SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number: 0-22745
JANUS AMERICAN GROUP, INC.
(Name of Small Business Issuer in its Charter)
Delaware 13-2572712
(State or Other Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2300 Corporate Blvd., N.W., Suite 232 33431-8596
Boca Raton, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 997-2325
Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:
Title of Class Name of each exchange on which registered
- ------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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 Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. |_|
The Registrant's revenues for the most recent fiscal year were $29,056,825.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $13,450,506, as of March 18, 1999. It is the
position of the Company that the United States Lines, Inc. and United States
Lines (S.A.), Inc. Reorganization Trust is not an affiliate.
Number of shares of common stock outstanding as of March 17, 1999: 8,691,092
Transitional Small Business Disclosure Format: Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE:
Document Incorporated Part of Report
By Reference Into Which Incorporated
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Proxy Statement for Annual Meeting
to be held on May 21, 1999 Part III
<PAGE>
PART I
Item 1. Description of Business.
Background of the Company
Janus American Group, Inc. (the "Company" or "Janus"), a Delaware
corporation, is engaged in the ownership and management of hotels. The Company
has ownership interests in 18 hotels (the "Owned Hotels") and manages an
additional 27 hotels (the hotels which are managed, but not owned by the Company
are referred to as the "Managed Hotels" and the Owned Hotels and Managed Hotels
are collectively referred to as "Hotels").
The Company's executive offices are located at 2300 Corporate Boulevard,
N.W., Boca Raton, Florida 33431 and its telephone number is 561-997-2325.
In April 1997, the Company entered the hotel business, by acquiring from
affiliates of Louis S. Beck ("Beck") and Harry G. Yeaggy ("Yeaggy"), certain
assets relating to the hospitality business comprised of (i) six hotels and an
85% interest in a partnership that owns one hotel; (ii) a hotel management
company; (iii) a management fee sharing arrangement with Summit Hotel Management
Company, which has since been terminated; and (iv) two loans, one of which is
secured by a first mortgage on a hotel and the other of which is secured by a
first mortgage on a campground, both of which are personally guaranteed by
Messrs. Beck and Yeaggy. In consideration, therefore, Messrs. Beck and Yeaggy
and Beck Hospitality III, Inc., a corporation wholly-owned by them, received
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), representing approximately 43% of the total outstanding shares of
Common Stock and shares of the Series B preferred stock of the Company, par
value $.01 per share (the "Series B Preferred Stock).
Messrs. Beck and Yeaggy, who are currently Chairman and Vice Chairman,
respectively, of the Board of Directors of the Company, have been engaged in the
hospitality business since 1972.
In August 1998, the Company acquired four hotels in the area of Cleveland,
Ohio (the "Cornerstone Hotel Group") from an unrelated party.
Effective January 1, 1999, the Company acquired an additional seven hotels
and two hotel management agreements from affiliates of Messrs. Beck and Yeaggy.
An unrelated third party retains a minority interest in one of the hotels known
as the Days Inn, Pompano Beach. As part of the purchase price in this
transaction, Messrs. Beck and Yeaggy received additional shares of the Series B
Preferred Stock, all of the outstanding shares of which are owned beneficially
by them.
Messrs. Beck and Yeaggy retain miscellaneous independent interests in the
hospitality business. However, they have contractually agreed with the Company
not to engage in any business that competes with the business of the Company.
Janus is the successor to United States Lines, Inc. ("U.S. Lines"), which
once was one of the largest containerized cargo shipping companies in the world.
On November 24, 1986, McLean Industries, Inc., First Colony Farms, Inc. and
their subsidiaries U.S. Lines and United States Lines (S.A.), Inc. ("U.S. Lines
(S.A.)") filed petitions for relief under Chapter 11 of the United States
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Bankruptcy Code. Soon thereafter, the shipping operations of U.S. Lines and U.S.
Lines (S.A.) ceased. U.S. Lines and U.S. Lines (S.A.) emerged from bankruptcy in
1990 under the terms of the First Amended and Restated Joint Plan of
Reorganization dated February 23, 1989 (the "Plan"). At that time, names of U.S.
Lines and U.S. Lines (S.A.) were changed to Janus Industries, Inc. and JI
Subsidiary, Inc. ("JI Subsidiary"), respectively. On September 29, 1997 the name
of the Company was changed to Janus American Group, Inc. JI Subsidiary currently
has no business activities. See "Description of Business--History of the
Company's Reorganization."
Prior to entering the hospitality business, in July 1996, the Company
acquired substantially all of the assets of Pre-Tek Wireline Service Company,
Inc. ("Pre-Tek"), an oil and gas engineering services and wireline logging
company based in Bakersfield, California. During 1997, the Company determined to
discontinue this line of business and subsequently sold the business to its
management effective April 1, 1998.
The Hospitality Business
The Owned Hotels
The Owned Hotels are located in five states and operate under franchise or
membership agreements that provide for the use of the brand names Days Inn, Best
Western, Knights Inn, Holiday Inn and Comfort Inn. One of the Owned Hotels is
located at the Kings Dominion amusement park near Richmond, Virginia and has
been designated as the host hotel for the amusement park. The remaining Owned
Hotels are located either near office parks, interstate highways, airports or
tourist attractions in Ohio, Florida, Indiana and North Carolina. The Owned
Hotels generally offer remote control cable television and a swimming pool, and
in many cases, restaurants. Some of them offer meeting and banquet facilities
and room service
The Owned Hotels are owned in fee, either directly or through consolidated
entities. With the exception of the Best Western hotel located at the Kings
Dominion amusement park and the Days Inn, Pompano Beach, Florida, the Owned
Hotels are wholly owned by the Company. The Best Western Kings Quarters hotel is
owned by Kings Dominion Lodge, a general partnership in which the Company has an
85% interest and Messrs. Beck and Yeaggy, through a partnership, have a 15%
interest. An unrelated party holds a 25% interest in the Days Inn, Pompano
Beach, Florida. Each of the Owned Hotels is subject to mortgage indebtedness
which is described below. All of such indebtedness is secured solely by the
applicable hotel property and fixtures, and is non-recourse to the other assets
of the Company, with the exception of the indebtedness incurred in the
acquisition of the hotels known as Holiday Inn, Independence; Holiday Inn, North
Canton; Holiday Inn, Hudson; and Comfort Inn, Akron, which is
cross-collateralized by those hotels.
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The following chart presents a summary of the operations of the Owned
Hotels for calendar years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998
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HOTEL AND LOCATION RMS AVAIL.1 OCC%2 ADR3 Rev PAR4
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DAYS INN, SHARONVILLE, OHIO 52,195 60% $44.37 $26.45
BEST WESTERN KINGS QUARTERS, 90,520 48% $63.24 $30.32
DOSWELL, VIRGINIA
KNIGHTS INN, WESTERVILLE, OHIO 39,785 63% $36.22 $22.81
KNIGHTS INN, LAFAYETTE, INDIANA 40,880 71% $37.18 $26.52
KNIGHTS INN, MICHIGAN CITY, INDIANA 37,595 56% $40.96 $23.08
DAYS INN CRABTREE, RALEIGH, 44,530 68% $47.94 $32.66
NORTH CAROLINA
DAYS INN RTP, RALEIGH, 40,515 88% $68.44 $60.28
NORTH CAROLINA
HOLIDAY INN, INDEPENDENCE, OHIO 132,860 65% $84.01 $54.63
HOLIDAY INN, NORTH CANTON, OHIO 70,810 79% $59.72 $46.97
HOLIDAY INN, HUDSON, OHIO 105,534 63% $76.85 $48.29
COMFORT INN, AKRON, OHIO 48,910 64% $56.76 $36.32
</TABLE>
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1 Calculation is based on number of hotel rooms in service multiplied by
number of days in a year.
2 Total number of rooms sold during a year divided by the total number of
rooms available in such year.
3 Average Daily Rate equals total room revenue (exclusive of taxes) during a
year divided by rooms sold.
4 Revenue Per Available Room equals total room revenues (exclusive of taxes)
during a year, divided by rooms available for sale during such year.
4
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<TABLE>
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------
HOTEL AND LOCATION RMS AVAIL. OCC% ADR Rev PAR
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DAYS INN, SHARONVILLE, OHIO 52,195 52% $46.15 $23.84
BEST WESTERN KINGS QUARTERS, 91,264 50% $56.01 $27.70
DOSWELL, VIRGINIA
KNIGHTS INN, WESTERVILLE, OHIO 39,785 71% $34.06 $24.05
KNIGHTS INN, LAFAYETTE, INDIANA 40,880 71% $37.23 $26.57
KNIGHTS INN, MICHIGAN CITY, INDIANA 37,595 59% $36.74 $21.78
DAYS INN CRABTREE, RALEIGH, 44,500 70% $50.46 $35.51
NORTH CAROLINA
DAYS INN RTP, RALEIGH, 40,382 91% $67.57 $61.41
NORTH CAROLINA
HOLIDAY INN, INDEPENDENCE, OHIO 132,860 67.5% $82.77 $51.09
HOLIDAY INN, NORTH CANTON, OHIO 71,540 75.3% $55.96 $38.56
HOLIDAY INN, HUDSON, OHIO 105,485 67.6% $74.54 $46.44
COMFORT INN, AKRON, OHIO 48,910 63.3% $57.74 $32.95
</TABLE>
5
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The following is a description of each of the Owned Hotels:
Days Inn Hotel, Raleigh, North Carolina. Built in 1979, the 122 room hotel
is located on 2.79 acres on the south side of Glenwood Avenue in the Crabtree
area of Raleigh. Glenwood Avenue is a major roadway through the area and
connects the Raleigh-Durham airport (approximately 11 miles northwest of the
property) and Interstate Highway 440 (one mile southeast). The hotel is well
located relative to the area's universities and freeways. The improvements
consist of two two-story, concrete block buildings with brick and glass
exteriors, an outdoor swimming pool and a one-story building consisting of the
hotel lobby and a 65 seat restaurant. Access to the guest rooms is from exterior
corridors.
The hotel is subject to a first mortgage with a balance of $2,712,800 as of
December 31, 1998, which amount is to be amortized on a monthly basis through
its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of
8.875% per annum. At December 31, 1998, the loan was in its fourth loan year.
Prepayment in loan years 8 through 14 is subject to a prepayment penalty of 7%
in year 8, decreasing by 1% each year thereafter.
Capital Improvements in the amount of $92,396 were made to the property in
1998. Such improvements were paid from working capital and replacement reserves.
The replacement reserve balance as of December 31, 1998 was $349,865. The
capital expenditures for 1999 are anticipated to cost approximately $389,950.
The 1999 expenditures include $280,000 for a major exterior renovation. All
expenditures will be paid from existing replacement reserves and working
capital.
Best Western Kings Quarters, Doswell, Virginia. Built in 1977, the 248 room
hotel is located on 10.5 acres on the eastern side of Interstate Highway 95 and
the south side of Route 30 in Hanover County (Doswell), Virginia, 20 miles north
of Richmond, Virginia. The hotel is the "Host Facility" for the adjacent
Paramount Kings Dominion theme park.
The hotel's lobby is incorporated into one of the guest buildings. There is
a 140 seat Denny's restaurant adjacent to the hotel that is owned by the
partnership that owns the hotel. The amenities also include an outdoor swimming
pool, two tennis courts, a putting green, shuffleboard, volleyball, ping-pong,
horseshoes, children's playground, video arcade, meeting room, lounge, exterior
lighting and a paved parking lot for 360 cars.
The hotel is subject to a first mortgage with a balance of $4,938,621 as of
December 31, 1998, which amount is to be amortized on a monthly basis through
January 1, 2016. The mortgage carries a fixed interest rate of 9.75% per annum.
At December 31, 1998, the loan was in its third loan year. Under the terms of
the mortgage, the loan may not be prepaid prior to the eighth loan year.
Prepayment in loan years 8 through 14 is subject to a prepayment penalty of 7%
in year 8, decreasing by 1% each year thereafter.
The Company completed a major renovation of the hotel in 1998 resulting in
$284,858 in capital improvements. The expenditure was financed from existing
replacement reserves and working capital. The replacement reserve balance as of
December 31, 1998 was $617,098.
Days Inn, Sharonville, Ohio. Built in 1974, the 142 room hotel is located
along the southwest quadrant of the Interstate Highway Loop 275/State Road 42
intersection. The property's visibility from the two major highways is
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considered to be excellent. The property consists of three two story concrete
buildings. The buildings have both interior and exterior corridors. The
lobby/reception area is integrated into one of the guest buildings.
Additionally, there is a one-story restaurant located on the property. The
restaurant is leased to and managed by an unrelated third party.
The hotel is subject to a first mortgage with a balance of $2,603,289 as of
December 31, 1998. The mortgage requires monthly payments and matures on
September 1, 2002 with a remaining balance, assuming no prepayment of
approximately $2,134,000. The mortgage carries an interest rate of 9.5% per
annum subject to adjustment on September 1, 1999 to a rate equal to 300 basis
points above the weekly average yield on United States Treasury Securities
adjusted to a constant maturity of three years.
The Company spent $44,845 in capital expenditures at the hotel in 1998.
These expenditures were financed from working capital. The capital expenditures
for 1999 are anticipated to be approximately $239,825.
Days Inn (Research Triangle), Morrisville, North Carolina. Built in 1987,
the 110 room hotel is located on approximately 3.47 acres on Airport Blvd.,
south of Interstate Highway 40 and the Raleigh-Durham Airport. The three-story
concrete block building is faced with a brick and glass facade and is well
located relative to area universities, research facilities and freeways. The
building has interior corridors and a port cochere, which provides a protected
entry into the hotel's lobby. Amenities include a fitness room, two meeting
rooms, an outdoor swimming pool and two airport shuttle vans.
The hotel is subject to a first mortgage with a balance of $2,782,358 as of
December 31, 1998, which amount is to be amortized on a monthly basis through
its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of
8.875% per annum. At December 31, 1998, the loan was in its fourth loan year.
Under the terms of the mortgage, the loan may not be prepaid prior to the eighth
loan year. Prepayment in loan years 8 through 14 is subject to a prepayment
penalty of 7% in year 8 decreasing by 1% in each year thereafter.
The Company spent $262,592 in capital expenditures at the hotel in 1998.
These expenditures were financed from replacement reserve funds and working
capital. The balance in the replacement reserve account as of December 31, 1998
was $232,547. The capital expenditures for 1999 are anticipated to be
approximately $181,069, and all expenditures will be paid from existing
replacement reserves and working capital.
Knights Inn, Westerville, Ohio. Built in 1985, the 109 room hotel is
located on approximately 2.85 acres at the northern line of Heather Down Road,
approximately 155 feet west of State Highway 10. The property consists of four
one-story modular buildings with wood trimmed stone and stucco exteriors and an
outdoor pool. The buildings have exterior corridors. The lobby consists of a
reception area and an office.
The hotel is subject to a first mortgage with a balance of $985,254 as of
December 31, 1998. The mortgage matures on August 1, 2001, with a remaining
balance, assuming no prepayment, of approximately $867,000. The mortgage carries
a fixed interest rate of 8.91% per annum. Under the terms of the mortgage, the
loan may be prepaid in whole or in part with no prepayment penalty.
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<PAGE>
The Company spent $45,572 on capital expenditures at the hotel in 1998.
These expenditures were financed from working capital. The capital expenditures
for 1999 are anticipated to be approximately $66,350, and all expenditures will
be paid from existing replacement reserves and working capital.
Knights Inn, Michigan City, Indiana. Built in 1987, the 103 room hotel is
located on approximately 3.45 acres on the north side of Kieffer Road
approximately 1/4 mile west of U.S. Highway 421. The property is highly visible
U.S. Highway 421. The property consists of 5 one-story modular buildings with
wood trimmed stone and stucco exteriors. The building have exterior corridors.
The lobby consists of a reception area and an office.
The hotel is subject to a first mortgage with a balance of $1,592,083 as of
December 31, 1998. The mortgage requires monthly payments and matures on April
1, 2006 with a remaining balance, assuming no prepayment, of approximately
$1,097,000. The mortgage carries an interest rate of 9.5% per annum subject to
adjustment every three years to a rate equal to100 basis points above the
defined prime rate of Provident Bank. The interest rate on the mortgage was last
adjusted on April 1, 1997. Under the terms of the mortgage, the loan may be
prepaid in whole or in part at any time with no prepayment penalty.
The Company spent $85,964 on capital expenditures at the hotel in 1998.
Such expenditures were financed from working capital. The capital expenditures
for 1999 are anticipated to be approximately $123,128, and all expenditures will
be paid from existing replacement reserves and working capital.
Knights Inn, Lafayette, Indiana. Built in 1987, the 112 room hotel is
located on approximately 3.24 acres on the north side of State Road 26
approximately 1/2 mile west of Interstate Highway 65. The property is highly
visible from State Road 26. The property consists of four one-story modular
buildings with wood trimmed stone and stucco exteriors and an outdoor swimming
pool. The building has exterior corridors. The lobby consists of a reception
area and an office.
The hotel is subject to a first mortgage with a balance of $2,109,512 as of
December 31, 1998. The mortgage matures on April 1, 2006 with a remaining
balance, assuming no prepayment, of approximately $1,453,000. The mortgage
carries an interest rate of 9.5% per annum subject to adjustment every three
years to a rate equal to 100 basis points above the defined prime rate. The
interest rate on the mortgage was last adjusted on April 1, 1997. Under the
terms of the mortgage, the loan may be prepaid in whole or in part at any time
with no prepayment penalty.
The Company spent $57,324 on capital expenditures at the hotel in 1998.
Such expenditures were financed from working capital. The capital expenditures
for 1999 are anticipated to be approximately $82,657, and all expenditures will
be paid from existing replacement reserves and working capital.
Holiday Inn, Independence, Ohio. Built in 1974, the 364 room hotel is
located on approximately 8.5 acres on Rockside Road approximately 11 miles from
Cleveland Hopkins International Airport and approximately 8 miles from downtown
Cleveland. The property is situated at the junction of Interstate Highway 480
and Interstate Highway 77. The property consists of two five-story concrete
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block, brick and stucco buildings with 14 meeting rooms, 1 Grand Ballroom (or 4
separate Ballrooms), business center, gift shop, restaurant, lounge and a
full-size indoor swimming pool.
The hotel is subject to a first mortgage with a balance of $21,731,774 as
of December 31, 1998. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of approximately $17,696,797. The mortgage
carries an interest rate of 8.09% per annum. Under the terms of the mortgage,
the loan may not be prepaid in whole or in part subject to a prepayment penalty.
The Company spent $253,510 on capital expenditures at the hotel1998. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 1999 are anticipated to cost approximately $651,460, and all
expenditures will be paid from existing replacement reserves and working
capital.
Holiday Inn, North Canton, Ohio. Built in 1970, the 196 room hotel is
located on approximately 4.75 acres on Everhard Road approximately 5 miles from
the Akron-Canton Regional Airport and approximately 5 miles from downtown
Canton. The property is situated off of Interstate Highway 77. The property
consists of two three-story concrete block and stucco buildings with one Grand
Ballroom (or 4 separate Ballrooms), two meeting rooms, restaurant, lounge,
full-size outdoor swimming pool, fitness center and game room.
The hotel is subject to a first mortgage with a balance of $5,383,100 as of
December 31, 1998. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of approximately $3,981,674. The mortgage
carries an interest rate of 8.09% per annum. Under the terms of the mortgage,
the loan may not be prepaid in whole or in part subject to a prepayment penalty.
The Company spent $39,017 on capital expenditures at the hotel in 1998.
Such expenditures were financed from the replacement reserve. The capital
expenditures for 1999 are anticipated to be approximately $288,596, and all
expenditures will be paid from existing replacement reserves and working
capital.
Holiday Inn, Hudson, Ohio. Built in 1967, the 289 room hotel is located on
approximately 15 acres on Hines Hill Road approximately 22 miles from downtown
Cleveland and approximately 14 miles from downtown Akron. The property is
situated at the junction of the Ohio Turnpike and Route 8. The property consists
of two two-story concrete block and stucco buildings with one Grand Ballroom (or
6 separate Ballrooms), six banquet rooms, three meeting rooms, a restaurant,
lounge, game room, an indoor swimming pool, outdoor swimming pool, basketball
courts, tennis courts, volleyball courts and fitness center.
The hotel is subject to a first mortgage with a balance of $13,258,376 as
of December 31, 1998. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of approximately $10,796,669. The mortgage
carries an interest rate of 8.09%. Under the terms of the mortgage, the loan may
not be prepaid in whole or in part subject to a prepayment penalty.
The Company spent $166,693 on capital expenditures at the hotel in 1998.
Such expenditures were financed from the replacement reserve. The capital
expenditures for 1999 are anticipated to be approximately $963,034, and all
expenditures will be paid from existing replacement reserves and working
capital.
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Comfort Inn, Akron, Ohio. Built in 1989, the 134 room hotel is located on
approximately 3.5 acres on Montrose West Avenue at the intersection of
Interstate Highway 77 and Route 18. The property consists of two two-story
concrete block and brick buildings with an indoor swimming pool.
The hotel is subject to a first mortgage with a balance of $3,489,046 as of
December 31, 1998. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of approximately $2,841,229. The mortgage
carries an interest rate of 8.09% per annum. Under the terms of the mortgage,
the loan may not be prepaid in whole or in part subject to a prepayment penalty.
The Company spent $57,543 on capital expenditures at the hotel in 1998.
Such expenditures were financed from the replacement reserve. The capital
expenditures for 1999 are anticipated to be approximately $75,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Franchise Agreements
The Company has entered into non-exclusive multi-year franchise, licensing
or membership agreements, which allow the Company to utilize the franchise brand
name of the franchiser or licensor for the Hotels. The Company believes that its
relationships with nationally recognized franchisers provides significant
benefits for its existing Hotels. The franchise agreements require the Company
to pay annual fees, to maintain certain standards and to implement certain
programs that require additional expenditures by the Company such as remodeling
or redecorating. The payment of annual fees, which typically total from 8% to
12% of room revenues, covers royalties and the costs of marketing and
reservation services provided by the franchisers. Franchise agreements, at their
inception, generally provide for a term of 15 years and for an initial fee in
addition to annual fees payable to the franchiser.
The Company currently has franchise or membership relationships with Bass
Hotels (Holiday Inn), Days Inn, Knights Inn, Best Western, Choice Hotels
(Comfort Inn) and Red Roof. Franchise agreements may be terminated if, among
other reasons, the Company breaches its obligations under the agreement, the
hotel is not operated in the ordinary course of business or the Company becomes
financially unstable. There can be no assurance that a desirable replacement
could be available if any franchise agreements were to be terminated. Upon such
termination with respect to the Company's Hotels, the Company would incur the
costs of signage removal and other expenses, possible lost revenues and the
costs incidental to establishing new associations. Through the Managed Hotels,
the Company has additional relationships with other franchisers, including
Howard Johnson, Ramada, Wingate and Radisson.
Managed Hotels
The Company operates the Managed Hotels pursuant to management agreements
(the "Management Agreements") with the owners of such Managed Hotels. Managed
Hotels are operated primarily under nationally-recognized brand names. Five
Managed Hotels are non-franchised properties.
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The Company is responsible for all matters relating to the day-to-day
operations of the Managed Hotels and is required to prepare an annual operating
budget, use its reasonable best efforts to market the hotels and ensure
compliance with the terms of applicable franchise agreements. The Company is
also responsible for the retention and supervision of personnel, necessary for
the operation of the hotel property. The Company has a contract with a third
party for this purpose. See "Operations - Hotel Personnel."
Under the terms of the Management Agreements, management fees are either a
flat amount or are based on a fixed percentage of a property's total revenues,
ranging from 3% to 5%, and/or incentive payments based upon net operating
income. Additional fees are also generated from the rendering of accounting
services. The Management Agreements generally have terms of one year to five
years and are automatically renewed for successive similar terms, unless either
party decides not to renew the same. Either party may terminate a Management
Agreement for cause prior to a stated expiration date, except in the case of two
Management Agreements which permit termination at any time without cause.
Generally, the owner of a property has the right to terminate a Management
Agreement upon sale of the Hotel to an unrelated third party, upon the payment
of a termination fee to the Company.
In 1998, the Company derived management fee income from a marketing joint
venture with Summit Hotel Management Company, which was terminated in December
1998. The Company also derives management fee income through a management joint
venture with DePalma Hotel Corporation of Dallas, which manages two Days Inn
hotels in Florida.
Operations
The Company operates each Hotel according to a business plan specifically
tailored to the characteristics of the Hotel and its market and employs
centralized management, accounting and purchasing systems to enhance hotel
operations, reduce the costs of goods, food and beverages and increase operating
margins.
Computerized Reporting Systems. The Company has a service agreement for a
hotel property management information system with Computel Computer Systems,
Inc. ("Computel"), a corporation wholly-owned by Messrs. Beck and Yeaggy. The
agreement provides a computerized system that tracks all services provided by
eight of the Hotels and enables the Company to monitor a broad spectrum of the
operations of each Hotel covered by the system, including the occupancy and
revenues of the Hotels. The agreement with Computel has a term of one year and
automatically renews for successive terms of one year, unless one party notifies
the other to the contrary at least three months prior to the termination date.
Computel is paid a monthly fee of $275 per property for its basic property
management software package and one computer terminal. Additional monthly fees
are charged for additional terminals and add-on software for services such as
guest messaging, call accounting interface, franchise central reservation
interface and movie interface. On each annual renewal of the agreement, Computel
is entitled to adjust its fees to the Company commensurate with the fees charged
to other customers. During 1998, as a result of requirements of one of the
Company's franchisors, the Company significantly decreased the number of Hotels
utilizing the Computel system, thereby substantially decreasing the service fees
to Computel.
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Hotel Personnel. The majority of the personnel at the Hotels is provided by
Hospitality Employee Leasing Program, Inc. ("HELP"), a corporation wholly-owned
by Messrs. Beck and Yeaggy, pursuant to an agreement with the Company. The
agreement has a term of one year and automatically renews for successive one
year terms, unless one party notifies the other to the contrary at least three
months prior to the expiration date. The Company pays HELP the actual cost of
the personnel provided to it to operate the Hotels plus an administrative fee of
$8.15 per bi-monthly pay period per person provided.
Employment and Other Governmental Regulation
The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. Also, the Company and HELP are subject to laws governing
relationships with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. The failure to obtain or retain
liquor licenses or an increase in overall wage rates, employee benefit costs or
other costs associated with employees, could adversely affect the Company. Under
the Americans with Disabilities Act of 1990 (the "ADA") all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes the Hotels are
substantially in compliance with these requirements, a determination that the
Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. These and other such
initiatives could adversely affect the Company.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership or operation of
the Hotels, the Company may be potentially liable for any such costs. Although
the Company is not currently aware of any material environmental claims pending
or threatened against it, no assurance can be given that a material
environmental claim will not be asserted against the Company or against the
Company and the Hotels. The cost of defending against a claim of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations for the Company.
Competition
The lodging industry is highly competitive both in terms of geographic
markets and market segmentation. The Hotels are in the market segments known
generally as full service, limited service and economy hotels. The Company
competes with other franchisers of Bass Hotels (Holiday Inn), Days Inn, Knights
Inn, Best Western, Choice Hotels (Comfort Inn) and Red Roof within the
geographic markets of the applicable Hotels and operators of other similar
service type hotels. The Managed Hotels cover the spectrum of market segments
and include economy, limited service, full service mid-market hotels and higher
rated luxury properties. Like the Company's Hotels, the Managed Hotels compete,
within their geographical markets, with other properties under the same
franchise names, with properties operating under other franchise names and with
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independent operators. Several owners/managers of multiple hotel properties are
larger than the Company and have greater financial and other resources and
better access to the capital markets than the Company. Performance of the hotel
industry has been cyclical and is affected by general economic conditions and by
the local economy where each hotel is located. In addition, to remain
competitive, hotels must be periodically renovated and modernized in order to
compete with newer or more recently renovated facilities. Furthermore, shifts in
demographics or other local market changes can reduce the economic returns from
a hotel.
Employees
As of December 31, 1998, approximately twenty full-time employees and one
part-time employee of the Company were engaged in management, business
operations and administration of its hospitality business. In addition, at that
date approximately 1100 individuals employed by HELP provided services at the
Hotels under a service agreement between HELP and the Company. See "The
Hospitality Business--Operations."
Growth Strategy
Management of the Company intends to pursue a program of expanding its
business of the management and/or acquisition of hotels, recreation, resorts,
entertainment or other related entities through the marketing of its services to
the owners of properties not owned by the Company and through the acquisition of
properties either by itself or with other investors. The Company is engaged in a
marketing program to expand selectively the number of hotels that it manages.
Since entering the hospitality business in April 1997, and prior to December 31,
1998, the Company increased its number of Managed Hotels by ten. The Company
also continues to review possible acquisitions of hospitality properties. There
can be no assurance that the Company will be successful in pursuing its growth
strategy due to the highly competitive nature of the market and current
limitations on the Company's ability to raise capital through the issuance of
Common Stock and certain types of preferred stock. See "Risk
Factor--Competition"; and -- "Possible Need for Additional Financing" and
"Management's Discussion and Analysis or Plan of Operation--Liquidity and
Capital Resources."
Public Service
The Company has signed a one-year agreement with America Responds With
Love, Inc. ("America Responds") under which it provides lodging at no charge at
a number of its Hotels. While this program will from time to time increase the
Company's costs of operation without a corresponding increase in revenues,
management believes that the impact upon profitability will be immaterial, and
regards its participation in the program as a marketing opportunity. The Company
has the right to cancel this agreement at any time with notice to America
Responds.
Investment Policies
Generally. The Company's business is the management and/or acquisition of
hotels, recreation, entertainment or other related entities that the Company
believes may benefit from the Company's management expertise.
Investments in Real Estate or Interests in Real Estate. Investments in
properties may include the acquisition and redevelopment of existing properties,
the acquisition of existing properties in concert with a third party,
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acquisition of existing new management contracts related to hospitality,
recreation, health care or entertainment properties or, in circumstances the
Company deems potentially advantageous, the acquisition of unimproved property
and the subsequent development or sale of such property.
There is no limitation on the percentage of the Company's assets that may
be invested in any one investment or in any one type of investment, including
the geographic location or distribution of such investments. The Company
however, intends to acquire properties and obtain management contracts that will
eventually put it in all large market cities in the United States. The Company
may also seek to acquire resort properties outside of the United States. The
Company's investment policy may be changed without a vote of the Company's
security holders. The primary purpose of the Company's acquisition and
investment policy is to acquire assets that will provide income to the Company.
Capital gains related to the disposition of assets held by the Company is a
secondary consideration.
While the Company is unrestricted in terms of the type of properties in
which it may invest, the Company intends to focus its real estate investments on
hospitality or entertainment-related properties without specific geographic
limitations. Financing for any acquisitions undertaken by the Company is
expected to be provided through a combination of cash on hand, internally
generated cash, capital stock transactions (to the extent such capital stock
transactions can be accomplished without jeopardizing the Company's net
operating loss carryforwards) and through borrowings. There can be no assurance
that the enumerated sources of financing will be available to the Company on a
timely basis nor that borrowings by the Company will be available on terms the
Company deems acceptable, or at all. There is no limitation as to the amount of
indebtedness the Company may incur nor the amount or number of mortgages that
the Company may place on any one piece of property.
Investment in Real Estate Mortgages. The Company does not, within its core
business, intend to invest in real estate mortgages, except as ancillary to the
acquisition of other assets. It is not the Company's intention to service or to
warehouse real estate mortgages, nor is it the Company's intention to invest in
real estate mortgages as a passive investor in such investments. In 1997, the
Company acquired a mortgage on the Holiday Inn Express, Juno Beach, Florida and
on the KOA Campground in Kissimmee, Florida. Effective January 1, 1999, the
Company acquired the Juno Beach property. As of December 31, 1998, the balance
on the Kissimmee mortgage was $3,417,006.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities. The Company does not intend to invest in securities of persons
primarily engaged in real estate activities, except where such investment may be
ancillary or incidental to transactions involving hospitality, recreation or
entertainment-related properties or management agreements to be acquired by the
Company. In this respect, the Company may acquire positions in corporate common
stock, real estate investment trusts, partnerships or limited liability
companies.
History of the Company's Reorganization
Under the terms of the Plan, (i) the United States Lines, Inc. and United
States Lines (S.A.), Inc. Reorganization Trust (the "Reorganization Trust") was
created for the benefit of unsecured creditors of U.S. Lines and U.S. Lines
(S.A.); (ii) certain assets and liabilities of U.S. Lines and U.S. Lines (S.A.)
were transferred to the Reorganization Trust; and (iii) U.S. Lines and U.S.
Lines (S.A.) were discharged of all liabilities.
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The agreement establishing the Reorganization Trust (the "Trust Agreement")
provided for shares of stock of Janus and JI Subsidiary to be distributed to the
unsecured creditors as their claims were allowed. See "The Reorganization
Trust." The Plan provided for the unsecured creditors to hold a majority of the
outstanding stock of the reorganized companies through the Reorganization Trust
and further provided for a sale of stock to an investor who would identify
investment opportunities for the reorganized companies.
A principal objective of the Plan disclosed in the Second Amended and
Restated Disclosure Statement of McLean Industries, Inc., First Colony Farms,
Inc., United States Lines and United States Lines (S.A.), Inc. dated February
23, 1989 (the "Disclosure Statement") was the preservation and maximization of
substantial net operating loss carryforwards ("NOLs") of U.S. Lines (S.A.) for
federal income tax purposes. The Plan designed the Company's post-reorganization
capital structure in order to comply with the net operating loss provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and to ensure that
at least one half of the common stock of Janus was owned by creditors whose
claims were "old and cold". The term "Net NOLs" means the amount of NOLs of U.S.
Lines and U.S. Lines (S.A.) for federal income tax purposes adjusted to reflect
reductions and related adjustments required under Code ss.382(1)(5), but subject
to Internal Revenue Service audits, subsequent changes in the ownership of the
Company and effects under Code ss.382, the application of Code ss.ss.269 and
384, and the consolidated return regulations under Code ss.1502. See "The Net
operating Loss Carryforwards--Application of Code ss.382 Under the Chapter 11
Reorganization". Management of the Company believes that after taking into
account these reductions and related adjustments, the NOLs currently are at
least $500 million.
The Reorganization Trust
The Reorganization Trust was created by the Plan for the purpose of
resolving the disputed claims of former unsecured creditors of U.S. Lines and
U.S. Lines (S.A.), marshalling the remaining assets of U.S. Lines and U.S. Lines
(S.A.), such as claims against third parties, and acting as the disbursing agent
for distribution to the former creditors. The trustee of the Reorganization
Trust is John T. Paulyson, who has been employed by the Reorganization Trust
since its inception.
The Reorganization Trust was issued stock by both Janus and JI Subsidiary
which was intended by the Plan to be distributed to the former creditors of U.S.
Lines and U.S. Lines (S.A.) as their claims were resolved. Five million shares
of the Company's Common Stock was originally issued to the Reorganization Trust,
all ultimately to be distributed to allowed creditors of U.S. Lines. As of
December 31, 1998, 4,191,170 shares have been distributed by the Reorganization
Trust to former creditors.
The balance of 808,803 shares includes a fixed reserve of 352,850 shares of
Common Stock established by order of the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court") for the benefit of more
than 14,673 individuals who have asserted asbestos-related and other
late-manifesting personal injury claims. The resolution of these claims (and any
future late-manifesting asbestos and other personal injury claims) is delayed,
in part, by a dispute between the Reorganization Trust and the insurance
carriers of U.S. Lines over certain aspects of insurance coverage. This dispute
has no impact upon the Company other than delaying identification of individual
shareholders and prolonging the activities of the Reorganization Trust.
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The Trust Agreement provides for the Reorganization Trust to make
contributions to Janus and JI Subsidiary from time to time of cash on hand that
exceeds its projected liabilities and administrative requirements. Such
contributions are to be made 90% to Janus and 10% to JI Subsidiary. The Company
did not receive a contribution from the Trust in 1998. Through December 31,
1997, an aggregate of approximately $15 million was transferred by the
Reorganization Trust to the Company. No additional transfers from the
Reorganization Trust are anticipated until there is a resolution of the
insurance coverage issues.
As of December 31, 1998, the Reorganization Trust reported total cash and
cash equivalents of $4,059,054 of which $1,699,732 was identified as "restricted
funds". While there is no objective formula to determine the extent to which the
Reorganization Trust assets exceed projected liabilities and administrative
requirements, management of the Company believes that more monies may ultimately
be available for contribution to the Company and JI Subsidiary by the
Reorganization Trust. The principal unknown variable that could cause
substantial depletion of the unrestricted available cash and cash equivalents is
the remaining period of Reorganization Trust activity and the amount of
professional fees necessary to resolve outstanding claims, particularly, any
asbestos or other late-manifesting personal injury claims. No assurance can be
given, nor is any assurance intended, that additional cash will become available
to the Company from the Reorganization Trust or the amount of such additional
cash, if any.
The Net Operating Loss Carryforwards
The following description of the NOLs is based upon management's analysis
of the application of the relevant sections of the Code to the historical NOLs
of U.S. Lines and U.S. Lines (S.A.). There can be no assurance that the Internal
Revenue Service or the courts will agree with management's analysis. There are
substantial risks associated with the Company's utilization of its NOLs.
As used herein, unless otherwise defined or modified, the term "Gross NOLs"
means the total NOLs reported to the Internal Revenue Service on the federal
income tax returns of U.S. Lines and U.S. Lines (S.A.) (collectively, the "U.S.
Lines Group"), including any filed amended returns, before the application of
any reductions and related adjustments described in the following paragraphs
under this heading "The Net Operating Loss Carryforwards". Based on its federal
income tax returns for 1985 through 1997, Janus reported cumulative Gross NOLs
of approximately $970,000,000. Under Code ss.172(b) as in effect during the
relevant years, unused NOLs expire after fifteen taxable years from the taxable
year of a loss. Therefore, material amounts of these Gross NOLs will expire
beginning in 1999 (approximately $122,000,00 in 1999, approximately $623,000,000
in 2000, approximately $201,000,000 in 2001, approximately $9,000,000 in 2002
and smaller amounts in later years).
After taking into account the reorganization of the U.S. Lines Group
pursuant to the Plan (especially because of the reductions and related
adjustments imposed by Code ss.382(l)(5)), as described in more detail in this
section "The Net Operating Loss Carryforwards", management of the Company
believes the Net NOLs are currently at least $500 million, although no assurance
can be given that the Company will be able to utilize these NOLs. The Net NOLs
may be affected by Internal Revenue Service audits, subsequent changes in the
ownership of the Company and effects under Code ss.382, the application of Code
ss.ss.269 and 384, and the consolidated return regulations under Code ss.1502,
which are described below in this section.
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Cancellation of Debt Income. Under the Plan, as described in the Disclosure
Statement, unsecured indebtedness of the U.S. Lines Group with an aggregate face
amount of approximately $1 billion to $1.35 billion was canceled. The Code
provides that if a taxpayer is the subject of a bankruptcy case and the
cancellation of indebtedness ("COD") is pursuant to a plan approved by the
Bankruptcy Court, the amount canceled is not required to be included in gross
income. Instead, if the creditors receive cash or property other than stock of
the debtor, any amounts so excluded from gross income reduce prescribed tax
attributes of the debtor, including NOLs and the bases of the assets of the
debtor, in a specified order of priority beginning with NOLs.
Provided two "de minimis" requirements were satisfied, if a debtor in
bankruptcy satisfied its debt by issuing its own stock prior to the effective
date of the Revenue Reconciliation Act of 1993, the debtor generally did not
recognize COD income nor did it suffer NOL reduction. To satisfy these two de
minimis requirements former Code ss.108(e)(8) required that (i) a creditor must
have received more than nominal or token shares, and (ii) with respect to any
unsecured creditor, the ratio of the value of the stock received by the
unsecured creditor to the amount of its indebtedness canceled or exchanged for
the stock must not have been less than 50% of a similar ratio computed for all
unsecured creditors participating in the restructuring. Both U.S. Lines and U.S.
Lines (S.A.) issued stock to their respective unsecured creditors to minimize
any COD. Because the Reorganization Trust represented and acted on behalf of the
creditors of both U.S. Lines and U.S. Lines (S.A.), stock of both entities was
issued to the Reorganization Trust in order to settle claims of creditors of
both entities.
Code ss.382 in General. If a corporation undergoes an "ownership change",
Code ss.382 limits the corporation's right to use its NOLs each year to an
annual percentage (based on the federal long-term tax-exempt rate) of the fair
market value of the corporation at the time of the ownership change (the
"Section 382 Limitation"). If an ownership change under Code ss.382 is
triggered, a corporation may also be restricted from utilizing certain built-in
losses and built-in deductions recognized during a five-year recognition period
after the ownership change.
Application of Code ss.382 Under the Chapter 11 Reorganization. Management
does not believe that the U.S. Lines Group was subject to the Section 382
Limitation because although a 50% ownership change was expected to occur as a
result of the transfer of stock of Janus and JI Subsidiary to the Reorganization
Trust for the benefit of the former unsecured creditors, an exception under Code
ss.382(l)(5) is believed to have applied as described as follows. Code
ss.382(l)(5) provides that the Section 382 Limitation will not apply to a loss
corporation if (1) the corporation, immediately before the ownership change, is
under the jurisdiction of a court in a United States Code Title 11 or similar
case, and (2) the shareholders and creditors of the old corporation own at least
50% of the total voting power and value of the stock of the corporation after
the "ownership change" as a result of being shareholders and creditors before
the change. Stock transferred to such creditors counts only if it is transferred
with respect to "old and cold" indebtedness (as defined above). The debtor
company U.S. Lines requested a private letter ruling from the Internal Revenue
Service to the effect that if a corporation or other entity held indebtedness of
U.S. Lines that was otherwise "old and cold", the indebtedness would not lose
its characterization as "old and cold" as a result of changes in ownership of
the corporation or entity. Such a ruling was issued on December 22, 1989 (the
"IRS Ruling"). The IRS Ruling also held that the ownership change of U.S. Lines
was covered by Code ss.382(l)(5) and therefore the Section 382 Limitation was
not triggered as a result of the owner shift associated with the reorganization.
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Consistent with the IRS Ruling, the Company's management believes that Code
ss.382(l)(5) applied to the transfer of Janus stock to the U.S. Lines creditors
and JI Subsidiary's stock to the U.S. Lines (S.A.) creditors. Under former Code
ss. 382(l)(5)(C), although the Section 382 Limitation does not apply, the Gross
NOLs originally available to the U.S. Lines Group must nevertheless be reduced
by Janus and JI Subsidiary to the extent of 50% of the COD income not taken into
account by virtue of the stock for debt exception of former Code
ss.108(e)(10)(B) (see "Cancellation of Debt Income", above in this section).
Based on a review of its accounting and tax records related to this unrecognized
COD income conducted by the Company's management with the assistance of outside
tax professionals, the Company's management believes that its Gross NOLs must be
reduced and adjusted under former Code ss.382(l)(5)(C) in an amount of
approximately $450,000,000. While management of the Company believes it has a
reasonable basis for this calculation, no assurance can be provided that the
Internal Revenue Service would agree with the Company's analysis. After taking
into account these reductions and related adjustments to the Gross NOLs,
management of the Company believes that the Net NOLs were, at December 31, 1998,
approximately $500 million, subject to Internal Revenue Service audits,
subsequent changes in the ownership of the Company and effects under Code
ss.382, the application of Code ss.ss.269 and 384, and the consolidated return
regulations under Code ss.1502, which are described below in this section.
Code ss.382 and Subsequent Events and Investors. After the issuance of
Common Stock in the acquisitions completed by the Company in 1997, management of
the Company believes that the Company's current cumulative ownership shift under
Code ss.382 is only a few percentage points short of a 50 percentage point
ownership change. If a future ownership change under Code ss.382 were triggered,
the Company would be allowed to use its NOLs only up to the amount of its
Section 382 Limitation on an annual basis. More specifically, this annual amount
would equal the fair market value of the Company at the time of the ownership
change multiplied by the federal long-term tax-exempt rate. Janus has taken
certain steps to monitor any further transfers of Common Stock by its 5-percent
shareholders and further issuances or redemptions of Common Stock. Because Code
ss.382 tests whether a 50 percentage point ownership change has occurred over a
three-year testing period, Janus' capacity to issue more Common Stock through
April 2000 will be severely curtailed.
Certain Transferability Restrictions. In accordance with authority granted
by the Company's Restated Certificate of Incorporation, as amended, the Company
has imposed certain transferability restrictions upon Daewoo Corporation,
Mitsubishi Corporation, General Electric Capital Corporation and The Prudential
Insurance Company of America, each of whom is presently a 5-percent shareholder
for purposes of Code ss.382. These restrictions provide that until April 24,
2001, the specified shareholders shall be prohibited from transferring, in any
manner, any shares of Common Stock, without the consent of the Company's Board
of Directors. The Company shall have no obligation to consent to a transfer
unless it shall have received an opinion of legal counsel acceptable to the
Company to the effect that the transfer does not give rise to an "ownership
change" under Code ss.382 or otherwise affect the availability to the Company of
its NOLs and any other applicable tax attributes for Federal income tax
purposes. In addition to such imposed transferability restrictions, Messrs. Beck
and Yeaggy have agreed to equivalent transferability restrictions.
Impact of Consolidated Return Regulations. Under the consolidated return
regulations pursuant to the Code, the consolidated return change of ownership
("CRCO") rule may limit the carryover of NOLs from a consolidated return year
ending before the year of a CRCO ownership change. The Company believes that the
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changes to the U.S. Lines Group former consolidated group's capital structure
caused a CRCO ownership change on or about December 30, 1988 when U.S. Lines
left its former consolidated group. The CRCO rule may prevent the Janus
consolidated group from utilizing its pre-CRCO NOLs against income generated by
a newly acquired business that is held in a subsidiary other than JI Subsidiary.
The CRCO rule should not prevent the Janus consolidated group from utilizing its
NOLs that were generated in 1988 or in later years against income of a new
subsidiary.
Effect of Code ss.384. Congress adopted Code ss.384 in 1987 to prevent a
loss corporation from using its pre-acquisition NOLs and net built-in losses
against any net built-in gains of a corporation the control of which (utilizing
an 80% test of Code ss.1504(a)(2)) is acquired by the loss corporation or whose
assets are acquired by the loss corporation in certain types of reorganizations.
The limitation of Code ss.384 applies to built-in gains recognized within the
five-year recognition period after the acquisition date. Code ss.384 will
prevent Janus from utilizing its NOLs against built-in gains recognized by any
acquired companies (assuming the control test is met) within five years of the
acquisition date, including Janus' recent entry into the hotel business. Any
future acquisitions by Janus will need to be analyzed for the impact that Code
ss.384 may have on the utilization of Janus' NOLs against any recognized
built-in gains. The interaction of the five-year rule of Code ss.384 with the
impending expiration of most of the NOLs of Janus under the general rule of Code
ss.172 reduces the possible tax benefit Janus can expect from its NOLs.
Effect of Code ss.269. Code ss.269(a) provides that if:
(1) any person or persons acquire ... directly or indirectly, control
of a corporation, or
(2) any corporation acquires ..., directly or indirectly, property of
another corporation, ... the basis of which property, in the
hands of the acquiring corporation, is determined by reference to
the basis in the hands of the transferor corporation,
and the principal purpose of such acquisition was the evasion or avoidance of
Federal income tax by securing the benefit of a deduction, credit, or other
allowance that such person or corporation would not otherwise enjoy, then the
Internal Revenue Service may disallow such deduction, credit, or other
allowance. The Disclosure Statement states that Code ss.269 should not apply to
the transactions provided for under the Plan. The Disclosure Statement points
out that the creditors' receipt of Common Stock of the Company was a direct
consequence of their having extended credit to the debtor U.S. Lines. This
credit was not extended to achieve control of the debtor in bankruptcy and thus
avoid or evade federal income tax.
Risk Factors
The Common Stock of the Company is speculative in nature and involves a
high degree of risk. The risk factors below are not listed in order of
importance.
Possible Need for Additional Financing
The Company has been substantially dependent upon mortgage loans for the
financing of its real estate activities and internal cash flow for its working
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capital requirements. The Company anticipates that in the absence of further
acquisitions of hotels and/or management agreements, and based on currently
proposed plans and assumptions relating to its operations, its available
resources, including its current cash balances, will be sufficient to satisfy
the Company's contemplated cash requirements for its current operations for at
least the next 24 months. In the event that the Company acquires one or more
hotels or a significant number of additional management agreements, or its
assumptions change or prove to be inaccurate, the Company could be required to
seek additional financing or curtail its activities. Any equity financing may
involve substantial dilution to the interest of the Company's stockholders, and
any debt financing could result in operational or financial restrictions on the
Company. There can be no assurance that any additional financing will be
available to the Company on acceptable terms or at all. There are also
restrictions on the Company's ability to issue Common Stock and certain kinds of
preferred stock if the Company wishes to preserve its NOLs. See "Description of
Business--The Net Operating Loss Carryforwards."
Conflicts of Interest
While under the terms of their employment agreements with the Company,
Messrs. Beck and Yeaggy are prohibited from acquiring additional interests in
hotels or hotel management companies while they serve as officers of the
Company, their present independent businesses give rise to the possibility of
conflicts of interest.
The Company relies upon Computel and HELP, which are wholly-owned by
Messrs. Beck and Yeaggy, for administrative and personnel services at the
Hotels.
Messrs. Beck and Yeaggy beneficially held a mortgage on the Owned Hotel
Days Inn Pompano Beach.
Conflicts may arise between the Company and Messrs. Beck and Yeaggy in
connection with the exercise of any rights or the conduct of any negotiations to
extend, renew, terminate or amend the agreements between each of Computel and
HELP and the Company, the mortgage on the Days Inn Pompano Beach or the
subleases for the offices occupied by the Company in Boca Raton and Cincinnati
which are sublet from an affiliate of Messrs. Beck and Yeaggy. Conflicts may
also arise between the Company and Messrs. Beck and Yeaggy in connection with
certain mortgage indebtedness of the Company that is personally guaranteed by
Messrs. Beck and Yeaggy, or in connection with the exercise by the Company of
its rights with respect to a mortgage note and related mortgage on the KOA
Campground in Kissimmee, Florida, which is owned by Messrs. Beck and Yeaggy.
In addition, certain key personnel of the Company work for and are
compensated by both the Company and affiliates of Messrs. Beck and Yeaggy. The
allocation of compensation expenses of these individuals between the Company and
such affiliates could lead to conflicts of interest.
Although management's recommendations on matters potentially involving
conflicts of interest will be referred to the Audit Committee of the Board of
Directors for review, there can be no assurance that any such conflicts will be
resolved in favor of the Company.
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Operating Risks
The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, adverse effects of
general and local economic conditions, changes in local market conditions,
cyclical overbuilding of hotel space, a reduction in local demand for hotel
rooms, changes in travel patterns, the recurring need for renovations,
refurbishment and improvements of hotel properties, changes in interest rates
and the other terms and availability of credit. Changes in demographics or other
changes in a hotel's local market could impact the convenience or desirability
of a hotel, which, in turn, could affect the economic returns from the operation
of a hotel. The operational expenses of a hotel cannot be reduced when
circumstances result in a reduction of revenue.
Competition
The lodging industry is highly competitive. Several of the Company's
competitors are larger than it and possess greater financial, operational and
managerial resources. There can be no assurance that in the markets in which the
Company's Hotels operate, competing hotels will not pose greater competition for
guests than presently exists, or that new hotels will not be constructed in such
locales. New or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities, or significantly expand, improve or
introduce new facilities in markets in which the Hotels compete, thereby
adversely affecting the Company's operations. See "Description of Business--The
Hospitality Business--Competition."
Geographic Concentration of Hotels
Many of the Company's Hotels are located in Florida and Ohio. Such
geographic concentration exposes the Company's operating results to events or
conditions that specifically affect those areas, such as local and regional
economic, weather and other conditions. Adverse developments that specifically
affect those areas may have a material adverse effect on the results of
operations of the Company.
Relationships with Franchisers
The Company enters into non-exclusive agreements with certain franchisers
for the franchise or license of brand names, which allows the Company to benefit
from franchise name recognition and loyalty. The Company believes that its
relationships with nationally recognized franchisers provides significant
benefits for its existing Owned Hotels and acquisitions it may make in the
future. While the Company believes that it currently enjoys good relationships
with its franchisers, there can be no assurance that a desirable replacement
would be available if any of the franchise agreements were to be terminated.
Upon termination of any franchise agreement, the Company would incur the costs
of signage removal and other costs, possible lost revenues and the costs
incidental to establishing new associations.
Compliance with Government Regulation
The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. Also, the Company is subject to laws governing its
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relationships with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. The failure to obtain or retain
liquor licenses or an increase in the minimum wage rate, employee benefit costs
or other costs associated with employees, could adversely affect the Company.
Under the Americans with Disabilities Act of 1990 (the "ADA") all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that the Hotels
are substantially in compliance with these requirements, a determination that
the Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. These and other initiatives
could adversely affect the Company.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership or operation of
the Hotels, the Company may be potentially liable for any such costs. Although
the Company is not currently aware of any material environmental claims pending
or threatened against it, no assurance can be given that a material
environmental claim will not be asserted against the Company or against the
Company and the Hotels. The cost of defending against claims of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations of the Company.
Litigation
The Company's Hotels are visited by thousands of invitees each year.
Injuries incurred by any invitees on the hotel premises may result in litigation
against the Company. While the Company maintains general liability insurance,
there can be no assurance that a claim will be covered by such insurance or that
claims made against insurers by the Company will not result in increased
premiums or cancellation of insurance coverage.
Ownership of Hotel Real Estate
The Company currently owns seventeen hotels. Accordingly, the Company is
subject to the risks associated with the ownership of real estate. These risks
include, among others, changes in national, regional and local economies,
changes in real estate market conditions, changes in the costs, terms and
availability of credit, the potential for uninsured casualty or other losses and
changes in or enactment of new laws or regulations affecting real estate. Many
of these risks are beyond the control of the Company. Real estate is generally
illiquid which could result in limitations on the ability of the Company to sell
any one or more Owned Hotels if business conditions so required.
22
<PAGE>
Hotel Renovation Risks
The renovation of hotels involves risks associated with construction and
renovation of real property, including the possibility of construction
cost-overruns and delays due to various factors (including the inability to
obtain regulatory approvals, inclement weather, labor or material shortages and
the unavailability of construction or permanent financing) and market or site
deterioration after acquisition or renovation. Any unanticipated delays or
expenses in connection with the renovation of hotels could have an adverse
effect on the results of operations and financial condition of the Company.
No Limits on Indebtedness
Neither the Company's Restated Certificate of Incorporation, as amended,
nor its by-laws limit the amount of indebtedness that the Company may incur.
Subject to limitations it may agree to in debt instruments, the Company expects
to incur additional debt in the future to finance acquisitions and renovations.
The Company's continuing substantial indebtedness could increase its
vulnerability to general economic and lodging industry conditions (including
increases in interest rates) and could impair the Company's ability to obtain
additional financing in the future and to take advantage of significant business
opportunities that may arise. The Company's indebtedness is, and will likely
continue to be, secured by mortgages on all of the Owned Hotels. Future
indebtedness may require the Company to secure indebtedness with other assets of
the Company, including its Management Agreements. There can be no assurance that
the Company will be able to meet its debt service obligations and, to the extent
that it cannot, the Company risks the loss of some or all of its assets,
including the Owned Hotels, to foreclosure. Adverse economic conditions could
cause the terms on which borrowings become available to be unfavorable. In such
circumstances, if the Company is in need of capital to repay indebtedness in
accordance with its terms or otherwise, it could be required to liquidate one or
more investments in hotels at times that may not permit realization of the
maximum return on such investments. See "Management's Discussion and Analysis or
Plan of Operation--Liquidity and Capital Resources."
Control of the Company by Principal Officers
Messrs. Beck and Yeaggy beneficially own approximately 43% of the
outstanding shares of the Common Stock. As a result, such persons, acting
together, have the ability to exercise significant influence over all matters
requiring stockholder approval. Messrs. Beck and Yeaggy are also directors and
executive officers of the Company. The concentration of ownership could delay or
prevent a change in control of the Company.
Irregular Trading Market
The actual "float" of shares available for sale in the market is
approximately 23% of the 8,691,735 shares outstanding as of December 31, 1998.
Approximately 5,658,060 shares, comprised of 3,799,999 shares held by Messrs.
Beck and Yeaggy and their affiliate and 1,858,061 shares held by five percent
shareholders for purposes of the NOL preservation rules, are subject to
transferability restrictions until April 24, 2001. See "Description of
Business--The Net Operating Loss Carryforwards--Certain Transferability
Restrictions." In addition, as of December 31, 1998, 808,830 shares were still
23
<PAGE>
held by the Reorganization Trust for the benefit of former unsecured creditors
of U.S. Lines. See "Description of Business--The Reorganization Trust."
Moreover, among the approximately 4,000 holders of record of the Common Stock
there are numerous holders of very small numbers of shares.
When the transferability restrictions expire, and as a result of certain
registration rights that have been granted to Messrs. Beck and Yeaggy, sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, would adversely affect prevailing market prices for the Common Stock.
Dependence on Key Personnel
The Company believes that its success will depend to a significant extent
on the efforts and abilities of certain of its senior management, particularly
those of its Chairman of the Board, Louis S. Beck, its Vice Chairman, Harry
Yeaggy, its President, James E. Bishop and its President of Hotel Operations,
Michael M. Nanosky. Although the Company has entered into an employment
agreement with each of Messrs. Beck, Yeaggy, Bishop and Nanosky, the loss of any
one of them or other key management or operations employees could have a
material adverse effect on the Company's operating results and financial
condition. There is strong competition for qualified management personnel, and
the loss of key personnel or an inability on the Company's part to attract,
retain and motivate key personnel could adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to retain its existing key personnel or attract additional
qualified personnel. The Company does not presently carry and does not intend to
carry "key man" insurance on the lives of any of its key personnel.
Potential Effects of Preferred Stock Issuance
The Board of Directors has the authority, without further stockholder
approval, to issue up to 5,000,000 shares of preferred stock, in one or more
series, and to fix the number of shares and the rights, preferences and
privileges of any such series. The issuance of preferred stock by the Board of
Directors could affect the rights of the holders of the Common Stock. For
example, such an issuance could result in a class of securities outstanding that
would have dividend, liquidation, or other rights superior to those of the
Common Stock or could make a takeover of the Company or the removal of
management of the Company more difficult.
Dividends Unlikely
Since reorganization, the Company has never declared or paid dividends on
the Common Stock and currently does not intend to pay dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Board of Directors. In addition, the Company may not pay any
dividends on the Common Stock unless dividends on the outstanding preferred
stock are current. The Company presently has 16,788.08 shares of preferred stock
outstanding with an annual dividend expense of $1,259,106. The Company was
current in the payment of dividends on the preferred stock as of December 31,
1998.
Seasonality; Quarterly Fluctuations
The lodging industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
This seasonality can be expected to cause quarterly fluctuations in the revenues
of the Company. Quarterly earnings may also be adversely affected by events
24
<PAGE>
beyond the Company's control, such as extreme weather conditions, economic
factors and other considerations affecting travel. However, the Company is
working on gaining ownership and management agreements in various geographic
areas throughout the United States, where the "busy" seasons are during the less
"busy" seasons of the Company's currently owned and managed hotels, thereby
lessening the seasonality affect of the Company's net income.
Item 2. Description of Property.
The Company conducts its corporate and business operations activities from
offices in Cincinnati, Ohio and Boca Raton, Florida. The Company occupies 4,300
square feet of office space in Cincinnati, Ohio under a sublease, which
terminates in April 2000 and occupies 2,200 square feet of office space Boca
Raton, Florida under a sublease, which terminates in April 1999. Both subleases
are from an affiliate of Messrs. Beck and Yeaggy.
See "Description of Business--The Hospitality Business" for a description
of the properties that are owned and operated by the Company.
Item 3. Legal Proceedings.
The Company is not involved in any material legal proceedings.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Holders:
As of March 10, 1999, there were approximately 3,907 holders of record of
the Company's Common Stock.
Dividends:
Since reorganization the Company has never declared or paid dividends on
its Common Stock and currently does not intend to pay dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Board of Directors.
Market Information:
Quotation of the Common Stock on the Nasdaq Stock Market SmallCap Market
(symbol: JAGI) commenced on January 22, 1998. The Company is not aware that
there were any publicly available quotations of the Common Stock in the
over-the-counter market prior to January 22, 1998.
25
<PAGE>
The following table sets forth, for the periods indicated, the range of the
high and low sales prices for the Common Stock as reported by Nasday SmallCap.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
January 22, 1998-March 31, 1998 $7.00 $3.00
Quarter ended June 30, 1998 $6.00 $3.50
Quarter ended September 30, 1998 $5.00 $2.4375
Quarter ended December 31, 1998 $5.00 $1.8125
</TABLE>
Item 6. Management's Discussion and Analysis of Plan of Operation
Overview
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Historical and Pro forma Results of Operations
The acquisition of the assets from Messrs. Beck and Yeaggy in April 1997
(the "Beck-Yeaggy Group") and the acquisition of the Cornerstone Group in August
1998, were accounted for as purchases. Accordingly, the Company's historical
results of operations for the years ended December 31, 1998 and 1997 included
the results of operations of the Beck-Yeaggy Group and the Cornerstone Group
subsequent to their effective dates of acquisition for accounting purposes. For
that reason, the Company's historical results of operations for the year ended
December 31, 1998 are not directly comparable to those for 1997.
The Company had a net income of $1,887,241 for 1998 compared to a net loss
of $562,744 in 1997. Included in the net loss for 1997 was a loss from
discontinued oil and gas services operations of Pre-Tek of $986,709. The 1998
net income included income from disposal of $136,186. As discussed in Notes 1
and 9 of the Notes to Consolidated Financial Statements elsewhere herein, the
Company adopted a plan to discontinue and dispose of Pre-Tek's operations in
December 1997. Accordingly, the results of operations of Pre-Tek in 1997 and the
estimated loss to be incurred in connection with the disposal have been
classified as separate components of discontinued operations in the consolidated
statements of operations. The loss from discontinued operations of $986,709 in
1997 was comprised of the loss from Pre-Tek operations of $349,353, the
write-off of remaining goodwill related to Pre-Tek of $801,356, a provision for
the estimated loss to be incurred from January 1, 1998 through March 31, 1998 of
$150,000 and the estimated loss on sale of the remaining net assets of Pre-Tek
of $15,000, net of the applicable credit for income taxes of $329,000. The sale
of Pre-Tek was finalized on March 31, 1998 and the remaining balance of the
accrual totaling $136,186 was reduced to $0.
The continuing operations of the Company are comprised primarily of the
operations and management of the Hotels. To present more comparable information
related to continued continuing operations, the discussion of results of
operations will relate to the Company's unaudited pro forma combined results of
continuing operations for the years ended December 31, 1998 and 1997. Pro forma
statements of continuing operations are included in Note 3 of the Notes to
Consolidated Financial Statements.
26
<PAGE>
The unaudited pro forma operating information included in Note 3 of the
consolidated Financial Statements is based on the assumptions and adjustments
described in the Note and below which management believes are reasonable. The
unaudited pro forma combined information does not purport to represent what the
combined results of operations actually would have been if the acquisitions of
the Beck-Yeaggy Group and the Cornerstone Hotel Group had occurred as of January
1, 1997 instead of the actual date of consummation, or what the financial
position and results of operations would be for any future periods. The
unaudited pro forma combined information should be read in conjunction with the
audited historical financial statements of Janus and its subsidiaries included
elsewhere herein.
In addition to combining the historical results of continuing operations of
the Company and the historical pre-acquisition results of operations of the
Beck-Yeaggy Group and the Cornerstone Hotel Group for the periods from January
1, 1998 to April 30, 1998 and January 1, 1997 to December 31, 1997 as if the
acquisition had been consummated on January 1, 1997. Adjustments were made for
depreciation of property and equipment based on the fair values of assets
acquired; the amortization of goodwill; the net effects of changes to
compensation and related expenses based on revised lease agreements and expense
sharing arrangements with a related party and revised employment agreement and
the issuance of shares of preferred and common stock (net of shares returned) as
part of the consideration for the acquisition. The provision for income taxes is
based upon pro forma income from continuing operations and the statutory Federal
and state rates.
The pro forma combined income from continuing operations of the Company was
$2,264,738 for the year ended December 31, 1998, as compared to net income of
$1,533,140 for the year ended December 31, 1997. The increase in income was
primarily the result of decreases in compensation expense, an increase in hotel
revenues, other income, interest income and tax refunds from prior years that
were received in 1998.
Room and related services revenue increased $561,876 to $28,856,963 in
1998. The increase was attributable primarily to an increase in room rates from
Owned Hotels. The average rate increased from $60.42 in 1997 to $62.19 for 1998
as occupancy remained stable in 1998 at 65%.
Food and beverage revenues are principally a function of the number of
guests who stay at each Owned Hotel, local walk-in business and catering sales.
The $231,745 increase in food and beverage sales from $10,453,513 for the year
ended December 31, 1997 to $10,685,258 for the comparable period in 1998 is
related to the increased banquet activity at the Company's four full-service
hotels and increases in menu pricing.
Management fee income increased from $921,217 in 1997 to $1,754,610 in 1998
as a result of the addition of new management contracts and the termination of a
joint marketing venture.
Other hotel related revenues increased for the year ended December 31, 1998
from $715,768 in 1997 to $762,202. The increase resulted from banquet room
rental and additional service charges from banquets.
Direct hotel operating expenses decreased by $315,136 from $18,680,666 in
1997 to $18,365,530 in 1998. Direct room and related services and food and
beverage costs decreased as a result of decreased payroll costs and the
elimination of contracted cleaning services.
27
<PAGE>
Occupancy and other operating expenses remained stable in 1998.
Selling, general and administrative expenses increased by $559,908 to
$7,656,220 in 1998 from $7,096,312 in 1997 as a result of professional fees
incurred for tax consultation, commissions for management contracts and
shareholder services costs. In addition, legal costs were incurred and expensed
for a potential acquisition transaction which was abandoned.
Depreciation increased by $210,873 in 1998 from $3,183,773 in 1997. The
increase was attributable to a full year of depreciation on 1997 furniture and
fixture additions and a half year on 1998 furniture and fixture additions.
Interest income increased $279,083 to $1,137,506 in 1998 from $858,423 in
1997 as a result of funds invested over the same period in the prior year and
interest received on a federal income tax refund.
Interest expense decreased from $5,387,595 in 1997 to $5,340,201. The
decrease was attributable to principal amortization which offset interest rate
increases on variable debt.
Minority interest increased from $17,048 in 1997 to $84,992 in 1998 as net
income from the Kings Dominion partnership in 1998 exceeded the net income from
the partnership in 1997.
Liquidity and Capital Resources
The following discussion reflects the liquidity and capital resources of
the Company after giving effect to the transaction with affiliates of Messrs.
Beck and Yeaggy which closed effective January 1, 1999. The Company's principal
sources of liquidity are cash on hand (including escrow deposits and replacement
reserve), cash from operations, earnings on invested cash and, when required,
principally in connection with acquisitions, borrowings (consisting primarily of
loans secured by mortgages on real property owned or to be acquired by the
Company). The Company's continuing operations are funded through cash generated
from its hotel operations. Acquisitions of hotels are expected to be financed
through a combination of cash on hand, internally generated cash, issuance of
equity securities and borrowings, some of which is likely to be secured by
assets of the Company. The Company has no committed lines of credit and there
can be no assurance that credit will be available to the Company or if available
that such credit will be available on terms and in amounts satisfactory to the
Company. The ability of the Company to issue its common or preferred stock is
materially restricted by the requirements of the Code if the Company wishes to
preserve its NOLs. See "Description of Business--The Net Operating Loss
Carryforwards" and "Risk Factors--Net Operating Loss Carryforwards."
Historical Changes in Liquidity and Capital Resources
Total assets increased from $61,404,126 at December 31, 1997 to
$108,683,792 at December 31, 1998. The increase in total assets was the result
of the acquisition of the Cornerstone Hotel Group described in Note 3 of the
Consolidated Financial Statements.
Accounts receivable, property and equipment, other current assets,
goodwill, notes receivable, other assets, accounts payable, accrued expenses,
long-term debt, paid-in-capital, preferred stock and common stock all increased
28
<PAGE>
as a result of the acquisitions. The increase in cash and cash equivalents from
$11,191,481 in 1997 to $12,383,741 in 1998 is attributable to operations.
At December 31, 1998 the Company had $12,383,741 in cash and cash
equivalents.
During the year ended December 31, 1998, the Company and its predecessors
invested approximately $1,446,100 in capital improvements in connection with the
Owned Hotels. The Company plans to spend an additional $3,100,000 on such
capital improvements during the year ending December 31, 1999, of which
$1,922,000 remains from the original product improvement plan which the Company
agreed to in connection with the acquisition of the Cornerstone Hotel Group and
is currently reserved.
Capital for improvements to Owned Hotels has been and is expected to be
provided by a combination of internally generated cash, reserve replacement
accounts and, if necessary and available, borrowings. The Company expects to
spend annually approximately 4% to 5% of revenues from Owned Hotels for ongoing
capital expenditures in each year. The additional anticipated improvements in
excess of the 4% to 5% are necessary to enhance the competitive position of the
properties. The additional expenditures are mainly a result of the costs for new
facilities at Holiday Inn Independence, Holiday Inn North Canton and Holiday Inn
Hudson.
The Company maintains a number of commercial banking relationships but does
not currently have any committed lines of credit. The Company is in active
negotiations with lending institutions that might extend credit facilities to
the Company for capital purposes including capital that might be required for
the acquisition of additional hotels or management contracts. There can be no
assurance such negotiations will be successful.
The Company anticipates that it will be able to secure the capital required
to pursue its acquisition program through a combination of borrowing, internally
generated cash and utilization of its common and/or preferred stock to the
extent such utilization does not jeopardize the Company's NOLs. See "Description
of Business--The Net Operating Loss Carryforwards" and "Risk Factors--Net
Operating Loss Carryforwards". There can be no assurance however that the
Company will be able to negotiate sufficient borrowings to accomplish its
acquisition program on terms and conditions acceptable to the Company. Further,
any such borrowings may contain covenants that impose limitations on the Company
that could constrain or prohibit the Company from making additional acquisitions
as well as its ability to pay dividends or to make other distributions, incur
additional indebtedness or obligations or to enter into other transactions that
the Company may deem beneficial. Additionally, factors outside of the Company's
control could affect its ability to secure additional funds on terms acceptable
to the Company. Those factors include, without limitation, any increase in the
rate of inflation and/or interest rates, localized or general economic
dislocations, an economic down-turn and regulatory changes constricting the
availability of credit.
The Company's long-term debt at December 31, 1998 totals $63,266,387.
Mortgage debt totals $63,143,341, which consists of $54,320,332 in fixed rate,
fully self-amortizing mortgage loans and $8,823,009 in adjustable rate (3-5 year
adjustment period) mortgage loans. Such adjustable rate loans have maturity
dates ranging from August 1999 to April 2006. Interest rates on mortgage debt
range from 8.09% to 9.75% with a weighted average interest rate of 8.4%
effective at December 31, 1998. The approximate scheduled repayments of
principal on the long-term debt of the Company for the next five years are: 1999
- -- $2,683,504; 2000 -- $1,249,451; 2001 -- $1,345,978; 2002 -- $1,422,554; 2003
- -- $1,551,169. Management of the Company currently believes that the cash flow
from the Company's hotel operations will be sufficient to make the required
amortization payments. Balloon payments required to be made at the maturity of
the non-self-amortizing loans are expected to be made from cash on hand at the
time or from the proceeds of refinancing. There can be no assurance that the
Company will be able to obtain financing, or financing on terms satisfactory to
it.
29
<PAGE>
The Company has benefited and continues to benefit as the recipient of
moneys disbursed by the Reorganization Trust as the Reorganization Trust
accumulates moneys in excess of its reasonably required reserves and projected
operating expenses. During 1997, the Company received $7,491,020 in
contributions from the Reorganization Trust. While there is no objective formula
to determine the extent to which Reorganization Trust assets exceed projected
liabilities and administrative requirements thereby making additional cash
available for contribution to the Company, management of the Company believes
that there will be no further contributions. This belief is based upon the
decrease of the Reorganization Trust's administrative expenses through
reductions in personnel and office space, which is related to the decreasing
volume of unsettled claims of former unsecured creditors of U.S. Lines and U.S.
Lines (S.A.). The amount of excess cash available for contribution to the
Company will be dependent upon the remaining duration of Reorganization Trust
activity necessary to resolve outstanding claims, particularly the asbestos and
other late- manifesting personal injury claims, and the amount of professional
fees associated with this activity. Accordingly, no assurance can be given as to
the amount or timing of additional contributions from the Reorganization Trust,
if in fact there are any additional contributions.
Demand at many of the hotels is affected by seasonal patterns. Demand for
hotel rooms in the industry generally tends to be lower during the first and
fourth quarters and higher in the second and third quarters. Accordingly, the
Company's revenues reflect this seasonality.
Inflation
Although inflation has been relatively stable over the past two years and
has not had any discernible effect on the Company's operations, an increase in
the inflation rate could have a negative effect on the Company's ability to
secure additional capital under terms and conditions acceptable to the Company
or refinance indebtedness secured by the Owned Hotels. Increase in the rate of
inflation could materially adversely affect the ability of the Company to expand
its operations through the acquisition of Owned Hotels.
Year 2000 Issues
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has initiated an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using the two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified and
converted. The Company anticipates completing this work by September 30, 1999.
The Company is also in the process of working with each of its property general
managers to complete a plan in order to ensure that all of the computerized
operations of the Hotels for the year 2000 run properly. All Hotels will have a
Year 2000 test prior to September 30, 1999 to ensure that the Year 2000 does not
cause any significant problems with the Hotels' ability to rent rooms.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "expects," "plans," "will continue," "is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Such
30
<PAGE>
risks and other aspects of the Company's business and operations are described
in "Description of Business" and "Management's Discussion and Analysis or Plan
of Operation." The Company has no obligation to publicly release the result of
any revisions that may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Item 7. Financial Statements.
The Financial Statements required by this item appear under the caption
"Index to Financial Statements" and are included elsewhere herein.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The material contained in "Election of Directors" and in "Section 16(a)
Beneficial Ownership Reporting Compliance" of the Company's definitive proxy
statement (to be filed pursuant to the Securities Exchange Act of 1934, as
amended) for the annual meeting of stockholders to be held on May 21, 1999 is
hereby incorporated by reference.
Item 10. Executive Compensation.
The material contained in "Compensation of Directors and Executive
Officers", "Compensation Committee Report on Executive Compensation" of the
Company's definitive proxy statement (to be filed pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of stockholders to be
held on May 21, 1999 is hereby incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The material contained in "Voting Securities and Principal Holders Thereof"
of the Company's definitive proxy statement (to be filed pursuant to the
Securities Exchange Act of 1934, as amended) for the annual meeting of
stockholders to be held on May 21, 1999 is hereby incorporated by reference.
Item 12. Certain Relationships and Related Transactions.
The material contained in "Certain Relationships and Related Transactions"
of the Company's definitive proxy statement (to be filed pursuant to the
Securities Exchange Act of 1934, as amended) for the annual meeting of
stockholders to be held on May 21, 1999 is hereby incorporated by reference.
31
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits: The exhibits listed in the accompanying index are filed
as part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Restated Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3.1 to Form 10-QSB of
the Company for the quarter ended September 30, 1997.
3.2 By-Laws incorporated by reference to Exhibit 3.2 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
3.3 Certificate of Amendment to Certificate of Designation.
10.1 Employment Agreement with James E. Bishop dated April 4,
1997 incorporated by reference to Exhibit 10.1 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.3 Employment Agreement with Louis S. Beck dated April 24,
1997 incorporated by reference to Exhibit 10.3 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.4 Employment Agreement with Harry G. Yeaggy dated April 24,
1997 incorporated by reference to Exhibit 10.4 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.5 Employment Agreement with Michael M. Nanosky dated April
24, 1997 incorporated by reference to Exhibit 10.5 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.6 1996 Stock Option Plan incorporated by reference to Exhibit
10.6 to Form 10-SB of the Company filed with the Securities
and Exchange Commission on June 24, 1997.
10.7 Stock Option Agreement incorporated by reference to Exhibit
10.7 to Form 10-SB of the Company filed with the Securities
and Exchange Commission on June 24, 1997.
10.9 Investor Agreement incorporated by reference to Exhibit
10.9 to Form 10-SB of the Company filed with the Securities
and Exchange Commission on June 24, 1997.
10.11 Client Service Agreement between Hospitality Employee
Leasing Program, Inc. and the Company incorporated by
reference to Exhibit 10.11 to Form 10-SB of the Company
filed with the Securities and Exchange Commission on June
24, 1997.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.12 Product Lease and Service Agreement between Computel
Systems, Inc. and the Company incorporated by reference
to Exhibit 10.12 to Form 10-SB of the Company filed with
the Securities and Exchange Commission on June 24, 1997.
10.13 Sublease Agreement between Beck Hospitality Inc. III
and the Company (Cincinnati premises) incorporated by
reference to Exhibit 10.13 to Form 10-SB of the Company
filed with the Securities and Exchange Commission on June
24, 1997.
10.14 Sublease Agreement between Beck Hospitality Inc. III and
the Company (Boca Raton premises) incorporated by
reference to Exhibit 10.14 to Form 10-SB of the
Company filed with the Securities and Exchange Commission
on June 24, 1997.
10.16 Partnership Agreement of Kings Dominion Lodge, G.P.
incorporated by reference to Exhibit 10.16 to Form 10-SB of
the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.20 Consulting Agreement by and between the Company and The
Cornerstone Company incorporated by reference to Exhibit
10.20 to Form 10-QSB for the quarter ended June 30, 1998.
10.21 Purchase and Sale Agreement between Galburton Inn, Inc.
and the Company incorporated by reference to Exhibit 10.21
to Form 10-QSB for the quarter ended June 30, 1998.
10.22 Purchase and Sale Agreement between West Montrose
Properties and the Company incorporated by reference to
Exhibit 10.22 to Form 10-QSB for the quarter ended June 30,
1998.
10.23 Purchase and Sale Agreement between North Canton Operating
Corp., Canton North Properties and the Company incorporated
by reference to Exhibit 10.23 to Form 10-QSB for the
quarter ended June 30, 1998.
10.24 Purchase and Sale Agreement between Rockside Road Operating
Corp., Rockside Road Properties and the Compan incorporated
by reference to Exhibit 10.24 to Form 10-QSB for the
quarter ended June 30, 1998.
10.25 Loan Agreement dated as of August 14, 1998 by and among
JAGI Cleveland - Hudson, LLC; JAGI Cleveland -
Independence, LLC; JAGI Montrose West, LLC, JAGI North
Canton, LLC; and Amresco Capital, L.P. incorporated by
reference to Exhibit 10.25 to Form 8-K for the event dated
August 14, 1998.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.26 Note (Fixed Rate) of JAGI Cleveland - Hudson, LLC dated
August 14, 1998 in the principal sum of $13,300,000 and
Schedule of Other Notes (Fixed Rate) incorporated by
reference to Exhibit 10.26 to Form 8-K for the event dated
August 14, 1998.
10.27 Mortgage and Security Agreement dated as of August 14,
1998 by and between JAGI Cleveland - Hudson, LLC and
Amresco Capital, L.P. and Schedule of Other Mortgage and
Security Agreements incorporated by reference to Exhibit
10.27 to Form 8-K for the event dated August 14, 1998.
10.28 Security Agreement dated as of August 14, 1998 by JAGI
Cleveland - Hudson, LLC and Amresco Capital L.P. and
Schedule of Other Security Agreements incorporated by
reference to Exhibit 10.28 to Form 8-K for the event dated
August 14, 1998.
10.29 Second Mortgage and Security Agreement dated as of
August 14, 1998 by and between JAGI Cleveland - Hudson, LLC
and Amresco Capital, L.P. and Schedule of Other Second
Mortgage and Security Agreements incorporated by reference
to Exhibit 10.29 to Form 8-K for the event dated August 14,
1998.
10.30 Second Security Agreement dated as of August 14, 1998 by
and between JAGI Cleveland - Hudson, LLC and Amresco
Capital, L.P. and Schedule of Other Second Security
Agreements incorporated by reference to Exhibit 10.30 to
Form 8-K for the event dated August 14, 1998.
10.31 Guaranty dated as of August 14, 1998 by and between the
Company and Amresco Capital, L.P. and Schedule of Other
Guaranties incorporated by reference to Exhibit 10.31
to Form 8-K for the event dated August 14, 1998.
10.32 Asset Purchase and Agreement and Plan of Merger by and
among the Company, Beck Hospitality Inc. II, Beck
Hospitality Inc. III, Louis S. Beck and Harry Yeaggy
dated as of January 1, 1999 incorporated by reference to
Exhibit 10.32 to Form 8-K for the event dated February 2,
1999.
10.33 Stock Appreciation Right Certificate.
10.34 Amended and Restated Registration Rights Agreement dated as
of January 1, 1999 with Louis S. Beck.
10.35 Amended and Restated Registration Rights Agreement dated as
of January 1, 1999 with Harry G. Yeaggy.
10.36 Stock Appreciation Right Agreement with Paul Tipps dated as
of December 18, 1998
16 Letter by J.H. Cohn LLP to the Securities and Exchange
Commission incorporated by reference to Exhibit 16 to Form
8-K for the event dated April 16, 1998.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
A Current Report on Form 8-K/A was filed with the Securities and Exchange
Commission (the "Commission") on October 26, 1998. The Form 8-K/A amended and
supplemented the Form 8-K initially filed with the Commission on August 28,
1998, which related to the acquisition by the Company of four hotels located in
Ohio from sellers commonly controlled by Michael Gallucci, Jr. of Akron, Ohio.
The Form 8-K/A contained the information referred to in Item 7 of the Form 8-K.
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JANUS AMERICAN GROUP, INC.
Dated: March 22, 1999 /s/ James E. Bishop
-----------------------------------------
James E. Bishop
President
Dated: March 22, 1999 /s/ Richard A. Tonges
-----------------------------------------
Richard A. Tonges
Treasurer and Vice President of Finance
(Principal Financial and Accounting Officer)
In accordance with the Securities Exchange Act of 1934, this report been
signed by the following persons in the capacities and on the dates indicated.
Dated: March 22, 1999 *
----------------------------------------
Louis S. Beck
Chairman
Dated: March 22, 1999
----------------------------------------
James E. Bishop
President and Director
Dated: March 22, 1999 *
----------------------------------------
Harry G. Yeaggy
Vice Chairman
Dated: March 22, 1999 *
-----------------------------------------
Arthur Lubell
Director
Dated: March 22, 1999 *
-----------------------------------------
Richard P. Lerner
Director
36
<PAGE>
Dated: March 22, 1999 *
-----------------------------------------
Vincent W. Hatala, Jr.
Director
Dated: March 22, 1999 *
-----------------------------------------
Lucille Hart-Brown
Director
Dated: March 22, 1999 *
-----------------------------------------
C. Scott Bartlett, Jr.
Director
Dated: March 22, 1999 *
-----------------------------------------
Michael M. Nanosky
President of Hotel Operations and Director
Dated: March 22, 1999 *
-----------------------------------------
Paul Tipps
Director
* /s/ James E. Bishop
- -------------------------
James E. Bishop
Attorney-in-Fact
37
<PAGE>
<TABLE>
<CAPTION>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
<S> <C>
1998 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-3
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997 F-5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997 F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Janus American Group, Inc.
We have audited the accompanying consolidated balance sheet of Janus American
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Janus American Group, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
Cincinnati, Ohio /S/ GRANT THORNTON LLP
February 10, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Janus American Group, Inc.
We have audited the accompanying consolidated balance sheet of JANUS AMERICAN
GROUP, INC. (formerly, Janus Industries, Inc.) AND SUBSIDIARIES as of December
31, 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 Janus American
Group, Inc. and Subsidiaries as of December 31, 1997, and their results of
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/S/ J. H. COHN LLP
Roseland, New Jersey
February 20, 1998
F-3
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ASSETS
December 31, December 31,
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,383,741 $11,191,481
Restricted cash for the redemption of preferred stock of subsidiary
debt service and real estate taxes 802,746 332,367
Accounts receivable 1,422,327 408,474
Current portion of notes receivable 322,043 123,022
Other current assets 239,206 581,249
----------- ----------
Total current assets 15,170,062 12,636,593
Property and equipment, net of accumulated depreciation
and amortization 74,550,300 34,803,291
Notes receivable 453,194 126,390
Mortgage notes receivable from related parties 5,425,046 5,558,755
Goodwill, net of accumulated amortization 6,536,996 6,707,506
Deferred tax asset 680,126 -
Other assets 5,868,067 1,571,591
----------- ----------
Total $108,683,792 $61,404,126
=========== ==========
LIABILTIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,683,504 $ 2,112,215
Accounts payable 1,495,253 903,234
Accrued expenses 1,951,618 827,405
Dividends payable - 197,583
----------- -----------
Total current liabilities
6,130,375 4,040,437
Long-term debt, net of current portion 60,582,883 17,866,318
Deferred tax liabilities - 1,190,000
Total liabilities ----------- -----------
66,713,257 23,096,755
Minority interest
1,773,961 1,688,969
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Series B; par value $.01 per share; 12,000 shares
authorized; 10,451.88 shares issued and outstanding
105 105
Common stock, par value $.01 per share; 15,000,000 shares authorized;
11,883,220 and 11,880,867 shares issued
at December 31, 1998 and 1997 respectively
118,833 118,809
Additional paid- in capital
45,738,120 43,163,320
Accumulated deficit
(4,244,185) (5,347,533)
Treasury stock- 3,192,128 and 3,189,132 common shares in 1998 and
1997, at cost (1,416,299) (1,316,299)
----------- ----------
Total stockholders' equity 40,196,575 36,618,402
----------- ----------
Total $108,683,792 $61,404,126
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
December 31, December 31,
1998 1997
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $20,489,850 $ 8,213,514
Food and beverage 6,298,770 1,222,680
Management fees 1,754,610 566,824
Other 513,595 272,620
---------- ----------
Total revenues 29,056,825 10,275,638
Cost and expenses:
Direct hotel operating expenses:
Room and related services 4,918,908 1,841,215
Food and beverage 5,122,426 1,115,954
Selling and general expenses 1,495,797 353,829
---------- ----------
Total direct hotel operating expense 11,537,130 3,310,998
Occupancy and other operating expenes 3,451,122 1,174,951
Selling, general and administrative expenses 6,484,960 3,480,117
Depreciation of property and equipment 2,392,300 873,581
Amortization of intangible assets 222,922 112,900
---------- ----------
Total costs and expenses 24,088,434 8,952,547
---------- ----------
Operating income (loss) 4,968,391 1,323,091
Other income (expense)
Interest income 1,137,506 708,783
Other income - 30,002
Interest expense (3,565,053) (1,248,869)
---------- ----------
Income(loss)from continuing operations before income taxes and minority interest 2,540,844 813,007
Federal income tax (benefits) (219,449) -
Provision for deferred income taxes 695,874 330,000
Provision for state and local income taxes 228,373 1,000
---------- ----------
Total provision for income taxes 704,798 331,000
---------- ----------
Income (loss) from continuing operations before minority interest 1,836,046 482,007
Minority interest 84,992 58,042
---------- ----------
Net income from continuing operations 1,751,055 423,965
(Loss) from operations, net of credit for state income taxes of $136,000 in 1997 - (213,353)
Gain (loss) on disposal, net of credit for state income taxes of $193,000 in 1997 136,186 (773,356)
---------- ----------
Total discontinued operations 136,186 (986,709)
---------- ----------
Net Income (loss) 1,887,241 (562,744)
Less preferred dividend requirements 783,891 539,059
---------- ----------
Net income (loss) applicable to common stock $1,103,350 $(1,101,803)
========= ==========
Basic income (loss) per common share:
Net income (loss) per common share from continuing operations-Basic 0.11 (0.02)
Net income (loss) per common share from discontinued operations-Basic 0.02 (0.13)
---- ----
Net income (loss) per common share-Basic 0.13 (0.15)
==== ====
Income (loss) per common share-Assuming dilution:
Net income (loss) per common share from continuing operations-Assuming dilution 0.11 (0.02)
Net income (loss) per common share from discontinued operations-Assuming dilution 0.02 (0.13)
---- ----
Net income (loss) per common share-Assuming dilution 0.13 (0.15)
==== ====
Basic weighted average common shares outstanding 8,693,545 7,534,248
========= ==========
Weighted average common shares outstanding-assuming dilution 8,693,545 7,534,248
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Preferred Stock Common Stock
Number Number
of of Comprehensive
Shares Amount Shares Amount Income
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 8,080,868 $ 80,809
Net Loss
Contributions to capital from reorganization trust
Shares issued to acquire hospitality business 10,451.88 $105 3,799,999 38,000
Repurchase of 276,400 warrants
Repurchase of common stock
Preferred stock dividends
Balance December 31, 1997 10,451.88 105 11,880,867 118,809
Comprehensive Income:
Net income $1,887,241
Decrease in net operating loss valuation allowance 2,566,000
---------
Comprehensive Income $4,453,241
Conversion of warrants and payout of puts 2,353 24 =========
Preferred Stock Dividends
--------- --- ---------- -------
Balance at December 31, 1998 10,451.88 $105 11,883,220 $118,833
========= === ========== =======
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
Additional Number
Paid-in Accumulated of
Capital Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 $13,061,256 $(4,245,730) 2,849,850 $(874,730) $ 8,021,605
Net Loss (562,744) (562,744)
Contributions to capital from reorganization trust 7,440,930 7,440,930
Shares issued to acquire hospitality business 22,763,772 22,801,877
Repurchase of 276,400 warrants (102,638) (102,638)
Repurchase of common stock 339,282 (441,569) (441,569)
Preferred stock dividends (539,059) (539,059)
---------- ----------
Balance December 31, 1997 43,163,320 (5,347,533) 3,189,132 (1,316,299) 36,618,402
Comprehensive Income:
Net income 1,887,241 1,887,241
Decrease in net operating loss valuation allowance 2,566,000 2,566,000
Conversion of warrants and payout of puts 8,799 2,996 (100,000) (91,177)
Preferred Stock Dividends (783,891) (783,891)
---------- ---------- --------- ---------- ----------
Balance at December 31, 1998 $45,738,119 $(4,244,183) 3,192,128 $(1,416,299) $40,196,575
========== ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
December 31, December 31,
1998 1997
<S> <C> <C>
Operating activities:
Net income (loss) $ 1,887,241 $ (562,744)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,392,300 993,394
Amortization of intangible assets 222,922 172,442
Minority Interest 84,992 58,042
Deferred income taxes 695,874 -
Discontinued operations (73,948) 966,356
Changes in operating assets and liabilities:
Accounts receivable (1,013,853) (94,425)
Other current assets 342,043 (511,857)
Other asset (4,348,888) (622,191)
Accounts payable and accrued expenses 1,716,232 158,322
---------- ----------
Net cash provided by operating activities 1,904,915 557,339
Investing activities:
Acquisition of hospitality business, net of
noncash consideration and cash acquired - (1,646,541)
Increase in Notes Receivable (4,276) 175,000
Purchases of property and equipment (42,595,244) (846,953)
Proceeds on sale of subsidiary's net assets 14,161 45,000
Collections of notes receivable 127,884 76,505
---------- ----------
Net cash ( used in) investing activities (42,457,475) (2,196,989)
Financing activities:
Dividends Paid (981,474) (341,476)
(Increase)decrease in restricted cash (470,382) 631,962
Repurchase of common stock (100,000) (441,569)
Repurchase of warrants - (102,638)
Conversion of warrants to common stock 8,823 -
Reduction of payable for redemption of
preferred stock of subsidiary - (631,962)
Contributions to capital from United States
Lines, Inc. and United States Lines (S.A.),
Inc. Reorganization Trust, including $50,090
attributable to minority interest in 1997 - 7,491,020
Proceeds from long-term borrowings 44,000,000 -
Repayments of long-term borrowings (712,147) (355,042)
---------- ----------
Net cash provided by financing activities 41,744,821 6,250,295
---------- ----------
Increase in cash and cash equivalents 1,192,260 4,610,645
Cash and cash equivalents, beginning of period 11,191,481 6,580,836
---------- ----------
Cash and cash equivalents, end of period $12,383,741 $11,191,481
========== ==========
Supplemental disclosure of cash flow data:
Interest paid $(3,565,053) $(1,248,869)
========== ==========
Income taxes paid $ 130,750 $ 187,200
========== ==========
Noncash transactions:
Acquisition of hospitality business $ - $22,801,877
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1-Organization:
As of December 31, 1998, the continuing operations of Janus American Group,
Inc. and its' Subsidiaries ("Janus" or the "Company"), which until
September 29, 1997 had been named Janus Industries, Inc., were comprised
primarily of the operations of eleven hotels (of which ten are wholly-owned
and one is 85%-owned) and a hotel management company.
The Company's owned and managed hotels are located primarily in the
Midwestern and Southeastern United States. As further described in Note 3,
seven hotels and two mortgage notes receivable were acquired, effectively,
as of April 30, 1997 in a transaction that was accounted for as a purchase.
Four additional hotels were acquired on August 14, 1998 in a transaction
that was accounted for as a purchase. Accordingly, the accompanying audited
consolidated financial statements reflect the accounts for the hotel
operations for the years ended December 31, 1998 and 1997 from the
applicable acquisition dates. The financial statements for periods prior to
that date are not comparable.
As further described in Note 9, management decided during December 1997 to
discontinue and dispose of all of the Company's operations related to the
provision of engineering and wireline logging services to companies in the
oil and gas industry (the "oil and gas services operations").
In November 1986, the Company's predecessor, United States Lines, Inc.
("USL"), together with United States Lines (S.A.) Inc. ("USL-SA") and two
related companies, filed petitions under Chapter 11 of the United States
Bankruptcy Code. In May 1989, the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court") confirmed a plan of
reorganization with respect to such companies, which was later amended and
modified pursuant to an order of the Bankruptcy Court entered in February
1990 (the "Plan").
Pursuant to the Plan and the order of the Bankruptcy Court confirming the
Plan:
(a) USL and USL-SA changed their names to Janus Industries, Inc. and JI
Subsidiary, Inc. ("JIS"), respectively;
(b) The United States Lines, Inc. and United States Lines (S.A.) Inc.
Reorganization Trust (the "Reorganization Trust") was established for
the purpose of administering the Plan and liquidating and paying
claims of former creditors of USL and USL-SA; it will also make
contributions of cash to Janus and JIS from time to time of amounts in
excess of its projected liabilities and administrative requirements;
F-8
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 1-Organization (continued):
(c) All claims of former creditors of USL and USL-SA were discharged; as a
result, such former creditors may look only to the Reorganization
Trust (and not to Janus or JIS) for payment of amounts in respect of
their discharged claims;
(d) The interests of all holders of shares of the capital stock of USL and
USL-SA were extinguished and the former creditors of USL and USL-SA
became entitled to receive all of the shares of capital stock issuable
by Janus and JIS, except for shares issuable to Janus and a subsidiary
of Dyson-Kissner-Moran ("DKM"), a new Investor; shares of capital
stock issuable to such former creditors were initially issued to the
Reorganization Trust as recordholder for reissuance to such creditors;
and
(e) The Reorganization Trust contributed $3,000,000 of USL and USL-SA cash
to capitalize Janus and JIS on February 23, 1990 and provided Janus
and JIS with certain books and records, and all tax attributes and tax
benefits, of USL and USL-SA; it also made cash contributions of
approximately $7,491,000 and $7,622,000 to the capital of Janus and
JIS in 1997 and 1996, respectively.
Note 2-Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
Fresh-start accounting:
The Company adopted fresh-start accounting at the time of its
reorganization in February 1990 (see Note 1). The Company's
opening balance sheet consisted of $6,000,000 in cash and capital
stock.
Principles of consolidation:
The audited consolidated financial statements include the
accounts of Janus and its majority-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Cash equivalents:
Cash equivalents generally consist of highly liquid investments
with maturities of three months or less when acquired.
F-9
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 2-Summary of significant accounting policies (continued)
Property and equipment:
Property and equipment is stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets.
Goodwill:
Goodwill, which represents the excess of the costs of acquired
businesses over the fair value of the net assets acquired at the
respective dates of acquisition, is amortized using the
straight-line method over the estimated useful lives of the
assets (40 years).
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of
("SFAS 121"). Under SFAS 121, impairment losses on long-lived
assets, such as property and equipment and goodwill, are
recognized when events or changes in circumstances indicate that
the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value and, accordingly, all
or a portion of such carrying value may not be recoverable.
Impairment losses are then measured by comparing the fair value
of assets to their carrying amounts. As of December 31, 1998
there was no such impairment.
Deferred loan costs:
Costs incurred to obtain long-term financing are deferred and
amortized using the straight-line method (which approximates the
interest method) over the terms of the loans.
Revenue recognition:
The Company recognizes all revenues on an accrual basis as
earned.
Advertising costs:
The costs of advertising and promotion are expensed as incurred.
Advertising costs charged to operations, all of which were
attributable to the Company's hotel operations, amounted to
$415,400 in 1998 and $191,000 in 1997.
F-10
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 2-Summary of significant accounting policies (continued):
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred tax assets and
liabilities to be computed annually for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the temporary differences are expected to affect
taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected
to be realized. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities. Income
tax credits attributable to benefits from net operating loss
carryforwards or other temporary differences that existed at the
time the Company adopted fresh-start accounting are reflected as
a contribution to stockholders' equity in the period in which the
tax benefits are realized.
As explained in Note 1, the assets and liabilities of USL and
USL-SA were initially transferred to the Reorganization Trust in
February 1990. The Reorganization Trust is considered to be a
grantor trust for income tax purposes. Accordingly, any taxable
income or loss associated with the disposition of assets and the
settlement of liabilities by the Reorganization Trust are
recorded in the Federal and state income tax returns of the
Company; however, such assets and liabilities are not presented
in these consolidated financial statements.
In connection with the contract entered into subsequent to
year-end (see Note 15) deferred income will be triggered
accelerating taxable income. This changed the deferred tax
valuation reserve which was restricted by the timing of income.
Stock options: In accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, the Company will recognize compensation costs as a
result of the issuance of stock options based on the excess, if
any, of the fair value of the underlying stock at the date of
grant or award (or at an appropriate subsequent measurement date)
over the amount the employee must pay to acquire the stock.
Therefore, the Company will not be required to recognize
compensation expense as a result of any grants of stock options
at an exercise price that is equivalent to or greater than fair
value. The Company will also make pro forma disclosures, as
required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), of net
income or loss as if a fair value based method of accounting for
stock options had been applied, if such amounts differ materially
from the historical amounts.
F-11
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 2--Summary of significant accounting policies (concluded):
Reclassification:
Prior year amounts have been reclassified to conform with current
year presentation.
Income (loss) per common share:
Effective December 31, 1997, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128"), which replaces the presentation of
"primary" and "fully-diluted" income (loss) per common share
required under previously promulgated accounting standards with
the presentation of "basic" and "assuming dilution" income (loss)
per common share.
Basic net income (loss) per common share is calculated by
dividing net income or loss, as adjusted for required preferred
stock dividends, by the weighted average number of common shares
outstanding during the period. The calculation of diluted net
income(loss) per common share is similar to that of basic net
income (loss) per common share, except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common
shares, principally those issuable upon the exercise of stock
options and warrants, were issued during the period.
The Company's reported net income represents its net income
available to common shareholders for purposes of computing both
measures. The following reconciles shares outstanding at the
beginning of the year to average shares outstanding used to
compute both income per share measures.
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
<S> <C> <C>
Averages shares outstanding-basic 8,693,545 7,534,248
Effect of dilutive securities-
dilutive shares contingently
issuable upon the exercise of
stock options and warrants - -
--------- ---------
Averages shares outstanding-
Assuming dilution 8,693,545 7,534,248
========= =========
</TABLE>
F-12
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 3-Acquisitions:
On April 24, 1997, the Company entered the hospitality business by
acquiring the following from affiliates of Louis S. Beck and Harry G.
Yeaggy ("Messrs. Beck and Yeaggy"): (i) seven hotels (of which six are
wholly-owned and one is owned by an 85%-owned partnership), (ii) a hotel
management company and substantially all of the assets thereof other than
seven management contracts and (iii) financial participations in the form
of mortgages on one additional hotel and a campground (the "Mortgages").
The seven hotels, the management company and the Mortgages are also
referred to herein as the "BY Hotel Group." Messrs. Beck and Yeaggy also
own controlling interests in other hotels, certain of which are managed by
the Company.
Each of Messrs. Beck and Yeaggy became an executive officer of the Company
as of the date of acquisition.
The consideration exchanged by the Company for the assets and liabilities
of the BY Hotel Group and the other direct acquisition costs were comprised
as follows:
<TABLE>
<CAPTION>
Issuance of
<S> <C>
10,451.88 shares of Series B preferred stock with
a liquidation preference and estimated fair value
of $1,000 per share $10,451,880
3,799,999 shares of Janus common stock with an
estimated fair value of $3.25 per share 12,349,997
----------
Total value of shares issued $22,801,877
Cash paid to Messrs. Beck and Yeaggy to repay
short-term loans 793,803
Legal, accounting and other costs related to the
purchase 1,007,424
Total purchase price to be allocated $24,603,104
==========
</TABLE>
The acquisition was accounted for as a purchase and, accordingly, the
results of the BY Hotel Group have been included in the accompanying
consolidated statements of operations subsequent to April 30, 1997 (the
effective date of the acquisition for accounting purposes). In addition,
F-13
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 3-Acquisitions (continued):
total acquisition costs were allocated to the assets acquired and
liabilities assumed based on their estimated fair values on the date of
acquisition, with the excess of cost over such fair values allocated to
goodwill, as shown below:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 79,994
Accounts receivable 230,011
Other current assets 217,024
Property and equipment 34,400,000
Mortgage notes receivable 5,758,282
Goodwill 6,820,406
Other assets 1,256,672
Accounts payable (579,115)
Other current liabilities (519,595)
Long-term debt (20,333,575)
Deferred tax liabilities (1,190,000)
Minority interest in the 85%-owned hotel Partnership (1,537,000)
----------
Total purchase price allocated $24,603,104
==========
</TABLE>
Although the Company has a substantial amount of estimated available net
operating loss carryforwards for Federal income tax and alternative minimum
tax purposes, the deferred tax assets potentially available from such
carryforwards have been reduced by a valuation allowance due to
uncertainties related to their future realization. Accordingly, the amounts
allocated to goodwill and deferred tax liabilities shown above in
connection with the acquisition of the BY Hotel Group have each been
reduced by approximately $8,134,000, which is equivalent to the reduction
in the valuation allowance attributable to the portion of the net operating
loss carryforwards that management estimates will be offset by temporary
differences attributable to the acquired net assets of the BY Hotel Group.
Some of the income earning assets acquired in the 1997 purchase are not
subject to offset by the net operating loss for five years from the
acquisition date. Therefore, certain income from these items will be taxed
to the company without regard to the net operating loss.
F-14
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 3-Acquisitions (continued):
The goodwill attributable to the acquisition of the BY Hotel Group is being
amortized based on an estimated useful life of 40 years.
On August 14, 1998, the Company acquired four additional hotels from
commonly controlled sellers (the "Cornerstone Hotel Group"). The total
purchase price was $44,110,500 in cash, financed by four mortgage loans in
substantially the amount of the total purchase price, secured by the
acquired properties. The loans are cross-defaulted and cross-collateralized
among the four hotels but otherwise of limited recourse to the Company. The
financing was for an initial term of ten years, based upon a 25-year
amortization schedule, at a fixed interest rate of 8.09% per annum.
The acquisition was accounted for as a purchase and was allocated as
follows:
<TABLE>
<CAPTION>
<S> <C>
Land $ 4,132,509
Buildings 28,927,552
Equipment 52,500
Furniture and fixtures 8,090,259
Prepaids and escrow for 2,907,680
product improvement program ---------
Total purchase price allocated $44,110,500
==========
</TABLE>
The following unaudited information shows the pro forma results of continuing
operations of the Company for the twelve months ended December 31, 1998 and pro
forma results of operations for the twelve months ended December 31, 1997 as
though each of the BY Hotel Group and the Cornerstone Hotel Group had been
acquired as of January 1, 1997. In each case, the results of the discontinued
oil and gas services operations are excluded.
<TABLE>
<CAPTION>
Unaudited Unaudited
Pro Forma Pro Forma
December 31, 1998 December 31, 1997
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $28,856,963 $28,295,087
Food and beverage 10,685,258 10,453,513
Management fees 1,754,610 921,217
Other 762,202 715,768
Total Revenues $42,059,033 $40,385,585
</TABLE>
F-15
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note3--Acquisitions (continued):
<TABLE>
<CAPTION>
<S> <C> <C>
Cost and expenses:
Direct hotel operating expenses
Room and related services 7,250,670 7,434,533
Food and beverage 8,674,878 8,929,889
Selling and general expenses 2,439,982 2,316,244
---------- ----------
Total direct hotel operating expenses $18,365,530 $18,680,666
Occupancy & other operating expenses 5,120,882 5,106,479
Selling, general and admin. expenses 7,656,220 7,096,312
Depreciation of property and equipment 3,394,646 3,183,773
Amortization of intangible assets 264,532 268,997
---------- ----------
Total costs and expenses $34,801,810 $34,336,227
Operating income (loss) $7,257,223 $ 6,049,358
Other income (expense)
Interest income 1,137,506 858,423
Other income - 30,002
Interest expense (5,340,201) (5,387,595)
---------- ----------
Income (loss) from continuing operations before
income taxes and minority interest $3,054,528 $1,550,188
Provision (credit) for income taxes 1,161,000 589,000
---------- ----------
Income (loss) from continuing operations before
minority interest 1,893,528 961,188
Minority interest 84,992 17,048
---------- ----------
Net income (loss) from continuing operations $ 1,838,536 $ 944,140
Less preferred dividend requirements 783,891 783,891
---------- ----------
Net income (loss) from continuing operations
applicable to common stock $ 1,054,645 $ 160,249
========== ==========
Net income (loss) from continuing operations per 0.12 0.02
common share-Basic
</TABLE>
F-16
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 3-Acquisitions (continued):
<TABLE>
<CAPTION>
<S> <C> <C>
Net income (loss) from continuing operations per 0.12 0.02
common share-assuming dilution
Basic weighted average shares outstanding 8,693,545 8,783,563
========== ==========
Basic weighted average shares-assuming dilution 8,693,545 8,783,563
========== ==========
</TABLE>
In addition to combining the historical results of operations of the
Company and the historical pre-acquisition results of operations of the BY
Hotel Group and the Cornerstone Hotel Group, the pro forma results of
operations include adjustments that, among other things, reflect:
-- The elimination of the net revenues derived from management contracts
of the BY Hotel Group and non-recurring income of the Cornerstone
Hotel Group that were not acquired by the Company;
-- Depreciation of property and equipment based on the fair values of
assets acquired;
-- Amortization of the additional goodwill arising from the BY Hotel
Group acquisition and licensing fees, loan costs and closing costs
incurred in the acquisition of Cornerstone Hotel Group;
-- The net effects of changes to compensation and related expenses based
on revised lease agreements, expense sharing arrangements with a
related party, revised employment agreements and non-recurring
expenses;
-- The net effects of changes to interest expense based on acquisition
financing of the Cornerstone Hotel Group.
F-17
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 3-Acquisitions (concluded):
-- The provision for income taxes is based upon pro forma income from
continuing operations and the statutory Federal and state income tax
rates. Any actual income tax credits attributable to benefits from net
operating loss carryforwards that existed at the time the Company
adopted fresh-start accounting will be reflected as a contribution to
stockholders' equity in the period in which the tax benefits are
realized; and
-- The effects of the issuance of shares of preferred and common stock as
part of the consideration for the acquisition of BY Hotel Group on
preferred stock dividends and weighted average common shares
The unaudited pro forma results of operations shown above do not purport to
represent what the combined results of operations actually would have been
if the acquisition of the BY Hotel Group and the Cornerstone Hotel Group
had occurred as of January 1, l997 instead of the actual date of
consummation or what the results of operations will be for any future
periods.
Note 4-Mortgage notes receivable:
The Mortgages, which were acquired on April 24, 1997 as part of the
acquisition of the BY Hotel Group, are secured by a hotel in Juno Beach,
Florida and a campground in Kissimmee, Florida, both of which are owned by
entities controlled by Messrs. Beck and Yeaggy. Messrs. Beck and Yeaggy
have also personally guaranteed the Mortgages. The balances receivable at
December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note secured by hotel property, $2,141,749 $2,185,744
with interest at .5% above specified prime rate
(an effective rate of 9.0% at December 31, 1998)
Note secured by campground, with interest at 8% 3,417,006 3,496,033
--------- ---------
Total long-term receivable 5,558,755 5,681,777
Less current portion 133,709 123,022
--------- ---------
Long-term portion, net of current portion $5,425,046 $5,558,755
========= =========
</TABLE>
F-18
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Mortgage notes receivable (concluded):
The Mortgages are payable in monthly installments of principal and interest
through April 2003 and final installments of all remaining principal and
interest in May 2003. Principal payments on the Mortgages in each of the
five years subsequent to December 31, 1998 are:
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31 Amount
1999 $ 133,709
2000 145,326
2001 157,958
2002 171,690
2003 4,950,072
</TABLE>
The Company derived interest income of $471,759 and $320,516 from the
Mortgages during the years ended December 31, 1998 and 1997 respectively.
Note 5--Property and equipment:
Property and equipment at December 31, 1998 and December 31, 1997 consisted
of the following:
<TABLE>
<CAPTION>
Years of December 31, December31,
Useful Life 1998 1997
----------- ---- ----
<S> <C> <C> <C>
Land $10,167,507 $ 6,035,000
Hotels 30 56,004,760 26,942,000
Hotel furniture and fixtures: 5 3,125,877 2,232,941
Hotel furniture and fixtures: 9 8,415,676 -
Equipment and vehicles 5 83,212 648,147
Other 5 19,886 11,724
---------- ----------
77,816,918 35,869,812
Less accumulated depreciation
and amortization 3,266,618 1,066,521
---------- ----------
Totals $74,550,300 $34,803,291
=========== ===========
</TABLE>
F-19
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 6- Long-term debt:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Long-term debt at December 31 consisted of the following:
Fixed rate mortgage notes payable in monthly installments, including
interest at rates ranging from 8.09% to 10%; the mortgage notes mature
from August 2000 through January 2016 $54,320,332 $10,717,718
Variable rate mortgage notes payable in monthly installments, including
interest at rates varying with the prime commercial lending rate, rates
on U.S. Treasury securities and other defined indexes (the effective
rates at December 31, 1997 ranged from 8.73% to 9.5%); the mortgage
notes mature from August 1999 through
April 2006 8,823,009 9,094,499
Equipment notes with various maturities
through December 2001 and interest at rates
ranging from 8.98% to 15% 123,046 166,316
---------- ----------
Total long-term debt 63,266,387 19,978,533
Less current portion 2,683,504 2,112,215
---------- ----------
Long-term debt, net of current portion $60,582,883 $17,866,318
========== ==========
</TABLE>
Long-term debt is secured by the Company's notes, property and equipment.
Principal payments in years subsequent to December 31, 1998 are as follows:
Year Ending December 31 Amount
1999 $2,683,504
2000 1,249,451
2001 1,345,978
2002 1,422,554
2003 1,551,169
F-20
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 7--Commitments and contingencies:
Employment agreements:
During 1997, the Company entered into employment agreements
whereby it will be obligated to pay minimum salaries to four of
its executive officers, including each of Messrs. Beck and
Yeaggy, aggregating $750,000 during 1998 and 1999 and $250,000 in
2000.
Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash in
banks, accounts receivable and the Mortgages.
The Company maintains its cash balances in bank deposit accounts
which, at times, may exceed the Federal Deposit Insurance
Corporation coverage limits thereby exposing the Company to
credit risk. The Company reduces its exposure to credit risk by
maintaining such deposits with financial institutions which
management believes are high quality.
Exposure to credit risk with respect to trade receivables is
limited by the short payment terms and, generally, the low
balances applicable to such instruments and the Company's routine
assessment of the financial strength of its customers.
Exposure to credit risk with respect to the Mortgages is limited
because they are secured by real estate with an estimated market
value in excess of the mortgage balance.
Litigation:
The Company is a party to various legal proceedings. In the
opinion of management, these actions are routine in nature and
will not have a material adverse effects on the Company's
consolidated financial statements in subsequent years.
Note 8-Income taxes:
For financial statement purposes, there was a provision for Federal income
taxes at December 31, 1998 but none in 1997 because all of the tax loss
attributes referred to in Note 3 have been reserved through a valuation
allowance against the deferred tax assets due to the lack of a historical
taxable income stream. Further benefits to be realized from the utilization
of the net operating loss carryforwards generated prior to the Company's
reorganization in February 1990 will be reported as an increase in
additional paid-in capital and not as a credit to results of operations. In
1998 the Company increased paid-in-capital by $2,566,000 as a result of
such benefits.
Section 382 of the Internal Revenue Code limits the amounts of net
operating loss carryforwards usable by a corporation following a change of
more than 50% in the ownership of the corporation during a three-year
period. As of December 31, 1998 management believes that such a change in
ownership has not occurred.
F-21
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 8--Income taxes (concluded):
Currently, the net operating loss utilized of $463,100 in the period ended
December 31, 1998 is included in the disclosure of comprehensive income in
accordance with the accounting for losses prior to the February 1990
reorganization.
During the period ended December 31, 1998, the Company received $261,215 in
refunds from the Internal Revenue Service (the "Service") attributable to
amended returns filed for previous years, plus interest of $154,280. The
Company recorded such refunds as income upon receipt as such amended
returns were subject to review by the Service and accepted in the current
year.
A reconciliation of the statutory Federal income tax rate of 34% to the
effective tax rate for the provision for income taxes attributable to
income from continuing operations follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Statutory rate 34.0% 34.0%
Writeoff of goodwill related to Pretek (2.5) -
Refund of Federal income tax (a) (8.6) -
Nondeductable amortization of goodwill 1.6 4.7
State and local tax 5.9 -
Other (2.7) 2.0
---- ----
Total 27.7% 40.7%
==== ====
</TABLE>
(a) Refund of taxes for prior years subject to IRS review.
Deferred taxes at year end were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax liabilities
Depreciation and gain recognition $ 1,885,874 $ 1,190,000
Deferred tax assets
Net operating loss carryforwards 165,355,000 167,735,000
Valuation allowance 162,789,000 167,735,000
Net deferred tax assets 2,566,000 -
----------- -----------
Net deferred tax asset (liability) $ 680,126 $ (1,190,000)
=========== ===========
</TABLE>
Net operating loss carryforwards consist of federal carryforwards of
$486,400,000 principally expiring in years 2000 through 2011.
The Company's actual tax rate differs from statutory rates due to goodwill,
income (loss) from the bankruptcy trust and federal tax refunds.
Note 9-Discontinued operations:
In December 1997, the Company adopted a plan to discontinue and dispose of
the oil and gas services operations. Accordingly, the results of the oil
and gas services operations through December 31, 1997 and the estimated
loss to be incurred in connection with the disposal have been classified as
separate components of discontinued operations.
At December 31, 1998 the Company recognized liquidating income from
discontinued operations of $136,186.
F-22
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 9-Discontinued operations (concluded):
The assets and liabilities of the discontinued operations have been included
with those of the Company's continuing operations in the accompanying balance
sheet at December 31, 1997, and was comprised as follows:
<TABLE>
<CAPTION>
1997
<S> <C>
Equipment, net of accumulated
depreciation of $192,209 $455,938
Other current and non-current assets 212,827
Accounts payable and accrued expenses:
Estimated loss on disposal (165,000)
Other (119,950)
-------
Net assets of discontinued operations $383,815
=======
</TABLE>
The oil and gas services operations generated net sales of $1,297,715 for
the year ended December 31, 1997.
The loss on disposal of discontinued operations for the year ended December
31, 1997 was comprised as follows:
<TABLE>
<CAPTION>
<S> <C>
Write-off of remaining goodwill $801,356
Estimated loss to be incurred from January
1, 1998 through estimated date of disposal 150,000
Estimated loss on sale of the remaining net
assets 15,000
Credit for income taxes (193,000)
-------
Loss on disposal $773,356
=======
</TABLE>
The loss on disposal was based on management's best estimate of the results
of the discontinued operations through the estimated date of disposal and
the amounts to be realized from the sale of the remaining net assets.
F-23
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 10-Fair value of financial instruments:
The Company's financial instruments at December 31, 1998 and 1997 consisted
of cash, accounts receivable, mortgage notes receivable, accounts payable
and fixed and variable rate mortgage and equipment notes payable. In the
opinion of management, (i) cash, accounts receivable and accounts payable
were carried at values that approximated their fair values because of their
short-term maturities and (ii) mortgage notes receivable and mortgage and
equipment notes payable were carried at values that approximated their fair
values because they had interest rates equivalent to those currently
prevailing for financial instruments with similar characteristics.
Note 11-Minority interest:
The Company owns an interest of approximately 90% in JIS and an interest of
85% in a hotel partnership that it acquired as part of the acquisition of
the BY Hotel Group during 1997 (see Note 3). The balance of the minority
interest in these consolidated subsidiaries at December 31, 1998 and
December 31, 1997 and the changes in the minority interest are set forth
below:
<TABLE>
<CAPTION>
HOTEL
JIS PARTNERSHIP TOTAL
<S> <C> <C> <C>
Balance at January 1, 1997 $43,837 -0- $ 43,837
Initial allocation at the
date of Acquisition
of the BY Hotel Group 1,537,000 1,537,000
Effect of contributions of
Capital from the
Reorganization Trust (a) 50,090 50,090
Net Income (loss) (2,814) 60,856 58,042
------ --------- ---------
Balance at December 31, 1997 91,113 1,597,856 1,688,969
Net Income -0- 84,992 84,992
------ --------- ---------
Balance at December 31, 1998 $91,113 $1,682,848 $1,773,961
====== ========= =========
</TABLE>
(a) As a result of prior cumulative losses, distributions and redemptions, the
minority interest in JIS had been eliminated as of December 31, 1995 and,
since the minority stockholders do not incur any obligations as a result of
losses and distributions in excess of their equity in JIS, a portion of
such excess was charged against the majority interest in the JIS common
stock held by Janus. Accordingly, a portion of the capital contribution
made by the Reorganization trust to JIS in 1997 was reallocated to the
capital of the majority interest.
F-24
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 12 - Stockholders equity:
Capital stock:
Information regarding the capital stock of Janus follows:
-Preferred stock, par value $.01 per share; 5,000,000 shares
authorized at December 31, 1998 and 1997 respectively, of which
4,000 shares were designated as "Series A" (the "Janus Series A
preferred stock"); the 2,200 shares of Series A preferred stock
that were issued and outstanding at December 31, 1995 were
redeemed during 1996; and
-Preferred stock, par value $.01 per share; 12,000 shares
authorized at December 31, 1998 and 1997, of which 12,000 shares
were designated as "Series B" (the "Janus Series B preferred
stock"); 10,451.88 shares of Series B preferred stock were issued
during 1997 and outstanding at December 31, 1998 and 1997.
-Common stock, par value $.01 per share; 15,000,000 shares
authorized; and 11,880,867 shares issued at December 31, 1998 and
1997 respectively; and 3,189,132 shares held as treasury shares
at December 31, 1998 and 1997 respectively. At December 31, 1998
and 1997 the Reorganization Trust held shares of Janus common
stock for possible future distribution under the Plan which the
Reorganization Trust was originally required to vote in
proportion to the votes cast by the Company's other stockholders.
On April 14, 1997, the Bankruptcy Court issued an order modifying
the terms under which the Reorganization Trust votes the shares
of Janus common stock it holds. As a result, the Reorganization
Trust is now required to vote such shares in proportion to the
votes cast by other stockholders, but disregarding shares issued
after March 16, 1997.
Information regarding the capital stock of JIS follows:
-Preferred stock, par value $.01 per share; 5,000,000 shares
authorized at December 31, 1998 and 1997, of which 7,650 shares
were designated as "Series A" (the "JIS Series A preferred
stock"); and
-Common stock, par value $.01 per share; 15,000,000 shares
authorized; 5,000,000 shares issued at December 31, 1998 and 1997
respectively; 409,000 shares held as treasury shares at December
31, 1998 and 1997 respectively.
The capitalization of Janus and JIS upon confirmation of the Plan was
determined pursuant to the Stock Purchase Agreement dated May 16,
1989, as amended pursuant to the Supplemental Agreement dated as of
February 23, 1990 (the "Stock Purchase Agreement"), among the
subsidiary of DKM, USL and USL-SA. The Stock Purchase Agreement was an
integral part of the Plan.
F-25
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 12--Stockholders equity (continued):
Capital stock (continued):
The shares of Janus and JIS common stock and Series A preferred
stock acquired by the Reorganization Trust were acquired for the
benefit of former holders of claims against USL and USL-SA. Such
shares will be distributed by the Reorganization Trust from time
to time to such former creditors as their claims are liquidated.
However, shares of Janus or JIS common stock will be issued by
the Reorganization Trust only to creditors in a manner designed
to preserve the Company's net operating losses in accordance with
the requirements of the Internal Revenue Code.
The restated Certificate of Incorporation of each of Janus and
JIS contain restrictions on the "transfer" (as defined) of shares
of the Janus and JIS capital stock which are intended to preserve
and maintain the Federal income tax attributes of Janus and JIS.
The restated Certificates of Incorporation of each of Janus and
JIS prohibit the acquisition of any shares of the capital stock
or securities of Janus or JIS if, at the date of such
acquisition, such purchaser would be a holder of 5% or more of
the issued and outstanding capital stock of Janus or JIS,
determined based on the fair market value of the capital stock of
Janus or stock of Janus or JIS entitled to vote for the election
of directors. However, such transfers and issuances can be made
if approved by the Board of Directors.
The Janus Series A preferred stock and the JIS Series A preferred
stock were substantially identical in their terms. The Janus and
JIS Series A preferred stock entitled the holders thereof to cash
dividends, payable on the last day of each June and December, at
an annual rate equal to 12% of the liquidation preference value
of the Janus or JIS Series A preferred stock. Shares of the Janus
and JIS Series A preferred stock were redeemable at a price of
$100 per share. Holders of the Janus and JIS Series A preferred
stock were not entitled to vote except as required by law.
The Series B preferred stock has a par value of $.01 per share
and a liquidating and redemption price of $1,000 per share.
Holders of the Series B preferred stock are entitled to
cumulative dividends at the annual rate of $75 per share. Unless
dividends remain unpaid for a specified period, holders will not
derive any voting rights from the Series B preferred stock.
In December 1996, the Company notified the holders of the
remaining 4, 207 shares of JIS Series A preferred stock then
outstanding that such shares were
F-26
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 12--Stockholders equity (continued):
Capital stock (concluded):
being redeemed. Those shares were effectively redeemed through
the transfer of the aggregate redemption price of $420,750 and
the aggregate balance of accrued and unpaid dividends of $252,450
to a restricted cash account which can only be used for such
redemption payments. The restricted cash and corresponding
liability of $673,200 were reflected separately in the
consolidated balance sheet as of December 31, 1996. The remaining
balances at December 31, 1998 were immaterial.
In April 1997, the Company issued 10,451.88 shares of Janus
Series B preferred stock and 3,799,999 shares of Janus common
stock (approximately 43% of the Janus common stock outstanding
after such issuance) as consideration for the acquisition of the
BY Hotel Group (see Note 3).
Based on the provisions of Janus' corporate charter and a
separate agreement between Janus and Messrs. Beck and Yeaggy,
Messrs. Beck and Yeaggy are prohibited from purchasing additional
shares of Janus common stock without the prior approval of the
Board of Directors.
During 1998, the Company was obligated to repurchase 2,996 shares
of Janus common stock for $100,000 under a put agreement.
During 1997, the Company repurchased 339,282 shares of Janus
common stock for $441,569.
During 1997, the Reorganization Trust transferred cash in excess
of its projected liabilities and administrative requirements
totaling $7,491,020 to the Company, of which $7,031,054 was
deemed a capital contribution to Janus and $459,966 was deemed a
capital contribution to JIS (including $50,090 attributable to
the minority interest in the JIS common stock - see Note 11).
Warrants:
In July 1996, the Company also issued warrants to purchase
500,000 shares of Janus common stock, which were deemed to have a
nominal fair value, as part of the consideration for the
acquisition of Pre-Tek. All of the warrants will expire on July
15, 2001. During 1997, warrants to purchase 276,400 shares were
repurchased for $102,638. At December 31, 1998, warrants to
purchase 110,626 shares were exercisable at $3.00 per share;
warrants to purchase 55,312 shares were exercisable at $4.00 per
share; and warrants to purchase 55,309 shares were exercisable at
F-27
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 12--Stockholders equity (continued):
Warrants (concluded):
$5.00 per share. At December 31, 1997, warrants to purchase
111,803 shares were exercisable at $3.00 per share: warrants to
purchase 55,900 shares were exercisable at $4.00 per share; and
warrants to purchase 55,897 were exercisable at $5.00 per share.
However, the warrants, may only be sold pursuant to an effective
registration statement under the Securities Act of 1933 or an
appropriate exemption from such registration.
Commencing in May 1999, the warrants become subject to redemption
by the Company at $.25 per warrant on 30 days' prior written
notice if the market price of the Janus common stock equals or
exceeds $10.00 per share for 10 consecutive trading days.
Note 13--Stock options and stock appreciation rights:
During 1996, the stockholders of the Company approved the adoption of
the Janus Industries, Inc. 1996 Stock Option Plan (the " Plan") and
the termination of the Janus Industries, Inc. Directors' Stock Option
Plans (the "Directors' Plan").
The Plan provides for grants of incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs"). ISOs may be issued to any key
employee or officer of the Company; NSOs may be issued to any key
employee or officer of the Company or any of the Company's independent
contractors, agents or consultants other than nonemployee directors. A
committee of at least two directors (the "Committee") will determine
the dates on which options become exercisable and terminate (provided
that options may not expire more than ten years after the date of
grant). All outstand-ing options will become immediately exercisable
in the event of a "change in control" (as defined) of the Company. The
exercise price of any ISO must be at least 100% of the fair market
value on the date of grant (110% for an optionee that holds more than
ten percent of the combined voting power of all classes of stock of
the Company). NSOs may be granted at any exercise price determined by
the Committee. The Company has reserved 300,000 shares of common stock
for issuance under the Plan.
The Plan permits the Committee to grant stock appreciation rights
("SARs") in connection with any option granted under the Plan. SARs
enable an optionee to surrender an option and to receive a payment in
cash or common stock, as determined by the Committee, with a value
equal to the difference between the fair market value of the common
stock on the date of surrender of the related option and the option
price.
The Company granted options for the purchase of 20,000 shares of
common stock at an exercise price of $2.75 per share during 1996, all
of which remained outstanding and exercisable at December 31, 1998 and
1997.
There was no public market for the Janus common stock during 1996 and
1997. Management estimates that the exercise price for the options
granted in 1996 approximated the fair value on the date of grant. All
of the options remained outstanding and exercisable at December 31,
1997 and 1996.
F-28
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 13-Stock options and stock appreciation rights: (concluded):
The Directors' Plan provided for annual grants of a specified number
stock options to each nonemployee director beginning in 1997 at an
exercise price equal to the fair market value of the common stock on
the date of grant. No options were granted under the Directors Plan
prior to its termination.
During 1997, the Company granted SARs with respect to 100,000 shares
of Janus common stock to an executive officer at an exercise price of
$3.25 per share which vest at the rate of 20,000 shares per year
commencing on April 23, 1997. It also granted SARs with respect to a
total of 40,000 shares of Janus common stock to directors at an
exercise price of $3.25 per share which will be exercisable at any
time during the period from October 25, 1997 through April 23, 2003;
however, the appreciated value paid with respect to the SARs issued to
the directors will be limited to $7.00 per share. Appreciation upon
any exercise of the SARs issued in 1997 must be paid in cash.
Management estimates that the exercise price for the SARs granted in
1997 approximated the fair value on the respective dates of grant and
throughout the remainder of the year. Accordingly, the Company made no
charges to compensation expense related to the SARs during 1997. The
SARs issued in 1997 were not issued in conjunction with the Plan. In
1998, the Company granted SARs with respect to 25,000 shares of common
stock to a director at an exercised price of $2.48 per share which
will be exercisable at any time through December 17, 2003. These SARs
were not issued in conjunction with the Plan.
Note 14-Other related party transactions:
The Company engages in various transactions with other entities in
which Mr. Beck and Mr. Yeaggy have an interest. In addition to
interest derived from the Mortgages (see Note 4), results of
operations in 1998 and 1997 include revenues and expenses derived from
related party transactions as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Management fee income (a) $434,316 $265,940
Personnel leasing fees (b) 57,279 33,709
Management systems fees (c) 50,022 32,417
Rent for office facilities and equipment 44,582 38,292
Reimbursement for Management expenses $993,124 $577,626
</TABLE>
(a) The Company managed 6 hotels for entities controlled by Messrs. Beck and
Yeaggy.
(b) The Company pays administrative fees to Hospitality Employee Leasing
Program, Inc. ("HELP"), a corporation wholly-owned by Messrs. Beck and
Yeaggy, which provides the Company with personnel for the hotels it owns
and manages. In addition, the Company reimburses HELP for the actual
payments it makes to or on behalf of such employees.
(c) The Company pays management systems fees for the use of a hotel property
management system and related computer hardware and software under an
agreement with Computel Computer Systems, Inc., a corporation wholly-owned
by Messrs. Beck and Yeaggy.
F-29
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 14--Other related party transactions (concluded):
At December 31, 1998 and 1997 accounts receivable includes $0 and
$131,645 arising from management services provided to these affiliated
entities.
At December 31, 1997 other current assets includes $40,232 for accrued
interest receivable on the Mortgages and $146,408 receivable as a
result of certain adjustments related to the acquisition of the Hotel
Group.
Pursuant to a marketing agreement, the Company also receives a portion
of the management fees from hotels managed by a marketing partner and
shares a portion of the management fees it earns from certain of the
hotels it manages with the marketing partner.
The Company also derived management fee income of $247,314 and
$268,947 in 1998 and 1997 pursuant to the agreement with its marketing
partner.
Note 15--Subsequent event
Effective January 1, 1999 Janus acquired the following hotel
properties from affiliates of Messrs Beck and Yeaggy.
(a) Days Inn East: a 93 room limited-service hotel located in
Cincinnati, Ohio
(b) Holiday Inn Express: a 110 room limited-service hotel located in
Juno Beach, Florida
(c) Red Roof Kings Island: a 124 room limited-service hotel located
in Mason, Ohio
(d) Days Inn Kings Island: a 124 room limited-service hotel located
in Mason, Ohio
(e) Days Inn Cambridge: a 103 room limited-service hotel located in
Cambridge, Ohio
(f) Best Western Cambridge: a 95 room limited-service hotel located
in Cambridge, Ohio
(g) Days Inn Pompano: a 183 room limited-service hotel located in
Pompano Beach, Florida. A minority shareholder retained a 25%
ownership interest.
The Company also acquired two management agreements with respect to
the properties known as Knights Inn West Palm Beach in West Palm
Beach, Florida, and Days Inn Inner Harbor in Baltimore, Maryland.
The aggregate purchase price was $25,067,246, consisting of the
assumption of existing liabilities in the aggregate amount of
$16,822,782, a cash payment in the amount of $1,908,267 and the
issuance of 6,336.2 shares of the Company's Preferred Stock, Series B,
$.01 par value per share. The source of the cash payment was from
F-30
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Note 15--Subsequent event (concluded):
available working capital. After giving effect to the issuance of the
new shares of stock,
Messrs. Beck and Yeaggy and affiliate now own 16,788.08 shares of the
Preferred Stock, Series B.
The following is a condensed income statement for the twelve months
ended December 31, 1998 for the aforementioned properties acquired:
<TABLE>
<CAPTION>
<S> <C>
Revenue $9,479,935
Total costs and expenses 7,582,904
Interest expense 1,361,528
Minority interest 26,790
Deferred federal income
tax benefit (120,000)
---------
NET INCOME $ 628,713
=========
</TABLE>
F-31
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. Description
3.1 Restated Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3.1 to Form 10-QSB of
the Company for the quarter ended September 30, 1997.
3.2 By-Laws incorporated by reference to Exhibit 3.2 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
3.3 Certificate of Amendment to Certificate of Designation.
10.1 Employment Agreement with James E. Bishop dated April 4,
1997 incorporated by reference to Exhibit 10.1 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.3 Employment Agreement with Louis S. Beck dated April 24,
1997 incorporated by reference to Exhibit 10.3 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.4 Employment Agreement with Harry G. Yeaggy dated April 24,
1997 incorporated by reference to Exhibit 10.4 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.5 Employment Agreement with Michael M. Nanosky dated April
24, 1997 incorporated by reference to Exhibit 10.5 to Form
10-SB of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.6 1996 Stock Option Plan incorporated by reference to
Exhibit 10.6 to Form 10-SB of the Company filed with the
Securities and Exchange Commission on June 24, 1997.
10.7 Stock Option Agreement incorporated by reference to
Exhibit 10.7 to Form 10-SB of the Company filed with the
Securities and Exchange Commission on June 24, 1997.
10.9 Investor Agreement incorporated by reference to Exhibit
10.9 to Form 10-SB of the Company filed with the Securities
and Exchange Commission on June 24, 1997.
10.11 Client Service Agreement between Hospitality Employee
Leasing Program, Inc. and the Company incorporated by
reference to Exhibit 10.11 to Form 10-SB of the Company
filed with the Securities and Exchange Commission on June
24, 1997.
10.12 Product Lease and Service Agreement between Computel
Systems, Inc. and the Company incorporated by reference to
Exhibit 10.12 to Form 10-SB of the Company filed with the
Securities and Exchange Commission on June 24, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.13 Sublease Agreement between Beck Hospitality Inc. III
and the Company (Cincinnati premises) incorporated by
reference to Exhibit 10.13 to Form 10-SB of the Company
filed with the Securities and Exchange Commission on
June 24, 1997.
10.14 Sublease Agreement between Beck Hospitality Inc. III and
the Company (Boca Raton premises) incorporated by
reference to Exhibit 10.14 to Form 10-SB of the Company
filed with the Securities and Exchange Commission on June
24, 1997.
10.16 Partnership Agreement of Kings Dominion Lodge, G.P.
incorporated by reference to Exhibit 10.16 to Form 10-SB of
the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.20 Consulting Agreement by and between the Company and The
Cornerstone Company incorporated by reference to Exhibit
10.20 to Form 10-QSB for the quarter ended June 30, 1998.
10.21 Purchase and Sale Agreement between Galburton Inn, Inc.
and the Company incorporated by reference to Exhibit 10.21
to Form 10-QSB for the quarter ended June 30, 1998.
10.22 Purchase and Sale Agreement between West Montrose
Properties and the Company incorporated by reference to
Exhibit 10.22 to Form 10-QSB for the quarter ended June 30,
1998.
10.23 Purchase and Sale Agreement between North Canton Operating
Corp., Canton North Properties and the Company incorporated
by reference to Exhibit 10.23 to Form 10-QSB for the
quarter ended June 30, 1998.
10.24 Purchase and Sale Agreement between Rockside Road Operating
Corp., Rockside Road Properties and the Company
incorporated by reference to Exhibit 10.24 to Form
10-QSB for the quarter ended June 30, 1998.
10.25 Loan Agreement dated as of August 14, 1998 by and among
JAGI Cleveland - Hudson, LLC; JAGI Cleveland -
Independence, LLC; JAGI Montrose West, LLC, JAGI North
Canton, LLC; and Amresco Capital, L.P. incorporated by
reference to Exhibit 10.25 to Form 8-K for the event dated
August 14, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.26 Note (Fixed Rate) of JAGI Cleveland - Hudson, LLC dated
August 14, 1998 in the principal sum of $13,300,000 and
Schedule of Other Notes (Fixed Rate) incorporated by
reference to Exhibit 10.26 to Form 8-K for the event dated
August 14, 1998.
10.27 Mortgage and Security Agreement dated as of August 14,
1998 by and between JAGI Cleveland - Hudson, LLC and
Amresco Capital, L.P. and Schedule of Other Mortgage and
Security Agreements incorporated by reference to Exhibit
10.27 to Form 8-K for the event dated August 14, 1998.
10.28 Security Agreement dated as of August 14, 1998 by JAGI
Cleveland - Hudson, LLC and Amresco Capital L.P. and
Schedule of Other Security Agreements incorporated by
reference to Exhibit 10.28 to Form 8-K for the event dated
August 14, 1998.
10.29 Second Mortgage and Security Agreement dated as of
August 14, 1998 by and between JAGI Cleveland - Hudson,
LLC and Amresco Capital, L.P. and Schedule of Other Second
Mortgage and Security Agreements incorporated by reference
to Exhibit 10.29 to Form 8-K for the event dated
August 14, 1998.
10.30 Second Security Agreement dated as of August 14, 1998 by
and between JAGI Cleveland - Hudson, LLC and Amresco
Capital, L.P. and Schedule of Other Second Security
Agreements incorporated by reference to Exhibit 10.30 to
Form 8-K for the event dated August 14, 1998.
10.31 Guaranty dated as of August 14, 1998 by and between the
Company and Amresco Capital, L.P. and Schedule of Other
Guaranties incorporated by reference to Exhibit 10.31
to Form 8-K for the event dated August 14, 1998.
10.32 Asset Purchase and Agreement and Plan of Merger by and
among the Company, Beck Hospitality Inc. II, Beck
Hospitality Inc. III, Louis S. Beck and Harry Yeaggy
dated as of January 1, 1999 incorporated by reference to
Exhibit 10.32 to Form 8-K for the event dated February 2,
1999.
10.33 Stock Appreciation Right Certificate.
10.34 Amended and Restated Registration Rights Agreement dated
as of January 1, 1999 with Louis S. Beck.
10.35 Amended and Restated Registration Rights Agreement dated
as of January 1, 1999 with Harry G. Yeaggy.
10.36 Stock Appreciation Right Agreement with Paul Tipps dated as
of December 18, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
16 Letter by J.H. Cohn LLP to the Securities and Exchange
Commission incorporated by reference to
Exhibit 16 to Form 8-K for the event dated April 16, 1998.
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
EXHIBIT 3.3
AMENDED DESIGNATIONS,
PREFERENCES AND RIGHTS
OF THE SERIES B PREFERRED STOCK
OF
JANUS AMERICAN GROUP, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware,
Janus American Group, Inc., a Delaware corporation (the "Corporation")
certifies that, pursuant to the authority contained in paragraph (4) of Article
FOURTH of its Restated Certificate of Incorporation, as amended, and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, its Board of Directors has adopted the following
resolution amending the designations, preferences and rights of a series of its
Preferred Stock, par value $.01 per share, designated as the "Preferred Stock,
par value $0.01 per share, Series B":
WHEREAS, the existing holders of the Preferred Stock, par value $0.01
per share, Series B have consented to an increase in the number of
authorized shares of such series; it is therefore,
RESOLVED, that paragraph (2) of the Designations, Preferences and
Rights of Preferred Stock, Series B, is amended and restated to provide as
follows:
Number of Shares. The number of shares in the Series B shall be 20,000
shares. Shares of the Series B redeemed, purchased or otherwise
acquired by the Corporation shall be canceled and shall revert to
authorized but unissued Preferred Stock, par value $0.01 per share
undesignated as to series and subject to reissuance by the Corporation
as shares of the Preferred Stock, par value $0.01 per share, of any
one or more series. The Corporation shall be authorized to issue
certificates for fractional shares.
and it is further
RESOLVED, the proper officers of the Corporation are hereby
authorized, empowered and directed to take all such further action and
to execute, deliver, certify and file all instruments and documents in
the name of and on behalf of this Corporation as such officers
executing same shall approve as necessary or advisable to effectuate
and accomplish the purpose of the foregoing resolution and the
transactions contemplated thereby, the taking of such action and the
execution, delivery, certification and filing of such documents to be
conclusive evidence of such approval.
<PAGE>
IN WITNESS WHEREOF, said Janus American Group, Inc. has caused this
Certificate to be duly executed by its President and attested to by its
Secretary this 8th day of January, 1999.
Attest: JANUS AMERICAN GROUP, INC.
By: /s/ Frank E. Lawatsch, Jr. By: /s/ James E. Bishop
Name: Frank E. Lawatsch, Jr. Name: James E. Bishop
Title: Secretary Title: President
EXHIBIT 10.33
JANUS INDUSTRIES, INC.
Board of Directors
Stock Appreciation Right
Terms and Conditions
1. Stock Appreciation Right. This Stock Appreciation Right ("SAR") is
issued by Janus Industries, Inc. (the "Company"). The Board of Directors shall
administer this SAR and its determinations regarding this SAR are final and
binding. Capitalized terms used and not otherwise defined in this certificate
have the meanings given to them in the Janus Industries, Inc. 1996 Stock Option
Plan.
2. Exercisability Schedule. The SAR may be exercised at any time and from
time to time and in accordance with the exercisability schedule set forth on the
face of this certificate, provided, however, that the exercise of the SAR may
not be made prior to six months after the date of grant of the SAR. The SAR
shall be exercisable only to the extent the SAR has a positive value and may not
be exercised after the Expiration Date.
3. Method of Exercise of the SAR. To exercise this SAR, the grantee shall
deliver written notice of exercise to the Chairman of the Board of the Company
specifying the number of rights with respect to which the SAR is being
exercised. Promptly following such notice, the Company will deliver to the
grantee the payment set forth herein.
4. SAR Payment. Upon tender of this SAR, the grantee shall be entitled to
receive payment of an amount determined by multiplying the number of rights with
respect to which the SAR is being exercised by the difference obtained by
subtracting the exercise price per right of the SAR from the Fair Market Value
of a share of Stock on the Date of Exercise of the SAR (the "Payment"). The
Payment shall be made in cash.
6. Rights as a Stockholder or Director. The grantee shall not have any
rights to continued membership on the Board of Directors by virtue of the grant
of the SAR and grantee shall not have any rights as a stockholder of the Company
by virtue of being a holder of the SAR.
7. Recapitalization, Mergers, Etc. In the event of certain corporate
transactions affecting the Company's outstanding Common Stock, the Board of
Directors shall equitably adjust the number and kind of rights subject to the
SAR, the exercise price of the SAR and the Value Limitation. If such transaction
involves a consolidation or merger of the Company with another entity, the sale
or exchange of all or substantially all of the assets of the Company or a
reorganization or liquidation of the Company, then in lieu of the foregoing, the
Board of Directors may upon written notice to the grantee provide that the SAR
shall terminate on a date not less than 20 days after the date of such notice
unless theretofore exercised. In connection with such notice, the Board of
Directors may in its discretion accelerate or waive any deferred exercise
period.
8. SAR Not Transferable. The SAR is not transferable by the grantee
otherwise than by will or the laws of descent and distribution, and is
exercisable, during the grantee's lifetime, only by the grantee. Any attempted
assignment, transfer, pledge, hypothecation or other disposition shall be void
and of no effect.
<PAGE>
9. Payment of Taxes. The grantee shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld pursuant to the Payment. The Company and its Subsidiaries may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the grantee.
10. Governing Law. This SAR shall be construed and enforced in accordance
with the laws of the State of Delaware (without regard to the legislative or
judicial conflict of laws rules of any state), except to the extent superseded
by federal law.
11. Value Limitation. Notwithstanding anything herein to the contrary, the
difference between exercise price per right and the Fair Market Value of a share
of Common Stock at the date of exercise may not exceed $7.00, as adjusted
pursuant to paragraph 7.
12. Approval of Stockholders. This SAR may not be exercised until it has
been approved by the stockholders of the Company.
<PAGE>
SAR - Stock Appreciation Rights
JANUS INDUSTRIES, INC.
Board of Directors
Stock Appreciation Right Certificate
Janus Industries, Inc. (the "Company"), a Delaware corporation, hereby
grants to the person named below a Stock Appreciation Right ("SAR") with respect
to the shares of Common Stock, par value $0.01 per share, of the Company
exercisable on the following terms and conditions and those set forth on the
reverse side of this certificate:
Name of Grantee:
-------------------------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
Social Security No.:
-------------------------------------------------
Number of SAR's:
-------------------------------------------------
Price:
-------------------------------------------------
Date of Grant: -------------------------------------------------
Exercisability Schedule
Exercise Period
Commencement Date Expiration Date
Number of SAR's
All SAR's
By acceptance of this SAR, the grantee agrees to the terms and conditions
hereof.
JANUS INDUSTRIES, INC.
Dated: By: -------------------------------
Name: Louis S. Beck
Title: Chairman of the Board
ACCEPTED:
- ---------------------------------------
EXHIBIT 10.34
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement") made
as of January 1, 1999 by and between JANUS AMERICAN GROUP, INC., a Delaware
corporation ("the "Corporation") ("Seller") and LOUIS S. BECK, an individual
(the "Shareholder").
Recitals:
A. As a result of the closing of the transactions contemplated by (i) the
Asset Purchase Agreement dated April 23, 1997 (the "Asset Purchase Agreement")
by and among the Corporation, Beck Yeaggy of Ohio, Inc., Motel Associates of
Westerville, Inc., Harry Yeaggy and the Shareholder and (ii) the Agreement and
Plan of Merger dated April 23, 1997 (the "1997 Merger Agreement"; and together
with the Asset Purchase Agreement, the "1997 Acquisition Agreements"), the
Shareholder became the holder of Registrable Securities (defined below).
B. As a result of the closing of the transactions contemplated by the Asset
Purchase and Agreement and Plan of Merger dated as of January 1, 1999 (the "1999
Acquisition Agreement"), the Shareholder will become the holder of additional
Registrable Securities.
C. It is a condition precedent to the closing of the transactions under the
1999 Acquisition Agreement that the Corporation and the Shareholder enter into
this Agreement, which amends and restates the Registration Rights Agreement
dated April 23, 1997.
NOW, THEREFORE, the parties intending to be legally bound, agree as
follows:
1. Definitions. For purposes of this Agreement, the following definitions
shall apply:
(i) The terms "register," "registered," and "registration" refer to a
registration under Section 5 of the Federal Securities Act of 1933, as amended
(the "Act") effected by preparing and filing a registration statement or similar
document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement, document or amendment thereto by
the United States Securities and Exchange Commission ("SEC");
(ii) The term "Common Stock" means the Corporation's common stock, par
value $.01 per share;
(iii) The term "Preferred Stock" means the shares of the Corporation's
Series B Preferred Stock issued under the terms of the Merger Agreement and
issuable under the terms of the 1999 Acquisition Agreement;
(iv) The term "Shareholder Common Stock" means the shares of the
Corporation's Common Stock issued under the terms of the 1997 Acquisition
Agreements; and
<PAGE>
(v) The term "Registrable Securities" means the Preferred Stock and the
Shareholder Common Stock collectively;
2. Demand Registration Request as to the Preferred Stock. (a) On a one time
basis, at any time, the Shareholder may deliver to the Corporation a notice to
the effect that the Shareholder desires to have all, but not less than all, of
the Preferred Stock registered under the Act (a "Preferred Demand Registration
Request").
(b) Provided that the Corporation has received a Preferred Demand
Registration Request from holders representing 75% of the outstanding shares of
the Preferred Stock, the Corporation shall thereupon, as expeditiously as
possible, effect the registration of the Preferred Stock under the Act to permit
the transfer by the Shareholder of the Preferred Stock in accordance with the
intended method of transfer described in the Preferred Demand Registration
Request. Notwithstanding the foregoing, (i) the right of the Shareholder to
require registration under this paragraph 2 shall not be exercisable less than
six (6) months following the date upon which a previous registration statement
issued in respect of an offering of securities for cash for the account of the
Corporation shall have become effective and (ii) unless the Shareholder shall
notify the Corporation that the Preferred Stock to be sold can only be sold in a
manner not permitted by Rule 144 of the SEC promulgated under this Act, the
Corporation shall not be required to register any Preferred Stock on behalf of
the Shareholder to the extent such Preferred Stock may then be sold without
restrictive legend in compliance with Rule 144 and the Corporation takes all
steps as are necessary or appropriate to permit the transfer of the Preferred
Stock under such rule.
3. Incidental Registration Rights as to the Preferred Stock. If the
Corporation proposes to register any of its stock or other securities under the
Act in connection with a public offering of such securities (other than a
registration on Form S-4, Form S-8 or other limited purpose form) and all
Preferred Stock has not theretofore been included in a registration statement
under paragraph 2 which remains effective, the Corporation agrees to give the
Shareholder and all other holders of the Preferred Stock prompt written notice
of such registration. Upon the written request of the Shareholder and holders of
the Preferred Stock representing 75% of the outstanding shares in the aggregate
given within twenty (20) days after receipt of such notice, the Corporation
agrees to use its best efforts to cause to be registered under the Act all of
the Preferred Stock. However, the Corporation shall have no obligation under
this paragraph 3 to the extent that, with respect to a public offering
registration, any underwriter of such public offering determines, in its
reasonable discretion, that the inclusion of the Preferred Stock in the offering
would adversely affect its consummation.
4. Demand Registration Request as to the Common Stock. (a) On a one time
basis, at any time following the Termination Date under the Investor Agreement
dated April 23, 1997 herewith between the Corporation and the Shareholder (the
"Investor Agreement"), the Shareholder may deliver to the Corporation a notice
to the effect that the Shareholder desires to have shares of the Shareholder
Common Stock registered under the Act (a "Common Demand Registration Request"),
at the expense of the Corporation, as provided in Section 9 below. The
<PAGE>
Corporation shall thereupon, as expeditiously as possible, effect the
registration of the shares of Shareholder Common Stock under the Act to permit
the transfer by the Shareholder of the Shareholder Common Stock in accordance
with the intended method of transfer described in the Common Demand Registration
Request.
(b) To the extent that all of the Shareholder's Shareholder Common Stock
has not theretofore been included in a registration statement under paragraph
(a) above which remains effective, on a one time basis, following the
Termination Date under the Investor Agreement, the Shareholder may deliver a
Common Demand Registration Request, and all of the fees, costs and expenses of
and incidental to such registration shall be at the Shareholder's expense.
(c) Notwithstanding the foregoing paragraphs (a) and (b), (i) the right of
the Shareholder to require registration under this paragraph 4 shall not be
exercisable less than six (6) months following the date upon which a previous
registration statement issued in respect of an offering of securities for cash
for the account of the Corporation shall have become effective and (ii) unless
the Shareholder shall notify the Corporation that the shares of Shareholder
Common Stock to be sold can only be sold in a manner not permitted by Rule 144
of the SEC promulgated under this Act, the Corporation shall not be required to
register any Shareholder Common Stock on behalf of the Shareholder to the extent
such Shareholder Common Stock may then be sold without restrictive legend in
compliance with Rule 144 and the Corporation takes all steps as are necessary or
appropriate to permit the transfer of the Shareholder Common Stock under such
rule.
5. Incidental Registration Rights as to the Shareholder Common Stock. If
following the Termination Date under the Investor Agreement the Corporation
proposes to register any of its Common Stock under the Act in connection with a
public offering of such securities (other than a registration on Form S-4, Form
S-8 or other limited purpose form), the Corporation agrees to give the
Shareholder prompt written notice of such registration. Upon the written request
of the Shareholder given within twenty (20) days after receipt of such notice,
the Corporation agrees to use its best efforts to cause to be registered under
the Act all of the Shareholder Common Stock which the Shareholder requests to be
included in the registration. However, the Corporation shall have no obligation
under this paragraph 4 to the extent that, with respect to a public offering
registration, any underwriter of such public offering determines, in its
reasonable discretion, that the inclusion of the Shareholder Common Stock, or a
portion thereof, in the offering would adversely affect its consummation.
Moreover, the Corporation shall have no obligation under this paragraph 4 to the
extent that any of Daewoo Corporation, Mitsubishi Corporation, The Prudential
Insurance Company of America or General Electric Capital Corporation, or any of
their respective successors, remains subject to restrictions on the disposition
of its or their Common Stock by way of agreement with the Corporation or under
the terms of the Corporation's Restated Certificate of Incorporation, as
amended.
6. Certain Covenants of the Corporation. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the
Corporation agrees to use its best efforts to:
<PAGE>
(i) Keep a registration statement effective for at least a period of one
year in the aggregate, pursuant to the provisions of Rule 415 under the Act or
otherwise, while any holder of Registrable Securities desires to dispose of the
securities covered by such registration statement (but not after the holder of
Registrable Securities, in the reasonable opinion of the Corporation's counsel,
is free to sell all such securities in any three month period under the
provisions of Rule 144 under the Act).
(ii) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to each holder of Registrable Securities such numbers of
copies of a current prospectus, in conformity with the requirements of the Act,
and such other documents as each holder of Registrable Securities may reasonably
require in order to facilitate the disposition of Registrable Securities owned
by such holder of Registrable Securities.
(iv) Use its reasonable best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions as shall be reasonably requested by the holder of
Registrable Securities, provided that the Corporation shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(v) Notify each holder of Registrable Securities of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and use its reasonable best efforts to promptly update and/or correct
such prospectus.
(vi) Furnish, at the request of any holder of Registrable Securities, an
opinion of counsel of the Corporation, dated the effective date of the
registration statement, as to the due authorization and issuance of the
securities being registered.
(vii) Use its best efforts to list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock, is then listed in accordance with the rules of such exchange.
7. Information to be provided by the Shareholder. The Shareholder will
furnish to the Corporation in connection with any registration under this
Agreement, in writing, such information regarding himself, the Registrable
Securities and other securities of the Corporation held by him and the intended
method of disposition of the Registrable Securities as shall be reasonably
required to effect the registration of the Registrable Securities held by the
Shareholder. Notwithstanding the provisions of this Agreement, if the
Shareholder fails to provide such information to the Corporation on a timely
basis as is reasonably requested by the Corporation, the Corporation may exclude
<PAGE>
the Shareholder's Registrable Securities from such registration statement and
the Shareholder will not for twelve (12) months thereafter be entitled to
registration of such Shareholder's Registrable Securities under this Agreement.
8. Indemnification.
(i) The Corporation agrees to indemnify, defend and hold harmless the
Shareholder from and against, and shall reimburse the Shareholder with respect
to, any and all claims, suits, demands, causes of action, losses, damages,
liabilities, costs or expenses ("Liabilities") to which the Shareholder may
become subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained in a
registration statement pursuant to the provisions of this Agreement, any
prospectus contained therein or any amendment or supplement thereto, or (B) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Corporation shall not be liable in any such case to the extent that any such
Liability arises out of or is based upon an untrue statement or omission so made
in conformity with information furnished by the Shareholder in writing
specifically for use in the preparation thereof.
(ii) The Shareholder shall indemnify, defend and hold harmless the
Corporation from and against, and shall reimburse the Corporation with respect
to, any and all Liabilities to which the Corporation may become subject under
the Act or otherwise, arising from or relating to (A) any untrue statement or
alleged untrue statement of any material fact contained in a registration
statement pursuant to the provisions of this Agreement, any prospectus contained
therein or any amendment or supplement thereto or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading if the case of (A) or (B) the information was
supplied by the Shareholder in writing specifically for use in the preparation
of such registration statement.
(iii) Promptly after receipt by a party entitled to indemnification
hereunder (an "indemnitee") of notice of the commencement of any action, such
indemnitee shall, if a claim in respect thereof is to be made against the party
required to make indemnification hereunder (the "indemnitor"), notify the
indemnitor in writing thereof, but the omission so to notify the indemnitor
shall not relieve the indemnitor from any Liability which it may have to the
indemnitee other than under this paragraph and shall only relieve it from any
Liability which it may have to the indemnitee under this section if and to the
extent the indemnitor is materially prejudiced by such omission. In case any
such action shall be brought against any indemnitee and such indemnitee shall
notify the indemnitor of the commencement thereof, the indemnitor shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnitee, and, after notice from the indemnitor to the indemnitee of its
election so to assume and undertake the defense thereof, the indemnitor shall
not be liable to the indemnitee under this section for any legal expenses
subsequently incurred by the indemnitee in connection with the defense thereof
other than reasonable costs of investigation and of liaison with counsel so
selected, provided, however, that if the defendants in any such action include
both the indemnitor and such indemnitee and the indemnitee shall have reasonably
concluded that there may be reasonable defenses available to it which are
<PAGE>
different from or additional to those available to the indemnitor or if the
interests of the indemnitee reasonably may be deemed to conflict with the
interests of the indemnitor, the indemnitee shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other reasonable expenses related to such participation to
be reimbursed by the indemnitor as incurred.
9. Expenses of Registration.
(i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to this Agreement, except for a registration
under Section 4(b), all fees, costs and expenses of and incidental to such
registration, inclusion and public offering shall be borne by the Corporation;
provided, however, that any security holders participating in such registration
shall bear their pro-rata share of the underwriting discounts and commissions,
if any, incurred in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne by the
Corporation as provided in this paragraph 9 shall include, without limitation,
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Corporation, and all legal fees
and disbursements and other expenses of complying with state securities or Blue
Sky laws of any jurisdiction or jurisdictions in which securities to be offered
are to be registered and qualified. In all cases the fees and disbursements of
counsel and accountants for the holders of Registrable Securities for personal
services rendered incidental to any registration shall be borne by such
respective holders.
10. Standstills. Notwithstanding any other provision of this Agreement, if
requested by the Corporation and an underwriter in connection with a public
offering of securities of the Corporation which are the same or similar to the
Registrable Securities or convertible into such securities or evidencing a right
to purchase such securities registered on Form S-1, S-2, S-3 or similar form of
the SEC then available to the Corporation, the Shareholder shall not sell or
otherwise transfer or dispose of any Registrable Securities held by him during
the one hundred eighty (180) day period following the effective date of a
registration statement of the Corporation filed under the Act; provided that the
foregoing restrictions shall not apply to a registration statement relating
solely to an employee benefit plan or a registration relating solely to a
transaction covered by Rule 145 under the Act on Form S-4 or similar form or
forms promulgated in the future. The Corporation may impose stop-transfer
instructions with respect to the Registrable Securities subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.
11. Rights of Transferees. In the event that all or any part of the
Preferred Stock held by the Shareholder shall at any time be transferred by the
Shareholder, in a transfer permissible under applicable securities laws, other
than pursuant to an effective registration statement, the registration rights
hereunder shall extend to the transferee of such securities. In the event that
all or any part of the Shareholder Common Stock held by the Shareholder shall at
any time be pledged by the Shareholder to a bank or other financial institution
as security for a loan, the registration rights hereunder shall extend to the
pledgee of such securities.
<PAGE>
12. Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval or other
communication shall or may be given to or served upon any party by any other, or
whenever any party desires to give or serve upon another party communication
with respect to this Agreement, each such notice, demand, request, consent,
approval, or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(i) If to the Shareholder, at the address of such holder appearing on
the books and records of the Corporation.
(ii) If to the Corporation, at
Janus American Group, Inc.
2800 Corporate Boulevard, N.W.
Boca Raton, Florida 33431-8596
Telecopy: 561-997-5331
Attention: President
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or three (3) days after the same shall have been
deposited in the United States mail for overnight delivery or delivered to a
courier service for overnight delivery. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
13. Miscellaneous.
(i) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
(ii) None of the terms or provisions of this Agreement may be waived,
altered, modified or amended except in writing duly signed for and on
behalf of the parties hereto.
(iii) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the day and year first above written.
JANUS AMERICAN GROUP, INC.
By: /s/ James E. Bishop
-------------------------------
Name: James E. Bishop
Title: President
/s/ Louis S. Beck
-------------------------------
Louis S. Beck
Address: 5629 Princeton Way
Boca Raton, FL 33496
EXHIBIT 10.35
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
made as of January 1, 1999 by and between JANUS AMERICAN GROUP, INC., a Delaware
corporation ("the "Corporation") ("Seller") and HARRY G. YEAGGY, an individual
(the "Shareholder").
Recitals:
A. As a result of the closing of the transactions contemplated by (i)
the Asset Purchase Agreement dated April 23, 1997 (the "Asset Purchase
Agreement") by and among the Corporation, Beck Yeaggy of Ohio, Inc., Motel
Associates of Westerville, Inc., Harry Yeaggy and the Shareholder and (ii) the
Agreement and Plan of Merger dated April 23, 1997 (the "1997 Merger Agreement";
and together with the Asset Purchase Agreement, the "1997 Acquisition
Agreements"), the Shareholder became the holder of Registrable Securities
(defined below).
B. As a result of the closing of the transactions contemplated by the
Asset Purchase and Agreement and Plan of Merger dated as of January 1, 1999 (the
"1999 Acquisition Agreement"), the Shareholder will become the holder of
additional Registrable Securities.
C. It is a condition precedent to the closing of the transactions under
the 1999 Acquisition Agreement that the Corporation and the Shareholder enter
into this Agreement, which amends and restates the Registration Rights Agreement
dated April 23, 1997.
NOW, THEREFORE, the parties intending to be legally bound, agree as
follows:
1. Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The terms "register," "registered," and "registration" refer to a
registration under Section 5 of the Federal Securities Act of 1933, as
amended (the "Act") effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement,
document or amendment thereto by the United States Securities and Exchange
Commission ("SEC");
(ii) The term "Common Stock" means the Corporation's common stock, par
value $.01 per share;
(iii) The term "Preferred Stock" means the shares of the Corporation's
Series B Preferred Stock issued under the terms of the Merger Agreement and
issuable under the terms of the 1999 Acquisition Agreement;
(iv) The term "Shareholder Common Stock" means the shares of the
Corporation's Common Stock issued under the terms of the 1997 Acquisition
Agreements; and
<PAGE>
(v) The term "Registrable Securities" means the Preferred Stock and the
Shareholder Common Stock collectively;
2. Demand Registration Request as to the Preferred Stock. (a) On a one time
basis, at any time, the Shareholder may deliver to the Corporation a notice to
the effect that the Shareholder desires to have all, but not less than all, of
the Preferred Stock registered under the Act (a "Preferred Demand Registration
Request").
(b) Provided that the Corporation has received a Preferred Demand
Registration Request from holders representing 75% of the outstanding
shares of the Preferred Stock, the Corporation shall thereupon, as
expeditiously as possible, effect the registration of the Preferred Stock
under the Act to permit the transfer by the Shareholder of the Preferred
Stock in accordance with the intended method of transfer described in the
Preferred Demand Registration Request. Notwithstanding the foregoing, (i)
the right of the Shareholder to require registration under this paragraph 2
shall not be exercisable less than six (6) months following the date upon
which a previous registration statement issued in respect of an offering of
securities for cash for the account of the Corporation shall have become
effective and (ii) unless the Shareholder shall notify the Corporation that
the Preferred Stock to be sold can only be sold in a manner not permitted
by Rule 144 of the SEC promulgated under this Act, the Corporation shall
not be required to register any Preferred Stock on behalf of the
Shareholder to the extent such Preferred Stock may then be sold without
restrictive legend in compliance with Rule 144 and the Corporation takes
all steps as are necessary or appropriate to permit the transfer of the
Preferred Stock under such rule.
3. Incidental Registration Rights as to the Preferred Stock. If the
Corporation proposes to register any of its stock or other securities under the
Act in connection with a public offering of such securities (other than a
registration on Form S-4, Form S-8 or other limited purpose form) and all
Preferred Stock has not theretofore been included in a registration statement
under paragraph 2 which remains effective, the Corporation agrees to give the
Shareholder and all other holders of the Preferred Stock prompt written notice
of such registration. Upon the written request of the Shareholder and holders of
the Preferred Stock representing 75% of the outstanding shares in the aggregate
given within twenty (20) days after receipt of such notice, the Corporation
agrees to use its best efforts to cause to be registered under the Act all of
the Preferred Stock. However, the Corporation shall have no obligation under
this paragraph 3 to the extent that, with respect to a public offering
registration, any underwriter of such public offering determines, in its
reasonable discretion, that the inclusion of the Preferred Stock in the offering
would adversely affect its consummation.
4. Demand Registration Request as to the Common Stock. (a) On a one time
basis, at any time following the Termination Date under the Investor Agreement
dated April 23, 1997 herewith between the Corporation and the Shareholder (the
"Investor Agreement"), the Shareholder may deliver to the Corporation a notice
to the effect that the Shareholder desires to have shares of the Shareholder
Common Stock registered under the Act (a "Common Demand Registration Request"),
<PAGE>
at the expense of the Corporation, as provided in Section 9 below. The
Corporation shall thereupon, as expeditiously as possible, effect the
registration of the shares of Shareholder Common Stock under the Act to permit
the transfer by the Shareholder of the Shareholder Common Stock in accordance
with the intended method of transfer described in the Common Demand Registration
Request.
(b) To the extent that all of the Shareholder's Shareholder Common
Stock has not theretofore been included in a registration statement under
paragraph (a) above which remains effective, on a one time basis, following
the Termination Date under the Investor Agreement, the Shareholder may
deliver a Common Demand Registration Request, and all of the fees, costs
and expenses of and incidental to such registration shall be at the
Shareholder's expense.
(c) Notwithstanding the foregoing paragraphs (a) and (b), (i) the
right of the Shareholder to require registration under this paragraph 4
shall not be exercisable less than six (6) months following the date upon
which a previous registration statement issued in respect of an offering of
securities for cash for the account of the Corporation shall have become
effective and (ii) unless the Shareholder shall notify the Corporation that
the shares of Shareholder Common Stock to be sold can only be sold in a
manner not permitted by Rule 144 of the SEC promulgated under this Act, the
Corporation shall not be required to register any Shareholder Common Stock
on behalf of the Shareholder to the extent such Shareholder Common Stock
may then be sold without restrictive legend in compliance with Rule 144 and
the Corporation takes all steps as are necessary or appropriate to permit
the transfer of the Shareholder Common Stock under such rule.
5. Incidental Registration Rights as to the Shareholder Common Stock. If
following the Termination Date under the Investor Agreement the Corporation
proposes to register any of its Common Stock under the Act in connection with a
public offering of such securities (other than a registration on Form S-4, Form
S-8 or other limited purpose form), the Corporation agrees to give the
Shareholder prompt written notice of such registration. Upon the written request
of the Shareholder given within twenty (20) days after receipt of such notice,
the Corporation agrees to use its best efforts to cause to be registered under
the Act all of the Shareholder Common Stock which the Shareholder requests to be
included in the registration. However, the Corporation shall have no obligation
under this paragraph 4 to the extent that, with respect to a public offering
registration, any underwriter of such public offering determines, in its
reasonable discretion, that the inclusion of the Shareholder Common Stock, or a
portion thereof, in the offering would adversely affect its consummation.
Moreover, the Corporation shall have no obligation under this paragraph 4 to the
extent that any of Daewoo Corporation, Mitsubishi Corporation, The Prudential
Insurance Company of America or General Electric Capital Corporation, or any of
their respective successors, remains subject to restrictions on the disposition
of its or their Common Stock by way of agreement with the Corporation or under
the terms of the Corporation's Restated Certificate of Incorporation, as
amended.
6. Certain Covenants of the Corporation. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the
Corporation agrees to use its best efforts to:
<PAGE>
(i) Keep a registration statement effective for at least a period of
one year in the aggregate, pursuant to the provisions of Rule 415 under the
Act or otherwise, while any holder of Registrable Securities desires to
dispose of the securities covered by such registration statement (but not
after the holder of Registrable Securities, in the reasonable opinion of
the Corporation's counsel, is free to sell all such securities in any three
month period under the provisions of Rule 144 under the Act).
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to each holder of Registrable Securities such numbers of
copies of a current prospectus, in conformity with the requirements of the
Act, and such other documents as each holder of Registrable Securities may
reasonably require in order to facilitate the disposition of Registrable
Securities owned by such holder of Registrable Securities.
(iv) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other
securities or "Blue Sky" laws of such jurisdictions as shall be reasonably
requested by the holder of Registrable Securities, provided that the
Corporation shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such states or jurisdictions.
(v) Notify each holder of Registrable Securities of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of material fact
or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its reasonable best efforts to
promptly update and/or correct such prospectus.
(vi) Furnish, at the request of any holder of Registrable Securities,
an opinion of counsel of the Corporation, dated the effective date of the
registration statement, as to the due authorization and issuance of the
securities being registered.
(vii) Use its best efforts to list the Registrable Securities covered
by such registration statement with any securities exchange on which the
Common Stock, is then listed in accordance with the rules of such exchange.
7. Information to be provided by the Shareholder. The Shareholder will
furnish to the Corporation in connection with any registration under this
Agreement, in writing, such information regarding himself, the Registrable
Securities and other securities of the Corporation held by him and the intended
method of disposition of the Registrable Securities as shall be reasonably
required to effect the registration of the Registrable Securities held by the
Shareholder. Notwithstanding the provisions of this Agreement, if the
<PAGE>
Shareholder fails to provide such information to the Corporation on a timely
basis as is reasonably requested by the Corporation, the Corporation may exclude
the Shareholder's Registrable Securities from such registration statement and
the Shareholder will not for twelve (12) months thereafter be entitled to
registration of such Shareholder's Registrable Securities under this Agreement.
8. Indemnification.
(i) The Corporation agrees to indemnify, defend and hold harmless the
Shareholder from and against, and shall reimburse the Shareholder with
respect to, any and all claims, suits, demands, causes of action, losses,
damages, liabilities, costs or expenses ("Liabilities") to which the
Shareholder may become subject under the Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any
material fact contained in a registration statement pursuant to the
provisions of this Agreement, any prospectus contained therein or any
amendment or supplement thereto, or (B) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading; provided, however, that the Corporation shall
not be liable in any such case to the extent that any such Liability arises
out of or is based upon an untrue statement or omission so made in
conformity with information furnished by the Shareholder in writing
specifically for use in the preparation thereof.
(ii) The Shareholder shall indemnify, defend and hold harmless the
Corporation from and against, and shall reimburse the Corporation with
respect to, any and all Liabilities to which the Corporation may become
subject under the Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained
in a registration statement pursuant to the provisions of this Agreement,
any prospectus contained therein or any amendment or supplement thereto or
(B) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading if
the case of (A) or (B) the information was supplied by the Shareholder in
writing specifically for use in the preparation of such registration
statement.
(iii) Promptly after receipt by a party entitled to indemnification
hereunder (an "indemnitee") of notice of the commencement of any action,
such indemnitee shall, if a claim in respect thereof is to be made against
the party required to make indemnification hereunder (the "indemnitor"),
notify the indemnitor in writing thereof, but the omission so to notify the
indemnitor shall not relieve the indemnitor from any Liability which it may
have to the indemnitee other than under this paragraph and shall only
relieve it from any Liability which it may have to the indemnitee under
this section if and to the extent the indemnitor is materially prejudiced
by such omission. In case any such action shall be brought against any
indemnitee and such indemnitee shall notify the indemnitor of the
commencement thereof, the indemnitor shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense
thereof with counsel reasonably satisfactory to such indemnitee, and, after
notice from the indemnitor to the indemnitee of its election so to assume
and undertake the defense thereof, the indemnitor shall not be liable to
the indemnitee under this section for any legal expenses subsequently
incurred by the indemnitee in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so
selected, provided, however, that if the defendants in any such action
include both the indemnitor and such indemnitee and the indemnitee shall
have reasonably concluded that there may be reasonable defenses available
<PAGE>
to it which are different from or additional to those available to the
indemnitor or if the interests of the indemnitee reasonably may be deemed
to conflict with the interests of the indemnitor, the indemnitee shall have
the right to select a separate counsel and to assume such legal defenses
and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other reasonable
expenses related to such participation to be reimbursed by the indemnitor
as incurred.
9. Expenses of Registration.
(i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to this Agreement, except for a
registration under Section 4(b), all fees, costs and expenses of and
incidental to such registration, inclusion and public offering shall be
borne by the Corporation; provided, however, that any security holders
participating in such registration shall bear their pro-rata share of the
underwriting discounts and commissions, if any, incurred in connection with
such registration.
(ii) The fees, costs and expenses of registration to be borne by the
Corporation as provided in this paragraph 9 shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Corporation, and all
legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. In all cases
the fees and disbursements of counsel and accountants for the holders of
Registrable Securities for personal services rendered incidental to any
registration shall be borne by such respective holders.
10. Standstills. Notwithstanding any other provision of this Agreement, if
requested by the Corporation and an underwriter in connection with a public
offering of securities of the Corporation which are the same or similar to the
Registrable Securities or convertible into such securities or evidencing a right
to purchase such securities registered on Form S-1, S-2, S-3 or similar form of
the SEC then available to the Corporation, the Shareholder shall not sell or
otherwise transfer or dispose of any Registrable Securities held by him during
the one hundred eighty (180) day period following the effective date of a
registration statement of the Corporation filed under the Act; provided that the
foregoing restrictions shall not apply to a registration statement relating
solely to an employee benefit plan or a registration relating solely to a
transaction covered by Rule 145 under the Act on Form S-4 or similar form or
forms promulgated in the future. The Corporation may impose stop-transfer
instructions with respect to the Registrable Securities subject to the foregoing
restriction until the end of said one hundred eighty (180) day period.
11. Rights of Transferees. In the event that all or any part of the
Preferred Stock held by the Shareholder shall at any time be transferred by the
Shareholder, in a transfer permissible under applicable securities laws, other
than pursuant to an effective registration statement, the registration rights
hereunder shall extend to the transferee of such securities. In the event that
all or any part of the Shareholder Common Stock held by the Shareholder shall at
any time be pledged by the Shareholder to a bank or other financial institution
as security for a loan, the registration rights hereunder shall extend to the
pledgee of such securities.
<PAGE>
12. Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval or other
communication shall or may be given to or served upon any party by any other, or
whenever any party desires to give or serve upon another party communication
with respect to this Agreement, each such notice, demand, request, consent,
approval, or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
(i) If to the Shareholder, at the address of such holder appearing on
the books and records of the Corporation.
(ii) If to the Corporation, at
Janus American Group, Inc.
2800 Corporate Boulevard, N.W.
Boca Raton, Florida 33431-8596
Telecopy: 561-997-5331
Attention: President
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or three (3) days after the same shall have been
deposited in the United States mail for overnight delivery or delivered to a
courier service for overnight delivery. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
13. Miscellaneous.
(i) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
(ii) None of the terms or provisions of this Agreement may be waived,
altered, modified or amended except in writing duly signed for and on
behalf of the parties hereto.
(iii) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the day and year first above written.
JANUS AMERICAN GROUP, INC.
By: /s/ James E. Bishop
Name: James E. Bishop
Title: President
/s/ Harry G. Yeaggy
Harry G. Yeaggy
Address: 7750 Ivygate Lane
Cincinnati, Ohio 45242
EXHIBIT 10.36
JANUS INDUSTRIES, INC.
Board of Directors
Stock Appreciation Right
Terms and Conditions
1. Stock Appreciation Right. This Stock Appreciation Right ("SAR") is
issued by Janus American Group, Inc. (the "Company"). The Board of Directors
shall administer this SAR and its determinations regarding this SAR are final
and binding.
2. Exercisability Schedule. The SAR may be exercised at any time and from
time to time and in accordance with the exercisability schedule set forth on the
face of this certificate. The SAR shall be exercisable only to the extent the
SAR has a positive value and may not be exercised after the Expiration Date.
3. Method of Exercise of the SAR. To exercise this SAR, the grantee shall
deliver written notice of exercise to the Chairman of the Board of the Company
specifying the number of rights with respect to which the SAR is being
exercised. Promptly following such notice, the Company will deliver to the
grantee the payment set forth herein.
4. SAR Payment. Upon tender of this SAR, the grantee shall be entitled to
receive payment of an amount determined by multiplying the number of rights with
respect to which the SAR is being exercised by the difference obtained by
subtracting the exercise price per right of the SAR from the Fair Market Value
of a share of Stock on the Date of Exercise of the SAR (the "Payment"). The
Payment shall be made in cash.
6. Rights as a Stockholder or Director. The grantee shall not have any
rights to continued membership on the Board of Directors by virtue of the grant
of the SAR and grantee shall not have any rights as a stockholder of the Company
by virtue of being a holder of the SAR.
7. Recapitalization, Mergers, Etc. In the event of certain corporate
transactions affecting the Company's outstanding Common Stock, the Board of
Directors shall equitably adjust the number and kind of rights subject to the
SAR, the exercise price of the SAR and the Value Limitation. If such transaction
involves a consolidation or merger of the Company with another entity, the sale
or exchange of all or substantially all of the assets of the Company or a
reorganization or liquidation of the Company, then in lieu of the foregoing, the
Board of Directors may upon written notice to the grantee provide that the SAR
shall terminate on a date not less than 20 days after the date of such notice
unless theretofore exercised. In connection with such notice, the Board of
Directors may in its discretion accelerate or waive any deferred exercise
period.
8. SAR Not Transferable. The SAR is not transferable by the grantee
otherwise than by will or the laws of descent and distribution, and is
exercisable, during the grantee's lifetime, only by the grantee. Any attempted
assignment, transfer, pledge, hypothecation or other disposition shall be void
and of no effect.
9. Payment of Taxes. The grantee shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld pursuant to the Payment. The Company and its Subsidiaries may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the grantee.
10. Governing Law. This SAR shall be construed and enforced in accordance
with the laws of the State of Delaware (without regard to the legislative or
judicial conflict of laws rules of any state), except to the extent superseded
by federal law.
<PAGE>
SAR - 998 25,000 Stock Appreciation Rights
--------------------------------
JANUS AMERICAN GROUP, INC.
Stock Appreciation Right Certificate
Janus American Group, Inc. (the "Company"), a Delaware corporation,
hereby grants to the person named below a Stock Appreciation Right ("SAR") with
respect to the shares of Common Stock, par value $0.01 per share, of the Company
exercisable on the following terms and conditions and those set forth on the
reverse side of this certificate:
Name of Grantee: Paul Tipps
---------------------------------------------------
Address: Suite 3600, Huntington Center, 41 South High Street
---------------------------------------------------
Columbus, Ohio 43215
---------------------------------------------------
Social Security No.:
---------------------------------------------------
Number of SARs: 25,000
---------------------------------------------------
Price: $2.48
---------------------------------------------------
Date of Grant: December 17, 1998
---------------------------------------------------
Exercisability Schedule
Exercise Period
Commencement Date Expiration Date
Number of SAR's
25,000 December 18, 1998 December 17, 2003
By acceptance of this SAR, the grantee agrees to the terms and conditions
hereof.
JANUS AMERICAN GROUP, INC.
Dated: December 18, 1998 By: /s/ James E. Bishop
------------------------------
Name: James E. Bishop
Title: President
ACCEPTED:
/s/ Paul Tipps
- ----------------------
Paul Tipps
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Entity Jurisdiction of Formation
<S> <C>
Envoy Inns of Morrisville, LLC Delaware
JAGI Cleveland - Hudson, LLC Delaware
JAGI Cleveland - Independence, LLC Delaware
JAGI Montrose West, LLC Delaware
JAGI North Canton, LLC Delaware
Janus American Services Corp. Delaware
Janus Cleveland - Independence, Inc. Delaware
Janus Hospitality I, L.L.C. Delaware
JI Subsidiary, Inc. Delaware
Kings Dominion Lodge, G.P. Virginia
Beckelbe, Inc. Delaware
Beckelbe, Ltd. Ohio
JAGI Juno, L.L.C. Delaware
Motel Associates of Pompano Beach, Inc. Florida
</TABLE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints James E. Bishop as
his/her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him/her and in his/her name, place and
stead, in any and all capacities to sign the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998, including amendments, if any, and to
deliver and file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection with
the foregoing, as fully for all intents and purposes as he/she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Louis S. Beck Chairman of the Board March 12, 1999
- ------------------
Louis S. Beck
/s/ Harry G. Yeaggy Vice Chairman of the Board March 12, 1999
- --------------------
Harry G. Yeaggy
/s/ Arthur Lubell Director March 12, 1999
- -----------------------
Arthur Lubell
/s/ Richard P. Lerner Director March 12, 1999
- ----------------------
Richard P. Lerner
/s/ Vincent W. Hatala, Jr. Director March 12, 1999
- ---------------------------
Vincent W. Hatala, Jr.
/s/ Lucille Hart-Brown Director March 12, 1999
Lucille Hart-Brown
/s/ C. Scott Bartlett, Jr. Director March 12, 1999
- ---------------------------
C. Scott Bartlett, Jr.
/s/ Michael M. Nanosky President of Hotel Operations March 12, 1999
- ----------------------- and Director
Michael M. Nanosky
/s/ Paul Tipps Director March 12, 1999
Paul Tipps
</TABLE>
<PAGE>
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Louis S.
Beck, to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Harry G.
Yeaggy, to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Arthur
Lubell, to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
<PAGE>
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Richard P.
Lerner, to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Vincent W.
Hatala, Jr., to me known, and known to me to be the individual described in and
who executed the foregoing instrument, and he acknowledged to me that he
executed the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Lucille
Hart-Brown, to me known, and known to me to be the individual described in and
who executed the foregoing instrument, and he acknowledged to me that he
executed the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
<PAGE>
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came C. Scott
Bartlett, Jr., to me known, and known to me to be the individual described in
and who executed the foregoing instrument, and he acknowledged to me that he
executed the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Michael M.
Nanosky, to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
STATE OF NEW JERSEY)
) ss.:
COUNTY OF ESSEX)
On the 12th day of March, 1999, before me personally came Paul Tipps to
me known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/ Lawrence A. Goldman
-------------------------
Lawrence A. Goldman
Attorney At Law, State of New Jersey
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,186,487
<SECURITIES> 0
<RECEIVABLES> 1,422,327
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,170,062
<PP&E> 77,916,918
<DEPRECIATION> 3,266,618
<TOTAL-ASSETS> 108,683,792
<CURRENT-LIABILITIES> 6,130,375
<BONDS> 60,582,883
0
105
<COMMON> 118,833
<OTHER-SE> 40,077,636
<TOTAL-LIABILITY-AND-EQUITY> 108,683,792
<SALES> 27,302,215
<TOTAL-REVENUES> 29,056,825
<CGS> 11,537,130
<TOTAL-COSTS> 24,088,434
<OTHER-EXPENSES> (1,137,506)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,565,053
<INCOME-PRETAX> 2,540,844
<INCOME-TAX> 704,798
<INCOME-CONTINUING> 1,836,046
<DISCONTINUED> 136,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,103,350
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
