<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
/X/
For the fiscal year ended September 30, 1994
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition period from ___________ to ______________
Commission file number 1-6848
___________________
UNITED INNS, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0707789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 Poplar Avenue, Suite 2300, Memphis, TN 38137
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 767-2880
_____________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 10-K.
/X/
Aggregate market value of the Registrant's voting stock held by non-
affiliates, based upon the closing price of said stock on the New York Stock
Exchange--Composite Transaction Listing on December 12, 1994, ($24.25 per
share): $35,254,965.
As of December 12, 1994, 2,665,899 shares of the Common Stock, $1.00 par
value, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
PART I
ITEM 1. BUSINESS.
(a) The Registrant was organized in 1956 as a corporation. The Registrant
engages primarily in the operation of hotels under Holiday Inns, Inc. licenses.
The Registrant currently operates twenty-five (25) hotels; eight (8) in Atlanta,
Georgia; six (6) in Houston, Texas; four (4) in Jackson, Mississippi; two (2) in
Dallas, Texas; two (2) in Colorado Springs, Colorado; one (1) each in Flagstaff,
Arizona; Santa Barbara, California; and Scottsdale, Arizona. All the hotels are
equipped with year round temperature control, a swimming pool, telephone and
free television in each room, twenty four hour switchboard service, wall to wall
carpeting, on-premises parking and free advance reservation services. All
hotels contain restaurants operated by the Registrant and sell liquor, except
for the three (3) Hampton Inns located in Jackson, Mississippi; Atlanta,
Georgia; and Houston, Texas; the Days Inn Dallas Regal Row; the two (2) Holiday
Inn Express properties located in Atlanta, Georgia, and Colorado Springs,
Colorado; which are limited service hotels located within line of sight of
various food and beverage facilities.
During fiscal year 1994, the Registrant sold the Holiday Inn Near Greenway
Plaza located in Houston, Texas; sold a closed hotel located in Houston, Texas;
and allowed its property lease to expire on the Super 8 Motel located in San
Jose, California. Also during fiscal year 1994 the Registrant negotiated a
short term license agreement for a leased property, and converted it from a
Holiday Inn to a Howard Johnson Hotel, and subsequent to the close of the
fiscal year, on November 30, 1994 allowed its lease to expire and ceased to
operate the property.
The Registrant owns and operates one (1) Mr. Pride Car Wash unit in
Houston, Texas. The car wash center uses modern semi-automatic car washing
equipment. Automobiles are pulled by a conveyer through a series of washing,
rinsing and drying cycles. The unit is operated on leased property with a lease
expiration date of October 31, 1995.
Additionally, the Registrant owns four(4) closed car wash units which are
being held for disposition.
During fiscal year 1994, the Registrant sold one (1) car wash unit in
Dallas, Texas.
There have been no significant changes in the kinds of products produced or
services rendered by the Registrant or in the markets or methods of distribution
since the beginning of the fiscal year, October 1, 1993.
The Registrant currently has no new hotel developments underway or planned.
See Current Developments, Item 1 (d).
2
<PAGE>
ITEM 1. (cont.)
(b) (1) The Registrant's businesses are highly competitive. The hotels are
in competition with hotels and other motels within their immediate
area. Due to the highly competitive nature of the lodging industry,
the Registrant is required to make continuing expenditures for
modernizing, refurnishing and maintaining existing facilities.
(2) The Registrant's business is not materially dependent upon a
single or few customers, the loss of whom would have a material adverse
effect on the business of the Registrant.
(3) The license agreements that have been issued by Holiday Inns, Inc.,
Hampton Inns, Days Inns of America Franchising, Inc., Ramada, Inc., and
Howard Johnson Franchise Systems, Inc. to the Registrant are considered
to be of considerable importance. The Registrant has location licenses
for its properties. The original license agreement for new hotels is
generally for a period of twenty (20) years. License agreements for
hotel conversions are generally issued for periods of ten (10) to
fifteen (15) years. The Registrant may request license extensions from
its licensors prior to the end of the term of the license. Each
license is terminable by licensors for cause, including failure to
conform to certain minimum standards.
(4) An insignificant sum was spent by the Registrant during each of the
last two fiscal years on research activities.
(5) Compliance with federal, state and local provisions regulating the
discharge of materials into the environment or otherwise relating to
the protection of the environment, has not required any capital
expenditures of a material nature, nor has it had any material effect
on earnings or the competitive position of the Registrant and its
subsidiaries.
(6) On November 24, 1994, the Registrant had approximately 1,887
employees, including approximately 297 part-time employees who work an
average of less than 30 hours per week.
(7) Four (4) of the Registrant's hotels located in Colorado and Arizona
are dependent to a large extent upon the summer and winter vacation
seasons.
(c) The Registrant has one primary business segment, the operation of hotel
properties. This segment represents greater than 90% of consolidated revenue
operating profit and identifiable assets. All revenues were derived from
domestic operations. There are no material customers and no material government
contracts.
(d) Current Development - On November 14, 1994, the Company entered into
an Agreement and Plan of Merger with United/Harvey Holdings, L.P.,
United/Harvey Hotels, Inc. and United/Harvey Sub, Inc. Reference is made to the
disclosure concerning such agreement contained in Part II, Item 7, Management's
Discussion and Analysis of Consolidated Financial Condition and Results
of Operation, under the caption "Current Developments".
3
<PAGE>
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
NUMBER OF ROOMS
---------------
HOTEL DIVISION Originally Presently
- -------------- -
<S> <C> <C>
Holiday Inn Hotels:
Atlanta, Georgia
Airport North - owned(1) 301 492
South (I-75/U.S. 41) - owned(1) 180 180
I-285/Powers Ferry Rd. - owned(1) 300 300
Perimeter Mall/Dunwoody Area - owned(1) 252 250
Colorado Springs, Colorado
North - owned 220 220
Dallas, Texas
Brook Hollow/Love Field - owned(1) 358 356
Houston, Texas
Intercontinental Airport - owned(1) 210 400(3)
West Loop Near the Galleria - owned(1) 214 318(3)
Medical Center - owned(2) 298 296
I-10 West at Loop 610 - owned(1) 252 249
Jackson, Mississippi
North - owned 54 254
Southwest - owned(1) 102 289
Downtown - owned(1) 359 358
Santa Barbara, California - owned(1) 159 154
Holiday Inn Express Hotels:
Atlanta Georgia
I-85 N/Northcrest (Express) - owned(1) 112 198
I-20 East (Express) - owned(1) 167 165
Colorado Springs, Colorado
Central (Express) - owned(1) 167 207
Hampton Inns:
Jackson, Mississippi
I-55 North - owned(1) 118 118
Marietta, Georgia
I-75N (Marietta) - owned(1) 140 140
Houston, Texas
I-10 East - owned 89 89
Days Inns:
Flagstaff, Arizona
1000 West Highway 66 - owned 120 156
Dallas, Texas
Stemmons & Regal Row - owned(1) 202 200
Houston, Texas
I-10 East/Mercury Drive - owned 156 156
Ramada Inn:
Atlanta, Georgia
Downtown - owned(1) 253 473
Howard Johnson Hotels:
Scottsdale, Arizona - lease of land (1) 216 216
-----
Total: 6,234
4
<PAGE>
<FN>
(1) Subject to first mortgage.
(2) Subject to first and second mortgages.
(3) Properties with rooms in reserve, not currently in active inventory:
Houston:
Intercontinental Airport 96
West Loop Near the Galleria 106
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings are pending against the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
A description of the Company's executive officers is contained under
Part III, Item 10 below.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.
The Registrant's Common Stock is traded on the New York Stock Exchange,
Pacific Stock Exchange, and Philadelphia Stock Exchange under the symbol "UI".
The following table gives the high and low sale prices per share of the
Registrant's Common Stock on the New York Stock Exchange - Composite Tape,
for the past two fiscal years, as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 9 1/4 5 1/2 2 3/8 1 1/2
2nd Quarter 14 1/2 7 1/2 5 2 3/8
3rd Quarter 14 1/4 8 7/8 4 3/8 3 5/8
4th Quarter 18 12 6 3/4 3 5/8
</TABLE>
As of December 12, 1994, the approximate number of shareholders was 1,366.
No dividends were paid during fiscal 1994 or 1993.
5
<PAGE>
ITEM 6. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands except per share data, rooms in operation and percentages)
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues............................................ $ 93,130 $ 92,923 $ 99,161 $ 112,591 $ 120,924
---------- ---------- ---------- ---------- ----------
Costs and expenses.................................. 74,390 76,389 84,376 95,709 97,708
Depreciation........................................ 9,078 9,031 9,939 11,159 11,319
Interest and financing.............................. 10,117 9,946 9,803 13,943 15,968
Minority interest................................... 81 54 39 91 109
---------- ---------- ---------- ---------- ----------
93,666 95,420 104,157 120,902 125,104
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations............ (536) (2,497) (4,996) (8,311) (4,180)
Gain (loss) from property dispositions.............. (6,266) 1,251 (3,634) 8,319
Loss contingency.................................... 388 (1,718)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes................................ (6,802) (1,246) (8,242) (10,029) 4,139
Income taxes........................................ (1,297) (430) (3,291) (3,317) 4,741
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations............ (5,505) (816) (4,951) (6,712) (602)
Discontinued operations
Income (loss) from operations of
(net of applicable income taxes)
Furniture Manufacturing.......................... 139
Gain on disposal of business segments
(net of applicable income taxes).................. 4,329
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item......... (5,505) (816) (4,951) (6,712) 3,866
Extraordinary item-gain on settlement
of debt (net of applicable income taxes)........... 1,907
---------- ---------- ---------- ---------- ----------
Net income (loss).................................. $ (5,505) $ (816) $ (3,044) $ (6,712) $ 3,866
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Per share of common stock
Income (loss) before discontinued operations....... $ (2.08) $ (0.31) $ (1.87) $ (2.54) $ (0.23)
Income (loss) from discontinued operations......... 0.05
Gain (loss) on disposal of business segments....... 1.64
Extraordinary item................................. 0.72
---------- ---------- ---------- ---------- ----------
Net income (loss)................................. $ (2.08) $ (0.31) $ (1.15) $ (2.54) $ 1.46
---------- ---------- ---------- ---------- ----------
Dividends per share................................. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
---------- ---------- ---------- ---------- ----------
Average number of shares outstanding................ 2,644 2,641 2,641 2,641 2,641
---------- ---------- ---------- ---------- ----------
OTHER INFORMATION:
Total assets........................................ $ 129,026 $ 146,733 $ 152,517 $ 162,085 $ 198,592
---------- ---------- ---------- ---------- ----------
Property and equipment.............................. 95,839 116,306 120,401 135,685 157,628
---------- ---------- ---------- ---------- ----------
Long-term debt...................................... 91,419 101,165 101,603 104,551 121,771
---------- ---------- ---------- ---------- ----------
Shareholder' equity................................. 15,571 20,970 21,786 24,831 31,543
---------- ---------- ---------- ---------- ----------
Book value per share................................ $ 5.84 $ 7.94 $ 8.25 $ 9.40 $ 11.94
---------- ---------- ---------- ---------- ----------
% of shareholders' equity to total assets........... 12.1% 14.3% 14.3% 15.2% 15.9%
---------- ---------- ---------- ---------- ----------
Ratio of total liabilities to stockholders' equity.. 7.3:1 6.0:1 6.0:1 5.6:1 5.3:1
---------- ---------- ---------- ---------- ----------
Rooms in operation.................................. 6,244 7,095 7,489 8,629 8,675
---------- ---------- ---------- ---------- ----------
Occupancy........................................... 54.6% 51.7% 48.7% 49.7% 58.6%
---------- ---------- ---------- ---------- ----------
Average Daily Room Rate............................. $ 55.01 $ 51.91 $ 50.35 $ 51.40 $ 47.64
---------- ---------- ---------- ---------- ----------
</TABLE>
6
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Current Developments
On November 14, 1994, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") (a copy of which is attached to this Form 10-K,
as Exhibit 2.0 and incorporated by reference herein) with United/Harvey
Holdings, L.P. ("Purchaser"), United/Harvey Hotels, Inc. ("United/Harvey") and
United/Harvey Sub, Inc. ("Merger Sub"), pursuant to which the Purchaser agreed
to acquire all the shares of the issued and outstanding Common Stock of the
Company (the "Shares") at a price of $25.00 per Share (the "Per Share Amount")
in cash net to the selling stockholders ("Sellers"). The information set forth
in Item 3(b)(ii), "Merger Agreement," in the Schedule 14D-9 filed by the Company
with the Securities and Exchange Commission ("SEC") on November 23, 1994,
attached hereto as Exhibit 2.1 (the "Schedule 14D-9"), is incorporated by
reference herein.
The acquisition of the Shares is to occur pursuant to an Offer to Purchase
dated November 21, 1994, (the "Offer to Purchase") and the related Letter of
Transmittal (which together constitute the "Offer") provided to the stockholders
of the Company by the Purchaser and filed by the Purchaser with the SEC as
exhibits to a Tender Offer Statement on Schedule 14D-1 on November 21, 1994. The
information set forth in Item 3(b)(ii), "Merger Agreement; The Offer," in the
Schedule 14D-9, is incorporated by reference herein.
The Merger Agreement provides, among other things, that after completion of
the Offer, subject to the terms and conditions of the Merger Agreement, Merger
Sub will be merged into the Company (the "Merger") and the Company will survive
as the surviving corporation and as a wholly-owned subsidiary of United/Harvey.
Each outstanding Share, other than those held by United/Harvey or any subsidiary
of the Company or in the treasury of the Company (all of which will be
cancelled) and those Shares held by stockholders of the Company who promptly
demand and perfect appraisal rights under the General Corporation Law of the
State of Delaware, will be converted at the effective time of the Merger into
the right to receive the Per Share Amount, in cash, without interest thereon. As
described in the Offer to Purchase, Purchaser has expressly reserved the right,
following the consummation of the Offer, to cause the Merger Agreement to be
amended to provide non-tendering stockholders the option (the "Cash/Stock
Option") to elect to receive in exchange for each share converted in the merger
either (i) cash in the amount at least equal to the Per Share Amount or (ii)
shares of common stock of United/Harvey. The Offer to Purchase provides that a
number of factors will influence whether or not Purchaser makes the Cash/Stock
Option available to non-tendering stockholders. The information set forth in
Item 2, "Tender Offer of the Bidder" and in Item 3(b)(ii), "Merger Agreement;
The Merger," in the Schedule 14D-9, is incorporated by reference herein.
7
<PAGE>
It is contemplated that, upon the purchase of Shares by Purchaser pursuant
to the Offer, the Company's Board of Directors will be reconstituted in its
entirety to consist soley of Purchaser's designees. Any action of the Company's
Board of Directors following the consummation of the Offer with respect to any
amendment to the Merger Agreement will constitute an action of the Company's
Board of Directors as then reconstituted. The information set forth in
Item 3(b)(ii), "Merger Agreement; The Board," in Schedule 14D-9 is
incorporated by reference herein.
At a special meeting of Company's Board of Directors held on November
14, 1994, the Board of Directors unanimously (a) determined that the Offer and
the cash Merger are in the best interests of the Company's stockholders, (b)
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the cash Merger, and (c) resolved to recommend that the
Company's stockholders accept the Offer.
The Board of Directors recommends that the Company's stockholders accept
the Offer as set forth in the Company's response to the Offer filed on Schedule
14D-9. The information set forth in Item 3(b)(ii), "The Offer; Conditions to
the Offer," Item 3(b)(ii), "The Merger," and Item 4, "The Solicitation or
Recommendation," in the Schedule 14D-9 is incorporated by reference herein.
Cockroft Consolidated Corporation, the owner of approximately 45.4% of the
Shares, has agreed to and has tendered the Shares owned by it into the Offer
pursuant to an agreement between Purchaser and Cockroft Consolidated Corporation
(the "Cockroft Agreement"). The information set forth in Item 3(b)(v), "Cockroft
Agreement," in the Schedule 14D-9 is incorporated by reference herein
The Offer expires January 20, 1995.
8
<PAGE>
Item 7 (cont.)
Liquidity and Capital Resources
Historically cash flow from operations and sales of surplus assets have been the
primary sources of liquidity for the Company.
Cash flow from operating activities for fiscal 1994 was $8.5 million, an
increase of $3.3 million over the 1993 level of $5.2 million.
During fiscal 1994 the Registrant expended $5.5 million on capital improvements,
consisting principally of $3 million in expenditures on mid-scale renovation
projects at ten (10) hotels, $.8 million on the replacement of television sets
at thirteen (13) hotels and $.7 million on the purchase and installation of
electronic door locks at eight (8) hotels and a telephone system for one (1)
hotel. Funding of the expenditures was accomplished with $1.5 million in
lease/purchase financing; $1.0 million from restricted cash deposits; with the
remaining $3.0 million being provided from operating cash flow.
During fiscal 1994 the Registrant sold an operating Holiday Inn in Houston; a
hotel in Houston, which had been closed since 1988; surplus vacant land in
Atlanta; and a former car wash site in Dallas. Total gross sales proceeds net of
the commissions and other costs related to the sales amounted to $11.4 million
with $8.7 million applied to payment of debt and property taxes related to the
properties, for a net proceeds of $2.7 million. Additionally, $.2 million of
sales proceeds were received on the sale of old television sets and other
furnishings and equipment. During its ten months of operation in fiscal 1994,
the Holiday Inn in Houston had gross revenues of $2.8 million and a net loss
before the sale, of $.6 million.
The lease on one hotel in San Jose, California expired on the last day of fiscal
1994 and another lease on a hotel in Dallas expired on November 30, 1994.
Inasmuch as the Registrant was unable to negotiate acceptable renewal terms or
other arrangements the leases were allowed to expire. During fiscal 1994 the
combined gross revenue was $3.8 million and the combined net loss was $550,000
for these two hotels.
During fiscal year 1994 $1.1 million was deposited into restricted cash accounts
held to fund capital expenditures on six of the Registrant's hotel properties.
These deposits are reflected in the caption "Other investing activities" of the
Consolidated Statement of Cash Flows.
At the end of Fiscal 1994 the Registrant had four (4) minor renovation projects
underway which it expects to complete at a cost of $ .7 million.
As of December 31, 1994, the Registrant failed to meet certain ratios on
a first mortgage loan on one of its hotels. Under the loan agreement the
lender may, at its option, declare the Registrant to be in default under
the loan agreement, accelerate the maturity of the loan, and require
future management fees charged to the hotel to be paid to the lender and
applied to principal reduction. In addition, the lender has advised
the Company that consummation of the Merger will also constitute an event
of default and that the lender will not waive the default. The balance
on this loan at September 30, 1994, was $1,725,000. Management fees
charged to this hotel during fiscal 1994 amounted to $181,770.
9
<PAGE>
Item 7 (cont.)
The Registrant holds seven unused land parcels and four car wash sites of which
all except one land parcel are available for sale, however, none were actively
being marketed at the close of year.
Results of Operations
The following table sets forth for the periods indicated,
percentages which certain items reflected in the financial data bear to total
revenues of the Company and the percentage increase or decrease in amounts of
such items as compared to the indicated prior period:
<TABLE>
<CAPTION>
RELATIONSHIP TO TOTAL REVENUES PERIOD TO PERIOD
YEAR ENDED INCREASE (DECREASE)
SEPTEMBER 30 YEARS ENDED
----------------------------- -------------------
1994 1993 1992 1994-93 1993-92
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms 77.7 % 76.2 % 71.9 % 2.3 % (0.8)%
Restaurants 16.0 17.2 18.0 (6.7) (10.4)
Car washes 1.0 1.6 5.1 (41.5) (70.0)
Telephone & Sundry 5.3 5.0 5.0 6.1 (6.0)
--------- --------- ---------
Total Revenues 100.0 100.0 100.0 0.2 (6.3)
--------- --------- ---------
Operating costs and expenses:
Direct: *
Rooms 63.9 66.9 69.2 (2.2) (4.1)
Restaurants 100.0 100.4 101.3 (7.2) (11.2)
Car washes 106.5 109.1 88.2 (42.9) (62.9)
Telephone and sundry 35.1 41.6 42.5 (10.6) (7.8)
Marketing, administrative and general 11.3 10.1 10.4 11.9 (9.3)
Depreciation 9.7 9.7 10.0 0.5 (9.1)
--------- --------- ---------
Total operating costs and expenses: 89.6 91.9 95.1 (2.3) (9.4)
--------- --------- ---------
Operating income 10.4 8.1 4.9 28.8 54.8
Interest expense (10.9) (10.7) (9.9) (1.7) (1.5)
Minority interest (0.1) (0.1) 0.0 (50.9) (39.6)
Gain (loss) on disposition of assets (6.7) 1.3 (3.7) (601.0) 134.4
Loss contingency 0.0 0.0 0.4 0.0 (100.0)
--------- --------- ---------
Income (loss) from operations
before income taxes (7.3) (1.4) (8.3) (445.9) 84.9
Income taxes (credit) (1.4) (0.5) (3.3) (202.0) 86.9
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item (5.9) (0.9) (5.0) (574.2) 83.5
Extraordinary item-gain on
settlement of debt (net of applicable taxes) 0.0 0.0 1.9 0.0 (100.0)
--------- --------- --------- --------- ---------
Net income (loss) (5.9)% (0.9)% (3.1)% (574.2)% 73.2 %
========= ========= ========= ========= =========
<FN>
* Percentages of direct costs and expenses are expressed as a percentage of the applicable revenue
item, e.g. Direct-Rooms is stated as a percentage of Rooms Revenue, consequently, the sum of
percentages of the Operating Costs and Expenses will not equal Total Operating Costs and Expenses.
</TABLE>
10
<PAGE>
Item 7 (cont.)
1994 Compared to 1993
REVENUES - total revenues for fiscal 1994 were $93.1 million or an increase of
$.2 million from those reported in fiscal 1993. Gross revenues attributable to
two hotels which were disposed of in fiscal 1993 were $1.7 million. While the
two hotels with expiring leases, referred to in the discussion of liquidity and
capital resources, were operated for the full fiscal year 1994, gross revenues
on these hotels decreased by $1.7 million. Gross revenues of the operating hotel
in Houston sold in fiscal 1994 decreased $.8 million. Additionally, gross
revenues from car washes declined by $ .6 million over those reported in fiscal
1993 resulting principally from the disposition of five car wash units in
December 1992 and closing of one other in May 1993. Revenues of the twenty-five
continuing operating hotels and corporate increased by $5.0 million.
Following is a table reflecting the elements of the net change in revenue:
<TABLE>
<CAPTION>
In Millions
Increase
(Decrease)
-----------
<S> <C>
Continuing operating 25 hotels & corporate $ 5.0
Hotels with expiring leases (1.7)
Hotels disposed of (2.5)
Car wash units ( .6)
-----
Net change in revenue $ .2
-----
-----
</TABLE>
Following is a table comparing room revenues, relative occupancy levels and
average daily room rates (ADR) of the twenty-five hotels remaining in the system
at fiscal year end and after termination of lease of one hotel in November 1994:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Room revenue $ 67,024,836 $62,314,231
Occupancy 56.68% 54.06%
ADR $54.58 $51.38
</TABLE>
OPERATING COSTS AND EXPENSES - total operating costs and expenses decreased by
$2.0 million in fiscal 1994 as compared with fiscal 1993. The reduction of
operating costs and expenses attributable to the two hotels which were disposed
of in 1993 was $1.9 million, costs and expenses of the two hotels with
expiring leases decreased by $1.2 million. Operating costs and expenses on the
operating hotel in Houston, sold in fiscal 1994 decreased $.7 million.
Additionally, operating costs and expenses from car washes decreased $.9
million. Operating costs and expenses of the twenty-five continuing operating
hotels and corporate increased by $2.7 million.
INTEREST EXPENSE - interest expense increased by $171,000 in fiscal 1994 as
compared with fiscal 1993 interest expense, reflecting increases due to addition
of $1.5 million in lease/purchase financing of television sets, electronic locks
and a telephone system; and provision for interest on estimated additional
income taxes.
11
<PAGE>
Item 7 (cont.)
GAIN (LOSS) ON DISPOSITION OF ASSETS - a loss of $6.6 million was recognized on
the sale of a hotel in Houston. Additionally, a loss of $548,000 was recognized
upon the sale of another hotel in Houston, which had been closed since 1988. In
addition, gains were recognized on the sale of an unimproved tract of land in
Atlanta and a former car wash unit in Dallas, in the amounts of $.775 million
and $.1 million, respectively.
PROVISION FOR INCOME TAXES - the effective tax rate for 1994 was a net credit of
19.1%. The federal statutory rate of 34% was reduced by 5.9% resulting from the
change in valuation allowance in accounting for income taxes under the liability
method required by Statement of Financial Standards No. 109. The relatively high
overall effective income tax rate was influenced by the fact that taxable income
was earned in states with state income taxes, while losses were incurred in
states having no state income taxes. A detailed reconciliation of the effective
tax rate with statutory rates is set out in Note 2 of Notes to Consolidated
Financial Statements.
1993 Compared to 1992
REVENUES - total revenues for fiscal 1993 decreased by $6.2 million from those
reported in fiscal 1992. Hotel rooms revenues decreased by $.5 million and gross
hotel revenues, including rooms, decreased by $2.7 million. Hotel dispositions,
five in fiscal 1992 and two in fiscal 1993 affected the net change in revenues
markedly. Gross revenues attributable to these seven hotels reflected a net
decrease in gross revenues of $5.6 million. Gross revenues of the twenty-eight
hotels remaining in the system at the end of fiscal 1993 reflected an increase
in gross revenue of $2.9 million.
Following is a table comparing room revenues, relative occupancy levels and
average daily room rates (ADR) of the twenty-eight hotels remaining in the
system at fiscal year end:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Room revenue $ 69,447,000 $65,720,000
Occupancy 52.17% 50.59%
ADR $52.11 $50.78
</TABLE>
Additionally, gross revenues of the car wash units declined by $3.5 million due
to sales and closings of units in 1992. Seventeen units were in operation at
the beginning of the year while only seven were in operation at the close of the
year. In fiscal 1993 five of the units were sold in early December, 1992 and one
was closed during the year. Only one unit is in current operation.
12
<PAGE>
Item 7 (cont.)
OPERATING COSTS AND EXPENSES - total operating costs and expenses decreased by
$8.9 million in fiscal 1993 as compared with fiscal 1992. The reduction of
operating costs and expenses attributable to the seven hotels which were
disposed of was $6.9 million. Additionally, operating costs and expenses of the
car washes decreased by $3.4 million.
INTEREST EXPENSE - while the net change in interest expense for fiscal 1993 was
an increase of only $143,000, two factors are worthy of note in this comparison.
Interest expense attributable to the seven hotels which were disposed of
reflected a decrease of $1.1 million. In 1992 there was a $1.8 million credit
for interest forbearance in the renewal of $42.3 million in first mortgage debt.
GAIN (LOSS) ON DISPOSITION OF ASSETS - a gain of $1.2 million was recognized on
the sale of a hotel in Houston. A deferred gain of $.2 million was recognized
when the purchaser of a hotel during fiscal 1992 prepaid the outstanding
purchase money note. A loss of $.2 million was recorded upon the termination of
a lease on a hotel in Dallas.
PROVISION FOR INCOME TAXES - the effective tax rate for 1993 was a net credit of
34.5% resulting principally from recognition of Federal income tax benefits in
1993 through the elimination of net deferred tax credits. A detailed
reconciliation of the effective tax rate with statutory rates is set out in
Note 2 of Notes to Consolidated Financial Statements.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
United Inns, Inc.
Memphis, Tennessee
We have audited the accompanying consolidated balance sheets of United Inns,
Inc., and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of income and stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and 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 financial position of United Inns,
Inc. and subsidiaries as of September 30, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended September 30, 1994 in conformity with generally accepted
accounting principles.
FRAZEE, TATE & ASSOCIATES
/s/ Frazee, Tate & Associates
Memphis, Tennessee
December 8, 1994
14
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,984,467 $ 4,095,215
Current portion of long-term receivables 1,022,664 1,072,113
Accounts receivable - net of allowance
for bad debts of $120,174 in 1994 and
$78,835 in 1993
Trade 2,946,509 2,593,459
Other 539,459 1,085,197
Inventories (Note 1) 842,770 886,483
Prepaid expenses 6,538,167 6,084,713
------------ ------------
Total current assets 19,874,036 15,817,180
------------ ------------
INVESTMENTS (Note 1)
Long-term receivables less
current maturities 258,103 313,424
Land not in use - at cost 8,018,648 8,907,151
Other investments 10,000 10,000
------------ ------------
8,286,751 9,230,575
------------ ------------
PROPERTY AND EQUIPMENT - at cost (Notes 1 and 3)
Land 12,361,729 13,696,986
Buildings and improvements 136,461,189 154,266,283
Furnishings and equipment 26,822,381 30,508,425
Leased property under capital leases (Note 4) 2,891,392 4,608,045
------------ ------------
178,536,691 203,079,739
Less accumulated depreciation 85,879,095 91,457,432
------------ ------------
92,657,596 111,622,307
Construction in progress 1,212,736 575,851
Property held for sale 1,968,472 4,107,880
------------ ------------
95,838,804 116,306,038
------------ ------------
OTHER ASSETS (Note 1)
Franchises 534,085 674,143
Deposits and prepaid expenses 1,379,296 1,590,596
Restricted cash 3,112,803 3,114,320
------------ ------------
5,026,184 5,379,059
------------ ------------
$129,025,775 $146,732,852
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Item 8 (cont.)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
CURRENT LIABILITIES
<S> <C> <C>
Long-term debt due within one year $ 2,439,311 $ 3,243,325
Note payable 258,103 261,160
Accounts payable 2,242,810 2,418,739
Sales and occupancy taxes 1,208,706 1,211,561
Accrued expenses:
Payroll and payroll taxes 1,689,162 1,421,127
Rent and property taxes 2,149,927 2,706,849
Insurance 3,541,341 3,281,682
Interest and other 2,368,243 2,183,724
Income taxes payable (Notes 1 & 2) 1,100,338 219,802
------------ ------------
Total current liabilities 16,997,941 16,947,969
------------ ------------
LONG-TERM DEBT (Note 3)
First mortgages 91,699,684 102,926,861
Capitalized lease obligations 53,892 542,121
Chattel mortgages 1,799,666 625,934
Installment loans and other 305,170 313,692
------------ ------------
93,858,412 104,408,608
Less amounts due within one year 2,439,311 3,243,325
------------ ------------
91,419,101 101,165,283
------------ ------------
MINORITY INTEREST 523,490 517,096
------------ ------------
DEFERRED OTHER 949,466 1,410,978
------------ ------------
DEFERRED INCOME TAXES (Notes 1 and 2) 3,565,052 5,721,882
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 6)
STOCKHOLDERS' EQUITY
Common stock - $1 par value -
authorized 10,000,000 shares -
issued 4,117,813 shares 4,117,813 4,117,813
Paid-in capital 14,613,138 14,613,138
Retained earnings 40,057,754 46,327,055
------------ ------------
58,788,705 65,058,006
Less treasury shares at cost - 1,451,914 in 1994
and 1,476,904 in 1993 43,217,980 44,088,362
------------ ------------
Total stockholders' equity 15,570,725 20,969,644
------------ ------------
$129,025,775 $146,732,852
------------ ------------
------------ ------------
</TABLE>
16
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Rooms $ 72,403,178 $ 70,772,351 $ 71,322,112
Restaurants 14,924,087 15,999,888 17,856,821
Car washes 886,714 1,516,848 5,054,354
Telephone and sundry 4,916,338 4,633,732 4,927,705
------------ ------------ ------------
93,130,317 92,922,819 99,160,992
------------ ------------ ------------
Operating costs and expenses:
Direct:
Rooms 46,300,258 47,347,003 49,387,399
Restaurants 14,916,698 16,069,407 18,093,393
Car washes 944,397 1,654,204 4,456,532
Telephone and sundry 1,724,643 1,929,668 2,093,579
Marketing, administrative and general 10,503,853 9,388,355 10,345,753
Depreciation 9,078,070 9,030,861 9,938,793
------------ ------------ ------------
83,467,919 85,419,498 94,315,449
------------ ------------ ------------
Operating income 9,662,398 7,503,321 4,845,543
Interest expense (net of capitalized
interest) (10,117,188) (9,946,202) (9,802,783)
Minority interest (81,394) (53,932) (38,636)
Gain (loss) on disposition of assets (6,266,287) 1,250,732 (3,633,571)
Loss contingency 387,839
------------ ------------ ------------
Income (loss) before income taxes (6,802,471) (1,246,081) (8,241,608)
Income taxes (credit) (1,297,420) (429,604) (3,290,512)
------------ ------------ ------------
Income (loss) before extraordinary item (5,505,051) (816,477) (4,951,096)
Extraordinary item-gain on settlement
of debt (net of income taxes of
$1,092,511) 1,906,834
------------ ------------ ------------
Net income (loss) $ (5,505,051) $ (816,477) $ (3,044,262)
------------ ------------ ------------
------------ ------------ ------------
Earnings per common share
Income (loss) before extraordinary
item ($2.08) ($0.31) ($1.87)
Income (loss) from extraordinary item 0.00 0.00 0.72
------------ ------------ ------------
Net income (loss) ($2.08) ($0.31) ($1.15)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares
of common stock 2,644,259 2,640,909 2,640,942
------------ ------------ ------------
------------ ------------ ------------
Cash dividends per share $0.00 $0.00 $0.00
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN RETAINED TREASURY
--------------------
SHARES AMOUNT CAPITAL EARNINGS STOCK
------ ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance September 30,
1991 4,117,813 $4,117,813 $14,613,138 $50,187,794 $(44,088,110)
Purchase of 70
treasury shares (252)
Net loss for year (3,044,262)
--------- -------- ----------- ----------- -----------
Balance September 30,
1992 4,117,813 4,117,813 14,613,138 47,143,532 (44,088,362)
Net loss for year (816,477)
--------- --------- ---------- ----------- -----------
Balance September 30,
1993 4,117,813 4,117,813 14,613,138 46,327,055 (44,088,362)
Purchase of 10
treasury shares (118)
Reissue of 25,000
treasury shares (764,250) 870,500
Net loss for year (5,505,051)
--------- --------- ----------- ----------- -----------
Balance September 30,
1994 4,117,813 $4,117,813 $14,613,138 $40,057,754 $(43,217,980)
--------- ---------- ----------- ----------- ------------
--------- ---------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(5,505,051) $ (816,477) $ (3,044,262)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 9,585,072 9,476,776 10,173,167
Loss (gain) from properties
sold 6,170,581 (1,250,732) 246,386
Deferred income taxes (2,156,830) (728,751) (2,561,308)
Minority interest 6,394 3,932 3,636
Debt reduction (433,411)
Non-cash compensation 106,250
Changes to operating assets and
liabilities:
Accounts receivable 192,688 260,134 (294,709)
Inventories 20,374 110,346 274,421
Prepaid expenses (456,511) (667,787) (743,961)
Accounts payable (146,054) 74,420 (726,816)
Accrued expenses 285,005 (1,158,771) 579,402
Income taxes payable 880,536 (72,733) 195,263
------------ ------------- -------------
Net cash provided by operating activities 8,549,043 5,230,357 4,101,219
------------ ------------- -------------
INVESTING ACTIVITIES
Payments on settlement on car wash
assets (1,200,000)
Purchase of property, plant and
equipment (2,973,856) (4,437,071) (2,980,300)
Proceeds from sales of fixed assets 2,867,311 3,233,854 5,208,873
Payments received on notes
receivable 54,770 504,274 26,598
Other investing activities (1,117,683) (1,136,277) (1,606,767)
------------ ------------- -------------
Net cash used for investing activities (1,169,458) (1,835,220) (551,596)
------------ ------------- -------------
FINANCING ACTIVITIES
Proceeds from long-term borrowings 2,000,000
Payments on long-term debt (3,454,316) (3,214,299) (4,455,184)
Purchase of treasury shares (118) (252)
Other financing activities (35,899) (2,000) 187,660
------------ ------------- -------------
Net cash used for financing activities (3,490,333) (3,216,299) (2,267,776)
------------ ------------- -------------
Increase in cash and cash equivalents 3,889,252 178,838 1,281,847
Cash and cash equivalents at beginning
of year 4,095,215 3,916,377 2,634,530
------------ ------------- -------------
Cash and cash equivalents at end of year $ 7,984,467 $ 4,095,215 $ 3,916,377
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest, net of amounts
capitalized $9,666,258 $ 9,981,680 $ 8,168,690
Income taxes 383,764 368,120 198,422
Supplemental schedule of non-cash
investing and financing activities:
Debt to acquire property, plant and
equipment 1,447,213 879,793
Restricted cash used to purchase
property, plant and equipment 1,078,145 1,369,863 512,401
Acquisition (revaluation)
of car wash assets (1,168,774)
Debt to acquire partnership interest 1,698,693
Note received in exchange for
property 300,000 1,000,000
Property disposition under debt
settlement agreement 15,818,650
Other property dispositions 1,951,899
Debt reduction 433,411
Debt payment from fixed asset
sales proceeds 8,572,654
Compensation paid with treasury
stock 106,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the results of operations,
account balances and cash flows of the Company, its wholly-owned
subsidiaries, and a 75% owned subsidiary. During 1992 a 50% owned joint
venture which was previously consolidated was acquired in full. All
material intercompany transactions and accounts have been eliminated in
consolidation.
RECLASSIFICATIONS
The consolidated financial statements for prior years reflect certain
reclassifications as the result of a Securities and Exchange Commission
review. The SEC believes it more appropriate to classify the operations and
property sales of the Company's car wash division as continuing operations
rather than discontinued operations as previously reported. From 1990
through the present year, the Company has been in the process of selling
car wash properties and withdrawing from the car wash business. At present
the Company has disposed of or closed all locations except for one
operating unit under a lease expiring October 31, 1995. Certain other
reclassifications have been made to prior years to conform with income and
expense classifications adopted in the year ended September 30, 1993. These
reclassifications have no effect on net income (loss) or stockholders'
equity as previously reported.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company
places its temporary cash investments with high credit quality financial
institutions. At times such investments may be in excess of the FDIC
insurance limit.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out method.
INVESTMENTS
Classified as land not in use are various parcels of land held for possible
future development or sale. This cost is not in excess of net realizable
value.
PROPERTY HELD FOR SALE
Properties classified as current have an approved contract to sell or were
sold before issuance of the financial statements. Noncurrent properties are
either operating properties that management is actively seeking to sell or
idle properties which are no longer operating. Both current and noncurrent
are stated at the lower of cost or estimated net realizable value.
21
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are depreciated on the straight line method over the
estimated useful life of the property. The cost of replacements and
improvements are capitalized. Estimated useful lives utilized for
computation of depreciation on property and equipment are as follows:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements 10 to 40 years
Furnishings and equipment 3 to 10 years
Capitalized leases 25 years
</TABLE>
Interest costs of $76,359 for 1992 were capitalized on major renovation
projects. No interest was capitalized for 1994 or 1993.
OTHER ASSETS
Franchise costs, deferred mortgage, loan and other expenses exclusive of
security deposits are recorded at cost and amortized on a straight line
basis over the terms of the related agreements. These are presented net of
accumulated amortization of $2,400,280 and $2,209,108 at September 30, 1994
and 1993 respectively. Restricted cash is held for capital improvements on
six of the Company's properties.
EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of
shares outstanding during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable from
stock options.
SELF INSURANCE
The Company is self insured for various levels of general liability,
worker's compensation and employee medical coverages. Accrued insurance
includes the accrual of estimated settlements from known and anticipated
claims.
INCOME TAXES
Effective October 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method of Accounting Principles Board
Opinion No. 11 to the asset and liability method required by Statement of
Financial Accounting Standards No. 109. Prior year financial statements
were not restated. The cumulative effect of adopting this accounting
statement was immaterial. The effect of the adoption on income before
income taxes was not significant.
22
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FEDERAL AND STATE INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income
taxes and benefits are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes.
The statutory federal income tax rate and the effective tax rate are
reconciled below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory tax rate (34.0%) (34.0%) (34.0%)
Increases (decreases) in tax resulting from:
New jobs credit (0.5)
Change in valuation allowance 5.9
State taxes net of U. S. federal benefit 5.9 4.7 0.3
Minimum tax 0.6 2.7 2.6
Other 2.5 (7.9) (10.3)
------ ------ ------
Effective tax rate (19.1%) (34.5%) (41.9%)
------ ------ ------
------ ------ ------
The income tax provision (benefit) consists of:
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Current - Federal $ 172,418 $ 194,565 $ 233,386
- State 686,992 104,578 133,437
---------- ---------- ----------
859,410 299,143 366,823
---------- ---------- ----------
Deferred - Federal (2,076,422) (713,094) (2,454,957)
- State (80,408) (15,653) (109,867)
---------- ---------- ----------
(2,156,830) (728,747) (2,564,824)
---------- ---------- ----------
$(1,297,420) $ (429,604) $(2,198,001)
----------- ---------- -----------
----------- ---------- -----------
<CAPTION>
Income tax expense for fiscal 1992 consists of ($3,290,512) on loss from
operations and $1,092,511 on the extraordinary item.
The deferred tax provisions are summarized below:
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Accelerated depreciation $(2,312,226) $ (309,752) $(3,136,146)
Capitalized interest and taxes (721,953) (8,894) (848,489)
Capitalized leases 115,473 193,075 101,171
Change in valuation allowance 401,264
Utilization of NOL carryforwards 411,295
Other (50,683) (25,435) (447)
Reinstatement (elimination)
of net deferred tax credits (577,741) 1,319,087
------------ ------------ ------------
$(2,156,830) $ (728,747) $(2,564,824)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
23
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FEDERAL AND STATE INCOME TAXES (Continued)
For Federal tax reporting purposes, net operating losses of $20,047,975 and
tax credits of $657,020 are available to be carried to future periods
expiring in fiscal years 2002 through 2008. A valuation allowance of
$3,441,517 at September 30, 1994, has been recognized to offset the
deferred tax assets related to these items.
Following is a summary of the significant components of the Company's
deferred tax assets and (liabilities):
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
1994 1993
------------ -------------
<S> <C> <C>
Depreciation $(8,271,596) $(11,305,775)
Other (261,652) (255,223)
------------ -------------
Gross deferred tax liabilities (8,533,248) (11,560,998)
------------ -------------
Tax credit and net operating loss
carryforwards 7,739,388 8,150,682
Vacation 293,217 283,566
Other 377,108 445,121
------------ -------------
Gross deferred tax assets 8,409,713 8,879,369
------------ -------------
Valuation allowance (3,441,517) (3,040,253)
------------ -------------
Net deferred tax liability $(3,565,052) $ (5,721,882)
------------ -------------
------------ -------------
</TABLE>
The Company is presently under examination by a state revenue department.
The Company has determined and provided for an estimated liability. It is
expected that resolution of this matter will be lengthy and may require
litigation.
3. LONG-TERM DEBT
The range of interest rates and maturities of the long-term debt at
September 30, 1994, are summarized below:
First mortgages - 7.25% to prime + 2%, due 1995 to 2007
Capitalized lease - 10.5%, due 1995
Chattel mortgages - 11% to 12.77%, due 1995 to 1999
Installment loans and others - 6.5% to 10%, due 1995 to 2000
Long-term debt including capitalized leases matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993
---------- -----------
<S> <C> <C>
1994 $ $ 3,243,325
1995 2,439,311 10,353,060
1996 37,800,961 38,205,212
1997 34,426,711 40,722,026
1998 2,255,366 1,798,862
1999 1,561,204
Subsequent 15,374,859 10,086,123
----------- ------------
$93,858,412 $104,408,608
----------- ------------
----------- ------------
</TABLE>
24
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT (Continued)
The major portion of the Company's property and equipment is pledged as
collateral on mortgage and lease obligations. The Company is guarantor of
the major portion of the debt of its subsidiaries.
Under terms of a debt renewal agreement completed on December 22, 1992,
with one of its major lenders, the Company refinanced $42,269,013 of debt,
on which the Company gave an unlimited guarantee for a period of one year.
Stock of a Company subsidiary is pledged for the debt. The lender retained
a first mortgage on previously secured assets and obtained a second
mortgage on additional property which was owned by the Company's
subsidiary. The agreement contains certain covenants including
limitations on dividend distributions and fixed charge ratios of a
subsidiary. The debt matures September 30, 1997.
The Company has failed to meet the minimum cash flow coverage ratio on one
of its loans. If such failure continues through December 31, 1994, the
lender may, at their option, declare the Company to be in default under
the loan agreement, and the accrued incentive management fee may not be
paid for that period. Subsequent management fees would then be required to
be paid to the lender and applied to principal reduction. The balance on
this loan at September 30, 1994, is $1,725,000 and this is included as
noncurrent.
4. LEASES
The Company is obligated under long-term leases primarily for the lease of
various hotel properties and equipment. In addition to specified minimum
annual rentals, some of the leases provide for contingent rentals based on
percentages of revenue; most require payment by the lessee of property
taxes, insurance and maintenance. The leases extend for varying periods;
some contain renewal options. Rentals to be received from noncancelable
subleases are not material. The Company's property held under capital
leases, included in property, plant, and equipment in the balance sheet,
consists of real estate of $2,891,392 in 1994 and $4,608,045 in 1993.
Accumulated depreciation was $2,872,121 in 1994 and $4,404,447 in 1993.
Lease payments included in the accompanying consolidated statements of
income were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Capital Leases:
Minimum $ 522,100 $ 633,655 $ 656,488
Contingent 355,707 515,914 633,266
----------- ---------- ----------
877,807 1,149,569 1,289,754
----------- ---------- ----------
Operating Leases:
Minimum 897,898 1,053,342 1,313,731
Contingent 768,375 641,842 493,975
----------- ---------- ----------
1,666,273 1,695,184 1,807,706
----------- ---------- ----------
$2,544,080 $2,844,753 $3,097,460
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
25
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LEASES (Continued)
The future minimum rental commitments for all noncancelable leases at
September 30, 1994, are summarized below:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
---------- ----------
<S> <C> <C>
1995 $ 54,600 $ 304,174
1996 34,849
1997 33,889
1998 33,889
1999 33,889
Subsequent years 1,773,316
---------- ----------
Total minimum rentals 54,600 $2,214,006
Less interest portion 708
---------- ----------
----------
Present value of net minimum rentals $ 53,892
----------
----------
</TABLE>
The interest rate on the capital lease is 10.5%; this rate was used in
computing the present value.
5. PENSION, POSTEMPLOYMENT AND BONUS PLANS
The Company's 1993 Stock Incentive Plan for key employees and directors
provides for the issuance of stock options at not less than fair market
value on the date of grant. Options are exercisable from one to five years
after the grant date. No options may be granted after October 1, 2003. At
September 30, 1994, 296,000 shares were available for the granting of
additional options. The Company issues treasury shares to fulfill its
obligations under the stock option plans.
Transactions since inception are summarized as follows:
<TABLE>
<CAPTION>
Fair Market
Value at
Number of Date of
Shares Grant
--------- -----------
<S> <C> <C>
Options granted 4,000 $ 12.875
--------- -----------
Outstanding at September 30, 1994 4,000 $ 12.875
--------- -----------
--------- -----------
</TABLE>
The Company granted 25,000 shares and an option for 35,000 shares to a
consultant outside of the plan in 1993. The fair market value of $4.25 per
share at contract date was used to measure consulting expense of $106,250
and the exercise price of the option. The 35,000 share option is
exercisable up to 1999.
The Company adopted in 1994 a severance pay policy concerning termination
of employment due to elimination of an employee's position as a result of a
reduction in force, merger with another entity, sale of Company assets or
other similar events. The Company pays for unused vacation plus severance
pay based on years of service.
26
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PENSION, POSTEMPLOYMENT AND BONUS PLANS (Continued)
The Company has an executive bonus plan which covers full time executive
officers of the Company. The plan provides for a distribution of 1% to 3%
of consolidated income before taxes and unusual items. No amounts were
approved for distribution in 1994, 1993 or 1992.
Effective January, 1992, the Company adopted a Retirement Savings 401(k)
Plan. The plan is available to all employees with one year of service who
are not covered by a collective bargaining agreement and who have attained
age 21. The Company deposits elective deferral contributions which have
been withheld from employee compensation. The Company may also make a
discretionary contribution in such amount it deems advisable. No
discretionary contributions have been made by the Company. In addition, the
Company matches a portion of the employee contribution up to 4% of their
annual earnings. The Company contribution was $292,926 for 1994, $287,923
for 1993 and $178,635 for 1992. All contributions to the Plan, other than
discretionary contributions, are 100% non-forfeitable.
6. COMMITMENTS AND CONTINGENCIES
Under the terms of the Holiday Inn, Hampton Inn, Ramada, Howard Johnson,
Super 8 and Days Inn franchises, the Company is committed to make annual
payments for franchise fees, reservation service, and advertising. The
amounts due under the agreements were $5,896,426 for 1994, $5,735,441 for
1993, and $5,757,912 for 1992.
There are a number of guest and customer claims, employee wage claims, and
other disputed amounts outstanding against the Company, all of which
occurred in the ordinary course of business. Counsel has advised that there
is no material exposure to the Company in these matters.
27
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. (UNAUDITED) QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the (unaudited) quarterly results of
operations for the years ended September 30, 1994, and September 30, 1993:
<TABLE>
<CAPTION>
QUARTERS
------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
Revenues $20,369,965 $23,424,110 $23,998,310 $25,337,932
----------- ----------- ----------- -----------
Net income (loss) $(1,295,334) $ 585,388 $(4,235,847) $ (559,258)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share $ (0.49) $ 0.22 $ (1.60) $ (0.21)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1993
Revenues $21,400,817 $22,881,441 $24,400,817 $24,239,744
----------- ----------- ----------- -----------
Net income (loss) $(1,909,569) $ 563,693 $ (63,724) $ 593,123
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share $ (0.72) $ 0.21 $ (0.02) $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
8. SEGMENT INFORMATION
The Company has one primary business segment, the operation of hotel
properties. This segment represents more than 90% of consolidated revenue,
operating profit and identifiable assets. All revenues were derived from
domestic operations. There are no major customers and no government
contracts.
28
<PAGE>
Item 8 (cont.)
UNITED INNS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. GAIN (LOSS) FROM ASSET DISPOSITIONS
Loss from disposition in 1994 includes a $6,599,719 loss on sale of an
operating hotel and a loss of $548,407 on sale of a closed hotel. Gains of
$774,597 and $110,969 were recognized on the sales of an unimproved tract
of land and a former car wash unit.
Gain on asset dispositions in 1993 include gain of $1,257,943 on the sale
of one property, recognition of a deferred gain of $183,927 on a property
sold in 1992 and a loss of $191,138 on termination of a lease.
Included in 1992 property dispositions were the sale of two operating
properties for a net gain of $482,378, the demolition and write off of a
closed hotel for a loss of $1,187,963, and a loss of $431,454, resulting
from the exercise of a purchase option for the joint venture partner's 50%
interest in a hotel. Additionally the termination of a lease on an
operating property resulted in a loss of $464,467. A $2,029,865 loss
resulting from the sale and write down of car wash properties was also
recognized in 1992.
10. DEBT EXTINGUISHMENT AND LOSS CONTINGENCY
In March, 1992, a conveyance was made of two hotels to the mortgage holder,
resulting in a debt deficiency of $4,200,000. This deficiency was settled
for a cash payment of $1,200,000 resulting in a net of tax gain of
$1,906,834 on the debt settlement. An estimated loss contingency of
$1,718,279 recorded in 1991 on the property conveyance was settled at
$1,330,440 in March, 1992, resulting in a loss recovery credit of $387,839.
11. SUBSEQUENT EVENTS
On November 14, 1994, the Company entered into a merger agreement with the
United/Harvey Holdings, L.P. (purchaser) whereby the purchaser has tendered
an offer to acquire all of the outstanding shares of the Company at $25 per
share. At November 14, 1994, the Company had 2,665,899 shares issued and
outstanding and 39,000 shares subject to outstanding options. Under the
merger agreement, the Company along with Harvey Hotels, an operator of
eight hotels, will become wholly owned subsidiaries of United/Harvey, a
wholly owned subsidiary of the purchaser.
29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure.
PART III
ITEM 10. DIRECTOR AND EXECUTIVE OFFICERS' OF THE REGISTRANT.
<TABLE>
<CAPTION>
Name Age Since Position
- ---- --- ----- --------
<S> <C> <C> <C>
Don Wm. Cockroft 56 1967 President and Chief Executive
(brother of Officer and Director
Robert L. Cockroft
and Janet C. Virgin,
brother-in-law of
J. Howard Lammons)
(a)
J. Howard Lammons 65 1957 Director
(brother-in-law of Private investor. Advisory
Don Wm. Cockroft Director, Memphis NationsBank
Robert L. Cockroft, of TN.
and Janet C. Virgin)
(a)
Robert L. Cockroft 53 1971 Director
(brother of Don Wm. Physician-Memphis
Cockroft and Janet C. Radiological Professional
Virgin, brother-in-law Corporation -
of J. Howard Lammons) Practitioner of
(c) Medicine.
Howard W. Loveless 67 1977 Director
(b) and (c) Private consultant.
Janet C. Virgin 60 1991 Director
(sister of Don Wm. Private Investor
Cockroft and Robert L.
Cockroft; sister-in-law
of J. Howard Lammons)
(a)
Ronald J. Wareham 50 1993 Director
(a), (b) and (c) President - R. J. Wareham
& Company Incorporated, a
corporate financial
advisory firm.
Augustus B. Randle, III 54 Secretary and General
Counsel
J. Don Miller 59 Vice President - Finance
John M. Dollar 53 Vice President
<FN>
(a) Member of the Executive Committee of the Board.
(b) Member of the Audit Committee of the Board.
(c) Member of the Compensation Committee of the Board.
</TABLE>
The above directors and executive officers have had the principal
occupations set forth above for at least five years, except for Mr. Wareham, Mr.
Lammons and Mr. Loveless. Mr. Wareham has been President of R. J. Wareham &
Company, Incorporated, a corporate financial advisory firm since 1991. From
30
<PAGE>
1984 to 1991, he was a managing director of Dean Witter Reynolds' Corporate
Finance Office in Atlanta, Georgia. Mr. Lammons has been principally involved
in private investment activities since his retirement from the Company in
March 1994. Prior to his retirement, Mr. Lammons served as Executive
Vice-President of the Company since 1978. Mr. Loveless has been principally
involved in private consulting activities since January 1, 1994. Prior to that
date and for over five years prior thereto, Mr. Loveless served as President of
Haas, Inc., a private investment advisory company.
It is contemplated that, upon the purchase of Shares by the Purchaser pursuant
to the Offer, that the Company's Board of Directors will be reconstituted in
its entirety to consist solely of Purchaser's designees. Information regarding
such Purchaser designees is contained under the caption "Individuals Designated
by Purchaser As Purchaser Designees" found in Annex A to the Schedule 14D-9,
which information is incorporated by reference herein.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and its other most highly
compensated executive officer, whose total annual salary and bonus for the
Company's 1994 fiscal year exceeded $100,000, for services rendered in all
capacities during the fiscal years ended September 30, 1994, 1993 and 1992.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
All Other
Fiscal Salary Compensation
Name and Principal Position Year ($)(2) ($)(1)(3)
--------------------------- ---- ------ ---------
<S> <C> <C> <C>
Don Wm. Cockroft 1994 233,250 11,174
President and Chief Executive 1993 216,000 169,262
Officer 1992 216,000
John M. Dollar 1994 117,167 8,272
Vice President 1993 113,000 47,191
1992 113,000
<FN>
(1) In accordance with transitional provisions of the rules of the
Securities and Exchange Commission (the "SEC") on executive
compensation disclosure, amounts of All Other Compensation have not
been included for fiscal year 1992.
(2) Salary includes base salary earned and paid in cash during the fiscal
year and the amount of base salary deferred at the election of the
executive officer under the United Inns, Inc. Retirement Savings Plan
(401(K) Plan) for fiscal years 1992, 1993, and 1994.
(3) All Other Compensation consists of (a) the amount ($3,585) in
insurance premiums provided to each executive officer through the
Company's Group Health Insurance Plan that is not available generally
to all salaried employees, and (b) matching contributions to the
United Inns, Inc. Retirement Savings Plan (401(K) Plan); Such amounts,
respectively were as follows for 1994: Mr. Cockroft, $7,589; and Mr.
Dollar, $4,687.
</TABLE>
CHANGE IN CONTROL CONTRACTS
On June 1, 1987, the Company entered into a severance agreement with Mr.
John M. Dollar. Under this agreement, Mr. Dollar would be entitled to
severance compensation in the event that his employment is terminated following
a change in control of the Company. The amount of compensation would be equal
to a maximum of 200% of his base compensation for the twelve months prior to
his termination plus an additional amount for benefits. The maximum amount
of compensation which would be payable to Mr. Dollar, if his employment was
terminated, as of November 14, 1994, would be $236,000 plus an additional amount
for benefits.
Additionally, on June 1, 1987 the Company has entered into Severance
Agreements with two other executive officers of the Company. Under the
agreements, Mr. Augustus B. Randle, III and Mr. J. Don Miller are entitled to
severance compensation in the event that their employment is terminated
following a change in control of the Company. Reference is made to the Schedule
14D-9, Item 3(b)(vi) "Severance Agreements" which sets forth in greater detail
the terms of these agreements.
COMPENSATION OF DIRECTORS
For fiscal year 1994 all directors are to be paid a fee of $750 for each
Board meeting attended. In addition, directors who are not employees of the
Company are to be paid a quarterly fee of $1,500, plus $400 for each Board
Committee meeting attended.
The Company has a consulting arrangement with R. J. Wareham & Company,
Incorporated ("Wareham & Co."), under the terms of which Wareham & Co. is to be
paid by the Company for Ronald J. Wareham's time and expenses for financial
advice to the Company related to a variety of corporate projects. Mr. Wareham
is the sole shareholder of Warehem & Co. The Company has made payments in the
aggregate amount of $26,450 to Wareham & Co., during the Company's fiscal year
ended September 30, 1994.
32
<PAGE>
The Company's 1993 Stock Incentive Plan provides that each director who is
not also an employee of the Company and who is incumbent at the date of each of
the five consecutive annual meetings of stockholders beginning with the
Company's 1994 annual meeting of stockholders shall automatically be granted,
immediately after the conclusion of each such annual meeting, an option to
purchase 1,000 shares of Common Stock. In connection with the Company's 1994
annual meeting of shareholders held on February 11, 1994, pursuant to the
Company's 1993 Stock Incentive Plan the Company granted to each of Robert L.
Cockroft, Howard W. Loveless, Janet C. Virgin and Ronald J. Wareham, an option
to purchase up to 1,000 shares of Common Stock at an exercise price of $12.87
per share of Common Stock.
EXECUTIVE BONUS PLAN
The Company has an executive bonus plan under which individual
discretionary awards can be made to the full-time executive officers of the
Company. The sum to be distributed ranges from 1% to 3% of the consolidated net
income of the Company before income taxes. No cash amounts have been paid under
such plan since the fiscal year ended September 30, 1985.
LONG-TERM INCENTIVES
Stock options are authorized to be granted as long-term incentives to
certain key employees of the Company, including executive officers, under the
Company's 1993 Stock Incentive Plan (the "1993 Plan"). Under the terms of this
plan, the Company may grant options to key employees (determined by the
Compensation Committee) to purchase such number of shares of the Common Stock of
the Company as is determined by the Compensation Committee.
The number of shares for which options will be granted to executive
officers will be determined by the Compensation Committee based upon
performance, potential and other subjective factors. However, no set criteria
will be used and other factors may influence the Compensation Committee's
determination with respect to the number of shares granted, such as the
promotion of an individual to a higher position, a desire to retain a valued
executive or the number of shares then available for grant under 1993 Plan. The
stock option holdings of an individual at the time of a grant will not generally
be considered in determining the size of a grant to that individual.
EMPLOYEE BENEFIT PLANS
The material which follows in this section describes the provisions of
employee benefit plans now in effect, or in effect during the Company's last
fiscal year, other than group life and accident insurance, group hospitalization
and other similar group payments and benefits, in which some or all of the
employees of the Company participate.
1993 STOCK INCENTIVE PLAN
On November 19, 1993, the Company's Board of Directors adopted the 1993
Plan, which was approved by the Company's stockholders at the Company's annual
meeting of stockholders held on February 11, 1994 (the "1994 Annual Meeting").
The 1993 Plan provides for the granting of options to purchase for cash an
aggregate of not more than 300,000 shares of Common Stock. Such options may be
granted to key employees, including officers of the Company and its
subsidiaries, as may be designated by the Compensation Committee of the Board.
At November 14, 1994, the Company had granted an aggregate of 4,000 options to
non-employee directors of the Company at an exercise price of $12.87 per share
of Common Stock.
Under the terms of the 1993 Plan, the Compensation Committee may from time
to time grant options to key employees to purchase Common Stock at a price which
may not be less than the fair market value of the shares, as determined by the
mean between the high and low prices of the stock on the New York Stock Exchange
on the date the option is granted. In addition, the 1993 Plan provides that
each director who is not also an employee of the Company and who is an incumbent
at the date of each of the five consecutive annual meetings of stockholders
beginning with the 1994 Annual Meeting shall automatically be granted,
immediately after the conclusions of each such annual meeting, an option to
purchase 1,000 Shares. Each person who is not also an employee of the Company
and who is elected or appointed a director during such five-year period other
than at an annual meeting shall, upon such election or appointment, be granted
an option to purchase 1,000 shares of Common Stock. The exercise price of
options granted to directors under the 1993 Plan must be equal to the mean
between the high and low prices of the stock on the New York Stock Exchange on
the date of grant of the option and the right to exercise such options will vest
one year from the date of the grant, if not earlier upon the occurrence of
certain specified events as described below.
33
<PAGE>
Options may not be exercised later than five years after the date of grant.
Subject to the limitations imposed by the provisions of the Internal Revenue
Code, certain of the options granted under the 1993 Plan to key employees may be
designated "incentive stock options." The Company may make interest-free demand
loans to holders of options not designated as incentive stock options for the
purpose of exercising such options and paying any tax liability associated with
such exercise.
Except as provided herein, no option may be exercised until the optionee
has completed one year of service after the option is granted, except in the
case of termination of an employee's employment or a director's directorship
because of death or disability, nor may an option be exercised after termination
of an employee's employment or a director's directorship for any reason other
than death, disability, retirement or for cause. Options may be exercised
within twelve months (a) after the
optionee retires, (b) after termination of an employee's employment or a
director's directorship on account of permanent disability, or (c) after death
when in the service of the Company or any of its subsidiaries. Options may also
be exercised within three months after termination of an employee's employment
or director's directorship if termination is for reasons other than death,
disability or retirement so long as such termination is not for cause, as
determined by the Compensation Committee. If termination is for cause, all
unexercised options of optionee terminated for cause shall immediately terminate
and be of no further force or effect. In the event of death within the twelve-
month period following termination of an employee's employment or a director's
directorship for retirement or permanent disability, options may be exercised by
the optionee's legal representative within twelve months following the date of
death. However, under no circumstances may an option be exercised after the
expiration of the stated period of the option.
No cash consideration is paid for the granting of the options. Payment in
full of the option price must be made upon exercise of any option.
The 1993 Plan provides for the use of treasury shares.
No options or awards may be granted under the 1993 Plan after October 1,
2003, but options or awards granted prior to October 1, 2003, may extend beyond
that date. The 1993 Plan may be discontinued by the Company's Board of
Directors, but no termination may impair options or awards granted prior hereto.
Upon the occurrence of a Change in Control (as defined in the 1993 Plan) of
the Company, each holder of an unexpired option under the 1993 Plan will have
the right to exercise the option in whole or in part without regard to the date
that such option would be first exercisable, except no option may be exercised
less than six months from the date of grant, and such right will continue, with
respect to any such holder whose employment with the Company or subsidiary or
whose directorship terminates following a change in control, for a period ending
on the earlier of the date of expiration of such option or the date which is
twelve months after such termination of employment or directorship.
The Compensation Committee may alter or amend the 1993 Plan at any time.
No amendment by the Compensation Committee, however, may increase the total
number of shares reserved for purposes of the 1993 Plan, reduce the option price
to an amount less than the fair market value at the time the option was granted,
extend the duration of the 1993 Plan or modify the provision for the automatic
grant of options to directors, unless such amendment is approved by the
stockholders. No amendment or alteration may impair the rights of optionees
with respect to options theretofore granted, except the Compensation Committee
may revoke and cancel any outstanding options which, in the aggregate, would
create a significant adverse effect on the Company's financial statement in the
event that the Financial Accounting Standards Board issues a statement requiring
an accounting treatment which causes such adverse effect with respect to options
then outstanding. The Compensation Committee has the power to interpret the
1993 Plan and to make all other determinations necessary or advisable for its
administration.
34
<PAGE>
Under current federal tax law, non-incentive stock options granted under
the 1993 Plan will not result in any taxable income to the optionee at the time
of grant or any tax deduction to the Company. Upon the exercise of such option,
the excess of the market value of the shares acquired over their cost is taxable
to the optionee as compensation income and is generally deductible by the
Company. The optionee's tax basis for the shares is the market value thereof at
the time of exercise.
Neither the grant nor the exercise of an option designated as an incentive
stock option results in any federal tax consequences to either the optionee or
the Company. At the time the optionee sells shares acquired pursuant to the
exercise of an incentive stock option, the excess of the sale price over the
exercise price will qualify as a capital gain, provided the applicable holding
period is satisfied. If the optionee disposes of such shares within two years
of the date of grant or within one year of the date of exercise, an amount equal
to the lesser of (a) the difference between the fair market value of the shares
on the date of exercise and the exercise price, or (b) the difference between
the exercise price, and the sale price will be taxed as ordinary income and
the Company will be entitled to a deduction in the same amount. The excess,
if any, of the sale price over the sum of the exercise price and the amount
taxed as ordinary income will qualify as capital gain if the applicable
holding period is satisfied. If the optionee exercises an incentive stock
option more than three months after his or her termination of employment due
to retirement, he or she is deemed to have exercised a non-incentive stock
option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of
of Beneficial Owner Title of Class Beneficially Owned Class
- ------------------- -------------- ------------------ ----------
<S> <C> <C> <C>
Cockroft Consolidated Common 1,209,214(1) 45.4
Corporation
Suite 2300
5100 Poplar Avenue
Memphis, TN 38137
Dimensional Fund Advisors Common 182,400(2) 6.8
Inc.
1299 Ocean Avenue, Ste.650
Santa Monica, CA 90401
Mario J. Gabelli Common 581,300(3) 21.8
One Corporate Center
Rye, NY 10580
<FN>
(1) Don Wm. Cockroft, Robert L. Cockroft, Janet Virgin, and Katherine Lammons
beneficially own a controlling interest in Cockroft Consolidated
Corporation. Pursuant to the Cockroft Agreement, Cockroft Consolidated
Corporation has agreed to tender the shares shown in the above table into
the Offer. Under the Cockroft Agreement, Cockroft Consolidated Corporation
has also granted to the Purchaser an option to purchase all (but not less
than all) of the shares, which option is exercisable by the Purchaser on or
after January 1, 1995 and on or prior to March 31, 1995 provided that
certain events have occurred. Reference is made to the Schedule 14D-9,
Item 3 (b)(v), "Cockroft Agreement," which sets forth the terms of such
agreements.
(2) According to Schedule 13G as filed with the SEC by Dimensional Fund
Advisors Inc., reporting ownership as of February 19,1991, Dimensional Fund
Advisors Inc. has beneficial ownership of 182,400 shares. Dimensional Fund
Advisors Inc. has sole voting and sole dispositive power over 116,600 of
these shares and officers of Dimensional Fund Advisors Inc. have sole
voting and dispositive power over 65,800 of these shares. The shares of
Dimensional Fund Advisors Inc., a registered investment advisor, are held
in portfolios of DFA Investment Dimensions Group Inc., a registered open-
end investment company, or the DFA Group Trust, an investment vehicle for
qualified employee benefit plans, for both of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional Fund Advisors Inc.
disclaims beneficial ownership of all such shares.
</TABLE>
35
<PAGE>
SECURITIES BENEFICIALLY OWNED BY DIRECTORS AND MANAGEMENT
(3) According to Schedule 13D as filed with the SEC by Gabelli Funds, Inc.,
Gamco Investors, Inc., Gabelli International Limited II, and Mario J.
Gabelli (the "Reporting Persons") reporting ownership as of June 6, 1994,
Gamco Investors, Inc. is deemed to have beneficial ownership of 420,800 of
these shares; Gabelli Funds, Inc. is deemed to have beneficial ownership of
160,000 of these shares; Gabelli International Limited II is deemed to have
beneficial ownership of 500 of these shares; Mario J. Gabelli is deemed to
have beneficial ownership of all of the 581,300 shares; and Gabelli Funds,
Inc. is deemed to have beneficial ownership of the securities owned by each
of the foregoing persons other than Mario J. Gabelli. Each of the
Reporting Persons has the sole power to vote and sole power to dispose of
the securities reported except that Gamco Investors, Inc. does not have the
authority to vote 50,000 of the reported shares; except that Gabelli Funds,
Inc. has sole dispositive and voting power with respect to the shares held
by The Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Convertible
Securities Fund, The Gabelli Value Fund, Inc., The Gabelli Small Cap Growth
Fund, The Gabelli Equity Income Fund, The Gabelli Equity Trust, The Gabelli
Global Telecommunications Fund, The Gabelli Global Convertible Securities
Fund, The Gabelli Interactive Couch Potato Fund, and/or The Gabelli ABC
Fund with respect to the 160,000 shares held by one or more of such funds,
and except that the power of Mr. Mario J. Gabelli and Gabelli Funds, Inc.
is indirect with respect to securities beneficially owned directly by other
Reporting Persons. The Reporting Persons do not admit that they constitute
a group.
The following table sets forth, as of November 14, 1994, the amount and
percentage of the Shares beneficially owned by each director and executive
officer and by the directors and officers as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Ownership
- ------------------------ -------------------- ---------
<S> <C> <C>
Directors:
- ---------
Don Wm. Cockroft 1,891(1) *
J. Howard Lammons 950(1) *
Robert L. Cockroft 0 --
Howard W. Loveless 500 *
Janet C. Virgin 31 *
Ronald J. Wareham 0 --
Non-Director Executive Officer:
- ------------------------------
John M. Dollar 24 *
All directors, officers as a group 4,996(2) *
(9 persons)
<FN>
*Less than 1%
(1) Includes: (a) 1,800 shares owned by the wife and dependent child of Don
Wm. Cockroft; and (b) 490 shares owned by the wife of J. Howard Lammons.
Except as noted hereinabove, all of the shares are owned directly by said
persons with sole voting and investment power.
(2) Does not include 1,209,214 shares owned by Cockroft Consolidated
Corporation. The controlling shareholders of Cockroft Consolidated
Corporation are Don Wm. Cockroft, Robert L. Cockroft, Katherine Lammons,
the wife of J. Howard Lammons, and Janet C. Virgin.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no relationships or related transactions to report.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8K:
(a) 1. Financial statements required are reported in Item
8 of this Report.
2. Financial Statement Schedules Required By Item 8:
PAGE
----
Report of Independent Accountants (45)
Schedules:
Schedule III--Condensed Financial Information of the
Registrant (Parent Company):
Comparative Balance Sheet--September 30,
1994, 1993, and 1992 (46)
Comparative Statement of Income--Years
ended September 30, 1994, 1993 and 1992. (48)
Comparative Statement of Retained
Earnings--Years Ended September 30,
1994, 1993 and 1992. (49)
Statement of Comparative Cash
Flows--Years ended September 30, 1994,
1993 and 1992. (50)
Notes to Financial Statements (51)
Schedule IV---Indebtedness Of Affiliates And Other
Persons--Not Current--Three Years
Ended September 30, 1994. (52)
Schedule V----Property And Equipment--Three Years
Ended September 30, 1994. (53)
Schedule VI---Accumulated Depreciation Of Property
And Equipment--Three Years Ended
September 30, 1994. (54)
Schedule VIII-Valuation And Qualifying Accounts--
Three Years Ended September 30, 1994. (55)
Schedule X----Supplementary Income Statement
Information--Three Years Ended
September 30, 1994. (56)
Other schedules are omitted due to the absence of
conditions under which they are required or because the
required information is provided in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
The Registrant did not file any reports on Form 8-K
during the last quarter of the period covered by
this Report.
37
<PAGE>
(c) EXHIBITS
FORM 10-K
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
2.0 Agreement and Plan of Merger dated November 14,
1994. (13)
2.1 Schedule 14D-9 filed with the Commission on
November 23, 1994.
2.2 Agreement between Purchaser and Cockroft
Consolidated, dated November 21, 1994. (14)
3.1 Articles of Incorporation and Amendments (1)
3.2 Bylaws of Registrant as currently in effect
3.3 Articles of Incorporation Amendment 2/16/87 (9)
10.1 Holiday Inns, Inc. License Agreement 9/18/61 (1)
10.2 Holiday Inns, Inc. License Agreement 10/29/62 (1)
10.3 Holiday Inns, Inc. License Agreement 5/08/67 (1)
10.4 Holiday Inns, Inc. License Agreement 5/08/67 (1)
10.5 Holiday Inns, Inc. License Agreement 9/05/67 (1)
10.6 Holiday Inns, Inc. License Agreement 9/13/67 (1)
10.7 Holiday Inns, Inc. License Agreement 7/16/68 (1)
10.8 Holiday Inns, Inc. License Agreement 7/16/68 (1)
10.9 Holiday Inns, Inc. License Agreement 8/29/69 (1)
10.10 Holiday Inns, Inc. License Agreement 2/06/70 (1)
10.11 Holiday Inns, Inc. License Agreement 3/22/71 (1)
10.12 Holiday Inns, Inc. License Agreement 11/22/71 (1)
10.13 Holiday Inns, Inc. License Agreement 11/22/71 (1)
10.14 Holiday Inns, Inc. License Agreement 3/20/72 (1)
10.15 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.16 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.17 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.18 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.19 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.20 Holiday Inns, Inc. License Agreement 8/11/72 (1)
10.21 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.22 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.23 Holiday Inns, Inc. License Agreement 8/21/72 (1)
10.24 Holiday Inns, Inc. License Agreement 6/25/76 (1)
10.25 Holiday Inns, Inc. License Agreement 9/01/78 (1)
10.26 Holiday Inns, Inc. License Agreement 9/01/78 (1)
10.27 Holiday Inns, Inc. Licenses
Extension Agreement 3/5/76 (1)
38
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
<S> <C> <C>
10.28 Lease, Millsaps College Development Corp. to
Jackson Med.-Center Inn, Inc. (2)
10.29 Lease, Paul Drummett to Houston
Airport Inn, Inc. (2)
10.30 Addendum to Lease, Paul Drummett to Houston
Airport Inn, Inc., Item 10.29 above. (1)
10.31 Lease, Mid Atlanta Investment Company to
Lammons Hotel Courts, Inc. (2)
10.32 Amendments to Lease, Mid Atlanta Investment
Company to Lammons Hotel Courts, Inc., Item
10.31 above. (1)
10.33 Lease, Natala Corp. to United Enterprises, Inc. (2)
10.34 Amendments to Lease, Natala Corp. to United
Enterprises, Inc., Item 10.33 above. (1)
10.35 Lease Marietta Inns, Inc. to Hardy Inn, Inc. (2)
10.36 Lease, Paul Barkley to United Enterprises, Inc. (2)
10.37 Lease, 555 Real Estate Company to Jacksonville
Motor Inn, Inc. (2)
10.38 Lease, Gaines Manufacturing Co., Inc. and
City of McKenzie (2)
10.39 Amendment to Lease, Gaines Manufacturing Co.,
Inc. and City of McKenzie, Item 10.38 above (1)
10.40 Sub-lease, C.W.S. Scottsdale, Inc. and
Transcontinental Motor Hotels, Inc. and
underlying ground lease between Raymond
and Lenore R. Silverman and
C.W.S. Scottsdale, Inc. (1)
10.41 Lease, C.W.S. San Jose, Inc. to TMH Motor
Hotels, Inc. with option agreement and
underlying sub-lease between Claitor
Properties, Inc. and C.W.S. San Jose, Inc.
and ground lease between Dorothy
Kiersted and Claitor Properties (filed
as Exhibits 13(b)(1) through 13(b)(8) to
Midwestern Companies, Inc. (which subsequently
changed its name to Transcontinental Motor
Hotels, Inc., which merged with Registrant on
December 1, 1972) Form 8-K for month of November,
1968 filed on December 9, 1968 and incorporated
herein by reference) (1)
10.42 Lease and Amendment, B.R.S.T. Corporation
and Transcontinental Motor Hotels, Inc. (1)
10.43 Lease, Amendment and Guaranties, Elm Place
Corp. and Transcontinental Motor Hotels, Inc. (1)
10.44 Lease and Amendment, Trammell Crow and
Glenjon, Inc. (1)
</TABLE>
39
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
<S> <C> <C>
10.45 Joint Venture Agreement between Allied
Investments and Northside Inns, Inc.
and Management Agreement between the Joint
Venture (Northside Hotel Investors) and
United Inns of Tennessee, Inc. (1)
10.46 Description of the criteria of the Executive
Bonus Plan of United Inns, Inc. (1)
10.47 Holiday Inns, Inc. License
Agreement 2/10/78 (3)
10.48 Holiday Inns, Inc. License
Agreement 2/16/79 (3)
10.49 Holiday Inns, Inc. License
Agreement 10/2/80 (3)
10.50 Holiday Inns, Inc. License
Agreement 1/23/81 (3)
10.51 Holiday Inns, Inc. License
Agreement 5/11/81 (3)
10.52 Amendments to Joint Venture
Agreement between Allied
Investments and Northside Inn, Inc.,
Item 10.45 above (3)
10.53 Assignment of interest in
Master Lease to Transcontinental
Motor Hotels, Inc., Item
10.40 above (3)
10.54 United Inns, Inc. Employees
Pension Plan (3)
10.55 Holiday Inns, Inc. License
Agreement 10/2/80 (4)
10.56 Hilton Inns, Inc. License
Agreement 10/27/80 (4)
10.57 Holiday Inns, Inc. License
Agreement 12/19/80 (4)
10.58 Holiday Inns, Inc. License
Agreement 12/19/80 (4)
10.59 Holiday Inns, Inc. License
Agreement 3/27/81 (4)
10.60 Holiday Inns, Inc. License
Agreement 4/7/81 (4)
10.61 Holiday Inns, Inc. License (5)
Agreement 5/2/79
10.62 Holiday Inns, Inc. License (5)
Agreement 12/19/80
10.63 Holiday Inns, Inc. License (5)
Agreement 3/31/81
</TABLE>
40
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
<S> <C> <C>
10.64 Holiday Inns, Inc. License (5)
Agreement 5/12/83
10.65 Holiday Inns, Inc. License (6)
Agreement 4/25/84
10.66 Executives Optional Deferred (7)
Compensation Plan of United
Inns, Inc. 10/1/84
10.67 Hilton Inns, Inc. (7)
License Agreement 6/13/85
10.68 Termination of Lease and Guaranty (7)
(Exhibit 10.37) 10/31/85
10.69 Hampton Inns, Inc., a division (8)
of Holiday Inns, Inc.
License Agreement 10/23/85
10.70 Holiday Inns, Inc. (8)
License Agreement 1/17/86
10.71 Hampton Inns, Inc., a division (8)
of Holiday Inns, Inc.
License Agreement 7/10/86
10.72 Best Western International, Inc. (8)
License Agreement 7/28/86
10.73 Termination of Lease and Agreement (9)
(Exhibit 10.35) 5/19/87
10.74 Days Inns of America Franchising, Inc.
License Agreement 4/17/89 (Flagstaff) (10)
10.75 Days Inns of America Franchising, Inc. (11)
License Agreement 12/29/89 (Houston I-10
East)
10.76 Days Inns of America Franchising, Inc. (11)
License Agreement 12/29/89 (Houston I-10
West)
10.77 Days Inns of America Franchising, Inc. (11)
License Agreement 02/07/90 (Dallas Regal
Row)
10.78 Ramada, Inc. License Agreement 09/17/91 (12)
(Atlanta Downtown)
10.79 Hampton Inn Hotel Division of Embassy (12)
Suites, Inc. License Agreement 03/20/91
Houston I-10 East)
10.80 Holiday Inns Franchising, Inc. License (12)
Agreement 10/11/90 (Jackson Medical
Center)
10.81 Holiday Inns Franchising, Inc. License (12)
Agreement 06/18/91 (Houston Medical
Center)
</TABLE>
41
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
- ----------- ------------------- --------
<S> <C> <C>
10.82 Holiday Inn Franchising, Inc. License (12)
Agreement 06/18/91 (Santa Barbara)
10.83 Termination of Lease and Agreement (12)
(Exhibit 10.33) 02/10/91
10.84 Hanna Acceptance Corporation, John (12)
Mitchell, Inc., Chapter 11 Trustee of
Daniel C. Hanna
10.85 Consulting Agreement between the Company
and Smith Barney, Inc., dated July 11, 1994,
as amended on September 1, 1994
11 Statement Regarding Computation of Per Share
Earnings
21 Subsidiaries of the Registrant
27 Financial Data Schedule for EDGAR filers.
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
<S> <C>
<FN>
(1) Filed as an Exhibit to the Registrant's report on Form 10-K (File No.
1-6848) filed with the Commission on December 27, 1980 and incorporated
herein by reference.
(2) Filed as an Exhibit to Registration Statement No. 2-42059, Form S-1, filed
with the commission on October 7, 1971 and incorporated herein by
reference.
(3) Filed as an Exhibit to the Registrant's report on Form 10-K (File No.
1-6848) filed with the Commission on December 28, 1981 and incorporated
herein by reference.
(4) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 28, 1982 and incorporated
herein by reference.
(5) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 28, 1983 and incorporated
herein by reference.
(6) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 28, 1984, and incorporated
herein by reference.
(7) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on December 27, 1985, and incorporated
herein by reference.
(8) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 12, 1987, and incorporated
herein by reference.
(9) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 6, 1988, and incorporated
herein by reference.
(10) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 4, 1990, and incorporated
herein by reference.
(11) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 15, 1991, and incorporated
herein by reference.
(12) Filed as an Exhibit to the Registrant's report on (Form 10-K File No.
1-6848) filed with the Commission on January 14, 1992, and incorporated
herein by reference.
(13) Filed as Exhibit 1 to Schedule 14D-9, filed with the Commission on
November 23, 1994, and incorporated herein by reference.
(14) Filed as Exhibit 7 to Schedule 14D-9, filed with the Commission on
November 23, 1994 and incorporated herein by reference.
</TABLE>
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
UNITED INNS, INC.
By: /s/ Don Wm. Cockroft
--------------------------------
Don Wm. Cockroft
Principal Executive Officer
and Director
By: /s/ J. D. Miller
--------------------------------
J. D. Miller
Vice President Finance
Principal Financial Officer
Principal Accounting Officer
Date: 1/12/95
------------------------
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
registrant and in the capacities and on the dates indicated:
/s/ Howard W. Loveless 1/12/95
- ------------------------------- ---------------------------
By: Howard W. Loveless Date
Director
/s/ J. Howard Lammons 1/12/95
- ------------------------------- ---------------------------
By: J. Howard Lammons Date
Director
/s/ Robert L. Cockroft 1/12/95
- ------------------------------- ---------------------------
By: Robert L. Cockroft Date
Director
/s/ Janet C. Virgin 1/12/95
- ------------------------------- ---------------------------
By: Janet C. Virgin Date
Director
44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
United Inns, Inc.
Memphis, Tennessee
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of United Inns, Inc., and subsidiaries
included in this Form 10-K, and have issued our report thereon dated December
8, 1994. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental financial statement schedules
listed in the index on page 37 of this Form 10-K are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These supplemental schedules
have been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
FRAZEE, TATE AND ASSOCIATES
/s/ Frazee, Tate and Associates
Memphis, Tennessee
December 8, 1994
45
<PAGE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 3,209,994 $ 124 $ 3,013,672
Accounts receivable-other 251,315 4,325 513,901
Prepaid expenses 5,827,380 5,477,653 4,261,480
Property held for sale 1,500,000
------------- ------------- -------------
Total current assets 9,288,689 5,482,102 9,289,053
------------- ------------- -------------
Investments
Investments in Subsidiaries (43,922,705) (39,451,590) (37,047,574)
Due from Subsidiaries 56,044,824 60,041,607 55,479,840
Investments--at cost 10,000 10,000 10,000
------------- ------------- -------------
12,132,119 20,600,017 18,442,266
------------- ------------- -------------
Other Assets
Deposits and prepaid expenses 641,123 623,584 4,588,925
------------- ------------- -------------
Deferred income taxes 168,590
------------- ------------- -------------
$ 22,230,521 $ 26,705,703 $ 32,320,244
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Current Liabilities
Bank overdraft $ $ 483,802 $
Long-term debt--current 14,436
Accounts payable--trade 853,593 287,231 2,186,129
Accrued expenses--interest and other 3,947,909 3,388,791 3,658,344
Income taxes payable 959,228 70,329 161,177
------------- ------------- -------------
Total current liabilities 5,760,730 4,230,153 6,020,086
------------- ------------- -------------
Long-Term Debt
First mortgages--deferred portion 2,378,459
------------- ------------- -------------
Deferred Other 899,066 1,363,849 1,916,833
------------- ------------- -------------
Deferred Income Taxes 142,057 218,745
------------- ------------- -------------
Stockholders' Equity
Common stock--$1 par value--
authorized 10,000,000 shares,
issued 4,117,813 shares 4,117,813 4,117,813 4,117,813
Paid-in capital 14,613,138 14,613,138 14,613,138
Retained earnings 40,057,754 46,327,055 47,143,532
------------- ------------- -------------
58,788,705 65,058,006 65,874,483
Less treasury shares at cost--
1,451,914 shares in 1994 and
1,476,904 shares in 1993 and 1992 43,217,980 44,088,362 44,088,362
------------- ------------- -------------
Total stockholders' equity 15,570,725 20,969,644 21,786,121
------------- ------------- -------------
$ 22,230,521 $ 26,705,703 $ 32,320,244
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
47
<PAGE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Income from Subsidiaries
Fees $ 1,031,876 $ 1,077,893 $ 1,507,634
Interest 0 0 738,265
Income from Outsiders
Interest 261,401 216,422 211,901
Other 426,462 25,989 34,416
------------- ------------- -------------
1,719,739 1,320,304 2,492,216
------------- ------------- -------------
Expenses
Administrative and general 1,393,785 757,645 586,989
Interest and financing 590,580 224,975 667,726
------------- ------------- -------------
1,984,365 982,620 1,254,715
------------- ------------- -------------
Operating income (loss) (264,626) 337,684 1,237,501
Loss on disposition of assets (2,029,865)
------------- ------------- -------------
Income (loss) from operations
before income taxes (264,626) 337,684 (792,364)
------------- ------------- -------------
Income Taxes
State 550,901 29,662 3,499
U S Federal 285,820 12,776 1,011,580
------------- ------------- -------------
836,721 42,438 1,015,079
------------- ------------- -------------
Income (loss) before equity in
subsidiaries' net income (1,101,347) 295,246 (1,807,443)
Subsidiaries' dividends 800,000 1,000,000
Equity in subsidiaries'
undistributed net income (4,403,704) (1,911,723) (2,236,819)
------------- ------------- -------------
Net income (loss) ($5,505,051) ($816,477) ($3,044,262)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
<S> <C>
Balance September 30, 1991 $ 50,187,794
Net loss for year (3,044,262)
-------------
Balance September 30, 1992 47,143,532
Net loss for year (816,477)
-------------
Balance September 30, 1993 46,327,055
Reissue of 25,000 treasury shares (764,250)
Net loss for year (5,505,051)
-------------
Balance September 30, 1994 $ 40,057,754
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INNS, INC. (PARENT COMPANY)
COMPARATIVE STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
-------------------------------------------
1994 1993 1992
OPERATING ACTIVITIES ------------- ------------- -------------
<S> <C> <C> <C>
Net loss ($5,505,051) ($816,477) ($3,044,262)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization 417,054
Loss on disposal of assets 2,029,865
Deferred income taxes (310,647) (76,688) (306,456)
Equity in subsidiaries' net loss 4,403,704 1,604,011 1,236,819
Debt reduction (433,411)
Non-cash compensation 106,250
Changes to operating assets and liabilities:
Accounts receivable (246,990) (409,874)
Prepaid expenses (352,784) (1,093,573) (744,382)
Bank overdraft (483,802) 483,802
Accounts payable 569,419 449,101 (711,020)
Accrued expenses 324,203 29,738 53,771
Income taxes payable 888,899 (90,848) 113,302
------------- ------------- -------------
Net cash provided by (used in) operating activities (1,040,210) 489,066 (1,365,183)
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of assets 2,652,038
Payments on settlement on car wash assets (1,200,000)
Other intercompany transactions--net change 4,299,109 (2,999,278) 2,265,039
Other investing activities (17,539) 49,648 (355,667)
------------- ------------- -------------
Net cash provided by (used in) investing activities 4,281,570 (2,949,630) 3,361,410
------------- ------------- -------------
FINANCING ACTIVITIES
Payments on long-term debt (573,267)
Purchase of treasury shares (118) (252)
Other financing activities (31,372) (552,984) 31,322
------------- ------------- -------------
Net cash used in financing activities (31,490) (552,984) (542,197)
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 3,209,870 (3,013,548) 1,454,030
Cash and cash equivalents at beginning of year 124 3,013,672 1,559,642
------------- ------------- -------------
Cash and cash equivalents at end of year $3,209,994 $124 $3,013,672
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $148,838 $257,685 $543,838
State and federal income taxes 41,800 189,865
Supplemental schedule of noncash investing and
financing activities:
Acquisition (revaluation) of car wash assets (1,168,774)
Debt reduction 433,411
Compensation paid with treasury stock 106,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
UNITED INNS, INC. (PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
INVESTMENTS
Investments in, and notes and advances to, subsidiaries (eliminated in
consolidation) are stated at cost and have been adjusted for net advances,
note payments, and undistributed earnings and losses since acquisition.
LONG-TERM DEBT
The long-term debt of Parent Company matures as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
1993 $ $ $ 14,436
1994 39,628
1995 50,950
1996 68,273
1997 2,219,608
------------- ------------- -------------
$ 0 $ 0 $ 2,392,895
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Parent Company is guarantor of the major portion of the debt of its
subsidiaries.
OTHER MATTERS
Refer to the notes to the consolidated financial statements
for further information.
51
<PAGE>
SCHEDULE IV -- INDEBTEDNESS OF AFFILIATES -- NOT CURRENT
UNITED INNS, INC.
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C & D COLUMN E
- --------------------------------------------------------------------------------------------------------------
NAME OF PERSONS BALANCE AT BEGINNING NET BALANCE AT END
OF PERIOD TRANSACTIONS (A) OF PERIOD
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ADVANCES TO WHOLLY-OWNED
SUBSIDIARIES
CONSOLIDATED IN THE
FINANCIAL STATEMENTS:
Year Ended
September 30, 1992 $54,010 $1,470 $55,480
------- ------- -------
------- ------- -------
Year Ended
September 30, 1993 $55,480 $4,562 $60,042
------- ------- -------
------- ------- -------
Year Ended
September 30, 1994 $60,042 $(3,997) $56,045
------- ------- -------
------- ------- -------
<FN>
Amounts consist of working capital advances to subsidiaries, return of excess
funds not required for the normal operation of subsidiaries, administrative
charges by the parent, and federal income tax charges or credit.
</TABLE>
52
<PAGE>
SCHEDULE V--PROPERTY AND EQUIPMENT
UNITED INNS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT
BEGINNING AT OR RECLASSIFY END
CLASSIFICATION OF PERIOD COST SALES OF PERIOD
- ------------------------------------------------------------------------------------------------------------ ----------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1992
Land $ 22,848 $ $ (447) $ (49) $ 22,352 (1)
Buildings and improvements 161,896 3,801 (9,606) (13) 156,078
Furniture and equipment 37,541 1,531 (6,879) (1) 32,192
Leased property under capital leases 5,135 5,135
Property held for sale 11,288 20 (6,785)(3) 4,523
------------- ------------- ------------- ------------- -------------
238,708 5,352 (23,717) (63) 220,280
Construction in progress 425 (97) 328
------------- ------------- ------------- ------------- -------------
$ 239,133 $ 5,255 $ (23,717) $ (63)(2) $ 220,608
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1993
Land $ 22,352 $ 382 $ (130) $ $ 22,604 (1)
Buildings and improvements 156,078 2,201 (3,119) 155,160
Furniture and equipment 32,192 3,835 (5,519) 30,508
Leased property under capital leases 5,135 (1,420) 3,715
Property held for sale 4,523 (415)(3) 4,108
------------- ------------- ------------- ------------- -------------
220,280 6,418 (10,603) 0 216,095
Construction in progress 328 248 576
------------- ------------- ------------- ------------- -------------
$ 220,608 $ 6,666 $ (10,603) $ 0 $ 216,671
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1994
Land $ 22,604 $ $ (2,224) $ $ 20,380 (1)
Buildings and improvements 155,160 961 (18,766) (893) 136,462
Furniture and equipment 30,508 3,842 (7,527) 26,823
Leased property under capital leases 3,715 (1,717) 893 2,891
Property held for sale 4,108 (2,140)(3) 1,968
------------- ------------- ------------- ------------- -------------
216,095 4,803 (32,374) 0 188,524
Construction in progress 576 637 1,213
------------- ------------- ------------- ------------- -------------
$ 216,671 $ 5,440 $ (32,374) $ 0 $ 189,737
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
<FN>
(1)Land classified on balance sheet as: 1994 1993 1992
------------- ------------- -------------
Land not in use--under investments $ 8,018 $ 8,907 $ 8,525
Land in use--under property & equipment 12,362 13,697 13,827
------------- ------------- -------------
$ 20,380 $ 22,604 $ 22,352
------------- ------------- -------------
------------- ------------- -------------
(2)Reclassification: Land, buildings and improvements, and furnishings and equipment of two hotels
to Long-Term Debt (See Note 10 to Consolidated Financial Statements) and land, buildings and
and improvements, and furnishings and equipment of one hotel and car washes to Property Held For Sale.
(3)Property Held for Sale--Retirements/Sales 1994 1993 1992
------------- ------------- -------------
Net book value of property dispositions $ (1,912) $ (151) $ (878)
Recovery of prior years' costs (2,817)
Depreciation (228) (264) (421)
Write down to estimated realizable value (1,169)
Reclassified to current assets (1,500)
------------- ------------- -------------
$ (2,140) $ (415) $ (6,785)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
53
<PAGE>
SCHEDULE VI--ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
UNITED INNS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS RETIREMENTS BALANCE AT
BEGINNING AT OR RECLASSIFY END
CLASSIFICATION OF PERIOD COST SALES OF PERIOD
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1992:
Buildings and improvements $ 65,192 $ 5,969 $ (7,026) $ (114) $ 64,021
Furniture and equipment 25,543 3,765 (6,422) (307) 22,579
Leased property under capital leases 4,877 205 5,082
------------- ------------- ------------- ------------- -------------
$ 95,612 $ 9,939 $ (13,448) $ (421) $ 91,682
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1993:
Buildings and improvements $ 64,021 $ 5,591 $ (2,356) $ $ 67,256
Furniture and equipment 22,579 2,979 (5,295) 20,263
Leased property under capital leases 5,082 196 (1,340) 3,938
------------- ------------- ------------- ------------- -------------
$ 91,682 $ 8,766 $ (8,991) $ 0 $ 91,457
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Year Ended September 30, 1994:
Buildings and improvements $ 67,256 $ 5,707 $ (5,633) $ (466) $ 66,864
Furniture and equipment 20,263 2,960 (7,079) 16,144
Leased property under capital leases 3,938 184 (1,717) 466 2,871
------------- ------------- ------------- ------------- -------------
$ 91,457 $ 8,851 $ (14,429) $ 0 $ 85,879
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Reclassifications: 1992 1993 1994
------------- ------------- -------------
Accumulated depreciation on car wash assets (to) from Property
Held for Sale $ (421) $ $
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
54
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
UNITED INNS, INC. AND SUBSIDIARIES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING (CHARGED TO END
DESCRIPTION OF PERIOD P & L) OF PERIOD
- ----------------------------------------------------------------------------------------------------------
Allowance for Doubtful Receivables
<S> <C> <C> <C> <C>
Year Ended September 30, 1992 $ 120 $ 394 $ 432 $ 82
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended September 30, 1993 $ 82 $ 466 $ 469 $ 79
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended September 30, 1994: $ 79 $ 457 $ 416 $ 120
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Deferred Income Tax Asset Valuation Allowance
Year Ended September 30, 1994 $ 0 $ 3,442 $ $ 3,442
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Accrual for Self Insurance
Year Ended September 30, 1992 $ 2,879,811 $ 3,891,753 $ 3,236,510 $ 3,535,054
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended September 30, 1993 $ 3,535,054 $ 2,822,190 $ 2,857,627 $ 3,499,617
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Year Ended September 30, 1994 $ 3,499,617 $ 2,780,707 $ 2,473,426 $ 3,806,898
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
55
<PAGE>
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
UNITED INNS, INC. AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
The following amounts were charged to costs and expenses:
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Consolidated:
Maintenance and repairs:
Other profit and loss accounts $ 3,073 $ 3,174 $ 3,249
------------- ------------- -------------
------------- ------------- -------------
Depreciation:
Costs and expenses--not allocated $ 9,078 $ 9,031 $ 9,939
------------- ------------- -------------
------------- ------------- -------------
Property Taxes:
Other profit and loss accounts $ 3,066 $ 3,804 $ 4,195
------------- ------------- -------------
------------- ------------- -------------
Media Advertising:
Other profit and loss accounts $ 58 $ 41 $ 24
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
56
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
________________________________
UNITED INNS, INC.
(Name of Subject Company)
UNITED INNS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
910688 10 0
(CUSIP Number of Class of Securities)
________________________________
AUGUSTUS B. RANDLE, III
SECRETARY AND GENERAL COUNSEL
UNITED INNS, INC.
5100 POPLAR AVENUE
SUITE 2300, CLARK TOWER
MEMPHIS, TENNESSEE 38137
(901) 767-2880
(Name, address and telephone number of person authorized
to receive notices and communications on behalf of the person(s) filing
statement)
________________________________
WITH COPY TO:
WAYNE SHORTRIDGE, ESQ. SIOBHAN MCBREEN BURKE, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER PAUL, HASTINGS, JANOFSKY & WALKER
GEORGIA PACIFIC CENTER TWENTY-THIRD FLOOR
FORTY-SECOND FLOOR 555 SOUTH FLOWER STREET
133 PEACHTREE STREET, N.E. LOS ANGELES, CALIFORNIA 90071
ATLANTA, GEORGIA 30303-1840 (213) 683-6000
(404) 588-9900
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is United Inns, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 5100 Poplar Avenue, Suite 2300, Clark Tower, Memphis, Tennessee
38137. The class of equity securities to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is the common stock,
par value $1.00 per share (the "Common Stock"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer being made by United/Harvey
Holdings, L.P., a Delaware limited partnership ("Purchaser"), to acquire all
shares of issued and outstanding Common Stock (the "Shares") at a price of
$25.00 per Share (such amount, or such other amount in cash as Purchaser may pay
pursuant to the Offer, being hereinafter referred to as the "Per Share Amount"),
net to the seller thereof in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated November 21, 1994 (the "Offer to
Purchase") and the related Letter of Transmittal (which together constitute the
"Offer"). The Offer is disclosed in the Tender Offer Statement on Schedule 14D-
1, dated November 21, 1994 and filed with the Securities and Exchange Commission
(the "SEC") on November 21, 1994 (the "Schedule 14D-1"). The address of the
principal executive offices of Purchaser, as set forth in the Schedule 14D-1, is
2200 Ross Avenue, 4200 Texas Commerce Tower West, Dallas, Texas 75201.
The Offer is being made pursuant to the terms of the Agreement and Plan of
Merger, dated as of November 14, 1994 (the "Merger Agreement"), among the
Company, Purchaser, United/Harvey Hotels, Inc., a Delaware corporation
("United/Harvey"), and United/Harvey Sub, Inc., a Delaware corporation ("Merger
Sub").
The Merger Agreement provides that after completion of the Offer, subject
to the terms and conditions of the Merger Agreement, Merger Sub will be merged
with and into the Company (the "Merger") and the Company will survive as the
surviving corporation and a wholly-owned subsidiary of United/Harvey. Each
outstanding Share, other than those held by United/Harvey or any subsidiary of
the Company or in the treasury of the Company (all of which will be cancelled)
and those Shares held by stockholders of the Company who properly demand and
perfect appraisal rights under the General Corporation Law of the State of
Delaware (the "Delaware Law"), will be converted at the effective time of the
Merger (the "Effective Time") into the right to receive the Per Share Amount, in
cash, without interest thereon.
The Merger Agreement provides for the conversion of nontendered Shares into
the right to receive the Per Share Amount in a cash merger as described above.
As described in the Offer to Purchase, Purchaser expressly has reserved the
right, following the consummation of the Offer, to cause the Merger Agreement to
be amended to provide nontendering stockholders the option (the "Cash/Stock
Option") to elect to receive in exchange for each Share converted in the Merger
either (i) cash in an amount at least equal to the Per Share Amount or (ii)
shares of common stock of United/Harvey. The Offer to Purchase provides that a
number of factors will influence whether or not Purchaser makes the Cash/Stock
Option available to nontendering stockholders, including the number of the
Shares owned by persons other than Purchaser following the consummation of the
Offer and compliance with applicable legal requirements, including the
Securities Act of 1933, as amended (the "Securities Act") and that, as a result,
there can be no assurance as to whether the Cash/Stock Option will be made
available to nontendering stockholders or, if so, as to the timing thereof. The
Offer to Purchase further states that, regardless of whether the Cash/Stock
Option is made available, Purchaser will, either pursuant to the Merger
Agreement as presently in effect or otherwise, subject to conditions no more
favorable to Purchaser than those contained in the Merger Agreement as presently
in effect, provide nontendering stockholders an opportunity following the
consummation of the Offer to receive cash in an amount at least equal to the Per
Share Amount in exchange for each Share not tendered pursuant to the Offer.
It is contemplated that, upon the purchase of Shares by Purchaser pursuant
to the Offer, the Company's Board of Directors will be reconstituted in its
entirety to consist solely of Purchaser's designees.
<PAGE>
Any action of the Company's Board of Directors following the consummation of the
Offer with respect to any amendment to the Merger Agreement to provide for the
Cash/Stock Option will constitute an action of the Company's Board of Directors
as then reconstituted.
This Schedule 14D-9 relates only to the Merger Agreement as presently in
effect and to the transactions contemplated thereby, including without
limitation the cash Merger, and all references herein to the Merger Agreement
and such transactions are to the Merger Agreement as presently in effect and to
such transactions as contemplated by the Merger Agreement as presently in
effect, respectively, and not as it may be subsequently amended by the Company's
Board of Directors as reconstituted upon the purchase of Shares by Purchaser
pursuant to the Offer.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements and understandings between
the Company and certain of its executive officers, directors and affiliates are
described under "Board of Directors" and "Employee Benefit Plans" of the
Company's Information Statement, a copy of which is attached hereto as Annex A
and which is incorporated herein by reference.
Certain other contracts, agreements and understandings between the
Company and its directors, executive officers and affiliates and between the
Company and Purchaser are set forth below:
(i) INDEMNIFICATION. The Company's Certificate of Incorporation, as
amended, provides that no director shall be personally liable to the Company or
any stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of the Delaware Law or shall be liable by reason that such director
(a) shall have breached his duty of loyalty to the Company or its stockholders,
(b) shall not have acted in good faith, (c) shall have acted in a manner
involving intentional misconduct or a knowing violation of law, or (d) shall
have derived an improper personal benefit.
In addition, the Company's By-laws provide that the Company shall
indemnify all of its officers and directors against any liability on their part
which may at any time be claimed to have resulted to any third person or to the
Company by reason of any acts or omissions by them, in connection with the
business or on behalf of the Company, not resulting from or arising out of fraud
or bad faith.
The Company also has entered into indemnification agreements with
each of its officers and directors, which agreements provide that, in addition
to certain rights of indemnification, the Company will purchase and maintain in
effect one or more policies of director and officer insurance covering the
Company's officers and directors, as can be obtained for the present premium
payments of $177,840 per year.
(ii) MERGER AGREEMENT. On November 14, 1994, the Company, Purchaser,
United/Harvey and Merger Sub entered into the Merger Agreement. The following
discussion of the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Merger
Agreement, a copy of which has been filed as an exhibit hereto and is
incorporated herein by reference.
THE OFFER. The Merger Agreement provides that Purchaser will
make the Offer and, subject to the terms and conditions of the Offer, Purchaser
shall accept for payment and pay for Shares which have been validly tendered and
not withdrawn pursuant to the Offer at the Per Share Amount net to the seller
thereof in cash at the earliest time following expiration of the Offer that all
conditions to the Offer
-2-
<PAGE>
have been satisfied or waived by Purchaser. Purchaser may waive any of the
conditions to the Offer or make any other changes in the terms and conditions of
the Offer, except that no change may be made (a) that decreases the price per
Share payable in the Offer, except for decreases, if any, to reflect the
difference, if any, between 2,704,899 shares and the number of shares of Common
Stock outstanding as of the expiration of the Offer, calculated on a fully
diluted basis, (b) that reduces the maximum number of Shares to be purchased in
the Offer, (c) that changes the form of consideration to be paid in the Offer,
or (d) that imposes conditions to the Offer in addition to those described
below. In addition, Purchaser has agreed not to extend the expiration date of
the Offer, except (a) in the event that any condition to the Offer is not
satisfied on the initial expiration date of the Offer, (b) as may be required by
law, or (c) with the Company's written permission.
CONDITIONS TO THE OFFER. The Merger Agreement provides that
Purchaser will not be required to accept for payment, or to purchase or pay for,
any tendered Shares and Purchaser may terminate or amend the Offer and may
postpone the purchase of, and payment for, Shares if (a) there shall not have
been validly tendered to Purchaser pursuant to the Offer and not withdrawn
immediately prior to the expiration of the Offer at least that number of Shares
that, when taken as a whole with all other Shares owned or acquired by Purchaser
(whether pursuant to the Offer or otherwise), constitutes at least a majority of
the Shares on a fully diluted basis (the "Minimum Condition"), (b) prior to the
time of payment for any such Shares, any waiting period (and any extension
thereof) applicable to the Offer under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act") shall not have expired or otherwise been terminated or (c) at
any time on or after the date of the Merger Agreement and prior to the time of
payment for any such Shares: (1) there shall have been threatened, instituted
or pending any action, proceeding, application or counterclaim by or before any
governmental, regulatory or administrative agency or authority, domestic,
foreign or transnational, which (A) seeks to restrain or prohibit the making or
consummation of the Offer or the Merger or seeks damages in connection therewith
or resulting therefrom, (B) seeks to prohibit or restrict the ownership or
operation by Purchaser (or any of its affiliates or subsidiaries) of any portion
of its or the Company's business or assets which is material to the business of
all such entities taken as a whole, or to compel Purchaser (or any of its
affiliates or subsidiaries) to dispose of or hold separate any portion of the
Company's business or assets which is material to the business of all such
entities taken as a whole, (C) seeks to impose material limitations on the
ability of Purchaser effectively to acquire or to hold or to exercise full
rights of ownership of the Shares, including without limitation the right to
vote the Shares purchased by Purchaser on all matters properly presented to the
stockholders of the Company, (D) seeks to impose any limitations on the ability
of Purchaser or any of its affiliates or subsidiaries effectively to control in
any material respect the business and operations of the Company, or (E) would
otherwise be reasonably likely to have a material adverse effect on the
business, operations, property or condition (financial or otherwise) of the
Company and its subsidiaries, taken as a whole; or (2) the representations and
warranties of the Company set forth in the Merger Agreement shall have been
breached in any material respect (or, with respect to those representations and
warranties qualified by material adverse effect, in any respect) or the Company
shall have failed to perform any obligation or covenant required by the Merger
Agreement to be performed or complied with by it in any material respect; or (3)
there shall have occurred (A) any general suspension of, or limitation on prices
for, or trading in, securities on the New York Stock Exchange, (B) a declaration
of a banking moratorium or any suspension of payments in respect of banks in the
United States, (C) a commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States, (D) any material limitation (whether or not mandatory) by a governmental
authority, or any other event that is reasonably likely to materially adversely
affect the extension of credit by banks or other financial institutions, or
(E) in the case of any of the foregoing existing at the time of the commencement
of the Offer, a material acceleration or worsening thereof; or (4) a tender or
exchange offer for some portion of or all the Shares shall have been publicly
proposed to be made or shall have been commenced at an all cash price per share
in excess of the Per Share Amount (or at any other price if the Board of
Directors of the Company does not promptly announce publicly that it is
recommending that the Company's stockholders not tender into such offer) by
another person or entity or Purchaser shall have otherwise learned that any
person, entity or "group" (within the meaning of Section 13(d)(3) of the
-3-
<PAGE>
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall have
acquired beneficial ownership of more than 25% of the Shares, through the
acquisition of stock, the formation of a group or otherwise, or shall have been
granted any right, option or warrant, conditional or otherwise, to acquire
beneficial ownership of more than 25% of the Shares other than acquisitions for
bona fide arbitrage purposes only and other than by persons, entities or groups
that have publicly disclosed such ownership in a Schedule 13D or 13G on file
with the SEC on the date of the Merger Agreement; or (5) any other person or
entity shall have commenced a proxy or consent solicitation of the Company's
stockholders to approve a transaction other than transactions contemplated by
the Merger Agreement; or (6) the Merger Agreement shall have been terminated in
accordance with its terms; or (7) the Board of Directors of the Company shall
not have taken all necessary actions to fulfill the Company's obligations to
reconstitute the Company's Board of Directors as described under the heading
"The Board" below; or (8) Purchaser and the Company shall have agreed that
Purchaser shall amend or terminate the Offer or postpone the payment for Shares
pursuant thereto.
The Merger Agreement provides that the foregoing conditions are
for the sole benefit of Purchaser. Such conditions may be waived by Purchaser
with the approval of the Board of Directors of the Company. Any determination
by Purchaser will be final and binding upon all parties including tendering
stockholders. The failure by Purchaser at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right and each such
right will be deemed an ongoing right which may be asserted at any time and from
time to time.
THE BOARD. The Merger Agreement provides that, promptly upon the
purchase by Purchaser of a majority of the outstanding Shares pursuant to the
Offer, Purchaser shall be entitled, subject to compliance with applicable law,
to designate up to that number of members, rounded up to the nearest whole
number, of the Company's Board of Directors as will make the percentage of the
members designated by Purchaser equal to the percentage of outstanding Shares
held by Purchaser and its affiliates (other than the Company and its
subsidiaries). Pursuant to Merger Agreement, the Company has agreed to increase
the size of its Board and/or use its reasonable efforts to secure the
resignation of such number of directors as is necessary to enable Purchaser's
designees to be elected to the Company's Board of Directors and to cause
Purchaser's designees to be so elected effective immediately upon Purchaser's
acquisition of a majority of the outstanding Shares pursuant to the Offer or
otherwise. In this regard, on November 14, 1994, the Company's Board of
Directors took written action to (a) increase the number of directors of the
Company from six to nine, such increase to be effective immediately prior to
Purchaser's acquisition of a majority of the Shares, (b) elect Messrs. J. Peter
Kline, Donald J. McNamara and Robert A. Whitman (collectively, the "Purchaser
Designees"), as designees of Purchaser to fill the vacancies created by such
increase, with such elections to be effective immediately upon Purchaser's
acquisition of a majority of the Shares, and (c) accept the written resignation
as a director of the Company of each of the existing members of the Board of
Directors of the Company, such resignations being effective immediately upon
Purchaser's acquisition of a majority of the Shares; the Company has represented
to Purchaser that such action will be in effect immediately prior to Purchaser's
acquisition of a majority of the Shares. If any Purchaser Designee becomes
unable or unwilling to serve as a member of the Company's Board of Directors, it
is contemplated that an appropriate substitute will be elected to such Board in
place of such Purchaser Designee. In addition, the Company will cause the
Purchaser Designees to constitute the same percentage (rounded up to the nearest
whole number) on each of the following: (a) each committee of such Board
designated by Purchaser, (b) each board of directors of each subsidiary of the
Company designated by Purchaser, and (c) each committee of each such board
designated by Purchaser. The Company's obligations to appoint designees to the
Company's Board of Directors will be subject to Section 14(f) of the Exchange
Act and Rule 14f-1 thereunder. In this regard, the Company has prepared and
filed with the SEC an Information Statement, a copy of which is attached as
Annex A to this Schedule 14D-9 and which is incorporated herein by reference.
The Merger Agreement provides that, from the date of the Merger
Agreement to the date on which the Purchaser Designees first become directors of
the Company as described above, the
-4-
<PAGE>
Company will notify Purchaser in advance of every meeting of the Company's Board
of Directors (or any committee thereof) and will permit a representative of
Purchaser to attend, as an observer, each such meeting.
THE MERGER. The Merger Agreement provides that Merger Sub will
be merged with and into the Company in accordance with the relevant provisions
of the Delaware Law as soon as practicable following the satisfaction or waiver
of the conditions to the Merger described below under the heading "Conditions to
the Merger". Following the Merger, the Company shall continue as the surviving
corporation (the "Surviving Corporation") and the separate corporate existence
of Merger Sub will cease. The Certificate of Incorporation and By-laws of the
Company to be in effect from and after the Effective Time, until amended in
accordance with their respective terms and the Delaware Law will be the
Certificate of Incorporation and By-laws, respectively, of the Company, as
amended and restated in the form attached to the Merger Agreement. The
directors and officers of Merger Sub immediately prior to the Effective Time
shall be the initial directors and officers of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified.
As provided in the Merger Agreement, each Share issued and
outstanding immediately prior to the Effective Time (other than Shares owned by
United/Harvey or any subsidiary of the Company or held in the treasury of the
Company, all of which shall be cancelled without consideration, and other than
Dissenting Shares, as defined below) shall, by virtue of the Merger and without
any action on the part of Merger Sub, the Company or United/Harvey, be converted
into and become the right to receive the Per Share Amount, in cash, without
interest thereon and each share of common stock, par value $0.01 per share, of
Merger Sub ("Merger Sub Common Shares") issued and outstanding immediately prior
to the Effective Time will, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into and become one share of common
stock, par value $0.01 per share, of the Surviving Corporation. Each Merger Sub
Common Share held in Merger Sub's treasury or by any subsidiary of Merger Sub
immediately prior to the Effective Time will be cancelled without the payment of
any consideration therefor. The Merger Agreement provides that the Merger will
be consummated as promptly as practicable after the satisfaction or waiver of
the conditions set forth in the Merger Agreement. The Merger will become
effective at the time of filing of a certificate of merger as required by the
Delaware Law.
Any Shares held by a holder who has demanded and perfected the
right for appraisal of such Shares in accordance with the Delaware Law and who,
as of the Effective Time, has not effectively withdrawn or lost such right to
such appraisal ("Dissenting Shares") will be entitled only to such rights as are
granted by the Delaware Law. If any holder of Shares who demands appraisal of
such Shares under the Delaware Law shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to such appraisal, then, as of the
later of the Effective Time or the occurrence of such event, such holder's
Shares will automatically be converted into and represent only the right to
receive the Per Share Amount in cash, without interest thereon.
The Merger Agreement provides that if required following the
completion of the Offer, the Company shall promptly take all action necessary in
accordance with the Delaware Law and its Certificate of Incorporation and By-
laws to duly call, give notice of, convene and hold a special meeting of its
stockholders (the "United Stockholders' Meeting") to consider and vote upon the
approval and adoption of the Merger. Purchaser has agreed to cause all Shares
purchased pursuant to the Offer and all other Shares owned by the Purchaser or
any affiliate thereof to be voted in favor of the approval the Merger. If the
Minimum Condition is satisfied and Purchaser purchases the Shares pursuant to
the Offer, Purchaser will be able to effect the adoption of the Merger Agreement
(whether in its present form or as it may be amended to implement the Cash/Stock
Option or otherwise) either at a meeting of the Company's stockholders or
pursuant to written consent in lieu of such a meeting, without the affirmative
vote or consent of any other stockholder of the Company.
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CONDITIONS TO THE MERGER. Under the Merger Agreement, the
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions: (a) the Offer shall have been consummated; (b) the Merger Agreement
shall have been adopted by the requisite vote of the stockholders of the Company
if required by applicable law; (c) any waiting period (and extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated; and (d) no United States or state governmental
authority or other agency or commission or United States or state court of
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, writ, injunction or other order which is in effect and
has the effect of making the Merger or the Offer illegal or otherwise
prohibiting the consummation of the transactions contemplated by the Merger
Agreement.
REPRESENTATION AND WARRANTIES. The Merger Agreement contains
various customary representations and warranties of the parties.
Representations and warranties of Purchaser include certain matters relating to
its organization, its authority to enter into the Merger Agreement and to
consummate the transactions contemplated thereby, its filings with the SEC in
connection with the Offer, the consents and approvals required for the execution
and delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby and the availability of funds sufficient to consummate the
Offer and the Merger on the terms contemplated thereby.
Representations and warranties of United/Harvey and Merger Sub
include certain matters relating to their organization, their authority to enter
into the Merger Agreement and to consummate the transactions contemplated
thereby and the consents and approvals required for the execution and delivery
of the Merger Agreement and the consummation of the transactions contemplated
thereby.
Representations and warranties of the Company include certain
matters relating to its organization and qualification to do business, its
capitalization, its authority to enter into the Merger Agreement and to
consummate the transactions contemplated thereby, the consents and approvals
required for the execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby, its filings with the SEC,
the absence of certain changes suffered by the Company since August 31, 1994,
its litigation, employees and employee benefit plans, taxes and environmental
matters.
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger
Agreement, the Company has agreed that, during the period from the date of the
Merger Agreement to the Effective Time, except as otherwise provided in the
Merger Agreement or unless Purchaser otherwise agrees in writing, the businesses
of the Company and its subsidiaries will be conducted only in, and the Company
and its subsidiaries will not take any action except in, the ordinary course of
business consistent with past practices. The Company has further agreed that it
will (a) use its reasonable best efforts to (i) preserve substantially intact
the business organization of the Company and its subsidiaries, (ii) keep
available the services of the present officers, employees and consultants of the
Company and its subsidiaries, and (iii) preserve the present relationships of
the Company and its subsidiaries with customers, suppliers and other persons
with whom the Company or any of its subsidiaries has significant business
relations, (b) continue in full force and effect without material modification
all existing policies or binders of insurance currently maintained in respect of
the Company and each of its subsidiaries and their respective assets, and (c)
pay, and cause each of its subsidiaries to pay, its indebtedness and otherwise
discharge its liabilities punctually when and as the same become due and payable
and perform and observe, and cause each of its subsidiaries to perform and
observe, its duties and obligations under its material contracts.
By way of amplification of the foregoing, the Company has agreed
that, except as expressly contemplated by the Merger Agreement, neither the
Company nor any of its subsidiaries will, between the date of the Merger
Agreement and the Effective Time, directly or indirectly do, or propose to do,
any of the following without the prior written consent of Purchaser: (a) amend
or otherwise change its Certificate of Incorporation or By-laws; (b) issue,
sell, pledge, dispose of encumber, or authorize the
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issuance, sale, pledge, disposition or encumbrance of, (i) any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interests, of the Company or any of its subsidiaries (except for the
issuance of shares pursuant to certain options and other arrangements previously
disclosed to Purchaser), or (ii) any assets of the Company or any of its
subsidiaries (except for the sale of non-material assets in the ordinary course
of business consistent with past practices); (c) declare, set aside, make or pay
any dividend or other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock; (d) reclassify, combine,
split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock; (e)(i) acquire (by merger, consolidation
or acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof, (ii) incur any indebtedness or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation or become responsible for, the obligations of any person, or make
any loans or advances, (iii) enter into any contract or agreement (except for
certain specified contracts and agreements and except for those non-material
contracts and agreements entered into in the ordinary course of business
consistent with past practices), (iv) authorize new capital expenditures (other
than expenditures incurred in the ordinary course of business consistent with
past practices or as required by the direction or acts of a franchisor and
expenditures required by governmental direction), or (v) amend any contract,
agreement, commitment or arrangement (other than certain specified contracts and
agreements) with respect to any of the foregoing matters; (f) increase the
compensation payable or to become payable to, or grant or pay any severance or
termination pay to, the officers or employees of the Company or its subsidiaries
(except as may be necessary to comply with applicable law, except for increases
in salary or wages of employees of the Company or its subsidiaries in accordance
with existing policies or past practices, and except pursuant to terms of
contracts, policies or benefit arrangements in effect on the date of the Merger
Agreement), enter into any employment or severance agreement with, any director,
officer or other employee of the Company or any of its subsidiaries, or
establish, adopt, enter into or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any of the directors, officers or
employees of the Company or its subsidiaries (except as may be necessary to
comply with applicable law); (g) take any action other than in the ordinary
course of business consistent with past practices (none of which actions shall
be unreasonable or unusual) with respect to accounting policies or procedures
(including without limitation procedures with respect to the payment of accounts
payable and collection of accounts receivable); (h) make any tax election or
settle or compromise any tax liability; or (i) pay, discharge or satisfy any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
the same in the ordinary course of business consistent with past practices
(including payment of the Company's liabilities in accordance with their terms).
ACCESS. Pursuant to the Merger Agreement, the Company has
agreed that, from the date of the Merger Agreement to the Effective Time, it
will, and will cause its subsidiaries, officers, directors, employees, auditors
and agents to, afford the officers, employees and agents of Purchaser reasonable
access to its officers, employees, agents, properties, offices, plants and other
facilities and to all books and records, and will furnish Purchaser with all
financial, operating and other data and information as Purchaser, through its
officers, employees, or agents, may reasonably request.
EMPLOYEE BENEFIT PLANS. The Merger Agreement provides that the
Surviving Corporation will pay, in accordance with their terms, all amounts
which are or become due and payable under the terms of all written employment,
severance and termination contracts, agreements, plans, policies and commitments
of the Company and its subsidiaries with or with respect to its current or
former employees, officers and directors. The Surviving Corporation will
maintain, for at least a one year period after the Effective Time, employee
plans of the Company in effect on the date of the Merger Agreement or provide
benefits to employees of the Surviving Corporation who were employees of the
Company and its subsidiaries immediately prior to the Effective Time ("United
Employees") that are at least substantially comparable to the benefits provided
to similarly situated employees of the Surviving Corporation who are not United
Employees. In addition, from the date of the Merger Agreement and until the
Effective Time,
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the Company will use its reasonable efforts to enter into employment contracts,
effective not later than the Effective Time, with those persons identified by
United/Harvey to the Company on or before December 1, 1994, provided that the
Company's obligations under each such contract will be conditioned upon the
agreement of the employee party thereto to cancel any severance or termination
agreement between the Company and such employee in effect on the date of the
Merger Agreement.
EXCLUSIVE NEGOTIATIONS. In the Merger Agreement, the Company
represents and warrants that, on November 4, 1994, it ceased and caused to be
terminated any existing negotiations, or prior negotiations with any party
previously conducted, with respect to a business combination with the Company or
a change in control of the Company (a "Change in Control Transaction"). The
Company also agrees that, from and after the execution and delivery of the
Merger Agreement, the Company will not and will cause its affiliates and its or
their representatives not to, solicit any offers from any person or entity in
respect of, or, except as described in the following paragraph, engage in any
negotiations relating to or provide any information in respect of, any Change in
Control Transaction.
The Merger Agreement provides that if any person (other than a
person who participated in the process to which the Company selected Purchaser
to the make the Offer and effect the Merger (a "Prior Person")) publicly
announces or notifies the Company in writing that it intends to commence a
tender or exchange offer to purchase Shares on financial and legal terms which
the Company's Board of Directors determines, based upon advice from the
Company's independent financial and legal advisors, are more favorable to the
Company than those contemplated by the Merger Agreement (an "Unsolicited
Proposal"), the Company will notify Purchaser in writing of such Unsolicited
Proposal by 5:00 p.m., Eastern Time, on the business day next following the
business day on which the Company receives notice of the Unsolicited Proposal.
Any such notice given by the Company (a "Proposal Notice") is required to state
the terms and conditions of such Unsolicited Proposal and the identity of the
person making it (and to include a copy of such Unsolicited Proposal). The
Merger Agreement further provides that, if the Company's Board of Directors
determines, based upon advice from the Company's independent legal advisors,
that its fiduciary duties under applicable law require that the Company commence
negotiations with respect to such Unsolicited Proposal or furnish information in
respect thereof, Purchaser will have the option to terminate the Merger
Agreement, whereupon Purchaser will be entitled to its expenses and a
termination fee as described under the heading "Fees and Expenses" below. The
Merger Agreement also provides that, in the event that a Prior Person makes an
Unsolicited Proposal, the Company will deliver to Purchaser a Proposal Notice
with respect thereto, but will not recommend any such Unsolicited Proposal to
its stockholders.
CERTAIN OTHER AGREEMENTS. Pursuant to the Merger Agreement, each
of the Company, Purchaser, United/Harvey and Merger Sub has agreed to use its
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
or make effective as promptly as practicable the transactions contemplated by
the Merger Agreement and to obtain in a timely manner all necessary waivers,
consents and approvals and to effect all necessary registrations and filings.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides
that the limitations of liability of directors and the indemnification
provisions of the Certificate of Incorporation and the By-laws of the Surviving
Corporation will not be amended, repealed, contradicted by any other provision
of such Certificate of Incorporation or By-laws or otherwise modified for a
period of seven years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at the time of execution and
delivery of the Merger Agreement were directors, officers, employees or agents
of the Company, unless such modification is required by a change in applicable
law. The Merger Agreement further provides that the Company will to the fullest
extent permitted under applicable law or under the Company's Certificate of
Incorporation or By-laws or pursuant to the Directors/Officers Indemnification
Agreements previously entered into and in effect on the date of the Merger
Agreement and regardless of whether the Merger becomes effective, indemnify and
hold harmless, and after the Effective Time, the
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Surviving Corporation will, to the fullest extent permitted under applicable law
or under the Surviving Corporation's Certificate of Incorporation or By-laws,
indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of the Company or any of its subsidiaries against
any cost or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omissions occurring prior to the Effective Time (including, without limitation
any claim, action suit, proceeding or investigation arising out of or pertaining
to the transactions contemplated by the Merger Agreement) for a period of seven
years after the date of the Merger Agreement. Under the Merger Agreement, the
Surviving Corporation is obligated for five years after the Effective Time to
maintain in effect, if available, directors' and officers' liability insurance
substantially comparable in scope and coverage to the Company's current
directors' and officers' liability insurance policy covering those persons who
are presently covered by such policy, except that the Surviving Corporation
shall only be obligated to maintain such coverage at a cost not to exceed
$177,840 per year.
INDEMNIFICATION OF PURCHASER AND AFFILIATES. Under the Merger
Agreement, the Company has agreed to indemnify and hold harmless each of
Purchaser and its affiliates (including United/Harvey and Merger Sub), and their
respective partners, officers, directors, employees, agents, and controlling
persons from and against any loss, damage, or expense, including without
limitation reasonable attorneys' and accountants' fees suffered by any
indemnified party, (a) as a result of any action, suit, proceeding or
investigation which is based upon, relates to or results from the Merger
Agreement or any of the transactions contemplated thereby, except to the extent
that it is finally judicially determined by a court of competent jurisdiction
that the loss in question resulted from a breach by Purchaser of any of the
representations and warranties set forth in the Merger Agreement, or (b) from
and after the Effective Time, or, if applicable, the termination of the Merger
Agreement as a result of any inaccuracy in or breach of any of the
representations, warranties or covenants of the Company set forth in the Merger
Agreement.
INDEMNIFICATION OF THE COMPANY. From and after the Effective
Time, or, if applicable, the termination of the Merger Agreement, Purchaser,
United/Harvey and Merger Sub have agreed to indemnify and hold harmless the
Company and its current and future officers, directors, employees and agents
from and against damage or expense (including without limitation reasonable
attorneys' and accountants' fees) suffered by any of them as a result of any
inaccuracy in or breach of any of the representations, warranties or covenants
made by Purchaser, United/Harvey or Merger Sub under the Merger Agreement.
TERMINATION, AMENDMENT AND WAIVER. The Merger Agreement provides
that it may be terminated at any time prior to the Effective Time: (a) by mutual
consent of Purchaser, United/Harvey and the Boards of Directors of Merger Sub
and the Company; (b) by either Purchaser or the Company if (i) the Merger shall
not have been consummated by March 31, 1995; provided, however, that such right
of termination shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date, or (ii) a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action which permanently restrains, enjoins or otherwise prohibits the
transactions contemplated by the Merger Agreement; (c) by Purchaser if (i) due
to an occurrence that would result in a failure to satisfy any of the conditions
to the Offer, Purchaser shall have terminated the Offer or failed to pay for
Shares pursuant to the Offer within 180 days after the commencement of the
Offer, or (ii) prior to the purchase of Shares pursuant to the Offer, the
Company's Board of Directors shall have withdrawn or modified in a manner
adverse to Purchaser its approval or recommendation of the Offer or the Merger
or shall have recommended another offer or transaction; (d) by the Company if
(i) due to an occurrence that would result in a failure to satisfy any of the
conditions to the Offer, Purchaser shall have terminated the Offer or failed to
pay for Shares pursuant to the Offer within 180 days after the commencement of
the Offer, or (ii) prior to the purchase of Shares pursuant to the Offer, the
Company's Board of Directors shall have withdrawn its recommendation to the
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Company's stockholders to accept the Offer and shall have recommended another
offer or transaction, provided that, the Company shall not recommend another
Offer or transaction if such Offer is made by or such transaction is to be with
a Prior Person, and accordingly, may not terminate the Merger Agreement pursuant
to this provision under such circumstances; or (e) by Purchaser as described
under the heading "Exclusive Negotiations" above.
The Merger Agreement provides that it may be amended only by
action taken by Purchaser, United/Harvey and the Boards of Directors of the
Company and Merger Sub at any time before or after approval of the Merger
Agreement and by the stockholders of the Company, if required by applicable law.
The Merger Agreement provides that any party may (a) extend the
time for performance of any of the obligations or other acts of the other
parties to the Merger Agreement, (b) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement, and (c) waive
compliance with any of the agreements or conditions of the other parties
contained in the Merger Agreement.
FEES AND EXPENSES. The Merger Agreement provides that all
reasonable out-of-pocket fees, costs and expenses incurred in connection with
the Offer, the Merger Agreement and the transactions contemplated thereby will
be paid or reimbursed by the Company, except that each party will pay its own
fees, costs and expenses in the event that the Offer is not consummated.
Notwithstanding the foregoing, the Merger Agreement provides that the Company
will pay or reimburse to Purchaser an amount equal to the sum of all reasonable
documented fees, costs and expenses in an amount not to exceed $1.0 million
incurred by Purchaser and its affiliates in connection with the Merger Agreement
and the transactions contemplated thereby subsequent to October 26, 1994,
immediately upon the first to occur of: (a) prior to the acceptance for payment
of Shares pursuant to the Offer, the Company's Board of Directors having
withdrawn or modified in a manner adverse to Purchaser its approval or
recommendation of the Offer or having recommended another offer or transaction;
(b) the Company having failed to perform or comply in any material respect with
any obligation or covenant required by the Merger Agreement to be performed or
complied with by it or breached any representation or warranty of the Company
set forth in the Merger Agreement in any material respect (or with respect to
those representations and warranties qualified by material adverse effect, in
any respect); or (c) if the Merger Agreement is terminated as described under
the heading "Exclusive Negotiations" above as a result of an Unsolicited
Proposal; provided that no such payment shall be made to Purchaser if Purchaser,
United/Harvey or Merger Sub, as the case may be, shall have failed to perform or
comply in any material respect with any obligation or covenant required by the
Merger Agreement to be performed or complied with by it or breached any
representation or warranty of it set forth in the Merger Agreement in any
material respect (or with respect to those representations and warranties
qualified by material adverse effect, in any respect). In addition, the Company
will pay to Purchaser immediately upon termination of the Merger Agreement
pursuant to clause (c)(ii), (d)(ii) or (e) under the first paragraph of the
heading "Termination, Amendment and Waiver" above, an amount equal to $1.0
million if such termination occurs on or before November 30, 1994, and an amount
equal to $1.5 million if such termination occurs after November 30, 1994. The
parties have agreed that any amount to be paid as described in this paragraph
will be the exclusive remedy of Purchaser in connection with any such
termination.
GUARANTY OF PERFORMANCE. In the Merger Agreement, United/Harvey,
Merger Sub and The Hampstead Group, Inc. have, jointly and severally, (a)
represented and warranted to the Company that the representations and warranties
of Purchaser set forth in the Merger Agreement are true and correct in all
material respects, and (b) agreed to cause Purchaser to perform and comply in
all material respects with the obligations and covenants required by the Merger
Agreement to be performed or complied with by it, effective up to the Effective
Time. The provisions of the Merger Agreement described in the immediately
preceding sentence will terminate at the Effective Time and thereupon become
null and void.
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(iii) CONFIDENTIALITY AGREEMENT. The Company and an affiliate of
Purchaser, Hampstead Investments, Inc. ("HII") entered into a Confidentiality
Agreement, dated July 14, 1994 (the "Confidentiality Agreement"), relating to
HII's receipt and review of certain confidential evaluation materials and
information furnished by or on behalf of the Company (the "Evaluation
Materials"). Pursuant to the Confidentiality Agreement, HII agreed to use the
Evaluation Materials solely for the purpose of evaluating a possible investment
in the Company, to refrain from allowing such information to be used for private
use or commercial purpose and to take all appropriate measures to safeguard the
confidentiality of the Evaluation Materials. Pursuant to the Confidentiality
Agreement, HII also agreed, on behalf of itself and its principals, not to
actively engage in the purchase of Shares on the open market and not to contact
any mortgagee, note holder, bond holder, lessor or hotel franchisor of the
Company, without prior approval.
The foregoing description of the Confidentiality Agreement is
qualified in its entirety by reference to the complete text of the
Confidentiality Agreement, a copy of which has been filed as a exhibit hereto
and is incorporated herein by reference.
(iv) LETTER AGREEMENT. Purchaser, the Company and Harvey Hotel Co.,
Ltd. entered into a letter agreement dated as of November 4, 1994 (the "Letter
Agreement"). Pursuant to the Letter Agreement, the Company agreed that: (a) it
would immediately cease and cause to be terminated any existing negotiations, or
prior negotiations with any party previously conducted, with respect to a
business combination or a change in control (a "Change in Control Transaction");
(b) from the date of the Letter Agreement until the signing of a definitive
agreement, but not later than January 31, 1995 (the "Exclusivity Period"), it
would not, and it would cause its respective representatives not to, solicit any
offers from any other party relating to a Change in Control Transaction; and (c)
it would, during the Exclusivity Period, exclusively negotiate with Purchaser in
good faith to reach a definitive agreement and enter into definitive
documentation relating to a business combination, except as otherwise required
by fiduciary obligations under applicable law, as advised by counsel in respect
of Another Proposal (as hereinafter defined). The Letter Agreement also
provided that Purchaser could terminate its negotiations with the Company if the
Company were to receive an unsolicited proposal providing for a Change in
Control Transaction from any person or entity who or which was not given an
opportunity prior to the date of the Letter Agreement to propose a Change in
Control Transaction, which unsolicited proposal was on financial and legal terms
more favorable to the Company than Purchaser's proposal ("Another Proposal"),
and the Company in the exercise of its fiduciary duties under applicable law
elected to commence negotiations with respect to Another Proposal. In the event
that Purchaser were to terminate its negotiations in connection with a
Unsolicited Proposal or the Company were to enter into an agreement providing
for a Change in Control Transaction with any person other than Purchaser or its
affiliates prior to the expiration of the Exclusivity Period, the Company would
reimburse Purchaser up to $500,000 for all reasonable out-of-pocket expenses
incurred from and after October 26, 1994, relating to matters contemplated by
Purchaser's proposal to the Company. In addition, if Purchaser were to
terminate its negotiations pursuant to Another Proposal, then the Company would
pay to Purchaser a fee in an amount equal to $500,000 if Purchaser were to
receive notice of Another Proposal on or before November 10, 1994, or in an
amount equal to $1.0 million if Purchaser were to receive notice of Another
Proposal after November 10 and on or before November 20, 1994 or in an amount
equal to $1.5 million if Purchaser were to receive notice of Another Proposal
after November 20, 1994 but prior to the expiration of the Exclusivity Period.
In addition, the Company agreed to indemnify and hold Purchaser and its
affiliates harmless for any loss, cost, damage, expense (including reasonable
attorneys' fees and charges) or liability relating to, resulting from or arising
out of any action, suit or proceeding initiated by any stockholder, other
security holder or lender of the Company, any employee or former employee of the
Company or by any other person or entity based upon or relating to, in whole or
in part, facts arising out of the negotiations between Purchaser and the Company
during the Exclusivity Period or relating to the Letter Agreement.
The foregoing description of the Letter Agreement is qualified in
its entirety by reference to the complete text of the Letter Agreement, a copy
of which has been filed as an exhibit hereto and is incorporated herein by
reference.
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(v) COCKROFT AGREEMENT. Purchaser and Cockroft Consolidated
Corporation ("Cockroft Consolidated") have entered into an agreement (the
"Cockroft Agreement") pursuant to which Purchaser has agreed to provide that the
expiration date of the Offer will occur in January 1995, subject to extension
only as provided in the Merger Agreement, and further agreed that, regardless of
whether the Cash/Stock Option is made available, Purchaser will, either pursuant
to the Merger Agreement as presently in effect or otherwise, subject to
conditions no more favorable to Purchaser than those contained in the Merger
Agreement as presently in effect, provide nontendering stockholders an
opportunity following the consummation of the Offer to receive cash in an amount
at least equal to the Per Share Amount in exchange for each Share not tendered
pursuant to the Offer.
Pursuant to the Cockroft Agreement, Cockroft Consolidated has
agreed to tender pursuant to the Offer and not withdraw all of the 1,209,214
Shares held by Cockroft Consolidated (the "Cockroft Shares"), constituting
approximately 45.4% of the total number of Shares. In addition, Cockroft
Consolidated has granted to Purchaser an irrevocable option (the "Cockroft
Option") to purchase all (but not less than all) of the Cockroft Shares. The
Cockroft Option is exercisable on or after January 1, 1995 and on or prior to
March 31, 1995, provided that one of the events referred to in clause (c) (4) or
(5) under the heading "The Merger Agreement -- Conditions to the Offer" above
has occurred. The price per share payable upon the exercise of the Cockroft
Option is the greater of (a) the Per Share Amount and (b) the per share amount
of any competing offer which gives Purchaser the right to terminate the Merger
Agreement in the manner described in the second paragraph under the heading "The
Merger Agreement -- Exclusive Negotiations" above.
Pursuant to the Cockroft Agreement, Cockroft Consolidated has
represented to Purchaser that Cockroft Consolidated has good and valid title to
all of the Cockroft Shares and sole and unrestricted voting power and power of
disposition with respect thereto. In addition, Cockroft Consolidated has
agreed, prior to the expiration of the Cockroft Option, not to, among other
things, (a) sell or otherwise dispose of or encumber any of the Cockroft Shares,
(b) grant any proxy with respect to any of the Cockroft Shares (other than to
Purchaser), or (c) exercise any voting or consent rights with respect to the
Cockroft Shares in a manner inconsistent with the intent and purposes of the
Merger Agreement or the Cockroft Agreement.
Mr. Don Cockroft, Chief Executive Officer, President and a
director of the Company, Mr. Robert Cockroft and Mrs. Janet Virgin, both
directors of the Company, and Mrs. Katherine Lammons, beneficially own a
controlling interest in Cockroft Consolidated. The foregoing description of the
Cockroft Agreement is qualified in its entirety by reference to the complete
text of the Cockroft Agreement, a copy of which has been filed as an exhibit
hereto and is incorporated herein by reference.
(vi) SEVERANCE AGREEMENTS. In June 1987, the Company entered into
severance agreements with certain executive officers of the Company. Under the
agreements with Mr. Augustus B. Randle, III and Mr. J. Don Miller, they would be
entitled to severance compensation in the event that their employment is
terminated following a change in control of the Company. The amount of
compensation would be equal to a maximum of 200% of their base compensation for
the twelve months prior to the their termination. The maximum amount of
compensation which would be payable to Messrs. Randle and Miller, if their
employment were terminated, as of November 14, 1994 would be $172,000 and
$178,000, respectively, plus an additional amount for benefits.
The foregoing description of the severance agreements is
qualified in its entirety by reference to the complete text of the severance
agreements, a copy of which have been filed as exhibits hereto and are
incorporated herein by reference.
Except as set forth above, to the best knowledge of the Company,
there are no contracts, agreements or understandings or any actual or potential
conflicts of interest between the Company
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or its affiliates, and (a) the Company's executive officers, directors or
affiliates or (b) Purchaser or their respective executive officers, directors or
affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) (i) RECOMMENDATION REGARDING THE OFFER AND THE CASH MERGER. At a
special meeting of the Company's Board of Directors held on November 14, 1994,
the Board of Directors unanimously (a) determined that the Offer and the cash
Merger are in the best interests of the Company's stockholders, (b) approved the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the cash Merger, and (c) resolved to recommend that the Company's
stockholders accept the Offer. The Company's Board of Directors recommends that
the Company's stockholders accept the Offer and tender their Shares to Purchaser
in the Offer. A copy of a form of letter to stockholders communicating the
Board of Director's recommendation is filed as an exhibit to this Schedule 14D-9
and is incorporated herein by reference.
(ii) NO RECOMMENDATION REGARDING THE POSSIBLE CASH/STOCK OPTION. The
Company's Board of Directors (a) has not made and does not intend to make any
determination with respect to the Cash/Stock Option, including whether the
Cash/Stock Option or any amendment to the Merger Agreement to provide for the
Cash/Stock Option would be in the best interests of the Company's stockholders,
(b) has not approved and does not intend to approve the Cash/Stock Option or any
amendment to the Merger Agreement with respect thereto, and (c) has not made and
does not intend to make any recommendation to the Company's stockholders with
respect to the Cash/Stock Option or any amendment to the Merger Agreement with
respect thereto.
(b) (i) BACKGROUND. The Company owns and operates 25 hotel properties
located in selected cities in the Southern United States. The Company operates
hotels under the Holiday Inn, Holiday Inn Express, Days Inn, Hampton Inns,
Howard Johnson and Ramada flags. The Company's hotels are located in Atlanta,
Georgia (8 hotels), Jackson, Mississippi (4 hotels), Houston and Dallas, Texas
(8 hotels), Colorado Springs, Colorado (2 hotels), Scottsdale and Flagstaff,
Arizona (2 hotels) and Santa Barbara, California (1 hotel). In addition, the
Company owns 11 non-hotel properties, principally land, in the same cities as
the above hotel properties.
During the mid to late 1980's the hotel industry in the United States
was characterized by over-building and intense competition. Room rates remained
relatively fixed because of the intense competitive pressures, although
operating expenses tended to increase because of increases in the prevailing
wage rates and increases in the cost of other goods and services. Due to these
factors as well as the war in the Middle East and its negative impact on
domestic travel, the Company experienced poor operating results in 1990, 1991
and 1992.
As a result of these conditions and following a restructuring of the
Company's debt, in mid-1993, the Company engaged Michael S. McNulty ("McNulty"),
on an informal basis, and Geller & Co. ("GellerCo") to explore certain plans to
enhance stockholder value. The initial purpose in retaining these advisors was
to obtain a review of the Company's operations and to obtain suggestions on
improving operating results.
In July 1994, the Company retained Smith Barney Inc. ("Smith Barney")
to act as financial advisor to the Company to assist the Company in exploring
various strategic alternatives to maximize stockholder value, including the
possible sale of all or a portion of the Company's assets. On July 12, 1994,
the Company issued a press release announcing its retention of Smith Barney in
this regard.
At a Board of Directors' meeting held on September 9, 1994, the Board
reviewed the status of efforts to identify potentially desirable strategic
transactions for the Company, and the Board was advised that (a) approximately
100 persons both within and outside the hotel industry had been identified and
contacted for an indication of interest on their part with regard to a
transaction involving the Company, (b)
-13-
<PAGE>
a memorandum containing detailed information regarding the Company and its
assets, properties and operations had been distributed to approximately one-half
of the persons contacted, and (c) preliminary proposals regarding possible
transactions involving the Company had been received. At this meeting, the
Board of Directors authorized the Company's representatives to assemble and make
available to these interested parties additional information regarding the
Company.
On October 27, 1994, the Board of Directors held a special meeting at
which the Board reviewed, with its financial and legal advisors, proposals
submitted by three entities, including Purchaser, together with, among other
items, a proposed form Agreement and Plan of Merger which had been submitted to
the potential bidders. After extensive discussion, the Board authorized the
Company's representatives to continue discussions with these three entities.
A special meeting of the Board of Directors was held on November 1,
1994, at which the Board reviewed the newly revised terms of the three
proposals, two of which were all-cash proposals. One of the all-cash proposals
was from Purchaser. Following this Board meeting on November 1, 1994, the
Company issued a press release announcing that it had entered into negotiations
regarding an all-cash business combination, a copy of which is attached to this
Schedule 14D-9 as an exhibit and is incorporated herein by reference.
On November 3, 1994, the Board of Directors held a special meeting to
review the status of the discussions with the two all-cash bidders. The
November 3 special meeting of the Board of Directors was reconvened on November
4, 1994 to review the final proposals of the two all-cash bidders. The Board of
Directors extensively discussed the terms and conditions of the two final
proposals. At the conclusion of this meeting, the Board of Directors authorized
the Company's representatives to negotiate with Purchaser or its affiliates the
terms of an agreement whereby the Company would agree under certain
circumstances not to solicit or enter into or continue negotiations with respect
to alternative proposals (a "no-shop agreement"), as well as the terms of a
definitive Merger Agreement.
Following this Board meeting on November 4, 1994, the Company's
representatives negotiated the terms of, and the Company entered into, a no-shop
agreement with The Hampstead/Harvey Group, an affiliate of Purchaser, in the
form of the letter agreement, a copy of which is attached as an exhibit hereto
and which is incorporated herein by reference. On that date, the Company issued
a press release with respect to this no-shop agreement, a copy of which is
attached hereto and which is incorporated herein by reference. Also, during the
ensuing ten days, the Company's representatives negotiated with representatives
of Purchaser the terms of the Merger Agreement, a copy of which is attached as
an exhibit hereto and which is incorporated herein by reference.
At a special meeting of the Board of Directors held on November 14,
1994, Smith Barney delivered to the Board its written opinion to the effect
that, as of such date and based upon and subject to certain matters stated in
such opinion, the cash consideration to be received by holders of Shares
pursuant to the Offer and the Merger was fair to such stockholders from a
financial point of view.
Following considerable deliberation at this November 14 Board of
Directors' meeting, the Board unanimously (a) determined that the Offer and the
cash Merger are in the best interests of the Company's stockholders, (b)
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the cash Merger, and (c) resolved to recommend that the
Company's stockholders accept the Offer. Following the conclusion of this
meeting, on November 14, 1994, the parties entered into the Merger Agreement and
later that afternoon, the Company issued a press release announcing the
execution of the Merger Agreement, a copy of which is attached hereto and which
is incorporated herein by reference.
(ii) REASONS FOR RECOMMENDATION REGARDING THE OFFER AND THE CASH
MERGER. On November 14, 1994, the Company's Board of Directors met to review
the terms of the Merger Agreement
-14-
<PAGE>
(including all Annexes, Schedules and Exhibits thereto) which had been
previously distributed to the Board. Prior to approving the Merger Agreement
and the transactions contemplated thereby, the Board of Directors reviewed the
terms and conditions of the Offer and the Merger with the Company's management,
legal counsel and financial advisor. In reaching its conclusion set forth in
Item 4(a) (i) above, the Board of Directors considered a number of factors,
including, without limitation, the following:
(a) The Company's industry profile, including an analysis of the
Company's competitive position in the hotel industry and the necessity for
substantial capital improvements to be made to upgrade a number of the Company's
hotel properties.
(b) The Board's belief that the process undertaken by the Company in
obtaining proposals with respect to a business combination with the Company was
comprehensive and that, after consultation with Smith Barney based on its
involvement in such process, the Company had received the best and final offer
from interested parties.
(c) The Board's belief that the Offer represents an attractive
opportunity for stockholders to promptly receive fair value in cash for their
investment in light of the Company's current and prospective financial condition
and the inherent risks in the hotel industry.
(d) A review of various financial and other considerations, including
the Company's historical and recent stock prices, values placed by the market on
certain other publicly-traded hotel companies and a comparative analysis of the
capitalization rate (based on the earnings of the Company before income taxes,
depreciation and amortization) of the Company's cash flow as compared to the
capitalization rate of other similarly situated companies.
(e) The written opinion of Smith Barney dated November 14, 1994, to
the effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the cash consideration to be received by holders of
Shares in the Offer and the Merger was fair to such stockholders from a
financial point of view. The full text of Smith Barney's written opinion, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by Smith Barney, is attached as an exhibit hereto and is
incorporated herein by reference. Smith Barney's opinion is directed only to
the fairness, from a financial point of view, of the cash consideration to be
received by holders of Shares pursuant to the transactions contemplated by the
Merger Agreement and is not intended to constitute, and does not constitute, a
recommendation as to whether any stockholder should tender Shares pursuant to
the Offer. Stockholders are urged to read such opinion carefully in its
entirety.
(f) The fact that the consideration to be paid to the Company's
stockholders in the Offer is all cash and is for all of the outstanding Shares.
(g) The terms and conditions of the Offer and the Merger Agreement,
which the Board believes are fair and reasonable, including the absence of any
financing condition.
(h) The provisions of the Merger Agreement that could have a
detrimental effect on third parties who might be interested in a proposed
business combination with the Company. These provisions include the obligation
of the Company to pay a termination fee of up to $1.5 million and reimburse
Purchaser for its out-of-pocket expenses up to $1.0 million if the Offer does
not go forward under certain circumstances. In addition, the Company has agreed
not to solicit or engage in any negotiations relating to or providing
information with respect of any "change of control" transaction except in the
event that the Company receives an unsolicited proposal regarding a business
combination from a person or an entity (other than a person or entity which
participated in the solicitation process described above), in which event, in
the exercise of its fiduciary duties under applicable law, the Company may
commence negotiations with such person or entity submitting the unsolicited
proposal. In that event, Purchaser will have the option to terminate the Merger
Agreement and be reimbursed for its expenses and be paid a termination fee (as
-15-
<PAGE>
described above). The Company has further agreed that if a person or entity
which participated in the solicitation process as described above makes an
unsolicited proposal, the Company will not make a positive recommendation to its
stockholders with respect to such unsolicited proposal. The Board recognized
that these and certain other terms were required by Purchaser as a condition to
entering into the Merger Agreement.
In view of the wide variety of factors considered in connection with
its evaluation of the Offer and the Merger, the Board of Directors did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
(iii) REASONS FOR NO RECOMMENDATION REGARDING THE POSSIBLE CASH/STOCK
OPTION. In determining not to approve or make any recommendation regarding the
Cash/Stock Option, the Board of Directors considered a number of factors,
including, without limitation, the following:
(a) The fact that the Company has not assessed and does not intend to
assess the value of any noncash consideration that may be received by holders of
Shares pursuant to the Merger or any other transaction if the Merger Agreement
is amended to provide for the Cash/Stock Option or otherwise.
(b) The fact that the written opinion of Smith Barney does not
address and is not intended to address the fairness, from a financial point of
view, to the holders of Shares of any noncash consideration that may be received
by such stockholders pursuant to the Merger or any other transaction if the
Merger Agreement is amended to provide for the Cash/Stock Option or otherwise,
and the fact that Purchaser has not sought or obtained any advice or opinion
from an independent financial advisor with respect thereto.
(c) The fact that as described in the Offer to Purchase, whether
Purchaser will amend the Merger Agreement to provide for the Cash/Stock Option
will depend upon a number of factors and will be subject to compliance with
applicable legal requirements, and Purchaser states that no assurance can be
given as to whether the Cash/Stock Option will be made available or, if so, the
timing thereof.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Smith Barney as financial advisor to the Company to
furnish financial advisory and investment banking services in connection with a
potential sale or other transfer of all or substantially all of the outstanding
capital stock or assets of the Company to one or more potential purchasers (a
"Transaction"). The Company has agreed to pay Smith Barney for its services an
aggregate financial advisory fee in an amount equal to 1.25% of the total
proceeds and other consideration paid or received in connection with a
Transaction which occurs during Smith Barney's engagement or, with respect to
certain parties, during a period of 12 months thereafter. The Company also has
agreed to reimburse Smith Barney for its reasonable out-of-pocket expenses
(including reasonable travel and legal expenses) and to indemnify Smith Barney
and certain related parties against certain liabilities, including liabilities
under the federal securities laws, arising out of Smith Barney's engagement.
Pursuant to a Consulting Agreement, dated August 13, 1993 (the "Geller
Consulting Agreement"), the Company retained GellerCo for a one-year period as a
financial advisor to the Company to develop and assist in the implementation of
a strategic plan for the future operation of the Company. Under the Geller
Consulting Agreement, the Company agreed to pay GellerCo a monthly retainer of
$12,500 and awarded GellerCo 25,000 shares of Common Stock and granted to
GellerCo options to purchase 35,000 shares of Common Stock. On August 31, 1994,
Smith Barney, GellerCo, Laurence Geller (together with GellerCo, "Geller") and
the Company entered into a compensation agreement (the "Compensation
Agreement"), pursuant to which the parties agreed, among other things, that
Geller would receive a fee from Smith Barney equal to 20% of the Transaction Fee
received by Smith Barney from the Company in the event that the Company
successfully completes a Transaction within 12 months of the of the date of the
Compensation Agreement.
-16-
<PAGE>
In July 1994, the Company formally retained Michael S. McNulty ("McNulty")
to explore certain plans for the Company's operations to enhance stockholder
value. In consideration for such services, the Company has agreed to pay
McNulty a fee of $124,000 and an additional incentive bonus of $50,000 upon
completion of the Offer by Purchaser.
Except as set forth above, neither the Company nor any person acting on its
behalf intends to employ, retain or compensate any person to make solicitations
or recommendations to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Pursuant to the Geller Consulting Agreement, on August 13, 1994,
25,000 shares of the Company's Common Stock issued to GellerCo became fully
vested and options to purchase 35,000 shares of the Company's Common Stock
granted to GellerCo became exercisable, at an exercise price of $4.55 per share.
The Common Stock issued and issuable upon the exercise of options to GellerCo is
required to be registered under the Securities Act. In connection with the
foregoing, the Company filed a Registration Statement on Form S-1 (Reg. No. 33-
54925), with the SEC on August 4, 1994, as amended by Amendment No. 1 thereto
filed with the SEC on September 26, 1994, Amendment No. 2 thereto filed with the
SEC on October 13, 1994, Amendment No. 3 thereto filed with the SEC on October
31, 1994, and Amendment No. 4 thereto filed with the SEC on November 4, 1994.
On February 11, 1994, the Company granted pursuant to its 1993 Stock
Incentive Plan to each of four directors of the Company, Robert L. Cockroft,
Howard W. Loveless, Janet C. Virgin and Robert J. Wareham, an option to purchase
up to 1,000 shares of Common Stock at an exercise price of $12.87 per share.
All such options become immediately exercisable upon a Change in Control as
defined in the 1993 Stock Incentive Plan.
On November 21, 1994, Purchaser and Cockroft Consolidated entered into
the Cockroft Agreement. See Item 3 above for a description of the Cockroft
Agreement.
Except as set forth above, to the best of the Company's knowledge,
neither the Company nor any director, executive officer, affiliate or subsidiary
of the Company has effected transactions in the Shares during the past 60 days.
(b) To the best of the Company's knowledge, GellerCo and each of the
directors described in Item 6(a) intend to exercise his/her option and tender at
least a majority of all Shares held of record or beneficially by them pursuant
to the Offer. To the best of the Company's knowledge, its executive officers,
other directors and affiliates currently intend to tender at least a majority of
all Shares held of record or beneficially by them pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) On November 14, 1994, the Company, Purchaser, United/Harvey and Merger
Sub entered into the Merger Agreement. See Item 3 above for a description of
the Merger Agreement and certain other agreements and transactions relating
thereto.
Except as described in Items 2 and 3(b) above, no negotiation is
underway or is being undertaken by the Company in response to the Offer which
relates to or could result in: (i) an extraordinary transaction such as a merger
or reorganization, involving the Company or any of its subsidiaries; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
of its subsidiaries; (iii) a tender offer for or other acquisition of securities
by or of the Company; or (iv) any material change in the present capitalization
or dividend policy of the Company.
-17-
<PAGE>
(b) Except as described in Items 3(b) and 4 hereof, there are no
transactions, board resolutions, agreements in principle or signed contracts in
response to the Offer, which relate to or would result in one or more of the
matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT DESCRIPTION
NO.
1. Agreement and Plan of Merger among the Company, Purchaser,
United/Harvey and Merger Sub, dated as of November 14, 1994.
2. Press release issued by the Company on November 1, 1994.
3. Press release issued by the Company on November 4, 1994.
4. Press release issued by the Company and Purchaser on November 14,
1994.
5. Confidentiality Agreement between the Company and HII, dated July
14, 1994.
6. Letter agreement among the Company, Purchaser and Harvey Hotel
Co., Ltd., dated November 4, 1994.
7. Agreement between Purchaser and Cockroft Consolidated, dated
November 21, 1994.
8. Agreement between the Company and Augustus B. Randle, III, dated
June 1, 1987.
9. Agreement between the Company and J. Don Miller, dated June 1,
1987.
*10. Letter from the Company to the Company's stockholders, dated
November 22, 1994.
*11. Opinion of Smith Barney Inc., dated November 14, 1994.
______________________
* Exhibits 10 and 11 are being distributed to all stockholders.
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: November 23, 1994 UNITED INNS, INC.
By: /s/ Don Wm. Cockroft
-----------------------------
Don Wm. Cockroft
President, Chief Executive
Officer and Director
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<PAGE>
ANNEX A
UNITED INNS, INC.
5100 Poplar Avenue
Suite 2300, Clark Tower
Memphis, Tennessee 38137
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement, which is being mailed on or about November 23,
1994 to holders of record of shares of Common Stock as of November 10, 1994, is
being furnished in connection with the possible designation by Purchaser
pursuant to an Agreement and Plan of Merger, dated as of November 14, 1994 (the
"Merger Agreement"), among United Inns, Inc. (the "Company"), United/Harvey
Holdings, L.P. ("Purchaser"), United/Harvey Hotels, Inc. ("United/Harvey") and
United/Harvey Sub, Inc. ("Merger Sub") of certain persons to be elected to the
Board of Directors (the "Board") of the Company by means other than through a
meeting of the Company's stockholders. This Information Statement is being
distributed with the Company's Schedule 14D-9, to which this Information
Statement is attached as Annex A thereto.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer
on November 21, 1994 to acquire all of the issued and outstanding shares of
Common Stock (the "Shares") at a price of $25.00 per Share (such amount, or such
other amount in cash as Purchaser may pay pursuant to the Offer, being
hereinafter referred to as the "Per Share Amount"), net to the seller thereof in
cash, upon the terms and subject to the conditions set forth in Purchaser's
Offer to Purchase, dated November 21, 1994, and the related Letter of
Transmittal. The Merger Agreement also provides that after completion of the
Offer, subject to the terms and conditions set forth in the Merger Agreement,
Merger Sub will be merged with and into the Company and the Company will survive
as the surviving corporation (the "Surviving Corporation"). Each outstanding
Share, other than those held by United/Harvey or in the treasury of the Company
or by any subsidiary of the Company (all of which will be cancelled) and other
than Shares held by holders who have demanded and perfected and not withdrawn or
lost the right for appraisal of such Shares under the Delaware General
Corporation Law, will be converted at the effective time (the "Effective Time")
of the Merger into the right to receive the Per Share Amount, in cash, without
interest thereon.
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of a majority of the outstanding Shares pursuant to the Offer (the "Share
Acquisition"), Purchaser shall be entitled, subject to compliance with
applicable law, to designate up to that number of members, rounded up to the
nearest whole number, of the Board as will make the percentage of the members
designated by Purchaser equal to the percentage of outstanding Shares held by
Purchaser and its affiliates (other than the Company and its subsidiaries). The
Company has agreed to increase the size of its Board and/or use its reasonable
efforts to secure the resignation of such number of directors as is necessary to
enable Purchaser's designees to be elected to the Board and will cause
Purchaser's designees to be so elected effective immediately upon Purchaser's
acquisition of a majority of the outstanding Shares pursuant to the Offer or
otherwise. In connection with the foregoing, the Board has taken written action
to (a) increase the number of directors of the Company from six to nine, such
increase to be effective immediately prior to the Share Acquisition, (b) elect
Messrs. J. Peter Kline, Donald J. McNamara and Robert A. Whitman (collectively,
the "Purchaser Designees"), as designees of Purchaser, to fill the vacancies
created by such increase, with such elections to be effective immediately upon
the Share Acquisition, and (c) accept the written resignation as a director of
the Company of each of the existing members of the Board, such resignations
being effective immediately upon the Share Acquisition; the Company has
represented to Purchaser that such action
<PAGE>
will be in effect immediately prior to the Share Acquisition. In addition, the
Company has agreed to cause persons designated by Purchaser to constitute the
same percentage (rounded up to the nearest whole number) on each of the
following as the designees of Purchaser then constitutes on the Board: (a) each
committee of such Board designated by Purchaser, (b) each board of directors of
each subsidiary designated by Purchaser, and (c) each committee of each such
board designated by Purchaser. The Company's obligation to appoint Purchaser
Designees to its Board is subject to Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14f-1 promulgated
thereunder.
No action is required by the stockholders of the Company in connection with
the election of the Purchaser Designees to the Board. However, Section 14(f) of
the Exchange Act requires the mailing to the Company's stockholders of the
information set forth in this Information Statement prior to a change of a
majority of the Company's directors.
The purpose of this Information Statement is to satisfy the requirements of
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in
connection with the reconstitution of the Board pursuant to the Merger
Agreement, and to provide information regarding the Board and executive officers
of the Company and the Purchaser Designees. The information contained in this
Information Statement concerning the Purchaser Designees has been furnished to
the Company by Purchaser and the Company assumes no responsibility for the
accuracy or completeness of such information and Purchaser shall be solely
responsible for such information.
BOARD OF DIRECTORS
General
The shares of Common Stock are the only class of voting securities of the
Company outstanding. Each share of Common Stock is entitled to one vote on each
matter to be considered at meetings of stockholders, including the election of
directors. As of November 14, 1994, there were 2,665,899 shares of Common Stock
outstanding.
The Certificate of Incorporation of the Company provides that directors of
the Company shall be not less than three nor more than ten and shall be elected
by the stockholders at their annual meeting to serve for a term of one year or
until their successors are duly elected and qualified.
Directors and Executive Officers of the Company as of November 14, 1994
The following table sets forth certain information with respect to each of
the current directors and executive officers of the Company including their
names, ages, principal occupations for the past five years, (in the case of
directors) their directorships with other corporations and their terms as
directors and executive officers:
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING EXECUTIVE
THE PAST FIVE YEARS DIRECTOR OFFICER
NAME AGE AND OTHER DIRECTORSHIP SINCE SINCE
- ---- --- --------------------------- ----- -----
<S> <C> <C> <C> <C>
DIRECTORS:
- ---------
Don Wm. Cockroft 56 President and Chief Executive Officer of 1967 1966
(a) the Company (brother of Robert L. Cockroft
and Janet C. Virgin, brother-in-law of
J. Howard Lammons)
J. Howard Lammons 65 Private investor (brother-in-law of Don 1957 --
(a) Wm. Cockroft, Robert L. Cockroft and
Janet C. Virgin); Advisory Director of
Memphis, NationsBank of TN
Robert L. Cockroft 53 Physician - Memphis Radiological 1971 --
(c) Professional Corporation (brother of Don
Wm. Cockroft and Janet C. Virgin,
brother-in-law of J. Howard Lammons)
Howard W. Loveless 67 Private consultant 1977 --
(b) and (c)
Janet C. Virgin 60 Private investor (sister of Don Wm. 1991 --
(a) Cockroft and Robert L. Cockroft,
sister-in-law of J. Howard Lammons)
Ronald J. Wareham 50 President - R.J. Wareham & Company, 1993 --
(a),(b) and (c) Incorporated, a corporate financial
advisory firm
NON-DIRECTOR
- ------------
EXECUTIVE OFFICERS:
- ------------------
Augustus B. Randle, 53 Secretary and General Counsel -- 1972
III
J. Don Miller 59 Vice President-Finance -- 1975
John M. Dollar 53 Vice President -- 1973
<FN>
(a) Member of the Executive Committee of the Board.
(b) Member of the Audit Committee of the Board.
(c) Member of the Compensation Committee of the Board.
</TABLE>
THE ABOVE DIRECTORS AND EXECUTIVE OFFICERS HAVE HAD THE PRINCIPAL
OCCUPATIONS SET FORTH ABOVE FOR AT LEAST FIVE YEARS, EXCEPT FOR MR. WAREHAM, MR.
LAMMONS AND MR. LOVELESS. MR. WAREHAM HAS BEEN PRESIDENT OF R.J. WAREHAM &
COMPANY, INCORPORATED, A CORPORATE FINANCIAL ADVISORY FIRM SINCE 1991. FROM
1984 TO 1991, HE WAS A MANAGING DIRECTOR OF DEAN WITTER REYNOLDS' CORPORATE
FINANCE OFFICE IN ATLANTA, GEORGIA. MR. LAMMONS HAS BEEN PRINCIPALLY INVOLVED
IN PRIVATE INVESTMENT ACTIVITIES SINCE HIS RETIREMENT FROM THE COMPANY IN MARCH
1994. PRIOR TO HIS RETIREMENT, MR. LAMMONS SERVED AS EXECUTIVE VICE-PRESIDENT
OF THE COMPANY SINCE 1978. MR. LOVELESS HAS BEEN PRINCIPALLY INVOLVED IN
PRIVATE CONSULTING
-3-
<PAGE>
ACTIVITIES SINCE JANUARY 1, 1994. PRIOR TO THAT DATE AND FOR OVER FIVE YEARS,
MR. LOVELESS SERVED AS PRESIDENT OF HAAS, INC., A PRIVATE INVESTMENT ADVISORY
COMPANY.
INDIVIDUALS DESIGNATED BY PURCHASER AS PURCHASER DESIGNEES
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO EACH OF
THE PURCHASER DESIGNEES INCLUDING THEIR NAMES, AGES, PRINCIPAL OCCUPATIONS FOR
THE PAST FIVE YEARS AND THEIR DIRECTORSHIPS WITH OTHER CORPORATIONS:
PRINCIPAL OCCUPATION DURING
THE PAST FIVE YEARS
NAME AGE AND OTHER DIRECTORSHIPS
- ---- --- ----------------------------
Donald J. McNamara 41 Chairman of the Board of
Directors and Co-Chief
Executive Officer of The
Hampstead Group, Inc. (which
makes and manages real estate
and health-care related
investments); director of
LaQuinta Inns, Inc. (which
owns and operates hotels);
director of Forum Retirement,
Inc., the general partner of
Forum Retirement Partners,
L.P., a public master limited
partnership (which owns
retirement communities)
director of FelCor Suite
Hotels (a real estate
investment trust).
Robert A. Whitman 41 President and Co-Chief
Executive Officer of The
Hampstead Group, Inc., from
1992 to present; Chairman of
the Board of Forum Group, Inc.
(which owns and operates
retirement communities) from
June 1993 to present;
President and Chief Executive
Officer of Forum Group, Inc.
from June 1993 to October
1994; Managing Partner and
Chief Executive Officer for
Trammel Crow Ventures (the
real estate investment,
banking and investment
management unit of the Trammel
Crow Company) from prior to
1989 to 1992; and Chief
Financial Officer for Trammel
Crow Group and Trammel Crow
Company from prior to 1988 to
1991.
J. Peter Kline 47 President of Harvey Hotels,
Inc., (which owns and operates
hotels) from prior to 1983 to
present.
Meetings and Committees of the Board
-4-
<PAGE>
The Company's Board conducted nine meetings during fiscal year 1994, four
of which were regular meetings and five of which were special meetings of the
Board. Each of the directors attended at least 75% of the meetings of the Board
and any Committee of the Board on which they serve, except for Mr. Loveless who
attended 66-2/3% of the Board meetings.
Among the three Committees of the Board are an Executive Committee, an
Audit Committee and a Compensation Committee. The Company does not have a
standing Nominating Committee of the Board of Directors. The Audit Committee
(a) meets and reviews with the independent auditors their audit and non-audit
services, (b) meets and reviews with management the audit and non-audit
services, (c) meets and reviews with management the audit and non-audit services
of the independent auditors, and (d) makes such recommendations to management
and the independent auditors as it deems appropriate. The Audit Committee held
one meeting during fiscal year 1994. The Compensation Committee determines the
salaries, bonuses and other remuneration of the officers of the Company,
administers the Company's Bonus Plan, and makes recommendations to the Board
with respect to the Company's compensation policies. The Compensation Committee
held one meeting during fiscal year 1994.
Compensation of Directors
For fiscal year 1994 all directors are to be paid a fee of $750 for each
Board meeting attended. In addition, directors who are not employees of the
Company are to be paid a quarterly fee of $1,500, plus $400 for each Board
Committee meeting attended.
The Company has a consulting arrangement with R.J. Wareham & Company,
Incorporated ("Wareham & Co."), under the terms of which Wareham & Co. is to be
paid by the Company for Ronald J. Wareham's time and expenses for financial
advice to the Company related to a variety of corporate projects. Mr. Wareham
is the sole shareholder of Wareham & Co. The Company has made payments in the
aggregate amount of $26,450 to Wareham & Co., during the Company's fiscal year
ended September 30, 1994.
The Company's 1993 Stock Incentive Plan provides that each director who is
not also an employee of the Company and who is incumbent at the date of each of
the five consecutive annual meetings of stockholders beginning with the
Company's 1994 annual meeting of stockholders shall automatically be granted,
immediately after the conclusion of each such annual meeting, an option to
purchase 1,000 shares of Common Stock. In connection with the Company's 1994
annual meeting of stockholders held on February 11, 1994, the Company granted to
each of Robert L. Cockroft, Howard W. Loveless, Janet C. Virgin and Ronald J.
Wareham, an option to purchase up to 1,000 shares of Common Stock at an exercise
price of $12.87 per share of Common Stock.
-5-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and its other most highly
compensated executive officer, whose total annual salary and bonus for the
Company's 1994 fiscal year exceeded $100,000, for services rendered in all
capacities during the fiscal years ended September 30, 1994, 1993 and 1992.
Annual Compensation
<TABLE>
<CAPTION>
ALL OTHER
FISCAL SALARY COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(2) ($)(1)(3)
- --------------------------- ------ ------ ---------
<S> <C> <C> <C>
Don Wm. Cockroft 1994 233,250 11,174
President and Chief Executive 1993 216,000 169,262
Officer 1992 216,000
John M. Dollar 1994 117,167 8,272
Vice President 1993 113,000 47,191
1992 113,000
<FN>
(1) In accordance with transitional provisions of the rules of the Securities
and Exchange Commission (the "SEC") on executive compensation disclosure,
amounts of All Other Compensation have not been included for fiscal year
1992.
(2) Salary includes base salary earned and paid in cash during the fiscal year
and the amount of base salary deferred at the election of the executive
officer under the United Inns, Inc. Retirement Savings Plan (401(K) Plan)
for fiscal years 1992, 1993, and 1994.
(3) All Other Compensation consists of (a) the amount ($3,585) in insurance
premiums provided to each executive officer through the Company's Group
Health Insurance Plan that is not available generally to all salaried
employees, and (b) matching contributions to the United Inns, Inc.
Retirement Savings Plan (401(K) Plan); Such amounts, respectively were as
follows for 1994: Mr. Cockroft, $7,589; and Mr. Dollar, $4,687.
</TABLE>
REPORT ON EXECUTIVE COMPENSATION OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The compensation of the Company's executives consists of three basic
components: base salary, an executive bonus plan, if applicable, and long-term
incentives. The Compensation Committee of the Board, based upon recommendations
of the chief executive officer of the Company, determines the compensation of
the executive officers of the Company, approves the funding of the executive
bonus plan, if applicable, determines the awards of long-term incentives and the
individuals to whom such awards are made, and establishes the compensation of
the chief executive officer of the Company. For fiscal year 1994, the members
of the Company's Compensation Committee were Mr. Howard W. Loveless, who was the
Chairman, and Messrs. Robert L. Cockroft and Ronald J. Wareham.
Base Salary
The establishment of competitive base compensation for the Company's
executives is the primary objective in setting base salaries. The Company
considers a number of factors to determine base salary including company and
individual performance, business conditions, the relative importance of an
executive officer's position, the extent of accountability of the position and
the skills required to perform the duties of the position.
-6-
<PAGE>
None of the factors mentioned above is given any particular weight in
determining base compensation. Other factors also may influence such
determination, such as the relative extent of an individual's experience or a
desire to retain a valuable executive.
Executive Bonus Plan
The Company has an executive bonus plan under which individual
discretionary awards can be made to the full-time executive officers of the
Company. The sum to be distributed ranges from 1% to 3% of the consolidated net
income of the Company before income taxes. No cash amounts have been paid under
such plan since fiscal year ending September 30, 1985.
Long-Term Incentives
Stock options are authorized to be granted as long-term incentives to
certain key employees of the Company, including executive officers, under the
Company's 1993 Stock Incentive Plan (the "1993 Plan"). Under the terms of this
plan, the Company may grant options to key employees (determined by the
Compensation Committee) to purchase such number of shares of the Common Stock of
the Company as is determined by the Compensation Committee.
The number of shares for which options will be granted to executive
officers will be determined by the Compensation Committee based upon
performance, potential and other subjective factors. However, no set criteria
will be used and other factors may influence the Compensation Committee's
determination with respect to the number of shares granted, such as the
promotion of an individual to a higher position, a desire to retain a valued
executive or the number of shares then available for grant under 1993 Plan. The
stock option holdings of an individual at the time of a grant will not generally
be considered in determining the size of a grant to that individual.
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Information
Statement into any filing under the Securities Act of 1933, as amended, or under
the Exchange Act, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The following graph shows changes over the past five fiscal years in the
value of $100 invested on September 30, 1989, in (a) the Common Stock, (b) the
Standard & Poor's 500 Composite Index, and (c) the Dow Jones Lodging Index.
-7-
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE COMPANY, THE S&P 500 INDEX
AND THE DOW JONES LODGING INDEX
<TABLE>
<CAPTION>
9/89 9/90 9/91 9/92 9/93 9/94
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
S&P 500 100 91 119 132 149 155
D J Lodging 100 32 47 55 79 100
Company 100 31 13 7 20 56
</TABLE>
* $100 INVESTED ON 9/30/89 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS
FISCAL YEAR ENDING SEPTEMBER 30.
EMPLOYEE BENEFIT PLANS
The material which follows in this section describes the provisions of
employee benefit plans now in effect, or in effect during the Company's last
fiscal year, other than group life and accident insurance, group hospitalization
and other similar group payments and benefits, in which some or all of the
employees of the Company participate.
1993 Stock Incentive Plan
On November 19, 1993, the Company's Board of Directors adopted the 1993
Plan, which was approved by the Company's stockholders at the Company's annual
meeting of stockholders held on February 11, 1994 (the "1994 Annual Meeting").
The 1993 Plan provides for the granting of options to purchase for cash an
aggregate of not more than 300,000 shares of Common Stock. Such options may be
granted to key employees, including officers of the Company and its
subsidiaries, as may be designated by the Compensation Committee of the Board.
At November 14, 1994, the Company had granted an aggregate
-8-
<PAGE>
of 4,000 options to non-employee directors of the Company at an exercise price
of $12.87 per share of Common Stock.
Under the terms of the 1993 Plan, the Compensation Committee may from time
to time grant options to key employees to purchase Common Stock at a price which
may not be less than the fair market value of the shares, as determined by the
mean between the high and low prices of the stock on the New York Stock Exchange
on the date the option is granted. In addition, the 1993 Plan provides that
each director who is not also an employee of the Company and who is incumbent at
the date of each of the five consecutive annual meetings of stockholders
beginning with the 1994 Annual Meeting shall automatically be granted,
immediately after the conclusion of each such annual meeting, an option to
purchase 1,000 Shares. Each person who is not also an employee of the Company
and who is elected or appointed a director during such five-year period other
than at an annual meeting shall, upon such election or appointment, be granted
an option to purchase 1,000 shares of Common Stock. The exercise price of
options granted to directors under the 1993 Plan must be equal to the mean
between the high and low prices of the stock on the New York Stock Exchange on
the date of grant of the option and the right to exercise such options will vest
one year from the date of the grant, if not earlier upon the occurrence of
certain specified events as described below.
Options may not be exercised later than five years after the date of grant.
Subject to the limitations imposed by the provisions of the Internal Revenue
Code, certain of the options granted under the 1993 Plan to key employees may be
designated "incentive stock options." The Company may make interest-free demand
loans to holders of options not designated as incentive stock options for the
purpose of exercising such options and paying any tax liability associated with
such exercise
Except as provided herein, no option may be exercised until the optionee
has completed one year of service after the option is granted, except in the
case of termination of an employee's employment or a director's directorship
because of death or disability, nor may an option be exercised after termination
of an employee's employment or a director's directorship for any reason other
than death, disability, retirement or for cause. Options may be exercised
within twelve months (a) after the optionee retires, (b) after termination of an
employee's employment or a director's directorship on account of permanent
disability, or (c) after death when in the service of the Company or any of its
subsidiaries. Options may also be exercised within three months after
termination of an employee's employment or director's directorship if
termination is for reasons other than death, disability or retirement so long as
such termination is not for cause, as determined by the Compensation Committee.
If termination is for cause, all unexercised options of optionee terminated for
cause shall immediately terminate and be of no further force or effect. In the
event of death within the twelve-month period following termination of an
employee's employment or a director's directorship for retirement or permanent
disability, options may be exercised by the optionee's legal representative
within twelve months following the date of death. However, under no
circumstances may an option be exercised after the expiration of the stated
period of the option.
No cash consideration is paid for the granting of the options. Payment in
full of the option price must be made upon exercise of any option.
The 1993 Plan provides for the use of treasury shares.
No options or awards may be granted under the 1993 Plan after October 1,
2003, but options or awards granted prior to October 1, 2003, may extend beyond
that date. The 1993 Plan may be discontinued by the Company's Board of
Directors, but no termination may impair options or awards granted prior
thereto.
-9-
<PAGE>
Upon the occurrence of a Change in Control (as defined in the 1993 Plan) of
the Company, each holder of an unexpired option under the 1993 Plan will have
the right to exercise the option in whole or in part without regard to the date
that such option would be first exercisable, except no option may be exercised
less than six months from the date of grant, and such right will continue, with
respect to any such holder whose employment with the Company or subsidiary or
whose directorship terminates following a change in control, for a period ending
on the earlier of the date of expiration of such option or the date which is
twelve months after such termination of employment or directorship.
The Compensation Committee may alter or amend the 1993 Plan at any time.
No amendment by the Compensation Committee, however, may increase the total
number of shares reserved for purposes of the 1993 Plan, reduce the option price
to an amount less than the fair market value at the time the option was granted,
extend the duration of the 1993 Plan or modify the provision for the automatic
grant of options to directors, unless such amendment is approved by the
stockholders. No amendment or alteration may impair the rights of optionees
with respect to options theretofore granted, except the Compensation Committee
may revoke and cancel any outstanding options which, in the aggregate, would
create a significant adverse effect on the Company's financial statement in the
event that the Financial Accounting Standards Board issues a statement requiring
an accounting treatment which causes such adverse effect with respect to options
then outstanding. The Compensation Committee has the power to interpret the
1993 Plan and to make all other determinations necessary or advisable for its
administration.
Under current federal tax law, non-incentive stock options granted under
the 1993 Plan will not result in any taxable income to the optionee at the time
of grant or any tax deduction to the Company. Upon the exercise of such option,
the excess of the market value of the shares acquired over their cost is taxable
to the optionee as compensation income and is generally deductible by the
Company. The optionee's tax basis for the shares is the market value thereof at
the time of exercise.
Neither the grant nor the exercise of an option designated as an incentive
stock option results in any federal tax consequences to either the optionee or
the Company. At the time the optionee sells shares acquired pursuant to the
exercise of an incentive stock option, the excess of the sale price over the
exercise price will qualify as a capital gain, provided the applicable holding
period is satisfied. If the optionee disposes of such shares within two years
of the date of grant or within one year of the date of exercise, an amount equal
to the lesser of (a) the difference between the fair market value of the shares
on the date of exercise and the exercise price, or (b) the difference between
the exercise price, and the sale price will be taxed as ordinary income and the
Company will be entitled to a deduction in the same amount. The excess, if any,
of the sale price over the sum of the exercise price and the amount taxed as
ordinary income will qualify as capital gain if the applicable holding period is
satisfied. If the optionee exercises an incentive stock option more than three
months after his or her termination of employment due to retirement, he or she
is deemed to have exercised a non-incentive stock option.
-10-
<PAGE>
Change in Control Contracts
On June 1, 1987, the Company entered into a severance agreement with Mr.
John M. Dollar. Under this agreement, Mr. Dollar would be entitled to severance
compensation in the event that his employment is terminated following a change
in control of the Company. The amount of compensation would be equal to a
maximum of 200% of his base compensation for the twelve months prior to his
termination plus an additional amount for benefits. The maximum amount of
compensation which would be payable to Mr. Dollar, if his employment was
terminated, as of November 14, 1994, would be $236,000 plus an additional amount
for benefits.
Effect of Merger
Pursuant to the Merger Agreement, the Surviving Corporation will maintain,
for at least a one year period after the Effective Time, the employee plans of
the Company in effect on the date of the Merger Agreement or provide benefits to
employees of the Surviving Corporation who were employees of the Company and its
subsidiaries immediately prior to the Effective Time ("United Employees") that
are at least substantially comparable to the benefits provided to similarly
situated employees of the Surviving Corporation who are not United Employees.
BENEFICIAL OWNERS OF MORE THAN
5% OF COMMON STOCK
The following table sets forth the ownership of the Common Stock by the
persons, companies or groups known to the Company on the basis of internal
records and/or required filings under Section 13 of the Exchange Act to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock on
November 14, 1994. As used in this information statement, beneficial ownership
means generally the power to vote or dispose of the shares, regardless of any
personal economic interest therein. Unless otherwise noted these individuals or
entities have sole voting and investment power with respect to their shares.
-11-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED CLASS
- ------------------- -------------- ------------------ ----------
<S> <C> <C> <C>
Cockroft Consolidated Common 1,209,214(1) 45.4
Corporation
Suite 2300
5100 Poplar Avenue
Memphis, TN 38137
Dimensional Fund Advisors Inc. Common 182,400(2) 6.8
1299 Ocean Avenue, Ste. 650
Santa Monica, CA 90401
Mario J. Gabelli Common 581,300(3) 21.8
One Corporate Center
Rye, NY 10580
<FN>
(1) Don Wm. Cockroft, Robert L. Cockroft, Janet Virgin, and Katherine Lammons
beneficially own a controlling interest in Cockroft Consolidated
Corporation.
(2) According to Schedule 13G as filed with the SEC by Dimensional Fund
Advisors Inc., reporting ownership as of February 19, 1991, Dimensional
Fund Advisors Inc. has beneficial ownership of 182,400 shares. Dimensional
Fund Advisors Inc. has sole voting and sole dispositive power over 116,600
of these shares and officers of Dimensional Fund Advisors Inc. have sole
voting and dispositive power over 65,800 of these shares. The shares of
Dimensional Fund Advisors Inc., a registered investment advisor, are held
in portfolios of DFA Investment Dimensions Group Inc., a registered open-
end investment company, or the DFA Group Trust, an investment vehicle for
qualified employee benefit plans, for both of which Dimensional Fund
Advisors Inc. serves as investment manager. Dimensional Fund Advisors Inc.
disclaims beneficial ownership of all such shares.
(3) According to Schedule 13D as filed with the SEC by Gabelli Funds, Inc.,
Gamco Investors, Inc., Gabelli International Limited II, and Mario J.
Gabelli (the "Reporting Persons") reporting ownership as of June 6, 1994,
Gamco Investors, Inc. is deemed to have beneficial ownership of 420,800 of
these shares; Gabelli Funds, Inc. is deemed to have beneficial ownership of
160,000 of these shares; Gabelli International Limited II is deemed to have
beneficial ownership of 500 of these shares; Mario J. Gabelli is deemed to
have beneficial ownership of all of the 581,300 shares; and Gabelli Funds,
Inc. is deemed to have beneficial ownership of the securities owned by each
of the foregoing persons other than Mario J. Gabelli. Each of the
Reporting Persons has the sole power to vote and sole power to dispose of
the securities reported except that Gamco Investors, Inc. does not have the
authority to vote 50,000 of the reported shares; except that Gabelli Funds,
Inc. has sole dispositive and voting power with respect to the shares held
by The Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Convertible
Securities Fund, The Gabelli Value Fund, Inc., The Gabelli Small Cap Growth
Fund, The Gabelli Equity Income Fund, The Gabelli Equity Trust, The Gabelli
Global Telecommunications Fund, The Gabelli Global Convertible Securities
Fund, The Gabelli Interactive Couch Potato Fund, and/or The Gabelli ABC
Fund with respect to the 160,000 shares held by one or more of such funds,
and except that the power of Mr. Mario J. Gabelli and Gabelli Funds, Inc.
is indirect with respect to securities beneficially owned directly by other
Reporting Persons. The Reporting Persons do not admit that they constitute
a group.
</TABLE>
-12-
<PAGE>
SECURITIES BENEFICIALLY OWNED BY DIRECTORS,
MANAGEMENT AND PURCHASER DESIGNEES
The following table sets forth, as of November 14, 1994, the amount and
percentage of the Shares beneficially owned by each director, executive officer
and Purchaser Designee and by the directors, officers and Purchaser Designees,
as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OWNERSHIP
- ------------------------ -------------------- ---------
DIRECTORS:
- ---------
<S> <C> <C>
Don Wm. Cockroft 1,891(1) *
J. Howard Lammons 950(1) *
Robert L. Cockroft 0 --
Howard W. Loveless 500 *
Janet C. Virgin 31 *
Ronald J. Wareham 0 --
NON-DIRECTOR EXECUTIVE OFFICER:
- ------------------------------
John M. Dollar 24 *
PURCHASER DESIGNEES:
- -------------------
Donald J. McNamara 0 --
Robert A. Whitman 0 --
J. Peter Kline 0 --
All directors, officers and Purchaser Designees 4,996(2)
as a group (12 persons)
*Less than 1%
<FN>
(1) Includes: (a) 1,800 shares owned by the wife and dependent child of Don
Wm. Cockroft; and (b) 490 shares owned by the wife of J. Howard Lammons.
Except as noted hereinabove, all of the shares are owned directly by said
persons with sole voting and investment power.
(2) Does not include 1,209,214 shares owned by Cockroft Consolidated
Corporation. The controlling shareholders of Cockroft Consolidated
Corporation are Don Wm. Cockroft, Robert L. Cockroft, Katherine Lammons,
the wife of J. Howard Lammons, and Janet C. Virgin.
</TABLE>
-13-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
UNITED INNS, INC.
SECTION l
OFFICE
The principal office and place of business of the corporation shall be
located in the City of Memphis, Tennessee; the corporation may have such other
offices or places of business within or without the State of Tennessee as the
directors may from time to time designate.
SECTION 2
STOCK
The stock of the corporation shall consist of such numbers of shares, of
such classes, and having such par value or characteristics as may from time to
time be set forth in the certificate of incorporation or any amendment thereof.
Each share of voting stock which may be issued shall entitle the holder
thereof to one vote, which may be cast by such holder in person or by proxy in
all meetings of stockholders. At all meetings of stockholders, every
stockholder entitled to vote shall have the right to vote in person or by proxy
the number of shares standing in his name on the stock records of the
corporation. Any shares of stock entitled to vote, which may at any time be
held by or stand in the name of any person then under any disability, whether of
minority or otherwise, or which may stand in the name of any person or persons
as guardian of any stockholder then under disability, and any stock, which may
stand in the name of any person then deceased or in the name of the estate or
personal representative of any deceased stockholder, may be voted by the
guardian of such minor stockholder or stockholder under other disability, or by
personal representative of any deceased stockholder, in the same manner and to
the same extent as could a stockholder living and sui juris; and such guardian
or personal representative shall be entitled to receive all notices required to
be given with respect to such stock, and may waive any such notice to which he
or said stockholder may be entitled, with respect to meetings of such stock, in
the same manner and as fully as could a stockholder living and sui juris. Any
shares of stock held by any corporation as trustee may be voted, and any notices
required with respect to such stock may be waived, by such corporate trustee,
acting through any of its officers generally or specifically authorized.
All certificates of stock shall be signed by the President or Vice
President, and countersigned by the Secretary, on behalf of the corporation.
Certificates shall be bound in a book, shall be numbered consecutively and
issued in consecutive order therefrom, and in the margin of such stock book
shall be entered the name of the person owning the shares and the number
thereof, together with the date of issue. Proper revenue stamps shall be
affixed to the stubs, upon issue of any certificate of stock or upon any
transfer of same. Each certificate of stock issued shall be receipted for in
the margin of the stock book at the time of the issue of such certificate. All
certificates exchanged or returned for transfer shall be cancelled by the
Secretary, and such cancelled certificates shall be pasted in their original
places in the stock book. No new certificate shall be issued until the old
certificate shall have been returned for cancellation; except that in cases of
lost or destroyed certificates, new certificates in lieu of the same may be
issued, upon the holder giving such bond or other security as the Board of
Directors may in their discretion require.
Transfer of stock shall be made only on the books of the corporation, by
the holder in person, or by power of attorney duly executed and acknowledged
before a witness.
<PAGE>
No transfer of stock of the corporation shall be complete, or pass title to
the purchaser, as against this corporation, until the same shall have been
recorded upon the books of the corporation. The Board of Directors is hereby
authorized to fix a day, not more than fifty (50) days prior to the date of
holding any meeting of stockholders, as the day as of which stockholders
entitled to notice of and to vote at such meeting shall be determined, and only
stockholders of record at the close of business on such day shall be entitled to
notice or to vote at such meeting.
SECTION 3
STOCKHOLDERS
The regular Annual Meeting of the Stockholders of the corporation shall be
held in the City of Memphis, Tennessee, or such other city as may be designated
by the Board of Directors on the third Thursday of January of each year, or on
such other date as may be determined by the Board of Directors not later than
ninety (90) days thereafter at such place and at such hour as may be designated
by the Board of Directors, unless said date be a legal holiday in which event
the meeting shall be held on the next succeeding business date. Special
meetings of the stockholders may be held for any purpose on any business day and
at such time and place as may be designated by the Board of Directors. Such
meetings may be called by the President, the Board of Directors, or upon written
request by stockholders representing fifty percent of the outstanding common
stock of the corporation.
Not ice of all stockholders meetings stating the time, place and the
objects for which such meetings are called shall be given by the President or
Vice President or the Treasurer or the Secretary or an Assistant Secretary to
each stockholder of record not less than ten (10) nor more than forty (40) days
prior to the date of the meeting.
If mailed, such notice shall be deemed to be delivered when deposited in
the United States Mail in a sealed envelope with postage thereon prepaid,
addressed to the stockholder at his address as it appears on the stock books of
the corporation unless he shall have filed with the Secretary of the corporation
a written request that notice intended for him be mailed to some other address,
in which case it shall be mailed to the address designated in such request.
Any meeting of which all stockholders entitled to vote have waived or at
any time shall waive notice in writing shall be a legal meeting for the
transaction of business, notwithstanding that notice has not been given as
hereinbefore provided.
Any and all waivers of notice of meeting of stockholders shall be placed in
the custody of the Secretary and shall be by him placed in the minute book of
the corporation and shall constitute part of the corporate records. At all
meetings of stockholders, a majority of the stock outstanding and entitled to
vote shall constitute a quorum for the transaction of business. If a quorum be
not present at any stated meeting, those present at such meeting may adjourn
from time to time without further notice until a quorum be had.
SECTION 4
DIRECTORS
The directors of the corporation shall be not less than three (3) nor more
than ten (10) and shall be elected by the stockholders at their annual meeting
to serve for a term of one (l) year or until their successors are duly elected
and qualified.
The first Board of Directors shall consist of the incorporators. Such
first Board, or any subsequent Board consisting of less than nine (9) members,
shall have the power at any time to add to the directors up to the number of
nine
<PAGE>
(9) which said added directors shall hold office as such until the next annual
meeting of stockholders, or until their successors are duly elected and
qualified. The original Board of three (3) directors (consisting of the
incorporators) and any directors who may have been added to the Board by such
original Board shall serve until the first annual meeting of the corporation to
be held during the year 1957, or until their successors are duly elected and
qualified. Any vacancy in the first or any succeeding Board of Directors shall
be filled by the remaining directors for the unexpired term; and in the event
that vacancies in such Board shall reduce the acting number of directors to a
number which is less than a quorum, such directors, less than a quorum, may fill
such vacancies as hereinabove set forth.
The annual meeting of the Board of Directors shall be held immediately
following the annual meeting of stockholders. Special meetings of the Board may
be held at any time or place upon two (2) days written notice, upon call of
President, or upon call of a majority of the membership of the Board; or such
special meetings may be had without notice, at any time or place, by unanimous
consent, such consent to be expressed by written waiver of notice of such
meeting, before or after such meeting, or by actual attendance at such meeting.
Any and all waivers of notice of meetings of directors shall be placed in the
custody of the Secretary and shall be by him placed in the minute book of the
corporation, and shall constitute a part of the corporate records. The Board of
Directors may, by resolution, provide for meetings at such specific dates or
regular intervals, in addition to the annual meeting, as such Board may in its
discretion deem proper, and in the event such regular meetings are so provided
for, no further notice of such regular meetings need be given. A majority in
number of the Board of Directors, as it may then be constituted, shall
constitute a quorum for the transaction of business. In the event that at any
stated meeting a quorum is not present, those directors present may adjourn from
time to time without further notice until a quorum be had.
The directors of the corporation shall have full and complete power to
authorize the sale, conveyance, transfer, assignment, trade, exchange, or other
disposition or alienation, or lease, and the mortgage or other encumbrance, or
pledge, of any property, real or personal, of the corporation, specifically
without necessity for action or approval by the stockholders of the corporation.
SECTION 5
OFFICERS
The officers of this corporation shall consist of a President, a
Vice-President, a Secretary, a Treasurer, and a Chairman of the Board of
Directors, and such other officers as the Board of Directors may determine from
time to time to be necessary or proper. Any offices, except those of the
President and Secretary, may be combined in one person.
The President, Vice-President, Secretary, Treasurer, and/or Chairman of the
Board of Directors, who shall be elected by the incorporators and directors at
their first meeting, shall serve as such until the first annual meeting of the
directors of the corporation to be held in the year 1957; and, beginning with
such meeting and thereafter, such officers shall be elected by the Board of
Directors at their annual meeting, and shall serve for a term of one year, or
until their successors are duly elected and qualified, or unless sooner removed
from office for cause by the affirmative vote of a majority of the entire Board
of Directors.
All other officers of the corporation shall be appointed by the Board of
Directors, to serve upon such terms and for such periods as the Board shall
determine to be proper in each case. Salaries of all officers shall be
determined and fixed by the Board of Directors. It shall not be necessary that
any officer of the company be a director or a stockholder. Any officer of the
corporation may at any time be required by the Board of Directors to give bond
for the faithful performance of his duties, in such amount and upon such terms
as the Board in its discretion may prescribe.
<PAGE>
SECTION 6
DUTIES OF THE PRESIDENT
It shall be the duty of the President to preside (in the absence of the
Chairman of the Board of Directors) at all meetings of the directors and of the
stockholders, to sign with the Secretary all certificates of stock, to sign and
execute on behalf of the corporation any and all contracts, notes, deeds,
conveyances or other written instruments; to have, subject to the powers of the
directors, general supervision and control over the entire business of the
corporation, to employ and discharge all non-elective officers and employees,
and to fix the compensation of same, and in general to perform all of the duties
and exercise all of the powers usually incident to the office, or which may be
assigned to him by the Board of Directors.
SECTION 7
DUTIES OF THE VICE-PRESIDENT
The duties of the President shall be performed by the Vice-President in the
event of absence or inability to act on the part of the President; and he shall
also perform such other duties as may be assigned to him by the Board of
Directors.
SECTION 8
DUTIES OF THE SECRETARY
It shall be the duty of the Secretary to keep the minutes of the meetings
of the Board of Directors and of the Stockholders, to issue all necessary
notices of meetings, to have custody of the stock certificate book, stock
records and corporate records of the corporation, to counter-sign with the
President all stock certificates, and to execute on behalf of the corporation,
alone or with any other designated officer, any contracts, notes, deeds,
conveyances, or other written instruments which he may be authorized or directed
by the directors to so execute; and to have and exercise, subject to the powers
of the directors, all of the duties and powers usually incident to the office,
or which may be assigned to him by the Board of Directors.
SECTION 9
DUTIES OF THE TREASURER
It shall be the duty of the Treasurer to have the custody of the funds of
the corporation, and to deposit same to the credit of the corporation in such
bank as may be designated by the directors; he shall have the custody of all
financial records, stocks, bonds, notes, or valuable papers of the corporation,
and he shall keep or cause to be kept a set of books which shall adequately show
the financial status of the corporation, which books shall be at all times open
to the inspection of the Board of Directors, or any member thereof. In addition
to the above, he shall in general exercise all of the powers and perform all of
the duties usually incident to the office or which may be assigned to him by the
Board of Directors.
<PAGE>
SECTION 10
DUTIES OF THE CHAIRMAN OF THE BOARD
The Chairman of the Board of Directors shall preside at all meetings of the
stockholders and directors at which he may be present, and shall perform any and
all other duties which may be assigned to him by the Board of Directors.
SECTION 11
FISCAL YEAR
The fiscal year of the corporation shall be fixed by the Board of
Directors, and may be altered by such Board of Directors on resolution from time
to time.
SECTION 12
SEAL
The corporation shall have a seal, an impression whereof appears in the
margin.
SECTION 13
AMENDMENT
These Bylaws may be amended or repealed, or new Bylaws may be adopted, at
any annual or special meeting of the stockholders by a majority of the total
votes of the stockholders, present in person or represented by proxy, and
entitled to vote on such action; provided, however, that the notice of such
meeting shall have been given as provided in these Bylaws, which notice shall
mention that amendment or repeal of these Bylaws or the adoption of new Bylaws,
is one of the purposes of such meeting. These Bylaws may also be amended or
repealed or new Bylaws may be adopted by the Board at any meeting thereof;
provided, however, that notice of such meeting shall have been given as provided
in these Bylaws, which notice shall mention that amendment or repeal of the
Bylaws, or the adoption of new Bylaws, is one of the purposes of such meetings;
and provided further that the Board shall have no power to adopt a bylaw (a)
requiring more than a majority of the voting shares for a quorum at any meeting
of stockholders, or more than a majority of the votes cast to constitute action
by the stockholders, except where higher percentages are required by law, and
(b) classifying and staggering the election of directors.
All Bylaws adopted by the Board under the provisions of this section may be
amended or repealed by the stockholders as hereinabove provided.
SECTION 14
INDEMNIFICATION
1. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of
<PAGE>
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
2. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
3. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise, including the
dismissal of an action without prejudice, the disposition of a claim or issue by
partial summary judgment, or any other partial success, or the settlement of any
action without admission of liability, in defense of any action, suit or
proceeding referred to in Paragraphs 1 or 2 of this Section 14, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
4. Expenses incurred in defending or investigating a civil or criminal
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation.
5. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other portions of this Section 14 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, vote of
stockholders or disinterested directors, court order or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office. It is the policy of the Corporation that indemnification
shall be made to the fullest extent permitted by law. All rights to
indemnification under this Section 14 shall be deemed to be provided by a
contract between the Corporation and the director, officer, employee or agent
who serves in such capacity at any time while these Bylaws and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable law, if any, are in effect. Any repeal or modification thereof shall
not effect any rights or obligations then existing. The Board of Directors is
authorized to enter into agreements from time to time with any director,
officer, employee or agent of the Corporation providing for indemnification to
the fullest extent permitted by applicable law.
6. Any indemnification or advance shall be made promptly and in any event
within forty-five (45) days, upon the written request of the director, officer,
employee or agent, unless a determination is reasonably and promptly made that
such director, officer, employee or agent failed to meet the applicable standard
of conduct set forth in Paragraphs 1 or 2 of this Section 14. Such
<PAGE>
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of disinterested directors, or (2) if such a quorum is not
obtainable, or, even if obtainable and a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders. If the request for indemnification involves an action, suit or
proceeding that arises from the merger, consolidation, reorganization,
liquidation, sale of all or substantially all of the assets, or other
extraordinary transaction of the Corporation, the inquiry and resolution thereof
required by this Paragraph 6, at the option of the person seeking
indemnification, shall be made by a neutral person mutually acceptable to the
Corporation and the person seeking indemnification (the "Neutral Person"). If
no disposition of such claim for indemnification is made within forty-five (45)
days, a favorable determination of entitlement to indemnification shall be
deemed to have been made. The director's, officer's, employee's or agent's
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, shall also be indemnified by the
Corporation.
7. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 14 shall, unless otherwise provided, continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
8. Neither the repeal or modification of this Section 14 nor the adoption
of any provision of the Certificate of Incorporation or the Bylaws inconsistent
with this Section 14 shall adversely affect the rights of any director, officer,
employee or agent of the Corporation with respect to causes of action, suits or
claims that accrue or arise prior to such repeal, modification or adoption of an
inconsistent provision. If this Section 14 or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee and
agent against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding whether civil,
criminal, administrative or investigative, and whether internal or external,
including a grand jury proceeding and an action or suit brought by or in the
right of the Corporation, to the fullest extent permitted by applicable portions
of this Section 14 that shall not have been invalidated, or by any other
applicable law. In the event the General Corporation Law of the State of
Delaware is amended following the date of the latest modification, amendment or
revision of this Section so as to permit indemnification by the corporation of
any person to a greater extent (either as to matters or persons which may be the
subject of indemnity) than permitted in this Section, then the Board of
Directors shall have the power to authorize such greater indemnification in
accordance with the amended provisions of said General Corporation Law.
9. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Section 14.
10. Upon resolution adopted by the Board of Directors, the Corporation may
establish a trust or other designated account, grant a security interest or use
other means (including, without limitation, a letter of credit), to ensure the
payment of certain of its obligations arising under this Section 14 and/or
agreements which may be entered into between the Corporation and its directors,
officers, employees and agents from time to time.
11. For purposes of this Section 14, references to "the Corporation" shall
include, in addition to the resulting or surviving corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power to indemnify its directors, officers, employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
<PAGE>
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Section 14 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued; references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed against a person with respect to any employee benefit plan;
references to "serving at the request of the Corporation" shall include any
service as a director or officer of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to any employee
benefit plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Section 14.
<PAGE>
EXHIBIT 10.85
SMITH BARNEY, INC.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
CONFIDENTIAL
July 11, 1994
United Inns, Inc.
2300 Clark Tower
Memphis, TN 38137
Attention: Don Wm. Cockroft
President
Gentlemen:
The purpose of this letter is to set forth the terms of the engagement by United
Inns, Inc. and its subsidiaries (collectively the "Company") of Smith Barney
Inc. ("Smith Barney") to act as exclusive financial advisor to the Company and
to furnish financial advisory and investment banking services in connection with
a potential Transaction (as hereafter defined) involving the Company and one or
more potential purchasers (the "Acquiror"). For purposes hereof, a
"Transaction" shall mean, directly or indirectly, and whether in one or a series
of transactions, the sale or other transfer of all or substantially all of the
outstanding capital stock or assets of the Company, whether by way of a
leveraged buyout, merger or consolidation, reorganization, recapitalization or
restructuring, exchange offer, negotiated purchase, or otherwise.
l. The Company hereby engages Smith Barney as its exclusive financial advisor
to render financial advisory services to the Company concerning the
Transaction.
2. In undertaking this assignment, Smith Barney will, at the request of the
Company, provide the following services to the Company:
(a) Study and review the business, operations, historical financial
performance and anticipated future financial performance of the
Company and, if appropriate, the Acquiror;
(b) Assist in the preparation of confidential information to be provided
to Acquirors;
(c) Assist the Company in negotiations and related strategy with the
Acquiror and its financial and legal advisors;
(d) Assist in any presentation to the Board of Directors of the Company,
as requested;
(e) If requested, render an opinion ("Opinion") to the Board of Directors
of the Company as to whether the terms of any proposed Transactions
are fair to the Company from a financial point of view; and
<PAGE>
(f) Assist and advise the Company in any other matters related to the
Transaction.
3. The Company hereby agrees to pay Smith Barney, as compensation for its
services hereunder and subject to such conditions as are described in each
case, the following fees, subject to certain fee credits described below.
(a) RETAINER FEE
The Company hereby agrees to pay Smith Barney a retainer fee (the
"Retainer Fee") of $100,000, payable in cash immediately upon
execution of this letter.
(b) TRANSACTION FEE
The Company shall pay to Smith Barney a transaction fee (the
"Transaction Fee") which shall be 1% of the transaction value (the
"Transaction Value"), as hereinafter defined. The Transaction Fee
shall be payable in cash on the date of the closing of the
Transaction.
(c) OPINION FEE
If Smith Barney is requested to render an Opinion as contemplated by
subparagraph 2(e) above, an opinion fee of $250,000 (the "Opinion
Fee"), payable in cash promptly upon delivery by Smith Barney of an
Opinion (whether oral or written, as requested by the Company).
(d) CERTAIN FEE CREDITS
The Retainer Fee and the Opinion Fee, to the extent previously paid,
shall be credited against the Transaction Fee payable to Smith Barney
hereunder.
4. For the purpose of calculating the Transaction Fee, Transaction Value shall
equal the total proceeds and other consideration paid or received and to be
paid or received (which shall be deemed to include amounts paid or to be
paid into escrow) in connection with a Transaction, including, without
limitation: (i) cash; (ii) notes, securities and other property valued at
the fair market value thereof; (iii) all debt for borrowed money and notes
and loans payable (but excluding any other current liabilities), preferred
stock, pension liabilities and guarantees, assumed; (iv) payments to be
made in installments; (v) amounts paid or payable under consulting
agreements, agreements not to compete or similar arrangements (including
such payments to management); and (vi) the net present value of any
contingent payments (whether or not related to future earnings or
operations). For purposes of computing any fees payable to Smith Barney
hereunder, non-cash consideration shall be valued as follows: (i) publicly
traded securities shall be valued at the average of their closing prices
(as reported in THE WALL STREET JOURNAL) for the five trading days prior
to the closing of the Transaction and (ii) any other non-cash consideration
shall be valued at the fair market value thereof as determined in good
faith by
<PAGE>
the Company and Smith Barney and in the case of future payments to be made
based upon the future financial performance of the Company, then such
payments shall be valued at their discounted present value (using a 10%
discount rate per annum) assuming the most recent projections as provided
by the Company to Smith Barney are achieved.
5. If a Transaction occurs either:
(a) during the term of Smith Barney's engagement hereunder or
(b) at any time during a period of 12 months following the effective date
of termination of Smith Barney's engagement hereunder, involving a
party Smith Barney engaged in discussions with during the term of its
engagement hereunder, which parties shall be identified by Smith
Barney at the time of termination
then the Company shall pay to Smith Barney the Transaction Fee outlined in
subparagraph 3(b) above.
6. In addition to any fees that may be payable to Smith Barney hereunder and
regardless of whether any proposed Transaction is consummated, the Company
hereby agrees from time to time, upon request, to reimburse Smith Barney
for all reasonable travel, legal and other out-of-pocket expenses incurred
in performing the services hereunder, including fees and disbursements of
Smith Barney's counsel. Such out-of-pocket expenses shall not exceed
$30,000 without the prior consent of the Company, which consent shall not
be unreasonably withheld.
7. Any Opinion delivered pursuant to this Agreement shall be based upon such
financial review of the Acquiror and the Company and their respective
businesses and operations as Smith Barney shall deem appropriate and
feasible, limited in any event to an analysis of (i) publicly available
information with respect to each such corporation and such other matters as
Smith Barney deems appropriate and (ii) such other information as shall be
supplied to Smith Barney by the Company or the Acquiror (the
"Information"). The Company hereby warrants that any Information with
respect to the Company will be fair, accurate and complete and will not
contain any material omissions or misstatements of fact. The Company
recognizes and confirms that Smith Barney will rely upon the Information,
will assume the accuracy and completeness of the Information and will not
attempt independently to verify any of the Information and will not make an
appraisal of any of the assets of the Company or the Acquiror. The Opinion
may be in such form as Smith Barney shall determine and Smith Barney may
qualify the Opinion in such manner as Smith Barney believes appropriate.
The Opinion shall be limited to the fairness, from a financial point of
view, to the Company's stockholders of the consideration to be offered to
the Company in the Transaction, and shall not address the Company's
underlying business decision to effect the Transaction. The Company agrees
that the Opinion shall be used solely by the Board of Directors of the
Company in considering the terms of the proposed Transaction and, except
<PAGE>
as set forth below that the Company shall not publish or refer to the
Opinion in any proxy statement or otherwise in connection with the proposed
Transaction, furnish the Opinion or any summaries or excerpts thereof to
any other person or persons or use the Opinion for any other purpose
without the prior written approval of Smith Barney. It is understood,
however, that the Opinion may be referred to or summarized in filings
required to be made by the Company under applicable law (including under
the federal securities laws); provided, however, that any description of
Smith Barney or any summary or excerpts of the Opinion shall be subject to
Smith Barney's prior review and approval, which review and approval shall
not be unreasonably delayed or withheld.
8. Smith Barney agrees to keep confidential all non-public information which
it receives or develops concerning the Company and to disclose that
information only with the consent of the Company or as required by law,
regulation, regulatory authority or legal process.
9. The term of this engagement shall run from the date of this letter to a
minimum of 12 months thereafter (subject to earlier
termination as provided in paragraph 11), and may be extended by mutual
consent of the parties. The Company agrees that except as required by
applicable law, any advice to be provided by Smith Barney under this
engagement letter shall not be disclosed publicly or made available to
third parties without the prior approval of Smith Barney.
10. The Company agrees to indemnify Smith Barney in accordance with the
indemnification, contribution and expense reimbursement provisions set
forth in Schedule A attached hereto and incorporated herein by reference.
11. This agreement may be terminated with or without cause by either party upon
furnishing 30 days prior written notice to the other party, provided that
such termination shall not affect the indemnification and contribution
obligations of the Company or the right of Smith Barney to receive the
Transaction Fee as provided in paragraph 5, or the right of Smith Barney to
receive reimbursement for out-of-pocket expenses described above.
12. This agreement and the indemnification letter, attached hereto as Schedule
A, constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof. This letter agreement may not be amended or
modified except in writing signed by the parties hereto.
13. The Company represents that this Agreement has been duly authorized,
executed and delivered on its behalf and constitutes its legal, valid,
binding and enforceable obligation.
<PAGE>
14. The Company acknowledges that Smith Barney in connection with its
engagement hereunder is acting as an independent contractor with duties
owing solely to the Company and that, other than as set forth in Schedule
A, nothing in this agreement is intended to confer upon any other person
any rights or remedies hereunder or by reason hereof.
15. This letter of agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to the conflict of
laws rules thereof.
If the foregoing correctly reflects our understanding, please sign and return
the enclosed copy of this letter, whereupon this letter will constitute an
agreement between us.
Very truly yours,
SMITH BARNEY INC.
By:/s/ Brian W. Keane
---------------------------
Brian W. Keane
Director
Accepted and Agreed to:
UNITED INNS, INC.
By:/s/ Don Wm. Cockroft
---------------------------
Don Wm. Cockroft
President
<PAGE>
SCHEDULE A
INDEMNIFICATION
Recognizing that transactions of the type contemplated in this engagement
sometimes result in litigation and that Smith Barney's role is advisory, the
Company agrees to indemnify and hold harmless Smith Barney, its affiliates and
their respective officers, directors, employees, agents and controlling persons
(collectively, the "Indemnified Parties"), from and against any losses, claims,
damages and liabilities, joint or several, related to or arising in any manner
out of any transaction, proposal or any other matter (collectively, the
"Matters") contemplated by the engagement of Smith Barney hereunder, and will
promptly reimburse the Indemnified Parties for all expenses (including fees and
expenses of legal counsel) as incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim related to or
arising in any manner out of any Matter contemplated by the engagement of Smith
Barney hereunder, or any action or proceeding arising therefrom (collectively,
"Proceedings"), whether or not such Indemnified Party is a formal party to any
such Proceeding. Notwithstanding the foregoing, the Company shall not be liable
in respect of any losses, claims, damages, liabilities or expenses that a court
of competent jurisdiction shall have determined by final judgment resulted
* from the gross negligence or willful misconduct of an Indemnified Party.
The Company further agrees that it will not, without the prior written consent
of Smith Barney, settle, compromise or consent to the entry of any judgment in
any pending or threatened Proceeding in respect of which indemnification may be
sought hereunder (whether or not Smith Barney or any Indemnified Party is an
actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional release of Smith Barney and each
other Indemnified Party hereunder from all liability arising out of such
Proceeding.
The Company agrees that if any indemnification or reimbursement sought pursuant
to this letter were for any reason not to be available to any Indemnified Party
or insufficient to hold it harmless as and to the extent contemplated by this
letter, then the Company shall contribute to the amount paid or payable by such
Indemnified Party in respect of losses, claims, damages and liabilities in such
proportion as is appropriate to reflect the relative benefits to the Company and
its stockholders on the one hand, and Smith Barney on the other, in connection
with the Matters to which such indemnification or reimbursement relates or, if
such allocation is not permitted by applicable law, not only such relative
benefits but also the relative faults of such parties as well as any other
equitable considerations. It is hereby agreed that the relative benefits to the
Company and/or its stockholders and to Smith Barney with respect to Smith
Barney's engagement shall be deemed to be in the same proportion as (i) the
total value paid or received or to be paid or received by the Company and/or its
stockholders pursuant to the Matters (whether or not consummated) for which
Smith Barney is engaged to render financial advisory
* primarily
<PAGE>
services bears to (ii) the fees paid to Smith Barney in connection with such
engagement. In no event shall the Indemnified Parties contribute or otherwise
be liable for an amount in excess of the aggregate amount of fees actually
received by Smith Barney pursuant to such engagement (excluding amounts received
by Smith Barney as reimbursement of expenses).
The Company further agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with Smith Barney's engagement hereunder except for losses,
claims, damages, liabilities or expenses that a court of competent jurisdiction
shall have determined by final judgment resulted * from the gross
negligence or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of the Company shall be in addition
to any liability which the Company may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth herein shall
remain operative and in full force and effect regardless of (i) any withdrawal,
termination or consummation of or failure to initiate or consummate any Matter
referred to herein, (ii) any investigation made by or on behalf of any party
hereto or any person controlling (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended) any party hereto, (iii) any termination or the completion
or expiration of this letter or Smith Barney's engagement and (iv) whether or
not Smith Barney shall, or shall not be called upon to, render any formal or
informal advice in the course of such engagement.
Very truly yours,
SMITH BARNEY INC.
By:/s/ Brian W. Keane
---------------------------
Brian W. Keane
Director
Accepted and Agreed to:
UNITED INNS INC.
By:/s/Don Wm. Cockroft
---------------------------
Don Wm. Cockroft
President
*primarily
Acknowledged and Accepted:
SMITH BARNEY INC.
/s/Brian W. Keane
---------------------------
By: Brian W. Keane
Director
<PAGE>
CONFIDENTIAL
September 1, 1994
Brian W. Keane
Director
Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
RE: MODIFICATION OF ENGAGEMENT LETTER
---------------------------------
Dear Mr. Keane:
This letter serves as written confirmation of an agreed-upon modification to the
engagement letter dated July 11, 1994 between United Inns, Inc. ("United") and
Smith Barney Inc. ("Smith Barney") (the "Engagement Letter"). In return for
Smith Barney's willingness to enter into the Compensation Agreement dated
August 31, 1994, among United, Smith Barney, Laurence Geller and Geller & Co.,
United has agreed to modify Paragraph 3(b) of the Engagement Letter to increase
the Transaction Fee (as defined therein) to 1.25% from 1.00% of the Transaction
Value (as defined therein). All other provisions of the Engagement Letter
remain in full force and effect.
Very truly yours,
UNITED INNS, INC.
/s/Don Wm. Cockroft
- -------------------------
By: Don Wm. Cockroft
President
Acknowledged and Accepted:
SMITH BARNEY INC.
/s/Brian W. Keane
--------------------------
By: Brian W. Keane
Director
<PAGE>
EXHIBIT 11
- ----------
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
- -----------------------------------------------------
This information is submitted in accordance with Item 601 (b) (11) of
Regulation S-K and is contrary to provisions of Accounting Principles
Board Opinion No. 15 because it results in a reduction of loss per share.
<TABLE>
<CAPTION>
<S> <C>
Net loss for 1994 $(5,505,051)
----------
----------
Loss per common and common
equivalent share $ (2.05)
----------
----------
Loss per common share - assuming
issuance of all contingent shares $ (2.04)
----------
----------
Weighted average common and common
equivalent shares (using average market value) 2,688,225
----------
----------
Weighted average common and common
equivalent shares assuming issuance of all
contingent shares (using ending market value) 2,692,014
----------
----------
</TABLE>
The treasury stock method was used for both shares computations.
<PAGE>
EXHIBIT NO. 21
PARENT AND SUBSIDIARIES OF REGISTRANT.
The following listed subsidiary corporations are all included in the
consolidated financial statements included herein, and the Registrant is the
owner of 100% of the capital stock of each subsidiary, unless otherwise
indicated.
<TABLE>
<CAPTION>
STATE OF
CORPORATION RELATIONSHIP INCORPORATION
----------- ------------ -------------
<S> <C> <C>
United Inns, Inc. Parent Delaware
United Inns, Inc. of Tennessee Subsidiary Tennessee
United Inns of Colorado, Inc. Subsidiary Colorado
United Supply Company Subsidiary Tennessee
Gary Hotel Courts, Inc. Subsidiary Georgia
Stagner Hotel Courts, Inc. Subsidiary Georgia
Kizer Motel Courts, Inc. Subsidiary Texas
Lammons Hotel Courts, Inc. Subsidiary Georgia
Turley Inns, Inc. Subsidiary Texas
Rodgers Hotel Courts, Inc. Subsidiary Georgia
Dotson, Inc. Subsidiary Texas
Haywood Hotel Courts, Inc. Subsidiary Georgia
Sepp Hotel Courts, Inc. Subsidiary Georgia
Scott Inn, Inc. Subsidiary Texas
Johnson Inn, Inc. Subsidiary Texas
South Jacksonville Inn, Inc. Subsidiary Florida
Eastex Inn, Inc. Subsidiary Texas
Croswell Inn, Inc. Subsidiary Texas
Rier Inn, Inc. Subsidiary Texas
Clayton County Inn, Inc. Subsidiary Georgia
Houston Airport Inn, Inc. Subsidiary Texas
Peachtree Lenox Inn, Inc. Subsidiary Georgia
I-20 East Inn, Inc. Subsidiary Georgia
Jackson Downtown Inn, Inc. Subsidiary Mississippi
Northside Inn, Inc. Subsidiary Georgia
Old National Inn, Inc. Subsidiary Georgia
Gaines, Inc. Subsidiary Tennessee
Friscia Inn, Inc. Subsidiary Texas
Airport Utilities, Inc. Subsidiary Texas
Transcontinental Motor Hotels, Inc. Subsidiary Texas
Ellison Hotel Corporation Subsidiary Texas
Glenjon, Inc. Subsidiary Texas
TMH Motor Hotels, Inc. Subsidiary California
Houston Inns Service Co., Inc. Subsidiary Texas
Ox John, Inc. Subsidiary Texas
La Mancha Club, Inc. Subsidiary Texas
La Strada Club, Inc. Subsidiary Texas
Roswell Road Inn, Inc. Subsidiary Georgia
Memorial Katy Inn, Inc. Subsidiary Texas
Greenway Plaza Inn, Inc. Subsidiary Texas
Hobby Inn, Inc. Subsidiary Texas
Chamblee-Dunwoody Inn, Inc. Subsidiary Georgia
Southwest, Inc. Subsidiary Mississippi
Mid-Atlanta Investment Company Subsidiary (75% owned) Georgia
Penrod Club Subsidiary Texas
The Thicket Club Subsidiary Texas
Limited Service Inns, Inc. of Georgia Subsidiary Georgia
Austin Innkeepers, Inc. Subsidiary Texas
Indian Trail Inn, Inc. Subsidiary Georgia
Memphis Carwash, Inc. Subsidiary Tennessee
Carwash Number 2, Inc. Subsidiary Tennessee
9 Up Club, Inc. Subsidiary Texas
Limited Service Inns, Inc. of Houston Subsidiary Texas
Limited Service Inns, Inc. of Mississippi Subsidiary Mississippi
Limited Service Inns, Inc. of
Georgia Number Two Subsidiary Georgia
Rier Properties, Inc. Subsidiary Texas
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1993
<PERIOD-END> SEP-30-1994
<CASH> 7984467
<SECURITIES> 0
<RECEIVABLES> 3066683
<ALLOWANCES> 120174
<INVENTORY> 842770
<CURRENT-ASSETS> 19874036
<PP&E> 181717899
<DEPRECIATION> 85879095
<TOTAL-ASSETS> 129025775
<CURRENT-LIABILITIES> 16997941
<BONDS> 91419101<F1>
<COMMON> 4117813
0
0
<OTHER-SE> 11452912
<TOTAL-LIABILITY-AND-EQUITY> 129025775
<SALES> 0
<TOTAL-REVENUES> 93130317
<CGS> 0
<TOTAL-COSTS> 72964066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10117188
<INCOME-PRETAX> (6802471)
<INCOME-TAX> (1297420)
<INCOME-CONTINUING> (5505051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5505051)
<EPS-PRIMARY> (2.08)
<EPS-DILUTED> (2.08)
<FN>
<F1>Current portion excluded
</FN>
</TABLE>
