
marketing services, conferences and periodic inspections by corporate staff to
ensure quality control.
If a franchisee desires to sell an interest in the franchise agreement or
the hotel, the Company has the right to disapprove such a sale in its sole
discretion. In addition, the current agreement provides that upon termination of
a franchise agreement for breach by a franchisee; that franchisee will pay $1.75
per room per day for 18 months if such termination occurs prior to two years
after the opening date, and after two years, the franchisee will pay fees
ranging from zero to $1.75 per day for 18 months depending on the hotel's
occupancy rate for the 12 months prior to such termination.
Many states' franchise laws limit the ability of a franchisor to terminate
or refuse to renew a franchise. The Company 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.
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
personnel decisions, the negotiation of operating leases and contracts, the
preparation of advertising campaigns, the payment of taxes and the general
maintenance of the hotel. Suburban also maintains the right to determine all
operating policies affecting the appearance of the hotel, the maintenance of the
hotel and its standards of operation, the quality of services and other matters
affecting customer satisfaction. In addition to a fixed fee for pre-opening
services, the Company will charge a management fee equal to five percent of the
hotel's monthly gross revenues. As of December 31, 1999, the Company managed 20
hotels for its franchisees, including one hotel that was in the process of
conversion to a Suburban Lodge hotel.
TRADEMARKS
SUBURBAN LODGE
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 terms for the registration of the
service marks "Suburban Lodge" and "Lodge for Less" extend to November 2004 and
July 2007, respectively, and the term for the registration of the corporate
design logo extends to March 2009. Each registration may be renewed for
successive ten-year periods.
GUESTHOUSE INTERNATIONAL
The following service marks and corporate design logos are actively used
and are significant to the Company's business:
Service Mark Registry Initial Expiration
------------ -------- ------------------
"GH" and design logo Principal January 30, 2006
"GH GuestHouse" and design logo Principal August 13, 2006
"GH GuestHouse International" and Principal October 22, 2006
design logo
"GH GuestHouse" and design logo with Principal March 4, 2007
stylized "G"
"GuestHouse International" (Block) Supplemental September 16, 2007
"GH GuestHouse Inns, Hotels, Suites" Principal December 23, 2007
and design logo
"GuestHouse.net" (Block) Supplemental March 24, 2008
Each of the foregoing registrations may be renewed for successive ten-year
periods.
SEASONALITY
Following their initial ramp-up, the Company's hotels typically experience
lower average occupancy rates and total revenues in the first and fourth
calendar quarters of each year. Because many of the Company 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.
<PAGE>
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 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 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.
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 competitive weekly rates, good
customer service and convenient locations.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property.
Such laws often impose liability without regard to whether the owner knew
of, or was responsible for, the presence of hazardous or toxic substances. In
connection with the ownership and 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. 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.
<PAGE>
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.
As a franchisor, the Company 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 non-renewal 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.
EMPLOYEES
As of December 31, 1999, the Company employed 850 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 51 Chairman of the Board and Chief Executive Officer
Dan J. Berman 35 Vice President - Franchising and Director
Gregory C. Plank 53 President
Seth H. Christian 35 Vice President - Operations
Paul A. Criscillis, Jr. 50 Vice President and Chief Financial Officer
G. Hunter Hilliard 57 Vice President - Construction
Kevin R. Pfannes 45 Vice President - Development and Secretary
Robert E. Schnelle 50 Vice President and Treasurer
</TABLE>
DAVID E. KRISCHER. Mr. Krischer formed Suburban Lodges of America, Inc. in
1987 to develop a national chain of economy extended-stay hotels and has served
as its CEO and Chairman since inception. A leader in the extended stay hotel
industry, Mr. Krischer served as the founding Chairman of the Extended Stay
Lodging Council, a division of the American Hotel Motel Association. He has over
18 years experience in real estate development and has been involved in the
hospitality industry for thirteen years. From 1974 to 1986, he was a partner
with two Atlanta law firms, Arrington, Rubin, Winter, Krischer & Goger and
Costanzo & Krischer, where his practice focused on general business law, real
estate law and real estate syndication. Mr. Krischer has a Juris Doctor of Law
Degree, with honors from Boston College Law School ('73) and a Bachelors degree
in Accounting from Brooklyn College.
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
and Chief Financial Officer in August 1998. Prior to joining the Company, Mr.
Criscillis had, since 1985, served as Vice President and 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.
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.
KEVIN R. PFANNES. Mr. Pfannes joined the Company in January 1996 and was
elected Vice President - Development in February 1996. He has 21 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 Director of Operations and Legal Services 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.
GREGORY C. PLANK. Mr. Plank attended Cornell University School of Hotel
Administration, where he received his Bachelor of Science degree. Mr. Plank's
varied background in the hotel industry includes: marketing positions for the
advertising agency of Needham & Grohmann in New York, the Sheraton Corporation,
Leonard, Call Developers and Ramada. Mr. Plank has also served as General Manger
of a full-service Sheraton Inn in Florida, Vice President & Regional Director of
Operations for Sheraton Inns Incorporated, Executive Vice President-Franchise
for Forte Hotels overseeing Travellodge and Thriftlodge in North and South
America, and President of Country Hearth Inns. In June, 1999 Mr. Plank was
appointed President of Suburban Lodges of America, Inc. Mr. Plank is a current
past Chairmen of AH&MA's Economy Lodging Council, serves on the Governmental
Affairs Committee of AH&MA and is a member of the Cornell Hotel Society.
ROBERT E. SCHNELLE. Mr. Schnelle joined the Company as Vice President and
Treasurer in April 1999. From August 1991 to March 1999, he served as Treasurer
of Crown Crafts, Inc., a manufacturer of textile home furnishings products. From
August 1998 to March 1999, Mr. Schnelle also served as a Vice President with
Crown Crafts. Prior to that, Mr. Schnelle served as controller for the Memphis
Publishing Company. Mr. Schnelle graduated from Xavier University in 1972 with
Bachelors degree in Accounting.
Officers of the Company serve at the pleasure of the Board of Directors.
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
<PAGE>
(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"); (vi) risks associated
with financing, and (vii) increased supply and competition within the hotel
industry.
ITEM 2. DESCRIPTION OF HOTELS.
SUBURBAN LODGE HOTELS
At December 31, 1999, there were 107 existing Suburban Lodge hotels located
in 19 states. These hotels contain an aggregate of 14,442 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.
Each hotel includes guest rooms, a general manager's unit, 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, 1999
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 12/31/99 OPENED ROOMS <F1>
------------------------------- ------ -----
COMPANY-OWNED)
<S> <C> <C>
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 (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 (Pressley I-77), NC Mar-97 132
Charlotte (University Area), 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
Columbus (Eastland), OH Dec-97 139
<PAGE>
NUMBER
DATE OF
EXISTING HOTELS (AS OF 12/31/99) OPENED ROOMS
-------------------------------- ------ -----
COMPANY-OWNED (CONTINUED)
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
<PAGE>
Columbus-NW (Franklin), OH Jan-98 127
Columbus-Northland, OH Jan-98 135
Indianapolis-East, IN Jan-98 135
Arlington-North, TX <F4> 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, IL Aug-98 125
San Antonio-NE, TX Sep-98 138
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
South Salt Lake, UT Jan-99 136
Albuquerque, NM Jan-99 135
Minneapolis, (Coons Rapids), MN Jan-99 135
Houston-NW 290, TX Jan-99 132
Tampa (Largo), FL Feb-99 132
Dallas-Market Center, TX Apr-99 134
San Antonio (Leon Valley), TX Apr-99 132
Denver (Aurora), CO May-99 137
Richmond-Midlothian, VA Dec-99 137
---------
SUBTOTAL 8,165
---------
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
<PAGE>
FRANCHISED (CONTINUED)
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
Albany (Albany Mall), GA Jun-98 138
Jacksonville (Orange Park), FL Jun-98 144
Greensboro (Wendover I-40), NC Sep-98 143
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
Richmond (Broad @ N. Parham), VA Jan-99 143
Daytona Beach, FL Feb-99 135
Houston (Cy Fair-1960), TX Feb-99 150
Nashville (Hermitage), TN Feb-99 127
Atlanta (Conyers), GA <F5> Feb-99 138
Atlanta (Thornton Rd.), GA Mar-99 150
Stuart, FL Mar-99 126
Melbourne, FL "Extra" Apr-99 132
Macon (Eisenhower Pkwy), GA Apr-99 150
Gautier, MS Apr-99 126
Athens (UGA), GA Apr-99 138
Atlanta (Sandy Springs), GA "Extra" <F6> May-99 71
Orlando (Casselberry), FL May-99 144
Orlando (Universal Studios Escape), FL Sep-99 150
Pensacola-NAS, FL Sep-99 128
Tampa-Airport West, FL Oct-99 136
----------
SUBTOTAL 6,257
----------
SYSTEM-WIDE TOTAL 14,422
==========
<PAGE>
HOTELS UNDER CONSTRUCTION: NUMBER
------------------------- ESTIMATED OF
(AS OF 12/31/99) <F1> OPENING <F3> ROOMS <F1>
---------------- ------- -----
COMPANY OWNED:
Denver (Sheridan), CO 1st Quarter, 2000 135
Tampa (Brandon), FL 3rd Quarter, 2000 150
Chicago (Villa-Park), IL 4th Quarter, 2000 80
Pittsburgh-(North Hills) PA 1st Quarter, 2001 124
----------
SUBTOTAL 489
----------
FRANCHISED:
Charlotte-W.T. Harris/I-77, NC 1st Quarter, 2000 127
Sarasota, FL 1st Quarter, 2000 150
Gainesville. GA 1st Quarter, 2000 112
Jacksonville (St. John's Bluff), FL 1st Quarter, 2000 150
Atlanta(Kennesaw-Town Center), GA 2nd Quarter, 2000 149
Hampton, VA 2nd Quarter, 2000 141
Biloxi, MS 4th Quarter, 2000 150
Huntsville, AL 4th Quarter, 2000 134
----------
Subtotal 1,113
----------
TOTAL UNDER CONSTRUCTION 1,602
==========
COMPANY OWNED SITE INVENTORY:
-----------------------------
(AS OF 12/31/99) <F7>
---------------------
Austin-North, TX
Tampa-Dale Mabry, FL
Ft. Lauderdale (Oakland Park), FL
COMPANY OWNED SITE INVENTORY: (AS OF 12/31/99
---------------------------------------------
CONTINUED)
----------
Houston-Medical Center, TX
Kansas City (Lenexa), KS
Phoenix (Tempe), AZ
Philadelphia-Franklin Mills, PA
Plano, TX
Detroit (Fraser), MI
Philadelphia (Valley Forge), PA
</TABLE>
<PAGE>
FRANCHISED HOTELS UNDER DEVELOPMENT: (AS OF
-------------------------------------------
12/31/99)
---------
Chesapeake, VA
Houston-Stafford, TX
Manassas, VA
Atlanta-185-Cheshire Bridge, GA
Houston Dixie Farm-I-45, TX
Austin-South, TX
Myrtle Beach, SC
Houston-Hardy Toll Road - Belt 8, TX
Hilton Head, SC
Tallahassee-West, FL
Orlando-West (Colonial), FL
Lexington, KY
Memphis-Midtown, TN
GUESTHOUSE INTERNATIONAL INNS, HOTELS AND SUITES.
At December 31, 1999, there were 46 existing GuestHouse International Inns,
Hotels and Suites located in 16 states. These inns, hotels and suites contain an
aggregate of 3,396 guest rooms and have an average of 74 guest rooms. GuestHouse
International Inns, Hotels and Suites comprise a wide variety of facilities
offering overnight stays in the upper economy to mid-market segment. The
amenities and facilities offered through the GuestHouse International brand are
varied according to individual market needs with the underlying factor being
adherence to high-quality standards of cleanliness, safety and service. The
following tables set forth certain information as of December 31, 1999 with
respect to inns, hotel and suites that are open or under construction.
<TABLE>
<CAPTION>
EXISTING INNS, HOTELS AND SUITES NUMBER OF
(AS OF 12/31/99) DATE OPENED ROOMS
---------------- ----------- -----
<S> <C> <C>
Little Rock, AR Mar-96 72
Chattanooga, TN Apr-96 31
St. Augustine, FL Aug-96 100
Nashville, TN Jan-97 108
Long Beach, CA Mar-97 143
Camden, TN Jul-97 40
Pageland, SC Aug-97 23
Santa Clara, CA Dec-97 70
Port Orchard, WA Mar-98 56
Bloomington, IL Mar-98 100
South Haven, MI Apr-98 54
Commerce, GA May-98 74
Keystone, SD May-98 35
Warner Robins, GA Sep-98 50
Compton, CA Sep-98 40
Commerce, GA Oct-98 70
Santa Ana, CA Dec-98 73
<PAGE>
EXISTING INNS, HOTELS AND SUITES AS OF
12/31/99 (CONTINUED)
--------------------
Ft. Myers, FL Feb-99 34
Beverly Hills, CA Mar-99 35
Ft. Smith, AR Mar-99 63
Tumwater, OK Mar-99 60
Greenville, SC Apr-99 96
Huntsville, AL Apr-99 112
Jackson, MS Apr-99 50
Opelika, AL Apr-99 56
Springfield, MO (North) Apr-99 80
Springfield, MO (South) Apr-99 103
Springfield, MO (Plus) Apr-99 121
Tulsa, OK Apr-99 135
Gulf Shores, AL Apr-99 90
Santa Cruz, CA Apr-99 36
Dillon, MT May-99 58
Kelso, WA May-99 59
Vicksburg, MS May-99 30
Buena Park, CA May-99 40
Mobile, AL May-99 112
San Luis Obispo, CA May-99 39
Savannah, GA Jul-99 56
Hawthorne, CA Aug-99 38
South Gate, CA Sep-99 49
Waukesha, WI Oct-99 91
Orlando, FL Dec-99 266
Glendora, CA Dec-99 38
Sarasota, FL Dec-99 102
Branson, MO Dec-99 180
Hollywood, CA Dec-99 28
----------
SYSTEM-WIDE TOTAL 3,396
==========
HOTELS UNDER CONSTRUCTION; ESTIMATED NUMBER OF
(AS OF 12/31/99) OPENING <F3> ROOMS <F1>
---------------- ------------ ----------
Miles City, MT Feb-00 62
Juneau, AL Mar-00 96
Los Angeles, CA Mar-00 49
Oceanside, CA 80
Valdez. AK 78
----------
TOTAL UNDER CONSTRUCTION 365
==========
<PAGE>
EXECUTED AGREEMENTS:
--------------------
(AS OF 12/31/99)
----------------
Acworth, GA 40
Dupont, WA 59
Fairbanks, AK 100
Ft. Wayne, IN 60
Leeds, AL 42
Savannah, GA 138
----------
TOTAL EXECUTED AGREEMENTS 439
==========
- -------------------
<FN>
<F1> The number of guest rooms does not include the general manager's unit.
<F2> The Mableton hotel was acquired in June 1993 and converted into a Suburban
Lodge hotel in October 1994.
<F3> The Company believes that each of the 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."
<F4> The Arlington-North, TX and Arlington-South, TX hotels were acquired from
a franchisee in July, 1998.
<F5> The Company sold the Atlanta (Conyers) GA, Suburban Lodge hotel to a
franchisee on March 2, 1999.
<F6> The Company acquired the Atlanta (Sandy Springs) G, Suburban Lodge "Extra"
hotel effective January 1, 2000.
<F7> The Company may elect to sell or transfer existing Company owned sites to
other parties for development as Suburban Lodge or GuestHouse
International hotels or for other purposes.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company was 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. This litigation has been dismissed.
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.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq Stock Market under the
symbol "SLAM." Although the Company had only approximately 75 shareholders of
record on March 1, 2000, it believes based on information supplied by its
Transfer Agent, that the Company had approximately 2,200 beneficial owners of
its common stock on that date. The high and low transaction prices for the
common stock as reported on the Nasdaq Stock Market as set forth below.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
YEAR ENDED DECEMBER 31, 1999 HIGH LOW
---- ---
<S> <C> <C>
First Quarter........................................... $9.75 $5.31
Second Quarter ......................................... 7.19 6.06
Third Quarter........................................... 6.88 5.50
Fourth Quarter.......................................... 6.19 4.75
YEAR ENDED DECEMBER 31, 1998
First Quarter........................................... $18.25 12.25
Second Quarter ......................................... 19.38 14.63
Third Quarter........................................... 16.00 6.25
Fourth Quarter.......................................... 9.81 6.25
</TABLE>
The Company has not paid cash dividends on its Common Stock since its
inception as a public company in May 1996. 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 cash dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
The accompanying selected financial and operating data is presented in
thousands, except for per share data, operating data and the number of hotels
open at the end of each period.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
=============== =============== ============== =============== ===============
FOR THE YEAR:
<S> <C> <C> <C> <C> <C>
Hotel revenues $ 62,466 $ 44,756 $ 21,822 $ 8,349 $ 4,727
Franchise and other revenue 3,446 1,702 1,373 917 460
=============== =============== ============== =============== ===============
Total revenue 65,912 46,458 23,195 9,266 5,187
Hotel operating expenses 32,876 22,754 11,204 3,910 2,072
Income from operations 17,520 12,353 7,107 3,031 1,755
Net income <F1> 8,045 2,562 6,724 2,385 677
Earnings per share:
Basic and diluted $ 0.53 $ 0.17 $ 0.53
Pro forma <F2> $ 0.31
Operating Data <F3>:
Average weekly rate >F4> $ 191.18 $ 174.85 $ 157.27 $ 155.84 $ 136.19
Weekly RevPAR <F4> $ 150.00 $ 142.60 $ 134.13 $ 138.92 $ 130.93
AT YEAR END:
Total assets $321,082 $307,298 $242,854 $131,000 $ 15,004
Long-term debt 97,891 74,735 25,005 15,000 13,818
Cash dividends declared None None None None N/A
Number of hotels open:
Owned 61 53 39 14 6
Franchised 92 30 17 10 6
=============== =============== ============== =============== ===============
System-wide 153 83 56 24 12
___________________________
<FN>
N/A - Not applicable.
<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 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> Data is calculated starting on the first day of the calendar month
following the month in which the hotel was opened.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
Hotel revenues increased by $17.7 million, or 40%, from $44.8 million in 1998 to
$62.5 million in 1999. The largest portion ($10.4 million) of the increase was
attributed to the fourteen hotels that opened or were acquired by the Company
during 1998 and operated throughout 1999. Nine hotels that opened during 1999
accounted for $6.4 million of the increase. Thirty-eight hotels that operated
throughout both 1998 and 1999 accounted for $1.8 million of the increase in
hotel revenues. These thirty-eight hotels increased their combined Average
Weekly Rate (AWR) by 8%, from $172.05 to $185.35. Occupancies at these hotels
declined from 84.0% to 81.7%, while Weekly Revenue per Available Room (RevPAR)
increased 5.0%, from $144.68 to $151.39. For all Company-owned hotels, AWR
increased to $191.18 in 1999 from $174.85 in 1998, occupancy declined to 78.6%
in 1999 from 81.8% in 1998, and RevPAR increased to $150.00 in 1999 from $142.60
in 1998.
The increases contributed by these three groups of hotels were offset by a $1.0
million decrease in hotel revenues in a hotel that was owned and operated by the
Company throughout 1998 and was sold to a franchisee in February 1999.
Franchise and other revenues increased by $1.7 million, or 102%, to $3.4 million
in 1999. The largest portion ($0.7 million) of the increase was attributed to
the larger number of franchisees for the Suburban Lodge hotel brand. At December
31, 1999, 46 franchised Suburban Lodge hotels were operating as compared with 30
at December 31, 1998. Another $0.7 million of the increase was the result of
increased management fees. At December 31, 1999, the Company managed 20 hotels
for its franchisees, including one hotel that was in the process of conversion
to a Suburban Lodge hotel. At December 31, 1998, the Company managed 11 hotels
for its franchisees. Revenues attributable to franchise fees and royalties for
the GuestHouse International brand, which was acquired on June 1, 1999, were
approximately $0.6 million. Development fees declined by approximately $0.2
million from 1998 to 1999.
During 1999, the Company substantially increased its focus on franchising
activities in order to enable future growth in a significantly less
capital-intensive manner than had been the case in previous years. Accordingly,
hotel revenues are expected to grow more slowly in 2000 and future years while
the growth of fee-based revenues is expected to accelerate. In this regard, the
Company anticipates that it will open only three to four new Company-owned
hotels in 2000 but that openings of franchised hotels will accelerate commencing
in the second half of the year.
Hotel operating expenses increased approximately $10.1 million, or 44.5%, from
$22.8 million in 1998 to $32.9 million in 1999. The most significant portion
($5.4 million) of the increase was attributable to the fourteen hotels that
opened or were acquired by the Company during 1998 and operated a full year in
1999. The nine hotels that opened during 1999
<PAGE>
accounted for $3.6 million of the increase in hotel operating expense while the
thirty-eight hotels that operated the full year in both 1998 and 1999 accounted
for $1.5 million of the increase.
The increases attributable to these three groups of hotels were offset by a $0.4
million decrease in hotel expenses in the hotel that was owned and operated by
the Company throughout 1998 and was sold to a franchisee in February 1999.
Corporate operating expenses increased to $8.0 million, approximately double the
amount of such expenses for 1998. Of this increase, approximately $0.9 million
was attributable to operating expenses incurred by GuestHouse International
subsequent to its June 1, 1999, acquisition by the Company. Additionally, the
amount of corporate overhead that was project-related, and is therefore
capitalized as land-acquisition or hotel-construction cost, was $1.8 million
less in 1999 than in 1998. Excluding the incremental impact on reported
operating expenses of GuestHouse International and lower capitalization of
project-related expenses, corporate operating expenses in 1999 increased by
17.2% over such amounts for 1998. The primary reason for this increase is $1.3
million for additional staffing needed to support the growth of the business.
Depreciation and amortization increased by $3.0 million, or 54.2%, from $5.5
million in 1998 to $8.5 million in 1999. Of this increase, $0.3 million was
attributable to leasehold improvements and equipment at the corporate
headquarters. Hotel properties accounted for $2.5 million of the increase. In
addition, $0.2 million was attributable to amortization of certain intangible
assets (franchise contract rights and goodwill) recognized in connection with
the GuestHouse International acquisition.
The largest portion ($1.2 million) of the increase in depreciation and
amortization for hotel properties was attributable to the fourteen hotels that
opened or were acquired by the Company in 1998. The nine hotels that opened
during 1999 accounted for $1.0 million of the increase and the thirty eight
hotels that operated throughout both 1998 and 1999 accounted for $0.4 million of
the increase. These increases were offset by a $0.1 million decrease in
depreciation expense on the hotel that was sold to a franchisee in February
1999.
Interest income earned on excess funds invested during 1999 was $1.4 million
compared to $2.2 million for 1998. The decrease in interest income was due to
lower invested cash balances during 1999.
Interest expense, net of interest capitalized of $1.9 million and $3.9 million
in 1999 and 1998, respectively, was $6.4 million in 1999 and $0.2 million in
1998. The increase in total interest charges incurred was due to higher levels
of debt outstanding. See the "Liquidity and Capital Resources" section for a
discussion of the Company's debt strategy.
<PAGE>
The effective income tax rate for 1999 was 36.9% compared to 31.8% in 1998. The
increase in 1999 was primarily due to higher effective state income tax rates
and a reduction in the amount of interest income that was exempt from federal
income tax.
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 $44.8 million,
which was an increase of $22.9 million, or 105%, over the year ended December
31, 1997. Room revenue increased by $23.3 million, of which $11.8 million was
attributable to the full year results of 31 mature hotels (hotels that have
operated for at least twelve full calendar months). 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 subsequent to their acquisition was $0.8 million. In addition, $10.8
million 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 22 hotels open less than twelve full
calendar months. 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 $1.7 million, compared to $1.4 million 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 $0.4 million, from $0.7 million in 1997
to $1.1 million in 1998. The franchise revenue for the year ended December 31,
1998 reflects $0.4 million in initial franchise fees, representing 15 hotel
openings compared to $0.3 million and 12 hotel openings during the year ended
December 31, 1997. Franchise royalties and other revenue on open hotels was $0.7
million for the year ended December 31, 1998. Development and construction
revenue totaled $0.2 million for the year ended December 31, 1998, compared to
$0.6 million for the year ended December 31, 1997.
Hotel operating expenses increased $11.6 million, or 103%, to $22.8 million for
the year ended December 31, 1998, from $11.2 million for the year ended December
31, 1997. Of this increase, $4.9 million relates to the increase in the mature
properties, which includes the full year expenses for 17 properties opened or
acquired during 1997, and $6.7 million pertains to the opening and year-to-date
expenses for the 22 hotels that 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 $1.7 million, or approximately 76%, to
$4.0 million due to additional staffing in the financial, management, training
and marketing segments of the business, as well as office rent,
<PAGE>
travel expenses, insurance, legal expenses and other professional fees.
Depreciation and amortization increased to $5.5 million from $2.6 million
reflecting both the full year expense for the 1997 hotel 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 a Senior Credit Facility.
On July 9, 1998, the Company purchased an interest rate lock in connection with
the planned public issuance of $100 million 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 $10.4 million loss upon settlement of the
rate lock on December 3, 1998. In total, $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 $2.0 million 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.
Excess funds were invested to generate interest income for the year ended
December 31, 1998 of $2.2 million compared to $3.0 million for the year ended
December 31, 1997. The decrease in interest income 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.
SEASONALITY
Following their initial ramp-up, the Company's hotels typically experience lower
average occupancy rates and total revenues in the first and fourth calendar
quarters of each year.
LIQUIDITY AND CAPITAL RESOURCES
From May 29, 1996, the date of the Company's initial public offering (the
"IPO"), through December 31, 1998, the Company pursued a strategy of growing
principally through hotel development. Accordingly, the number of Company-owned
hotels grew from eight at May 29, 1996, to 53 at December 31, 1998. Capital
spending during this period exceeded $200 million and the principal sources of
<PAGE>
capital included the proceeds from the 1996 IPO and two subsequent public equity
offerings during 1997, borrowings under a bank credit facility and operating
cash flow.
During the latter portion of 1998, the Company revised its debt strategy to
emphasize more traditional longer-term mortgages rather than relying on bank
lines of credit with shorter final maturities. On December 30, 1998, the Company
completed a financing transaction under which it granted mortgages on 27 hotel
properties and received $75.5 million in loan proceeds. The properties were
divided into five separate pools; however, each pool had the same terms.
Interest is charged at 8.25%, a 25-year amortization schedule is used resulting
in monthly payments of principal and interest totaling $596,000, and the
balances of the loans are payable in full on January 1, 2009. The bulk of the
loan proceeds, or $65 million, was used to repay the then-outstanding balance
under the Company's bank credit facility. The balance of the loan proceeds was
included in "cash and cash equivalents" in the December 31, 1998 balance sheet.
In March 1999, the Company and the bank group agreed to terminate the bank
credit facility prior to its otherwise scheduled maturity of December 15, 2000.
On March 31, 1999, the Company completed a $10.3 million financing agreement
consisting of individual mortgage loans on three hotel properties. The initial
weighted average interest rate for the loans was 8.38%, adjustable at the end of
each three-year period to rates based on prime plus an average margin of 62.5
basis points. Monthly loan payments of $88,000 are based on a principal
amortization period of 20 years. Final maturity dates are March 1, 2005 for one
of the loans and March 1, 2008 for the others.
On June 7, 1999, the Company completed a $13.7 million financing transaction
under which it granted mortgages on five hotel properties and received $13.7
million in loan proceeds. The interest rate of 8.8% is fixed for the ten-year
term of the loan. The loan requires monthly payments of principal and interest
totaling $113,000 based on a 25-year amortization schedule. Final payment of the
loan is due July 1, 2009.
The loan transactions outlined above provided approximately $34.5 million of
cash available for use in 1999. Operations also provided approximately $14.8
million of cash in 1999 and the sale of a hotel to a franchisee provided
approximately $4.4 million. This cash was utilized primarily to complete the
acquisition of four sites and construct ten hotels ($33.9 million), repurchase
the Company's common stock ($10.0 million) and repay mortgage loans on two
hotels that had been acquired in 1998 ($6.6 million).
In the future, the Company expects its cash requirements to be met by funds
generated from operations, occasional sales of its hotel properties,
construction loans made to build out certain of its unimproved sites and
borrowings under a bank line of credit that was executed in February 2000. The
bank line of credit provides a revolving credit facility for amounts up to $15
million. Borrowings under this facility will bear interest, at the Company's
option, at (i) the bank's prime rate or (ii) the Euro-Rate plus 275 basis
points. Borrowings under the credit facility are secured by a pool of nine hotel
properties.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily as a result of the
use of debt in the normal course of its business to fund the construction of
hotels.
At December 31, 1998, the Company had debt outstanding totaling $82.2 million.
Approximately $75.5 million of this amount was represented by mortgage loans
with an interest rate of 8.25% that is fixed until the debt matures on January
1, 2009. Another $6.6 million was represented by mortgage notes assumed in the
acquisitions of two hotels during 1998. The Company intended to, and did, repay
these loans in the ensuing year.
During 1999, the Company issued additional debt of $24.6 million. Of this
amount, $13.7 million was represented by mortgage loans with an interest rate of
8.8% that is fixed until the debt matures on July 1, 2009. Another $10.3 million
was represented by three mortgage loans with an initial weighted average
interest rate of 8.38%. The rates on all three loans automatically adjust to an
average rate of 0.625% over the prime rate on April 1, 2002. The rates will
remain fixed at this newly adjusted rate until April 1, 2005, at which time one
of the loans will mature and the other two will re-adjust based on the
then-current prime interest rate.
Except for reductions in the loan balances resulting from scheduled amortizing
payments, the Company presently intends to hold all of the loans described above
until their scheduled maturities. Accordingly, a change in market interest rates
is not expected to impact the cost of these obligations until March 31, 2002.
The Company's cash and cash equivalents are short-term and highly liquid
investments with original maturities of three months or less. Accordingly, a
change in market interest rates has a nearly immediate effect on interest earned
by the Company on its invested cash. For the foreseeable future, the Company
reasonably expects that its average invested cash balance will approximate $6.0
million. Accordingly, each one percent change in market interest rates will
change interest income by approximately $60,000 per annum.
RECENT ACCOUNTING PRONOUNCEMENTs
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which was modified by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 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
beginning in the first quarter of 2001 and does not presently expect such
adoption to have any effect on the Company's financial statements at that time.
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report 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 and interest rates, consumer
demand for extended-stay and other forms of lodging, the level of competition in
the extended-stay and other lodging markets, financial markets, development
efficiencies, weather delays, zoning delays, the Company's financial condition
and its ability to maintain operational and financial systems to manage the
rapid growth it has experienced.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is included in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," under
the caption "Quantitative and Qualitative Disclosures About Market Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Independent Auditors' Report, the Consolidated Financial Statements and
Notes to the Consolidated Financial Statements and the Financial Statement
Schedule that appear on pages F-1 through F-16 herein are incorporated by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
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 2000 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 headings "Compensation of Directors"
and "Executive Compensation" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for the Company's 2000 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.
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 2000 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 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 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, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
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.
3. EXHIBITS
The exhibits set forth below are required to be filed with this Report
pursuant to Item 601 of Regulation S-K:
<PAGE>
<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> <C> <C>
3.1 Amended and Restated Articles of the 333-2876 S-1 March 28, 1996** 3.1
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 Plan No. 1 to S-1
10.6 Suburban Lodges of America, Inc. 333-2876 Amendment May 7, 1996 10.6
Non-Employee Directors' Stock Option No. 1 to S-1
and Fee Plan
10.7 Form of Indemnification Agreement 333-2876 S-1 March 28, 1996 10.7
between Suburban Lodges of America,
Inc. and its directors and officers
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 between 333-2876 S-1 March 28, 1996 10.14
Suburban Lodges of America, Inc. and
Young Consulting, Inc. re. Company's
proprietary computer software
10.15 Suburban Lodge 401(k) Savings Plan 333-2876 S-1 May 20, 1996 10.15
10.16 Rights Agreement 333-2876 Amendment 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
<PAGE>
10.23 Office Lease between the Registrant 333-35871 Amend-ment October 9, 1997 10.20
and Massachusetts Mutual Life No. 2 to S-3
Insurance Company
10.24 Deed to Secure Debt and Security 000-28108 10-K March 31, 1999 10.24
Agreement with Finova Realty Capital
Inc. and schedule of omitted
documents
10.25 Promissory Note to Finova Realty 000-28108 10-K March 31, 1999 10.25
Capital Inc. and schedule of omitted
documents
10.26 Security Agreement in favor of 000-28108 10-K March 31, 1999 10.26
Finova Realty Capital Inc. and
schedule of omitted documents
10.27 Assignment of Franchise Agreements 000-28108 10-K March 31, 1999 10.27
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 000-28108 10-K March 31, 1999 10.28
10.29 8.375% Adjustable Rate Note of *
Suburban Holdings, L.P. dated March
31, 1999 in the amount of
$4,000,000.00 in favor of Empire
Financial Services, Inc., guaranteed
by the Registrant, and schedule of
omitted similar documents
10.30 Unconditional Guaranty of Payment *
and Performance to Empire Financial
Services, Inc. dated March 31, 1999
and schedule of omitted similar
documents
10.31 Line of Credit Note dated February *
18, 2000 in the face amount of
$15,000,000 in favor of Southtrust
Bank, N.A.
10.32 Additional schedule of omitted *
similar documents (filed herewith)
to Deed to Secure Debt and Security
Agreement with Finova Realty Capital
Inc. incorporated by reference to
Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1998
10.33 Additional schedule of omitted *
similar documents (filed herewith)
to Promissory Note to Finova Realty
Capital Inc. incorporated by
reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1998
10.34 Additional schedule of omitted *
similar documents (filed herewith)
to Security Agreement in favor of
Finova Realty Capital Inc.
incorporated by reference to Exhibit
10.26 to the Company's Annual Report
on Form 10-K for the year ended
December 31, 1998
10.35 Additional schedule of omitted *
similar documents (filed herewith)
to Assignment of Franchise
Agreements and Franchisor's Consent
and Subordination of Franchise
Agreements in favor of Finova Realty
Capital Inc. incorporated by
reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1998
10.36 Area Development Agreement dated as *
of March 3, 1998 between GuestHouse
International LLC and Western Steel,
Inc., together with the First
Amendment and the Montana Amendment
thereto
21.1 Subsidiaries of the Registrant 000-28108 10-K March 31, 1999 21.1
23.1 Consent of Deloitte & Touche, L.L.P. *
27. Financial Data Schedule (for SEC use only) *
*Filed herewith.
**Originally filed on the date set forth above and refiled pursuant
to Regulation S-T on May 7, 1996.
</TABLE>
(b) No reports on Form 8-K have been filed during the last quarter covered by
this report.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Page
----
Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedule .......................... F-1
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998.............. F-3
Consolidated Statements of Operations for the
years ended December 31, 1999, 1998 and 1997....................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997............... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997................................... F-6
Notes to Consolidated Financial Statements............................ F-7
Schedule V - Valuation and Qualifying Accounts........................ F-16
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, 1999 and 1998, 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,
1999. Our audits also included the consolidated financial statement schedule
listed in the Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule. These consolidated financial statements and the
consolidated financial statement schedule are the responsibility of Suburban
Lodges' management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Suburban Lodges as of December 31, 1999 and 1998, and the consolidated results
of its operations and cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 23, 2000
F-2
<PAGE>
Suburban Lodges of America, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------------
(in thousands) 1999 1998
- ------------------- ------------- -------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 9,862 $ 19,178
Accounts receivable, net of reserves of $191 (1999) and $99 (1998) 2,196 2,032
Hotel inventory and supplies 2,290 1,684
Prepaid and refundable income taxes 1,163 2,754
Deferred income taxes 448 904
Prepaid expenses and other current assets 1,511 1,255
------------- -------------
Total current assets 17,470 27,807
Property and equipment, net of accumulated depreciation
and amortization of $18,600 (1999) and $10,764 (1998) 291,269 272,030
Notes receivable 4,992 5,455
Acquired intangible assets 3,617
Deferred loan costs 1,721 1,552
Other assets 2,013 454
------------- -------------
Total assets $ 321,082 $ 307,298
============= =============
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt $ 1,228 $ 7,465
Construction accounts payable 1,752 6,847
Trade accounts payable 3,207 3,040
Accrued property taxes 1,113 100
Accrued wages and benefits 507 340
Other accrued liabilities 615 815
Income taxes payable 316
Other current liabilities 591 856
------------- -------------
Total current liabilities 9,013 19,779
Long-term debt, excluding current portion 97,891 74,735
Deferred income taxes 2,333 1,026
Other liabilities 84 114
------------- -------------
Total liabilities 109,321 95,654
------------- -------------
Shareholders' equity:
Common stock, $0.01 par value per share, 100,000,000 shares authorized 157 154
Additional paid-in capital 202,250 200,190
Retained earnings 19,345 11,300
------------- -------------
221,752 211,644
Less treasury stock, at cost 9,991
------------- -------------
Shareholders' equity, net 211,761 211,644
------------- -------------
Total liabilities and shareholders' equity $ 321,082 $ 307,298
============= =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Suburban Lodges of America, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
(in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Hotel revenues $ 62,466 $ 44,756 $ 21,822
Franchise and other revenue 3,446 1,702 1,373
----------- ----------- -----------
Total revenue 65,912 46,458 23,195
----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Hotel operating expenses 32,876 22,754 11,204
Corporate operating expenses 7,961 3,975 2,254
Lease termination costs 218
Site acquisition cancellation expense 113 1,960
Undeveloped site carrying costs 119
Depreciation and amortization 8,468 5,492 2,630
----------- ----------- -----------
49,537 34,399 16,088
Gain on sale of hotel (1,145)
Gain on sale of land (294)
----------- ----------- -----------
Operating costs and expenses - net 48,392 34,105 16,088
----------- ----------- -----------
INCOME FROM OPERATIONS 17,520 12,353 7,107
Other income (expense):
Interest income 1,411 2,236 2,924
Interest expense (6,399) (202) (179)
Public debt transaction abandonment costs (10,633)
Other 208 200
--------- ----------- -----------
Income before income taxes 12,740 3,754 10,052
Provision for income taxes 4,695 1,192 3,328
--------- ----------- -----------
NET INCOME $ 8,045 $ 2,562 $ 6,724
========= =========== ===========
EARNINGS PER COMMON SHARE:
Basic $ 0.53 $ 0.17 $ 0.53
Diluted $ 0.53 $ 0.17 $ 0.53
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 15,136 15,430 12,693
Diluted 15,136 15,430 12,693
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Suburban Lodges of America, Inc.
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------------- Paid-in Retained -----------------------
(dollars in thousands) Shares Amount Capital Earnings Shares Cost
- --------------------------- ------------- ---------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES - DECEMBER 31, 1996 11,525,812 $ 115 $110,064 $ 2,014
Issuance of common stock
for acquisition of four hotels 601,690 6 10,524
Issuance of common stock
to non-employee directors 1,725 30
Issuances of common stock,
net of offering costs 3,300,000 33 79,542
Net income 6,724
------------- ---------- ------------- -----------
BALANCES - DECEMBER 31, 1997 15,429,227 154 200,160 8,738
Issuance of common stock
to non-employee directors 1,845 30
Net income 2,562
------------- ---------- ------------- -----------
BALANCES - DECEMBER 31, 1998 15,431,072 154 200,190 11,300
Issuance of common stock
in acquisition 300,000 3 2,041
Issuance of common stock
to non-employee directors 3,000 19
Acquisition of treasury stock 1,781,400 $ 9,991
Net income 8,045
------------- ---------- ------------- ----------- ------------ ----------
BALANCES - DECEMBER 31, 1999 15,734,072 $ 157 $202,250 $ 19,345 1,781,400 $ 9,991
============= ========== ============= =========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Suburban Lodges of America, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
(in thousands) 1999 1998 1997
- ------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income $ 8,045 $ 2,562 $ 6,724
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,468 5,492 2,630
Reserves for site acquisition cancellation (1,960) 1,960
Net change in deferred income tax assets and liabilities 1,763 (368) 310
Equity in loss of joint venture 11
Stock compensation 19 30 30
Gain on sale of property (1,145) (294)
Changes in operating assets and liabilities:
Accounts receivable (164) (370) (1,440)
Other current assets 770 (2,973) (1,625)
Other assets (1,384) 117 (19)
Trade accounts payable 167 994 1,105
Other current liabilities 250 (87) 988
Other liabilities (30) 33 86
------------- ------------- -------------
Net cash provided by operating activities 14,810 7,096 8,789
------------- ------------- -------------
Investing activities:
Additions to property and equipment (28,812) (108,957) (89,863)
Proceeds from sale of property 4,405 885
Increase (decrease) in construction accounts payable (5,095) 2,236 2,586
Acquisitions, net of cash acquired (1,481) (2,279)
Other 98 (3,086) (2,800)
------------- ------------- -------------
Net cash used by investing activities (30,885) (111,201) (90,077)
------------- ------------- -------------
Financing activities:
Proceeds from issuance of long-term debt 24,589 75,530
Principal payments on long-term debt (7,670) (58) (12,507)
Amounts borrowed under line of credit 40,000 10,000
Repayment of line of credit borrowings (65,000)
Proceeds from issuance of common stock 79,575
Purchase of treasury stock (9,991)
Decrease (increase) in restricted cash 11,000 (11,000)
Net additions to deferred loan costs (169) (839) (470)
------------- ------------- -------------
Net cash provided by financing activities 6,759 60,633 65,598
------------- ------------- -------------
Net decrease in cash and cash equivalents (9,316) (43,472) (15,690)
Cash and cash equivalents at beginning of period 19,178 62,650 78,340
------------- ------------- -------------
Cash and cash equivalents at end of period $ 9,862 $ 19,178 $ 62,650
============= ============= =============
Supplemental cash flow disclosures:
Cash paid for income taxes $ 1,658 $ 3,163 $ 3,975
============= ============= =============
Cash paid for interest expense, net of amounts capitalized $ 6,631 $ 195 $ 170
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Suburban Lodges of America, Inc.
Notes to Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
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 Suburban Lodge(R) brand name. The
Company also franchises and manages hotels that operate under the GuestHouse
International(R) brand name.
At December 31, 1999, 107 Suburban Lodge hotels were operating in 19 states. The
Company owned and operated 61 of these hotels and third parties owned the
remaining 46 hotels. The Company managed the operations of 19 of the third-party
hotels on behalf of the franchisees and managed an additional hotel that a
franchisee was in the process of converting into a Suburban Lodge hotel. At
December 31, 1999, independent franchisees owned and operated 46 GuestHouse
International hotels in 16 states. At December 31, 1999, an additional 46
Suburban Lodge hotels (three Company-owned, 43 franchised) were under
construction or development and an additional 26 franchised GuestHouse
International hotels were under construction, conversion or development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. Initial franchise fees are recognized in income when the
associated hotel has commenced operations. Development fees, management fees and
recurring 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
Earnings per common share 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 calculation of
basic and diluted earnings per common share are also the same as there were no
dilutive common share equivalents. At December 31, 1999, stock options under the
Company's various stock option plans represented the only securities that could
potentially dilute earnings per common share in future periods.
Property and Equipment
Property and equipment is 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. Furniture, fixtures and
equipment are depreciated on a straight-line basis over estimated useful lives
ranging from five to seven years.
F-7
<PAGE>
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.
Acquired Intangible Assets
Acquired intangible assets consist of franchise rights and goodwill. Franchise
rights were recorded at their estimated fair value at the date of acquisition
and are being amortized on a straight-line basis over four years, the expected
period to be benefited. Goodwill represents the excess of cost over fair value
of net assets acquired and is being amortized on a straight-line basis over its
estimated useful life of 20 years.
Impairment of Long-Lived Assets
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, 1999.
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.
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 fair value 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, 1998 and 1997
financial statements to conform them to the December 31, 1999 presentation.
3. ACQUISITIONS
On June 1, 1999, the Company, through a wholly-owned subsidiary, GuestHouse
International Franchise Systems, Inc., acquired the assets of GuestHouse
International, LLC (the "1999 Acquisition"), a franchisor of mid-scale lodging
facilities under the names GuestHouse International Inns, Hotels and Suites. The
total purchase price of $3,525,000, including transaction-related expenses,
consisted of cash of $1,481,000 and 300,000 shares of the Company's common stock
with a market value of $2,044,000.
On July 31, 1998, the Company acquired two companies (the "1998 Acquisitions"),
each of which operates a Suburban Lodge hotel in Arlington, Texas, for a total
purchase price of approximately $2.5 million in cash and the assumption of $6.6
million in notes payable. 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 described in the preceding two paragraphs 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
Company's allocation of purchase price to assets acquired and liabilities
assumed was as follows (in thousands):
F-8
<PAGE>
The 1999 The 1998
Acquisition Acquisitions
-------------- --------------
Property and equipment $ 9,971
Acquired intangible assets $ 3,633
Other assets 90 420
---------- ---------
Total assets 3,723 10,391
Notes payable (6,597)
Other liabilities (198) (1,289)
---------- ---------
Net assets acquired 3,525 2,505
Less cash acquired (226)
---------- ---------
Purchase price, net of cash $ 3,525 $ 2,279
========== =========
Had the 1999 Acquisition occurred on January 1, 1998, the Company's reported
operating results would have been as follows (in thousands, except earnings per
share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998
----------- ---------
<S> <C> <C>
Total revenue $ 66,382 $ 47,144
Net earnings 7,818 1,868
Primary and diluted earnings per share $ 0.52 $ 0.12
</TABLE>
Results of operations for 1998 and 1997 would not have differed materially from
reported results had the 1998 Acquisitions occurred on January 1, 1997.
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.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Land and improvements, including land under development $ 61,596 $ 53,223
Buildings and improvements 214,293 175,198
Furniture, fixtures and equipment 24,480 19,597
Construction in progress 9,500 34,776
--------------- ---------------
Property and equipment, at cost $ 309,869 $ 282,794
=============== ===============
</TABLE>
Additions to hotels for the years ended December 31, 1999, 1998 and 1997,
respectively, included $1,881,000, $3,885,000 and $1,711,000 of interest
incurred on funds borrowed to finance construction.
F-9
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
----------------------------
1999 1998
----------- ----------
8.25% fixed rate mortgage loans, due
January 1, 2009 $ 74,680 $ 75,530
8.8% fixed rate mortgage loans, due
July 1, 2009 13,636
8.38% mortgage loans 10,103
Capital leases 61 103
Other 639 6,567
--------- --------
99,119 82,200
Less current portion 1,228 7,465
--------- ---------
Long-term debt, excluding current portion $ 97,891 $ 74,735
========= =========
The 8.25% and 8.8% mortgage loans require monthly payments of principal and
interest totaling approximately $709,000 based upon a 25-year amortization
schedule. A total of 32 Company-owned hotels are pledged as collateral on these
obligations.
The 8.38% mortgage notes consist of individual mortgage loans against three
hotels. The interest rates are adjustable at the end of each three-year period
to rates based on prime plus an average margin of 62.5 basis points. The loan
repayments aggregating $88,163 per month are based on a principal amortization
period of 20 years with a final maturity on March 1, 2005 for one of the loans
and March 1, 2008 for the other two loans.
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. Under the terms of the related acquisition agreement, the Company
repaid these loans in full on March 31, 1999.
The aggregate maturities of long-term debt for the five years subsequent to
December 31, 1999, are as follows (in thousands):
Year ended December 31,
2000 $ 1,228
2001 1,431
2002 1,526
2003 1,663
2004 1,786
Subsequent to December 31, 1999, the Company entered into an agreement with a
commercial bank under which the bank provides a revolving credit facility for
amounts up to $15,000,000. Borrowings under this facility bear interest, at the
Company's option, at (i) the bank's prime rate or (ii) the Euro-Rate plus 275
basis points. Borrowings under the credit facility are secured by a pool of nine
hotels. Under the terms of the associated Loan Agreement, the Company is
required to maintain tangible net worth, as defined, of $190,000,000 and to
satisfy certain other performance criteria. The Company was in compliance with
all such requirements as of February 23, 2000. The credit facility expires
January 31, 2003.
F-10
<PAGE>
6. 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, 1999 balance sheet, the Company estimates that the
fair value of its long-term debt was approximately $94.0 million.
7. INCOME TAXES
The provisions for income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Current income tax provision $ 2,932 $ 1,560 $ 3,018
Deferred income tax provision (credit) 1,763 (368) 310
---------- ----------- ----------
Total provision for income taxes $ 4,695 $ 1,192 $ 3,328
========== =========== ==========
</TABLE>
The tax effects of temporary differences that comprise the deferred tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Gross deferred income tax liability:
Property and equipment $ 2,453 $ 1,166
Other 82
--------- ---------
Total gross deferred income tax liabilities 2,535 1,166
--------- ---------
Gross deferred income tax assets:
Net operating loss carryforward 253 414
Unearned franchise fees 130 189
Unearned guest income 110 180
Reserves for site acquisition cancellation 104
Other 157 157
--------- ---------
Total gross deferred income tax assets 650 1,044
--------- ---------
Net deferred income tax liability $ 1,885 $ 122
========= =========
</TABLE>
The following is a reconciliation of the statutory federal income tax rate to
the Company's effective tax rates:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
State income taxes 2.4 0.7 2.0
Income not subject to tax (0.5) (4.4) (2.9)
Other 1.0 1.5
----------- ----------- ----------
Effective income tax rate 36.9 % 31.8 % 33.1 %
=========== =========== ==========
</TABLE>
8. SEGMENT AND RELATED INFORMATION
The Company operates in three reportable business 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(R)
brand to third parties. In 1999, the franchising operations segment was expanded
when the GuestHouse International(R) brand was added through an acquisition. The
corporate and support services segment provides hotel management, site
development and construction management services to Company-owned and
independently franchised hotels. The corporate and support services segment also
F-11
<PAGE>
provides general management, information technology and other services to the
other segments. For internal reporting purposes, the Company allocates
management fees to Company-owned hotels. Commencing in 1999, the Company also
allocates franchise fees to Company-owned hotels. The management and franchise
fees appear as inter-segment revenues under the appropriate segments in the
following table.
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 upon net
operating income, which is defined as income before income taxes, nonrecurring
items, interest income, interest expense, gains on sales of property and other
non-operating 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, 1999
Revenues from external customers $ 62,466 $ 2,243 $ 1,203 $ 65,912
Intersegment revenues 2,493 3,117 5,610
Depreciation and amortization 7,731 205 532 8,468
Net operating income (loss) 16,133 1,176 (821) 16,488
Total assets 300,704 4,439 15,939 321,082
Additions to property and equipment 27,198 12 1,602 28,812
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
Net operating income (loss) 14,552 193 (508) 14,237
Total assets 285,252 867 21,179 307,298
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
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
</TABLE>
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, 1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Total segment net operating income $ 16,488 $ 14,237 $ 7,107
Interest income 1,411 2,236 2,924
Gains on property sales and
other non-operating income 1,353 294 200
Public debt transaction abandonment costs (10,633)
Site acquisition cancellation costs (113) (1,960)
Lease termination costs (218)
Interest expense (6,399) (202) (179)
---------- ---------- -----------
Income before income taxes $ 12,740 $ 3,754 $ 10,052
========== ========== ===========
</TABLE>
F-12
<PAGE>
All of the Company's revenues are derived in the United States of America. No
single customer accounts for ten percent or more of the Company's total revenue.
9. 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 1,000,000
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, 1999, 75,000, 82,000 and 115,187 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, 1999:
<TABLE>
<CAPTION>
Number Exercise Price Weighted Avg.
of Shares per Share Exercise Price
--------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
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
Granted 846,134 5.63 - 13.50 10.75
Canceled (483,711) 10.25 - 17.00 13.32
------------
Outstanding, December 31, 1999 1,527,813 5.63 - 18.70 12.35
============
</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.
The number of stock options exercisable at December 31, 1999, 1998 and 1997 was
438,573, 232,963 and 104,500, respectively. A summary of stock options
outstanding and exercisable as of December 31, 1999, 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
- ------------------------------- ------------ ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 5.63 - $ 6.50 254,500 9.8 $ 5.64 - -
$10.25 325,000 8.9 10.25 100,000 $ 10.25
$13.13 - $13.50 584,813 9.0 13.48 62,573 13.46
$16.25 - $18.70 363,500 6.2 17.11 276,000 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 $6,804,000 ($0.45 per share) for the year ended December 31,
1999, $1,675,000 ($0.11 per share) for the year ended December 31, 1998, and
$6,228,000 ($0.49 per share) for the year ended December 31, 1997. The fair
value of each stock option grant used in the
F-13
<PAGE>
determination of these pro forma amounts was determined using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Risk-free interest rate 5.0% 5.0% 6.0%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life (in years) 4.5 4.5 4.5
Expected volatility 59.1% 58.3% 43.3%
Average fair value of each option granted $ 2.40 $ 7.16 $ 9.15
</TABLE>
10. LEASES
The Company has operating leases covering its corporate headquarters and certain
satellite television equipment utilized at its hotels. At December 31, 1999, the
Company's future minimum annual rental payments under non-cancelable operating
leases, reduced by income from subleases, were as follows (in thousands):
Year ended December 31, 2000 $ 1,668
Year ended December 31, 2001 1,865
Year ended December 31, 2002 1,733
Year ended December 31, 2003 1,495
Year ended December 31, 2004 1,395
-----------
Next five years in total 8,156
Thereafter 4,672
-----------
$ 12,828
===========
Total rent expense was approximately $1,517,000, $862,000 and $454,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
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 owned another 25% equity position in this
venture. In December 1998, the Company acquired an option to purchase the
director's interest for a total consideration of $300,000. In 1999, the Company
exercised its option to purchase the director's interest. The hotel owned by the
venture opened in May 1999. In January 2000, the Company purchased the remaining
50% interest in this hotel from the unaffiliated owners for a total cash
purchase price of $661,000, including transaction expenses. The Company also
assumed, and subsequently repaid, a mortgage loan of $2,600,000 in connection
with the acquisition.
During certain periods in 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. All such revenue was
realized under terms and conditions that were essentially the same as terms and
conditions under which franchise revenues were recognized under agreements with
unrelated parties.
F-14
<PAGE>
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
First Second Third Fourth
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Total revenue $13,939 $16,810 $18,683 $16,480
Operating income 4,283 5,109 5,259 2,869
Net income 2,097 2,565 2,289 94
Basic and diluted earnings per share 0.14 0.17 0.15 0.08
Year ended December 31, 1998
Total revenue $ 9,046 $11,245 $13,162 $13,005
Operating income 2,636 4,263 1,900 3,554
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
</TABLE>
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 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-15
<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, 1997 $ 13 $ 38 $ - $ - $ 51
Year Ended December 31, 1998 51 138 - 90 99
Year Ended December 31, 1999 99 197 - 105 191
</TABLE>
F-16
<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 30th day of March, 1999.
SUBURBAN LODGES OF AMERICA, INC.
By: /s/ David E. Krischer
----------------------------------------
David E. Krischer
Chairman of the Board and Chief Executive
Officer
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 30th day of March, 1999.
<TABLE>
<CAPTION>
Signature Position
--------- --------
<S> <C>
/s/ David E. Krischer Chairman of the Board, Chief Executive Officer
- --------------------------------- and Director (Principal Executive Officer)
David E. Krischer
/s/ Dan J. Berman Vice President - Franchising and Director
- ---------------------------------
Dan J. Berman
/s/ Paul A. Criscillis, Jr. Vice President and Chief Financial Officer (Principal
- --------------------------------- Financial Officer)
Paul A. Criscillis, Jr.
/s/ Robert E. Schnelle Vice President and Chief Accounting Officer (Principal
- --------------------------------- Accounting Officer)
Robert E. Schnelle
/s/ James R. Kuse Director
- ---------------------------------
James R. Kuse
/s/ Michael McGovern Director
- ---------------------------------
Michael McGovern
/s/ John W. Spiegel Director
- ---------------------------------
John W. Spiegel
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<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> <C> <C>
3.1 Amended and Restated Articles of the 333-2876 S-1 March 28, 1996** 3.1
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 Plan No. 1 to S-1
10.6 Suburban Lodges of America, Inc. 333-2876 Amendment May 7, 1996 10.6
Non-Employee Directors' Stock Option No. 1 to S-1
and Fee Plan
10.7 Form of Indemnification Agreement 333-2876 S-1 March 28, 1996 10.7
between Suburban Lodges of America,
Inc. and its directors and officers
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 between 333-2876 S-1 March 28, 1996 10.14
Suburban Lodges of America, Inc. and
Young Consulting, Inc. re. Company's
proprietary computer software
10.15 Suburban Lodge 401(k) Savings Plan 333-2876 S-1 May 20, 1996 10.15
10.16 Rights Agreement 333-2876 Amendment 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
<PAGE>
10.23 Office Lease between the Registrant 333-35871 Amend-ment October 9, 1997 10.20
and Massachusetts Mutual Life No. 2 to S-3
Insurance Company
10.24 Deed to Secure Debt and Security 000-28108 10-K March 31, 1999 10.24
Agreement with Finova Realty Capital
Inc. and schedule of omitted
documents
10.25 Promissory Note to Finova Realty 000-28108 10-K March 31, 1999 10.25
Capital Inc. and schedule of omitted
documents
10.26 Security Agreement in favor of 000-28108 10-K March 31, 1999 10.26
Finova Realty Capital Inc. and
schedule of omitted documents
10.27 Assignment of Franchise Agreements 000-28108 10-K March 31, 1999 10.27
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 000-28108 10-K March 31, 1999 10.28
10.29 8.375% Adjustable Rate Note of *
Suburban Holdings, L.P. dated March
31, 1999 in the amount of
$4,000,000.00 in favor of Empire
Financial Services, Inc., guaranteed
by the Registrant, and schedule of
omitted similar documents
10.30 Unconditional Guaranty of Payment *
and Performance to Empire Financial
Services, Inc. dated March 31, 1999
and schedule of omitted similar
documents
10.31 Line of Credit Note dated February *
18, 2000 in the face amount of
$15,000,000 in favor of Southtrust
Bank, N.A.
10.32 Additional schedule of omitted *
similar documents (filed herewith)
to Deed to Secure Debt and Security
Agreement with Finova Realty Capital
Inc. incorporated by reference to
Exhibit 10.24 to the Company's
Annual Report on Form 10-K for the
year ended December 31, 1998
10.33 Additional schedule of omitted *
similar documents (filed herewith)
to Promissory Note to Finova Realty
Capital Inc. incorporated by
reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1998
10.34 Additional schedule of omitted *
similar documents (filed herewith)
to Security Agreement in favor of
Finova Realty Capital Inc.
incorporated by reference to Exhibit
10.26 to the Company's Annual Report
on Form 10-K for the year ended
December 31, 1998
10.35 Additional schedule of omitted *
similar documents (filed herewith)
to Assignment of Franchise
Agreements and Franchisor's Consent
and Subordination of Franchise
Agreements in favor of Finova Realty
Capital Inc. incorporated by
reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K
for the year ended December 31, 1998
10.36 Area Development Agreement dated as *
of March 3, 1998 between GuestHouse
International LLC and Western Steel,
Inc., together with the First
Amendment and the Montana Amendment
thereto
21.1 Subsidiaries of the Registrant 000-28108 10-K March 31, 1999 21.1
23.1 Consent of Deloitte & Touche, L.L.P. *
27. Financial Data Schedule (for SEC use only) *
*Filed herewith.
**Originally filed on the date set forth above and refiled pursuant
to Regulation S-T on May 7, 1996.
</TABLE>
ADJUSTABLE RATE NOTE
================================================================================
$4,000,000.00 March 31, 1999
FOR VALUE RECEIVED the undersigned promises to pay to the order
of EMPIRE FINANCIAL SERVICES, INC., at its main office in Milledgeville,
Georgia, or at such place as the holder may designate, the principal sum
of FOUR MILLION AND NO/100 DOLLARS, ($4,000,000.00) plus interest from
date on that part of the outstanding principal which has not been paid.
Beginning on the date of this Note, the undersigned will pay
interest at a yearly rate of eight and three-eighths percent (8.375%).
Monthly payments at this interest rate will be Thirty Four Thousand Three
Hundred Ninety Seven and 12/100 Dollars ($34,397.12) and shall be due and
payable on the first day of each month beginning May 1, 1999, and
continuing through the payment due on April 1, 2002.
Beginning on the first day of April, 2002 and on that day of the
month every thirty-six (36) months thereafter (the "Loan Adjustment
Date"), the interest rate applicable to the principal balance then
outstanding will equal the "Prime Rate" plus five-eighths percent (.625%).
Each adjusted interest rate will be in effect from the Loan Adjustment
Date (April 1st) through March 31st of the third year thereafter, with
monthly payments, at the adjusted interest rate, to be paid on the first
day of each month, beginning on the first day of May, and continuing
through the payment due on the first day of April of the third year
thereafter.
For purposes of this Note, the term "Prime Rate" shall mean the
interest rate published in the WALL STREET JOURNAL, Eastern Edition,
identified therein as the "Prime Rate" and currently described as the base
rate on corporate loans posted by at least 75% of the nation's 30 largest
banks. The "Prime Rate" published on the last publication date prior to
each Loan Adjustment Date shall be the index for interest rate
adjustments. In the event that the WALL STREET JOURNAL abandons the
practice of publishing the Prime Rate, the Note holder will designate a
comparable reference or index which shall thereafter be the Prime Rate for
this Note. The Note holder will round the amount of the change to the
<PAGE>
nearest one-eighth (1/8) of one (1) percentage point. Note holder will
notify Borrower of the adjustment to be made and such notification, even
if given after the due date of the next monthly installment, shall apply
to all monthly installments due after each Loan Adjustment Date. The
monthly payments calculated at each Loan Adjustment Date shall be in the
amount that would completely amortize the principal amount owed on the
Loan Adjustment Date by the first day of April, 2019, if such monthly
payments were to continue until that date. Monthly payments shall continue
until all of said interest and principal have been paid in full except
that any balance remaining unpaid on the first day of March, 2008, shall
be due and payable, with all accrued interest thereon, on that date.
Each payment shall be applied first to accrued interest and to
other charges or fees accruing under this Note or the Deed of Trust of
even date herewith and the residue to principal. Any. amount may be
prepaid on this Note at any time without premium or fee, provided that
prepayment of only a portion of the balance due on this Note shall be
applied to the end of the Note and the monthly payments shall continue to
be due without interruption. Time is of the essence of this contract.
Lender may collect a late charge of 5 cents for each One ($1.00) Dollar of
each principal and interest payment, with a minimum charge of Five
Dollars, for each such payment fifteen (15) days or more in arrears to
cover the extra expense involved in handling delinquent payment. In the
event (a) of a default in the payment of principal and interest as
stipulated herein (including, without limitation, non-payment upon
maturity) or default in any other monetary obligation of the undersigned
which such default(s) continue for a period of five (5) days after notice
of such default by Note holder, or (b) upon failure of the undersigned to
comply with any other conditions or covenants contained in this Note or
any instrument(s) securing it which such default(s) continue for a period
of fifteen (15) days after notice of such default by Note holder, or (c)
upon the liquidation or dissolution of a Borrower, endorser or guarantor
that is a corporation, partnership (general or limited) or limited
liability company, then, and in any such event(s), the principal
indebtedness evidenced hereby, all accrued interest and any other sums
advanced hereunder or pursuant to any other loan documents shall, at the
option of Note holder and, without further notice to the undersigned, at
once become due and payable and may be collected forthwith, regardless of
the stipulated date of maturity. No omission on the part of Note holder to
exercise such option, when entitled to do so, shall be construed a waiver
2
<PAGE>
of such right. Upon the happening of any event of default the entire
unpaid principal balance shall bear interest at the contract rate then in
effect until the entire amounts in default have been paid by the
undersigned. If this Note is collected by law or through an attorney at
law, the undersigned shall pay all costs of collection, including
reasonable attorney's fees. The undersigned (whether maker, endorser,
surety, guarantor, or other party hereto) severally waives demand, protest
and notice of demand, protest and non-payment. It is agreed that this Note
may be renewed or extended from time to time, in whole or in part, without
the consent of or notice to any endorser, maker, guarantor, surety, or
other party hereto and without affecting or lessening the liability of any
such person. The powers granted herein are coupled with an interest, and
are irrevocable by death or otherwise. This Note is the joint and several
obligation of all makers, sureties, guarantors, endorsers and other
parties hereto, and shall be binding upon them, their heirs, personal
representatives and assigns. In this Note and any instrument securing it,
the singular shall include the plural, and the masculine shall include the
feminine and neuter.
If from any circumstances whatsoever, fulfillment of any
provision of this Note or of any other instrument securing the
indebtedness evidenced hereby, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law,
with regard to obligations of like character and amount, then ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such
validity, so that in no event shall any exaction be possible under this
Note or under any other instrument securing the indebtedness evidenced
hereby, that is in excess of the current limit of such validity, but such
obligation shall be fulfilled to the limit of Such validity.
This Note is secured by a Tennessee Reed of Trust, Assignment of
Leases and Rents, and Security Agreement of even date executed by the
undersigned to Empire Financial Services, Inc.
TO THE MAXIMUM EXTENT IT MAY LEGALLY DO SO, THE
UNDERSIGNED EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION OR
PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE
OR IN ANY WAY CONNECTED WITH OR RELATED TO OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO WITH
3
<PAGE>
RESPECT TO THIS NOTE OR THE TRANSACTIONS RELATED
HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND IRRESPECTIVE OF WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE. TO THE EXTENT IT MAY
LEGALLY DO SO, THE UNDERSIGNED HEREBY AGREES THAT ANY
SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A
JURY AND THAT EMPIRE FINANCIAL SERVICES, INC. MAY FILE
AN ORIGINAL COUNTERPART OR COPY OF THIS NOTE WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
UNDERSIGNED TO THE WAIVER OF ITS RIGHT TO TRIAL BY
JURY.
--------
Initials
WITNESS the hand and seat of the undersigned.
SUBURBAN HOLDINGS, L.P. [SEAL]
A Georgia Limited Partnership
By: SUBURBAN MANAGEMENT, INC.
A Georgia Corporation
By:
----------------------------------
Its:
---------------------------
General Partner
The undersigned guarantor and surety hereby guarantees payment
and performance and, to the extent allowed by law, waives the right to
require the noteholder to first take action against the principal.
SUBURBAN LODGES OF AMERICA, INC. [SEAL]
By:
----------------------------------
By:
----------------------------------
Its:
---------------------------
Guarantor
5
<PAGE>
SCHEDULE OF OMITTED DOCUMENTS
The following documents are substantially the same as the foregoing
exhibit except as indicated:
1. Adjustable Rate Note in the original principal amount of
$3,000,000; interest rate of 8.25% (Prime Rate plus one-half of one
percent); no waiver of jury trial; South Carolina governing law
2. Adjustable Rate Note in the original principal amount of
$3,250,000; interest rate of 8.50% (Prime Rate plus three-fourths of one
percent); no waiver of jury trial
6
UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE
FOR AND IN CONSIDERATION of the sum of Ten and no/100 Dollars and
other good and valuable considerations, paid or delivered to SUBURBAN
.LODGES OF AMERICA, INC. (hereinafter referred to, collectively, if more
than one, as "Guarantor"), the receipt and sufficiency whereof are hereby
acknowledged by Guarantor, and for the purpose of seeking to induce EMPIRE
FINANCIAL SERVICES, INC. (hereinafter referred to as "Lender") to extend
credit to SUBURBAN HOLDINGS, L.P. (hereinafter referred to as "Borrower"),
which extension of credit will be to the direct interest and advantage of
Guarantor, Guarantor, jointly and severally, if more than one, does hereby
unconditionally guarantee to Lender and its successors-in-title and
assigns (a) the full and prompt payment when due, whether by acceleration
or otherwise, with such interest as may accrue thereon, either before or
after maturity thereof, of that certain promissory note dated March 31,
1999 made by Borrower to the order of Lender in the original principal
amount of FOUR MILLION AND NO/100 ($4,000,000.00) DOLLARS with a current
principal balance of $4,000,000.00 (hereinafter referred to as the "Note)
together with any renewals, modifications, consolidations and extensions
thereof, (b) the full and prompt payment and performance of any and all
obligations of Borrower or any other party to Lender under the terms of
any and all deeds to secure debt, mortgages, deeds of trust and security
agreements now or hereafter securing the indebtedness evidenced by the
Note (hereinafter referred to, collectively, if more than one, as the
"Security Instrument"), and (c) the full and prompt payment and
performance of any and all other obligations of Borrower to Lender under
any other documents or instruments now or hereafter evidencing, securing,
or otherwise relating to the indebtedness evidenced by the Note (the
Security Instrument, the Loan Agreement, and said other documents and
instruments being hereinafter referred to collectively as the "Loan
Documents"). Guarantor does hereby agree that if the Note is not paid by
Borrower in accordance with its terms, or if any and all sums which are
now or may hereafter become due from Borrower to Lender under the Loan
Documents are not paid by Borrower in accordance with their terms,
Guarantor will immediately make such payments. Guarantor further agrees to
pay Lender all expenses (including reasonable attorneys' fees) paid or
incurred by Lender in endeavoring to collect the indebtedness, to enforce
the obligations of Borrower guaranteed hereby, or any portion thereof, or
to enforce this Guaranty.
Guarantor hereby consents and agrees that Lender may at any time, and
from time to time, without notice to or further consent from Guarantor,
either with or without consideration, surrender any property or other
security of any kind or nature whatsoever held by it or by any person,
firm or corporation on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, substitute for any collateral
so held by it, other collateral of like kind, or of any kind; agree to
modify the terms of the Note or the Loan Documents; extend or renew the
Note for any period; grant releases, compromises and indulgences with
respect to the Note, or the Loan Documents and to any person or entities
now or hereafter liable thereunder or hereunder; release any Guarantor or
any other guarantor or endorser of the Note, the Security Instrument, the
Loan Agreement, or any other of the Loan Documents; or take or fail to
take any action of any type whatsoever. No such action which Lender shall
take or fail to take in connection with the Loan Documents, or any of
them, or any security for the payment of the indebtedness of Borrower to
Lender or for the performance of any obligations or undertakings of
<PAGE>
Borrower, nor any course of dealing with Borrower or any other person,
shall release Guarantor's obligations hereunder, affect this Guaranty in
any way or afford Guarantor any recourse against Lender. The provisions of
this Guaranty shall extend and be applicable to all renewals, amendments,
extensions, consolidations and modifications of the Loan Documents, and
any and all references herein to Loan Documents shall be deemed to include
any such renewals, extensions, amendments, consolidations or modifications
thereof.
Guarantor hereby subordinates any and all indebtedness of Borrower
now or hereafter owed to Guarantor to all indebtedness of Borrower to
Lender; provided, however, that Guarantor may demand or accept payments of
principal and interest from Borrower as long as no event or default has
occurred under any or the Loan Documents. Following any event of default
under any of the Loan Documents, Guarantor agrees with Lender that
Guarantor shall not: (a) demand or accept any payment of principal or
interest from Borrower; (b) claim any offset or other reduction of
Guarantor's obligations hereunder because of any such indebtedness and
shall not take any action to obtain any of the security described in and
encumbered by the Security Instrument; provided, however, that, if Lender
so requests, such indebtedness shall be collected, enforced and received
by Guarantor as trustee for Lender and be paid over to Lender on account
of the indebtedness of Borrower to Lender, but without reducing or
affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.
Guarantor hereby waives and agrees not to assert or take advantage of
(a) the defense of the statute of limitations in any action hereunder or
for the collection of the indebtedness or the performance of any
obligations hereby guaranteed; (b) any defense that may arise by reason of
the incapacity, lack of authority, death or disability of Guarantor or any
other person or entity, or the failure of Lender to file or enforce a
claim against the estate (either in administration, bankruptcy, or any
other proceedings) of Borrower or any other person or entity; (c) any
defense based on the failure of Lender to give notice of the existence,
creation or incurring of any new or additional indebtedness or obligation
or of any action or non-action on the part of any other person whomsoever,
in connection with any obligation hereby guaranteed; (d) any defense based
upon an election of remedies by Lender which destroys or otherwise impairs
any subrogation rights of Guarantor or the right of Guarantor to proceed
against Borrower for reimbursement; or both; (e) any defense based upon a
failure of Lender to commence an action against Borrower; (f) any duty on
the part of Lender to disclose to Guarantor any facts it may now or
hereafter know regarding Borrower; (g) acceptance of notice of acceptance
of this Guaranty by Lender; (h) notice of presentment and demand for
payment of any of the indebtedness or performance of any of the
obligations hereby guaranteed; (i) protest and notice of dishonor or of
default to Guarantor or to any other party with respect to the
indebtedness or performance of obligations hereby guaranteed; (j) any and
all other notices whatsoever to which Guarantor might otherwise be
entitled; (k) any defense based on lack of due diligence by Lender in
collection, protection or realization upon any collateral securing the
indebtedness evidenced by. the Note; and (l) any other legal or equitable
defenses whatsoever to which Guarantor might otherwise be entitled.
This is a guaranty of payment and performance and not of collection.
The liability of Guarantor under this Guaranty shall be direct and
immediate and not conditional or contingent upon the pursuit of any
remedies against Borrower or any other person, nor against securities or
2
<PAGE>
liens available to Lender, its successor, successors-in-title, endorsees
or assigns. Guarantor waives any right. to. require that an action be
brought against Borrower or any other person or to require that resort be
had to any security or to any balance of any deposit account or credit on
the books of Lender in favor of Borrower or any other person. In the event
of a default under the Loan Documents, or any of them, Lender shall have
the right to enforce its rights,. powers and remedies thereunder or
hereunder or. under any other instrument now or hereafter evidencing,
securing or otherwise relating to the indebtedness evidenced by the Note
or secured by the Security Instrument or relating to the transactions
contemplated by the Loan Agreement, in any order, and all rights, powers
and remedies available to Lender in such event shall be nonexclusive and
cumulative of all other rights, powers and remedies provided thereunder or
hereunder by law or in equity. Accordingly, Guarantor hereby authorizes
and empowers Lender upon acceleration of the maturity of the Note, at its
sole discretion, and without notice to Guarantor, to exercise any right or
remedy which Lender may have, including, but not limited to, judicial
foreclosure, exercise of rights of power of sale, acceptance of a deed or
assignment in lieu of foreclosure, appointment of a receiver to collect
rents and profits, exercise of remedies against personal property, or
enforcement of any assignment of leases, as to any security, whether real,
personal or intangible. If the indebtedness guaranteed hereby is partially
paid by reason of the election of Lender, its successors, endorsees or
assigns, to pursue any of the remedies available to Lender, or if such
indebtedness is otherwise partially paid, this Guaranty shall nevertheless
remain in full force and effect, and Guarantor shall remain liable for the
entire unpaid balance of the indebtedness guaranteed hereby, even though
any rights which Guarantor may have against Borrower may be destroyed or
diminished by the exercise of any such remedy. Until all of the
obligations of Borrower to Lender have been paid and performed in full,
Guarantor shall have no right of subrogation to Lender against Borrower,
and Guarantor hereby waives any rights to enforce any remedy which Lender
may have against Borrower and any rights to participate in any security
for the Note.
In the event that the Lender selects non-judicial foreclosure as a
remedy for Borrower's default, the Guarantor's rights to subrogation can
be destroyed and Guarantor may, as a result thereof, be entitled to a
defense against a deficiency action. Guarantor, nevertheless, knowingly
and voluntarily waives any such defense and acknowledges liability for any
deficiency.
Guarantor hereby authorizes Lender, without notice to Guarantor, to
apply all payments and credits received from Borrower or from Guarantor or
realized from any security in such manner and in such priority as Lender
in its sole judgment shall see fit to the indebtedness, obligations and
undertakings which are the subject of this Guaranty.
The books and records of Lender showing the accounts between Lender
and Borrower shall be admissible in evidence in any action or proceeding
hereon as prima facie proof of the items set forth therein.
Guarantor acknowledges that this Guaranty was negotiated, executed,
and delivered in the State of Georgia,, and shall be governed and
construed in accordance with the law of the State of Georgia, regardless
of the situs of any other Loan Documents.
3
<PAGE>
Guarantor hereby (a) submits to personal jurisdiction in the State of
Georgia for the enforcement of this Guaranty, and (b) waives any and all
personal rights under the law of any state to object to jurisdiction
within the State of Georgia for the purposes of litigation to enforce this
Guaranty. Nothing contained herein, however, shall prevent Lender from
bringing any action or exercising any rights against any security or
against Guarantor personally, or against any property of Guarantor, within
any other state. Initiating such proceeding or taking such action in any
other state shall in no event constitute a waiver of the agreement
contained herein that the law of the State of Georgia shall govern the
rights and obligations of Guarantor and Lender hereunder or of the
submission herein made by Guarantor to personal jurisdiction within the
State of Georgia. The aforesaid means of obtaining personal jurisdiction
and perfecting service of process are not intended to be exclusive but are
cumulative and in addition to all other means of obtaining personal
jurisdiction and perfecting service of process now or hereafter provided
by the law of the State of Georgia.
Each Guarantor warrants and represents to Lender that all financial
statements heretofore delivered by him to Lender are true and correct in
all respects as of the date hereof.
Each Guarantor waives any and all homestead and exemption rights available
by virtue of the Constitution or the laws of the United States of America
or of any state as against this Guaranty, and renewal hereof, or any
indebtedness represented hereby, and does transfer, convey and assign to
Lender a sufficient amount of such homestead or exemption as may be
allowed, including such homestead or exemption as may be set apart in
bankruptcy, to pay all amounts due hereunder in full, with all costs of
collection, and does hereby direct any trustee in bankruptcy having
possession of such homestead or exemption to deliver to Lender a
sufficient amount of property or money set apart as exempt to pay the
indebtedness guaranteed hereby, or any renewal thereof, and does hereby,
jointly and severally, appoint Lender the attorney-in-fact for each of
them, to claim any and all homestead exemptions allowed by law.
This Guaranty may not be changed orally, and, no obligation of
Guarantor can be released or waived by Lender or any officer or agent of
Lender, except by a writing signed by a duly authorized officer of Lender
and bearing the seal of Lender. This Guaranty shall be irrevocable by
Guarantor so long as the Loan Agreement shall remain in effect and until
all indebtedness guaranteed hereby has been completely repaid and all
obligations and undertakings of Borrower under, by reason of, or pursuant
to the Loan Documents have been completely performed.
Any and all notices, elections, demands, requests and responses
thereto permitted or required to be given under this Guaranty shall be in
writing, signed by or on behalf of the party giving the same, and shall be
deemed to have been properly given and shall be effective upon being
personally delivered, or upon being deposited in the United States mail,
postage prepaid, certified with return receipt requested, to the party at
the address of such party set forth below or at such other address within
the continental United States as such other party may designate by notice
specifically designated as a notice of change of address and given in
accordance herewith; provided, however, that the time period in which a
response to any such notice, election, demand or request must be given
shall commence on the date of receipt thereof; and provided further that
no notice of change of address shall be effective until the date of
4
<PAGE>
receipt thereof. Personal delivery to a party or to any officer, partner,
agent or employee of such party at said address shall constitute receipt.
Rejection or other refusal to accept or inability to deliver because of
changed address of which no notice has been received shall also constitute
receipt. Any such notice, election, demand, request or response, if given
to Lender, shall be addressed as follows:
EMPIRE FINANCIAL SERVICES, INC.
121 EXECUTIVE PARKWAY
MILLEDGEVILLE, GEORGIA 31061
and, if given to Guarantor, shall be addressed as follows:
SUBURBAN LODGES OF AMERICA, INC.
300 GALLERIA PKWY, NW, SUITE 1200
ATLANTA, GEORGIA 30339
ATTENTION: CHIEF FINANCIAL OFFICER
With copy to:
SUBURBAN LODGES OF AMERICA, INC.
300 GALLERIA PKWY, NW, SUITE 1200
ATLANTA, GEORGIA 30339
ATTENTION: CORPORATE SECRETARY
The provisions of this Guaranty shall be binding upon each Guarantor and
his successors, successors-in-title, heirs, legal representatives and
assigns and shall inure to the benefit of Lender, its successors,
successors-in-title, heirs, legal representatives and assigns. This
Guaranty shall in no event be impaired by any change which may arise by
reason of the death of Borrower or Guarantor, if individuals, or by reason
of the dissolution of Borrower or Guarantor, if Borrower or Guarantor is a
corporation or partnership.
As used herein, the terms "each Guarantor" and "any Guarantor" shall
refer to the undersigned single Guarantor, or, if more than one, shall
refer respectively to each or any separate member of the undersigned
collective Guarantor. If more than one person or entity constitutes,
collectively, Borrower, all of the foregoing provisions referring to
Borrower shall be construed to refer to each such person or entity
individually as well as collectively. For example, if there are two
persons who are, collectively, Borrower, this Guaranty shall guarantee the
full and prompt payment and performance of all obligations under the Loan
Documents of Borrower, and of each of said two persons constituting
Borrower.
Each Guarantor has executed this Guaranty individually and not as a
partner of Borrower or of any other member of Guarantor.
If from any circumstances whatsoever fulfillment of any provisions of
this Guaranty, at the time performance of such provision shall be due,
shall involve transcending the limit of validity presently prescribed by
any applicable usury statute or any other applicable law, with regard to
obligations of like character and amount, then ipso facto the obligation
to be fulfilled shall be reduced to the limit of such validity, so that in
5
<PAGE>
no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this paragraph
shall control every other provision of this Guaranty.
Any provisions of this Agreement to the contrary notwithstanding,
Guarantor hereby waives Guarantor's right to reimbursement, contribution
and subrogation with regard to any payments made by Guarantor pursuant to
the terms of this Unconditional Guaranty of Payment and Performance.
Guarantor further agrees to reimburse Lender for any payments made to
Lender that Lender is required to pay over to Borrower's Trustee in a
bankruptcy case or as a result of any other judicial proceeding.
The Guaranty is assignable by Lender, and any full or partial
assignment hereof by Lender shall operate to vest in the assignee all
rights and powers herein conferred upon and granted to Lender and so
assigned by Lender.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal
as of the 31st day of March, 1999.
SUBURBAN LODGES OF AMERICA, INC. [SEAL]
By: /s/ David Krischer
Its: CEO/President
6
<PAGE>
SCHEDULE OF OMITTED DOCUMENTS
The following documents are substantially the same as the foregoing
exhibit except as indicated:
1. Unconditional Guaranty of Payment and Performance with respect to
note for $3,000,000.
2. Unconditional Guaranty of Payment and Performance with respect to
note for $3,250,000.
7
LINE OF CREDIT NOTE
-------------------
$15,000,000.00 Birmingham, Alabama February 18, 2000
FOR VALUE RECEIVED, the undersigned SUBURBAN LODGES OF AMERICA,
INC., a Georgia corporation, SUBURBAN HOLDINGS, L.P., a Georgia limited
partnership and SUBURBAN CONSTRUCTION, INC., a Georgia corporation
(hereinafter collectively referred to as "Maker"), jointly and severally
promise to pay to the order of SOUTHTRUST BANK, N.A. (hereinafter referred
to as "Payee," Payee together with any subsequent Holder(s) hereof,
hereinafter collectively referred to as "Holder"), at the office of Payee
at 2000 RiverEdge Parkway, Suite 350, Atlanta, Georgia 30326, or at such
other place as Holder may designate to Maker in writing from time to time,
the principal sum of Fifteen Million and No/100 Dollars ($15,000,000.00),
together with interest thereon or on so much thereof as is from time to
time outstanding and unpaid (the "Note"), at the rate hereinafter set
forth, in lawful money of the United States of America, which shall, at
the time of payment, be legal tender in payment of all debts and dues,
public and private, such principal and interest to be paid in the
following manner, to-wit:
From and after the date hereof (until maturity or Default as
hereinafter provided), interest shall accrue hereunder at the rate per
annum equal to either (a) the "Adjusted LIBOR Rate," which is the sum of
two hundred seventy-five (275) basis points (one hundred [100] basis
points equals one percent (1%) plus the "LIBOR Rate" and shall be computed
on the daily outstanding principal balance hereunder based on a three
hundred sixty (360) day year, or (b) the "base rate" currently quoted from
time to time by Payee as Payee's "Base Rate." "LIBOR Rate," as used
herein, means a per annum rate of interest (rounded upwards, if necessary,
to the nearest 1/16 of 1%) equal to the quotient of (i) the "London
Interbank Offered Rate (LIBOR)" for contracts with a maturity date equal
to the "Selected LIBOR Period," as quoted in the MONEY RATES section of
The Wall Street Journal as effective for contracts entered into two (2)
business days prior to the first day of the Applicable Interest Period,
divided by (ii) 1.00 minus any reserve requirement applicable to
"eurodollar loans" (as such term is defined in Regulation D) for the
applicable Selected LIBOR Period (expressed as a decimal). An "Applicable
Interest Period" shall mean either a "Selected Base Period" or a "Selected
LIBOR Period," as herein defined. A "Selected LIBOR Period" shall mean one
(1) of the following periods of time selected by Borrower in its Interest
Rate Notice, as hereafter provided: thirty (30), sixty (60), ninety (90),
one hundred twenty (120), or one hundred eighty (180) days, but in no
event shall such period extend beyond the Maturity Date. The Adjusted
LIBOR Rate for the Selected LIBOR Period shall apply for the duration of
such Selected LIBOR Period, except as hereinafter provided. A "Selected
Base Period" shall mean a period of time selected by Borrower (or
otherwise applicable as hereinafter provided) in its Interest Rate Notice
during which the Base Rate is to apply.
All capitalized terms set forth herein shall have the same
meanings ascribed to them in the Loan Agreement (as herein defined) unless
otherwise herein defined.
**************************************************************************
NOTE: FLORIDA DOCUMENTARY STAMP TAX IN THE AMOUNT OF $12,915.00 AND
- ----
FLORIDA NONRECURRING INTANGIBLE TAX IN THE AMOUNT OF $3,649.26 WERE PAID
UPON THE RECORDING IN THE PUBLIC RECORDS OF PINELLAS, COUNTY, FLORIDA, OF
THAT CERTAIN MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT OF EVEN
DATE HEREWITH GIVEN BY SUBURBAN HOLDINGS, L.P., A GEORGIA LIMITED
PARTNERSHIP IN FAVOR OF SOUTHTRUST BANK, N.A.
**************************************************************************
<PAGE>
All amounts outstanding on the date of this Note shall accrue
interest at a rate per annum equal to the Base Rate. Commencing on the
last day of the Initial Interest Period, and continuing thereafter, or for
each Applicable Interest Period, as the case may be, while any portion of
this Note remains outstanding, Maker shall have the option to elect to
have interest on the entire outstanding principal balance accrue at a per
annum interest rate equal to either the Adjusted LIBOR or the Base Rate.
Such election shall be made by Maker giving Holder prior written or
telecopied notice (or telephonic notice promptly confirmed in writing or
by telecopy) of Maker's interest rate election and Applicable Interest
Period (an "Interest Rate Notice"), such Interest Rate Notice to be given
to Holder not later than 11:00 A.M. (Eastern Time) on the day of such
requested Line of Credit Loan for Domestic Loans, and (ii) 11:00 A.M.
(Eastern Time) three (3) Business Days prior to the day upon which the
Line of Credit Loan is requested by Maker to be funded for Eurodollar
Loans. Maker shall be deemed to have elected to have interest on the
entire outstanding principal balance of this Note accrue at the Base Rate
during the ensuing Applicable Interest Period. Each Interest Rate Notice
shall be given by Maker's Chief Executive Officer, Chief Financial
Officer, Treasurer, or such other person who may be expressly and
specifically designated in writing by any of such persons at such time to
be a representative of Maker with authority to give Interest Rate Notices
on behalf of Maker. Holder shall have no liability to Maker for refusing
to honor any Interest Rate Notice given by any person who Holder is not
reasonably satisfied is so authorized to give any such notice. If Maker
fails to give notice, it shall be deemed to have selected the Base Rate
for the Applicable Interest Period.
If the Base Rate increases or decreases at any time or from time
to time during which the Base Rate is in effect, then the rate of interest
hereunder shall be correspondingly increased or decreased effective on the
day on which such increase or decrease of such Base Rate becomes
effective. If the Adjusted LIBOR Rate is in effect, it shall be initially
calculated on the date it becomes effective and shall be recalculated by
Holder prior to the commencement of a subsequent Selected LIBOR Period
elected by Borrower in an Interest Rate Notice. If the recalculation date
falls on a date upon which Payee is not open for business, the
recalculation shall occur on the next business day on which Payee is open
for business. Interest so computed shall accrue for each and every day
(365 days per year for Base Rate borrowings, and 360 days per year for
LIBOR Rate borrowings) on which any indebtedness remains outstanding
hereunder, including the day on which funds are initially advanced
regardless of the time of day such advance is made, and including the day
on which funds are repaid unless repayment is credited prior to 2:00 p.m.,
the close of Payee's business day.
Interest on the outstanding principal amount hereunder shall be
payable in such amounts and at such times as more specifically set forth
in the Loan Agreement, up to and including the 31st day of January, 2003
(the "Maturity Date"), at which time a balloon payment equal to the entire
unpaid balance of principal and interest will be due and payable in full.
Monthly payments received by Holder on or prior to the fifth (5th) day
following the first (1st) day of each month shall not be considered late
payments constituting a Default hereunder (or hereinafter defined).
Maker hereby agrees to pay immediately, upon demand by Holder, a
late charge equal to five percent (5%) of any payment due hereunder if
such payment is not made on or before the tenth (10th) day following the
due date applicable to such payment.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and in the
event any such payment is inadvertently paid by Maker or inadvertently
received by Holder, then such excess sum shall be credited as payment of
principal, unless Maker shall notify Holder, in writing, that Maker elects
to have such excess sum returned to it forthwith. It is the express intent
hereof that Maker not pay and Holder not receive, directly or indirectly
in any manner whatsoever, interest in excess of that which may be legally
paid by Maker under applicable law.
2
<PAGE>
It is hereby expressly agreed that should any default be made in
the payment of principal or interest as stipulated above, or should any
Event of Default (as defined therein) be made in the performance of any of
the covenants or conditions contained in the "Loan Documents" (as that
term is hereinafter defined), or any of them (hereinafter referred to as a
"Default"), then, in such event, the principal indebtedness evidenced
hereby, and any other sums advanced hereunder or under the Loan Documents,
or any of them, together with all unpaid interest accrued thereon, shall,
at the option of Holder and without further notice to Maker, become due
and payable and may be collected forthwith, regardless of the stipulated
date of maturity. Interest shall accrue on the outstanding principal
balance of this Note from the date of any Default hereunder and for so
long as such Default continues, regardless of whether or not there has
been an acceleration of the indebtedness evidenced hereby as set forth
herein, at the rate per annum that is two (2) percentage points in excess
of the rate that would have accrued hereunder had such Default not
occurred, which amount shall be compounded on a monthly basis until such
Default has been cured. All such interest shall be paid at the time of and
as a condition precedent to the curing of any such Default. In addition
to, and not in lieu of, any and all rights and remedies available to
Holder, as of the fifth (5th) day of any month during the term of this
Note, or any extension thereof, Holder shall have the right to disburse
proceeds of the loan to itself sufficient to pay accrued interest due but
not otherwise having been paid by Maker.
It is contemplated that the principal indebtedness evidenced by
this Note may be reduced or extinguished from time to time and that
additional advances to be evidenced by this Note may be made in the
future. Borrower may prepay this Note in whole or in part at any time
without penalty or premium except as more specifically set forth in the
Loan Agreement, but each such prepayment shall be applied, first, to
unpaid interest accrued through the date of such prepayment, and then to
principal.
Time is of the essence of this Note. In the event this Note, or
any part thereof, is collected by or through an attorney at law, Maker
agrees to pay all costs of collection, including, but not limited to,
reasonable attorney's fees actually incurred.
Presentment for payment, demand, protest, and notice of demand,
protest and non-payment are hereby waived by Maker. No failure to
accelerate the debt evidenced hereby by reason of default hereunder,
acceptance of a past due installment, or indulgences granted from time to
time shall be construed (i) as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of such
right of acceleration or of the right of Holder thereafter to insist upon
strict compliance with the terms of this Note, or (ii) to prevent the
exercise of such right of acceleration or any other right granted
hereunder or by the laws of the State of Georgia; and, with the sole
exception of any statute of limitations, Maker hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to, or in
conflict with, the foregoing. No extension of the time for the payment of
this Note or any installment due hereunder, made by agreement with any
person now or hereafter liable for the payment of this Note, shall operate
to release, discharge, modify, change or affect the original liability of
Maker under this Note, either in whole or in part unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, or discharge is sought.
Maker hereby waives and renounces for itself, its successors and
assigns, all rights to the benefits of any statute of limitations, any
moratorium, reinstatement, marshaling, forbearance, valuation, stay,
extension, redemption, appraisement, exemption and homestead now provided,
or which may hereafter be provided by the Constitution and laws of the
United States of America and of any State thereof, both as to itself and
in and to all its property, real and personal, against the enforcement and
collection of the obligations evidenced by this Note. Maker hereby
transfers, conveys and assigns to Holder, a sufficient amount of such
homestead or exemption as may be set apart in bankruptcy, to pay this Note
in full, with all costs of collection, and does hereby direct any trustee
3
<PAGE>
in bankruptcy having possession of such homestead or exemption to deliver
to Holder a sufficient amount of property or money set apart as exempt to
pay the indebtedness evidenced hereby, or any renewal thereof, and does
hereby appoint Holder the attorney-in-fact for Maker to claim any and all
homestead exemptions allowed by law.
Maker hereby waives any right Maker may have under any applicable
law to a trial by jury with respect to any suit or legal action which may
be commenced by or against Holder concerning the interpretation,
construction, validity, enforcement or performance of this Note or any
other agreement or instrument executed in connection herewith. In the
event any such suit or legal action is commenced by Holder, Maker hereby
expressly agrees, consents and submits to the personal jurisdiction of any
state or federal court sitting in Fulton County, Georgia, with respect to
such suit or legal action, and Maker also expressly consents and submits
to and agrees that venue in any such suit or legal action is proper in
said courts and county and Maker hereby expressly waives any and all
personal rights under applicable law or in equity to object to the
jurisdiction and venue in said courts and county. The jurisdiction and
venue of the courts consented and submitted to and agreed upon in this
paragraph are not exclusive but are cumulative and in addition to the
jurisdiction and venue of any other court under any applicable laws or in
equity.
Except as provided otherwise in this Note, all notices and other
communications under this Note are to be in writing and are to be deemed
to have been duly given and to be effective upon delivery to the party to
whom they are directed. If sent by a national overnight courier service or
by U.S. Mail, first class, certified, return receipt requested, postage
prepaid, and in either case addressed to any party at its respective
addresses set forth beneath its respective signature below, such notices,
demands and other communications are to be deemed to have been delivered
on the first business day after being entrusted to such courier or on the
fifth business day after being so deposited in the U.S. mail. If
transmitted by telecopy to any party at its respective telecopy number set
forth beneath its respective signature below, such notices, demands and
other communications are to be deemed to have been delivered when so
transmitted. Any party hereto may by written notice to the other designate
a different address or telecopy number for receiving notices under this
Note; provided, however, that no such change of address or telecopy number
will be effective until written notice thereof is actually received by the
party to whom such change of address or telecopy number is sent.
The address of Maker is: Suburban Lodges of America, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30337
Attn.: Chief Financial Officer
with a copy to: Suburban Lodges of America, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30337
Attn.: Corporate Secretary
Suburban Holdings, L.P.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30337
Attn: Chief Financial Officer
with a copy to: Suburban Holdings, L.P.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30337
Attn.: Corporate Secretary
4
<PAGE>
Suburban Construction, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30337
Attn: Chief Financial Officer
with a copy to: Suburban Construction, Inc.
300 Galleria Parkway, Suite 1200
Atlanta, Georgia 30337
Attn: Corporate Secretary
If any provisions of this Note or the application thereof to any
person or circumstance shall be invalid or unenforceable to any extent,
the remainder of this Note and the application of such provisions to other
persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
The indebtedness evidenced by this Note and the obligations
created hereby are secured by the Security Deeds (as such term is defined
in the Loan Agreement), together with that certain Loan Agreement dated of
even date hereof by and between Maker and Payee (the "Loan Agreement"),
and all other documents evidencing or securing or in any way related to
the indebtedness evidenced hereby, herein referred to collectively as the
"Loan Documents" entered into this day concerning certain property located
in Minneapolis, Minnesota, Columbus, Ohio, Chicago, Illinois, El Paso,
Texas, San Antonio, Texas, Dallas, Texas, Chattanooga, Tennessee and
Tampa, Florida, some of which Loan Documents are to be filed for record on
or about the date hereof in the appropriate public records of said
locations, and this Note is the Line of Credit Note referred to in the
Loan Agreement. The sums being advanced hereunder are being advanced
pursuant to Article I, Section 1.3 of the Loan Agreement and shall be
governed by all of the terms and conditions of the Loan Agreement.
This Note is intended as a contract under, and shall be construed
and enforceable in accordance with, the laws of the State of Georgia.
As used herein, the terms "Maker," "Payee" and "Holder" shall be
deemed to include their respective heirs, successors, legal
representatives, and assigns, whether by voluntary action of the parties
or by operation of law.
[Signatures on following page]
5
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note under seal as of
the date first above written.
SUBURBAN LODGES OF AMERICA, INC., a
Georgia corporation
By:
-----------------------------------
Paul A. Criscillis, Jr., Chief
Financial Officer
[CORPORATE SEAL]
SUBURBAN HOLDINGS, L.P., a Georgia
limited partnership
By: Suburban Management, Inc., its
General Partner
By:
-----------------------------------
Paul A. Criscillis, Jr., Chief
Financial Officer
SUBURBAN CONSTRUCTION, INC., a Georgia
corporation
By:
-----------------------------------
Paul A. Criscillis, Jr., Chief
Financial Officer
[CORPORATE SEAL]
6
Exhibit 10.32
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
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 for each of the following properties are not being separately
filed:
<TABLE>
<CAPTION>
PROPERTY NAME ADDRESS CITY, STATE
<S> <C> <C>
Group 6
Suburban Lodge - Hazlewood 9067 Dunn Road Hazelwood, MO
Suburban Lodge - St. Charles 1769 Fairlane Dr. St. Charles, MO
Suburban Lodge - East Indianapolis 2301 Post Dr. Indianapolis, IN
Suburban Lodge - Newport News 12015 Jefferson Ave. Newport News, VA
Suburban Lodge - Jackson, Miss. 5731 I-55 N Jackson, MS
</TABLE>
Exhibit 10.33
Suburban Lodges, Inc.
A Promissory Note to Finova Realty Capital Inc. with substantially the same
terms as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 for the following group of properties is not being
separately filed:
<TABLE>
<CAPTION>
PROPERTY NAME/ ADDRESS CITY, STATE
AMOUNT OF NOTE
<S> <C> <C>
Group 6/$13,700,000
Suburban Lodge - Hazlewood 9067 Dunn Road Hazelwood, MO
Suburban Lodge - St. Charles 1769 Fairlane Dr. St. Charles, MO
Suburban Lodge - East Indianapolis 2301 Post Dr. Indianapolis, IN
Suburban Lodge - Newport News 12015 Jefferson Ave. Newport News, VA
Suburban Lodge - Jackson, Miss. 5731 I-55 N Jackson, MS
</TABLE>
Schedule to Exhibit 10.34
Suburban Lodges, Inc.
A security agreement in favor of Finova Realty Capital Inc. with substantially
the same terms as Exhibit 10.26 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 for the following group of properties is not
being separately filed:
PROPERTY NAME ADDRESS CITY, STATE
Group 6
Suburban Lodge - Hazlewood 9067 Dunn Road Hazelwood, MO
Suburban Lodge - St. Charles 1769 Fairlane Dr. St. Charles, MO
Suburban Lodge - East Indianapolis 2301 Post Dr. Indianapolis, IN
Suburban Lodge - Newport News 12015 Jefferson Ave. Newport News, VA
Suburban Lodge - Jackson, Miss. 5731 I-55 N Jackson, MS
Exhibit 10.35
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
Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 for the following group of properties is not being separately
filed:
PROPERTY NAME ADDRESS CITY, STATE
Group 6
Suburban Lodge - Hazlewood 9067 Dunn Road Hazelwood, MO
Suburban Lodge - St. Charles 1769 Fairlane Dr. St. Charles, MO
Suburban Lodge - East Indianapolis 2301 Post Dr. Indianapolis, IN
Suburban Lodge - Newport News 12015 Jefferson Ave. Newport News, VA
Suburban Lodge - Jackson, Miss. 5731 I-55 N Jackson, MS
AREA DEVELOPMENT AGREEMENT
AGREEMENT made the 3rd day of March, 1998, by and between GuestHouse
International LLC ("GuestHouse"), an Arkansas limited liability company and
Western Steel, Inc. ("Western"), a Washington corporation, or subsidiaries or
affiliates of George A. Swift.
RECITALS
WHEREAS, GuestHouse is the franchisor of hotel/motel property affiliations
under the names "GuestHouse(R) Inn," "GuestHouse(R) Hotel," "GuestHouse(R)
Suites," "GuestHouse International(R)" or other variations which contain the
trademarked name GuestHouse(R), along with allied services and products; and
WHEREAS, Western is in the business of construction, ownership. maintenance
and operation of hotel/motel properties; and
WHEREAS, Western has requested and GuestHouse has agreed to grant Western an
exclusive night. subject to the terms and conditions set forth herein, to
develop GuestHouse affiliated properties in a designated area; and
WHEREAS, Western's exclusive rights are based upon the development of a
required number of GuestHouse(R) properties within specified times; and
WHEREAS, the parties desire to set forth their respective rights, duties,
obligations and benefits,
IT IS THEREFORE AGREED by and between the parties as follows:
1. EXCLUSIVE DEVELOPMENT RIGHTS. Subject to the terms and conditions set
forth below, GuestHouse hereby grants to Western the exclusive right to
construct, establish, develop, own. operate and maintain GuestHouse affiliated
properties in the states of Washington, Oregon, Montana, Idaho and Alaska (the
"Designated Area") for a twenty year period ending December 31, 2018. So long as
this Agreement is in effect, no other person shall be allowed to enter into a
franchise agreement with GuestHouse 'in the Designated Area without the prior
written consent of Western.
2. NONEXCLUSIVE GRANT. Upon the termination of this Agreement for any
reason, other persons shall be allowed to enter into franchise agreements with
GuestHouse in the Designated Area. In addition, Western may request to enter
into franchise agreements with GuestHouse in states other than in the Designated
Area on a nonexclusive basis. Irrespective of the status of this Agreement.
3. FRANCHISE REGULATION. Notwithstanding, paragraphs 1 and 2 above, Western
must meet the then current standards for franchisees to be able to enter into
franchise agreement with GuestHouse within or without the Designated Area.
Further, Western acknowledges that all franchise agreements and offers to enter
into franchise agreements are conditioned upon GuestHouse's compliance with all
federal and state laws and regulations governing the offer, sale and operation
of franchises. For any period 'in which GuestHouse's application for
Initials G.A.S.
<PAGE>
registration with any state which requires pre-sale registration of franchise
offerings is pending, the parties acknowledge that GuestHouse may not offer nor
may Western accept any franchise. GuestHouse will keep Western informed of its
franchise registration process within the Designated Area and in other states
'in which Western may wish to develop GuestHouse properties, as requested.
4. DEVELOPMENT SCHEDULE. In consideration of the exclusive rights granted
Western in paragraph I above and as a condition to retaining said exclusive
rights, Western agrees that it shall construct or acquire at least one (1)
hotel/motel property for each calendar year of this Agreement plus construct or
acquire at least five (5) hotel/motel properties in every three (3) year
period which shall be GuestHouse affiliated properties. For the purposes of this
Agreement, a property shall be considered constructed when it is framed and
under roof. Properties constructed or acquired both within and Without the
Designated Area for which GuestHouse franchise agreements have been signed shall
be counted for the purposes of the minimum development schedule set forth
herein. Every three (3) year period shall include the most recently concluded
calendar year and the two (2) prior years, on a rolling, basis. After completion
of thirty five (35) GuestHouse franchised properties the performance and
affiliation clause described above will be satisfied.
5. FRANCHISE AFFILIATION AND FEES. GuestHouse agrees to execute franchise
agreements with Western for the properties developed or acquired by Western in
furtherance of this Agreement provided said properties meet all current
standards for GuestHouse franchisees. GuestHouse will permit the use of the
GuestHouse Inn(R) and GuestHouse Suites(R) name for motels that are designed
with rooms that are single room suites. In consideration of Western's commitment
to develop GuestHouse affiliated properties, GuestHouse shall waive the
franchise fee for ten (10) proper-ties of the properties developed or acquired
by Western in furtherance of this Agreement. In regard to liquidated damages as
provided in the franchise agreements, the parties agree to amend the franchise
agreement to provide that in the event Western sells all of Its Interest in a
site, no liquidated damages will be due GuestHouse. All franchise agreements
shall be on the same terms and conditions as the then current franchise
agreement for other GuestHouse franchisees. with the exception of the waiver of
the franchise fee for ten (10) of the properties as noted above. In addition,
for the term of this Agreement, any franchise agreement that is not included in
the ten (10) for which the franchise fee is waived, the franchise fee shall be
fixed at Twenty Thousand and no/100 Dollars ($20,000.00). All franchise
agreements between GuestHouse and Western shall be not less than five (5) nor
more than ten (10) years' duration. Prior to signing any franchise agreement,
Western will be provided a copy of GuestHouse's then current Franchise Offering
Circular, with any state addendum, as appropriate. Western will have an
automatic right to renew each license agreement at the end of its initial term
if Western is not in default of any of the terms and conditions of the franchise
agreement. Renewal shall be accomplished by execution by the parties of the then
current franchise agreement under the then current tee structure.
6. DESIGNATION AS SELECT VENDOR. As additional consideration for this Agreement,
Western shall be designated a Select Vendor pursuant to Section 16 of the
current GuestHouse License Agreement for such goods and services as agreed
between GuestHouse and Western. Continuation as a Select Vendor shall be
contingent upon Western maintaining the quality standards as established by
GuestHouse from time to time. Failure of Western to continue to meet the
standards of a Select Vendor shall not terminate Western's rights under
paragraphs 1 and 2 above. Within ten (10) days of GuestHouse mailing any Select
2
Initials G.A.S.
<PAGE>
Vendor list to GuestHouse franchisees, GuestHouse will provide Western with
written notice of the mailing and include the names and addresses of all persons
receiving such mailing.
7. TERMINATION. This Agreement shall terminate upon the earlier of December
31, 2018 and Western's failure to meet the development and affiliation schedule
as set forth in paragraph 4 above. The effect of termination of this Agreement
shall be the loss of the exclusive rights of Western in the Designated Area.
Western's rights as a franchisee, as Select Vendor or rights to construct or
acquire GuestHouse proper-ties on a nonexclusive basis shall not be terminated
by termination of this Agreement.
8. ADDITIONAL TERMS. The terms of this Agreement are subject to the
following additional terms and conditions:
(a) Relationship of Parties. Western is an independent contractor.
-----------------------
Neither party is the legal representative or agent of, or has the power to
obligate (or has the right to direct or supervise the daily affairs of) the
other for any purpose whatsoever. and no partnership, joint venture, agency,
fiduciary or employment relationship is intended or created by reason of this
Agreement.
(b) Partial Invalidity. Should any part of this Agreement, for any
-------------------
reason, be declared invalid, such decision shall not affect the validity of any
remaining portion.
(c) No Waiver. No failure or delay in requiring strict compliance with
---------
any obligation of this Agreement (or in the exercise of any right or remedy
provided herein) and no custom or practice at variance with the requirements
hereof shall constitute a waiver or modification of arty such obligation,
requirement, right or remedy or preclude exercise of any such night or remedy or
the right to require strict compliance with any obligation set forth herein. No
waiver of any particular default or any right or remedy with respect to such
default shall preclude, affect or impair enforcement of any right or remedy
provided herein with respect to any subsequent default. No approval or consent
of GuestHouse shall be effective unless in writing and signed by an authorized
representative of GuestHouse. GuestHouse's consent or approval may be withheld
for so long as Western is in default of any of its obligations under this
Agreement.
(d) Notices. Notices will be effective hereunder when and only when
-------
they are reduced to writing and delivered via a recognized carrier which
provides a verifiable receipt of delivery to the appropriate party at its
address stated below or to such person and at such address as may be designated
by notice hereunder. Notices shall be deemed given on the date delivered or date
of attempted delivery, if service is refused.
If to Western: If to GuestHouse:
WESTERN STEEL, INC. GUESTHOUSE INTERNATIONAL LLC
1044 Industry Drive 1501 North University, Suite 968
Seattle, Washington 98188-4801 Little Rock, Arkansas 72207
Attention: Mr. George Swift Attention: President
3
Initials G.A.S.
<PAGE>
(e) Choice of Forum. Litigation related to this Agreement in which
---------------
GuestHouse is the plaintiff shall be initiated and prosecuted in the state of
Washington. litigation related to this Agreement in which Western is the
plaintiff shall be initiated and prosecuted in the state of Arkansas.
(f) Miscellaneous. This Agreement is exclusively for the benefit of the
-------------
par-ties hereto and may not give rise to liability to a third party. No
agreement between GuestHouse and anyone else is for the benefit of Western.
Neither party will interfere with contractual relations of the other and
exercise by GuestHouse of any right provided GuestHouse under this Agreement
shall not constitute such Interference. The section headings in this Agreement
are for convenience of reference only and will not affect its interpretation.
All monetary references are to United States dollars. This Agreement, together
with all instruments, exhibits, attachments and schedules hereto, constitutes
the entire agreement (superceding all prior agreements and understandings, oral
or written) of the parties hereto with respect to the matters stated herein and
shall not be modified or amended in any respect except in writing executed by
all such parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first stated above.
GUESTHOUSE:
GUESTHOUSE INTERNATIONAL LLC
By: /s/ James M. Sculley
Title: President and COO
ATTEST:
By: /s/ Eris Canady
Title: Executive Asssistant
WESTERN:
Western Steel, Inc.
By: /s/ George A Swift
Title: President
ATTEST:
By: /s/ Kristine Tanaka
Title: Secretary/Treasurer
4
Initials G.A.S.
<PAGE>
FIRST AMENDMENT TO AREA DEVELOPMENT AGREEMENT
This First Amendment to Area Development Agreement ("First Amendment") is
entered into as of the 31st day of August, 1999, by and between GuestHouse
International Franchise Systems, Inc. ("GuestHouse"), a Georgia corporation,
Western Steel, Inc. ("Western"), a Washington corporation, and George A. Swift,
an individual residing in the state of Washington.
RECITALS
WHEREAS, GuestHouse International LLC and Western entered into an Area
Development Agreement, dated as of March 3, 1998 (the Area Development Agreement
is hereafter referred to individually as "Area Development Agreement" and
collectively with the First Amendment as "Agreement"); and
WHEREAS, GuestHouse International LLC assigned all of its right, title and
interest in the Agreement to GuestHouse, pursuant to the provisions of a certain
General Assignment and Bill of Sale, dated as of June 1, 1999; and
WHEREAS, GuestHouse and Western desire to clarify and modify certain provisions
of the Agreement;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree to amend the Agreement as follows,
1. GuestHouse and Western agree that new Franchise Agreements for
GuestHouse affiliated properties hereafter executed by the parties
pursuant to the Agreement shall provide for the following fees and
contributions:
(a) Franchises Agreements executed from the date first above
written until December 31, 2001:
(i) $1.25 per room per day Operating Fee, for the five
year initial term;
(ii) $.25 per room per day Marketing Contribution for
brand awareness (non-property specific);
(iii) all reservation charges paid directly by Franchisee;
(iv) for ten year franchise agreements years six through
ten shall have an Operating Fee of $1.75 per room per
day, and a Marketing Contribution of $.25 per room
per day for brand awareness (non-property specific).
(b) Franchises Agreements executed from January 1, 2002 until
December 31, 2003:
(i) $1.50 per room per day Operating Fee, for the five
year initial term;
(ii) if less than 150 properties are open system wide,
$.25 per room per day Marketing Contribution for
brand awareness (non-proper specific),
(iii) if 150 or more properties are open system wide, $.50
per room per day Marketing Contribution for brand
awareness (non-proper specific);
(iv) all reservation charges paid directly by Franchisee.
<PAGE>
(c) Franchises executed from January 1, 2004 until December 31,
2005:
(i) $1.75 per room per day Operating Fee, for the five
year initial term;
(ii) if less than 150 properties are open system wide,
$.25 per room per day Marketing Contribution for
brand awareness (non-property specific);
(iii) if 150 or more properties are open system wide, $.50
per room per day Marketing Contribution for brand
awareness (non-property specific);
(iv) all reservation charges paid directly by Franchisee.
(d) Franchises executed from January 1, 2006 until December 31,
2010:
(i) Operating Fees and Marketing Contribution shall each
be at the then current rate as set forth in the then
current GuestHouse Uniform Franchise Offering
Circular, however when combined shall not exceed 7%
of the gross room revenue for the property.
(ii) all reservation charges paid directly by Franchisee;
2. Notwithstanding anything to the contrary in the Area Development
Agreement, Western Steel, Inc. a Washington Corporation, or
subsidiaries or affiliates of George A. Swift, and generally the
defined term "Western" shall be deemed to be George A. Swift
individually, or any entity in which George A. Swift has irrevocable
and unfettered control, and owns at least a 25% equity interest, for
hotels located in the territory set forth in Paragraph I of the
Agreement (51% for hotels located outside of such territory). For
purposes of the foregoing, "irrevocable and unfettered control" shall
be deemed to be: i) the sole general partner in a limited partnership,
ii) the sole manager in a limited liability company, or iii) the sole
director in a corporation. It is the intent of this paragraph that all
of the rights and obligations of the Agreement shall accrue to the
various entities owned and controlled by George A. Swift.
3. GuestHouse and Western acknowledge and agree that the provision in
Paragraph 5 of the Area Development Agreement allowing a waiver of the
"franchise fee" for ten properties, shall be accomplished by inserting
the following language into the individual franchise agreements for
such ten properties:
The Initial Fee (as defined in Section _____ of this
Agreement) is hereby waived and shall be zero for this
Property.
4. GuestHouse and Western acknowledge and agree that the provision in
Paragraph 5 of the Area Development Agreement allowing a reduction of
the "franchise fee" for the properties to be added to the GuestHouse
system that are not included in the ten properties for which the
"'franchise fee" is waived, shall be accomplished by inserting the
following language into the individual franchise agreements for such
properties:
The Initial Fee (as defined in Section _____ of this
Agreement) is hereby reduced and shall be $20,000.00 for this
Property.
5. GuestHouse and Western acknowledge and agree that the provision in
Paragraph 5 of the Area Development Agreement allowing a waiver of
certain liquidated damages in the event Western sells all of its
2
<PAGE>
interest in a site, shall be accomplished by inserting the following
language into the individual franchise agreements:
In the event Franchisee sells all of its interest in the
Property to an unrelated third party, the Termination Fee set
forth in Section -of this Agreement is hereby waived.
6. Paragraph 8(d) of the Area Development Agreement is hereby modified to
change the address for GuestHouse as follows: GuestHouse International
Franchise Systems, Inc., 300 Galleria Parkway, Suite 1200, Atlanta,
Georgia 30339 Attention: Vice President Development/General Counsel.
7. Paragraph 8(e) of the Area Development Agreement is hereby replaced
with the following:
(e) Choice of Forum. Litigation related to this Agreement in
---------------
which GuestHouse is a Plaintiff shall be initiated and
prosecuted in the state of Washington. Litigation related to
this Agreement in which Western is a Plaintiff shall be
initiated and prosecuted in the state of Georgia.
8. Paragraph 4 of the Area Development Agreement is hereby modified by
adding the following sentences at the conclusion of the Paragraph.
The required number of hotels to be constructed or acquired
must be achieved and continuously maintained on a cumulative
basis. Western must continue to construct or acquire hotels
that shall be operated under a validly executed Franchise
Agreement, at a rate of at least one hotel per calendar year
pursuant to the Agreement and shall continuously maintain not
less than the minimum number of GuestHouse affiliated
properties shown in the chart reproduced below.
Anniversary Date MINIMUM NUMBER of GuestHouse
- ---------------- Affiliated Properties
---------------------
December 31, 1998 1
December 31, 1999 2
DECEMBER 31, 2000 5
December 31, 2001 6
December 31, 2002 7
DECEMBER 31, 2003 10
December 31, 2004 11
December 31, 2005 12
DECEMBER 31, 2006 15
December 31, 2007 16
December 31, 2008 17
DECEMBER 31, 2009 20
December 31, 2010 21
December 31, 2011 22
DECEMBER 31, 2012 25
December 31, 2013 26
3
<PAGE>
December 31, 2014 27
DECEMBER 31, 2015 30
December 31, 2016 31
December 31, 2017 32
DECEMBER 31, 2018 35
Nothing in this Paragraph shall be interpreted to modify any provision
of any license or franchise agreement (now existing or hereafter
executed) with respect to a GuestHouse affiliated property (including,
without limitation, the fights and obligations of the parties thereto
with respect to the term, renewal and termination of such agreements).
9. The terms of this First Amendment shall govern any conflicts between
the terms of the Area Development Agreement. Except as specifically
provided to the contrary in this First Amendment, the remaining
provisions of the Area Development Agreement are hereby reaffirmed and
remain unchanged. The provisions of the First Amendment shall be
binding upon the parties hereto, their successors and assigns.
[SIGNATURES ON FOLLOWING PAGE]
4
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this First Amendment as of the
date first stated above.
WESTERN:
Western Steel, Inc.
By: /s/ George A. Swift
Print Name: George A. Swift Attest:
Title: President By: /s/ Donna Carter
Print Name: Donna Carter
Title: Administrative Assistant
George A. Swift, Individually
MONTANA AMENDMENT TO AREA DEVELOPMENT AGREEMENT
This Montana Amendment to Area Development Agreement ("Montana Amendment") is
entered into as of the day of 17th day of December, 1999, by and between
GuestHouse International Franchise Systems, Inc. ("GuestHouse") a Georgia
corporation, Western Steel, Inc. ("Western"), a Washington corporation, and
George A. Swift, an individual residing in the state of Washington.
RECITALS
WHEREAS, GuestHouse International LLC and Western entered into an Area
Development Agreement, dated as of March 3, 1998 as modified by that certain
First Amendment to Area Development Agreement dated as of the 31st day of August
1999, (the Area Development Agreement combined with the First Amendment to Area
Development Agreement is hereafter referred to as "Area Development Agreement");
and
WHEREAS, GuestHouse International LLC assigned all of its right, title and
interest in the Agreement to GuestHouse, pursuant to the provisions of a certain
General Assignment and Bill of Sale, dated as of June 1, 1999; and
WHEREAS, GuestHouse and Western desire to clarify and modify certain provisions
of the Agreement;
NOW, THEREFORE, in consideration of the provisions contained herein, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Area Development Agreement as
follows.
1. Western hereby agrees to develop, open and operate 3 GuestHouse
International Properties in the state of Montana within 3 years from
the date first written above. Provided that each Montana property is
framed and under roof, prior to the 3rd anniversary of this Montana
Amendment, GuestHouse International hereby agrees that the fees and
contributions for such 3 properties shall be as follows:
(a) $.63 per room per day Operating Fee, for the five
year initial term;
(b) $.25 per room per day Marketing Contribution for
brand awareness (non-property specific);
(c) all reservation charges paid directly by Franchisee;
(d) for ten year franchise agreements, years six through
ten shall have an Operating Fee of $1.13 per room per
day, and a Marketing Contribution of $.25 per room
per day for brand awareness (non-property specific).
2. Within thirty days hereafter, Western shall enter into the Franchise
Agreements for acceptable franchises in the following locations:
(a) Miles City, Montana;
<PAGE>
(b) Fairbanks, Alaska
(c) Valdez, Alaska
(d) Dupont, Washington
Such Franchise Agreements shall be subject to the terms and conditions
of the Area Development Agreement, except that the Miles City, Montana
Franchise Agreement shall be subject to the terms and conditions of the
Area Development Agreement as modified by this Montana Amendment.
3. The terms of this Montana Amendment shall modify the terms of the Area
Development Agreement. Except as specifically provided to the contrary
in this Montana Amendment, the remaining provisions of the Area
Development Agreement are hereby reaffirmed and remain unchanged. The
provisions of the Montana Amendment shall be binding upon the parties
hereto, their successors and assigns.
IN WITNESS WHEREOF, the parties have entered into this Montana Amendment as of
the date first stated above.
WESTERN:
Western Steel, Inc.
By: /s/ George A. Swift Attest:
Print Name: George A. Swift By: /s/ Donna Carter
Title: President Print Name: Donna Carter
Title: Administrative Assistant
George A. Swift, Individually
/s/ George A. Swift
Witness:
By: /s/ Donna Carter
Print Name: Donna Carter
Title: Administrative Assistant
GUESTHOUSE:
GuestHouse International Franchise Systems, Inc.
By: /s/ Dan J. Berman Attest:
Print Name: Dan J. Berman By: /s/ Kevin Pfannes
Title: Executive Vice President Print Name: Kevin Pfannes
Title: Secretary
2
/s/ George A. Swift
Witness:
By: /s/ Donna Carter
Print Name: Donna Carter
Title: Administrative Assistant
GUESTHOUSE:
GuestHouse International Franchise Systems, Inc.
By: /s/ Dan J. Berman Attest:
Print Name: Dan J. Berman By: /s/ Kevin Pfannes
Title: Executive Vice President Print Name: Kevin Pfannes
Title: Secretary
5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
333-11643, 333-11671, 333-20695, 333-64309 and 333-79961 of Suburban Lodges of
America, Inc., on Form S-8 of our report dated February 23, 2000, appearing in
this Annual Report on Form 10-K of Suburban Lodges of America, Inc. for the year
ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,862
<SECURITIES> 0
<RECEIVABLES> 2,196
<ALLOWANCES> 191
<INVENTORY> 2,290
<CURRENT-ASSETS> 17,470
<PP&E> 291,269
<DEPRECIATION> 18,600
<TOTAL-ASSETS> 321,082
<CURRENT-LIABILITIES> 9,013
<BONDS> 97,891
0
0
<COMMON> 157
<OTHER-SE> 211,604
<TOTAL-LIABILITY-AND-EQUITY> 321,082
<SALES> 0
<TOTAL-REVENUES> 65,912
<CGS> 0
<TOTAL-COSTS> 48,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,399
<INCOME-PRETAX> 12,740
<INCOME-TAX> 4,695
<INCOME-CONTINUING> 8,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,045
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.53
</TABLE>
